U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(MARK ONE)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
COMMISSION FILE NUMBER 0-19056
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NORTHSTAR COMPUTER FORMS, INC.
- --------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MINNESOTA 41-0882640
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(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7130 NORTHLAND CIRCLE NORTH, BROOKLYN PARK, MINNESOTA 55428
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(612) 531-7340
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.05 PER SHARE
--------------------------------------
(TITLE OF CLASS)
[Cover page 1 of 2 pages]
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act during the past
12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
----- -----
Check if there is no disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ X ]
State issuer's revenues for its most recent fiscal year:
$46,338,793
State the aggregate market value of the voting stock held by
non-affiliates of the issuer computed by reference to the price at which the
stock was sold, or the average bid and asked prices of such stock, as of a
specified date within 60 days. (SEE definition of affiliate in Rule 12b-2 of
the Exchange Act.): $15,640,324
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
2,746,858 Shares of Common Stock as of December 31, 1999
DOCUMENTS INCORPORATED BY REFERENCE:
1. Portions of the Registrant's Annual Report to Shareholders for
its fiscal year ended October 31, 1999 are incorporated by reference into
Part II of this Form 10-K.
[Cover page 2 of 2 pages]
2
PART I
ITEM 1. BUSINESS.
GENERAL
Northstar Computer Forms, Inc. (the "Company"), incorporated in
1964, designs, manufactures and markets printed forms with an emphasis on
machine readable MICR (Magnetic Ink Character Recognition) printing. The
Company's two product specialties are custom negotiable documents and
internal bank forms. Sales are principally through distributors with the
remainder to other printers or on a direct retail basis. A majority of the
retail accounts are serviced by distributor "partners" whereby the
distributor acts as a manufacturer's representative. A sales/service force
provides communication between the customer and the manufacturing facilities.
The corporate headquarters and primary manufacturing facility of
the Company are located at 7130 Northland Circle North, Brooklyn Park,
Minnesota. The Company also maintains manufacturing facilities in Roseville,
Minnesota (Northstar Financial Forms), and Milwaukee, Wisconsin (Wisconsin
Business Forms), which operate as divisions of the Company. The Company also
operates, through its wholly-owned subsidiary, General Financial Supply, Inc.
("GFS"), manufacturing facilities in the cities of Nevada, Iowa, Bridgewater,
Virginia and Golden, Colorado. As of October 31, 1999, the Company employed
approximately 500 persons at its six manufacturing facilities, and the
Company anticipates a moderate increase in personnel for the 2000 fiscal year.
The Company serves most markets where business forms are used,
although its primary targeted customers are banks and other users of MICR
forms. During the past few years, the Company has continued to shift its
emphasis towards MICR form product lines, investing over a million dollars
each year in equipment and technology to produce various kinds of MICR
business, negotiable and internal bank forms.
BUSINESS HIGHLIGHTS - 1999
- - Record sales of $46.3 million.
- - Signed three major contracts for new business with existing customers.
- - Received Seal of Excellence Award from Appleton Paper Company.
- - A distributor reached $1.0 million in sales of General Financial Supply
products.
- - Completed installation of the Star Computer System in all four internal
bank form plants. All systems were Y2K compliant.
- - Invested nearly $2.0 million in capital equipment.
- - Established an e-commerce task force and implemented an electronic catalog
in a large financial institution.
- - Introduced complete new bank forms catalog for our distributors.
3
BUSINESS FORMS
Business forms manufactured by the Company consist of unit-sets,
continuous forms and cut sheet forms.
Unit-sets, simply defined, are multiple part forms carbon
interleaved or carbonless forms whose parts can be easily separated.
Unit-sets are frequently referred to as snap apart or snap-out forms and are
used for a variety of business applications, such as invoices, purchase
orders, checks, vouchers, sales books and register forms.
Continuous forms are used for the same business applications as
unit-sets. They consist of strips of perforated sets of forms marginally
punched to facilitate high-speed feeding through electronic data processing
equipment. They are manufactured from a continuous web or roll of paper that
is not cut into separate units.
Cut sheet forms are forms produced in individual sheets or placed
together by padding or booking. Examples of cut sheets are internal bank
documents (general ledger debit/credit, cash tickets and process control
documents) and laser cut sheets (checks, statements and gift certificates).
The Company manufactures unit-sets and cut sheet forms in all of
its facilities. The Brooklyn Park, Minnesota and Milwaukee, Wisconsin plants
also produce continuous forms.
COMPANY PRODUCT SPECIALIZATION
Among the business forms which the Company produces, the Company
specializes in internal bank forms, secure and negotiable documents and
custom products. Approximately ninety percent (90%) of the forms produced by
the Company, including virtually all of the internal bank forms, are MICR
encoded. MICR encoded forms require special composition equipment and inks,
thus MICR encoding provides a value-added feature. The Company specializes in
such forms, enabling it to handle large and small volumes and create
operating efficiencies.
Internal bank forms produced by the Company are highly
specialized forms such as teller cash tickets, general ledger debit/credit
tickets, teller receipts, batch process control documents and
deposit/withdrawal forms. All of these products are MICR encoded for today's
high speed processing needs. The Company guarantees MICR readability on all
forms. Most internal bank forms products are produced on an extremely short
delivery cycle. This enables bank customers to enjoy lower costs by
alleviating the necessity to inventory products.
In addition to internal bank forms, the Company also focuses on
secure and negotiable documents, which are both MICR encoded and non-MICR
encoded. Examples of secure and negotiable MICR encoded documents are bank
official checks, business checks, gift certificates and money orders.
Examples of non-MICR encoded secure and negotiable documents are vehicle
certificates of title, gift certificates, birth certificates and death
certificates. Security features include security papers (watermark and
threads), security inks that react to ultraviolet
4
light and temperature, and security printing features, such as void
pantographs and modulus numbering.
MARKETING
All of the Company's operating units service customers nationally
through distributors on a non-exclusive basis, and directly with respect to
other printers and commercial resellers. In addition, Northstar Financial
Forms sells through distributor "partners" and, along with one of the
Company's other plants, sells directly to certain bank customers on a retail
basis. The Company believes that it has a competitive advantage over other
form manufacturers through the use of its independent distributor, printer
and reseller network, because the network enables the Company to focus on
specialized products and produce them efficiently. The Company sells to over
1,500 customers in all 50 states. In 1999, one customer, Travelers Express
Company, Inc., accounted for 16% of consolidated sales.
The Company's distribution network enables it to save the expense
of supporting a direct sales force, sales offices and certain marketing
expenses in its plants. All major competitors of the Company distribute their
products through direct sales which typically account for expenses ranging
between 10% and 20% of revenues.
RAW MATERIALS AND ENVIRONMENTAL REGULATIONS
Raw materials utilized by the Company consist principally of a
wide variety of weights, widths, colors, sizes and qualities of paper. Other
raw materials include printing ink, lithographic plate material and
chemicals. The Company has a policy of purchasing its paper supplies from
several major paper mills. In 1995, bond paper prices, the principal paper
used by the Company, increased substantially. Since that time, selected bond
paper prices have decreased and subsequently increased to the level of 1996
prices. The Company anticipates that paper prices may begin to increase in
2000. The Company believes that paper and other raw materials will be
sufficiently available for the foreseeable future.
To the best of the Company's knowledge, it complies with all
applicable federal, state and local environmental regulations governing the
discharge of materials into the environment. Compliance with applicable
environmental regulations has not had and, it is anticipated, will not have a
material adverse effect on the Company's capital expenditures, earnings or
competitive position.
COMPETITION
The forms industry is highly competitive and fragmented. The
Company has a number of competitors with substantially larger resources. The
Company believes it is the 17th largest United States business forms
manufacturer. This position enables the Company to specialize in a smaller
product line. The ability to specialize allows the Company to focus its
capital and create economies of scale through more efficient production
techniques and significantly limit the number of its direct competitors. The
Company believes that the principal competitive factors in the form industry
are specialization, service, quality and price.
5
The internal bank forms portion of the Company's market is very competitive
and especially price and service sensitive with the top 200 banks in the
country.
ITEM 2. PROPERTIES.
The Company operates manufacturing and warehousing facilities in
five states as follows:
Square Feet
of Floor Space
--------------
Location Leased Owned
-------- ------ -----
Brooklyn Park, Minnesota 94,800
Nevada, Iowa 48,500
Roseville, Minnesota 42,500
Shoreview, Minnesota 24,000
Milwaukee, Wisconsin 10,000
Bridgewater, Virginia 25,000
Golden, Colorado 23,000
------- --------
TOTAL 124,500 143,300
======= =======
The Company's general offices are located in Brooklyn Park,
Minnesota. All of the above properties are used for the production,
warehousing and shipping of forms. Production capacity fluctuates with the
ebb and flow of market demands. Equipment, substantially all of which is
owned by the Company, is added as existing machinery becomes obsolete or
irreparable, and as new equipment becomes necessary to meet market demands.
The Company may make material additions to property, plant and equipment,
with the expectation that such additions or replacements will increase a
plant's capacity and efficiency.
All of the above-discussed facilities are deemed to be in good
condition. The lease on the Bridgewater facility will expire on May 31, 2001.
The Company's Milwaukee property lease will expire on June 30, 2000 and the
Company is in the process of determining if that operation should be moved to
a larger facility. The lease of the Roseville property expires August 31,
2007. The Shoreview facility is used as warehousing space for the Roseville
facility and is leased until August 31, 2002. The Golden property lease will
expire on September 1, 2005. Management of the Company believes that each of
these facilities is adequately covered by insurance. These property locations
are expected to be adequate for operations during the
6
remaining lease terms. No difficulty is presently foreseen in renewing the
leases or finding replacement facilities.
The Brooklyn Park, Minnesota and Nevada, Iowa plants are owned
outright by the Company, which is the only company occupying these
properties. The Brooklyn Park facility is financed by Variable Rate
Industrial and Development Bonds in the amount of $2,945,000, of which
$1,675,000 was outstanding at October 31, 1999. The bonds are collateralized
by a bank letter of credit and are payable in annual $335,000 installments
through fiscal year 2004. The bank letter of credit is collateralized by a
mortgage on the facility.
ITEM 3. LEGAL PROCEEDINGS.
There are presently no material claims, legal proceedings, or
litigation pending or threatened to which the Company or GFS is a party; and no
claims, litigation or legal proceedings which are expected to have a material
adverse effect on the Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY-HOLDERS.
No matters were submitted during the fourth quarter of the Company's
1999 fiscal year to a vote of security holders, through the solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
The information required by this item is incorporated herein by
reference to page 8 of the Company's Annual Report to Shareholders for the
fiscal year ended October 31, 1999.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is incorporated herein by
reference to page 8 of the Company's Annual Report to Shareholders for the
fiscal year ended October 31, 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information required by this item is incorporated herein by
reference to pages 9-12 of the Company's Annual Report to Shareholders for the
fiscal year ended October 31, 1999.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK.
Not applicable.
7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is incorporated herein by
reference to pages 13-23 of the Company's Annual Report to Shareholders for the
fiscal year ended October 31, 1999.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The names, ages and positions of the Company's directors and executive
officers are as follows:
Name Age Position
---- --- --------
Roger T. Bredesen 73 Chairman of the Board and
Chief Executive Officer
John Mutschler 71 Director
J.S. Braun 67 Director
Roy W. Terwilliger 62 Director
Dr. Lester A Wanninger 62 Director
Kenneth E. Overstreet 58 President, Director
Mary Ann Morin 52 Treasurer and Chief Financial
Officer
Don E. Dearborn 59 Vice President (GFS)
Stanley J. Klarenbeek 46 Vice President Sales and
Marketing, Internal Bank
Forms
The following is a list of each of the above person's principal
occupations or employment during the past five years. All directors have been
elected to serve until the next annual election of directors which is
expected to occur in April of 2000 at the annual meeting of the shareholders,
or until their earlier resignation or removal pursuant to the Bylaws of the
Company. Officers are appointed by the Board of Directors to serve until the
next annual election
8
by the Board of Directors, which may be set in accordance with the Bylaws of
the Company at any time after the end of the fiscal year on October 31st of
each year, or until their earlier resignation or removal by the Board of
Directors.
ROGER T. BREDESEN. Mr. Bredesen is the founder and has been the
Chief Executive Officer and Chairman of the Board of Directors of the Company
since its incorporation in 1964.
JOHN MUTSCHLER. Mr. Mutschler has been a Director of the Company
since 1972. Mr. Mutschler is an attorney in Minnesota, and since 1958 has
been the President of John G. Mutschler & Associates, Inc., a firm which
designs and administers qualified pension and profit-sharing plans. He has
also been the President of JGM Agency, Inc., a firm engaged in the management
of real estate, since 1980.
J.S. BRAUN. Mr. Braun has been a Director of the Company since 1992.
Mr. Braun is the Chairman Emeritus of Braun Intertec Corporation, an
engineering and environmental consulting firm that he founded in 1957, and
Board member of Community Bank Group.
ROY W. TERWILLIGER. Mr. Terwilliger has been a director of the
Company since 1994. Since 1992, Mr. Terwilliger has been a Minnesota Senator
in District 42. Since 1989, Mr. Terwilliger has been President of Community
Bank Group, Inc. of Eden Prairie, Minnesota.
DR. LESTER A. WANNINGER. Dr. Wanninger has been a Director of the
Company since 1996. Since 1989, Dr. Wanninger has been a faculty member and
coordinator of extension classes in Information and Decision Sciences at the
Carlson School of Management of the University of Minnesota. Dr. Wanninger
has a Ph.D. in chemical engineering.
KENNETH E. OVERSTREET. Mr. Overstreet has been a director since
1993. Since December 1994, Mr. Overstreet has been the President of the
Company. From 1989 to 1994, he was the Executive Vice President of the
Company.
MARY ANN MORIN. Ms. Morin was elected as Chief Financial Officer of
the Company in 1996. She has been Treasurer since 1992 and Assistant
Treasurer and Controller of the Company since 1983. Ms. Morin is a certified
public accountant.
DON E. DEARBORN. Mr. Dearborn has been the general manager of GFS
since 1985, and a vice president since 1988.
STANLEY J. KLARENBEEK. Mr. Klarenbeek has been Vice President Sales
and Marketing of GFS since 1990. In December 1997, Mr. Klarenbeek was
appointed Vice President Sales and Marketing for Internal Bank Forms.
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ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION
The following table summarizes the cash and non-cash compensation
earned by the Company's Chief Executive Officer and its four other executive
officers during the past three fiscal years whose annual salary and bonus
exceeded $100,000 during the Company's fiscal year ended October 31, 1999.
SUMMARY COMPENSATION TABLE
==================================================================================================================
NAME AND FISCAL ALL OTHER
PRINCIPAL YEAR ENDED COMPENSATION
POSITION OCTOBER 31, ANNUAL COMPENSATION LONG-TERM COMPENSATION ($)(1)
- ------------------------------------------------------------------------------------------------------------------
SALARY ($) BONUS ($) AWARDS OF OPTIONS (#)
==================================================================================================================
1999 200,000 50,000 -0- 82,697(2)
------------------ ------------ ------------ --------------------------- -----------------
Roger T. Bredesen, 1998 200,000 25,000 -0- 86,987(2)
Chairman of
the Board and Chief
Executive Officer
------------------ ------------ ------------ --------------------------- -----------------
1997 200,000 50,000 -0- 87,799(2)
======================= ================== ============ ============ =========================== =================
1999 180,000 75,208 35,000 23,227(3)
------------------ ------------ ------------ --------------------------- -----------------
Kenneth E. 1998 180,000 38,924 -0- 28,429(3)
Overstreet,
President and
Director
------------------ ------------ ------------ --------------------------- -----------------
1997 160,000 64,382 -0- 20,573(3)
======================= ================== ============ ============ =========================== =================
1999 95,000 37,040 20,000 14,014
------------------ ------------ ------------ --------------------------- -----------------
Mary Ann Morin, 1998 90,000 17,060 -0- 13,853
Treasurer and Chief
Financial Officer
------------------ ------------ ------------ --------------------------- -----------------
1997 84,929 30,546 -0- 15,353
======================= ================== ============ ============ =========================== =================
1999 105,000 30,995 10,000 5,893
------------------ ------------ ------------ --------------------------- -----------------
Stanley Klarenbeek, 1998 105,000 11,766 -0- 7,171
Vice President, Sales
and Marketing
Internal Bank Forms
------------------ ------------ ------------ --------------------------- -----------------
1997 76,657 27,652 20,000 4,664
======================= ================== ============ ============ =========================== =================
1999 100,000 36,440 10,000 15,835
------------------ ------------ ------------ --------------------------- -----------------
Don E. Dearborn, Vice 1998 90,000 12,001 -0- 13,542
President (GFS)
------------------ ------------ ------------ --------------------------- -----------------
1997 78,231 33,861 -0- 20,459
======================= ================== ============ ============ =========================== =================
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(1) Other compensation includes contributions under the Company's Profit
Sharing Plan and Trust ($8,089, $8,089, $5,589, $5,893 and $6,852 in
1999 to each of Messrs./Ms. Bredesen, Overstreet, Morin, Klarenbeek and
Dearborn, respectively) and the value of deferred compensation benefits
under the Company's Deferred Compensation Plan ($8,938, $8,425 and
$8,983 in 1999 for Mr. Overstreet, Ms. Morin and Mr. Dearborn,
respectively).
(2) Also includes amounts paid as deferred compensation pursuant to an
annual deferred compensation benefit established pursuant to Mr.
Bredesen's employment agreement with the Company ($68,408 in 1999,
$67,496 in 1998 and $65,786 in 1997) and directors' fees.
(3) Also includes amounts paid as directors' fees.
STOCK OPTIONS
The following table summarizes option grants made under the Company's
1994 Employees Incentive Stock Option Plan (the "1994 Plan") during the fiscal
year ended October 31, 1999 to the executive officers named in the Summary
Compensation table:
OPTION GRANTS IN 1999 FISCAL YEAR
Individual Grants(1)
-------------------------------------------------------------------------------------------
Potential
Realizable Value of
Assumed Annual
Rates of Stock
Percentage of Price Appreciation
Number of Total Options for Option
Securities Granted to Exercise of Term(2)
Underlying Employees in Base Price Expiration ---------------------
Name Option Granted Fiscal Year ($/Share) Date 5%($) 10% ($)
- --------------------------- ------------------ ------------------ -------------- --------------- ---------------------
Kenneth Overstreet 5,000 16.6% $ 8.00 February 2009 $194,405 $554,193
5,000 $12.00 August 2009
25,000(3) $10.75 October 2009
Mary Ann Morin 5,000 9.5% $ 8.00 February 2009 $130,496 $334,702
5,000 $12.00 August 2009
10,000(4) $10.75 October 2009
Stanley Klarenbeek 5,000 4.7% $ 8.00 February 2009 $ 62,889 $163,374
5,000 $12.00 August 2009
Don E. Dearborn 5,000 4.7% $ 8.00 February 2009 $ 62,889 $163,374
5,000 $12.00 August 2009
(1) All options were granted at a price equal to the fair market value of
the Company's Common Stock on the date of grant. Except for the grants
referenced in footnotes (3) and (4) below, options become exercisable
30% on the third anniversary of the date of grant, 30% on the fourth
anniversary of the date of grant, and the remaining 40% on the fifth
anniversary of the date of grant.
(2) Amounts shown in these columns have been derived by multiplying the
exercise price by the annual appreciation rate shown (compounded for
the term of the options), multiplying the result by the number of
shares covered by the options, and subtracting the aggregate exercise
price of the options. The dollar amounts set forth under this heading
are the result of calculations at the 5% and 10% rates set by the
Securities and Exchange Commission, and therefore are not intended to
forecast possible future appreciation, if any, of the Company's stock
price.
(3) These options became exercisable as to 9,275 shares in April 2000,
9,275 shares in April 2001 and 6,450 shares in April 2002.
(4) These options became exercisable as to 7,800 shares in April 2000 and
2,200 shares in April 2001.
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The following table summarizes the value of the unexercised options
held by the executive officers named in the Summary Compensation table as of
October 31, 1999:
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- --------------------------- --------------- ----------- ----------------------------- -----------------------------
Roger T. Bredesen N/A N/A 0/0 0/0
Kenneth Overstreet N/A N/A 70,000/35,000(2) $435,700/12,900
Mary Ann Morin N/A N/A 15,300/22,700(3) $90,153/26,157
Stanley Klarenbeek N/A N/A 6,300/42,700(3) $30,933/26,157
Don E. Dearborn N/A N/A 6,300/12,700(3) $30,933/26,157
(1) Value of unexercised options is calculated by determining the
difference between the fair market value of the shares underlying the
options at October 31, 1999 and the exercise price of the options.
(2) Consists of options to purchase 10,000 shares for serving on the Board
of Directors, and 95,000 shares under the Company's Plan.
(3) Granted pursuant to the 1994 Plan.
DIRECTORS' COMPENSATION
Directors receive annual directors' fees of $3,000 plus $800 per
meeting attended (except for the Chairmen of the Compensation and Audit
Committees, who are paid $1,000 per meeting attended). In addition, directors
of the Company receive options to purchase an aggregate of 10,000 shares of
the Company's Common Stock at a purchase price equal to the closing price of
the Common Stock on the date of grant.
The options are granted on the date a director is elected to the
Board and vest and become exercisable over a five year period at the rate of
twenty percent (20%) per year commencing one year from the date of grant. Mr.
Terwilliger and Dr. Wanninger were granted their options under the Company's
Outside Directors Stock Option Plan (the "Directors Plan") which provides
formula grants of stock options to outside (non-employee) directors ("Outside
Directors"). Options granted under the Directors Plan expire at the earlier
of (i) ten years from the date of grant, or (ii) one year after the Outside
Director ceases to be a member of the Board.
In addition, on February 5, 1999, the four outside directors were
each granted an additional option to purchase 10,000 shares of Common Stock
at the average price of the Common Stock on the last trading day prior to the
date of grant.
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EMPLOYMENT AGREEMENTS
The Company entered into an Employment Agreement with Roger T.
Bredesen, its Chief Executive Officer, effective December 17, 1986, to serve
in such capacity until terminated by one of the parties upon 90 days' notice.
Mr. Bredesen's annual base salary under the Employment Agreement is adjusted
annually by the Compensation Committee of the Board of Directors (in 1999,
Mr. Bredesen's base salary was $200,000). The Employment Agreement also
establishes a ten-year deferred compensation arrangement under which Mr.
Bredesen began receiving payments in November 1996 and pursuant to which he
received $68,408 for 1999.
Effective January 1, 2000, the Company entered into new management
agreements (the "Agreements") with each of Kenneth Overstreet, Mary Ann
Morin, Don E. Dearborn and Stanley Klarenbeek (each an "Executive"), the
Company's four senior executive officers other than Roger T. Bredesen. Under
the Agreements, Mr. Overstreet is entitled to an annual base salary of
$200,000, Ms. Morin is entitled to an annual base salary of $110,000, and
Messrs. Dearborn and Klarenbeek are entitled to annual base salaries of
$112,000. In addition, each of the Executives is entitled to participate in
the Company's incentive compensation programs. Each Agreement has a term of
five years, subject to early termination in the event of the Executive's
death, disability, resignation or discharge by the Company. Upon the
Executive's discharge from employment by the Company for reasons other than
for cause (as defined in the Agreements), in the case of Mr. Overstreet and
Ms. Morin, the Company is obligated to pay the Executive a sum equal to two
times his or her average annual compensation for the five most recently
completed calendar years ending before the date of his or her termination,
and in the case of Messrs. Dearborn and Klarenbeek, one times their base
salary and bonus for the last completed calendar year prior to the date of
termination. In addition, each Executive would be entitled to the
acceleration of unvested stock options in the event of his or her discharge
from the Company. In the event of the Executives' voluntary resignation, they
will be entitled to one-times (in the case of Mr. Overstreet and Ms. Morin)
or one-half times (in the case of Messrs. Dearborn and Klarenbeek) their base
salary and bonus for the last completed calendar year prior to the date of
resignation.
In the event of a change in control of the Company (as defined in
the Agreements), the Executives will be entitled to share in a fund to be
established by the Company or its successor equal to one percent (1%) of the
change in control transaction price, payable one-half at closing of the
change in control transaction, and the remainder on the one year anniversary
of such date, provided the Executive is still employed with the Company or
its successor on such date. Each Executive's proportionate share of this
amount is calculated as the percentage by which each person's 1999 base
salary bears to all four Executives' 1999 base salary. In addition, upon an
Executive's termination from employment with the Company for any reason
(other than for cause) within the two years following a change in control,
the Executive will be entitled to certain severance payments ranging from two
times the Executive's average annual compensation for the previously
completed five calendar years to one times such average annual compensation,
depending on how long after the change in control the termination occurs.
13
The Agreements also provide that the Executives will not compete
with the Company for a period of two years after termination of employment,
will not divulge confidential information and other customary matters.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW, PHILOSOPHY AND OBJECTIVES
The Compensation Committee of the Board of Directors, composed of
three non-employee directors, is responsible for determining and periodically
evaluating various levels and methods of compensating the Company's
employees, directors and officers. The Committee recommends, on an annual
basis, the compensation to be paid to the Chief Executive Officer and each of
the other executive officers of the Company. Such recommendations are then
discussed by the Board of Directors, which is ultimately responsible for
incentive compensation. The Committee also evaluates and oversees other, more
broadly based benefit programs of the Company. The objective of the
Compensation Committee is to establish a compensation program for executive
officers that will motivate and retain management, recognize and reward
individual performance, and align the financial interests of the executive
officers with the success of the Company.
EXECUTIVE OFFICER COMPENSATION
The Company's executive officer compensation, including that of the
Chief Executive Officer, consists of base salary, annual cash bonuses, long
term incentive compensation in the form of stock options and other long term
deferred compensation. Executive officers are also entitled to participate in
various benefits offered to all of the Company's employees such as profit
sharing plan contributions.
BASE SALARY. The Compensation Committee meets in December of each
year to recommend executive officer base salaries for the succeeding calendar
year. Base salary decisions are based on what the Committee believes is
reasonable in light of each executive's individual performance, the financial
results of the Company for the preceding fiscal year, compensation paid to
executive officers in prior years and compensation being paid to executive
officers of companies similar (in terms of size, type of business, etc.) to
the Company.
ANNUAL CASH BONUS. In addition to base compensation, the Committee
reviews an annual bonus pool pursuant to a formula (previously adopted by the
Board) based on return on shareholders' equity. For 1999, the pool consisted
of 4.625% of the Company's fiscal year net income before taxes, profit
sharing, bonus and deferred compensation up to 15% return on shareholders'
equity plus 14.5% of its net income above a 15% return on shareholders'
equity. After calculating this amount, which for fiscal 1999 was an aggregate
of $471,164, the Chief Executive Officer then divides this pool among the
executive officers and other employees over a specified seniority level
pursuant to a point system which allocates points among participants
according to their level of responsibility. The Chief Executive Officer adds
up the number of points assigned to all participants in the bonus pool and
divides that total into the amount of the
14
bonus pool yielding a bonus amount per point. For example, Kenneth E.
Overstreet was allocated 2,880 points in fiscal 1999 and the least senior
employee in the pool was allocated 130 points. All employees participating in
the bonus program were allocated a total of 18,045 points, yielding a bonus
amount per point of $26.11, which, in Mr. Overstreet's case, translated to a
bonus of $75,208. The Committee has the discretion, which it has exercised in
prior years, to adjust the aggregate amount of the bonus pool upwards or
downwards.
STOCK OPTION PLAN. The Company also grants stock options under the
shareholder-approved 1994 Employees' Incentive Stock Option Plan to executive
officers, key personnel and other employees as long term incentive
compensation. Currently, 50,752 shares of common stock are reserved for
issuance upon exercise of options granted under the Stock Option Plan (out of
a total of 500,000 shares available under the Plan). Options are granted at
prices equal to the fair market value of the Company's Common Stock on the
date of grant. The Committee encourages the use of stock options as a
component of compensation because it believes that options most closely tie
executive officer compensation to the financial performance of the Company,
as evidenced by its stock price. In fiscal 1999, the Company awarded options
to Mr. Overstreet, Ms. Morin, Mr. Klarenbeek and Mr. Dearborn, to acquire
35,000 shares, 20,000 shares, 10,000 shares, and 10,000 shares, respectively,
under the Plan.
CHIEF EXECUTIVE OFFICER COMPENSATION
Roger Bredesen is the founder of the Company and has been its Chief
Executive Officer since its inception in 1962. Mr. Bredesen's base salary for
fiscal 1999 and 1998 was $200,000. Mr. Bredesen was granted a bonus of
$50,000 in fiscal 1999, which was subjectively determined and recommended by
the Committee and not based on the annual bonus formula specified above. Mr.
Bredesen also received an aggregate of $68,408 in deferred compensation
pursuant to his employment agreement with the Company, which provides for
payments to be paid over 10 years at a rate which is subject to adjustment
annually based upon changes in the Consumer Price Index. Mr. Bredesen began
receiving these payments in November, 1996.
The Compensation Committee will continue to evaluate the Company's
executive officer compensation program to ensure that it continues to be
reasonable, performance-based and consistent with the Company's overall
compensation objectives.
SUBMITTED BY THE COMPENSATION COMMITTEE
OF THE COMPANY'S BOARD OF DIRECTORS:
John G. Mutschler, Chairman
J.S. Braun
Roy W. Terwilliger
15
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
As noted above, the Company's Compensation Committee consists of
John G. Mutschler, Chairman, J.S. Braun and Roy W. Terwilliger. No executive
officer of the Company is a member of the Compensation Committee.
No executive officer of the Company serves as a member of the
Compensation Committee or is a director of any other entity, one of whose
executive officers serves on the Compensation Committee or is a director of
the Company.
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total shareholder return on the
Company's Common Stock for the last five fiscal years with the cumulative total
return of the Dow Jones Publishing Index (consisting of a group of 12 companies)
(the "Industry Index") and the Nasdaq Stock Market (the "Nasdaq Index").
[GRAPH]
10-94 10-95 10-96 10-97 10-98 10-99
Nasdaq $100 $135 $160 $210 $235 $393
NSCF $109 $123 $133 $293 $178 $279
Dow Jones
Publishing Index $ 99 $117 $141 $187 $209 $278
Assumes $100 invested in close of trading on the last trading day preceding
the first day of the fifth preceding year in the Company's Common Stock, the
Industry Index, and the Nasdaq Index. The cumulative total return assumes the
reinvestment of dividends.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
To the knowledge of the Company, based solely upon review of Forms 3
and 4 and amendments thereto furnished to the Company during the fiscal year
ended October 31, 1999,
16
pursuant to Rule 16(a)-3(e) of the Rules and Regulations promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
forms 5 and amendments thereto furnished to the Company with respect to its
fiscal year ended October 31, 1999, no one failed to file, on a timely basis,
such filings for the Company's 1999 fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
The following table sets forth as of January 1, 2000 the number of
shares of Common Stock beneficially owned by each person known to the Company
to be the beneficial owner of more than five percent (5%) of the outstanding
shares of the Company's capital stock, by each director and by all executive
officers and directors as a group. Except as otherwise indicated, the persons
listed possess all voting and investment power with respect to the shares
listed for them.
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------- -------------------- ----------------
Roger T. Bredesen 211,698 Shares (1) 7.7%
7130 Northland Circle North
Brooklyn Park, MN 55428
Roger T. Bredesen 214,800 Shares 7.8%
Income Trust A dated
June 29, 1990
E. Burke Hinds, Trustee
150 So. 5th Street, Suite 1800
Minneapolis, MN 55402
Roger T. Bredesen 214,800 Shares 7.8%
Income Trust B dated
June 29, 1990
Clarence J. Hynes, Trustee
1433 Utica Avenue So.
Minneapolis, MN 55416
E. Fay Bredesen Income Trust 223,105 Shares 8.1%
dated June 29, 1990
Wendall J. Davidson, Trustee
11931 54th Avenue So.
Minneapolis, MN 55442
17
E. Fay Bredesen 1996 Annuity 142,065 Shares 5.2%
Trust U/A dated December 20, 1996
E. Fay Bredesen and E. Burke
Hinds, Trustees
150 So. Fifth Street, Suite 1800
Minneapolis, MN 55402
E. Burke Hinds, Trustee of 396,304 Shares (2) 14.4%
Various Bredesen Trusts
150 So. Fifth Street, Suite 1800
Minneapolis, MN 55402
John Mutschler 3,400 Shares (3) *
7130 Northland Circle North
Brooklyn Park, MN 55428
Kenneth E. Overstreet 113,216 Shares (4) 4.0%
7130 Northland Circle North
Brooklyn Park, MN 55428
J.S. Braun 13,999 Shares (5) *
7130 Northland Circle North
Brooklyn Park, MN 55428
Roy W. Terwilliger 8,000 Shares (6) *
7130 Northland Circle North
Brooklyn Park, MN 55428
Dr. Lester A. Wanninger 6,000 Shares (7) *
7130 Northland Circle North
Brooklyn Park, MN 55428
All executive officers (5)
and directors as a group
(9 individuals) 422,186 Shares (1, 3-8) 14.7%
- --------------------------------
* Represents less than 1%
(1) Includes 39,439 shares held in an annuity trust, 13,060 shares in a
revocable trust and 14,199 shares held in the Company's Profit Sharing
Plan and Trust in a segregated directed account.
(2) Represents 214,800 shares beneficially owned by the Roger T. Bredesen
Income Trust A dated June 29, 1990, 142,065 shares beneficially owned
by the E. Fay Bredesen 1996 Annuity Trust U/A dated December 20, 1996
and 39,439 shares beneficially owned by the Roger T. Bredesen 1996
Annuity Trust U/A dated December 20, 1996, as to all of which trusts
Mr. Hinds serves as trustee.
(3) Includes 900 shares owned by a profit sharing trust of which Mr.
Mutschler is a co-trustee.
(4) Includes 70,000 shares issuable upon exercise of currently exercisable
options and 3,216 shares held in
the Company's Profit Sharing Plan in a segregated directed account.
(5) Includes 10,000 shares issuable upon exercise of currently exercisable
options.
18
(6) Consists of 8,000 shares issuable under currently exercisable options.
(7) Consists of 6,000 shares issuable upon exercise of currently
exercisable options.
(8) Includes 27,900 shares issuable to three officers upon exercise of
currently exercisable options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Effective August 1997, the Company leased its Roseville, Minnesota
facility from two trusts controlled by Roger T. Bredesen and his spouse, E. Fay
Bredesen. The facility is rented at an annual rate of $191,000 (for the first
three Lease years and then escalates based on various price indices thereafter)
plus taxes, utilities, insurance, certain repair and maintenance obligations and
other operating costs for the property. The initial term of the Lease is 10
years with the Company having the right to extend the term for two additional
periods of five years each.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of the report:
1. Financial Statements:
All financial statements of the Company as set forth under Item
8 of this Report.
2. Financial Statement Schedules:
The following financial statement schedule and opinion thereon
are filed as a part of this Report:
Financial Statement Schedule II-Valuation and Qualifying
Accounts for the fiscal years ended October 31, 1999, 1998 and
1997, respectively.
19
3. Exhibits:
EXHIBIT
NUMBER TITLE METHOD OF FILING
------- ----- ----------------
3.1 Restated Articles of Incorporation (1)
of the Company, as amended
3.2 Restated and Amended Bylaws (4)
of the Company
4 Instruments defining rights of (1)
security holders
10.1 Employment Agreement of Roger (1)
Bredesen
10.6 Milwaukee, Wisconsin Lease (1)
10.6(a) Fifth and Sixth Addendums dated (3)
March 10, 1994 and December 13,
1994, respectively, to Milwaukee,
Wisconsin Lease
10.7 Bridgewater, Virginia Lease, (4)
dated March 10, 1997
10.12 1994 Employees' Incentive (2)
Stock Option Plan
10.12(a) First Amendment to 1994 Employees' (4)
Incentive Stock Option Plan
10.16 Loan Agreement between Brooklyn (3)
Park Economic Development Authority
and the Company dated August 1, 1994
10.17 Indenture of Trust between Brooklyn (3)
Park Economic Development Authority
and First Trust National Association
dated August 1, 1994
20
EXHIBIT
NUMBER TITLE METHOD OF FILING
-------- ----- ----------------
10.18 Reimbursement Agreement between First (3)
Bank National Association and the
Company dated August 1, 1994
10.19 First Bank National Association (3)
Initial Letter of Credit dated
August 25, 1994
10.20(a) Northstar Computer Forms, Inc.
Amended and Restated Outside Filed herewith
Directors Stock Option Plan
10.22 Equipment Lease Agreement effective (4)
as of July 16, 1997 between Northstar
Computer Forms, Inc. and Deluxe
Financial Services, Inc.
10.24 Lease effective August 22, 1997, by and (4)
between Northstar Computer Forms, Inc.,
as tenant, and Roger T. Bredesen and
E. Fay Bredesen as trustees under certain
revocable trusts
10.28 Lease, dated May 1, 1998, by and between (5)
Sun River Properties, Inc., and Northstar
Computer Forms, Inc., relating to the
Company's Golden, Colorado, facility
10.29 Customer Alliance Agreement, dated (5)
November 5, 1998, by and between
Northstar Computer Forms, Inc.,
and NCR Corporation
10.30 Management Agreement effective
January 1, 2000, between Northstar
Computer Forms, Inc. and Kenneth Overstreet Filed herewith
10.31 Management Agreement effective
January 1, 2000, between Northstar
Computer Forms, Inc. and Mary Ann Morin Filed herewith
21
EXHIBIT
NUMBER TITLE METHOD OF FILING
------- ----- ----------------
10.32 Management Agreement effective
January 1, 2000, between Northstar
Computer Forms, Inc. and Stan Klarenbeek Filed herewith
10.33 Management Agreement effective
January 1, 2000, between Northstar
Computer Forms, Inc. and Don Dearborn Filed herewith
10.34 Northstar Computer Forms, Inc. 401(k)
Profit Sharing Plan Trust Agreement
(1998 Restatement) Filed herewith
10.35 First Amendment of Northstar Computer
Forms, Inc. 401(k) Profit Sharing Plan
Trust Agreement (1998 Restatement) Filed herewith
10.36 MICR Forms Agreement between
Traveler's Express Company and
Northstar Computer Forms, Inc. dated
January 1, 1999 Filed herewith
10.37 Service Agreement dated October 15, 1999,
by and between USBancorp and Northstar
Computer Forms, Inc. Filed herewith
13 Portions of Annual Report to Shareholders Filed herewith
(only those portions specifically
incorporated by reference herein shall be
deemed filed with the Commission)
22 Subsidiaries of the Company (1)
23.1 Consent of PricewaterhouseCoopers LLP Filed herewith
27 1999 Fiscal Year End Financial Data Filed herewith
Schedules
99 Cautionary Statement Relating to Filed herewith
Forward-Looking Information
- ---------------------------------
(1) Exhibits so marked were filed with the Securities and Exchange
Commission on May 7, 1991, as exhibits to the Form 10 of Northstar
Computer Forms, Inc., and are incorporated herein by reference and made
a part hereof.
22
(2) Exhibits so marked were filed with the Securities and Exchange
Commission on January 25, 1994, as exhibits to the Form 10-KSB of
Northstar Computer Forms, Inc., and are incorporated herein by
reference and made a part hereof.
(3) Exhibits so marked were filed with the Securities and Exchange
Commission on January 27, 1995, as exhibits to the Form 10-KSB of
Northstar Computer Forms, Inc., and are incorporated herein by
reference and made a part hereof.
(4) Exhibits so marked were filed with the Securities and Exchange
Commission on January 29, 1998, as exhibits to the Form 10-KSB of
Northstar Computer Forms, Inc., and are incorporated herein by
reference and made a part hereof.
(5) Exhibits so marked were filed with the Securities and Exchange
Commission on January 23, 1999, as exhibits to the Form 10-K of
Northstar Computer Forms, Inc., and are incorporated herein by
reference and made a part hereof.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the
last quarter of the period covered by this report.
(d) FINANCIAL STATEMENT SCHEDULES.
(remainder of page left blank intentionally)
23
REPORT OF INDEPENDENT ACCOUNTANTS ON
Financial Statement Schedule
To the Board of Directors
Northstar Computer Forms, Inc.:
Our audits of the consolidated financial statements referred to in our report
dated December 15, 1999, appearing in the Annual Report to Shareholders of
Northstar Computer Forms, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
December 15, 1999
24
COLUMN B COLUMN C - ADDITIONS COLUMN E
Balance at Charged to Charged to Balance at
COLUMN A beginning of costs and other COLUMN D end of
Descriptions period expenses accounts Deductions period
------------ ------ -------- -------- ---------- ------
Year ended October 31, 1997
Allowance for doubtful accounts $144,000 $167,437 $ --- $17,437 $294,000
Year ended October 31, 1998
Allowance for doubtful accounts 294,000 (70,586) $ --- 85,414 138,000
Year ended October 31, 1999
Allowance for doubtful accounts 138,000 55,451 $ --- 40,451 153,000
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
NORTHSTAR COMPUTER FORMS, INC.
By: /s/ Mary Ann Morin
--------------------------------------
Mary Ann Morin, Treasurer
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Roger T. Bredesen 1/26/00
- ------------------------------------------ -------
Roger T. Bredesen, Chairman of the Board, Date
Chief Executive Officer
/s/ John Mutschler 1/26/00
- ------------------------------------------ -------
John Mutschler, Director Date
/s/ Kenneth E. Overstreet 1/26/00
- ------------------------------------------ -------
Kenneth E. Overstreet, Director, President Date
/s/ J. S. Braun 1/26/00
- ------------------------------------------ -------
J. S. Braun, Director Date
/s/ Roy W. Terwilliger 1/26/00
- ------------------------------------------ -------
Roy W. Terwilliger, Director Date
/s/ Dr. Lester A. Wanninger 1/26/00
- ------------------------------------------ -------
Dr. Lester A. Wanninger, Director Date
26
EXHIBITS
FORM 10-K