SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                    For the fiscal year ended August 31, 1996

                         Commission file number 0-21800

                       Norwood Promotional Products, Inc.
                          (Exact name of registrant as
                            specified in its charter)


           Texas                                                74-2553074
(State or other Jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                              Identification No.)

  The Renaissance Plaza, 70 N.E. Loop 410, Suite 295, San Antonio, Texas 78216
       (Address of principal executive offices)                      (Zip Code)

       Registrant's telephone number, including area code: (210) 341-9440

           Securities registered pursuant to Section 12(b) of the Act:
                                     None 

           Securities  registered  pursuant  to Section 12(g) of the Act:
                           Common Stock, no par value
                                (Title of Class)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during the  preceding  12 months  (or for such  shorter  periods  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X  No
                                             ---    ---

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K.___ 

     The aggregate  market value of the voting stock held by  non-affiliates  of
the registrant as of November 15, 1996 was approximately $78,500,000, based upon
the last sales price on November 15, 1996 on the NASDAQ National Market for the
Company's  common stock.  The  registrant  had 5,615,335  shares of Common Stock
outstanding on November 15, 1996.

                       DOCUMENTS INCORPORATED BY REFERENCE
         Portions of  registrant's  definitive  proxy statement to be filed with
the Securities  and Exchange  Commission not later than 120 days after the close
of the  registrant's  fiscal year are incorporated by reference into Part III of
this Form 10-K.




<PAGE>


                       NORWOOD PROMOTIONAL PRODUCTS, INC.

                               Index to Form 10-K

                           Year Ended August 31, 1996
<TABLE>
<CAPTION>
<S>                                                                            <C>           <C>  
                                                                                             Page No.
                                                                                             --------

                                     PART I
 
Item 1.  Business                                                                                3
Item 2.  Properties                                                                             17
Item 3.  Legal Proceedings                                                                      17
Item 4.  Submission of Matters to a Vote of Security Holders                                    17   
                                                             

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Shareholder Matters                  18
Item 6.  Selected Consolidated Financial Data                                                   18
Item 7.  Management's Discussion and Analysis of Financial Condition and Results of
         Operations                                                                             20
Item 8.  Financial Statements and Supplementary Data                                            28
Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial
         Disclosure
                                                                                                47
                                    PART III

Item 10. Directors and Executive Officers of the Registrant                                     47
Item 11. Executive Compensation                                                                 47
Item 12. Security Ownership of Certain Beneficial Owners and Management                         47
Item 13. Certain Relationships and Related Transactions                                         47

                                     PART IV

Item 14. Exhibits,Financial Statement Schedules and Reports on Form 8-K                         47
</TABLE>
<PAGE>


The  discussion in this document  contains  analysis or trends and other forward
looking  statements  within the meaning of Section 27A of the  Securities Act of
1933,  as amended,  and Section 21E of the  Securities  Exchange Act of 1934, as
amended.  These  statements  involve  management  assumptions and are subject to
risks and uncertainties, including those discussed under "Business-Risk Factors"
below.

PART I

Item 1. Business

     References herein to the "Company" mean Norwood Promotional Products, Inc.,
its predecessors,  and its and their  subsidiaries,  unless the context requires
otherwise.

General

     The  Company is a leading  supplier of  promotional  products in the United
States.   The  Company  has  grown,   through   internal  growth  and  selective
acquisitions,  from sales of $37.4  million in fiscal 1992 to $152.0  million in
fiscal  1996,  and from net income of $407,000 in fiscal 1992 to $4.2 million in
fiscal 1996.  The Company has been active in expanding  its product lines in the
major price points and product  categories in the promotional  products industry
through a series of  acquisitions.  The Company  acquired  the assets of Tee-Off
Enterprises,  Inc. (the "Tee-Off  acquisition")  and Alpha  Products,  Inc. (the
"Alpha  acquisition")  in January  and April  1996,  respectively.  The  Company
acquired  the  assets  of  The  Bob  Allen  Companies,   Inc.  (the  "Bob  Allen
acquisition"),  Designer Plastics,  Inc. (the "Designer Line acquisition"),  BTS
Group (the "BTS acquisition") and Ocean Specialty Manufacturing Corporation (the
"Ocean  acquisition")  in March,  June, July and November,  1995,  respectively.
These  acquisitions  followed the  purchases  of the assets of Barlow  Specialty
Advertising,  Inc. (the "Barlow  acquisition")  in May 1992 and Key  Industries,
Inc. (the "Key acquisition") in May 1994 and the purchase of all of the stock of
ArtMold Products Corporation (the "ArtMold acquisition") in July 1994.

     The Company's operating companies and their major product lines are:

Group    Operating Companies                           Product Lines
-----    -------------------                           -------------
<TABLE>
<CAPTION>

<S>                                                                            <C>  
RCC Group:
        Radio Cap Company, Inc. (RCC)                  RCC (TM),Trendco (TM) , Koozie (R) and Alpha
        Air-Tex Corporation (Air-Tex)                  Air-Tex (R), Bob Allen (R) and Designer Line (R)

Barlow Group:
        Barlow Promotional Products, Inc. (Barlow)     Barlow (R) , BTS (TM), Value Line(TM) and Salm (R)
        ArtMold Products Corporation (ArtMold)         The Action Line (R) and Tee-Off

Key Group:
        Key Industries, Inc. (Key)                     Econ-O-Line (R) and The California Line (TM)


                                       3
</TABLE>
<PAGE>


Promotional Products Industry

     Promotional  products are functional items imprinted with the name, logo or
message of an  advertiser  and are typically  given free by the  advertiser to a
target audience to generate goodwill and repeat advertising exposure. The United
States market for  promotional  products,  measured by sales of  distributors to
advertisers,  has grown from approximately $4.5 billion in 1989 to approximately
$8.0 billion in 1995, according to data published by The Counselor,  an industry
trade publication.  The promotional products industry is highly fragmented, with
the 20 largest  suppliers  accounting  for  approximately  20% of total industry
sales in 1995.  The  industry  includes  over  2,600  suppliers,  including  the
Company,  who  decorate  and  customize  products,  and over 13,800  independent
distributors who solicit orders from and sell directly to advertisers.

     The Company  believes  that the growth of the  industry in recent years has
resulted  from an  increase  in the  number  of  distributors  and  the  greater
acceptance  by  advertisers  of  promotional  products as an  important  form of
advertising.  Promotional products advertising generally represents a lower cost
alternative  to more  traditional  advertising  media and,  because  promotional
products  are designed for use or display,  they provide  repeat  exposure of an
advertiser's  message to a targeted audience.  Some of the largest purchasers of
promotional  products  are banks,  insurance  agencies,  automobile  dealers and
pharmaceutical and high technology companies.

     Within  the  promotional   products  industry,   there  are  two  principal
distribution  channels:  independent  distributors  and  mail  order  companies.
Independent  distributors  solicit orders from and sell directly to advertisers.
Mail order companies sell directly to advertisers through corporate catalogs and
other direct mail advertising,  without using outside sales personnel. Orders by
advertisers  placed  through  distributors  and by direct mail typically are for
small  quantities of  custom-imprinted  items and require prompt  delivery.  The
Company sells its products to independent distributors and mail order companies.
Although it periodically  evaluates different  distribution methods, the Company
currently does not sell directly to advertisers.

Strategy

     The  Company's  business  strategy  is to  continue  to improve  its market
position in each of its  existing  product  lines and to expand into new product
lines and  distribution  channels.  Key elements of this strategy  include:  (i)
expanding product offerings by developing new products and innovative imprinting
and  decorating  techniques and  applications;  (ii)  increasing  penetration of
existing  markets through enhanced  customer  service and coordinated  marketing
efforts among its operating  companies;  (iii) making selective  acquisitions to
add new product lines and expand  distribution;  (iv) introducing new management
and operating  systems to reduce order  processing  times,  increase  production
efficiency  and  increase   processing   capacities  of  existing  and  acquired
businesses;  and (v)  exploring  new markets,  primarily  through  international
marketing and alternative distribution arrangements.

Expanding Product Offerings

     The  Company has  increased  the number of  products  and product  lines it
offers  through  acquisitions  and by developing new products and new imprinting
and decorating techniques and applications. Since 1983, the Company has expanded
its product  offerings from  approximately  ten individual  products  within one
product  category  to  approximately  1,900  products  in  eight  major  product
categories.  The broad range of its product offerings,  in part, has enabled the
Company  to  expand  its   customer   base  to  more  than  11,100   independent
distributors.


                                       4
<PAGE>


Enhancing Customer Service and Coordinated Marketing

     Providing  a high  level of service to  customers  is a key  element of the
Company's marketing strategy. The Company offers toll-free telephone service for
orders and other  customer  needs and places an emphasis on customer  service by
sales and order-entry staff. RCC, the Company's largest operating  company,  has
formed a key accounts group to provide customer service and sales support to its
largest  distributors,  and the Company intends to establish key accounts groups
at each of the other operating companies. The Company has also installed systems
providing  credit approval at all operating  companies for each  distributor who
has an account with any other operating company.

     While each operating company handles its own customer service,  the Company
has begun to  coordinate  sales and  marketing  activities  among the  operating
companies.  In the fourth quarter of 1996,  the Company  realigned its operating
companies and product lines into three groups:  the RCC Group, the Barlow Group,
and the Key Group.  This  realignment  is designed to allow the Company's  three
core operating companies to provide sales and  marketing  support for Air-Tex,
Artmold and The California Line (TM)of Key. Management of the Company  believes
that the  realignment  of product  lines into  strategic  groups  will allow the
Company to better  coordinate  sales and  marketing of all product  lines to the
Company's large base of distributors.

     The Company has introduced  several  catalogs on top-selling  products from
each of the Company's  product lines to  demonstrate  the scope of the Company's
product  offerings and to introduce its products to  distributors  familiar with
some but not all of the operating  companies and their respective product lines.
Sales staff of the operating  companies also make joint sales  presentations  to
distributors.  The Company believes that its coordinated  marketing efforts will
lead to increased  awareness of the Company's  brands by distributors and enable
the Company to obtain greater  attention and resources from distributors for its
existing product lines, new products and newly acquired brands.

Making Selective Acquisitions

     The  Company intends  to  continue  its  strategy  of  making   selective
acquisitions to strengthen its position in the fragmented  promotional  products
industry  and to add new  product  lines and expand  distribution.  The  Company
believes  that the  competition  for the  acquisition  of  suppliers  within the
industry  is  limited.  The  Company is engaged  in ongoing  evaluations  of and
discussions with third parties regarding possible  acquisitions.  At the date of
this report,  the Company had no binding  agreements or commitments with respect
to any acquisitions. 

Improving Management and Operating Systems

     The promotional products  industry is characterized by the processing of a
large number of small, custom-imprinted orders. The Company seeks to be a leader
in the promotional products industry through the rapid fulfillment of customer
orders and in responsive and  professional customer  service.  The Company has
implemented advanced management systems, such as Manufacturing Resource Planning
("MRP II"),


                                       5
<PAGE>




a pull order-flow  processing system and statistical  process controls.  Through
these measures,  the Company believes it has achieved a significant reduction in
order processing times, increased production efficiency and increased processing
capacities.  In  addition,  the  Company has formed  task  forces  comprised  of
managers from the operating companies who meet regularly to exchange information
regarding sales and marketing trends,  imprinting  methods,  information systems
and technologies and training.

Acquisitions

     The promotional products industry is highly fragmented and is characterized
by  numerous  suppliers  and  independent  distributors.  There  are over  2,600
suppliers in the industry, most of which are small, closely held or family owned
businesses  offering  a limited  number  and  range of  products.  To date,  the
industry has not experienced significant consolidation.

     The  Company  seeks  acquisitions  which  it  believes  will  enable  it to
accomplish  some or all of the  following  objectives:  (i) expand  its  product
offerings by adding new brands,  penetrating a new product category,  expanding
the number and variety of  products in an existing  category or covering a major
price  point in a specific  product  category;  (ii)  broaden  its  distribution
network;  or (iii) leverage its management and operating  systems to improve the
processing efficiency of under-performing businesses.

     Since 1983, the Company has diversified its product lines and increased its
market presence through internal growth and a series of strategic  acquisitions.
The Company has completed the following acquisitions since 1991:

          In May 1992, the Company completed the Barlow acquisition,  including
          the Barlow (R) and Salm (R) product  lines,  adding new products  that
          enabled the Company to enter the recognition awards and business gifts
          and pocket  specialties  and  accessories  product  categories  and to
          expand its product offerings to cover all of the major price points in
          the promotional products industry.

          In April 1993, the Company acquired a ceramic mug imprinting  facility
          in  Pittsburgh,  Pennsylvania.  The addition of this facility for mugs
          and glassware,  which incur  significant  freight charges when shipped
          over  long  distances,  has  enabled  the  Company  to be  more  price
          competitive in the Northeastern United States.

          In May 1994, the Company  completed the Key  acquisition,  in which it
          acquired a supplier of economically  priced promotional  products such
          as paper  products,  plastic  items,  pens,  magnets and buttons.  The
          addition of these products  augmented the Company's pocket specialties
          and desk and business accessories categories.

          In July 1994, the Company completed the ArtMold acquisition, expanding
          its offerings in the writing  instruments  and pocket  specialties and
          desk accessories  categories,  and adding a line of golf items such as
          tees, ball markers and divot repair tools.

          In March and June 1995,  the  Company  entered  the  textiles  product
          category by adding sport,  travel, and tote bags and sportswear to its
          product lines with the Air-Tex and Designer Line acquisitions.


                                       6
<PAGE>


          In July 1995, the Company  completed the BTS acquisition,  in which it
acquired a supplier of high-quality recognition and gift items. This acquisition
further expanded the Company's  high-end  recognition  awards and business gifts
product line.

     In November 1995, the Company completed the Ocean acquisition,  in which it
acquired a supplier of economically priced promotional products such as magnets,
buttons  and  business  accessories.   This  acquisition  further  expanded  the
Company's pocket specialties and desk and business accessories lines. 

In  January 1996, the  Company  completed  the Tee-Off  acquisition  in which it
acquired a  supplier  of custom  imprinted  golf  balls and  accessories,  which
augmented the golf accessories offered by the Company.

     In April 1996,  the Company  completed the Alpha  acquisition,  in which it
acquired  a  supplier  of custom  imprinted  drinkware,  further  expanding  the
Company's product line of insulated beverage products,  mugs and glassware.  The
Alpha  acquisition  also opened new channels of  distribution  into  convenience
stores, mass merchandisers and premium markets.

Product Categories

         The Company currently  supplies  approximately  1,900  custom-imprinted
items to over 11,100 independent  distributors  nationwide through its operating
companies. The Company's products are primarily marketed at price points ranging
from $0.50 to $50.00 in eight general categories:

          Sporting goods and leisure products:  Koozie (R) beverage  insulators,
          sport bottles,  cups and insulated coolers;  and custom imprinted golf
          balls.

          Wearables:  golf, fashion and baseball-style caps and other headwear; 
          sportswear.

          Mugs and glassware:  porcelain, ironstone and plastic mugs; glassware.

          Textiles:  sport, travel and tote bags.

          Writing instruments:  pens, pencils, markers and gift sets.

          Recognition awards and business gifts: rosewood,  walnut and laminated
          wood awards, crystal awards,  plaques, brass coasters,  briefcases and
          portfolios, and other business gift items.

          Pocket specialties and accessories:  tape measures, pocket knives, key
          chains and holders, buttons, badges, magnets and lapel pins, and other
          pocket specialty items.

          Desk and business accessories:  desk accessories,  note pads and other
          paper products, and personal gift items.



                                       7
<PAGE>



         The  following  table  sets forth the  amount  and  percentages  of the
Company's sales for its product categories over the past three fiscal years.
<TABLE>
<CAPTION>
<S>                                                                           <C>     <C>         <C>         <C>      
                                                                           Fiscal Year
                                                                     (Dollars in thousands)
                                                        1994                    1995                   1996
                                                   -------------           -------------          -------------
                                                               % of                     % of                     % of
                                                Sales         Sales        Sales       Sales        Sales       Sales
                                              ----------    ----------   ---------   ---------     ---------   ---------
    Sporting goods and leisure products         $13,221        21.2%       $22,530      21.7%       $38,911       25.6%

    Wearables                                    12,649        20.3         14,691      14.2         17,751       11.7

    Mugs and glassware                           11,423        18.3         12,657      12.2         19,015       12.5

    Textiles                                         --          --          9,387       9.0         19,404       12.8
                                                  
    Writing instruments                           4,217         6.8          8,944       8.6          9,139        6.0

   Recognition awards and business gifts          3,009         4.8          4,177       4.0         12,527        8.2

   Pocket specialties and accessories and
     desk and business accessories (a)           17,866        28.6          31,474      30.3        35,215       23.2
                                                 ------        ----          ------      ----        ------       ----
                         Total                  $62,385       100.0%       $103,860     100.0%     $151,962      100.0%
                                                =======       =====        ========     =====      ========      ===== 


 (a) Separate results for these two product categories are not available for the periods presented.

</TABLE>


Sporting Goods and Leisure Products

     The Company's  sporting  goods and leisure  products  consist  primarily of
Koozie (R) insulated beverage products, sports bottles and custom imprinted golf
balls.

     The Company  acquired its Koozie (R) product line in 1984, which originally
consisted of a single product,  the Koozie (R) beverage insulator.  A Koozie (R)
beverage  insulator is a customized  colored foam sleeve with a bottom that fits
around a beverage can or bottle for insulation.  The Company  believes it is the
leading  supplier  of  beverage  insulators  in the  United  States  promotional
products  industry.  Since 1984,  the Company has expanded  this product line to
include  27  products  marketed  in a variety of colors  and  styles.  Koozie(R)
products accounted for $21.7 million, or 14.3%, of the Company's sales in fiscal
1996.

     Through the Alpha  acquisition  in fiscal  1996,  the Company  expanded its
existing insulated beverage products. In addition,  the Alpha acquisition opened
new channels of distribution  into convenience  stores,  mass  merchandisers and
premium markets.

     Through the Tee-Off  acquisition in fiscal 1996,  the Company  expanded its
golf accessories line to include custom imprinted golf balls.


Wearables

     The Company's  wearables product line consists  primarily of golf,  fashion
and baseball-style headwear in a wide variety of styles, colors and fabrics. The
Company  believes  that it is a leading  headwear  supplier in the United States
promotional  products industry. A substantial majority of the Company's headwear
is  imported, 


                                        8
<PAGE>


 allowing  the Company to compete at lower price  points for these
items. The Company also manufactures headwear to enable it to produce customized
products with short lead times.  These products are sold primarily under the RCC
(TM) brand.

Mugs and Glassware

     The Company offers a variety of styles of porcelain,  ironstone and plastic
mugs,  along with glassware.  The Company believes that it is a leading supplier
of mugs in the United States promotional products industry. Styles vary in size,
shape and color. In addition to standard color  decorations,  the Company offers
advertisers  the ability to customize  their artwork  through the use of special
decorations  on  the  mugs,  including  22-carat  gold  and  platinum  imprints,
microwaveable gold imprints, iridescent inks and certain brighter colored inks.

     Through the Alpha  acquisition  in fiscal  1996,  the Company  expanded its
existing line of custom imprinted insulated plastic mugs.


Textiles

     Through the Air-Tex and Designer  Line  acquisitions  in fiscal  1995,  the
Company entered the textiles product category by adding sport,  travel, and tote
bags. This product line consists of over 185 items marketed under the tradenames
Air-Tex (R) and Designer Line (R).

Writing Instruments

     In fiscal 1991,  the Company began  marketing  economically  priced writing
instruments, including pens, pencils, and gift sets, along with retractable pens
and  highlighters.  In fiscal  1992,  with the Barlow  acquisition,  the Company
expanded into marketing  higher-priced writing instruments.  Through the Key and
ArtMold  acquisitions in fiscal 1994, the writing  instrument lines were further
expanded by providing a wider variety of styles, colors and price points.

Recognition Awards and Business Gifts

     Through the Barlow  acquisition in May 1992, the Company began to offer its
recognition  and award items and business  gifts  generally  under the name Salm
(R). The products in this line make  creative and  distinctive  awards and gifts
and are generally highly customized.  Because it is a high-end product line, the
recognition  awards and business gifts are more oriented toward  corporate gifts
and awards than strictly to advertising uses. With the BTS acquisition in fiscal
1995,  the  company  expanded  into  products  incorporating   decorative  brass
medallions in items such as coasters, wall and desk plaques, picture frames, and
other custom products.


                                       9
<PAGE>



Pocket Specialties and Accessories

     Through the Barlow  acquisition  in May 1992,  the  Company  began to offer
pocket  specialties and  accessories.  With the Key and ArtMold  acquisitions in
fiscal 1994 and the Ocean  acquisition  in November  1995, the Company now sells
products  under the Barlow  (R),  Econ-O-Line  (R),  The Action Line (R) and The
California  Line  (TM)  brand  names  and  offers a full  complement  of  items,
including  tape  measures,  key chains and holders,  buttons,  badges,  magnets,
pocket knives and lapel pins.

Desk and Business Accessories

     Through the Key, ArtMold and Ocean acquisitions,  the Company expanded into
economically priced products marketed under the trademarks  Econ-O-Line (R), The
Action  Line (R) and The  California  Line (TM).  These  product  lines  consist
primarily of items such as note pads,  desk  calendars and other paper  products
and desk accessories and personal gift items.

Operations

     A key to the  Company's  internal  growth  has been its  ability to process
rapidly a large number of small,  custom-imprinted  orders at competitive prices
while  maintaining  a high level of product  quality.  During  fiscal 1996,  the
Company  processed  more than  450,000  orders  with an  average  order  size of
approximately  $340.  For most  products,  the Company  ships  orders on a rapid
response basis, generally within one to two weeks.

     In the  fourth  quarter  of  1996,  the  Company  realigned  its  operating
companies into three groups:  the RCC Group, the Barlow Group and the Key Group.
This  realignment  reflects a restructuring of the Company's sales and marketing
functions and other organizational changes that are designed to provide enhanced
operational,  sales and marketing  support by the Company's three core operating
companies for the more recently acquired operating companies and divisions.  For
example,  in order to maximize  selling  efforts,  the number of sales staff was
increased in these groups while the territory  covered by each  salesperson  was
decreased.  This allows each  salesperson to offer a greater variety of products
to a more focused group of distributors. This realignment also makes over 10,000
distributors  more accessible to the smaller operating  companies, each of which
had previously been covered by between 1,500 and 3,000 distributors.

     Each  operating  group  has a  separate  management  team,  lead by a group
president with substantial  experience in the promotional products industry. The
Company has assembled a management team with significant  industry experience to
implement its business  strategy.  The executive officers of the Company and the
group  presidents  have an average  of 17 years  experience  in the  promotional
products  industry.  The Company gives the  management  of the operating  groups
significant autonomy. The Company believes that it is able to be more responsive
to its  distributors,  the  substantial  majority of which are relatively  small
operations  in  a  highly  fragmented  industry,   by  delegating  authority  to
management  of the operating  groups.  In  particular,  each  operating  company
concentrates its sales and marketing efforts on specific product lines, enabling
it to more  effectively  penetrate the distribution  network.  The presence of a
strong management team at each operating

                                       10
<PAGE>


group also allows the Company to maintain  the focus of its  corporate  staff on
the continued growth of the Company and the coordination and  implementation  of
the Company's strategic objectives.

     The Company has implemented  various management and operational  systems at
the operating companies.  These systems are continually evaluated by management,
and systems which have proven successful at one operating company are introduced
at other operating companies where appropriate.

Management Systems

     The  Company  utilizes a number of  management  systems  designed to reduce
order  processing  time,  enhance  planning,  lower  operating costs and improve
customer  service.  The MRP II  systems in place at RCC and  Air-Tex,  which are
based upon sales  forecasts,  are  designed to enable the Company to plan labor,
inventory and other resource  requirements in order to meet customers'  delivery
requirements and maximize processing  efficiency.  RCC also utilizes a specially
designed pull order-flow  processing system that allows a large number of orders
to be  processed  efficiently  and  economically.  Key  utilizes,  and Barlow is
implementing,  a  bar-coding  system to monitor the status of orders  within the
production  cycle.  These  systems are designed to enable the Company to quickly
respond to customer  inquiries  and adjust  shipping  schedules to meet customer
demands.

     The Company  uses  statistical  process  control  ("SPC") to  evaluate  its
manufacturing  processes at each of the operating companies.  SPC is designed to
enable  the  Company  to  differentiate  between   statistically   insignificant
fluctuations  in processing  performance and  substantive  processing  problems.
Management  believes that SPC serves to focus both  management  and staff on the
objective of continually enhancing the Company's production processes.

     The Company utilizes computer communication technology,  such as electronic
data interface system ("EDI") and 'Internet E-mail', to improve order processing
and expedite shipments.  The Company receives orders electronically from several
of its largest  customers  through an industry-wide  EDI system.  RCC allows its
largest customers to obtain real-time  information on the status of their orders
through its own EDI and 'Internet E-mail' system.

Product Development

     The  Company  believes  that a key to its  success is its ability to expand
product  offerings by developing new products and  imprinting  techniques and by
adapting  existing  imprinting  and  decorating  methods  to  create  innovative
products.  The Company is  experimenting  with  emerging  imprint  technologies,
including  digital direct  printing,  laser imaging,  heat applied  graphics and
photopolymer through dimensional graphics.  The Company also evaluates materials
and processes from other industries for adaptation into the Company's  products.
New overseas vendor  relations are being developed to decrease costs of existing
products and assist in the  development of new products and  additional  product
lines in wood, metal, glass and textiles.

Custom Decorating and Manufacturing Processes

     Each of the operating companies has a full-service  graphic arts department
to assist customers in generating  custom  graphics.  The Company applies custom
graphics to promotional products using a variety of decorating processes such as
silk-screening,   screen  transfer,  embroidering,  engraving  (including  laser
engraving),


                                       11
<PAGE>



vinyl screen printing,  cloisonne enameling (enamels baked at high temperatures)
and hot stamping.  Each art department is also available to assist  customers or
advertisers in creating original artwork. All operating companies have installed
systems to receive customer artwork electronically.  The Company has implemented
a system to link the art  departments to allow designs created for an advertiser
at one operating company to be used throughout the Company, eliminating the need
to create new artwork for that  advertiser  at other  operating  companies.  The
Company also seeks to improve  processing  efficiency by coordinating  work flow
among  various art  departments.  

     All  of the  mugs  and  glassware,  plastic  molded  products  and  writing
instruments,  as well as, most caps and other headwear and certain sport, travel
and tote bags sold by the Company  are  manufactured  in blank  (i.e. , without
decoration) by third party suppliers  according to Company  specifications.  Bob
Allen (R) sportswear,  Koozie (R) beverage insulators, note pads and other paper
products,  brass and  laminated  wood  awards and the  remaining  caps and other
headwear  and  domestic  sport,  travel  and tote bags are  manufactured  by the
operating companies at the Company's production facilities.

Sales and Marketing

     During fiscal 1996, the Company sold its products to  approximately  11,100
customers, mainly independent promotional product distributors.  In fiscal 1996,
the Company's ten largest  customers  accounted for  approximately  14.0% of the
Company's  total  sales,  and no one  customer  accounted  for more than 3.0% of
sales. The Company's largest customers are among the largest distributors in the
industry based on sales.

     Generally,  before a  customer  orders a  product  from  the  Company,  the
customer has already  received an order for the product from an advertiser.  The
Company's  products  are  sold on the  basis  of  purchase  orders.  Established
customers  generally  have 30-day payment terms,  and newer  customers  purchase
products from the Company on the basis of payment before processing. As a result
of its credit  management  practices,  the Company has had bad debt expense as a
percentage of sales of less than 0.25% for each of the past three fiscal years.

     The Company believes that most other  promotional  products  suppliers sell
only through  independent  multi-line sales  representatives who serve more than
one supplier. The Company's operating companies employ a total of 35 salespeople
to market products in regional  territories  covering the United States, and 113
customer-service  personnel to support these  salespeople.  The Company believes
that this  direct  sales  staff gives the  Company a  competitive  advantage  by
allowing more focused selling efforts.

     The  Company's  sales staff  attends  industry  trade shows and makes sales
calls on customers and potential  customers.  Each operating company distributes
annual product catalogs.  In fiscal 1995, the Company introduced an intercompany
product  catalog  that  featured  the  top-selling  products  from  each  of its
operating  companies.  Key  employees  of the Company and each of its  operating
companies  also conduct  coordinated  marketing  presentations  to  distributors
throughout the United States.



                                       12
<PAGE>


Suppliers

     During fiscal 1996, the Company derived a significant  portion of its sales
from products supplied by over 30 manufacturers  located in China,  Taiwan,  Sri
Lanka,  Bangladesh,  Korea,  Japan,  England,  Holland,  Germany,  and Italy.  A
majority of these  products are purchased  through four  independent  agents who
assist the  Company  with its  relationships  with its Far East  suppliers.  The
Company's senior management and agents  periodically visit its foreign suppliers
to observe the  manufacture  of products and to help ensure timely  delivery and
compliance with Company manufacturing  specifications.  Representatives from the
Company's  leading suppliers  annually visit the Company's  facilities to review
quality standards and product specifications.  The Company is not a party to any
long-term contractual arrangements with any supplier and relies on its long-term
relationships to ensure timely delivery of quality products.

    The Company's reliance on foreign sources of supply subjects it to a number
of risks,  including  transportation  delays and  interruptions,  political  and
economic  disruptions,  the  imposition  of tariffs,  quotas and other import or
export controls, currency fluctuations and changes in governmental policies. The
Company's  reliance on foreign  suppliers  also  requires  it to order  products
further in advance of orders by  customers  than would  generally be the case if
such products were manufactured domestically. There can be no assurance that the
Company can replace its suppliers without delay;  however,  the Company attempts
to reduce  the risk of such a delay and to  alleviate  the  problem of having to
order its foreign products further in advance by using its management systems to
predict more accurately the Company's product needs.

     The Company relies on one supplier for the insulation material necessary to
make Koozie (R) beverage  insulators and certain other Koozie (R) products.  The
Company  believes  that  competitors  who make  products  similar  to Koozie (R)
beverage  insulators also purchase their insulation material from this supplier.
The inability of this supplier to provide the Company with insulation would have
a material adverse effect on the Company.  The Company buys insulation  material
on a  purchase  order  basis  and  does  not have  any  contract,  agreement  or
commitment from this supplier to furnish insulation material.  Since the Company
began purchasing from this supplier in 1983, the Company has not experienced any
significant disruptions or delays in its supply.

     The Company also relies on a single supplier for the laminated wood used in
the BTS(TM)  product line.  Disruptions  or delays in the supply of this product
could have a material  adverse effect on sales of the BTS(TM)  product line. The
Company has not experienced any significant disruptions or delays in its supply.

     The Company obtains its other materials from numerous  sources.  Prices for
materials  used by the  Company  may  fluctuate  for a variety of  reasons.  The
Company  has not  experienced,  and  does  not  anticipate,  any  difficulty  in
obtaining an adequate supply of the materials it uses.

                                       13
<PAGE>



Backlog

     A majority of the Company's orders are processed on a rapid response basis,
generally  within one to two weeks after receipt of an order.  As a result,  the
Company does not believe that the dollar amount of its unfilled  customer orders
at any time is a useful indicator of future business activity.

Competition

     The promotional products industry is highly fragmented and competitive. The
Company competes with a large number of other  promotional  products  suppliers,
some of which have diversified product offerings,  and others that market only a
limited number of products or lines. The Company competes primarily on the basis
of  customer   service  and  price.   Certain   competitors   are  divisions  of
significantly  larger companies that have  substantially  greater  financial and
other resources than the Company.  While the Company has competitors within each
of its product  lines,  no one supplier  competes with the Company in all of its
lines. In addition,  entry into the promotional  products  industry is generally
not difficult,  and new competitors  regularly  enter the industry.  The Company
believes it is  difficult  to manage and process  efficiently  large  numbers of
small  orders  and  produce  a  high-quality  product  and that  its  processing
efficiency gives the Company a competitive  advantage  within the industry.  The
Company believes its established  relationships  with  distributors  gives it an
advantage over its  competitors,  especially  new entrants in the industry.  The
promotional  products  industry also competes against other  advertising  media,
such as television, radio, newspapers, magazines and billboards.

Trademarks

     The Company owns a number of trademarks  registered  with the United States
Patent and  Trademark  Office  and claims  various  common law  trademarks.  The
Company  considers  its  trademarks to be important to its business and actively
defends and enforces them.

Employees

     As of November 15, 1996, the Company employed  approximately 2,000 persons.
Approximately  100  employees  of Key  are  represented  by  the  Manufacturing,
Production  and  Service  Workers  Union  of the  AFL-CIO,  under  a  collective
bargaining  agreement  expiring in 1998.  The  Company  considers  its  employee
relations to be good.

Environmental Matters

     The  Company's   facilities  are  subject  to  federal,   state  and  local
environmental  laws and  regulations,  including those relating to discharges to
air, water and land, the treatment,  storage and disposal of solid and hazardous
waste and the  cleanup of  properties  affected  by  hazardous  substances.  The
Company  believes that it is in compliance  with such laws and  regulations  and
does not anticipate  any material  adverse effect on its operations or financial
condition as a result of its efforts to comply with, or its  liabilities  under,
such laws and regulations.  The Company does not anticipate any material capital
expenditures for  environmental  control  facilities or equipment.  Some risk of
environmental  liability is inherent in the  Company's  business,  however,  and
there can be no assurance  that material  environmental  costs will not arise in
the future.  In  particular,  the Company might incur capital and other costs to
comply with increasingly stringent  environmental laws and enforcement policies.


                                       14
<PAGE>


The  Company  does not expect  such  capital  and other costs to have a material
adverse effect on the Company's net cash flows.

Risk Factors

     The Company's business is subject to various risks and  uncertainties.  The
following factors should be carefully considered in reading this report.

Risks Relating to Growth Strategy

     During the past five years, the Company has experienced significant growth.
This growth has resulted from internal growth and from selective acquisitions of
other  businesses,  both of  which  continue  to be  important  elements  of the
Company's business strategy.  There can be no assurance that the Company will be
able to maintain or accelerate  its internal  growth or that the Company will be
able to manage its expanding  operations  effectively.  The Company's ability to
continue to grow through  acquisitions  will depend,  among other things, on the
availability of suitable acquisition  opportunities and the Company's ability to
finance these  transactions.  There can be no assurance that future acquisitions
can be  accomplished  on terms favorable to the Company or that the Company will
be able to obtain financing for such acquisitions.  The success of the Company's
strategy also depends upon its ability to integrate acquired businesses into its
operations.  The  Company may acquire  companies,  brands or product  lines that
dilute earnings or that do not generate positive cash flow initially or for some
period of time  following  their  acquisition.  In addition,  as the Company has
expanded through acquisitions, its management has become more decentralized, and
it relies primarily on the operating  companies to implement systems designed to
ensure  responsive  and  efficient  operations.  The  failure of the  Company to
implement its growth  strategy,  to maintain or upgrade  operating  controls and
systems,  to recruit or retain sufficient  qualified personnel or to effectively
integrate  acquired  businesses  with  the  Company's  operations  could  have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.

Reliance on Foreign Sources of Supply

     In fiscal 1996, the Company derived a significant portion of its sales from
products supplied by foreign  manufacturers.  The Company's  reliance on foreign
sources of supply  subjects it to a number of risks,  including,  among  others,
transportation delays and interruptions, political and economic disruptions, the
imposition  of tariffs,  quotas and other  import or export  controls,  currency
fluctuations  and changes in  government  policies.  The  Company's  reliance on
foreign  manufacturers  also requires it to order products further in advance of
orders  by  customers  than  would  generally  be  the  case  if  products  were
manufactured  domestically.  In  fiscal  1996,  a  significant  portion  of  the
Company's sales were derived from products,  mainly headwear,  ceramic mugs, and
sport and travel bags,  purchased by the Company from  manufacturers  located in
the People's  Republic of China ("China").  China currently enjoys "most favored
nation"  ("MFN")  trading status with the United States.  Under the Trade Act of
1974,  the President of the United States is authorized,  upon making  specified
findings,  to waive  certain  restrictions  that would  otherwise  render  China
ineligible for MFN  treatment.  The President has waived these  provisions  each
year since 1979.Such waiver is subject to renewal in June 1997.  No  assurance
can be given  that  China  will  continue  to enjoy MFN  status  in the  future.
Further,  any United States  legislation or action  revoking or placing  further
conditions on China's MFN status or imposing substantially higher import duties,
if enacted or imposed,  could have a material  adverse effect on the cost of the
Company's  headwear,  ceramic  mugs,







                                       15
<PAGE>





and sport and travel bags. The Company currently  has  alternative  suppliers of
headwear  and sport and  travel  bags (but not  ceramic  mugs)  located in other
countries and continues to evaluate additional sources of supply.

Dependence on Key Personnel

     The  Company's  success  depends  in  part  on  the  efforts  of a few  key
management  personnel,  including  Frank P.  Krasovec,  its  Chairman  and Chief
Executive  Officer,  and Robert P. Whitesell,  its President and Chief Operating
Officer. While Mr. Krasovec currently devotes a substantial majority of his time
to the Company,  he is involved in other businesses and investments.  If for any
reason  such  key  personnel  do not  continue  to be  active  in the  Company's
management,  the Company's  operations could be materially  adversely  affected.
None  of  the  Company's   executive  officers  are  subject  to  employment  or
non-competition  agreements.  The Company  maintains  $750,000  in key-man  life
insurance coverage on Mr. Whitesell but does not have key-man life insurance for
any other executive officer.

Leverage

     At August 31, 1996, the Company had total indebtedness of $47.7 million and
additional  borrowings  of up to $26.3  were  available  under  the Bank  Credit
Facility.  The Company's ability to satisfy its financial  obligations under its
indebtedness  outstanding  from time to time will depend on its future operating
performance,  which is  subject to  prevailing  economic  conditions,  levels of
interest  rates and  financial,  business and other  factors,  many of which are
beyond the Company's  control.  Indebtedness  under the Bank Credit  Facility is
subject to interest rate  fluctuations.  Although the Company currently believes
that cash flow from  operations  and available  borrowing  under the Bank Credit
Facility will be sufficient  to meet the Company's  working  capital and capital
expenditure  requirements  and future debt service  obligations for at least the
next 18 months, there can be no assurance that this will be the case.

Single Supplier of Koozie (R) Insulation Material

     The Company relies on one supplier for the insulation material necessary to
make Koozie (R) beverage  insulators and certain other Koozie (R) products.  The
Company  believes  that  competitors  who make  products  similar  to Koozie (R)
beverage  insulators also purchase their insulation  material from this supplier
and that  currently  there is no other  known  supplier  of this  material.  The
Company buys insulation material on a purchase order basis and does not have any
contract,  agreement  or  commitment  from this  supplier to furnish  insulation
material.  Since the Company began  purchasing  from this supplier in 1983,  the
Company has not experienced any significant disruptions or delays in its supply.
However,  any significant  interruption in the supply of insulation  material or
substantial  price  increases  for this material  could have a material  adverse
effect on the Company's business and the results of its operations.

Competition

     The promotional  products  industry is highly  fragmented and  competitive.
Certain  competitors  are  significantly  larger  companies  which have  greater
financial  and other  resources  than the  Company.  Entry into the  promotional
products  industry is generally not  difficult,  and new  competitors  regularly
enter the industry.  The  promotional  products  industry also competes  against
other advertising  media, such as television,  radio,  newspaper,  magazines and
billboards.



                                       16
<PAGE>



Item 2. Properties

          The Company owns or leases the following physical properties:
<TABLE>
<CAPTION>
<S>                                                                            <C>                      <C>       <C>
                                                                                                        Square     Owned or
          Company                           Location                                Use                   Feet      Leased
          -------                           --------                                ---                   ----      ------
         Corporate                     San Antonio, Texas                    Corporate offices           4,250       Leased
         RCC                           San Antonio, Texas                    Sales, production          86,000       Owned
                                       San Antonio, Texas                    Production                 21,500       Leased
                                       San Antonio, Texas                    Warehouse                  89,350       Leased
                                       Pittsburgh, Pennsylvania              Production                 23,000       Leased
                                       Lithia Springs, Georgia               Sales, production         199,950       Leased
         Barlow                        Los Angeles, California               Sales, production          62,000       Leased
                                       St. Paul, Minnesota                   Production                 38,000       Leased
                                       Reno, Nevada                          Sales, production          60,000       Leased
         Key                           East Peoria, Illinois                 Sales, production          49,000       Leased
                                       Chatsworth, California                Sales, production          28,260       Leased
         ArtMold                       Cranston, Rhode Island                Sales, production          75,000       Leased
                                       Readfield, Wisconsin                  Sales, production          15,148       Owned
         Air-Tex                       Des Moines, Iowa                      Sales, production          52,500       Owned
                                       Des Moines, Iowa                      Warehouse                  14,810       Leased
                                       Arlington, South Dakota               Production                 13,500       Leased
                                       Arlington, South Dakota               Warehouse                  22,760       Leased
                                       Logan, Utah                           Production                 20,400       Leased
</TABLE>

     The Company believes that its existing  facilities are adequate and provide
sufficient  operating  capacity to meet its current  requirements,  and does not
anticipate the need for  significant  expansion in the near future.  The Company
expects  to be able to  extend  the terms of its  leases as they  expire or that
other suitable space will be available, as needed by the Company.

Item 3. Legal Proceedings

     The Company and its  subsidiaries  are subject to  litigation  from time to
time in the ordinary  course of business.  Although the amount of any  liability
with  respect to  currently  pending  litigation  cannot be  determined,  in the
opinion of management, such liability will not have a material adverse effect on
the Company's financial condition or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were  submitted to a vote of the  Company's  shareholders  during the
fourth quarter of the fiscal year ended August 31, 1996.

                                       17
<PAGE>

                                     PART II

Item 5. Market for Registrant's Common Stock and Related Shareholder Matters

         The Company's  common stock, no par value ("Common  Stock"),  is listed
for  quotation on the  Nasdaq/National  Market  ("NASDAQ/NMS")  under the symbol
"NPPI". The following table sets forth the high and low closing sales prices for
the  Common  Stock  for  the  fiscal  periods  indicated,  as  reported  by  the
Nasdaq/NMS.


    
                                                              High         Low
                                                             ------      -------
Fiscal 1995:
First quarter (ended December 3, 1994)  .................... $12        $ 9 3/4
Second quarter (ended March 4, 1995)    ....................  16         11
Third quarter (ended June 3, 1995)      ....................  16         13 1/8
Fourth quarter (ended September 2, 1995)....................  16         13 1/4
Fiscal 1996:
First quarter (ended December 2, 1995)  ....................  18 3/4     15 1/2
Second quarter (ended March 2, 1996)    ....................  20 1/8     16 1/4
Third quarter (ended June 1, 1996)      ....................  24         17 5/8
Fourth quarter (ended August 31, 1996)  ....................  22 3/4     13
                                                              

As of November  15,  1996,  there were 78  shareholders  of record of the Common
Stock.

     The Company has not paid any cash dividends or  distributions on its Common
Stock  since  1989  and  intends  to  retain  earnings  for use in its  business
expansion.  The Company paid dividends to holders of its Preferred Stock between
fiscal  1990  and  fiscal  1993.  None  of  the  Preferred  Stock  is  currently
outstanding.  The  Company's  existing  bank credit  facility  (the "Bank Credit
Facility")  prohibits the payment of cash  dividends on its Common Stock and, in
any event,  the Company  does not  anticipate  paying any cash  dividends in the
foreseeable future.

Item 6. Selected Financial Data

Selected Consolidated Financial Data

     The following  selected  consolidated  financial data regarding the Company
for the five years ended  August 31,  1996 were  derived  from the  consolidated
financial  statements  of the Company  which have been  audited by Ernst & Young
LLP, independent  auditors.  The information below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations"  and  consolidated  financial  statements  and notes  thereto of the
Company included elsewhere herein.




                                       18
<PAGE>
<TABLE>
<CAPTION>
<S>                                                   <C>          <C>            <C>          <C>           <C> 
                                                                        Fiscal Year Ended (a)
                                                               (In thousands, except per share data)
                                                               -------------------------------------

                                                        August 29,  August 28, September 3, September 2,  August 31,
                                                           1992       1993       1994         1995          1996
                                                           ----       ----      -------     -------         ----
        Statement of Income Data (b):

        Sales                                           $37,370      $49,300     $62,385    $103,860      $151,962
                                                                                   
        Cost of sales                                    26,487       33,860      43,207      70,963       106,992
                                                         ------       ------     -------      ------       -------
                                                                                      
        Gross profit                                     10,883       15,440      19,178      32,897        44,970
                                                                                     
        Operating expenses:
 
        Sales and marketing                               4,053        5,678       6,886      11,290        17,049
                                                                                      
        General and administrative                        3,567        4,266        5,065      9,037        12,356
                                                                                       
        Amortization expense                                425          724          889      2,119         3,538
                                                                                       
        Restructuring and unusual charges                    --           --           --        --          1,640
                                                         ------       ------      -------     ------         -----
        Total operating expenses                          8,045       10,668       12,840     22,446        34,583
                                                          -----       ------       ------     ------        ------
        Operating income                                  2,838        4,772        6,338     10,451        10,387
                                                                                     
        Interest expense                                  2,094        1,982        1,030      3,619         3,462
                                                          -----        -----        -----      -----         -----
                                              
        Income before income taxes                          744        2,790        5,308      6,832         6,925
                                                                                   
        Provision for income taxes                          337        1,032        1,979      2,800         2,770
                                                          -----        -----        -----      -----         -----
        Net income                                         $407       $1,183 (c)   $3,329     $4,032        $4,155
                                                           ====       ======       ======     ======        ======
        Income available to common shareholders            $384 (d)   $1,116 (d)   $3,329     $4,032        $4,155

        Net income per common share:
        Primary                                           $0.36        $0.62        $0.93      $1.11         $0.82
        Fully diluted                                     $0.23        $0.50        $0.93      $1.10         $0.82

        Weighted average number of common 
        shares outstanding:
        Primary                                           1,073        1,803        3,576      3,636         5,090
        Fully diluted                                     1,644        2,231        3,576      3,668         5,090

        Balance Sheet Data (at end of period):
        Working capital                               $   7,389      $12,246      $18,668    $31,083       $35,248
        Total assets                                     24,972       25,941       55,702     94,859       121,376
        Total debt:  
        Bank credit facility                                 --        6,146       27,100     50,500        33,725
        Other debt and capital leases                    22,295        1,828        5,097     12,410        13,953
        Redeemable securities                             1,357          --            --         --            --
        Total shareholders' equity (deficit)             (5,951)      13,546       16,871     21,034        57,380
        Other Data:
        EBITDA (e)(f)                                    $3,983       $6,597       $8,526    $14,476       $17,060
        Depreciation expense                                720        1,101        1,299      1,906         3,135
        Amortization expense                                425          724          889      2,119         3,538
        Capital expenditures                                436        1,199        1,426      2,073         4,919
        Dividends (g)                                       103          132           --         --           --

                                                                                                    

</TABLE>
<PAGE>

(a) The Company's  fiscal year is a 52- or 53-week period ending on the Saturday
closest to August 31. All references to fiscal 1992,  1993,  1994, 1995 and 1996
are to the fiscal  years ended August 29,  1992,  August 28, 1993,  September 3,
1994, September 2, 1995 and August 31, 1996, respectively.

(b)  The  Company's  results  of  operations  for  the  periods  presented  were
significantly  affected by the Barlow  acquisition  in fiscal 1992,  the Key and
ArtMold  acquisitions  in fiscal  1994, the  Air-Tex,  Designer  Line and BTS
acquisitions  in fiscal 1995 and the Ocean, Tee-Off and Alpha  acquisitions  in
fiscal  1996 and by the  public  offerings  of  Common  Stock  in June  1993 and
December 1995.  These factors affect the  comparability  of sales and results of
operations from period to period.  See "Management's  Discussion and Analysis of
Financial Condition and Results of Operations."

(c) After  deducting a one-time  charge to  earnings of $575,000  (net of taxes)
related to the  write-off of  unamortized  debt costs and the  termination  of a
product  financing  arrangement in connection with the Company's  initial public
offering of Common Stock in June 1993,  which resulted in a reduction in primary
and fully diluted earnings per share of $0.32 and $0.26, respectively.

(d) Reflects the deduction of dividends on outstanding  Junior  Preferred  Stock
which was redeemed in fiscal 1993.

(e)  EBITDA is  defined as  earnings  before  income  taxes,  interest  expense,
depreciation  and  amortization.  The Company  believes that the presentation of
EBITDA  facilitates an investor's  understanding of the effects on the Company's
operations  of  amortization  of goodwill and other  intangibles  and  increased
interest  expense  under  indebtedness   incurred  in  connection  with  various
acquisitions  which  substantially  impacted  net income,  net income per common
share and cash  flows.  EBITDA  should not be  considered  by an  investor as an
alternative to net income as an indicator of the Company's operating performance
or to  cash  flows  as a  measure  of  liquidity.  EBITDA  is  not  used  in the
presentation  of financial  statements  prepared in  accordance  with  generally
accepted accounting principles.
 
(f) Excluding the restructuring  and unusual charges of $1.6 million,  EBITDA in
fiscal 1996 was $18.7 million.

(g) The Company paid dividends to holders of its Preferred  Stock between fiscal
1990 and fiscal 1993. None of the Preferred Stock is currently outstanding.

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

General

     The Company's fiscal year is a 52- or 53-week period ending on the Saturday
closest to August 31. All references to fiscal 1992,  1993,  1994, 1995 and 1996
are to the fiscal  years ended August 29,  1992,  August 28, 1993,  September 3,
1994, September 2, 1995 and August 31, 1996, respectively.

     The Company's  results of operations for the periods  discussed  below were
significantly  affected by the Barlow  acquisition  in fiscal 1992,  the Key and
ArtMold  acquisitions  in  fiscal  1994,  the  Air-Tex,  Designer  Line  and BTS
acquisitions  in fiscal 1995 and the Ocean,  Tee-Off and Alpha  acquisitions  in
fiscal 1996 and the attendant levels of debt incurred.  The Company has recorded
as goodwill the excess of the purchase  prices over the  estimated  value of the
assets acquired and is amortizing this goodwill over 15 years. In addition,  the
Company's financial results were significantly  impacted by the public offerings
of  Common  Stock in June 1993 and  December  1995.  These  factors  affect  the
comparability of sales and results of operations from period to period.

     The Company's sales continued to grow from $62.4 million during fiscal 1994
to $152.0 million in fiscal 1996, a compound  annual growth rate of 45.4%.  This
increase was a result of (i) an internal  growth rate of 10.1%, or $17.1 million
over the two-year period,  fueled by internal product line expansion,  including
expanded  product  and  price  point  offerings  and  (ii)  acquisitions,  which
contributed  aggregate sales of $72.5 million over the two-year period.  Through
the  acquisitions,  the Company added two major industry  product  categories --
textiles and desk and business  accessories  -- and  significantly  expanded its
product  range,  both by product type and price points within  existing  product
categories.  By moving into new product areas, both through acquisitions and the
internal  development  of new products,  the Company has gained new  independent
distributors and increased its business with existing independent  distributors.
The Company's strategy is to grow through further expansion and  diversification
of its existing  product  offerings and distributor base and by making selective
acquisitions.

                                       20
<PAGE>

     In the fourth  quarter of 1996,  the  Company  recorded  restructuring  and
unusual charges of approximately  $1,640,000  ($984,000 net of tax) based on the
Company's  restructuring of sales and marketing  functions and other operational
changes.  The restructuring was prompted by lower than expected performance from
the  Ocean,  Designer  Line  and  Artmold   acquisitions.   As  a  part  of  its
restructuring,  the Company decided to consolidate certain facilities into other
existing  facilities,   terminate  certain  employees,   and  write-off  certain
capitalized  costs associated with a target  acquisition.  The  consolidation of
these facilities is expected to be completed by the end of 1997. A provision for
closure of these  facilities  totaling  approximately  $890,000,  including  the
write - off of  certain  leasehold  improvements,  has  been  accrued  or  paid.
Approximately  $560,000 of future salary and benefits  owed to three  terminated
employees under their existing employment  agreements was accrued or paid in the
fourth  quarter.  These  employment  agreements have remaining terms that expire
over the next two years. Additionally , capitalized acquisition related costs of
approximately $190,000 were expensed in the fourth quarter.

Results of Operations

         The following  information  is qualified by reference to, and should be
read in conjunction with, the Company's  consolidated  financial  statements and
the notes thereto included elsewhere herein.  The following table presents,  for
the periods indicated, selected items from the Company's consolidated statements
of income expressed as a percentage of sales.
                                               Fiscal Year Ended
                                               -----------------
                                         Sept. 3,    Sept. 2,   Aug. 31,
                                          1994       1995        1996
                                          ----       ----        ----

 Statement of Income Data:
 Sales                                     100.0%     100.0%      100.0%
 Cost of sales                              69.3       68.3        70.4
 Gross profit                               30.7       31.7        29.6
 Total operating expenses                   20.6       21.6        22.8
 Operating income                           10.2       10.1         6.8
 Interest expense                            1.7        3.5         2.3
 Income before income taxes                  8.5        6.6         4.5
 Net income                                  5.3        3.9         2.7


       Fiscal Year Ended August 31, 1996 Compared With Fiscal Year Ended
                                September 2, 1995

     Sales for fiscal 1996 increased $48.1 million,  or 46.3%, to $152.0 million
from  $103.9  million  in  fiscal  1995.  Of this  increase,  $5.7  million  was
attributable  to increased  sales of the  Company's  core product  lines,  $21.8
million was  due to  inclusion  of sales  from  the  Ocean,  Tee-Off  and  Alpha
acquisitions which were completed during

                                       21
<PAGE>




fiscal 1996, and $20.6 was  attributable to the full-year impact of the Air-Tex,
Designer  Line and BTS  acquisitions,  which  were  completed  in  fiscal  1995.
Internal sales growth was fueled by product line expansion, including the Koozie
(R) cooler bag products  introduced by RCC in January  1994,  with sales of $7.8
million,  and the Value Line (TM) product  line  expansion  and crystal  product
offerings  introduced  by  Barlow in June  1993,  with  aggregate  sales of $5.8
million.

     Cost of goods sold for fiscal 1996 increased  $36.0 million,  or 50.7%,  to
$107.0 million from $71.0 million in fiscal 1995. Of this increase, $4.9 million
was  attributable  to the increased  sales of the Company's  core product lines,
$18.1  million  was  due  to  the  inclusion  of  sales  from  the  fiscal  1996
acquisitions  and  $13.0  million  was  attributable  to  the  inclusion  of the
full-year impact of the fiscal 1995 acquisitions.  As a majority of the purchase
orders by the Company are  denominated  in United  States  dollars,  the foreign
currency  translation risk has been  significantly  reduced and is immaterial in
total.  The  Company  believes  the  differences  in  quality  between  products
manufactured  in-house  and  those  imported  are  negligible,   while  imported
products, as a general rule, are less expensive.

     Gross profit for fiscal 1996 increased  $12.1 million,  or 36.8%,  to $45.0
million from $32.9  million in fiscal  1995.  Excluding  the 1996  acquisitions,
gross profit as a percentage of sales  increased from 31.7% to 31.8%.  Including
the 1996  acquisitions,  gross profit as a percentage  of sales  decreased  from
31.7%  to  29.6%.   This  decrease  was  mainly   attributable  to  fiscal  1996
acquisitions  of businesses  which  operate with lower gross profit  percentages
than the Company's existing businesses.

     Total operating expenses for fiscal 1996 increased $12.2 million, or 54.5%,
to $34.6 million from $22.4 million in fiscal 1995.  This increase was primarily
attributable to the fiscal 1995 and 1996 acquisitions and the 1996 restructuring
and unusual charges.  Exclusive of the 1996  restructuring  and unusual charges,
operating expenses as a percentage of sales remained flat at 21.6%.

     Operating  income for fiscal  1996  decreased  $64,000,  or 0.6%,  to $10.4
million from $10.5 million in fiscal 1995.  Exclusive of the 1996  restructuring
and unusual  charges,  operating  income as a percentage of sales decreased from
10.1%  to 7.9%.  This  decrease  was  mainly  attributable  to the  fiscal  1996
acquisitions  of businesses  which  operate with lower gross profit  percentages
than the Company's  existing  businesses and to lower than expected  performance
from the Ocean, Designer Line and Artmold acquisitions.

     Interest  expense was $3.5 million in fiscal 1996  compared to $3.6 million
in fiscal 1995. This decrease was attributable to lower effective interest rates
and the use of December 1995 stock offering proceeds to pay down debt, offset by
borrowings used to finance the fiscal 1995 and fiscal 1996 acquisitions.

The Company's effective tax rate was 40.0% in fiscal 1996 as compared with 41.0%
in fiscal 1995.

As a result of the above,  net income for fiscal  1996  increased  $123,000,  or
3.1%, to $4.2 million from $4.0 million in fiscal 1995.

      Fiscal Year Ended September 2, 1995 Compared With Fiscal Year Ended
                               September 4, 1994

     Sales for fiscal 1995 increased $41.5 million,  or 66.5%, to $103.9 million
from  $62.4  million  in  fiscal  1994.  Of this  increase,  $11.5  million  was
attributable  to increased  sales of the  Company's  core product  lines,


                                       22
<PAGE>



$11.7 million was due to inclusion of sales from the Air-Tex,  Designer Line and
BTS acquisition which were completed  during fiscal 1995, and $18.3 million was
attributable to the full-year impact of the Key and ArtMold acquisitions,  which
were completed in fiscal 1994.  Internal sales growth was fueled by product line
expansion,  including  the Koozie (R) cooler bag products  introduced  by RCC in
January 1994,  with sales of $5.1 million,  and the Value Line (TM) product line
expansion and crystal product offerings  introduced by Barlow in June 1993, with
aggregate sales of $2.7 million.

     Cost of goods sold for fiscal 1995 increased  $27.8 million,  or 64.2%,  to
$71.0 million from $43.2 million in fiscal 1994. Of this increase,  $8.0 million
was  attributable  to the increased  sales of the Company's  core product lines,
$7.3 million was due to the inclusion of sales from the fiscal 1995 acquisitions
and $12.5 million was  attributable to the inclusion of the full-year  impact of
the fiscal  1994  acquisitions.  As a  majority  of the  purchase  orders by the
Company  are  denominated  in  United  States  dollars,   the  foreign  currency
translation risk has been significantly  reduced and is immaterial in total. The
Company  believes  the  differences  in quality  between  products  manufactured
in-house and those  imported  are  negligible,  while  imported  products,  as a
general rule, are less expensive.

     Gross profit for fiscal 1995 increased  $13.7 million,  or 71.5%,  to $32.9
million  from $19.2  million in fiscal  1994.  Additionally,  gross  profit as a
percentage of sales increased from 30.7% to 31.7%.  The increase in gross profit
was attributable to increased internal sales growth and to the Air-Tex, Designer
Line and BTS  acquisitions  in fiscal 1995.  The increase in gross profit margin
percentage is primarily  attributable to the acquisitions,  as sport, travel and
tote bags and  recognition  awards and business  gifts items  contribute  higher
margins than previously  experienced on a consolidated basis by the Company, and
to improved  absorption of overhead at the regional mug  imprinting  facility in
Pittsburgh, Pennsylvania.

     Total operating expenses for fiscal 1995 increased $9.6 million,  or 74.8%,
to $22.4 million from $12.8 million in fiscal 1994.  This increase was primarily
attributable to the fiscal 1994 and 1995 acquisitions. Exclusive of the increase
due to the fiscal 1995  acquisitions and the full-year impact of the fiscal 1994
acquisitions,  operating  expenses  increased 14.7%. This increase was primarily
attributable  to increased  selling and marketing  expenditures of $1.0 million,
the full-year impact of the expansion and realignment of duties of management at
the parent company level in the fourth  quarter of fiscal 1994 of  approximately
$350,000 and increased  performance  bonuses to key management of  approximately
$290,000,  based on achievement of certain operating  results.  Prior to the Key
and ArtMold  acquisitions in fiscal 1994, the Company's  executive officers were
also  operating  officers  of RCC.  In the fourth  quarter of fiscal  1994,  the
Company  realigned  and  expanded  the  management  staff  at  the  Company  and
eliminated their operating duties at RCC. The purpose of this realignment was to
enable senior  management to focus on identifying and structuring  acquisitions,
coordinating  activities  among the Company's  various  operating  companies and
providing overall operating and financial  guidance to the operating  companies.
Management  believes this  reorganization was essential to the implementation of
the Company's growth strategy.

     Operating income for fiscal 1995 increased $4.2 million, or 64.9%, to $10.5
million from $6.3 million in fiscal 1994.  Operating  income as a percentage  of
sales decreased slightly from 10.2% to 10.1%.

     Interest  expense was $3.6 million in fiscal 1995  compared to $1.0 million
in  fiscal  1994.  This  increase  was  exclusively  attributable  to  increased
indebtedness related to the fiscal 1995 acquisitions and the full-year impact of
the fiscal 1994 acquisitions.



                                       23
<PAGE>

     The Company's  effective tax rate was 41.0% in fiscal 1995 as compared with
37.3% in fiscal 1994.  This increase was due to  non-deductible  amortization of
goodwill as a result of the acquisition of ArtMold in fiscal 1994.

     As a result of the above, net income for fiscal 1995 increased $703,000, or
21.1%, to $4.0 million from $3.3 million in fiscal 1994.


Liquidity and Capital Resources

The Company has financed its business activities primarily with borrowings under
the Bank  Credit  Facility,  notes  payable  to the  former  owners of  acquired
businesses, the sale of Common Stock and cash provided from operations.

     The Bank Credit Facility  provides for aggregate  borrowings of up to $60.0
million,  comprised of a $20.0 million  revolving  credit facility ($9.4 million
outstanding  at November 15, 1996),  a $21.5  million term loan  facility  ($6.7
million  outstanding at November 15, 1996) and an $18.5 million acquisition loan
facility  ($14.8 million  outstanding at November 15, 1996).  The revolving loan
facility  is  available  to finance  acquisitions  and for  working  capital and
general  corporate  purposes.  The  acquisition  loan  facility is  available to
finance acquisitions.

     Pursuant to the terms of the Bank Credit Facility,  the Company is required
to  maintain  certain  financial  ratios and minimum  tangible  net worth and is
subject  to  a  prohibition   on  dividends,   and   limitations  on  additional
indebtedness, liens, investments, issuance of stock of subsidiaries,  changes in
management and ownership, mergers and acquisitions,  sale/leaseback transactions
and sales of assets.  An event of default occurs under the Bank Credit  Facility
if any person  becomes the owner of more than 35.0% of the  outstanding  capital
stock of the  Company,  or if  within  a  12-month  period,  a  majority  of the
Company's Board of Directors shall be comprised of new directors. The Company is
required to make quarterly  amortization payments on certain amounts outstanding
under  the  Bank  Credit  Facility.  See  note 8 to the  consolidated  financial
statements of the Company included  elsewhere herein.  The final maturity of the
Bank Credit Facility is July 31, 2000. Amounts outstanding under the Bank Credit
Facility  bear interest at a rate equal to either the agent bank's prime rate or
the London  Interbank  Offered  Rate,  plus an interest rate spread which varies
based on the ratio of the Company's  Consolidated Senior Funded Debt to Earnings
Before  Interest Taxes and  Depreciation  (as such terms are defined in the Bank
Credit  Facility).  Indebtedness  under the Bank Credit Facility is secured by a
first lien priority  security  interest in  substantially  all the assets of the
Company,  including a pledge of the stock of each of the Company's subsidiaries.
Additionally,  any entities and assets  acquired with  financing  under the Bank
Credit  Facility  will  serve as  security.  Borrowings  under  the Bank  Credit
Facility are jointly and severally  guaranteed by all  subsidiaries  acquired or
created by the Company.

     On December 20, 1995, the Company completed the sale of 2,015,481 shares of
Common  Stock  in a  public  offering.  The net  proceeds  of this  offering  of
approximately $31 million were used to repay  indebtedness under the Bank Credit
Facility. The Company may, subject to certain conditions,  reborrow such amounts
from time to time for general  corporate  purposes,  including  financing future
acquisitions.



                                       24
<PAGE>

     In connection  with the Key and ArtMold  acquisitions  in fiscal 1994,  the
Air-Tex,  Designer Line, and BTS  acquisitions in fiscal 1995, and the Ocean and
Tee-Off and Alpha  acquisitions  in fiscal 1996, the Company  issued  promissory
notes to the former owners of the acquired  businesses in an aggregate principal
amount of $6.4 million.  These promissory notes are generally  payable over five
years from the dates of the respective  acquisitions and bear interest at annual
rates  ranging from 5.5% to 9.0%. Of these notes,  $4.6 million are  convertible
into Common  Stock at prices  ranging  from $17.00 to $20.00 per share (of which
$950,000 was  converted  into 55,882  shares of common stock in fiscal 1996) and
$1.1 million are secured by an irrevocable letter of credit. The Company is also
obligated  to make  payments  aggregating  $6.1  million over the next ten years
under the terms of non-compete  agreements  with certain of the former owners of
these  acquired  businesses,  subject  in the  case  of the BTS  acquisition  to
increases  of up to $1.0  million  contingent  upon the  achievement  of certain
operating income levels by the BTS division of Barlow. Additionally,  the owners
of Alpha  Products,  Inc. can receive up to an additional  $2.3 million upon the
achievement of certain operating income levels by the Alpha division of RCC.

     During  fiscal 1996,  net cash  provided by operating  activities  was $6.9
million.  The net  use of  cash  in  investing  activities  was  $23.1  million,
primarily representing $17.6 million as the aggregate cash consideration paid in
the  Ocean,  Tee-Off  and  Alpha  acquisitions,  and  $5.0  million  in  capital
expenditures.  Financing activities provided net cash of $15.9 million primarily
from  borrowings  under the Bank Credit  Facility and proceeds from the December
1995 stock  offering.  The proceeds from the  borrowings  were used primarily to
finance the Ocean, Tee-Off and Alpha acquisitions.

     In fiscal 1995, net cash provided by operating activities was $2.9 million.
The net use of  cash  in  investing  activities  was  $24.8  million,  primarily
comprising  $22.4  million  as the  aggregate  cash  consideration  paid  in the
Air-Tex,  Designer Line and BTS  acquisitions  and capital  expenditures of $2.0
million. Financing activities provided $23.5 million, net of increase in cash.

The Company's principal capital needs will be to finance any future acquisitions
and ongoing capital  expenditures.  Although the Company currently believes that
cash  flow from  operations  and  available  borrowings  under  the Bank  Credit
Facility will be sufficient  to meet the Company's  working  capital and capital
expenditure  requirements  and future debt service  obligations for at least the
next 18  months,  there can be no  assurance  that  this  will be the case.  The
Company  believes  its fiscal  1997  capital  expenditure  requirements  will be
approximately $4.5 million,  but there can be no assurance that this will be the
case. The Company  anticipates that such capital  expenditures  will be required
primarily to acquire additional  processing  equipment,  management  information
systems, furniture and fixtures and leasehold improvements.

Seasonality and Quarterly Results

     The Company believes that the promotional  products industry  traditionally
tends to generate lower sales during the Company's  second fiscal  quarter.  The
Company attempts to offset seasonal demand by offering promotional programs on a
variety of items. The following table presents  quarterly  results of operations
for  fiscal  1994,  1995 and 1996  which  have been  affected  by the  Company's
acquisitions.


                                       25
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                            <C>    <C>      <C>       <C>      <C>     <C>




Fiscal Years
                              1994                        1995                           1996
                                           (In thousands, except per share data)
------------------------------------------------------------------------------------------------------------------------------------
Fiscal Quarters     1st      2nd      3rd(a)  4th(b)       1st      2nd(c)   3rd(d)    4th(e)    1st(f)    2nd(g)   3rd(h)    4th   
------------------------------------------------------------------------------------------------------------------------------------
Sales          $12,945   $11,240   $16,537   $21,663   $22,916   $19,316    $29,995   $31,633  $33,368  $30,086  $45,034 $43,474

Gross profit     4,222     3,333     5,068     6,555     7,252     5,492      9,936    10,217   10,623    8,462   13,655  12,230   

Operating Income 1,623       673     2,028     2,014     2,539       734      3,779     3,399    3,427      917    4,908   1,135(i) 
                                                                                                                             
Net Income (loss)  941       345     1,152       891     1,114       (22)     1,582     1,358    1,356       88    2,526     185

Net Income (loss)
per common share:

Primary          $0.26     $0.10     $0.32     $0.25     $0.31    $(0.01)     $0.44     $0.38    $0.37    $0.02    $0.44   $0.03

Fully diluted    $0.26     $0.10     $0.32     $0.25     $0.31    $(0.01)     $0.44     $0.37    $0.37    $0.02    $0.44   $0.03

Weighted avg. common
shares outstanding

Primary           3,592    3,610     3,576     3,576     3,575     3,610     3,610     3,636    3,691    5,055      5,767  5,822


Fully Diluted     3,592    3,610     3,610     3,576     3,575     3,610     3,610     3,668    3,691    5,055      5,767  5,822
</TABLE>

                           

         (a) The Key acquisition was completed in May 1994.

         (b) The ArtMold acquisition was completed in July 1994.

         (c) The Air-Tex acquisition was completed in March 1995.

         (d) The Designer Line acquisition was completed in June 1995.

         (e) The BTS acquisition was completed in July 1995.

         (f) The Ocean acquisition was completed in November 1995.

         (g)   The sale of  2,015,481  shares of Common  Stock was  completed in
               December 1995 with the proceeds of the public offering being used
               to repay indebtedness.  In addition,  the Tee-Off acquisition was
               completed in January 1996.

         (h) The Alpha acquisition was completed in April 1996.

         (i)  Includes restructuring and unusual charges of $1.6 million.

Supplemental Data

     The Company's earnings before income taxes, interest expense,  depreciation
and  amortization  ("EBITDA")  grew at a compound  annual growth rate of 39.9 %,
from $8.5  million  in  fiscal  1994 to $18.7  ($17.1  million  in  fiscal  1996
including  restructuring  and unusal  charges  of $1.6  million).  The  non-cash
amortization impact to net income per share for fiscal 1995 and 1996, after tax,
was  equal to $0.40 and  $0.46,  respectively.  The  Company  believes  that the
presentation of EBITDA facilitates an investor's understanding of the effects on
the Company's  operations of amortization of goodwill and other  intangibles and
increased  interest  expense  under  indebtedness  incurred in  connection  with
various  acquisitions  which  substantially  impacted net income, net income per
common share and cash flows.  EBITDA  should not be considered by an investor as
an  alternative  to  net  income  as an  indicator  of the  Company's  operating
performance  or to cash flows as a measure of  liquidity.  EBITDA is not used in
the presentation of financial  statements  prepared in accordance with generally
accepted accounting principles.


                                       26
<PAGE>

Inflation

         Inflation  affects the cost of goods and services  used by the Company.
The  competitive  environment  somewhat  limits the  ability  of the  Company to
recover higher costs by raising  prices,  although the Company does  selectively
increase prices for certain products.  Moreover, the Company's products are sold
to distributors based on catalog prices.  Catalogs are published  annually,  and
the Company generally is not able to raise prices until a new catalog is issued.
The Company attempts to mitigate the adverse effects of future inflation through
selective price increases, improved productivity and cost containment efforts.




                                       27












<PAGE>



Item 8. Financial Statements and Supplementary Data

Norwood Promotional Products, Inc.

Annual Financial Statements

Report of Ernst & Young LLP, Independent Auditors

Consolidated Balance Sheets as of September 2, 1995 and August 31, 1996

Consolidated  Statements  of  Income  for the years  ended  September  3,  1994,
September 2, 1995 and August 31, 1996

Consolidated Statements of Shareholders' Equity for the years ended September 3,
1994, September 2, 1995 and August 31, 1996

Consolidated  Statements  of Cash Flows for the years ended  September  3, 1994,
September 2, 1995 and August 31, 1996

Notes to Consolidated Financial Statements



                                       28
<PAGE>




                         REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
Norwood Promotional Products, Inc.

     We have audited the  accompanying  consolidated  balance  sheets of Norwood
Promotional  Products,  Inc. as of September 2, 1995 and August 31, 1996 and the
related consolidated statements of income,  shareholders' equity, and cash flows
for the years ended  September  3, 1994,  September 2, 1995 and August 31, 1996.
Our audits also included the financial statement schedule listed in the Index at
Item 14(a).  These financial  statements and schedule are the  responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit  also  includes  examining,  on a test  basis,  evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present  fairly,  in all material  respects,  the financial  position of Norwood
Promotional  Products,  Inc. at September  2, 1995 and August 31, 1996,  and the
consolidated  results  of their  operations  and their  cash flows for the years
ended  September 3, 1994,  September 2, 1995 and August 31, 1996,  in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements  taken  as a whole,  present  fairly  in all  material  respects  the
information set forth therein.

                                   ERNST & YOUNG LLP

San Antonio, Texas
October 10, 1996



                                       29
<PAGE>

                       Norwood Promotional Products, Inc.
                           Consolidated Balance Sheets
                                 (in thousands)


                                            September 2,              August 31,
                                                1995                     1996
                                                ----                     ----
ASSETS
Current Assets:
Cash and cash equivalents                    $    2,174              $    1,861
Accounts receivable                              17,001                  21,621
Other receivables                                   492                     724
Inventories                                      23,913                  31,823
Prepaid expenses and other current assets         1,916                   2,231
                                                -------                --------
Total current assets                             45,496                  58,260

Property, plant and equipment, net               12,090                  19,585
Deferred income taxes                               249                     751
Goodwill                                         30,443                  35,266
Other assets                                      6,581                   7,514
                                                -------                --------
Total assets                                    $94,859                $121,376
                                                =======                ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable                          $ 5,803                 $10,269
Accrued liabilities                               4,246                   5,920
Income taxes payable                                866                     129
Current portion of long-term debt                 3,232                   6,378
Current portion of lease obligation                 266                     316
                                                -------                --------
Total current liabilities                        14,413                  23,012

Long-term debt, excluding current portion        59,210                  40,447
Capital lease obligation, excluding current
portion                                             202                     537
Shareholders' equity:
Common stock, no par value; 20,000,000 shares
authorized; 3,541,638 and 5,615,791 shares
issued; 3,540,208 and 5,614,361 shares
outstanding, at September 2, 1995 and
August 31, 1996, respectively                    19,617                  51,568
Additional paid-in capital                          369                     369
Less cost of treasury stock 1,430 shares at
September 2, 1995 and August 31, 1996,
respectively                                         (8)                     (8)
Retained earnings                                 1,310                   5,465
                                                -------                --------
                                                 21,288                  57,394
Less receivables for purchase of common stock      (254)                    (14)
                                                -------                -------- 
Total shareholders' equity                       21,034                  57,380
                                                -------                ---------
Total liabilities and shareholders' equity      $94,859                $121,376
                                                =======                ========


                             See accompanying notes



                                       30
<PAGE>




                       Norwood Promotional Products, Inc.
                        Consolidated Statements of Income
                      (in thousands, except share amounts)


                                                Year Ended
                                                ----------

                                September 3,       September 2,      August 31,
                                   1994               1995             1996
                                ------------       ------------      ----------

Sales                          $      62,385       $    103,860    $    151,962
Cost of sales                         43,207             70,963         106,992
                               -------------       ------------     -----------
Gross profit                          19,178            32,897           44,970

Operating expenses:
Sales and marketing                    6,886            11,290           17,049
General and administrative             5,065             9,037           12,356
Amortization                             889             2,119            3,538
Restructuring and unusual charges          -                -             1,640
                               -------------       -----------      -----------
Total operating expenses              12,840            22,446           34,583
                                ------------       -----------      -----------
Operating income                       6,338            10,451           10,387
Interest expense                       1,030             3,619            3,462
                               -------------       -----------      -----------
Income before income taxes             5,308             6,832            6,925
Provision for income taxes             1,979             2,800            2,770
                               -------------       -----------      -----------
Net income                     $       3,329       $     4,032      $     4,155
                               =============       ===========      ===========

Net income per common share:
    Primary                           $0.93             $1.11            $0.82
    Fully diluted                     $0.93             $1.10            $0.82

Weighted average number of
    common shares outstanding:
    Primary                       3,575,645         3,636,259        5,090,000
    Fully diluted                 3,575,645         3,668,175        5,090,000


                             See accompanying notes



                                       31
<PAGE>




                                 Norwood Promotional Products, Inc.
                           Consolidated Statements of Shareholders' Equity
                                           (in thousands)

<TABLE>
<CAPTION>
<S>                                                                            <C>     <C>       <C> 



                                                                               Receivables
                                                                                  for               Total
                                                     Additional   Retained     Purchases Treasury  Shareholders'
                                      Common Stock     Paid-in    Earnings     of Common  Stock    Equity
                                     Shares   Amount   Capital   (Deficit)        Stock         
                                 -----------------------------------------------------------------------------
   Balance at August 28, 1993        3,539   $19,613     $369     $ (6,051)      $(385)    ---     $13,546
      Treasury stock purchases                                                             (4)          (4)
      Net income                                                     3,329                           3,329
                                 -----------------------------------------------------------------------------
   Balance at September 3, 1994      3,539    19,613      369       (2,722)       (385)    (4)      16,871
      Treasury stock purchases                                                             (4)          (4)
      Exercise of stock options          3         4                                                     4
      Payment on shareholder notes                                                 131                 131
      Net income                                                     4,032                           4,032
                                 -----------------------------------------------------------------------------
   Balance at September 2, 1995      3,542    19,617      369        1,310        (254)    (8)      21,034
      Exercise of stock options          3        15                                                    15
      Payment on shareholder notes                                                 240                 240               
      Conversion of notes payable       56       950                                                   950
      Sale of common stock           2,015    30,986                                                30,986
      Net income                                                     4,155                           4,155
                                 -----------------------------------------------------------------------------
   Balance at August 31, 1996        5,616   $51,568     $369       $5,465        $(14)   $(8)     $57,380
                                 ============================================================================= 
                                     


                                           See accompanying notes
</TABLE>
<PAGE>



                       Norwood Promotional Products, Inc.
                      Consolidated Statements of Cash Flows
                                 (in thousands)
[CAPTION]
<TABLE>
<S>                                                                            <C>          <C>                 <C> 


                                                                                            Year Ended
                                                                                ------------------------------------------
                                                                               September 3,    September 2,    August 31,
                                                                                   1994         1995           1996
                                                                                   ----         ----           ----
Operating Activities
Net income                                                                       $ 3,329        $4,032       $4,155
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation                                                                       1,299         1,906        3,135
Amortization                                                                         889         2,119        3,538
(Gain) loss on disposal of equipment                                                  14            (5)         (21)
Deferred income tax provision                                                        (36)         (258)        (502)
Changes in operating assets and
liabilities, net of effect
of acquisitions:
Accounts receivable                                                               (1,373)       (2,148)      (1,041)
Other receivables                                                                     40          (431)         (97)
Inventories                                                                       (2,411)       (1,671)      (2,957)
Prepaid expenses and other assets                                                   (222)         (219)        (141)
Trade accounts payable                                                              (278)       (1,196)         279
Accrued liabilities                                                                  297           287        1,256
Income taxes receivable/payable                                                      160           532         (738)
                                                                                     ---           ---         ---- 
Net cash provided by operating activities                                          1,708         2,948        6,866

Investing Activities
Payments on capital leases                                                          (128)         (302)        (601)
Purchases of property, plant and equipment                                        (1,426)       (2,073)      (4,919)
Proceeds from sale of property, plant and equipment                                    7             56          32
Acquisitions, net of cash acquired                                               (23,564)      (22,446)     (17,596)
                                                                                 -------       -------      ------- 
Net cash used in investing activities                                            (25,111)      (24,765)     (23,084)

Financing Activities
Proceeds from long-term debt                                                      54,826        59,684       65,500
Principal payments on long-term debt                                             (30,568)      (36,119)     (80,787)
Treasury stock purchases                                                              (4)           (4)          --
Sale of common stock                                                                  --            --       30,986
Exercise of stock options                                                             --             4            1
Payment on shareholder notes                                                          --           131          240
Debt issuance fees                                                                  (518)         (191)         (35)
                                                                                    ----          ----          --- 
Net cash provided by financing activities                                         23,736        23,505       15,905
                                                                                  ------        ------       ------
Net change in cash and cash equivalents                                              333         1,688         (313)
Cash and cash equivalents at beginning of period                                     153           486        2,174
                                                                                  ------        ------       ------
Cash and cash equivalents at end of period                                         $ 486       $ 2,174      $ 1,861
                                                                                   =====       =======      =======
Cash paid during the period for:
Interest                                                                            $816        $3,396       $3,420
Income taxes                                                                       1,573         2,572        2,945
</TABLE>


                             See accompanying notes

                                       33
<PAGE>



                       Norwood Promotional Products, Inc.
                   Notes to Consolidated Financial Statements
            September 3, 1994, September 2, 1995 and August 31, 1996





1.           Description of The Business

         Norwood  Promotional  Products,  Inc.  (the  Company) is engaged in the
manufacture and sale of promotional  products and has operations  throughout the
United States.  Products are  manufactured  domestically as well as imported and
then decorated with an advertiser's  message.  The Company's  product lines are:
wearables;  mugs and  glassware;  sporting goods and leisure  products;  writing
instruments;  sport,  travel and tote bags; pocket  specialties and accessories;
desk and business  accessories;  recognition awards and business gifts; buttons,
badges, magnets, paper products; and golf related items.

2.       Significant Accounting Policies

Principles of Consolidation

     The  accompanying  financial  statements  include  the  accounts of Norwood
Promotional  Products,  Inc.  and  its  directly  and  indirectly  wholly  owned
subsidiaries,  Norcorp,  Inc., Radio Cap Company, Inc. (RCC), Barlow Promotional
Products,   Inc.  (Barlow),   Key  Industries,   Inc.  (Key),  ArtMold  Products
Corporation  (ArtMold),  Air-Tex Corporation  (Air-Tex) and Norwood Travel, Inc.
All significant  intercompany  balances and transactions have been eliminated in
consolidation.

Accounts Receivable

     Accounts  receivable is shown net of the allowance for doubtful accounts of
$540,000 and $775,000 at September 2, 1995, and August 31, 1996, respectively.

         The  Company  manufactures  and sells  promotional  products to various
distributors. The Company performs periodic credit evaluations of its customers'
financial  condition and generally  does not require  collateral.  Credit losses
have  been  within  management's  expectations.  Bad debt  expense  approximated
$80,000,  $169,000 and $330,000 for the years ended September 3, 1994, September
2, 1995 and August 31, 1996, respectively.

Inventories

     Raw materials and purchased  finished goods are stated at the lower of cost
(first-in,   first-out  method)  or  market.  Work-in-process  and  manufactured
finished  goods  inventories  are  stated at the lower of cost  (moving  average
method) or market.

Property, Plant and Equipment

         Property,  plant and equipment are stated at cost.  Major  renewals and
betterments   are  charged  to  the  property   accounts   while   replacements,
maintenance,  and  repairs  which do not  improve  or  extend  the  lives of the
respective  assets are expensed  currently.  Depreciation is provided at amounts
calculated  to  amortize  the cost of the  assets  over their  estimated  useful
economic lives using the straight-line  method.  Estimated useful lives are five
to thirty-one  years for buildings and improvements and three to seven years for
machinery and equipment.

Federal Income Taxes

         The Company records income taxes under Financial  Accounting  Standards
Board (FASB)  Statement No. 109 using the liability  method.  Under this method,
deferred tax assets and liabilities are determined based on differences  between
financial  reporting  and tax bases of assets and  liabilities  and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.


                                       34
<PAGE>



Fiscal Year

         The Company has a fiscal year of 52- or 53-week periods that end on the
Saturday  closest to August 31. All references to 1994, 1995 and 1996 herein are
to the fiscal years ended September 3, 1994 (53-week period),  September 2, 1995
(52-week period) and August 31, 1996 (52-week period), respectively.

Cash Equivalents

         Cash equivalents are highly liquid  investments with a maturity date no
longer than 90 days.

Research and Development Costs

         Research and development  costs are expensed as incurred.  Research and
development expense approximated  $127,000,  $152,000 and $178,000 for the years
ended September 3, 1994, September 2, 1995 and August 31, 1996, respectively.

Fair Value of Financial Instruments

         The  carrying  amount  reported in the balance  sheet for cash and cash
equivalents,   accounts   receivable,   accounts  payable,  and  long-term  debt
approximates its fair value.  The Company  estimates the fair value of long-term
debt by discounting the future cash flows of the instrument, using the Company's
incremental rate of borrowing for a similar instrument.

Earnings Per Share

         Earnings per common share is computed using the weighted average number
of shares of common stock and common stock equivalents  outstanding  during each
period.

         The  dilutive  effect of stock  options and common  stock  warrants are
calculated  using the treasury stock method.  In determining the dilutive effect
of  these  stock  options  and  warrants,  the  common  stock  equivalents  were
calculated  based upon the greater of the  closing  price on the last day of the
year or the average price of the Company's common stock for the year in applying
the treasury stock method.

Concentration of Foreign Suppliers

         The Company  derives a  significant  portion of its sales from products
supplied by Far East  manufacturers.  While the Company is not  dependent on any
single  manufacturer in the Far East, the Company could be adversely affected by
political or economic disruptions  affecting the business or operations of third
party manufacturers located in the Far East.

Reclassification

     Certain  prior  year  balances  have  been   reclassified  for  comparative
     purposes.
 
Use of Estimates

             The   preparation  of  financial   statements  in  conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and reported  amounts of revenues and expenses  during the reporting
period. Actual results could differ from those estimates.



                                       35
<PAGE>

New Financial Accounting Standards

         In March 1995,  the FASB issued  Statement No. 121,  Accounting for the
Impairment of  Long-Lived  Assets and for  Long-Lived  Assets to be Disposed of,
which  required  impairment  losses to be recorded on long-lived  assets used in
operations when indicators of impairment are present and the  undiscounted  cash
flows  estimated  to be  generated  by those  assets  are less than the  assets'
carrying  amount.  Statement 121 also  addresses the  accounting  for long-lived
assets that are expected to be disposed of. The Company will adopt Statement 121
in fiscal  year 1997 and based on current  circumstances,  does not  believe the
effect of adoption will be material.

         In October  1995,  the FASB issued  Statement No. 123,  Accounting  for
Stock-Based   Compensation,   which  encourages,   but  does  not  require,  the
recognition  of  compensation  expense for  virtually all stock options based on
their value on the date of grant.  Although  expense  recognition  for  employee
stock based compensation is not required,  Statement 123 requires companies that
choose not to adopt the new fair value  accounting  to  disclose  pro-forma  net
income and earnings per share under the new method. The Company will be required
to apply the  requirements of Statement No. 123 in fiscal year 1997. The Company
believes that  adoption of Statement 123 will not have a material  impact on its
financial condition as the Company will not adopt the fair value accounting, but
will instead comply with the disclosure requirements.

3.       Acquisitions

         On November 20, 1995,  January 23, 1996 and April 1, 1996,  the Company
acquired  substantially  all of the  assets  of  Ocean  Specialty  Manufacturing
Corporation  (Ocean),  Tee-Off  Enterprises,  Inc. (Tee-Off) and Alpha Products,
Inc.  (Alpha),  respectively.  In connection with the acquisition of Ocean,  the
Company  (through its  wholly-owned  subsidiary  Key) paid $2.5 million in cash,
issued $1.0 million in convertible  notes and other debt and assumed or incurred
liabilities of $1.4 million. In connection with the acquisition of Tee-Off,  the
Company (through its wholly-owned subsidiary ArtMold) paid $6.0 million in cash,
issued $1.5 in notes and other debt and assumed or incurred  liabilities of $1.7
million.  In connection with the acquisition of Alpha,  the Company (through its
wholly-owned  subsidiary  RCC) paid $6.7 million in cash and assumed or incurred
liabilities  of $3.2  million.  Additionally,  the  former  owners  of Alpha can
receive up to an additional  $2.3 million if certain  future  earnings goals are
met. Ocean, Tee-Off and Alpha are suppliers of promotional products.

         On March 1, 1995, June 13, 1995 and July 31,1995,  the Company acquired
substantially all of the assets of Air-Tex,  Designer Plastics,  Inc. (Designer)
and BTS Group, Inc. (BTS),  respectively.  In connection with the acquisition of
Air-Tex,  the  Company  paid  $13.3  million  in cash,  issued  $2.5  million in
convertible  notes and other  debt,  issued  60,294  warrants  to  purchase  the
Company's  common stock at $17.00 per share and assumed or incurred  liabilities
of $2.4 million.  In connection  with the  acquisition of Designer,  the Company
(through its wholly-owned  subsidiary Air-Tex) paid $2.4 million in cash, issued
$1.5 million in notes payable and non-compete agreements and assumed liabilities
of $1.0 million. In connection with the acquisition of BTS, the Company (through
its  wholly-owned  subsidiary  Barlow)  paid $6.3  million in cash,  issued $3.5
million in notes payable and non-compete  agreements and assumed  liabilities of
$1.4  million.  Additionally,  the  former  owners of BTS can  receive  up to an
additional  $1.0  million  under the  non-compete  agreement  if certain  future
earnings goals are met.  Air-Tex,  Designer and BTS are suppliers of promotional
products.

         On May 5, 1994 and July 8, 1994, the Company acquired substantially all
the assets of Key and all the  outstanding  stock of ArtMold,  respectively.  In
connection  with the acquisition of Key, the Company paid or issued $9.5 million
in cash and notes payable and assumed liabilities of $2.4 million. In connection
with the  acquisition  of ArtMold,  the Company  paid $13.1  million in cash and
assumed or incurred  liabilities of $1.1 million.  Key and ArtMold are suppliers
of promotional products.

         The condensed pro-forma results of operations presented below summarize
on  an  unaudited   pro-forma  basis   approximate   results  of  the  Company's
consolidated operations for the years ended September 3, 1994,



                                       36
<PAGE>

                       Norwood Promotional Products, Inc.
                   Notes to Consolidated Financial Statements
            September 3, 1994, September 2, 1995 and August 31, 1996


September 2, 1995 and August 31, 1996, assuming that the acquisitions of Key and
ArtMold  occurred at the beginning of fiscal 1993,  the  acquisition of Air-Tex,
Designer and BTS occurred at the beginning  fiscal 1994, and the  acquisition of
Ocean, Tee-Off and Alpha occurred at the beginning of fiscal 1995.

                    (in thousands, except per share amounts)
<TABLE>
<CAPTION>
<S>                                                                            <C>      <C> 
                                                      September 3,      September 2,      August 31,
                                                            1994              1995           1996
                                                     --------------    ---------------   ----------
Net sales                                                $112,107          $160,550        $167,978
Operating income                                            8,928            11,344          10,647
Income before income taxes                                  4,426             4,756           6,572
Net income                                                  2,649             2,803           3,969
Primary earnings per share                               $    .74          $   0.77        $   0.78
Fully-diluted earnings per share                         $    .74          $   0.76        $   0.78
</TABLE>


         All of the  acquisitions  were accounted for by the purchase  method of
accounting, and accordingly, the purchase price has been allocated to the assets
acquired and the  liabilities  assumed based on the estimated fair values at the
respective  dates  of  acquisition.  The  results  of Key,  ArtMold,  Air-Tex  ,
Designer,  BTS,  Ocean,  Tee-Off and Alpha have been  included in the  Company's
consolidated financial statements since their respective acquisition dates.

4.       Inventories

         Net inventories consist of the following (in thousands):

                                              September 2,       August 31,
                                                  1995             1996
                                              ------------      -----------
         Finished goods:
           Imprinted                            $1,618            $1,347
           Unimprinted                          16,462            20,245
                                              ------------      -----------
                                                18,080            21,592
         Work in process                         1,061             1,099
         Raw materials                           4,772             9,132
                                               -----------       ----------
                                               $23,913           $31,823
                                               ===========       ==========

          Inventory   obsolescence   reserves  were  $395,000  and  $768,000  at
September 2, 1995 and August 31, 1996, respectively.

5.       Property, Plant and Equipment

         Property, plant and equipment consist of the following (in thousands):

                                                  September 2,      August 31,
                                                      1995             1996
                                                  -----------       ----------

         Land                                          $458               $478
         Buildings and improvements                   4,892              6,863
         Machinery and equipment                     12,807             20,108
         Machinery and equipment under lease            824              2,111
                                                    --------            --------
                                                     18,981             29,560
         Less accumulated depreciation               (6,891)            (9,975)
                                                    --------           ---------
                                                    $12,090            $19,585
                                                    =========          =======


                                       37
<PAGE>




                       Norwood Promotional Products, Inc.
                   Notes to Consolidated Financial Statements
            September 3, 1994, September 2, 1995 and August 31, 1996






6.       Goodwill and Other Assets

         Goodwill  and  other  assets  consist  of the  following  balances  
         (in thousands):
<TABLE>
<CAPTION>
<S>                                                                            <C>       <C> 

                                                                     September 2,        August 31,
                                                                         1995                1996
                                                                      ----------          -------

         Goodwill, less accumulated amortization
           of  $2,092 and $4,573                                      $ 30,443            $ 35,266
                                                                      =========           =========
         Non-compete agreement, less accumulated
           amortization of $1,162 and $1,943                             4,663               5,882
         Refinancing and loan origination costs, less
           amortization of  $127 and $245                                  582                 488
         Favorable lease, less accumulated amortization of
           $223 and $291                                                   187                 119
         Technical drawings, less accumulated amortization
           of $188 and $245                                                 98                  40
         Long term deposits                                                781                 960
         Other                                                             270                  25
                                                                      ----------          --------
                                                                       $ 6,581              $7,514
                                                                      ==========          ========
</TABLE>

         Goodwill,  resulting  from  business  acquisitions,  is  amortized on a
straight-line  method over 15 years.  Other intangible assets are amortized on a
straight-line method over their estimated useful lives ranging from three to ten
years.

         The carrying  value of  intangible  assets is reviewed if the facts and
circumstances  suggest that they may be impaired.  If this review indicates that
the intangible assets will not be recoverable,  the Company's  carrying value of
the  intangible  assets  would be reduced by the  estimated  shortfall of future
discounted cash flows or to market value.


7.       Accrued Liabilities

         Other  accrued  liabilities  consist  of  the  following  balances  (in
thousands):

                                                  September 2,      August 31,
                                                      1995              1996
                                                  ----------           -------

         Salaries, wages and bonuses                $2,392              $2,554
         Restructuring cost                             --               1,028
         Professional fees                             130                 136
         Property tax                                  213                 298
         Interest                                      443                 417
         Sample rebates                                134                 410
         Miscellaneous                                 934               1,077
                                                   -------              -------
                                                    $4,246               $5,920
                                                    ======              =======




                                       38
<PAGE>


                       Norwood Promotional Products, Inc.
                   Notes to Consolidated Financial Statements
            September 3, 1994, September 2, 1995 and August 31, 1996



8.       Long-term Debt

         The  Company's  consolidated  long-term  debt is  summarized  below (in
         thousands):
<TABLE>
<CAPTION>
<S>                                                                                 <C>             <C>
                                                                                    September 2,    August 31,
                                                                                         1995           1996
                                                                                    -----------     ---------
Term note  payable to a bank,  interest at prime or LIBOR plus an interest
     spread based on an interest  coverage ratio (8.41% at September 2, 1995 and
     7.875% at August 31, 1996), payable monthly, principal payable in quarterly
     installments  of $825,000  beginning  January 1, 1996 with balance due July
     31, 2000;  secured by  receivables,  inventory,  and equipment,  subject to
     certain restrictive covenants as further described below.                        $21,500        $7,525

Revolving line of credit to a bank,  interest at prime or LIBOR plus an interest
     spread based on an interest coverage ratio ($3.6, $3.0 and $12.2 million at
     9.25%,  8.12% and 8.16%,  respectively  at September 2, 1995 and $4.4, $4.0
     and $3.1 million at 8.50%,  7.598% and 7.625%,  respectively  at August 31,
     1996),  payable  monthly,  principal  payable on July 31, 2000;  secured by
     receivables,  inventory,  and  equipment,  subject to  certain  restrictive
     covenants as further described below.                                             18,750        11,450

Acquisition note payable to a bank,  interest at prime or LIBOR plus an interest
     spread based on an interest  coverage ratio (8.41% at September 2, 1995 and
     $9.0 and $5.75 at 7.848%  and  7.91%,  respectively  at August  31,  1996),             
     payable monthly,  principal payable in quarterly  installments of 4% of the
     unpaid principal  balance  beginning  January 1, 1997 with balance due July
     31, 2000;  secured by  receivables,  inventory  and  equipment,  subject to
     certain restrictive covenants as described below.                                 10,250        14,750 

Non-Compete payable to former owners of Air-Tex, Designer, BTS, Ocean and 
     Tee-Off.  Payments  are due over the life of each  respective  non- compete
     agreement.  Agreements range from two to ten years.                                 4,594        5,557

Note payable to a bank,payable in monthly  installments of $13,614,  interest at
     7% for five years with interest rate renegotiated  after 5 years,  balance
     due March 1, 2004; secured by plant facility.                                       1,040          948

Notes payable to former owners of Key, interest at 8%, payable quarterly,
     balance due May 1, 1999;  secured by irrevocable letter of credit issued by
     Company's primary lender.                                                           1,125        1,125

Notes payable to former owners of Key,  interest at 8%,  payable  quarterly,
     balance due May 1, 1999; convertible at $17.00 per share into the Company's
     common stock. In May 1996, $950,000 of the notes payable was converted into
     55,882 shares of the Company's common stock.  
                                                                                         2,250        1,300
Notes payable to former owners of Air-Tex, interest at 9%, payable
      quarterly, balance due March 1,2000.                                                 200          200

Notes payable to former owners of Air-Tex, interest at  9%,  payable    
      quarterly, balance due March 1, 2000, convertible at $17.00 per share
       into the Company's common stock.                                                    400          400


                                       39
</TABLE>
<PAGE>

                   Norwood Promotional Products, Inc.
                   Notes to Consolidated Financial Statements
            September 3, 1994, September 2, 1995 and August 31, 1996
<TABLE>
<CAPTION>
<S>                                                                                  <C>             <C>  

                                                                                      September 2,    August 31,
                                                                                         1995           1996
                                                                                      ----------      ---------
 Notes payable to former owners of Air-Tex, interest at 6%, payable
     quarterly,  balance due March 1, 2000, convertible at $17.00 per share into
     the Company's common stock.                                                         625             625

 Notes payable to former owners of Designer, interest at 7%, payable  quarterly, 
     balance  due June 9, 2000,  convertible  at $17.00 per  share into 
     the Company's common stock.                                                         500             500  

 Notes payable to former owners of BTS, interest at 8%, payable quarterly,
     balance due July 14, 2000, convertible at $18.30 per share into the
     Company's common stock.                                                             500             500

Notes payable to former owners of Ocean, interest at 6%, payable quarterly, 
     balance due November 17, 2000,  convertible at $20.00 per share into
     the Company's common stock                                                           --             300

Notes payable to former owners of Tee-Off, interest at 5.5%, payable        
     bi-annually, balance due January 22, 2001                                            --             456

Other notes payable                                                                      708           1,189
                                                                                      ----------      --------
                                                                                      62,442          46,825
Less current maturities                                                                3,232           6,378
                                                                                      ----------      --------
                                                                                     $59,210         $40,447
                                                                                     ===========      ========
</TABLE>


The aggregate  maturities of long-term debt as of August 31, 1996 are as follows
(in thousands):

                  1997                                     $  6,378
                  1998                                        6,445
                  1999                                        6,113
                  2000                                       25,193
                  2001                                        1,563
                  Thereafter                                  1,133
                                                           ---------
                                                            $46,825
                                                           =========


         On June 27, 1994 the Company  entered into a bank  facility  ("The 1994
Bank Facility") with The Frost National Bank and The Boatmen's  National Bank of
St. Louis.  The 1994 Bank Facility  provided for maximum  aggregate  outstanding
borrowings of $45.0 million and consisted of a revolving credit facility and two
term loans.  On July 26, 1995, the Company  amended The 1994 Bank Facility ("The
1995 Bank Facility")  with The Frost National Bank, The Boatmen's  National Bank
of St. Louis and Banque Paribas.

         The 1995 Bank  Facility  provides  for  maximum  aggregate  outstanding
borrowings  of $60.0 million and consists of a $20.0  million  revolving  credit
facility and two term loans totaling up to $40.0 million.  The final maturity of
The 1995 Bank Facility is July 31, 2000. Amounts outstanding under The 1995 Bank
Facility  bear  interest at a rate equal to either the Banks'  prime rate or the
London  Interbank  Offered Rate  ("LIBOR")  plus an interest rate spread,  which
varies based on the ratio of the Company's  Consolidated Senior Debt to Earnings
Before Interest, Taxes, Depreciation and Amortization ("EBITDA").

         In addition to amending the  outstanding  indebtedness of The 1994 Bank
Facility,  the $60.0 million credit  facility is available to fund the company's
working capital requirements and to finance the purchase of additional companies
or assets of companies engaged in the promotional products industry.



                                       40
<PAGE>

                   Norwood Promotional Products, Inc.
                   Notes to Consolidated Financial Statements
            September 3, 1994, September 2, 1995 and August 31, 1996


         The 1995 Bank Facility is secured by a first lien priority  interest in
substantially all the assets of the Company,  including a pledge of the stock of
each of the  Company's  subsidiaries.  Additionally,  any  entities  and  assets
acquired  with  financing  under The 1995 Bank  Facility will serve as security.
Borrowings under The 1995 Bank Facility are jointly and severally  guaranteed by
all  subsidiaries  acquired  or  created by the  Company  while  borrowings  are
outstanding under The 1995 Bank Facility.

         Pursuant  to the  terms of The  1995  Bank  Facility,  the  Company  is
required to maintain  certain  financial  ratios and  tangible  net worth and is
subject  to   limitations   on  dividends,   additional   indebtedness,   liens,
investments,  issuance  of  stock of  subsidiaries,  mergers  and  acquisitions,
sale/leaseback transactions and sales of assets.

9.       Income Taxes

         Deferred  income  taxes  reflect  the  net  tax  effects  of  temporary
differences between the carrying amounts of assets and liabilities for financial
reporting  purposes  and the amounts used for income tax  purposes.  Significant
components of the Company's  deferred tax  liabilities and assets are as follows
(in thousands):

                                                   September 2,    August 31,
                                                      1995           1996
                                                      ----           ----
    Deferred tax liabilities:
     Tax over book depreciation                       $363          $ 589
     Prepaid expenses                                   79             55
     Catalog and sample expenses                       200            234
     Other - net                                        88             88
                                                       ---            ---
       Total deferred tax liabilities                  730            966

    Deferred tax assets:
     Restructuring costs                                --            465
     Uniform capitalization of inventory costs         180            268
     Valuation allowance on inventory                  146            127
     Vacation accrual                                  240            265
     Bad debt reserve                                  150            162
     Amortization of non-compete agreement             263            430
                                                       ---          -----
       Total deferred tax assets                       979          1,717
                                                       ---          -----
                                                                       
       Net deferred tax asset                         $249          $ 751
                                                      ====          =====

                                       41

<PAGE>


                   Norwood Promotional Products, Inc.
                   Notes to Consolidated Financial Statements
            September 3, 1994, September 2, 1995 and August 31, 1996

                
     Management has determined that existing  deductible  temporary  differences
will reverse  within three years and may be carried back against  prior  taxable
earnings.  Therefore, it is management's opinion that it is more likely than not
that the entire benefit of existing  deductible  temporary  differences  will be
realized and that there will be no valuation  allowance  for deferred tax assets
at August 31, 1996. Significant components of the provision (benefit) for income
taxes are as follows (in thousands):

                            Year            Year           Year
                            Ended           Ended          Ended
                          September 3,    September 2,    August 31,
                               1994           1995           1996
                          ------------------------------------------

       Current:
        Federal               $1,757         $2,813         $2,994
        State                    262            260            312
                          ----------------------------------------
          Total current        2,019          3,073          3,306
       Deferred:
        Federal                 (42)          (225)          (491)
        State                     2            (48)           (45)
                          ----------------------------------------
        Total deferred          (40)          (273)          (536)
                          ---------------------------------------- 
                              $1,979         $2,800         $2,770
                          ========================================


The  reconciliation  of income tax computed at the U.S.  federal  statutory  tax
rates to income tax expense is (in thousands):
<TABLE>
<CAPTION>
<S>                                                                            <C><C> 

                                      Year              Year                Year 
                                       Ended             Ended             Ended
                                      September 3,      September 2,      August 31,
                                         1994              1995             1996
                                     ------------------------------------------------
                                       Amount   %        Amount   %       Amount   %
                                       ------   --       ------    --     ------   --
                                        
Tax at U.S. statutory rates           $1,805    34       $2,323    34     $2,354   34


State income taxes, net of federal
 tax benefit                             264     5          212     3        267    4

Amortization of goodwill                  --    --          202     3        206    3

Other - net                              (90)   (2)          63     1        (57)  (1)
                                      -----------------------------------------------
Provision for income taxes            $1,979    37       $2,800    41      2,770   40
                                      ===============================================


                                       42
</TABLE>
<PAGE>
 

                       Norwood Promotional Products, Inc.
                   Notes to Consolidated Financial Statements
            September 3, 1994, September 2, 1995 and August 31, 1996


10.      Commitments and Contingencies

         The  Company  has  entered  into  leases  for   facilities  and  office
equipment.  Leases that expire  generally are expected to be renewed or replaced
by other leases. A summary of minimum lease  commitments at August 31, 1996 that
have initial or remaining noncancelable lease terms in excess of one year are as
follows:

                                                      Capital  Operating
                                                      -------  ----------

     1997                                               $452     $2,524
     1998                                                372      1,957
     1999                                                148      1,271
     2000                                                 --        896
     2001                                                 --        686
    Thereafter                                            --      5,165       
                                                        -----     -----       
   Total minimum lease payments                          972    $12,499
                                                                 =======
   Less amounts representing interest                   (119)
                                                        ----- 
   Present value of net minimum lease payments          $853
                                                        =====

     Total expense under operating  leases amounted to  approximately  $979,000,
$1,726,000 and $2,708,000  for the years ended  September 3, 1994,  September 2,
1995 and August 31, 1996, respectively.

     The  Company  is subject to  litigation  from time to time in the  ordinary
course of  business.  Although  the  amount of any  liability  with  respect  to
currently pending litigation cannot be determined, in the opinion of management,
such  liability  will  not  have a  material  adverse  effect  on the  Company's
financial condition or results of operations.

11.      Stock Offering

          On December  20,  1995,  the Company  completed  the sale of 2,015,481
shares of Common Stock in a public  offering.  The net proceeds of this offering
of approximately $31 million were used to repay indebtedness under the 1995 Bank
Facility. The Company may, subject to certain conditions,  reborrow such amounts
from time to time for general  corporate  purposes,  including  financing future
acquisitions.

12.      Stock Options and Warrants

         Effective  December 8, 1989, the shareholders of the Company adopted an
incentive stock option plan for key employees, reserving 71,429 shares of common
stock,  which was increased to 140,000 shares on April 15, 1993. Under the terms
of this plan,  the purchase  price of the shares  subject to each option granted
will not be less than the fair  market  value at the time the  option is granted
and each option granted shall become  exercisable  in three annual  installments
beginning on the third anniversary of the date of grant.

     As of August 31, 1996,  there were 114,203  options  outstanding  under the
1989  incentive  stock option plan.  In addition,  there were 25,797  unoptioned
shares available for granting. During the year ended August 31, 1996, no options
were granted,  while 1,808 optioned shares were exercised at $1.23, with vesting
dates ranging from December 1992 to December 1996 and  expiration  dates ranging
from December 1999 to December 2001.




                                     43
<PAGE>



                       Norwood Promotional Products, Inc.
                   Notes to Consolidated Financial Statements
            September 3, 1994, September 2, 1995 and August 31, 1996


Furthermore,  1,836,  15,765 and 34,123 options were exercisable as of September
3, 1994, September 2, 1995 and August 31, 1996, respectively.

     Effective May 18, 1994, the directors of the Company  approved an incentive
stock option plan for key employees,  reserving  190,000 shares of Common Stock.
Under the terms of this plan, the plan provides for the granting to officers and
other key employees  incentive  stock options,  non qualified  stock options and
other stock based incentive compensation.

     As of August 31, 1996,  there were 165,228  options  outstanding  under the
1994  Incentive  Stock  Compensation  Plan.  In  addition,   there  were  24,772
unoptioned shares available for granting. During the year ended August 31, 1996,
81,028 options were granted, while no options were exercised.  Additionally,  no
options were exercisable as of August 31, 1996.

     The  Company  also has a  non-qualified  stock  option  plan under which it
granted 11,028  options to various  employees at not less than the fair value at
the date of grant as determined by the Board of  Directors.  The options  expire
upon the earlier of  termination of employment or ten years after date of grant.
The  options  vested on June 4,  1996,  the third  anniversary  from the date of
grant. During the year ended August 31, 1996, 700 options were exercised.

     Subsequent  to the  Company's  initial  public  offering in June 1993,  one
member of the Board of Directors  received  warrants to purchase 6,000 shares of
the  Company's  Common  Stock  at  the  initial  public  offering  price,  which
approximated  fair value at the date of grant.  These warrants vest on the first
anniversary date from the date of issue and may be exercised for a period not to
exceed five years from the date of grant.

     On November 8, 1993, the Company adopted the Norwood Promotional  Products,
Inc. 1993 Non-  Employee  Director  Stock  Purchase  Plan,  which is designed to
attract and retain highly  qualified  non-employee  directors,  reserving 30,000
shares  of  common  stock.  Under  the  terms of this  plan,  each  non-employee
director,  with  the  exception  of one who had  previously  received  warrants,
received  warrants  to  purchase  6,000  shares as of the date of adoption or on
their  respective date of election,  the purchase price of the shares subject to
each  warrant  granted  shall be $11.00 per share,  warrants  may not be granted
after five years from the date of adoption and all  warrants  issued may only be
exercised after the first  anniversary  date through the fifth  anniversary date
from the date of grant.  During the year ended August 31, 1996, no warrants were
granted  under the  non-employee  director  stock  purchase  plan.  Warrants  to
purchase  12,000,  18,000  and  18,000  shares of the  Company's  Common  Stock,
respectively  were  exercisable  as of September 3, 1994,  September 2, 1995 and
August 31, 1996.

     On October 3, 1994,  two of the  Company's  directors  were  granted  6,000
warrants each in lieu of director's  fees.  The warrants were issued at the fair
market value at the date of grant and are exercisable immediately.

     On November 16, 1995,  two of the  Company's  directors  were granted 4,728
warrants  each. The warrants were issued at the fair market value at the date of
the grant and are exercisable immediately.

13.      Related Party Transactions

         The  Company  currently  leases  from a  shareholder  a mug  and  glass
manufacturing facility located in Pittsburgh,  Pennsylvania for $1,975 monthly .
Total expense under the lease for the years ended  September 3, 1994,  September
2, 1995 and August 31, 1996 was  approximately  $26,000,  $23,700  and  $23,700,
respectively.

         Associated  with  the  sale  of  173,333  shares  of  common  stock  to
management  in May 1992,  notes  receivable  of $510,000  from  management  were
recorded by the Company.  The Company received payments of $131,000 and $240,000
on these notes  receivable  during the years ended  September 2, 1995 and August
31,  1996.  The  remaining  balances  on these notes have been  classified  as a
reduction of equity.

                                       44
<PAGE>
                       Norwood Promotional Products, Inc.
                   Notes to Consolidated Financial Statements
            September 3, 1994, September 2, 1995 and August 31, 1996



14.      Employee Benefit Plan

         Effective January 1, 1994, the Company adopted the Norwood  Promotional
Products,  Inc.  Employee  401(k) Plan for the purpose of  providing  retirement
benefits for  substantially  all employees.  Contributions  to the Plan are made
both by the  employees  and the  Company.  The Company  matches 20% of the first
$1,000 of an  employee's  deferred  compensation  to a maximum of $200 per year.
Company matched  contributions  vest to the employees based upon their number of
years of service to the Company.  Contributions to this Plan of $25,000, $42,000
and  $77,000  were  charged to expense for the years  ended  September  3, 1994,
September 2, 1995 and August 31, 1996, respectively.

     Effective May 9, 1996, the Company adopted the Employee Stock Purchase Plan
of Norwood Promotional Products, Inc. for the purpose of providing substantially
all employees the opportunity to purchase Common Stock of the Company. No Common
Stock was purchased under the plan for the year ended August 31, 1996.

The Company does not offer or provide  post-retirement  health care  benefits to
any of its employees.

15.  Restructuring and Unusual Charges

     In the fourth  quarter of 1996,  the  Company  recorded  restructuring  and
unusual charges of approximately  $1,640,000  ($984,000 net of tax) based on the
Company's reevaluation of its operations.  As a result of its reevaluation,  the
Company   decided  to  consolidate   certain   facilities  into  other  existing
facilities, terminate certain employees, and write-off certain capitalized costs
associated with a target  acquisition.  The consolidation of these facilities is
expected to be completed  by the end of 1997.  A provision  for closure of these
facilities totaling approximately  $890,000,  including the write off of certain
leasehold  improvements,  has been  accrued or  paid.Approximately  $560,000  of
future  salary and  benefits  owed to three  terminated  employees  under  their
existing employment agreements was accrued or paid in the fourth quarter.  These
employment  agreements have remaining terms that expire over the next two years.
Additionally,  capitalized  acquisition related costs of approximately  $190,000
were expensed in the fourth quarter.

                                       45

<PAGE>
                       Norwood Promotional Products, Inc.
                   Notes to Consolidated Financial Statements
            September 3, 1994, September 2, 1995 and August 31, 1996


16.      Quarterly Results of Operations (Unaudited)

Selected  results of operations for each of the fiscal  quarters during the year
ended September 2, 1995 and August 31, 1996 are as follows (in thousands, except
per share data):
<TABLE>
<CAPTION>
<S>                                                                            <C> 
                                                  1st      2nd       3rd       4th
                                                Quarter  Quarter   Quarter   Quarter
                                                ------------------------------------

Year Ended September 2, 1995
 Net sales                                      $22,916  $19,316   $29,995   $31,633
 Gross profit                                     7,252    5,492     9,936    10,217
 Net income (loss)                                1,114      (22)    1,582     1,358
 Earnings (loss) per share - Fully diluted         0.31    (0.01)     0.44      0.37

Year Ended August 31, 1996
 Net sales                                      $33,368  $30,086    $45,034  $43,474
 Gross profit                                    10,623    8,462     13,655   12,230
 Net income                                       1,356       88      2,526      185
 Earnings per share - Fully diluted                0.37     0.02       0.44     0.03


Quarterly results of operations were impacted by business acquisitions as follows:



                                                                      Initial
                Acquisitions           Date Acquired              Quarter Impacted
                ------------           -------------              ---------------- 
                Air-Tex               March 1, 1995              3rd Quarter, 1995
                Designer              June 13, 1995              4th Quarter, 1995
                BTS                   July 31, 1995              4th Quarter, 1995
                Ocean                 November 20, 1995          1st Quarter, 1996
                Tee-Off               January 23, 1996           2nd Quarter, 1996
                Alpha                 April 1, 1996              3rd Quarter, 1996
</TABLE>


                                       46
<PAGE>





Item  9.  Changes  in and  disagreements  with  accountants  on  accounting  and
financial disclosure

         None.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

         The  information  called  for by item 10 of Form  10-K is  incorporated
herein  by  reference  to  such  information  included  in the  Company's  Proxy
Statement  for the 1997  Annual  Meeting  of  Shareholders,  under the  captions
"Election of Directors" and "Executive Officers."

Item 11. Executive Compensation

         The  information  called  for by item 11 of Form  10-K is  incorporated
herein  by  reference  to  such  information  included  in the  Company's  Proxy
Statement  for the 1997  Annual  Meeting  of  Shareholders,  under  the  caption
"Compensation of Executive Officers."

Item 12. Security Ownership of Certain Beneficial Owners and Management

         The  information  called  for by item 12 of Form  10-K is  incorporated
herein  by  reference  to  such  information  included  in the  Company's  Proxy
Statement  for the 1997  Annual  Meeting  of  Shareholders,  under  the  caption
"Principal Shareholders and Stock Ownership of Management."

Item 13. Certain Relationships and Related Transactions

         The  information  called  for by item 13 of Form  10-K is  incorporated
herein  by  reference  to  such  information  included  in the  Company's  Proxy
Statement  for the 1997  Annual  Meeting  of  Shareholders,  under  the  caption
"Certain Transactions."

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

Index To Financial Statements

         (a) The following  documents are filed as part of this Annual Report or
are incorporated by reference as indicated.

         1. The following financial statements are included under Item 8:

         Report of Ernst & Young LLP, Independent Auditors

                                       47

<PAGE>

       Consolidated  Balance  Sheets as of  September  2, 1995 and August 31,
       1996

       Consolidated  Statements  of Income for the years ended  September  3,
       1994, September 2, 1995 and August 31, 1996

       Consolidated  Statements of  Shareholders'  Equity for the years ended
       September 3, 1994, September 2, 1995 and August 31, 1996

       Consolidated Statements of Cash Flows for the years ended September 3,
       1994, September 2, 1995 and August 31, 1996

       Notes to Consolidated Financial Statements

    2. The following financial statement schedules are included under Item 14:

       Schedule VIII -- Valuation and Qualifying Accounts

    3. Exhibits -- See Index to Exhibits on page 52.


    (b)  Reports on Form 8-K  -  None























                                      48
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                            <C>        <C>

SIGNATURES

         Pursuant to the  requirements of Section 13 of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                           NORWOOD PROMOTIONAL PRODUCTS, INC.

                           By:   /s/ FRANK P. KRASOVEC               Date:   November 15, 1996
                           ---------------------------
                           Frank P. Krasovec
                           Chairman and Chief Executive Officer

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated:

Signature                              Capacity                                 Date
---------                              --------                                 ----

/s/ FRANK P. KRASOVEC      Chairman and Chief Executive Officer,             November 15, 1996
---------------------
Frank P. Krasovec          Director (Principal Executive Officer)

/s/ ROBERT P. WHITESELL    President and Chief Operating                     November 15, 1996
-----------------------
Robert P. Whitesell        Officer, Director

/s/ J. MAX WAITS           Secretary, Treasurer and Chief                    November 15, 1996
----------------
J. Max Waits               Financial Officer (Principal Financial Officer
                           and Principal Accounting Officer)

/s/ ROBERT L. SEIBERT      Director                                          November 15, 1996
---------------------
Robert L. Seibert

/s/ JOHN H. WILSON III     Director                                          November 15, 1996 
----------------------
John H. Wilson III

/s/ JOHN H. JOSEPHSON      Director                                          November 15, 1996
---------------------
John H. Josephson

/s/ HAROLD HOLLAND         Director                                          November 15, 1996
------------------
Harold Holland


                                       49
</TABLE>
<PAGE>





                               Director                      November 15, 1996
--------------------
Roy D. Terracina

                                       50
<PAGE>



                       NORWOOD PROMOTIONAL PRODUCTS, INC.
               SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS

                                 (in thousands)
<TABLE>
<CAPTION>
<S>                                                                            <C>          <C> 
                                                          Additions
                                                  -------------------------
                                                                Charged to
                                     Balance at   Charged to       Other                    Balance at
                                     Beginning     Costs and     Accounts     Deductions      End of
            Description              of Period     Expenses      Describe      Describe       Period
            -----------              ---------     --------      --------      --------       ------
Year ended September 3, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts         156            80            89(3)        98(1)       227       
Reserve for inventory obsolescence      257            88           155(3)        86(2)       414
                                     ------       --------       -------         -----       -----
                                                                    
               Total                    413           168           244           184          641
                                     ======       ========       =======         =====        ====
Year ended September 2, 1995:
Deducted from asset accounts:
Reserve for inventory obsolescence      414            21            99(4)       139(2)        395
Allowance for doubtful accounts         227           169           293(4)       149(1)        540
                                     ------       -------        -------        ------        ----
               Total                    641           190           392           288          935
                                     ======       =======        =======        ======        ====

Year ended August 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts         540           330           189(5)       284(1)        775
Reserve for inventory obsolescence      395            48           347(5)        22(2)        768
                                     ------      --------       -------          -----       -----
                                                                   
               Total                    935           378           536           306        1,543
                                     ======       =======        =======         =====       =====
</TABLE>


(1) Uncollectible accounts written off, net of recoveries.

(2) Inventory written off during year.

(3) Amounts  acquired  with the  purchase of Key  Industries,  Inc.  and 
     ArtMold Products Corporation.

(4) Amounts  acquired  with  the  purchase  of  Air-Tex  Corporation,  Designer
     Plastics, Inc. and BTS Group.

(5) Amounts  acquired  with  the  purchase  of  Ocean  Specialty  Manufacturing
     Corporation, Tee-Off Enterprises, Inc. and Alpha Products, Inc.

                                       51
<PAGE>    



                                    INDEX TO EXHIBITS


Each  management  contract or  compensatory  plan or arrangement  required to be
filed as an exhibit hereto is indicated by an asterisk (*).

Exhibit Description
Number
 3.1    -- Articles of Incorporation of the Registrant, as amended.(1)
 3.2    -- Bylaws of the Registrant, as amended.(9)
 4.1    -- Specimen stock certificate evidencing the Common Stock.(1)
10.1    -- 1993 Non-qualified Stock Option Plan of the Registrant dated June 4,
           1993.(1) (Exhibit 10.18) *
10.2    -- 1993 Non-Employee Director Stock Purchase Plan of the Registrant
           dated November 8, 1993.(2) (Exhibit 10.26) *
10.3    -- Employee Stock Purchase Plan of the Registrant dated May 18,
           1995, as amended and restated effective as of May 9, 1996. (13)
          (Exhibit 4.7) *
10.4    -- Amended and Restated 1989 Incentive Stock Option
           Plan of  the Registrant dated August 23, 1996. (filed herewith)
10.5    -- Amended and Restated 1994 Incentive Stock Compensation
           Plan of  the Registrant dated August 23, 1996. (filed herewith)
10.6    -- Warrant certificate granted by the Registrant to Allen and Company,
           Incorporated, dated June 23,1993.(1)
10.7(a) -- Warrant certificate granted by the Registrant to Robert L. Seibert,
           Director of the Company, dated as of November 8, 1993.(2) *
10.7(b) -- Warrant certificate granted by the Registrant to John H. Wilson III,
           Director of the Company, dated as of November 8, 1993.(2) *
10.7(c) -- Warrant certificate granted by the Registrant to Harold Holland,
           Director of the Company, dated as of July 8, 1994.(7) *
10.8    -- Warrant certificate granted by the Registrant to John H. Josephson,
           Director of the Company, dated as of June 16, 1993.(9) *
10.9(a) -- Warrant certificate granted by the Registrant to John H. Josephson,
           Director of the Company, dated as of November 18, 1994.(9) *
10.9(b) -- Warrant certificate granted by the Registrant to John H. Wilson III,
           Director of the Company, dated as of November 18, 1994.(9) *
10.10   -- Option  certificate  granted by the  Registrant  to Evan
           Holland, President of ArtMold, dated as of July 8, 1994.(4)
          (Exhibit 10.12) *
10.11   -- Standard  Industrial  Lease -- Net dated  December 29,
           1988,  as amended by certain  letters  dated  October 15,
           1991 and October 22, 1991, by

                                       52
<PAGE>

           and between Sylvan R. Hansen and Barlow Specialty Advertising, Inc.
           relating to certain property located at 2318 Pontius Avenue, Los
           Angeles, California, and assigned to Barlow Promotional Products,
           Inc. as of May 19, 1992.(1) (Exhibit 10.12)
10.12   -- Standard Industrial Lease dated May 1, 1978, as amended
           May 1, 1980, July 22, 1980, April 30, 1984, June 21, 1989,
           April 26, 1990, April 26, 1991 and March 31, 1992, by and among 
           Abram Mansour and Granet Industries, Inc. and assigned to BSA,
           relating to certain property located at 2330 Pontius Avenue,
           Los Angeles, California, and assigned to Barlow Promotional Products,
           Inc. as of May 19, 1992.(1) (Exhibit 10.13)
10.13   -- Two Leases dated December 26, 1990 by and between Southern Pacific
           Transportation Company and Barlow Specialty Advertising, Inc.
           relating to certain  property  located at 2330  Pontius
           Avenue, Los Angeles,  California, and assigned to Barlow
           Promotional Products, Inc. as of May 19, 1992.(1) (Exhibit 10.14)
10.14   -- Lease dated March 26, 1973 by and between Don E. Harley Associates,
           Inc., and Arthur Salm, Inc, assigned to Exchange National Bank of
           Chicago on June 12, 1973, assigned to Barlow Specialty Advertising,
           Inc. in June 1986, and assigned to Barlow Promotional Products, Inc.
           as of May 19, 1992.(1) (Exhibit 10.15)
10.15   -- Lease Agreement by and between Wulfe Investments and Radio Cap
           Company, Inc. commencing August 1, 1992 relating to certain property
           located at 817 North Frio in San Antonio, Texas.(1) (Exhibit 10.16)
10.16   -- Lease Agreement by and between the Utah State Retirement Fund and
           Radio Cap Company, Inc. entered into November 17, 1992 relating to
           the space at Rittiman East Business Park, Building 12 at 5519
           Business Park in San Antonio.(1) (Exhibit 10.17)
10.17   -- Lease Agreement by and between Joseph S. Scher, not individually, but
           as Trustee under the Joseph S. Scher Trust dated April 5, 1993, and
           Key  Acquisition  Corp.,  dated  as of  May  1,  1994.(3)(Exhibit 
           10.20) 
10.18   -- Sublease by and between MM Realty  Associates II, dated November 1,
           1981; First  Amendment to Sublease by and between MM Realty 
           Associates  II, dated March 1, 1983; Second Amendment to Sublease  by
           and  between   Cranston   Partnership(Associates  II) formerly MM 
           Realty,  dated September 1, 1986 and Assignment of and

                                       53
<PAGE>

           Third Amendment to Sublease by and between Cranston Partnership,
           Measured Marketing Services,  Inc. and ArtMold Products
           Corporation, dated March 1, 1992.(3)
10.19   -- Asset Purchase Agreement dated March 1, 1995 among The Bob Allen
           Companies, Inc., Robert E. Allen, Ruth E. Allen, Matthew R. Allen, BA
           Acquisition, Inc. and the Registrant.(5)
10.20   -- Asset Purchase Agreement dated as of May 5, 1995 among Designer
           Plastics, Inc., Peter Erenfeld, Mary Erenfeld, Air-Tex Corporation
           and the Registrant.(6)
10.21   -- Asset Purchase Agreement dated July 28, 1995 among PAJ, Inc.
          (formerly BTS Group, Inc.), Peter B. Akers, Allen E. Ferris, James R.
           Smith, Barlow Promotional Products, Inc. and the Registrant.(8)
10.22   -- Asset Purchase Agreement dated January 22, 1996 among
           TEE-OFF Enterprises, Inc., Jones and Vicki Schmidt, ArtMold
           Products Corporation and the Company. (10)
10.23   -- Asset Purchase Agreement dated April 1, 1996 among
           Alpha Products, Inc., Aladdin Industries, Incorporated, Radio
           Company, Inc. and Norwood Promotional Products, Inc. (11)
10.24 (a)- Amended and Restated Credit Agreement dated as of July 27, 1995
           among The Frost National Bank, The Boatmen's National Bank of
           St. Louis, Banque Paribas and the Registrant.(7)
10.24 (b)- Conditional Amendment to Amended and Restated Credit
           Agreement.  (filed herewith)
10.25   -- Office Sublease dated May 1995 between the Registrant and Frito Lay,
           Inc.(9) (Exhibit 10.28)
10.26   -- Standard Industrial Commercial -- Tenant Lease -- Net effective as of
           November 20, 1995 between Key Industries, Inc. and Harris/Newell
           Family Partnership.(9)
10.27   -- Asset Purchase Agreement dated as of November 17, 1995 among
           Ocean Specialty Manufacturing Corporation, Steve Sherlin, Ron
           Silverstein, Key Industries,Inc.and the Registrant.(9)(Exhibit 10.30)
10.28   -- Registration Rights Agreement dated as of March 1, 1995 among the
           Registrant, The Bob Allen Companies, Inc. and Matthew R. Allen.(9)
          (Exhibit 10.31)
10.29   -- Standard Industrial Commercial -- Tenant Lease -- Net effective
           as of February 22, 1996 between Barlow Promotional
           Products, Inc. and AMG Holding, Inc. (12) (Exhibit 10.34)

                                       

                                       54
<PAGE>


  11.1    -- Computation of per share earnings. (filed herewith)
  21.1    -- Subsidiaries of the Registrant.(9) (Exhibit 22.1)
  24.1    -- Consent of Ernst & Young LLP (filed herewith)
  27.1    -- Financial data schedule. (filed herewith)


(1) Previously filed as an Exhibit to the Registrant's Registration Statement on
Form S-1 (File No.  33-61740) filed with the Securities and Exchange  Commission
on June 16, 1993 and incorporated herein by reference.

(2) Previously filed as an Exhibit to the Registrant's Form 10-Q for the quarter
ended  November 27, 1993 filed with the  Securities  and Exchange  Commission on
January 10, 1994 and incorporated herein by reference.

(3) Previously filed as an Exhibit to the  Registrant's  Form 8-K filed with the
Securities and Exchange  Commission on May 14, 1994 and  incorporated  herein by
reference.

(4) Previously Filed as an Exhibit to the  Registrant's  Form 8-K filed with the
Securities and Exchange Commission on July 15, 1994.

(5) Previously filed as an Exhibit to the  Registrant's  Form 8-K filed with the
Securities and Exchange Commission on March 15, 1995.

(6) Previously filed as an Exhibit to the  Registrant's  Form 8-K filed with the
Securities and Exchange Commission on June 26, 1995.

(7) Previously filed as an Exhibit to the  Registrant's  Form 8-K filed with the
Securities and Exchange Commission on August 10, 1995.

(8) Previously filed as an Exhibit to the  Registrant's  Form 8-K filed with the
Securities and Exchange Commission on August 10, 1995.

(9) Previously filed as an Exhibit to the Registrant's Registration Statement on
Form S-1 filed with the Securities and Exchange  Commission on October 17, 1995,
as amended by Amendment No. 1 filed with the Securities and Exchange  Commission
on November 24, 1995.

(10) Previously filed as an Exhibit to the Registrant's  Form 8-K filed with the
Securities and Exchange Commission on February 2, 1996.

(11) Previously filed as an Exhibit to the Registrant's  Form 8-K filed with the
Securities and Exchange Commission on April 16, 1996.

(12) Previously filed as an Exhibit to the Registrant's Form 10-Q filed with the
Securities and Exchange Commission on April 16, 1996.

(13) Previously filed as an Exhibit to the Registrant's Form 10-Q filed with the
Securities and Exchange Commission on July 15, 1996.




                                       55
<PAGE>










                                  Exhibit 10.4
                       Incentive Stock Option Plan of the
            Registrant dated October 3, 1989, as amended and restated
                         effective as of August 23, 1996


<PAGE>












                                  Exhibit 10.5
                    Incentive Stock Compensation Plan of the
               Registrant dated November 14, 1994, as amended and
                    restated effective as of August 23, 1996


<PAGE>















                                Exhibit 10.24 (b)
                      Conditional Amendment to Amended and
                            Restated Credit Agreement


<PAGE>


                                  Exhibit 11.0

                        Computation Of Earnings Per Share
               (Unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
<S>                                                                            <C>             <C> 





                                                              September 3,     September 2,     August 31,
                                                                  1994             1995            1996
                          Primary:
          Weighted average common shares outstanding                3,539          3,540            4,899
    Weighted average common equivalent shares outstanding              37             96              191
                                                                    -----          -----            -----
                            Total                                   3,576          3,636            5,090
                                                                    =====          =====            =====

                          Net Income                            $   3,329      $   4,032        $   4,155
  Per share amount                                              $    0.93      $    1.11        $    0.82

Fully diluted:
  Weighted average common shares outstanding                        3,539          3,540            4,899
    Weighted average common equivalent shares outstanding              37            128              191
                                                                    -----          -----           ------
                            Total                                   3,576          3,668            5,090
                                                                    =====          =====            =====

                          Net Income                            $   3,329      $   4,032        $   4,155
  Per share amount                                              $    0.93      $    1.10        $    0.82


</TABLE>
<PAGE>




















                                  Exhibit 10.4
                 Incentive Stock Option Plan of the Registrant
 dated October 3, 1989, as amended and restated effective as of August 23, 1996




















<PAGE>

                       NORWOOD PROMOTIONAL PRODUCTS, INC.

              AMENDED AND RESTATED 1989 INCENTIVE STOCK OPTION PLAN

1.   Purpose.  This Plan is  designed  to attract  and retain  highly  qualified
     Employees  and to  motivate  them  to  exert  their  best  efforts  for the
     Corporation and Affiliates. The Plan offers an opportunity for Employees to
     acquire or increase their  proprietary  interest in the  Corporation and is
     intended to qualify as an Incentive Stock Option Plan within the meaning of
     Section 422 of the Code.

2.   Approval of Awards.

     Each Award must be approved in one of the following ways:

          (a)  Board/Committee  Approval.  The entire Board or the Committee may
     vote in advance to approve such Award.

          (b)   Shareholder   Approval/Ratification.   In  compliance  with  the
     Securities  Exchange  Act of 1934,  as  amended  (the  "Exchange  Act"),  a
     majority of the  shareholders  of the Company duly entitled to vote on such
     matters at meetings held in accordance  with the laws of the State of Texas
     may,  either  in  advance  of the  Award or no later  than the next  annual
     meeting of shareholders, affirmatively vote to approve such Award.

3.   Eligible Employees.

          (a) All Employees of the  Corporation  or an Affiliate are eligible to
     receive an Option,  subject to the  conditions  of  paragraphs  (b) and (c)
     below.

          (b) An Employee who serves as a Board member may not receive an Option
     unless the Board authorizes such Option.

          (c) A Substantial Shareholder may not receive an Option unless, at the
     time the Option is granted,  the exercise price equals at least 110% of the
     fair market value of the Stock subject to the Option, and the Option is not
     exercisable after 5 years from the date granted.

4.   Total Shares Subject to Plan. Options may be granted for a total of 140,000
     shares of Stock. The Corporation will reserve sufficient shares to meet the
     Plan's  requirements.   Shares  issued  upon  an  Option  exercise  may  be
     authorized  and  unissued  shares,  or  shares  held  in the  Corporation's
     treasury. If an outstanding Option expires or terminates,  shares allocable
     to the  unexercised  portion of the Option may be optioned  again under the
     Plan.

5.   Plan Administration. The Committee will administer the Plan and comply with
     the reporting  requirements of Section 6039 of the Code. Subject to Section
     2 hereof, the Committee may make Option grants to the Board and may modify,
     extend or renew any existing Option.  The Committee also will interpret and
     construe  the Plan and the  terms of any  Option  and will  make all  other
     decisions necessary or advisable for administering the Plan.

<PAGE>


6.   Option Grants.

          (a)  The  Board,  the  Committee  and  the  shareholders   shall  have
     concurrent  authority  to  determine  which  Employees  should  be  granted
     Options,  the amount of Stock to be optioned to each, the Option price, the
     duration  of the  exercise  period,  and  such  other  Option  terms as the
     Committee deems appropriate.

          (b) Each Option granted shall become exercisable in three equal annual
     installments beginning on the third anniversary of the date of the grant of
     the Option.

          (c) The Option price must equal or exceed the fair market value of the
     Stock at the time the Option is granted, as determined in good faith by the
     Committee.

          (d) An Option  may not be granted  after 10 years  from the  Effective
     Date.  An Option must be  exercised  within the same time  specified in the
     agreement  evidencing the Option, which time may not extend beyond 10 years
     after the date the Option is granted.

          (e) The  aggregate  fair market value of Stock (as  determined  at the
     time of the Option grant)  exercisable by an Employee for the first time in
     any calendar year under all incentive stock option plans of the Corporation
     and its Affiliates may not exceed $100,000.

          (f) Any modification, extension or renewal of an Option will be deemed
     the grant of a new Option in accordance with Section 425(h) of the Code.

7.   Non-Transferability  of Option. An Option may not be transferred  except by
     will or by the laws of  descent  and  distribution.  During  an  Optionee's
     lifetime,  only the Optionee or his or her guardian or legal representative
     may exercise his or her Option.

8.   Exercise and Payment.  An Option may be exercised  from time to time during
     the term of the  Option as to any and all full  shares  which  have  vested
     under the Option,  subject to  compliance  with the terms of the  agreement
     evidencing  the Option.  Exercise of an Option will not be effective  until
     the Corporation has received written notice of the exercise, specifying the
     whole number of shares to be purchased,  accompanied  by payment in full of
     the aggregate price of the Stock purchased.  Fractional  shares will not be
     issued  or sold.  The  purchase  price  of Stock  for  which an  Option  is
     exercised must be paid to the  Corporation in full at the time of exercise.
     Payment  must be in the form of cash or a  certified  or  cashier's  check.
     Payment  also may be made in the form of such  other  consideration  as the
     Committee,  in its sole  discretion,  may  approve  before  the  Option  is
     exercised.  Within  a  reasonable  time  after  payment  is  received,  the
     Corporation  will issue and deliver to Optionee a certificate  representing
     the Stock purchased;  provided,  however, that the Corporation may postpone
     the time of delivery of such  certificates  for such additional time as the
     Corporation  shall deem  necessary or desirable to enable it to comply with
     listing requirements of any securities exchange upon which the Stock of the
     Corporation may be listed, or if not so listed,  the NASDAQ National Market
     System,  or the  requirements  of  the  Securities  Act  or the  Securities
     Exchange Act, or any rules and  regulations  of the Securities and Exchange
     Commission  promulgated  thereunder or the requirements of applicable state
     laws relating to authorization, issuance or sale of securities.

<PAGE>

9.   Exercise in the Event of Employment Termination.

          (a) If an Optionee  terminates  employment  with the Corporation or an
     Affiliate for any reason other than death or  disability,  the Optionee may
     exercise the outstanding portion of his or her Option at any time within 45
     days after such termination, to the extent Optionee's right to exercise has
     vested  under the terms of his or her Option  Agreement  on or prior to the
     date such Optionee's  employment is terminated.  Notwithstanding  the prior
     sentence,  if Optionee's  employment is terminated  for dishonesty or other
     acts  detrimental of the interests of the Corporation or an Affiliate,  the
     Option granted to Optionee will  automatically  terminate  immediately upon
     such termination.

          (b) If an Optionee  terminates  employment  with the Corporation or an
     Affiliate because of a disability within the meaning of Section 22(e)(3) of
     the Code, the outstanding  portion of his or her Option may be exercised at
     any time within one year after the date of such termination,  to the extent
     the  Optionee's  right to exercise has vested under the terms of his or her
     Option  Agreement  on or prior to the date such  Optionee's  employment  is
     terminated.

          (c) If an Optionee  terminates  employment  with the Corporation or an
     Affiliate because of death, the executor or administrator of the Optionee's
     estate or any person who acquired the Option by bequest or inheritance  may
     exercise  it  within  one  year  after  such  termination,  to  the  extent
     Optionee's  right to  exercise  has  vested  under  the terms of his or her
     Option  Agreement  on or prior to the date such  Optionee's  employment  is
     terminated.

          (d) The exercise periods in paragraphs (a), (b) and (c) are subject to
     the 1 year limitation of Section 6(c) and may not extend such limitation.

10.  No  Shareholder  Rights.  An  Optionee  will  not  have  any  rights  as  a
     shareholder   regarding   any  Option  shares  before  the  date  when  the
     Corporation  issues Optionee a certificate  for such shares.  No adjustment
     will be made for dividends or  distributions  or other rights for which the
     record date occurs before the certificate is issued.

11.  No  Employment  Rights.  Neither  the Plan nor any  Option  confer  upon an
     Optionee  any  right  to  continued  employment  by the  Corporation  or an
     Affiliate,  nor do they limit the right of the  Corporation or an Affiliate
     to terminate a person's employment at any time.

<PAGE>


12.  Adjustment Upon Change in Capitalization.

          (a) If a change in the number of  outstanding  shares or Stock  occurs
     without receipt of consideration  therefor by the  Corporation,  whether by
     reason of a stock dividend, stock split,  combination,  exchange of shares,
     recapitalization,   merger  in  which  the  Corporation  is  the  surviving
     corporation,  or otherwise,  upon an affirmative determination by the Board
     to such effect,  the aggregate  number of reserved  shares under Section 4,
     the number of shares  subject to each  outstanding  Option,  and the option
     pace  of  each  outstanding  Option  will  be  automatically   adjusted  to
     accurately and equitably  reflect the effect thereon of such change. In the
     event  of a  dispute  concerning  such  adjustment,  the  decision  of  the
     Committee will be conclusive.  The number of reserved  shares or the number
     of shares subject to any outstanding  Option will be automatically  reduced
     by any fraction  included  therein which results from any  adjustment  made
     pursuant to this Section.

          (b) A dissolution or liquidation of the Corporation, a merger in which
     the Corporation is not the surviving  corporation,  a sale of substantially
     all of the assets of the  Corporation  or a  transaction  in which  another
     corporation  becomes  the  owner of 66 2/3% or more of the  total  combined
     voting  power of all classes of stock of the  Corporation  will cause every
     Option then  outstanding  to  terminate,  and in such event,  the  Optionee
     holding each then outstanding Option will have a right,  exercisable within
     a period of 30 days immediately  prior to the closing of such  dissolution,
     liquidation, merger, consolidation, or transaction, to exercise in whole or
     in part, such Option to the extent not theretofore exercised. Such exercise
     may occur  without  regard to periods and  installments  of  exercisability
     specified under the terms of the agreement evidencing the Option,  provided
     such Option has not at that time expired or otherwise  been  terminated  or
     cancelled.

13.  Duty to Furnish Information.  Each Optionee must furnish to the Corporation
     all  information  requested by the  Corporation to enable it to comply with
     any reporting or other  requirement  imposed upon the Corporation under any
     applicable statute or regulation.

14.  Corporate  Records.  Records  of  the  Corporation  and  of  any  Affiliate
     regarding  Optionee's  period of employment,  termination of employment and
     any reason therefor,  leaves of absence,  re-employment,  and other matters
     will be conclusive  for all purposes  hereunder,  unless  determined by the
     Committee to be incorrect.

15.  Compliance  with  Federal  and State  Securities  Law. An Option may not be
     exercised in whole or in part unless (i) a registration statement under the
     Securities Act is filed and effective for shares subject to the Option, and
     exercise of the Option and  issuance  of shares  thereunder  are  qualified
     under any applicable state securities or Blue Sky laws; or (ii) exercise of
     the  Option  and  issuance  of shares  thereunder  without  Securities  Act
     registration or state law qualification is otherwise  permissible,  and the
     Corporation receives an opinion of counsel acceptable to the Corporation to
     that effect.  A  certificate  for shares  issued upon exercise of an Option
     which have not been registered  under the Securities Act or qualified under
     applicable  state  securities  of Blue Sky  laws  must  bear the  following
     legends:
<PAGE>


     THE  SECURITIES  REPRESENTED  BY THIS  CERTIFICATE  HAVE BEEN  ACQUIRED FOR
     INVESTMENT AND HAVE NOT BEEN  REGISTERED  UNDER THE SECURITIES ACT OF 1933,
     AS  AMENDED,  OR THE  SECURITIES  LAWS OF ANY STATE OR OTHER  JURISDICTION.
     WITHOUT  SUCH  REGISTRATION,  SUCH  SECURITIES  MAY NOT BE  SOLD,  PLEDGED,
     HYPOTHECATED  OR OTHERWISE  TRANSFERRED  EXCEPT UPON DELIVERY TO THE ISSUER
     ("COMPANY")  OF AN OPINION  OF COUNSEL  SATISFACTORY  TO THE  COMPANY  THAT
     REGISTRATION  IS NOT REQUIRED FOR SUCH  TRANSFER OR THE  SUBMISSION  TO THE
     COMPANY OR SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO THE COMPANY TO THE
     EFFECT THAT ANY SUCH TRANSFER  SHALL NOT BE IN VIOLATION OF THE  SECURITIES
     ACT OF 1933, AS AMENDED,  OR APPLICABLE STATE OR FOREIGN SECURITIES LAWS OR
     ANY RULE OR REGULATION PROMULGATED THEREUNDER.

     THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE AND THE SALE,  ASSIGNMENT,
     TRANSFER,  PLEDGE OR OTHER  DISPOSITION  THEREOF ARE SUBJECT TO  ADDITIONAL
     RESTRICTIONS ON TRANSFER SET FORTH IN A SHAREHOLDERS  AGREEMENT DATED AS OF
     OCTOBER  3, 1989  AMONG THE  COMPANY  AND ALL OF ITS  SHAREHOLDERS  AND ANY
     AMENDMENT THERETO. A COPY OF THE SHAREHOLDERS  AGREEMENT AND ALL AMENDMENTS
     THERETO  HAS BEEN  PLACED ON FILE BY THE  COMPANY  AND MAY BE EXAMINED BY A
     SHAREHOLDER  OF THE  COMPANY AS  PROVIDED  BY  ARTICLE  2.22.B OF THE TEXAS
     BUSINESS CORPORATION ACT.

16.  Amendment and Discontinuance.

          (a) Subject to the restrictions of (b) and (c) below, the Committee or
     the shareholders of the Corporation may amend,  suspend, or discontinue the
     Plan at any time.

          (b) The Committee may not increase the total number of shares reserved
     for Options under Section 4. Neither the Committee nor the shareholders may
     allow an Option to be granted  for a price less than the amount  determined
     under  Section 3(c) or 6(c),  allow any Options to be granted  which expire
     beyond the  periods  specified  in  Sections  3(c) and 6(d),  or deprive an
     Optionee of any rights under an existing Option.

          (c) The  Corporation's  shareholders  must approve any amendment which
     increases aggregate shares of Stock subject to the Plan.

17.  Approval.  Options  may be  granted  at any time on or after the  Effective
     Date. No Option may be exercised until the Plan is approved by shareholders
     of the  Corporation  holding a majority of shares present and voting at the
     next meeting of  shareholders  following the Effective  Date. The Plan will
     cease, and all Options will be invalid,  if such shareholder  approval does
     not occur within 12 months of the Effective Date.

18.  Option  Agreement.  Each Option must be evidenced  by a written  agreement,
     substantially  in the form  attached  hereto as  Exhibit  A,  signed by the
     Optionee  and by an  authorized  officer of the  Corporation.  Terms of the
     agreement must conform to the Plan,  state the Option price and specify the
     period for which the Option is granted.  The  agreement  may  contain  such
     other terms  consistent with the provisions of the Plan as the Committee or
     Board may deem appropriate.

<PAGE>

19.  Definitions  and  Operating  Rules.  As used in this  Plan,  the  words and
     phrases below have the following meanings, and the following rules apply:

          (a) "Affiliate" means a Parent or Subsidiary.

          (b) "Board" means the Board of Directors of the Corporation.

          (c) "Code" means Internal Revenue Code of 1986, as amended.

          (d)  "Committee"  means the stock  option  committee  appointed by the
     Board, consisting solely of not less than two Non-Employee  Directors.  The
     Board may fill  vacancies on the Committee and from time to time may remove
     members from or add members to the Committee. The Committee will select one
     of its  members  as  chairman  and will  hold  meetings  when and  where it
     determines.  A majority of Committee members will constitute a quorum for a
     Committee  meeting.  A majority  vote of the Committee at which a quorum is
     present,  or  decisions  reduced to writing and signed by a majority of the
     Committee membership,  will be valid acts of the Committee.  If a Committee
     is not appointed,  or the Board in its discretion so chooses, the Board may
     act as the  Committee and may exercise all powers and fulfill all duties of
     the Committee.  No Board or Committee  member will be liable for any action
     or decision made in good faith concerning the Plan or any Option.

          (e) "Corporation"  means Norwood Promotional  Products,  Inc., a Texas
     corporation.

          (f)  "Disposition"  means this term has the same  meaning as stated in
     Section 425(c) of the Code.

          (g)  "Disqualifying  Disposition"  means a Disposition of Stock within
     two (2) years  after the  Option for the Stock is granted or within one (1)
     year after the Stock is  transferred  to  Optionee  pursuant  to his or her
     exercise of the Option.

          (h) "Effective Date" means the date specified in the opening paragraph
     of the Plan,  as of which the Board has  approved  the Plan and the date on
     which it takes full force and effect.

          (i)  "Employee"  means any person  employed by the  Corporation  or an
     Affiliate of the Corporation  during a calendar year in which the Committee
     grants Options.

          (j) "Exchange Act" means the federal Securities  Exchange Act of 1934,
     48 Stat. 881, as amended.

<PAGE>

          (k)  "Incentive  Stock  Option"  means any Option  granted an Employee
     under this Plan to  purchase  Stock of the  Corporation,  which at the time
     granted  qualifies  as an  incentive  stock  option  within the  meaning of
     Section 422 of the Code.

          (l) "Non-Employee Director" means a director who:

               (A) Is not  currently  an  officer  of the  issuer or a parent or
               subsidiary of the issuer, or otherwise  currently employed by the
               issuer or a parent or subsidiary of the issuer;

               (B) Does not receive compensation, either directly or indirectly,
               from the  issuer or a parent or  subsidiary  of the  issuer,  for
               services  rendered as a consultant or in any capacity  other than
               as a  director,  except  for an amount  that does not  exceed the
               dollar amount for which disclosure would be required  pursuant to
               Rule  404(a)  of   Regulation   S-K  of  the  General  Rules  and
               Regulations of the Exchange Act ("Regulation S-K");

               (C) Does not  possess an interest  in any other  transaction  for
               which  disclosure  would be  required  pursuant to Rule 404(a) of
               Regulation S-K; and

               (D)  Is  not  engaged  in  a  business   relationship  for  which
               disclosure   would  be  required   pursuant  to  Rule  404(b)  of
               Regulation S-K.

          (m) "Option" means an Incentive Stock Option granted under this Plan.

          (n)  "Optionee"  means the holder of an unexpired  Option that has not
     been exercised in full. This term includes the executor or administrator of
     the holder's estate, or any person who inherited all or part of the Option,
     and who may validly exercise the Option under Section 9(c) of the Plan.

          (o) "Parent"  means any  corporation  that qualifies at the time of an
     Option grant as a parent in an unbroken chain of  corporations  ending with
     the Corporation, determined by using the definition of "parent corporation"
     contained  in  Section  425(e)  of the  Code or any  substantially  similar
     provision later enacted.

          (p) "Plan" means the Norwood Promotional Products, Inc. 1989 Incentive
     Stock Option Plan, as stated in this document and including any  subsequent
     amendments approved by the Board or by the shareholders of the Corporation.

<PAGE>
                                                                             

          (q)  "Securities  Act" means the federal  Securities  Act of 1933,  48
     Stat. 74, as amended.


          (r) "Stock" means shares of common stock, no par value,  issued by the
     Corporation or any other class of common stock of the Corporation hereafter
     issued in exchange or in  substitution  thereof that has dividend or voting
     rights no less  favorable  than the  voting  power and  dividend  rights of
     presently outstanding common stock of the Corporation,  provided all shares
     reserved  for sale  under  the Plan  will be free of  preemptive  rights of
     shareholders of the Corporation.

          (s)  "Subsidiary"  means any corporation that qualifies at the time of
     an  Option  grant as a  subsidiary  in an  unbroken  chain of  corporations
     beginning  with the  Corporation,  determined  by using the  definition  of
     "subsidiary  corporation"  contained  in Section  425(f) of the Code or any
     substantially similar provision later enacted.

          (t) "Substantial Shareholder" means an Employee who owns more than 10%
     of  the  total  combined  voting  power  of all  classes  of  stock  of the
     Corporation and Affiliates.

<PAGE>
                                    EXHIBIT A


                       NORWOOD PROMOTIONAL PRODUCTS, INC.

                        INCENTIVE STOCK OPTION AGREEMENT

                    OPTION NUMBER:__________________________

                    OPTION SHARES:__________________________

                    OPTION PRICE:___________________________

                    DATE OF GRANT:__________________________

                    OPTIONEE:_______________________________


     This  Agreement is entered  into as of  __________________  19___,  between
Norwood  Promotional  Products,   Inc.,  a  Texas  corporation   ("Corporation")
and________________________  ("Optionee"). Capitalized words and phrases used in
this  Agreement  have the same  meanings  as stated in Section 17 of the Norwood
Promotional Products, Inc. Amended and Restated 1989 Incentive Stock Option Plan
(the "Plan"),  unless defined or required otherwise by the context in which used
in this Agreement.

1.   Grant of Option. The Corporation  grants to Optionee,  subject to the terms
     of the Plan and the terms of this Agreement, an Option to purchase from the
     Corporation all or part of a total of shares of Common Stock, no par value,
     of the Corporation ("Stock").

2.   Expiration  Date.  The Option  will  expire at 5:00 P.M. on the earlier of:
     (a)_____________________,  19____,  or (b) that date which is 45 days after
     the date on which  Optionee  ceases to be an  Employee,  except that (i) if
     Optionee  ceases to be an  Employee  because  of a  disability  within  the
     meaning of Section 22(c)(3) of the Code, the outstanding  portion of his or
     her Option may be  exercised  at any time within one year after the date of
     such  termination  to the extent  Optionee's  right to exercise has accrued
     under  the  terms  of this  Agreement,  (ii) if  Optionee  ceases  to be an
     Employee  because of death,  the executor or  administrator  of  Optionee's
     estate,   or  any  person  who  has  acquired  the  Option  by  bequest  or
     inheritance,   may  exercise  the  Option,   within  one  year  after  such
     termination,  to the extent  Optionee's  right to exercise has vested under
     the terms of this Agreement on or prior to the date  Optionee's  employment
     is  terminated,  and (iii) if Optionee is removed  from his  position as an
     Employee for  dishonesty or other acts  detrimental to the interests of the
     Corporation  or an Affiliate,  this Option will  automatically  be void and
     nonexercisable immediately upon the occurrence of such termination.

3.   Purchase Price. The purchase price per share of Stock with respect to which
     the Option is exercised will be $_____________.

<PAGE>

4.   Exercise of Option.

          (a) Subject to the other terms and provisions of this Agreement,  this
     Option  shall vest and become  exercisable  only on and after the dates set
     forth below as to the number of shares set forth opposite such dates below.

         Vesting Dates                           Number of Shares Vested
     ___________________________                 ________________________
     ___________________________                 ________________________
     ___________________________                 ________________________

          (b) During the term of this Option,  notwithstanding  paragraph (a) of
     this Section to the  contrary,  if  substantially  all of the assets of the
     Corporation   are  sold,  if  the   Corporation   is  merged  into  another
     corporation,  if the  Corporation  is dissolved or liquidated or if another
     corporation  acquires  66-2/3 % or more of the  total  voting  power of all
     classes of stock of the Corporation, this Option will terminate immediately
     upon the  closing  of any such  transaction,  and in such  event all shares
     subject to this Option will be available for purchase by Optionee under the
     terms of this Agreement  within a period  beginning at least 30 days before
     the closing of such transaction  occurs. The Corporation will give Optionee
     sufficient  notice to allow an  opportunity  for the Option to be exercised
     under the provisions of this paragraph.

          (c) The portions of this Option that become  exercisable in accordance
     with the terms hereof may be exercised in whole or in part by  delivering a
     written notice to the Committee  signed by the Optionee or, upon his or her
     death,  by his or her  successor  in interest  under the terms of Section 2
     above.  The notice  must state an election  to  exercise  the Option,  must
     specify the whole number of shares for which the option is exercised,  must
     state the date on which the  shares  will be  purchased  and if the  person
     exercising  the  Option  is  not  the  Optionee,  must  be  accompanied  by
     satisfactory evidence of such person's right to exercise the Option.

5.   Payment  Upon  Exercise.  At the time of exercise,  the  purchase  price of
     shares for which the Option is exercised must be paid to the Corporation in
     cash or in such other consideration as the Committee deems appropriate.

6.   Nontransferability.  This Option may not be transferred  other than by will
     or by the laws of descent and  distribution.  During  Optionee's  lifetime,
     only  Optionee or his  guardian or legal  representative  may  exercise the
     Option.

7.   No Shareholder  Rights.  Optionee will not have any rights as a stockholder
     regarding  any shares  subject to this Option  before the date on which the
     Corporation issues Optionee a certificate for such shares. This Option does
     not affect the  recapitalization  or  otherwise  change its capital or debt
     structure  or to  merge,  consolidate,  convey  any or  all of its  assets,
     dissolve, liquidate windup or otherwise reorganize.

<PAGE>

8.   No Employment  Rights.  This Option does not confer upon Optionee any right
     to continued  employment by the  Corporation  or an Affiliate,  nor does it
     limit the right of the Corporation or an Affiliate to terminate  Optionee's
     employment at any time.

9.   Share  Adjustment.  The number of shares  subject to this  Option,  and the
     purchase price per share,  will, upon an affirmative  determination  of the
     Board,  the  Committee  or the  shareholders  to such  effect,  be adjusted
     pursuant to Section 12 of the Plan to reflect a change in capitalization of
     the Corporations as described therein.

10.  Duty to Furnish  Information.  Optionee must furnish to the Corporation all
     information  requested by the  Corporation  to enable it to comply with any
     reporting or other requirement imposed upon the Corporation with respect to
     the Plan or this Option under any applicable statute or regulation.

11.  Compliance  with Law and  Regulations.  This  Option and the  Corporation's
     obligation  to  sell  and  deliver  shares  hereunder  are  subject  to all
     applicable  Federal  and  State  laws,  rules and  regulations  and to such
     approvals by any government or regulatory  agency as may be required.  This
     Option may not be  exercised  if its  exercise  or the receipt of shares of
     Stock hereunder would be contrary to any applicable law or regulation.

12.  Investment  Representation.  Optionee  represents  and warrants  that Stock
     acquired  upon any exercise of this Option will be acquired for  Optionee's
     own account  for  investment  purposes  only and not with a view to, or for
     resale in connection  with, any  distribution  or public  offering of Stock
     within the meaning of the  Securities  Act or other  applicable  securities
     laws.  If the Board so  determines,  any  Stock  certificates  issued  upon
     exercise  of the Option  will bear a legend to the  effect  that the shares
     have been so acquired.  These restrictions on transfer of the Stock will be
     inoperative  if the  Corporation  previously  has  been  furnished  with an
     opinion of counsel,  satisfactory  to the  Corporation,  to the effect that
     such transfer will not involve any violation of the Securities Act or other
     applicable  securities  laws, or that the Stock has been duly registered in
     compliance with the Securities Act and other applicable securities laws. If
     Stock  subject to the Option is so  registered  under the  Securities  Act,
     Optionee  agrees  not to make a public  offering  of the Stock  except on a
     national  securities  exchange  on which the Stock is then  registered  and
     listed.

13.  Indemnification.  Optionee  agrees to  indemnify  the  Corporation  and its
     officers,  directors,  employees  or agents  from any  liability,  penalty,
     interest,  loss or damage to the  Corporation  or its officers,  directors,
     employees or agents which may arise from the failure of the  Corporation to
     withhold  taxes  under  Sections  3201,  3301 or 3402 of the  Code,  or any
     successor  provisions  to  such  statutes,  on  any  amount  includible  in
     Optionee's  gross  income for  federal  income tax  purposes as a result of
     optionee's  Disqualifying  Disposition  of any Stock  acquired  pursuant to
     exercise of the Option.

14.  Optionee Bound by Plan and by Corporate  Decisions.  Optionee  acknowledges
     receipt  of a copy of the Plan and  agrees to be bound by all the terms and
     provisions  thereof.  The terms of this  Agreement and the Plan are binding
     upon all successors of Optionee.

<PAGE>

15.  Notices.  Any  notice to the  Corporation  must be  addressed  to it at its
     principal office,  615 Perez Street, San Antonio, Attention:_______________
     , President. Any notice to Optionee must be addressed to him or her at the 
     address shown beneath his or her  signature  below.  Either party may later
     designate in writing to the other a different address.

          IN WITNESS  WHEREOF,  the  Corporation has caused this Agreement to be
     executed by its duly  authorized  officer,  and Optionee has executed  this
     Agreement, both as of the day and year first above written.

                                         NORWOOD PROMOTIONAL PRODUCTS, INC.



                                         By:_____________________________
                                            President

                                         OPTIONEE:

                                         ________________________________
                                         Name:___________________________
                                         Address:________________________


<PAGE>



















                                  Exhibit 10.5
              Incentive Stock Compensation Plan of the Registrant
dated November 14, 1994, as amended and restated effective as of August 23, 1996
















<PAGE>


                       NORWOOD PROMOTIONAL PRODUCTS, INC.

                              AMENDED AND RESTATED

                     1994 INCENTIVE STOCK COMPENSATION PLAN



1.   PURPOSE.

     This  Incentive  Stock  Compensation  Plan (the  "Plan") is  intended as an
incentive to encourage  stock  ownership  by certain  officers and  employees of
Norwood  Promotional  Products,  Inc.  (the  "Company"),  or of  its  subsidiary
corporations (the  "Subsidiaries," as that term is defined in Section 425 of the
Internal  Revenue Code of 1986, as amended from time to time),  so that they may
acquire or increase  their  proprietary  interest in the success of the Company,
and to  encourage  them to remain  in the  employ  of the  Company.  The Plan is
designed  to meet  this  intent  by  offering  performance-based  stock and cash
incentives  and  other  equity  based  incentive  awards,  thereby  providing  a
proprietary  interest  in  pursuing  the  long-term  growth,  profitability  and
financial success of the Company.

2.   DEFINITIONS.

     For purposes of this Plan, the following  terms shall have the meanings set
forth below:

     "Award" or  "Awards"  means an award or grant made to a  Participant  under
Sections 7 through 10, inclusive, of the Plan.

     "Board" means the Board of Directors of the Company.

     "Code" means the Internal  Revenue Code of 1986, as amended,  together with
the regulations promulgated thereunder.

     "Committee" means the Compensation Committee of the Board, or any committee
of the Board performing similar functions,  constituted as provided in Section 4
of the Plan.

     "Common Stock" means the Common Stock of the Company or any security of the
Company issued in substitution, exchange or lieu thereof.

     "Company"  means  Norwood  Promotional  Products,  Inc.  or  any  successor
corporation.

     "Deferred  Compensation  Stock  Option"  means  any  Stock  Option  granted
pursuant  to the  provisions  of  Section 7  of the  Plan  that is  specifically
designated as such.

     "Disability"  means  permanent  and  total  disability.  An  individual  is
permanently  and  totally  disabled  if he or she is  unable  to  engage  in any
substantial gainful activity by reason of any medically determinable physical or
mental  impairment  which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than 12 months.

     "Exchange Act" means the Securities Exchange Act of 1934, as amended and in
effect from time to time, or any successor statute.



<PAGE>

     "Fair Market Value" means on any given date (i) the  highest  closing price
of the Common  Stock on any  established  national  exchange or exchanges or the
NASDAQ  National  Market  System or, if no sale of Common  Stock is made on such
day, the next preceding day on which there was a sale of such stock,  or (ii) if
the  Common  Stock is  quoted in the  over-the-counter  market  reported  by the
NASDAQ,  the mean between the closing bid and low asked quotations of the Common
Stock  for such  date,  or (iii) if the  Common  Stock is  neither  quoted on an
exchange nor in the over-the-counter market, then the most recent price at which
the  Common  Stock  has  been  sold  in  relatively  comparable  amounts  to  an
independent third party in an arms' length transaction for cash, or lacking such
recent  comparable  sale,  then fair  market  value shall be  determined  by the
Committee, using a reasonable valuation method, as determined by the Committee.

     "Incentive  Stock Option" means any Stock Option (as defined below) that is
intended to be and is  specifically  designated as an  "incentive  stock option"
within the meaning of Section 422 of the Code.

     "Non-Employee Director" means a director who:

     (A)  Is not currently an officer of the issuer or a parent or subsidiary of
          the issuer, or otherwise  currently employed by the issuer or a parent
          or subsidiary of the issuer;

     (B)  Does not receive compensation, either directly or indirectly, from the
          issuer or a parent or subsidiary of the issuer,  for services rendered
          as a consultant  or in any capacity  other than as a director,  except
          for an  amount  that  does not  exceed  the  dollar  amount  for which
          disclosure would be required pursuant to Rule 404(a) of Regulation S-K
          of the General Rules and Regulations of the Exchange Act  ("Regulation
          S-K");

     (C)  Does not  possess  an  interest  in any  other  transaction  for which
          disclosure  would be required  pursuant  to Rule 404(a) of  Regulation
          S-K; and

     (D)  Is not engaged in a business  relationship  for which disclosure would
          be required pursuant to Rule 404(b) of Regulation S-K.

     "Nonqualified  Stock Option" means any Stock Option granted pursuant to the
provisions of Section of the Plan that is not an Incentive Stock Option.

     "Participant"  means an  employee of the  Company or any  Subsidiary  or an
individual  who is  performing  services for either entity and who is granted an
Award under the Plan.

     "Performance  Bonus Award"  means an Award of cash and/or  shares of Common
Stock granted pursuant to the provisions of Section 9 of the Plan.

     "Plan" means this Incentive  Stock  Compensation  Plan, as set forth herein
and as it may be hereafter amended.

     "Restricted  Award" means an Award  granted  pursuant to the  provisions of
Section 9 of the Plan.

     "Restricted  Stock Grant" means an Award of shares of Common Stock  granted
pursuant to the provisions of Section 9 of the Plan.

     "Restricted  Unit  Grant"  means an Award of units  representing  shares of
Common Stock granted pursuant to the provisions of Section 9 of the Plan.

     "SEC" means the Securities and Exchange Commission.

     "Stock  Appreciation Right" means an Award to benefit from the appreciation
of Common Stock granted pursuant to the provisions of Section 8 of the Plan.



<PAGE>

     "Stock  Option"  means an Award to purchase  shares of Common Stock granted
pursuant to the provisions of Section 7 of the Plan.

     "Subsidiary"  means any corporation or entity in which the Company directly
or  indirectly  controls 50% or more of the total voting power of all classes of
its stock having voting power,  whether  existing at the date of  institution of
this Plan or subsequently.

     "Ten Percent  Shareholder" means a person who owns (or is considered to own
after taking into account the  attribution of ownership  rules of Section 425(d)
of the Code) more than ten percent (10%) of the total  combined  voting power of
all classes of stock of the Company or any Subsidiary.

3.   APPROVAL OF AWARDS.

     Each Award must be approved in one of the following ways:

     (a)  Board/Committee  Approval.  The entire Board or the Committee may vote
          in advance to approve such Award.

     (b)  Shareholder  Approval/Ratification.  In  compliance  with the Exchange
          Act, a majority of the  shareholders  of the Company duly  entitled to
          vote on such matters at meetings held in  accordance  with the laws of
          the State of Texas  may,  either in  advance  of the Award or no later
          than the next annual meeting of  shareholders,  affirmatively  vote to
          approve such Award.

4.   ADMINISTRATION.

     (a)  The Plan shall be  administered  by the  Committee,  as appointed from
          time to time by the  Board.  The Board  may from  time to time  remove
          members from, or add members to, the Committee. The Committee shall be
          constituted  so as to  permit  the  Plan to  comply  with  Rule  16b-3
          promulgated  by the SEC under the Exchange Act or any  successor  rule
          and shall be comprised solely of at least two members of the Board who
          are Non-Employee Directors.

     (b)  A majority of the members of the Committee  shall  constitute a quorum
          for the  transaction  of  business.  Action  approved  in writing by a
          majority  of the members of the  Committee  then  serving  shall be as
          effective  as if the  action  had been  taken by  unanimous  vote at a
          meeting duly called and held.

     (c)  The  Committee is  authorized  to construe and  interpret the Plan, to
          promulgate,  amend,  and rescind rules and procedures  relating to the
          implementation  of the  Plan,  and to make  all  other  determinations
          necessary  or  advisable  for  the  administration  of the  Plan.  Any
          determination, decision, or action of the Committee in connection with
          the construction,  interpretation,  administration,  or application of
          the Plan shall be binding upon all Participants and any person validly
          claiming under or through any Participant.

     (d)  The  Committee  may  designate  persons  other  than  members  of  the
          Committee to carry out its responsibilities  under such conditions and
          limitations  as it may  prescribe,  except that the  Committee may not
          delegate its authority with regard to selection for  participation of,
          and the granting of Awards to,  persons  subject to Sections 16(a) and
          16(b) of the Exchange Act or who are eligible to receive  Awards under
          this Plan.

     (e)  The  Committee is expressly  authorized to make  modifications  to the
          Plan as necessary to effectuate  the intent of the Plan as a result of
          any changes in the tax,  accounting,  or securities  laws treatment of
          Participants and the Plan,  subject to those restrictions that are set
          forth in Sections 3 and 15 of the Plan.

     (f)  The Company  shall effect the  granting of Awards  under the Plan,  in
          accordance with the determinations  made by the Committee and approved
          in accordance  with Section 3 of the Plan, by execution of instruments
          in writing in such form as approved by the Committee.


                                       4
<PAGE>

5.   ELIGIBILITY.

     Persons  eligible  for  Awards  under the Plan shall  consist of  employees
(including  officers,  whether or not they are  directors) of the Company or its
Subsidiaries  who from time to time shall be  designated by the  Committee.  Any
person who shall be eligible for Awards under this Plan shall not be eligible to
participate in the Company's Non-Employee Director Stock Purchase Plan.

6.   DURATION OF AND COMMON STOCK SUBJECT TO PLAN.

     (a)  Term.  The Plan shall  terminate  on  November  14,  2004  except with
          respect to Awards then outstanding.

     (b)  Shares of Common Stock Subject to Plan.  The maximum  number of shares
          of Common  Stock in respect of which  Awards may be granted  under the
          Plan (the "Plan  Maximum")  shall be 190,000  subject to adjustment as
          provided in Section 13 below.  Common  Stock issued under the Plan may
          be either  authorized and unissued  shares or issued shares which have
          been  reacquired by the Company.  The following  terms and  conditions
          shall apply to Common Stock subject to the Plan:

          (i)  In no event  shall  more than the Plan  Maximum  be  cumulatively
               available for Awards under the Plan;

          (ii) For the purpose of computing the total number of shares of Common
               Stock available for Awards under the Plan, there shall be counted
               against the  foregoing  limitations  (A) the  number of shares of
               Common Stock  subject to issuance  upon exercise or settlement of
               Awards  (regardless of vesting),  and (B) the number of shares of
               Common Stock which equal the value of  Restricted  Unit Grants or
               Stock  Appreciation  Rights determined at the dates on which such
               Awards are granted;

          (iii)If any  Awards are  forfeited,  terminated,  expire  unexercised,
               settled in cash in lieu of stock or exchanged  for other  Awards,
               the shares of Common Stock which were  previously  subject to the
               Awards shall again be available  for Awards under the Plan to the
               extent of such forfeiture or expiration of the Awards; and

          (iv) Any  shares of  Common  Stock  which are used as full or  partial
               payment to the Company by a Participant  of the purchase price of
               shares of Common  Stock upon  exercise  of a Stock  Option  shall
               again be available for Awards under the Plan.

7.   STOCK OPTIONS.

     Stock Options  granted under the Plan may be in the form of Incentive Stock
Options,  Non-Qualified  Stock  Options or Deferred  Compensation  Stock Options
(collectively,  the  "Stock  Options").  Stock  Options  shall be subject to the
following  terms and  conditions,  and each  Stock  Option  shall  contain  such
additional terms and conditions, not inconsistent with the express provisions of
the Plan, as the Committee shall deem desirable, subject to Section 3 hereof:

     (a)  Grant.  Stock  Options shall be granted  separately.  In no event will
          Stock  Options or Awards be issued in tandem  whereby the  exercise of
          one affects the right to exercise the other.

     (b)  Stock  Option  Price.  The  exercise  price per share of Common  Stock
          purchasable  under a Stock Option shall be determined by the Committee
          at the time of grant. However, in no event shall the exercise price of
          an Incentive  Stock Option be less than one hundred  percent (100%) of
          the Fair Market  Value of the Common Stock on the date of the grant of
          the  Stock  Option.  In the  case of a Ten  Percent  Shareholder,  the
          exercise price of an Incentive Stock Option shall be not less than one
          hundred  ten  percent  (110%) of the Fair  Market  Value of the Common
          Stock on the date of the grant.


<PAGE>


     (c)  Option Term.  The term of each Stock  Option,  other than an Incentive
          Stock Option,  shall be fixed by the Committee.  The term of Incentive
          Stock  Options shall not exceed ten years after the date the Incentive
          Stock Option is granted,  and the term of any Incentive  Stock Options
          granted to Ten Percent  Shareholders shall not exceed five years after
          the date of the grant.

     (d)  Exercisability.

          (i)  Incentive Stock Options and  Nonqualified  Stock Options shall be
               exercisable  in   installments   as  provided  in  the  following
               sentence, and shall be subject to such other terms and conditions
               as the Committee shall determine at the date of grant;  provided,
               however,  that except as provided in Sections 11(a), 11(b), 11(c)
               and 14, no Incentive  Stock Option or  Nonqualified  Stock Option
               shall vest and be exercisable prior to the first anniversary date
               of the date of grant (hereinafter, "Anniversary Date"). Incentive
               Stock Options and Nonqualified Stock Options may be exercised, at
               the discretion of the Committee,  except as otherwise provided in
               Sections 11(a),  11(b), 11(c) and 14; provided,  that each option
               shall  become  exercisable  in three  equal  annual  installments
               beginning  on the third  anniversary  of the date of the grant of
               the option unless the Committee provides otherwise.

          (ii) Reload  Options  shall  become  exercisable  in  accordance  with
               Section 7(h)(iii)  hereof.  Deferred  Compensation  Stock Options
               shall  become  exercisable  in  accordance  with the terms of the
               grant thereof as established by the Committee.

     (e)  Method of Exercise.  Subject to applicable  exercise  restrictions set
          forth in Section 7(d) above, a Stock Option may be exercised, in whole
          or in part,  by giving  written  notice  of  exercise  to the  Company
          specifying  the number of shares to be purchased.  The notice shall be
          accompanied  by payment in full of the  purchase  price.  The purchase
          price  may be paid by any of the  following  methods,  subject  to the
          restrictions set forth in Section 7(f) hereof:

          (i)  in cash,  by certified or cashier's  check,  by money order or by
               personal  check (if approved by the Committee) of an amount equal
               to the aggregate  purchase price of the shares of Common Stock to
               which such exercise relates;

          (ii) if acceptable to the  Committee,  by delivery of shares of Common
               Stock already owned by the Participant,  which shares,  including
               any cash tendered therewith,  have an aggregate Fair Market Value
               (determined  as of the date  preceding the  Company's  receipt of
               exercise  notice)  equal to the aggregate  purchase  price of the
               shares of Common Stock to which such exercise relates; or

          (iii)if acceptable to the Committee,  by delivery to the Company of an
               exercise  notice  that  requests  the  Company  to  issue  to the
               Participant the full number of shares of Common Stock as to which
               the Stock Option is then  exercisable,  less the number of shares
               of  Common  Stock  that  have  an  aggregate  Fair  Market  Value
               (determined as of the date preceding the Company's receipt of the
               exercise  notice)  equal to the aggregate  purchase  price of the
               shares of Common Stock to which such exercise relates.

     (f)  Restrictions  on Method of  Exercise.  Notwithstanding  the  foregoing
          payment provisions,  the Committee, in granting Stock Options pursuant
          to the Plan,  may limit the  methods  by which a Stock  Option  may be
          exercised by any person and, in processing any purported exercise of a
          Stock Option granted pursuant to the Plan, may refuse to recognize the
          method of exercise selected by the Participant  (other than the method
          of  exercise  set forth in  Section  7(e)(i)),  if, in the  opinion of
          counsel  to the  Company,  (i) the  Participant  is, or within the six
          months preceding such exercise was, subject to reporting under Section
          16(a) of the Exchange Act, and (ii) there is a substantial  likelihood
          that the method of exercise  selected by the Participant would subject
          the  Participant to substantial  risk of liability under Section 16 of
          the  Exchange  Act.  Furthermore,  no  Incentive  Stock  Option may be
          exercised  in  accordance  with the methods of  exercise  set forth in
          subsections  7(e)(ii) and 7(e)(iii)  above  unless,  in the opinion of
          counsel  to the  Company,  such  exercise  would  not have a  material
          adverse  effect upon the  incentive  stock option tax treatment of any
          outstanding  Incentive  Stock Options or Incentive  Stock Options that
          thereafter may be granted pursuant to the Plan.

<PAGE>

     (g)  Tax  Withholding.  In addition to the alternative  methods of exercise
          set forth in Section  7(e),  holders of  Nonqualified  Stock  Options,
          subject to the discretion of the  Committee,  may be entitled to elect
          at or prior  to the  time the  exercise  notice  is  delivered  to the
          Company,  to have the Company withhold from the shares of Common Stock
          to be delivered  upon  exercise of the  Nonqualified  Stock Option the
          number of shares of Common Stock  (determined based on the Fair Market
          Value as of the date  preceding the Company's  receipt of the exercise
          notice)   that  is  necessary   to  satisfy  any   withholding   taxes
          attributable  to  the  exercise  of  the  Nonqualified  Stock  Option;
          provided,  however,  that the amount of the Fair  Market  Value of the
          shares so  withheld  does not exceed the tax on such  exercise  at the
          maximum  marginal tax rate.  If  withholding  is made in shares of the
          Common Stock pursuant to the method set forth above, the Committee, in
          its sole  discretion,  may grant  "Reload  Option(s)"  (as  defined in
          Section  7(h) below) on the terms  specified in Section 7(h) below for
          the shares so withheld.  Notwithstanding the foregoing  provisions,  a
          holder of a Nonqualified  Stock Option may not elect to satisfy his or
          her   withholding  tax  obligation  in  respect  of  any  exercise  as
          contemplated  above if, in the  opinion  of  counsel  to the  Company,
          (i) the holder of the Nonqualified  Stock Option is, or within the six
          months preceding such exercise was, subject to reporting under Section
          16(a) of the Exchange Act, (ii) there is a substantial likelihood that
          the election or timing of the election  would  subject the holder to a
          substantial risk of liability under Section 16 of the Exchange Act, or
          (iii) such withholding  would have an adverse tax or accounting effect
          to the Company.

     (h)  Grant  of  Reload  Options.   Whenever  the  Participant  holding  any
          Incentive  Stock Option or  Nonqualified  Stock Option (the  "Original
          Option")  outstanding  under this Plan (including any "Reload Options"
          granted  under the  provisions  of this Section  7(h))  exercises  the
          Original  Option and makes  payment of the option  price by  tendering
          shares of the Common Stock  previously  held by him or her pursuant to
          Section 7(e)(ii) hereof, including shares withheld pursuant to Section
          7(g) above,  then the Committee may, in its sole  discretion,  grant a
          new option (the "Reload Option") for additional shares of Common Stock
          in an amount to be determined in its sole  discretion of up to 100% of
          the number of shares  tendered  by the  Participant  in payment of the
          option price for the Original Option being exercised,  including those
          shares  withheld  pursuant  to Section  7(g)  above.  All such  Reload
          Options  granted  hereunder  shall  be  on  the  following  terms  and
          conditions:

          (i)  The Reload Option price per share shall be an amount equal to the
               then  current  Fair Market  Value per share of the Common  Stock,
               determined  as of  the  date  of  the  Company's  receipt  of the
               exercise notice for the Original Option;

          (ii) The option  exercise  period shall expire,  and the Reload Option
               shall no longer be  exercisable,  on the expiration of the option
               period of the  Original  Option or two years from the date of the
               grant of the Reload Option, whichever is later;

          (iii)Any Reload Option  granted under this Section 7(h) shall vest and
               first become  exercisable one year following the date of exercise
               of the Original Option; and

          (iv) All other  terms of Reload  Options  granted  hereunder  shall be
               identical to the terms and conditions of the Original Option, the
               exercise of which gives rise to the grant of the Reload Option.

Even if the  shares of  Common  Stock  which are  issued  upon  exercise  of the
Original  Option are sold within one year following the exercise of the Original
Option such that the sale constitutes a disqualifying  disposition for Incentive
Stock  Option  treatment  under the Code,  no  provision  of this Plan  shall be
construed as prohibiting such a sale.

          (i)  Special  Rule  for  Incentive  Stock  Options.  With  respect  to
               Incentive  Stock Options  granted  under the Plan,  the aggregate
               Fair Market  Value  (determined  as of the date  Incentive  Stock
               Options  are  granted)  of the number of shares  with  respect to
               which  Incentive Stock Options are exercisable for the first time
               by a  Participant  during  any  calendar  year  shall not  exceed
               $100,000 or such other limits as may be required by the Code.

          (j)  Deferred Compensation Stock Options.  Deferred Compensation Stock
               Options  are  intended  to provide a means by which  compensation
               payments can be deferred to future dates. The number of shares of
               Common  Stock  subject to a Deferred  Compensation  Stock  Option
               shall be determined by the Committee, in its sole discretion,  in
               accordance with the following formula:



<PAGE>

          Amount of Compensation to be Deferred   =    Number of
          -------------------------------------  
          Fair Market Value - Stock Option Price       Shares

Amounts of compensation deferred may include amounts earned under Awards granted
under the Plan or under any other compensation plan,  program, or arrangement of
the Company as permitted by the Committee.  Deferred  Compensation Stock Options
will be granted only if the Committee has reasonably determined, for purposes of
the Code,  that a recipient  of such an option will not be deemed at the date of
grant to be in receipt of the amount of income being deferred.

     (k)  Incentive Stock Options.  Notwithstanding  anything in the Plan to the
          contrary,  no term of this Plan  relating to Incentive  Stock  Options
          shall be interpreted, amended, or altered, nor shall any discretion or
          authority granted under the Plan be so exercised,  so as to disqualify
          the Plan under Section 422 of the Code or,  without the consent of the
          Participant(s)  affected,  to disqualify  any  Incentive  Stock Option
          under such  Section  422 of the Code.  To the extent  permitted  under
          Section 422 of the Code or  applicable  regulations  thereunder or any
          applicable Internal Revenue Service pronouncements:

          (i)  if a Participant's employment is terminated by reason of death or
               Disability  and the portion of any  Incentive  Stock  Option that
               becomes exercisable during the post-termination  period specified
               in  Section  10(a)  or  10(b)  exceeds  the  $100,000  limitation
               contained in Section 422(d) of the Code set forth in Section 7(i)
               above,  such  excess  shall be  treated as a  Nonqualified  Stock
               Option; and

          (ii) if the exercise of an Incentive  Stock Option is  accelerated  by
               reason of a Change in Control  (as  defined in Section 14 below),
               any portion of such Option that exceeds the  $100,000  limitation
               set  forth  in  Section   7(i)  above   shall  be  treated  as  a
               Nonqualified Stock Option.

8.   STOCK APPRECIATION RIGHTS.

     The grant of Stock  Appreciation  Rights under the Plan shall be subject to
the following terms and conditions,  and shall contain such additional terms and
conditions,  not  inconsistent  with  the  express  terms  of the  Plan,  as the
Committee shall deem desirable:

     (a)  Stock  Appreciation  Rights.  A Stock  Appreciation  Right is an Award
          entitling  a  Participant  to  receive  an amount  equal to (or if the
          Committee shall determine at the time of grant,  less than) the excess
          of the Fair  Market  Value of a share of  Common  Stock on the date of
          exercise  over the Fair Market Value of a share of Common Stock on the
          date of grant of the Stock Appreciation  Right, or such other price as
          may be set by the  Committee,  multiplied  by the  number of shares of
          Common Stock with respect to which the Stock  Appreciation Right shall
          have been exercised.

     (b)  Grant. A Stock Appreciation Right shall be granted  separately.  In no
          event will  Stock  Appreciation  Rights and other  Awards be issued in
          tandem  whereby the  exercise  of one such Award  affects the right to
          exercise the other.

     (c)  Exercise. A Stock Appreciation Right may be exercised by a Participant
          in accordance  with  procedures  established by the Committee,  except
          that in no event shall a Stock Appreciation Right be exercisable prior
          to the  first  Anniversary  Date of the date of grant.  The  Committee
          shall  establish  procedures  to  provide  that,  with  respect to any
          Participant  subject to Section  16(b) of the  Exchange  Act who would
          receive  cash  in  whole  or  in  part  upon  exercise  of  the  Stock
          Appreciation  Right,  such  exercise may only occur during an exercise
          period  beginning on the third  business day  following  the Company's
          public release of quarterly or annual summary  statements of sales and
          earnings  and ending on the 15th  business day  following  such public
          release ("Window  Period").  To the extent it is not inconsistent with
          the preceding sentence, the Committee, in its discretion,  may provide
          that a Stock  Appreciation  Right shall be automatically  exercised on
          one or more specified dates, or that a Stock Appreciation Right may be
          exercised during only limited time periods.

     (d)  Form of Payment.  Payment to the Participant  upon exercise of a Stock
          Appreciation  Right may be made (i) in cash, by certified or cashier's
          check or by money order, (ii) in shares of Common Stock,  (iii) in the
          form of a Deferred  Compensation Stock Option, or (iv) any combination
          of the above,  as the  Committee  shall  determine.  The Committee may
          elect  to  make  this  determination  either  at the  time  the  Stock
          Appreciation   Right  is   granted,   or  with   respect  to  payments
          contemplated  in  clauses  (i)  and  (ii)  above,  at the  time of the
          exercise.


<PAGE>

9.   RESTRICTED AWARDS.

     Restricted  Awards  granted  under  the Plan  may be in the form of  either
Restricted  Stock Grants or Restricted Unit Grants.  Restricted  Awards shall be
subject to the following terms and  conditions,  and may contain such additional
terms and conditions,  not inconsistent with the express provisions of the Plan,
as the Committee shall deem desirable:

     (a)  Restricted  Stock  Grants.  A  Restricted  Stock  Grant is an Award of
          shares of Common Stock  transferred  to a Participant  subject to such
          terms and conditions as the Committee deems appropriate,  as set forth
          in  Section  9(d)  below.  Further,  as a  condition  to the  grant of
          Restricted  Stock to any Participant who, at the date of grant has not
          been  employed by the Company and has not  performed  services for the
          Company,  the Committee shall require such Participant to pay at least
          an amount equal to the par value of the shares of Common Stock subject
          to the Restricted Stock Grant within 30 days of the date of the grant,
          and  failure  to  pay  such  amount   shall  result  in  an  automatic
          termination of the Restricted Stock Grant.

     (b)  Restricted  Unit Grants.  A Restricted Unit Grant is an Award of units
          granted to a Participant  subject to such terms and  conditions as the
          Committee  deems  appropriate,   including,  without  limitation,  the
          requirement  that the Participant  forfeit such units upon termination
          of employment for specified reasons within a specified period of time,
          and   restrictions  on  the  sale,   assignment,   transfer  or  other
          disposition of the units.  Based on the discretion of the Committee at
          the time a Restricted  Unit Grant is awarded to a Participant,  a unit
          will have a value  (i) equivalent  to one share of  Common  Stock,  or
          (ii) equivalent  to the excess of the Fair Market  Value of a share of
          Common Stock on the date the  restriction  lapses over the Fair Market
          Value of a share  of  Common  Stock  on the  date of the  grant of the
          Restricted  Unit  Grant (or over  such  other  value as the  Committee
          determines at the time of the grant).

     (c)  Grant of Awards.  Restricted Awards shall be granted  separately under
          the  Plan in  such  form  and on  such  terms  and  conditions  as the
          Committee may from time to time approve.  Restricted Awards,  however,
          may not be granted in tandem with other Awards whereby the exercise of
          one such Award affects the right to exercise the other. Subject to the
          terms of the  Plan,  the  Committee  shall  determine  the  number  of
          Restricted Awards to be granted to a Participant and the Committee may
          impose  different  terms and conditions on any  particular  Restricted
          Award made to any Participant. Each Participant receiving a Restricted
          Stock  Grant  shall be issued a stock  certificate  in  respect of the
          shares of Common  Stock.  The  certificate  shall be registered in the
          name of the  Participant,  shall be  accompanied by a stock power duly
          executed  by the  Participant,  and shall bear an  appropriate  legend
          referring to the terms,  conditions and restrictions applicable to the
          Award. The certificate  evidencing the shares shall be held in custody
          by the  Company  until the  restrictions  imposed  thereon  shall have
          lapsed or been removed.

     (d)  Restriction Period.  Restricted Awards shall provide that in order for
          a Participant to vest in the Awards, the Participant must continuously
          provide  services  for the  Company  or its  Subsidiaries,  subject to
          relief for specified  reasons,  for a period of not less than one year
          commencing  on the date of the Award and  ending on such later date or
          dates  as the  Committee  may  designate  at  the  time  of the  Award
          ("Restriction  Period").  During the Restriction Period, a Participant
          may not sell, assign, transfer, pledge, encumber, or otherwise dispose
          of shares of Common Stock received under a Restricted Stock Grant. The
          Committee,  in its  sole  discretion,  may  provide  for the  lapse of
          restrictions  in  installments  during the  Restriction  Period.  Upon
          expiration  of  the  applicable   Restriction   Period  (or  lapse  of
          restrictions  during the  Restriction  Period  where the  restrictions
          lapse in  installments),  the Participant shall be entitled to receive
          his or her Restricted Award or the applicable portion thereof,  as the
          case may be. Upon  termination of a Participant's  employment with the
          Company  or any  Subsidiary  for any  reason  during  the  Restriction
          Period,  all or a portion of the shares or units, as applicable,  that
          are  still  subject  to a  restriction  may vest or be  forfeited,  in
          accordance with the terms and conditions  established by the Committee
          at or after grant.


<PAGE>

     (e)  Payment of Awards. A Participant  shall be entitled to receive payment
          for a Restricted Unit Grant (or portion thereof) in an amount equal to
          the aggregate Fair Market Value of the units covered by the Award upon
          the  expiration  of the  applicable  Restriction  Period.  Payment  in
          settlement  of a  Restricted  Unit  Grant  shall  be  made  as soon as
          practicable  following the  conclusion of the  respective  Restriction
          Period (i) in cash, by certified or cashier's check or by money order,
          (ii) in  shares of Common  Stock equal to the number of units  granted
          under the Restricted  Unit Grant with respect to which such payment is
          made,  (iii) in the form of a Deferred  Compensation  Stock Option, or
          (iv)  in  any  combination  of  the  above,  as  the  Committee  shall
          determine,   subject,   however,   to  any  applicable  Window  Period
          requirement  imposed by the Committee with respect to Restricted  Unit
          Grants settled in whole or in part in cash. The Committee may elect to
          make this  determination  either at the time the Award is granted,  or
          with respect to payments contemplated in clause (i) and (ii) above, at
          the time the Award is settled.

     (f)  Rights as a Shareholder. A Participant shall have, with respect to the
          shares of Common Stock received under a Restricted Stock Grant, all of
          the rights of a  shareholder  of the Company,  including  the right to
          vote the shares,  and the right to receive any cash  dividends.  Stock
          dividends  issued with  respect to the shares  covered by a Restricted
          Stock Grant shall be treated as additional shares under the Restricted
          Stock  Grant and shall be subject to the same  restrictions  and other
          terms and conditions  that apply to shares under the Restricted  Stock
          Grant with respect to which the dividends are issued.

10.  PERFORMANCE BONUS AWARDS.

     Performance  Bonus Awards granted under the Plan may be in the form of cash
or shares of Common Stock, or a combination  thereof.  Performance  Bonus Awards
shall  contain  such terms and  conditions,  not  inconsistent  with the express
provisions of the Plan, as the Committee shall deem desirable. Performance Bonus
Awards may be granted under the Plan in such form as the Committee may from time
to time approve. Subject to the terms of the Plan, the Committee shall determine
the  Performance  Bonus  Awards to be  granted  to a  Participant  for any given
calendar  year, and the Committee may impose  different  terms and conditions on
any particular  Performance Bonus Award made to any Participant  including,  but
not limited to,  restrictions  on the sale,  assignment  and  transfer of Common
Stock covered by a Performance Bonus Award.

11.  TERMINATION OF EMPLOYMENT.

     The terms and  conditions  under  which an Award may be  exercised  after a
Participant's  termination  of employment  shall be determined by the Committee,
except  as  otherwise   provided   herein.   The  conditions  under  which  such
post-termination  exercises  shall be permitted with respect to Incentive  Stock
Options shall be determined in accordance  with the provisions of Section 422 of
the Code and as otherwise provided in Section 7 above.

     (a)  Termination  by Death.  Subject to Section  7(k),  if a  Participant's
          employment  by the Company or any  Subsidiary  terminates by reason of
          the Participant's  death or if the  Participant's  death occurs within
          three months after the termination of his or her employment, any Award
          held by such  Participant  may thereafter be exercised,  to the extent
          such Award otherwise was then exercisable by the  Participant,  by the
          legal  representative of the Participant's estate or by any person who
          acquired  the Award by will or the laws of descent  and  distribution,
          for a  period  of one  year  from  the  Participant's  termination  of
          employment  (as  contemplated  in this  Section  11(a))  or until  the
          expiration  of the stated term of the Award,  whichever  period is the
          shorter.  Any right of  exercise  under a  nonvested  Award  held by a
          Participant  at the  time  of his or her  death  is  extinguished  and
          terminated.

     (b)  Termination  by Reason of  Disability.  Subject to Section  7(k), if a
          Participant's  employment by the Company or  Subsidiary  terminates by
          reason  of  Disability,   any  Award  held  by  such  Participant  may
          thereafter be exercised by the  Participant,  to the extent such Award
          otherwise was then exercisable by the Participant, for a period of one
          year  from the date of such  termination  of  employment  or until the
          expiration of the stated term of such Award,  whichever  period is the
          shorter;  provided,  however, that if the Participant dies within such
          one-year period,  any unexercised Award held by such Participant shall
          thereafter be exercisable to the extent to which it was exercisable at
          the time of such death or until the  expiration  of the stated term of
          such Award, whichever period is shorter. Any right of exercise under a
          nonvested  Award  held by the  Participant  at the  time of his or her
          termination by reason of Disability is terminated and extinguished.


<PAGE>

     (c)  Other  Termination.  Subject  to  Section  7(k),  if  a  Participant's
          employment  by the Company or any  Subsidiary  is  terminated  for any
          reason,  any Award held by the  Participant  at the time of his or her
          termination  shall  be  exercisable,  to  the  extent  otherwise  then
          exercisable,  for the  lesser  of three  months  from the date of such
          termination or the balance of the term of the Award,  and any right of
          exercise  under any nonvested  Award held by a Participant at the time
          of his or her  termination is terminated and  extinguished;  provided,
          however,  that upon  termination  of  employment,  if the  Participant
          continues  to  serve,  or  commences  serving,  as a  director  of the
          Company,  then in such event any Awards may continue to be held by the
          Participant under the original terms thereof, with any Incentive Stock
          Options  held  by  such   Participant  to  henceforth  be  treated  as
          Nonqualified Stock Options.

12.  NON-TRANSFERABILITY OF AWARDS.

     No Award  under the  Plan,  and no rights  or  interest  therein,  shall be
assignable  or  transferable  by a  Participant  except  by will or the  laws of
descent and  distribution,  after which  assignment  Section  11(a) hereof shall
apply to  exercise  of the  Award by the  assignee.  During  the  lifetime  of a
Participant,  Awards are  exercisable  only by, and  payments in  settlement  of
Awards  will  be  payable  only  to,  the   Participant  or  his  or  her  legal
representative.

13.  ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, ETC.

     (a)  The existence of the Plan and the Awards granted  hereunder  shall not
          affect or  restrict  in any way the right or power of the Board or the
          shareholders  of the  Company  to make or  authorize  any  adjustment,
          recapitalization,  reorganization  or other  change  in the  Company's
          capital structure or its business,  any merger or consolidation of the
          Company, any issue of bonds, debentures, preferred or prior preference
          stocks ahead of or affecting the Company's  Common Stock or the rights
          thereof, the dissolution or liquidation of the Company, or any sale or
          transfer  of all or any part of its assets or  business,  or any other
          corporate act or proceeding.

     (b)  In the event of any  change in  capitalization  affecting  the  Common
          Stock  of  the  Company,  such  as  a  stock  dividend,  stock  split,
          recapitalization,   merger,  consolidation,   split-up,   combination,
          exchange of shares, other form of reorganization,  or any other change
          affecting the Common Stock,  the Board,  in its  discretion,  may make
          proportionate  adjustments it deems appropriate to reflect such change
          with respect to (i) the maximum number of shares of Common Stock which
          may be sold or awarded to any  Participant,  (ii) the number of shares
          of Common Stock covered by each outstanding Award, and (iii) the price
          per share in respect of the outstanding  Awards.  Notwithstanding  the
          foregoing,  the Board may only increase the aggregate number of shares
          of Common Stock for which Awards may be granted  under the Plan solely
          to reflect the change, if any, of the capitalization of the Company or
          a Subsidiary.

     (c)  The Committee may also make such  adjustments  in the number of shares
          covered by, and the price or other value of any outstanding  Awards in
          the event of a spin-off or other distribution  (other than normal cash
          dividends) of Company assets to shareholders.

14.  CHANGE OF CONTROL.

     (a)  In the event of a Change of  Control  (as  defined  in  Paragraph  (b)
          below) of the Company,  and except as the Board may expressly  provide
          otherwise in resolutions adopted prior to the Change of Control:

          (i)  all Stock Options or Stock  Appreciation  Rights then outstanding
               shall  become fully  exercisable  as of the date of the Change of
               Control; and

          (ii) all  restrictions  and conditions of all Restricted  Stock Grants
               and  Restricted  Unit  Grants  then  outstanding  shall be deemed
               satisfied as of the date of the Change of Control;

subject to the limitation  that any Award which has been  outstanding  less than
one year on the  date of the  Change  of  Control  shall  not be  afforded  such
treatment.


<PAGE>

     (b)  A  "Change  of  Control"  shall be deemed  to have  occurred  upon the
          occurrence of any one (or more) of the following events,  other than a
          transaction  with  another  person  controlled  by the  Company or its
          officers or directors,  or a benefit plan or trust  established by the
          Company for its employees:

          (i)  Any person,  including a group as defined in Section  13(d)(3) of
               the Exchange Act,  becomes the beneficial  owner of shares of the
               Company  with respect to which 40% or more of the total number of
               votes for the election of the Board may be cast;

          (ii) As a result of, or in  connection  with,  any cash tender  offer,
               exchange  offer,  merger or other business  combination,  sale of
               assets  or  contested  election,  or  combination  of the  above,
               persons who were  directors of the Company  immediately  prior to
               such event shall cease to constitute a majority of the Board;

          (iii)The  stockholders  of the  Company  shall  approve  an  agreement
               providing  either for a  transaction  in which the  Company  will
               cease to be an independent  publicly  owned  corporation or for a
               sale or other  disposition of all or substantially all the assets
               of the Company; or

          (iv) A tender  offer or  exchange  offer  is made  for  shares  of the
               Company's Common Stock (other than one made by the Company),  and
               40% of the  Company's  outstanding  shares  of  Common  Stock  is
               acquired thereunder  ("Offer").  However, the acceleration of the
               exercisability  of  outstanding  Awards upon the occurrence of an
               Offer shall be within the discretion of the Board.

15.  AMENDMENT AND TERMINATION.

     (a)  Amendments  Without  Shareholder  Approval.  Except  as set  forth  in
          Sections  15(b)  and  15(c)  below,  the Board  may,  without  further
          approval of the shareholders, at any time amend, alter, discontinue or
          terminate this Plan, in such respects as the Board may deem advisable.

     (b)  Amendments  Requiring  Shareholder  Approval.  Except  as set forth in
          Section 15(c) below, to comply with the restrictions set forth in Rule
          16b-3  promulgated  under the  Exchange  Act, as amended and in effect
          from time to time (or any successor  rule) and to comply with the Code
          and accompanying  regulations,  but subject to changes in law or other
          legal  requirements  (including  any change in the  provisions of Rule
          16b-3 and the Code and  accompanying  Regulations  that  would  permit
          otherwise), the Board must obtain approval of the shareholders to make
          any amendment  that would  increase the aggregate  number of shares of
          Common Stock that may be issued under the Plan (except for adjustments
          pursuant to Section 13 of the Plan).

     (c)  Prohibited Amendments. Notwithstanding Sections 15(a) and 15(b), under
          no  circumstances  may  the  Board  or  Committee  (i) amend,   alter,
          discontinue or terminate the  requirements set forth in Sections 7(b),
          7(c),  7(i) and 7(k) with respect to Incentive  Stock  Options  unless
          (a) such  modifications  are made to comply  with  changes  in the tax
          laws,  or (b) the Plan is  completely  terminated,  or  (ii) make  any
          amendment,  alteration or  modification  to the Plan that would impair
          the vested rights of a Participant under any Award theretofore granted
          under this Plan.

16.  MISCELLANEOUS MATTERS.

     (a)  Tax  Withholding.  In addition to the  authority  set forth in Section
          7(g)  above,  the  Company  shall  have  the  right to  deduct  from a
          Participant's wages or from any settlement,  including the delivery of
          shares, made under the Plan any federal,  state, or local taxes of any
          kind required by law to be withheld with respect to such payments,  or
          to take such other  action as may be  necessary  in the opinion of the
          Company to satisfy all obligations for the payment of such taxes.

     (b)  No Right  to  Employment.  Neither  the  adoption  of the Plan nor the
          granting of any Award shall confer upon any  Participant  any right to
          continue  employment with the Company or any  Subsidiary,  as the case
          may be,  nor  shall it  interfere  in any way  with  the  right of the
          Company or a Subsidiary to terminate the employment of any Participant
          at any time, with or without cause.

     (c)  Annulment of Awards.  The grant of any Award under the Plan payable in
          cash is  provisional  until cash is paid in  settlement  thereof.  The
          grant of any Award  payable in Common Stock is  provisional  until the
          Participant becomes entitled to the certificate in settlement thereof.
          In the event the  employment of a Participant  is terminated for cause
          (as defined below),  any Award which is provisional  shall be annulled
          as of the date of such  termination for cause. For the purpose of this
          Section 16(c), the term "terminated for cause" means any discharge for
          violation  of  the  policies  and  procedures  of  the  Company  or  a
          Subsidiary  or  for  other  job   performance   or  conduct  which  is
          detrimental to the best interests of the Company or a Subsidiary.


<PAGE>


     (d)  Securities Law Restrictions. No shares of Common Stock shall be issued
          under the Plan unless  counsel for the Company shall be satisfied that
          such issuance will be in compliance with applicable  Federal and state
          securities  laws.  Certificates  for shares of Common Stock  delivered
          under the Plan may be subject to such stock-transfer  orders and other
          restrictions  as the  Committee  may deem  advisable  under the rules,
          regulations,  and other  requirements  of the  Securities and Exchange
          Commission,  any stock  exchange  upon which the Common  Stock is then
          listed,  and any  applicable  Federal  or state  securities  law.  The
          Committee  may  cause  a  legend  or  legends  to be put  on any  such
          certificates to refer to those restrictions.

     (e)  Award Agreement.  Each  Participant  receiving an Award under the Plan
          shall enter into an agreement  with the Company in a form specified by
          the  Committee  agreeing to the terms and  conditions of the Award and
          such related matters as the Committee,  in its sole discretion,  shall
          determine.

     (f)  Costs of Plan. The costs and expenses of administering  the Plan shall
          be borne by the Company.

     (g)  Governing  Law.  The Plan and all actions  taken  thereunder  shall be
          governed by and construed in accordance  with the laws of the State of
          Delaware.

     (h)  Effective Date. The Plan shall be effective if, and when,  approved in
          accordance with Section 3 hereof, subject to the provisions of Section
          6(c) hereof.



<PAGE>


                        INCENTIVE STOCK OPTION AGREEMENT
                       Norwood Promotional Products, Inc.
           Amended and Restated 1994 Incentive Stock Compensation Plan

                                     [Date]


     Grant of Options.  Norwood Promotional Products,  Inc., a Texas corporation
(the  "Company")  hereby grants to _________ (the  "Optionee")  incentive  stock
options for a total of _____ shares of the Company's  common stock, no par value
(the "Options"),  exercisable at the price and upon the terms and conditions set
forth below,  and subject to any adjustments  made pursuant to Section 13 of the
Amended and Restated 1994 Incentive Stock  Compensation Plan of the Company (the
"Plan").  A copy of the Plan is attached hereto as Exhibit A and is incorporated
herein by reference.  In the event of any conflict  between this  instrument and
the Plan, the Plan shall control.

     Approval of Counsel  Required  for Issuance of Common  Stock.  No shares of
Common  Stock  shall be issued  pursuant to the  exercise of the Options  unless
counsel  for the  Company  shall be  satisfied  that  such  issuance  will be in
compliance with applicable federal and state securities laws.

     Options Subject to Plan. The Options are granted as Incentive Stock Options
(subject to the $100,000 per calendar year limitations contained in Section 7(i)
of the Plan, as such limit may be changed by the Code) pursuant to the Plan, and
are  in  all  respects  subject  to  the  terms,   provisions,   conditions  and
restrictions of the Plan.

     Defined Terms.  Except as otherwise defined herein,  capitalized terms used
in this instrument shall have the meanings ascribed to such terms in the Plan.

     Date of Grant. The Options are granted as of the date above.

     Exercise  Price.  Each Option shall have an exercise  price for the related
share of Common Stock of $11.38, which is not less than the Fair Market Value of
each share of Common Stock calculated as of the date of grant in accordance with
Section 2(j) of the Plan, or, if the Optionee is a Ten Percent  Shareholder,  is
not less than 110% of such Fair Market Value.  The exercise  price is subject to
adjustment pursuant to Section 13 of the Plan.


<PAGE>


     Vesting of Options.  The Options shall be  exercisable in  installments  in
accordance with the following table, except as otherwise provided in the Plan:

       Date First Exercisable                      Number of Options

         [First anniversary]
         [Second anniversary]
         [Third anniversary]

                                     Total:

     Option Period. Each Option may be exercised at any time between the date at
which it becomes exercisable and ten years from the Date of Grant, or five years
from the Date of Grant if Optionee is a Ten Percent  Shareholder,  inclusive  of
such dates,  except  that in the event of the  Optionee's  death,  or his or her
Disability  (as  defined  under  Section 2 of the  Plan),  or if the  Optionee's
employment by the Company is terminated for any reason,  or if there is a Change
in Control of the Company,  then the provisions of Sections 11(a),  11(b), 11(c)
and 14 of the Plan, respectively, shall govern the option period.

     Method of Exercise.  The Options are  exercisable  in  accordance  with the
procedures,  but subject to all  conditions and  restrictions,  set forth in the
Plan.

     Limitation on Exercise.  The aggregate Fair Market Value  (determined as of
the date  first set forth  above) of the  number of shares of Common  Stock with
respect to which  Options  are  exercisable  for the first time by the  Optionee
during any calendar year as "Incentive  Stock  Options" under Section 422 of the
Code shall not exceed  $100,000,  or such other  limit as may be required by the
Code.

     Transferability.  The Options are not assignable or transferable  except by
will or the laws of descent or distribution.

                                  NORWOOD PROMOTIONAL PRODUCTS, INC.



                                  By:___________________________________
                                     Robert P. Whitesell, President



<PAGE>

     The Optionee acknowledges receipt of a copy of the Plan, represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts the
Options  evidenced hereby subject to all the terms,  provisions,  conditions and
restrictions of the Plan.

                                             ______________________________
                                             Name:


<PAGE>


















                                EXHIBIT 10.24 (b)
                            CONDITIONAL AMENDMENT TO
                      AMENDED AND RESTATED CREDIT AGREEMENT





<PAGE>



                              CONDITIONAL AMENDMENT
                                       TO
                      AMENDED AND RESTATED CREDIT AGREEMENT


     This  Conditional  Amendment to Amended and Restated Credit Agreement (this
"Amendment")  is  entered  into  as of  October  17,  1995,  among  (a)  NORWOOD
PROMOTIONAL  PRODUCTS,  INC.,  a Texas  corporation  ("Norwood"),  (b) THE FROST
NATIONAL BANK,  individually,  as the Issuing Bank and as the Agent, and (c) the
other financial institutions that are a party to the Amended and Restated Credit
Agreement described below (each a "Bank" and collectively the "Banks").

                                    Recitals

     A.   Norwood,  the  Agent,  the  Issuing  Bank  and the  other  Banks  have
          heretofore  entered  into the Amended and  Restated  Credit  Agreement
          dated  as of  July  26,  1995  (as  amended,  modified,  restated  and
          supplemented from time to time, the "Credit Agreement").

     B.   Norwood is in the process of effecting a public offering of its common
          stock to raise in excess of $28  million  in  estimated  net  offering
          proceeds,  all of which  proceeds  will be used to  repay  immediately
          certain  outstanding  Loans  (as  defined  in the  Credit  Agreement),
          including $11.5 million of $21.5 in outstanding Term Loans (as defined
          in the Credit Agreement).

     C.   After giving effect to such offering and the repayment of  outstanding
          Loans as  provided  above,  Norwood  desires  to have the  ability  to
          reborrow  up to $11.5 in Terms  Loans  during a  limited  availability
          period  and  subject  to  the   satisfaction  of  certain   conditions
          precedent.

     D.   Without this Amendment,  the provisions of the Credit  Agreement would
          require that Norwood use the above described net offering  proceeds to
          repay all outstanding Term Loans and Norwood would not be permitted to
          reborrow any Term Loans.

     E.   The parties  desire to enter into this  Amendment  to reflect  certain
          conditional   amendments  to  the  Credit  Agreement  to  address  the
          foregoing and related issues as hereinafter set forth.

                                   Agreements

     In consideration of the foregoing premises, the mutual agreements contained
herein and other  good and  valuable  consideration  and  reasonably  equivalent
value, the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:

     1.   Definitions.  Unless  otherwise  defined herein,  terms defined in the
          Credit  Agreement and used herein shall have the  respective  meanings
          set forth in the Credit Agreement.

     2.   Conditions  Precedent.  The  amendments  set forth in Sections 3 and 9
          below (the "Amendments) shall be effective if, and only if, all of the
          following conditions precedent are satisfied on or before December 31,
          1995:



<PAGE>

          (a)  Norwood  shall  complete the public  offering of its common stock
               substantially  in  accordance  with the  terms  set  forth in the
               Registration  Statement on Form S-1 filed with the Securities and
               Exchange Commission on or about October 17, 1995; and

          (b)  Norwood  shall  receive at least $20 million in cash net offering
               proceeds from such offering; and

          (c)  Norwood and each of its Subsidiaries  shall deliver to the Agent,
               in form and substance satisfactory to the Agent, the certificates
               and documents described on Annex A.

If such  conditions  precedent are satisfied on or before December 31, 1995, the
Amendments shall automatically become effective on the date on which all of such
conditions  precedent are satisfied.  If any such  conditions  precedent are not
satisfied on or before December 31, 1995, the Amendments  shall be null and void
and without further force or effect.

     3.   Amendments. If, and only if, all of the conditions precedent set forth
          in Section 2 above are satisfied on or before  December 31, 1995,  the
          Credit Agreement shall be amended as follows:

          (a)  The  following  definitions  are added to Annex B attached to the
               Credit  Agreement  and  are  hereby  made  a part  of the  Credit
               Agreement, as amended hereby:

               "Term  Loan  Availability  Period"  means  the  period  from  and
          including the Prepayment Date to but not including the Term Commitment
          Termination Date.

               "Term  Commitment  Termination  Date"  means the  earlier  of (i)
          October 15, 1996 and (ii) the date upon which the Term  Commitments of
          all  Banks  have  been  terminated  pursuant  to  the  terms  of  this
          Agreement.

               "Prepayment  Date"  means the date on which,  as  required  under
          Section 2.8,  Norwood prepays  certain  outstanding  Loans,  including
          $11,500,000 principal amount of Term Loans, with the Net Cash Proceeds
          received  by  Norwood  from  its  public   offering  of  common  stock
          substantially   in  accordance   with  the  terms  set  forth  in  the
          Registration  Statement  on Form S-1  filed  with the  Securities  and
          Exchange Commission on or about October 17, 1995.


<PAGE>

          (b)  Section 2.1(a) of the Credit  Agreement is hereby amended to read
               in its entirety as follows:

               "(a) Term Loans As part of the initial  Credit  Event  hereunder,
          each Bank severally agrees to make Term Loans (each, a "Term Loan") to
          Norwood,  on and subject to the terms and conditions set forth in this
          Agreement,  up to an aggregate  principal  amount not  exceeding  such
          Bank's Term  Commitment.  After the Prepayment  Date, and from time to
          time during the Term Availability  Period,  each Bank severally agrees
          to make  Term  Loans to  Norwood,  on and  subject  to the  terms  and
          conditions set forth in this Agreement,  up to an aggregate  principal
          amount of Term  Loans  equal to the  product  of (i) a  fraction,  the
          numerator of which is such Bank's Term  Commitment and the denominator
          of which is equal to the sum of the Term Commitments of all Banks, and
          (ii)  $11,500,000.  The  total  amount  of the Term  Loans  that  were
          borrowed as part of the initial  Credit  Event  hereunder  and are not
          repaid on the Prepayment  Date may not be reborrowed.  Term Loans that
          are prepaid on the Prepayment  Date may be reborrowed  during the Term
          Availability Period;  provided,  however, any such Term Loans that are
          subsequently  repaid or prepaid may not be reborrowed.  Subject to the
          terms and  conditions set forth in this  Agreement,  Term Loans may be
          prepaid at any time without premium or penalty."

          (c)  The  definition  of  "Qualified  Offering"  set  forth in Annex B
               attached to the Credit Agreement is hereby amended to read in its
               entirety as follows:

               "Qualified  Offering"  shall mean any issuance or sale by Norwood
          of shares of its common stock,  preferred  stock or any other class or
          series  of  capital  stock in a public  or  private  sale,  excluding,
          however,  the issuance or sale of Norwood's  common stock  pursuant to
          (i)  restricted  and other stock  grants,  stock  options and warrants
          issued by Norwood to officers, directors, employees and consultants of
          the Companies as part of their compensation  agreements,  programs and
          plans, and (ii) convertible  notes or other securities  issued as part
          of the  consideration for (and which are approved by the Banks as part
          of)  Acquisitions  permitted  under the terms of this Agreement or the
          Original Credit Agreement.

          (d)  Section 2.8(b) of the Credit  Agreement is hereby amended to read
               in its entirety as follows:

               "(b) In the event that Norwood  completes  one or more  Qualified
          Offerings,  as to each  Qualified  Offering,  Norwood shall prepay the
          unpaid  principal amount of the Loans plus all accrued unpaid interest
          thereon in an amount  equal to all Net Cash  Proceeds  (or such lesser
          amount  necessary to prepay the unpaid  principal  and accrued  unpaid
          interest of then outstanding Loans) received by Norwood as a result of
          such  Qualified  Offering;  provided,  however,  with  respect  to the
          offering of common stock  substantially  in accordance  with the terms
          set forth in the  Registration  Statement  on Form S-1 filed  with the
          Securities  and Exchange  Commission on or about October 17, 1995, (i)
          Norwood  shall not be  required  to prepay  more than  $11,500,000  in
          principal  amount of Term Loans  pursuant to this  Section  2.8(b) and
          (ii) Norwood shall not be required to prepay the  outstanding  balance
          of  Acquisition  Loans  below a  principal  amount  of  $2,500,000  in
          Acquisition Loans pursuant to this Section 2.8(b).  The amount of each
          such  prepayment  shall be applied to prepay the principal and accrued
          unpaid interest of the Loans in the following order: first, the unpaid
          principal amount of Term Loans (in the inverse order of maturity) plus
          all accrued unpaid  interest  thereon;  second,  the unpaid  principal
          amount of  Acquisition  Loans (in the inverse order of maturity)  plus
          accrued unpaid interest thereon; third, the unpaid principal amount of
          Revolving Loans plus accrued unpaid interest  thereon.  Any prepayment
          under  this  Section  2.8(b)  shall be due and  payable  on the  first
          Business Day following the Business Day on which the Net Cash Proceeds
          are received by Norwood. As soon as reasonably possible, Norwood shall
          furnish to the Agent a copy of all documents, instruments,  agreements
          and certificates  executed and delivered to the underwriters or to the
          Securities  and  Exchange  Commission  in  connection  with  each such
          Qualified Offering."



<PAGE>

          (e)  Section 2.6(a) of the Credit  Agreement is hereby amended to read
               in its entirety as follows:

               "(a) Norwood shall pay to the Agent,  for the ratable  account of
          the Banks,  the following fees: (i) the Applicable  Commitment Fee per
          annum on the total unused portion of the Revolving  Commitments of all
          Banks during the Revolving  Availability  Period,  (ii) the Applicable
          Commitment   Fee  per  annum  on  the  total  unused  portion  of  the
          Acquisition   Commitments   of  all  Banks   during  the   Acquisition
          Availability Period, and (iii) the Applicable Commitment Fee per annum
          on the  total  unused  portion  of the Term  Commitments  of all Banks
          during the Term Availability  Period. As such fees are attributable to
          the  Revolving  Commitments,  such fees shall be payable  quarterly in
          arrears  on each  Quarterly  Date  during the  Revolving  Availability
          Period and on the Revolving Commitment  Termination Date. As such fees
          are  attributable to the Acquisition  Commitments,  such fees shall be
          payable  quarterly  in  arrears  on each  Quarterly  Date  during  the
          Acquisition  Availability  Period  and on the  Acquisition  Commitment
          Termination   Date.  As  such  fees  are   attributable  to  the  Term
          Commitments,  such fees shall be payable  quarterly in arrears on each
          Quarterly  Date  during the Term  Availability  Period and on the Term
          Commitment Termination Date."

          (f)  The first  sentence of Section  2.17 of the Credit  Agreement  is
               replaced with the following sentence: "The proceeds of Term Loans
               shall be used solely to (i) refinance the unpaid principal amount
               of term loans  under the  Original  Credit  Agreement  or (ii) to
               finance,  in whole or in part  (whether  directly  or  indirectly
               through  intercompany   advances  by  Norwood  evidenced  by  the
               Subsidiary  Notes in accordance with Section 5.17),  Acquisitions
               permitted under this Agreement."

          (g)  Section 7.1(j) of the Credit  Agreement is hereby amended to read
               in its entirety as follows:

               "(j) any  "person" or "group" (as such terms are used in Sections
          13(d) and 14(d) of the  Securities  Exchange Act of 1934,  as amended)
          becomes  the  "beneficial  owner" (as  defined in Rule 13d-3 under the
          Securities  Exchange Act of 1934, as amended) of securities of Norwood
          representing  35% or more of the  combined  voting  power of Norwood's
          then outstanding  securities normally entitled to vote in elections of
          directors; or"

     4.   In order to  induce  the  Agent  and the  Banks  to  enter  into  this
          Amendment,  Norwood and each  Subsidiary of Norwood hereby  represents
          and  warrants to the Agent and the Banks that,  as of the date of this
          Amendment,  (a) the  representations  and  warranties set forth in the
          Credit  Agreement  and each other Loan Document to which it is a party
          are true and  correct as if made on and as of the date  hereof  (other
          than those  representations and warranties  expressly limited by their
          terms to a specific  date),  (b) no  Default  or Event of Default  has
          occurred and is  continuing,  and (c) no event has occurred  since the
          date of the most recent  financial  statements  delivered  pursuant to
          Section 5.1 of the Credit Agreement that has caused a Material Adverse
          Effect.

     5.   Norwood hereby acknowledges and agrees that no facts events, status or
          conditions  presently  exist which,  either now or with the passage of
          time or the  giving of notice or both,  presently  constitute  or will
          constitute a basis for any claim or cause of action against any of the
          Banks,  or any  defense  to  the  payment  of any of the  indebtedness
          evidenced or to be evidenced by any of the Loan Documents.




<PAGE>

     6.   Each  Subsidiary  of  Norwood  covenants  and agrees  that,  as to the
          Subsidiary   Guaranty   Agreement   executed  and  delivered  by  such
          Subsidiary  in favor of the Banks as part of the  Security  Documents,
          (a) such Subsidiary  Guaranty Agreement is an unconditional  guarantee
          of payment and performance and not of collection,  (b) such Subsidiary
          Guaranty Agreement represents the primary,  absolute and unconditional
          obligation  of such  Subsidiary,  and  (c)  such  Subsidiary  Guaranty
          Agreement is a continuing guarantee and shall remain in full force and
          effect until the  termination of the  obligations of the Banks to make
          Loans or issue Letters of Credit and the indefeasible  payment in full
          of the  Obligations  (as  defined  in each  such  Subsidiary  Guaranty
          Agreement).

     7.   As to each Security Document  executed in favor of the Banks,  Norwood
          and each  Subsidiary of Norwood hereby ratifies and confirms the liens
          and security  interests of the Banks in and to all collateral  covered
          by each such Security  Document to which it is a party as security for
          the prompt and full payment and performance of the obligations secured
          by each such Security Document.  In furtherance of the foregoing,  all
          liens and security interests of each such Security Document (which are
          hereby  acknowledged  to be valid and  subsisting)  are hereby carried
          forward,  continued,  extended,  modified  and  renewed  to secure the
          prompt and full payment and performance of the obligations  secured by
          each such Security Document.

     8.   As to each Security  Document  executed in favor of Norwood or Norcorp
          and collaterally assigned,  ultimately, in favor of the Banks, Norwood
          and each  Subsidiary of Norwood hereby ratifies and confirms the liens
          and security interests of the Banks, as collateral  assignees,  in and
          to all collateral  covered by each such Security  Document to which it
          is a party as security for the prompt and full payment and performance
          of  the  obligations  secured  by  each  such  Security  Document.  In
          furtherance of the foregoing, all liens and security interests of each
          such Security Document (which are hereby  acknowledged to be valid and
          subsisting) are hereby carried forward, continued,  extended, modified
          and renewed to secure the prompt and full payment and  performance  of
          the obligations secured by each such Security Document.

     9.   Each Loan  Document  is hereby  amended  and  modified  to the  extent
          necessary  to  give  full  force  and  effect  to the  terms  of  this
          Amendment,  and each such Loan Document  shall  hereafter be construed
          and  interpreted  after  giving  full force and effect to the terms of
          this Amendment. As amended, modified and supplemented pursuant to this
          Amendment,  Norwood and each  Subsidiary of Norwood  hereby  ratifies,
          confirms  and restates  each Loan  Document to which it is a party and
          agrees that each such Loan Document  shall  continue in full force and
          effect.  Each of the Loan  Documents  now or  hereafter  executed  and
          delivered pursuant to the terms hereof or pursuant to the terms of the
          Credit  Agreement,  as amended  hereby,  or as further  evidence of or
          security for or in connection  with the Credit  Agreement,  as amended
          hereby,  are  hereby  amended  to the  extent  necessary  so that  any
          reference in any such  documents,  instruments  or  agreements  to the
          Credit  Agreement  shall be a reference  to the Credit  Agreement,  as
          amended hereby.

     10.  This Amendment may be executed in a number of identical  counterparts,
          each of which shall be deemed an original  for all purposes and all of
          which constitute, collectively, one Amendment.

     11.  In the event that any one or more of the provisions  contained in this
          Amendment shall be determined invalid, illegal or unenforceable in any
          respect for any reason,  the validity,  legality and enforceability of
          any such  provision  or  provisions  in every  other  respect  and the
          remaining  provisions of this  Amendment  shall not be impaired in any
          way.


<PAGE>

     12.  When  required  or implied by the  context  used,  defined  terms used
          herein  shall  include  the plural as well as the  singular,  and vice
          versa.

     13.  This Amendment  shall be governed by and construed in accordance  with
          the internal laws of the State of Texas and applicable federal laws of
          the United States of America.  This Amendment has been entered into in
          Bexar County, Texas and shall be performable for all purposes in Bexar
          County,  Texas.  The  courts  within  the  State of Texas  shall  have
          jurisdiction  over any and all disputes arising under or pertaining to
          this  Amendment;  and any such dispute shall be heard in the county or
          judicial  district  of the  principal  place of  business of The Frost
          National Bank.

     14.  This  Amendment  shall be binding upon and inure to the benefit of all
          parties hereto and their respective successors and assigns;  provided,
          however,  that neither Norwood nor any of its  Subsidiaries nor any of
          their respective  successors or assigns may, without the prior written
          consent of all of the  Banks,  assign any  rights,  powers,  duties or
          obligations hereunder.

     15.  This  Amendment may be executed in any number of  counterparts  and by
          different parties hereto on separate counterparts,  each of which when
          so executed  shall be deemed to be an  original  and all of which when
          taken together shall constitute but one and the same instrument.

     16.  This Amendment constitutes a Loan Document.

     17.  Upon execution of this  Agreement by the Banks,  Norwood shall pay the
          Agent,  for  the  ratable  account  of  the  Banks,  a  non-refundable
          amendment fee equal to $10,000.

                            [signatures on next page]




<PAGE>

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Amendment to be
duly executed by their respective authorized  signatories as of the day and year
first above written.


                                NORWOOD:

                                NORWOOD PROMOTIONAL PRODUCTS, INC.


                                By: /s/ J. Max Waits
                                --------------------
                                    J. Max Waits,
                                    Secretary, Treasurer and 
                                    Chief Financial Officer


                                AGENT/BANKS:

                                THE FROST NATIONAL BANK,
                                Individually, as the Agent and the Issuing Bank


                                By: /s/ Victor J. Harris 
                                -------------------------
                                    Victor J. Harris, Vice President


                                THE BOATMEN'S NATIONAL BANK OF ST. LOUIS


                                By: /s/ Juan Cazorla
                                --------------------
                                    Juan Cazorla, Assistant Vice President


                                BANQUE PARIBAS


                                By: /s/ Deanna C. Walker
                                ------------------------
                                Name:   Deanna C. Walker
                                Title:  Assistant Vice President


                                By: /s/ Kenneth E. Moore, Jr.
                                -----------------------------
                                Name:   Kenneth E. Moore, Jr.
                                Title:  Vice President


                      [signatures continued on next page]


<PAGE>

                                SUBSIDIARIES:

                                NORCORP, INC.


                                By: /s/ J. Max Waits
                                --------------------
                                    J. Max Waits, Secretary, Treasurer
                                    and Chief Financial Officer


                                RADIO CAP COMPANY, INC.


                                By: /s/ J. Max Waits
                                --------------------
                                    J. Max Waits, Secretary


                                BARLOW PROMOTIONAL PRODUCTS, INC.


                                By: /s/ J. Max Waits
                                --------------------
                                    J. Max Waits, Secretary


                                KEY INDUSTRIES, INC.


                                By: /s/ J. Max Waits
                                --------------------
                                    J. Max Waits, Secretary


                                ARTMOLD PRODUCTS CORPORATION


                                By: /s/ J. Max Waits
                                --------------------
                                    J. Max Waits, Secretary


                                AIR-TEX CORPORATION


                                By: /s/ J. Max Waits
                                --------------------
                                    J. Max Waits, Secretary



<PAGE>

                                     ANNEX A



     1. Norwood and each of its Subsidiaries  shall have provided to the Agent a
certificate  signed by the  secretary  of such  corporation,  which  secretary's
office and signature shall be confirmed by another officer of such  corporation,
dated as of the effective date of the Amendments attaching thereto or containing
therein, and certifying as to the following:  (i) corporate  resolutions,  as in
effect and neither revoked nor rescinded, duly adopted by the board of directors
of such corporation authorizing the execution,  delivery and performance of this
Amendment  and all other  documents,  instruments  and  agreements in connection
therewith (the "Amendment Documents") to which it is or will be a party, and the
transactions contemplated thereby;  (ii) true and correct copies of the charter,
bylaws and other internal  governance  documents,  as amended and in effect,  of
such  corporation;  and (iii) names,  incumbency and specimen  signatures of the
officers of such  corporation  authorized  to execute and deliver the  Amendment
Documents to which such corporation is a party.

     2.  Norwood  and  each  of its  Subsidiaries  shall  provide  to the  Agent
certificates  as  to  incorporation,   existence  and  good  standing  for  such
corporation issued by the secretary of state (and/or other appropriate official)
of the state of  incorporation  of such  corporation and certificates of foreign
qualification  and  good  standing  (or  other  similar  instruments)  for  such
corporation,  issued  by  the  secretary  of  state  (and/or  other  appropriate
official)  of each of the  states  wherein  such  corporation  is or  should  be
qualified  to do  business  as a  foreign  corporation,  each  of the  foregoing
certificates  being  dated  within  10 days  prior to the  effectiveness  of the
Amendments.

     3. Norwood and each of its  Subsidiaries  shall provide to the Agent a copy
of the certificate or articles of incorporation of each such corporation and all
amendments  thereto,  certified  by the  secretary  of  state  of the  state  of
incorporation of such corporation as being true, correct and complete as of date
within 10 days prior to the effectiveness of the Amendments.

     4. All  other  documents  requested  by the  Agent in  connection  with the
Amendments.




<PAGE>

                                  EXHIBIT 11.1

                       Computation of Earnings Per Share
              (Unaudited, in thousands, except per share amounts)

<TABLE>
<CAPTION>
<S>                                                    <C>              <C>              <C>

                                                       September 3,     September 2,     August 31,
                                                           1994             1995            1996
                                                       -------------  ---------------  -------------

Primary:
  Weighted average common shares outstanding                  3,539            3,540          4,899
  Weighted average equivalent shares outstanding                 37               96            191
                                                           --------         --------       --------
  TOTAL                                                       3,576            3,636          5,090
                                                           ========         ========       ========

  Net Income                                               $  3,329         $  4,032       $  4,155
  Per share amount                                         $   0.93         $   1.11       $   0.82

Fully diluted:
  Weighted average common shares outstanding                  3,539            3,540          4,899
  Weighted average equivalent shares outstanding                 37              128            191
                                                           --------         --------       --------
  TOTAL                                                       3,576            3,668          5,090
                                                           ========         ========       ========

  Net Income                                               $  3,329         $  4,032       $  4,155
  Per share amount                                         $   0.93         $   1.10       $   0.82

</TABLE>

<PAGE>


                                  EXHIBIT 24.1



                         Consent of Independent Auditors



We consent to the incorporation by reference in the Registration Statement (Form
<PAGE>

     (e)  Payment of Awards. A Participant  shall be entitled to receive payment
          for a Restricted Unit Grant (or portion thereof) in an amount equal to
          the aggregate Fair Market Value of the units covered by the Award upon
          the  expiration  of the  applicable  Restriction  Period.  Payment  in
          settlement  of a  Restricted  Unit  Grant  shall  be  made  as soon as
          practicable  following the  conclusion of the  respective  Restriction
          Period (i) in cash, by certified or cashier's check or by money order,
          (ii) in  shares of Common  Stock equal to the number of units  granted
          under the Restricted  Unit Grant with respect to which such payment is
          made,  (iii) in the form of a Deferred  Compensation  Stock Option, or
          (iv)  in  any  combination  of  the  above,  as  the  Committee  shall
          determine,   subject,   however,   to  any  applicable  Window  Period
          requirement  imposed by the Committee with respect to Restricted  Unit
          Grants settled in whole or in part in cash. The Committee may elect to
          make this  determination  either at the time the Award is granted,  or
          with respect to payments contemplated in clause (i) and (ii) above, at
          the time the Award is settled.

     (f)  Rights as a Shareholder. A Participant shall have, with respect to the
          shares of Common Stock received under a Restricted Stock Grant, all of
          the rights of a  shareholder  of the Company,  including  the right to
          vote the shares,  and the right to receive any cash  dividends.  Stock
          dividends  issued with  respect to the shares  covered by a Restricted
          Stock Grant shall be treated as additional shares under the Restricted
          Stock  Grant and shall be subject to the same  restrictions  and other
          terms and conditions  that apply to shares under the Restricted  Stock
          Grant with respect to which the dividends are issued.

10.  PERFORMANCE BONUS AWARDS.

     Performance  Bonus Awards granted under the Plan may be in the form of cash
or shares of Common Stock, or a combination  thereof.  Performance  Bonus Awards
shall  contain  such terms and  conditions,  not  inconsistent  with the express
provisions of the Plan, as the Committee shall deem desirable. Performance Bonus
Awards may be granted under the Plan in such form as the Committee may from time
to time approve. Subject to the terms of the Plan, the Committee shall determine
the  Performance  Bonus  Awards to be  granted  to a  Participant  for any given
calendar  year, and the Committee may impose  different  terms and conditions on
any particular  Performance Bonus Award made to any Participant  including,  but
not limited to,  restrictions  on the sale,  assignment  and  transfer of Common
Stock covered by a Performance Bonus Award.

11.  TERMINATION OF EMPLOYMENT.

     The terms and  conditions  under  which an Award may be  exercised  after a
Participant's  termination  of employment  shall be determined by the Committee,
except  as  otherwise   provided   herein.   The  conditions  under  which  such
post-termination  exercises  shall be permitted with respect to Incentive  Stock
Options shall be determined in accordance  with the provisions of Section 422 of
the Code and as otherwise provided in Section 7 above.

     (a)  Termination  by Death.  Subject to Section  7(k),  if a  Participant's
          employment  by the Company or any  Subsidiary  terminates by reason of
          the Participant's  death or if the  Participant's  death occurs within
          three months after the termination of his or her employment, any Award
          held by such  Participant  may thereafter be exercised,  to the extent
          such Award otherwise was then exercisable by the  Participant,  by the
          legal  representative of the Participant's estate or by any person who
          acquired  the Award by will or the laws of descent  and  distribution,
          for a  period  of one  year  from  the  Participant's  termination  of
          employment  (as  contemplated  in this  Section  11(a))  or until  the
          expiration  of the stated term of the Award,  whichever  period is the
          shorter.  Any right of  exercise  under a  nonvested  Award  held by a
          Participant  at the  time  of his or her  death  is  extinguished  and
          terminated.

     (b)  Termination  by Reason of  Disability.  Subject to Section  7(k), if a
          Participant's  employment by the Company or  Subsidiary  terminates by
          reason  of  Disability,   any  Award  held  by  such  Participant  may
          thereafter be exercised by the  Participant,  to the extent such Award
          otherwise was then exercisable by the Participant, for a period of one
          year  from the date of such  termination  of  employment  or until the
          expiration of the stated term of such Award,  whichever  period is the
          shorter;  provided,  however, that if the Participant dies within such
          one-year period,  any unexercised Award held by such Participant shall
          thereafter be exercisable to the extent to which it was exercisable at
          the time of such death or until the  expiration  of the stated term of
          such Award, whichever period is shorter. Any right of exercise under a
          nonvested  Award  held by the  Participant  at the  time of his or her
          termination by reason of Disability is terminated and extinguished.


<PAGE>

     (c)  Other  Termination.  Subject  to  Section  7(k),  if  a  Participant's
          employment  by the Company or any  Subsidiary  is  terminated  for any
          reason,  any Award held by the  Participant  at the time of his or her
          termination  shall  be  exercisable,  to  the  extent  otherwise  then
          exercisable,  for the  lesser  of three  months  from the date of such
          termination or the balance of the term of the Award,  and any right of
          exercise  under any nonvested  Award held by a Participant at the time
          of his or her  termination is terminated and  extinguished;  provided,
          however,  that upon  termination  of  employment,  if the  Participant
          continues  to  serve,  or  commences  serving,  as a  director  of the
          Company,  then in such event any Awards may continue to be held by the
          Participant under the original terms thereof, with any Incentive Stock
          Options  held  by  such   Participant  to  henceforth  be  treated  as
          Nonqualified Stock Options.

12.  NON-TRANSFERABILITY OF AWARDS.

     No Award  under the  Plan,  and no rights  or  interest  therein,  shall be
assignable  or  transferable  by a  Participant  except  by will or the  laws of
descent and  distribution,  after which  assignment  Section  11(a) hereof shall
apply to  exercise  of the  Award by the  assignee.  During  the  lifetime  of a
Participant,  Awards are  exercisable  only by, and  payments in  settlement  of
Awards  will  be  payable  only  to,  the   Participant  or  his  or  her  legal
representative.

13.  ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, ETC.

     (a)  The existence of the Plan and the Awards granted  hereunder  shall not
          affect or  restrict  in any way the right or power of the Board or the
          shareholders  of the  Company  to make or  authorize  any  adjustment,
          recapitalization,  reorganization  or other  change  in the  Company's
          capital structure or its business,  any merger or consolidation of the
          Company, any issue of bonds, debentures, preferred or prior preference
          stocks ahead of or affecting the Company's  Common Stock or the rights
          thereof, the dissolution or liquidation of the Company, or any sale or
          transfer  of all or any part of its assets or  business,  or any other
          corporate act or proceeding.

     (b)  In the event of any  change in  capitalization  affecting  the  Common
          Stock  of  the  Company,  such  as  a  stock  dividend,  stock  split,
          recapitalization,   merger,  consolidation,   split-up,   combination,
          exchange of shares, other form of reorganization,  or any other change
          affecting the Common Stock,  the Board,  in its  discretion,  may make
          proportionate  adjustments it deems appropriate to reflect such change
          with respect to (i) the maximum number of shares of Common Stock which
          may be sold or awarded to any  Participant,  (ii) the number of shares
          of Common Stock covered by each outstanding Award, and (iii) the price
          per share in respect of the outstanding  Awards.  Notwithstanding  the
          foregoing,  the Board may only increase the aggregate number of shares
          of Common Stock for which Awards may be granted  under the Plan solely
          to reflect the change, if any, of the capitalization of the Company or
          a Subsidiary.

     (c)  The Committee may also make such  adjustments  in the number of shares
          covered by, and the price or other value of any outstanding  Awards in
          the event of a spin-off or other distribution  (other than normal cash
          dividends) of Company assets to shareholders.

14.  CHANGE OF CONTROL.

     (a)  In the event of a Change of  Control  (as  defined  in  Paragraph  (b)
          below) of the Company,  and except as the Board may expressly  provide
          otherwise in resolutions adopted prior to the Change of Control:

          (i)  all Stock Options or Stock  Appreciation  Rights then outstanding
               shall  become fully  exercisable  as of the date of the Change of
               Control; and

          (ii) all  restrictions  and conditions of all Restricted  Stock Grants
               and  Restricted  Unit  Grants  then  outstanding  shall be deemed
               satisfied as of the date of the Change of Control;

subject to the limitation  that any Award which has been  outstanding  less than
one year on the  date of the  Change  of  Control  shall  not be  afforded  such
treatment.


<PAGE>

     (b)  A  "Change  of  Control"  shall be deemed  to have  occurred  upon the
          occurrence of any one (or more) of the following events,  other than a
          transaction  with  another  person  controlled  by the  Company or its
          officers or directors,  or a benefit plan or trust  established by the
          Company for its employees:

          (i)  Any person,  including a group as defined in Section  13(d)(3) of
               the Exchange Act,  becomes the beneficial  owner of shares of the
               Company  with respect to which 40% or more of the total number of
               votes for the election of the Board may be cast;

          (ii) As a result of, or in  connection  with,  any cash tender  offer,
               exchange  offer,  merger or other business  combination,  sale of
               assets  or  contested  election,  or  combination  of the  above,
               persons who were  directors of the Company  immediately  prior to
               such event shall cease to constitute a majority of the Board;

          (iii)The  stockholders  of the  Company  shall  approve  an  agreement
               providing  either for a  transaction  in which the  Company  will
               cease to be an independent  publicly  owned  corporation or for a
               sale or other  disposition of all or substantially all the assets
               of the Company; or

          (iv) A tender  offer or  exchange  offer  is made  for  shares  of the
               Company's Common Stock (other than one made by the Company),  and
               40% of the  Company's  outstanding  shares  of  Common  Stock  is
               acquired thereunder  ("Offer").  However, the acceleration of the
               exercisability  of  outstanding  Awards upon the occurrence of an
               Offer shall be within the discretion of the Board.

15.  AMENDMENT AND TERMINATION.

     (a)  Amendments  Without  Shareholder  Approval.  Except  as set  forth  in
          Sections  15(b)  and  15(c)  below,  the Board  may,  without  further
          approval of the shareholders, at any time amend, alter, discontinue or
          terminate this Plan, in such respects as the Board may deem advisable.

     (b)  Amendments  Requiring  Shareholder  Approval.  Except  as set forth in
          Section 15(c) below, to comply with the restrictions set forth in Rule
          16b-3  promulgated  under the  Exchange  Act, as amended and in effect
          from time to time (or any successor  rule) and to comply with the Code
          and accompanying  regulations,  but subject to changes in law or other
          legal  requirements  (including  any change in the  provisions of Rule
          16b-3 and the Code and  accompanying  Regulations  that  would  permit
          otherwise), the Board must obtain approval of the shareholders to make
          any amendment  that would  increase the aggregate  number of shares of
          Common Stock that may be issued under the Plan (except for adjustments
          pursuant to Section 13 of the Plan).

     (c)  Prohibited Amendments. Notwithstanding Sections 15(a) and 15(b), under
          no  circumstances  may  the  Board  or  Committee  (i) amend,   alter,
          discontinue or terminate the  requirements set forth in Sections 7(b),
          7(c),  7(i) and 7(k) with respect to Incentive  Stock  Options  unless
          (a) such  modifications  are made to comply  with  changes  in the tax
          laws,  or (b) the Plan is  completely  terminated,  or  (ii) make  any
          amendment,  alteration or  modification  to the Plan that would impair
          the vested rights of a Participant under any Award theretofore granted
          under this Plan.

16.  MISCELLANEOUS MATTERS.

     (a)  Tax  Withholding.  In addition to the  authority  set forth in Section
          7(g)  above,  the  Company  shall  have  the  right to  deduct  from a
          Participant's wages or from any settlement,  including the delivery of
          shares, made under the Plan any federal,  state, or local taxes of any
          kind required by law to be withheld with respect to such payments,  or
          to take such other  action as may be  necessary  in the opinion of the
          Company to satisfy all obligations for the payment of such taxes.

     (b)  No Right  to  Employment.  Neither  the  adoption  of the Plan nor the
          granting of any Award shall confer upon any  Participant  any right to
          continue  employment with the Company or any  Subsidiary,  as the case
          may be,  nor  shall it  interfere  in any way  with  the  right of the
          Company or a Subsidiary to terminate the employment of any Participant
          at any time, with or without cause.

     (c)  Annulment of Awards.  The grant of any Award under the Plan payable in
          cash is  provisional  until cash is paid in  settlement  thereof.  The
          grant of any Award  payable in Common Stock is  provisional  until the
          Participant becomes entitled to the certificate in settlement thereof.
          In the event the  employment of a Participant  is terminated for cause
          (as defined below),  any Award which is provisional  shall be annulled
          as of the date of such  termination for cause. For the purpose of this
          Section 16(c), the term "terminated for cause" means any discharge for
          violation  of  the  policies  and  procedures  of  the  Company  or  a
          Subsidiary  or  for  other  job   performance   or  conduct  which  is
          detrimental to the best interests of the Company or a Subsidiary.


<PAGE>


     (d)  Securities Law Restrictions. No shares of Common Stock shall be issued
          under the Plan unless  counsel for the Company shall be satisfied that
          such issuance will be in compliance with applicable  Federal and state
          securities  laws.  Certificates  for shares of Common Stock  delivered
          under the Plan may be subject to such stock-transfer  orders and other
          restrictions  as the  Committee  may deem  advisable  under the rules,
          regulations,  and other  requirements  of the  Securities and Exchange
          Commission,  any stock  exchange  upon which the Common  Stock is then
          listed,  and any  applicable  Federal  or state  securities  law.  The
          Committee  may  cause  a  legend  or  legends  to be put  on any  such
          certificates to refer to those restrictions.

     (e)  Award Agreement.  Each  Participant  receiving an Award under the Plan
          shall enter into an agreement  with the Company in a form specified by
          the  Committee  agreeing to the terms and  conditions of the Award and
          such related matters as the Committee,  in its sole discretion,  shall
          determine.

     (f)  Costs of Plan. The costs and expenses of administering  the Plan shall
          be borne by the Company.

     (g)  Governing  Law.  The Plan and all actions  taken  thereunder  shall be
          governed by and construed in accordance  with the laws of the State of
          Delaware.

     (h)  Effective Date. The Plan shall be effective if, and when,  approved in
          accordance with Section 3 hereof, subject to the provisions of Section
          6(c) hereof.



<PAGE>

                        INCENTIVE STOCK OPTION AGREEMENT
                       Norwood Promotional Products, Inc.
           Amended and Restated 1994 Incentive Stock Compensation Plan

                                     [Date]


     Grant of Options.  Norwood Promotional Products,  Inc., a Texas corporation
(the  "Company")  hereby grants to _________ (the  "Optionee")  incentive  stock
options for a total of _____ shares of the Company's  common stock, no par value
(the "Options"),  exercisable at the price and upon the terms and conditions set
forth below,  and subject to any adjustments  made pursuant to Section 13 of the
Amended and Restated 1994 Incentive Stock  Compensation Plan of the Company (the
"Plan").  A copy of the Plan is attached hereto as Exhibit A and is incorporated
herein by reference.  In the event of any conflict  between this  instrument and
the Plan, the Plan shall control.

     Approval of Counsel  Required  for Issuance of Common  Stock.  No shares of
Common  Stock  shall be issued  pursuant to the  exercise of the Options  unless
counsel  for the  Company  shall be  satisfied  that  such  issuance  will be in
compliance with applicable federal and state securities laws.

     Options Subject to Plan. The Options are granted as Incentive Stock Options
(subject to the $100,000 per calendar year limitations contained in Section 7(i)
of the Plan, as such limit may be changed by the Code) pursuant to the Plan, and
are  in  all  respects  subject  to  the  terms,   provisions,   conditions  and
restrictions of the Plan.

     Defined Terms.  Except as otherwise defined herein,  capitalized terms used
in this instrument shall have the meanings ascribed to such terms in the Plan.

     Date of Grant. The Options are granted as of the date above.

     Exercise  Price.  Each Option shall have an exercise  price for the related
share of Common Stock of $11.38, which is not less than the Fair Market Value of
each share of Common Stock calculated as of the date of grant in accordance with
Section 2(j) of the Plan, or, if the Optionee is a Ten Percent  Shareholder,  is
not less than 110% of such Fair Market Value.  The exercise  price is subject to
adjustment pursuant to Section 13 of the Plan.


<PAGE>


     Vesting of Options.  The Options shall be  exercisable in  installments  in
accordance with the following table, except as otherwise provided in the Plan:

       Date First Exercisable                      Number of Options

         [First anniversary]
         [Second anniversary]
         [Third anniversary]

                                     Total:

     Option Period. Each Option may be exercised at any time between the date at
which it becomes exercisable and ten years from the Date of Grant, or five years
from the Date of Grant if Optionee is a Ten Percent  Shareholder,  inclusive  of
such dates,  except  that in the event of the  Optionee's  death,  or his or her
Disability  (as  defined  under  Section 2 of the  Plan),  or if the  Optionee's
employment by the Company is terminated for any reason,  or if there is a Change
in Control of the Company,  then the provisions of Sections 11(a),  11(b), 11(c)
and 14 of the Plan, respectively, shall govern the option period.

     Method of Exercise.  The Options are  exercisable  in  accordance  with the
procedures,  but subject to all  conditions and  restrictions,  set forth in the
Plan.

     Limitation on Exercise.  The aggregate Fair Market Value  (determined as of
the date  first set forth  above) of the  number of shares of Common  Stock with
respect to which  Options  are  exercisable  for the first time by the  Optionee
during any calendar year as "Incentive  Stock  Options" under Section 422 of the
Code shall not exceed  $100,000,  or such other  limit as may be required by the
Code.

     Transferability.  The Options are not assignable or transferable  except by
will or the laws of descent or distribution.

                                  NORWOOD PROMOTIONAL PRODUCTS, INC.



                                  By:___________________________________
                                     Robert P. Whitesell, President



<PAGE>

     The Optionee acknowledges receipt of a copy of the Plan, represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts the
Options  evidenced hereby subject to all the terms,  provisions,  conditions and
restrictions of the Plan.

                                             ______________________________
                                             Name:


<PAGE>


















                                EXHIBIT 10.24 (b)
                            CONDITIONAL AMENDMENT TO
                      AMENDED AND RESTATED CREDIT AGREEMENT









S-8)  pertaining  to the Amended and Restated 1989  Incentive  Stock Option Plan
(filed on December 6, 1993), the 1993 Non-Employee Director Stock Purchase Plan,
1994  Incentive  Stock  Compensation  Plan and the Employee  Stock Purchase Plan
(filed on July 10, 1995), The Norwood Promotional Products,  Inc. Employees 401K
Plan of Norwood Promotional Products,  Inc. (filed on December 29,1995), and the
1993 Nonqualified Stock Option Plan (filed on July 10, 1996) of our report dated
October 10, 1996,  with respect to the  consolidated  financial  statements  and
schedule of Norwood  Promotional  Products,  Inc.  included in its Annual Report
(Form 10-K) for the year ended August 31, 1996,  filed with the  Securities  and
Exchange Commission.


                                            ERNST & YOUNG LLP



San Antonio, Texas
November 22, 1996
<PAGE>