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 August 31, 1996
Commission file number 0-21800
Norwood Promotional Products, Inc.
(Exact name of registrant as
specified in its charter)
Texas 74-2553074
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
The Renaissance Plaza, 70 N.E. Loop 410, Suite 295, San Antonio, Texas 78216
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (210) 341-9440
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
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 periods 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.___
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of November 15, 1996 was approximately $78,500,000, based upon
the last sales price on November 15, 1996 on the NASDAQ National Market for the
Company's common stock. The registrant had 5,615,335 shares of Common Stock
outstanding on November 15, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant's definitive proxy statement to be filed with
the Securities and Exchange Commission not later than 120 days after the close
of the registrant's fiscal year are incorporated by reference into Part III of
this Form 10-K.
<PAGE>
NORWOOD PROMOTIONAL PRODUCTS, INC.
Index to Form 10-K
Year Ended August 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
Page No.
--------
PART I
Item 1. Business 3
Item 2. Properties 17
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters 18
Item 6. Selected Consolidated Financial Data 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations 20
Item 8. Financial Statements and Supplementary Data 28
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
47
PART III
Item 10. Directors and Executive Officers of the Registrant 47
Item 11. Executive Compensation 47
Item 12. Security Ownership of Certain Beneficial Owners and Management 47
Item 13. Certain Relationships and Related Transactions 47
PART IV
Item 14. Exhibits,Financial Statement Schedules and Reports on Form 8-K 47
</TABLE>
<PAGE>
The discussion in this document contains analysis or trends and other forward
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. These statements involve management assumptions and are subject to
risks and uncertainties, including those discussed under "Business-Risk Factors"
below.
PART I
Item 1. Business
References herein to the "Company" mean Norwood Promotional Products, Inc.,
its predecessors, and its and their subsidiaries, unless the context requires
otherwise.
General
The Company is a leading supplier of promotional products in the United
States. The Company has grown, through internal growth and selective
acquisitions, from sales of $37.4 million in fiscal 1992 to $152.0 million in
fiscal 1996, and from net income of $407,000 in fiscal 1992 to $4.2 million in
fiscal 1996. The Company has been active in expanding its product lines in the
major price points and product categories in the promotional products industry
through a series of acquisitions. The Company acquired the assets of Tee-Off
Enterprises, Inc. (the "Tee-Off acquisition") and Alpha Products, Inc. (the
"Alpha acquisition") in January and April 1996, respectively. The Company
acquired the assets of The Bob Allen Companies, Inc. (the "Bob Allen
acquisition"), Designer Plastics, Inc. (the "Designer Line acquisition"), BTS
Group (the "BTS acquisition") and Ocean Specialty Manufacturing Corporation (the
"Ocean acquisition") in March, June, July and November, 1995, respectively.
These acquisitions followed the purchases of the assets of Barlow Specialty
Advertising, Inc. (the "Barlow acquisition") in May 1992 and Key Industries,
Inc. (the "Key acquisition") in May 1994 and the purchase of all of the stock of
ArtMold Products Corporation (the "ArtMold acquisition") in July 1994.
The Company's operating companies and their major product lines are:
Group Operating Companies Product Lines
- ----- ------------------- -------------
<TABLE>
<CAPTION>
<S> <C>
RCC Group:
Radio Cap Company, Inc. (RCC) RCC (TM),Trendco (TM) , Koozie (R) and Alpha
Air-Tex Corporation (Air-Tex) Air-Tex (R), Bob Allen (R) and Designer Line (R)
Barlow Group:
Barlow Promotional Products, Inc. (Barlow) Barlow (R) , BTS (TM), Value Line(TM) and Salm (R)
ArtMold Products Corporation (ArtMold) The Action Line (R) and Tee-Off
Key Group:
Key Industries, Inc. (Key) Econ-O-Line (R) and The California Line (TM)
3
</TABLE>
<PAGE>
Promotional Products Industry
Promotional products are functional items imprinted with the name, logo or
message of an advertiser and are typically given free by the advertiser to a
target audience to generate goodwill and repeat advertising exposure. The United
States market for promotional products, measured by sales of distributors to
advertisers, has grown from approximately $4.5 billion in 1989 to approximately
$8.0 billion in 1995, according to data published by The Counselor, an industry
trade publication. The promotional products industry is highly fragmented, with
the 20 largest suppliers accounting for approximately 20% of total industry
sales in 1995. The industry includes over 2,600 suppliers, including the
Company, who decorate and customize products, and over 13,800 independent
distributors who solicit orders from and sell directly to advertisers.
The Company believes that the growth of the industry in recent years has
resulted from an increase in the number of distributors and the greater
acceptance by advertisers of promotional products as an important form of
advertising. Promotional products advertising generally represents a lower cost
alternative to more traditional advertising media and, because promotional
products are designed for use or display, they provide repeat exposure of an
advertiser's message to a targeted audience. Some of the largest purchasers of
promotional products are banks, insurance agencies, automobile dealers and
pharmaceutical and high technology companies.
Within the promotional products industry, there are two principal
distribution channels: independent distributors and mail order companies.
Independent distributors solicit orders from and sell directly to advertisers.
Mail order companies sell directly to advertisers through corporate catalogs and
other direct mail advertising, without using outside sales personnel. Orders by
advertisers placed through distributors and by direct mail typically are for
small quantities of custom-imprinted items and require prompt delivery. The
Company sells its products to independent distributors and mail order companies.
Although it periodically evaluates different distribution methods, the Company
currently does not sell directly to advertisers.
Strategy
The Company's business strategy is to continue to improve its market
position in each of its existing product lines and to expand into new product
lines and distribution channels. Key elements of this strategy include: (i)
expanding product offerings by developing new products and innovative imprinting
and decorating techniques and applications; (ii) increasing penetration of
existing markets through enhanced customer service and coordinated marketing
efforts among its operating companies; (iii) making selective acquisitions to
add new product lines and expand distribution; (iv) introducing new management
and operating systems to reduce order processing times, increase production
efficiency and increase processing capacities of existing and acquired
businesses; and (v) exploring new markets, primarily through international
marketing and alternative distribution arrangements.
Expanding Product Offerings
The Company has increased the number of products and product lines it
offers through acquisitions and by developing new products and new imprinting
and decorating techniques and applications. Since 1983, the Company has expanded
its product offerings from approximately ten individual products within one
product category to approximately 1,900 products in eight major product
categories. The broad range of its product offerings, in part, has enabled the
Company to expand its customer base to more than 11,100 independent
distributors.
4
<PAGE>
Enhancing Customer Service and Coordinated Marketing
Providing a high level of service to customers is a key element of the
Company's marketing strategy. The Company offers toll-free telephone service for
orders and other customer needs and places an emphasis on customer service by
sales and order-entry staff. RCC, the Company's largest operating company, has
formed a key accounts group to provide customer service and sales support to its
largest distributors, and the Company intends to establish key accounts groups
at each of the other operating companies. The Company has also installed systems
providing credit approval at all operating companies for each distributor who
has an account with any other operating company.
While each operating company handles its own customer service, the Company
has begun to coordinate sales and marketing activities among the operating
companies. In the fourth quarter of 1996, the Company realigned its operating
companies and product lines into three groups: the RCC Group, the Barlow Group,
and the Key Group. This realignment is designed to allow the Company's three
core operating companies to provide sales and marketing support for Air-Tex,
Artmold and The California Line (TM)of Key. Management of the Company believes
that the realignment of product lines into strategic groups will allow the
Company to better coordinate sales and marketing of all product lines to the
Company's large base of distributors.
The Company has introduced several catalogs on top-selling products from
each of the Company's product lines to demonstrate the scope of the Company's
product offerings and to introduce its products to distributors familiar with
some but not all of the operating companies and their respective product lines.
Sales staff of the operating companies also make joint sales presentations to
distributors. The Company believes that its coordinated marketing efforts will
lead to increased awareness of the Company's brands by distributors and enable
the Company to obtain greater attention and resources from distributors for its
existing product lines, new products and newly acquired brands.
Making Selective Acquisitions
The Company intends to continue its strategy of making selective
acquisitions to strengthen its position in the fragmented promotional products
industry and to add new product lines and expand distribution. The Company
believes that the competition for the acquisition of suppliers within the
industry is limited. The Company is engaged in ongoing evaluations of and
discussions with third parties regarding possible acquisitions. At the date of
this report, the Company had no binding agreements or commitments with respect
to any acquisitions.
Improving Management and Operating Systems
The promotional products industry is characterized by the processing of a
large number of small, custom-imprinted orders. The Company seeks to be a leader
in the promotional products industry through the rapid fulfillment of customer
orders and in responsive and professional customer service. The Company has
implemented advanced management systems, such as Manufacturing Resource Planning
("MRP II"),
5
<PAGE>
a pull order-flow processing system and statistical process controls. Through
these measures, the Company believes it has achieved a significant reduction in
order processing times, increased production efficiency and increased processing
capacities. In addition, the Company has formed task forces comprised of
managers from the operating companies who meet regularly to exchange information
regarding sales and marketing trends, imprinting methods, information systems
and technologies and training.
Acquisitions
The promotional products industry is highly fragmented and is characterized
by numerous suppliers and independent distributors. There are over 2,600
suppliers in the industry, most of which are small, closely held or family owned
businesses offering a limited number and range of products. To date, the
industry has not experienced significant consolidation.
The Company seeks acquisitions which it believes will enable it to
accomplish some or all of the following objectives: (i) expand its product
offerings by adding new brands, penetrating a new product category, expanding
the number and variety of products in an existing category or covering a major
price point in a specific product category; (ii) broaden its distribution
network; or (iii) leverage its management and operating systems to improve the
processing efficiency of under-performing businesses.
Since 1983, the Company has diversified its product lines and increased its
market presence through internal growth and a series of strategic acquisitions.
The Company has completed the following acquisitions since 1991:
In May 1992, the Company completed the Barlow acquisition, including
the Barlow (R) and Salm (R) product lines, adding new products that
enabled the Company to enter the recognition awards and business gifts
and pocket specialties and accessories product categories and to
expand its product offerings to cover all of the major price points in
the promotional products industry.
In April 1993, the Company acquired a ceramic mug imprinting facility
in Pittsburgh, Pennsylvania. The addition of this facility for mugs
and glassware, which incur significant freight charges when shipped
over long distances, has enabled the Company to be more price
competitive in the Northeastern United States.
In May 1994, the Company completed the Key acquisition, in which it
acquired a supplier of economically priced promotional products such
as paper products, plastic items, pens, magnets and buttons. The
addition of these products augmented the Company's pocket specialties
and desk and business accessories categories.
In July 1994, the Company completed the ArtMold acquisition, expanding
its offerings in the writing instruments and pocket specialties and
desk accessories categories, and adding a line of golf items such as
tees, ball markers and divot repair tools.
In March and June 1995, the Company entered the textiles product
category by adding sport, travel, and tote bags and sportswear to its
product lines with the Air-Tex and Designer Line acquisitions.
6
<PAGE>
In July 1995, the Company completed the BTS acquisition, in which it
acquired a supplier of high-quality recognition and gift items. This acquisition
further expanded the Company's high-end recognition awards and business gifts
product line.
In November 1995, the Company completed the Ocean acquisition, in which it
acquired a supplier of economically priced promotional products such as magnets,
buttons and business accessories. This acquisition further expanded the
Company's pocket specialties and desk and business accessories lines.
In January 1996, the Company completed the Tee-Off acquisition in which it
acquired a supplier of custom imprinted golf balls and accessories, which
augmented the golf accessories offered by the Company.
In April 1996, the Company completed the Alpha acquisition, in which it
acquired a supplier of custom imprinted drinkware, further expanding the
Company's product line of insulated beverage products, mugs and glassware. The
Alpha acquisition also opened new channels of distribution into convenience
stores, mass merchandisers and premium markets.
Product Categories
The Company currently supplies approximately 1,900 custom-imprinted
items to over 11,100 independent distributors nationwide through its operating
companies. The Company's products are primarily marketed at price points ranging
from $0.50 to $50.00 in eight general categories:
Sporting goods and leisure products: Koozie (R) beverage insulators,
sport bottles, cups and insulated coolers; and custom imprinted golf
balls.
Wearables: golf, fashion and baseball-style caps and other headwear;
sportswear.
Mugs and glassware: porcelain, ironstone and plastic mugs; glassware.
Textiles: sport, travel and tote bags.
Writing instruments: pens, pencils, markers and gift sets.
Recognition awards and business gifts: rosewood, walnut and laminated
wood awards, crystal awards, plaques, brass coasters, briefcases and
portfolios, and other business gift items.
Pocket specialties and accessories: tape measures, pocket knives, key
chains and holders, buttons, badges, magnets and lapel pins, and other
pocket specialty items.
Desk and business accessories: desk accessories, note pads and other
paper products, and personal gift items.
7
<PAGE>
The following table sets forth the amount and percentages of the
Company's sales for its product categories over the past three fiscal years.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Fiscal Year
(Dollars in thousands)
1994 1995 1996
------------- ------------- -------------
% of % of % of
Sales Sales Sales Sales Sales Sales
---------- ---------- --------- --------- --------- ---------
Sporting goods and leisure products $13,221 21.2% $22,530 21.7% $38,911 25.6%
Wearables 12,649 20.3 14,691 14.2 17,751 11.7
Mugs and glassware 11,423 18.3 12,657 12.2 19,015 12.5
Textiles -- -- 9,387 9.0 19,404 12.8
Writing instruments 4,217 6.8 8,944 8.6 9,139 6.0
Recognition awards and business gifts 3,009 4.8 4,177 4.0 12,527 8.2
Pocket specialties and accessories and
desk and business accessories (a) 17,866 28.6 31,474 30.3 35,215 23.2
------ ---- ------ ---- ------ ----
Total $62,385 100.0% $103,860 100.0% $151,962 100.0%
======= ===== ======== ===== ======== =====
(a) Separate results for these two product categories are not available for the periods presented.
</TABLE>
Sporting Goods and Leisure Products
The Company's sporting goods and leisure products consist primarily of
Koozie (R) insulated beverage products, sports bottles and custom imprinted golf
balls.
The Company acquired its Koozie (R) product line in 1984, which originally
consisted of a single product, the Koozie (R) beverage insulator. A Koozie (R)
beverage insulator is a customized colored foam sleeve with a bottom that fits
around a beverage can or bottle for insulation. The Company believes it is the
leading supplier of beverage insulators in the United States promotional
products industry. Since 1984, the Company has expanded this product line to
include 27 products marketed in a variety of colors and styles. Koozie(R)
products accounted for $21.7 million, or 14.3%, of the Company's sales in fiscal
1996.
Through the Alpha acquisition in fiscal 1996, the Company expanded its
existing insulated beverage products. In addition, the Alpha acquisition opened
new channels of distribution into convenience stores, mass merchandisers and
premium markets.
Through the Tee-Off acquisition in fiscal 1996, the Company expanded its
golf accessories line to include custom imprinted golf balls.
Wearables
The Company's wearables product line consists primarily of golf, fashion
and baseball-style headwear in a wide variety of styles, colors and fabrics. The
Company believes that it is a leading headwear supplier in the United States
promotional products industry. A substantial majority of the Company's headwear
is imported,
8
<PAGE>
allowing the Company to compete at lower price points for these
items. The Company also manufactures headwear to enable it to produce customized
products with short lead times. These products are sold primarily under the RCC
(TM) brand.
Mugs and Glassware
The Company offers a variety of styles of porcelain, ironstone and plastic
mugs, along with glassware. The Company believes that it is a leading supplier
of mugs in the United States promotional products industry. Styles vary in size,
shape and color. In addition to standard color decorations, the Company offers
advertisers the ability to customize their artwork through the use of special
decorations on the mugs, including 22-carat gold and platinum imprints,
microwaveable gold imprints, iridescent inks and certain brighter colored inks.
Through the Alpha acquisition in fiscal 1996, the Company expanded its
existing line of custom imprinted insulated plastic mugs.
Textiles
Through the Air-Tex and Designer Line acquisitions in fiscal 1995, the
Company entered the textiles product category by adding sport, travel, and tote
bags. This product line consists of over 185 items marketed under the tradenames
Air-Tex (R) and Designer Line (R).
Writing Instruments
In fiscal 1991, the Company began marketing economically priced writing
instruments, including pens, pencils, and gift sets, along with retractable pens
and highlighters. In fiscal 1992, with the Barlow acquisition, the Company
expanded into marketing higher-priced writing instruments. Through the Key and
ArtMold acquisitions in fiscal 1994, the writing instrument lines were further
expanded by providing a wider variety of styles, colors and price points.
Recognition Awards and Business Gifts
Through the Barlow acquisition in May 1992, the Company began to offer its
recognition and award items and business gifts generally under the name Salm
(R). The products in this line make creative and distinctive awards and gifts
and are generally highly customized. Because it is a high-end product line, the
recognition awards and business gifts are more oriented toward corporate gifts
and awards than strictly to advertising uses. With the BTS acquisition in fiscal
1995, the company expanded into products incorporating decorative brass
medallions in items such as coasters, wall and desk plaques, picture frames, and
other custom products.
9
<PAGE>
Pocket Specialties and Accessories
Through the Barlow acquisition in May 1992, the Company began to offer
pocket specialties and accessories. With the Key and ArtMold acquisitions in
fiscal 1994 and the Ocean acquisition in November 1995, the Company now sells
products under the Barlow (R), Econ-O-Line (R), The Action Line (R) and The
California Line (TM) brand names and offers a full complement of items,
including tape measures, key chains and holders, buttons, badges, magnets,
pocket knives and lapel pins.
Desk and Business Accessories
Through the Key, ArtMold and Ocean acquisitions, the Company expanded into
economically priced products marketed under the trademarks Econ-O-Line (R), The
Action Line (R) and The California Line (TM). These product lines consist
primarily of items such as note pads, desk calendars and other paper products
and desk accessories and personal gift items.
Operations
A key to the Company's internal growth has been its ability to process
rapidly a large number of small, custom-imprinted orders at competitive prices
while maintaining a high level of product quality. During fiscal 1996, the
Company processed more than 450,000 orders with an average order size of
approximately $340. For most products, the Company ships orders on a rapid
response basis, generally within one to two weeks.
In the fourth quarter of 1996, the Company realigned its operating
companies into three groups: the RCC Group, the Barlow Group and the Key Group.
This realignment reflects a restructuring of the Company's sales and marketing
functions and other organizational changes that are designed to provide enhanced
operational, sales and marketing support by the Company's three core operating
companies for the more recently acquired operating companies and divisions. For
example, in order to maximize selling efforts, the number of sales staff was
increased in these groups while the territory covered by each salesperson was
decreased. This allows each salesperson to offer a greater variety of products
to a more focused group of distributors. This realignment also makes over 10,000
distributors more accessible to the smaller operating companies, each of which
had previously been covered by between 1,500 and 3,000 distributors.
Each operating group has a separate management team, lead by a group
president with substantial experience in the promotional products industry. The
Company has assembled a management team with significant industry experience to
implement its business strategy. The executive officers of the Company and the
group presidents have an average of 17 years experience in the promotional
products industry. The Company gives the management of the operating groups
significant autonomy. The Company believes that it is able to be more responsive
to its distributors, the substantial majority of which are relatively small
operations in a highly fragmented industry, by delegating authority to
management of the operating groups. In particular, each operating company
concentrates its sales and marketing efforts on specific product lines, enabling
it to more effectively penetrate the distribution network. The presence of a
strong management team at each operating
10
<PAGE>
group also allows the Company to maintain the focus of its corporate staff on
the continued growth of the Company and the coordination and implementation of
the Company's strategic objectives.
The Company has implemented various management and operational systems at
the operating companies. These systems are continually evaluated by management,
and systems which have proven successful at one operating company are introduced
at other operating companies where appropriate.
Management Systems
The Company utilizes a number of management systems designed to reduce
order processing time, enhance planning, lower operating costs and improve
customer service. The MRP II systems in place at RCC and Air-Tex, which are
based upon sales forecasts, are designed to enable the Company to plan labor,
inventory and other resource requirements in order to meet customers' delivery
requirements and maximize processing efficiency. RCC also utilizes a specially
designed pull order-flow processing system that allows a large number of orders
to be processed efficiently and economically. Key utilizes, and Barlow is
implementing, a bar-coding system to monitor the status of orders within the
production cycle. These systems are designed to enable the Company to quickly
respond to customer inquiries and adjust shipping schedules to meet customer
demands.
The Company uses statistical process control ("SPC") to evaluate its
manufacturing processes at each of the operating companies. SPC is designed to
enable the Company to differentiate between statistically insignificant
fluctuations in processing performance and substantive processing problems.
Management believes that SPC serves to focus both management and staff on the
objective of continually enhancing the Company's production processes.
The Company utilizes computer communication technology, such as electronic
data interface system ("EDI") and 'Internet E-mail', to improve order processing
and expedite shipments. The Company receives orders electronically from several
of its largest customers through an industry-wide EDI system. RCC allows its
largest customers to obtain real-time information on the status of their orders
through its own EDI and 'Internet E-mail' system.
Product Development
The Company believes that a key to its success is its ability to expand
product offerings by developing new products and imprinting techniques and by
adapting existing imprinting and decorating methods to create innovative
products. The Company is experimenting with emerging imprint technologies,
including digital direct printing, laser imaging, heat applied graphics and
photopolymer through dimensional graphics. The Company also evaluates materials
and processes from other industries for adaptation into the Company's products.
New overseas vendor relations are being developed to decrease costs of existing
products and assist in the development of new products and additional product
lines in wood, metal, glass and textiles.
Custom Decorating and Manufacturing Processes
Each of the operating companies has a full-service graphic arts department
to assist customers in generating custom graphics. The Company applies custom
graphics to promotional products using a variety of decorating processes such as
silk-screening, screen transfer, embroidering, engraving (including laser
engraving),
11
<PAGE>
vinyl screen printing, cloisonne enameling (enamels baked at high temperatures)
and hot stamping. Each art department is also available to assist customers or
advertisers in creating original artwork. All operating companies have installed
systems to receive customer artwork electronically. The Company has implemented
a system to link the art departments to allow designs created for an advertiser
at one operating company to be used throughout the Company, eliminating the need
to create new artwork for that advertiser at other operating companies. The
Company also seeks to improve processing efficiency by coordinating work flow
among various art departments.
All of the mugs and glassware, plastic molded products and writing
instruments, as well as, most caps and other headwear and certain sport, travel
and tote bags sold by the Company are manufactured in blank (i.e. , without
decoration) by third party suppliers according to Company specifications. Bob
Allen (R) sportswear, Koozie (R) beverage insulators, note pads and other paper
products, brass and laminated wood awards and the remaining caps and other
headwear and domestic sport, travel and tote bags are manufactured by the
operating companies at the Company's production facilities.
Sales and Marketing
During fiscal 1996, the Company sold its products to approximately 11,100
customers, mainly independent promotional product distributors. In fiscal 1996,
the Company's ten largest customers accounted for approximately 14.0% of the
Company's total sales, and no one customer accounted for more than 3.0% of
sales. The Company's largest customers are among the largest distributors in the
industry based on sales.
Generally, before a customer orders a product from the Company, the
customer has already received an order for the product from an advertiser. The
Company's products are sold on the basis of purchase orders. Established
customers generally have 30-day payment terms, and newer customers purchase
products from the Company on the basis of payment before processing. As a result
of its credit management practices, the Company has had bad debt expense as a
percentage of sales of less than 0.25% for each of the past three fiscal years.
The Company believes that most other promotional products suppliers sell
only through independent multi-line sales representatives who serve more than
one supplier. The Company's operating companies employ a total of 35 salespeople
to market products in regional territories covering the United States, and 113
customer-service personnel to support these salespeople. The Company believes
that this direct sales staff gives the Company a competitive advantage by
allowing more focused selling efforts.
The Company's sales staff attends industry trade shows and makes sales
calls on customers and potential customers. Each operating company distributes
annual product catalogs. In fiscal 1995, the Company introduced an intercompany
product catalog that featured the top-selling products from each of its
operating companies. Key employees of the Company and each of its operating
companies also conduct coordinated marketing presentations to distributors
throughout the United States.
12
<PAGE>
Suppliers
During fiscal 1996, the Company derived a significant portion of its sales
from products supplied by over 30 manufacturers located in China, Taiwan, Sri
Lanka, Bangladesh, Korea, Japan, England, Holland, Germany, and Italy. A
majority of these products are purchased through four independent agents who
assist the Company with its relationships with its Far East suppliers. The
Company's senior management and agents periodically visit its foreign suppliers
to observe the manufacture of products and to help ensure timely delivery and
compliance with Company manufacturing specifications. Representatives from the
Company's leading suppliers annually visit the Company's facilities to review
quality standards and product specifications. The Company is not a party to any
long-term contractual arrangements with any supplier and relies on its long-term
relationships to ensure timely delivery of quality products.
The Company's reliance on foreign sources of supply subjects it to a number
of risks, including transportation delays and interruptions, political and
economic disruptions, the imposition of tariffs, quotas and other import or
export controls, currency fluctuations and changes in governmental policies. The
Company's reliance on foreign suppliers also requires it to order products
further in advance of orders by customers than would generally be the case if
such products were manufactured domestically. There can be no assurance that the
Company can replace its suppliers without delay; however, the Company attempts
to reduce the risk of such a delay and to alleviate the problem of having to
order its foreign products further in advance by using its management systems to
predict more accurately the Company's product needs.
The Company relies on one supplier for the insulation material necessary to
make Koozie (R) beverage insulators and certain other Koozie (R) products. The
Company believes that competitors who make products similar to Koozie (R)
beverage insulators also purchase their insulation material from this supplier.
The inability of this supplier to provide the Company with insulation would have
a material adverse effect on the Company. The Company buys insulation material
on a purchase order basis and does not have any contract, agreement or
commitment from this supplier to furnish insulation material. Since the Company
began purchasing from this supplier in 1983, the Company has not experienced any
significant disruptions or delays in its supply.
The Company also relies on a single supplier for the laminated wood used in
the BTS(TM) product line. Disruptions or delays in the supply of this product
could have a material adverse effect on sales of the BTS(TM) product line. The
Company has not experienced any significant disruptions or delays in its supply.
The Company obtains its other materials from numerous sources. Prices for
materials used by the Company may fluctuate for a variety of reasons. The
Company has not experienced, and does not anticipate, any difficulty in
obtaining an adequate supply of the materials it uses.
13
<PAGE>
Backlog
A majority of the Company's orders are processed on a rapid response basis,
generally within one to two weeks after receipt of an order. As a result, the
Company does not believe that the dollar amount of its unfilled customer orders
at any time is a useful indicator of future business activity.
Competition
The promotional products industry is highly fragmented and competitive. The
Company competes with a large number of other promotional products suppliers,
some of which have diversified product offerings, and others that market only a
limited number of products or lines. The Company competes primarily on the basis
of customer service and price. Certain competitors are divisions of
significantly larger companies that have substantially greater financial and
other resources than the Company. While the Company has competitors within each
of its product lines, no one supplier competes with the Company in all of its
lines. In addition, entry into the promotional products industry is generally
not difficult, and new competitors regularly enter the industry. The Company
believes it is difficult to manage and process efficiently large numbers of
small orders and produce a high-quality product and that its processing
efficiency gives the Company a competitive advantage within the industry. The
Company believes its established relationships with distributors gives it an
advantage over its competitors, especially new entrants in the industry. The
promotional products industry also competes against other advertising media,
such as television, radio, newspapers, magazines and billboards.
Trademarks
The Company owns a number of trademarks registered with the United States
Patent and Trademark Office and claims various common law trademarks. The
Company considers its trademarks to be important to its business and actively
defends and enforces them.
Employees
As of November 15, 1996, the Company employed approximately 2,000 persons.
Approximately 100 employees of Key are represented by the Manufacturing,
Production and Service Workers Union of the AFL-CIO, under a collective
bargaining agreement expiring in 1998. The Company considers its employee
relations to be good.
Environmental Matters
The Company's facilities are subject to federal, state and local
environmental laws and regulations, including those relating to discharges to
air, water and land, the treatment, storage and disposal of solid and hazardous
waste and the cleanup of properties affected by hazardous substances. The
Company believes that it is in compliance with such laws and regulations and
does not anticipate any material adverse effect on its operations or financial
condition as a result of its efforts to comply with, or its liabilities under,
such laws and regulations. The Company does not anticipate any material capital
expenditures for environmental control facilities or equipment. Some risk of
environmental liability is inherent in the Company's business, however, and
there can be no assurance that material environmental costs will not arise in
the future. In particular, the Company might incur capital and other costs to
comply with increasingly stringent environmental laws and enforcement policies.
14
<PAGE>
The Company does not expect such capital and other costs to have a material
adverse effect on the Company's net cash flows.
Risk Factors
The Company's business is subject to various risks and uncertainties. The
following factors should be carefully considered in reading this report.
Risks Relating to Growth Strategy
During the past five years, the Company has experienced significant growth.
This growth has resulted from internal growth and from selective acquisitions of
other businesses, both of which continue to be important elements of the
Company's business strategy. There can be no assurance that the Company will be
able to maintain or accelerate its internal growth or that the Company will be
able to manage its expanding operations effectively. The Company's ability to
continue to grow through acquisitions will depend, among other things, on the
availability of suitable acquisition opportunities and the Company's ability to
finance these transactions. There can be no assurance that future acquisitions
can be accomplished on terms favorable to the Company or that the Company will
be able to obtain financing for such acquisitions. The success of the Company's
strategy also depends upon its ability to integrate acquired businesses into its
operations. The Company may acquire companies, brands or product lines that
dilute earnings or that do not generate positive cash flow initially or for some
period of time following their acquisition. In addition, as the Company has
expanded through acquisitions, its management has become more decentralized, and
it relies primarily on the operating companies to implement systems designed to
ensure responsive and efficient operations. The failure of the Company to
implement its growth strategy, to maintain or upgrade operating controls and
systems, to recruit or retain sufficient qualified personnel or to effectively
integrate acquired businesses with the Company's operations could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Reliance on Foreign Sources of Supply
In fiscal 1996, the Company derived a significant portion of its sales from
products supplied by foreign manufacturers. The Company's reliance on foreign
sources of supply subjects it to a number of risks, including, among others,
transportation delays and interruptions, political and economic disruptions, the
imposition of tariffs, quotas and other import or export controls, currency
fluctuations and changes in government policies. The Company's reliance on
foreign manufacturers also requires it to order products further in advance of
orders by customers than would generally be the case if products were
manufactured domestically. In fiscal 1996, a significant portion of the
Company's sales were derived from products, mainly headwear, ceramic mugs, and
sport and travel bags, purchased by the Company from manufacturers located in
the People's Republic of China ("China"). China currently enjoys "most favored
nation" ("MFN") trading status with the United States. Under the Trade Act of
1974, the President of the United States is authorized, upon making specified
findings, to waive certain restrictions that would otherwise render China
ineligible for MFN treatment. The President has waived these provisions each
year since 1979.Such waiver is subject to renewal in June 1997. No assurance
can be given that China will continue to enjoy MFN status in the future.
Further, any United States legislation or action revoking or placing further
conditions on China's MFN status or imposing substantially higher import duties,
if enacted or imposed, could have a material adverse effect on the cost of the
Company's headwear, ceramic mugs,
15
<PAGE>
and sport and travel bags. The Company currently has alternative suppliers of
headwear and sport and travel bags (but not ceramic mugs) located in other
countries and continues to evaluate additional sources of supply.
Dependence on Key Personnel
The Company's success depends in part on the efforts of a few key
management personnel, including Frank P. Krasovec, its Chairman and Chief
Executive Officer, and Robert P. Whitesell, its President and Chief Operating
Officer. While Mr. Krasovec currently devotes a substantial majority of his time
to the Company, he is involved in other businesses and investments. If for any
reason such key personnel do not continue to be active in the Company's
management, the Company's operations could be materially adversely affected.
None of the Company's executive officers are subject to employment or
non-competition agreements. The Company maintains $750,000 in key-man life
insurance coverage on Mr. Whitesell but does not have key-man life insurance for
any other executive officer.
Leverage
At August 31, 1996, the Company had total indebtedness of $47.7 million and
additional borrowings of up to $26.3 were available under the Bank Credit
Facility. The Company's ability to satisfy its financial obligations under its
indebtedness outstanding from time to time will depend on its future operating
performance, which is subject to prevailing economic conditions, levels of
interest rates and financial, business and other factors, many of which are
beyond the Company's control. Indebtedness under the Bank Credit Facility is
subject to interest rate fluctuations. Although the Company currently believes
that cash flow from operations and available borrowing under the Bank Credit
Facility will be sufficient to meet the Company's working capital and capital
expenditure requirements and future debt service obligations for at least the
next 18 months, there can be no assurance that this will be the case.
Single Supplier of Koozie (R) Insulation Material
The Company relies on one supplier for the insulation material necessary to
make Koozie (R) beverage insulators and certain other Koozie (R) products. The
Company believes that competitors who make products similar to Koozie (R)
beverage insulators also purchase their insulation material from this supplier
and that currently there is no other known supplier of this material. The
Company buys insulation material on a purchase order basis and does not have any
contract, agreement or commitment from this supplier to furnish insulation
material. Since the Company began purchasing from this supplier in 1983, the
Company has not experienced any significant disruptions or delays in its supply.
However, any significant interruption in the supply of insulation material or
substantial price increases for this material could have a material adverse
effect on the Company's business and the results of its operations.
Competition
The promotional products industry is highly fragmented and competitive.
Certain competitors are significantly larger companies which have greater
financial and other resources than the Company. Entry into the promotional
products industry is generally not difficult, and new competitors regularly
enter the industry. The promotional products industry also competes against
other advertising media, such as television, radio, newspaper, magazines and
billboards.
16
<PAGE>
Item 2. Properties
The Company owns or leases the following physical properties:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Square Owned or
Company Location Use Feet Leased
------- -------- --- ---- ------
Corporate San Antonio, Texas Corporate offices 4,250 Leased
RCC San Antonio, Texas Sales, production 86,000 Owned
San Antonio, Texas Production 21,500 Leased
San Antonio, Texas Warehouse 89,350 Leased
Pittsburgh, Pennsylvania Production 23,000 Leased
Lithia Springs, Georgia Sales, production 199,950 Leased
Barlow Los Angeles, California Sales, production 62,000 Leased
St. Paul, Minnesota Production 38,000 Leased
Reno, Nevada Sales, production 60,000 Leased
Key East Peoria, Illinois Sales, production 49,000 Leased
Chatsworth, California Sales, production 28,260 Leased
ArtMold Cranston, Rhode Island Sales, production 75,000 Leased
Readfield, Wisconsin Sales, production 15,148 Owned
Air-Tex Des Moines, Iowa Sales, production 52,500 Owned
Des Moines, Iowa Warehouse 14,810 Leased
Arlington, South Dakota Production 13,500 Leased
Arlington, South Dakota Warehouse 22,760 Leased
Logan, Utah Production 20,400 Leased
</TABLE>
The Company believes that its existing facilities are adequate and provide
sufficient operating capacity to meet its current requirements, and does not
anticipate the need for significant expansion in the near future. The Company
expects to be able to extend the terms of its leases as they expire or that
other suitable space will be available, as needed by the Company.
Item 3. Legal Proceedings
The Company and its subsidiaries are subject to litigation from time to
time in the ordinary course of business. Although the amount of any liability
with respect to currently pending litigation cannot be determined, in the
opinion of management, such liability will not have a material adverse effect on
the Company's financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's shareholders during the
fourth quarter of the fiscal year ended August 31, 1996.
17
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters
The Company's common stock, no par value ("Common Stock"), is listed
for quotation on the Nasdaq/National Market ("NASDAQ/NMS") under the symbol
"NPPI". The following table sets forth the high and low closing sales prices for
the Common Stock for the fiscal periods indicated, as reported by the
Nasdaq/NMS.
High Low
------ -------
Fiscal 1995:
First quarter (ended December 3, 1994) .................... $12 $ 9 3/4
Second quarter (ended March 4, 1995) .................... 16 11
Third quarter (ended June 3, 1995) .................... 16 13 1/8
Fourth quarter (ended September 2, 1995).................... 16 13 1/4
Fiscal 1996:
First quarter (ended December 2, 1995) .................... 18 3/4 15 1/2
Second quarter (ended March 2, 1996) .................... 20 1/8 16 1/4
Third quarter (ended June 1, 1996) .................... 24 17 5/8
Fourth quarter (ended August 31, 1996) .................... 22 3/4 13
As of November 15, 1996, there were 78 shareholders of record of the Common
Stock.
The Company has not paid any cash dividends or distributions on its Common
Stock since 1989 and intends to retain earnings for use in its business
expansion. The Company paid dividends to holders of its Preferred Stock between
fiscal 1990 and fiscal 1993. None of the Preferred Stock is currently
outstanding. The Company's existing bank credit facility (the "Bank Credit
Facility") prohibits the payment of cash dividends on its Common Stock and, in
any event, the Company does not anticipate paying any cash dividends in the
foreseeable future.
Item 6. Selected Financial Data
Selected Consolidated Financial Data
The following selected consolidated financial data regarding the Company
for the five years ended August 31, 1996 were derived from the consolidated
financial statements of the Company which have been audited by Ernst & Young
LLP, independent auditors. The information below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and consolidated financial statements and notes thereto of the
Company included elsewhere herein.
18
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended (a)
(In thousands, except per share data)
-------------------------------------
August 29, August 28, September 3, September 2, August 31,
1992 1993 1994 1995 1996
---- ---- ------- ------- ----
Statement of Income Data (b):
Sales $37,370 $49,300 $62,385 $103,860 $151,962
Cost of sales 26,487 33,860 43,207 70,963 106,992
------ ------ ------- ------ -------
Gross profit 10,883 15,440 19,178 32,897 44,970
Operating expenses:
Sales and marketing 4,053 5,678 6,886 11,290 17,049
General and administrative 3,567 4,266 5,065 9,037 12,356
Amortization expense 425 724 889 2,119 3,538
Restructuring and unusual charges -- -- -- -- 1,640
------ ------ ------- ------ -----
Total operating expenses 8,045 10,668 12,840 22,446 34,583
----- ------ ------ ------ ------
Operating income 2,838 4,772 6,338 10,451 10,387
Interest expense 2,094 1,982 1,030 3,619 3,462
----- ----- ----- ----- -----
Income before income taxes 744 2,790 5,308 6,832 6,925
Provision for income taxes 337 1,032 1,979 2,800 2,770
----- ----- ----- ----- -----
Net income $407 $1,183 (c) $3,329 $4,032 $4,155
==== ====== ====== ====== ======
Income available to common shareholders $384 (d) $1,116 (d) $3,329 $4,032 $4,155
Net income per common share:
Primary $0.36 $0.62 $0.93 $1.11 $0.82
Fully diluted $0.23 $0.50 $0.93 $1.10 $0.82
Weighted average number of common
shares outstanding:
Primary 1,073 1,803 3,576 3,636 5,090
Fully diluted 1,644 2,231 3,576 3,668 5,090
Balance Sheet Data (at end of period):
Working capital $ 7,389 $12,246 $18,668 $31,083 $35,248
Total assets 24,972 25,941 55,702 94,859 121,376
Total debt:
Bank credit facility -- 6,146 27,100 50,500 33,725
Other debt and capital leases 22,295 1,828 5,097 12,410 13,953
Redeemable securities 1,357 -- -- -- --
Total shareholders' equity (deficit) (5,951) 13,546 16,871 21,034 57,380
Other Data:
EBITDA (e)(f) $3,983 $6,597 $8,526 $14,476 $17,060
Depreciation expense 720 1,101 1,299 1,906 3,135
Amortization expense 425 724 889 2,119 3,538
Capital expenditures 436 1,199 1,426 2,073 4,919
Dividends (g) 103 132 -- -- --
</TABLE>
<PAGE>
(a) The Company's fiscal year is a 52- or 53-week period ending on the Saturday
closest to August 31. All references to fiscal 1992, 1993, 1994, 1995 and 1996
are to the fiscal years ended August 29, 1992, August 28, 1993, September 3,
1994, September 2, 1995 and August 31, 1996, respectively.
(b) The Company's results of operations for the periods presented were
significantly affected by the Barlow acquisition in fiscal 1992, the Key and
ArtMold acquisitions in fiscal 1994, the Air-Tex, Designer Line and BTS
acquisitions in fiscal 1995 and the Ocean, Tee-Off and Alpha acquisitions in
fiscal 1996 and by the public offerings of Common Stock in June 1993 and
December 1995. These factors affect the comparability of sales and results of
operations from period to period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(c) After deducting a one-time charge to earnings of $575,000 (net of taxes)
related to the write-off of unamortized debt costs and the termination of a
product financing arrangement in connection with the Company's initial public
offering of Common Stock in June 1993, which resulted in a reduction in primary
and fully diluted earnings per share of $0.32 and $0.26, respectively.
(d) Reflects the deduction of dividends on outstanding Junior Preferred Stock
which was redeemed in fiscal 1993.
(e) EBITDA is defined as earnings before income taxes, interest expense,
depreciation and amortization. The Company believes that the presentation of
EBITDA facilitates an investor's understanding of the effects on the Company's
operations of amortization of goodwill and other intangibles and increased
interest expense under indebtedness incurred in connection with various
acquisitions which substantially impacted net income, net income per common
share and cash flows. EBITDA should not be considered by an investor as an
alternative to net income as an indicator of the Company's operating performance
or to cash flows as a measure of liquidity. EBITDA is not used in the
presentation of financial statements prepared in accordance with generally
accepted accounting principles.
(f) Excluding the restructuring and unusual charges of $1.6 million, EBITDA in
fiscal 1996 was $18.7 million.
(g) The Company paid dividends to holders of its Preferred Stock between fiscal
1990 and fiscal 1993. None of the Preferred Stock is currently outstanding.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company's fiscal year is a 52- or 53-week period ending on the Saturday
closest to August 31. All references to fiscal 1992, 1993, 1994, 1995 and 1996
are to the fiscal years ended August 29, 1992, August 28, 1993, September 3,
1994, September 2, 1995 and August 31, 1996, respectively.
The Company's results of operations for the periods discussed below were
significantly affected by the Barlow acquisition in fiscal 1992, the Key and
ArtMold acquisitions in fiscal 1994, the Air-Tex, Designer Line and BTS
acquisitions in fiscal 1995 and the Ocean, Tee-Off and Alpha acquisitions in
fiscal 1996 and the attendant levels of debt incurred. The Company has recorded
as goodwill the excess of the purchase prices over the estimated value of the
assets acquired and is amortizing this goodwill over 15 years. In addition, the
Company's financial results were significantly impacted by the public offerings
of Common Stock in June 1993 and December 1995. These factors affect the
comparability of sales and results of operations from period to period.
The Company's sales continued to grow from $62.4 million during fiscal 1994
to $152.0 million in fiscal 1996, a compound annual growth rate of 45.4%. This
increase was a result of (i) an internal growth rate of 10.1%, or $17.1 million
over the two-year period, fueled by internal product line expansion, including
expanded product and price point offerings and (ii) acquisitions, which
contributed aggregate sales of $72.5 million over the two-year period. Through
the acquisitions, the Company added two major industry product categories --
textiles and desk and business accessories -- and significantly expanded its
product range, both by product type and price points within existing product
categories. By moving into new product areas, both through acquisitions and the
internal development of new products, the Company has gained new independent
distributors and increased its business with existing independent distributors.
The Company's strategy is to grow through further expansion and diversification
of its existing product offerings and distributor base and by making selective
acquisitions.
20
<PAGE>
In the fourth quarter of 1996, the Company recorded restructuring and
unusual charges of approximately $1,640,000 ($984,000 net of tax) based on the
Company's restructuring of sales and marketing functions and other operational
changes. The restructuring was prompted by lower than expected performance from
the Ocean, Designer Line and Artmold acquisitions. As a part of its
restructuring, the Company decided to consolidate certain facilities into other
existing facilities, terminate certain employees, and write-off certain
capitalized costs associated with a target acquisition. The consolidation of
these facilities is expected to be completed by the end of 1997. A provision for
closure of these facilities totaling approximately $890,000, including the
write - off of certain leasehold improvements, has been accrued or paid.
Approximately $560,000 of future salary and benefits owed to three terminated
employees under their existing employment agreements was accrued or paid in the
fourth quarter. These employment agreements have remaining terms that expire
over the next two years. Additionally , capitalized acquisition related costs of
approximately $190,000 were expensed in the fourth quarter.
Results of Operations
The following information is qualified by reference to, and should be
read in conjunction with, the Company's consolidated financial statements and
the notes thereto included elsewhere herein. The following table presents, for
the periods indicated, selected items from the Company's consolidated statements
of income expressed as a percentage of sales.
Fiscal Year Ended
-----------------
Sept. 3, Sept. 2, Aug. 31,
1994 1995 1996
---- ---- ----
Statement of Income Data:
Sales 100.0% 100.0% 100.0%
Cost of sales 69.3 68.3 70.4
Gross profit 30.7 31.7 29.6
Total operating expenses 20.6 21.6 22.8
Operating income 10.2 10.1 6.8
Interest expense 1.7 3.5 2.3
Income before income taxes 8.5 6.6 4.5
Net income 5.3 3.9 2.7
Fiscal Year Ended August 31, 1996 Compared With Fiscal Year Ended
September 2, 1995
Sales for fiscal 1996 increased $48.1 million, or 46.3%, to $152.0 million
from $103.9 million in fiscal 1995. Of this increase, $5.7 million was
attributable to increased sales of the Company's core product lines, $21.8
million was due to inclusion of sales from the Ocean, Tee-Off and Alpha
acquisitions which were completed during
21
<PAGE>
fiscal 1996, and $20.6 was attributable to the full-year impact of the Air-Tex,
Designer Line and BTS acquisitions, which were completed in fiscal 1995.
Internal sales growth was fueled by product line expansion, including the Koozie
(R) cooler bag products introduced by RCC in January 1994, with sales of $7.8
million, and the Value Line (TM) product line expansion and crystal product
offerings introduced by Barlow in June 1993, with aggregate sales of $5.8
million.
Cost of goods sold for fiscal 1996 increased $36.0 million, or 50.7%, to
$107.0 million from $71.0 million in fiscal 1995. Of this increase, $4.9 million
was attributable to the increased sales of the Company's core product lines,
$18.1 million was due to the inclusion of sales from the fiscal 1996
acquisitions and $13.0 million was attributable to the inclusion of the
full-year impact of the fiscal 1995 acquisitions. As a majority of the purchase
orders by the Company are denominated in United States dollars, the foreign
currency translation risk has been significantly reduced and is immaterial in
total. The Company believes the differences in quality between products
manufactured in-house and those imported are negligible, while imported
products, as a general rule, are less expensive.
Gross profit for fiscal 1996 increased $12.1 million, or 36.8%, to $45.0
million from $32.9 million in fiscal 1995. Excluding the 1996 acquisitions,
gross profit as a percentage of sales increased from 31.7% to 31.8%. Including
the 1996 acquisitions, gross profit as a percentage of sales decreased from
31.7% to 29.6%. This decrease was mainly attributable to fiscal 1996
acquisitions of businesses which operate with lower gross profit percentages
than the Company's existing businesses.
Total operating expenses for fiscal 1996 increased $12.2 million, or 54.5%,
to $34.6 million from $22.4 million in fiscal 1995. This increase was primarily
attributable to the fiscal 1995 and 1996 acquisitions and the 1996 restructuring
and unusual charges. Exclusive of the 1996 restructuring and unusual charges,
operating expenses as a percentage of sales remained flat at 21.6%.
Operating income for fiscal 1996 decreased $64,000, or 0.6%, to $10.4
million from $10.5 million in fiscal 1995. Exclusive of the 1996 restructuring
and unusual charges, operating income as a percentage of sales decreased from
10.1% to 7.9%. This decrease was mainly attributable to the fiscal 1996
acquisitions of businesses which operate with lower gross profit percentages
than the Company's existing businesses and to lower than expected performance
from the Ocean, Designer Line and Artmold acquisitions.
Interest expense was $3.5 million in fiscal 1996 compared to $3.6 million
in fiscal 1995. This decrease was attributable to lower effective interest rates
and the use of December 1995 stock offering proceeds to pay down debt, offset by
borrowings used to finance the fiscal 1995 and fiscal 1996 acquisitions.
The Company's effective tax rate was 40.0% in fiscal 1996 as compared with 41.0%
in fiscal 1995.
As a result of the above, net income for fiscal 1996 increased $123,000, or
3.1%, to $4.2 million from $4.0 million in fiscal 1995.
Fiscal Year Ended September 2, 1995 Compared With Fiscal Year Ended
September 4, 1994
Sales for fiscal 1995 increased $41.5 million, or 66.5%, to $103.9 million
from $62.4 million in fiscal 1994. Of this increase, $11.5 million was
attributable to increased sales of the Company's core product lines,
22
<PAGE>
$11.7 million was due to inclusion of sales from the Air-Tex, Designer Line and
BTS acquisition which were completed during fiscal 1995, and $18.3 million was
attributable to the full-year impact of the Key and ArtMold acquisitions, which
were completed in fiscal 1994. Internal sales growth was fueled by product line
expansion, including the Koozie (R) cooler bag products introduced by RCC in
January 1994, with sales of $5.1 million, and the Value Line (TM) product line
expansion and crystal product offerings introduced by Barlow in June 1993, with
aggregate sales of $2.7 million.
Cost of goods sold for fiscal 1995 increased $27.8 million, or 64.2%, to
$71.0 million from $43.2 million in fiscal 1994. Of this increase, $8.0 million
was attributable to the increased sales of the Company's core product lines,
$7.3 million was due to the inclusion of sales from the fiscal 1995 acquisitions
and $12.5 million was attributable to the inclusion of the full-year impact of
the fiscal 1994 acquisitions. As a majority of the purchase orders by the
Company are denominated in United States dollars, the foreign currency
translation risk has been significantly reduced and is immaterial in total. The
Company believes the differences in quality between products manufactured
in-house and those imported are negligible, while imported products, as a
general rule, are less expensive.
Gross profit for fiscal 1995 increased $13.7 million, or 71.5%, to $32.9
million from $19.2 million in fiscal 1994. Additionally, gross profit as a
percentage of sales increased from 30.7% to 31.7%. The increase in gross profit
was attributable to increased internal sales growth and to the Air-Tex, Designer
Line and BTS acquisitions in fiscal 1995. The increase in gross profit margin
percentage is primarily attributable to the acquisitions, as sport, travel and
tote bags and recognition awards and business gifts items contribute higher
margins than previously experienced on a consolidated basis by the Company, and
to improved absorption of overhead at the regional mug imprinting facility in
Pittsburgh, Pennsylvania.
Total operating expenses for fiscal 1995 increased $9.6 million, or 74.8%,
to $22.4 million from $12.8 million in fiscal 1994. This increase was primarily
attributable to the fiscal 1994 and 1995 acquisitions. Exclusive of the increase
due to the fiscal 1995 acquisitions and the full-year impact of the fiscal 1994
acquisitions, operating expenses increased 14.7%. This increase was primarily
attributable to increased selling and marketing expenditures of $1.0 million,
the full-year impact of the expansion and realignment of duties of management at
the parent company level in the fourth quarter of fiscal 1994 of approximately
$350,000 and increased performance bonuses to key management of approximately
$290,000, based on achievement of certain operating results. Prior to the Key
and ArtMold acquisitions in fiscal 1994, the Company's executive officers were
also operating officers of RCC. In the fourth quarter of fiscal 1994, the
Company realigned and expanded the management staff at the Company and
eliminated their operating duties at RCC. The purpose of this realignment was to
enable senior management to focus on identifying and structuring acquisitions,
coordinating activities among the Company's various operating companies and
providing overall operating and financial guidance to the operating companies.
Management believes this reorganization was essential to the implementation of
the Company's growth strategy.
Operating income for fiscal 1995 increased $4.2 million, or 64.9%, to $10.5
million from $6.3 million in fiscal 1994. Operating income as a percentage of
sales decreased slightly from 10.2% to 10.1%.
Interest expense was $3.6 million in fiscal 1995 compared to $1.0 million
in fiscal 1994. This increase was exclusively attributable to increased
indebtedness related to the fiscal 1995 acquisitions and the full-year impact of
the fiscal 1994 acquisitions.
23
<PAGE>
The Company's effective tax rate was 41.0% in fiscal 1995 as compared with
37.3% in fiscal 1994. This increase was due to non-deductible amortization of
goodwill as a result of the acquisition of ArtMold in fiscal 1994.
As a result of the above, net income for fiscal 1995 increased $703,000, or
21.1%, to $4.0 million from $3.3 million in fiscal 1994.
Liquidity and Capital Resources
The Company has financed its business activities primarily with borrowings under
the Bank Credit Facility, notes payable to the former owners of acquired
businesses, the sale of Common Stock and cash provided from operations.
The Bank Credit Facility provides for aggregate borrowings of up to $60.0
million, comprised of a $20.0 million revolving credit facility ($9.4 million
outstanding at November 15, 1996), a $21.5 million term loan facility ($6.7
million outstanding at November 15, 1996) and an $18.5 million acquisition loan
facility ($14.8 million outstanding at November 15, 1996). The revolving loan
facility is available to finance acquisitions and for working capital and
general corporate purposes. The acquisition loan facility is available to
finance acquisitions.
Pursuant to the terms of the Bank Credit Facility, the Company is required
to maintain certain financial ratios and minimum tangible net worth and is
subject to a prohibition on dividends, and limitations on additional
indebtedness, liens, investments, issuance of stock of subsidiaries, changes in
management and ownership, mergers and acquisitions, sale/leaseback transactions
and sales of assets. An event of default occurs under the Bank Credit Facility
if any person becomes the owner of more than 35.0% of the outstanding capital
stock of the Company, or if within a 12-month period, a majority of the
Company's Board of Directors shall be comprised of new directors. The Company is
required to make quarterly amortization payments on certain amounts outstanding
under the Bank Credit Facility. See note 8 to the consolidated financial
statements of the Company included elsewhere herein. The final maturity of the
Bank Credit Facility is July 31, 2000. Amounts outstanding under the Bank Credit
Facility bear interest at a rate equal to either the agent bank's prime rate or
the London Interbank Offered Rate, plus an interest rate spread which varies
based on the ratio of the Company's Consolidated Senior Funded Debt to Earnings
Before Interest Taxes and Depreciation (as such terms are defined in the Bank
Credit Facility). Indebtedness under the Bank Credit Facility is secured by a
first lien priority security interest in substantially all the assets of the
Company, including a pledge of the stock of each of the Company's subsidiaries.
Additionally, any entities and assets acquired with financing under the Bank
Credit Facility will serve as security. Borrowings under the Bank Credit
Facility are jointly and severally guaranteed by all subsidiaries acquired or
created by the Company.
On December 20, 1995, the Company completed the sale of 2,015,481 shares of
Common Stock in a public offering. The net proceeds of this offering of
approximately $31 million were used to repay indebtedness under the Bank Credit
Facility. The Company may, subject to certain conditions, reborrow such amounts
from time to time for general corporate purposes, including financing future
acquisitions.
24
<PAGE>
In connection with the Key and ArtMold acquisitions in fiscal 1994, the
Air-Tex, Designer Line, and BTS acquisitions in fiscal 1995, and the Ocean and
Tee-Off and Alpha acquisitions in fiscal 1996, the Company issued promissory
notes to the former owners of the acquired businesses in an aggregate principal
amount of $6.4 million. These promissory notes are generally payable over five
years from the dates of the respective acquisitions and bear interest at annual
rates ranging from 5.5% to 9.0%. Of these notes, $4.6 million are convertible
into Common Stock at prices ranging from $17.00 to $20.00 per share (of which
$950,000 was converted into 55,882 shares of common stock in fiscal 1996) and
$1.1 million are secured by an irrevocable letter of credit. The Company is also
obligated to make payments aggregating $6.1 million over the next ten years
under the terms of non-compete agreements with certain of the former owners of
these acquired businesses, subject in the case of the BTS acquisition to
increases of up to $1.0 million contingent upon the achievement of certain
operating income levels by the BTS division of Barlow. Additionally, the owners
of Alpha Products, Inc. can receive up to an additional $2.3 million upon the
achievement of certain operating income levels by the Alpha division of RCC.
During fiscal 1996, net cash provided by operating activities was $6.9
million. The net use of cash in investing activities was $23.1 million,
primarily representing $17.6 million as the aggregate cash consideration paid in
the Ocean, Tee-Off and Alpha acquisitions, and $5.0 million in capital
expenditures. Financing activities provided net cash of $15.9 million primarily
from borrowings under the Bank Credit Facility and proceeds from the December
1995 stock offering. The proceeds from the borrowings were used primarily to
finance the Ocean, Tee-Off and Alpha acquisitions.
In fiscal 1995, net cash provided by operating activities was $2.9 million.
The net use of cash in investing activities was $24.8 million, primarily
comprising $22.4 million as the aggregate cash consideration paid in the
Air-Tex, Designer Line and BTS acquisitions and capital expenditures of $2.0
million. Financing activities provided $23.5 million, net of increase in cash.
The Company's principal capital needs will be to finance any future acquisitions
and ongoing capital expenditures. Although the Company currently believes that
cash flow from operations and available borrowings under the Bank Credit
Facility will be sufficient to meet the Company's working capital and capital
expenditure requirements and future debt service obligations for at least the
next 18 months, there can be no assurance that this will be the case. The
Company believes its fiscal 1997 capital expenditure requirements will be
approximately $4.5 million, but there can be no assurance that this will be the
case. The Company anticipates that such capital expenditures will be required
primarily to acquire additional processing equipment, management information
systems, furniture and fixtures and leasehold improvements.
Seasonality and Quarterly Results
The Company believes that the promotional products industry traditionally
tends to generate lower sales during the Company's second fiscal quarter. The
Company attempts to offset seasonal demand by offering promotional programs on a
variety of items. The following table presents quarterly results of operations
for fiscal 1994, 1995 and 1996 which have been affected by the Company's
acquisitions.
25
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Fiscal Years
1994 1995 1996
(In thousands, except per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal Quarters 1st 2nd 3rd(a) 4th(b) 1st 2nd(c) 3rd(d) 4th(e) 1st(f) 2nd(g) 3rd(h) 4th
- ------------------------------------------------------------------------------------------------------------------------------------
Sales $12,945 $11,240 $16,537 $21,663 $22,916 $19,316 $29,995 $31,633 $33,368 $30,086 $45,034 $43,474
Gross profit 4,222 3,333 5,068 6,555 7,252 5,492 9,936 10,217 10,623 8,462 13,655 12,230
Operating Income 1,623 673 2,028 2,014 2,539 734 3,779 3,399 3,427 917 4,908 1,135(i)
Net Income (loss) 941 345 1,152 891 1,114 (22) 1,582 1,358 1,356 88 2,526 185
Net Income (loss)
per common share:
Primary $0.26 $0.10 $0.32 $0.25 $0.31 $(0.01) $0.44 $0.38 $0.37 $0.02 $0.44 $0.03
Fully diluted $0.26 $0.10 $0.32 $0.25 $0.31 $(0.01) $0.44 $0.37 $0.37 $0.02 $0.44 $0.03
Weighted avg. common
shares outstanding
Primary 3,592 3,610 3,576 3,576 3,575 3,610 3,610 3,636 3,691 5,055 5,767 5,822
Fully Diluted 3,592 3,610 3,610 3,576 3,575 3,610 3,610 3,668 3,691 5,055 5,767 5,822
</TABLE>
(a) The Key acquisition was completed in May 1994.
(b) The ArtMold acquisition was completed in July 1994.
(c) The Air-Tex acquisition was completed in March 1995.
(d) The Designer Line acquisition was completed in June 1995.
(e) The BTS acquisition was completed in July 1995.
(f) The Ocean acquisition was completed in November 1995.
(g) The sale of 2,015,481 shares of Common Stock was completed in
December 1995 with the proceeds of the public offering being used
to repay indebtedness. In addition, the Tee-Off acquisition was
completed in January 1996.
(h) The Alpha acquisition was completed in April 1996.
(i) Includes restructuring and unusual charges of $1.6 million.
Supplemental Data
The Company's earnings before income taxes, interest expense, depreciation
and amortization ("EBITDA") grew at a compound annual growth rate of 39.9 %,
from $8.5 million in fiscal 1994 to $18.7 ($17.1 million in fiscal 1996
including restructuring and unusal charges of $1.6 million). The non-cash
amortization impact to net income per share for fiscal 1995 and 1996, after tax,
was equal to $0.40 and $0.46, respectively. The Company believes that the
presentation of EBITDA facilitates an investor's understanding of the effects on
the Company's operations of amortization of goodwill and other intangibles and
increased interest expense under indebtedness incurred in connection with
various acquisitions which substantially impacted net income, net income per
common share and cash flows. EBITDA should not be considered by an investor as
an alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity. EBITDA is not used in
the presentation of financial statements prepared in accordance with generally
accepted accounting principles.
26
<PAGE>
Inflation
Inflation affects the cost of goods and services used by the Company.
The competitive environment somewhat limits the ability of the Company to
recover higher costs by raising prices, although the Company does selectively
increase prices for certain products. Moreover, the Company's products are sold
to distributors based on catalog prices. Catalogs are published annually, and
the Company generally is not able to raise prices until a new catalog is issued.
The Company attempts to mitigate the adverse effects of future inflation through
selective price increases, improved productivity and cost containment efforts.
27
<PAGE>
Item 8. Financial Statements and Supplementary Data
Norwood Promotional Products, Inc.
Annual Financial Statements
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets as of September 2, 1995 and August 31, 1996
Consolidated Statements of Income for the years ended September 3, 1994,
September 2, 1995 and August 31, 1996
Consolidated Statements of Shareholders' Equity for the years ended September 3,
1994, September 2, 1995 and August 31, 1996
Consolidated Statements of Cash Flows for the years ended September 3, 1994,
September 2, 1995 and August 31, 1996
Notes to Consolidated Financial Statements
28
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Norwood Promotional Products, Inc.
We have audited the accompanying consolidated balance sheets of Norwood
Promotional Products, Inc. as of September 2, 1995 and August 31, 1996 and the
related consolidated statements of income, shareholders' equity, and cash flows
for the years ended September 3, 1994, September 2, 1995 and August 31, 1996.
Our audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule 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 also 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Norwood
Promotional Products, Inc. at September 2, 1995 and August 31, 1996, and the
consolidated results of their operations and their cash flows for the years
ended September 3, 1994, September 2, 1995 and August 31, 1996, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
San Antonio, Texas
October 10, 1996
29
<PAGE>
Norwood Promotional Products, Inc.
Consolidated Balance Sheets
(in thousands)
September 2, August 31,
1995 1996
---- ----
ASSETS
Current Assets:
Cash and cash equivalents $ 2,174 $ 1,861
Accounts receivable 17,001 21,621
Other receivables 492 724
Inventories 23,913 31,823
Prepaid expenses and other current assets 1,916 2,231
------- --------
Total current assets 45,496 58,260
Property, plant and equipment, net 12,090 19,585
Deferred income taxes 249 751
Goodwill 30,443 35,266
Other assets 6,581 7,514
------- --------
Total assets $94,859 $121,376
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 5,803 $10,269
Accrued liabilities 4,246 5,920
Income taxes payable 866 129
Current portion of long-term debt 3,232 6,378
Current portion of lease obligation 266 316
------- --------
Total current liabilities 14,413 23,012
Long-term debt, excluding current portion 59,210 40,447
Capital lease obligation, excluding current
portion 202 537
Shareholders' equity:
Common stock, no par value; 20,000,000 shares
authorized; 3,541,638 and 5,615,791 shares
issued; 3,540,208 and 5,614,361 shares
outstanding, at September 2, 1995 and
August 31, 1996, respectively 19,617 51,568
Additional paid-in capital 369 369
Less cost of treasury stock 1,430 shares at
September 2, 1995 and August 31, 1996,
respectively (8) (8)
Retained earnings 1,310 5,465
------- --------
21,288 57,394
Less receivables for purchase of common stock (254) (14)
------- --------
Total shareholders' equity 21,034 57,380
------- ---------
Total liabilities and shareholders' equity $94,859 $121,376
======= ========
See accompanying notes
30
<PAGE>
Norwood Promotional Products, Inc.
Consolidated Statements of Income
(in thousands, except share amounts)
Year Ended
----------
September 3, September 2, August 31,
1994 1995 1996
------------ ------------ ----------
Sales $ 62,385 $ 103,860 $ 151,962
Cost of sales 43,207 70,963 106,992
------------- ------------ -----------
Gross profit 19,178 32,897 44,970
Operating expenses:
Sales and marketing 6,886 11,290 17,049
General and administrative 5,065 9,037 12,356
Amortization 889 2,119 3,538
Restructuring and unusual charges - - 1,640
------------- ----------- -----------
Total operating expenses 12,840 22,446 34,583
------------ ----------- -----------
Operating income 6,338 10,451 10,387
Interest expense 1,030 3,619 3,462
------------- ----------- -----------
Income before income taxes 5,308 6,832 6,925
Provision for income taxes 1,979 2,800 2,770
------------- ----------- -----------
Net income $ 3,329 $ 4,032 $ 4,155
============= =========== ===========
Net income per common share:
Primary $0.93 $1.11 $0.82
Fully diluted $0.93 $1.10 $0.82
Weighted average number of
common shares outstanding:
Primary 3,575,645 3,636,259 5,090,000
Fully diluted 3,575,645 3,668,175 5,090,000
See accompanying notes
31
<PAGE>
Norwood Promotional Products, Inc.
Consolidated Statements of Shareholders' Equity
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Receivables
for Total
Additional Retained Purchases Treasury Shareholders'
Common Stock Paid-in Earnings of Common Stock Equity
Shares Amount Capital (Deficit) Stock
-----------------------------------------------------------------------------
Balance at August 28, 1993 3,539 $19,613 $369 $ (6,051) $(385) --- $13,546
Treasury stock purchases (4) (4)
Net income 3,329 3,329
-----------------------------------------------------------------------------
Balance at September 3, 1994 3,539 19,613 369 (2,722) (385) (4) 16,871
Treasury stock purchases (4) (4)
Exercise of stock options 3 4 4
Payment on shareholder notes 131 131
Net income 4,032 4,032
-----------------------------------------------------------------------------
Balance at September 2, 1995 3,542 19,617 369 1,310 (254) (8) 21,034
Exercise of stock options 3 15 15
Payment on shareholder notes 240 240
Conversion of notes payable 56 950 950
Sale of common stock 2,015 30,986 30,986
Net income 4,155 4,155
-----------------------------------------------------------------------------
Balance at August 31, 1996 5,616 $51,568 $369 $5,465 $(14) $(8) $57,380
=============================================================================
See accompanying notes
</TABLE>
<PAGE>
Norwood Promotional Products, Inc.
Consolidated Statements of Cash Flows
(in thousands)
[CAPTION]
<TABLE>
<S> <C> <C> <C>
Year Ended
------------------------------------------
September 3, September 2, August 31,
1994 1995 1996
---- ---- ----
Operating Activities
Net income $ 3,329 $4,032 $4,155
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 1,299 1,906 3,135
Amortization 889 2,119 3,538
(Gain) loss on disposal of equipment 14 (5) (21)
Deferred income tax provision (36) (258) (502)
Changes in operating assets and
liabilities, net of effect
of acquisitions:
Accounts receivable (1,373) (2,148) (1,041)
Other receivables 40 (431) (97)
Inventories (2,411) (1,671) (2,957)
Prepaid expenses and other assets (222) (219) (141)
Trade accounts payable (278) (1,196) 279
Accrued liabilities 297 287 1,256
Income taxes receivable/payable 160 532 (738)
--- --- ----
Net cash provided by operating activities 1,708 2,948 6,866
Investing Activities
Payments on capital leases (128) (302) (601)
Purchases of property, plant and equipment (1,426) (2,073) (4,919)
Proceeds from sale of property, plant and equipment 7 56 32
Acquisitions, net of cash acquired (23,564) (22,446) (17,596)
------- ------- -------
Net cash used in investing activities (25,111) (24,765) (23,084)
Financing Activities
Proceeds from long-term debt 54,826 59,684 65,500
Principal payments on long-term debt (30,568) (36,119) (80,787)
Treasury stock purchases (4) (4) --
Sale of common stock -- -- 30,986
Exercise of stock options -- 4 1
Payment on shareholder notes -- 131 240
Debt issuance fees (518) (191) (35)
---- ---- ---
Net cash provided by financing activities 23,736 23,505 15,905
------ ------ ------
Net change in cash and cash equivalents 333 1,688 (313)
Cash and cash equivalents at beginning of period 153 486 2,174
------ ------ ------
Cash and cash equivalents at end of period $ 486 $ 2,174 $ 1,861
===== ======= =======
Cash paid during the period for:
Interest $816 $3,396 $3,420
Income taxes 1,573 2,572 2,945
</TABLE>
See accompanying notes
33
<PAGE>
Norwood Promotional Products, Inc.
Notes to Consolidated Financial Statements
September 3, 1994, September 2, 1995 and August 31, 1996
1. Description of The Business
Norwood Promotional Products, Inc. (the Company) is engaged in the
manufacture and sale of promotional products and has operations throughout the
United States. Products are manufactured domestically as well as imported and
then decorated with an advertiser's message. The Company's product lines are:
wearables; mugs and glassware; sporting goods and leisure products; writing
instruments; sport, travel and tote bags; pocket specialties and accessories;
desk and business accessories; recognition awards and business gifts; buttons,
badges, magnets, paper products; and golf related items.
2. Significant Accounting Policies
Principles of Consolidation
The accompanying financial statements include the accounts of Norwood
Promotional Products, Inc. and its directly and indirectly wholly owned
subsidiaries, Norcorp, Inc., Radio Cap Company, Inc. (RCC), Barlow Promotional
Products, Inc. (Barlow), Key Industries, Inc. (Key), ArtMold Products
Corporation (ArtMold), Air-Tex Corporation (Air-Tex) and Norwood Travel, Inc.
All significant intercompany balances and transactions have been eliminated in
consolidation.
Accounts Receivable
Accounts receivable is shown net of the allowance for doubtful accounts of
$540,000 and $775,000 at September 2, 1995, and August 31, 1996, respectively.
The Company manufactures and sells promotional products to various
distributors. The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Credit losses
have been within management's expectations. Bad debt expense approximated
$80,000, $169,000 and $330,000 for the years ended September 3, 1994, September
2, 1995 and August 31, 1996, respectively.
Inventories
Raw materials and purchased finished goods are stated at the lower of cost
(first-in, first-out method) or market. Work-in-process and manufactured
finished goods inventories are stated at the lower of cost (moving average
method) or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Major renewals and
betterments are charged to the property accounts while replacements,
maintenance, and repairs which do not improve or extend the lives of the
respective assets are expensed currently. Depreciation is provided at amounts
calculated to amortize the cost of the assets over their estimated useful
economic lives using the straight-line method. Estimated useful lives are five
to thirty-one years for buildings and improvements and three to seven years for
machinery and equipment.
Federal Income Taxes
The Company records income taxes under Financial Accounting Standards
Board (FASB) Statement No. 109 using the liability method. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
34
<PAGE>
Fiscal Year
The Company has a fiscal year of 52- or 53-week periods that end on the
Saturday closest to August 31. All references to 1994, 1995 and 1996 herein are
to the fiscal years ended September 3, 1994 (53-week period), September 2, 1995
(52-week period) and August 31, 1996 (52-week period), respectively.
Cash Equivalents
Cash equivalents are highly liquid investments with a maturity date no
longer than 90 days.
Research and Development Costs
Research and development costs are expensed as incurred. Research and
development expense approximated $127,000, $152,000 and $178,000 for the years
ended September 3, 1994, September 2, 1995 and August 31, 1996, respectively.
Fair Value of Financial Instruments
The carrying amount reported in the balance sheet for cash and cash
equivalents, accounts receivable, accounts payable, and long-term debt
approximates its fair value. The Company estimates the fair value of long-term
debt by discounting the future cash flows of the instrument, using the Company's
incremental rate of borrowing for a similar instrument.
Earnings Per Share
Earnings per common share is computed using the weighted average number
of shares of common stock and common stock equivalents outstanding during each
period.
The dilutive effect of stock options and common stock warrants are
calculated using the treasury stock method. In determining the dilutive effect
of these stock options and warrants, the common stock equivalents were
calculated based upon the greater of the closing price on the last day of the
year or the average price of the Company's common stock for the year in applying
the treasury stock method.
Concentration of Foreign Suppliers
The Company derives a significant portion of its sales from products
supplied by Far East manufacturers. While the Company is not dependent on any
single manufacturer in the Far East, the Company could be adversely affected by
political or economic disruptions affecting the business or operations of third
party manufacturers located in the Far East.
Reclassification
Certain prior year balances have been reclassified for comparative
purposes.
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 reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
35
<PAGE>
New Financial Accounting Standards
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,
which required impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company will adopt Statement 121
in fiscal year 1997 and based on current circumstances, does not believe the
effect of adoption will be material.
In October 1995, the FASB issued Statement No. 123, Accounting for
Stock-Based Compensation, which encourages, but does not require, the
recognition of compensation expense for virtually all stock options based on
their value on the date of grant. Although expense recognition for employee
stock based compensation is not required, Statement 123 requires companies that
choose not to adopt the new fair value accounting to disclose pro-forma net
income and earnings per share under the new method. The Company will be required
to apply the requirements of Statement No. 123 in fiscal year 1997. The Company
believes that adoption of Statement 123 will not have a material impact on its
financial condition as the Company will not adopt the fair value accounting, but
will instead comply with the disclosure requirements.
3. Acquisitions
On November 20, 1995, January 23, 1996 and April 1, 1996, the Company
acquired substantially all of the assets of Ocean Specialty Manufacturing
Corporation (Ocean), Tee-Off Enterprises, Inc. (Tee-Off) and Alpha Products,
Inc. (Alpha), respectively. In connection with the acquisition of Ocean, the
Company (through its wholly-owned subsidiary Key) paid $2.5 million in cash,
issued $1.0 million in convertible notes and other debt and assumed or incurred
liabilities of $1.4 million. In connection with the acquisition of Tee-Off, the
Company (through its wholly-owned subsidiary ArtMold) paid $6.0 million in cash,
issued $1.5 in notes and other debt and assumed or incurred liabilities of $1.7
million. In connection with the acquisition of Alpha, the Company (through its
wholly-owned subsidiary RCC) paid $6.7 million in cash and assumed or incurred
liabilities of $3.2 million. Additionally, the former owners of Alpha can
receive up to an additional $2.3 million if certain future earnings goals are
met. Ocean, Tee-Off and Alpha are suppliers of promotional products.
On March 1, 1995, June 13, 1995 and July 31,1995, the Company acquired
substantially all of the assets of Air-Tex, Designer Plastics, Inc. (Designer)
and BTS Group, Inc. (BTS), respectively. In connection with the acquisition of
Air-Tex, the Company paid $13.3 million in cash, issued $2.5 million in
convertible notes and other debt, issued 60,294 warrants to purchase the
Company's common stock at $17.00 per share and assumed or incurred liabilities
of $2.4 million. In connection with the acquisition of Designer, the Company
(through its wholly-owned subsidiary Air-Tex) paid $2.4 million in cash, issued
$1.5 million in notes payable and non-compete agreements and assumed liabilities
of $1.0 million. In connection with the acquisition of BTS, the Company (through
its wholly-owned subsidiary Barlow) paid $6.3 million in cash, issued $3.5
million in notes payable and non-compete agreements and assumed liabilities of
$1.4 million. Additionally, the former owners of BTS can receive up to an
additional $1.0 million under the non-compete agreement if certain future
earnings goals are met. Air-Tex, Designer and BTS are suppliers of promotional
products.
On May 5, 1994 and July 8, 1994, the Company acquired substantially all
the assets of Key and all the outstanding stock of ArtMold, respectively. In
connection with the acquisition of Key, the Company paid or issued $9.5 million
in cash and notes payable and assumed liabilities of $2.4 million. In connection
with the acquisition of ArtMold, the Company paid $13.1 million in cash and
assumed or incurred liabilities of $1.1 million. Key and ArtMold are suppliers
of promotional products.
The condensed pro-forma results of operations presented below summarize
on an unaudited pro-forma basis approximate results of the Company's
consolidated operations for the years ended September 3, 1994,
36
<PAGE>
Norwood Promotional Products, Inc.
Notes to Consolidated Financial Statements
September 3, 1994, September 2, 1995 and August 31, 1996
September 2, 1995 and August 31, 1996, assuming that the acquisitions of Key and
ArtMold occurred at the beginning of fiscal 1993, the acquisition of Air-Tex,
Designer and BTS occurred at the beginning fiscal 1994, and the acquisition of
Ocean, Tee-Off and Alpha occurred at the beginning of fiscal 1995.
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C>
September 3, September 2, August 31,
1994 1995 1996
-------------- --------------- ----------
Net sales $112,107 $160,550 $167,978
Operating income 8,928 11,344 10,647
Income before income taxes 4,426 4,756 6,572
Net income 2,649 2,803 3,969
Primary earnings per share $ .74 $ 0.77 $ 0.78
Fully-diluted earnings per share $ .74 $ 0.76 $ 0.78
</TABLE>
All of the acquisitions were accounted for by the purchase method of
accounting, and accordingly, the purchase price has been allocated to the assets
acquired and the liabilities assumed based on the estimated fair values at the
respective dates of acquisition. The results of Key, ArtMold, Air-Tex ,
Designer, BTS, Ocean, Tee-Off and Alpha have been included in the Company's
consolidated financial statements since their respective acquisition dates.
4. Inventories
Net inventories consist of the following (in thousands):
September 2, August 31,
1995 1996
------------ -----------
Finished goods:
Imprinted $1,618 $1,347
Unimprinted 16,462 20,245
------------ -----------
18,080 21,592
Work in process 1,061 1,099
Raw materials 4,772 9,132
----------- ----------
$23,913 $31,823
=========== ==========
Inventory obsolescence reserves were $395,000 and $768,000 at
September 2, 1995 and August 31, 1996, respectively.
5. Property, Plant and Equipment
Property, plant and equipment consist of the following (in thousands):
September 2, August 31,
1995 1996
----------- ----------
Land $458 $478
Buildings and improvements 4,892 6,863
Machinery and equipment 12,807 20,108
Machinery and equipment under lease 824 2,111
-------- --------
18,981 29,560
Less accumulated depreciation (6,891) (9,975)
-------- ---------
$12,090 $19,585
========= =======
37
<PAGE>
Norwood Promotional Products, Inc.
Notes to Consolidated Financial Statements
September 3, 1994, September 2, 1995 and August 31, 1996
6. Goodwill and Other Assets
Goodwill and other assets consist of the following balances
(in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
September 2, August 31,
1995 1996
---------- -------
Goodwill, less accumulated amortization
of $2,092 and $4,573 $ 30,443 $ 35,266
========= =========
Non-compete agreement, less accumulated
amortization of $1,162 and $1,943 4,663 5,882
Refinancing and loan origination costs, less
amortization of $127 and $245 582 488
Favorable lease, less accumulated amortization of
$223 and $291 187 119
Technical drawings, less accumulated amortization
of $188 and $245 98 40
Long term deposits 781 960
Other 270 25
---------- --------
$ 6,581 $7,514
========== ========
</TABLE>
Goodwill, resulting from business acquisitions, is amortized on a
straight-line method over 15 years. Other intangible assets are amortized on a
straight-line method over their estimated useful lives ranging from three to ten
years.
The carrying value of intangible assets is reviewed if the facts and
circumstances suggest that they may be impaired. If this review indicates that
the intangible assets will not be recoverable, the Company's carrying value of
the intangible assets would be reduced by the estimated shortfall of future
discounted cash flows or to market value.
7. Accrued Liabilities
Other accrued liabilities consist of the following balances (in
thousands):
September 2, August 31,
1995 1996
---------- -------
Salaries, wages and bonuses $2,392 $2,554
Restructuring cost -- 1,028
Professional fees 130 136
Property tax 213 298
Interest 443 417
Sample rebates 134 410
Miscellaneous 934 1,077
------- -------
$4,246 $5,920
====== =======
38
<PAGE>
Norwood Promotional Products, Inc.
Notes to Consolidated Financial Statements
September 3, 1994, September 2, 1995 and August 31, 1996
8. Long-term Debt
The Company's consolidated long-term debt is summarized below (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
September 2, August 31,
1995 1996
----------- ---------
Term note payable to a bank, interest at prime or LIBOR plus an interest
spread based on an interest coverage ratio (8.41% at September 2, 1995 and
7.875% at August 31, 1996), payable monthly, principal payable in quarterly
installments of $825,000 beginning January 1, 1996 with balance due July
31, 2000; secured by receivables, inventory, and equipment, subject to
certain restrictive covenants as further described below. $21,500 $7,525
Revolving line of credit to a bank, interest at prime or LIBOR plus an interest
spread based on an interest coverage ratio ($3.6, $3.0 and $12.2 million at
9.25%, 8.12% and 8.16%, respectively at September 2, 1995 and $4.4, $4.0
and $3.1 million at 8.50%, 7.598% and 7.625%, respectively at August 31,
1996), payable monthly, principal payable on July 31, 2000; secured by
receivables, inventory, and equipment, subject to certain restrictive
covenants as further described below. 18,750 11,450
Acquisition note payable to a bank, interest at prime or LIBOR plus an interest
spread based on an interest coverage ratio (8.41% at September 2, 1995 and
$9.0 and $5.75 at 7.848% and 7.91%, respectively at August 31, 1996),
payable monthly, principal payable in quarterly installments of 4% of the
unpaid principal balance beginning January 1, 1997 with balance due July
31, 2000; secured by receivables, inventory and equipment, subject to
certain restrictive covenants as described below. 10,250 14,750
Non-Compete payable to former owners of Air-Tex, Designer, BTS, Ocean and
Tee-Off. Payments are due over the life of each respective non- compete
agreement. Agreements range from two to ten years. 4,594 5,557
Note payable to a bank,payable in monthly installments of $13,614, interest at
7% for five years with interest rate renegotiated after 5 years, balance
due March 1, 2004; secured by plant facility. 1,040 948
Notes payable to former owners of Key, interest at 8%, payable quarterly,
balance due May 1, 1999; secured by irrevocable letter of credit issued by
Company's primary lender. 1,125 1,125
Notes payable to former owners of Key, interest at 8%, payable quarterly,
balance due May 1, 1999; convertible at $17.00 per share into the Company's
common stock. In May 1996, $950,000 of the notes payable was converted into
55,882 shares of the Company's common stock.
2,250 1,300
Notes payable to former owners of Air-Tex, interest at 9%, payable
quarterly, balance due March 1,2000. 200 200
Notes payable to former owners of Air-Tex, interest at 9%, payable
quarterly, balance due March 1, 2000, convertible at $17.00 per share
into the Company's common stock. 400 400
39
</TABLE>
<PAGE>
Norwood Promotional Products, Inc.
Notes to Consolidated Financial Statements
September 3, 1994, September 2, 1995 and August 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
September 2, August 31,
1995 1996
---------- ---------
Notes payable to former owners of Air-Tex, interest at 6%, payable
quarterly, balance due March 1, 2000, convertible at $17.00 per share into
the Company's common stock. 625 625
Notes payable to former owners of Designer, interest at 7%, payable quarterly,
balance due June 9, 2000, convertible at $17.00 per share into
the Company's common stock. 500 500
Notes payable to former owners of BTS, interest at 8%, payable quarterly,
balance due July 14, 2000, convertible at $18.30 per share into the
Company's common stock. 500 500
Notes payable to former owners of Ocean, interest at 6%, payable quarterly,
balance due November 17, 2000, convertible at $20.00 per share into
the Company's common stock -- 300
Notes payable to former owners of Tee-Off, interest at 5.5%, payable
bi-annually, balance due January 22, 2001 -- 456
Other notes payable 708 1,189
---------- --------
62,442 46,825
Less current maturities 3,232 6,378
---------- --------
$59,210 $40,447
=========== ========
</TABLE>
The aggregate maturities of long-term debt as of August 31, 1996 are as follows
(in thousands):
1997 $ 6,378
1998 6,445
1999 6,113
2000 25,193
2001 1,563
Thereafter 1,133
---------
$46,825
=========
On June 27, 1994 the Company entered into a bank facility ("The 1994
Bank Facility") with The Frost National Bank and The Boatmen's National Bank of
St. Louis. The 1994 Bank Facility provided for maximum aggregate outstanding
borrowings of $45.0 million and consisted of a revolving credit facility and two
term loans. On July 26, 1995, the Company amended The 1994 Bank Facility ("The
1995 Bank Facility") with The Frost National Bank, The Boatmen's National Bank
of St. Louis and Banque Paribas.
The 1995 Bank Facility provides for maximum aggregate outstanding
borrowings of $60.0 million and consists of a $20.0 million revolving credit
facility and two term loans totaling up to $40.0 million. The final maturity of
The 1995 Bank Facility is July 31, 2000. Amounts outstanding under The 1995 Bank
Facility bear interest at a rate equal to either the Banks' prime rate or the
London Interbank Offered Rate ("LIBOR") plus an interest rate spread, which
varies based on the ratio of the Company's Consolidated Senior Debt to Earnings
Before Interest, Taxes, Depreciation and Amortization ("EBITDA").
In addition to amending the outstanding indebtedness of The 1994 Bank
Facility, the $60.0 million credit facility is available to fund the company's
working capital requirements and to finance the purchase of additional companies
or assets of companies engaged in the promotional products industry.
40
<PAGE>
Norwood Promotional Products, Inc.
Notes to Consolidated Financial Statements
September 3, 1994, September 2, 1995 and August 31, 1996
The 1995 Bank Facility is secured by a first lien priority interest in
substantially all the assets of the Company, including a pledge of the stock of
each of the Company's subsidiaries. Additionally, any entities and assets
acquired with financing under The 1995 Bank Facility will serve as security.
Borrowings under The 1995 Bank Facility are jointly and severally guaranteed by
all subsidiaries acquired or created by the Company while borrowings are
outstanding under The 1995 Bank Facility.
Pursuant to the terms of The 1995 Bank Facility, the Company is
required to maintain certain financial ratios and tangible net worth and is
subject to limitations on dividends, additional indebtedness, liens,
investments, issuance of stock of subsidiaries, mergers and acquisitions,
sale/leaseback transactions and sales of assets.
9. Income Taxes
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets are as follows
(in thousands):
September 2, August 31,
1995 1996
---- ----
Deferred tax liabilities:
Tax over book depreciation $363 $ 589
Prepaid expenses 79 55
Catalog and sample expenses 200 234
Other - net 88 88
--- ---
Total deferred tax liabilities 730 966
Deferred tax assets:
Restructuring costs -- 465
Uniform capitalization of inventory costs 180 268
Valuation allowance on inventory 146 127
Vacation accrual 240 265
Bad debt reserve 150 162
Amortization of non-compete agreement 263 430
--- -----
Total deferred tax assets 979 1,717
--- -----
Net deferred tax asset $249 $ 751
==== =====
41
<PAGE>
Norwood Promotional Products, Inc.
Notes to Consolidated Financial Statements
September 3, 1994, September 2, 1995 and August 31, 1996
Management has determined that existing deductible temporary differences
will reverse within three years and may be carried back against prior taxable
earnings. Therefore, it is management's opinion that it is more likely than not
that the entire benefit of existing deductible temporary differences will be
realized and that there will be no valuation allowance for deferred tax assets
at August 31, 1996. Significant components of the provision (benefit) for income
taxes are as follows (in thousands):
Year Year Year
Ended Ended Ended
September 3, September 2, August 31,
1994 1995 1996
------------------------------------------
Current:
Federal $1,757 $2,813 $2,994
State 262 260 312
----------------------------------------
Total current 2,019 3,073 3,306
Deferred:
Federal (42) (225) (491)
State 2 (48) (45)
----------------------------------------
Total deferred (40) (273) (536)
----------------------------------------
$1,979 $2,800 $2,770
========================================
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is (in thousands):
<TABLE>
<CAPTION>
<S> <C><C>
Year Year Year
Ended Ended Ended
September 3, September 2, August 31,
1994 1995 1996
------------------------------------------------
Amount % Amount % Amount %
------ -- ------ -- ------ --
Tax at U.S. statutory rates $1,805 34 $2,323 34 $2,354 34
State income taxes, net of federal
tax benefit 264 5 212 3 267 4
Amortization of goodwill -- -- 202 3 206 3
Other - net (90) (2) 63 1 (57) (1)
-----------------------------------------------
Provision for income taxes $1,979 37 $2,800 41 2,770 40
===============================================
42
</TABLE>
<PAGE>
Norwood Promotional Products, Inc.
Notes to Consolidated Financial Statements
September 3, 1994, September 2, 1995 and August 31, 1996
10. Commitments and Contingencies
The Company has entered into leases for facilities and office
equipment. Leases that expire generally are expected to be renewed or replaced
by other leases. A summary of minimum lease commitments at August 31, 1996 that
have initial or remaining noncancelable lease terms in excess of one year are as
follows:
Capital Operating
------- ----------
1997 $452 $2,524
1998 372 1,957
1999 148 1,271
2000 -- 896
2001 -- 686
Thereafter -- 5,165
----- -----
Total minimum lease payments 972 $12,499
=======
Less amounts representing interest (119)
-----
Present value of net minimum lease payments $853
=====
Total expense under operating leases amounted to approximately $979,000,
$1,726,000 and $2,708,000 for the years ended September 3, 1994, September 2,
1995 and August 31, 1996, respectively.
The Company is subject to litigation from time to time in the ordinary
course of business. Although the amount of any liability with respect to
currently pending litigation cannot be determined, in the opinion of management,
such liability will not have a material adverse effect on the Company's
financial condition or results of operations.
11. Stock Offering
On December 20, 1995, the Company completed the sale of 2,015,481
shares of Common Stock in a public offering. The net proceeds of this offering
of approximately $31 million were used to repay indebtedness under the 1995 Bank
Facility. The Company may, subject to certain conditions, reborrow such amounts
from time to time for general corporate purposes, including financing future
acquisitions.
12. Stock Options and Warrants
Effective December 8, 1989, the shareholders of the Company adopted an
incentive stock option plan for key employees, reserving 71,429 shares of common
stock, which was increased to 140,000 shares on April 15, 1993. Under the terms
of this plan, the purchase price of the shares subject to each option granted
will not be less than the fair market value at the time the option is granted
and each option granted shall become exercisable in three annual installments
beginning on the third anniversary of the date of grant.
As of August 31, 1996, there were 114,203 options outstanding under the
1989 incentive stock option plan. In addition, there were 25,797 unoptioned
shares available for granting. During the year ended August 31, 1996, no options
were granted, while 1,808 optioned shares were exercised at $1.23, with vesting
dates ranging from December 1992 to December 1996 and expiration dates ranging
from December 1999 to December 2001.
43
<PAGE>
Norwood Promotional Products, Inc.
Notes to Consolidated Financial Statements
September 3, 1994, September 2, 1995 and August 31, 1996
Furthermore, 1,836, 15,765 and 34,123 options were exercisable as of September
3, 1994, September 2, 1995 and August 31, 1996, respectively.
Effective May 18, 1994, the directors of the Company approved an incentive
stock option plan for key employees, reserving 190,000 shares of Common Stock.
Under the terms of this plan, the plan provides for the granting to officers and
other key employees incentive stock options, non qualified stock options and
other stock based incentive compensation.
As of August 31, 1996, there were 165,228 options outstanding under the
1994 Incentive Stock Compensation Plan. In addition, there were 24,772
unoptioned shares available for granting. During the year ended August 31, 1996,
81,028 options were granted, while no options were exercised. Additionally, no
options were exercisable as of August 31, 1996.
The Company also has a non-qualified stock option plan under which it
granted 11,028 options to various employees at not less than the fair value at
the date of grant as determined by the Board of Directors. The options expire
upon the earlier of termination of employment or ten years after date of grant.
The options vested on June 4, 1996, the third anniversary from the date of
grant. During the year ended August 31, 1996, 700 options were exercised.
Subsequent to the Company's initial public offering in June 1993, one
member of the Board of Directors received warrants to purchase 6,000 shares of
the Company's Common Stock at the initial public offering price, which
approximated fair value at the date of grant. These warrants vest on the first
anniversary date from the date of issue and may be exercised for a period not to
exceed five years from the date of grant.
On November 8, 1993, the Company adopted the Norwood Promotional Products,
Inc. 1993 Non- Employee Director Stock Purchase Plan, which is designed to
attract and retain highly qualified non-employee directors, reserving 30,000
shares of common stock. Under the terms of this plan, each non-employee
director, with the exception of one who had previously received warrants,
received warrants to purchase 6,000 shares as of the date of adoption or on
their respective date of election, the purchase price of the shares subject to
each warrant granted shall be $11.00 per share, warrants may not be granted
after five years from the date of adoption and all warrants issued may only be
exercised after the first anniversary date through the fifth anniversary date
from the date of grant. During the year ended August 31, 1996, no warrants were
granted under the non-employee director stock purchase plan. Warrants to
purchase 12,000, 18,000 and 18,000 shares of the Company's Common Stock,
respectively were exercisable as of September 3, 1994, September 2, 1995 and
August 31, 1996.
On October 3, 1994, two of the Company's directors were granted 6,000
warrants each in lieu of director's fees. The warrants were issued at the fair
market value at the date of grant and are exercisable immediately.
On November 16, 1995, two of the Company's directors were granted 4,728
warrants each. The warrants were issued at the fair market value at the date of
the grant and are exercisable immediately.
13. Related Party Transactions
The Company currently leases from a shareholder a mug and glass
manufacturing facility located in Pittsburgh, Pennsylvania for $1,975 monthly .
Total expense under the lease for the years ended September 3, 1994, September
2, 1995 and August 31, 1996 was approximately $26,000, $23,700 and $23,700,
respectively.
Associated with the sale of 173,333 shares of common stock to
management in May 1992, notes receivable of $510,000 from management were
recorded by the Company. The Company received payments of $131,000 and $240,000
on these notes receivable during the years ended September 2, 1995 and August
31, 1996. The remaining balances on these notes have been classified as a
reduction of equity.
44
<PAGE>
Norwood Promotional Products, Inc.
Notes to Consolidated Financial Statements
September 3, 1994, September 2, 1995 and August 31, 1996
14. Employee Benefit Plan
Effective January 1, 1994, the Company adopted the Norwood Promotional
Products, Inc. Employee 401(k) Plan for the purpose of providing retirement
benefits for substantially all employees. Contributions to the Plan are made
both by the employees and the Company. The Company matches 20% of the first
$1,000 of an employee's deferred compensation to a maximum of $200 per year.
Company matched contributions vest to the employees based upon their number of
years of service to the Company. Contributions to this Plan of $25,000, $42,000
and $77,000 were charged to expense for the years ended September 3, 1994,
September 2, 1995 and August 31, 1996, respectively.
Effective May 9, 1996, the Company adopted the Employee Stock Purchase Plan
of Norwood Promotional Products, Inc. for the purpose of providing substantially
all employees the opportunity to purchase Common Stock of the Company. No Common
Stock was purchased under the plan for the year ended August 31, 1996.
The Company does not offer or provide post-retirement health care benefits to
any of its employees.
15. Restructuring and Unusual Charges
In the fourth quarter of 1996, the Company recorded restructuring and
unusual charges of approximately $1,640,000 ($984,000 net of tax) based on the
Company's reevaluation of its operations. As a result of its reevaluation, the
Company decided to consolidate certain facilities into other existing
facilities, terminate certain employees, and write-off certain capitalized costs
associated with a target acquisition. The consolidation of these facilities is
expected to be completed by the end of 1997. A provision for closure of these
facilities totaling approximately $890,000, including the write off of certain
leasehold improvements, has been accrued or paid.Approximately $560,000 of
future salary and benefits owed to three terminated employees under their
existing employment agreements was accrued or paid in the fourth quarter. These
employment agreements have remaining terms that expire over the next two years.
Additionally, capitalized acquisition related costs of approximately $190,000
were expensed in the fourth quarter.
45
<PAGE>
Norwood Promotional Products, Inc.
Notes to Consolidated Financial Statements
September 3, 1994, September 2, 1995 and August 31, 1996
16. Quarterly Results of Operations (Unaudited)
Selected results of operations for each of the fiscal quarters during the year
ended September 2, 1995 and August 31, 1996 are as follows (in thousands, except
per share data):
<TABLE>
<CAPTION>
<S> <C>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------------------------------------
Year Ended September 2, 1995
Net sales $22,916 $19,316 $29,995 $31,633
Gross profit 7,252 5,492 9,936 10,217
Net income (loss) 1,114 (22) 1,582 1,358
Earnings (loss) per share - Fully diluted 0.31 (0.01) 0.44 0.37
Year Ended August 31, 1996
Net sales $33,368 $30,086 $45,034 $43,474
Gross profit 10,623 8,462 13,655 12,230
Net income 1,356 88 2,526 185
Earnings per share - Fully diluted 0.37 0.02 0.44 0.03
Quarterly results of operations were impacted by business acquisitions as follows:
Initial
Acquisitions Date Acquired Quarter Impacted
------------ ------------- ----------------
Air-Tex March 1, 1995 3rd Quarter, 1995
Designer June 13, 1995 4th Quarter, 1995
BTS July 31, 1995 4th Quarter, 1995
Ocean November 20, 1995 1st Quarter, 1996
Tee-Off January 23, 1996 2nd Quarter, 1996
Alpha April 1, 1996 3rd Quarter, 1996
</TABLE>
46
<PAGE>
Item 9. Changes in and disagreements with accountants on accounting and
financial disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information called for by item 10 of Form 10-K is incorporated
herein by reference to such information included in the Company's Proxy
Statement for the 1997 Annual Meeting of Shareholders, under the captions
"Election of Directors" and "Executive Officers."
Item 11. Executive Compensation
The information called for by item 11 of Form 10-K is incorporated
herein by reference to such information included in the Company's Proxy
Statement for the 1997 Annual Meeting of Shareholders, under the caption
"Compensation of Executive Officers."
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information called for by item 12 of Form 10-K is incorporated
herein by reference to such information included in the Company's Proxy
Statement for the 1997 Annual Meeting of Shareholders, under the caption
"Principal Shareholders and Stock Ownership of Management."
Item 13. Certain Relationships and Related Transactions
The information called for by item 13 of Form 10-K is incorporated
herein by reference to such information included in the Company's Proxy
Statement for the 1997 Annual Meeting of Shareholders, under the caption
"Certain Transactions."
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Index To Financial Statements
(a) The following documents are filed as part of this Annual Report or
are incorporated by reference as indicated.
1. The following financial statements are included under Item 8:
Report of Ernst & Young LLP, Independent Auditors
47
<PAGE>
Consolidated Balance Sheets as of September 2, 1995 and August 31,
1996
Consolidated Statements of Income for the years ended September 3,
1994, September 2, 1995 and August 31, 1996
Consolidated Statements of Shareholders' Equity for the years ended
September 3, 1994, September 2, 1995 and August 31, 1996
Consolidated Statements of Cash Flows for the years ended September 3,
1994, September 2, 1995 and August 31, 1996
Notes to Consolidated Financial Statements
2. The following financial statement schedules are included under Item 14:
Schedule VIII -- Valuation and Qualifying Accounts
3. Exhibits -- See Index to Exhibits on page 52.
(b) Reports on Form 8-K - None
48
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURES
Pursuant to the requirements of Section 13 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.
NORWOOD PROMOTIONAL PRODUCTS, INC.
By: /s/ FRANK P. KRASOVEC Date: November 15, 1996
---------------------------
Frank P. Krasovec
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated:
Signature Capacity Date
- --------- -------- ----
/s/ FRANK P. KRASOVEC Chairman and Chief Executive Officer, November 15, 1996
- ---------------------
Frank P. Krasovec Director (Principal Executive Officer)
/s/ ROBERT P. WHITESELL President and Chief Operating November 15, 1996
- -----------------------
Robert P. Whitesell Officer, Director
/s/ J. MAX WAITS Secretary, Treasurer and Chief November 15, 1996
- ----------------
J. Max Waits Financial Officer (Principal Financial Officer
and Principal Accounting Officer)
/s/ ROBERT L. SEIBERT Director November 15, 1996
- ---------------------
Robert L. Seibert
/s/ JOHN H. WILSON III Director November 15, 1996
- ----------------------
John H. Wilson III
/s/ JOHN H. JOSEPHSON Director November 15, 1996
- ---------------------
John H. Josephson
/s/ HAROLD HOLLAND Director November 15, 1996
- ------------------
Harold Holland
49
</TABLE>
<PAGE>
Director November 15, 1996
- --------------------
Roy D. Terracina
50
<PAGE>
NORWOOD PROMOTIONAL PRODUCTS, INC.
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Additions
-------------------------
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts Deductions End of
Description of Period Expenses Describe Describe Period
----------- --------- -------- -------- -------- ------
Year ended September 3, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts 156 80 89(3) 98(1) 227
Reserve for inventory obsolescence 257 88 155(3) 86(2) 414
------ -------- ------- ----- -----
Total 413 168 244 184 641
====== ======== ======= ===== ====
Year ended September 2, 1995:
Deducted from asset accounts:
Reserve for inventory obsolescence 414 21 99(4) 139(2) 395
Allowance for doubtful accounts 227 169 293(4) 149(1) 540
------ ------- ------- ------ ----
Total 641 190 392 288 935
====== ======= ======= ====== ====
Year ended August 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts 540 330 189(5) 284(1) 775
Reserve for inventory obsolescence 395 48 347(5) 22(2) 768
------ -------- ------- ----- -----
Total 935 378 536 306 1,543
====== ======= ======= ===== =====
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Inventory written off during year.
(3) Amounts acquired with the purchase of Key Industries, Inc. and
ArtMold Products Corporation.
(4) Amounts acquired with the purchase of Air-Tex Corporation, Designer
Plastics, Inc. and BTS Group.
(5) Amounts acquired with the purchase of Ocean Specialty Manufacturing
Corporation, Tee-Off Enterprises, Inc. and Alpha Products, Inc.
51
<PAGE>
INDEX TO EXHIBITS
Each management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto is indicated by an asterisk (*).
Exhibit Description
Number
3.1 -- Articles of Incorporation of the Registrant, as amended.(1)
3.2 -- Bylaws of the Registrant, as amended.(9)
4.1 -- Specimen stock certificate evidencing the Common Stock.(1)
10.1 -- 1993 Non-qualified Stock Option Plan of the Registrant dated June 4,
1993.(1) (Exhibit 10.18) *
10.2 -- 1993 Non-Employee Director Stock Purchase Plan of the Registrant
dated November 8, 1993.(2) (Exhibit 10.26) *
10.3 -- Employee Stock Purchase Plan of the Registrant dated May 18,
1995, as amended and restated effective as of May 9, 1996. (13)
(Exhibit 4.7) *
10.4 -- Amended and Restated 1989 Incentive Stock Option
Plan of the Registrant dated August 23, 1996. (filed herewith)
10.5 -- Amended and Restated 1994 Incentive Stock Compensation
Plan of the Registrant dated August 23, 1996. (filed herewith)
10.6 -- Warrant certificate granted by the Registrant to Allen and Company,
Incorporated, dated June 23,1993.(1)
10.7(a) -- Warrant certificate granted by the Registrant to Robert L. Seibert,
Director of the Company, dated as of November 8, 1993.(2) *
10.7(b) -- Warrant certificate granted by the Registrant to John H. Wilson III,
Director of the Company, dated as of November 8, 1993.(2) *
10.7(c) -- Warrant certificate granted by the Registrant to Harold Holland,
Director of the Company, dated as of July 8, 1994.(7) *
10.8 -- Warrant certificate granted by the Registrant to John H. Josephson,
Director of the Company, dated as of June 16, 1993.(9) *
10.9(a) -- Warrant certificate granted by the Registrant to John H. Josephson,
Director of the Company, dated as of November 18, 1994.(9) *
10.9(b) -- Warrant certificate granted by the Registrant to John H. Wilson III,
Director of the Company, dated as of November 18, 1994.(9) *
10.10 -- Option certificate granted by the Registrant to Evan
Holland, President of ArtMold, dated as of July 8, 1994.(4)
(Exhibit 10.12) *
10.11 -- Standard Industrial Lease -- Net dated December 29,
1988, as amended by certain letters dated October 15,
1991 and October 22, 1991, by
52
<PAGE>
and between Sylvan R. Hansen and Barlow Specialty Advertising, Inc.
relating to certain property located at 2318 Pontius Avenue, Los
Angeles, California, and assigned to Barlow Promotional Products,
Inc. as of May 19, 1992.(1) (Exhibit 10.12)
10.12 -- Standard Industrial Lease dated May 1, 1978, as amended
May 1, 1980, July 22, 1980, April 30, 1984, June 21, 1989,
April 26, 1990, April 26, 1991 and March 31, 1992, by and among
Abram Mansour and Granet Industries, Inc. and assigned to BSA,
relating to certain property located at 2330 Pontius Avenue,
Los Angeles, California, and assigned to Barlow Promotional Products,
Inc. as of May 19, 1992.(1) (Exhibit 10.13)
10.13 -- Two Leases dated December 26, 1990 by and between Southern Pacific
Transportation Company and Barlow Specialty Advertising, Inc.
relating to certain property located at 2330 Pontius
Avenue, Los Angeles, California, and assigned to Barlow
Promotional Products, Inc. as of May 19, 1992.(1) (Exhibit 10.14)
10.14 -- Lease dated March 26, 1973 by and between Don E. Harley Associates,
Inc., and Arthur Salm, Inc, assigned to Exchange National Bank of
Chicago on June 12, 1973, assigned to Barlow Specialty Advertising,
Inc. in June 1986, and assigned to Barlow Promotional Products, Inc.
as of May 19, 1992.(1) (Exhibit 10.15)
10.15 -- Lease Agreement by and between Wulfe Investments and Radio Cap
Company, Inc. commencing August 1, 1992 relating to certain property
located at 817 North Frio in San Antonio, Texas.(1) (Exhibit 10.16)
10.16 -- Lease Agreement by and between the Utah State Retirement Fund and
Radio Cap Company, Inc. entered into November 17, 1992 relating to
the space at Rittiman East Business Park, Building 12 at 5519
Business Park in San Antonio.(1) (Exhibit 10.17)
10.17 -- Lease Agreement by and between Joseph S. Scher, not individually, but
as Trustee under the Joseph S. Scher Trust dated April 5, 1993, and
Key Acquisition Corp., dated as of May 1, 1994.(3)(Exhibit
10.20)
10.18 -- Sublease by and between MM Realty Associates II, dated November 1,
1981; First Amendment to Sublease by and between MM Realty
Associates II, dated March 1, 1983; Second Amendment to Sublease by
and between Cranston Partnership(Associates II) formerly MM
Realty, dated September 1, 1986 and Assignment of and
53
<PAGE>
Third Amendment to Sublease by and between Cranston Partnership,
Measured Marketing Services, Inc. and ArtMold Products
Corporation, dated March 1, 1992.(3)
10.19 -- Asset Purchase Agreement dated March 1, 1995 among The Bob Allen
Companies, Inc., Robert E. Allen, Ruth E. Allen, Matthew R. Allen, BA
Acquisition, Inc. and the Registrant.(5)
10.20 -- Asset Purchase Agreement dated as of May 5, 1995 among Designer
Plastics, Inc., Peter Erenfeld, Mary Erenfeld, Air-Tex Corporation
and the Registrant.(6)
10.21 -- Asset Purchase Agreement dated July 28, 1995 among PAJ, Inc.
(formerly BTS Group, Inc.), Peter B. Akers, Allen E. Ferris, James R.
Smith, Barlow Promotional Products, Inc. and the Registrant.(8)
10.22 -- Asset Purchase Agreement dated January 22, 1996 among
TEE-OFF Enterprises, Inc., Jones and Vicki Schmidt, ArtMold
Products Corporation and the Company. (10)
10.23 -- Asset Purchase Agreement dated April 1, 1996 among
Alpha Products, Inc., Aladdin Industries, Incorporated, Radio
Company, Inc. and Norwood Promotional Products, Inc. (11)
10.24 (a)- Amended and Restated Credit Agreement dated as of July 27, 1995
among The Frost National Bank, The Boatmen's National Bank of
St. Louis, Banque Paribas and the Registrant.(7)
10.24 (b)- Conditional Amendment to Amended and Restated Credit
Agreement. (filed herewith)
10.25 -- Office Sublease dated May 1995 between the Registrant and Frito Lay,
Inc.(9) (Exhibit 10.28)
10.26 -- Standard Industrial Commercial -- Tenant Lease -- Net effective as of
November 20, 1995 between Key Industries, Inc. and Harris/Newell
Family Partnership.(9)
10.27 -- Asset Purchase Agreement dated as of November 17, 1995 among
Ocean Specialty Manufacturing Corporation, Steve Sherlin, Ron
Silverstein, Key Industries,Inc.and the Registrant.(9)(Exhibit 10.30)
10.28 -- Registration Rights Agreement dated as of March 1, 1995 among the
Registrant, The Bob Allen Companies, Inc. and Matthew R. Allen.(9)
(Exhibit 10.31)
10.29 -- Standard Industrial Commercial -- Tenant Lease -- Net effective
as of February 22, 1996 between Barlow Promotional
Products, Inc. and AMG Holding, Inc. (12) (Exhibit 10.34)
54
<PAGE>
11.1 -- Computation of per share earnings. (filed herewith)
21.1 -- Subsidiaries of the Registrant.(9) (Exhibit 22.1)
24.1 -- Consent of Ernst & Young LLP (filed herewith)
27.1 -- Financial data schedule. (filed herewith)
(1) Previously filed as an Exhibit to the Registrant's Registration Statement on
Form S-1 (File No. 33-61740) filed with the Securities and Exchange Commission
on June 16, 1993 and incorporated herein by reference.
(2) Previously filed as an Exhibit to the Registrant's Form 10-Q for the quarter
ended November 27, 1993 filed with the Securities and Exchange Commission on
January 10, 1994 and incorporated herein by reference.
(3) Previously filed as an Exhibit to the Registrant's Form 8-K filed with the
Securities and Exchange Commission on May 14, 1994 and incorporated herein by
reference.
(4) Previously Filed as an Exhibit to the Registrant's Form 8-K filed with the
Securities and Exchange Commission on July 15, 1994.
(5) Previously filed as an Exhibit to the Registrant's Form 8-K filed with the
Securities and Exchange Commission on March 15, 1995.
(6) Previously filed as an Exhibit to the Registrant's Form 8-K filed with the
Securities and Exchange Commission on June 26, 1995.
(7) Previously filed as an Exhibit to the Registrant's Form 8-K filed with the
Securities and Exchange Commission on August 10, 1995.
(8) Previously filed as an Exhibit to the Registrant's Form 8-K filed with the
Securities and Exchange Commission on August 10, 1995.
(9) Previously filed as an Exhibit to the Registrant's Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on October 17, 1995,
as amended by Amendment No. 1 filed with the Securities and Exchange Commission
on November 24, 1995.
(10) Previously filed as an Exhibit to the Registrant's Form 8-K filed with the
Securities and Exchange Commission on February 2, 1996.
(11) Previously filed as an Exhibit to the Registrant's Form 8-K filed with the
Securities and Exchange Commission on April 16, 1996.
(12) Previously filed as an Exhibit to the Registrant's Form 10-Q filed with the
Securities and Exchange Commission on April 16, 1996.
(13) Previously filed as an Exhibit to the Registrant's Form 10-Q filed with the
Securities and Exchange Commission on July 15, 1996.
55
<PAGE>
Exhibit 10.4
Incentive Stock Option Plan of the
Registrant dated October 3, 1989, as amended and restated
effective as of August 23, 1996
<PAGE>
Exhibit 10.5
Incentive Stock Compensation Plan of the
Registrant dated November 14, 1994, as amended and
restated effective as of August 23, 1996
<PAGE>
Exhibit 10.24 (b)
Conditional Amendment to Amended and
Restated Credit Agreement
<PAGE>
Exhibit 11.0
Computation Of Earnings Per Share
(Unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C>
September 3, September 2, August 31,
1994 1995 1996
Primary:
Weighted average common shares outstanding 3,539 3,540 4,899
Weighted average common equivalent shares outstanding 37 96 191
----- ----- -----
Total 3,576 3,636 5,090
===== ===== =====
Net Income $ 3,329 $ 4,032 $ 4,155
Per share amount $ 0.93 $ 1.11 $ 0.82
Fully diluted:
Weighted average common shares outstanding 3,539 3,540 4,899
Weighted average common equivalent shares outstanding 37 128 191
----- ----- ------
Total 3,576 3,668 5,090
===== ===== =====
Net Income $ 3,329 $ 4,032 $ 4,155
Per share amount $ 0.93 $ 1.10 $ 0.82
</TABLE>
<PAGE>
Exhibit 10.4
Incentive Stock Option Plan of the Registrant
dated October 3, 1989, as amended and restated effective as of August 23, 1996
<PAGE>
NORWOOD PROMOTIONAL PRODUCTS, INC.
AMENDED AND RESTATED 1989 INCENTIVE STOCK OPTION PLAN
1. Purpose. This Plan is designed to attract and retain highly qualified
Employees and to motivate them to exert their best efforts for the
Corporation and Affiliates. The Plan offers an opportunity for Employees to
acquire or increase their proprietary interest in the Corporation and is
intended to qualify as an Incentive Stock Option Plan within the meaning of
Section 422 of the Code.
2. Approval of Awards.
Each Award must be approved in one of the following ways:
(a) Board/Committee Approval. The entire Board or the Committee may
vote in advance to approve such Award.
(b) Shareholder Approval/Ratification. In compliance with the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), a
majority of the shareholders of the Company duly entitled to vote on such
matters at meetings held in accordance with the laws of the State of Texas
may, either in advance of the Award or no later than the next annual
meeting of shareholders, affirmatively vote to approve such Award.
3. Eligible Employees.
(a) All Employees of the Corporation or an Affiliate are eligible to
receive an Option, subject to the conditions of paragraphs (b) and (c)
below.
(b) An Employee who serves as a Board member may not receive an Option
unless the Board authorizes such Option.
(c) A Substantial Shareholder may not receive an Option unless, at the
time the Option is granted, the exercise price equals at least 110% of the
fair market value of the Stock subject to the Option, and the Option is not
exercisable after 5 years from the date granted.
4. Total Shares Subject to Plan. Options may be granted for a total of 140,000
shares of Stock. The Corporation will reserve sufficient shares to meet the
Plan's requirements. Shares issued upon an Option exercise may be
authorized and unissued shares, or shares held in the Corporation's
treasury. If an outstanding Option expires or terminates, shares allocable
to the unexercised portion of the Option may be optioned again under the
Plan.
5. Plan Administration. The Committee will administer the Plan and comply with
the reporting requirements of Section 6039 of the Code. Subject to Section
2 hereof, the Committee may make Option grants to the Board and may modify,
extend or renew any existing Option. The Committee also will interpret and
construe the Plan and the terms of any Option and will make all other
decisions necessary or advisable for administering the Plan.
<PAGE>
6. Option Grants.
(a) The Board, the Committee and the shareholders shall have
concurrent authority to determine which Employees should be granted
Options, the amount of Stock to be optioned to each, the Option price, the
duration of the exercise period, and such other Option terms as the
Committee deems appropriate.
(b) Each Option granted shall become exercisable in three equal annual
installments beginning on the third anniversary of the date of the grant of
the Option.
(c) The Option price must equal or exceed the fair market value of the
Stock at the time the Option is granted, as determined in good faith by the
Committee.
(d) An Option may not be granted after 10 years from the Effective
Date. An Option must be exercised within the same time specified in the
agreement evidencing the Option, which time may not extend beyond 10 years
after the date the Option is granted.
(e) The aggregate fair market value of Stock (as determined at the
time of the Option grant) exercisable by an Employee for the first time in
any calendar year under all incentive stock option plans of the Corporation
and its Affiliates may not exceed $100,000.
(f) Any modification, extension or renewal of an Option will be deemed
the grant of a new Option in accordance with Section 425(h) of the Code.
7. Non-Transferability of Option. An Option may not be transferred except by
will or by the laws of descent and distribution. During an Optionee's
lifetime, only the Optionee or his or her guardian or legal representative
may exercise his or her Option.
8. Exercise and Payment. An Option may be exercised from time to time during
the term of the Option as to any and all full shares which have vested
under the Option, subject to compliance with the terms of the agreement
evidencing the Option. Exercise of an Option will not be effective until
the Corporation has received written notice of the exercise, specifying the
whole number of shares to be purchased, accompanied by payment in full of
the aggregate price of the Stock purchased. Fractional shares will not be
issued or sold. The purchase price of Stock for which an Option is
exercised must be paid to the Corporation in full at the time of exercise.
Payment must be in the form of cash or a certified or cashier's check.
Payment also may be made in the form of such other consideration as the
Committee, in its sole discretion, may approve before the Option is
exercised. Within a reasonable time after payment is received, the
Corporation will issue and deliver to Optionee a certificate representing
the Stock purchased; provided, however, that the Corporation may postpone
the time of delivery of such certificates for such additional time as the
Corporation shall deem necessary or desirable to enable it to comply with
listing requirements of any securities exchange upon which the Stock of the
Corporation may be listed, or if not so listed, the NASDAQ National Market
System, or the requirements of the Securities Act or the Securities
Exchange Act, or any rules and regulations of the Securities and Exchange
Commission promulgated thereunder or the requirements of applicable state
laws relating to authorization, issuance or sale of securities.
<PAGE>
9. Exercise in the Event of Employment Termination.
(a) If an Optionee terminates employment with the Corporation or an
Affiliate for any reason other than death or disability, the Optionee may
exercise the outstanding portion of his or her Option at any time within 45
days after such termination, to the extent Optionee's right to exercise has
vested under the terms of his or her Option Agreement on or prior to the
date such Optionee's employment is terminated. Notwithstanding the prior
sentence, if Optionee's employment is terminated for dishonesty or other
acts detrimental of the interests of the Corporation or an Affiliate, the
Option granted to Optionee will automatically terminate immediately upon
such termination.
(b) If an Optionee terminates employment with the Corporation or an
Affiliate because of a disability within the meaning of Section 22(e)(3) of
the Code, the outstanding portion of his or her Option may be exercised at
any time within one year after the date of such termination, to the extent
the Optionee's right to exercise has vested under the terms of his or her
Option Agreement on or prior to the date such Optionee's employment is
terminated.
(c) If an Optionee terminates employment with the Corporation or an
Affiliate because of death, the executor or administrator of the Optionee's
estate or any person who acquired the Option by bequest or inheritance may
exercise it within one year after such termination, to the extent
Optionee's right to exercise has vested under the terms of his or her
Option Agreement on or prior to the date such Optionee's employment is
terminated.
(d) The exercise periods in paragraphs (a), (b) and (c) are subject to
the 1 year limitation of Section 6(c) and may not extend such limitation.
10. No Shareholder Rights. An Optionee will not have any rights as a
shareholder regarding any Option shares before the date when the
Corporation issues Optionee a certificate for such shares. No adjustment
will be made for dividends or distributions or other rights for which the
record date occurs before the certificate is issued.
11. No Employment Rights. Neither the Plan nor any Option confer upon an
Optionee any right to continued employment by the Corporation or an
Affiliate, nor do they limit the right of the Corporation or an Affiliate
to terminate a person's employment at any time.
<PAGE>
12. Adjustment Upon Change in Capitalization.
(a) If a change in the number of outstanding shares or Stock occurs
without receipt of consideration therefor by the Corporation, whether by
reason of a stock dividend, stock split, combination, exchange of shares,
recapitalization, merger in which the Corporation is the surviving
corporation, or otherwise, upon an affirmative determination by the Board
to such effect, the aggregate number of reserved shares under Section 4,
the number of shares subject to each outstanding Option, and the option
pace of each outstanding Option will be automatically adjusted to
accurately and equitably reflect the effect thereon of such change. In the
event of a dispute concerning such adjustment, the decision of the
Committee will be conclusive. The number of reserved shares or the number
of shares subject to any outstanding Option will be automatically reduced
by any fraction included therein which results from any adjustment made
pursuant to this Section.
(b) A dissolution or liquidation of the Corporation, a merger in which
the Corporation is not the surviving corporation, a sale of substantially
all of the assets of the Corporation or a transaction in which another
corporation becomes the owner of 66 2/3% or more of the total combined
voting power of all classes of stock of the Corporation will cause every
Option then outstanding to terminate, and in such event, the Optionee
holding each then outstanding Option will have a right, exercisable within
a period of 30 days immediately prior to the closing of such dissolution,
liquidation, merger, consolidation, or transaction, to exercise in whole or
in part, such Option to the extent not theretofore exercised. Such exercise
may occur without regard to periods and installments of exercisability
specified under the terms of the agreement evidencing the Option, provided
such Option has not at that time expired or otherwise been terminated or
cancelled.
13. Duty to Furnish Information. Each Optionee must furnish to the Corporation
all information requested by the Corporation to enable it to comply with
any reporting or other requirement imposed upon the Corporation under any
applicable statute or regulation.
14. Corporate Records. Records of the Corporation and of any Affiliate
regarding Optionee's period of employment, termination of employment and
any reason therefor, leaves of absence, re-employment, and other matters
will be conclusive for all purposes hereunder, unless determined by the
Committee to be incorrect.
15. Compliance with Federal and State Securities Law. An Option may not be
exercised in whole or in part unless (i) a registration statement under the
Securities Act is filed and effective for shares subject to the Option, and
exercise of the Option and issuance of shares thereunder are qualified
under any applicable state securities or Blue Sky laws; or (ii) exercise of
the Option and issuance of shares thereunder without Securities Act
registration or state law qualification is otherwise permissible, and the
Corporation receives an opinion of counsel acceptable to the Corporation to
that effect. A certificate for shares issued upon exercise of an Option
which have not been registered under the Securities Act or qualified under
applicable state securities of Blue Sky laws must bear the following
legends:
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION.
WITHOUT SUCH REGISTRATION, SUCH SECURITIES MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT UPON DELIVERY TO THE ISSUER
("COMPANY") OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER OR THE SUBMISSION TO THE
COMPANY OR SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO THE COMPANY TO THE
EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE OR FOREIGN SECURITIES LAWS OR
ANY RULE OR REGULATION PROMULGATED THEREUNDER.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SALE, ASSIGNMENT,
TRANSFER, PLEDGE OR OTHER DISPOSITION THEREOF ARE SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER SET FORTH IN A SHAREHOLDERS AGREEMENT DATED AS OF
OCTOBER 3, 1989 AMONG THE COMPANY AND ALL OF ITS SHAREHOLDERS AND ANY
AMENDMENT THERETO. A COPY OF THE SHAREHOLDERS AGREEMENT AND ALL AMENDMENTS
THERETO HAS BEEN PLACED ON FILE BY THE COMPANY AND MAY BE EXAMINED BY A
SHAREHOLDER OF THE COMPANY AS PROVIDED BY ARTICLE 2.22.B OF THE TEXAS
BUSINESS CORPORATION ACT.
16. Amendment and Discontinuance.
(a) Subject to the restrictions of (b) and (c) below, the Committee or
the shareholders of the Corporation may amend, suspend, or discontinue the
Plan at any time.
(b) The Committee may not increase the total number of shares reserved
for Options under Section 4. Neither the Committee nor the shareholders may
allow an Option to be granted for a price less than the amount determined
under Section 3(c) or 6(c), allow any Options to be granted which expire
beyond the periods specified in Sections 3(c) and 6(d), or deprive an
Optionee of any rights under an existing Option.
(c) The Corporation's shareholders must approve any amendment which
increases aggregate shares of Stock subject to the Plan.
17. Approval. Options may be granted at any time on or after the Effective
Date. No Option may be exercised until the Plan is approved by shareholders
of the Corporation holding a majority of shares present and voting at the
next meeting of shareholders following the Effective Date. The Plan will
cease, and all Options will be invalid, if such shareholder approval does
not occur within 12 months of the Effective Date.
18. Option Agreement. Each Option must be evidenced by a written agreement,
substantially in the form attached hereto as Exhibit A, signed by the
Optionee and by an authorized officer of the Corporation. Terms of the
agreement must conform to the Plan, state the Option price and specify the
period for which the Option is granted. The agreement may contain such
other terms consistent with the provisions of the Plan as the Committee or
Board may deem appropriate.
<PAGE>
19. Definitions and Operating Rules. As used in this Plan, the words and
phrases below have the following meanings, and the following rules apply:
(a) "Affiliate" means a Parent or Subsidiary.
(b) "Board" means the Board of Directors of the Corporation.
(c) "Code" means Internal Revenue Code of 1986, as amended.
(d) "Committee" means the stock option committee appointed by the
Board, consisting solely of not less than two Non-Employee Directors. The
Board may fill vacancies on the Committee and from time to time may remove
members from or add members to the Committee. The Committee will select one
of its members as chairman and will hold meetings when and where it
determines. A majority of Committee members will constitute a quorum for a
Committee meeting. A majority vote of the Committee at which a quorum is
present, or decisions reduced to writing and signed by a majority of the
Committee membership, will be valid acts of the Committee. If a Committee
is not appointed, or the Board in its discretion so chooses, the Board may
act as the Committee and may exercise all powers and fulfill all duties of
the Committee. No Board or Committee member will be liable for any action
or decision made in good faith concerning the Plan or any Option.
(e) "Corporation" means Norwood Promotional Products, Inc., a Texas
corporation.
(f) "Disposition" means this term has the same meaning as stated in
Section 425(c) of the Code.
(g) "Disqualifying Disposition" means a Disposition of Stock within
two (2) years after the Option for the Stock is granted or within one (1)
year after the Stock is transferred to Optionee pursuant to his or her
exercise of the Option.
(h) "Effective Date" means the date specified in the opening paragraph
of the Plan, as of which the Board has approved the Plan and the date on
which it takes full force and effect.
(i) "Employee" means any person employed by the Corporation or an
Affiliate of the Corporation during a calendar year in which the Committee
grants Options.
(j) "Exchange Act" means the federal Securities Exchange Act of 1934,
48 Stat. 881, as amended.
<PAGE>
(k) "Incentive Stock Option" means any Option granted an Employee
under this Plan to purchase Stock of the Corporation, which at the time
granted qualifies as an incentive stock option within the meaning of
Section 422 of the Code.
(l) "Non-Employee Director" means a director who:
(A) Is not currently an officer of the issuer or a parent or
subsidiary of the issuer, or otherwise currently employed by the
issuer or a parent or subsidiary of the issuer;
(B) Does not receive compensation, either directly or indirectly,
from the issuer or a parent or subsidiary of the issuer, for
services rendered as a consultant or in any capacity other than
as a director, except for an amount that does not exceed the
dollar amount for which disclosure would be required pursuant to
Rule 404(a) of Regulation S-K of the General Rules and
Regulations of the Exchange Act ("Regulation S-K");
(C) Does not possess an interest in any other transaction for
which disclosure would be required pursuant to Rule 404(a) of
Regulation S-K; and
(D) Is not engaged in a business relationship for which
disclosure would be required pursuant to Rule 404(b) of
Regulation S-K.
(m) "Option" means an Incentive Stock Option granted under this Plan.
(n) "Optionee" means the holder of an unexpired Option that has not
been exercised in full. This term includes the executor or administrator of
the holder's estate, or any person who inherited all or part of the Option,
and who may validly exercise the Option under Section 9(c) of the Plan.
(o) "Parent" means any corporation that qualifies at the time of an
Option grant as a parent in an unbroken chain of corporations ending with
the Corporation, determined by using the definition of "parent corporation"
contained in Section 425(e) of the Code or any substantially similar
provision later enacted.
(p) "Plan" means the Norwood Promotional Products, Inc. 1989 Incentive
Stock Option Plan, as stated in this document and including any subsequent
amendments approved by the Board or by the shareholders of the Corporation.
<PAGE>
(q) "Securities Act" means the federal Securities Act of 1933, 48
Stat. 74, as amended.
(r) "Stock" means shares of common stock, no par value, issued by the
Corporation or any other class of common stock of the Corporation hereafter
issued in exchange or in substitution thereof that has dividend or voting
rights no less favorable than the voting power and dividend rights of
presently outstanding common stock of the Corporation, provided all shares
reserved for sale under the Plan will be free of preemptive rights of
shareholders of the Corporation.
(s) "Subsidiary" means any corporation that qualifies at the time of
an Option grant as a subsidiary in an unbroken chain of corporations
beginning with the Corporation, determined by using the definition of
"subsidiary corporation" contained in Section 425(f) of the Code or any
substantially similar provision later enacted.
(t) "Substantial Shareholder" means an Employee who owns more than 10%
of the total combined voting power of all classes of stock of the
Corporation and Affiliates.
<PAGE>
EXHIBIT A
NORWOOD PROMOTIONAL PRODUCTS, INC.
INCENTIVE STOCK OPTION AGREEMENT
OPTION NUMBER:__________________________
OPTION SHARES:__________________________
OPTION PRICE:___________________________
DATE OF GRANT:__________________________
OPTIONEE:_______________________________
This Agreement is entered into as of __________________ 19___, between
Norwood Promotional Products, Inc., a Texas corporation ("Corporation")
and________________________ ("Optionee"). Capitalized words and phrases used in
this Agreement have the same meanings as stated in Section 17 of the Norwood
Promotional Products, Inc. Amended and Restated 1989 Incentive Stock Option Plan
(the "Plan"), unless defined or required otherwise by the context in which used
in this Agreement.
1. Grant of Option. The Corporation grants to Optionee, subject to the terms
of the Plan and the terms of this Agreement, an Option to purchase from the
Corporation all or part of a total of shares of Common Stock, no par value,
of the Corporation ("Stock").
2. Expiration Date. The Option will expire at 5:00 P.M. on the earlier of:
(a)_____________________, 19____, or (b) that date which is 45 days after
the date on which Optionee ceases to be an Employee, except that (i) if
Optionee ceases to be an Employee because of a disability within the
meaning of Section 22(c)(3) of the Code, the outstanding portion of his or
her Option may be exercised at any time within one year after the date of
such termination to the extent Optionee's right to exercise has accrued
under the terms of this Agreement, (ii) if Optionee ceases to be an
Employee because of death, the executor or administrator of Optionee's
estate, or any person who has acquired the Option by bequest or
inheritance, may exercise the Option, within one year after such
termination, to the extent Optionee's right to exercise has vested under
the terms of this Agreement on or prior to the date Optionee's employment
is terminated, and (iii) if Optionee is removed from his position as an
Employee for dishonesty or other acts detrimental to the interests of the
Corporation or an Affiliate, this Option will automatically be void and
nonexercisable immediately upon the occurrence of such termination.
3. Purchase Price. The purchase price per share of Stock with respect to which
the Option is exercised will be $_____________.
<PAGE>
4. Exercise of Option.
(a) Subject to the other terms and provisions of this Agreement, this
Option shall vest and become exercisable only on and after the dates set
forth below as to the number of shares set forth opposite such dates below.
Vesting Dates Number of Shares Vested
___________________________ ________________________
___________________________ ________________________
___________________________ ________________________
(b) During the term of this Option, notwithstanding paragraph (a) of
this Section to the contrary, if substantially all of the assets of the
Corporation are sold, if the Corporation is merged into another
corporation, if the Corporation is dissolved or liquidated or if another
corporation acquires 66-2/3 % or more of the total voting power of all
classes of stock of the Corporation, this Option will terminate immediately
upon the closing of any such transaction, and in such event all shares
subject to this Option will be available for purchase by Optionee under the
terms of this Agreement within a period beginning at least 30 days before
the closing of such transaction occurs. The Corporation will give Optionee
sufficient notice to allow an opportunity for the Option to be exercised
under the provisions of this paragraph.
(c) The portions of this Option that become exercisable in accordance
with the terms hereof may be exercised in whole or in part by delivering a
written notice to the Committee signed by the Optionee or, upon his or her
death, by his or her successor in interest under the terms of Section 2
above. The notice must state an election to exercise the Option, must
specify the whole number of shares for which the option is exercised, must
state the date on which the shares will be purchased and if the person
exercising the Option is not the Optionee, must be accompanied by
satisfactory evidence of such person's right to exercise the Option.
5. Payment Upon Exercise. At the time of exercise, the purchase price of
shares for which the Option is exercised must be paid to the Corporation in
cash or in such other consideration as the Committee deems appropriate.
6. Nontransferability. This Option may not be transferred other than by will
or by the laws of descent and distribution. During Optionee's lifetime,
only Optionee or his guardian or legal representative may exercise the
Option.
7. No Shareholder Rights. Optionee will not have any rights as a stockholder
regarding any shares subject to this Option before the date on which the
Corporation issues Optionee a certificate for such shares. This Option does
not affect the recapitalization or otherwise change its capital or debt
structure or to merge, consolidate, convey any or all of its assets,
dissolve, liquidate windup or otherwise reorganize.
<PAGE>
8. No Employment Rights. This Option does not confer upon Optionee any right
to continued employment by the Corporation or an Affiliate, nor does it
limit the right of the Corporation or an Affiliate to terminate Optionee's
employment at any time.
9. Share Adjustment. The number of shares subject to this Option, and the
purchase price per share, will, upon an affirmative determination of the
Board, the Committee or the shareholders to such effect, be adjusted
pursuant to Section 12 of the Plan to reflect a change in capitalization of
the Corporations as described therein.
10. Duty to Furnish Information. Optionee must furnish to the Corporation all
information requested by the Corporation to enable it to comply with any
reporting or other requirement imposed upon the Corporation with respect to
the Plan or this Option under any applicable statute or regulation.
11. Compliance with Law and Regulations. This Option and the Corporation's
obligation to sell and deliver shares hereunder are subject to all
applicable Federal and State laws, rules and regulations and to such
approvals by any government or regulatory agency as may be required. This
Option may not be exercised if its exercise or the receipt of shares of
Stock hereunder would be contrary to any applicable law or regulation.
12. Investment Representation. Optionee represents and warrants that Stock
acquired upon any exercise of this Option will be acquired for Optionee's
own account for investment purposes only and not with a view to, or for
resale in connection with, any distribution or public offering of Stock
within the meaning of the Securities Act or other applicable securities
laws. If the Board so determines, any Stock certificates issued upon
exercise of the Option will bear a legend to the effect that the shares
have been so acquired. These restrictions on transfer of the Stock will be
inoperative if the Corporation previously has been furnished with an
opinion of counsel, satisfactory to the Corporation, to the effect that
such transfer will not involve any violation of the Securities Act or other
applicable securities laws, or that the Stock has been duly registered in
compliance with the Securities Act and other applicable securities laws. If
Stock subject to the Option is so registered under the Securities Act,
Optionee agrees not to make a public offering of the Stock except on a
national securities exchange on which the Stock is then registered and
listed.
13. Indemnification. Optionee agrees to indemnify the Corporation and its
officers, directors, employees or agents from any liability, penalty,
interest, loss or damage to the Corporation or its officers, directors,
employees or agents which may arise from the failure of the Corporation to
withhold taxes under Sections 3201, 3301 or 3402 of the Code, or any
successor provisions to such statutes, on any amount includible in
Optionee's gross income for federal income tax purposes as a result of
optionee's Disqualifying Disposition of any Stock acquired pursuant to
exercise of the Option.
14. Optionee Bound by Plan and by Corporate Decisions. Optionee acknowledges
receipt of a copy of the Plan and agrees to be bound by all the terms and
provisions thereof. The terms of this Agreement and the Plan are binding
upon all successors of Optionee.
<PAGE>
15. Notices. Any notice to the Corporation must be addressed to it at its
principal office, 615 Perez Street, San Antonio, Attention:_______________
, President. Any notice to Optionee must be addressed to him or her at the
address shown beneath his or her signature below. Either party may later
designate in writing to the other a different address.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officer, and Optionee has executed this
Agreement, both as of the day and year first above written.
NORWOOD PROMOTIONAL PRODUCTS, INC.
By:_____________________________
President
OPTIONEE:
________________________________
Name:___________________________
Address:________________________
<PAGE>
Exhibit 10.5
Incentive Stock Compensation Plan of the Registrant
dated November 14, 1994, as amended and restated effective as of August 23, 1996
<PAGE>
NORWOOD PROMOTIONAL PRODUCTS, INC.
AMENDED AND RESTATED
1994 INCENTIVE STOCK COMPENSATION PLAN
1. PURPOSE.
This Incentive Stock Compensation Plan (the "Plan") is intended as an
incentive to encourage stock ownership by certain officers and employees of
Norwood Promotional Products, Inc. (the "Company"), or of its subsidiary
corporations (the "Subsidiaries," as that term is defined in Section 425 of the
Internal Revenue Code of 1986, as amended from time to time), so that they may
acquire or increase their proprietary interest in the success of the Company,
and to encourage them to remain in the employ of the Company. The Plan is
designed to meet this intent by offering performance-based stock and cash
incentives and other equity based incentive awards, thereby providing a
proprietary interest in pursuing the long-term growth, profitability and
financial success of the Company.
2. DEFINITIONS.
For purposes of this Plan, the following terms shall have the meanings set
forth below:
"Award" or "Awards" means an award or grant made to a Participant under
Sections 7 through 10, inclusive, of the Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, together with
the regulations promulgated thereunder.
"Committee" means the Compensation Committee of the Board, or any committee
of the Board performing similar functions, constituted as provided in Section 4
of the Plan.
"Common Stock" means the Common Stock of the Company or any security of the
Company issued in substitution, exchange or lieu thereof.
"Company" means Norwood Promotional Products, Inc. or any successor
corporation.
"Deferred Compensation Stock Option" means any Stock Option granted
pursuant to the provisions of Section 7 of the Plan that is specifically
designated as such.
"Disability" means permanent and total disability. An individual is
permanently and totally disabled if he or she is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than 12 months.
"Exchange Act" means the Securities Exchange Act of 1934, as amended and in
effect from time to time, or any successor statute.
<PAGE>
"Fair Market Value" means on any given date (i) the highest closing price
of the Common Stock on any established national exchange or exchanges or the
NASDAQ National Market System or, if no sale of Common Stock is made on such
day, the next preceding day on which there was a sale of such stock, or (ii) if
the Common Stock is quoted in the over-the-counter market reported by the
NASDAQ, the mean between the closing bid and low asked quotations of the Common
Stock for such date, or (iii) if the Common Stock is neither quoted on an
exchange nor in the over-the-counter market, then the most recent price at which
the Common Stock has been sold in relatively comparable amounts to an
independent third party in an arms' length transaction for cash, or lacking such
recent comparable sale, then fair market value shall be determined by the
Committee, using a reasonable valuation method, as determined by the Committee.
"Incentive Stock Option" means any Stock Option (as defined below) that is
intended to be and is specifically designated as an "incentive stock option"
within the meaning of Section 422 of the Code.
"Non-Employee Director" means a director who:
(A) Is not currently an officer of the issuer or a parent or subsidiary of
the issuer, or otherwise currently employed by the issuer or a parent
or subsidiary of the issuer;
(B) Does not receive compensation, either directly or indirectly, from the
issuer or a parent or subsidiary of the issuer, for services rendered
as a consultant or in any capacity other than as a director, except
for an amount that does not exceed the dollar amount for which
disclosure would be required pursuant to Rule 404(a) of Regulation S-K
of the General Rules and Regulations of the Exchange Act ("Regulation
S-K");
(C) Does not possess an interest in any other transaction for which
disclosure would be required pursuant to Rule 404(a) of Regulation
S-K; and
(D) Is not engaged in a business relationship for which disclosure would
be required pursuant to Rule 404(b) of Regulation S-K.
"Nonqualified Stock Option" means any Stock Option granted pursuant to the
provisions of Section of the Plan that is not an Incentive Stock Option.
"Participant" means an employee of the Company or any Subsidiary or an
individual who is performing services for either entity and who is granted an
Award under the Plan.
"Performance Bonus Award" means an Award of cash and/or shares of Common
Stock granted pursuant to the provisions of Section 9 of the Plan.
"Plan" means this Incentive Stock Compensation Plan, as set forth herein
and as it may be hereafter amended.
"Restricted Award" means an Award granted pursuant to the provisions of
Section 9 of the Plan.
"Restricted Stock Grant" means an Award of shares of Common Stock granted
pursuant to the provisions of Section 9 of the Plan.
"Restricted Unit Grant" means an Award of units representing shares of
Common Stock granted pursuant to the provisions of Section 9 of the Plan.
"SEC" means the Securities and Exchange Commission.
"Stock Appreciation Right" means an Award to benefit from the appreciation
of Common Stock granted pursuant to the provisions of Section 8 of the Plan.
<PAGE>
"Stock Option" means an Award to purchase shares of Common Stock granted
pursuant to the provisions of Section 7 of the Plan.
"Subsidiary" means any corporation or entity in which the Company directly
or indirectly controls 50% or more of the total voting power of all classes of
its stock having voting power, whether existing at the date of institution of
this Plan or subsequently.
"Ten Percent Shareholder" means a person who owns (or is considered to own
after taking into account the attribution of ownership rules of Section 425(d)
of the Code) more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Subsidiary.
3. APPROVAL OF AWARDS.
Each Award must be approved in one of the following ways:
(a) Board/Committee Approval. The entire Board or the Committee may vote
in advance to approve such Award.
(b) Shareholder Approval/Ratification. In compliance with the Exchange
Act, a majority of the shareholders of the Company duly entitled to
vote on such matters at meetings held in accordance with the laws of
the State of Texas may, either in advance of the Award or no later
than the next annual meeting of shareholders, affirmatively vote to
approve such Award.
4. ADMINISTRATION.
(a) The Plan shall be administered by the Committee, as appointed from
time to time by the Board. The Board may from time to time remove
members from, or add members to, the Committee. The Committee shall be
constituted so as to permit the Plan to comply with Rule 16b-3
promulgated by the SEC under the Exchange Act or any successor rule
and shall be comprised solely of at least two members of the Board who
are Non-Employee Directors.
(b) A majority of the members of the Committee shall constitute a quorum
for the transaction of business. Action approved in writing by a
majority of the members of the Committee then serving shall be as
effective as if the action had been taken by unanimous vote at a
meeting duly called and held.
(c) The Committee is authorized to construe and interpret the Plan, to
promulgate, amend, and rescind rules and procedures relating to the
implementation of the Plan, and to make all other determinations
necessary or advisable for the administration of the Plan. Any
determination, decision, or action of the Committee in connection with
the construction, interpretation, administration, or application of
the Plan shall be binding upon all Participants and any person validly
claiming under or through any Participant.
(d) The Committee may designate persons other than members of the
Committee to carry out its responsibilities under such conditions and
limitations as it may prescribe, except that the Committee may not
delegate its authority with regard to selection for participation of,
and the granting of Awards to, persons subject to Sections 16(a) and
16(b) of the Exchange Act or who are eligible to receive Awards under
this Plan.
(e) The Committee is expressly authorized to make modifications to the
Plan as necessary to effectuate the intent of the Plan as a result of
any changes in the tax, accounting, or securities laws treatment of
Participants and the Plan, subject to those restrictions that are set
forth in Sections 3 and 15 of the Plan.
(f) The Company shall effect the granting of Awards under the Plan, in
accordance with the determinations made by the Committee and approved
in accordance with Section 3 of the Plan, by execution of instruments
in writing in such form as approved by the Committee.
4
<PAGE>
5. ELIGIBILITY.
Persons eligible for Awards under the Plan shall consist of employees
(including officers, whether or not they are directors) of the Company or its
Subsidiaries who from time to time shall be designated by the Committee. Any
person who shall be eligible for Awards under this Plan shall not be eligible to
participate in the Company's Non-Employee Director Stock Purchase Plan.
6. DURATION OF AND COMMON STOCK SUBJECT TO PLAN.
(a) Term. The Plan shall terminate on November 14, 2004 except with
respect to Awards then outstanding.
(b) Shares of Common Stock Subject to Plan. The maximum number of shares
of Common Stock in respect of which Awards may be granted under the
Plan (the "Plan Maximum") shall be 190,000 subject to adjustment as
provided in Section 13 below. Common Stock issued under the Plan may
be either authorized and unissued shares or issued shares which have
been reacquired by the Company. The following terms and conditions
shall apply to Common Stock subject to the Plan:
(i) In no event shall more than the Plan Maximum be cumulatively
available for Awards under the Plan;
(ii) For the purpose of computing the total number of shares of Common
Stock available for Awards under the Plan, there shall be counted
against the foregoing limitations (A) the number of shares of
Common Stock subject to issuance upon exercise or settlement of
Awards (regardless of vesting), and (B) the number of shares of
Common Stock which equal the value of Restricted Unit Grants or
Stock Appreciation Rights determined at the dates on which such
Awards are granted;
(iii)If any Awards are forfeited, terminated, expire unexercised,
settled in cash in lieu of stock or exchanged for other Awards,
the shares of Common Stock which were previously subject to the
Awards shall again be available for Awards under the Plan to the
extent of such forfeiture or expiration of the Awards; and
(iv) Any shares of Common Stock which are used as full or partial
payment to the Company by a Participant of the purchase price of
shares of Common Stock upon exercise of a Stock Option shall
again be available for Awards under the Plan.
7. STOCK OPTIONS.
Stock Options granted under the Plan may be in the form of Incentive Stock
Options, Non-Qualified Stock Options or Deferred Compensation Stock Options
(collectively, the "Stock Options"). Stock Options shall be subject to the
following terms and conditions, and each Stock Option shall contain such
additional terms and conditions, not inconsistent with the express provisions of
the Plan, as the Committee shall deem desirable, subject to Section 3 hereof:
(a) Grant. Stock Options shall be granted separately. In no event will
Stock Options or Awards be issued in tandem whereby the exercise of
one affects the right to exercise the other.
(b) Stock Option Price. The exercise price per share of Common Stock
purchasable under a Stock Option shall be determined by the Committee
at the time of grant. However, in no event shall the exercise price of
an Incentive Stock Option be less than one hundred percent (100%) of
the Fair Market Value of the Common Stock on the date of the grant of
the Stock Option. In the case of a Ten Percent Shareholder, the
exercise price of an Incentive Stock Option shall be not less than one
hundred ten percent (110%) of the Fair Market Value of the Common
Stock on the date of the grant.
<PAGE>
(c) Option Term. The term of each Stock Option, other than an Incentive
Stock Option, shall be fixed by the Committee. The term of Incentive
Stock Options shall not exceed ten years after the date the Incentive
Stock Option is granted, and the term of any Incentive Stock Options
granted to Ten Percent Shareholders shall not exceed five years after
the date of the grant.
(d) Exercisability.
(i) Incentive Stock Options and Nonqualified Stock Options shall be
exercisable in installments as provided in the following
sentence, and shall be subject to such other terms and conditions
as the Committee shall determine at the date of grant; provided,
however, that except as provided in Sections 11(a), 11(b), 11(c)
and 14, no Incentive Stock Option or Nonqualified Stock Option
shall vest and be exercisable prior to the first anniversary date
of the date of grant (hereinafter, "Anniversary Date"). Incentive
Stock Options and Nonqualified Stock Options may be exercised, at
the discretion of the Committee, except as otherwise provided in
Sections 11(a), 11(b), 11(c) and 14; provided, that each option
shall become exercisable in three equal annual installments
beginning on the third anniversary of the date of the grant of
the option unless the Committee provides otherwise.
(ii) Reload Options shall become exercisable in accordance with
Section 7(h)(iii) hereof. Deferred Compensation Stock Options
shall become exercisable in accordance with the terms of the
grant thereof as established by the Committee.
(e) Method of Exercise. Subject to applicable exercise restrictions set
forth in Section 7(d) above, a Stock Option may be exercised, in whole
or in part, by giving written notice of exercise to the Company
specifying the number of shares to be purchased. The notice shall be
accompanied by payment in full of the purchase price. The purchase
price may be paid by any of the following methods, subject to the
restrictions set forth in Section 7(f) hereof:
(i) in cash, by certified or cashier's check, by money order or by
personal check (if approved by the Committee) of an amount equal
to the aggregate purchase price of the shares of Common Stock to
which such exercise relates;
(ii) if acceptable to the Committee, by delivery of shares of Common
Stock already owned by the Participant, which shares, including
any cash tendered therewith, have an aggregate Fair Market Value
(determined as of the date preceding the Company's receipt of
exercise notice) equal to the aggregate purchase price of the
shares of Common Stock to which such exercise relates; or
(iii)if acceptable to the Committee, by delivery to the Company of an
exercise notice that requests the Company to issue to the
Participant the full number of shares of Common Stock as to which
the Stock Option is then exercisable, less the number of shares
of Common Stock that have an aggregate Fair Market Value
(determined as of the date preceding the Company's receipt of the
exercise notice) equal to the aggregate purchase price of the
shares of Common Stock to which such exercise relates.
(f) Restrictions on Method of Exercise. Notwithstanding the foregoing
payment provisions, the Committee, in granting Stock Options pursuant
to the Plan, may limit the methods by which a Stock Option may be
exercised by any person and, in processing any purported exercise of a
Stock Option granted pursuant to the Plan, may refuse to recognize the
method of exercise selected by the Participant (other than the method
of exercise set forth in Section 7(e)(i)), if, in the opinion of
counsel to the Company, (i) the Participant is, or within the six
months preceding such exercise was, subject to reporting under Section
16(a) of the Exchange Act, and (ii) there is a substantial likelihood
that the method of exercise selected by the Participant would subject
the Participant to substantial risk of liability under Section 16 of
the Exchange Act. Furthermore, no Incentive Stock Option may be
exercised in accordance with the methods of exercise set forth in
subsections 7(e)(ii) and 7(e)(iii) above unless, in the opinion of
counsel to the Company, such exercise would not have a material
adverse effect upon the incentive stock option tax treatment of any
outstanding Incentive Stock Options or Incentive Stock Options that
thereafter may be granted pursuant to the Plan.
<PAGE>
(g) Tax Withholding. In addition to the alternative methods of exercise
set forth in Section 7(e), holders of Nonqualified Stock Options,
subject to the discretion of the Committee, may be entitled to elect
at or prior to the time the exercise notice is delivered to the
Company, to have the Company withhold from the shares of Common Stock
to be delivered upon exercise of the Nonqualified Stock Option the
number of shares of Common Stock (determined based on the Fair Market
Value as of the date preceding the Company's receipt of the exercise
notice) that is necessary to satisfy any withholding taxes
attributable to the exercise of the Nonqualified Stock Option;
provided, however, that the amount of the Fair Market Value of the
shares so withheld does not exceed the tax on such exercise at the
maximum marginal tax rate. If withholding is made in shares of the
Common Stock pursuant to the method set forth above, the Committee, in
its sole discretion, may grant "Reload Option(s)" (as defined in
Section 7(h) below) on the terms specified in Section 7(h) below for
the shares so withheld. Notwithstanding the foregoing provisions, a
holder of a Nonqualified Stock Option may not elect to satisfy his or
her withholding tax obligation in respect of any exercise as
contemplated above if, in the opinion of counsel to the Company,
(i) the holder of the Nonqualified Stock Option is, or within the six
months preceding such exercise was, subject to reporting under Section
16(a) of the Exchange Act, (ii) there is a substantial likelihood that
the election or timing of the election would subject the holder to a
substantial risk of liability under Section 16 of the Exchange Act, or
(iii) such withholding would have an adverse tax or accounting effect
to the Company.
(h) Grant of Reload Options. Whenever the Participant holding any
Incentive Stock Option or Nonqualified Stock Option (the "Original
Option") outstanding under this Plan (including any "Reload Options"
granted under the provisions of this Section 7(h)) exercises the
Original Option and makes payment of the option price by tendering
shares of the Common Stock previously held by him or her pursuant to
Section 7(e)(ii) hereof, including shares withheld pursuant to Section
7(g) above, then the Committee may, in its sole discretion, grant a
new option (the "Reload Option") for additional shares of Common Stock
in an amount to be determined in its sole discretion of up to 100% of
the number of shares tendered by the Participant in payment of the
option price for the Original Option being exercised, including those
shares withheld pursuant to Section 7(g) above. All such Reload
Options granted hereunder shall be on the following terms and
conditions:
(i) The Reload Option price per share shall be an amount equal to the
then current Fair Market Value per share of the Common Stock,
determined as of the date of the Company's receipt of the
exercise notice for the Original Option;
(ii) The option exercise period shall expire, and the Reload Option
shall no longer be exercisable, on the expiration of the option
period of the Original Option or two years from the date of the
grant of the Reload Option, whichever is later;
(iii)Any Reload Option granted under this Section 7(h) shall vest and
first become exercisable one year following the date of exercise
of the Original Option; and
(iv) All other terms of Reload Options granted hereunder shall be
identical to the terms and conditions of the Original Option, the
exercise of which gives rise to the grant of the Reload Option.
Even if the shares of Common Stock which are issued upon exercise of the
Original Option are sold within one year following the exercise of the Original
Option such that the sale constitutes a disqualifying disposition for Incentive
Stock Option treatment under the Code, no provision of this Plan shall be
construed as prohibiting such a sale.
(i) Special Rule for Incentive Stock Options. With respect to
Incentive Stock Options granted under the Plan, the aggregate
Fair Market Value (determined as of the date Incentive Stock
Options are granted) of the number of shares with respect to
which Incentive Stock Options are exercisable for the first time
by a Participant during any calendar year shall not exceed
$100,000 or such other limits as may be required by the Code.
(j) Deferred Compensation Stock Options. Deferred Compensation Stock
Options are intended to provide a means by which compensation
payments can be deferred to future dates. The number of shares of
Common Stock subject to a Deferred Compensation Stock Option
shall be determined by the Committee, in its sole discretion, in
accordance with the following formula:
<PAGE>
Amount of Compensation to be Deferred = Number of
-------------------------------------
Fair Market Value - Stock Option Price Shares
Amounts of compensation deferred may include amounts earned under Awards granted
under the Plan or under any other compensation plan, program, or arrangement of
the Company as permitted by the Committee. Deferred Compensation Stock Options
will be granted only if the Committee has reasonably determined, for purposes of
the Code, that a recipient of such an option will not be deemed at the date of
grant to be in receipt of the amount of income being deferred.
(k) Incentive Stock Options. Notwithstanding anything in the Plan to the
contrary, no term of this Plan relating to Incentive Stock Options
shall be interpreted, amended, or altered, nor shall any discretion or
authority granted under the Plan be so exercised, so as to disqualify
the Plan under Section 422 of the Code or, without the consent of the
Participant(s) affected, to disqualify any Incentive Stock Option
under such Section 422 of the Code. To the extent permitted under
Section 422 of the Code or applicable regulations thereunder or any
applicable Internal Revenue Service pronouncements:
(i) if a Participant's employment is terminated by reason of death or
Disability and the portion of any Incentive Stock Option that
becomes exercisable during the post-termination period specified
in Section 10(a) or 10(b) exceeds the $100,000 limitation
contained in Section 422(d) of the Code set forth in Section 7(i)
above, such excess shall be treated as a Nonqualified Stock
Option; and
(ii) if the exercise of an Incentive Stock Option is accelerated by
reason of a Change in Control (as defined in Section 14 below),
any portion of such Option that exceeds the $100,000 limitation
set forth in Section 7(i) above shall be treated as a
Nonqualified Stock Option.
8. STOCK APPRECIATION RIGHTS.
The grant of Stock Appreciation Rights under the Plan shall be subject to
the following terms and conditions, and shall contain such additional terms and
conditions, not inconsistent with the express terms of the Plan, as the
Committee shall deem desirable:
(a) Stock Appreciation Rights. A Stock Appreciation Right is an Award
entitling a Participant to receive an amount equal to (or if the
Committee shall determine at the time of grant, less than) the excess
of the Fair Market Value of a share of Common Stock on the date of
exercise over the Fair Market Value of a share of Common Stock on the
date of grant of the Stock Appreciation Right, or such other price as
may be set by the Committee, multiplied by the number of shares of
Common Stock with respect to which the Stock Appreciation Right shall
have been exercised.
(b) Grant. A Stock Appreciation Right shall be granted separately. In no
event will Stock Appreciation Rights and other Awards be issued in
tandem whereby the exercise of one such Award affects the right to
exercise the other.
(c) Exercise. A Stock Appreciation Right may be exercised by a Participant
in accordance with procedures established by the Committee, except
that in no event shall a Stock Appreciation Right be exercisable prior
to the first Anniversary Date of the date of grant. The Committee
shall establish procedures to provide that, with respect to any
Participant subject to Section 16(b) of the Exchange Act who would
receive cash in whole or in part upon exercise of the Stock
Appreciation Right, such exercise may only occur during an exercise
period beginning on the third business day following the Company's
public release of quarterly or annual summary statements of sales and
earnings and ending on the 15th business day following such public
release ("Window Period"). To the extent it is not inconsistent with
the preceding sentence, the Committee, in its discretion, may provide
that a Stock Appreciation Right shall be automatically exercised on
one or more specified dates, or that a Stock Appreciation Right may be
exercised during only limited time periods.
(d) Form of Payment. Payment to the Participant upon exercise of a Stock
Appreciation Right may be made (i) in cash, by certified or cashier's
check or by money order, (ii) in shares of Common Stock, (iii) in the
form of a Deferred Compensation Stock Option, or (iv) any combination
of the above, as the Committee shall determine. The Committee may
elect to make this determination either at the time the Stock
Appreciation Right is granted, or with respect to payments
contemplated in clauses (i) and (ii) above, at the time of the
exercise.
<PAGE>
9. RESTRICTED AWARDS.
Restricted Awards granted under the Plan may be in the form of either
Restricted Stock Grants or Restricted Unit Grants. Restricted Awards shall be
subject to the following terms and conditions, and may contain such additional
terms and conditions, not inconsistent with the express provisions of the Plan,
as the Committee shall deem desirable:
(a) Restricted Stock Grants. A Restricted Stock Grant is an Award of
shares of Common Stock transferred to a Participant subject to such
terms and conditions as the Committee deems appropriate, as set forth
in Section 9(d) below. Further, as a condition to the grant of
Restricted Stock to any Participant who, at the date of grant has not
been employed by the Company and has not performed services for the
Company, the Committee shall require such Participant to pay at least
an amount equal to the par value of the shares of Common Stock subject
to the Restricted Stock Grant within 30 days of the date of the grant,
and failure to pay such amount shall result in an automatic
termination of the Restricted Stock Grant.
(b) Restricted Unit Grants. A Restricted Unit Grant is an Award of units
granted to a Participant subject to such terms and conditions as the
Committee deems appropriate, including, without limitation, the
requirement that the Participant forfeit such units upon termination
of employment for specified reasons within a specified period of time,
and restrictions on the sale, assignment, transfer or other
disposition of the units. Based on the discretion of the Committee at
the time a Restricted Unit Grant is awarded to a Participant, a unit
will have a value (i) equivalent to one share of Common Stock, or
(ii) equivalent to the excess of the Fair Market Value of a share of
Common Stock on the date the restriction lapses over the Fair Market
Value of a share of Common Stock on the date of the grant of the
Restricted Unit Grant (or over such other value as the Committee
determines at the time of the grant).
(c) Grant of Awards. Restricted Awards shall be granted separately under
the Plan in such form and on such terms and conditions as the
Committee may from time to time approve. Restricted Awards, however,
may not be granted in tandem with other Awards whereby the exercise of
one such Award affects the right to exercise the other. Subject to the
terms of the Plan, the Committee shall determine the number of
Restricted Awards to be granted to a Participant and the Committee may
impose different terms and conditions on any particular Restricted
Award made to any Participant. Each Participant receiving a Restricted
Stock Grant shall be issued a stock certificate in respect of the
shares of Common Stock. The certificate shall be registered in the
name of the Participant, shall be accompanied by a stock power duly
executed by the Participant, and shall bear an appropriate legend
referring to the terms, conditions and restrictions applicable to the
Award. The certificate evidencing the shares shall be held in custody
by the Company until the restrictions imposed thereon shall have
lapsed or been removed.
(d) Restriction Period. Restricted Awards shall provide that in order for
a Participant to vest in the Awards, the Participant must continuously
provide services for the Company or its Subsidiaries, subject to
relief for specified reasons, for a period of not less than one year
commencing on the date of the Award and ending on such later date or
dates as the Committee may designate at the time of the Award
("Restriction Period"). During the Restriction Period, a Participant
may not sell, assign, transfer, pledge, encumber, or otherwise dispose
of shares of Common Stock received under a Restricted Stock Grant. The
Committee, in its sole discretion, may provide for the lapse of
restrictions in installments during the Restriction Period. Upon
expiration of the applicable Restriction Period (or lapse of
restrictions during the Restriction Period where the restrictions
lapse in installments), the Participant shall be entitled to receive
his or her Restricted Award or the applicable portion thereof, as the
case may be. Upon termination of a Participant's employment with the
Company or any Subsidiary for any reason during the Restriction
Period, all or a portion of the shares or units, as applicable, that
are still subject to a restriction may vest or be forfeited, in
accordance with the terms and conditions established by the Committee
at or after grant.
<PAGE>
(e) Payment of Awards. A Participant shall be entitled to receive payment
for a Restricted Unit Grant (or portion thereof) in an amount equal to
the aggregate Fair Market Value of the units covered by the Award upon
the expiration of the applicable Restriction Period. Payment in
settlement of a Restricted Unit Grant shall be made as soon as
practicable following the conclusion of the respective Restriction
Period (i) in cash, by certified or cashier's check or by money order,
(ii) in shares of Common Stock equal to the number of units granted
under the Restricted Unit Grant with respect to which such payment is
made, (iii) in the form of a Deferred Compensation Stock Option, or
(iv) in any combination of the above, as the Committee shall
determine, subject, however, to any applicable Window Period
requirement imposed by the Committee with respect to Restricted Unit
Grants settled in whole or in part in cash. The Committee may elect to
make this determination either at the time the Award is granted, or
with respect to payments contemplated in clause (i) and (ii) above, at
the time the Award is settled.
(f) Rights as a Shareholder. A Participant shall have, with respect to the
shares of Common Stock received under a Restricted Stock Grant, all of
the rights of a shareholder of the Company, including the right to
vote the shares, and the right to receive any cash dividends. Stock
dividends issued with respect to the shares covered by a Restricted
Stock Grant shall be treated as additional shares under the Restricted
Stock Grant and shall be subject to the same restrictions and other
terms and conditions that apply to shares under the Restricted Stock
Grant with respect to which the dividends are issued.
10. PERFORMANCE BONUS AWARDS.
Performance Bonus Awards granted under the Plan may be in the form of cash
or shares of Common Stock, or a combination thereof. Performance Bonus Awards
shall contain such terms and conditions, not inconsistent with the express
provisions of the Plan, as the Committee shall deem desirable. Performance Bonus
Awards may be granted under the Plan in such form as the Committee may from time
to time approve. Subject to the terms of the Plan, the Committee shall determine
the Performance Bonus Awards to be granted to a Participant for any given
calendar year, and the Committee may impose different terms and conditions on
any particular Performance Bonus Award made to any Participant including, but
not limited to, restrictions on the sale, assignment and transfer of Common
Stock covered by a Performance Bonus Award.
11. TERMINATION OF EMPLOYMENT.
The terms and conditions under which an Award may be exercised after a
Participant's termination of employment shall be determined by the Committee,
except as otherwise provided herein. The conditions under which such
post-termination exercises shall be permitted with respect to Incentive Stock
Options shall be determined in accordance with the provisions of Section 422 of
the Code and as otherwise provided in Section 7 above.
(a) Termination by Death. Subject to Section 7(k), if a Participant's
employment by the Company or any Subsidiary terminates by reason of
the Participant's death or if the Participant's death occurs within
three months after the termination of his or her employment, any Award
held by such Participant may thereafter be exercised, to the extent
such Award otherwise was then exercisable by the Participant, by the
legal representative of the Participant's estate or by any person who
acquired the Award by will or the laws of descent and distribution,
for a period of one year from the Participant's termination of
employment (as contemplated in this Section 11(a)) or until the
expiration of the stated term of the Award, whichever period is the
shorter. Any right of exercise under a nonvested Award held by a
Participant at the time of his or her death is extinguished and
terminated.
(b) Termination by Reason of Disability. Subject to Section 7(k), if a
Participant's employment by the Company or Subsidiary terminates by
reason of Disability, any Award held by such Participant may
thereafter be exercised by the Participant, to the extent such Award
otherwise was then exercisable by the Participant, for a period of one
year from the date of such termination of employment or until the
expiration of the stated term of such Award, whichever period is the
shorter; provided, however, that if the Participant dies within such
one-year period, any unexercised Award held by such Participant shall
thereafter be exercisable to the extent to which it was exercisable at
the time of such death or until the expiration of the stated term of
such Award, whichever period is shorter. Any right of exercise under a
nonvested Award held by the Participant at the time of his or her
termination by reason of Disability is terminated and extinguished.
<PAGE>
(c) Other Termination. Subject to Section 7(k), if a Participant's
employment by the Company or any Subsidiary is terminated for any
reason, any Award held by the Participant at the time of his or her
termination shall be exercisable, to the extent otherwise then
exercisable, for the lesser of three months from the date of such
termination or the balance of the term of the Award, and any right of
exercise under any nonvested Award held by a Participant at the time
of his or her termination is terminated and extinguished; provided,
however, that upon termination of employment, if the Participant
continues to serve, or commences serving, as a director of the
Company, then in such event any Awards may continue to be held by the
Participant under the original terms thereof, with any Incentive Stock
Options held by such Participant to henceforth be treated as
Nonqualified Stock Options.
12. NON-TRANSFERABILITY OF AWARDS.
No Award under the Plan, and no rights or interest therein, shall be
assignable or transferable by a Participant except by will or the laws of
descent and distribution, after which assignment Section 11(a) hereof shall
apply to exercise of the Award by the assignee. During the lifetime of a
Participant, Awards are exercisable only by, and payments in settlement of
Awards will be payable only to, the Participant or his or her legal
representative.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, ETC.
(a) The existence of the Plan and the Awards granted hereunder shall not
affect or restrict in any way the right or power of the Board or the
shareholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's
capital structure or its business, any merger or consolidation of the
Company, any issue of bonds, debentures, preferred or prior preference
stocks ahead of or affecting the Company's Common Stock or the rights
thereof, the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other
corporate act or proceeding.
(b) In the event of any change in capitalization affecting the Common
Stock of the Company, such as a stock dividend, stock split,
recapitalization, merger, consolidation, split-up, combination,
exchange of shares, other form of reorganization, or any other change
affecting the Common Stock, the Board, in its discretion, may make
proportionate adjustments it deems appropriate to reflect such change
with respect to (i) the maximum number of shares of Common Stock which
may be sold or awarded to any Participant, (ii) the number of shares
of Common Stock covered by each outstanding Award, and (iii) the price
per share in respect of the outstanding Awards. Notwithstanding the
foregoing, the Board may only increase the aggregate number of shares
of Common Stock for which Awards may be granted under the Plan solely
to reflect the change, if any, of the capitalization of the Company or
a Subsidiary.
(c) The Committee may also make such adjustments in the number of shares
covered by, and the price or other value of any outstanding Awards in
the event of a spin-off or other distribution (other than normal cash
dividends) of Company assets to shareholders.
14. CHANGE OF CONTROL.
(a) In the event of a Change of Control (as defined in Paragraph (b)
below) of the Company, and except as the Board may expressly provide
otherwise in resolutions adopted prior to the Change of Control:
(i) all Stock Options or Stock Appreciation Rights then outstanding
shall become fully exercisable as of the date of the Change of
Control; and
(ii) all restrictions and conditions of all Restricted Stock Grants
and Restricted Unit Grants then outstanding shall be deemed
satisfied as of the date of the Change of Control;
subject to the limitation that any Award which has been outstanding less than
one year on the date of the Change of Control shall not be afforded such
treatment.
<PAGE>
(b) A "Change of Control" shall be deemed to have occurred upon the
occurrence of any one (or more) of the following events, other than a
transaction with another person controlled by the Company or its
officers or directors, or a benefit plan or trust established by the
Company for its employees:
(i) Any person, including a group as defined in Section 13(d)(3) of
the Exchange Act, becomes the beneficial owner of shares of the
Company with respect to which 40% or more of the total number of
votes for the election of the Board may be cast;
(ii) As a result of, or in connection with, any cash tender offer,
exchange offer, merger or other business combination, sale of
assets or contested election, or combination of the above,
persons who were directors of the Company immediately prior to
such event shall cease to constitute a majority of the Board;
(iii)The stockholders of the Company shall approve an agreement
providing either for a transaction in which the Company will
cease to be an independent publicly owned corporation or for a
sale or other disposition of all or substantially all the assets
of the Company; or
(iv) A tender offer or exchange offer is made for shares of the
Company's Common Stock (other than one made by the Company), and
40% of the Company's outstanding shares of Common Stock is
acquired thereunder ("Offer"). However, the acceleration of the
exercisability of outstanding Awards upon the occurrence of an
Offer shall be within the discretion of the Board.
15. AMENDMENT AND TERMINATION.
(a) Amendments Without Shareholder Approval. Except as set forth in
Sections 15(b) and 15(c) below, the Board may, without further
approval of the shareholders, at any time amend, alter, discontinue or
terminate this Plan, in such respects as the Board may deem advisable.
(b) Amendments Requiring Shareholder Approval. Except as set forth in
Section 15(c) below, to comply with the restrictions set forth in Rule
16b-3 promulgated under the Exchange Act, as amended and in effect
from time to time (or any successor rule) and to comply with the Code
and accompanying regulations, but subject to changes in law or other
legal requirements (including any change in the provisions of Rule
16b-3 and the Code and accompanying Regulations that would permit
otherwise), the Board must obtain approval of the shareholders to make
any amendment that would increase the aggregate number of shares of
Common Stock that may be issued under the Plan (except for adjustments
pursuant to Section 13 of the Plan).
(c) Prohibited Amendments. Notwithstanding Sections 15(a) and 15(b), under
no circumstances may the Board or Committee (i) amend, alter,
discontinue or terminate the requirements set forth in Sections 7(b),
7(c), 7(i) and 7(k) with respect to Incentive Stock Options unless
(a) such modifications are made to comply with changes in the tax
laws, or (b) the Plan is completely terminated, or (ii) make any
amendment, alteration or modification to the Plan that would impair
the vested rights of a Participant under any Award theretofore granted
under this Plan.
16. MISCELLANEOUS MATTERS.
(a) Tax Withholding. In addition to the authority set forth in Section
7(g) above, the Company shall have the right to deduct from a
Participant's wages or from any settlement, including the delivery of
shares, made under the Plan any federal, state, or local taxes of any
kind required by law to be withheld with respect to such payments, or
to take such other action as may be necessary in the opinion of the
Company to satisfy all obligations for the payment of such taxes.
(b) No Right to Employment. Neither the adoption of the Plan nor the
granting of any Award shall confer upon any Participant any right to
continue employment with the Company or any Subsidiary, as the case
may be, nor shall it interfere in any way with the right of the
Company or a Subsidiary to terminate the employment of any Participant
at any time, with or without cause.
(c) Annulment of Awards. The grant of any Award under the Plan payable in
cash is provisional until cash is paid in settlement thereof. The
grant of any Award payable in Common Stock is provisional until the
Participant becomes entitled to the certificate in settlement thereof.
In the event the employment of a Participant is terminated for cause
(as defined below), any Award which is provisional shall be annulled
as of the date of such termination for cause. For the purpose of this
Section 16(c), the term "terminated for cause" means any discharge for
violation of the policies and procedures of the Company or a
Subsidiary or for other job performance or conduct which is
detrimental to the best interests of the Company or a Subsidiary.
<PAGE>
(d) Securities Law Restrictions. No shares of Common Stock shall be issued
under the Plan unless counsel for the Company shall be satisfied that
such issuance will be in compliance with applicable Federal and state
securities laws. Certificates for shares of Common Stock delivered
under the Plan may be subject to such stock-transfer orders and other
restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Common Stock is then
listed, and any applicable Federal or state securities law. The
Committee may cause a legend or legends to be put on any such
certificates to refer to those restrictions.
(e) Award Agreement. Each Participant receiving an Award under the Plan
shall enter into an agreement with the Company in a form specified by
the Committee agreeing to the terms and conditions of the Award and
such related matters as the Committee, in its sole discretion, shall
determine.
(f) Costs of Plan. The costs and expenses of administering the Plan shall
be borne by the Company.
(g) Governing Law. The Plan and all actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of
Delaware.
(h) Effective Date. The Plan shall be effective if, and when, approved in
accordance with Section 3 hereof, subject to the provisions of Section
6(c) hereof.
<PAGE>
INCENTIVE STOCK OPTION AGREEMENT
Norwood Promotional Products, Inc.
Amended and Restated 1994 Incentive Stock Compensation Plan
[Date]
Grant of Options. Norwood Promotional Products, Inc., a Texas corporation
(the "Company") hereby grants to _________ (the "Optionee") incentive stock
options for a total of _____ shares of the Company's common stock, no par value
(the "Options"), exercisable at the price and upon the terms and conditions set
forth below, and subject to any adjustments made pursuant to Section 13 of the
Amended and Restated 1994 Incentive Stock Compensation Plan of the Company (the
"Plan"). A copy of the Plan is attached hereto as Exhibit A and is incorporated
herein by reference. In the event of any conflict between this instrument and
the Plan, the Plan shall control.
Approval of Counsel Required for Issuance of Common Stock. No shares of
Common Stock shall be issued pursuant to the exercise of the Options unless
counsel for the Company shall be satisfied that such issuance will be in
compliance with applicable federal and state securities laws.
Options Subject to Plan. The Options are granted as Incentive Stock Options
(subject to the $100,000 per calendar year limitations contained in Section 7(i)
of the Plan, as such limit may be changed by the Code) pursuant to the Plan, and
are in all respects subject to the terms, provisions, conditions and
restrictions of the Plan.
Defined Terms. Except as otherwise defined herein, capitalized terms used
in this instrument shall have the meanings ascribed to such terms in the Plan.
Date of Grant. The Options are granted as of the date above.
Exercise Price. Each Option shall have an exercise price for the related
share of Common Stock of $11.38, which is not less than the Fair Market Value of
each share of Common Stock calculated as of the date of grant in accordance with
Section 2(j) of the Plan, or, if the Optionee is a Ten Percent Shareholder, is
not less than 110% of such Fair Market Value. The exercise price is subject to
adjustment pursuant to Section 13 of the Plan.
<PAGE>
Vesting of Options. The Options shall be exercisable in installments in
accordance with the following table, except as otherwise provided in the Plan:
Date First Exercisable Number of Options
[First anniversary]
[Second anniversary]
[Third anniversary]
Total:
Option Period. Each Option may be exercised at any time between the date at
which it becomes exercisable and ten years from the Date of Grant, or five years
from the Date of Grant if Optionee is a Ten Percent Shareholder, inclusive of
such dates, except that in the event of the Optionee's death, or his or her
Disability (as defined under Section 2 of the Plan), or if the Optionee's
employment by the Company is terminated for any reason, or if there is a Change
in Control of the Company, then the provisions of Sections 11(a), 11(b), 11(c)
and 14 of the Plan, respectively, shall govern the option period.
Method of Exercise. The Options are exercisable in accordance with the
procedures, but subject to all conditions and restrictions, set forth in the
Plan.
Limitation on Exercise. The aggregate Fair Market Value (determined as of
the date first set forth above) of the number of shares of Common Stock with
respect to which Options are exercisable for the first time by the Optionee
during any calendar year as "Incentive Stock Options" under Section 422 of the
Code shall not exceed $100,000, or such other limit as may be required by the
Code.
Transferability. The Options are not assignable or transferable except by
will or the laws of descent or distribution.
NORWOOD PROMOTIONAL PRODUCTS, INC.
By:___________________________________
Robert P. Whitesell, President
<PAGE>
The Optionee acknowledges receipt of a copy of the Plan, represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts the
Options evidenced hereby subject to all the terms, provisions, conditions and
restrictions of the Plan.
______________________________
Name:
<PAGE>
EXHIBIT 10.24 (b)
CONDITIONAL AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
<PAGE>
CONDITIONAL AMENDMENT
TO
AMENDED AND RESTATED CREDIT AGREEMENT
This Conditional Amendment to Amended and Restated Credit Agreement (this
"Amendment") is entered into as of October 17, 1995, among (a) NORWOOD
PROMOTIONAL PRODUCTS, INC., a Texas corporation ("Norwood"), (b) THE FROST
NATIONAL BANK, individually, as the Issuing Bank and as the Agent, and (c) the
other financial institutions that are a party to the Amended and Restated Credit
Agreement described below (each a "Bank" and collectively the "Banks").
Recitals
A. Norwood, the Agent, the Issuing Bank and the other Banks have
heretofore entered into the Amended and Restated Credit Agreement
dated as of July 26, 1995 (as amended, modified, restated and
supplemented from time to time, the "Credit Agreement").
B. Norwood is in the process of effecting a public offering of its common
stock to raise in excess of $28 million in estimated net offering
proceeds, all of which proceeds will be used to repay immediately
certain outstanding Loans (as defined in the Credit Agreement),
including $11.5 million of $21.5 in outstanding Term Loans (as defined
in the Credit Agreement).
C. After giving effect to such offering and the repayment of outstanding
Loans as provided above, Norwood desires to have the ability to
reborrow up to $11.5 in Terms Loans during a limited availability
period and subject to the satisfaction of certain conditions
precedent.
D. Without this Amendment, the provisions of the Credit Agreement would
require that Norwood use the above described net offering proceeds to
repay all outstanding Term Loans and Norwood would not be permitted to
reborrow any Term Loans.
E. The parties desire to enter into this Amendment to reflect certain
conditional amendments to the Credit Agreement to address the
foregoing and related issues as hereinafter set forth.
Agreements
In consideration of the foregoing premises, the mutual agreements contained
herein and other good and valuable consideration and reasonably equivalent
value, the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
1. Definitions. Unless otherwise defined herein, terms defined in the
Credit Agreement and used herein shall have the respective meanings
set forth in the Credit Agreement.
2. Conditions Precedent. The amendments set forth in Sections 3 and 9
below (the "Amendments) shall be effective if, and only if, all of the
following conditions precedent are satisfied on or before December 31,
1995:
<PAGE>
(a) Norwood shall complete the public offering of its common stock
substantially in accordance with the terms set forth in the
Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on or about October 17, 1995; and
(b) Norwood shall receive at least $20 million in cash net offering
proceeds from such offering; and
(c) Norwood and each of its Subsidiaries shall deliver to the Agent,
in form and substance satisfactory to the Agent, the certificates
and documents described on Annex A.
If such conditions precedent are satisfied on or before December 31, 1995, the
Amendments shall automatically become effective on the date on which all of such
conditions precedent are satisfied. If any such conditions precedent are not
satisfied on or before December 31, 1995, the Amendments shall be null and void
and without further force or effect.
3. Amendments. If, and only if, all of the conditions precedent set forth
in Section 2 above are satisfied on or before December 31, 1995, the
Credit Agreement shall be amended as follows:
(a) The following definitions are added to Annex B attached to the
Credit Agreement and are hereby made a part of the Credit
Agreement, as amended hereby:
"Term Loan Availability Period" means the period from and
including the Prepayment Date to but not including the Term Commitment
Termination Date.
"Term Commitment Termination Date" means the earlier of (i)
October 15, 1996 and (ii) the date upon which the Term Commitments of
all Banks have been terminated pursuant to the terms of this
Agreement.
"Prepayment Date" means the date on which, as required under
Section 2.8, Norwood prepays certain outstanding Loans, including
$11,500,000 principal amount of Term Loans, with the Net Cash Proceeds
received by Norwood from its public offering of common stock
substantially in accordance with the terms set forth in the
Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on or about October 17, 1995.
<PAGE>
(b) Section 2.1(a) of the Credit Agreement is hereby amended to read
in its entirety as follows:
"(a) Term Loans As part of the initial Credit Event hereunder,
each Bank severally agrees to make Term Loans (each, a "Term Loan") to
Norwood, on and subject to the terms and conditions set forth in this
Agreement, up to an aggregate principal amount not exceeding such
Bank's Term Commitment. After the Prepayment Date, and from time to
time during the Term Availability Period, each Bank severally agrees
to make Term Loans to Norwood, on and subject to the terms and
conditions set forth in this Agreement, up to an aggregate principal
amount of Term Loans equal to the product of (i) a fraction, the
numerator of which is such Bank's Term Commitment and the denominator
of which is equal to the sum of the Term Commitments of all Banks, and
(ii) $11,500,000. The total amount of the Term Loans that were
borrowed as part of the initial Credit Event hereunder and are not
repaid on the Prepayment Date may not be reborrowed. Term Loans that
are prepaid on the Prepayment Date may be reborrowed during the Term
Availability Period; provided, however, any such Term Loans that are
subsequently repaid or prepaid may not be reborrowed. Subject to the
terms and conditions set forth in this Agreement, Term Loans may be
prepaid at any time without premium or penalty."
(c) The definition of "Qualified Offering" set forth in Annex B
attached to the Credit Agreement is hereby amended to read in its
entirety as follows:
"Qualified Offering" shall mean any issuance or sale by Norwood
of shares of its common stock, preferred stock or any other class or
series of capital stock in a public or private sale, excluding,
however, the issuance or sale of Norwood's common stock pursuant to
(i) restricted and other stock grants, stock options and warrants
issued by Norwood to officers, directors, employees and consultants of
the Companies as part of their compensation agreements, programs and
plans, and (ii) convertible notes or other securities issued as part
of the consideration for (and which are approved by the Banks as part
of) Acquisitions permitted under the terms of this Agreement or the
Original Credit Agreement.
(d) Section 2.8(b) of the Credit Agreement is hereby amended to read
in its entirety as follows:
"(b) In the event that Norwood completes one or more Qualified
Offerings, as to each Qualified Offering, Norwood shall prepay the
unpaid principal amount of the Loans plus all accrued unpaid interest
thereon in an amount equal to all Net Cash Proceeds (or such lesser
amount necessary to prepay the unpaid principal and accrued unpaid
interest of then outstanding Loans) received by Norwood as a result of
such Qualified Offering; provided, however, with respect to the
offering of common stock substantially in accordance with the terms
set forth in the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on or about October 17, 1995, (i)
Norwood shall not be required to prepay more than $11,500,000 in
principal amount of Term Loans pursuant to this Section 2.8(b) and
(ii) Norwood shall not be required to prepay the outstanding balance
of Acquisition Loans below a principal amount of $2,500,000 in
Acquisition Loans pursuant to this Section 2.8(b). The amount of each
such prepayment shall be applied to prepay the principal and accrued
unpaid interest of the Loans in the following order: first, the unpaid
principal amount of Term Loans (in the inverse order of maturity) plus
all accrued unpaid interest thereon; second, the unpaid principal
amount of Acquisition Loans (in the inverse order of maturity) plus
accrued unpaid interest thereon; third, the unpaid principal amount of
Revolving Loans plus accrued unpaid interest thereon. Any prepayment
under this Section 2.8(b) shall be due and payable on the first
Business Day following the Business Day on which the Net Cash Proceeds
are received by Norwood. As soon as reasonably possible, Norwood shall
furnish to the Agent a copy of all documents, instruments, agreements
and certificates executed and delivered to the underwriters or to the
Securities and Exchange Commission in connection with each such
Qualified Offering."
<PAGE>
(e) Section 2.6(a) of the Credit Agreement is hereby amended to read
in its entirety as follows:
"(a) Norwood shall pay to the Agent, for the ratable account of
the Banks, the following fees: (i) the Applicable Commitment Fee per
annum on the total unused portion of the Revolving Commitments of all
Banks during the Revolving Availability Period, (ii) the Applicable
Commitment Fee per annum on the total unused portion of the
Acquisition Commitments of all Banks during the Acquisition
Availability Period, and (iii) the Applicable Commitment Fee per annum
on the total unused portion of the Term Commitments of all Banks
during the Term Availability Period. As such fees are attributable to
the Revolving Commitments, such fees shall be payable quarterly in
arrears on each Quarterly Date during the Revolving Availability
Period and on the Revolving Commitment Termination Date. As such fees
are attributable to the Acquisition Commitments, such fees shall be
payable quarterly in arrears on each Quarterly Date during the
Acquisition Availability Period and on the Acquisition Commitment
Termination Date. As such fees are attributable to the Term
Commitments, such fees shall be payable quarterly in arrears on each
Quarterly Date during the Term Availability Period and on the Term
Commitment Termination Date."
(f) The first sentence of Section 2.17 of the Credit Agreement is
replaced with the following sentence: "The proceeds of Term Loans
shall be used solely to (i) refinance the unpaid principal amount
of term loans under the Original Credit Agreement or (ii) to
finance, in whole or in part (whether directly or indirectly
through intercompany advances by Norwood evidenced by the
Subsidiary Notes in accordance with Section 5.17), Acquisitions
permitted under this Agreement."
(g) Section 7.1(j) of the Credit Agreement is hereby amended to read
in its entirety as follows:
"(j) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended)
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) of securities of Norwood
representing 35% or more of the combined voting power of Norwood's
then outstanding securities normally entitled to vote in elections of
directors; or"
4. In order to induce the Agent and the Banks to enter into this
Amendment, Norwood and each Subsidiary of Norwood hereby represents
and warrants to the Agent and the Banks that, as of the date of this
Amendment, (a) the representations and warranties set forth in the
Credit Agreement and each other Loan Document to which it is a party
are true and correct as if made on and as of the date hereof (other
than those representations and warranties expressly limited by their
terms to a specific date), (b) no Default or Event of Default has
occurred and is continuing, and (c) no event has occurred since the
date of the most recent financial statements delivered pursuant to
Section 5.1 of the Credit Agreement that has caused a Material Adverse
Effect.
5. Norwood hereby acknowledges and agrees that no facts events, status or
conditions presently exist which, either now or with the passage of
time or the giving of notice or both, presently constitute or will
constitute a basis for any claim or cause of action against any of the
Banks, or any defense to the payment of any of the indebtedness
evidenced or to be evidenced by any of the Loan Documents.
<PAGE>
6. Each Subsidiary of Norwood covenants and agrees that, as to the
Subsidiary Guaranty Agreement executed and delivered by such
Subsidiary in favor of the Banks as part of the Security Documents,
(a) such Subsidiary Guaranty Agreement is an unconditional guarantee
of payment and performance and not of collection, (b) such Subsidiary
Guaranty Agreement represents the primary, absolute and unconditional
obligation of such Subsidiary, and (c) such Subsidiary Guaranty
Agreement is a continuing guarantee and shall remain in full force and
effect until the termination of the obligations of the Banks to make
Loans or issue Letters of Credit and the indefeasible payment in full
of the Obligations (as defined in each such Subsidiary Guaranty
Agreement).
7. As to each Security Document executed in favor of the Banks, Norwood
and each Subsidiary of Norwood hereby ratifies and confirms the liens
and security interests of the Banks in and to all collateral covered
by each such Security Document to which it is a party as security for
the prompt and full payment and performance of the obligations secured
by each such Security Document. In furtherance of the foregoing, all
liens and security interests of each such Security Document (which are
hereby acknowledged to be valid and subsisting) are hereby carried
forward, continued, extended, modified and renewed to secure the
prompt and full payment and performance of the obligations secured by
each such Security Document.
8. As to each Security Document executed in favor of Norwood or Norcorp
and collaterally assigned, ultimately, in favor of the Banks, Norwood
and each Subsidiary of Norwood hereby ratifies and confirms the liens
and security interests of the Banks, as collateral assignees, in and
to all collateral covered by each such Security Document to which it
is a party as security for the prompt and full payment and performance
of the obligations secured by each such Security Document. In
furtherance of the foregoing, all liens and security interests of each
such Security Document (which are hereby acknowledged to be valid and
subsisting) are hereby carried forward, continued, extended, modified
and renewed to secure the prompt and full payment and performance of
the obligations secured by each such Security Document.
9. Each Loan Document is hereby amended and modified to the extent
necessary to give full force and effect to the terms of this
Amendment, and each such Loan Document shall hereafter be construed
and interpreted after giving full force and effect to the terms of
this Amendment. As amended, modified and supplemented pursuant to this
Amendment, Norwood and each Subsidiary of Norwood hereby ratifies,
confirms and restates each Loan Document to which it is a party and
agrees that each such Loan Document shall continue in full force and
effect. Each of the Loan Documents now or hereafter executed and
delivered pursuant to the terms hereof or pursuant to the terms of the
Credit Agreement, as amended hereby, or as further evidence of or
security for or in connection with the Credit Agreement, as amended
hereby, are hereby amended to the extent necessary so that any
reference in any such documents, instruments or agreements to the
Credit Agreement shall be a reference to the Credit Agreement, as
amended hereby.
10. This Amendment may be executed in a number of identical counterparts,
each of which shall be deemed an original for all purposes and all of
which constitute, collectively, one Amendment.
11. In the event that any one or more of the provisions contained in this
Amendment shall be determined invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of
any such provision or provisions in every other respect and the
remaining provisions of this Amendment shall not be impaired in any
way.
<PAGE>
12. When required or implied by the context used, defined terms used
herein shall include the plural as well as the singular, and vice
versa.
13. This Amendment shall be governed by and construed in accordance with
the internal laws of the State of Texas and applicable federal laws of
the United States of America. This Amendment has been entered into in
Bexar County, Texas and shall be performable for all purposes in Bexar
County, Texas. The courts within the State of Texas shall have
jurisdiction over any and all disputes arising under or pertaining to
this Amendment; and any such dispute shall be heard in the county or
judicial district of the principal place of business of The Frost
National Bank.
14. This Amendment shall be binding upon and inure to the benefit of all
parties hereto and their respective successors and assigns; provided,
however, that neither Norwood nor any of its Subsidiaries nor any of
their respective successors or assigns may, without the prior written
consent of all of the Banks, assign any rights, powers, duties or
obligations hereunder.
15. This Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which when
so executed shall be deemed to be an original and all of which when
taken together shall constitute but one and the same instrument.
16. This Amendment constitutes a Loan Document.
17. Upon execution of this Agreement by the Banks, Norwood shall pay the
Agent, for the ratable account of the Banks, a non-refundable
amendment fee equal to $10,000.
[signatures on next page]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized signatories as of the day and year
first above written.
NORWOOD:
NORWOOD PROMOTIONAL PRODUCTS, INC.
By: /s/ J. Max Waits
--------------------
J. Max Waits,
Secretary, Treasurer and
Chief Financial Officer
AGENT/BANKS:
THE FROST NATIONAL BANK,
Individually, as the Agent and the Issuing Bank
By: /s/ Victor J. Harris
-------------------------
Victor J. Harris, Vice President
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS
By: /s/ Juan Cazorla
--------------------
Juan Cazorla, Assistant Vice President
BANQUE PARIBAS
By: /s/ Deanna C. Walker
------------------------
Name: Deanna C. Walker
Title: Assistant Vice President
By: /s/ Kenneth E. Moore, Jr.
-----------------------------
Name: Kenneth E. Moore, Jr.
Title: Vice President
[signatures continued on next page]
<PAGE>
SUBSIDIARIES:
NORCORP, INC.
By: /s/ J. Max Waits
--------------------
J. Max Waits, Secretary, Treasurer
and Chief Financial Officer
RADIO CAP COMPANY, INC.
By: /s/ J. Max Waits
--------------------
J. Max Waits, Secretary
BARLOW PROMOTIONAL PRODUCTS, INC.
By: /s/ J. Max Waits
--------------------
J. Max Waits, Secretary
KEY INDUSTRIES, INC.
By: /s/ J. Max Waits
--------------------
J. Max Waits, Secretary
ARTMOLD PRODUCTS CORPORATION
By: /s/ J. Max Waits
--------------------
J. Max Waits, Secretary
AIR-TEX CORPORATION
By: /s/ J. Max Waits
--------------------
J. Max Waits, Secretary
<PAGE>
ANNEX A
1. Norwood and each of its Subsidiaries shall have provided to the Agent a
certificate signed by the secretary of such corporation, which secretary's
office and signature shall be confirmed by another officer of such corporation,
dated as of the effective date of the Amendments attaching thereto or containing
therein, and certifying as to the following: (i) corporate resolutions, as in
effect and neither revoked nor rescinded, duly adopted by the board of directors
of such corporation authorizing the execution, delivery and performance of this
Amendment and all other documents, instruments and agreements in connection
therewith (the "Amendment Documents") to which it is or will be a party, and the
transactions contemplated thereby; (ii) true and correct copies of the charter,
bylaws and other internal governance documents, as amended and in effect, of
such corporation; and (iii) names, incumbency and specimen signatures of the
officers of such corporation authorized to execute and deliver the Amendment
Documents to which such corporation is a party.
2. Norwood and each of its Subsidiaries shall provide to the Agent
certificates as to incorporation, existence and good standing for such
corporation issued by the secretary of state (and/or other appropriate official)
of the state of incorporation of such corporation and certificates of foreign
qualification and good standing (or other similar instruments) for such
corporation, issued by the secretary of state (and/or other appropriate
official) of each of the states wherein such corporation is or should be
qualified to do business as a foreign corporation, each of the foregoing
certificates being dated within 10 days prior to the effectiveness of the
Amendments.
3. Norwood and each of its Subsidiaries shall provide to the Agent a copy
of the certificate or articles of incorporation of each such corporation and all
amendments thereto, certified by the secretary of state of the state of
incorporation of such corporation as being true, correct and complete as of date
within 10 days prior to the effectiveness of the Amendments.
4. All other documents requested by the Agent in connection with the
Amendments.
<PAGE>
EXHIBIT 11.1
Computation of Earnings Per Share
(Unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
September 3, September 2, August 31,
1994 1995 1996
------------- --------------- -------------
Primary:
Weighted average common shares outstanding 3,539 3,540 4,899
Weighted average equivalent shares outstanding 37 96 191
-------- -------- --------
TOTAL 3,576 3,636 5,090
======== ======== ========
Net Income $ 3,329 $ 4,032 $ 4,155
Per share amount $ 0.93 $ 1.11 $ 0.82
Fully diluted:
Weighted average common shares outstanding 3,539 3,540 4,899
Weighted average equivalent shares outstanding 37 128 191
-------- -------- --------
TOTAL 3,576 3,668 5,090
======== ======== ========
Net Income $ 3,329 $ 4,032 $ 4,155
Per share amount $ 0.93 $ 1.10 $ 0.82
</TABLE>
<PAGE>
EXHIBIT 24.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
<PAGE>
(e) Payment of Awards. A Participant shall be entitled to receive payment
for a Restricted Unit Grant (or portion thereof) in an amount equal to
the aggregate Fair Market Value of the units covered by the Award upon
the expiration of the applicable Restriction Period. Payment in
settlement of a Restricted Unit Grant shall be made as soon as
practicable following the conclusion of the respective Restriction
Period (i) in cash, by certified or cashier's check or by money order,
(ii) in shares of Common Stock equal to the number of units granted
under the Restricted Unit Grant with respect to which such payment is
made, (iii) in the form of a Deferred Compensation Stock Option, or
(iv) in any combination of the above, as the Committee shall
determine, subject, however, to any applicable Window Period
requirement imposed by the Committee with respect to Restricted Unit
Grants settled in whole or in part in cash. The Committee may elect to
make this determination either at the time the Award is granted, or
with respect to payments contemplated in clause (i) and (ii) above, at
the time the Award is settled.
(f) Rights as a Shareholder. A Participant shall have, with respect to the
shares of Common Stock received under a Restricted Stock Grant, all of
the rights of a shareholder of the Company, including the right to
vote the shares, and the right to receive any cash dividends. Stock
dividends issued with respect to the shares covered by a Restricted
Stock Grant shall be treated as additional shares under the Restricted
Stock Grant and shall be subject to the same restrictions and other
terms and conditions that apply to shares under the Restricted Stock
Grant with respect to which the dividends are issued.
10. PERFORMANCE BONUS AWARDS.
Performance Bonus Awards granted under the Plan may be in the form of cash
or shares of Common Stock, or a combination thereof. Performance Bonus Awards
shall contain such terms and conditions, not inconsistent with the express
provisions of the Plan, as the Committee shall deem desirable. Performance Bonus
Awards may be granted under the Plan in such form as the Committee may from time
to time approve. Subject to the terms of the Plan, the Committee shall determine
the Performance Bonus Awards to be granted to a Participant for any given
calendar year, and the Committee may impose different terms and conditions on
any particular Performance Bonus Award made to any Participant including, but
not limited to, restrictions on the sale, assignment and transfer of Common
Stock covered by a Performance Bonus Award.
11. TERMINATION OF EMPLOYMENT.
The terms and conditions under which an Award may be exercised after a
Participant's termination of employment shall be determined by the Committee,
except as otherwise provided herein. The conditions under which such
post-termination exercises shall be permitted with respect to Incentive Stock
Options shall be determined in accordance with the provisions of Section 422 of
the Code and as otherwise provided in Section 7 above.
(a) Termination by Death. Subject to Section 7(k), if a Participant's
employment by the Company or any Subsidiary terminates by reason of
the Participant's death or if the Participant's death occurs within
three months after the termination of his or her employment, any Award
held by such Participant may thereafter be exercised, to the extent
such Award otherwise was then exercisable by the Participant, by the
legal representative of the Participant's estate or by any person who
acquired the Award by will or the laws of descent and distribution,
for a period of one year from the Participant's termination of
employment (as contemplated in this Section 11(a)) or until the
expiration of the stated term of the Award, whichever period is the
shorter. Any right of exercise under a nonvested Award held by a
Participant at the time of his or her death is extinguished and
terminated.
(b) Termination by Reason of Disability. Subject to Section 7(k), if a
Participant's employment by the Company or Subsidiary terminates by
reason of Disability, any Award held by such Participant may
thereafter be exercised by the Participant, to the extent such Award
otherwise was then exercisable by the Participant, for a period of one
year from the date of such termination of employment or until the
expiration of the stated term of such Award, whichever period is the
shorter; provided, however, that if the Participant dies within such
one-year period, any unexercised Award held by such Participant shall
thereafter be exercisable to the extent to which it was exercisable at
the time of such death or until the expiration of the stated term of
such Award, whichever period is shorter. Any right of exercise under a
nonvested Award held by the Participant at the time of his or her
termination by reason of Disability is terminated and extinguished.
<PAGE>
(c) Other Termination. Subject to Section 7(k), if a Participant's
employment by the Company or any Subsidiary is terminated for any
reason, any Award held by the Participant at the time of his or her
termination shall be exercisable, to the extent otherwise then
exercisable, for the lesser of three months from the date of such
termination or the balance of the term of the Award, and any right of
exercise under any nonvested Award held by a Participant at the time
of his or her termination is terminated and extinguished; provided,
however, that upon termination of employment, if the Participant
continues to serve, or commences serving, as a director of the
Company, then in such event any Awards may continue to be held by the
Participant under the original terms thereof, with any Incentive Stock
Options held by such Participant to henceforth be treated as
Nonqualified Stock Options.
12. NON-TRANSFERABILITY OF AWARDS.
No Award under the Plan, and no rights or interest therein, shall be
assignable or transferable by a Participant except by will or the laws of
descent and distribution, after which assignment Section 11(a) hereof shall
apply to exercise of the Award by the assignee. During the lifetime of a
Participant, Awards are exercisable only by, and payments in settlement of
Awards will be payable only to, the Participant or his or her legal
representative.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, ETC.
(a) The existence of the Plan and the Awards granted hereunder shall not
affect or restrict in any way the right or power of the Board or the
shareholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's
capital structure or its business, any merger or consolidation of the
Company, any issue of bonds, debentures, preferred or prior preference
stocks ahead of or affecting the Company's Common Stock or the rights
thereof, the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other
corporate act or proceeding.
(b) In the event of any change in capitalization affecting the Common
Stock of the Company, such as a stock dividend, stock split,
recapitalization, merger, consolidation, split-up, combination,
exchange of shares, other form of reorganization, or any other change
affecting the Common Stock, the Board, in its discretion, may make
proportionate adjustments it deems appropriate to reflect such change
with respect to (i) the maximum number of shares of Common Stock which
may be sold or awarded to any Participant, (ii) the number of shares
of Common Stock covered by each outstanding Award, and (iii) the price
per share in respect of the outstanding Awards. Notwithstanding the
foregoing, the Board may only increase the aggregate number of shares
of Common Stock for which Awards may be granted under the Plan solely
to reflect the change, if any, of the capitalization of the Company or
a Subsidiary.
(c) The Committee may also make such adjustments in the number of shares
covered by, and the price or other value of any outstanding Awards in
the event of a spin-off or other distribution (other than normal cash
dividends) of Company assets to shareholders.
14. CHANGE OF CONTROL.
(a) In the event of a Change of Control (as defined in Paragraph (b)
below) of the Company, and except as the Board may expressly provide
otherwise in resolutions adopted prior to the Change of Control:
(i) all Stock Options or Stock Appreciation Rights then outstanding
shall become fully exercisable as of the date of the Change of
Control; and
(ii) all restrictions and conditions of all Restricted Stock Grants
and Restricted Unit Grants then outstanding shall be deemed
satisfied as of the date of the Change of Control;
subject to the limitation that any Award which has been outstanding less than
one year on the date of the Change of Control shall not be afforded such
treatment.
<PAGE>
(b) A "Change of Control" shall be deemed to have occurred upon the
occurrence of any one (or more) of the following events, other than a
transaction with another person controlled by the Company or its
officers or directors, or a benefit plan or trust established by the
Company for its employees:
(i) Any person, including a group as defined in Section 13(d)(3) of
the Exchange Act, becomes the beneficial owner of shares of the
Company with respect to which 40% or more of the total number of
votes for the election of the Board may be cast;
(ii) As a result of, or in connection with, any cash tender offer,
exchange offer, merger or other business combination, sale of
assets or contested election, or combination of the above,
persons who were directors of the Company immediately prior to
such event shall cease to constitute a majority of the Board;
(iii)The stockholders of the Company shall approve an agreement
providing either for a transaction in which the Company will
cease to be an independent publicly owned corporation or for a
sale or other disposition of all or substantially all the assets
of the Company; or
(iv) A tender offer or exchange offer is made for shares of the
Company's Common Stock (other than one made by the Company), and
40% of the Company's outstanding shares of Common Stock is
acquired thereunder ("Offer"). However, the acceleration of the
exercisability of outstanding Awards upon the occurrence of an
Offer shall be within the discretion of the Board.
15. AMENDMENT AND TERMINATION.
(a) Amendments Without Shareholder Approval. Except as set forth in
Sections 15(b) and 15(c) below, the Board may, without further
approval of the shareholders, at any time amend, alter, discontinue or
terminate this Plan, in such respects as the Board may deem advisable.
(b) Amendments Requiring Shareholder Approval. Except as set forth in
Section 15(c) below, to comply with the restrictions set forth in Rule
16b-3 promulgated under the Exchange Act, as amended and in effect
from time to time (or any successor rule) and to comply with the Code
and accompanying regulations, but subject to changes in law or other
legal requirements (including any change in the provisions of Rule
16b-3 and the Code and accompanying Regulations that would permit
otherwise), the Board must obtain approval of the shareholders to make
any amendment that would increase the aggregate number of shares of
Common Stock that may be issued under the Plan (except for adjustments
pursuant to Section 13 of the Plan).
(c) Prohibited Amendments. Notwithstanding Sections 15(a) and 15(b), under
no circumstances may the Board or Committee (i) amend, alter,
discontinue or terminate the requirements set forth in Sections 7(b),
7(c), 7(i) and 7(k) with respect to Incentive Stock Options unless
(a) such modifications are made to comply with changes in the tax
laws, or (b) the Plan is completely terminated, or (ii) make any
amendment, alteration or modification to the Plan that would impair
the vested rights of a Participant under any Award theretofore granted
under this Plan.
16. MISCELLANEOUS MATTERS.
(a) Tax Withholding. In addition to the authority set forth in Section
7(g) above, the Company shall have the right to deduct from a
Participant's wages or from any settlement, including the delivery of
shares, made under the Plan any federal, state, or local taxes of any
kind required by law to be withheld with respect to such payments, or
to take such other action as may be necessary in the opinion of the
Company to satisfy all obligations for the payment of such taxes.
(b) No Right to Employment. Neither the adoption of the Plan nor the
granting of any Award shall confer upon any Participant any right to
continue employment with the Company or any Subsidiary, as the case
may be, nor shall it interfere in any way with the right of the
Company or a Subsidiary to terminate the employment of any Participant
at any time, with or without cause.
(c) Annulment of Awards. The grant of any Award under the Plan payable in
cash is provisional until cash is paid in settlement thereof. The
grant of any Award payable in Common Stock is provisional until the
Participant becomes entitled to the certificate in settlement thereof.
In the event the employment of a Participant is terminated for cause
(as defined below), any Award which is provisional shall be annulled
as of the date of such termination for cause. For the purpose of this
Section 16(c), the term "terminated for cause" means any discharge for
violation of the policies and procedures of the Company or a
Subsidiary or for other job performance or conduct which is
detrimental to the best interests of the Company or a Subsidiary.
<PAGE>
(d) Securities Law Restrictions. No shares of Common Stock shall be issued
under the Plan unless counsel for the Company shall be satisfied that
such issuance will be in compliance with applicable Federal and state
securities laws. Certificates for shares of Common Stock delivered
under the Plan may be subject to such stock-transfer orders and other
restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Common Stock is then
listed, and any applicable Federal or state securities law. The
Committee may cause a legend or legends to be put on any such
certificates to refer to those restrictions.
(e) Award Agreement. Each Participant receiving an Award under the Plan
shall enter into an agreement with the Company in a form specified by
the Committee agreeing to the terms and conditions of the Award and
such related matters as the Committee, in its sole discretion, shall
determine.
(f) Costs of Plan. The costs and expenses of administering the Plan shall
be borne by the Company.
(g) Governing Law. The Plan and all actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of
Delaware.
(h) Effective Date. The Plan shall be effective if, and when, approved in
accordance with Section 3 hereof, subject to the provisions of Section
6(c) hereof.
<PAGE>
INCENTIVE STOCK OPTION AGREEMENT
Norwood Promotional Products, Inc.
Amended and Restated 1994 Incentive Stock Compensation Plan
[Date]
Grant of Options. Norwood Promotional Products, Inc., a Texas corporation
(the "Company") hereby grants to _________ (the "Optionee") incentive stock
options for a total of _____ shares of the Company's common stock, no par value
(the "Options"), exercisable at the price and upon the terms and conditions set
forth below, and subject to any adjustments made pursuant to Section 13 of the
Amended and Restated 1994 Incentive Stock Compensation Plan of the Company (the
"Plan"). A copy of the Plan is attached hereto as Exhibit A and is incorporated
herein by reference. In the event of any conflict between this instrument and
the Plan, the Plan shall control.
Approval of Counsel Required for Issuance of Common Stock. No shares of
Common Stock shall be issued pursuant to the exercise of the Options unless
counsel for the Company shall be satisfied that such issuance will be in
compliance with applicable federal and state securities laws.
Options Subject to Plan. The Options are granted as Incentive Stock Options
(subject to the $100,000 per calendar year limitations contained in Section 7(i)
of the Plan, as such limit may be changed by the Code) pursuant to the Plan, and
are in all respects subject to the terms, provisions, conditions and
restrictions of the Plan.
Defined Terms. Except as otherwise defined herein, capitalized terms used
in this instrument shall have the meanings ascribed to such terms in the Plan.
Date of Grant. The Options are granted as of the date above.
Exercise Price. Each Option shall have an exercise price for the related
share of Common Stock of $11.38, which is not less than the Fair Market Value of
each share of Common Stock calculated as of the date of grant in accordance with
Section 2(j) of the Plan, or, if the Optionee is a Ten Percent Shareholder, is
not less than 110% of such Fair Market Value. The exercise price is subject to
adjustment pursuant to Section 13 of the Plan.
<PAGE>
Vesting of Options. The Options shall be exercisable in installments in
accordance with the following table, except as otherwise provided in the Plan:
Date First Exercisable Number of Options
[First anniversary]
[Second anniversary]
[Third anniversary]
Total:
Option Period. Each Option may be exercised at any time between the date at
which it becomes exercisable and ten years from the Date of Grant, or five years
from the Date of Grant if Optionee is a Ten Percent Shareholder, inclusive of
such dates, except that in the event of the Optionee's death, or his or her
Disability (as defined under Section 2 of the Plan), or if the Optionee's
employment by the Company is terminated for any reason, or if there is a Change
in Control of the Company, then the provisions of Sections 11(a), 11(b), 11(c)
and 14 of the Plan, respectively, shall govern the option period.
Method of Exercise. The Options are exercisable in accordance with the
procedures, but subject to all conditions and restrictions, set forth in the
Plan.
Limitation on Exercise. The aggregate Fair Market Value (determined as of
the date first set forth above) of the number of shares of Common Stock with
respect to which Options are exercisable for the first time by the Optionee
during any calendar year as "Incentive Stock Options" under Section 422 of the
Code shall not exceed $100,000, or such other limit as may be required by the
Code.
Transferability. The Options are not assignable or transferable except by
will or the laws of descent or distribution.
NORWOOD PROMOTIONAL PRODUCTS, INC.
By:___________________________________
Robert P. Whitesell, President
<PAGE>
The Optionee acknowledges receipt of a copy of the Plan, represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts the
Options evidenced hereby subject to all the terms, provisions, conditions and
restrictions of the Plan.
______________________________
Name:
<PAGE>
EXHIBIT 10.24 (b)
CONDITIONAL AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
S-8) pertaining to the Amended and Restated 1989 Incentive Stock Option Plan
(filed on December 6, 1993), the 1993 Non-Employee Director Stock Purchase Plan,
1994 Incentive Stock Compensation Plan and the Employee Stock Purchase Plan
(filed on July 10, 1995), The Norwood Promotional Products, Inc. Employees 401K
Plan of Norwood Promotional Products, Inc. (filed on December 29,1995), and the
1993 Nonqualified Stock Option Plan (filed on July 10, 1996) of our report dated
October 10, 1996, with respect to the consolidated financial statements and
schedule of Norwood Promotional Products, Inc. included in its Annual Report
(Form 10-K) for the year ended August 31, 1996, filed with the Securities and
Exchange Commission.
ERNST & YOUNG LLP
San Antonio, Texas
November 22, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Norwood Promotional Products, Inc. for the year
ended August 31, 1996 and is qualified in its entirety by reference to such
10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-03-1995
<PERIOD-END> AUG-31-1996
<CASH> 1,861
<SECURITIES> 0
<RECEIVABLES> 22,396
<ALLOWANCES> 775
<INVENTORY> 31,823
<CURRENT-ASSETS> 58,260
<PP&E> 29,560
<DEPRECIATION> 9,975
<TOTAL-ASSETS> 121,376
<CURRENT-LIABILITIES> 23,012
<BONDS> 0
0
0
<COMMON> 51,568
<OTHER-SE> 5,812
<TOTAL-LIABILITY-AND-EQUITY> 121,376
<SALES> 151,962
<TOTAL-REVENUES> 151,962
<CGS> 106,992
<TOTAL-COSTS> 106,992
<OTHER-EXPENSES> 34,583
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,462
<INCOME-PRETAX> 6,925
<INCOME-TAX> 2,770
<INCOME-CONTINUING> 4,155
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,155
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.82
</TABLE>
