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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended: Commission file Number:
December 31, 1996 0-20123
--------------------------------
WINTHROP RESOURCES CORPORATION
(Exact name of Registrant as specified in its charter)
MINNESOTA 41-1415469
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1015 OPUS CENTER, 9900 BREN ROAD EAST
MINNETONKA, MINNESOTA 55343
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (612) 936-0226
-------------------------------
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 $.01 per share
-------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------- ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 14, 1997, 8,600,300 shares of Common Stock of the Registrant
were outstanding, and the aggregate market value of the Common Stock of the
Registrant (based upon the average of the high and low sales prices of the
Common Stock at that date as reported by the Nasdaq), excluding shares owned
beneficially by executive officers and directors, was approximately
$143,200,000.
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PART I.
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Winthrop Resources Corporation (the "Company") is engaged in the
business of providing non-cancelable leases for high-technology and
business-essential equipment to both large organizations and smaller, growing
companies. The Company's lease products are marketed nationally through its
principal office in the Twin Cities and six other offices in the United
States. To differentiate itself from its competitors in the leasing
industry, the Company offers innovative lease products and concentrates on
building long-term, relationship-based associations with its customers.
Since its founding in 1982, the Company's focus has been primarily on
the Value Added Lease. These lease transactions generally have terms from
two to five years and are with large organizations (generally corporations
with revenue of $50,000,000 or more). Such transactions typically range from
$250,000 to $20,000,000 and cover high-technology equipment, including
computers, telecommunications equipment, point-of-sale systems and other
business-essential equipment. The leases are creative and flexible in
structure to accommodate equipment additions
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and upgrades to meet customers' changing needs. Value Added Leases are retained
in the Company's portfolio.
Responding to the expanding technological needs of increasing numbers of
small, growing businesses, the Company added the Small Ticket Lease to its
product portfolio in 1995. Small ticket leases are typically less than
$250,000, have lease terms of between two and five years and cover
business-essential equipment, including computers, telecommunications
equipment and production equipment. In July 1995 the Company formed a
wholly-owned subsidiary (since merged into the Company in December 1996) to
market its Small Ticket Lease. Small ticket leases, marketed under the trade
name of WINR Business Credit, continue to provide significant additional
growth to the Company's portfolio.
With the addition of the Small Ticket Lease, the Company has also developed
the Enterprise Lease which is designed to meet the needs of large corporations
with influence over multiple business entities, such as franchisor-franchisee
relationships. The Enterprise Lease integrates the Value Added Lease and the
Small Ticket Lease for organizations in need of enterprise-wide equipment and
systems solutions.
The Company added the Wholesale Lease to its product portfolio in January
1996 through the acquisition of the assets of Capital Business Leasing, Inc., an
equipment lease broker that, for a fee, arranges lease financings with other
leasing companies for a variety of unrelated brokers and vendors. The Wholesale
Lease is generally sold to an outside funding source and does not become part of
the Company's lease portfolio.
In February 1997 the Company and TCF Financial Corporation (TCF)
announced the signing of an Agreement and Plan of Reorganization dated
February 28, 1997, pursuant to which a newly-formed wholly-owned subsidiary
of TCF will be merged with and into the Company, with the Company remaining
as a wholly-owned subsidiary of TCF initially and then becoming a
wholly-owned subsidiary of TCF National Bank Minnesota. See Note 12 of the
Company's financial statements appearing elsewhere in this Annual Report on
Form 10-K for further discussion of this transaction.
The Company is a Minnesota corporation founded in 1982 by Kirk A.
MacKenzie, John L. Morgan and Jack A. Norqual, each of whom had significant
prior experience in the leasing industry. The Company's corporate offices are
located at 1015 Opus Center, 9900 Bren Road East, Minnetonka, Minnesota 55343
and its telephone number is (612) 936-0226.
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FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENT
Since its inception, the Company's revenues, operating profits and assets
have been attributable to the single industry segment of leasing high-technology
and other business-essential equipment.
The Company's business is not seasonal; however, quarter-to-quarter results
from operations can vary significantly.
INDUSTRY
The high-technology equipment industry has been characterized by rapid
and continuous advancements permitting broadened user applications and
reductions in processing costs. The introduction of new equipment generally
does not cause existing equipment to become obsolete but usually does cause
the market value of existing equipment to decrease to reflect the improved
performance per dollar cost of the newer equipment. Users frequently replace
equipment as their existing equipment becomes inappropriate for their needs
or as increased data processing capacity is required, creating a sizable
secondary market in used equipment.
Generally high-technology equipment, such as data processing equipment,
does not suffer from material physical deterioration if properly maintained.
The Company's leased equipment is kept under continual maintenance obtained
directly from the manufacturer or, in some cases, other service
organizations. The economic life and residual value of data processing
equipment is subject to, among other things, the development of technological
improvements and changes in sale and lease terms initiated by the
manufacturer.
BUSINESS STRATEGY
The Company's strategy is to differentiate itself from its competitors in
the leasing industry by maintaining a focused, long-term, customer-service
approach to its business. Key elements of this strategy include:
- FOCUS ON LEASING. Leasing high-technology and business-essential
equipment is the Company's only business.
- FOUR PRODUCT STRATEGY. The Company's Four Product Strategy provides a
range of comprehensive lease finance products addressing the financing
needs of diverse companies.
- ASSET OWNERSHIP. The Company typically retains ownership of its
leases and the underlying equipment, except Wholesale Leases.
- DIVERSIFICATION. The Company believes that it maximizes the stability
and profitability of its portfolio by leasing a wide variety of
equipment to companies in diverse industries in many geographic
locations.
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LEASING AND SALES ACTIVITIES
The Company markets its leasing products by selling directly to
end-users and indirectly through vendors of equipment, software, value-added
services and consulting services. The Company's sales representatives also
directly market to customers and prospects by telephone canvassing.
The Company generally leases high-technology and other business
essential equipment for terms ranging from two to five years. The Company's
standard lease agreements, entered into with each customer, are noncancelable
"net" leases which contain "hell-or-high-water" provisions under which the
customer, upon acceptance of the equipment, must make all lease payments
regardless of any defects in the equipment and which require the customer to
maintain and service the equipment, insure the equipment against casualty
loss and pay all property, sales and other taxes related to the equipment.
The Company typically retains ownership of the equipment it leases and, in
the event of default by the customer, the Company or the financial
institution to whom the lease has been assigned may declare the customer in
default, accelerate all lease payments due under the lease and pursue other
available remedies, including repossession of the equipment. Upon completion
of the initial term of the lease, the customer may: (1) return the equipment
to the Company; (2) renew the lease for an additional term; or (3) purchase
the equipment. If the equipment is returned to the Company, it is either
re-leased to another customer or sold into the secondary-user marketplace.
The Company sometimes leases operating system and application software to
its customers, but typically only with a hardware lease and generally only to
its most creditworthy customers.
FINANCING
The Company's ability to arrange financing is important to its business.
The Company uses its lines of credit when needed on an interim basis to finance
the purchase of equipment for lease. Lease rentals are typically discounted
with financial institutions to provide longer term financing of a substantial
portion of the equipment cost.
The Company generally arranges permanent financing of Value Added Leases
through non-recourse discounting of lease rentals with various financial
institutions at fixed interest rates. The proceeds from the assignment of the
lease rentals are equal to the present value of the remaining lease payments due
under the lease, discounted at the interest rate charged by the financial
5
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institution. Interest rates obtained under this type of financing are
negotiated on a transaction-by-transaction basis and reflect the financial
strength of the customer, the term of the lease and the prevailing interest
rates. For leases discounted on a nonrecourse basis, the financial institution
has no recourse against the Company unless the Company is in default of the
terms of the agreement under which the lease and the leased equipment are
assigned to the institution as collateral. The institution may, however, take
title to the collateral in the event the customer fails to make lease payments
or certain other defaults by the customer occur under the terms of the lease.
The Company also funds leases internally using its available cash rather
than discounting the leases with financial institutions. Leases are funded
internally for a variety of reasons, including: (i) lease amounts are too small
to be attractive to financial institutions; (ii) the credit strength of the
customer is acceptable only for recourse funding; or (iii) leases pending
discounting.
The Company also has line of credit agreements for the purpose of interim
financing of the Company's acquisition of equipment for lease with First Bank
National Association ("First Bank") and Norwest Equipment Finance, Inc.
("Norwest") (collectively the "Banks"). These lines provide for up to
$23,000,000 of credit at competitive rates and expire in mid 1997. Both line of
credit agreements are secured by the specific leases and equipment assigned to
each of the Banks and, under the First Bank agreement, all other personal
property and fixtures of the Company.
PORTFOLIO
As of December 31, 1996 the Company had a total investment in leasing
operations of $327,390,000. Of this amount $295,842,000 represented direct
financing and sales-type leases, $2,611,000 represented operating leases, and
$28,937,000 represented equipment purchased for leases that were not yet
commenced.
The entire portfolio has been originated by the Company and is owned and
administered by the Company. The Company's portfolio consists of equipment
located in all 50 states.
CUSTOMERS
The Company currently provides leasing services to a variety of
businesses located across the country. The Company enters into standard
master lease agreements with its customers that may contain many separate
lease schedules, each with its own particular lease term. Most of the
Company's customers have a number of lease schedules in place. Each of these
lease schedules constitutes a lease of additional equipment. Customers'
repeat business, through the addition of new lease schedules and modification
of existing leases, is an important source of earnings for the Company.
During 1996 no single customer accounted for more than 10% of total revenues.
6
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COMPETITION
The Company competes in the leasing marketplace with a variety of
companies, some of which have more capital and resources. These firms include
equipment manufacturers (as well as captive leasing companies), brokers, leasing
companies and financial institutions. The Company frequently encounters
competition from IBM Credit Corporation, Comdisco Incorporated, GE Capital
Corporation, AT&T Capital, Advanta Corporation, Dana Commercial Credit
Corporation and Amplicon Inc.
The Company competes on the basis of flexibility in structuring
transactions, providing a high level of customer service, the knowledge and
competence of its employees and the ability to gain referrals of potential
transactions from various business contacts including existing customers.
EMPLOYEES
The Company's continued ability to compete is also affected by its
ability to attract and retain well qualified personnel. As of December 31,
1996, the Company had 95 full-time employees, including 26 sales
representatives. The other employees are managerial, administrative, MIS and
clerical personnel. The Company considers its employee relations to be
excellent.
ITEM 2. PROPERTIES
The Company's corporate offices are located at 1015 Opus Center, 9900
Bren Road East, Minnetonka, Minnesota, where it leases approximately 18,000
square feet of space pursuant to a lease expiring in June 1999. The Company
also leases sales and customer services offices in California, Nevada,
Pennsylvania, Tennessee and Texas.
ITEM 3. LEGAL PROCEEDINGS
The Company is not the defendant in any litigation as of March 14, 1997.
See Note 11 of the Company's financial statements appearing elsewhere in this
Annual Report on Form 10-K for a description of certain Company initiated legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1996.
7
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PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded in the over-the-counter market on the
Nasdaq National Market System under the symbol WINR. The following table sets
forth, for the periods indicated, the range of the high and low sale prices on
the Nasdaq National Market System. The quotations shown represent interdealer
prices without adjustment for retail markups, markdowns or commissions.
QUARTER ENDED HIGH LOW
------------- ---- ---
1995
March 31. . . . . . . . . . . . $12.00 $10.25
June 30 . . . . . . . . . . . . $14.50 $11.25
September 30. . . . . . . . . . $18.25 $13.25
December 31 . . . . . . . . . . $18.50 $16.00
1996
March 31. . . . . . . . . . . . $18.50 $15.47
June 30 . . . . . . . . . . . . $23.00 $18.25
September 30. . . . . . . . . . $27.25 $18.50
December 31 . . . . . . . . . . $31.50 $26.25
SHAREHOLDERS
At December 31, 1996, the Company's Common Stock was held by 105 registered
holders of record and an estimated 1,700 beneficial holders of record.
DIVIDENDS
Cash dividends paid on Common Stock were $1,208,000 in 1996 and $873,000 in
1995. The most recently declared quarterly Common Stock cash dividend, $0.05 per
share, is payable on April 1, 1997 to shareholders of record on March 14, 1997.
Payment of future dividends is within the discretion of the Company's Board of
Directors and will be subject to periodic review. Payment of dividends will
depend upon, among other factors, the earnings, capital requirements, operating
results and financial condition of the Company. Under the Minnesota Business
Corporation Act, a dividend may be declared only after the Board of Directors
determines that, after payment of the dividend, the Company will be able to pay
its debts in the ordinary course of business. Common stock cash dividends
declared were $0.16 per share in 1996 and $0.12 per share in 1995. The
Indenture that governs the 9.5% Senior Notes contains limitations on cash
dividends, distributions and redemptions with respect to the Common Stock.
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ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
The selected financial data presented below under the captions "Statement
of Earnings Data" and "Balance Sheet Data" for, and as of the end of, each of
the years in the five-year period ended December 31, 1996, are derived from the
Company's financial statements, which have been audited by KPMG Peat Marwick
LLP, independent certified public accountants. The financial statements as of
December 31, 1996 and 1995 and for each of the years in the three-year period
ended December 31, 1996, and the report thereon, are included elsewhere in this
Annual Report on Form 10-K. The data set forth in the following tables should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's financial statements and
notes thereto appearing elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenues:
Leasing revenues:
Direct financing and
sales-type leases . . . . . . . . . . . $ 62,316 $ 60,986 $ 64,042 $ 56,449 $ 39,561
Operating leases. . . . . . . . . . . 4,556 5,696 3,909 8,721 10,799
Broker commissions earned . . . . . . 7,202 --- --- --- ---
---------- ---------- ---------- ---------- ----------
Total leasing revenues . . . . . . 74,074 66,682 67,951 65,170 50,360
Sales of equipment . . . . . . . . . . . 2,033 2,003 1,870 2,194 2,345
Other revenue. . . . . . . . . . . . . . 388 96 75 536 387
---------- ---------- ---------- ---------- ----------
Total revenues . . . . . . . . . . 76,495 68,781 69,896 67,900 53,092
---------- ---------- ---------- ---------- ----------
Costs and expenses:
Leasing costs:
Direct financing and
sales-type leases . . . . . . . . . 18,372 24,926 34,456 33,155 21,231
Operating leases. . . . . . . . . . . 3,435 3,914 2,813 6,620 8,858
Broker commissions paid . . . . . . . 4,496 --- --- --- ---
---------- ---------- ---------- ---------- ----------
Total leasing costs. . . . . . . . 26,303 28,840 37,269 39,775 30,089
Cost of equipment sold . . . . . . . . . 1,322 1,555 1,234 1,994 1,826
Selling, general and administrative. . . 8,414 5,644 5,863 4,764 4,207
Interest expense . . . . . . . . . . . . 15,486 13,470 9,928 8,601 9,028
Other. . . . . . . . . . . . . . . . . . 609 12 --- --- ---
---------- ---------- ---------- ---------- ----------
Total costs and expenses . . . . . 52,134 49,521 54,294 55,134 45,150
---------- ---------- ---------- ---------- ----------
Earnings before income tax expense
and cumulative effect of
accounting change. . . . . . . . . . . . . 24,361 19,260 15,602 12,766 7,942
Provision for income tax expense. . . . . . 9,647 7,704 6,241 5,106 3,177
---------- ---------- ---------- ---------- ----------
Earnings before cumulative effect
of accounting change. . . . . . . . . . . 14,714 11,556 9,361 7,660 4,765
Cumulative effect of accounting
change (1). . . . . . . . . . . . . . --- --- --- --- 289
---------- ---------- ---------- ---------- ----------
Net earnings. . . . . . . . . . . . . . . . $ 14,714 $ 11,556 $ 9,361 $ 7,660 $ 5,054
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
Net earnings per common share
before cumulative effect
of accounting change. . . . . . . . . . . $1.76 $1.46 $1.16 $0.98 $0.70
Cumulative effect of accounting
change per common share (1) . . . . . . . --- --- --- --- 0.04
----- ----- ----- ----- -----
Net earnings per common share. . . . . . . . $1.76 $1.46 $1.16 $0.98 $0.74
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Cash dividends declared per
common share. . . . . . . . . . . . . . . $0.16 $0.12 $0.08 $0.06 $0.02
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Weighted average number of
common shares outstanding (2) . . . . . . 8,369,319 7,911,854 8,047,326 7,807,534 6,821,858
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investment in leasing operations . . . . . . $327,390 $254,281 $216,737 $171,975 $134,123
Total assets . . . . . . . . . . . . . . . . 350,110 267,945 226,711 178,991 139,877
Discounted lease rentals . . . . . . . . . . 185,604 178,457 153,793 119,837 91,262
Retained earnings. . . . . . . . . . . . . . 57,904 45,180 35,657 27,736 20,545
Shareholders' equity . . . . . . . . . . . . 81,180 54,724 45,317 37,423 25,303
</TABLE>
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(1) In September 1992, the Company adopted Statement of Financial Accounting
Standards No. 109, ACCOUNTING FOR INCOME TAXES, effective as of January 1,
1992. The cumulative effect of this change in accounting for income taxes
was $289,500.
(2) Common stock equivalents are excluded from the weighted average number of
common shares outstanding in years 1992 through 1995 as the dilutive effect
is less than 3%.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net earnings for the years ended December 31, 1996, 1995 and 1994 were
$14,714,000 ($1.76 per share), $11,556,000 ($1.46 per share) and $9,361,000
($1.16 per share), respectively. At December 31, 1996 the Company's net
investment in leasing operations was $327,390,000 as compared with $254,281,000
at December 31, 1995.
Total revenues of $76,495,000 for the year ended December 31, 1996 were
up 11.2% from total revenues of $68,781,000 recognized during the year ended
December 31, 1995. Total revenues for the year 1995 were down 1.6% from the
$69,896,000 total revenues recognized during the year ended December 31,
1994. Leasing revenues accounted for 96.8%, 96.9% and 97.2% of total revenues
in the years ended December 31, 1996, 1995 and 1994, respectively. The
year-to-year fluctuations in leasing revenues and the allocation between
types of leasing revenues result primarily from the manner and timing in
which leasing revenues are recognized over the term of each particular lease.
The allocation of revenues is a function of the lease classification as
determined in accordance with FASB No. 13 (See Note 1 of Notes to the
Company's financial statements appearing elsewhere in this Annual Report on
Form 10-K for a discussion of lease accounting). For this reason the Company
believes that more meaningful measures of growth are the increases in leased
assets and net earnings.
Total leasing costs as a percentage of leasing revenue were 35.5%, 43.3%
and 54.8% for the years ended December 31, 1996, 1995 and 1994, respectively.
This declining trend reflects the increase in the proportion of direct
finance leases, which generate no leasing costs, in the Company's lease
portfolio (See Note 1 of Notes to the Company's financial statements
appearing elsewhere in this Annual Report on Form 10-K for a discussion of
lease accounting).
Revenues from outright sales of equipment as a percentage of total revenues
were 2.7%, 2.9% and 2.7% for the years ended December 31, 1996, 1995 and 1994,
respectively. Contributing to the year-to-year variation in outright sales
revenues were fluctuations in size and timing of the return to the Company of
equipment placed on lease in earlier periods. Cost of equipment sold for the
years ended December 31, 1996, 1995 and 1994 was 65.5%, 77.6% and 66.0% of sales
of equipment, respectively.
Selling, general and administrative expenses increased $2,771,000
(49.1%) in 1996 over 1995 and decreased $219,000 (3.7%) in 1995 from 1994.
The increase in 1996 over 1995 is primarily the result of increased
employment costs and general operating expenses. Employment costs increased
primarily as a result of the addition of personnel associated with the
commencement of its small ticket lease business in July 1995 and the
acquisition of the wholesale lease broker business in January 1996, as well
as overall company expansion. At December 31, 1996 the Company had a total
of 95 full-time employees compared to 61 full-time employees at December 31,
1995. General operating expenses have increased due to the growth of the
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Company, through the addition of its small ticket lease business and the
wholesale lease broker business acquisition, as well as an additional sales
office. The decrease in 1995 from 1994 is the result of increased deferral of
initial direct costs associated with direct finance and operating leases, offset
by increased employment costs and general operating expenses. The increase in
the deferral of initial direct costs is primarily the result of an increase in
the proportionate volume of direct finance leases recorded during 1995 compared
to 1994. Employment costs increased as a result of general growth due to
increased business volume coupled with the addition of personnel associated with
the commencement of the small ticket lease business. General operating expenses
increased due to increased business volume and physical growth of the Company.
In September 1995 the Company opened an East Coast sales office in
Philadelphia, Pennsylvania and expanded its facilities in the San Francisco Bay
area by combining the Company's existing office in Mill Valley, California with
the Small Ticket Lease sales operations.
Interest expense increased $2,016,000 (15.0%) in 1996 over 1995 and
increased $3,541,000 (35.7%) in 1995 over 1994. The increase in 1996 is
primarily the result of interest expense on the Company's 9.5% Senior Notes
issued in June 1996 and higher average borrowings as compared to 1995, reduced
by the increased capitalization of interest expense associated with the interim
financing of equipment purchased for leases. The increase in 1995 is primarily
the result of greater discounted lease rental borrowings and higher effective
interest rates during 1995 as compared with the corresponding 1994 period.
Income tax expense as a percentage of earnings before income tax was 40%
for the years 1995 and 1994. During the first three quarters of 1996 the
Company accrued income tax expense at a rate of 41% of earnings before income
tax. In the fourth quarter the Company revised its income tax estimate for
the year to a rate of 39.6%. This resulted in a fourth quarter adjustment of
approximately $243,000 that reduced income tax expense for the previous 1996
quarters. The actual income tax paid varies depending on many factors,
including the alternative minimum tax rate, various state tax laws, timing
differences due to accelerated tax depreciation rules and a variety of other
tax considerations.
As a result of the foregoing factors, net earnings and net earnings per
common share increased each year in the three-year period ended December 31,
1996. Net earnings increased $3,158,000 (27.3%) in 1996 over 1995 and
$2,195,000 (23.4%) in 1995 over 1994.
FINANCIAL CONDITION AND LIQUIDITY
The funds necessary to support the Company's leasing activities have been
provided primarily from operations, discounted lease financing, the Company's
June 1996 public offering of Common Stock and 9.5% Senior Notes and, to a lesser
extent and only on an interim basis, bank borrowings under lines of credit. The
Company uses its lines of credit to provide interim financing of equipment
purchases. The extent to which the Company employs these lines of credit is
dependent upon the volume of its lease and sales transactions and available cash
flow from other
12
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sources. At December 31, 1996, 1995 and 1994 no amounts were outstanding under
these lines of credit. During 1996 the daily average borrowings under these
lines were $857,000, compared with $299,000 in 1995 and $11,000 in 1994.
Generally upon commencement of a lease the Company assigns the remaining
lease payment stream to a financial institution and the discounted lease
proceeds are used to reduce the lines of credit. The Company generally funds
its equity investments in leased equipment with internally generated funds.
At the end of 1996 the Company had discounted lease rentals outstanding of
$185,604,000, of which 99.8% were funded on a nonrecourse basis. At December
31, 1995 the Company had discounted lease rentals outstanding of $178,457,000,
of which 99.3% were funded nonrecourse. The increase in discounted lease
rentals in the year ended December 31, 1996 is associated with the growth of the
lease portfolio and the timing of discounting of new leases which is dependent
upon available cash flow from other sources. At December 31, 1996,
approximately $207,977,000 of the Company's $315,692,000 total minimum lease
payments receivable represented leases that were discounted, $84,684,000
consisted of leases pending discounting and the remaining $23,031,000 consisted
of leases the Company had internally funded on a permanent basis. The Company
depends on discounted lease financing to provide funds for its operations at
rates that reflect prevailing market interest rates and the credit standing of
its customers. Based on the Company's experience in the leasing industry, its
strong financial history and its long-standing relationships with certain
financial institutions, the Company believes that discounted lease financing
will continue to be available at competitive rates of interest. During 1996,
the Company established relationships with three additional financial
institutions to serve as future sources for discounting of lease rentals.
The primary use of cash in each of the years in the three year period ended
December 31, 1996 has been for the purchase of equipment for leasing. At
December 31, 1996, the lease portfolio for all lease classifications included
equipment owned by the Company with an original cost of equipment of
approximately $535,263,000.
The Company's current financial resources and estimated cash flow from
operations are expected to be adequate to fund the Company's operations and its
present growth plans. There can be fluctuations in cash flow from period to
period due to the timing of payments by customers and timing of permanent
financing. However, the Company has consistently generated positive cash flow
and has increased its net worth from its initial equity capital of $105,000 in
1982 to approximately $81,180,000 at December 31, 1996, including equity capital
infusions totaling $23,307,000 from the Company's public equity offerings in
1996, 1993 and 1992. On January 19, 1996, the Company drew upon its existing
cash reserves to make a $5,100,000 payment pursuant to an asset purchase
agreement (the "Agreement") for the purchase of substantially all the assets of
Capital Business Leasing, Inc. Under the terms of the Agreement the Company was
scheduled to make a final payment of up to $2,000,000, plus accrued interest
thereon at a rate of six percent (6%) per annum (collectively the "Holdback"),
on December 31, 1996. However, the Company
13
<PAGE>
has filed a lawsuit seeking to void this payment. If the settlement of this
matter results in the payment of any portion of the Holdback, the Company
believes that its projected cash reserves will be adequate for any such payment.
Inflation has not been a significant factor in the Company's operations in
any of the years presented.
NOTE ON FORWARD-LOOKING INFORMATION
Certain statements in this Form 10-K and in the future filings by the
Company with the Securities and Exchange Commission (the "SEC") and in the
Company's written and oral statements made by or with the approval of an
authorized executive officer constitute "forward-looking statements" within
the meaning of the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, and the Company intends that such forward-looking
statements be subject to the safe harbors created thereby. The words
"believe," "expect" and "anticipate" and similar expressions identify
forward-looking statements. These forward-looking statements reflect the
Company's current views with respect to future events and financial
performance but are subject to many uncertainties and factors relating to the
Company's operations and business environment which may cause the actual
results of the Company to be materially different from any future results
expressed or implied by such forward-looking statements. Examples of such
uncertainties include, but are not limited to, changes in customer demand
and/or requirements, mix of leases written, new product announcements,
interest rate fluctuations, changes in federal income tax laws and
regulations, competition, industry-specific factors and world-wide economic
and business conditions. The mix of leases written in a quarter is a result
of a combination of factors, including, but not limited to, new product
announcements, price changes, changes in delivery dates, changes in
maintenance policies and the pricing policies of equipment manufacturers and
price competition from other lessors. The Company undertakes no obligation
to publicly update or revise any forward-looking statements whether as a
result of new information, future events or otherwise.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements and the Independent Auditors' Report of
KPMG Peat Marwick LLP, independent certified public accountants are included on
pages 25 through 40 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
14
<PAGE>
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
DIRECTORS OF THE REGISTRANT
The following table sets forth certain information as of March 14, 1997
which has been furnished to the Company by the directors named below.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
----- --- -------------------- -----
<S> <C> <C> <C>
John L. Morgan 55 President of the Company 1982
Kirk A. MacKenzie 58 Executive Vice President and Treasurer 1982
of the Company
Jack A. Norqual 51 Senior Vice President of the Company 1982
Gerald W. Simonson 66 Chief Executive Officer of Omnetics 1992
Connector Corporation
Paul C. Reyelts 50 Vice President, Finance and Chief 1994
Financial Officer of the Valspar Corporation
Mark L. Wilson 48 Shareholder and officer of the law firm 1995
Ravich Meyer Wilson Kirkman McGrath & Nauman, P.A.
Morris Goodwin, Jr. 45 Vice President and Corporate Treasurer of 1996
American Express Financial Advisors
</TABLE>
JOHN L. MORGAN is a founder of the Company and has served as President
since January 1985. He has been a director and executive officer of the Company
since 1982.
KIRK A. MACKENZIE is a founder of the Company and has served as Executive
Vice President since July 1992 and Treasurer since January 1982. From January
1985 to July 1992 Mr. MacKenzie was a Vice President of the Company. He has
been a director and executive officer of the Company since 1982.
JACK A. NORQUAL is a founder of the Company and has served as Senior Vice
President since July 1992. From January 1985 to July 1992 Mr. Norqual served as
Vice President and Secretary of the Company. He has been a director and
executive officer of the Company since 1982.
GERALD W. SIMONSON became a director of the Company in July 1992. Mr.
Simonson has been a venture capital investor for more than 15 years. He has
been the Chief Executive Officer of Omnetics Connector Corporation, a
manufacturer of microminiature connectors, since March 1991. He is also a
director of Fairview Hospital and Healthcare Services, Medtronic, Inc. and
15
<PAGE>
Northwest Teleproductions, Inc.
PAUL C. REYELTS became a director of the Company in May 1994. He has been
Vice President, Finance and Chief Financial Officer of the Valspar Corporation
since 1982. Valspar Corporation is a manufacturer of consumer paints and
industrial coatings and related products.
MARK L. WILSON became a director and Secretary of the Company in February
1995. He has been a practicing attorney since 1974. From 1986 to February 1995
he was a shareholder and officer of the Minneapolis law firm Ross Rosenblatt &
Wilson, Ltd. Since February 1995 he has been a shareholder and officer of the
Minneapolis law firm Ravich Meyer Wilson Kirkman McGrath & Nauman, P.A.
MORRIS GOODWIN, JR. became a director of the Company in November 1996. He
has been Vice President and Corporate Treasurer of American Express Financial
Advisors since 1990.
EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers and their ages along with the offices held
as of March 14, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
------------------- ------- ---------------------------
<S> <C> <C>
John L. Morgan 55 President and Director
Kirk A. MacKenzie 58 Executive Vice President, Treasurer
and Director
Jack A. Norqual 51 Senior Vice President and Director
Deborah L. Morgensen 45 Vice President
Robert P. Murphy 46 Vice President of Sales and Marketing
Janice R. Englund 51 Vice President
Coleman P. Griffing 40 Vice President of Sales
Gary W. Anderson 44 Vice President, Controller and Assistant Secretary
Richard J. Pieper 47 Vice President
Paul L. Gendler 31 Vice President and General Counsel
Jeffrey A. Mattson 41 Vice President of Sales
Michael D. Wiley 44 Vice President
</TABLE>
JOHN L. MORGAN is a founder of the Company and has served as President
since January 1985. He has been a director and executive officer of the Company
since 1982.
KIRK A. MACKENZIE is a founder of the Company and has served as Executive
Vice President since July 1992 and Treasurer since January 1982. From January
1985 to July 1992 Mr. MacKenzie was a Vice President of the Company. He has
been a director and executive officer of the Company since 1982.
JACK A. NORQUAL is a founder of the Company and has served as Senior Vice
President since July 1992. From January 1985 to July 1992 Mr. Norqual served as
Vice President and Secretary of the Company. He has been a director and
executive officer of the Company since 1982.
16
<PAGE>
DEBORAH L. MOGENSEN joined the Company in 1982 and has been a Vice
President since 1986. She is currently responsible for administration, customer
account management and remarketing previously leased equipment.
ROBERT P. MURPHY joined the Company in 1986 as a Vice President. He is
currently responsible for the Company's sales efforts.
JANICE R. ENGLUND joined the Company in 1986 and has been a Vice President
since 1990. She is responsible for the Company's customer account management
functions.
COLEMAN P. GRIFFING joined the Company in 1987 as a sales representative.
In 1994 he became a Vice President.
GARY W. ANDERSON, a certified public accountant, joined the Company in 1988
as Controller and has served as Assistant Secretary since 1992. In 1993 he
became Vice President/Controller.
RICHARD J. PIEPER joined the Company in 1991 as a Vice President. He is
currently responsible for the Company's finance and credit functions and small-
ticket leasing operations.
PAUL L. GENDLER, an attorney and certified public accountant, has been
Counsel of the Company since joining the Company in 1994. In October 1995 he
became Vice President and General Counsel. From 1993 to 1994 he was an
attorney in the General Counsel's Office of the Federal Reserve Bank of
Minneapolis (the "Bank"). Prior to joining the Bank, he was a law clerk to
Chief United States Bankruptcy Judge Robert J. Kressel from 1992 to 1993.
JEFFREY A. MATTSON joined the Company in June 1996 as a Vice President and
is currently responsible for small-ticket lease sales efforts. From 1988 until
June 1996 he was employed by Norstan Financial Services, a wholly-owned
subsidiary of Norstan, Inc., a telecommunications equipment company, most
recently as an officer and general manager.
MICHAEL D. WILEY joined the Company in September 1996 as a Vice President.
He is currently responsible for the Company's human resources and management
information system functions. From 1995 to 1996 he was the Senior Director of
Human Resources at HealthEast. From 1993 to 1995 he was Corporate Human
Resources and Compensation Manager for St. Jude Medical, Inc. From 1991 to 1993
he was Human Resources Manager for QVC Network, Inc.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who
beneficially own more than 10% of the Company's Common Stock, to file with
the SEC initial reports of ownership and reports of changes in ownership of
Common Stock of the
17
<PAGE>
Company. Executive officers, directors and greater-than-10% shareholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) reports they file. To the Company's knowledge, based upon a review of
the copies of such reports furnished to the Company and written
representations that no other reports were required, during the year ended
December 31, 1996 none of the Company's directors or officers or beneficial
owners of greater than 10% of the Company's Common Stock failed to file on a
timely basis the forms required by Section 16(a) of the Exchange Act, except
for the inadvertent failure to file a November 1996 Statement of Changes in
Beneficial Ownership on Form 4 by Mr. Murphy in which his children received
a gift of 10,000 shares of the Company's Common Stock. Mr. Murphy disclaims
beneficial ownership of these shares.
ITEM 11. EXECUTIVE COMPENSATION
DIRECTOR COMPENSATION
CASH COMPENSATION FOR OUTSIDE DIRECTORS. Compensation for non-employee
directors consists of an annual retainer of $7,500, paid quarterly, and $500 for
each committee meeting attended.
AUTOMATIC OPTION GRANTS. The Company's Stock Incentive Plan provides
that each non-employee director of the Company will automatically be granted
a Non-Statutory Option to purchase 10,000 shares of Common Stock on the date
such person is first elected to the Board of Directors, again on the date
that is three years after such election and again on the date that is six
years after such election, subject to certain limitations. Each such option
will: (i) have a ten year term; (ii) have an exercise price per share equal
to 100% of the fair market value of one share of Common Stock on the date of
the automatic grant; and (iii) vest in approximately equal installments on
each of the three anniversary dates following the date of grant. See Note 8
of the Company's financial statements appearing elsewhere in this Annual
Report on Form 10-K for further discussion of the Company's Stock Incentive
Plan. Mr. Goodwin was automatically granted a Non-Statutory Option to
purchase 10,000 shares of Common Stock on November 6, 1996.
EXECUTIVE OFFICER COMPENSATION
The following table sets forth certain information regarding the
compensation paid during the three-year period ended December 31, 1996 to the
President (the chief executive officer) and the four most highly compensated
executive officers of the Company whose salary and bonus exceeded $100,000 in
the year ended December 31, 1996 (collectively the "Named Executive Officers"):
18
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION AWARDS
------------------------- ----------
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)(1)
- --------------------------- ---- --------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
John L. Morgan 1996 $ 220,000 $ 220,000 0 $3,069
President 1995 220,000 220,000 0 2,790
1994 200,000 200,000 0 2,536
Kirk A. MacKenzie
Executive Vice President 1996 $ 220,000 $ 220,000 0 $3,069
and Treasurer 1995 220,000 220,000 0 2,790
1994 200,000 200,000 0 2,536
Jack A. Norqual 1996 $ 220,000 $ 220,000 0 $3,069
Senior Vice President 1995 220,000 220,000 0 2,790
1994 200,000 200,000 0 2,536
Robert P. Murphy (2) 1996 $ 220,323 $ 220,000 20,000 $3,069
Vice President 1995 264,743 220,000 0 2,790
1994 432,997 200,000 20,000 2,536
Coleman P. Griffing (3) 1996 $ 737,485 $ 0 0 $3,069
Vice President 1995 1,389,573 0 0 2,790
1994 681,754 0 0 2,536
</TABLE>
- -------------------
(1) Represents non-elective discretionary contributions made by the
Company to its 401(k) profit sharing plan on behalf of such employees.
These contributions are allocated among eligible participants on a per
capita basis.
(2) Salary amounts for Mr. Murphy include commissions of $432,997, $44,743
and $323 for the years 1994, 1995 and 1996, respectively.
(3) Salary amounts for Mr. Griffing represent commissions for 1994 and
1995. For 1996 $722,902 represent commissions.
EXECUTIVE OFFICER COMPENSATION ARRANGEMENTS AND CHANGE IN CONTROL PROVISIONS
Executive officer compensation arrangements for Kirk A. MacKenzie, John L.
Morgan, Robert P. Murphy and Jack A. Norqual (the "Senior Executive Officers")
were established pursuant to employment agreements entered into during November
1996. The agreements run for a period of two (2) years and are automatically
extended for additional two-year periods unless notice of non-extension is
given. The agreements provide for payment to the Senior Executive Officers of
salary and potential bonuses. The annual salary rates for each Senior Executive
Officer for the years ending December 31, 1997 and 1998 are $242,000. Bonuses
for each Senior Executive Officer for the years ending December 31, 1997 and
1998 are payable monthly on the basis of 2.5% of unaudited net earnings before
income taxes for the preceding month, with a maximum of $242,000 for each year.
The agreements supersede previous employment agreements entered into during
1994. The only modifications in the 1996 agreements from the 1994
19
<PAGE>
employment agreements were increases in annual salary and bonus amounts. For
1995 and 1996, each Senior Executive Officer's annual salary rate was
$220,000 and maximum bonus was $220,000. The Senior Executive Officers also
are each entitled to participate in all Company employee benefit plans. The
employment agreements prohibit each Senior Executive Officer from competing
with the Company for a period of two years following cessation of his
employment except for Mr. Murphy. His agreement prohibits him from competing
with the Company for a one-year period following cessation of his employment.
If the Company terminates any Senior Executive Officer's employment for
cause or a Senior Executive Officer resigns his employment, the Company is
obligated to pay him his base salary through the date of such termination or
resignation. The agreements also provide that in the event the Company
terminates any Senior Executive Officer's employment without cause or a
Senior Executive Officer resigns for good reason, it will pay him severance
compensation equal to the then effective annual base salary rate for a period
of one year following such termination, the monthly advances against the
anticipated maximum bonus for such period and benefits under the Company's
employee benefit plans for such period. In the event that substantially all
of the assets of the Company are sold to a person that is not an affiliate of
the Company and the purchaser does not accept the assignment of any
employment agreement, then such employment agreement will be deemed to have
been terminated without cause. If the purchaser accepts the assignment and
the Senior Executive Officer consents to the assignment, the employment
agreement will continue in full force. If the purchaser accepts the
assignment and the Senior Executive Officer does not consent to the
assignment, the employment agreement will be considered terminated with
cause.
Options issued under the Company's Stock Incentive Plan include change
of control provisions that accelerate vesting.
Mr. Murphy's employment agreement includes an additional arrangement. If
the Company provides notice not to extend Mr. Murphy's agreement for a new two-
year term, it will pay him severance compensation equivalent to a termination
without cause. Mr. Murphy's previous employment agreement covering 1995 and
1996 included an arrangement phasing out a former commission arrangement from
1994. Commissions for certain 1994 business were paid in 1995 and 1996.
Mr. Griffing is compensated through a commission arrangement. So long as
he remains an employee of the Company, Mr. Griffing is to receive an amount
equal to 25% of the profit on lease business he originates. He also receives an
annual salary of $25,000 for each Company sales representative he manages.
OPTION GRANTS AND EXERCISES
The following tables summarize option grants during fiscal 1996, exercises
of options and the value of such options held by the Named Executive Officers at
December 31, 1996.
20
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
--------------------------------------------------------------------------
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OR OPTION TERM (1)
OPTIONS IN FISCAL BASE ---------------
NAME GRANTED (#)(2) 1996 (3) PRICE ($/SH) EXPIRATION DATE 5% ($) 10% ($)
- ------ ------------- ------------ -------------- --------------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Murphy 20,000 33.3% $17.375 February 6, 2006 $218,500 $553,800
</TABLE>
- ------------------
(1) Potential realization value is calculated based on an assumption that the
price of the Company's Common Stock will appreciate at the assumed annual
rates shown (5% and 10%), compounded annually, from the date of grant of
the option until the end of the option term (10 years). The 5% and 10%
assumed rates of appreciation are required by the rules of the Securities
and Exchange Commission and do not represent the Company's estimate of
future market prices of the Common Stock.
(2) The option was granted to Mr. Murphy on February 7, 1996 under the
Company's Stock Incentive Plan. It is a Non-Statutory
Option becoming exercisable in four installments beginning one year after
grant. See Note 8 of the Company's financial statements
appearing elsewhere in this Annual Report on Form 10-K for further
discussion of the Company's Stock Incentive Plan.
(3) Based on options to purchase an aggregate of 60,000 shares granted during
1996 to certain employees of the Company.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND FY-END OPTION VALUE
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN
UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT FY-
OPTIONS AT FY-END (#) END ($) (1)
------------------------------- ------------------------------
SHARES
ACQUIRED
ON VALUE
EXERCISE REALIZED
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --- --- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John L. Morgan 0 $0 40,000 --- $935,000 ---
Kirk A. MacKenzie 0 0 40,000 --- 935,000 ---
Jack A. Norqual 0 0 40,000 --- 935,000 ---
Robert P. Murphy 0 0 80,000 20,000 1,668,740 $227,500
Coleman P. Griffing 0 0 22,500 7,500 323,625 60,625
</TABLE>
- ------------------
(1) Value is calculated by subtracting the exercise price per share from
the last sale price per share for the Common Stock on the Nasdaq
National Market System of $28.75 on December 31, 1996 and multiplying
by the number of shares subject to the option.
21
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 14, 1997 certain information as
to the number of shares of the Common Stock beneficially owned by each person
who is known by the Company to beneficially own more than five percent of the
outstanding shares of the Common Stock, by each director and by each Named
Executive Officer of the Company included in the Summary Compensation Table set
forth under the caption "Executive Officer Compensation" above and all executive
officers and directors of the Company as a group. Except as otherwise
indicated, the shareholders in the table have sole voting and investment power
with respect to the Common Stock owned by them.
<TABLE>
<CAPTION>
AMOUNT OF THE COMPANY'S PERCENT OF THE COMPANY'S
NAME AND ADDRESS OF COMMON STOCK BENEFICIALLY COMMON STOCK BENEFICIALLY
BENEFICIAL OWNERS OWNED OWNED
- ------------------------- ------------------------- ----------------------
<S> <C> <C>
Kirk A. MacKenzie (1) 1,317,181 (2)(3) 15.3%
John L. Morgan (1) 1,325,000 (2)(4) 15.3%
Jack A. Norqual (1) 1,387,000 (2)(5) 16.1%
Coleman P. Griffing (1) 60,500 (6) *
Morris Goodwin, Jr. --- *
IDS Tower - 10, MS I7-73
Minneapolis, MN 55440
Paul C. Reyelts 10,200 (7) *
1101 Third Street South
Minneapolis, MN 55415
Gerald W. Simonson 13,333 (8) *
5813 Jeff Place
Edina, MN 55436
Robert P. Murphy (1) 102,000 (9) 1.2%
Mark L. Wilson 9,666 (10) *
4545 IDS Center
Minneapolis, MN 55402
All executive officers and
directors as a group (16 persons) 4,320,082 (3)(4)(5)(7) 48.4%
(11)(12)(13)
</TABLE>
- --------------
* Less than 1%
(1) Located at 1015 Opus Center, 9900 Bren Road East, Minnetonka,
Minnesota 55343.
(2) Includes 40,000 shares exercisable from option grant. Messrs.
MacKenzie, Morgan and Norqual each have signed a Shareholder Agreement
dated February 28, 1997 with TCF Financial Corporation (TCF) in which
they have agreed, subject to certain exceptions, to vote all of their
shares in favor of the merger of Winthrop Resources Corporation and
TCF contemplated by the signing of a definitive agreement to merge on
February 28, 1997 (See Note 12 of Notes to Financial Statements
appearing elsewhere in this Annual Report on Form 10-K for further
discussion of this transaction).
(3) Includes 37,181 shares owned by Mr. MacKenzie's spouse, all of which
he disclaims beneficial ownership.
(4) Includes 50,000 shares owned by Mr. Morgan's spouse, all of which he
disclaims beneficial ownership.
(5) Includes 50,000 shares owned by Mr. Norqual's spouse, 29,000 shares
owned by Mr. Norqual's son and 3,000 shares owned by a not-for-profit
organization of which Mr. Norqual is a board member, as to all of
which Mr. Norqual disclaims beneficial ownership.
(6) Includes 27,500 shares exercisable from option grant.
(7) Includes 10,000 shares exercisable from option grant, of which 3,334
shares will become exercisable on May 4, 1997 and are considered as
outstanding Common Stock for purposes of determining the percent
beneficially owned.
(8) Includes 13,333 shares exercisable from option grants.
(9) Includes 85,000 shares exercisable from option grants and 10,000
shares owned by Mr. Murphy's children which he disclaims
beneficial ownership.
(10) Includes 6,666 shares exercisable from option grant.
(11) Includes 332,415 shares exercisable from option grants.
(12) Includes 2,300 shares owned by Richard J. Pieper's spouse and 1,550
shares owned by Mr. Pieper's sons, all of which he disclaims
beneficial ownership.
(13) Includes 1,474 shares owned by Janice R. Englund's spouse, all of
which she disclaims beneficial ownership.
22
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following table sets forth as of March 14, 1997 certain information
as to the principal amount of the Company's 9.5% Senior Notes due 2003 (the
"Notes") purchased in the Company's June 1996 public offering and held by
each director, by each Named Executive Officer and all other executive
officers of the Company:
Amount
Name purchased and held (1)
-------- ------------------------------------
Kirk A. MacKenzie $ 350,000
John L. Morgan 1,354,000(2)
Jack A. Norqual 725,000(3)
Gary W. Anderson 10,000
(1) On June 28, 1996 the Company issued $28,750,000 of Notes. See
Note 6 of the Company's financial statements appearing elsewhere
in this Annual Report on Form 10-K for further discussion of the Notes.
(2) Includes $300,000 Notes owned by Mr. Morgan's spouse.
(3) Includes $250,000 Notes owned by Mr. Norqual's spouse and
$25,000 owned by Mr. Norqual's son.
23
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
a. 1. Financial Statements:
The following Financial Statements are contained in this Annual
Report on Form 10-K on the pages indicated below:
Page
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . 25
Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . 26
Statements of Earnings for the years
ended December 31, 1996, 1995 and 1994. . . . . . . . . . . . . 27
Statements of Common Shareholders' Equity
for the years ended December 31, 1996, 1995 and 1994. . . . . . 28
Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994. . . . . . . . . . . . . 29
Notes to Financial Statements . . . . . . . . . . . . . . . . . . 30
2. Financial Statement Schedules:
All schedules are omitted as the required information is
inapplicable or the information is presented in the financial
statements or related notes.
3. Exhibits:
See Index to Exhibits filed as part of this Form 10-K on pages 42
through 45.
b. Reports on Form 8-K:
The Registrant was not required to file any reports on Form 8-K
for the three months ended December 31, 1996. On March 7, 1997 the Registrant
filed a current report on Form 8-K, dated February 28, 1997, reporting Item 5.
Other Events and Item 7. Financial Statements and Exhibits.
c. Exhibits:
Included in Item 14.(a)(3) above.
d. Financial Statement Schedules:
None.
24
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Winthrop Resources Corporation:
We have audited the balance sheets of Winthrop Resources Corporation as of
December 31, 1996 and 1995, and the related statements of earnings, common
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Winthrop Resources Corporation
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 5, 1997
25
<PAGE>
WINTHROP RESOURCES CORPORATION
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
ASSETS
<S> <C> <C>
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . $ 11,867,939 $ 10,234,159
Receivables:
Trade accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,021,630 2,215,747
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . 185,886 174,063
-------------- --------------
Total receivables . . . . . . . . . . . . . . . . . . . . . . . . 2,207,516 2,389,810
Investment in leasing operations:
Direct financing and sales-type leases. . . . . . . . . . . . . . . . 295,841,766 238,651,547
Operating leases, less accumulated depreciation . . . . . . . . . . . 2,610,643 5,542,906
Equipment installed on leases not yet commenced . . . . . . . . . . . 28,937,630 10,086,568
-------------- --------------
Total investment in leasing operations. . . . . . . . . . . . . . 327,390,039 254,281,021
Furniture and equipment, less accumulated depreciation
and amortization of $748,927 and $528,985. . . . . . . . . . . . . . . 1,042,190 607,078
Goodwill and other intangible assets, less accumulated
amortization of $620,668 and $11,944. . . . . . . . . . . . . . . . . . 6,421,362 188,055
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,180,516 244,854
-------------- --------------
$ 350,109,562 $ 267,944,977
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,638,091 $ 8,001,592
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 7,738,759 3,735,546
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . 1,247,856 1,644,882
Customer deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,766,466 2,017,070
Rents received in advance. . . . . . . . . . . . . . . . . . . . . . . . 4,784,247 3,934,758
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 20,400,053 15,430,414
Senior notes due 2003. . . . . . . . . . . . . . . . . . . . . . . . . . 28,750,000 ---
Discounted lease rentals . . . . . . . . . . . . . . . . . . . . . . . . 185,603,611 178,457,019
-------------- --------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 268,929,083 213,221,281
Preferred stock, $.01 par value. Authorized 2,000,000 shares;
no shares issued and outstanding. . . . . . . . . . . . . . . . . . . --- ---
Common shareholders' equity:
Common stock, $.01 par value. Authorized 15,000,000 shares;
issued and outstanding 8,600,300 and 7,882,900 shares. . . . . . . 86,003 78,829
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . 23,190,695 9,465,205
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 57,903,781 45,179,662
-------------- --------------
Total common shareholders' equity . . . . . . . . . . . . . . . . 81,180,479 54,723,696
-------------- --------------
$ 350,109,562 $ 267,944,977
-------------- --------------
-------------- --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
26
<PAGE>
WINTHROP RESOURCES CORPORATION
STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Leasing . . . . . . . . . . . . . . . . . . . . . . . $ 74,074,294 $ 66,681,822 $ 67,950,585
Sales . . . . . . . . . . . . . . . . . . . . . . . . 2,032,657 2,003,054 1,870,024
Other . . . . . . . . . . . . . . . . . . . . . . . . 388,007 95,988 75,082
------------ ------------ ------------
Total revenues. . . . . . . . . . . . . . . . 76,494,958 68,780,864 69,895,691
------------ ------------ ------------
Costs and expenses:
Leasing . . . . . . . . . . . . . . . . . . . . . . . 26,303,083 28,840,374 37,269,426
Sales . . . . . . . . . . . . . . . . . . . . . . . . 1,322,274 1,555,212 1,233,988
Selling, general and administrative . . . . . . . . . 8,414,493 5,643,611 5,862,466
Interest expense. . . . . . . . . . . . . . . . . . . 15,486,011 13,469,746 9,928,313
Other . . . . . . . . . . . . . . . . . . . . . . . . 608,724 11,944 ---
------------ ------------ ------------
Total costs and expenses. . . . . . . . . . . 52,134,585 49,520,887 54,294,193
------------ ------------ ------------
Earnings before income tax expense . . . . . . . . . . . 24,360,373 19,259,977 15,601,498
Provision for income tax expense . . . . . . . . . . . . 9,646,700 7,704,000 6,240,600
------------ ------------ ------------
Net earnings . . . . . . . . . . . . . . . . . . . . . . $ 14,713,673 $ 11,555,977 $ 9,360,898
------------ ------------ ------------
------------ ------------ ------------
Net earnings per common and
common equivalent share . . . . . . . . . . . . . . . . $1.76 $1.46 $1.16
----- ----- -----
----- ----- -----
Weighted average number of common
and common equivalent shares outstanding . . . . . . . 8,369,319 7,911,854 8,047,326
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
27
<PAGE>
WINTHROP RESOURCES CORPORATION
STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1993 . . . . . . . . . . . . . 8,050,000 $80,500 $9,605,985 $27,736,461 $37,422,946
Repurchase and retirement of
common shares. . . . . . . . . . . . . . . . (85,666) (857) (102,824) (796,553) (900,234)
Common shares issued upon
exercise of stock options. . . . . . . . . . 14,166 142 76,834 --- 76,976
Dividends declared. . . . . . . . . . . . . . --- --- --- (644,050) (644,050)
Net earnings for year . . . . . . . . . . . . --- --- --- 9,360,898 9,360,898
------------ ------------ ------------ ------------ ------------
BALANCE,
DECEMBER 31, 1994 . . . . . . . . . . . . . 7,978,500 79,785 9,579,995 35,656,756 45,316,536
Repurchase and retirement of
common shares. . . . . . . . . . . . . . . . (95,600) (956) (114,790) (1,084,498) (1,200,244)
Dividends declared. . . . . . . . . . . . . . --- --- --- (948,573) (948,573)
Net earnings for year . . . . . . . . . . . . --- --- --- 11,555,977 11,555,977
------------ ------------ ------------ ------------ ------------
BALANCE,
DECEMBER 31, 1995 . . . . . . . . . . . . . 7,882,900 78,829 9,465,205 45,179,662 54,723,696
Repurchase and retirement of
common shares. . . . . . . . . . . . . . . . (43,100) (431) (51,751) (673,746) (725,928)
Issuance of common
shares in public offering. . . . . . . . . . 750,000 7,500 13,718,250 --- 13,725,750
Common shares issued upon
exercise of stock options. . . . . . . . . . 10,500 105 58,991 --- 59,096
Dividends declared. . . . . . . . . . . . . . --- --- --- (1,315,808) (1,315,808)
Net earnings for year . . . . . . . . . . . . --- --- --- 14,713,673 14,713,673
------------ ------------ ------------ ------------ ------------
BALANCE,
DECEMBER 31, 1996 . . . . . . . . . . . . . 8,600,300 $86,003 $23,190,695 $57,903,781 $81,180,479
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
28
<PAGE>
WINTHROP RESOURCES CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,713,673 $ 11,555,977 $ 9,360,898
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Leasing costs and interest expense
on discounted lease rentals. . . . . . . . . . . . . . . . . 36,935,585 41,945,076 46,789,031
Leasing revenues, primarily amortization of interest
income on sales-type and direct finance leases . . . . . . . (11,623,913) (16,407,715) (36,279,512)
Deferred initial direct costs. . . . . . . . . . . . . . . . . (2,748,097) (1,317,625) (360,496)
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . 4,969,639 2,018,078 3,398,444
Amortization of goodwill and other intangible assets . . . . . 608,724 11,944 ---
Depreciation on furniture and equipment. . . . . . . . . . . . 219,942 93,406 76,408
Changes in operating assets and liabilities:
Trade accounts and other receivables . . . . . . . . . . . . . 182,294 78,394 (1,256,374)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . (928,094) (67,108) (192,345)
Accounts payable and accrued liabilities. . . . . . . . . . . 10,436,288 2,097,478 1,211,301
Income taxes payable . . . . . . . . . . . . . . . . . . . . . (397,026) 1,207,036 (191,015)
Customer deposits and rents received in advance. . . . . . . . 2,598,885 1,720,928 1,450,619
------------ ------------ ------------
Net cash provided by operating activities . . . . . . . . 54,967,900 42,935,869 24,006,959
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment for leasing . . . . . . . . . . . . . . (175,608,345) (130,359,631) (108,767,816)
Purchase of furniture and equipment . . . . . . . . . . . . . (602,900) (389,321) (140,741)
Acquisition, net of cash acquired . . . . . . . . . . . . . . (4,805,855) --- ---
------------ ------------ ------------
Net cash used in investing activities . . . . . . . . . . (181,017,100) (130,748,952) (108,908,557)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from discounted lease rentals . . . . . . . . . . . . 92,787,571 105,065,806 95,686,303
Early retirement of discounted lease rentals . . . . . . . . . (5,705,226) (11,805,932) (7,873,312)
Borrowings under lines of credit . . . . . . . . . . . . . . . 28,168,000 17,900,000 1,900,000
Repayment of borrowings under lines of credit. . . . . . . . . (28,168,000) (17,900,000) (1,900,000)
Proceeds from issuance of common stock . . . . . . . . . . . . 13,725,750 --- ---
Proceeds from issuance of senior notes . . . . . . . . . . . . 28,750,000 --- ---
Proceeds from exercise of stock options . . . . . . . . . . . 59,096 --- 76,976
Repurchase of common stock . . . . . . . . . . . . . . . . . . (725,928) (1,200,243) (900,234)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . (1,208,283) (873,136) (644,000)
------------ ------------ ------------
Net cash provided by financing activities. . . . . . . . . 127,682,980 91,186,495 86,345,733
------------ ------------ ------------
Net increase in cash and cash equivalents . . . . . . . . . . . . 1,633,780 3,373,412 1,444,135
Cash and cash equivalents, beginning of year . . . . . . . . . . . 10,234,159 6,860,747 5,416,612
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR . . . . . . . . . . . . . . $ 11,867,939 $ 10,234,159 $ 6,860,747
------------ ------------ ------------
------------ ------------ ------------
CASH PAID DURING THE YEAR FOR:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,473,211 $ 144,140 $ 91,750
------------ ------------ ------------
------------ ------------ ------------
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,077,503 $ 4,478,886 $ 3,033,071
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition (see Note 11):
The company accrued a $2,000,000 liability in conjunction with the Capital
Business Leasing, Inc. acquisition.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATMENTS.
29
<PAGE>
WINTHROP RESOURCES CORPORATION
Notes to Financial Statements
December 31, 1996, 1995 and 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Winthrop Resources Corporation (the "Company" or "Winthrop") is engaged
in the business of leasing high-technology and other business-essential
equipment throughout the United States. The Company extends credit to its
customers, substantially all of whom are end users of the leased equipment,
in a wide variety of industries. No single customer accounted for more than
10% of total revenues in 1996. During 1995 a single customer accounted for
approximately 14% of total revenues. A different customer during 1994
accounted for approximately 20% of total revenues.
Effective December 31, 1996 WINR Business Credit Corporation, a wholly-
owned subsidiary of the Company, was merged into the Company.
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.
LEASE ACCOUNTING
LEASE ACCOUNTING POLICIES - Statement of Financial Accounting Standards
No. 13, ACCOUNTING FOR LEASES ("FASB No. 13"), requires that a lessor account
for each lease by either the direct financing, sales-type or operating method
(hereinafter referred to as "accounting methods"). Lease classification is not
affected by the discounting of lease rentals that occurs after lease inception.
ACCOUNTING METHODS AND PROFIT RECOGNITION - Revenue, cost and resulting
profit are recognized during each of the accounting periods within the lease
term. For all types of leases, the determination of profit recognizes as an
asset the estimated fair market value of the equipment at lease termination,
commonly referred to as "residual" value.
The allocation of profit among the accounting periods within a lease term
will vary depending upon the accounting method applied. The accounting methods
are described below.
DIRECT FINANCING AND SALES-TYPE LEASES - These leases transfer
substantially all the benefits
30
<PAGE>
and risks of equipment ownership to the lessee as defined in FASB No. 13.
Profit recognition under these two accounting methods is similar, except that
the sales-type classification gives rise to dealer profit. This generally
results when the Company provides used equipment to its customer. This
equipment may be obtained in the secondary marketplace but most frequently is
the result of re-leasing the Company's own portfolio. Under the sales-type
method, dealer profit is recognized at lease inception by recording lease
revenue and lease cost. Revenue consists of the present value of the future
minimum lease payments discounted at the rate implicit in the lease. Cost
consists of the equipment's book value, less the present value of its residual.
For direct financing and sales-type leases, the present value of both the future
minimum lease payments and the residual are recorded as assets. In each period,
interest income, which is included in leasing revenue, is recognized as a
constant percentage return on asset carrying values. There are no costs and
expenses related to direct financing leases since leasing revenue is recorded on
a net basis.
OPERATING LEASES - Operating lease revenue consists of monthly rentals.
The cost of equipment is recorded as "Investment in leasing operations -
Operating leases" on the balance sheet and is depreciated on a straight-line
basis over the lease term to the Company's estimate of residual value. Revenue,
depreciation expense and the resultant gross profit margin are recorded evenly
over the life of the lease. Should the lease be financed, the interest expense
declines over the term of the financing as the principal is reduced, with the
resultant net margin being lower in the early periods of the financing and
higher in the later periods.
INITIAL DIRECT COSTS - Initial direct costs, including sales commissions,
related to direct financing and operating leases are capitalized and recorded as
part of the net investment in leases and are amortized over the lease terms.
RESIDUALS - Residual values, representing the estimated value of the
equipment at the termination of the lease, are recorded in the financial
statements at the inception of each sales-type or direct financing lease as
amounts estimated by management based upon its experience and judgment. The
residual values for operating leases are included in the leased equipment's net
book value.
The Company evaluates residual values on an ongoing basis and records any
required changes. In accordance with generally accepted accounting principles,
no upward revision of residual values is made subsequent to the period of the
inception of the lease. Residual values for sales-type and direct financing
leases are recorded at their net present value and the unearned interest is
amortized over the lease term so as to produce a constant percentage return on
the net present value.
31
<PAGE>
RESERVE FOR CREDIT LOSSES - The Reserve for Credit Losses (the
"Reserve") is available to absorb potential credit losses as they may occur.
Provisions for potential credit loss are charged to income and increase the
Reserve through a provision factor applied to new business recorded. The
provision factor is set at a level that management estimates to be adequate
considering delinquencies, historical loss experience and collateral value.
Accounts are either written off or written down when the loss is both
probable and determinable, after giving consideration to the customer's
financial condition, the value of the underlying collateral and funding
status (i.e. discounted on a nonrecourse or recourse basis). Any deficiency
between the carrying amount and fair market value of any repossessed
collateral is charged to the Reserve. Recoveries of amounts previously
written off as uncollectible are credited to the Reserve.
EQUIPMENT INSTALLED ON LEASES NOT YET COMMENCED
Equipment installed on leases not yet commenced consists primarily of
equipment installed on lease contracts that are yet to commence and as such is
valued at cost.
GOODWILL
Goodwill represents the excess of costs over the fair value of assets
acquired and is amortized using the straight-line method over periods of 5 to
15 years. Recoverability of goodwill and other intangible assets is assessed
based upon an analysis of undiscounted cash flows projected to be generated
by the acquired business.
SALES
Sales revenue includes only proceeds from outright equipment sales to third
parties and excludes sales-type lease revenue and outright sales of equipment to
lessees, which are included in leasing revenue.
DEPRECIATION
The cost of equipment under operating leases and furniture and equipment is
depreciated using an accelerated method for income tax purposes and straight-
line method for financial reporting purposes. The estimated useful lives of
these assets range from three to seven years.
INCOME TAXES
Deferred income taxes are determined on the asset and liability method in
accordance with Statement of Financial Accounting Standards No. 109,
ACCOUNTING FOR INCOME TAXES.
STOCK INCENTIVE PLAN
Prior to January 1, 1996 the Company accounted for its stock incentive
plan in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations. As such, compensation expense would be recorded on the date
of grant only if the current market price of the underlying stock exceeded
the exercise price. On January 1, 1996 the Company adopted Statement of
Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION ("FASB No. 123"), which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date
of grant. Alternatively, FASB No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net income
and pro forma earnings per share disclosures for employee stock option grants
made in 1995 and future years as if the fair-value-based method defined in
FASB No. 123 had been
32
<PAGE>
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25. The Company has not disclosed the pro forma effect of FASB
No. 123 under the fair-value-based method as the impact to the applicable
years of 1995 and 1996 was not material.
CASH EQUIVALENTS
For purposes of the Statements of Cash Flows, the Company considers all
highly liquid debt instruments with original maturities of three months or less
to be cash equivalents.
EARNINGS PER SHARE
The net earnings per common share is computed by dividing net earnings by
the weighted average number of common and common equivalent shares outstanding.
In 1995 and 1994 common equivalent shares are excluded from the weighted average
number of outstanding common shares as the dilutive effect is less than 3%.
STATEMENT PRESENTATION
Certain 1995 and 1994 balances have been reclassified to conform to the
1996 method of presentation.
(2) INVESTMENT IN LEASING OPERATIONS
The components of the total investment in leasing operations as of
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- -----
<S> <C> <C>
Direct financing and sales-type leases:
Minimum lease payments receivable:
To be received by the Company. . . . . . . . . . . . . . . . . $107,715,547 $ 61,613,704
To be received by financial institutions . . . . . . . . . . . 207,976,610 197,251,654
Estimated residual values . . . . . . . . . . . . . . . . . . . 26,028,697 22,255,982
Initial direct costs. . . . . . . . . . . . . . . . . . . . . . 6,705,389 4,119,388
Less unearned interest income on lease payments receivable. . . (46,971,788) (42,106,109)
Less unearned interest income on residuals. . . . . . . . . . . (4,497,037) (3,888,125)
Less reserve for credit losses. . . . . . . . . . . . . . . . . (1,115,652) (594,947)
------------ ------------
Net investment in direct financing and sales-type leases . . 295,841,766 238,651,547
------------ ------------
Operating leases:
Operating lease assets. . . . . . . . . . . . . . . . . . . . . 7,432,407 10,152,159
Less accumulated depreciation and amortization. . . . . . . . . (4,821,764) (4,609,253)
------------ ------------
Net investment in operating leases . . . . . . . . . . . . . 2,610,643 5,542,906
------------ ------------
Equipment installed on leases not yet commenced . . . . . . . . . . 28,937,630 10,086,568
------------ ------------
Total investment in leasing operations. . . . . . . . . . . . . . . $327,390,039 $254,281,021
------------ ------------
------------ ------------
</TABLE>
33
<PAGE>
(3) FUTURE MINIMUM LEASE PAYMENTS RECEIVABLE ON NONDISCOUNTED LEASES
Future minimum lease payments to be received by the Company on
nondiscounted leases as of December 31, 1996 are as follows:
DIRECT FINANCING AND
YEARS ENDING DECEMBER 31 SALES-TYPE LEASES OPERATING LEASES TOTAL
- ------------------------ ----------------- --------------- ------
1997. . . . . . . . . . $53,594,261 $15,732 $53,609,993
1998. . . . . . . . . . 27,229,073 15,732 27,244,805
1999. . . . . . . . . . 17,861,069 14,421 17,875,490
2000. . . . . . . . . . 5,831,836 --- 5,831,836
2001. . . . . . . . . . 3,199,308 --- 3,199,308
------------ ------- ------------
$107,715,547 $45,885 $107,761,432
------------ ------- ------------
------------ ------- ------------
(4) DISCOUNTED LEASE RENTALS
The Company utilizes its lease rentals and underlying equipment as
collateral to borrow from financial institutions at fixed rates on a nonrecourse
or recourse basis. In the event of a default by a customer in nonrecourse
financing, the financial institution has a first lien on the underlying leased
equipment, with no further recourse against the Company. For recourse
financing, besides having a first lien on the equipment, the financial
institution can seek recourse from the Company. Proceeds from discounting are
recorded on the balance sheet as "Discounted lease rentals." As customers make
payments to financial institutions, lease revenue (i.e., interest income on
direct financing and sales-type leases and rental revenue on operating leases)
and interest expense are recorded. Discounted lease rentals are amortized using
the interest method.
Discounted lease rentals as of December 31, 1996 and 1995 consisted of the
following:
1996 1995
---- ----
Nonrecourse borrowings. . . . . . . . . $185,287,292 $177,158,813
Recourse borrowings . . . . . . . . . . 316,319 1,298,206
------------ ------------
Total . . . . . . . . . . . . . . . . $185,603,611 $178,457,019
------------ ------------
------------ ------------
Future minimum lease rentals and interest expense on leases that have been
discounted as of December 31, 1996 are as follows:
34
<PAGE>
RENTALS TO BE RECEIVED BY
FINANCIAL INSTITUTIONS
<TABLE>
<CAPTION>
DIRECT FINANCING
YEARS ENDING AND SALES-TYPE OPERATING DISCOUNTED INTEREST
DECEMBER 31 LEASES LEASES LEASE RENTALS EXPENSE
------------ ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
1997 . . . . . . . $ 91,134,855 $ 1,389,132 $ 78,884,764 $ 13,639,223
1998 . . . . . . . 65,011,365 36,336 58,405,646 6,642,055
1999 . . . . . . . 34,459,280 33,308 31,788,855 2,703,733
2000 . . . . . . . 14,667,117 --- 13,883,420 783,697
2001 . . . . . . . 2,703,993 --- 2,640,926 63,067
-------------- -------------- -------------- --------------
$ 207,976,610 $ 1,458,776 $185,603,611 $ 23,831,775
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
Interest expense was $15,486,011, $13,469,746 and $9,928,313 in 1996, 1995
and 1994, respectively.
(5) NOTES PAYABLE TO BANKS
At December 31, 1996 the Company had lines of credit totaling $23,000,000
available from two banks. The interest rates are charged at one bank's prime
rate, or, at the Company's option, at a rate determined by a specified
alternative-rate calculation, and at 25 basis points over the other bank's prime
rate. These agreements expire in July 1997 and June 1997, respectively. All
borrowings under these agreements are secured by specific leases and the
underlying equipment. At December 31, 1996 and 1995 no amounts were outstanding
under these lines of credit.
(6) SENIOR NOTES DUE 2003
At December 31, 1996 the Company had outstanding $28,750,000 aggregate
principal amount of 9.5% Senior Notes that mature on July 1, 2003 (the
"Notes"). The Notes are unsecured obligations of the Company. The Notes
provide that, beginning July 1, 2001, the Company may redeem the Notes in
whole or in part upon not less than 30 nor more than 60 days prior written
notice at par plus accrued interest to the date fixed for redemption.
Interest on the Notes is payable monthly. The Notes are subject to an
indenture dated July 1, 1996, between the Company and Norwest Bank Minnesota,
National Association as Trustee, (the "Indenture"), which Indenture sets
forth certain restrictive covenants applying to the Company which limit,
among other things: (1) the amount of funded recourse debt; (2) the
declaration of cash dividends and acquisition of capital stock of the
Company; (3) the Company's ability to consolidate or merge where the Company
is not the surviving corporation unless such other entity assumes the
Company's obligations under the Note Indenture; (4) the ranking of future
funded recourse debt senior to the Notes; (5) the restriction of subsidiary
dividends; and (6) transactions with affiliates. At
35
<PAGE>
December 31, 1996 the Company was in compliance with all covenants.
(7) INCOME TAXES
Provisions for income taxes for the years ended December 31, 1996, 1995 and
1994 are summarized as follows:
1996 1995 1994
---- ---- ----
CURRENT:
Federal. . . . . . . . $3,484,800 $4,549,100 $2,459,200
State. . . . . . . . . 1,192,300 1,136,800 383,000
---------- ---------- ----------
4,677,100 5,685,900 2,842,200
---------- ---------- ----------
DEFERRED:
Federal. . . . . . . . 4,374,900 1,763,400 2,649,400
State. . . . . . . . . 594,700 254,700 749,000
---------- ---------- ----------
4,969,600 2,018,100 3,398,400
---------- ---------- ----------
$9,646,700 $7,704,000 $6,240,600
---------- ---------- ----------
---------- ---------- ----------
Reconciliation of the statutory federal income tax rate to the Company's
effective rate is as follows:
1996 1995 1994
---- ---- ----
Statutory rate. . . . . . . . . . . . . . . 34.0% 34.0% 34.0%
State taxes, net of federal tax benefit . . 5.0% 5.0% 5.0%
Other, net. . . . . . . . . . . . . . . . . 0.6% 1.0% 1.0%
----- ----- -----
Effective rate. . . . . . . . . . . . . . . 39.6% 40.0% 40.0%
----- ----- -----
----- ----- -----
The components of deferred income tax expense for the years ended
December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Deferred tax expense (exclusive of
the effects of other components
listed below). . . . . . . . . . . $3,248,600 $ 553,100 $ 4,637,800
Alternative minimum tax credit
carryforwards used/(generated) . . 1,721,000 1,465,000 (1,239,400)
---------- ---------- -----------
$4,969,600 $2,018,100 $ 3,398,400
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
36
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities (assets) at December 31, 1996 and 1995
are as follows:
1996 1995
---- ----
Investment in leasing operations,
principally due to differences in
tax and book accounting methods. . . . . $ 23,620,400 $20,393,200
Other . . . . . . . . . . . . . . . . . . 74,453 53,014
------------ -----------
Gross deferred tax liability. . . . . . 23,694,853 20,446,214
------------ -----------
Alternative minimum tax credit
carryforwards . . . . . . . . . . . . . (3,225,000) (4,946,000)
Other . . . . . . . . . . . . . . . . . . (69,800) (69,800)
------------ -----------
Gross deferred tax asset. . . . . . . . (3,294,800) (5,015,800)
------------ -----------
Net deferred tax liability. . . . . . . . $ 20,400,053 $ 15,430,414
------------ -----------
------------ -----------
No valuation allowance for deferred tax assets was considered necessary as
of December 31, 1996 or 1995. The character of the deferred tax assets is such
that they cannot be realized through carryback to prior tax periods, but rather,
by offsetting the tax effects of the reversal of existing taxable temporary
differences.
The Company had federal and state alternative minimum tax credit
carryforwards, for tax purposes, of $3,225,000 at December 31, 1996. These
credits may be used to offset future tax liability if the regular tax exceeds
alternative minimum tax and may be carried forward for an indefinite period.
(8) SHAREHOLDERS' EQUITY
COMMON STOCK
STOCK INCENTIVE PLAN - On April 21, 1992, the Board of Directors (the
"Board") and shareholders of the Company adopted the Company's Stock
Incentive Plan (the "Plan"). The Plan, effective May 1, 1992, provides for
the granting of options to purchase up to an aggregate of 500,000 shares of
Common Stock to certain key employees, officers, directors and consultants of
the Company.
Stock options and common shares reserved for grant under the Plan are as
follows:
37
<PAGE>
OPTION
AVAILABLE SHARES
FOR GRANT OUTSTANDING PRICE PER SHARE
--------- ----------- ---------------
Balance, December 31, 1993. . . . 180,000 320,000 $ 5.38 - $ 9.75
Granted. . . . . . . . . . . . (37,500) 37,500 10.69 - 12.63
Exercised. . . . . . . . . . . --- (14,166) 5.38 - 5.50
Forfeited. . . . . . . . . . . 13,334 (13,334) 5.38 - 5.50
------- -------
Balance, December 31, 1994. . . . 155,834 330,000 5.38 - 12.63
Granted. . . . . . . . . . . . (50,000) 50,000 12.00 - 17.75
------- -------
Balance, December 31, 1995. . . . 105,834 380,000 5.38 - 17.75
Granted. . . . . . . . . . . . (70,000) 70,000 17.38 - 27.25
Exercised. . . . . . . . . . . --- (10,500) 5.38 - 10.69
------- -------
Balance, December 31, 1996. . . . 35,834 439,500 5.38 - 27.25
------- -------
------- -------
Options granted have ten-year terms and vest in equal installments over
periods of three or four years beginning one year after date of grant.
Options become exercisable under the Plan so long as the optionee remains in
the employ of the Company or if an non-employee director, remains to be a
member of the Board. To the extent not already exercisable, options under
the Plan become immediately exercisable in full upon a certain change in
control of the Company. A change in control of the Company includes: (i) the
sale or other transfer of all or substantially all of the assets of the
Company, (ii) the approval by the Company's shareholders of any plan of
liquidation or dissolution of the Company, (iii) a change in the composition
of the Company's current Board such that they cease to be a majority unless
the change in Board composition is approved by a majority of the current
Board; or (iv) any other change in control of the Company of a nature that
would be required to be reported pursuant to the Securities Exchange Act of
1934. At December 31, 1996 options for 319,083 shares were exercisable.
PUBLIC STOCK OFFERING - On June 28, 1996 the Company completed a public
offering of 1,725,000 shares of its Common Stock at $19.50 per share and
$28,750,000 of 9.50% Senior Notes due 2003. Of the 1,725,000 shares offered,
750,000 shares were sold by the Company and 975,000 shares were sold by certain
shareholders of the Company. The net proceeds to the Company of this offering
were $41,464,000.
REPURCHASE OF COMMON STOCK- On October 26, 1994 the Company's Board of
Directors authorized and the Company implemented a Common Stock repurchase
program in which it would purchase, from time to time in the market and/or in
private transactions, up to an aggregate 250,000 shares of its own Common Stock.
The program is intended to enable the Company to purchase shares in advance of
possible option exercises by persons who have received options pursuant to the
Company's 1992 Stock Incentive Plan. During the years ended December 31, 1996
and 1995 the Company purchased and retired 43,100 and 95,600 shares of its
Common Stock, respectively, at prices ranging from $10.38 to $18.06 per share.
Subsequent to June 28, 1996, the public stock offering date, the Company
suspended its Common Stock repurchase program.
RETAINED EARNINGS
Common Stock cash dividends declared were $0.16 per share in 1996 and $0.12
per share in 1995. On November 6, 1996, upon declaration by the Board of
Directors, the Company accrued a quarterly cash dividend of $0.04 per share
payable January 2, 1997 to shareholders of record on December 16, 1996.
38
<PAGE>
(9) PROFIT SHARING 401(k) PLAN
The Company has a 401(k) profit sharing plan (the "Plan"). The Plan is a
salary reduction cash or deferred profit sharing plan intended to meet the
requirements of Section 401(k) and 401(a) of the Internal Revenue Code. All
employees who have completed at least one year of service and have attained the
age of 21 are eligible to participate in the Plan. The Plan allows eligible
employees to contribute a certain percentage of their base compensation into the
Plan each year. The Company may make discretionary contributions to the Plan on
behalf of eligible participants in an amount determined by the Board of
Directors.
The Company's contributions to the Plan were $184,126, $119,961 and $88,766
for 1996, 1995 and 1994, respectively.
(10) QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the years ended December 31, 1996
and 1995, is as follows:
QUARTER ENDED
---------------------------------------------
MARCH 31 JUNE 30 SEPT 30 DEC 31
-------- ------- ------- ------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1996:
Revenues. . . . . . . . $16,049.1 $25,112.1 $15,646.7 $19,687.1
Net earnings. . . . . . 3,134.6 3,560.4 3,552.1 4,466.6
PER COMMON SHARE . . $0.40 $0.45 $0.40 $0.50
1995:
Revenues. . . . . . . . $17,812.3 $22,983.4 $12,195.1 $15,790.1
Net earnings. . . . . . 3,259.1 2,766.6 2,688.6 2,841.7
PER COMMON SHARE . . $0.41 $0.35 $0.34 $0.36
(11) ACQUISITION
On January 19, 1996 the Company acquired substantially all of the assets
of Capital Business Leasing, Inc. ("Capital"), a Nevada corporation with its
headquarters in Henderson, Nevada and a sales office in Knoxville, Tennessee.
Capital was a small-ticket lease broker that served as a focal point or
consolidator for a variety of unrelated brokers and vendors and arranged for
the financing of these lease transactions with other leasing companies. The
Company is generally operating this wholesale lease business as it was
previously conducted. Cash, furniture and equipment and other assets,
principally goodwill and other intangible assets, were acquired pursuant to
an asset purchase agreement for $7,100,000 and were accounted for under the
purchase method of business combination. Under terms of the purchase
agreement, the Company paid $5,100,000 on January 19, 1996 and was scheduled
to make a payment of up to $2,000,000, plus accrued interest thereon at a
rate of six percent (6%) per annum (collectively the "Holdback"), on
December 31, 1996. On November 14, 1996 the Company filed a lawsuit seeking
to void the Holdback after certain new facts became apparent. As of
December 31, 1996 the Company had not made any payment towards the Holdback;
however, the Company has
39
<PAGE>
recorded the full liability associated with the Holdback in accrued liabilities
in the accompanying balance sheet.
(12) SUBSEQUENT EVENT
On February 28, 1997 the Company and TCF Financial Corporation ("TCF")
announced the signing of a definitive agreement to merge in a tax-free
stock-for-stock exchange (the "Merger"). In connection with the Merger, each
outstanding share of the Company's Common Stock will be converted into 0.7766
shares of TCF common stock. TCF has also agreed to assume the Company's Stock
Incentive Plan on an as converted basis. The Merger is subject to approval by
both companies' shareholders, required regulatory filings and approvals and
treatment of the transaction as a pooling of interests for accounting
purposes. TCF has the right to terminate the transaction if the average
closing price of TCF common stock is more than $51.70 per share. Winthrop
has the right to terminate the transaction if the average closing price of
TCF common stock is less than $42.30 per share. The period for the average
closing stock price of TCF common stock is the 30 trading days ending three
business days prior to the later of the last shareholders' meeting to vote on
the merger or the date of the last regulatory approval. In connection with
the Merger, certain shareholders of Winthrop have entered into Stockholder
Agreements with TCF pursuant to which such shareholders have agreed, subject
to certain exceptions, to vote all of their shares in favor of the Merger.
40
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WINTHROP RESOURCES CORPORATION
Date: March 31, 1997 By: /s/ John L. Morgan
-----------------------------------
John L. Morgan
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below on March 31, 1997 by the following persons on
behalf of the Registrant and in the capacities indicated.
/s/ John L. Morgan President and Chief Executive Officer
- ------------------------------ (Principal Executive Officer) and Director
John L. Morgan
/s/ Kirk A. MacKenzie Executive Vice President, Treasurer, and
- ------------------------------ Chief Financial Officer (Principal
Kirk A. MacKenzie Financial and Accounting Officer) and
Director
/s/ Jack A. Norqual Senior Vice President and Director
- ------------------------------
Jack A. Norqual
/s/ Mark L. Wilson Secretary and Director
- ------------------------------
Mark L. Wilson
/s/ Gerald W. Simonson Director
- ------------------------------
Gerald W. Simonson
/s/ Paul C. Reyelts Director
- ------------------------------
Paul C. Reyelts
/s/ Morris Goodwin, Jr. Director
- ------------------------------
Morris Goodwin, Jr.
41
<PAGE>
WINTHROP RESOURCES CORPORATION
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
- ----------- -------------------------------------- ---------------------------
2.1 Agreement and Plan of Reorganization Filed as Exhibit 2.1 to
dated February 28, 1997 the Company's Current
Report on Form 8-K filed on
March 7, 1997 and
incorporated herein by
reference
3.1 The Company's Restated Articles of Filed as Exhibit 3.1 to
Incorporation the Company's Registration
Statement on Form S-1 filed
April 24, 1992, File No.
33-47435 (the "1992
Registration Statement")
and incorporated herein by
reference
3.2 The Company's Restated Bylaws, as Filed as Exhibit 3.2 to the
amended on April 21, 1992 Company's Registration
Statement on Form S-1 filed
March 19, 1993, File No.
33-59808 (the "1993
Registration Statement")
and incorporated herein by
reference
3.3 The Company's Restated Bylaws, as Filed as Exhibit 4.3 to the
amended on May 4, 1994 Company's Registration
Statement on Form S-8
filed June 8, 1994, File
No. 33-80056 and
incorporated herein by
reference
4.1 Specimen form of the Company's Filed as Exhibit 4.1 to the
Common Stock Certificate Company's 1992 Registration
Statement and incorporated
herein by reference
4.2 Indenture dated July 1, 1996 relating Filed as Exhibit 4.5 to the
to 9.5% Senior Notes due 2003 between Company's Registration
the Company and Norwest Bank Statement on Form S-2 filed
Minnesota, National Association, May 24, 1996 and
as Trustee, including form incorporated herein by
reference
10.1 Winthrop Resources Corporation 1992 Filed as Exhibit 10.1 to
Stock Incentive Plan the Company's 1992
Registration Statement and
incorporated herein by
reference
42
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
- ----------- -------------------------------------- ---------------------------
10.2 Office Lease Agreement dated January Filed as Exhibit 10.2 to
15, 1987 between the Company and the Company's 1992
Alscor Investors Joint Venture, as Registration Statement
amended in Amendment No. 1 dated and incorporated herein
August 11, 1988; Amendment No. 2 dated by reference
February 28, 1990; Amendment No. 3
dated June 1, 1991; and Amendment
No. 4 dated October 16, 1991
10.3 Amendment No. 5 dated January 26, 1993 Filed as Exhibit 10.3 to
to the Office Lease Agreement dated the Company's 1993
January 15, 1987 between the Company Registration Statement and
and Alscor Investors Joint Venture, incorporated herein by
as amended reference
10.4 Form of lease agreement Filed as Exhibit 10.9 to
Amendment No. 1 to the
Company's 1992 Registration
Statement filed June 4,
1992 and incorporated
herein by reference
10.5 Amendment No. 6 dated May 25, 1994 Filed as Exhibit 10.1 to
to the Office Lease Agreement dated the Company's Quarterly
January 15, 1987 between the Company Report on Form 10-Q for the
and Alscor Investors Joint Venture, period ended June 30, 1994
as amended filed August 15, 1994 and
incorporated herein by
reference
10.6 Discretionary Credit Facility Letter Filed as Exhibit 10.1 to
of Agreement dated August 2, 1994 the Company's Quarterly
between the Company and First Bank Report on Form 10-Q for the
National Association period ended September 30,
1994 filed November 14,
1994 and incorporated
herein by reference
10.7 Employment and Non-Competition Filed herewith.
Agreement dated as of November 6,
1996 between the Company and Kirk A.
MacKenzie.
10.8 Employment and Non-Competition Filed herewith.
Agreement dated as of November 6,
1996 between the Company and John L.
Morgan
43
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
- ----------- -------------------------------------- ---------------------------
10.9 Employment and Non-Competition Filed herewith.
Agreement dated as of November 6,
1996 between the Company and Robert
P. Murphy
10.10 Employment and Non-Competition Filed herewith.
Agreement dated as of November 6,
1996 between the Company and Jack A.
Norqual
10.11 Addendum to Non-Statutory Stock Option Filed as Exhibit 10.23 to
Agreements dated June 17, 1992, the Company's Annual Report
October 27, 1993 and October 26, 1994 on Form 10-K for the period
between Robert P. Murphy and Winthrop ended December 31, 1994
Resources Corporation filed March 31, 1995 and
incorporated herein by
reference
10.12 Discretionary Revolving Credit Note Filed as Exhibit 10.1 to
dated June 28, 1996 between the the Company's Quarterly
Company and First Bank National Report on Form 10-Q for the
Association period ended June 30, 1996
filed August 14, 1996 and
incorporated herein by
reference
10.13 Letter of Agreement dated June 28, Filed as Exhibit 10.2 to
1996 between the Company and the Company's Quarterly
Norwest Equipment Finance, Inc. Report on Form 10-Q for the
period ended June 30, 1996
filed August 14, 1996 and
incorporated herein by
reference
10.14 Asset Purchase Agreement, dated as Filed as Exhibit 2.1 to the
of January 19, 1996, by and between Company's Form 8-K dated
Winthrop Resources Corporation and January 19, 1996 filed
Capital Business Leasing, Inc. February 5, 1996 and
incorporated herein by
reference
10.15 Stockholder Agreement between TCF Filed as Exhibit 10.1 to
Financial Corporation and John L. the Company's Current
Morgan dated February 28, 1997. Report on Form 8-K filed on
March 7, 1997 and
incorporated herein by
reference
10.16 Stockholder Agreement between TCF Filed as Exhibit 10.2 to
Financial Corporation and Kirk A. the Company's Current
MacKenzie dated February 28, 1997. Report on Form 8-K filed on
March 7, 1997 and
incorporated herein by
reference
44
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
- ----------- -------------------------------------- ---------------------------
10.17 Stockholder Agreement between TCF Filed as Exhibit 10.3 to
Financial Corporation and Jack A. the Company's Current
Norqual dated February 28, 1997. Report on Form 8-K filed on
March 7, 1997 and
incorporated herein by
reference
11 Statement re Computation of Filed herewith.
Earnings Per Share
23.1 Consent of KPMG Peat Marwick LLP Filed herewith.
Independent Auditors
27 Financial Data Schedule Filed herewith.
45
<PAGE>
EXHIBIT 10.7
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS AGREEMENT is dated as of November 6, 1996 and is between WINTHROP
RESOURCES CORPORATION, a Minnesota corporation (the "Company") and KIRK A.
MACKENZIE, an individual residing in the State of Minnesota (the "Employee").
RECITALS
A. Company wishes to continue the services of the Employee for at least the
duration of this Agreement, and the Employee wishes to provide his
services for such period.
B. Company desires reasonable protection of its confidential business and
technical information.
C. Company desires assurance that the Employee will not compete with it for
a reasonable period of time after termination of employment, and Employee
is willing to refrain from competition.
D. Employee desires to be assured of a minimum Base Salary from Company for
Employee's services for the term of this Agreement (unless earlier
terminated), and to have the opportunity to earn certain incentive
payments provided for herein.
NOW, THEREFORE, in consideration of Employee's acceptance of and continuance in
Company's employment for the term of this Agreement and the parties' agreement
to be bound by the terms contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms have the following meanings:
1.01 "BASE SALARY" shall mean regular cash compensation paid on a periodic
basis exclusive of benefits, bonuses and incentive payments.
1.02 "COMMITTEE" shall mean the Compensation and Stock Option Committee of the
Board of Directors of the Company. The Committee shall consist solely of
directors who are not employees of the Company or a Subsidiary.
1.03 "COMPANY" shall mean Winthrop Resources Corporation, and any lawful
successor in interest.
1.04 "CONFIDENTIAL INFORMATION" shall mean information or material which is
not generally available to or used by others, or the utility or value of
which is not generally known or recognized as standard practice, whether
or not the underlying details are in the public domain, including:
46
<PAGE>
(a) information or material relating to the Company, and its
businesses as conducted or anticipated to be conducted, business
plans, operations, past, current or anticipated software, products
or services, customers or prospective customers, or research,
engineering, development, manufacturing, purchasing, accounting,
or marketing activities;
(b) information or material relating to the Company's inventions,
improvements, discoveries, "know-how," technological developments,
or unpublished writings or other works of authorship, or to the
materials, apparatus, processes, formulae, plans or methods used
in the development, manufacture or marketing of the Company's
software, products or services;
(c) information which when received is marked as "proprietary,"
"private," or "confidential";
(d) trade secrets;
(e) software in various stages of development, including computer
programs in source code and binary code form, software designs,
specifications, programming aids (including "library subroutines"
and productivity tools), programming languages, interfaces, visual
displays, technical documentation, user manuals, data files and
databases; and
(f) any similar information of the type described above which the
Company obtained from another party and which the Company treats
as or designates as being proprietary, private or confidential,
whether or not owned or developed by the Company.
Notwithstanding the foregoing, "Confidential Information" does not
include any information which is properly published or in the public
domain; provided, however, that information which is published by or with
the aid of Employee outside the scope of employment or contrary to the
requirements of this Agreement will not be considered to have been
properly published, and therefore will not be in the public domain for
purposes of this Agreement.
1.05 "DISABILITY" shall mean the inability, as reasonably determined by the
Company, of Employee to perform his duties under this Agreement because
of illness or incapacity for a continuous period of six (6) months. In
the event that Employee objects that the Company has not reasonably
determined Employee's inability to perform his duties, the issue shall be
determined by three physicians, one selected by the Company, one by
Employee, and the third selected by the first two. The majority opinion
of the three physicians shall be final and binding on the Company and
Employee.
1.06 "GOOD REASON" shall mean a termination by Employee after one or more of
the following events has occurred without Employee's concurrence, and
has remained uncorrected for a period of thirty days after Employee
provides written notice of such occurrence to the Company; (1) an
adverse change in Employee's status or position as an executive officer
of the Company, including without limitation any adverse change in
Employee's status or position as a result of material diminution in
Employee's duties, responsibilities or authority
47
<PAGE>
as compared to the same as in effect of the date of this Agreement (or as
compared to any status or position to which Employee may be promoted
after the date hereof); or (2) the Company requiring Employee, without
his consent, to relocate his principal office, or the principal situs for
the performance of his duties, more than 20 miles from the current
corporate offices of the Company unless such relocation requirement is
made in conjunction with a relocation of the Company corporate offices
substantially as a whole.
1.07 "PLAN" shall mean any profit sharing, pension, life insurance, accident
insurance, disability insurance, health insurance, hospitalization,
medical reimbursement or other employee benefit plan including, without
limitation, the Company's 401(k) Plan.
1.08 "SUBSIDIARY" shall mean; (a) any corporation at least a majority of
whose securities having ordinary voting power for the election of
directors (other than securities having such power only by reason of the
occurrence of a contingency) is at the time owned by the Company and/or
one or more Subsidiaries thereof; and (b) any division or business unit
(or portion thereof) of the Company or a corporation described in clause
(a) of this Section 1.08.
ARTICLE II
EMPLOYMENT, DUTIES AND TERM
2.01 EMPLOYMENT, POSITION. Upon the terms and conditions set forth in this
Agreement, the Company hereby employs Employee, and Employee accepts such
employment. During the term of this Agreement, Employee shall serve as a
senior executive officer of the Company, with his title to be determined
from time to time by the Committee. Termination of this Agreement prior
to the end of the term stated in Section 2.03 by either party shall also
terminate Employee's employment by the Company.
2.02 DUTIES.
(a) Employee shall devote his full-time and reasonable best efforts to
the Company and to fulfilling the duties of his position which
shall include such duties with respect to the Company as may from
time to time be assigned him by the Committee, provided that such
duties are reasonably consistent with Employee's education,
experience and background.
(b) Employee shall operate the business of the Company in the best
interests of the Company and its shareholders.
(c) Employee shall comply with the Company's policies and procedures
to the extent they are not inconsistent with this Agreement in
which case the provisions of this Agreement prevail. In addition,
Employee shall comply with the Company's policies on employee
conduct and business ethics.
2.03 TERM. The term of this Agreement shall commence January 1, 1997 and run
for two (2) years unless terminated as provided in this agreement.
Commencing each second January
48
<PAGE>
1 after January 1, 1997, the term of Employee's employment hereunder
shall be automatically extended for two (2) additional years unless on or
before the November 1 immediately preceding any such January 1 either
party gives written notice to the other of the cessation of further
extensions, in which case no further extensions shall occur.
ARTICLE III
BASE COMPENSATION, EXPENSES, AND BENEFITS
3.01 BASE SALARY. For all services rendered under this Agreement during the
term of Employee's employment, the Company shall pay Employee a Base
Salary at an annual rate of: $242,000 for 1997 and $242,000 for 1998, the
1998 rate to be subject to change as determined by the Committee; plus a
Bonus as set forth in Section 3.02.
3.02 BONUSES.
(a) Company shall pay Employee a bonus for 1997 equal to 2.5% of the
Company's 1997 net income before income taxes, provided that the
maximum amount of such bonus shall be $242,000. During 1997
Company shall pay Employee a monthly advance against anticipated
1997 maximum bonus; Employee shall return to Company no later than
January 31, 1998 any amount by which the total of such advances
paid during 1997 shall exceed 1997 actual bonus.
(b) Company shall pay Employee a bonus for 1998 equal to 2.5% of the
Company's 1998 net income before income taxes, provided that the
maximum amount of such bonus shall be $242,000. During 1998
Company shall pay Employee a monthly advance against anticipated
1998 maximum bonus; Employee shall return to Company no later than
January 31, 1999 any amount by which the total of such advances
paid during 1998 shall exceed 1998 actual bonus. The Committee
may unilaterally change the bonus calculation formula and the
maximum amount in this subsection by formal resolution, but only
if done prior to November 1, 1997.
(c) If 2.5% of Company's 1996 net income before income taxes shall
exceed $220,000, the excess shall be defined as "1996 excess". If
1997 actual bonus is less than $242,000, the shortfall (or as much
thereof as is possible) shall be paid first from 1996 excess and
thereafter from 1998 excess. If 2.5% of Company's 1997 net income
before income taxes shall exceed $242,000, the excess shall be
defined as "1997 excess". The balance, if any, of 1997 excess
shall be available to pay any 1998 shortfall (or as much thereof
as is possible). If 2.5% of Company's 1998 net income before
income taxes shall exceed $242,000, the excess shall be defined as
"1998 excess".
(d) The term "actual bonus" for a year (defined as a 12 month period
ending December 31, a "Year") shall mean the actual bonus amount
calculated by reference to the applicable formula and annual
maximum for the Year, plus that part of any excess from a
different year that is used to pay all or part of a shortfall for
the Year.
49
<PAGE>
3.03 BENEFITS. In addition to other compensation to be paid under this
Article III, Employee shall be entitled to participate in all benefit
plans available to all full-time, eligible employees currently maintained
or hereafter established by the Company generally, in accordance with the
terms and conditions of such plans.
ARTICLE IV
EARLY TERMINATION
4.01 EARLY TERMINATION. Subject to the respective continuing obligations of
the parties pursuant to Articles V, VI, VII and VIII, this Article sets
forth the terms for early termination of this Agreement.
4.02 TERMINATION FOR CAUSE. The Company may terminate this Agreement and
Employee's employment immediately for cause. For the purpose hereof,
"cause" means (1) fraud, (2) theft or embezzlement of the Company's
assets, (3) willful violation of law constituting a felony, (4) the
continued failure by Employee to satisfactorily perform his duties as
reasonably assigned to Employee pursuant to Section 2.02 of Article II of
this Agreement for a period of 60 days after a written demand for such
satisfactory performance, which written demand specifically identifies
the manner in which it is alleged Employee has not satisfactorily
performed such duties. At any time during the 60 day "cure" period
described in clause (4) above, at Employee's request the responsible
Company executive officer, together with at least one member of the
Committee, shall meet in person to discuss the alleged performance
deficiencies. In the event of termination for cause pursuant to this
Section 4.02, Employee shall be paid at the usual rate of Employee's
annual Base Salary and shall receive monthly advances against the
anticipated maximum bonus (subject to the terms of Section 3.02) through
the date of termination specified in any notice of termination. In
addition, any amounts to which the Employee is entitled under any Plan
shall be continued through such date of termination in accordance with
the terms of such Plan.
4.03 TERMINATION WITHOUT CAUSE. Either Employee or the Company may terminate
this Agreement and Employee's employment without cause on seventy-five
(75) days' advance written notice. For purposes of this Section 4.03,
termination by Employee for Good Reason shall be deemed a termination by
the Company without cause. In the event of termination of this Agreement
and of Employee's employment pursuant to this Section 4.03, Employee
shall be paid at the usual rate of his annual Base Salary (subject to the
terms of Section 3.01) through the date that is one year after the date
of termination specified in the notice and shall also receive through
such date all monthly advances against the anticipated maximum bonus
(subject to the terms of Section 3.02) and all benefits under the plans.
4.04 ENTIRE TERMINATION PAYMENT. The compensation provided for in Article IV
for early termination of this Agreement shall constitute Employee's sole
remedy for such termination. Employee shall not be entitled to any other
termination or severance payment which may be payable to Employee under
any other agreement between Employee and the Company or any plan or other
policy of the Company. This Section 4.04 shall not have any effect on
vested distributions to which Employee may be entitled at termination
from any tax-qualified Plan or other Plan.
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ARTICLE V
CONFIDENTIALITY, DISCLOSURE AND ASSIGNMENT
5.01 CONFIDENTIALITY. Employee will not, during the term or after the
termination or expiration of this Agreement, publish, disclose, or
utilize in any manner any Confidential Information obtained while
employed by the Company. If Employee leaves the employ of the Company,
Employee will not, without its prior written consent, retain or take away
any drawing, writing or other record in any form containing any
Confidential Information.
5.02 BUSINESS CONDUCT AND ETHICS. During the term of employment with the
Company, Employee will engage in no activity or employment which may
conflict with the interest of the Company, and will comply with the
Company's policies and guidelines pertaining to business conduct and
ethics.
5.03 DISCLOSURE. Employee will disclose promptly in writing to the Company
all inventions, discoveries, software, writings and other works of
authorship which are conceived, made, discovered, or written jointly or
singly on the Company's business time or on Employee's own time, provided
the invention, improvement, discovery, software, writing or other work of
authorship is capable of being used by the Company or its respective
affiliates in the normal course of business, and all such inventions,
improvements, discoveries, software, writings and other works of
authorship shall belong solely to the Company.
5.04 INSTRUMENTS OF ASSIGNMENT. Employee will sign and execute all
instruments of assignment and other papers to evidence vestiture of
Employee's entire right, title and interest in such inventions,
improvements, discoveries, software, writings or other works of
authorship in the Company, at the request and the expense of the Company,
and Employee will do all acts and sign all instruments of assignment and
other papers the Company may reasonably request relating to applications
for patents, copyrights, and the enforcement and protection thereof. If
Employee is needed, at any time, to give testimony, evidence, or opinions
in any litigation or proceeding involving any patents or copyrights or
applications for patents or copyrights, both domestic and foreign,
relating to inventions, improvements, discoveries, software, writings or
other works of authorship conceived, developed or reduced to practice by
Employee, Employee agrees to do so, and if Employee leaves the employ of
the Company, the Company shall pay Employee at a rate mutually agreeable
to Employee and the Company, plus reasonable traveling or other expenses.
5.05 SURVIVAL. The obligations of this Article V shall survive the expiration
or termination of this Agreement.
ARTICLE VI
NONCOMPETITION
6.01 NONCOMPETITION. Employee agrees that for a period of two (2) years
following termination of employment with the Company for any reason,
Employee will not directly or indirectly, alone or as a partner, officer,
director, shareholder or employee of any other firm or entity, engage in
any commercial activity in competition with any part of the Company's
business
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which was under Employee's management or supervision at any time during
the term of this Agreement or any part of the Company's business with
respect to which Employee has Confidential Information as governed By
Article V of this Agreement. For purposes of this Section 6.01,
"shareholder" shall not include beneficial ownership of less than five
percent (5%) of the combined voting power of all issued and outstanding
voting securities of a publicly held corporation whose voting stock is
traded in a public market. Also for purposes of this Section 6.01, "the
Company's business" shall include business conducted by the Company and
any affiliate of the Company and any partnership or joint venture in
which the Company or any of its affiliates is a partner or joint
venturer; provided that, "affiliate" as used in this sentence shall not
include any corporation in which the Company has ownership of less than
ten (10) percent of the voting stock.
6.02 EFFECT OF TERMINATION. In the event Employee's employment terminates for
any reason, no additional compensation shall be paid for the
noncompetition obligation.
6.03 SURVIVAL. The obligations of this Article VI shall survive the
expiration or termination of this Agreement.
ARTICLE VII
CHANGE OF OWNERSHIP OF THE BUSINESS
7.01 EFFECT. In the event that substantially all of the assets of the Company
are sold (other than as a result of the sale of the stock of the Company)
to a person or entity which is not an affiliate of the Company:
(a) If Employee gives his written consent to the assignment of this
Agreement to the purchaser (and such assignment is accepted) this
Agreement shall remain in full force and effect between Employee
and the assignee.
(b) If such assignment is not accepted by the purchaser, then this
Agreement shall be deemed to have been terminated by the Company
without cause pursuant to Articles III and IV; and
(c) If a proposed assignment is accepted by the purchaser, but
Employee does not provide his written consent to such assignment
(unless such consent is withheld because the purchaser does not
have creditworthiness reasonably equivalent to the Company's and
the Company does not agree to guarantee the purchaser's
performance of the Company's payment obligations hereunder), this
Agreement shall be deemed terminated for cause pursuant to
Articles III and IV.
ARTICLE VIII
GENERAL PROVISIONS
8.01 NO ADEQUATE REMEDY. The parties declare that it is impossible to measure
in money the
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damages which will accrue to either party by reason of a failure to
perform any of the obligations under this Agreement. Therefore, if
either party shall institute any action or proceeding to enforce the
provisions hereof, such party against whom such action or proceeding is
brought hereby waives the claim or defense that such party has an
adequate remedy at law, and such party shall not urge in any such action
or proceeding the claim or defense that such party has an adequate remedy
at law.
8.02 SUCCESSORS AND ASSIGNS. Except as otherwise provided in Article VII,
this Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the Company whether by way of merger,
consolidation, operation of law, assignment, purchase or other
acquisition of substantially all of the assets or business of the
Company, and any such successor or assign shall absolutely and
unconditionally assume all of the Company's obligations hereunder.
8.03 NOTICES. All notices, requests and demands given to or made pursuant
hereto shall, except as otherwise specified herein, be in writing and be
delivered or mailed to any such party at its address which:
(a) In the case of the Company shall be:
Winthrop Resources Corporation
1015 Opus Center
9900 Bren Road East
Minnetonka, Minnesota 55343
Attention: President
(b) In the case of Employee shall be:
KIRK A. MACKENZIE, at the address set forth beneath his signature
to this Agreement.
Any party may, by notice hereunder, designate a changed address. Any
notice, if mailed properly addressed, postage prepaid, registered or
certified mail, shall be deemed dispatched on the registered date or that
stamped on the certified mail receipt, and shall be deemed received
within the second business day thereafter or when it is actually
received, whichever is sooner.
8.04 CAPTIONS. The various headings or captions in this Agreement are for
convenience only and shall not affect the meaning or interpretation of
this Agreement.
8.05 GOVERNING LAW. The validity, construction and performance of this
Agreement shall be governed by the laws of the State of Minnesota without
giving effect to the conflict of laws principles thereof. The parties
hereto expressly recognize and agree that the implementation of this
Governing Law provision is essential in light of the fact that the
Company's corporate headquarters and its principal executive offices are
located within the State of Minnesota, and there is a critical need for
uniformity in the interpretation and enforcement of the employment
agreements between the Company and its key employees.
8.06 CONSTRUCTION. Wherever possible, each provision of this Agreement shall
be interpreted in
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such manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
8.07 WAIVERS. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder partial exercise of
any right or remedy hereunder preclude any other or further exercise
thereof or the exercise of any other right or remedy granted hereby or by
any related document or by law.
8.08 MODIFICATION. This Agreement may not be and shall not be modified or
amended except by written instrument signed by the parties hereto.
8.09 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding between the parties hereto in reference to all the matters
herein agreed upon and supersedes all prior or contemporaneous
agreements, understandings and negotiations with respect to the subject
matter hereof.
8.10 ATTORNEYS' FEES. In the event there is litigation between the parties
hereto with respect to their rights and obligations under this Agreement,
the prevailing party in any such litigation shall be entitled to recover
from the opposing party all reasonable attorneys' fees and expenses
(including fees of accountants) incurred by the prevailing party in
connection with such proceeding.
8.11 PRIOR COMPENSATION ARRANGEMENTS. This Agreement supersedes, effective
January 1, 1997, the Employment and Noncompetition Agreement dated as of
October 26, 1994 and shall not be applicable with respect to any calendar
year 1996 compensation. The Company and Employee agree that effective as
of January 1, 1997, all previous compensation agreements, contracts or
arrangements, written or informal, are terminated.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
EMPLOYEE WINTHROP RESOURCES CORPORATION
/s/ Kirk A. MacKenzie By /s/ John L. Morgan
- ----------------------------------- ----------------------------
address:
Its President
---------------------------
10420 Bluff Circle
- -----------------------------------
Chaska, MN 55318
- -----------------------------------
- -----------------------------------
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EXHIBIT 10.8
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS AGREEMENT is dated as of November 6, 1996 and is between WINTHROP
RESOURCES CORPORATION, a Minnesota corporation (the "Company") and JOHN L.
MORGAN, an individual residing in the State of Minnesota (the "Employee").
RECITALS
A. Company wishes to continue the services of the Employee for at least the
duration of this Agreement, and the Employee wishes to provide his
services for such period.
B. Company desires reasonable protection of its confidential business and
technical information.
C. Company desires assurance that the Employee will not compete with it for
a reasonable period of time after termination of employment, and Employee
is willing to refrain from competition.
D. Employee desires to be assured of a minimum Base Salary from Company for
Employee's services for the term of this Agreement (unless earlier
terminated), and to have the opportunity to earn certain incentive
payments provided for herein.
NOW, THEREFORE, in consideration of Employee's acceptance of and continuance in
Company's employment for the term of this Agreement and the parties' agreement
to be bound by the terms contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms have the following meanings:
1.01 "BASE SALARY" shall mean regular cash compensation paid on a periodic
basis exclusive of benefits, bonuses and incentive payments.
1.02 "COMMITTEE" shall mean the Compensation and Stock Option Committee of the
Board of Directors of the Company. The Committee shall consist solely of
directors who are not employees of the Company or a Subsidiary.
1.03 "COMPANY" shall mean Winthrop Resources Corporation, and any lawful
successor in interest.
1.04 "CONFIDENTIAL INFORMATION" shall mean information or material which is
not generally available to or used by others, or the utility or value of
which is not generally known or recognized as standard practice, whether
or not the underlying details are in the public domain, including:
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(a) information or material relating to the Company, and its
businesses as conducted or anticipated to be conducted, business
plans, operations, past, current or anticipated software, products
or services, customers or prospective customers, or research,
engineering, development, manufacturing, purchasing, accounting,
or marketing activities;
(b) information or material relating to the Company's inventions,
improvements, discoveries, "know-how," technological developments,
or unpublished writings or other works of authorship, or to the
materials, apparatus, processes, formulae, plans or methods used
in the development, manufacture or marketing of the Company's
software, products or services;
(c) information which when received is marked as "proprietary,"
"private," or "confidential";
(d) trade secrets;
(e) software in various stages of development, including computer
programs in source code and binary code form, software designs,
specifications, programming aids (including "library subroutines"
and productivity tools), programming languages, interfaces, visual
displays, technical documentation, user manuals, data files and
databases; and
(f) any similar information of the type described above which the
Company obtained from another party and which the Company treats
as or designates as being proprietary, private or confidential,
whether or not owned or developed by the Company.
Notwithstanding the foregoing, "Confidential Information" does not
include any information which is properly published or in the public
domain; provided, however, that information which is published by or with
the aid of Employee outside the scope of employment or contrary to the
requirements of this Agreement will not be considered to have been
properly published, and therefore will not be in the public domain for
purposes of this Agreement.
1.05 "DISABILITY" shall mean the inability, as reasonably determined by the
Company, of Employee to perform his duties under this Agreement because
of illness or incapacity for a continuous period of six (6) months. In
the event that Employee objects that the Company has not reasonably
determined Employee's inability to perform his duties, the issue shall be
determined by three physicians, one selected by the Company, one by
Employee, and the third selected by the first two. The majority opinion
of the three physicians shall be final and binding on the Company and
Employee.
1.06 "GOOD REASON" shall mean a termination by Employee after one or more of
the following events has occurred without Employee's concurrence, and
has remained uncorrected for a period of thirty days after Employee
provides written notice of such occurrence to the Company; (1) an
adverse change in Employee's status or position as an executive officer
of the Company, including without limitation any adverse change in
Employee's status or position as a result of material diminution in
Employee's duties, responsibilities or authority
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as compared to the same as in effect of the date of this Agreement (or as
compared to any status or position to which Employee may be promoted
after the date hereof); or (2) the Company requiring Employee, without
his consent, to relocate his principal office, or the principal situs for
the performance of his duties, more than 20 miles from the current
corporate offices of the Company unless such relocation requirement is
made in conjunction with a relocation of the Company corporate offices
substantially as a whole.
1.07 "PLAN" shall mean any profit sharing, pension, life insurance, accident
insurance, disability insurance, health insurance, hospitalization,
medical reimbursement or other employee benefit plan including, without
limitation, the Company's 401(k) Plan.
1.08 "SUBSIDIARY" shall mean; (a) any corporation at least a majority of
whose securities having ordinary voting power for the election of
directors (other than securities having such power only by reason of the
occurrence of a contingency) is at the time owned by the Company and/or
one or more Subsidiaries thereof; and (b) any division or business unit
(or portion thereof) of the Company or a corporation described in clause
(a) of this Section 1.08.
ARTICLE II
EMPLOYMENT, DUTIES AND TERM
2.01 EMPLOYMENT, POSITION. Upon the terms and conditions set forth in this
Agreement, the Company hereby employs Employee, and Employee accepts such
employment. During the term of this Agreement, Employee shall serve as a
senior executive officer of the Company, with his title to be determined
from time to time by the Committee. Termination of this Agreement prior
to the end of the term stated in Section 2.03 by either party shall also
terminate Employee's employment by the Company.
2.02 DUTIES.
(a) Employee shall devote his full-time and reasonable best efforts to
the Company and to fulfilling the duties of his position which
shall include such duties with respect to the Company as may from
time to time be assigned him by the Committee, provided that such
duties are reasonably consistent with Employee's education,
experience and background.
(b) Employee shall operate the business of the Company in the best
interests of the Company and its shareholders.
(c) Employee shall comply with the Company's policies and procedures
to the extent they are not inconsistent with this Agreement in
which case the provisions of this Agreement prevail. In addition,
Employee shall comply with the Company's policies on employee
conduct and business ethics.
2.03 TERM. The term of this Agreement shall commence January 1, 1997 and run
for two (2) years unless terminated as provided in this agreement.
Commencing each second January
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1 after January 1, 1997, the term of Employee's employment hereunder
shall be automatically extended for two (2) additional years unless on or
before the November 1 immediately preceding any such January 1 either
party gives written notice to the other of the cessation of further
extensions, in which case no further extensions shall occur.
ARTICLE III
BASE COMPENSATION, EXPENSES, AND BENEFITS
3.01 BASE SALARY. For all services rendered under this Agreement during the
term of Employee's employment, the Company shall pay Employee a Base
Salary at an annual rate of: $242,000 for 1997 and $242,000 for 1998, the
1998 rate to be subject to change as determined by the Committee; plus a
Bonus as set forth in Section 3.02.
3.02 BONUSES.
(a) Company shall pay Employee a bonus for 1997 equal to 2.5% of the
Company's 1997 net income before income taxes, provided that the
maximum amount of such bonus shall be $242,000. During 1997
Company shall pay Employee a monthly advance against anticipated
1997 maximum bonus; Employee shall return to Company no later than
January 31, 1998 any amount by which the total of such advances
paid during 1997 shall exceed 1997 actual bonus.
(b) Company shall pay Employee a bonus for 1998 equal to 2.5% of the
Company's 1998 net income before income taxes, provided that the
maximum amount of such bonus shall be $242,000. During 1998
Company shall pay Employee a monthly advance against anticipated
1998 maximum bonus; Employee shall return to Company no later than
January 31, 1999 any amount by which the total of such advances
paid during 1998 shall exceed 1998 actual bonus. The Committee
may unilaterally change the bonus calculation formula and the
maximum amount in this subsection by formal resolution, but only
if done prior to November 1, 1997.
(c) If 2.5% of Company's 1996 net income before income taxes shall
exceed $220,000, the excess shall be defined as "1996 excess". If
1997 actual bonus is less than $242,000, the shortfall (or as much
thereof as is possible) shall be paid first from 1996 excess and
thereafter from 1998 excess. If 2.5% of Company's 1997 net income
before income taxes shall exceed $242,000, the excess shall be
defined as "1997 excess". The balance, if any, of 1997 excess
shall be available to pay any 1998 shortfall (or as much thereof
as is possible). If 2.5% of Company's 1998 net income before
income taxes shall exceed $242,000, the excess shall be defined as
"1998 excess".
(d) The term "actual bonus" for a year (defined as a 12 month period
ending December 31, a "Year") shall mean the actual bonus amount
calculated by reference to the applicable formula and annual
maximum for the Year, plus that part of any excess from a
different year that is used to pay all or part of a shortfall for
the Year.
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3.03 BENEFITS. In addition to other compensation to be paid under this
Article III, Employee shall be entitled to participate in all benefit
plans available to all full-time, eligible employees currently maintained
or hereafter established by the Company generally, in accordance with the
terms and conditions of such plans.
ARTICLE IV
EARLY TERMINATION
4.01 EARLY TERMINATION. Subject to the respective continuing obligations of
the parties pursuant to Articles V, VI, VII and VIII, this Article sets
forth the terms for early termination of this Agreement.
4.02 TERMINATION FOR CAUSE. The Company may terminate this Agreement and
Employee's employment immediately for cause. For the purpose hereof,
"cause" means (1) fraud, (2) theft or embezzlement of the Company's
assets, (3) willful violation of law constituting a felony, (4) the
continued failure by Employee to satisfactorily perform his duties as
reasonably assigned to Employee pursuant to Section 2.02 of Article II of
this Agreement for a period of 60 days after a written demand for such
satisfactory performance, which written demand specifically identifies
the manner in which it is alleged Employee has not satisfactorily
performed such duties. At any time during the 60 day "cure" period
described in clause (4) above, at Employee's request the responsible
Company executive officer, together with at least one member of the
Committee, shall meet in person to discuss the alleged performance
deficiencies. In the event of termination for cause pursuant to this
Section 4.02, Employee shall be paid at the usual rate of Employee's
annual Base Salary and shall receive monthly advances against the
anticipated maximum bonus (subject to the terms of Section 3.02) through
the date of termination specified in any notice of termination. In
addition, any amounts to which the Employee is entitled under any Plan
shall be continued through such date of termination in accordance with
the terms of such Plan.
4.03 TERMINATION WITHOUT CAUSE. Either Employee or the Company may terminate
this Agreement and Employee's employment without cause on seventy-five
(75) days' advance written notice. For purposes of this Section 4.03,
termination by Employee for Good Reason shall be deemed a termination by
the Company without cause. In the event of termination of this Agreement
and of Employee's employment pursuant to this Section 4.03, Employee
shall be paid at the usual rate of his annual Base Salary (subject to the
terms of Section 3.01) through the date that is one year after the date
of termination specified in the notice and shall also receive through
such date all monthly advances against the anticipated maximum bonus
(subject to the terms of Section 3.02) and all benefits under the plans.
4.04 ENTIRE TERMINATION PAYMENT. The compensation provided for in Article IV
for early termination of this Agreement shall constitute Employee's sole
remedy for such termination. Employee shall not be entitled to any other
termination or severance payment which may be payable to Employee under
any other agreement between Employee and the Company or any plan or other
policy of the Company. This Section 4.04 shall not have any effect on
vested distributions to which Employee may be entitled at termination
from any tax-qualified Plan or other Plan.
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ARTICLE V
CONFIDENTIALITY, DISCLOSURE AND ASSIGNMENT
5.01 CONFIDENTIALITY. Employee will not, during the term or after the
termination or expiration of this Agreement, publish, disclose, or
utilize in any manner any Confidential Information obtained while
employed by the Company. If Employee leaves the employ of the Company,
Employee will not, without its prior written consent, retain or take away
any drawing, writing or other record in any form containing any
Confidential Information.
5.02 BUSINESS CONDUCT AND ETHICS. During the term of employment with the
Company, Employee will engage in no activity or employment which may
conflict with the interest of the Company, and will comply with the
Company's policies and guidelines pertaining to business conduct and
ethics.
5.03 DISCLOSURE. Employee will disclose promptly in writing to the Company
all inventions, discoveries, software, writings and other works of
authorship which are conceived, made, discovered, or written jointly or
singly on the Company's business time or on Employee's own time, provided
the invention, improvement, discovery, software, writing or other work of
authorship is capable of being used by the Company or its respective
affiliates in the normal course of business, and all such inventions,
improvements, discoveries, software, writings and other works of
authorship shall belong solely to the Company.
5.04 INSTRUMENTS OF ASSIGNMENT. Employee will sign and execute all
instruments of assignment and other papers to evidence vestiture of
Employee's entire right, title and interest in such inventions,
improvements, discoveries, software, writings or other works of
authorship in the Company, at the request and the expense of the Company,
and Employee will do all acts and sign all instruments of assignment and
other papers the Company may reasonably request relating to applications
for patents, copyrights, and the enforcement and protection thereof. If
Employee is needed, at any time, to give testimony, evidence, or opinions
in any litigation or proceeding involving any patents or copyrights or
applications for patents or copyrights, both domestic and foreign,
relating to inventions, improvements, discoveries, software, writings or
other works of authorship conceived, developed or reduced to practice by
Employee, Employee agrees to do so, and if Employee leaves the employ of
the Company, the Company shall pay Employee at a rate mutually agreeable
to Employee and the Company, plus reasonable traveling or other expenses.
5.05 SURVIVAL. The obligations of this Article V shall survive the expiration
or termination of this Agreement.
ARTICLE VI
NONCOMPETITION
6.01 NONCOMPETITION. Employee agrees that for a period of two (2) years
following termination of employment with the Company for any reason,
Employee will not directly or indirectly, alone or as a partner, officer,
director, shareholder or employee of any other firm or entity, engage in
any commercial activity in competition with any part of the Company's
business
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which was under Employee's management or supervision at any time during
the term of this Agreement or any part of the Company's business with
respect to which Employee has Confidential Information as governed By
Article V of this Agreement. For purposes of this Section 6.01,
"shareholder" shall not include beneficial ownership of less than five
percent (5%) of the combined voting power of all issued and outstanding
voting securities of a publicly held corporation whose voting stock is
traded in a public market. Also for purposes of this Section 6.01, "the
Company's business" shall include business conducted by the Company and
any affiliate of the Company and any partnership or joint venture in
which the Company or any of its affiliates is a partner or joint
venturer; provided that, "affiliate" as used in this sentence shall not
include any corporation in which the Company has ownership of less than
ten (10) percent of the voting stock.
6.02 EFFECT OF TERMINATION. In the event Employee's employment terminates for
any reason, no additional compensation shall be paid for the
noncompetition obligation.
6.03 SURVIVAL. The obligations of this Article VI shall survive the
expiration or termination of this Agreement.
ARTICLE VII
CHANGE OF OWNERSHIP OF THE BUSINESS
7.01 EFFECT. In the event that substantially all of the assets of the Company
are sold (other than as a result of the sale of the stock of the Company)
to a person or entity which is not an affiliate of the Company:
(a) If Employee gives his written consent to the assignment of this
Agreement to the purchaser (and such assignment is accepted) this
Agreement shall remain in full force and effect between Employee
and the assignee.
(b) If such assignment is not accepted by the purchaser, then this
Agreement shall be deemed to have been terminated by the Company
without cause pursuant to Articles III and IV; and
(c) If a proposed assignment is accepted by the purchaser, but
Employee does not provide his written consent to such assignment
(unless such consent is withheld because the purchaser does not
have creditworthiness reasonably equivalent to the Company's and
the Company does not agree to guarantee the purchaser's
performance of the Company's payment obligations hereunder), this
Agreement shall be deemed terminated for cause pursuant to
Articles III and IV.
ARTICLE VIII
GENERAL PROVISIONS
8.01 NO ADEQUATE REMEDY. The parties declare that it is impossible to measure
in money the
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damages which will accrue to either party by reason of a failure to
perform any of the obligations under this Agreement. Therefore, if
either party shall institute any action or proceeding to enforce the
provisions hereof, such party against whom such action or proceeding is
brought hereby waives the claim or defense that such party has an
adequate remedy at law, and such party shall not urge in any such action
or proceeding the claim or defense that such party has an adequate remedy
at law.
8.02 SUCCESSORS AND ASSIGNS. Except as otherwise provided in Article VII,
this Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the Company whether by way of merger,
consolidation, operation of law, assignment, purchase or other
acquisition of substantially all of the assets or business of the
Company, and any such successor or assign shall absolutely and
unconditionally assume all of the Company's obligations hereunder.
8.03 NOTICES. All notices, requests and demands given to or made pursuant
hereto shall, except as otherwise specified herein, be in writing and be
delivered or mailed to any such party at its address which:
(a) In the case of the Company shall be:
Winthrop Resources Corporation
1015 Opus Center
9900 Bren Road East
Minnetonka, Minnesota 55343
Attention: Executive Vice President - Treasurer
(b) In the case of Employee shall be:
JOHN L. MORGAN, at the address set forth beneath his signature to
this Agreement.
Any party may, by notice hereunder, designate a changed address. Any
notice, if mailed properly addressed, postage prepaid, registered or
certified mail, shall be deemed dispatched on the registered date or that
stamped on the certified mail receipt, and shall be deemed received
within the second business day thereafter or when it is actually
received, whichever is sooner.
8.04 CAPTIONS. The various headings or captions in this Agreement are for
convenience only and shall not affect the meaning or interpretation of
this Agreement.
8.05 GOVERNING LAW. The validity, construction and performance of this
Agreement shall be governed by the laws of the State of Minnesota without
giving effect to the conflict of laws principles thereof. The parties
hereto expressly recognize and agree that the implementation of this
Governing Law provision is essential in light of the fact that the
Company's corporate headquarters and its principal executive offices are
located within the State of Minnesota, and there is a critical need for
uniformity in the interpretation and enforcement of the employment
agreements between the Company and its key employees.
8.06 CONSTRUCTION. Wherever possible, each provision of this Agreement shall
be interpreted in
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such manner as to be effective and valid under applicable law, but if
any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
8.07 WAIVERS. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder partial exercise of
any right or remedy hereunder preclude any other or further exercise
thereof or the exercise of any other right or remedy granted hereby or by
any related document or by law.
8.08 MODIFICATION. This Agreement may not be and shall not be modified or
amended except by written instrument signed by the parties hereto.
8.09 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding between the parties hereto in reference to all the matters
herein agreed upon and supersedes all prior or contemporaneous
agreements, understandings and negotiations with respect to the subject
matter hereof.
8.10 ATTORNEYS' FEES. In the event there is litigation between the parties
hereto with respect to their rights and obligations under this Agreement,
the prevailing party in any such litigation shall be entitled to recover
from the opposing party all reasonable attorneys' fees and expenses
(including fees of accountants) incurred by the prevailing party in
connection with such proceeding.
8.11 PRIOR COMPENSATION ARRANGEMENTS. This Agreement supersedes, effective
January 1, 1997, the Employment and Noncompetition Agreement dated as of
October 26, 1994 and shall not be applicable with respect to any calendar
year 1996 compensation. The Company and Employee agree that effective as
of January 1, 1997, all previous compensation agreements, contracts or
arrangements, written or informal, are terminated.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
EMPLOYEE WINTHROP RESOURCES CORPORATION
/s/ John L. Morgan By /s/ Kirk A. MacKenzie
- ----------------------------------- ----------------------------
address:
Its Vice President/Treasurer
---------------------------
4706 White Oaks Road
- -----------------------------------
Edina, MN 55424
- -----------------------------------
- -----------------------------------
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EXHIBIT 10.9
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS AGREEMENT is dated as of November 6, 1996 and is between WINTHROP
RESOURCES CORPORATION, a Minnesota corporation (the "Company") and ROBERT P.
MURPHY, an individual residing in the State of California (the "Employee").
RECITALS
A. Company wishes to continue the services of the Employee for at least the
duration of this Agreement, and the Employee wishes to provide his
services for such period.
B. Company desires reasonable protection of its confidential business and
technical information.
C. Company desires assurance that the Employee will not compete with it for
a reasonable period of time after termination of employment, and Employee
is willing to refrain from competition.
D. Employee desires to be assured of a minimum Base Salary from Company for
Employee's services for the term of this Agreement (unless earlier
terminated), and to have the opportunity to earn certain incentive
payments provided for herein.
NOW, THEREFORE, in consideration of Employee's acceptance of and continuance in
Company's employment for the term of this Agreement and the parties' agreement
to be bound by the terms contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms have the following meanings:
1.01 "BASE SALARY" shall mean regular cash compensation paid on a periodic
basis exclusive of benefits, bonuses and incentive payments.
1.02 "COMMITTEE" shall mean the Compensation and Stock Option Committee of the
Board of Directors of the Company. The Committee shall consist solely of
directors who are not employees of the Company or a Subsidiary.
1.03 "COMPANY" shall mean Winthrop Resources Corporation, and any lawful
successor in interest.
1.04 "CONFIDENTIAL INFORMATION" shall mean information or material which is
not generally available to or used by others, or the utility or value of
which is not generally known or recognized as standard practice, whether
or not the underlying details are in the public domain, including:
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(a) information or material relating to the Company, and its
businesses as conducted or anticipated to be conducted, business
plans, operations, past, current or anticipated software, products
or services, customers or prospective customers, or research,
engineering, development, manufacturing, purchasing, accounting,
or marketing activities;
(b) information or material relating to the Company's inventions,
improvements, discoveries, "know-how," technological developments,
or unpublished writings or other works of authorship, or to the
materials, apparatus, processes, formulae, plans or methods used
in the development, manufacture or marketing of the Company's
software, products or services;
(c) information which when received is marked as "proprietary,"
"private," or "confidential";
(d) trade secrets;
(e) software in various stages of development, including computer
programs in source code and binary code form, software designs,
specifications, programming aids (including "library subroutines"
and productivity tools), programming languages, interfaces, visual
displays, technical documentation, user manuals, data files and
databases; and
(f) any similar information of the type described above which the
Company obtained from another party and which the Company treats
as or designates as being proprietary, private or confidential,
whether or not owned or developed by the Company.
Notwithstanding the foregoing, "Confidential Information" does not
include any information which is properly published or in the public
domain; provided, however, that information which is published by or with
the aid of Employee outside the scope of employment or contrary to the
requirements of this Agreement will not be considered to have been
properly published, and therefore will not be in the public domain for
purposes of this Agreement.
1.05 "DISABILITY" shall mean the inability, as reasonably determined by the
Company, of Employee to perform his duties under this Agreement because
of illness or incapacity for a continuous period of six (6) months. In
the event that Employee objects that the Company has not reasonably
determined Employee's inability to perform his duties, the issue shall be
determined by three physicians, one selected by the Company, one by
Employee, and the third selected by the first two. The majority opinion
of the three physicians shall be final and binding on the Company and
Employee.
1.06 "GOOD REASON" shall mean a termination by Employee after one or more of
the following events has occurred without Employee's concurrence, and
has remained uncorrected for a period of thirty days after Employee
provides written notice of such occurrence to the Company; (1) an
adverse change in Employee's status or position as an executive officer
of the Company, including without limitation any adverse change in
Employee's status or position as a result of material diminution in
Employee's duties, responsibilities or authority
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as compared to the same as in effect of the date of this Agreement (or as
compared to any status or position to which Employee may be promoted
after the date hereof); or (2) the Company requiring Employee, without
his consent, to relocate his principal office, or the principal situs for
the performance of his duties, more than 20 miles from its current
location in Santa Barbara, California.
1.07 "PLAN" shall mean any profit sharing, pension, life insurance, accident
insurance, disability insurance, health insurance, hospitalization,
medical reimbursement or other employee benefit plan including, without
limitation, the Company's 401(k) Plan.
1.08 "SUBSIDIARY" shall mean; (a) any corporation at least a majority of
whose securities having ordinary voting power for the election of
directors (other than securities having such power only by reason of the
occurrence of a contingency) is at the time owned by the Company and/or
one or more Subsidiaries thereof; and (b) any division or business unit
(or portion thereof) of the Company or a corporation described in clause
(a) of this Section 1.08.
ARTICLE II
EMPLOYMENT, DUTIES AND TERM
2.01 EMPLOYMENT, POSITION. Upon the terms and conditions set forth in this
Agreement, the Company hereby employs Employee, and Employee accepts such
employment. During the term of this Agreement, Employee shall serve as a
senior executive officer of the Company, with his title to be determined
from time to time by the Committee. Termination of this Agreement prior
to the end of the term stated in Section 2.03 by either party shall also
terminate Employee's employment by the Company.
2.02 DUTIES.
(a) Employee shall devote his full-time and reasonable best efforts to
the Company and to fulfilling the duties of his position which
shall include such duties with respect to the Company as may from
time to time be assigned him by the Committee, provided that such
duties are reasonably consistent with Employee's education,
experience and background.
(b) Employee shall operate the business of the Company in the best
interests of the Company and its shareholders.
(c) Employee shall comply with the Company's policies and procedures
to the extent they are not inconsistent with this Agreement in
which case the provisions of this Agreement prevail. In addition,
Employee shall comply with the Company's policies on employee
conduct and business ethics.
2.03 TERM. The initial term of this Agreement shall commence January 1, 1997
and run for two (2) years unless terminated as provided in this
agreement. Commencing each second January 1 after January 1, 1997, the
term of Employee's employment hereunder shall be automatically
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extended for two (2) additional years unless on or before the November 1
immediately preceding any such January 1 either party gives written
notice to the other of the cessation of further extensions, in which case
no further extensions shall occur.
ARTICLE III
BASE COMPENSATION, EXPENSES, AND BENEFITS
3.01 BASE SALARY. For all services rendered under this Agreement during the
term of Employee's employment, the Company shall pay Employee a Base
Salary at an annual rate of: $242,000 for 1997, and $242,000 for 1998,
the 1998 rate to be subject to change as determined by the Committee;
plus a Bonus as set forth in Section 3.02.
3.02 BONUSES.
(a) Company shall pay Employee a bonus for 1997 equal to 2.5% of the
Company's 1997 net income before income taxes, provided that the
maximum amount of such bonus shall be $242,000. During 1997
Company shall pay Employee a monthly advance against anticipated
1997 maximum bonus; Employee shall return to Company no later than
January 31, 1998 any amount by which the total of such advances
paid during 1997 shall exceed 1997 actual bonus.
(b) Company shall pay Employee a bonus for 1998 equal to 2.5% of the
Company's 1998 net income before income taxes, provided that the
maximum amount of such bonus shall be $242,000. During 1998
Company shall pay Employee a monthly advance against anticipated
1998 maximum bonus; Employee shall return to Company no later than
January 31, 1999 any amount by which the total of such advances
paid during 1998 shall exceed 1998 actual bonus. The Committee
may unilaterally change the bonus calculation formula and the
maximum amount in this subsection by formal resolution, but only
if done prior to November 1, 1997.
(c) If 2.5% of Company's 1996 net income before income taxes shall
exceed $220,000, the excess shall be defined as "1996 excess". If
1997 actual bonus is less than $242,000, the shortfall (or as much
thereof as is possible) shall be paid first from 1996 excess and
thereafter from 1998 excess. If 2.5% of Company's 1997 net income
before income taxes shall exceed $242,000, the excess shall be
defined as "1997 excess". The balance, if any, of 1997 excess
shall be available to pay any 1998 shortfall (or as much thereof
as is possible). If 2.5% of Company's 1998 net income before
income taxes shall exceed $242,000, the excess shall be defined as
"1998 excess".
(d) The term "actual bonus" for a year (defined as a 12 month period
ending December 31, a "Year") shall mean the actual bonus amount
calculated by reference to the applicable formula and annual
maximum for the Year, plus that part of any excess from a
different year that is used to pay all or part of a shortfall for
the Year.
3.03 BENEFITS. In addition to other compensation to be paid under this
Article III, Employee shall
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be entitled to participate in all benefit plans available to all full-
time, eligible employees currently maintained or hereafter established by
the Company generally, in accordance with the terms and conditions of
such plans.
ARTICLE IV
EARLY TERMINATION
4.01 EARLY TERMINATION. Subject to the respective continuing obligations of
the parties pursuant to Articles V, VI, VII and VIII, this Article sets
forth the terms for early termination of this Agreement.
4.02 TERMINATION FOR CAUSE. The Company may terminate this Agreement and
Employee's employment immediately for cause. For the purpose hereof,
"cause" means (1) fraud, (2) theft or embezzlement of the Company's
assets, (3) willful violation of law constituting a felony, (4) the
continued failure by Employee to satisfactorily perform his duties as
reasonably assigned to Employee pursuant to Section 2.02 of Article II of
this Agreement for a period of 60 days after a written demand for such
satisfactory performance, which written demand specifically identifies
the manner in which it is alleged Employee has not satisfactorily
performed such duties. At any time during the 60 day "cure" period
described in clause (4) above, at Employee's request the responsible
Company executive officer, together with at least one member of the
Committee, shall meet in person to discuss the alleged performance
deficiencies. In the event of termination for cause pursuant to this
Section 4.02, Employee shall be paid at the usual rate of Employee's
annual Base Salary and shall receive monthly advances against the
anticipated maximum bonus (subject to the terms of Section 3.02) through
the date of termination specified in any notice of termination. In
addition, any amounts to which the Employee is entitled under any Plan
shall be continued through such date of termination in accordance with
the terms of such Plan.
4.03 TERMINATION WITHOUT CAUSE. Either Employee or the Company may terminate
this Agreement and Employee's employment without cause on seventy-five
(75) days' advance written notice. For purposes of this Section 4.03,
termination by Employee for Good Reason shall be deemed a termination by
the Company without cause. In the event of termination of this Agreement
and of Employee's employment pursuant to this Section 4.03, Employee
shall be paid at the usual rate of his annual Base Salary (subject to the
terms of Section 3.01) through the date that is one year after the date
of termination specified in the notice (final date) and shall also
receive through such final date all monthly advances against the
anticipated maximum bonus (subject to the terms of Section 3.02) and all
benefits under the plans.
4.04 ENTIRE TERMINATION PAYMENT. The compensation provided for in Article IV
for early termination of this Agreement shall constitute Employee's sole
remedy for such termination. Employee shall not be entitled to any other
termination or severance payment which may be payable to Employee under
any other agreement between Employee and the Company or any plan or other
policy of the Company. This Section 4.04 shall not have any effect on
vested distributions to which Employee may be entitled at termination
from any tax-qualified Plan or other Plan.
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4.05 SEVERANCE PAYMENT UPON EXPIRATION OF AGREEMENT. Notice by the Company at
any time to not extend this Agreement for a new two year term will be
deemed a termination by the Company without cause and will result in the
same full payment to Employee as specified in Article IV, Paragraph 4.03.
ARTICLE V
CONFIDENTIALITY, DISCLOSURE AND ASSIGNMENT
5.01 CONFIDENTIALITY. Employee will not, during the term or after the
termination or expiration of this Agreement, publish, disclose, or
utilize in any manner any Confidential Information obtained while
employed by the Company. If Employee leaves the employ of the Company,
Employee will not, without its prior written consent, retain or take away
any drawing, writing or other record in any form containing any
Confidential Information.
5.02 BUSINESS CONDUCT AND ETHICS. During the term of employment with the
Company, Employee will engage in no activity or employment which may
conflict with the interest of the Company, and will comply with the
Company's policies and guidelines pertaining to business conduct and
ethics.
5.03 DISCLOSURE. Employee will disclose promptly in writing to the Company
all inventions, discoveries, software, writings and other works of
authorship which are conceived, made, discovered, or written jointly or
singly on the Company's business time or on Employee's own time, provided
the invention, improvement, discovery, software, writing or other work of
authorship is capable of being used by the Company or its respective
affiliates in the normal course of business, and all such inventions,
improvements, discoveries, software, writings and other works of
authorship shall belong solely to the Company.
5.04 INSTRUMENTS OF ASSIGNMENT. Employee will sign and execute all
instruments of assignment and other papers to evidence vestiture of
Employee's entire right, title and interest in such inventions,
improvements, discoveries, software, writings or other works of
authorship in the Company, at the request and the expense of the Company,
and Employee will do all acts and sign all instruments of assignment and
other papers the Company may reasonably request relating to applications
for patents, copyrights, and the enforcement and protection thereof. If
Employee is needed, at any time, to give testimony, evidence, or opinions
in any litigation or proceeding involving any patents or copyrights or
applications for patents or copyrights, both domestic and foreign,
relating to inventions, improvements, discoveries, software, writings or
other works of authorship conceived, developed or reduced to practice by
Employee, Employee agrees to do so, and if Employee leaves the employ of
the Company, the Company shall pay Employee at a rate mutually agreeable
to Employee and the Company, plus reasonable traveling or other expenses.
5.05 SURVIVAL. The obligations of this Article V shall survive the expiration
or termination of this Agreement.
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ARTICLE VI
NONCOMPETITION
6.01 NONCOMPETITION. Employee agrees that for a period of one (1) year
following termination of employment with the Company for any reason,
Employee will not directly or indirectly, alone or as a partner, officer,
director, shareholder or employee of any other firm or entity, engage in
any commercial activity in competition with any part of the Company's
business which was under Employee's management or supervision at any time
during the term of this Agreement or any part of the Company's business
with respect to which Employee has Confidential Information as governed
By Article V of this Agreement. For purposes of this Section 6.01,
"shareholder" shall not include beneficial ownership of less than five
percent (5%) of the combined voting power of all issued and outstanding
voting securities of a publicly held corporation whose voting stock is
traded in a public market. Also for purposes of this Section 6.01, "the
Company's business" shall include business conducted by the Company and
any affiliate of the Company and any partnership or joint venture in
which the Company or any of its affiliates is a partner or joint
venturer; provided that, "affiliate" as used in this sentence shall not
include any corporation in which the Company has ownership of less than
ten (10) percent of the voting stock.
6.02 EFFECT OF TERMINATION. In the event Employee's employment terminates for
any reason, no additional compensation shall be paid for the
noncompetition obligation.
6.03 SURVIVAL. The obligations of this Article VI shall survive the
expiration or termination of this Agreement.
ARTICLE VII
CHANGE OF OWNERSHIP OF THE BUSINESS
7.01 EFFECT. In the event that substantially all of the assets of the Company
are sold (other than as a result of the sale of the stock of the Company)
to a person or entity which is not an affiliate of the Company:
(a) If Employee gives his written consent to the assignment of this
Agreement to the purchaser (and such assignment is accepted) this
Agreement shall remain in full force and effect between Employee
and the assignee.
(b) If such assignment is not accepted by the purchaser, then this
Agreement shall be deemed to have been terminated by the Company
without cause pursuant to Articles III and IV; and
(c) If a proposed assignment is accepted by the purchaser, but
Employee does not provide his written consent to such assignment
(unless such consent is withheld because the purchaser does not
have creditworthiness reasonably equivalent to the Company's and
the Company does not agree to guarantee the purchaser's
performance of the Company's payment obligations hereunder), this
Agreement shall be deemed terminated for cause pursuant to
Articles III and IV.
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ARTICLE VIII
GENERAL PROVISIONS
8.01 NO ADEQUATE REMEDY. The parties declare that it is impossible to measure
in money the damages which will accrue to either party by reason of a
failure to perform any of the obligations under this Agreement.
Therefore, if either party shall institute any action or proceeding to
enforce the provisions hereof, such party against whom such action or
proceeding is brought hereby waives the claim or defense that such party
has an adequate remedy at law, and such party shall not urge in any such
action or proceeding the claim or defense that such party has an adequate
remedy at law.
8.02 SUCCESSORS AND ASSIGNS. Except as otherwise provided in Article VII,
this Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the Company whether by way of merger,
consolidation, operation of law, assignment, purchase or other
acquisition of substantially all of the assets or business of the
Company, and any such successor or assign shall absolutely and
unconditionally assume all of the Company's obligations hereunder.
8.03 NOTICES. All notices, requests and demands given to or made pursuant
hereto shall, except as otherwise specified herein, be in writing and be
delivered or mailed to any such party at its address which:
(a) In the case of the Company shall be:
Winthrop Resources Corporation
1015 Opus Center
9900 Bren Road East
Minnetonka, Minnesota 55343
Attention: President
(b) In the case of Employee shall be:
ROBERT P. MURPHY, at the address set forth beneath his signature
to this Agreement.
Any party may, by notice hereunder, designate a changed address. Any
notice, if mailed properly addressed, postage prepaid, registered or
certified mail, shall be deemed dispatched on the registered date or that
stamped on the certified mail receipt, and shall be deemed received
within the second business day thereafter or when it is actually
received, whichever is sooner.
8.04 CAPTIONS. The various headings or captions in this Agreement are for
convenience only and shall not affect the meaning or interpretation of
this Agreement.
8.05 GOVERNING LAW. The validity, construction and performance of this
Agreement shall be governed by the laws of the State of Minnesota without
giving effect to the conflict of laws principles thereof. The parties
hereto expressly recognize and agree that the implementation of this
Governing Law provision is essential in light of the fact that the
Company's corporate
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headquarters and its principal executive offices are located within the
State of Minnesota, and there is a critical need for uniformity in the
interpretation and enforcement of the employment agreements between the
Company and its key employees.
8.06 CONSTRUCTION. Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions
of this Agreement.
8.07 WAIVERS. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder partial exercise of
any right or remedy hereunder preclude any other or further exercise
thereof or the exercise of any other right or remedy granted hereby or by
any related document or by law.
8.08 MODIFICATION. This Agreement may not be and shall not be modified or
amended except by written instrument signed by the parties hereto.
8.09 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding between the parties hereto in reference to all the matters
herein agreed upon and supersedes all prior or contemporaneous
agreements, understandings and negotiations with respect to the subject
matter hereof.
8.10 ATTORNEYS' FEES. In the event there is litigation between the parties
hereto with respect to their rights and obligations under this Agreement,
the prevailing party in any such litigation shall be entitled to recover
from the opposing party all reasonable attorneys' fees and expenses
(including fees of accountants) incurred by the prevailing party in
connection with such proceeding.
8.11 PRIOR COMPENSATION ARRANGEMENTS. This Agreement supersedes, effective
January 1, 1997, the Employment and Noncompetition Agreement dated as of
October 26, 1994 and shall not be applicable with respect to any calendar
year 1996 compensation. The Company and Employee agree that effective as
of January 1, 1997, all previous compensation agreements, contracts or
arrangements, written or informal, are terminated.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
EMPLOYEE WINTHROP RESOURCES CORPORATION
/s/ Robert P. Murphy By /s/ John L. Morgan
- ----------------------------------- ----------------------------
address:
Its President
---------------------------
4520 Via Huerto
- -----------------------------------
Santa Barbara, CA 93110
- -----------------------------------
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- -----------------------------------
- -----------------------------------
- -----------------------------------
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EXHIBIT 10.10
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS AGREEMENT is dated as of November 6, 1996 and is between WINTHROP
RESOURCES CORPORATION, a Minnesota corporation (the "Company") and JACK A.
NORQUAL, an individual residing in the State of Minnesota (the "Employee").
RECITALS
A. Company wishes to continue the services of the Employee for at least the
duration of this Agreement, and the Employee wishes to provide his
services for such period.
B. Company desires reasonable protection of its confidential business and
technical information.
C. Company desires assurance that the Employee will not compete with it for
a reasonable period of time after termination of employment, and Employee
is willing to refrain from competition.
D. Employee desires to be assured of a minimum Base Salary from Company for
Employee's services for the term of this Agreement (unless earlier
terminated), and to have the opportunity to earn certain incentive
payments provided for herein.
NOW, THEREFORE, in consideration of Employee's acceptance of and continuance in
Company's employment for the term of this Agreement and the parties' agreement
to be bound by the terms contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms have the following meanings:
1.01 "BASE SALARY" shall mean regular cash compensation paid on a periodic
basis exclusive of benefits, bonuses and incentive payments.
1.02 "COMMITTEE" shall mean the Compensation and Stock Option Committee of the
Board of Directors of the Company. The Committee shall consist solely of
directors who are not employees of the Company or a Subsidiary.
1.03 "COMPANY" shall mean Winthrop Resources Corporation, and any lawful
successor in interest.
1.04 "CONFIDENTIAL INFORMATION" shall mean information or material which is
not generally available to or used by others, or the utility or value of
which is not generally known or recognized as standard practice, whether
or not the underlying details are in the public domain, including:
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(a) information or material relating to the Company, and its
businesses as conducted or anticipated to be conducted, business
plans, operations, past, current or anticipated software, products
or services, customers or prospective customers, or research,
engineering, development, manufacturing, purchasing, accounting,
or marketing activities;
(b) information or material relating to the Company's inventions,
improvements, discoveries, "know-how," technological developments,
or unpublished writings or other works of authorship, or to the
materials, apparatus, processes, formulae, plans or methods used
in the development, manufacture or marketing of the Company's
software, products or services;
(c) information which when received is marked as "proprietary,"
"private," or "confidential";
(d) trade secrets;
(e) software in various stages of development, including computer
programs in source code and binary code form, software designs,
specifications, programming aids (including "library subroutines"
and productivity tools), programming languages, interfaces, visual
displays, technical documentation, user manuals, data files and
databases; and
(f) any similar information of the type described above which the
Company obtained from another party and which the Company treats
as or designates as being proprietary, private or confidential,
whether or not owned or developed by the Company.
Notwithstanding the foregoing, "Confidential Information" does not
include any information which is properly published or in the public
domain; provided, however, that information which is published by or with
the aid of Employee outside the scope of employment or contrary to the
requirements of this Agreement will not be considered to have been
properly published, and therefore will not be in the public domain for
purposes of this Agreement.
1.05 "DISABILITY" shall mean the inability, as reasonably determined by the
Company, of Employee to perform his duties under this Agreement because
of illness or incapacity for a continuous period of six (6) months. In
the event that Employee objects that the Company has not reasonably
determined Employee's inability to perform his duties, the issue shall be
determined by three physicians, one selected by the Company, one by
Employee, and the third selected by the first two. The majority opinion
of the three physicians shall be final and binding on the Company and
Employee.
1.06 "GOOD REASON" shall mean a termination by Employee after one or more of
the following events has occurred without Employee's concurrence, and
has remained uncorrected for a period of thirty days after Employee
provides written notice of such occurrence to the Company; (1) an
adverse change in Employee's status or position as an executive officer
of the Company, including without limitation any adverse change in
Employee's status or position as a result of material diminution in
Employee's duties, responsibilities or authority
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as compared to the same as in effect of the date of this Agreement (or as
compared to any status or position to which Employee may be promoted
after the date hereof); or (2) the Company requiring Employee, without
his consent, to relocate his principal office, or the principal situs for
the performance of his duties, more than 20 miles from the current
corporate offices of the Company unless such relocation requirement is
made in conjunction with a relocation of the Company corporate offices
substantially as a whole.
1.07 "PLAN" shall mean any profit sharing, pension, life insurance, accident
insurance, disability insurance, health insurance, hospitalization,
medical reimbursement or other employee benefit plan including, without
limitation, the Company's 401(k) Plan.
1.08 "SUBSIDIARY" shall mean; (a) any corporation at least a majority of
whose securities having ordinary voting power for the election of
directors (other than securities having such power only by reason of the
occurrence of a contingency) is at the time owned by the Company and/or
one or more Subsidiaries thereof; and (b) any division or business unit
(or portion thereof) of the Company or a corporation described in clause
(a) of this Section 1.08.
ARTICLE II
EMPLOYMENT, DUTIES AND TERM
2.01 EMPLOYMENT, POSITION. Upon the terms and conditions set forth in this
Agreement, the Company hereby employs Employee, and Employee accepts such
employment. During the term of this Agreement, Employee shall serve as a
senior executive officer of the Company, with his title to be determined
from time to time by the Committee. Termination of this Agreement prior
to the end of the term stated in Section 2.03 by either party shall also
terminate Employee's employment by the Company.
2.02 DUTIES.
(a) Employee shall devote his full-time and reasonable best efforts to
the Company and to fulfilling the duties of his position which
shall include such duties with respect to the Company as may from
time to time be assigned him by the Committee, provided that such
duties are reasonably consistent with Employee's education,
experience and background.
(b) Employee shall operate the business of the Company in the best
interests of the Company and its shareholders.
(c) Employee shall comply with the Company's policies and procedures
to the extent they are not inconsistent with this Agreement in
which case the provisions of this Agreement prevail. In addition,
Employee shall comply with the Company's policies on employee
conduct and business ethics.
2.03 TERM. The term of this Agreement shall commence January 1, 1997 and run
for two (2) years unless terminated as provided in this agreement.
Commencing each second January
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1 after January 1, 1997, the term of Employee's employment hereunder
shall be automatically extended for two (2) additional years unless on or
before the November 1 immediately preceding any such January 1 either
party gives written notice to the other of the cessation of further
extensions, in which case no further extensions shall occur.
ARTICLE III
BASE COMPENSATION, EXPENSES, AND BENEFITS
3.01 BASE SALARY. For all services rendered under this Agreement during the
term of Employee's employment, the Company shall pay Employee a Base
Salary at an annual rate of: $242,000 for 1997 and $242,000 for 1998, the
1998 rate to be subject to change as determined by the Committee; plus a
Bonus as set forth in Section 3.02.
3.02 BONUSES.
(a) Company shall pay Employee a bonus for 1997 equal to 2.5% of the
Company's 1997 net income before income taxes, provided that the
maximum amount of such bonus shall be $242,000. During 1997
Company shall pay Employee a monthly advance against anticipated
1997 maximum bonus; Employee shall return to Company no later than
January 31, 1998 any amount by which the total of such advances
paid during 1997 shall exceed 1997 actual bonus.
(b) Company shall pay Employee a bonus for 1998 equal to 2.5% of the
Company's 1998 net income before income taxes, provided that the
maximum amount of such bonus shall be $242,000. During 1998
Company shall pay Employee a monthly advance against anticipated
1998 maximum bonus; Employee shall return to Company no later than
January 31, 1999 any amount by which the total of such advances
paid during 1998 shall exceed 1998 actual bonus. The Committee
may unilaterally change the bonus calculation formula and the
maximum amount in this subsection by formal resolution, but only
if done prior to November 1, 1997.
(c) If 2.5% of Company's 1996 net income before income taxes shall
exceed $220,000, the excess shall be defined as "1996 excess". If
1997 actual bonus is less than $242,000, the shortfall (or as much
thereof as is possible) shall be paid first from 1996 excess and
thereafter from 1998 excess. If 2.5% of Company's 1997 net income
before income taxes shall exceed $242,000, the excess shall be
defined as "1997 excess". The balance, if any, of 1997 excess
shall be available to pay any 1998 shortfall (or as much thereof
as is possible). If 2.5% of Company's 1998 net income before
income taxes shall exceed $242,000, the excess shall be defined as
"1998 excess".
(d) The term "actual bonus" for a year (defined as a 12 month period
ending December 31, a "Year") shall mean the actual bonus amount
calculated by reference to the applicable formula and annual
maximum for the Year, plus that part of any excess from a
different year that is used to pay all or part of a shortfall for
the Year.
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<PAGE>
3.03 BENEFITS. In addition to other compensation to be paid under this
Article III, Employee shall be entitled to participate in all benefit
plans available to all full-time, eligible employees currently maintained
or hereafter established by the Company generally, in accordance with the
terms and conditions of such plans.
ARTICLE IV
EARLY TERMINATION
4.01 EARLY TERMINATION. Subject to the respective continuing obligations of
the parties pursuant to Articles V, VI, VII and VIII, this Article sets
forth the terms for early termination of this Agreement.
4.02 TERMINATION FOR CAUSE. The Company may terminate this Agreement and
Employee's employment immediately for cause. For the purpose hereof,
"cause" means (1) fraud, (2) theft or embezzlement of the Company's
assets, (3) willful violation of law constituting a felony, (4) the
continued failure by Employee to satisfactorily perform his duties as
reasonably assigned to Employee pursuant to Section 2.02 of Article II of
this Agreement for a period of 60 days after a written demand for such
satisfactory performance, which written demand specifically identifies
the manner in which it is alleged Employee has not satisfactorily
performed such duties. At any time during the 60 day "cure" period
described in clause (4) above, at Employee's request the responsible
Company executive officer, together with at least one member of the
Committee, shall meet in person to discuss the alleged performance
deficiencies. In the event of termination for cause pursuant to this
Section 4.02, Employee shall be paid at the usual rate of Employee's
annual Base Salary and shall receive monthly advances against the
anticipated maximum bonus (subject to the terms of Section 3.02) through
the date of termination specified in any notice of termination. In
addition, any amounts to which the Employee is entitled under any Plan
shall be continued through such date of termination in accordance with
the terms of such Plan.
4.03 TERMINATION WITHOUT CAUSE. Either Employee or the Company may terminate
this Agreement and Employee's employment without cause on seventy-five
(75) days' advance written notice. For purposes of this Section 4.03,
termination by Employee for Good Reason shall be deemed a termination by
the Company without cause. In the event of termination of this Agreement
and of Employee's employment pursuant to this Section 4.03, Employee
shall be paid at the usual rate of his annual Base Salary (subject to the
terms of Section 3.01) through the date that is one year after the date
of termination specified in the notice and shall also receive through
such date all monthly advances against the anticipated maximum bonus
(subject to the terms of Section 3.02) and all benefits under the plans.
4.04 ENTIRE TERMINATION PAYMENT. The compensation provided for in Article IV
for early termination of this Agreement shall constitute Employee's sole
remedy for such termination. Employee shall not be entitled to any other
termination or severance payment which may be payable to Employee under
any other agreement between Employee and the Company or any plan or other
policy of the Company. This Section 4.04 shall not have any effect on
vested distributions to which Employee may be entitled at termination
from any tax-qualified Plan or other Plan.
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ARTICLE V
CONFIDENTIALITY, DISCLOSURE AND ASSIGNMENT
5.01 CONFIDENTIALITY. Employee will not, during the term or after the
termination or expiration of this Agreement, publish, disclose, or
utilize in any manner any Confidential Information obtained while
employed by the Company. If Employee leaves the employ of the Company,
Employee will not, without its prior written consent, retain or take away
any drawing, writing or other record in any form containing any
Confidential Information.
5.02 BUSINESS CONDUCT AND ETHICS. During the term of employment with the
Company, Employee will engage in no activity or employment which may
conflict with the interest of the Company, and will comply with the
Company's policies and guidelines pertaining to business conduct and
ethics.
5.03 DISCLOSURE. Employee will disclose promptly in writing to the Company
all inventions, discoveries, software, writings and other works of
authorship which are conceived, made, discovered, or written jointly or
singly on the Company's business time or on Employee's own time, provided
the invention, improvement, discovery, software, writing or other work of
authorship is capable of being used by the Company or its respective
affiliates in the normal course of business, and all such inventions,
improvements, discoveries, software, writings and other works of
authorship shall belong solely to the Company.
5.04 INSTRUMENTS OF ASSIGNMENT. Employee will sign and execute all
instruments of assignment and other papers to evidence vestiture of
Employee's entire right, title and interest in such inventions,
improvements, discoveries, software, writings or other works of
authorship in the Company, at the request and the expense of the Company,
and Employee will do all acts and sign all instruments of assignment and
other papers the Company may reasonably request relating to applications
for patents, copyrights, and the enforcement and protection thereof. If
Employee is needed, at any time, to give testimony, evidence, or opinions
in any litigation or proceeding involving any patents or copyrights or
applications for patents or copyrights, both domestic and foreign,
relating to inventions, improvements, discoveries, software, writings or
other works of authorship conceived, developed or reduced to practice by
Employee, Employee agrees to do so, and if Employee leaves the employ of
the Company, the Company shall pay Employee at a rate mutually agreeable
to Employee and the Company, plus reasonable traveling or other expenses.
5.05 SURVIVAL. The obligations of this Article V shall survive the expiration
or termination of this Agreement.
ARTICLE VI
NONCOMPETITION
6.01 NONCOMPETITION. Employee agrees that for a period of two (2) years
following termination of employment with the Company for any reason,
Employee will not directly or indirectly, alone or as a partner, officer,
director, shareholder or employee of any other firm or entity, engage in
any commercial activity in competition with any part of the Company's
business
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which was under Employee's management or supervision at any time during
the term of this Agreement or any part of the Company's business with
respect to which Employee has Confidential Information as governed By
Article V of this Agreement. For purposes of this Section 6.01,
"shareholder" shall not include beneficial ownership of less than five
percent (5%) of the combined voting power of all issued and outstanding
voting securities of a publicly held corporation whose voting stock is
traded in a public market. Also for purposes of this Section 6.01, "the
Company's business" shall include business conducted by the Company and
any affiliate of the Company and any partnership or joint venture in
which the Company or any of its affiliates is a partner or joint
venturer; provided that, "affiliate" as used in this sentence shall not
include any corporation in which the Company has ownership of less than
ten (10) percent of the voting stock.
6.02 EFFECT OF TERMINATION. In the event Employee's employment terminates for
any reason, no additional compensation shall be paid for the
noncompetition obligation.
6.03 SURVIVAL. The obligations of this Article VI shall survive the
expiration or termination of this Agreement.
ARTICLE VII
CHANGE OF OWNERSHIP OF THE BUSINESS
7.01 EFFECT. In the event that substantially all of the assets of the Company
are sold (other than as a result of the sale of the stock of the Company)
to a person or entity which is not an affiliate of the Company:
(a) If Employee gives his written consent to the assignment of this
Agreement to the purchaser (and such assignment is accepted) this
Agreement shall remain in full force and effect between Employee
and the assignee.
(b) If such assignment is not accepted by the purchaser, then this
Agreement shall be deemed to have been terminated by the Company
without cause pursuant to Articles III and IV; and
(c) If a proposed assignment is accepted by the purchaser, but
Employee does not provide his written consent to such assignment
(unless such consent is withheld because the purchaser does not
have creditworthiness reasonably equivalent to the Company's and
the Company does not agree to guarantee the purchaser's
performance of the Company's payment obligations hereunder), this
Agreement shall be deemed terminated for cause pursuant to
Articles III and IV.
ARTICLE VIII
GENERAL PROVISIONS
8.01 NO ADEQUATE REMEDY. The parties declare that it is impossible to measure
in money the
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damages which will accrue to either party by reason of a failure to
perform any of the obligations under this Agreement. Therefore, if
either party shall institute any action or proceeding to enforce the
provisions hereof, such party against whom such action or proceeding is
brought hereby waives the claim or defense that such party has an
adequate remedy at law, and such party shall not urge in any such action
or proceeding the claim or defense that such party has an adequate remedy
at law.
8.02 SUCCESSORS AND ASSIGNS. Except as otherwise provided in Article VII,
this Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the Company whether by way of merger,
consolidation, operation of law, assignment, purchase or other
acquisition of substantially all of the assets or business of the
Company, and any such successor or assign shall absolutely and
unconditionally assume all of the Company's obligations hereunder.
8.03 NOTICES. All notices, requests and demands given to or made pursuant
hereto shall, except as otherwise specified herein, be in writing and be
delivered or mailed to any such party at its address which:
(a) In the case of the Company shall be:
Winthrop Resources Corporation
1015 Opus Center
9900 Bren Road East
Minnetonka, Minnesota 55343
Attention: President
(b) In the case of Employee shall be:
JACK A. NORQUAL, at the address set forth beneath his signature to
this Agreement.
Any party may, by notice hereunder, designate a changed address. Any
notice, if mailed properly addressed, postage prepaid, registered or
certified mail, shall be deemed dispatched on the registered date or that
stamped on the certified mail receipt, and shall be deemed received
within the second business day thereafter or when it is actually
received, whichever is sooner.
8.04 CAPTIONS. The various headings or captions in this Agreement are for
convenience only and shall not affect the meaning or interpretation of
this Agreement.
8.05 GOVERNING LAW. The validity, construction and performance of this
Agreement shall be governed by the laws of the State of Minnesota without
giving effect to the conflict of laws principles thereof. The parties
hereto expressly recognize and agree that the implementation of this
Governing Law provision is essential in light of the fact that the
Company's corporate headquarters and its principal executive offices are
located within the State of Minnesota, and there is a critical need for
uniformity in the interpretation and enforcement of the employment
agreements between the Company and its key employees.
8.06 CONSTRUCTION. Wherever possible, each provision of this Agreement shall
be interpreted in
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such manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
8.07 WAIVERS. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder partial exercise of
any right or remedy hereunder preclude any other or further exercise
thereof or the exercise of any other right or remedy granted hereby or by
any related document or by law.
8.08 MODIFICATION. This Agreement may not be and shall not be modified or
amended except by written instrument signed by the parties hereto.
8.09 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding between the parties hereto in reference to all the matters
herein agreed upon and supersedes all prior or contemporaneous
agreements, understandings and negotiations with respect to the subject
matter hereof.
8.10 ATTORNEYS' FEES. In the event there is litigation between the parties
hereto with respect to their rights and obligations under this Agreement,
the prevailing party in any such litigation shall be entitled to recover
from the opposing party all reasonable attorneys' fees and expenses
(including fees of accountants) incurred by the prevailing party in
connection with such proceeding.
8.11 PRIOR COMPENSATION ARRANGEMENTS. This Agreement supersedes, effective
January 1, 1997, the Employment and Noncompetition Agreement dated as of
October 26, 1994 and shall not be applicable with respect to any calendar
year 1996 compensation. The Company and Employee agree that effective as
of January 1, 1997, all previous compensation agreements, contracts or
arrangements, written or informal, are terminated.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
EMPLOYEE WINTHROP RESOURCES CORPORATION
/s/ Jack A. Norqual By /s/ John L. Morgan
- ----------------------------------- ----------------------------
address:
Its President
---------------------------
9493 Olympia Drive
- -----------------------------------
Eden Prairie, MN 55347
- -----------------------------------
- -----------------------------------
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EXHIBIT 11
WINTHROP RESOURCES CORPORATION
COMPUTATION OF EARNINGS PER SHARE
The per share computations are based on the weighted average number of common
shares outstanding during the period.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Common shares outstanding at beginning of year . . . . . . . 7,882,900 7,978,500 8,050,000
Shares issued upon exercise of stock options . . . . . . . . 10,500 --- 14,166
Shares retired upon repurchase by the Company. . . . . . . . (43,100) (95,600) (85,666)
Issuance of common shares under public stock offering. . . . 750,000 --- ---
----------- ----------- -----------
Common shares outstanding at end of year . . . . . . . . . . 8,600,300 7,882,900 7,978,500
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of common shares outstanding . . . . 8,236,572 7,911,854 8,047,326
----------- ----------- -----------
----------- ----------- -----------
PRIMARY EARNINGS PER SHARE:
Weighted average common shares outstanding . . . . . . . . . 8,236,572 7,911,854 8,047,326
Effect of dilutive options . . . . . . . . . . . . . . . . . 132,747 * *
----------- ----------- -----------
Total. . . . . . . . . . . . . . . . . . . . . . . 8,369,319 7,911,854 8,047,326
----------- ----------- -----------
----------- ----------- -----------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . $14,713,673 $11,555,977 $ 9,360,898
----------- ----------- -----------
----------- ----------- -----------
Net earnings per common and common equivalent share. . . . . $1.76 $1.46 $1.16
----- ----- -----
----- ----- -----
FULLY DILUTED EARNINGS PER SHARE:
Weighted average common shares outstanding . . . . . . . . . 8,236,572 7,911,854 8,047,326
Effect of dilutive options . . . . . . . . . . . . . . . . . 138,600 * *
----------- ----------- -----------
Total. . . . . . . . . . . . . . . . . . . . . . . 8,375,172 7,911,854 8,047,326
----------- ----------- -----------
----------- ----------- -----------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . $14,713,673 $11,555,977 $ 9,360,898
----------- ----------- -----------
----------- ----------- -----------
Net earnings per common and common equivalent share. . . . . $1.76 $1.46 $1.16
----- ----- -----
----- ----- -----
</TABLE>
* - Dilution is less than 3%; common share equivalents are excluded.
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Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to incorporation by reference in the Registration Statement
No. 33-80056 on Form S-8 of Winthrop Resources Corporation of our report
dated February 5, 1997 relating to the balance sheets of Winthrop Resources
Corporation as of December 31, 1996 and 1995, and the related statements of
earnings, common shareholders' equity and cash flows for each of the years in
the three-year period ended December 31, 1996, which report is included in
the Annual Report on Form 10-K of Winthrop Resources Corporation.
/s/ KPMG Peat Marwick
Minneapolis, Minnesota
March 27, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 11,868
<SECURITIES> 0
<RECEIVABLES> 2,208
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,791
<DEPRECIATION> 749
<TOTAL-ASSETS> 350,110
<CURRENT-LIABILITIES> 0
<BONDS> 28,750
0
0
<COMMON> 86
<OTHER-SE> 81,094
<TOTAL-LIABILITY-AND-EQUITY> 350,110
<SALES> 2,033
<TOTAL-REVENUES> 76,495
<CGS> 1,322
<TOTAL-COSTS> 36,040
<OTHER-EXPENSES> 609
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,486
<INCOME-PRETAX> 24,360
<INCOME-TAX> 9,647
<INCOME-CONTINUING> 14,714
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,714
<EPS-PRIMARY> 1.76
<EPS-DILUTED> 1.76
</TABLE>
