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, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
COMMISSION FILE NUMBER 0-19056
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NORTHSTAR COMPUTER FORMS, INC.
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(NAME OF 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
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(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: $41,809,938
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.):
$20,316,860.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
2,724,436 Shares of Common Stock as of December 31, 1998
DOCUMENTS INCORPORATED BY REFERENCE:
1. Portions of the Registrant's Annual Report to Shareholders for its
fiscal year ended October 31, 1998 are incorporated by reference into Part II of
this Form 10-K.
[Cover page 2 of 2 pages]
2
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Northstar Computer Forms, Inc. (the "Company"), incorporated in 1964,
designs, manufactures and markets printed forms with an emphasis on machine
readable MICR (Magnetic Ink Character Recognition) printing. The Company's two
business concentrations are custom business/negotiable forms and internal bank
forms. Sales are principally through distributors with the remainder to other
printers or on a direct retail basis. A majority of the retail accounts are
serviced by distributor "partners" whereby the distributor acts as a
manufacturer's representative. A sales/service force provides communication
between the customer and the manufacturing facilities.
The corporate headquarters and 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, 1998, the Company employed approximately
435 persons at its six manufacturing facilities, and the Company anticipates a
moderate increase in personnel for the 1999 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 - 1998
- - Formed two strategic alliances to enhance sales to the top 200 banks and to
community banks
- - Second best sales and earnings in the Company's history
- - Expanded and implemented The Star System -- Comprehensive Operations
Management Software
- - Moved Denver operation into a new 23,000 sq. ft. building to accommodate
expanded product offerings
- - Invested $2.1 million in capital equipment including Internet-based
pre-press data communications and computer-supported composition and remote
proofing
BUSINESS FORMS
Business forms manufactured by the Company consist of unit-sets, continuous
forms and cut sheet forms.
3
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 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
4
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, no
one of which is considered a major customer.
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. Because Northstar Financial Forms and one of the Company's other
plants sell to certain bank customers on a retail basis, those facilities incur
higher sales and marketing expenses. 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, paper prices have leveled off and selected
weights of bond paper prices have decreased. The Company anticipates that paper
prices may begin to increase in 1999. 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 14th 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.
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.
5
ITEM 2. DESCRIPTION OF PROPERTY
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
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TOTAL 124,500 143,300
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------- -------
The Company's general offices are located in Brooklyn Park, Minnesota. All
of the above properties are used for the production, warehousing and shipping of
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, 1999 and the Company is in the
process of determining if that operation should be moved to a larger facility.
The Golden property lease is a new facility which commenced on July 1, 1998 and
will expire September 1, 2005. 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 July 31, 1999. Management of the Company
believes that each of these facilities is adequately covered by insurance. These
property locations are expected to be adequate for operations during the
remaining lease terms. No difficulty is presently foreseen in renewing the
leases or finding replacement facilities.
6
The Brooklyn Park, Minnesota and Nevada, Iowa plants are owned outright by
the Company, which is the only company occupying these properties. The Brooklyn
Park facility is financed by Variable Rate Industrial and Development Bonds in
the amount of $2,945,000, of which $2,010,000 was outstanding at October 31,
1998. 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. The Nevada plant is also
mortgaged for the Term Loan.
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 1998
fiscal year to a vote of security holders, through the solicitation of proxies
or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated herein by reference
to page 8 of the Company's Annual Report to Shareholders for the fiscal year
ended October 31, 1998.
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, 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
The information required by this item is incorporated herein by reference
to (printed) pages 9-11 of the Company's Annual Report to Shareholders for the
fiscal year ended October 31, 1998.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by reference
to (printed) pages 12-22 of the Company's Annual Report to Shareholders for the
fiscal year ended October 31, 1998.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The names, ages and positions of the Company's directors and executive
officers are as follows:
Name Age Position
---- --- --------
Roger T. Bredesen 72 Chairman of the Board and
Chief Executive Officer
John Mutschler 70 Director
J.S. Braun 66 Director
Roy W. Terwilliger 61 Director
Dr. Lester A Wanninger 61 Director
Kenneth E. Overstreet 57 President, Director
Mary Ann Morin 51 Treasurer and Chief Financial
Officer
Don E. Dearborn 58 Vice President (GFS)
Stanley J. Klarenbeek 45 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 1999 at the annual meeting of the shareholders, or until their earlier
resignation or removal pursuant to the Bylaws of the Company. Officers are
appointed by the Board of Directors to serve until the next annual election by
the Board of Directors, which may be set in accordance with the Bylaws of the
Company at any time after the end of the fiscal year on October 31st of each
year, or until their earlier resignation or removal by the Board of Directors.
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.
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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 of Braun Intertec Corporation, an engineering and
environmental consulting firm that he founded in 1957, Board member of Community
Bank Group and Vice Chairman of a joint venture firm in China, Yucai-Braun
Intertec.
ROY W. TERWILLIGER. Mr. Terwilliger has been a director of the Company
since 1994. Since 1992, Mr. Terwilliger has been a Minnesota Senator in District
42. Since 1989, Mr. Terwilliger has been President of Community Bank Group, Inc.
of Eden Prairie, Minnesota.
DR. LESTER A. WANNINGER. Dr. Wanninger has been a Director of the Company
since 1996. Since 1989, Dr. Wanninger has been a faculty member and coordinator
of extension classes in Information and Decision Sciences at the Carlson School
of Management of the University of Minnesota. Dr. Wanninger has a Ph.D. in
chemical engineering.
KENNETH E. OVERSTREET. Mr. Overstreet has been a director since 1993. Since
December 1994, Mr. Overstreet has been the President of the Company. From 1989
to 1994, he was the Executive Vice President of the Company.
MARY ANN MORIN. Ms. Morin was elected as Chief Financial Officer of the
Company in 1996. She has been Treasurer since 1992 and Assistant Treasurer and
Controller of the Company since 1983. Ms. Morin is a certified public
accountant.
DON E. DEARBORN. Mr. Dearborn has been the general manager of GFS since
1985, and a vice president since 1988.
STANLEY J. KLARENBEEK. Mr. Klarenbeek has been Vice President Sales and
Marketing of GFS since 1990. In December 1997, Mr. Klarenbeek was appointed Vice
President Sales and Marketing for Internal Bank Forms.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table summarizes the cash and non-cash compensation paid to
or earned by the Company's Chief Executive Officer and its three other executive
officers during the past three fiscal years whose annual salary and bonus
exceeded $100,000 during the Company's fiscal year ended October 31, 1998.
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SUMMARY COMPENSATION TABLE
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NAME AND FISCAL ANNUAL COMPENSATION LONG-TERM COMPENSATION ALL OTHER
PRINCIPAL YEAR ENDED -------------------------------------------------- COMPENSATION
POSITION OCTOBER 31, SALARY ($) BONUS ($) AWARDS OF OPTIONS (#) ($)(1)
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1998 200,000 25,000 -0- 86,987(2)
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Roger T. Bredesen,
Chairman of 1997 200,000 50,000 -0- 87,799(2)
the Board and Chief
Executive Officer
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1996 180,726 25,000 -0- 5,008
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1998 180,000 38,924 -0- 28,429(3)
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Kenneth E.
Overstreet, 1997 160,000 64,382 -0- 20,573(3)
President and
Director
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1996 122,894 28,198 -0- 19,897
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1998 90,000 17,060 -0- 13,853
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Mary Ann Morin, 1997 84,929 30,546 -0- 15,353
Treasurer and Chief
Financial Officer
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1996 67,597 11,621 6,000 15,064
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1998 106,000 11,766 -0- 7,171
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Stanley Klarenbeek, 1997 76,657 27,652 20,000 4,664
Vice President, Sales
and Marketing
Internal Bank Forms
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1996 76,911 16,130 6,000 4,931
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(1) Other compensation includes contributions under the Company's Profit
Sharing Plan and Trust ($8,641, $8,641, $5,428 and $7,171 in 1998 to each
of Messrs./Ms. Bredesen, Overstreet, Morin and Klarenbeek, respectively)
and the value of deferred compensation benefits under the Company's
Deferred Compensation Plan ($8,938 and $8,425 in 1998 for Mr. Overstreet
and Ms. Morin, 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 ($67,496 in 1998 and $65,786 in 1997)
and directors' fees.
(3) Also includes amounts paid as directors' fees.
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STOCK OPTIONS
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,
1998:
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
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VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
NAME EXERCISE(1) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(2)
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Roger T. Bredesen 10,000 $32,500 0/0 0/0
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Kenneth Overstreet 40,000 162,520 58,998/11,002(3) $152,399/24,250
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Mary Ann Morin N/A N/A 12,600/5,400(4) $30,213/6,507
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Stanley Klarenbeek 2,250 $23,063 3,600/35,400(4) $4,338/6,507
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(1) Price and number of shares adjusted for May 13, 1998 3 for 2 stock split.
(2) Value of unexercised options is calculated by determining the difference
between the fair market value of the shares underlying the options at
October 31, 1998 and the exercise price of the options.
(3) Consists of options to purchase 10,000 shares for serving on the Board of
Directors, and 60,000 shares under the Company's 1994 Employees Incentive
Stock Option Plan (the "1994 Plan").
(4) 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.
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
11
agreement is adjusted annually by the Compensation Committee of the Board of
Directors (in 1998, 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 $67,494.00 for 1998.
The Company entered into an employment agreement with Kenneth E.
Overstreet, its President, effective May 10, 1989, to serve originally as its
Executive Vice President until terminated by one of the parties. Mr.
Overstreet's annual base salary under the employment agreement is adjusted
annually by the Compensation Committee of the Board of Directors (in 1998, Mr.
Overstreet's base salary was $180,000). The employment agreement also granted to
Mr. Overstreet an option to purchase 40,000 shares of the Company's Common Stock
at a purchase price of $3.00 per share, which was exercised during the Company's
1998 fiscal year. Mr. Overstreet has agreed not to compete with the Company for
a period of two years after the termination of his employment.
The Company and/or GFS have also entered into employment agreements with
each of Mary Ann Morin, Don Dearborn and Stanley Klarenbeek, effective January
3, 1989, in the case of Ms. Morin and Mr. Dearborn, respectively, and May 1,
1990 in the case of Mr. Klarenbeek, to serve as officers of the Company and GFS
(as appropriate) until terminated by one of the parties. Each officer's annual
base salary under their respective employment agreements is adjusted annually by
the Compensation Committee of the Board of Directors (in 1998, Ms. Morin's, Mr.
Dearborn's and Mr. Klarenbeek's base salary was $90,000, $82,000 and $106,000,
respectively). Under the employment agreements, each has agreed not to compete
with the Company and/or GFS, as appropriate, for a period of two years after the
termination of his or her employment.
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
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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 1998, 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 8% of its net
income above a 15% return on shareholder's equity. After calculating this
amount, which for fiscal 1998 was an aggregate of $203,805, 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 bonus pool yielding
a bonus amount per point. For example, Kenneth E. Overstreet was allocated 2,881
points in fiscal 1998 and the least senior employee in the pool was allocated 82
points. All employees participating in the bonus program were allocated a total
of 15,085 points, yielding a bonus amount per point of $13.51, which, in Mr.
Overstreet's case, translated to a bonus of $38,924. 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, 248,575 shares of common stock are reserved for issuance upon
exercise of options granted under the Stock Option Plan (out of a total of
500,575 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 1998, the Company awarded no options to its executive officers.
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 1998 and 1997 was $200,000. Mr. Bredesen was granted a bonus of $25,000
in fiscal 1998, which bonus 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 $67,496 in deferred compensation pursuant
to his employment agreement with the Company, which provides for payments to be
13
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
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION AND 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.
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]
10-93 10-94 10-95 10-96 10-97 10-98
Nasdaq $100 $100 $135 $160 $210 $235
NSCF $100 $109 $123 $133 $280 $170
Dow Jones
Publishing Index $100 $ 99 $117 $141 $187 $209
14
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, 1998, 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, 1998, no one failed
to file, on a timely basis, such filings for the Company's 1998 fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth as of January 1, 1999 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) 7.5%
7130 Northland Circle North
Brooklyn Park, MN 55428
Roger T. Bredesen 214,800 Shares 7.6%
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 7.6%
Income Trust B dated
June 29, 1990
Clarence J. Hynes, Trustee
1433 Utica Avenue So.
Minneapolis, MN 55416
15
E. Fay Bredesen Income Trust 223,105 Shares 7.9%
dated June 29, 1990
Wendall J. Davidson, Trustee
11931 54th Avenue So.
Minneapolis, MN 55442
E. Fay Bredesen 1996 Annuity 168,997 Shares 6.0%
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 428,140 Shares (2) 15.2%
150 So. Fifth Street, Suite 1800
Minneapolis, MN 55402
John Mutschler 8,500 Shares (3) *
7130 Northland Circle North
Brooklyn Park, MN 55428
Kenneth E. Overstreet 102,214 Shares (4) 3.6%
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 6,000 Shares (6) *
7130 Northland Circle North
Brooklyn Park, MN 55428
Dr. Lester A. Wanninger 4,000 Shares (7) *
7130 Northland Circle North
Brooklyn Park, MN 55428
All executive officers (4)
and directors as a group
(9 individuals) 404,284 Shares (1, 3-8) 14.4%
- --------------------------------
* Represents less than 1%
(1) Includes 44,343 shares held in an annuity trust, 8,156 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, 168,997 shares beneficially owned by
the E. Fay Bredesen 1996 Annuity Trust U/A dated December 20, 1996
16
and 44,343 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 7,000 shares owned by Mr. Mutschler's spouse.
(4) Includes 58,998 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.
(6) Consists of 6,000 shares issuable under currently exercisable options.
(7) Consists of 4,000 shares issuable upon exercise of currently exercisable
options.
(8) Includes 19,800 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 schedules 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, 1998, 1997 and 1996, respectively.
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 (7)
of the Company
4 Instruments defining rights of (1)
security holders
17
Exhibit
Number Title Method of Filing
------- ----- ----------------
10.1 Employment Agreement of Roger (1)
Bredesen
10.1(a) Employment Agreement, dated May 10,
1989, of Kenneth E. Overstreet (1)
10.3 Northstar Computer Forms, Inc. (1)
Deferred Compensation Plan for
Officers of the Company
10.4 Northstar Computer Forms, Inc. (1)
Amended and Restated Employees'
Profit Sharing Plan and Trust
10.4.1 Amendment to Northstar Computer (2)
Forms, Inc. Amended and Restated
Employees' Profit Sharing Plan
10.4.2 General Financial Supply, Inc. (2)
Amended and Restated Employees'
Profit Sharing Plan and Trust
10.6 Milwaukee, Wisconsin Lease (1)
10.6(a) Fifth and Sixth Addendums dated (4)
March 10, 1994 and December 13,
1994, respectively, to Milwaukee,
Wisconsin Lease
10.7 Bridgewater, Virginia Lease, (7)
dated March 10, 1997
10.12 1994 Employees' Incentive (3)
Stock Option Plan
10.12(a) First Amendment to 1994 Employees' (7)
Incentive Stock Option Plan
10.16 Loan Agreement between Brooklyn (4)
Park Economic Development Authority
and the Company dated August 1, 1994
18
Exhibit
Number Title Method of Filing
------- ----- ----------------
10.17 Indenture of Trust between Brooklyn (4)
Park Economic Development Authority
and First Trust National Association
dated August 1, 1994
10.18 Reimbursement Agreement between First (4)
Bank National Association and the
Company dated August 1, 1994
10.19 First Bank National Association (4)
Initial Letter of Credit dated
August 25, 1994
10.20 Northstar Computer Forms Outside (5)
Directors Stock Option Plan
10.22 Equipment Lease Agreement effective (7)
as of July 16, 1997 between Northstar
Computer Forms, Inc. and Deluxe
Financial Services, Inc.
10.23 Sublease dated January 31, 1997 between (7)
Northstar Financial Forms, Inc., as sublessee,
and Deluxe Corporation, as sublessor, under
a Master Lease dated September 24, 1993
between St. Paul Properties, Inc., as lessor,
and Deluxe Corporation, as sublessee
10.24 Lease effective August 22, 1997, by and (7)
between Northstar Computer Forms, Inc.,
as tenant, and Roger T. Bredesen and
E. Fay Bredesen as trustees under certain
revocable trusts
10.25 Employment Agreement, dated January (7)
3, 1989 between Northstar Computer Forms,
Inc. and Mary Ann Morin
19
Exhibit
Number Title Method of Filing
------- ----- ----------------
10.26 Employment Agreement, dated January (7)
3, 1989 between General Financial Supply,
Inc. and Don Dearborn
10.27 Employment Agreement, dated May 1, 1990, (7)
between General Financial Supply, Inc.
and Stan Klarenbeek
10.28 Lease, dated May 1, 1998, by and between Filed herewith
Sun River Properties, Inc., and Northstar
Computer Forms, Inc., relating to the
Company's Golden, Colorado, facility
10.29 Customer Alliance Agreement, dated Filed herewith
November 5, 1998, by and between
Northstar Computer Forms, Inc.,
and NCR Corporation
13 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 L.L.P. Filed herewith
27 1998 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.
(2) Exhibits so marked were filed with the Securities and Exchange Commission
on January 27, 1993, 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 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.
20
(4) 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.
(5) Exhibits so marked were filed with the Securities and Exchange Commission
on June 14, 1995, as exhibits to the Form 10-QSB of Northstar Computer
Forms, Inc., and are incorporated herein by reference and made a part
hereof.
(6) Exhibits so marked were filed with the Securities and Exchange Commission
on January 29, 1997, as exhibits to the Form 10-KSB of Northstar Computer
Forms, Inc., and are incorporated herein by reference and made a part
hereof.
(7) 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.
(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.
21
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Board of Directors
of Northstar Computer Forms, Inc.
Our report on the consolidated financial statements of Northstar Computer
Forms, Inc. and Subsidiary has been incorporated by reference in this Form
10-K from (printed) page 22 of the 1998 Annual Report to Stockholders of
Northstar Computer Forms, Inc. and Subsidiary. In connection with our audits
of such financial statements, we have also audited the related financial
statement schedule included in Item 14(d) of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
December 23, 1998
22
SCHEDULE II
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
Column B Column C - Additions Column E
-------- -------------------- --------
Column A Balance at Charged to Charged to Column D Balance at
-------- beginning of costs and other -------- end of
Descriptions period expenses accounts Deductions period
------------ ------------ ---------- ---------- ---------- ----------
Year ended October 31, 1996
Allowance for doubtful accounts ....... $ 109,000 $ 68,260 $ - $ 33,260 $ 144,000
Year ended October 31, 1997
Allowance for doubtful accounts ....... 144,000 172,319 - 22,319 294,000
Year ended October 31, 1998
Allowance for doubtful accounts ....... 284,000 (68,517) - 87,483 138,000
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NORTHSTAR COMPUTER FORMS, INC.
By: /s/ Mary Ann Morin
-------------------------------
Mary Ann Morin, Treasurer
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Roger T. Bredesen 1/23/99
- ----------------------------------------- --------
Roger T. Bredesen, Chairman of the Board, Date
President and Chief Executive Officer
/s/ John Mutschler 1/23/99
- ----------------------------------------- --------
John Mutschler, Director Date
/s/ Kenneth E. Overstreet 1/23/99
- ----------------------------------------- --------
Kenneth E. Overstreet, Director Date
/s/ J.S. Braun 1/23/99
- ----------------------------------------- --------
J. S. Braun, Director Date
/s/ Roy W. Terwilliger 1/23/99
- ----------------------------------------- --------
Roy W. Terwilliger, Director Date
/s/ Dr. Lester A. Wanninger 1/23/99
- ----------------------------------------- --------
Dr. Lester A. Wanninger, Director Date
24