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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JUNE 29, 1996
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-11427
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NEW ENGLAND BUSINESS SERVICE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-2942374
(IRS EMPLOYER IDENTIFICATION NUMBER)
(STATE OR OTHER JURISDICTION
OFINCORPORATION OR ORGANIZATION)
500 MAIN STREET GROTON, MASSACHUSETTS 01471
(ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (508) 448-6111
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock ($1.00 par value) New York Stock Exchange
Preferred Stock Purchase
Rights New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the Registrant's Common Stock, par value $1.00
per share, held by stockholders who are not affiliates of the Registrant at
September 6, 1996 as computed by reference to the closing price of such stock
on that date was approximately $207,199,773.
The number of shares of Registrant's Common Stock, par value $1.00 per
share, outstanding at September 6, 1996 was 13,476,408.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the fiscal year ended
June 29, 1996 are incorporated by reference into Items 5, 6, 7 and 8 (Part II)
and Item 14 (Part IV) of this Report. Such Annual Report, except for the parts
therein which have been specifically incorporated by reference, shall not be
deemed "filed" for the purposes of this report on Form 10-K.
2. Portions of the Proxy Statement sent to stockholders in connection with
the Annual Meeting to be held on October 25, 1996 are incorporated by
reference into Items 10, 11, 12 and 13 (Part III) of this Report. Such Proxy
Statement, except for the parts therein which have been specifically
incorporated by reference, shall not be deemed "filed" for the purposes of
this report on Form 10-K.
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PART I
ITEM 1. BUSINESS
Founded in 1952, New England Business Service, Inc. (which, with its branch,
NEBS Business Stationery located in the United Kingdom, and its wholly-owned
subsidiaries, SYCOM Inc., Shirlite, Ltd. of the United Kingdom and NEBS
Business Forms Limited of Midland, Ontario, shall be referred to as the
"Company") is a Delaware corporation with principal executive offices located
at 500 Main Street, Groton, Massachusetts 01471. The Company's main telephone
number is (508) 448-6111.
Reference is made to the information contained in Note 13, Financial
Information by Geographic Area, in the Notes to the Consolidated Financial
Statements on page 24 of the Company's Annual Report to Stockholders for the
fiscal year ended June 29, 1996.
PRODUCTS
The Company's product line consists of well over 1,000 standardized
imprinted manual and computer business forms, checks and check writing
systems, stationery, labels, custom forms, brochures, and other printed
products. The Company also distributes selected software products designed to
meet small business needs. Products are either specifically designed for
individual lines of business or are universally usable by all small businesses
and professional offices. The Company's full range of products are enhanced by
high quality, fast delivery, competitive prices and extensive product
guarantees.
The Company's standardized manual business forms include billing forms, work
orders, job proposals, purchase orders and invoices. Standardized manual
business forms are designed to provide small businesses with the financial and
other business records necessary to efficiently manage a business. The
Company's stationery line, including letterhead, envelopes and business cards,
is available in a variety of formats and ink colors designed to provide small
businesses with a professional image. Checks and check writing systems are
designed to facilitate payments, the recording of transactional information
and the posting of related bookkeeping entries. Marketing products, such as
labels, pricing tags, signage and seasonal greeting cards, are designed to
facilitate a customer's selling and marketing efforts. Additionally, a line of
filing systems and appointment products has been designed specifically for use
in small professional offices.
The Company also offers a full line of printed products compatible with the
software which the Company distributes and with over 3,500 other third party
computer software packages commonly used by small businesses. The Company's
computer business forms, including checks, billing forms, work orders,
purchase orders and invoices, are designed to provide automated small
businesses with the records necessary to efficiently manage a business. The
Company's line of color-coordinated laser stationery products, including
letterhead, envelopes, brochures, flyers and business cards, are designed to
provide an automated small business with a coordinated, professional image.
Additionally, the Company offers the Company Colors(TM) line of printed
products. Company Colors offers a select line of two-color stationery, labels,
marketing products and business forms imprinted on the customer's choice of
high quality papers. The Company also offers Company Colors customers a custom
logo design service. The Company Colors line is designed to provide small
businesses with a single source for affordable, coordinated and professional
image-building materials.
The Company's line of NEBS(R) proprietary software consists of checkwriting,
billing and mailing application packages and easy-to-use forms-filling
packages. In addition, the Company distributes software products including
One-Write Plus(R) accounting software, Page Magic(TM) desktop publishing
software and a line of products designed by MySoftware, Inc. The software
distributed by the Company is designed to perform a variety of tasks required
to manage and promote a small business, and is compatible with the full range
of business forms and other printed products offered by the Company.
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PRODUCT DEVELOPMENT AND RESEARCH
The Company's products are primarily designed by an in-house product
development staff. The Company relies upon direct field research with
customers and prospects, focus groups, mail surveys, feedback from retail
distributors, retailers and representatives and unsolicited suggestions to
generate new product ideas. Product design efforts are accomplished or
directed by Company design personnel who employ manual and computer design
methods to create products. Product redesign efforts range from minor
revisions to existing manual business forms to the creation and design of a
consistent and coordinated line of products such as the Company Colors(TM)
line of printed products. Throughout the design process, the Company solicits
comments and feedback from customers and prospects.
SALES AND MARKETING
The Company has established two distinct channels of distribution. The
Company's primary channel is direct mail order in which promotional materials
advertising Company products are delivered by mail to over 1,238,000 customers
and over 6,500,000 prospective customers each year. The retail channel is an
established and growing channel and includes a broad network of over 25,000
dealers and a number of Company owned custom print desks located within
Kinko's, Inc. retail locations.
The Company's success has largely been attributable to highly effective
direct marketing. Mail order marketing in combination with focused
telemarketing allows the Company to identify and penetrate numerically and
geographically dispersed but, in the aggregate, significant markets. The
Company targets small businesses with 20 or fewer employees within these
markets with specialized promotions and products specifically designed to meet
small business needs. In the direct mail channel, the Company's promotional
materials contain one or more order forms to be completed by the customer and
either telephoned, mailed or faxed to the Company. Over 82% of customer orders
are received over the Company's network of toll-free telephone and data lines.
The Company's promotional materials include a reference catalog containing a
comprehensive display of the Company's product offerings. In addition there
are smaller catalogs focused on specific products or targeted to a specific
small business segment, promotional circulars with samples, flyers, and
inserts included with invoices, statements and product shipments. The Company
relies to a lesser extent on space advertising in magazines and post card
packages to generate sales leads from prospective customers. The Company
relies on the U.S. Postal Service for distribution of most of its advertising
materials.
The Company's sophisticated marketing database and customer/prospect lists
are a principal competitive advantage. The Company is able to select names and
plan promotional mailings based on a variety of customer/prospect attributes
including status as customer or prospect, line of business, product purchase
history, purchase frequency, or purchase dollar volume. The Company also rents
prospect lists from third-party sources.
Coated paper costs for promotional materials and postal rates for third
class mail have increased significantly over the past five years. The Company
has been able to counteract the impact of postal and paper cost increases with
cost reduction programs and selective product price increases.
In addition to direct mail, the Company is increasingly expanding its
presence in retail. The Company distributes a private label version of a full
line of standardized and customized manual and computer forms and related
products such as checks and labels through a dealer network comprised of local
printers, business forms dealers, stationers, computer stores, and system
houses numbering in excess of 25,000. In addition, the Company has established
a chain of custom print desks staffed by NEBS employees in a number of Kinko's
locations. Retail offers a particularly significant opportunity to market
custom and image-building product lines to customers with a propensity to buy
locally.
During 1996, the Company effectively deployed a new proprietary computer-
based ordering system called NEBSnet (TM). The NEBSnet system facilitates the
ordering process by allowing NEBS customers to work interactively with a sales
representative on a personal computer system with color display to create a
graphic
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representation of the desired printed product. The system includes pre-
formatted templates for a wide number of products, including business forms
and various kinds of stationery, and can be implemented with a minimum amount
of sales representative training. Further, the system provides automatic
quotes and a black and white proof at the time an order is taken. When the
design process is complete, the order is transmitted directly to a NEBS plant
for production and delivery.
RAW MATERIALS, PRODUCTION AND DISTRIBUTION
The Company produces semi-finished business forms on high speed roll-fed
presses from raw paper. The Company also purchases partially printed forms
from a number of industry sources at competitive prices. The Company has a
three year fixed price contract for carbonless paper. The Company has no other
long-term contracts with any of its suppliers and has not experienced a
shortage of paper for its products, catalogs or advertising materials in over
20 years. The cost of paper used for products and promotional materials
constitutes, directly or indirectly, less than 20% of sales.
The Company operates printing equipment specifically designed to meet the
demands of short-run printing. Typesetting and imprinting of customer headings
are accomplished with computerized typesetters, platemaking systems, letter
presses and offset presses. In addition, the Company operates manual and semi-
automatic bindery equipment. A number of the Company's presses have been
designed or substantially modified to meet the short-run demands of small
businesses. These specialized presses allow the Company to produce small-order
quantities with greater efficiency than possible with the stock equipment
available from typical printing press equipment suppliers.
The Company has invested significantly in electronic prepress equipment and
digital imaging presses to meet the growing demand for short-run color
printing.
The Company has no significant backlog of orders. The Company's objective is
to produce and ship product as expediently as possible following receipt of a
customer's order. During fiscal 1996, over 50% of products were produced and
shipped within two days and 90% within five days of order.
To facilitate expedient production and shipment of product, the Company
maintains significant inventories of raw paper ($434,000 at June 29, 1996),
and partially printed business forms and related office products ($8,241,000
at June 29, 1996).
The Company ships its products to customers by United Parcel Service (UPS)
and Parcel Post. The Company bills the customer for all direct shipping and
handling charges.
COMPETITION
The Company's primary competitors for printed products and stationery are
the more than 35,000 local job shop printers and dealers in the United States,
Canada and the United Kingdom. The company also competes with several other
companies of varying size marketing business forms by mail order. In addition,
approximately 20,000 retail stationers and national chains offer a variety of
preprinted business forms to businesses in their immediate trading area. Local
printers have an advantage of physical proximity to customers, but generally
do not have the capability of producing a broad array of products,
particularly those having a complex construction. Additionally, local printers
lack the economies of scale to produce a small order for a single customer on
a cost effective basis. General purpose, preprinted business forms offered by
stationers are typically price competitive with the Company's forms, but lack
the design and functionality for specific lines of business and the customized
customer information options available with the Company's products.
At present, approximately 10 to 15 major independent companies or divisions
of larger companies market business forms, stationery and supplies by mail
order. The primary competitive factors influencing a customer's purchase
decision are printing accuracy, product guarantees, speed of delivery, breadth
of product line, price and customer service. The Company believes that it is
the leading mail order marketer of business forms to the small business market
in the United States and Canada.
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EMPLOYEES
The Company had 2,014 full and part-time employees at June 29, 1996. The
Company sponsors a number of employee benefit plans including medical and
hospitalization insurance plans, a cash profit sharing plan, a 401(k) salary
deferral plan and a defined benefit pension plan.
ENVIRONMENT
To the Company's knowledge, no material action or liability exists on the
date hereof arising from the Company's compliance with federal, state and
local statutes and regulations relating to protection of the environment.
EXECUTIVE OFFICERS OF THE COMPANY
The Company's executive officers are traditionally elected to office at the
first meeting of the Board of Directors following the Annual Meeting of
Stockholders. Edward M. Bolesky, Russell V. Corsini, Jr. and Steven G. Schlerf
were elected to office on October 27, 1995. Robert J. Murray was elected to
office on December 14, 1995. George P. Allman was elected to office on January
26, 1996. Each officer holds office until the first meeting of the Board
following the next Annual Meeting and until a successor is chosen. For
biographical information regarding Robert J. Murray, refer to the Company's
Proxy Statement incorporated by Item 10 herein by reference. Biographical
information for the other executive officers follows:
George P. Allman, age 54, joined the Company in 1996 and was elected Vice
President--Retail Sales and Operations. In 1984, Mr. Allman founded GPA,
Associates, Inc., and served as President from 1984 to 1994. During 1995, Mr.
Allman was a private investor.
Edward M. Bolesky, age 50, joined the Company in 1981 and has served in
numerous capacities in operations and administration. In 1990, Mr. Bolesky was
elected Vice President--Director, Administration and Composition. In 1991, he
was elected Vice President--Sales. In 1993, he was elected Vice President--
General Manager, Administration & Customer Relations. In 1994, he was elected
Vice President--General Manager, Operations. In 1995, he was elected Vice
President--General Manager, Manufacturing and Information Systems. In 1996,
Mr. Bolesky was elected Vice President--Direct Marketing/Telesales and
Service.
Russell V. Corsini, Jr., age 53, joined the Company in 1982 as Corporate
Controller and was elected Vice President, Finance in October, 1983. In 1994,
Mr. Corsini was elected Vice President--Chief Financial Officer.
Steven G. Schlerf, age 44, joined the Company in 1979 and has served in a
variety of capacities in manufacturing and operations. Mr. Schlerf was elected
Vice President--Image Manufacturing and Product Development in 1995, and Vice
President--Manufacturing and Technical Operations in 1996.
ITEM 2. PROPERTIES
The Company owns land and buildings in Massachusetts, New Hampshire,
Missouri, Canada and the United Kingdom. The Company leases office facilities
and manufacturing space in Arizona, California, Massachusetts, Texas and
Wisconsin. The Company owns land in Georgia.
In Groton, Massachusetts, the Company owns a 125,000 square foot office
building situated on 36 acres of land. The building was constructed in 1978
and expanded in 1982. The Groton property provides office space for marketing,
administrative, information resource, purchasing, finance and executive
personnel.
In Townsend, Massachusetts, the Company owns a 130,000 square foot
manufacturing and administrative facility situated on 15 acres of land. The
building was originally constructed in 1959 and expanded from time to time
through 1989.
In Peterborough, New Hampshire, the Company owns a 125,000 square foot
manufacturing and administrative facility situated on 48 acres of land. The
building was originally constructed in 1975 and expanded in 1978.
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In Maryville, Missouri, the Company owns a 100,000 square foot manufacturing
facility situated on 50 acres of land. The building was constructed in 1980.
In Midland, Ontario, the Company owns a 110,000 square foot administrative
and manufacturing facility situated on 8 acres of land. The facility was
originally constructed in 1985 and expanded in 1989.
In Chester, England, the Company owns a 38,000 square foot office and
production facility situated on 4 acres of land. The facility was originally
constructed in 1989.
In Scottsdale, Arizona, the Company leases a 25,000 square foot
manufacturing facility.
The Company also leases 25,000 square feet in Flagstaff Arizona, 25,000
square feet in Phoenix, Arizona, 1,000 square feet in Long Beach, California,
and 2,000 square feet in Madison, Wisconsin for administrative purposes, and
2,000 square feet in Woburn, Massachusetts for sales purposes.
The Company holds available for sublease 5,000 square feet of office space
in a multi-tenant office building in Dallas, Texas.
The Company believes its existing production and office facilities are
adequate for its present and foreseeable future needs.
ITEM 3. LEGAL PROCEEDINGS
To the Company's knowledge, no material legal proceedings are pending on the
date hereof to which the Company is a party or to which any property of the
Company is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The section entitled "Common Stock" located on page 26, and footnotes 4, 5,
6 and 14 to the Consolidated Financial Statements on pages 20 to 21 and page
24 of the Company's Annual Report to Stockholders for the fiscal year ended
June 29, 1996 are incorporated herein by reference. The number of record
holders of the Company's Common stock at September 6, 1996 was 768. The
Company estimates the number of beneficial owners of the Company's Common
stock to be 5,800 at September 6, 1996.
ITEM 6. SELECTED FINANCIAL DATA
The section entitled "Eleven Year Summary" located on pages 12 and 13 of the
Company's Annual Report to Stockholders for the fiscal year ended June 29,
1996 is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The section entitled "Management Discussion and Analysis" located on pages
25 and 26 of the Company's Annual Report to Stockholders for the fiscal year
ended June 29, 1996 is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The Consolidated Financial Statements and notes thereto located on pages 14
to 24 of the Company's Annual Report to Stockholders for the fiscal year ended
June 29, 1996 are incorporated herein by reference.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The section entitled "Nominees for Election as Directors" located on pages 3
and 4 of the Company's Proxy Statement for Annual Meeting of Stockholders to
be held October 25, 1996 is incorporated herein by reference. See also
"Executive Officers of the Company" in Item 1 above in this Report.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Compensation of Officers and Directors" located on
pages 6 to 9 of the Company's Proxy Statement for Annual Meeting of
Stockholders to be held October 25, 1996 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Voting Securities" located on pages 1 and 2 of the
Company's Proxy Statement for Annual Meeting of Stockholders to be held
October 25, 1996 is incorporated herein by reference.
ITEM 13. CERTAIN BUSINESS RELATIONSHIPS--COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION.
The section entitled "Certain Business Relationships--Compensation Committee
Interlocks and Insider Participation" located on page 5 of the Company's Proxy
Statement for Annual Meeting of Stockholders to be held October 25, 1996 is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following financial statements which are located on the following
pages of the Company's Annual Report to Stockholders for the fiscal year ended
June 29, 1996 are incorporated herein by reference.
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Independent Auditors' Report.......................................... 26
Consolidated Balance Sheets as of June 29, 1996 and June 30, 1995..... 14-15
Statements of Consolidated Income for the fiscal years ended June 29,
1996, June 30, 1995, and
June 24, 1994........................................................ 16
Statements of Consolidated Stockholders' Equity for the fiscal years
ended June 29, 1996,
June 30, 1995, and June 24, 1994..................................... 17
Statements of Consolidated Cash Flows for the fiscal years ended June
29, 1996, June 30, 1995 and June 24, 1994............................ 18
Notes to Consolidated Financial Statements............................ 19 -24
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(a)(2) The following financial statement schedules are filed as part of this
report and are located on the following pages:
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Independent Auditors' Report............................................ 11
Schedule II Valuation and Qualifying Accounts........................... 12
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Schedules I, III, IV, and V are omitted as not applicable or not required
under Regulation S-X.
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(a)(3) Exhibits required to be filed by Item 601 of Regulation S-K:
(2) Not applicable.
(3)(a) Certificate of Incorporation of the Registrant. (Incorporated by
reference to the Company's Current Report on Form 8-K dated
October 31, 1986.)
(3)(b) Certificate of Merger of New England Business Service, Inc. (a
Massachusetts corporation) and the Company, dated October 24, 1986
amending the Certificate of Incorporation of the Company by adding
Articles 14 and 15 thereto. (Incorporated by reference to the
Company's Current Report on Form 8-K dated October 31, 1986.)
(3)(c) Certificate of Designations, Preferences and Rights of Series A
Participating Preferred Stock of the Company, dated October 27,
1989. (Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1995, filed September
15, 1995.)
(3)(d) By-Laws of the Registrant, as amended (Incorporated by reference
to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 1995, filed February 8, 1996.)
(4)(a) Specimen stock certificate for shares of Common Stock, par value
$1.00 per share. (Incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30,
1995, filed September 15, 1995.)
(4)(b) Amended and Restated Rights Agreement, dated as of October 27,
1989 as amended as of October 20, 1994 (the "Rights Agreement"),
between New England Business Service, Inc. and The First National
Bank of Boston, National Association, as rights agent, including
as Exhibit B the forms of Rights Certificate Election to Exercise.
(Incorporated by reference to Exhibit 4 of the Company's current
report on Form 8-K dated October 25, 1994.)
(9) Not applicable.
(10)(a) NEBS 1990 Key Employee Stock Option and Stock Appreciation Rights
Plan dated July 27, 1990. (Incorporated by reference to Exhibit
(10)(a) to the Company's Annual Report on Form 10-K for the fiscal
year ended June 29, 1990, filed September 14, 1990.)
(10)(b) Revolving Credit Agreement between the Company and The First
National Bank of Boston dated August 30, 1996.
(10)(c) NEBS Deferred Compensation Plan for Outside Directors.
(Incorporated by reference to Exhibit (10)(d) to the Company's
Annual Report on Form 10-K for the fiscal year ended June 25,
1982, filed September 23, 1982.)
(10)(d) NEBS 1994 Key Employee and Eligible Director Stock Option and
Stock Appreciation Rights Plan dated July 22, 1994. (Incorporated
by reference to Exhibit (10)(f) to the Company's Annual Report on
Form 10-K for the fiscal year ended June 24, 1994, filed September
16, 1994.)
(10)(e) New England Business Service, Inc. Stock Compensation Plan dated
July 25, 1994. (Incorporated by reference to Exhibit (10)(g) to
the Company's Annual Report on Form 10-K for the fiscal year ended
June 24, 1994, filed September 16, 1994.)
(10)(f) Key Employee Non-Incentive Stock Option Agreement between the
Company and William C. Lowe granted as of November 12, 1993.
(Incorporated by reference to Exhibit (10)(i) to the Company's
Annual Report on Form 10-K for the fiscal year ended June 24,
1994, filed September 16, 1994.)
(10)(g) Separation Agreement dated December 14, 1995 between the Company
and William C. Lowe. (Incorporated by reference to Exhibit (10)(a)
to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 1995, filed February 8, 1996.)
(10)(h) Severance Agreement dated November 6, 1995 between the Company and
William C. Lowe.
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(10)(i) Severance Agreement dated November 6, 1995 between the Company and
Russell V. Corsini, Jr.
(10)(j) Severance Agreement dated November 6, 1995 between the Company and
Edward M. Bolesky.
(10)(k) New England Business Service, Inc. Deferred Compensation Plan
dated June 25, 1994. (Incorporated by reference to Exhibit (10)(g)
to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1995, filed September 15, 1995.)
(10)(l) Supplemental Retirement Plan for Executive Employees of New
England Business Service, Inc. dated July 1, 1991, as amended June
24, 1994. (Incorporated by reference to Exhibit (10)(h) to the
Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1995, filed September 15, 1995.)
(10)(m) Executive Bonus Plan for 1996.
(10)(n) Executive Bonus Plan for 1997.
(11) Statement re Computation of Per Share Earnings.
(12) Not applicable.
(13) The Annual Report to Stockholders for the fiscal year ended June
29, 1996.
(16) Not applicable.
(18) Not applicable.
(21) List of Subsidiaries.
(22) Not applicable.
(23) Consent of Deloitte & Touche LLP.
(24) Not applicable.
(27) Article 5 Financial Data Schedule.
(28) Not applicable.
(99) Not applicable.
Location of Documents Pertaining to Executive Compensation Plans and
Arrangements:
(1) NEBS 1990 Key Employee Stock Option and Stock Appreciation Rights
Plan: Exhibit (10)(a) to the Company's Annual Report on Form 10-K
for the fiscal year ended June 29, 1990, filed September 14, 1990.
(2) NEBS 1994 Key Employee and Eligible Director Stock Option and
Stock Appreciation Rights Plan: Exhibit (10)(f) to the Company's
Annual Report on Form 10-K for the fiscal year ended June 24,
1994, filed September 16, 1994.
(3) New England Business Service, Inc. Stock Compensation Plan:
Exhibit (10)(g) to the Company's Annual Report on Form 10-K for
the fiscal year ended June 24, 1994, filed September 16, 1994.
(4) Key Employee Non-Incentive Stock Option Agreement between the
Company and William C. Lowe: Exhibit (10)(i) to the Company's
Annual Report on Form 10-K for the fiscal year ended June 24,
1994, filed September 16, 1994.
(5) Separation Agreement between the Company and William C. Lowe:
Exhibit (10)(a) to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended December 31, 1995, filed February 8,
1996.
(6) Severance Agreement between the Company and William C. Lowe:
Exhibit (10)(h) to this Annual Report on Form 10-K.
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(7) Severance Agreement between the Company and Russell V. Corsini,
Jr.: Exhibit (10)(i) to this Annual Report on Form 10-K.
(8) Severance Agreement between the Company and Edward M. Bolesky:
Exhibit (10)(j) to this Annual Report on Form 10-K.
(9) New England Business Service, Inc. Deferred Compensation Plan:
Exhibit (10)(g) to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995, filed September 15, 1995.
(10) Supplemental Retirement Plan for Executive Employees of New
England Business Service, Inc.: Exhibit (10)(h) to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30,
1995, filed September 15, 1995.
(11) Executive Bonus Plan for 1996: Exhibit (10)(m) to this Annual
Report on Form 10-K.
(12) Executive Bonus Plan for 1997: Exhibit (10)(n) to this Annual
Report on Form 10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the Company's fourth quarter.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
New England Business Service, Inc.
(Registrant)
/s/ Robert J. Murray
By __________________________________
(ROBERT J. MURRAY, CHAIRMAN,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER)
Date: September 11, 1996
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES AND ON THE DATES INDICATED.
NAME TITLE DATE
/s/ Robert J. Murray Chairman, President, September 11,
- ------------------------------------- Chief Executive 1996
(ROBERT J. MURRAY) Officer and
Director
/s/ Peter A. Brooke Director September 11,
- ------------------------------------- 1996
(PETER A. BROOKE)
/s/ Robert L. Gable Director September 11,
- ------------------------------------- 1996
(ROBERT L. GABLE)
/s/ Benjamin H. Lacy Director September 11,
- ------------------------------------- 1996
(BENJAMIN H. LACY)
/s/ Herbert W. Moller Director September 11,
- ------------------------------------- 1996
(HERBERT W. MOLLER)
/s/ Frank L. Randall, Jr. Director September 11,
- ------------------------------------- 1996
(FRANK L. RANDALL, JR.)
/s/ Jay R. Rhoads, Jr. Director September 11,
- ------------------------------------- 1996
(JAY R. RHOADS, JR.)
/s/ Richard H. Rhoads Director September 11,
- ------------------------------------- 1996
(RICHARD H. RHOADS)
/s/ Brian E. Stern Director September 11,
- ------------------------------------- 1996
(BRIAN E. STERN)
/s/ Russell V. Corsini, Jr. Principal Financial September 11,
- ------------------------------------- and Accounting 1996
(RUSSELL V. CORSINI, JR.) Officer
II-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
New England Business Service, Inc.
We have audited the consolidated balance sheets of New England Business
Service, Inc. and its subsidiaries as of June 29, 1996, and June 30, 1995, and
the related statements of consolidated income, consolidated stockholders'
equity and consolidated cash flows for each of the three years in the period
ended June 29, 1996, and have issued our report thereon dated July 26, 1996;
such financial statements and report are included in your 1996 Annual Report
to Stockholders and are incorporated herein by reference. Our audits also
included the consolidated financial statement schedule of New England Business
Service, Inc. and its subsidiaries, listed in Item 14(a)(2). This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
July 26, 1996
II-11
<PAGE>
SCHEDULE II
NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(000'S OMITTED)
<TABLE>
<CAPTION>
ADDITIONS
----------------------
BALANCE AT CHARGED DEDUCTIONS BALANCE AT
BEGINNING CHARGED TO OTHER FROM END OF
PERIOD TO INCOME ACCOUNTS (1) RESERVES (2) PERIOD
---------- --------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Reserves deducted from
assets to which they
apply:
For doubtful accounts
receivable:
Year ended June 24,
1994................. $2,944 $2,799 $ 0 $2,731 $3,012
Year ended June 30,
1995................. 3,012 3,177 0 2,885 3,304
Year ended June 29,
1996................. 3,304 3,033 0 2,994 3,343
Reserves included in
liabilities:
For sales returns and
allowances:
Year ended June 24,
1994................. 779 1,078 0 779 1,078
Year ended June 30,
1995................. 1,078 990 0 1,078 990
Year ended June 29,
1996................. 990 1,072 0 990 1,072
</TABLE>
- --------
(1) Recovery of accounts previously written off.
(2) Accounts written off.
12
<PAGE>
REVOLVING CREDIT AGREEMENT
--------------------------
DATED as of August 30, 1996
between
NEW ENGLAND BUSINESS SERVICE, INC.
and
THE FIRST NATIONAL BANK OF BOSTON
<PAGE>
TABLE OF CONTENTS
-----------------
1. DEFINITIONS:...........................................1
2. REVOLVING CREDIT FACILITY..............................7
2.1. Commitment to Lend..............................7
2.2. Interest........................................7
2.3. Conversion to Different Type of Loan............8
2.4. Continuation of Type of Revolving Credit Loan...8
2.5. Repayments and Prepayments......................9
3. CHANGES IN CIRCUMSTANCES...............................9
3.1. Capital Adequacy................................9
3.2. Inability to Determine Eurodollar Rate..........10
3.3. Illegality......................................10
3.4. Indemnity.......................................11
3.5. Additional Costs, Etc...........................11
4. FEES AND PAYMENTS......................................12
5. REPRESENTATIONS AND WARRANTIES.........................13
6. CONDITIONS PRECEDENT...................................15
7. COVENANTS..............................................15
7.1. Affirmative Covenants...........................15
7.2. Negative Covenants..............................17
7.3. Financial Covenants.............................18
8. EVENTS OF DEFAULT; ACCELERATION........................18
9. SETOFF.................................................20
10. MISCELLANEOUS.........................................21
<PAGE>
REVOLVING CREDIT AGREEMENT
--------------------------
This REVOLVING CREDIT AGREEMENT (this "Agreement") is made as of August 30,
1996, by and between NEW ENGLAND BUSINESS SERVICE, INC. (the "Borrower"), a
Delaware corporation having its principal place of business at 500 Main Street,
Groton, Massachusetts 01471, and THE FIRST NATIONAL BANK OF BOSTON (the "Bank"),
a national banking association with its head office at 100 Federal Street,
Boston, Massachusetts 02110.
1. DEFINITIONS:
-----------
Certain capitalized terms are defined below:
Agreement: See preamble, which term shall include this Agreement and the
---------
Schedules hereto, all as amended and in effect from time to time.
Bank: See preamble.
----
Base Rate: The higher of (i) the annual rate of interest announced from
---------
time to time by the Bank at its head office as the Bank's "base rate" and (ii)
one-half of one percent (1/2%) above the Federal Funds Effective Rate.
Base Rate Loans: Loans bearing interest calculated by reference to the
---------------
Base Rate.
Borrower: See preamble.
--------
Business Day: Any day on which banks in Boston, Massachusetts, are open
------------
for business generally.
Capitalized Leases: Leases under which the Borrower or any of its
------------------
Subsidiaries is the Lessee or obligor and under which the discounted, future
rental payment obligations are required to be capitalized on the consolidated
balance sheet of the Borrower and its Subsidiaries in accordance with GAAP.
Charter Documents: In respect of any entity, the certificate or articles
-----------------
of incorporation or organization and the by-laws of such entity, or other
constitutive documents of such entity.
<PAGE>
-2-
Commitment: The obligation of the Bank to make Loans to the Borrower up to
----------
an aggregate outstanding principal amount not to exceed $10,000,000, as such
amount may be reduced from time to time or terminated hereunder.
Consent: In respect of any person or entity, any permit, license or
-------
exemption from, approval, consent of, registration or filing with any local,
state or federal governmental or regulatory agency or authority, required under
applicable law.
Consolidated Assets: All assets of the Borrower and its Subsidiaries,
-------------------
determined on a consolidated basis in accordance with GAAP.
Consolidated Earnings Before Interest and Taxes: The consolidated earnings
-----------------------------------------------
(or loss) from the operations of the Borrower and its Subsidiaries for any
period, after all expenses and other proper charges but before payment or
provision for any income taxes or interest expense for such period, determined
in accordance with GAAP.
Consolidated Funded Debt For Borrowed Money. At any time of determination,
-------------------------------------------
an amount equal to the aggregate of all Indebtedness outstanding under or
pursuant to any agreement or instrument to which the Borrower or any of its
Subsidiaries is a party relating to the borrowing of money or the obtaining of
credit or in respect of Capitalized Leases.
Consolidated Net Worth: The excess of (i) all assets of the Borrower and
----------------------
its Subsidiaries on a consolidated basis determined in accordance with GAAP,
over (ii) all liabilities of the Borrower and its Subsidiaries on a consolidated
basis determined in accordance with GAAP.
Consolidated Total Interest Expense: For any period, the aggregate amount
-----------------------------------
of interest expense, as reflected on the consolidated statement of income of the
Borrower and its Subsidiaries for such period, with respect to all Indebtedness
of the Borrower and its Subsidiaries outstanding during all or any part of such
period, determined in accordance with GAAP.
Conversion Request: A notice given by the Borrower to the Bank of the
------------------
Borrower's election to convert or continue a Loan in accordance with (S)2.3.
Default: See (S)8.
-------
<PAGE>
-3-
Domestic Lending Office: Initially, the office of the Bank designated in
-----------------------
the preamble hereto; thereafter, such other office of the Bank, if any, located
within the United States that will be making or maintaining Base Rate Loans.
Drawdown Date: In respect of any Loan, the date on which such Loan is made
-------------
to the Borrower.
Environmental Laws: All laws pertaining to environmental matters,
------------------
including without limitation, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act of 1986, the Federal Clean Water
Act, the Federal Clean Air Act, the Toxic Substances Control Act, in each case
as amended, and all rules, regulations, judgments, decrees, orders and licenses
arising under all such laws.
ERISA: The Employee Retirement Income Security Act of 1974, as amended,
-----
and all rules, regulations, judgments, decrees, and orders arising thereunder.
Eurocurrency Reserve Rate: For any day with respect to a Eurodollar Rate
-------------------------
Loan, the maximum rate (expressed as a decimal) at which any lender subject
thereto would be required to maintain reserves under Regulation D of the Board
of Governors of the Federal Reserve System (or any successor or similar
regulations relating to such reserve requirements) against "Eurocurrency
Liabilities" (as that term is used in Regulation D), if such liabilities were
outstanding. The Eurocurrency Reserve Rate shall be adjusted automatically on
and as of the effective date of any change in the Eurocurrency Reserve Rate.
Eurodollar Business Day: Any day on which commercial banks are open for
-----------------------
international business (including dealings in Dollar deposits) in London or such
other eurodollar interbank market as may be selected by the Bank in its sole
discretion acting in good faith.
Eurodollar Lending Office: Initially, the office of the Bank designated in
-------------------------
the preamble hereto; thereafter, such other office of the Bank, if any, that
shall be making or maintaining Eurodollar Rate Loans.
Eurodollar Rate: For any Interest Period with respect to a Eurodollar Rate
---------------
Loan, the rate of interest equal to (i) the arithmetic average of the rates per
annum for the Bank (rounded upwards to the nearest 1/16 of one percent) of the
rate at which the Bank's Eurodollar Lending Office is offered Dollar deposits
two Eurodollar Business Days prior to the beginning of such
<PAGE>
-4-
Interest Period in the interbank eurodollar market where the eurodollar and
foreign currency and exchange operations of such Eurodollar Lending Office are
customarily conducted at or about 10:00 a.m., Boston time, for delivery on the
first day of such Interest Period for the number of days comprised therein and
in an amount comparable to the amount of the Eurodollar Rate Loan of the Bank to
which such Interest Period applies, divided by (ii) a number equal to 1.00 minus
the Eurocurrency Reserve Rate, if applicable.
Eurodollar Rate Loans: Loans bearing interest calculated by reference to
---------------------
the Eurodollar Rate.
Event of Default: See (S)8.
----------------
Federal Funds Effective Rate: For any day, the rate per annum equal to the
----------------------------
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average of the
quotations for such day on such transactions received by the Bank from three
funds brokers of recognized standing selected by the Bank in good faith.
Financials: In respect of any period, the consolidated balance sheet of
----------
the Borrower and its Subsidiaries as at the end of such period, and the related
consolidated statement of income and consolidated statement of cash flow for
such period, each setting forth in comparative form the figures for the previous
comparable fiscal period, all in reasonable detail and prepared in accordance
with GAAP.
GAAP: Generally accepted accounting principles consistent with those
----
adopted by the Financial Accounting Standards Board and its predecessor, (i)
generally, as in effect from time to time, and (ii) for purposes of determining
compliance by the Borrower with its financial covenants set forth herein, as in
effect for the fiscal year therein reported in the most recent Financials
submitted to the Bank prior to execution of this Agreement.
Indebtedness: In respect of the Borrower and its Subsidiaries, all
------------
obligations, contingent and otherwise, that in accordance with GAAP should be
classified as liabilities, including without limitation (i) all debt
obligations, (ii) all liabilities secured by Liens, (iii) all guarantees and
(iv) all liabilities in respect of bankers' acceptances or letters of credit.
<PAGE>
-5-
Interest Payment Date: (a) As to any Base Rate Loan, the last day of the
---------------------
calendar month which includes the Drawdown Date thereof and (b) as to any
Eurodollar Rate Loan, the date, if any, that is three (3) months from the first
day of the Interest Period and, in addition, the last day of such Interest
Period.
Interest Period: With respect to each Loan, (a) initially, the period
---------------
commencing on the Drawdown Date of such Loan and ending on the last day of one
of the periods set forth below, as selected by the Borrowers in a Loan Request
(i) for any Base Rate Loan, the last day of the calendar month; and (ii) for any
Eurodollar Rate Loan, 1, 2, 3, or 6 months; and (b) thereafter, each period
commencing on the last day of the next preceding Interest Period applicable to
such Loan and ending on the last day of one of the periods set forth above, as
selected by the Borrowers in a Conversion Request; provided that all of the
--------
foregoing provisions relating to Interest Periods are subject to the following:
(a) if any Interest Period with respect to a Eurodollar Rate Loan
would otherwise end on a day that is not a Eurodollar Business Day, that
Interest Period shall be extended to the next succeeding Eurodollar
Business Day unless the result of such extension would be to carry such
Interest Period into another calendar month, in which event such Interest
Period shall end on the immediately preceding Eurodollar Business Day;
(b) if any Interest Period with respect to a Base Rate Loan would end
on a day that is not a Business Day, that Interest Period shall end on the
next succeeding Business Day;
(c) if the Borrower shall fail to give notice as provided in (S)2.3,
the Borrower shall be deemed to have requested a conversion of the affected
Eurodollar Rate Loan to a Base Rate Loan and the continuance of all Base
Rate Loans as Base Rate Loans on the last day of the then current Interest
Period with respect thereto;
(d) any Interest Period that begins on the last Eurodollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall end on the last Eurodollar Business Day of a calendar month; and
(e) any Interest Period relating to any Eurodollar Rate Loan that
would otherwise extend beyond the Maturity Date shall end on the Maturity
Date.
<PAGE>
-6-
Liens: Any encumbrance, mortgage, pledge, hypothecation, charge,
-----
restriction or other security interest of any kind securing any obligation of
the Borrower and its Subsidiaries.
Loan: Any loan made or to be made to the Borrower pursuant to (S)2 hereof.
----
Loan Documents: This Agreement and the Note in each case as from time to
--------------
time amended or supplemented.
Loan Request: See (S)2.1.
------------
Margin: One quarter of one percent (.25%) per annum.
------
Materially Adverse Effect: Any materially adverse effect on the financial
-------------------------
condition or business operations of the Borrower and its Subsidiaries taken
together or material impairment of the ability of the Borrower or any of its
Subsidiaries to perform its obligations hereunder or under any of the other Loan
Documents.
Maturity Date: October 31, 1999 or such earlier date on which all Loans
-------------
may become due and payable pursuant to the terms hereof.
Note: See (S)2.1.
----
Obligations: All indebtedness, obligations and liabilities of the Borrower
-----------
and its Subsidiaries to the Bank, existing on the date of this Agreement or
arising thereafter, direct or indirect, joint or several, absolute or
contingent, matured or unmatured, liquidated or unliquidated, secured or
unsecured, arising by contract, operation of law or otherwise, arising or
incurred under this Agreement or any other Loan Document or in respect of any of
the Loans or the Note or other instruments at any time evidencing any thereof.
Requirement of Law: In respect of any person or entity, any law, treaty,
------------------
rule, regulation or determination of an arbitrator, court, or other governmental
authority, in each case applicable to or binding upon such person or entity or
affecting any of its property.
Subsidiary: In respect of the Borrower, any business entity of which the
----------
Borrower at any time owns or controls directly or indirectly more than fifty
percent (50%) of the outstanding shares of stock having voting power, regardless
of whether such right to vote depends upon the occurrence of a contingency.
<PAGE>
-7-
Type: As to any Loan, its nature as a Base Rate Loan or a Eurodollar Rate
----
Loan.
2. REVOLVING CREDIT FACILITY.
-------------------------
2.1. Commitment to Lend.
------------------
(a) Upon the terms and subject to the conditions of this Agreement,
the Bank agrees to lend to the Borrower such sums as the Borrower may
request, from the date hereof until but not including the Maturity Date,
provided that the sum of the outstanding principal amount of all Loans
--------
(after giving effect to all amounts requested) shall not exceed the
Commitment. Loans shall be in the minimum aggregate amount of $1,000,000
or an integral multiple of $100,000 in excess thereof.
(b) The Borrower shall notify the Bank in writing or telephonically
(a "Loan Request") no later than 10 a.m. (a) on the proposed Drawdown Date
of any Base Rate Loan and (b) two (2) Eurodollar Business Days prior to the
Drawdown Date of any Eurodollar Rate Loan, with such notice specifying (i)
the principal amount of the Loan requested, (ii) the proposed Drawdown Date
of such Loan, (iii) the Interest Period for such Loan and (iv) the Type of
such Loan. Each Loan Request shall be irrevocable and binding on the
Borrower and shall obligate the Borrower to accept the Loan requested from
the Bank on the Drawdown Date. Subject to the foregoing, so long as the
Commitment is then in effect and the applicable conditions set forth in
(S)6 hereof have been met, the Bank shall advance the amount requested to
the Borrower's bank account no. 516-70287 at the Bank in immediately
available funds not later than the close of business on such Drawdown Date.
(c) The obligation of the Borrower to repay to the Bank the principal
of the Loans and interest accrued thereon shall be evidenced by a
promissory note (the "Note") in the maximum aggregate principal amount of
$10,000,000, executed and delivered by the Borrower and payable to the
order of the Bank and in the form of Exhibit A hereto.
---------
2.2. Interest.
--------
(a) So long as no Default or Event of Default has occurred and is
continuing,
(i) Each Base Rate Loan shall bear interest for the period
commencing with the Drawdown Date thereof and
<PAGE>
-8-
ending on the last day of the Interest Period with respect thereto at
a rate per annum equal to the Base Rate.
(ii) Each Eurodollar Rate Loan shall bear interest for the
period commencing with the Drawdown Date thereof and ending on the
last day of the Interest Period with respect thereto at a rate per
annum equal to the sum of (i) the Eurodollar Rate plus (ii) the
----
Margin.
(iii) The Borrower promises to pay interest on each Loan in
arrears on each Interest Payment Date with respect thereto.
(b) While a Default or Event of Default is continuing, amounts
payable under any of the Loan Documents shall bear interest (compounded
monthly and payable on demand in respect of overdue amounts) at a rate per
annum which is equal to the sum of (i) the Base Rate, and (ii) two percent
(2%) until such amount is paid in full or (as the case may be) such Event
of Default has been cured or waived in writing by the Bank (after as well
as before judgment).
2.3. Conversion to Different Type of Loan.
------------------------------------
The Borrower may elect from time to time to convert any outstanding Loan to
a Loan of another Type, provided that (a) with respect to any such conversion of
--------
a Eurodollar Rate Loan to a Base Rate Loan, the Borrower shall give the Agent at
least two (2) Business Days' prior written notice of such election; (b) with
respect to any such conversion of a Base Rate Loan to a Eurodollar Rate Loan,
the Borrower shall give the Agent at least two (2) Eurodollar Business Days'
prior written notice of such election; (c) with respect to any such conversion
of a Eurodollar Rate Loan into a Base Rate Loan, such conversion shall only be
made on the last day of the Interest Period with respect thereto, and (d) no
Loan may be converted into a Eurodollar Rate Loan when any Default or Event of
Default has occurred and is continuing. On the date on which such conversion is
being made, the Bank shall take such action as is necessary to transfer the
Loans to its Domestic Lending Office or its Eurodollar Lending Office, as the
case may be. All or any part of outstanding Loans of any Type may be converted
into a Loan of another Type as provided herein, provided that any partial
--------
conversion shall be in an aggregate principal amount of $1,000,000 or an
integral multiple of $100,000 in excess thereof. Each Conversion Request shall
be irrevocable by the Borrower.
2.4. Continuation of Type of Revolving Credit Loan.
---------------------------------------------
Any Loan of any Type may be continued as a Loan of the same Type upon the
<PAGE>
-9-
expiration of an Interest Period with respect thereto by compliance by the
Borrower with the notice provisions contained in (S)2.3; provided that no
--------
Eurodollar Rate Loan may be continued as such when any Default or Event of
Default has occurred and is continuing, but shall be automatically converted to
a Base Rate Loan on the last day of the first Interest Period relating thereto
ending during the continuance of any Default or Event of Default of which
officers of the Bank active upon the Borrower's account have actual knowledge.
2.5. Repayments and Prepayments. The Borrower hereby agrees to pay the
--------------------------
Bank on the Maturity Date the entire unpaid principal of and interest on all
Loans. The Borrower may elect to prepay the outstanding principal of all or any
part of any Loan, without premium or penalty, in a minimum amount of $1,000,000
or an integral multiple of $100,000 in excess thereof, upon written notice to
the Bank given by 10:00 a.m. Boston time, on the date of any proposed prepayment
of Base Rate Loans and two (2) Eurodollar Business Days prior to any proposed
prepayment of Eurodollar Rate Loans, in each case specifying the proposed date
of prepayment of the Loans and of the amount to be prepaid; provided that any
--------
full or partial prepayment of the outstanding amount of any Eurodollar Rate
Loans pursuant to this (S)2.5 may be made only on the last day of the Interest
Period relating thereto. The Borrower shall be entitled to reborrow before the
Maturity Date such amounts, upon the terms and subject to the conditions of this
Agreement. Each repayment or prepayment of principal of any Loan shall be
accompanied by payment of the unpaid interest accrued to such date on the
principal being repaid or prepaid and shall be applied, in the absence of
instruction by the Borrower, first to the principal of Base Rate Loans and then
to the principal of Eurodollar Rate Loans. If at any time the outstanding
principal amount of the Loans shall exceed the Commitment, the Borrower shall
immediately pay the amount of such excess to the Bank for application to the
Loans. The Borrower may elect to reduce the Commitment by a minimum principal
amount of $1,000,000 or an integral multiple of $100,000 in excess thereof, or
terminate the Commitment entirely, upon written notice to the Bank given by
10:00 a.m. Boston time at least five (5) Business Days prior to the date of such
reduction or termination. The Borrower shall not be entitled to reinstate the
Commitment following such reduction or termination.
3. CHANGES IN CIRCUMSTANCES.
------------------------
3.1. Capital Adequacy. If after the date hereof the Bank determines that
----------------
(i) the adoption of or any change in any banking law, rule, regulation or
guideline or the administration thereof (whether or not
<PAGE>
-10-
having the force of law), or (ii) compliance by the Bank or its parent bank
holding company with any guideline, request or directive (whether or not having
the force of law), has the effect of reducing the return on the Bank's or such
holding company's capital as a consequence of the Commitment or the Loans to a
level below that which the Bank or such holding company could have achieved on
the effective date hereof but for such adoption, change or compliance by any
amount deemed by the Bank to be material, the Bank may notify the Borrower
thereof. The Borrower agrees to pay the Bank the amount of the Borrower's
allocable share of the amount of such reduction in the return on capital as and
when such reduction is determined, upon presentation by the Bank of a statement
in the amount and setting forth the Bank's calculation thereof, which statement
shall be deemed true and correct absent manifest error and shall be prepared by
the Bank in good faith. The Bank agrees to allocate shares of such reduction
among the Borrower and the Bank's other customers similarly situated on a fair
and non-discriminatory basis.
3.2. Inability to Determine Eurodollar Rate. In the event that, prior to
--------------------------------------
the commencement of any Interest Period relating to any Eurodollar Rate Loan,
the Bank shall determine that adequate and reasonable methods do not exist for
ascertaining the Eurodollar Rate that would otherwise determine the rate of
interest to be applicable to any Eurodollar Rate Loan during any Interest
Period, the Bank shall forthwith give notice of such determination (which shall
be conclusive and binding on the Borrower and the Banks) to the Borrower. In
such event (a) any Loan Request or Conversion Request with respect to Eurodollar
Rate Loans shall be automatically withdrawn and shall be deemed a request for
Base Rate Loans, (b) each Eurodollar Rate Loan will automatically, on the last
day of the then current Interest Period relating thereto, become a Base Rate
Loan, and (c) the obligations of the Bank to make Eurodollar Rate Loans shall be
suspended until the Bank determines in good faith that the circumstances giving
rise to such suspension no longer exist, whereupon the Bank shall so notify the
Borrower.
3.3. Illegality. Notwithstanding any other provisions herein, if any
----------
present or future law, regulation, treaty or directive or any interpretation or
application thereof shall make it unlawful for the Bank to make or maintain
Eurodollar Rate Loans, the Bank shall forthwith give notice of such
circumstances to the Borrower and thereupon (a) the Commitment of the Bank to
make Eurodollar Rate Loans or convert Base Rate Loans to Eurodollar Rate Loans
shall forthwith be suspended, and (b) the Bank's Loans then outstanding as
Eurodollar Rate Loans, if any, shall be converted automatically to Base Rate
Loans on the last day of
<PAGE>
-11-
each Interest Period applicable to such Eurodollar Rate Loans or within such
earlier period as may be required by law. The Borrower hereby agrees promptly to
pay the Bank, upon demand, any additional amounts necessary to compensate the
Bank for any costs incurred by the Bank in making any conversion in accordance
with this (S)3.3, including any interest or fees payable by the Bank to lenders
of funds obtained by it in order to make or maintain its Eurodollar Loans
hereunder.
3.4. Indemnity. The Borrower agrees to indemnify the Bank and to hold the
---------
Bank harmless from and against any loss, cost or expense (including loss of
anticipated profits) that the Bank may sustain or incur as a consequence of
(a) default by the Borrower in payment of the principal amount of or any
interest on any Eurodollar Rate Loans as and when due and payable, including any
such loss or expense arising from interest or fees payable by the Bank to
lenders of funds obtained by it in order to maintain its Eurodollar Rate Loans,
(b) default by the Borrower in making a borrowing or conversion after the
Borrower has given (or is deemed to have given) a Loan Request or a Conversion
Request relating thereto in accordance with (S)2.1 or (S)2.3 hereof, or (c) the
making of any payment of a Eurodollar Rate Loan or the making of any conversion
of any such Loan to a Base Rate Loan on a day that is not the last day of the
applicable Interest Period with respect thereto, including interest or fees
payable by the Bank to lenders of funds obtained by it in order to maintain any
such Loans.
3.5. Additional Costs, Etc. If any present or future applicable law, which
---------------------
expression, as used herein, includes statutes, rules and regulations thereunder
and interpretations thereof by any competent court or by any governmental or
other regulatory body or official charged with the administration or the
interpretation thereof and requests, directives, instructions and notices at any
time or from time to time hereafter made upon or otherwise issued to the Bank by
any central bank or other fiscal, monetary or other authority (whether or not
having the force of law), shall:
(a) subject the Bank to any tax, levy, impost, duty, charge, fee,
deduction or withholding of any nature with respect to this Agreement, the
other Loan Documents, the Commitment or the Loans (other than taxes based
upon or measured by the income or profits of the Bank), or
(b) materially change the basis of taxation (except for changes in
taxes on income or profits) of payments to the Bank of the principal of or
the interest on any Loans or any other amounts
<PAGE>
-12-
payable to the Bank under this Agreement or any of the other Loan
Documents, or
(c) impose or increase or render applicable (other than to the extent
specifically provided for elsewhere in this Agreement) any special deposit,
reserve, assessment, liquidity, capital adequacy or other similar
requirements (whether or not having the force of law) against assets held
by, or deposits in or for the account of, or loans by, or letters of credit
issued by, or commitments of an office of the Bank, or
(d) impose on the Bank any other conditions or requirements with
respect to this Agreement, the other Loan Documents, the Loans, the
Commitment, or any class of loans or commitments of which any of the Loans
or the Commitment forms a part, and the result of any of the foregoing is
(i) to increase the cost to the Bank of making, funding, issuing,
renewing, extending or maintaining any of the Loans or the Commitment,
or
(ii) to reduce the amount of principal, interest, or other
amounts payable to the Bank hereunder on account of the Commitment or
any of the Loans, or
(iii) to require the Bank to make any payment or to forego any
interest or other sum payable hereunder, the amount of which payment
or foregone interest or other sum is calculated by reference to the
gross amount of any sum receivable or deemed received by the Bank from
the Borrower hereunder,
then, and in each such case, the Borrower will, upon demand made by the
Bank at any time and from time to time and as often as the occasion
therefor may arise, pay to the Bank such additional amounts as will be
sufficient to compensate the Bank for such additional cost, reduction,
payment or foregone interest or other sum.
4. FEES AND PAYMENTS.
-----------------
The Borrower shall pay to the Bank, on the first day of each calendar
quarter hereafter, and upon the Maturity Date or any date upon which the
Commitment is no longer in effect, a facility fee calculated at a rate per annum
which is equal to .18% on the total amount of the
<PAGE>
-13-
Commitment during the preceding calendar quarter or portion thereof. All
payments to be made by the Borrower hereunder or under any of the other Loan
Documents shall be made in U.S. dollars in immediately available funds at the
Bank's head office at 100 Federal Street, Boston, Massachusetts 02110, without
set-off or counterclaim and without any withholding or deduction whatsoever. The
Bank shall be entitled to charge Account No. 516-70287 (or any successor account
thereto) of the Borrower with the Bank for any sum due and payable by the
Borrower to the Bank hereunder or under any of the other Loan Documents. If any
payment hereunder is required to be made on a day which is not a Business Day,
it shall be paid on the immediately succeeding Business Day, with interest and
any applicable fees adjusted accordingly. All computations of interest or of the
facility fee payable hereunder shall be made by the Bank on the basis of actual
days elapsed and on a 360-day year.
5. REPRESENTATIONS AND WARRANTIES.
------------------------------
The Borrower represents and warrants to the Bank on the date hereof, on the
date of any Loan Request, and on each Drawdown Date that:
(a) the Borrower and each of its Subsidiaries is duly organized,
validly existing, and in good standing under the laws of its jurisdiction
of incorporation and is duly qualified and in good standing in every other
jurisdiction where it is doing business, and the execution, delivery and
performance by the Borrower and each of its Subsidiaries of the Loan
Documents to which it is a party (i) are within its corporate authority,
(ii) have been duly authorized, and (iii) do not conflict with or
contravene its Charter Documents;
(b) upon execution and delivery thereof, each Loan Document shall
constitute the legal, valid and binding obligation of the Borrower and its
Subsidiaries party thereto, enforceable in accordance with its terms;
(c) the Borrower has good and marketable title to all its material
properties, subject only to Liens permitted hereunder, and possesses all
assets, including intellectual properties, franchises and Consents,
adequate for the conduct of its business as now conducted, without known
conflict with any rights of others. The Borrower maintains insurance with
financially responsible insurers, copies of the policies for which have
been previously delivered to the Bank, covering such risks and in such
amounts and
<PAGE>
-14-
with such deductibles as are customary in the Borrower's business and are
adequate;0
(d) the Borrower has provided to the Bank its audited Financials as
at June 30, 1995 and for the fiscal period then ended, and such Financials
are complete and correct and fairly present the position of the Borrower
and its Subsidiaries as at such date and for such period in accordance with
GAAP consistently applied. The Borrower has also provided to the Bank its
unaudited Financials as at December 31, 1995 and for the fiscal period then
ended, and such Financials are complete and correct and fairly present the
position of the Borrower and its Subsidiaries as at such date and for such
period in accordance with GAAP consistently applied;
(e) since June 30, 1995, there has been no materially adverse change
of any kind in the Borrower or any of its Subsidiaries which would have a
Materially Adverse Effect;
(f) there are no legal or other proceedings or investigations pending
or threatened against the Borrower or any of its Subsidiaries before any
court, tribunal or regulatory authority which would, if adversely
determined, alone or together, have a Materially Adverse Effect;
(g) the execution, delivery, performance of its obligations, and
exercise of its rights under the Loan Documents by the Borrower, including
borrowing under this Agreement (i) do not require any Consents; and (ii)
are not and will not be in conflict with or prohibited or prevented by (A)
any Requirement of Law, or (B) any Charter Document, corporate minute or
resolution, instrument, agreement or provision thereof, in each case
binding on it or affecting its property;
(h) the Borrower is not in violation of (i) any Charter Document,
corporate minute or resolution, (ii) any instrument or agreement, in each
case binding on it or affecting its property, or (iii) any Requirement of
Law, in a manner which could have a Materially Adverse Effect, including,
without limitation, all applicable federal and state tax laws, ERISA and
Environmental Laws; and
(i) except as disclosed on Schedule 5(i) hereto, the Borrower is not
-------------
a party to any partnership or joint venture. Schedule 5(i) hereto sets
-------------
forth a true and complete list of each of the Borrower's Subsidiaries.
<PAGE>
-15-
6. CONDITIONS PRECEDENT.
--------------------
In addition to the making of the foregoing representations and warranties
and the delivery of the Loan Documents and such other documents and the taking
of such actions as the Bank may require at or prior to the time of executing
this Agreement, the obligation of the Bank to make any Loan to the Borrower
hereunder is subject to the satisfaction of the following further conditions
precedent:
(a) each of the representations and warranties of the Borrower to the
Bank herein, in any of the other Loan Documents or any documents,
certificate or other paper or notice in connection herewith shall be true
and correct in all material respects as of the time made or claimed to have
been made;
(b) no Default or Event of Default shall be continuing;
(c) all proceedings in connection with the transactions contemplated
hereby shall be in form and substance satisfactory to the Bank, and the
Bank shall have received all information and documents as it may have
reasonably requested; and
(d) no change shall have occurred in any law or regulation or in the
interpretation thereof that in the reasonable opinion of the Bank would
make it unlawful for the Bank to make such Loan.
7. COVENANTS.
---------
7.1. Affirmative Covenants. The Borrower agrees that until the termination
---------------------
of the Commitment and the payment and satisfaction in full of all the
Obligations, the Borrower will, and where applicable will cause each of its
Subsidiaries to comply with its obligations as set forth throughout this
Agreement and to:
(a) furnish the Bank: (i) as soon as available but in any event
within ninety (90) days after the close of each fiscal year, its audited
Financials for such fiscal year, certified by the Borrower's accountants;
(ii) as soon as available but in any event within forty-five (45) days
after the end of each fiscal quarter, its unaudited Financials for such
quarter, certified by its treasurer or chief financial officer; (iii)
together with the quarterly and annual audited Financials, a certificate of
the Borrower setting forth computations demonstrating compliance with the
Borrower's financial covenants set forth herein, and certifying that no
Default or Event of Default has occurred, or if it has, the actions taken
by
<PAGE>
-16-
the Borrower with respect thereto; and (iv) from time to time such other
financial data and information (including accountants' management letters)
as the Bank may reasonably request;
(b) keep true and accurate books of account in accordance with GAAP,
maintain its current fiscal year and, upon two (2) days notice, permit the
Bank or its designated representatives to inspect the Borrower's premises
during normal business hours, at the Borrower's expense, to examine and be
advised as to such or other business records upon the request of the Bank,
and to permit the Bank's commercial finance examiners to conduct periodic
commercial finance examinations;
(c) (i) maintain its corporate existence, business and assets, (ii)
keep its business and assets adequately insured, (iii) maintain its chief
executive office in the Commonwealth of Massachusetts, (iv) continue to
engage in the same or similar lines of business, and (v) pay its taxes and
otherwise comply with all Requirements of Law, including all applicable
federal and state tax laws, ERISA and Environmental Laws;
(d) notify the Bank in writing within three (3) Business Days of (i)
the occurrence of any Default or Event of Default, (ii) any anticipated and
actual noncompliance with ERISA or any Environmental Law or proceeding in
respect thereof which could have a Materially Adverse Effect, (iii) any
change of address, (iv) any threatened or pending litigation or similar
proceeding affecting the Borrower or such Subsidiary or any material change
in any such litigation or proceeding previously reported which could have a
Materially Adverse Effect and (v) claims against any assets or properties
of the Borrower or such Subsidiary which could have a Materially Adverse
Effect;
(e) use the proceeds of the Loans solely for working capital and
general corporate purposes, including capital expenditures, acquisitions
and stock repurchases otherwise permitted by this Agreement, and not for
the carrying of "margin security" or "margin stock" within the meaning of
Regulations U and X of the Board of Governors of the Federal Reserve
System, 12 C.F.R. Parts 221 and 224; and
(f) cooperate with the Bank, take such action, execute such
documents, and provide such information as the Bank may from time to time
reasonably request in order further to effect the
<PAGE>
-17-
transactions contemplated by and the purposes of the Loan Documents.
7.2. Negative Covenants.
------------------
The Borrower agrees that until the termination of the Commitment and the
payment and satisfaction in full of all the Obligations, the Borrower will not
and where applicable will not permit its Subsidiaries to:
(a) create, incur or assume any Indebtedness other than (i)
Indebtedness to the Bank, (ii) Indebtedness in respect of acquisitions by
the Borrower which do not exceed $10,000,000 in the aggregate, (iii)
current liabilities of the Borrower or any Subsidiaries not incurred
through the borrowing of money or the obtaining of credit except credit on
an open account customarily extended, (iv) Indebtedness in respect of taxes
or other governmental charges contested in good faith and by appropriate
proceedings and for which adequate reserves have been taken; and (v)
Indebtedness not included above and listed on Schedule 7.2(a) hereto;
-------- ------
(b) create or incur any Liens on any of the property or assets of the
Borrower or any of its Subsidiaries except (i) Liens securing the
Obligations; (ii) Liens securing taxes or other governmental charges not
yet due; (iii) deposits or pledges made in connection with social security
obligations; (iv) Liens of carriers, warehousemen, mechanics and
materialmen, less than one hundred twenty (120) days old as to obligations
not yet due; (v) easements, rights-of-way, zoning restrictions and similar
minor Liens which individually and in the aggregate do not have a
Materially Adverse Effect; (vi) purchase money security interests in or
purchase money mortgages on real or personal property securing purchase
money Indebtedness permitted by (S)7.2(a)(ii), covering only the property
so acquired; and (vii) other Liens existing on the date hereof and listed
on Schedule 7.2(b) hereto;
-------- ------
(c) make any investments other than investments in (i) marketable
obligations of the United States maturing within one (1) year, (ii)
certificates of deposit, bankers' acceptances and time and demand deposits
of (A) United States banks other than the Bank, which certificates of
deposit, bankers' acceptances and time and demand deposits are rated "A1"
by Standard and Poor's Ratings Group or "P1" by Moody's Investors Services,
Inc., or (B) the Bank, (iii) tax exempt municipal bonds rated AA by
Standard and Poor's Ratings Group/Moody's Investors Services, Inc., or (iv)
such other
<PAGE>
-18-
investments as the Bank may from time to time approve in writing; or
(d) (i) become party to a merger or sale-leaseback transaction or
(ii) effect one or more dispositions of assets (A) other than in the
ordinary course and (B) so long as no Default or Event of Default shall
have occurred and be continuing or shall result after giving effect
thereto, dispositions of assets, the book value of which shall not in the
aggregate at any time exceed five percent (5%) of Consolidated Assets,
determined as of the date or dates of such disposition or dispositions.
7.3. Financial Covenants. The Borrower agrees that until the termination
-------------------
of the Commitment and the payment and satisfaction in full of all the
Obligations, the Borrower will not and where applicable will not permit its
Subsidiaries to:
(a) permit the ratio of Consolidated Earnings Before Interest and
Taxes for any period of four consecutive fiscal quarters to Consolidated
Total Interest Expense for such period to be less than 7.0:1; and
(b) permit the ratio of Consolidated Funded Debt for Borrowed Money
to the sum of (i) Consolidated Funded Debt For Borrowed Money plus
----
Consolidated Net Worth at any time to exceed 0.3:1.
8. EVENTS OF DEFAULT; ACCELERATION.
-------------------------------
If any of the following events ("Events of Default") or if the giving of
notice or the lapse of time or both is required, then, prior to such notice or
lapse of time ("Defaults") shall occur:
(a) the Borrower shall fail to pay when due and payable any principal
of the Loans when the same becomes due (whether at stated maturity, by
required prepayment, by acceleration or otherwise);
(b) the Borrower shall fail to pay interest on the Loans or any other
sum due under any of the Loan Documents within two (2) Business Days after
the date on which the same shall have first become due and payable;
(c) the Borrower shall fail to perform any term, covenant or
agreement contained in (S)7;
<PAGE>
-19-
(d) the Borrower shall fail to perform any other term, covenant or
agreement contained in the Loan Documents within ten (10) days after the
Bank has given written notice of such failure to the Borrower;
(e) any representation or warranty of the Borrower in the Loan
Documents or in any certificate or notice given in connection therewith
shall have been false or misleading in any material respect at the time
made or deemed to have been made;
(f) the Borrower or any of its Subsidiaries shall be in default
(after any applicable period of grace or cure period) under any agreement
or agreements evidencing Indebtedness (i) owing to the Bank or any
affiliate of the Bank or (ii) in excess of $500,000 in aggregate principal
amount, or shall fail to pay such Indebtedness when due, or within any
applicable period of grace;
(g) any of the Loan Documents shall cease to be in full force and
effect,
(h) the Borrower or any of its Subsidiaries (i) shall make an
assignment for the benefit of creditors, (ii) shall be adjudicated bankrupt
or insolvent, (iii) shall seek the appointment of, or be the subject of an
order appointing, a trustee, liquidator or receiver as to all or part of
its assets, (iv) shall commence, approve or consent to, any case or
proceeding under any bankruptcy, reorganization or similar law and, in the
case of an involuntary case or proceeding, such case or proceeding is not
dismissed within forty-five (45) days following the commencement thereof,
or (v) shall be the subject of an order for relief in an involuntary case
under federal bankruptcy law;
(i) the Borrower or any of its Subsidiaries shall be unable to pay
its debts as they mature;
(j) there shall remain in force, undischarged, unsatisfied and
unstayed for more than thirty (30) days any final judgment or execution
action against the Borrower or any of its Subsidiaries that, together with
other outstanding undischarged final judgments against the Borrower and its
Subsidiaries exceeds $500,000 in the aggregate;
(k) (i) any person or group of persons (within the meaning of Section
13 or 14 of the Securities Exchange Act of 1934, as amended) shall have
acquired beneficial ownership (within the
<PAGE>
-20-
meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission
under said Act) of twenty percent (20%) or more of the outstanding shares
of common stock of the Borrower; (ii) Jay Rhoads and/or Richard Rhoads
shall have acquired beneficial ownership (within the meaning of Rule 13d-3
promulgated by the Securities and Exchange Commission under said Act) of
twenty-five percent (25%) or more of the outstanding shares of common stock
of the Borrower; or (iii) during any period of twelve (12) consecutive
calendar months, individuals who were directors of the Borrower on the
first day of such period shall cease to constitute a majority of the board
of directors of the Borrower;
THEN, or at any time thereafter:
(1) In the case of any Event of Default under clause (h) or (i), the
Commitment shall automatically terminate, and the entire unpaid principal
amount of the Loans, all interest accrued and unpaid thereon, and all other
amounts payable thereunder and under the other Loan Documents shall
automatically become forthwith due and payable, without presentment,
demand, protest or notice of any kind, all of which are hereby expressly
waived by the Borrower; and
(2) In the case of any Event of Default other than (h) and (i), the
Bank may, by written notice to the Borrower, terminate the Commitment
and/or declare the unpaid principal amount of the Loans, all interest
accrued and unpaid thereon, and all other amounts payable hereunder and
under the other Loan Documents to be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower.
No remedy herein conferred upon the Bank is intended to be exclusive of any
other remedy and each and every remedy shall be cumulative and in addition to
every other remedy hereunder, now or hereafter existing at law or in equity or
otherwise.
9. SETOFF.
------
Regardless of the adequacy of any collateral for the Obligations, any
deposits or other sums credited by or due from the Bank to the Borrower may be
applied to or set off against any principal, interest and any other amounts due
from the Borrower to the Bank at any time without notice to the Borrower, or
compliance with any other procedure imposed by statute or otherwise, all of
which are hereby expressly waived by the Borrower.
<PAGE>
-21-
10. MISCELLANEOUS.
-------------
The Borrower agrees to indemnify and hold harmless the Bank and its
officers, employees, affiliates, agents, and controlling persons from and
against all claims, damages, liabilities and losses of every kind arising out of
the Loan Documents, including without limitation, against those in respect of
the application of Environmental Laws to the Borrower and its Subsidiaries
absent the gross negligence or willful misconduct of the Bank. The Borrower
shall pay to the Bank promptly on demand all costs and expenses (including any
taxes and reasonable legal and other professional fees and fees of its
commercial finance examiner) incurred by the Bank in connection with the
preparation, negotiation, execution, amendment, administration or enforcement of
any of the Loan Documents. Any communication to be made hereunder shall (i) be
made in writing, but unless otherwise stated, may be made by telex, facsimile
transmission or letter, and (ii) be made or delivered to the address of the
party receiving notice which is identified with its signature below (unless such
party has by five (5) days written notice specified another address), and shall
be deemed made or delivered, when dispatched, left at that address, or five (5)
days after being mailed, postage prepaid, to such address. This Agreement shall
be binding upon and inure to the benefit of each party hereto and its successors
and assigns, but the Borrower may not assign its rights or obligations
hereunder. The Bank may assign all or a portion of its interests, rights and
obligations under this Agreement (including all or a portion of the Commitment
and the same portion of the Loans and the Note) with the consent of the
Borrower, which consent shall not be unreasonably withheld or delayed; provided,
--------
however, that following a Default or Event of Default, the Bank may assign all
- -------
or a portion of such interests, rights and obligations under this Agreement
without the Borrower's consent. The Bank may sell participations to one or more
banks or other entities in all or a portion of such Bank's rights and
obligations under this Agreement and the other Loan Documents. This Agreement
may not be amended or waived except by a written instrument signed by the
Borrower and the Bank, and any such amendment or waiver shall be effective only
for the specific purpose given. No failure or delay by the Bank or the Borrower
to exercise any right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege preclude any other
right, power or privilege. The provisions of this Agreement are severable and
if any one provision hereof shall be held invalid or unenforceable in whole or
in part in any jurisdiction, such invalidity or unenforceability shall affect
only such provision in such jurisdiction. This Agreement, together with all
Schedules hereto, expresses the entire understanding of the parties with respect
to the transactions contemplated hereby. This
<PAGE>
-22-
Agreement and any amendment hereby may be executed in several counterparts, each
of which shall be an original, and all of which shall constitute one agreement.
In proving this Agreement, it shall not be necessary to produce more than one
such counterpart executed by the party to be charged. THIS AGREEMENT AND THE
NOTE ARE CONTRACTS UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL
BE CONSTRUED IN ACCORDANCE THEREWITH AND GOVERNED THEREBY. EACH OF THE BORROWER
AND THE BANK AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF ANY OF THE LOAN
DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR
ANY FEDERAL COURT SITTING THEREIN. The Borrower, as an inducement to the Bank to
enter into this Agreement, hereby waives its right to a jury trial with respect
to any action arising in connection with any Loan Document.
IN WITNESS WHEREOF, the undersigned have duly executed this Revolving
Credit Agreement as a sealed instrument as of the date first above written.
NEW ENGLAND BUSINESS SERVICE, INC.
By: /s/ Timothy D. Althof
Name: Timothy D. Althof
Title: Treasurer
Address:
500 Main Street
Groton, Massachusetts
Tel: (508) 448-6111
Fax: (508) 448-9320
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Chris D. Francis
Name: Chris D. Francis
Title: Vice President
Address:
100 Federal Street
Boston, Massachusetts 02110
Tel: (617) 434-2203
Fax: (617) 434-0637
<PAGE>
[LETTERHEAD OF NEBS APPEARS HERE]
November 6, 1995
William C. Lowe
New England Business Service, Inc.
500 Main Street
Groton, Massachusetts 01471
Dear Bill:
New England Business Service, Inc., a Delaware corporation (the
"Company"), considers the establishment and maintenance of a sound and vital
management to be essential to protecting and enhancing the best interests of the
Company and its shareholders. In this connection, the Company recognizes that,
as is the case with many publicly held corporations, the possibility of a change
in control may arise and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company and its
shareholders. Accordingly, the Board of Directors of the Company (the "Board")
has determined that appropriate steps should be taken to reinforce and encourage
the continued attention and dedication of members of the Company's management to
their assigned duties without distraction in circumstances arising from the
possibility of a change in control of the Company. In particular, the Board
believes it important, should the Company or its shareholders receive a proposal
for transfer of control of the Company, that you be able to assess and advise
the Board whether such proposal would be in the best interests of the Company
and its shareholders and to take such other action regarding such proposal as
the Board might determine to be appropriate, without being influenced by the
uncertainties of your own situation.
In order to induce you to remain in the employ of the Company, this
letter agreement, which has been approved by the Board, sets forth the severance
benefits which the Company agrees will be provided to you in the event your
employment with the Company is terminated subsequent to a "change in control" of
the Company under the circumstances described below.
<PAGE>
1. Agreement to Provide Services; Right to Terminate.
-------------------------------------------------
(i) Except as otherwise provided in paragraph (ii) below, the Company
or you may terminate your employment at any time, subject to the Company's
providing the benefits hereinafter specified in accordance with the terms
hereof.
(ii) In the event a tender offer or exchange offer is made by a Person
(as hereinafter defined) for more than 25% of the combined voting power of the
Company's outstanding securities ordinarily having the right to vote at
elections of directors ("Voting Securities"), including shares of common stock
($1.00 par value) of the Company (the "Company Shares"), you agree that you will
not leave the employ of the Company (other than as a result of Disability or
upon Retirement, as such terms are hereinafter defined) and will render the
services contemplated in the recitals to this Agreement until such tender offer
or exchange offer has been abandoned or terminated or a change in control of the
Company, as defined in Section 3 hereof, has occurred. For purposes of this
Agreement, the term "Person" shall mean and include any individual, corporation,
partnership, group, association or other "person", as such term is defined in
Section 3(a)(9) and as used in Section 14(d) of the Securities Exchange Act of
1934 (the "Exchange Act"), other than the Company, a wholly owned subsidiary of
the Company or any employee benefit plan(s) sponsored by the Company or a
subsidiary of the Company.
2. Term of Agreement. This Agreement shall commence on the date
-----------------
hereof and shall continue in effect until June 30, 1996; provided, however, that
this Agreement shall continue in effect for a period of twenty-four (24) months
after a change in control of the Company, as defined in Section 3 hereof, if
such change in control shall have occurred during the term of this Agreement.
Notwithstanding anything in this Section 2 to the contrary, this Agreement shall
terminate if you or the Company terminate your employment prior to a change in
control of the Company as provided in Section 1(i) above.
3. Change in Control. For purposes of this Agreement, a "change in
-----------------
control" of the Company shall be deemed to have occurred at such time as (a) any
Person is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 50% or more of the combined voting
power of the Company's Voting Securities; or (b) during any period of not more
than two years, individuals who constitute the Board as of the beginning of the
period and any new director (other than a
<PAGE>
director designated by a person who has entered into an agreement with the
Company to effect a transaction described in clause (a) or (c) of this sentence)
whose election by the Board or nomination for election by the Company's
shareholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at such time or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof; or (c) the shareholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the Voting Securities
of the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into Voting Securities of
the surviving entity) at least 50% of the combined voting power of the Voting
Securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the shareholders of the Company approve a plan
of complete liquidation of the Company or any agreement for the sale or
disposition by the Company or all or substantially all of the Company's assets.
Notwithstanding anything in the foregoing to the contrary, no change in control
shall be deemed to have occurred for purposes of this Agreement by virtue of any
transaction which results in you, or a group of Persons which includes you,
acquiring, directly or indirectly, 50% or more of the combined voting power of
the Company's Voting Securities.
4. Termination Following Change in Control. If any of the events
---------------------------------------
described in Section 3 hereof constituting a change in control of the Company
shall have occurred, you shall be entitled to the benefits provided in Section 5
hereof upon the termination of your employment with the Company within twenty-
four (24) months after such event, unless such termination is (a) because of
your death, (b) by the Company for Cause, Disability or Retirement or (c) by you
other than for Good Reason (as all such capitalized terms are hereinafter
defined).
(i) Disability. Termination by the Company of your employment based
----------
on "Disability" shall mean termination because of your absence from your duties
with the Company on a full time basis for one hundred twenty (120) consecutive
days as a result of your incapacity due to physical or mental illness, unless
within thirty (30) days after Notice of Termination (as hereinafter defined) is
given to you following such absence you shall have returned to the full time
performance of your duties.
<PAGE>
(ii) Retirement. Termination by you or by the Company of your
----------
employment based on "Retirement" shall mean termination on or after your normal
retirement date as defined in the Company's Pension Plan (or any successor or
substitute plan or plans of the Company put into effect prior to a change in
control) (the "Pension Plan").
(iii) Cause. Termination by the Company of your employment for "Cause"
-----
shall mean termination upon (a) the willful and continued failure by you
to perform substantially your duties with the Company (other than any such
failure resulting from your incapacity due to physical or mental illness) after
a demand for substantial performance is delivered to you by an authorized
officer of the Company which specifically identifies the manner in which such
executive believes that you have not substantially performed your duties, or
(b) the willful engaging by you in illegal conduct which is materially and
demonstrably injurious to the Company. For purposes of this paragraph (iii), no
act, or failure to act, on your part shall be considered "willful" unless done,
or omitted to be done, by you without reasonable belief that your action or
omission was in, or not opposed to, the best interests of the Company. Any act,
or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by you in good faith
and in the best interests of the Company. It is also expressly understood that
your attention to matters not directly related to the business of the Company
shall not provide a basis for termination for Cause so long as the Board has
approved your engagement in such activities. Notwithstanding the foregoing, you
shall not be deemed to have been terminated for Cause unless and until there
shall have been delivered to you a copy of a resolution duly adopted by the
affirmative vote of not less than two-thirds of the entire membership of the
Board at a meeting of the Board called and held for the purpose (after
reasonable notice to you and an opportunity for you, together with your counsel,
to be heard before the Board), finding that in the good faith opinion of the
Board you were guilty of the conduct set forth above in (a) or (b) of this
paragraph (iii) and specifying the particulars thereof in detail.
(iv) Good Reason. Termination by you of your employment for "Good
-----------
Reason" shall mean termination based on:
(A) a determination by you, in your reasonable judgment, that there
has been an adverse change in your status or position(s) as an executive
officer of the Company as in effect immediately prior to the change in
<PAGE>
control, including, without limitation, any adverse change in your status or
position as a result of a diminution in your duties or responsibilities
(other than, if applicable, any such change directly attributable to the
fact that the Company is no longer publicly owned) or the assignment to you
of any duties or responsibilities which are inconsistent with such status or
position(s), or any removal of you from or any failure to reappoint or
reelect you to such position(s) (except in connection with the termination
of your employment for Cause, Disability or Retirement or as a result of
your death or by you other than for Good Reason);
(B) a reduction by the Company in your base salary as in effect
immediately prior to the change in control;
(C) the failure by the Company to continue in effect any Plan (as
hereinafter defined, excluding any stock option plan) in which you are
participating at the time of the change in control of the Company (or Plans
providing you with at least substantially similar benefits) other than as a
result of the normal expiration of any such Plan in accordance with its
terms as in effect at the time of the change in control, or the taking of
any action, or the failure to act, by the Company which would adversely
affect your continued participation in any of such Plans on at least as
favorable a basis to you as is the case on the date of the change in control
or which would materially reduce your benefits in the future under any of
such Plans or deprive you of any material benefit enjoyed by you at the time
of the change in control;
(D) the failure by the Company to provide and credit you with the
number of paid vacation days to which you are then entitled in accordance
with the Company's normal vacation policy as in effect immediately prior to
the change in control;
(E) the Company's requiring you to be based at an office that is
greater than 50 miles from where your office is located immediately prior to
the change in control except for required travel on the Company's business
to an extent substantially consistent with the business travel obligations
which you undertook on behalf of the Company prior to the change in control;
(F) the failure by the Company to obtain from any Successor (as
hereinafter defined) the assent to this Agreement contemplated by Section 6
hereof;
<PAGE>
(G) any purported termination by the Company of your employment which
is not effected pursuant to a Notice of Termination satisfying the
requirements of paragraph (v) below (and, if applicable, paragraph (iii)
above); and for purposes of this Agreement, no such purported termination
shall be effective; or
(H) any refusal by the Company to continue to allow you to attend to
matters or engage in activities not directly related to the business of the
Company which, prior to the change in control, you were permitted by the
Board to attend to or engage in.
For purposes of this Agreement, "Plan" shall mean any compensation plan such as
an incentive, stock option or restricted stock plan or any employee benefit plan
such as a thrift, pension, profit sharing, medical, disability, accident, life
insurance plan or a relocation plan or policy or any other plan, program or
policy of the Company intended to benefit employees. Notwithstanding anything
contained in this Agreement to the contrary, a termination by you of your
employment for any reason during the 45-day period immediately following the
45th day after the occurrence of the first event constituting a change in
control shall be deemed to be a termination for Good Reason for purposes of this
Agreement.
(v) Notice of Termination. Any purported termination by the Company
---------------------
or by you following a change in control shall be communicated by written Notice
of Termination to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon.
(vi) Date of Termination. "Date of Termination" following a change
-------------------
in control shall mean (a) if your employment is to be terminated for Disability,
thirty (30) days after Notice of Termination is given (provided that you shall
not have returned to the performance of your duties on a full-time basis during
such thirty (30) day period), (b) if your employment is to be terminated by the
Company for Cause or by you pursuant to Sections 4(iv)(F) and 6 hereof or for
any other Good Reason, the date specified in the Notice of Termination, or
(c) if your employment is to be terminated by the Company for any reason other
than Cause, the date specified in the Notice of Termination, which in no event
shall be a date earlier than ninety (90) days after the date on which a Notice
of Termination is given, unless an earlier date has been expressly agreed to by
you in writing either in advance of, or after, receiving such Notice of
Termination.
<PAGE>
In the case of termination by the Company of your employment for Cause, if you
have not previously expressly agreed in writing to the termination, then within
thirty (30) days after receipt by you of the Notice of Termination with respect
thereto, you may notify the Company that a dispute exists concerning the
termination, in which event the Date of Termination shall be the date set either
by mutual written agreement of the parties or by the arbitrators in a proceeding
as provided in Section 13 hereof. During the pendency of any such dispute, the
Company will continue to pay you your full compensation in effect just prior to
the time the Notice of Termination is given (or, if higher, as in effect
immediately prior to the change in control) and until the dispute is resolved in
accordance with Section 13.
5. Compensation Upon Termination or During Disability; Other
---------------------------------------------------------
Agreements.
- ----------
(i) During any period following a change in control of the Company
that you fail to perform your duties as a result of incapacity due to physical
or mental illness, you shall continue to receive your salary at the rate then in
effect and any benefits or awards under any Plans shall continue to accrue
during such period, to the extent not inconsistent with such Plans, until your
employment is terminated pursuant to and in accordance with paragraphs 4(i) and
4(vi) hereof. Thereafter, your benefits shall be determined in accordance with
the Plans then in effect.
(ii) If your employment shall be terminated for Cause following a
change in control of the Company, the Company shall pay you your salary through
the Date of Termination at the rate in effect just prior to the time a Notice of
Termination is given plus any benefits or awards (including both the cash and
stock components) which pursuant to the terms of any Plans have been earned or
become payable, but which have not yet been paid to you. Thereupon the Company
shall have no further obligations to you under this Agreement.
(iii) Subject to Section 8 hereof, if, within twenty-four (24) months
after a change in control of the Company, as defined in Section 3 above, shall
have occurred, your employment by the Company shall be terminated (a) by the
Company other than for Cause, Disability or Retirement or (b) by you for Good
Reason, then the Company shall pay to you, no later than the fifth day following
the Date of Termination, without regard to any contrary provisions of any Plan,
the following:
<PAGE>
(A) (x) your salary through the Date of Termination at the rate in
effect just prior to the time a Notice of Termination is given (or, if
higher, as in effect immediately prior to the change in control) and (y)
any benefits or awards (including both the cash and stock components) which
pursuant to the terms of any Plans have been earned or become payable, but
which have not yet been paid to you; and
(B) as severance pay and in lieu of any further salary for periods
subsequent to the Date of Termination, the sum of $1,667,043.
(iv) If, within twenty-four (24) months after a change in control of
the Company, as defined in Section 3 above, shall have occurred, your employment
by the Company shall be terminated (a) by the Company other than for Cause,
Disability or Retirement or (b) by you for Good Reason, then the Company shall
maintain in full force and effect, for the continued benefit of you and your
dependents for a period terminating on the earliest of (a) three years after the
Date of Termination, (b) the commencement date of equivalent benefits from a new
employer or (c) your normal retirement date under the terms of the Retirement
Plan, all insured and self-insured employee welfare benefit Plans in which you
were entitled to participate immediately prior to the Date of Termination,
provided that your continued participation is possible under the general terms
and provisions of such Plans (and any applicable funding media) and you continue
to pay an amount equal to your regular contribution under such plans for such
participation. In the event that your participation in any such Plan is barred,
the Company, at its sole cost and expense, shall arrange to have issued for the
benefit of you and your dependents individual policies of insurance providing
benefits substantially similar (on an after-tax basis) to those which you
otherwise would have been entitled to receive under such Plans pursuant to this
paragraph (iv) or, if such insurance is not available at a reasonable cost to
the Company, the Company shall otherwise provide you and your dependents with
equivalent benefits (on an after-tax basis). You shall not be required to pay
any premiums or other charges in an amount greater than that which you would
have paid in order to participate in such Plans. If, at the end of three years
after the Termination Date, you have not reached your normal retirement date,
you are participating in any of such Plans and you have not previously received
or are not then receiving equivalent benefits from a new employer, the Company
shall arrange, at its sole cost and expense, to enable you to convert your and
your dependents' coverage under such Plans to individual policies or programs
upon the
<PAGE>
same terms as employees of the Company may apply for such conversions.
(v) Except as specifically provided in paragraph (iv) above, the
amount of any payment provided for in this Section 5 shall not be reduced,
offset or subject to recovery by the Company by reason of any compensation
earned by you as the result of employment by another employer after the Date of
Termination, or otherwise.
6. Successors; Binding Agreement.
-----------------------------
(i) The Company will seek, by written request at least five business
days prior to the time a Person becomes a Successor (as hereinafter defined), to
have such Person assent to the fulfillment of the Company's obligations under
this Agreement. Failure of such Person to furnish such assent by the later of
(A) three business days prior to the time such Person becomes a Successor or
(B) two business days after such Person receives a written request to so assent
shall constitute Good Reason for termination by you of your employment if a
change in control of the Company occurs or has occurred. For purposes of this
Agreement, "Successor" shall mean any Person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time),
the Company's business directly, by merger or consolidation, or indirectly, by
purchase of the Company's Voting Securities or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable
by your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die while
any amount would still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to your devisee, legatee or other designee or,
if there be no such designee, to your estate.
(iii) For purposes of this Agreement, the "Company" shall include any
corporation or other entity which is the surviving or continuing entity in
respect of any merger, consolidation or form of business combination in which
the Company ceases to exist.
7. Fees and Expenses; Mitigation. (i) The Company shall reimburse
-----------------------------
you, on a current basis, for all reasonable legal fees and related expenses
incurred by you in connection with the Agreement following a change in control
of the Company, including, without limitation, (a) all such fees and expenses,
if any, incurred in contesting or disputing any
<PAGE>
termination or your employment or incurred by you in seeking advice with respect
to the matters set forth in Section 8 hereof or (b) your seeking to obtain or
enforce any right or benefit provided by this Agreement, in each case,
regardless of whether or not your claim is upheld by a court of competent
jurisdiction; provided, however, you shall be required to repay any such amounts
to the Company to the extent that a court issues a final and non-appealable
order setting forth the determination that the position taken by you was
frivolous or advanced by you in bad faith.
(ii) You shall not be required to mitigate the amount of any payment
the Company becomes obligated to make to you in connection with this Agreement,
by seeking other employment or otherwise.
8. Taxes.
-----
(i) All payments to be made to you under this Agreement will be
subject to required withholding of federal, state and local income and
employment taxes.
(ii) Notwithstanding anything in the foregoing to the contrary, if
any of the payments provided for in this Agreement, together with any other
payments which you have the right to receive from the Company or any corporation
which is a member of an "affiliated group" (as defined in Section 1504(a) of the
Internal Revenue Code of 1986 (the "Code") without regard to Section 1504(b) of
the Code) of which the Company is a member, would constitute a "parachute
payment" (as defined in Section 280G(b)(2) of the Code), the payments pursuant
to this Agreement shall be reduced (reducing first the payments under Section
5(iii)(B)) to the largest amount as will result in no portion of such payments
being subject to the excise tax imposed by Section 4999 of the Code; provided,
however, that the determination as to whether any reduction in the payments
under this Agreement pursuant to this proviso is necessary shall be made by you
in good faith, and such determination shall be conclusive and binding on the
Company with respect to its treatment of the payment for tax reporting purposes.
9. Survival. The respective obligations of, and benefits afforded
--------
to, the Company and you as provided in Sections 5, 6(ii), 7, 8, 13 and 14 of
this Agreement shall survive termination of this Agreement.
10. Notice. For the purposes of this Agreement, notices and all
------
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
<PAGE>
registered mail, return receipt requested, postage prepaid and addressed, in the
case of the Company, to the address set forth on the first page of this
Agreement or, in the case of the undersigned employee, to the address set forth
below his signature, provided that all notices to the Company shall be directed
to the attention of the Chairman of the Board of the Company, with a copy to
Joseph R. Ramrath, Hill & Barlow, One International Place, Boston, MA 02110, or
to such other address as either party may have furnished to the other in writing
in accordance herewith, except that notice of change of address shall be
effective only upon receipt.
11. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such modification, waiver or discharge is agreed to
in a writing signed by you and an authorized officer of the Company. No waiver
by either party hereto at any time of any breach by the other party hereto of,
or of compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Massachusetts.
12. Validity. The invalidity or unenforceability of any provision of
--------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Arbitration. Any dispute or controversy arising under or in
-----------
connection with this Agreement shall be settled exclusively by arbitration in
Boston, Massachusetts by three arbitrators in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrators' award in any court having jurisdiction; provided, however, that you
shall be entitled to seek specific performance of your right to be paid until
the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement. The Company shall bear all
costs and expenses arising in connection with any arbitration proceeding
pursuant to this Section 13.
<PAGE>
14. Employee's Commitment. You agree that subsequent to your period
---------------------
of employment with the Company, you will not at any time communicate or disclose
to any unauthorized person, without the written consent of the Company, any
proprietary processes of the Company or any subsidiary or other confidential
information concerning their business, affairs, products, suppliers or customers
which, if disclosed, would have a material adverse effect upon the business or
operations of the Company and its subsidiaries, taken as a whole; it being
understood, however, that the obligations of this Section 14 shall not apply to
the extent that the aforesaid matters (a) are disclosed in circumstances where
you are legally required to do so or (b) become generally known to and available
for use by the public otherwise than by your wrongful act or omission.
15. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
If this letter correctly sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed copy of this
letter which will then constitute our agreement on this subject.
Sincerely,
NEW ENGLAND BUSINESS SERVICE, INC.
By /s/ Richard H. Rhoads
--------------------------------------
Richard H. Rhoads
Chairman of the Board
Agreed to this 6th day
of November, 1995.
/s/ William C. Lowe
- ----------------------------------
William C. Lowe
12345-4 Monument Street
Concord, MA 01742
<PAGE>
[NEBS LETTERHEAD]
November 6, 1995
Russell V. Corsini, Jr.
New England Business Service, Inc.
500 Main Street
Groton, Massachusetts 01471
Dear Russ:
New England Business Service, Inc., a Delaware corporation (the "Company"),
considers the establishment and maintenance of a sound and vital management to
be essential to protecting and enhancing the best interests of the Company and
its shareholders. In this connection, the Company recognizes that, as is the
case with many publicly held corporations, the possibility of a change in
control may arise and that such possibility, and the uncertainty and questions
which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company and its
shareholders. Accordingly, the Board of Directors of the Company (the "Board")
has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of members of the Company's
management to their assigned duties without distraction in circumstances
arising from the possibility of a change in control of the Company. In
particular, the Board believes it important, should the Company or its
shareholders receive a proposal for transfer of control of the Company, that
you be able to assess and advise the Board whether such proposal would be in
the best interests of the Company and its shareholders and to take such other
action regarding such proposal as the Board might determine to be appropriate,
without being influenced by the uncertainties of your own situation.
In order to induce you to remain in the employ of the Company, this letter
agreement, which has been approved by the Board, sets forth the severance
benefits which the Company agrees will be provided to you in the event your
employment with the Company is terminated subsequent to a "change in control"
of the Company under the circumstances described below.
1. Agreement to Provide Services; Right to Terminate.
(i) Except as otherwise provided in paragraph (ii) below, the Company or you
may terminate your employment at any time, subject to the Company's providing
the benefits hereinafter specified in accordance with the terms hereof.
(ii) In the event a tender offer or exchange offer is made by a Person (as
hereinafter defined) for more than 25% of the combined voting power of the
Company's outstanding securities ordinarily having the right to vote at
elections of directors ("Voting Securities"), including shares of common stock
($1.00 par value) of the Company (the "Company Shares"), you agree that you
will not leave the employ of the Company (other than as a result of Disability
or upon Retirement, as such terms are hereinafter defined) and will render the
services contemplated in the recitals to this Agreement until such tender
offer or exchange offer has been abandoned or terminated or a change in
control of the Company, as defined in Section 3 hereof, has occurred. For
purposes of this Agreement, the term "Person" shall mean and include any
individual, corporation, partnership, group, association or other "person", as
such term is defined in Section 3(a)(9) and as used in Section 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"), other than the Company,
a wholly owned subsidiary of the Company or any employee benefit plan(s)
sponsored by the Company or a subsidiary of the Company.
I-1
<PAGE>
2. Term of Agreement. This Agreement shall commence on the date hereof and
shall continue in effect until June 30, 1996; provided, however, that this
Agreement shall continue in effect for a period of twenty-four (24) months
after a change in control of the Company, as defined in Section 3 hereof, if
such change in control shall have occurred during the term of this Agreement.
Notwithstanding anything in this Section 2 to the contrary, this Agreement
shall terminate if you or the Company terminate your employment prior to a
change in control of the Company as provided in Section 1(i) above.
3. Change in Control. For purposes of this Agreement, a "change in control"
of the Company shall be deemed to have occurred at such time as (a) any Person
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 50% or more of the combined voting
power of the Company's Voting Securities; or (b) during any period of not more
than two years, individuals who constitute the Board as of the beginning of
the period and any new director (other than a director designated by a person
who has entered into an agreement with the Company to effect a transaction
described in clause (a) or (c) of this sentence) whose election by the Board
or nomination for election by the Company's shareholders was approved by a
vote of at least two-thirds ( 2/3) of the directors then still in office who
either were directors at such time or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof; or (c) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger
or consolidation which would result in the Voting Securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 50% of the combined voting power of the Voting
Securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or the shareholders of the Company approve
a plan of complete liquidation of the Company or any agreement for the sale or
disposition by the Company or all or substantially all of the Company's
assets. Notwithstanding anything in the foregoing to the contrary, no change
in control shall be deemed to have occurred for purposes of this Agreement by
virtue of any transaction which results in you, or a group of Persons which
includes you, acquiring, directly or indirectly, 50% or more of the combined
voting power of the Company's Voting Securities.
4. Termination Following Change in Control. If any of the events described
in Section 3 hereof constituting a change in control of the Company shall have
occurred, you shall be entitled to the benefits provided in Section 5 hereof
upon the termination of your employment with the Company within twenty-four
(24) months after such event, unless such termination is (a) because of your
death, (b) by the Company for Cause, Disability or Retirement or (c) by you
other than for Good Reason (as all such capitalized terms are hereinafter
defined).
(i) Disability. Termination by the Company of your employment based on
"Disability" shall mean termination because of your absence from your
duties with the Company on a full time basis for one hundred twenty (120)
consecutive days as a result of your incapacity due to physical or mental
illness, unless within thirty (30) days after Notice of Termination (as
hereinafter defined) is given to you following such absence you shall have
returned to the full time performance of your duties.
(ii) Retirement. Termination by you or by the Company of your employment
based on "Retirement" shall mean termination on or after your normal
retirement date as defined in the Company's Pension Plan (or any successor
or substitute plan or plans of the Company put into effect prior to a
change in control) (the "Pension Plan").
(iii) Cause. Termination by the Company of your employment for "Cause"
shall mean termination upon (a) the willful and continued failure by you to
perform substantially your duties with the Company (other than any such
failure resulting from your incapacity due to physical or mental illness)
after a demand for substantial performance is delivered to you by the
Chairman of the Board or President of the Company which specifically
identifies the manner in which such executive believes that you have not
substantially performed your duties, or (b) the willful engaging by you in
illegal conduct which is materially and demonstrably injurious to the
Company. For purposes of this paragraph (iii), no act, or failure to act,
on your part shall be considered "willful" unless done, or omitted to be
done, by you without reasonable belief that your action or omission was in,
or not opposed to, the best interests of the Company. Any act, or failure
I-2
<PAGE>
to act, based upon authority given pursuant to a resolution duly adopted by
the Board or based upon the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done, by you in good
faith and in the best interests of the Company. It is also expressly
understood that your attention to matters not directly related to the
business of the Company shall not provide a basis for termination for Cause
so long as the Board has approved your engagement in such activities.
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to
you a copy of a resolution duly adopted by the affirmative vote of not less
than two-thirds of the entire membership of the Board at a meeting of the
Board called and held for the purpose (after reasonable notice to you and
an opportunity for you, together with your counsel, to be heard before the
Board), finding that in the good faith opinion of the Board you were guilty
of the conduct set forth above in (a) or (b) of this paragraph (iii) and
specifying the particulars thereof in detail.
(iv) Good Reason. Termination by you of your employment for "Good Reason"
shall mean termination based on:
(A) a determination by you, in your reasonable judgment, that there
has been an adverse change in your status or position(s) as an officer
of the Company as in effect immediately prior to the change in control,
including, without limitation, any adverse change in your status or
position as a result of a diminution in your duties or responsibilities
(other than, if applicable, any such change directly attributable to
the fact that the Company is no longer publicly owned) or the
assignment to you of any duties or responsibilities which are
inconsistent with such status or position(s), or any removal of you
from or any failure to reappoint or reelect you to such position(s)
(except in connection with the termination of your employment for
Cause, Disability or Retirement or as a result of your death or by you
other than for Good Reason);
(B) a reduction by the Company in your base salary as in effect
immediately prior to the change in control;
(C) the failure by the Company to continue in effect any Plan (as
hereinafter defined, excluding any stock option plan) in which you are
participating at the time of the change in control of the Company (or
Plans providing you with at least substantially similar benefits) other
than as a result of the normal expiration of any such Plan in
accordance with its terms as in effect at the time of the change in
control, or the taking of any action, or the failure to act, by the
Company which would adversely affect your continued participation in
any of such Plans on at least as favorable a basis to you as is the
case on the date of the change in control or which would materially
reduce your benefits in the future under any of such Plans or deprive
you of any material benefit enjoyed by you at the time of the change in
control;
(D) the failure by the Company to provide and credit you with the
number of paid vacation days to which you are then entitled in
accordance with the Company's normal vacation policy as in effect
immediately prior to the change in control;
(E) the Company's requiring you to be based at an office that is
greater than 50 miles from where your office is located immediately
prior to the change in control except for required travel on the
Company's business to an extent substantially consistent with the
business travel obligations which you undertook on behalf of the
Company prior to the change in control;
(F) the failure by the Company to obtain from any Successor (as
hereinafter defined) the assent to this Agreement contemplated by
Section 6 hereof;
(G) any purported termination by the Company of your employment which
is not effected pursuant to a Notice of Termination satisfying the
requirements of paragraph (v) below (and, if applicable, paragraph
(iii) above); and for purposes of this Agreement, no such purported
termination shall be effective; or
(H) any refusal by the Company to continue to allow you to attend to
matters or engage in activities not directly related to the business of
the Company which, prior to the change in control, you were permitted
by the Board to attend to or engage in.
I-3
<PAGE>
For purposes of this Agreement, "Plan" shall mean any compensation plan
such as an incentive, stock option or restricted stock plan or any employee
benefit plan such as a thrift, pension, profit sharing, medical,
disability, accident, life insurance plan or a relocation plan or policy or
any other plan, program or policy of the Company intended to benefit
employees.
(v) Notice of Termination. Any purported termination by the Company or by
you following a change in control shall be communicated by written Notice
of Termination to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the
specific termination provision in this Agreement relied upon.
(vi) Date of Termination. "Date of Termination" following a change in
control shall mean (a) if your employment is to be terminated for
Disability, thirty (30) days after Notice of Termination is given (provided
that you shall not have returned to the performance of your duties on a
full-time basis during such thirty (30) day period), (b) if your employment
is to be terminated by the Company for Cause or by you pursuant to Sections
4(iv)(F) and 6 hereof or for any other Good Reason, the date specified in
the Notice of Termination, or (c) if your employment is to be terminated by
the Company for any reason other than Cause, the date specified in the
Notice of Termination, which in no event shall be a date earlier than
ninety (90) days after the date on which a Notice of Termination is given,
unless an earlier date has been expressly agreed to by you in writing
either in advance of, or after, receiving such Notice of Termination. In
the case of termination by the Company of your employment for Cause, if you
have not previously expressly agreed in writing to the termination, then
within thirty (30) days after receipt by you of the Notice of Termination
with respect thereto, you may notify the Company that a dispute exists
concerning the termination, in which event the Date of Termination shall be
the date set either by mutual written agreement of the parties or by the
arbitrators in a proceeding as provided in Section 13 hereof. During the
pendency of any such dispute, the Company will continue to pay you your
full compensation in effect just prior to the time the Notice of
Termination is given (or, if higher, as in effect immediately prior to the
change in control) and until the dispute is resolved in accordance with
Section 13.
5. Compensation Upon Termination or During Disability; Other Agreements.
(i) During any period following a change in control of the Company that you
fail to perform your duties as a result of incapacity due to physical or
mental illness, you shall continue to receive your salary at the rate then in
effect and any benefits or awards under any Plans shall continue to accrue
during such period, to the extent not inconsistent with such Plans, until your
employment is terminated pursuant to and in accordance with paragraphs 4(i)
and 4(vi) hereof. Thereafter, your benefits shall be determined in accordance
with the Plans then in effect.
(ii) If your employment shall be terminated for Cause following a change in
control of the Company, the Company shall pay you your salary through the Date
of Termination at the rate in effect just prior to the time a Notice of
Termination is given plus any benefits or awards (including both the cash and
stock components) which pursuant to the terms of any Plans have been earned or
become payable, but which have not yet been paid to you. Thereupon the Company
shall have no further obligations to you under this Agreement.
(iii) Subject to Section 8 hereof, if, within twenty-four (24) months after
a change in control of the Company, as defined in Section 3 above, shall have
occurred, your employment by the Company shall be terminated (a) by the
Company other than for Cause, Disability or Retirement or (b) by you for Good
Reason, then the Company shall pay to you, no later than the fifth day
following the Date of Termination, without regard to any contrary provisions
of any Plan, the following:
(A) (x) your salary through the Date of Termination at the rate in effect
just prior to the time a Notice of Termination is given (or, if higher, as
in effect immediately prior to the change in control) and (y) any benefits
or awards (including both the cash and stock components) which pursuant to
the terms of any Plans have been earned or become payable, but which have
not yet been paid to you; and
(B) as severance pay and in lieu of any further salary for periods
subsequent to the Date of Termination, $604,798 in cash.
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(iv) If, within twenty-four (24) months after a change in control of the
Company, as defined in Section 3 above, shall have occurred, your employment
by the Company shall be terminated (a) by the Company other than for Cause,
Disability or Retirement or (b) by you for Good Reason, then the Company shall
maintain in full force and effect, for the continued benefit of you and your
dependents for a period terminating on the earliest of (a) thirty months after
the Date of Termination, (b) the commencement date of equivalent benefits from
a new employer or (c) your normal retirement date under the terms of the
Retirement Plan, all insured and self-insured employee welfare benefit Plans
in which you were entitled to participate immediately prior to the Date of
Termination, provided that your continued participation is possible under the
general terms and provisions of such Plans (and any applicable funding media)
and you continue to pay an amount equal to your regular contribution under
such plans for such participation. In the event that your participation in any
such Plan is barred, the Company, at its sole cost and expense, shall arrange
to have issued for the benefit of you and your dependents individual policies
of insurance providing benefits substantially similar (on an after-tax basis)
to those which you otherwise would have been entitled to receive under such
Plans pursuant to this paragraph (iv) or, if such insurance is not available
at a reasonable cost to the Company, the Company shall otherwise provide you
and your dependents with equivalent benefits (on an after-tax basis). You
shall not be required to pay any premiums or other charges in an amount
greater than that which you would have paid in order to participate in such
Plans. If, at the end of three years after the Termination Date, you have not
reached your normal retirement date, you are participating in any of such
Plans and you have not previously received or are not then receiving
equivalent benefits from a new employer, the Company shall arrange, at its
sole cost and expense, to enable you to convert your and your dependents'
coverage under such Plans to individual policies or programs upon the same
terms as employees of the Company may apply for such conversions.
(v) Except as specifically provided in paragraph (iv) above, the amount of
any payment provided for in this Section 5 shall not be reduced, offset or
subject to recovery by the Company by reason of any compensation earned by you
as the result of employment by another employer after the Date of Termination,
or otherwise.
6. Successors; Binding Agreement.
(i) The Company will seek, by written request at least five business days
prior to the time a Person becomes a Successor (as hereinafter defined), to
have such Person assent to the fulfillment of the Company's obligations under
this Agreement. Failure of such Person to furnish such assent by the later of
(A) three business days prior to the time such Person becomes a Successor or
(B) two business days after such Person receives a written request to so
assent shall constitute Good Reason for termination by you of your employment
if a change in control of the Company occurs or has occurred. For purposes of
this Agreement, "Successor" shall mean any Person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time),
the Company's business directly, by merger or consolidation, or indirectly, by
purchase of the Company's Voting Securities or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable by your
personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to your devisee, legatee or other designee or, if
there be no such designee, to your estate.
(iii) For purposes of this Agreement, the "Company" shall include any
corporation or other entity which is the surviving or continuing entity in
respect of any merger, consolidation or form of business combination in which
the Company ceases to exist.
7. Fees and Expenses; Mitigation. (i) The Company shall reimburse you, on a
current basis, for all reasonable legal fees and related expenses incurred by
you in connection with the Agreement following a change in control of the
Company, including, without limitation, (a) all such fees and expenses, if
any, incurred in contesting or disputing any termination or your employment or
incurred by you in seeking advice with respect to the matters set forth in
Section 8 hereof or (b) your seeking to obtain or enforce any right or benefit
provided by
I-5
<PAGE>
this Agreement, in each case, regardless of whether or not your claim is
upheld by a court of competent jurisdiction; provided, however, you shall be
required to repay any such amounts to the Company to the extent that a court
issues a final and non-appealable order setting forth the determination that
the position taken by you was frivolous or advanced by you in bad faith.
(ii) You shall not be required to mitigate the amount of any payment the
Company becomes obligated to make to you in connection with this Agreement, by
seeking other employment or otherwise.
8. Taxes.
(i) All payments to be made to you under this Agreement will be subject to
required withholding of federal, state and local income and employment taxes.
(ii) Notwithstanding anything in the foregoing to the contrary, if any of
the payments provided for in this Agreement, together with any other payments
which you have the right to receive from the Company or any corporation which
is a member of an "affiliated group" (as defined in Section 1504(a) of the
Internal Revenue Code of 1986 (the "Code") without regard to Section 1504(b)
of the Code) of which the Company is a member, would constitute a "parachute
payment" (as defined in Section 280G(b)(2) of the Code), the payments pursuant
to this Agreement shall be reduced (reducing first the payments under Section
5(iii)(B)) to the largest amount as will result in no portion of such payments
being subject to the excise tax imposed by Section 4999 of the Code; provided,
however, that the determination as to whether any reduction in the payments
under this Agreement pursuant to this proviso is necessary shall be made by
you in good faith, and such determination shall be conclusive and binding on
the Company with respect to its treatment of the payment for tax reporting
purposes.
9. Survival. The respective obligations of, and benefits afforded to, the
Company and you as provided in Sections 5, 6(ii), 7, 8, 13 and 14 of this
Agreement shall survive termination of this Agreement.
10. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid and addressed, in
the case of the Company, to the address set forth on the first page of this
Agreement or, in the case of the undersigned employee, to the address set
forth below his signature, provided that all notices to the Company shall be
directed to the attention of the Chairman of the Board of the Company, with a
copy to Joseph R. Ramrath, Hill & Barlow, One International Place, Boston, MA
02110, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
11. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such modification, waiver or discharge is agreed to in a
writing signed by you and the Chairman of the Board or President of the
Company. No waiver by either party hereto at any time of any breach by the
other party hereto of, or of compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of Massachusetts.
12. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Boston,
Massachusetts by three arbitrators in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on
the arbitrators' award in any court having jurisdiction; provided, however,
that you shall be entitled to seek specific performance of your right
I-6
<PAGE>
to be paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. The Company
shall bear all costs and expenses arising in connection with any arbitration
proceeding pursuant to this Section 13.
14. Employee's Commitment. You agree that subsequent to your period of
employment with the Company, you will not at any time communicate or disclose
to any unauthorized person, without the written consent of the Company, any
proprietary processes of the Company or any subsidiary or other confidential
information concerning their business, affairs, products, suppliers or
customers which, if disclosed, would have a material adverse effect upon the
business or operations of the Company and its subsidiaries, taken as a whole;
it being understood, however, that the obligations of this Section 14 shall
not apply to the extent that the aforesaid matters (a) are disclosed in
circumstances where you are legally required to do so or (b) become generally
known to and available for use by the public otherwise than by your wrongful
act or omission.
15. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
If this letter correctly sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this letter
which will then constitute our agreement on this subject.
Sincerely,
New England Business Service, Inc.
/s/ William C. Lowe
By __________________________________
William C. Lowe
President, Chief Executive Officer
Agreed to this 8th day of November, 1995.
/s/ Russell V. Corsini, Jr.
_____________________________________
Russell V. Corsini, Jr.
19 Lincoln Road
Wellesley Hills, Massachusetts 02181
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<PAGE>
[NEBS LETTERHEAD]
November 6, 1995
Edward M. Bolesky
New England Business Service, Inc.
500 Main Street
Groton, Massachusetts 01471
Dear Ed:
New England Business Service, Inc., a Delaware corporation (the "Company"),
considers the establishment and maintenance of a sound and vital management to
be essential to protecting and enhancing the best interests of the Company and
its shareholders. In this connection, the Company recognizes that, as is the
case with many publicly held corporations, the possibility of a change in
control may arise and that such possibility, and the uncertainty and questions
which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company and its
shareholders. Accordingly, the Board of Directors of the Company (the "Board")
has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of members of the Company's
management to their assigned duties without distraction in circumstances
arising from the possibility of a change in control of the Company. In
particular, the Board believes it important, should the Company or its
shareholders receive a proposal for transfer of control of the Company, that
you be able to assess and advise the Board whether such proposal would be in
the best interests of the Company and its shareholders and to take such other
action regarding such proposal as the Board might determine to be appropriate,
without being influenced by the uncertainties of your own situation.
In order to induce you to remain in the employ of the Company, this letter
agreement, which has been approved by the Board, sets forth the severance
benefits which the Company agrees will be provided to you in the event your
employment with the Company is terminated subsequent to a "change in control"
of the Company under the circumstances described below.
1. Agreement to Provide Services; Right to Terminate.
(i) Except as otherwise provided in paragraph (ii) below, the Company or you
may terminate your employment at any time, subject to the Company's providing
the benefits hereinafter specified in accordance with the terms hereof.
(ii) In the event a tender offer or exchange offer is made by a Person (as
hereinafter defined) for more than 25% of the combined voting power of the
Company's outstanding securities ordinarily having the right to vote at
elections of directors ("Voting Securities"), including shares of common stock
($1.00 par value) of the Company (the "Company Shares"), you agree that you
will not leave the employ of the Company (other than as a result of Disability
or upon Retirement, as such terms are hereinafter defined) and will render the
services contemplated in the recitals to this Agreement until such tender
offer or exchange offer has been abandoned or terminated or a change in
control of the Company, as defined in Section 3 hereof, has occurred. For
purposes of this Agreement, the term "Person" shall mean and include any
individual, corporation, partnership, group, association or other "person", as
such term is defined in Section 3(a)(9) and as used in Section 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"), other than the Company,
a wholly owned subsidiary of the Company or any employee benefit plan(s)
sponsored by the Company or a subsidiary of the Company.
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<PAGE>
2. Term of Agreement. This Agreement shall commence on the date hereof and
shall continue in effect until June 30, 1996; provided, however, that this
Agreement shall continue in effect for a period of twenty-four (24) months
after a change in control of the Company, as defined in Section 3 hereof, if
such change in control shall have occurred during the term of this Agreement.
Notwithstanding anything in this Section 2 to the contrary, this Agreement
shall terminate if you or the Company terminate your employment prior to a
change in control of the Company as provided in Section 1(i) above.
3. Change in Control. For purposes of this Agreement, a "change in control"
of the Company shall be deemed to have occurred at such time as (a) any Person
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 50% or more of the combined voting
power of the Company's Voting Securities; or (b) during any period of not more
than two years, individuals who constitute the Board as of the beginning of
the period and any new director (other than a director designated by a person
who has entered into an agreement with the Company to effect a transaction
described in clause (a) or (c) of this sentence) whose election by the Board
or nomination for election by the Company's shareholders was approved by a
vote of at least two-thirds ( 2/3) of the directors then still in office who
either were directors at such time or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof; or (c) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger
or consolidation which would result in the Voting Securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 50% of the combined voting power of the Voting
Securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or the shareholders of the Company approve
a plan of complete liquidation of the Company or any agreement for the sale or
disposition by the Company or all or substantially all of the Company's
assets. Notwithstanding anything in the foregoing to the contrary, no change
in control shall be deemed to have occurred for purposes of this Agreement by
virtue of any transaction which results in you, or a group of Persons which
includes you, acquiring, directly or indirectly, 50% or more of the combined
voting power of the Company's Voting Securities.
4. Termination Following Change in Control. If any of the events described
in Section 3 hereof constituting a change in control of the Company shall have
occurred, you shall be entitled to the benefits provided in Section 5 hereof
upon the termination of your employment with the Company within twenty-four
(24) months after such event, unless such termination is (a) because of your
death, (b) by the Company for Cause, Disability or Retirement or (c) by you
other than for Good Reason (as all such capitalized terms are hereinafter
defined).
(i) Disability. Termination by the Company of your employment based on
"Disability" shall mean termination because of your absence from your
duties with the Company on a full time basis for one hundred twenty (120)
consecutive days as a result of your incapacity due to physical or mental
illness, unless within thirty (30) days after Notice of Termination (as
hereinafter defined) is given to you following such absence you shall have
returned to the full time performance of your duties.
(ii) Retirement. Termination by you or by the Company of your employment
based on "Retirement" shall mean termination on or after your normal
retirement date as defined in the Company's Pension Plan (or any successor
or substitute plan or plans of the Company put into effect prior to a
change in control) (the "Pension Plan").
(iii) Cause. Termination by the Company of your employment for "Cause"
shall mean termination upon (a) the willful and continued failure by you to
perform substantially your duties with the Company (other than any such
failure resulting from your incapacity due to physical or mental illness)
after a demand for substantial performance is delivered to you by the
Chairman of the Board or President of the Company which specifically
identifies the manner in which such executive believes that you have not
substantially performed your duties, or (b) the willful engaging by you in
illegal conduct which is materially and demonstrably injurious to the
Company. For purposes of this paragraph (iii), no act, or failure to act,
on your part shall be considered "willful" unless done, or omitted to be
done, by you without reasonable belief that your action or omission was in,
or not opposed to, the best interests of the Company. Any act, or failure
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<PAGE>
to act, based upon authority given pursuant to a resolution duly adopted by
the Board or based upon the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done, by you in good
faith and in the best interests of the Company. It is also expressly
understood that your attention to matters not directly related to the
business of the Company shall not provide a basis for termination for Cause
so long as the Board has approved your engagement in such activities.
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to
you a copy of a resolution duly adopted by the affirmative vote of not less
than two-thirds of the entire membership of the Board at a meeting of the
Board called and held for the purpose (after reasonable notice to you and
an opportunity for you, together with your counsel, to be heard before the
Board), finding that in the good faith opinion of the Board you were guilty
of the conduct set forth above in (a) or (b) of this paragraph (iii) and
specifying the particulars thereof in detail.
(iv) Good Reason. Termination by you of your employment for "Good Reason"
shall mean termination based on:
(A) a determination by you, in your reasonable judgment, that there
has been an adverse change in your status or position(s) as an officer
of the Company as in effect immediately prior to the change in control,
including, without limitation, any adverse change in your status or
position as a result of a diminution in your duties or responsibilities
(other than, if applicable, any such change directly attributable to
the fact that the Company is no longer publicly owned) or the
assignment to you of any duties or responsibilities which are
inconsistent with such status or position(s), or any removal of you
from or any failure to reappoint or reelect you to such position(s)
(except in connection with the termination of your employment for
Cause, Disability or Retirement or as a result of your death or by you
other than for Good Reason);
(B) a reduction by the Company in your base salary as in effect
immediately prior to the change in control;
(C) the failure by the Company to continue in effect any Plan (as
hereinafter defined, excluding any stock option plan) in which you are
participating at the time of the change in control of the Company (or
Plans providing you with at least substantially similar benefits) other
than as a result of the normal expiration of any such Plan in
accordance with its terms as in effect at the time of the change in
control, or the taking of any action, or the failure to act, by the
Company which would adversely affect your continued participation in
any of such Plans on at least as favorable a basis to you as is the
case on the date of the change in control or which would materially
reduce your benefits in the future under any of such Plans or deprive
you of any material benefit enjoyed by you at the time of the change in
control;
(D) the failure by the Company to provide and credit you with the
number of paid vacation days to which you are then entitled in
accordance with the Company's normal vacation policy as in effect
immediately prior to the change in control;
(E) the Company's requiring you to be based at an office that is
greater than 50 miles from where your office is located immediately
prior to the change in control except for required travel on the
Company's business to an extent substantially consistent with the
business travel obligations which you undertook on behalf of the
Company prior to the change in control;
(F) the failure by the Company to obtain from any Successor (as
hereinafter defined) the assent to this Agreement contemplated by
Section 6 hereof;
(G) any purported termination by the Company of your employment which
is not effected pursuant to a Notice of Termination satisfying the
requirements of paragraph (v) below (and, if applicable, paragraph
(iii) above); and for purposes of this Agreement, no such purported
termination shall be effective; or
(H) any refusal by the Company to continue to allow you to attend to
matters or engage in activities not directly related to the business of
the Company which, prior to the change in control, you were permitted
by the Board to attend to or engage in.
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For purposes of this Agreement, "Plan" shall mean any compensation plan
such as an incentive, stock option or restricted stock plan or any employee
benefit plan such as a thrift, pension, profit sharing, medical,
disability, accident, life insurance plan or a relocation plan or policy or
any other plan, program or policy of the Company intended to benefit
employees.
(v) Notice of Termination. Any purported termination by the Company or by
you following a change in control shall be communicated by written Notice
of Termination to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the
specific termination provision in this Agreement relied upon.
(vi) Date of Termination. "Date of Termination" following a change in
control shall mean (a) if your employment is to be terminated for
Disability, thirty (30) days after Notice of Termination is given (provided
that you shall not have returned to the performance of your duties on a
full-time basis during such thirty (30) day period), (b) if your employment
is to be terminated by the Company for Cause or by you pursuant to Sections
4(iv)(F) and 6 hereof or for any other Good Reason, the date specified in
the Notice of Termination, or (c) if your employment is to be terminated by
the Company for any reason other than Cause, the date specified in the
Notice of Termination, which in no event shall be a date earlier than
ninety (90) days after the date on which a Notice of Termination is given,
unless an earlier date has been expressly agreed to by you in writing
either in advance of, or after, receiving such Notice of Termination. In
the case of termination by the Company of your employment for Cause, if you
have not previously expressly agreed in writing to the termination, then
within thirty (30) days after receipt by you of the Notice of Termination
with respect thereto, you may notify the Company that a dispute exists
concerning the termination, in which event the Date of Termination shall be
the date set either by mutual written agreement of the parties or by the
arbitrators in a proceeding as provided in Section 13 hereof. During the
pendency of any such dispute, the Company will continue to pay you your
full compensation in effect just prior to the time the Notice of
Termination is given (or, if higher, as in effect immediately prior to the
change in control) and until the dispute is resolved in accordance with
Section 13.
5. Compensation Upon Termination or During Disability; Other Agreements.
(i) During any period following a change in control of the Company that you
fail to perform your duties as a result of incapacity due to physical or
mental illness, you shall continue to receive your salary at the rate then in
effect and any benefits or awards under any Plans shall continue to accrue
during such period, to the extent not inconsistent with such Plans, until your
employment is terminated pursuant to and in accordance with paragraphs 4(i)
and 4(vi) hereof. Thereafter, your benefits shall be determined in accordance
with the Plans then in effect.
(ii) If your employment shall be terminated for Cause following a change in
control of the Company, the Company shall pay you your salary through the Date
of Termination at the rate in effect just prior to the time a Notice of
Termination is given plus any benefits or awards (including both the cash and
stock components) which pursuant to the terms of any Plans have been earned or
become payable, but which have not yet been paid to you. Thereupon the Company
shall have no further obligations to you under this Agreement.
(iii) Subject to Section 8 hereof, if, within twenty-four (24) months after
a change in control of the Company, as defined in Section 3 above, shall have
occurred, your employment by the Company shall be terminated (a) by the
Company other than for Cause, Disability or Retirement or (b) by you for Good
Reason, then the Company shall pay to you, no later than the fifth day
following the Date of Termination, without regard to any contrary provisions
of any Plan, the following:
(A) (x) your salary through the Date of Termination at the rate in effect
just prior to the time a Notice of Termination is given (or, if higher, as
in effect immediately prior to the change in control) and (y) any benefits
or awards (including both the cash and stock components) which pursuant to
the terms of any Plans have been earned or become payable, but which have
not yet been paid to you; and
(B) as severance pay and in lieu of any further salary for periods
subsequent to the Date of Termination, $405,430 in cash.
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(iv) If, within twenty-four (24) months after a change in control of the
Company, as defined in Section 3 above, shall have occurred, your employment
by the Company shall be terminated (a) by the Company other than for Cause,
Disability or Retirement or (b) by you for Good Reason, then the Company shall
maintain in full force and effect, for the continued benefit of you and your
dependents for a period terminating on the earliest of (a) thirty months after
the Date of Termination, (b) the commencement date of equivalent benefits from
a new employer or (c) your normal retirement date under the terms of the
Retirement Plan, all insured and self-insured employee welfare benefit Plans
in which you were entitled to participate immediately prior to the Date of
Termination, provided that your continued participation is possible under the
general terms and provisions of such Plans (and any applicable funding media)
and you continue to pay an amount equal to your regular contribution under
such plans for such participation. In the event that your participation in any
such Plan is barred, the Company, at its sole cost and expense, shall arrange
to have issued for the benefit of you and your dependents individual policies
of insurance providing benefits substantially similar (on an after-tax basis)
to those which you otherwise would have been entitled to receive under such
Plans pursuant to this paragraph (iv) or, if such insurance is not available
at a reasonable cost to the Company, the Company shall otherwise provide you
and your dependents with equivalent benefits (on an after-tax basis). You
shall not be required to pay any premiums or other charges in an amount
greater than that which you would have paid in order to participate in such
Plans. If, at the end of three years after the Termination Date, you have not
reached your normal retirement date, you are participating in any of such
Plans and you have not previously received or are not then receiving
equivalent benefits from a new employer, the Company shall arrange, at its
sole cost and expense, to enable you to convert your and your dependents'
coverage under such Plans to individual policies or programs upon the same
terms as employees of the Company may apply for such conversions.
(v) Except as specifically provided in paragraph (iv) above, the amount of
any payment provided for in this Section 5 shall not be reduced, offset or
subject to recovery by the Company by reason of any compensation earned by you
as the result of employment by another employer after the Date of Termination,
or otherwise.
6. Successors; Binding Agreement.
(i) The Company will seek, by written request at least five business days
prior to the time a Person becomes a Successor (as hereinafter defined), to
have such Person assent to the fulfillment of the Company's obligations under
this Agreement. Failure of such Person to furnish such assent by the later of
(A) three business days prior to the time such Person becomes a Successor or
(B) two business days after such Person receives a written request to so
assent shall constitute Good Reason for termination by you of your employment
if a change in control of the Company occurs or has occurred. For purposes of
this Agreement, "Successor" shall mean any Person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time),
the Company's business directly, by merger or consolidation, or indirectly, by
purchase of the Company's Voting Securities or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable by your
personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to your devisee, legatee or other designee or, if
there be no such designee, to your estate.
(iii) For purposes of this Agreement, the "Company" shall include any
corporation or other entity which is the surviving or continuing entity in
respect of any merger, consolidation or form of business combination in which
the Company ceases to exist.
7. Fees and Expenses; Mitigation. (i) The Company shall reimburse you, on a
current basis, for all reasonable legal fees and related expenses incurred by
you in connection with the Agreement following a change in control of the
Company, including, without limitation, (a) all such fees and expenses, if
any, incurred in contesting or disputing any termination or your employment or
incurred by you in seeking advice with respect to the matters set forth in
Section 8 hereof or (b) your seeking to obtain or enforce any right or benefit
provided by
J-5
<PAGE>
this Agreement, in each case, regardless of whether or not your claim is
upheld by a court of competent jurisdiction; provided, however, you shall be
required to repay any such amounts to the Company to the extent that a court
issues a final and non-appealable order setting forth the determination that
the position taken by you was frivolous or advanced by you in bad faith.
(ii) You shall not be required to mitigate the amount of any payment the
Company becomes obligated to make to you in connection with this Agreement, by
seeking other employment or otherwise.
8. Taxes.
(i) All payments to be made to you under this Agreement will be subject to
required withholding of federal, state and local income and employment taxes.
(ii) Notwithstanding anything in the foregoing to the contrary, if any of
the payments provided for in this Agreement, together with any other payments
which you have the right to receive from the Company or any corporation which
is a member of an "affiliated group" (as defined in Section 1504(a) of the
Internal Revenue Code of 1986 (the "Code") without regard to Section 1504(b)
of the Code) of which the Company is a member, would constitute a "parachute
payment" (as defined in Section 280G(b)(2) of the Code), the payments pursuant
to this Agreement shall be reduced (reducing first the payments under Section
5(iii)(B)) to the largest amount as will result in no portion of such payments
being subject to the excise tax imposed by Section 4999 of the Code; provided,
however, that the determination as to whether any reduction in the payments
under this Agreement pursuant to this proviso is necessary shall be made by
you in good faith, and such determination shall be conclusive and binding on
the Company with respect to its treatment of the payment for tax reporting
purposes.
9. Survival. The respective obligations of, and benefits afforded to, the
Company and you as provided in Sections 5, 6(ii), 7, 8, 13 and 14 of this
Agreement shall survive termination of this Agreement.
10. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid and addressed, in
the case of the Company, to the address set forth on the first page of this
Agreement or, in the case of the undersigned employee, to the address set
forth below his signature, provided that all notices to the Company shall be
directed to the attention of the Chairman of the Board of the Company, with a
copy to Joseph R. Ramrath, Hill & Barlow, One International Place, Boston, MA
02110, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
11. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such modification, waiver or discharge is agreed to in a
writing signed by you and the Chairman of the Board or President of the
Company. No waiver by either party hereto at any time of any breach by the
other party hereto of, or of compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of Massachusetts.
12. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Boston,
Massachusetts by three arbitrators in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on
the arbitrators' award in any court having jurisdiction; provided, however,
that you shall be entitled to seek specific performance of your right
J-6
<PAGE>
to be paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. The Company
shall bear all costs and expenses arising in connection with any arbitration
proceeding pursuant to this Section 13.
14. Employee's Commitment. You agree that subsequent to your period of
employment with the Company, you will not at any time communicate or disclose
to any unauthorized person, without the written consent of the Company, any
proprietary processes of the Company or any subsidiary or other confidential
information concerning their business, affairs, products, suppliers or
customers which, if disclosed, would have a material adverse effect upon the
business or operations of the Company and its subsidiaries, taken as a whole;
it being understood, however, that the obligations of this Section 14 shall
not apply to the extent that the aforesaid matters (a) are disclosed in
circumstances where you are legally required to do so or (b) become generally
known to and available for use by the public otherwise than by your wrongful
act or omission.
15. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
If this letter correctly sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this letter
which will then constitute our agreement on this subject.
Sincerely,
New England Business Service, Inc.
/s/ William C. Lowe
By __________________________________
William C. Lowe
President, Chief Executive Officer
Agreed to this 8th day of November, 1995.
/s/ Edward M. Bolesky
_____________________________________
Edward M. Bolesky
7 Skylar Drive
Southboro, Massachusetts 01772
J-7
<PAGE>
1996 NEBS EXECUTIVE BONUS PLAN
(Effective as of July 1, 1995)
This Executive Bonus Plan was adopted by the Board of Directors
of New England Business Service, Inc. (the "Company") on July 28, 1995 upon the
recommendation of its Organization and Compensation Committee for the purpose of
providing incentive compensation for the senior executives and managers of the
Company and its subsidiaries. This Plan shall be governed by the following
definitions and calculations.
I. Participants. The Participants in the Plan for the 1996
------------
fiscal year of the Company (the "Year") and their respective
Target Bonus Percentages shall be as follows:
A. Officers of the Company.
-----------------------
William C. Lowe,
President, Chief Executive Officer 70%
Timothy D. Althof,
Vice President, Corporate Controller 50%
Edward M. Bolesky,
Vice President - General Manager, Business
Solutions and Operations 50%
Robert S. Brown,
Vice President - General Manager, Subsidiaries 50%
Russell V. Corsini, Jr.,
Vice President, Chief Financial Officer 50%
Sally C. Davis,
Vice President - Business Planning and
Development 50%
Michael F. Dowd,
Vice President - General Manager, Corporate
Marketing and Strategy 50%
-1-
<PAGE>
John F. Fairbanks,
Treasurer and Secretary 50%
Thomas W. Freeze,
Vice President - Finance and Administration,
Image Products 50%
Linda A. Jacobs,
Vice President - General Manager,
Image Products 50%
Kenneth R. Kaisen,
Vice President - General Manager,
Business Solutions Marketing and
Information Systems 50%
Gerald G. Kokos,
Vice President - General Manger,
Software and Services 50%
Steven G. Schlerf,
Vice President - Image Manufacturing and
Product Development 50%
Peter J. Zarrilla,
Vice President - Human Resources 50%
B. CEOs of Subsidiaries.
--------------------
Robert T. Richardson,
President and Chief Executive,
NEBS Business Forms, Ltd. 40%
Steven H. Dedo
General Manager,
NEBS Business Stationery 40%
No Participant shall be eligible to participate in the NEBS Profit Sharing Plan
for any year in which he or she is entitled to participate in this Plan.
-2-
<PAGE>
II. Target Bonus. The Target Bonus payable to a Participant
------------
with respect to the Year shall be an amount arrived at by multiplying
his or her base salary initially fixed for the Year by his or her
Target Bonus Percentage.
III. Actual Bonuses.
--------------
A. President, Chief Executive Officer; Vice President, Chief
---------------------------------------------------------
Financial Officer; Vice President, Corporate Controller;
--------------------------------------------------------
and Vice President - Business Planning and Development
------------------------------------------------------
1. The Actual Bonus of each of these Participants shall be
calculated by multiplying his or her Target Bonus by a
percentage which shall be 50% of the sum of (i) a
"Consolidated Sales Factor" based on the percentage
which the consolidated net sales for the Year are of
the budgeted net sales for the Year less $3,712,000
(the "targeted consolidated net sales" for the Year),
and (ii) a "Consolidated Profit Factor" based on the
percentage which the consolidated earnings per share
for the Year are of the budgeted earnings per share for
the Year less $.04 per share (the "targeted
consolidated earnings per share" for the Year), as
described below:
(a) Consolidated Sales Factor equals 100% plus 5.51%
-------------------------
for each one percent by which consolidated net
sales are more than the targeted consolidated net
sales for the Year, or 100% minus 5.51% for each
one percent by which consolidated net sales are
less than the targeted consolidated net sales for
the Year (calculated in either case to the nearest
one-tenth of one percent), provided that the Sales
Factor shall be 0% if consolidated net sales for
the Year are less than 90.931% of the targeted
consolidated net sales for the Year.
(b) Consolidated Profit Factor equals 100% plus 6.48%
--------------------------
for each one percent by which consolidated
earnings per share are more than the targeted
consolidated earnings per share for the Year up to
and including 110.317% of targeted consolidated
earnings per share for the Year and 9.72% for each
one percent by which consolidated earnings per
share are more than 110.317% of targeted
consolidated earnings per share for the Year, or
100% minus 6.48% for each one percent by which
consolidated earnings per share are less than
targeted consolidated earnings per share
(calculated in either case to the nearest one-
tenth of one percent), provided that the profit
factor shall be 0% if the earnings per share for
the Year are less than 92.063% of targeted
consolidated earnings per share.
-3-
<PAGE>
2. No bonuses shall be paid to any of these Officers if
the Company's consolidated earnings per share for the
Year are less than 84.921% of the targeted
consolidated earnings per share.
B. Chief Executives of Subsidiary Business Units.
---------------------------------------------
1. The Chief Executive of NEBS Business Forms, Ltd. and the
General Manager of NEBS Business Stationery shall be
paid an actual bonus which shall be the sum of the
following products:
(a) 15% of his Target Bonus times the Consolidated
Sales Factor;
(b) 15% of his Target Bonus times the Consolidated
Profit Factor;
(c) His unit's sales factor award determined pursuant
to Section 2 below; and
(d) His unit's profit factor award determined pursuant
to Section 3.
2. The Sales Factor Awards of the several subsidiary
-----------------------
business units shall reflect the degree of attainment
(up to 100%) of the following unit sales goals for the
Year:
NEBS
Business
Forms, Ltd. Budgeted Unit Sales
NEBS
Business
Stationery Budgeted Unit Sales
Successful attainment of the fiscal year sales goal
earns the participant 35% of his Target Bonus. Each 1%
of performance below the fiscal year sales goal results
in a 20% reduction in the award for this factor (7% of
Target Bonus). For fiscal year performance at 95% or
less of the fiscal year sales goal, the award for this
factor shall be 0.
-4-
<PAGE>
3. The Profit Factor Awards of the several subsidiary
------------------------
business units shall reflect the degree of attainment
(up to 100%) of the following unit profit from
operations goals for the Year:
NEBS
Business
Forms, Ltd. Budgeted Unit Profit From Operations
NEBS
Business
Stationery Budgeted Unit Profit From Operations
Successful attainment of the fiscal year profit from
operations goal earns the participant 35% of his Target
Bonus. Each 1% of performance below the fiscal year
profit from operations goal results in a 20% reduction
in the award for this factor (7% of Target Bonus). For
fiscal year performance at 95% or less of the fiscal
year profit from operations goal, the award for this
factor shall be 0.
4. All performance calculations pursuant to Sections 2 and
3 shall be made to the nearest one-tenth of one
percent. No bonus shall be paid to any CEO of a
subsidiary business unit if the consolidated earnings
per share for the Year are less than 84.921% of the
targeted consolidated earnings per share.
C. The Officers and General Managers in Charge of the
--------------------------------------------------
Company's Business Units.
------------------------
1. The Vice President - General Manager, Business
Solutions, and Operations, the Vice President -
General Manger, Subsidiaries, the Vice President -
Finance and Administration, Image Products, the
Vice President - General Manger, Image Products,
the Vice President - General Manger, Business
Solutions Marketing and Information Systems, the
Vice President -General Manager, Software and
Services, and the Vice President, Image
Manufacturing and Product Development, shall be
paid an actual bonus which shall be the sum of the
following:
(a) 20% of his or her Target Bonus times the
Consolidated Sales Factor;
(b) 20% of his or her Target Bonus times the
Consolidated Profit Factor;
-5-
<PAGE>
(c) 20% of his or her Target Bonus times the
Unit/Subsidiary Sales Factor for the
Year, determined pursuant to Section 2
below;
(d) 20% of his or her Target Bonus times the
Unit/Subsidiary Profit Factor for the
Year, determined pursuant to Section 3
below; and
(e) 20% of his or her Target Bonus times his
or her Additional Factor determined by
the President, Chief Executive Officer
on the basis of Qualitative
Measurements.
2. The Unit/Subsidiaries Sales Factor Awards of the
-----------------------------------------
several business units shall reflect the degree of
attainment (up to 100%) of the following
unit/subsidiaries sales goals for the Year:
Business Solutions Budgeted Unit Sales
Software and Services Budgeted Unit Sales
Image Budgeted Unit Sales
Image and Budgeted Unit Sales
Image Channels*
Subsidiaries (UK, Canada) Budgeted Unit Sales
Successful attainment of each fiscal year sales goal
earns the participant 20% of his or her Target Bonus.
Each 1% of performance below a fiscal year sales goal
results in a 20% reduction in the award for this factor
(4% of Target Bonus). For performance at 95% or less of
a fiscal year sales goal, the award for this factor
shall be 0.
3. The Unit/Subsidiaries Profit Factor Awards of the
------------------------------------------
several business units shall reflect the degree of
attainment (up to 100%) of the following unit profit
from operations goals for the Year:
Business Solutions Budgeted Unit Profit
From Operations
Software and Services Budgeted Unit Profit
From Operations
Image Budgeted Unit Profit
From Operations
Subsidiaries (UK, Canada) Budgeted Unit Profit
From Operations
*Sales of Image Products through the Direct Marketing
Channel plus sales of all products through the Dealer
(DFS) and Image Retail Channels.
-6-
<PAGE>
Successful attainment of each fiscal year profit from
operations goal earns the participant 20% of his or her
Target Bonus. Each 1% of performance below a fiscal year
profit from operations goal results in a 20% reduction
in the award for this factor (4% of Target Bonus). For
performance at 95% or less of a fiscal year profit from
operations goal, the award for this factor shall be 0.
4. All performance calculations pursuant to Sections 2 and
3 shall be made to the nearest one-tenth of one percent.
No bonus shall be paid to any of these executives if the
consolidated earnings per share for the Year are less
than 84.921% of the targeted consolidated earnings per
share.
D. Other Corporate Officers.
------------------------
1. The Vice President - General Manager, Corporate
Marketing and Strategy shall be paid an actual bonus
which shall be the sum of the following products:
(a) 20% of his Target Bonus times the Consolidated
Sales Factor;
(b) 20% of his Target Bonus times the Consolidated
Profit Factor;
(c) 25% of his Target Bonus times the Direct Marketing
Bookings Factor;
(d) 25% of his Target Bonus times the Direct Marketing
Cost Factor; and
(e) 10% of his Target Bonus times his Additional Factor
determined by the President, Chief Executive
Officer on the basis of Qualitative Measurements.
Direct Marketing Bookings Factor shall reflect the
--------------------------------
degree of attainment (up to 100%) of the Domestic NEBS
Direct Marketing Budgeted Bookings Goal. Successful
attainment of the Direct Marketing Budgeted Bookings
Goal earns the participant 25% of his Target Bonus. Each
1% of performance below the Direct Marketing Budgeted
Bookings Goal results in a 20% reduction in the award
for this factor (5% of Target Bonus). For performance of
95% or less of the Direct Marketing Budgeted Bookings
Goal, the award for this factor shall be 0.
-7-
<PAGE>
Direct Marketing Cost Factor shall reflect the degree of
----------------------------
attainment (up to 100%) of the Direct Marketing Cost
Goal of 23.9% of Domestic NEBS Direct Marketing
Bookings. Successful attainment of the Direct Marketing
Cost Goal earns the participant 25% of his Target Bonus.
Each .239% (1% of goal) by which the Direct Marketing
Cost Goal exceeds 23.9% results in a 20% reduction in
the award for this factor (5% of Target Bonus). If
Direct Marketing Costs exceed 24.095% the award for this
factor shall be 0.
2. The Vice President - Human Resources and Treasurer and
Secretary shall be paid an actual bonus which shall be
the sum of the following products:
(a) 40% of his Target Bonus times the Consolidated
Sales Factor;
(b) 40% of his Target Bonus times the Consolidated
Profit Factor; and
(c) 20% of his Target Bonus times his Additional Factor
determined by the President, Chief Executive
Officer on the basis of Qualitative Measurements.
IV. Bonus Payouts.
-------------
80% of the payout will be in the form of cash; 20% of the payout
will be in the form of NEBS Stock with a share price which is established at the
close of trading on the New York Stock Exchange on the third business day
following the issuance of the press release disclosing the Company's financial
results for the fourth quarter of the Year. All bonus payments will be made
within 60 days after the close of the Year.
V. Certain Definitions and Other Provisions.
----------------------------------------
A. All references to "net" sales shall refer to consolidated
net sales of the Company or net sales of a subsidiary business unit or business
unit, as the case may be, as reported or used in calculating the Company's
audited consolidated earnings.
-8-
<PAGE>
B. For purposes of calculating the Consolidated Profit Factor,
consolidated earnings per share for the Year shall be determined by dividing the
consolidated net income from continuing operations for the Year by the weighted
average number of shares of Common Stock outstanding during the Year.
Consolidated net income from continuing operations shall mean such consolidated
income, after taxes and after provision for executive bonuses under this Plan,
determined in accordance with all of the accounting policies employed in the
preparation of the Company's audited financial statements for the Year.
C. Actual or targeted consolidated earnings per share, actual
or targeted consolidated sales, the actual or targeted profit from operations of
any subsidiary business unit or business unit or the actual or targeted net
sales of any subsidiary business unit or business unit may, at the discretion of
the Organization and Compensation Committee, be adjusted to eliminate the effect
of (a) either the acquisition or the divestiture by the Company of any
subsidiary or division during the Year, and/or (b) the imposition during the
Year by Massachusetts or any other state or states of sales taxes on services,
materials or supplies purchased by the Company or any subsidiary of the Company
the effect of which is not allowed for in the Company's annual budget for the
1996 fiscal year or (c) any abatement of taxes or material increase or decrease
in Federal or State corporate tax rates. It is the intention of the Organization
and Compensation Committee that any such discretionary adjustment shall be made
by it, and shall be announced to the affected Participants, promptly after the
occurrence of the motivating event, but failure to act promptly shall not
deprive the Committee of its power to make such an adjustment at a later time.
-9-
<PAGE>
D. "Profit from Operations" for any subsidiary business unit or
business unit of the Company shall be determined consistently with the process
whereby its targeted profit from operations for the Year was determined and
shall not reflect any charge for executive bonuses payable under this Plan.
E. Should a Participant die, retire, or become totally disabled
during the Year, he or she or his or her estate shall be entitled to receive a
bonus pro-rated in accordance with the percentage of his or her annual salary
earned from the beginning of the Year up to the date of death, retirement or
disability. Should a Participant's employment by the Company or a subsidiary
business unit be terminated for any other reason, payment of any bonus hereunder
for the year in which such termination occurs is at the sole discretion of the
Organization and Compensation Committee.
F. If a Participant assumes a new position during the Year, the
Organization and Compensation Committee may make an appropriate adjustment in
his or her target bonus and/or the means of calculating his or her actual bonus,
effective from and after that event.
G. If a Change of Control event (as defined in Section 11 of
the Company's 1994 Key Employee and Eligible Director Stock Option and Stock
Appreciation Rights Plan) occurs, the Company will within sixty (60) days
following such event pay to each Participant a pro-rated bonus through the date
thereof as hereinafter provided, whereupon this Plan will terminate. The portion
of the bonus based on factors other than Qualitative Measurements shall be
calculated based on a comparison of (i) actual results of the Company through
the end of the calendar quarter next preceding the Change in Control event to
(ii) the targeted quarterly performance criteria set
-10-
<PAGE>
forth on the schedules attached hereto. The portion of the bonus based on
Qualitative Measurements will be calculated through the end of the calendar
quarter next preceding the Change of Control event to the extent equitable and
reasonably practicable in the judgment of the Organization and Compensation
Committee. Qualitative Measurements for which such calculation is not equitable
or reasonably practicable will be disregarded and the percentage of the bonus
otherwise allocated thereto under the terms hereof will be reallocated in even
percentages to the Consolidated Sales and Consolidated Profit components of the
bonus calculation. After determining the full year bonus based on the extent to
which the aforesaid quarterly targets have been achieved, the amount of the full
year bonus will be pro-rated by multiplying the same by a fraction the numerator
of which is the number of days between the beginning of the fiscal year and the
date of the Change of Control event and the denominator of which would be 365.
The determination of the amount of any bonus payable under this paragraph shall
be made by the Organization and Compensation Committee and its determination
shall be final and binding on the Company and all Participants.
H. In the event of any material, unusual and non-recurring
charge to income, purchase or sale of any material business unit by the Company,
or other material event affecting the ability of the Participants to achieve the
performance targets established under this Plan, the Organization and
Compensation Committee shall review such performance targets and make such
adjustments with respect thereto as it deems reasonable and equitable in light
of the purposes of this Plan. Any and all adjustments made by the Organization
and Compensation Committee under this paragraph shall be final and binding on
the Company and all Participants.
-11-
<PAGE>
I. The Organization and Compensation Committee may in its
discretion terminate the Plan as of the end of any fiscal quarter. If the Plan
is so terminated, the Company shall pay out bonuses to the Participants in such
amounts as are appropriate and equitable in light of the Company's and the
Participants' performance through the end of such quarter and the targets
established hereunder. The determination of the amount of any bonuses payable
under this paragraph shall be made by the Organization and Compensation
Committee in line with the objectives set for each Participant, and its
determination shall be final and binding on the Company and all Participants.
J. The Qualitative Measures referred to herein and the
application of certain of the provisions hereof are described in the FY96 MBO
Scorecards prepared by the Treasurer and dated as of October 27, 1995.
K. This Plan shall be effective commencing July 1, 1995.
Attachment:
Set of Schedules - FY96 MBO Scorecards
-12-
<PAGE>
1997 NEBS EXECUTIVE BONUS PLAN
(Effective as of June 30, 1996)
This Executive Bonus Plan was adopted by the Board of Directors of New
England Business Service, Inc. (the "Company") on July 26, 1996 upon the
recommendation of its Organization and Compensation Committee for the purpose of
providing incentive compensation for the senior executives and managers of the
Company and its subsidiaries. This Plan shall be governed by the following
definitions and calculations.
I. Participants. The Participants in the Plan for the 1997 fiscal year
of the Company (the "Year") and their respective Target Bonus Percentages shall
be as follows:
A. Officers of the Company.
-----------------------
Robert J. Murray,
Chairman, President & Chief Executive Officer 70%
George P. Allman
Vice President, Retail Sales & Operations 50%
Timothy D. Althof,
Treasurer 50%
Edward M. Bolesky,
Vice President, Direct Marketing,
Telesales & Service 50%
Robert S. Brown,
Vice President, Circulation & International 50%
Russell V. Corsini, Jr.,
Vice President, Chief Financial Officer 50%
Michael F. Dowd,
Vice President, Strategic Planning 50%
& Legal Officer
John F. Fairbanks,
Vice President, Corporate Controller 50%
-1-
<PAGE>
Thomas W. Freeze,
Vice President, Finance and Administration -
Retail 50%
Linda A. Jacobs,
Vice President, Business Management -
Image Products 50%
Kenneth R. Kaisen,
Vice President, Information Systems &
Technology Based Marketing 50%
Steven G. Schlerf,
Vice President, Manufacturing and
Technical Operations 50%
Robert D. Warren,
Vice President, Business Management -
Business Solutions 50%
Peter J. Zarrilla,
Vice President, Human Resources 50%
B. CEOs of Subsidiaries.
--------------------
Robert T. Richardson,
President and Chief Executive,
NEBS Business Forms, Ltd. 40%
Steven H. Dedo
General Manager,
NEBS Business Stationery 40%
No Participant shall be eligible to participate in the NEBS Profit Sharing Plan
for any year in which he or she is entitled to participate in this Plan.
II. Target Bonus. The Target Bonus payable to a Participant with respect
------------
to the Year shall be an amount arrived at by multiplying his or her base salary
as approved and effective for the Year by his or her Target Bonus Percentage.
-2-
<PAGE>
III. Actual Bonuses. The Actual Bonus of each Participant shall be calculated
--------------
based on the following:
. Targeted consolidated net sales for the Year in a dollar amount equal
to the budgeted consolidated net sales for the Year.
. Targeted consolidated net income for the Year in a dollar amount equal
to the budgeted consolidated net income for the Year.
The total Actual Bonus payable to each Participant shall be capped at 100%
of his or her base salary.
A. Chairman, President & Chief Executive Officer
---------------------------------------------
1. The actual bonus of this Participant shall be the sum of the
following:
(a) For each 1% by which consolidated net sales are more
than 95%, but not more than 105% of the targeted
consolidated net sales for the Year, 3.5% of his base
salary, plus for each 1% by which consolidated net sales
are more than 105% of the targeted consolidated net
sales for the Year, 1.75% of his base salary; and
(b) For each 1% by which consolidated net income is more
than 95%, but not more than 105% of the targeted
consolidated net income for the Year, 3.5% of his base
salary, plus for each 1% by which consolidated net
income is more than 105% of the targeted consolidated
net income for the Year, 1.75% of his base salary; and
(c) 17.5% of his base salary if consolidated net sales are
100% or more of the targeted consolidated net sales for
the Year; and
(d) 17.5% of his base salary if consolidated net income is
100% or more of the targeted consolidated net income for
the Year.
The amount of bonus payable pursuant to items c and d above is
capped at 17.5% of this Participant's base salary and no bonus
will be paid pursuant to items c or d above if less than 100%
of target is attained.
2. No bonus shall be paid to this Officer if the Company's
consolidated net income for the Year is less than 90% of the
targeted consolidated net income for the Year.
B. Vice President, Business Management - Business Solutions; Vice
--------------------------------------------------------------
President, Business Management - Image Products; Vice President,
----------------------------------------------------------------
Chief Financial Officer; Vice President, Circulation &
------------------------------------------------------
International; Vice President, Corporate Controller; Vice President,
--------------------------------------------------------------------
Direct Marketing, Telesales & Service; Vice President, Finance and
------------------------------------------------------------------
Administration - Retail; Vice President, Human Resources; Vice
--------------------------------------------------------------
President, Information Systems & Technology Based Marketing; Vice
-----------------------------------------------------------------
President, Manufacturing and Technical Operations; Vice President,
------------------------------------------------------------------
Retail Sales & Operations; Vice President, Strategic Planning &
---------------------------------------------------------------
Legal Officer; Treasurer.
-------------------------
1. The actual bonus of each of these Participants shall be the
sum of the following:
-3-
<PAGE>
(a) For each 1% by which consolidated net sales are more
than 95%, but not more than 105% of the targeted
consolidated net sales for the Year, 2.5% of his or her
base salary, plus for each 1% by which consolidated net
sales are more than 105% of the targeted consolidated
net sales for the Year, 1.25% of his or her base salary;
and
(b) For each 1% by which consolidated net income is more
than 95%, but not more than 105% of the targeted
consolidated net income for the Year, 2.5% of his or her
base salary, plus for each 1% by which consolidated net
income is more than 105% of the targeted consolidated
net income for the Year, 1.25% of his or her base
salary; and
(c) 25% of his or her base salary based on his or her
Qualitative Measurements (MBOs) as determined by the
Chairman, President & Chief Executive Officer.
The amount of bonus payable pursuant to item c above is capped
at 25% of a Participant's base salary and no bonus will be
paid pursuant to item c above for any specific Qualitative
Measurement (MBO) if less than 100% of that specific
Qualitative Measurement (MBO) target is attained.
2. No bonus shall be paid to any of these Officers if the
Company's consolidated net income for the Year is less than
90% of the targeted consolidated net income for the Year.
C. Subsidiary Business Units: President, Chief Executive; General
--------------------------------------------------------------
Manager.
-------
1. The actual bonus of both of these Participants shall be the
sum of the following:
(a) For each 1% by which consolidated net sales are more
than 95%, but not more than 105% of the targeted
consolidated net sales for the Year, 2% of his base
salary, plus for each 1% by which consolidated net sales
are more than 105% of the targeted consolidated net
sales for the Year, 1% of his base salary; and
(b) For each 1% by which consolidated net income is more
than 95%, but not more than 105% of the targeted
consolidated net income for the Year, 2% of his base
salary, plus for each 1% by which consolidated net
income is more than 105% of the targeted consolidated
net income for the Year, 1% of his base salary; and
(c) 10% of his base salary if subsidiary net sales are 100%
or more of targeted subsidiary net sales for the Year;
and
(d) 10% of base salary if subsidiary profit from operations
is 100% or more of targeted subsidiary profit from
operations for the Year.
-4-
<PAGE>
The amount of bonus payable pursuant to items c and d
above is capped at 10% of a Participant's base salary
and no bonus payout will be paid pursuant to items c or
d above if less than 100% of target is attained.
2. No bonus shall be paid to any of these Officers if the
Company's consolidated net income for the Year is less
than 90% of the targeted consolidated net income for the
Year.
IV. Bonus Payouts.
-------------
75% of the payout will be in the form of cash; 25% of the payout
will be in the form of NEBS Common Stock with a share price equal to the closing
share price of NEBS Common Stock on the New York Stock Exchange on the third
business day following the issuance of the press release disclosing the
Company's financial results for the fourth quarter of the Year. All bonus
payments will be made within 60 days after the close of the Year.
V. Certain Definitions and Other Provisions.
----------------------------------------
A. All references to "net" sales shall refer to consolidated net
sales of the Company or net sales of a subsidiary business unit or business
unit, as the case may be, as reported or used in calculating the Company's
audited consolidated earnings.
B. For purposes of calculating the actual bonuses, consolidated
net income for the Year shall mean such consolidated income, after taxes and
after provision for executive bonuses under this Plan, determined in accordance
with all of the accounting policies employed in the preparation of the Company's
audited financial statements for the Year.
C. Actual or targeted consolidated net income, actual or targeted
consolidated sales, the actual or targeted profit from operations of any
subsidiary business unit or business unit or the actual or targeted net sales of
any subsidiary business unit or business unit may, at the discretion of the
Organization and Compensation Committee, be adjusted to eliminate the effect of
(a) either the acquisition or the divestiture by the Company of any subsidiary
or division during the Year, and/or (b) the imposition during the Year by
Massachusetts or any other state or states of sales taxes on services, materials
or supplies purchased by the Company or any subsidiary
-5-
<PAGE>
of the Company the effect of which is not allowed for in the Company's annual
budget for the 1997 fiscal year or (c) any abatement of taxes or material
increase or decrease in Federal or State corporate tax rates. It is the
intention of the Organization and Compensation Committee that any such
discretionary adjustment shall be made by it, and shall be announced to the
affected Participants, promptly after the occurrence of the motivating event,
but failure to act promptly shall not deprive the Committee of its power to make
such an adjustment at a later time.
D. "Profit from Operations" for any subsidiary business unit or
business unit of the Company shall be determined consistently with the process
whereby its targeted profit from operations for the Year was determined and
shall not reflect any charge for executive bonuses payable under this Plan.
E. Should a Participant die, retire, or become totally disabled
during the Year, he or she or his or her estate shall be entitled to receive a
bonus pro-rated in accordance with the percentage of his or her annual salary
earned from the beginning of the Year up to the date of death, retirement or
disability. Should a Participant's employment by the Company or a subsidiary
business unit be terminated for any other reason, payment of any bonus hereunder
for the year in which such termination occurs is at the sole discretion of the
Organization and Compensation Committee.
F. If a Participant assumes a new position during the Year, the
Organization and Compensation Committee may make an appropriate adjustment in
his or her target bonus and/or the means of calculating his or her actual bonus.
G. If a Change of Control event (as defined in Section 11 of the
Company's 1994 Key Employee and Eligible Director Stock Option and Stock
Appreciation Rights Plan) occurs, the Company will within sixty (60) days
following such event pay to each Participant a pro-rated bonus through the date
thereof as hereinafter provided, whereupon this Plan will terminate. The portion
of the bonus based on factors other than Qualitative Measurements shall be
calculated based on a comparison of (i) actual results of the Company through
the end of the calendar quarter next preceding the Change in Control event to
(ii) the targeted quarterly
-6-
<PAGE>
performance criteria set forth on the schedules attached hereto. The portion of
the bonus based on Qualitative Measurements will be calculated through the end
of the calendar quarter next preceding the Change of Control event to the extent
equitable and reasonably practicable in the judgment of the Organization and
Compensation Committee. Qualitative Measurements for which such calculation is
not equitable or reasonably practicable will be disregarded and the percentage
of the bonus otherwise allocated thereto under the terms hereof will be
reallocated in even percentages to the consolidated net sales and consolidated
net income components of the bonus calculation. After determining the full year
bonus based on the extent to which the aforesaid quarterly targets have been
achieved, the amount of the full year bonus will be pro-rated by multiplying the
same by a fraction the numerator of which is the number of days between the
beginning of the fiscal year and the date of the Change of Control event and the
denominator of which would be 365. The determination of the amount of any bonus
payable under this paragraph shall be made by the Organization and Compensation
Committee and its determination shall be final and binding on the Company and
all Participants.
H. In the event of any material, unusual and non-recurring charge
to income, purchase or sale of any material business unit by the Company, or
other material event affecting the ability of the Participants to achieve the
performance targets established under this Plan, the Organization and
Compensation Committee shall review such performance targets and make such
adjustments with respect thereto as it deems reasonable and equitable in light
of the purposes of this Plan. Any and all adjustments made by the Organization
and Compensation Committee under this paragraph shall be final and binding on
the Company and all Participants.
I. The Organization and Compensation Committee may in its
discretion terminate the Plan as of the end of any fiscal quarter. If the Plan
is so terminated, the Company shall pay out bonuses to the Participants in such
amounts as are appropriate and equitable in light of the Company's and the
Participants' performance through the end of such quarter and the targets
established hereunder. The determination of the amount of any bonuses payable
under this paragraph shall be made by the Organization and
-7-
<PAGE>
Compensation Committee in line with the objectives set for each Participant, and
its determination shall be final and binding on the Company and all
Participants.
J. The Qualitative Measurements referred to herein and the
application of certain of the provisions hereof are described in the FY97 MBO
Scorecards prepared by the Vice President, Corporate Controller and dated as of
[TBD].
K. This Plan shall be effective commencing June 30, 1996.
Attachment:
Set of Schedules - FY97 MBO Scorecards [TBD]
July 29, 1996
-8-
<PAGE>
EXHIBIT 11
NEW ENGLAND BUSINESS SERVICE, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 29, 1996
------------------
FULLY
PRIMARY DILUTED
------- -------
<S> <C> <C>
SHARES
Weighted Average Shares of Common Stock................. 14,773 14,773
Add:
Common Stock Equivalents in the form of Stock
Options.............................................. 88(1) 64(1)
------- -------
Weighted Average Common Stock and Common Stock
Equivalents............................................ 14,861 14,837
======= =======
EARNINGS
Earnings per Consolidated Statement of Income........... $11,929 $11,929
======= =======
Earnings per Share...................................... $ 0.80 $ 0.80
======= =======
</TABLE>
- --------
(1) Amount considered immaterial for inclusion in earnings per share
calculation as defined in Accounting Principles Board Opinion No. 15.
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND BUSINESS SERVICE, INC.
- --------------------------------------------------------------------------------
Reaching Out to Small Business
Providing products and services for small business is one of the most exciting
business opportunities of the decade. Today, there are more than 10 million
small businesses and 20 million in-home offices in the United States, Canada,
and the United Kingdom, the three countries where NEBS operates. Corporate
downsizing and the desire to be "your own boss" are prompting even more people
to start their own business. Each year since 1985, nearly a quarter of a million
new small businesses were started in the United States alone. This trend
continued in 1995 with the United States reporting a record-high 266,784 small
business start-ups, a 10 percent increase over 1994.
NEBS is in a unique position to serve the special needs of small business. We
understand the market. Small businesses and in-home offices with 20 or fewer
employees have been our focus for 44 years. We have direct access to the market.
Each year, we contact more than 8,000,000 small businesses through the mail and
maintain a proprietary data base of our customers' buying preferences. We supply
private-label products to a network of independent dealers and operate retail
print desks in several key markets throughout the United States.
Technologically, we are on the forefront of design and printing services, which
ensures quality products and fast turnaround at prices a small business can
afford. Importantly, NEBS also has a solid reputation as a supplier who
understands and responds to small business needs.
Since 1952, NEBS has continually responded to the changing needs and
preferences of small business. In 1996, we continued that tradition with new
products, expanded services, enhanced manufacturing capabilities, and
technological initiatives that will enable customers and prospects to do
business with NEBS electronically. It was another year of reaching out, a year
of fulfilling our mission to be The Small Business Resource.
- --------------------------------------------------------------------------------
Today, thereare more than 10 million small businesses and 20 million in-home
offices in the United States, Canada, and the United Kingdom...
- --------------------------------------------------------------------------------
[GRAPHIC OF NEBS CUSTOMERS APPEARS HERE]
1
<PAGE>
================================================================================
NEW ENGLAND BUSINESS SERVICE, INC.
================================================================================
To Our Stockholders
Overview
The Company took action on a number of fronts during 1996 in order to position
itself strongly for the future. A change in management took place in December,
1995 with my appointment as Chairman and Chief Executive Officer. An entirely
new organizational structure was put in place during the third quarter, some key
executives were brought into the Company, and most senior operating personnel
had new management assignments.
From a strategic product and initiative focus, a number of important moves
were made. To enhance our competitive position and improve profitability, the
Company sold the assets of its One-Write Plus(R) software product while
retaining mail order distribution rights and securing an exclusive forms
agreement. We recommitted resources to the Company's principal business in the
direct marketing of forms and related products to small businesses. Direct
marketing remains the Company's primary source of revenue and profits, and we
are committed to keeping this core business as healthy as possible. We have
suspended the expansion of the retail initiative with Kinko's into additional
areas in order to improve existing store operations and to determine the best
method for moving forward.
To improve operating efficiency and cost-effectiveness, we implemented a cost
reduction program, including a manufacturing consolidation. In addition, we
invested in a new enterprise wide server platform and took our initial steps in
a business process reengineering effort.
Financial Performance
For the year, revenues were $254,954,000 reflecting a decline of 3.3% from the
prior year. Approximately one-half of the decline was the result of an extra
week in fiscal year 1995 together with the divestiture of One-Write Plus and the
repositioning of the Company's software product line. The revenue decline also
reflects some underperformance in the direct marketing channel resulting largely
from reduced investment in "prospecting" mail volume late in 1995 and the early
months of 1996. Retail channel volume continued its growth in dealer-generated
sales and through the NEBS custom print desks in Kinko's stores; these revenue
sources were not large enough to provide overall Company growth.
Earnings amounted to $11,929,000 versus last year's $16,298,000. Earnings per
share this year were $.81 and included $.43 in exit and period costs related to
a cost reduction program. Earnings per share last year were $1.07 and included
$.13 of cost relating to the integration of the Company's SYCOM subsidiary.
Excluding nonrecurring expenses in both years, earnings per share increased from
$1.20 in fiscal year 1995 to $1.24 in fiscal year 1996.
Dividends were paid for the 33rd consecutive year and amounted to $.80 per
share.
Financial Condition
The Company's operating cash flow and financial condition remained
exceptionally strong. During the year, the Company repurchased 994,900 shares of
common stock for $17,882,000 as part of the two-million-share repurchase program
authorized by the Board at its April meeting. In addition, dividends of
$11,907,000 were paid. In spite of these significant cash outflows, the Company
had cash and short-term investments of $17,376,000 at year-end and maintained a
current ratio of 2.6 and a balance sheet free of long-term debt.
Business Highlights
There were a number of important achievements during 1996. The more
significant are highlighted below.
Direct Marketing Channel During the second half of 1996, a decision was made to
reinvest in the Company's principal line of business--the direct marketing of
business forms and related products. We began to increase the level of
"prospecting" mail in order to accelerate the inflow of new customers. In
response to customer requests, the Company began to mail a new, larger catalog
which is a comprehensive source for all our products. Early results for the
catalog have exceeded expectations. We have also initiated the development of an
electronic catalog which can be used in the direct marketing side of our
business as well as in other business channels.
The improvement in performance of this principal area of business for the
Company will continue to be our primary focus in moving the business forward.
Retail Channels The Company continued efforts to offer its product line to
small businesses preferring to buy through retail outlets.
- Dealer Forms Sales (DFS) continued to experience solid sales and profit
growth through its private label catalog operation offering a broad line of
standard and custom business forms and printed promotional materials for
resale by local printers, business forms dealers, and computer stores.
- The Company's retail initiative, consisting of custom print desks installed
in a limited number of Kinko's stores, continues to represent both a
challenge and an opportunity for the Company. Significant funds have been
invested in support of this program with current efforts being focused on
improving store operations and sales performance. We are working with
Kinko's to find a mutually profitable way to capitalize on this retail
opportunity.
Technology The Company has effectively utilized technology for many years in the
efficient running of its operations. Technology will play an even more important
role as we move forward. The Company's Information Systems organization has been
realigned to report directly into the Chairman's office and is focusing on three
major initiatives:
- A technology-based marketing initiative will build on the successful NEBSnet
proprietary graphic design workstation to develop an electronic catalog for
our products. This electronic catalog will further improve our NEBSnet
technology, will be the basis for taking our product line into new areas of
distribution, and eventually will allow our mail order customers to order
using computer technology.
2
<PAGE>
- We have invested in a new enterprisewide server platform which is state-of-
the-art in hardware technology. As part of this initiative, we will install
an entirely new database technology and will re-engineer many of our basic
business functions and accompanying systems.
- We are moving aggressively to develop alliances with third-party software
developers to have our products included as the recommended selection for
forms and other printed matter. The first such agreement should be reached
early in fiscal 1997.
Business Management An important change in the Company's organization was made
with the establishment of a Business Management function. This new group is
responsible for the strategic direction of the Company's product lines with a
strong focus on new product development, strategic program initiatives, and
strategic planning. This organization will allow our two channels of
distribution to focus on the effective operation of their sales responsibilities
while leaving the strategic management of product lines the responsibility of
Business Management. This new function reports to the Chairman's office.
Future Outlook
We will continue to be challenged by the technological forces which have
negatively affected the manual business forms market. In addition, the sale of
forms and related products by mail order remains closely tied to the economic
health of the small business market.
On the positive side, we maintain a strong relationship with over 1.2 million
small businesses. We believe we can serve our customers more effectively and
grow our direct marketing business through a number of initiatives:
- Increased direct mail advertising support
- Improved cost efficiencies in product and catalog distribution
- Improved list management and mail strategies
- Enhanced product merchandising and promotional offerings
- Accelerated new product development efforts
- Increased selling emphasis developed in our Telesales operations
In our retail channels, we will continue to work to successfully resolve
how best to proceed with the Kinko's alliance and to focus on growing the Dealer
Forms Sales business.
Goals For 1997
There are a great many goals which the Company will be working on during 1997.
The five principal goals we must achieve to be better positioned for aggressive
sales and profit growth are:
- Develop a new level of operating effectiveness across the entire
organization.
- Develop an aggressive selling effort supported by new and effective
marketing programs.
- Develop a strategic business plan and planning process.
- Enhance shareholder value by establishing financial measures, such as
Economic Value Analysis (EVA), which will be the yardstick for measuring
all that we do.
- Explore additional avenues for growth for the Company--both internal
initiatives as well as an evaluation of growth through acquisitions.
Board of Directors
During 1996, Richard H. Rhoads retired as Chairman of the Board after 9
dedicated years in that capacity and over 30 years of service with the Company.
Richard has represented the fine human and business qualities that all people
associated with the Company came to expect when they heard the name "Rhoads."
Richard, and his brother Jay before him, have between them chaired the Company's
Board of Directors for more than 25 years. Richard will continue as a Board
member.
As announced at its July meeting, the Board elected Robert L. Gable and
Herbert W. Moller to its membership. Mr. Gable is the Chairman and Chief
Executive Officer of Unitrode Corporation, and Mr. Moller is Vice President,
Finance and Strategic Planning of The Gillette Company, North Atlantic Group.
Frank L. Randall, Jr. will retire from the Board at the end of his term in
October, 1996. Frank has served as a Board member for 17 years and has
contributed greatly to the Company during his service.
Word of Thanks
I would like to draw attention to the talent, dedication, and commitment of
each of our 2,014 employees. The Company's employees are the source of its
strength, and I commend them for their efforts and accomplishments during the
year.
We remain indebted to our diverse and loyal customer base for their business
and thank them for their help in defining the NEBS of the future.
Finally, we thank you, our stockholders, for the strength of your interest and
support. Serving your best long-term interest remains our highest priority.
[PHOTOGRAPH OF ROBERT J. MURRAY, CHAIRMAN
AND CHIEF EXECUTIVE OFFICER APPEARS HERE]
/s/ Robert J. Murray
Robert J. Murray,
Chairman, President and
Chief Executive Officer
September 9, 1996
3
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND BUSINESS SERVICE, INC.
- --------------------------------------------------------------------------------
NEBS by Mail:
Reinvesting in a Successful Small Business Tradition
Small business has relied on NEBS manual and computer business forms for 44
years. Sold primarily through the mail, our forms provide more than a record,
they offer a blueprint for transactions with customers and suppliers -- and
serve as an introduction to the full range of NEBS products and services.
In 1996, to ensure the continued vitality of this important core business, we
reached out to new customers, introduced new products, and refined product
development strategies to meet the changing needs and preferences of small
business.
NEBS Colors, one of the most successful product introductions in NEBS history,
was unveiled in 1996. Unique in the direct mail industry, NEBS Colors offers
small business a choice of color, type style, and contemporary design across a
variety of manual and computer business forms. In response to today's more
image-conscious consumer, NEBS Colors enables a small business to achieve
a consistent, color-coordinated look across printed products without the expense
of custom printing.
Success Reference Guides/TM/. NEBS customers asked for a comprehensive
catalog, a compendium of NEBS products and services that would serve as a
lasting desktop reference. We responded with Success Reference Guides, our first
series of full-line catalogs, tailored to different lines of business.
Displaying all NEBS products in one catalog facilitates ordering and reduces the
mail our customers receive. Promotional incentives reward customers who retain
and continue to order from the catalog.
[GRAPHIC DEPICTING NEBS
CUSTOMERS AND PRODUCTS
APPEARS HERE]
NEBS Colors,
one of the most
successful product introductions in
NEBS history, was
unveiled in 1996.
4
<PAGE>
- --------------------------------------------------------------------------------
NEBS BY MAIL
- --------------------------------------------------------------------------------
[PHOTOGRAPH OF NEBS CUSTOMERS: PHIL AND LEE HARRIS APPEARS HERE]
- --------------------------------------------------------------------------------
"I've been working with NEBS for five years. I read the catalog every time it
comes in. I chose NEBS because it's easy to do business with them. All you have
to do is pick up the phone and call. I have also found them very prompt in
delivery. Basically, they have the service and products we need."
Phil and Lee Harris, The Silver Skillet, Del Mar, California
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NEBS by Mail
- --------------------------------------------------------------------------------
[PHOTOGRAPH OF NEBS CUSTOMER, SCOTT KING APPEARS HERE.]
- --------------------------------------------------------------------------------
"When I started the business three years ago, NEBS helped me design my
repair order forms, very professionally and quickly. When you start
out, you're awfully confused and they seemed to be able to give me the
direction that I needed. That's why I continue to do business with
them. Today, we purchase a wide variety of products from NEBS, from
invoices to checks. They're very good for small business, very
responsive."
Scott King, Del Amo Motorsports, Redondo Beach, California
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
[PHOTOGRAPHS OF NEBS CUSTOMER AND NEBS SOFTWARE PRODUCT APPEAR HERE.]
Industrial Communications, a full-service tower and electrical contractor, is
one of the leading customers of NEBS products in the US. It owns and operates
New England's largest 800MHz trunked radio network, and is an authorized
Motorola two-way radio dealer and service center. To make ordering even easier
for Industrial Communications and other valued customers, NEBS introduced
Success Reference Guides/TM/ in 1996, the first full-line catalog of NEBS
products and services.
Each Success Reference Guide includes "The Resource Center," a menu of services
available to small businesses. NEBS Direct Credit Check/TM/ delivers credit
reports on potential customers. NEBS Fast Facts provides more than 100 articles
about managing a small business -- by fax. NEBS Custom Printing Service offers
custom forms and checks by mail, a cost-saving alternative to local print shops.
A new computer forms strategy was established with the sale of our One-Write
Plus(R) accounting software. We will continue to distribute One-Write Plus and
compatible forms by mail order. However, by divesting software development and
technical support, we eliminated competitive barriers to the formation of
alliances with third-party software developers to promote the sale of NEBS
computer forms. These alliances will enable us to introduce NEBS products and
services to a wider range of small businesses.
NEBS by mail maintains a strong reputation among small businesses. To ensure
growth in the mail order channel in the years ahead, we remain committed to
continually respond to the ever-changing needs and preferences of small
business.
New alliances with third-party software developers will increase computer form
sales and introduce new customers to the full range of NEBS products and
services.
5
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND BUSINESS SERVICE, INC.
- --------------------------------------------------------------------------------
NEBS at Retail:
Delivering Products to Help Customers Promote Their Business
In local markets across the United States, small businesses spend in excess of
$11 billion annually on printed products. In 1996, we continued our initiative
to become an important resource for these small businesses who prefer to buy
printing through retail outlets.
NEBS Dealer Form Sales Unit. DFS markets a broad line of forms and printed
promotional materials for resale by local printers, business-forms dealers, and
computer stores. DFS represents an attractive growth opportunity for NEBS.
Currently, we work with over 25,000 retail dealers -- approximately 10 percent
of the private label resellers of business forms and promotional materials in
North America.
[GRAPHIC OF CUSTOMER VIEWING NEBS CATALOG APPEARS HERE]
Consistently
profitable, DFS
represents an
attractive growth
opportunity for
NEBS.
In 1996, we initiated actions to accelerate the growth of our DFS unit. We
began a dealer registration drive, which will intensify in 1997. We've also
adopted a strategy of supplementing our traditional direct mail approach to this
business with direct sales calls. Recognizing the diverse nature of these
thousands of dealers, we have begun to create programs responding to the
individual needs of the many segments of our dealer base.
The NEBS-Kinko's Alliance. We have installed NEBS Custom Print Desks at Kinko's
stores in key markets in the United States to test the optimum way for Kinko's
and NEBS to provide custom printing services nationwide to small businesses.
Using NEBSnet(TM), our proprietary graphic design workstation, our Custom Print
Representatives have provided competitively priced, image-building printed
6
<PAGE>
- --------------------------------------------------------------------------------
DEALER FORM SALES
- --------------------------------------------------------------------------------
[PHOTOGRAPH OF NEBS CUSTOMER, RHONDA AMER, APPEARS HERE]
- --------------------------------------------------------------------------------
"Two things stand out in my mind concerning NEBS DFS unit: their work is
accurate, and if there is ever an error, they're willing to correct it speedily
at no charge. They're also on the ball. You get the order in a matter of days.
We have been a DFS dealer for about five years, and it's been a very positive
experience."
Rhonda Amer, General Manager, Empire Printing, Springfield, Missouri
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
DEALER FORM SALES
- --------------------------------------------------------------------------------
[PHOTOGRAPH OF NEBS CUSTOMER, HECTOR DEL RIO, APPEARS HERE]
- --------------------------------------------------------------------------------
"I've been a DFS dealer for a little more than two years, and I want to pursue
it more. We give the catalog to our customers -- everyone can at least use the
checks -- and NEBS does all the printing. Response time is fast, and
satisfaction is guaranteed. I'm happy with the relationship. NEBS takes good
care of us."
Hector del Rio, Proprietor, Selectronic, San Diego, California
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
[PHOTOGRAPH OF NEBS CUSTOMERS, DUDLEY AND PATRICIA MOORE APPEARS HERE]
Dudley Moore and his wife, Patricia, have purchased their business forms from
NEBS since 1993, when they opened their shop. This year, they took advantage of
NEBS Retail Custom Print Desks for stationery and business cards. "The service
is good, turnaround is quick, prices are competitive, and it's very convenient,"
Dudley said. "When you get good service for so many years, there's no need to
go anywhere else."
products to more than 25,000 first-time NEBS customers. Most new retail
customers are white-collar service businesses, a relatively untrapped market
segment for NEBS. In response to the increased demand for stationery products at
retail, we implemented a number of programs designed to improve stationery
manufacturing efficiency, to reduce costs and to improve delivery to our west
Coast customers.
At each NEBS Custom Print Desk, we also introduced full-service custom
printing. Customers may bring in artwork for virtually any standard-size,
spot-color, or full-color job. The order is printed and delivered to the
customer within five business days. This new service is attracting retail
customers whose average dollar order is over twice that of our traditional mail
order customers.
NEBSnet/TM/, our proprietary design system, combined with full-color printing
technology offers a significant competitive advantage at retail. In 1996, we
continued to invest in the printing technology required to capitalize on this
advantage.
7
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND BUSINESS SERVICE, INC.
- --------------------------------------------------------------------------------
NEBS and Technology:
Building a New Channel to the Small Business Marketplace
Today, a growing number of small businesses are turning to modems, E-Mail, and
the Internet to access information and communicate with customers and suppliers.
To reach out to this expanding segment of the marketplace, NEBS established the
Technology Based Marketing Group, which began its outreach by capitalizing on
NEBS technological strengths.
NEBSnet(TM), our first venture into technology-based services at retail, is an
unqualified success. Introduced in 1995, NEBSnet is an interactive graphic
design workstation developed internally by NEBS. It enables customers to work
side by side with NEBS representatives to design and order custom, competitively
priced forms, business cards, stationery, envelopes, even full-color brochures
- -- typically printed and shipped in less than a week.
[GRAPHIC OF NEBS RETAIL CUSTOMER APPEARS HERE]
NEBSnet(TM), our first venture
into technology-
based services
at retail, is an
unqualified success.
Building on success. The Technology Based Marketing Group will take NEBSnet one
step further. Building on NEBSnet technology, the group began development of the
NEBSkiosk, an electronic workstation that will enable retail customers to
customize and order NEBS most popular printed products -- without the assistance
of a salesperson. Interacting with an easy-to-use, touch-screen display, a
customer will choose from a variety of form and check styles; indicate color,
type, and logo preferences; and view the completed design in color on screen.
Then, with a keystroke, the customer will send the file electronically to a NEBS
manufacturing facility for printing.
8
<PAGE>
- --------------------------------------------------------------------------------
NEBSnet(TM)
- --------------------------------------------------------------------------------
[PHOTOGRAPH OF NEBS CUSTOMER, JUAN HAYGOOD APPEARS HERE]
- --------------------------------------------------------------------------------
"My local printer couldn't compose (the business card) on site. He farms it
out to someone else. At NEBS Custom Print Desk, they do it right there; you
see the proof immediately. The product is good, and you save time. I'm very
satisfied with NEBS."
Juan Haygood, Proprietor, Peter's True Value Hardware, Detroit, Michigan
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NEBSnet/TM/
- --------------------------------------------------------------------------------
[PHOTOGRAPH OF NEBS CUSTOMER'S PETE AND PHIL STENGER APPEARS HERE]
- --------------------------------------------------------------------------------
"The NEBS representative was very helpful. The price was very competitive.
Production went quickly and easily. And we got a high quality look. As a small
company you're always trying to put your best impression forward. We're in a
highly competitive marketplace, so the extra touches on business cards and
stationery say a lot. They're getting peoples' attention."
Pete Stenger (and his brother Phil), Owners, August Brewery, Detroit, Michigan
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC DEPICTING NEBS INTERNET ACCESS APPEARS HERE]
Fashioning a new channel to the small business marketplace, NEBS made its debut
on the Internet in 1996. Customers and prospects can now request information
about NEBS, our products and services. In the near future, with a PC and a
modem, they will be able to place orders, anytime, day or night at
http://www.nebs.com.
On the Web. NEBS made its debut on the World Wide Web in 1996. Our Website is
organized around five business fundamentals -- Getting Paid, Growing the
Business, Running the Business, Paying Bills, and Managing Employees -- and a
special category, Starting Your Business. It offers small businesses a
convenient way to review and request information about NEBS, our products, and
services. In the near future, customers will be able to view and order NEBS
products on-line, any time, day or night. Visit our Website at
http://www.nebs.com.
Software. NEBS distributes software that enhances our customers' productivity,
and, importantly, works with NEBS compatible forms and other printed matter.
This year, NEBS introduced a suite of CD-ROM software products that are
interactive, multimedia "active books" helping customers to start, finance, and
advertise their business. We will continue to offer exciting titles like these,
as well as selected productivity and accounting software and software developed
by our new forms partners.
In summary, through the mail, at retail, and through technology, NEBS
remains committed to delivering high quality, affordable products and services
that make doing business easier for small business.
9
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND BUSINESS SERVICE, INC.
- --------------------------------------------------------------------------------
Helping Customers Create an Image - Electronically:
How NEBSnet/TM/ Works
NEBSnet, our proprietary graphic design workstation, is meeting a strong and
growing demand among small businesses for image-oriented products at retail.
Here's a typical example of how a NEBS representative works with a retail
customer to custom design those products.
6. Pricing the order. [GRAPHIC DEPICTING
Based on selections the customer makes, CUSTOM DESIGN PROCESS
NEBSnet instantly prepares a price APPEAR HERE]
quotation for the business card.
5. Specifying a type style.
By seeing various fonts on screen,
the customer can determine which
typeface best fits his/her business.
7. Customizing.
Through an easy-to-use interface, NEBSnet
enables the NEBS representative to edit
and position text, select typefaces, and
choose colors that meet a customer's needs.
8. Adding the final touch.
The customer's logo is scanned into the
layout, final colors are chosen, and a
proof is printed for customer approval
before the order is sent electronically
to a NEBS manufacturing facility for printing.
10
<PAGE>
- --------------------------------------------------------------------------------
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
1. Browsing the electronic catalog.
Working side by side with a NEBS
representative, the customer selects
a product line from NEBSnet's main menu.
[GRAPHICS DEPICTING
2. Choosing a layout. CUSTOM DESIGN PROCESS
The customer selects "Business Cards" APPEAR HERE]
from the options on the stationery
menu, and instantly views a variety
of thumbnail layouts.
4. Selecting ink and paper.
Using the "Stationery Sales Assistant"
menu, a customer can view a variety of
ink and paper combinations on screen
before selecting actual paper samples.
3. Narrowing the choice.
Thumbnails of each business card may
be enlarged to full-size for easy viewing.
9. The finished product.
In about five business days, the customer
receives his custom-designed, printed product
by mail -- competitively priced, satisfaction
guaranteed.
11
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Eleven Year Summary
<TABLE>
<CAPTION>
(In thousands of dollars except per share amounts and other statistics)
- ------------------------------------------------------------------------------------------------------------------------------------
For the Fiscal Year Ended June 29, 1996 (A) June 30, 1995 (B) June 24, 1994 (C) June 25, 1993 June 26, 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statistics (D)
Net Sales $254,954 $263,724 $251,253 $237,144 $232,435
Income before income taxes
and accounting changes 21,055 28,492 27,599 24,090 24,862
Percent of sales 8.3% 10.8% 11.0% 10.2% 10.7%
Taxes on income 8,306 11,818 12,036 9,873 8,925
Percent of sales 3.3% 4.5% 4.8% 4.2% 3.8%
Net income before equity in losses of
investment and accounting changes 12,749 16,674 15,563 14,217 15,937
Percent of sales 5.0% 6.3% 6.2% 6.0% 6.9%
Percent of stockholders' equity 16.8% 18.2% 15.6% 15.0% 16.9%
Per common share 0.86 1.09 1.01 0.93 1.02
Net Income 11,929 16,298 15,563 14,217 15,471
Percent of sales 4.7% 6.2% 6.2% 6.0% 6.7%
Percent of stockholders' equity 15.7% 17.8% 15.6% 15.0% 16.4%
Per common share 0.81 1.07 1.01 0.93 0.99
Dividends per common share 0.80 0.80 0.80 0.80 0.80
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Statistics
Current assets 71,334 77,509 85,288 68,966 74,784
Current liabilities 27,273 32,169 30,418 25,293 25,649
Working capital 44,061 45,340 54,870 43,673 49,135
Current ratio 2.6 2.4 2.8 2.7 2.9
Total assets 103,542 124,546 131,691 120,624 121,056
Long-term debt 0 0 0 0 0
Stockholders' equity 75,916 91,523 99,479 94,668 94,124
Average common shares outstanding 14,773 15,245 15,364 15,269 15,664
Book value per common share 5.42 6.16 6.43 6.19 6.18
- ------------------------------------------------------------------------------------------------------------------------------------
Other Financial Statistics
Capital expenditures 9,388 10,804 6,054 6,475 9,669
Depreciation and amortization 10,329 12,676 11,623 9,953 9,531
Profit sharing contribution 3,489 3,620 3,133 2,891 3,296
- ------------------------------------------------------------------------------------------------------------------------------------
Other Statistics (D)
Number of employees 2,014 2,055 2,083 2,217 2,180
Number of stockholders 5,800 5,600 5,700 5,400 4,100
Number of active customers 1,238,000 1,292,000 1,285,000 1,210,000 1,195,000
Facilities (in square feet) 708,000 743,000 794,000 793,000 768,000
</TABLE>
Average common shares outstanding have been retroactively adjusted for stock
split of 2-for-1 in November 1986.
(A) Included in the 1996 results is a $3.04 million pretax charge, or $.12 per
share, related to the closure of the Company's Flagstaff, Arizona
manufacturing facility.
(B) Included in the 1995 results is a $1.96 million pretax charge, or $.07 per
share, related to integration of the Company's SYCOM subsidiary.
(C) Included in the 1994 results is a $5.45 million pretax charge, or $.21 per
share, related to a restructuring program.
(D) Years from 1986 through 1989 have been restated to eliminate a discontinued
operation.
See notes to consolidated financial statements.
12
<PAGE>
- --------------------------------------------------------------------------------
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
June 28, 1991 June 29, 1990 June 30, 1989 June 24, 1988 June 26, 1987 June 27, 1986
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$231,838 $233,113 $225,931 $202,423 $172,574 $158,927
34,095 33,415 39,109 36,804 36,852 32,009
14.7% 14.3% 17.3% 18.2% 21.4% 20.1%
13,765 12,792 15,074 14,500 17,936 15,654
5.9% 5.5% 6.7% 7.2% 10.4% 9.8%
20,330 20,623 24,035 22,304 18,916 16,355
8.8% 8.8% 10.6% 11.0% 11.0% 10.3%
18.9% 19.9% 23.6% 22.8% 22.7% 23.7%
1.24 1.23 1.40 1.29 1.10 0.96
20,330 21,148 22,189 22,431 19,130 16,893
8.8% 9.1% 9.8% 11.1% 11.1% 10.6%
18.9% 20.4% 21.8% 22.9% 23.0% 24.5%
1.24 1.26 1.29 1.30 1.12 0.99
0.80 0.76 0.66 0.54 0.44 0.29
- ------------------------------------------------------------------------------------------------------------------------------------
87,468 84,311 84,398 80,256 69,956 62,321
24,094 21,596 20,020 17,949 18,718 17,524
63,374 62,715 64,378 62,307 51,238 44,797
3.6 3.9 4.2 4.5 3.7 3.6
133,602 130,280 130,238 123,566 111,009 94,057
0 3,319 6,688 5,720 6,938 6,099
107,802 103,858 101,897 97,995 83,340 68,900
16,342 16,835 17,193 17,265 17,138 17,056
6.61 6.17 5.93 5.67 4.84 4.04
- ------------------------------------------------------------------------------------------------------------------------------------
9,166 8,818 11,123 9,366 3,699 2,876
9,001 8,689 8,195 7,109 5,233 4,722
4,273 4,271 4,792 4,245 3,618 3,236
- ------------------------------------------------------------------------------------------------------------------------------------
2,045 2,154 2,002 1,928 1,797 1,632
3,700 3,600 3,600 2,700 2,600 2,500
1,173,000 1,179,000 1,125,000 1,064,000 977,000 916,000
765,000 765,000 748,000 689,000 679,000 623,000
</TABLE>
13
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 29, 1996 and June 30, 1995 (In thousands of dollars except share data)
- --------------------------------------------------------------------------------
Assets Notes June 29, 1996 June 30, 1995
- --------------------------------------------------------------------------------
Current Assets:
<S> <C> <C> <C>
Cash and cash equivalents 1 $ 6,508 $ 11,604
Short-term investments 1 10,868 11,360
Accounts receivable (less allowance for
doubtful accounts of $3,343 in 1996 and
$3,304 in 1995) 1 30,636 29,332
Inventories 1 8,675 9,880
Direct mail advertising materials and
prepaid expenses 1 5,176 5,655
Deferred income tax benefit 1, 12 9,471 9,678
-------------------------
Total current assets 71,334 77,509
Property and Equipment: 1, 3
Land and buildings 29,761 35,796
Equipment 72,517 70,890
-------------------------
Property and equipment 102,278 106,686
Less accumulated depreciation (71,266) (70,651)
-------------------------
Property and equipment - net 31,012 36,035
Property Held for Sale 1 631 2,587
Other Assets (less accumulated
amortization of $6,635 in 1996 and
$11,683 in 1995) 1, 2, 11 565 8,415
-------------------------
Total $103,542 $124,546
=========================
</TABLE>
See notes to consolidated financial statements.
14
<PAGE>
- --------------------------------------------------------------------------------
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 29, 1996 and June 30, 1995 (In thousands of dollars except share data)
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity Notes June 29, 1996 June 30, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Liabilities:
Accounts payable $ 8,575 $ 7,158
Federal and state income taxes 1, 12 - 2,506
Accrued profit-sharing distribution 6 1,474 2,408
Accrued payroll expense 5,303 5,731
Accrued employee benefit expense 7, 8 6,096 6,005
Accrued exit costs/restructuring charge 9, 10 1,387 2,020
Other accrued expenses 4,438 6,341
-----------------------------------
Total current liabilities 27,273 32,169
Deferred Income Taxes 1, 12 353 854
Commitments and Contingencies 3
Stockholders' Equity:
Preferred stock 4
Common stock, par value, $1 per share -
authorized, 40,000,000 shares; issued,
14,004,720 shares in 1996 and 15,769,501
shares in 1995; outstanding 14,004,720
shares in 1996 and 14,856,541 shares in 1995 4, 5 14,005 15,770
Additional paid-in capital 13,603 12,450
Cumulative foreign currency translation adjustment 1 (1,761) (1,683)
Retained earnings 50,069 82,412
-----------------------------------
Total 75,916 108,949
Less treasury stock, at cost -
912,960 shares in 1995 4 - (17,426)
-----------------------------------
Stockholders' equity 75,916 91,523
-----------------------------------
Total $103,542 $124,546
===================================
</TABLE>
See notes to consolidated financial statements.
15
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Statements of Consolidated Income
For the Fiscal Years Ended June 29, 1996, June 30, 1995 and June 24, 1994
(In thousands) of dollars except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Notes 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales 1 $ 254,954 $ 263,724 $ 251,253
Operating Expenses:
Cost of sales including shipping costs 95,598 94,502 92,166
Selling and advertising 1 93,179 90,241 85,793
General and administrative 6, 7, 8 43,713 49,830 41,499
Exit costs 9 3,044 1,964 -
Restructuring charge 10 - - 5,450
==============================================
Total operating expenses 235,534 236,537 224,908
Income From Operations 19,420 27,187 26,345
Other Income:
Investment income 1,140 1,305 1,254
Gain on sale of product line 11 495 - -
==============================================
Total other income 1,635 1,305 1,254
Income Before Income Taxes 21,055 28,492 27,599
Provision for Income Taxes 1, 12 8,306 11,818 12,036
==============================================
Net Income Before Equity in
Losses of Investment 12,749 16,674 15,563
Equity in Losses of
Investment 2 (820) (376) -
==============================================
Net income $ 11,929 $ 16,298 $ 15,563
==============================================
Per Share Amounts: 1
Net income $ 0.81 $ 1.07 $ 1.01
==============================================
Dividends $ .80 $ .80 $ .80
==============================================
Weighted Average Number of
Shares Outstanding 1 14,773 15,245 15,364
==============================================
</TABLE>
See notes to consolidated financial statements.
16
<PAGE>
- --------------------------------------------------------------------------------
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
Statements of Consolidated Stockholders' Equity
For the Fiscal Years Ended June 29, 1996, June 30, 1995, and June 24, 1994
(In thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Issued Cumulative
------------------- Foreign
Number At Par Additional Currency
of Value Paid-In Treasury Translation Retained
Notes Shares Amount Capital Stock Adjustment Earnings Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 25, 1993 15,409 $15,409 $ 7,090 $ (1,807) $(1,057) $ 75,033 $ 94,668
Issuance of common stock to employees
pursuant to stock plans 5, 6 163 163 2,390 80 2,633
Dividends paid (12,290) (12,290)
Foreign currency translation adjustment 1 (1,095) (1,095)
Net income 15,563 15,563
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 24, 1994 15,572 15,572 9,480 (1,727) (2,152) 78,306 99,479
Issuance of common stock to employees
pursuant to stock plans 5, 6 198 198 2,970 1,299 4,467
Dividends paid (12,192) (12,192)
Acquisition of treasury stock 4 (16,998) (16,998)
Foreign currency translation adjustment 1 469 469
Net income 16,298 16,298
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1995 15,770 15,770 12,450 (17,426) (1,683) 82,412 91,523
Issuance of common stock to employees
pursuant to stock plans 5, 6 75 75 1,153 1,102 2,330
Dividends paid (11,906) (11,906)
Acquisition of treasury stock 4 (17,882) (17,882)
Retirement of treasury stock 4 (1,840) (1,840) 34,206 (32,366)
Foreign currency translation adjustment 1 (78) (78)
Net income 11,929 11,929
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 29, 1996 14,005 $14,005 $13,603 $ 0 $(1,761) $ 50,069 $ 75,916
===================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
17
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Statements of Consolidated Cash Flows
<TABLE>
<CAPTION>
For the Fiscal Years Ended June 29, 1996, June 30, 1995 and June 24, 1994 (In thousands of dollars)
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 11,929 $ 16,298 $ 15,563
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,329 12,676 11,623
Gain on sale of product line (495) - -
Loss on disposal of equipment 302 - -
Loss on equity investment 1,355 - -
Deferred income taxes (290) (5,062) (1,946)
Exit cost or restructuring charge 633 1,651 1,887
Provision for losses on accounts receivable 3,033 3,177 2,793
Employee benefit charges 1,142 692 465
Changes in assets and liabilities:
Accounts receivable (4,360) (4,500) (4,630)
Inventories and advertising material 61 (3,346) 462
Prepaid expenses 1,225 (1,267) 376
Accounts payable 1,405 485 (277)
Income taxes payable (2,545) (12) 928
Other accrued expenses (1,573) (881) 2,417
-----------------------------------------
Net cash provided by operating activities 22,151 19,911 29,661
Cash Flows From Investing Activities:
Additions to property and equipment (9,388) (10,804) (6,054)
Acquisition of product line - - (334)
Investment in unconsolidated subsidiary - (1,800) -
Proceeds from sale of product line 4,500 - -
Proceeds from sale of facilities and equipment 4,985 - -
Proceeds from sale of other assets 300 - -
Investment in other assets, primarily software development costs (812) (843) -
Purchases of investments (30,751) (28,438) (36,556)
Proceeds from sale and maturities of investments 31,222 54,649 16,463
-----------------------------------------
Net cash provided (used) by investing activities 56 12,764 (26,481)
Cash Flows From Financing Activities:
Repayment of debt (8,000) (36) (41)
Proceeds from credit line 8,000 - -
Proceeds from issuing common stock 2,330 4,467 2,633
Acquisition of treasury stock (17,882) (16,998) -
Dividends paid (11,907) (12,192) (12,290)
-----------------------------------------
Net cash used by financing activities (27,459) (24,759) (9,698)
Effect of Exchange Rate on Cash 156 232 (87)
-----------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (5,096) 8,148 (6,605)
Cash and Cash Equivalents at Beginning of Year 11,604 3,456 10,061
-----------------------------------------
Cash and Cash Equivalents at End of Year $ 6,508 $ 11,604 $ 3,456
=========================================
Supplemental Cash Flow Disclosure:
Income taxes paid $ 10,289 $ 13,031 $ 13,425
=========================================
</TABLE>
See notes to consolidated financial statements.
18
<PAGE>
- --------------------------------------------------------------------------------
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of Consolidation The financial statements are consolidated to include the
accounts of New England Business Service, Inc. and its wholly-owned subsidiaries
(the "Company"). The Company operates primarily in a single industry segment
consisting of the sale of business forms and related software, other types of
printed business products and related office products. The accounts of the
Company's foreign entities have been translated into U. S. dollars in accordance
with Statement of Financial Accounting Standards No. 52. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Cash, Cash Equivalents and Short-Term Investments The Company considers its
holdings in short-term money market accounts and certificates of deposit with an
original maturity to the Company of three months or less to be cash equivalents.
Short-term investments are classified as available for sale securities and
reported at amortized cost, which approximates fair market value (as required by
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities"). Short-term investments are
primarily tax-exempt municipal debt instruments which have a fixed maturity
beyond three months. In addition, the Company holds other tax-exempt municipal
debt instruments redeemable at par value through a put option which can be
exercised by the Company at time periods of one week to one year.
Inventories Inventories are carried at the lower of first-in, first-out cost
or market. At year end, inventories consisted of:
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------
<S> <C> <C>
Raw paper $ 434,000 $ 1,130,000
Business forms and related office products 8,241,000 8,750,000
- -------------------------------------------------------------------------
Total $ 8,675,000 $ 9,880,000
- -------------------------------------------------------------------------
</TABLE>
Direct Mail Advertising The Company adopted the provisions of Statement of
Position 93-7, "Reporting on Advertising Costs", in fiscal 1995. The adoption
of this statement was not material to the Company's financial statements as it
simply amended a previous deferral policy which produced similar results. The
Company expenses the production costs of advertising the first time the
advertising takes place, except for direct-response advertising, which is
capitalized and amortized over its expected period of future benefit. Direct-
response advertising consists primarily of product catalogs and associated
mailing costs. Advertising expense included in selling and advertising was
approximately $34,007,000 in 1996, $39,997,000 in 1995 and $40,681,000 in 1994.
Property and Equipment Property and equipment are carried at cost.
Depreciation is computed over the estimated useful lives (three to twenty years)
of the assets using the straight-line method. Property held for sale is stated
at the lower of cost or estimated net realizable value and includes certain
facilities and land no longer used in the Company's operations or held for
future expansion.
Other Assets Other assets consist principally of purchased customer lists,
acquired software, tradename, covenant not to compete, goodwill, and customer
and other contracts and are amortized on a straight-line basis over their
estimated lives ranging from five to twenty years.
Revenue Recognition Revenue is recognized from sales other than
software support contracts when a product is shipped. Revenue on software
support contracts is recognized ratably over the contract period, generally
twelve months. Insignificant vendor and post contract support obligations, if
any, are recognized upon shipment.
Capitalized Software Development Costs and Purchased Software The Company
follows Statement of Financial Accounting Standards No. 86, "Accounting for the
Cost of Computer Software to be Sold, Leased, or Otherwise Marketed" ("SFAS No.
86").
Software development costs of $812,000 were capitalized in 1996 and
$519,000 in 1995. No software development costs were capitalized in 1994.
Purchased software costs acquired in connection with the acquisition of the
One-Write Plus(R) product line are being amortized in accordance with the
provisions of SFAS No. 86. Amortization expense of $1,199,000, $1,450,000 and
$1,383,000 was charged to operations in fiscal 1996, 1995 and 1994,
respectively. In connection with the sale of the OWP product line in 1996, the
Company expensed the balance of these accounts remaining at the time of the
sale. Unamortized costs of $0, and $3,827,000 are included in other assets at
June 29, 1996, and June 30, 1995, respectively.
Income Taxes The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS No. 109"). Income taxes are determined based on income reported in
the financial statements, regardless of when such taxes are payable. In
addition, tax assets and liabilities are adjusted to reflect changes in the U.S.
and applicable foreign tax laws when enacted. Future tax benefits are recognized
to the extent realization of such benefit is more likely to occur than not.
Significant Estimates In the process of preparing its consolidated financial
statements, the Company estimates the appropriate carrying value of certain
assets and liabilities which are not readily apparent from other sources. The
primary estimates underlying the Company's consolidated financial statements
include allowances for doubtful accounts, inventory obsolescence, deferrals of
mail advertising costs, accruals for profit sharing, recoverability of deferred
tax assets and other matters. Management bases its estimates on certain
assumptions, which are believed to be reasonable given the circumstances, and
does not believe that any change in those assumptions in the near term would
19
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
have a material effect on the consolidated financial position or the results of
operations.
Per Share Amounts Net income per share amounts are computed based upon the
weighted average number of shares of common stock outstanding during each fiscal
year. Shares issuable under common stock options have been excluded from the
computations since their inclusion would have no significant dilutive effect.
Concentration of Credit Risk The Company extends credit to approximately 1.2
million geographically dispersed customers on an unsecured basis in the normal
course of business. No individual industry or industry segment is significant to
the Company's customer base. The Company has, in place, policies governing the
extension of credit and collection of amounts due from customers.
Fair Value of Financial Instruments Effective July 1, 1995, the Company adopted
Statement of Financial Accounting Standards No. 107, "Fair Value of Financial
Instruments", which requires the disclosure of fair value of most financial
instruments, both assets and liabilities, for which it is practical to estimate
fair value. As of June 29, 1996, the carrying value of all financial
instruments approximates fair value.
Impairment of Long-Lived Assets The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
and is required to be adopted by the Company no later than fiscal year 1997.
This statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. The impact of this new standard has not been
fully determined, but is not expected to be material. The Company plans to adopt
this statement in the first quarter of fiscal 1997.
Accounting for Stock-Based Compensation The Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation," which requires expanded disclosures of stock-
based compensation arrangements with employees and encourages, but does not
mandate, that compensation cost be measured based on the fair value of the
equity instrument awarded. Companies are permitted, however, to continue to
apply APB Opinion No. 25, which recognizes compensation cost based on the
intrinsic value of the equity instrument awarded. The statement is required to
be adopted no later than fiscal 1997. The Company will continue to apply APB
Opinion No. 25 to its stock based compensation awards to employees and will
disclose the required pro forma effect on net income and earnings per share in
its fiscal 1997 consolidated financial statements.
Reclassifications Certain reclassifications have been made to the 1995 and 1994
financial statements to conform with the 1996 presentation.
2. Investment in Unconsolidated Subsidiary
On July 8, 1994, the Company acquired a 19 percent equity interest in GST
Software, plc (GST) for $1,800,000 together with an option to acquire the
balance of GST shares. In addition, the Company advanced GST approximately
$250,000 in the form of a note.
During the first quarter of fiscal year 1996, the Company revalued its 19
percent equity interest in GST. Accordingly, the Company's investment in GST
was written down to $0 as of September 30, 1995. In January, 1996, the Company
sold its 19 percent equity interest in GST for $300,000. The revaluation and
subsequent sale resulted in a $820,000 loss, net of related income tax benefit
of $535,000, and is included in the consolidated statements of income as equity
in losses of investment.
3. Debt Obligations and Leases
A committed line of credit agreement with a major commercial bank allows the
Company to borrow up to $10,000,000 at the bank's base lending rate or 1/4%
above the Eurodollar rate at the Company's option (5.9% at June 29, 1996). At
June 29, 1996 and at June 30, 1995, no amounts were outstanding under the line.
The minimum rental commitments for operating leases of certain facilities
and equipment total $1,923,000 in the aggregate, and are payable over the next
five years. Total rental expense was $860,000, $774,000 and $605,000, in 1996,
1995, and 1994, respectively.
4. Equity Transactions
The Company has issued a stock purchase right to stockholders for each
outstanding share of common stock of the Company. Each right becomes
exercisable upon the occurrence of certain events, as provided in the Rights
Agreement, and entitles the registered holder to purchase from the Company a
"Unit" consisting of one one-hundredth of a share of "Preferred Stock" at a
Purchase Price of $75.00 per Unit, subject to adjustment to prevent dilution. In
addition, upon the occurrence of certain events, the registered holder will
thereafter have the right to receive, upon payment of the Purchase Price,
additional shares of common stock and/or cash and/or other securities, as
provided in the Rights Agreement. The rights will expire on October 20, 2004.
The Company may redeem the rights at a price of $.01 per right.
On October 20, 1994, the Company announced a plan to repurchase up to
$22,000,000 of its common stock in the open market. The repurchase plan
terminated on June 30, 1995. As of June 30, 1995, the Company had purchased
881,750 shares at a cumulative cost of
20
<PAGE>
- --------------------------------------------------------------------------------
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
approximately $16,998,000. On April 29, 1996, the Company announced a plan to
repurchase up to two million additional shares of the Company's stock over a two
year period. As of June 29, 1996, 984,900 shares at a cumulative cost of
approximately $17,882,000 had been repurchased. The Company subsequently retired
all of the repurchased shares.
There are 1,000,000 authorized and unissued shares of $1.00 par value
preferred stock.
5. Stock Options
At the October 1994 annual meeting, the stockholders ratified the NEBS 1994
Key Employee and Eligible Director Stock Option and Stock Appreciation Rights
Plan (the "1994 Plan") and the New England Business Service, Inc. Stock
Compensation Plan (the "Stock Compensation Plan"). Under the 1994 Plan, options
or stock appreciation rights for up to 1,200,000 shares of common stock may be
granted. At June 29, 1996, 470,340 shares are reserved under this plan for
granting of future options. Stock options are granted to purchase stock at fair
market value as of the date the option is granted. Each option is exercisable in
full in terms ranging from one to four years from the date of grant and the
options expire no later than ten years from the date of grant. In addition, the
plan permits the holder of a stock option to make payment for optioned shares by
surrendering shares of the Company's common stock valued at their fair market
value on the date of surrender. Under the Stock Compensation Plan, options for
up to 300,000 shares of common stock may be issued. At June 29, 1996, 294,934
shares are reserved under this plan for future issuance.
At the October 1990 annual meeting, the stockholders ratified the NEBS 1990
Key Employee Stock Option and Stock Appreciation Rights Plan (the "1990 Plan").
Under the 1990 Plan, options or stock appreciation rights for up to 1,000,000
shares of common stock may be granted. At June 29, 1996, 367,034 shares are
reserved under this plan for granting of future options.
The Company had an incentive stock option and stock appreciation rights
plan ratified by the stockholders at the October 1980 annual meeting ("the 1980
Plan") under which key employees could be granted stock options or stock options
and stock appreciation rights for up to 900,000 shares of common stock. The 1980
Plan expired in 1990, although outstanding options are still exercisable.
There were no outstanding stock appreciation rights under any of the plans
during 1996, 1995 or 1994.
A summary of stock option activity under the plans and other arrangements
during 1996, 1995, and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
Number of shares:
<S> <C> <C> <C>
Subject to option at
beginning of year 1,224,512 1,140,743 918,214
Granted during the year 615,194 373,976 512,073
Exercised at $14.50 to
$20.75 per share (70,579) (197,333) (162,836)
Expired (469,418) (92,874) (126,708)
- --------------------------------------------------------------------------------
Subject to option at
end of year 1,299,709 1,224,512 1,140,743
================================================================================
Grant price per share $18.38-20.75 $17.50-18.75 $15.88-16.25
================================================================================
Options outstanding
at end of year:
Aggregate option price $ 23,994,000 $ 21,390,000 $ 19,526,000
Expiration dates 1996 to 2005 1995 to 2004 1994 to 2003
Shares as to which
options are exercisable 744,271 781,264 691,443
Price range of
outstanding options $14.75-25.25 $14.50-25.25 $14.50-25.25
</TABLE>
6. Profit-Sharing and 401(k)Plans
The Company and its subsidiaries have profit-sharing plans for
substantially all of their employees who have completed one year of service.
Distributions are based on net income and payments are made five times a year.
For 1996, 1995, and 1994, distributions under the plans (which were charged to
general and administrative expense) aggregated $3,489,000, $3,620,000, and
$3,133,000, respectively.
The Company also has a 401(k) plan covering substantially all domestic
employees who have completed one year of service. Contributions to the plan are
made by way of participant salary deferrals and Company contributions of shares
of common stock equal, in the case of non-retail employees, to one-half of
participant deferrals subject to a maximum of 3% of eligible pay, and in the
case of retail employees, to 100% of participant deferrals subject to a maximum
of 5% of eligible pay. The Company's contributions (generally from treasury
shares) totaled 57,966 shares in 1996, 76,286 shares in 1995, and 41,427 shares
in 1994 with a fair market value of approximately $1,103,000, $1,337,000, and
$650,000, respectively (which were charged to general and administrative
expense). At June 29, 1996, 53,702 shares are reserved for issuance under this
plan.
21
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
7. Pension Plans
The Company has a defined-benefit, trusteed pension plan which provides
retirement benefits for the majority of its domestic employees. Benefits under
the plan are primarily based on an employee's compensation during the five years
before retirement and number of years of service. The Company funds current
pension cost up to the maximum deductible amount allowed by the Internal Revenue
Code.
The components of net pension cost for 1996, 1995, and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 1,564,000 $ 1,481,000 $ 1,431,000
Interest cost on projected
benefit obligation 2,169,000 1,886,000 1,694,000
Actual return on
plan assets (4,557,000) (3,753,000) (188,000)
Net amortization
and deferral 1,834,000 1,008,000 (2,534,000)
- --------------------------------------------------------------------------------
Net pension cost $ 1,010,000 $ 622,000 $ 403,000
================================================================================
</TABLE>
The following table sets forth the plan's funded status and obligations as
of June 29, 1996 and June 30, 1995:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation,
including vested benefits of
$21,042,000 in 1996 and
$18,259,000 in 1995 $ 21,450,000 $ 18,826,000
================================================================================
Projected benefit obligation $(29,925,000) $(26,939,000)
Plan assets at fair value,
primarily stocks and bonds 31,997,000 27,224,000
- --------------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 2,072,000 285,000
Add prior service cost 1,797,000 1,923,000
Less:
Unamortized net asset at transition 1,377,000 1,640,000
Unrecognized net gain 6,369,000 4,516,000
- --------------------------------------------------------------------------------
Net pension liability (included in
accrued employee benefit expense) $(3,877,000) $(3,948,000)
================================================================================
</TABLE>
Assumptions used in the accounting as of June 29, 1996 and June 30, 1995
were as follows:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Discount rate 8.0% 7.8%
Rate of increase in compensation levels 5.0% 5.0%
Expected long-term rate of return on assets 9.0% 9.0%
</TABLE>
The Company's Canadian subsidiary has a similar plan for its employees. The
amounts are not significant.
In addition, the Company has a supplemental executive retirement plan which
is currently unfunded. Executive employees are eligible to become members of the
plan upon designation by the Board of Directors. Benefits under the plan are
based on the employees' annual earnings and years of service. Provision for this
benefit is charged to operations over the employees' term of employment. The
amounts are not significant.
8. Postretirement Benefits Other Than Pensions
Statement of Financial Accounting Standards No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions, ("SFAS No. 106"), requires the
accrual of postretirement benefits other than pensions (such as health care
benefits) during the years an employee provides service to the Company. The
Company sponsors a defined benefit postretirement plan that provides health and
dental care benefits for retired Corporate Officers. The plan is contributory
and retirees' contributions are adjusted annually.
The following table sets forth the plan's funded status and obligations as
of June 29, 1996 and June 30, 1995:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 461,000 $401,000
Eligible active plan participants 79,000 69,000
Other active plan participants 414,000 361,000
- --------------------------------------------------------------------------------
954,000 831,000
Plan assets at fair value 0 0
Accumulated postretirement benefit
obligation in excess of plan assets 954,000 831,000
Unrecognized net gain 48,000 106,000
- --------------------------------------------------------------------------------
Net postretirement liability (included in
accrued employee benefit expense) $1,002,000 $937,000
================================================================================
</TABLE>
<TABLE>
<CAPTION>
The components of postretirement benefits cost for 1996, 1995 and 1994 are
as follows:
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 40,000 $ 27,000 $ 23,000
Interest on accumulated
postretirement benefit obligation 64,000 58,000 53,000
Amortization of gain (9,000) (15,000) (14,000)
- --------------------------------------------------------------------------------
Net periodic postretirement cost $ 95,000 $ 70,000 $ 62,000
================================================================================
</TABLE>
For measurement purposes, an 11% annual rate of increase in the cost of
providing medical benefits was assumed in 1996, reducing by 1% per year to a
trend rate of 6% for fiscal 2001.
22
<PAGE>
- --------------------------------------------------------------------------------
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.8% in 1996 and 1995.
The health care cost trend has a significant effect on the amounts reported.
An increase of 1% in the rate of increase would have had an effect of increasing
the APBO by $153,000 and the net periodic postretirement benefits cost by
$17,000.
9. Exit Costs
During the third quarter of fiscal 1995, the Company made the decision to
close its Wisconsin based SYCOM subsidiary and to integrate SYCOM's activities
into other of the Company's operations. As such, the Company recorded a
$1,964,000 pretax charge for exit costs associated with the SYCOM closure. The
charge consisted of facilities and equipment write-offs of approximately
$792,000 and termination benefits of approximately $1,172,000. Approximately 103
employees were terminated as a result of the facility closing. As of June 29,
1996, approximately $1,075,000 has been expended related to termination benefits
and the closure of the facility is substantially complete.
During the first quarter of fiscal year 1996, the Company implemented a plan
to restructure operations, including the closure of the company's Flagstaff,
Arizona manufacturing facility. The accompanying consolidated statements of
income include a $3,044,000 pretax charge for exit costs associated with this
plan. The charge consists of costs related to the closure of the Flagstaff
facility of $1,224,000 and termination benefits of $1,820,000. Approximately 110
employees were terminated as a result of the facility closing. As of June 29,
1996, approximately $1,495,000 has been expended related to termination benefits
with substantially all of the remaining $325,000 to be expended in fiscal year
1997. As of June 29, 1996, the closure of the manufacturing operations has been
completed.
10. Restructuring Charge
During fiscal 1994, the Company recorded a $5,450,000 pretax charge related
to a restructuring program. The objectives of this program were to increase the
Company's competitiveness, permit investments in new business development, and
to strengthen margins. The restructuring program included the realignment of the
Company's marketing and manufacturing organizations. The restructuring charge
consisted of approximately $4,700,000 of anticipated cash payments related to
employee termination and other postemployment benefits. In addition,
approximately $150,000 was related to the noncash write-down of operating
assets, and approximately $600,000 was related to the anticipated cash outflows
for facility closing and relocation costs associated with the closing of two
small administrative facilities. As of June 29, 1996, substantially all of the
anticipated cash payments related to employee termination and other
postemployment benefits have been made and the restructuring program is
complete.
11. Sale of Product Line
During the third quarter of fiscal 1996, the Company completed the sale of
selected assets of its Software and Services Division for $4,500,000 resulting
in a gain of approximately $495,000. The asset sale included the rights to the
Company's One-Write Plus accounting package and the Company's software
development and technical support organizations.
12. Income Taxes
The components of income before income taxes were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $19,735,000 $26,900,000 $25,238,000
Canadian 1,320,000 1,592,000 2,361,000
- --------------------------------------------------------------------------------
Total $21,055,000 $28,492,000 $27,599,000
================================================================================
Provisions for income taxes under SFAS No. 109 in 1996, 1995 and 1994
consist of:
Currently payable:
Federal $ 5,217,000 $11,931,000 $ 9,837,000
State 2,353,000 4,232,000 3,145,000
Canadian 1,019,000 684,000 978,000
- --------------------------------------------------------------------------------
Total 8,589,000 16,847,000 13,960,000
Deferred (283,000) (5,029,000) (1,924,000)
- --------------------------------------------------------------------------------
Total $ 8,306,000 $11,818,000 $12,036,000
================================================================================
</TABLE>
The tax effects of significant items comprising the Company's net deferred
tax asset (liability) as of June 29, 1996 are as follows:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
Current Noncurrent Current Noncurrent
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Amortization of
intangible assets $1,535,000 $2,542,000
Pension plans 1,778,000 1,758,000
Accrued vacation 1,200,000 1,265,000
Allowance for
doubtful accounts 1,257,000 1,237,000
Accrued expenses 855,000 936,000
Accrued exit costs 809,000 693,000
Sales returns and
allowances 450,000 459,000
Inventory 611,000 397,000
Postretirement benefits 418,000 391,000
Other 558,000
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation $ (27,000) $(689,000)
Other (326,000) (165,000)
- --------------------------------------------------------------------------------
Net deferred tax asset
(liability) $9,471,000 $(353,000) $9,678,000 $(854,000)
================================================================================
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Note to Consolidated Financial Statements
A reconciliation of the provisions for income taxes to the U. S. Federal
income tax statutory rates follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
State income taxes (less federal tax benefits) 6.3 6.5 6.4
Other - net (1.9) 0.0 2.2
- -----------------------------------------------------------------------------------------------------------------------------
Effective tax rate 39.4% 41.5% 43.6%
=============================================================================================================================
</TABLE>
13. Financial Information by Geographic Area
The Company markets its products directly to very small businesses and pro-
fessional offices in the United States, Canada and the United Kingdom. Profit
from operations represents all identifiable operating expenses. Investment
income, interest expense and income taxes are excluded from geographic area
operating data. Sales or transfers between geographic areas were not material.
General corporate expenses are included under the Company's domestic operations.
<TABLE>
<CAPTION>
(In Thousands)
<S> <C> <C> <C>
1996 Domestic International Consolidated
- -----------------------------------------------------------------------------------------------------------------------------
Net sales $233,462 $21,492 $254,954
Income from operations 18,754 666 19,420
Identifiable assets 82,921 20,621 103,542
1995
- -----------------------------------------------------------------------------------------------------------------------------
Net sales $241,844 $21,880 $263,724
Income from operations 26,511 676 27,187
Identifiable assets 103,868 20,678 124,546
1994
- -----------------------------------------------------------------------------------------------------------------------------
Net sales $230,543 $20,710 $251,253
Income from operations 24,795 1,550 26,345
Identifiable assets 108,998 22,693 131,691
</TABLE>
14. Quarterly Financial Information (Unaudited)
The following financial information is in thousands of dollars except per
share amounts.
<TABLE>
<CAPTION>
First Second Third Fourth Total
1996 Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 63,788 $67,158 $ 63,100 $60,908 $254,954
Gross profit 40,404 43,157 38,112 37,683 159,356
Income before income taxes 1,868 6,612 5,739 6,836 21,055
Net income 541 3,912 3,708 3,768 11,929
Earnings per share $ .04 $ .26 $ .25 $ .26 $ .81
====================================================================================================================================
Dividends per share $ .20 $ .20 $ .20 $ .20 $ .80
====================================================================================================================================
1995
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $ 62,079 $69,479 $ 68,832 $63,334 $263,724
Gross profit 40,038 44,989 44,212 39,983 169,222
Income before income taxes 8,239 9,202 4,387 6,664 28,492
Net income 4,633 5,259 2,570 3,836 16,298
Earnings per share $ .30 $ .34 $ .17 $ .26 $ 1.07
====================================================================================================================================
Dividends per share $ .20 $ .20 $ .20 $ .20 $ .80
====================================================================================================================================
</TABLE>
<PAGE>
================================================================================
1996 ANNUAL REPORT
================================================================================
Management Discussion and Analysis
Liquidity and Capital Resources
Cash provided by operating activities amounted to $22.2 million in fiscal
year 1996, approximately 11.3% higher than the $19.9 million provided in 1995.
This favorable change in cash is attributable to a reduction in inventory and
prepaid expense investment and a reduction in taxes paid. In 1995, cash from
operations decreased $9.8 million from 1994 primarily due to tax payments
related to the completion of a Federal audit and an increase in inventory
investment.
Working capital as of June 30, 1996, amounted to $44.1 million including
$17.4 million of cash and short-term investments. This balance compares to $45.3
million of working capital including cash and short-term investments of $23.0
million at the end of fiscal 1995. The decrease in working capital was due
primarily to the repurchase of 994,900 shares of the Company's common stock for
$17.9 million during fiscal 1996. This repurchase was effected in accordance
with the authorization to purchase up to two million shares announced in April,
1996. Partially offsetting the repurchase related cash outflows were proceeds of
$4.5 million from the divestiture of the assets of the One-Write Plus(R)
software line and $5.0 million related to the sale of facilities.
Capital expenditures of $9.4 million in 1996 represented a decline from the
$10.8 million expended during 1995 but an increase from the $6.1 million
expended during 1994. Capital expenditures in fiscal 1996 included investments
in information systems, equipment to support an expanded number of Kinko's
retail sites, and stationery printing equipment to meet product demand for the
retail channel. Expenditures in fiscal 1995 included investment in prepress
equipment and digital imaging presses for color printing. Expenditures during
fiscal 1994 were lower due to cost containment activities.
In addition to its present cash and investment balances, the Company has
consistently generated sufficient cash internally to fund its needs for working
capital, dividends and capital expenditures. Should the Company require
additional funds, it has a line of credit with a major bank for $10 million. On
June 29, 1996, there was no outstanding balance against this line.
Results of Operations
1996 versus 1995 Net sales declined 3.3% to $255.0 million for fiscal year 1996
from $263.7 million in 1995. Approximately 1% of the decline or $2.6 million was
the result of an additional week in fiscal year 1995, while 0.8% of the decline
or $2.1 million resulted from the divestiture of One-Write Plus(R) software
during the third fiscal quarter of 1996 and the repositioning of the Company's
software product line. The remaining sales decline consisted of a unit volume
decrease of approximately 5.7% or $15.2 million offset in part by price
increases of 4.2% or $11.1 million. The unit volume decline occurred principally
in the direct mail forms business.
Cost of sales increased from 35.8% of sales in 1995 to 37.5% of sales in
1996. This increase was the result of under-absorbed overhead due to the unit
volume decline and to the impact of a shift in product mix to lower margin
stationery products. In addition, cost of sales in 1996 included $1.4 million of
period expense pertaining to product and equipment moves associated with the
closure of the Company's Flagstaff manufacturing facility. Paper prices remained
relatively stable during fiscal year 1996 due to longer term agreements with key
suppliers and are not expected to have a detrimental impact in the foreseeable
future. In general, the Company anticipates being able to offset inflationary
cost increases with cost reduction initiatives and price increases during fiscal
year 1997.
Selling and advertising expenses increased from 34.2% in 1995 to 36.5% of
sales in 1996. This increase was the result of increased selling and advertising
expense to support an increased number of NEBS custom print desks in Kinko's
retail locations, partially offset by a reduction in direct mail advertising
expense, principally during the first half of the year. Direct mail advertising
expense, largely targeted to prospective customers, was increased from the first
half to the second half of fiscal 1996. The Company expects to maintain this
increased level of direct mail advertising expenditure during fiscal year 1997.
General and administrative expenses decreased from 18.9% of sales in 1995 to
17.1% of sales in 1996. This decrease was primarily the result of reduced
expense for product development and service for the Company's software product
line resulting from the divestiture of One-Write Plus(R) software, partially
offset by additional expense to support the expansion of the NEBS custom print
desks at Kinko's retail locations. The divestiture of One-Write Plus(R) is
expected to have a continued positive impact on general and administrative
expenses during fiscal year 1997.
During fiscal year1996, the Company recorded pretax exit costs of $3.0
million or approximately $0.12 per share related to a cost reduction program.
The exit costs were associated with closure of the Flagstaff manufacturing
facility and consisted of (1) approximately $1.8 million of cash payments for
post-employment benefits in conjunction with the termination of approximately
110 employees, and (2) approximately $1.2 million for anticipated non-cash
facilities and equipment write-offs. As of June 30, 1996, approximately $1.5
million has been expended related to the termination of approximately 101
employees, with the remainder expected to be expended during fiscal 1997. The
Company also incurred a pretax exit cost of approximately $2.0 million during
fiscal 1995 related to the integration of the Company's SYCOM subsidiary. As of
June 29, 1996, the integration had been completed and no amounts remained
unexpended. The combined cost savings of the programs were fully offset in the
fiscal year 1996 by increased expense associated with the Company's product and
channel initiatives.
During 1996, the Company incurred $ 1.0 million in after-tax costs associated
with the write down of its investment in GST Software, plc. It also incurred
additional after-tax costs of $2.2 million for the revaluation of certain of its
software assets as well as the divestiture of One-Write Plus software.
The Company will continue to seek opportunities to enhance the
25
<PAGE>
- --------------------------------------------------------------------------------
NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Management Discussion
and Analysis (continued)
cost structure of the Company, to improve operating efficiencies, and to fund
investments in support of the Company's strategy.
In fiscal 1996 the Company's adoption of Statement Financial Accounting
Standards (SFAS) No. 107, "Fair Value of Financial Instruments", was not
significant to the consolidated financial statements. 1995 versus 1994 Net sales
increased 5.0% from $251.3 million in 1994 to $263.7 million in 1995. This sales
increase was comprised of price increases of 2.1% or $5.3 million, volume growth
of approximately 1.8% or $ 4.5 million and the impact of the additional week in
fiscal year 1995 of 1.1% or $2.7 million. The primary source of growth for the
year was from increased sales of computer forms and image products. These
products accounted for approximately 57% and 34% of the net sales growth,
respectively.
Cost of sales decreased from 36.7% of sales in 1994 to 35.8% of sales in
1995. This decrease was the result of product price increases, stable material
costs and reduced spoilage. The Company was able to offset the impact of paper
cost increases with product price actions and cost reduction initiatives during
fiscal year 1995.
Selling and advertising expenses remained essentially stable increasing
only slightly from 34.1% of sales in fiscal 1994 to 34.2% of sales in fiscal
1995.
General and administrative expenses increased from 16.5% of sales in fiscal
1994 to 18.9% of sales in fiscal 1995. This increase was the result of costs
associated with servicing an expanded line of software products, improvements to
the Company's order processing system, and costs associated with retail channel
initiatives.
During fiscal 1995, the Company recorded a $2.0 million pretax charge
related to the closure of its SYCOM facility and an additional $1.4 million of
pretax expense to integrate SYCOM into existing NEBS facilities. During 1994,
the Company recorded a $5.45 million pretax charge relating to a restructuring
program.
In fiscal 1995, the Company's adoption of SFAS No. 112, "Employers'
Accounting for Postemployment Benefits", and SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", were not significant to the
consolidated financial statements.
Common Stock
High and low bid prices of the Company's Common Stock for each quarter on
the NYSE were as follows:
<TABLE>
<CAPTION>
Fiscal 1996 High Low Fiscal 1995 High Low
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1st Quarter 21 1/2 18 1st Quarter 19 1/2 17 1/4
2nd Quarter 23 3/4 19 2nd Quarter 19 1/4 16 1/4
3rd Quarter 22 1/8 16 1/2 3rd Quarter 20 17 3/4
4th Quarter 19 5/8 14 1/2 4th Quarter 22 3/8 16 3/4
</TABLE>
Independent Auditor's Report
To the Board of Directors and Stockholders of New England Business Services,
Inc.:
We have audited the accompanying consolidated balance sheets of New
England Business Service, Inc. and its subsidiaries as of June 29, 1996 and
June 30, 1995, and the related statements of consolidated income, consolidated
stockholders' equity, and consolidated cash flows for each of the three years
in the period ended June 29, 1996. These financial statements are the respon-
sibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the companies at June 29, 1996
and June 30, 1995 and the results of their operations and their cash flows for
each of the three years in the period ended June 29, 1996 in conformity with
generally accepted accounting principles.
[SIGNATURE OF DELOITTE & TOUCHE LLP]
Boston, Massachusetts
July 26, 1996
<PAGE>
Corporate Information
Board of Directors
Robert J. Murray
Chairman of the Board,
President and Chief Executive Officer,
New England Business Service, Inc.
Peter A. Brooke
Chairman, Advent International Corporation
Robert L. Gable
Chairman of the Board and Chief Executive
Officer, Unitrode Corporation
Benjamin H. Lacy
President, Clipper Ship Foundation, Inc.
Herbert W. Moller
Vice President - Finance and Strategic
Planning, North Atlantic Group,
The Gillette Company
Frank L. Randall, Jr.
Vice Chairman (retired), North American
Phillips Corporation
Jay R. Rhoads, Jr.
Chairman of the Board (retired),
New England Business Service, Inc.
Richard H. Rhoads
Chairman of the Board (retired),
New England Business Service, Inc.
Brian E. Stern
President, Office Document Products Group,
Xerox Corporation
Board Committees
Executive Committee
Benjamin H. Lacy
Robert J. Murray
Richard H. Rhoads
Audit Committee
Peter A. Brooke
Benjamin H. Lacy
Herbert W. Moller
Brian E. Stern
Nominating Committee
Frank L. Randall, Jr.
Jay R. Rhoads, Jr.
Organization and Compensation Committee
Peter A. Brooke
Benjamin H. Lacy
Richard H. Rhoads
Stock Option Committee
Peter A. Brooke
Benjamin H. Lacy
Richard H. Rhoads
NEBS Foundation Directors
Peter A. Brooke
Benjamin H. Lacy
Jay R. Rhoads, Jr.
Corporate Officers
Robert J. Murray
Chairman, President &
Chief Executive Officer
George P. Allman
VP, Retail Sales & Operations
Timothy D. Althof
Treasurer and Secretary
Edward M. Bolesky
VP, Direct Marketing,Telesales & Service
Robert S. Brown, Jr.
VP, Circulation & International
Russell V. Corsini, Jr.
VP, Chief Financial Officer
Michael F. Dowd, Esq.
VP, Strategic Planning and Legal Officer
John F. Fairbanks
VP, Corporate Controller
Thomas W. Freeze
VP, Finance & Administration - Retail
Linda A. Jacobs
VP, Business Management - Image Products
Kenneth R. Kaisen
VP, Information Systems & Technology Based
Marketing
Steven G. Schlerf
VP, Manufacturing & Technical Operations
Robert D. Warren
VP, Business Management - Business
Solutions
Peter J. Zarrilla
VP, Human Resources
Corporate Office
NEBS
500 Main Street
Groton, MA 01471
Telephone:
508-448-6111
Annual Meeting
The annual meeting of
stockholders will be held on
Friday, October 25, 1996 at 10:00 a.m. at the
Company's offices in Groton, Massachusetts.
Form 10-K Available
A copy of the annual report filed with the
Securities and Exchange Commission on
Form 10-K is available to shareholders,
without charge, upon written request to:
Timothy D. Althof
Treasurer and Secretary
NEBS
500 Main Street
Groton, MA 01471
Legal Counsel
Hill & Barlow, a Professional
Corporation,
One International Place
Boston, Massachusetts 02110
Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, Massachusetts 02110
Transfer Agent and Registrar
The First National
Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Internet Address
http://www.nebs.com
<PAGE>
[LOGO OF NEW ENGLAND BUSINESS SERVICE APPEARS HERE]
New England [GRAPHIC OF NEBS LOGO AND GRAPHIC
Business Service, Inc. DEPICTING NEBS CUSTOMERS ACROSS
500 Main Street THE UNITED STATES, CANADA AND THE
Groton, Massachusetts 01471 U.K., APPEARS HERE]
Printed on Recycled Paper
40% Pre-Consumer Content
10% Post-Consumer Content
<PAGE>
LIST OF SUBSIDIARIES
SYCOM, INC.
NEBS Business Forms Limited
Shirlite, Ltd.
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
New England Business Service, Inc.:
We consent to the incorporation by reference in Registration Statement Nos.
2-69422, 2-72662, 33-38925, 33-43900 and 33-56227 of New England Business
Service, Inc. on Form S-8 of our reports dated July 26, 1996, appearing and
incorporated by reference in the Annual Report on Form 10-K of New England
Business Service, Inc. for the year ended June 29, 1996.
Boston, Massachusetts
September 11, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-29-1996
<CASH> 6,508
<SECURITIES> 10,868
<RECEIVABLES> 33,979
<ALLOWANCES> (3,343)
<INVENTORY> 8,675
<CURRENT-ASSETS> 71,334
<PP&E> 102,278
<DEPRECIATION> 71,266
<TOTAL-ASSETS> 103,542
<CURRENT-LIABILITIES> 27,273
<BONDS> 0
0
0
<COMMON> 14,005
<OTHER-SE> 61,911
<TOTAL-LIABILITY-AND-EQUITY> 103,542
<SALES> 254,954
<TOTAL-REVENUES> 254,954
<CGS> 95,598
<TOTAL-COSTS> 139,936
<OTHER-EXPENSES> (815)
<LOSS-PROVISION> 3,033
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 21,055
<INCOME-TAX> 8,306
<INCOME-CONTINUING> 11,929
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,929
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.81
</TABLE>
