UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended March 27, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 1-11427
NEW ENGLAND BUSINESS SERVICE, INC.
----------------------------------
(Exact name of the registrant as specified in its charter)
Delaware 04-2942374
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Main Street
Groton, Massachusetts, 01471
----------------------------
(Address of principal executive offices)
(Zip Code)
(978) 448-6111
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 and 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
--- ---
The number of common shares of the Registrant outstanding on April 30, 1999
was 14,352,647.
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
- ----------------------------
<TABLE>
NEW ENGLAND BUSINESS SERVICE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands)
<CAPTION>
(unaudited)
Mar. 27, June 27,
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 8,024 $ 10,823
Accounts receivable - net 51,952 50,985
Inventories 22,312 20,970
Direct mail advertising and prepaid expenses 12,365 12,289
Deferred income tax benefit 5,993 5,993
-------- --------
Total current assets 100,646 101,060
Property and equipment - net 54,506 51,930
Property held for sale 1,277 1,131
Deferred income tax benefit 2,652 2,652
Goodwill - net 64,926 75,586
Other assets - net 77,679 75,218
-------- --------
TOTAL ASSETS $301,686 $ 307,577
======== ========
LIABILITIES AND STOCKHOLDERS'EQUITY
Current Liabilities
Accounts payable $ 14,752 $ 16,038
Accrued expenses 29,058 34,639
-------- --------
Total current liabilities 43,810 50,677
Revolving line of credit 127,500 141,000
Deferred income taxes 1,144 1,395
STOCKHOLDERS'EQUITY
Common stock 15,321 15,185
Additional paid-in capital 48,715 44,559
Accumulated other comprehensive income (2,939) (2,337)
Retained earnings 82,930 71,962
-------- --------
Total 144,027 129,369
Less: Treasury stock (14,795) (14,864)
-------- --------
Stockholders' Equity 129,232 114,505
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $301,686 $307,577
======== ========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
<PAGE>
<TABLE>
NEW ENGLAND BUSINESS SERVICE, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
Mar. 27, Mar. 28, Mar. 27, Mar. 28,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES $115,044 $ 98,002 $355,027 $255,268
OPERATING EXPENSES:
Cost of sales 42,284 37,438 130,783 96,906
Selling and advertising 43,305 33,186 133,390 85,782
General and administrative 17,087 14,999 52,453 39,637
-------- -------- -------- --------
Total operating expenses 102,676 85,623 316,626 222,325
INCOME FROM OPERATIONS 12,368 12,379 38,401 32,943
OTHER INCOME/(EXPENSE):
Interest income 133 73 185 180
Interest expense (2,065) (1,725) (6,545) (2,679)
Gain on pension settlement - - 259 556
-------- -------- -------- --------
INCOME BEFORE TAXES 10,436 10,727 32,300 31,000
PROVISION FOR INCOME TAXES 4,217 4,345 12,691 12,174
-------- -------- -------- --------
NET INCOME 6,219 6,382 19,609 18,826
-------- -------- -------- --------
OTHER COMPREHENSIVE INCOME 167 423 (602) 215
-------- -------- -------- --------
COMPREHENSIVE INCOME $ 6,386 $ 6,805 $ 19,007 $ 19,041
======== ======== ======== ========
PER SHARE AMOUNTS:
Basic Earnings Per Share $ .43 $ .46 $ 1.36 $ 1.37
======== ======== ======== ========
Diluted Earnings Per Share $ .42 $ .45 $ 1.32 $ 1.35
======== ======== ======== ========
Dividends $ .20 $ .20 $ .60 $ .60
======== ======== ======== ========
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 14,481 13,781 14,402 13,712
Plus incremental shares from assumed
conversion of stock options 480 300 428 269
-------- -------- -------- --------
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 14,961 14,081 14,830 13,981
======== ======== ======== ========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
<PAGE>
<TABLE>
NEW ENGLAND BUSINESS SERVICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(unaudited)
<CAPTION>
Nine Months Ended
Mar. 27 Mar. 28
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 19,609 $ 18,826
Adjustments to reconcile net income to cash:
Depreciation 9,897 8,091
Amortization 9,348 3,931
Deferred income taxes 82 (13)
Gain on pension curtailment 259 556
Other non-cash items 3,588 1,456
Changes in assets and liabilities:
Accounts receivable (4,167) (1,491)
Inventories and prepaid expenses (1,868) (3,016)
Accounts payable (916) (3,944)
Accrued expenses (4,650) 1,501
--------- ---------
Net cash provided by operating activities 31,182 25,897
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (13,246) (10,144)
Purchase of investments - (1,561)
Proceeds from sale of investments - 462
Proceeds from sale of building 545 -
Proceeds from sale of other assets 120 -
Acquisition of business (191) (82,706)
Other Assets (32) (386)
--------- ---------
Net cash used in investing activities (12,804) (94,335)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt (58,000) (19,650)
Proceeds from credit line 44,500 89,900
Proceeds from issuing common stock upon stock
option exercise 2,462 2,433
Purchase of treasury stock (1,489) -
Dividends paid (8,641) (8,224)
--------- ---------
Net cash provided by (used in)financing (21,168) 64,459
activities
EFFECT OF EXCHANGE RATE ON CASH (9) (32)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,799) (4,011)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 10,823 7,365
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,024 $ 3,354
========= =========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation/Accounting Policies
- --------------------------------------------
The consolidated financial statements contained in this report are unaudited
(except for June 27, 1998 amounts) but reflect all adjustments, consisting only
of normal recurring adjustments, which are, in the opinion of management,
necessary for a fair statement of the results of the interim periods reflected.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to applicable rules and regulations of the
Securities and Exchange Commission. The consolidated financial statements
included herein should be read in conjunction with the financial statements and
notes thereto, and the Independent Auditors' Report in the Company's Annual
Report on Form 10-K for the fiscal year ended June 27, 1998. Reference is made
to the accounting policies of the Company described in the notes to the
consolidated financial statements in the Company's Annual Report on Form 10-K
for the fiscal year ended June 27, 1998. The Company has consistently followed
those policies in preparing this report. The results of operations for the
interim period reported herein are not necessarily indicative of results to be
expected for the full year.
2. Acquisitions
- ----------------
On December 23, 1997, the Company acquired all of the outstanding common
stock of Rapidforms, Inc. ("Rapidforms"). As part of the purchase accounting
for the Rapidforms acquisition and included in the allocation of the
acquisition cost, a liability of $2,910,000 was recorded to cover the
anticipated costs related to a plan to close redundant Rapidforms'
manufacturing and warehouse facilities and to reduce manufacturing personnel.
Approximately $2,610,000 of the liability was allocated for employee
termination benefits and approximately $300,000 was designated for termination
of certain contractual obligations. The liability associated with the
Rapidforms integration plan remaining as of March 27, 1999 was $862,000. The
Company anticipates that the remaining liabilities will be resolved by the
second quarter of fiscal year 2000.
On June 3, 1998, the Company acquired all of the outstanding common stock of
McBee Systems, Inc. and all of the assets of McBee Systems of Canada, Inc.
(collectively "McBee"). As part of the purchase accounting for the McBee
acquisition and included in the allocation of the acquisition costs, a
liability of $2,642,000 was recorded to cover anticipated costs (primarily
employee termination benefits) related to a plan to close redundant McBee
manufacturing and warehouse facilities and to reduce manufacturing personnel.
The liability associated with the McBee integration plan remaining as of March
27, 1999 was $1,923,000.
Should the integration liabilities for McBee and Rapidforms be settled at
amounts less than their original estimates, the excess will reduce the amount
of recorded goodwill.
<PAGE>
3. Inventories
- --------------
Inventories are carried at the lower of first-in, first-out cost or market.
Inventories at March 27, 1999 and June 27, 1998 consisted of:
<TABLE>
<CAPTION>
(unaudited)
Mar. 27, June 27,
1999 1998
----------- -----------
<S> <C> <C>
Raw paper $ 1,847,000 $ 1,622,000
Business forms, related office products
and shipping, warehouse and packaging
supplies 20,465,000 19,348,000
---------- -----------
Total $22,312,000 $20,970,000
=========== ===========
</TABLE>
4. New Accounting Pronouncements
- -------------------------------
In March 1998, the AICPA issued Statement of Position 98-1 "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use." The
Company has adopted this Statement in the current fiscal year. In the current
year-to-date period approximately $1,164,000 in costs which previously would
have been expensed have been capitalized under the caption "Property and
equipment, net." The Company also implemented the disclosure standard SFAS No.
130 "Reporting Comprehensive Income" in the first quarter of fiscal year 1999.
The AICPA has also issued Statement of Position 98-5 "Reporting on the Costs of
Start-Up Activities." The policies promulgated by this statement had
previously been followed by the Company and thus its implementation will not
impact the consolidated financial statements.
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
131 "Disclosures about Segments of an Enterprise and Related Information." In
February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure about
Pensions and Other Postretirement Benefits." In June, 1998, the FASB issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
The former two statements are considered to be "disclosure only" standards and
are not anticipated to have a material impact on the consolidated financial
statements (these will be implemented in fiscal year 1999). The latter
standard does have a direct impact on the consolidated financial statements and
will be adopted by the Company in fiscal year 2000. The Company is currently
evaluating the impact this standard will have on its consolidated financial
statements.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
- -------------------------------------------------------------------
and Results of Operations
- ---------------------------------
Overview
- --------
New England Business Service, Inc. (the "Company"), a Delaware corporation
founded in 1952, incorporated in Massachusetts in 1955 and reincorporated in
Delaware in 1986, designs, produces and distributes business forms, checks,
envelopes, labels, greeting cards, signs, stationery and related printed
products and distributes packaging, shipping and warehouse supplies, software,
work clothing and other business products through mail order, direct sales,
telesales, dealers and the internet to small businesses throughout the United
States, Canada, the United Kingdom and France.
Any sentence followed by an asterisk (*) in this section constitutes a
forward-looking statement which reflects the Company's current expectations.
There can be no assurance the Company's actual performance will not differ
materially from those projected in such forward-looking statements due to the
important factors described in the section to this Management's Discussion and
Analysis of Financial Condition and Results of Operations titled "Forward-
Looking Information and Risk Factors to Future Performance."
Results of Operations
- ---------------------
Net sales increased $17.0 million or 17.4% to $115.0 million in the third
quarter of fiscal year 1999 from $98.0 million in last year's third quarter.
The sales increase was composed of approximately a $17.8 million, or 18.1%,
increase associated with the acquisition of McBee Systems, Inc. and all of the
assets of McBee Systems of Canada, Inc. (collectively "McBee") during fiscal
year 1998, and a slight decline in sales of the Company's other business units.
McBee was acquired subsequent to the end of last year's first quarter.
Net sales increased $99.8 million or 39.1% to $355.0 million for the first
nine months of fiscal year 1999 from $255.3 million in last year's first nine
months. The sales increase was composed of approximately a $94.1 million, or
36.9%, increase associated with the acquisition of Rapidforms and McBee during
fiscal year 1998, and a $5.7 million, or 2.2%, increase in sales of the
Company's other business units.
<PAGE
For the third quarter of fiscal year 1999, cost of sales decreased to 36.8%
of sales from 38.2% in last year's comparable period. This decrease was due to
an increase in revenue generated by higher margin products associated with the
recent acquisition of McBee and increased efficiencies in the Company's U.S and
Canadian operating units primarily selling business forms and related printed
products. These factors counteracted the impact of $184,000 in costs incurred
in fiscal year 1999 in conjunction with activities related to integration of
manufacturing facilities among Rapidforms, McBee and the Company's other plants
as well as decreasing margins due to product mix shifts away from the Company's
core printed products at NEBS and Rapidforms. Cost of sales as a percent of
sales is anticipated to remain consistent with the third quarter's results for
the remainder of the fiscal year.*
For the first nine months of fiscal year 1999, cost of sales decreased to
36.8% of sales from 38.0% in last year's comparable period. This decrease was
due to similar reasons as in the third quarter results enumerated above, as
well as a non-recurring increase in freight costs in the previous year's first
quarter as a result of the UPS strike. Costs of $1,066,000 were also incurred
during the nine months of fiscal year 1999 related to plant integration
activities among Rapidforms, McBee and the Company's other plants.
Selling and advertising expense increased to 37.6% of sales in the third
quarter of fiscal year 1999 from 33.9% of sales in last year's comparable
quarter. The increase was due primarily to the direct sales force employed by
McBee which generates a higher selling and advertising expense as a percentage
of sales than in the Company's other businesses. The Company also incurred
$162,000 in costs during the quarter in connection with efforts to harmonize
product offerings among Rapidforms, McBee and the Company. In addition,
amortization expense related to the intangible assets of acquisitions climbed
from 2.4% of sales in the third quarter of fiscal year 1998 to 2.8% of sales in
the third quarter of fiscal year 1999 due to the effect of intangible assets
created in the McBee acquisition. Selling and advertising expense as a
percentage of sales is expected to remain consistent with the third quarter for
the remainder of the fiscal year.*
Selling and advertising expense increased to 37.6% of sales in the first nine
months of fiscal year 1999 from 33.6% of sales in last year's comparable
period. The increase was due to similar reasons as outlined above regarding the
second quarter results; the addition of McBee with its direct sales force
impact, $547,000 of costs related to product harmonization and the increase in
amortization expenses from year to year.
General and administrative expense decreased to 14.9% of sales in the third
quarter of fiscal year 1999 from 15.3% in last year's comparable quarter. The
decline was principally the result of a lower ratio of general and
administrative expense to sales associated with the Company's McBee subsidiary.
This mix change offset $215,000 of general and administrative spending related
primarily to systems integration efforts among Rapidforms, McBee and the
Company. Even with the decline above, during the third quarter, the Company
continued to increase spending levels associated with its program to re-
engineer financial and operational information systems. It should be noted that
the adoption of AICPA Statement of Position 98-1 reduced amounts charged to
expense in fiscal 1999 by $413,000 and $1,164,000 for the third quarter and the
third quarter year-to-date periods respectively. General and administrative
expense as a percent of sales is expected to remain consistent with the third
quarter throughout the remainder of the fiscal year.*
<PAGE
General and administrative expense decreased to 14.8% of sales in the first
nine months of fiscal year 1999 from 15.5% in last year's comparable nine
months. The decline was principally the result of a lower ratio of general and
administrative expense to sales associated with the Company's recently acquired
businesses, offset in part by spending for systems integration among
Rapidforms, McBee and the Company of $582,000.
Interest expense remained consistent with the prior year's third quarter at
1.8% of sales in the third quarter of fiscal year 1999. Interest expense was
1.8% of sales for the first nine months of fiscal year 1999 compared to 1.0% of
sales in the prior year's comparable period. This increase in expense was
attributable to debt incurred to finance the acquisition of Rapidforms in
December, 1997 and McBee in June of 1998.
The provision for income taxes as a percentage of pre-tax income remained
consistent with the third quarter of fiscal year 1998 at 40.4% compared to
40.5% last year. On a year-to-date basis, the overall tax rate has remained
consistent at 39.3% this year and the prior year. The mix of income or losses
from different businesses owned by the Company in any given period, including
foreign operations, effects the Company's consolidated tax rate.
In March 1998, the AICPA issued Statement of Position 98-1 "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." The
Company has adopted this Statement in the current fiscal year. In the current
year-to-date period approximately $1,164,000 in costs which previously would
have been expensed have been capitalized under the caption "Property and
equipment, net." The Company also implemented the disclosure standard SFAS No.
130 "Reporting Comprehensive Income" in the first quarter of fiscal year 1999.
The AICPA has also issued Statement of Position 98-5 "Reporting on the Costs of
Start-Up Activities." The policies promulgated by this statement had
previously been followed by the Company and thus its implementation will not
impact the financial statements.
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
131 "Disclosures about Segments of an Enterprise and Related Information." In
February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure about
Pensions and Other Postretirement Benefits." In June, 1998, the FASB issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
The former two statements are considered to be "disclosure only" standards and
are not anticipated to have a material impact on the consolidated financial
statements (these will be implemented in fiscal year 1999). The latter
standard does have a direct impact on the consolidated financial statements and
will be adopted by the Company in fiscal year 2000. The Company is still
evaluating the impact of this standard on its consolidated financial
statements.
<PAGE
YEAR 2000
- ---------
During fiscal year 1996, the Company established a five year plan to upgrade
the majority of its critical operational information systems. This information
systems reengineering plan was developed to enhance system performance and to
address Year 2000 issues. The Company has experienced delays in certain facets
of the reengineering effort, and as a result has modified its Year 2000 plan to
focus on system remediation rather than system replacement. The majority of the
Company's operational information systems have been inventoried and assessed
for Year 2000 compliance, and approximately 45% of the Company's mission
critical systems have been remediated as of March 27, 1999. The Company
believes, based on available information, that it will be able to complete the
remediation of all critical operating systems by June 1999, which is expected
to leave an appropriate amount of time prior to the advent of the Year 2000 to
perform detailed system testing and compliance verification.*
In addition, the Company is communicating with key suppliers, vendors and
business partners in order to assess their ability to maintain normal
operations in the Year 2000. Such key suppliers include, but are not limited
to, MCI WorldCom, R.R. Donnelley and Sons, Appleton Papers, and United Parcel
Service of America, Inc. To the extent that the Company is not satisfied with
the status of a vendor's Year 2000 compliance or remediation plans, the Company
expects to develop and implement appropriate contingency plans.* Such
contingency plans will include the development of alternative sources for the
product or service provided by the non-compliant vendor. The Company is
currently not aware of any major Year 2000 compliance problems with any of its
key suppliers. In addition, the Company will monitor the Year 2000 activities
of U.S., Canadian and U.K. postal services and pertinent local and regional
utilities. However, due to the lack of alternative sources for such services
the Company can make no assurances that Year 2000 related disruptions in
postal, electrical or similar services would not have a material adverse effect
on the Company's financial performance or long-term prospects.
The Company has also inventoried and assessed the majority of the systems
associated with the functioning of its plant, property and equipment. The
date-related issues associated with the proper functioning of such assets are
insignificant and are not expected to represent a material risk to the
Company.* Further, the Company has approximately 1.9 million active
customers, and the failure of any one customer due to a Year 2000 issue would
not have a material adverse impact on the Company's financial performance or
long-term prospects.*
The Company's cash outlays for capital improvements and period expenses
associated with the information systems reengineering project and for Year
2000 compliance were projected to cumulatively total $21 million during fiscal
years 1997 through 2000, of which over one-half has been spent as of March 27,
1999. Due to the modification of the Company's plans to focus on remediation
rather than replacement, $7 million has been allocated in the Company plans for
remediation in fiscal year 1999 and another $2-3 million is likely to be
allocated in fiscal year 2000.* While the Year 2000 issue involves additional
costs to the Company, the Company believes, based on available information,
that it will be able to manage the Year 2000 transition of its internal systems
without having any material adverse effect on its business operations or
financial prospects.*
<PAGE
For a further discussion of the risks and uncertainties associated with the
Year 2000 issue and the Company's reliance on individual third-party vendors to
provide raw materials and services critical to the Company's operation, see
"Forward Looking Information and Risk Factors to Future Performance" included
in this Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
- -------------------------------
Cash provided by operating activities for the nine months ended March 27,
1999 was $ 31.2 million and represented an increase of $5.3 million from the
$25.9 million provided in the comparable period last year. The increase in
operating cash flow was the result of an increase in net income and non-cash
depreciation and amortization charges between the comparable periods, offset by
increased investment in working capital.
Working capital at March 27, 1999 amounted to $56.7 million, including $8.0
million of cash and short term investments. At June 27, 1998, working capital
amounted to $50.4 million, including cash and short term investments of $10.8
million. The $6.3 million increase in working capital during the year is
principally due to lower current tax liabilities and lower accrued incentives
at March 27, 1999. Of the $8.0 million cash balance at March 27, 1999, an
additional $3.0 million of debt under the Company's revolving line of credit
was paid down on the first working day of the subsequent quarter. During the
quarter and the first nine months of fiscal year 1999, $1,342,000 was spent to
repurchase 47,700 shares of the Company's common stock.
Capital expenditures for the nine months ended March 27, 1999 were $13.2
million versus the $10.1 million expended during last year's comparable period.
Capital expenditures in the first three quarters of fiscal year 1999 and fiscal
year 1998 included significant expenditures for information systems
infrastructure, including an upgrade to the Company's mainframe computer in
1998. In addition the Company constructed a $1.7 million addition to their
facility in Midland, Ontario in the first quarter of fiscal year 1999.
Significant upgrades to workspaces and furniture in the Groton, Massachusetts
facility also took place during the first quarter of fiscal year 1999 in order
to accommodate more employees at that location. The Company anticipates that
total capital outlays will approximate $17.0 million in fiscal year 1999, an
increase of $3.7 million, or 28%, over the $13.3 million expended during fiscal
year 1998.*
In addition to its present cash and short-term investment balances, the
Company has consistently generated sufficient cash internally to fund its needs
for working capital, dividends and capital expenditures. In anticipation of
the acquisitions in 1998, the Company amended on several occasions the terms of
its committed, unsecured, revolving line of credit agreement so that the total
committed line currently stands at $165 million. At March 27, 1999, the
Company had $127.5 million of outstanding debt under this credit facility. The
credit agreement contains various restrictive covenants which, among other
things, require the Company to maintain certain minimum levels of consolidated
net worth and specific consolidated debt and fixed charge ratios. The Company
is currently in compliance with these covenants.
<PAGE
In order to effectively fix the interest rate on a portion of the debt
outstanding under the revolving line of credit, the Company has entered into
interest rate swap agreements with several of the banks party to the credit
agreement. These swap agreements contain notional principal amounts and other
terms determined with respect to the Company's forecasts of future cash flows
and borrowing requirements. At March 27, 1999, the notional principal amount
outstanding of the interest rate swap agreements totaled $90 million.
In order to minimize the Company's exposure to foreign currency fluctuations
with respect to intercompany loans to foreign subsidiaries and affiliates, the
Company has entered into short-term forward exchange rate contracts with a
major commercial bank in currency amounts directly corresponding to the short-
term intercompany loan amounts. At March 27, 1999, the Company had outstanding
forward exchange rate contracts for $ 2.0 million worth of Pound Sterling and
$92,100 worth of French Francs.
The Company anticipates that its current cash on hand, cash flow from
operations and additional availability under the line of credit will be
sufficient to meet the Company's liquidity requirements for its operations and
capital expenditures during fiscal year 1999.* However, the Company may pursue
additional acquisitions from time to time which would likely be funded through
the use of available cash, the issuance of stock, the obtaining of additional
credit, or any combination thereof.*
<PAGE>
Forward-Looking Information and Risk Factors to Future Performance
- ------------------------------------------------------------------
From time to time, the Company or its representatives have made or may make
forward-looking statements that reflect the Company's current expectations,
orally or in writing, in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, elsewhere in this Quarterly
Report on Form 10-Q, in other reports filed under the Securities Act of 1934,
as amended, in press releases or in statements made with the approval of an
authorized executive officer. The words or phrases "is expected," "will
continue," "anticipates," "estimates," or similar expressions in any of these
communications are intended to identify "forward-looking statements" within
the meaning of Section 21E of the Securities Exchange Act of 1934 and Section
27A of the Securities Act of 1933, as enacted by the Private Securities
Litigation Reform Act of 1995.
There can be no assurance the Company's actual performance will not differ
materially from that projected in such forward-looking statements due to
important factors including but not limited to those described below. These
factors include increasing competition, economic cycles, technological change,
paper and postal costs, customer preferences, response rates, prospect lists,
governmental regulations, inherent risks in acquisitions, disruptions to the
Company's operating systems, Year 2000 risks to computer systems and reliance
on vendors, all of which are described in further detail below.
Increasing Competition; Pressure on Price and Margins
The Company operates in a highly competitive marketplace, in which it
competes with a variety of mail order marketers, retailers, dealers,
distributors and local printers in the marketing of business forms, checks,
stationery and business supplies to small businesses. Over the course of the
past decade, providers of business forms, checks, and stationery have
experienced growth in excess manufacturing capacity. In addition, the Company
has faced increasing competition from low-price, high-volume office supply
chain stores. Improvements in the cost and quality of printing technology have
increasingly allowed dealers, distributors and local printers to gain access
to products of complex design and functionality at competitive prices. The
Company currently anticipates that these trends will continue. No assurance
can be given that competition will not have an adverse effect on the Company's
business. In addition, if any of the Company's competitors were to seek to
gain or retain market share by reducing prices or increasing promotional
discounting, the Company could be compelled to reduce its prices or match the
discounts and thereby reduce its gross margin and profitability.
Economic Cycles; Variability of Performance.
The Company's standardized forms and check business accounts for a majority
of its sales and profitability. The forms and check industry is highly
competitive and generally characterized by mature products designed within
well-established industry standards. The Company relies, in part, on net small
business formations for growth in demand for its standardized form and check
products. As a result, the Company's growth rate is closely correlated to the
strength of its target small business market. The Company's revenue trends and
operating profitability have been materially adversely affected by recession-
related contractions in the small business economy in the past. The Company
will continue to experience quarterly and annual variations in net sales and
net income as a result of changes in the levels of small business formations
and failures or from other economic events having an impact on small
businesses generally.
<PAGE>
Technological Change; Product Obsolescence and Risks to Competitive
Advantage.
The Company's standardized business forms and related products are designed
to provide small businesses with the financial and business records required
to manage a business. Steady technological improvements have provided small
businesses in several market segments with alternative means to enact and
record business transactions. PC-based, point-of-sale, electronic form and
electronic transaction systems have been designed to automate several of the
functions performed by the Company's products. The price and performance
characteristics of personal laser and ink-jet printing equipment have improved
markedly in the recent past, thereby allowing small businesses a cost-
competitive means to print low-quality versions of Company forms on plain
paper. In addition, the Internet has the potential to eliminate the Company's
advantage of scale in direct marketing by providing all competitors with equal
access to customers who purchase products over the Internet. In response, the
Company has focused resources on the acquisition, development and procurement
of new products less susceptible to technological obsolescence and has
aggressively moved to develop a comprehensive electronic catalog of products
to be utilized over the Internet. It should be noted that the Company's small
business customers have to-date proven to be relatively slow adopters of new
technology which has minimized the adverse impact of these technological
trends. However, the Company can give no assurance that continued technological
change will not have a material adverse impact on the long-term prospects for
the Company's business.
Paper Costs and Postal Rates; Risks to Margins.
The cost of paper used to produce the Company's products, catalogs and
advertising materials constitutes, directly or indirectly, approximately 30% of
consolidated revenues. In addition, the Company is reliant on the U.S. Postal
Service for delivery of most of the Company's promotional materials. Coated
paper costs for promotional materials have increased steadily over the past few
years until recently. In addition, certain segments of the paper market have
demonstrated considerable price volatility in that same time period. Postal
rates for third class mail have also increased sporadically and at times
significantly in the past decade. The Company has been able to counteract the
impact of postal and paper cost increases with cost reduction programs and
selected product price increases. Due to increased competition in the small
business forms, checks, stationery and supplies marketplace, no assurance can
be given that the Company will be able to increase product pricing to
compensate for future paper or postal cost increases. The inability to raise
prices in response to paper or postal cost increases could reduce the Company's
operating profitability and net income.
<PAGE
Customer Preferences; Investment Requirements & Sales Risk.
The Company's core business is the direct marketing, manufacturing and
distribution of standardized forms, checks, and related products to small
businesses. Newly-formed small business owners are increasingly demanding
custom and color-coordinated products to create an image in addition to
enabling the management of business transactions. The relative prices charged
by local printers, contract printers and dealers for providing these custom
and full-color printed products have been declining due to technological
advances in composition systems and printing equipment. As a direct result,
the cost advantage inherent to the Company's standardized forms and related
printed products has declined. The Company is responding with focused
investment in the infrastructure required to sell, compose, print and
distribute custom and full-color products. This effort includes installation
of an integrated and flexible information system architecture and the
reengineering of many of the Company's basic business functions. In addition,
the Company expects to continue to invest in its direct sales, dealer and
Internet-based channels that more readily support the interactive marketing
required to sell custom and full-color products. However, the Company can give
no assurance that the rate of decline in demand for standardized forms and
related printed products will not accelerate, that the electronic commerce
investments will prove successful, or that the information systems
reengineering effort will not result in operating inefficiencies or unplanned
expense. If any of such potential risks materialize, the Company's future net
sales and net income could be materially adversely affected.
Response Rates and Customer Retention; Sales Risk.
Customer and prospect response rates to the Company's catalogs and
promotional materials have remained relatively stable over time. Continued
stability in prospect response and customer retention is primarily dependent
on the continued relevancy of the range of the Company's products to the small
business marketplace. New product introductions, to date, have generally
offset declines in response rates and retention attributable to product
obsolescence. However, the Company can make no assurances that its new product
introductions will continue to offset the rate of obsolescence of its
standardized forms products in the future. An increase in the rate of product
obsolescence or a decline in new product introductions could negatively impact
response rates and customer retention which, in turn, would have a materially
adverse impact on the Company's long-term financial performance.
Prospect Lists; Sales Risk.
The Company's direct mail business has been characterized by a consistent
level of average annual sales per customer. As such, net sales growth is
dependent, in part, on an increase in customers served by the Company. Growth
in the total number of direct mail customers served by the Company depends
upon continued access to high-quality lists of newly-formed small businesses.
In the past, the Company's ability to compile proprietary prospect lists was a
distinct competitive advantage. However, the external list compilation
industry has grown more sophisticated and currently markets comprehensive
lists of newly-formed businesses to the Company and its competitors. At
present, the Company relies on the speed of its delivery of promotional
materials to prospective customers to gain advantage over competitors.
However, the Company can make no assurances that its promotional material
delivery advantage will be maintained over time. A deterioration in the
Company's delivery advantage could have a materially adverse impact on the
Company's business and financial performance.
<PAGE>
Governmental Regulations; Sales Risk.
Future governmental legislation or regulation including, but not limited to,
the following potential regulatory actions have the potential to have a
material adverse impact on the Company's business prospects: 1) enactment
of privacy laws could constrain the Company's ability to mail promotional
materials or to telemarket to small businesses; 2) modification to U.S. Postal
Service regulations with the effect of increasing postal rates or reducing
postal delivery efficiency could have an adverse impact on the Company's
marketing efforts; and 3) institution of a "general sales tax", "value added
tax" or similar national tax could reduce demand for the Company's products.
Although the Company has no current knowledge or belief that such adverse
regulation, of a material nature, or similar governmental regulation is
pending or imminent, it can make no assurance that adverse governmental
regulation will not have a material adverse impact on the Company's business
in the future.
Acquisitions; Inherent Risk.
From time to time the Company has acquired, or may acquire in the future, a
majority ownership position in a company or substantially all of the assets
related to a specific line of business. Such acquisitions are undertaken to
enhance the Company's competitive position in the marketplace or to gain
access to new markets, products, competencies or technologies. The Company has
performed in the past and will perform in the future a business, financial and
legal due diligence review in advance of an acquisition to corroborate the
assumptions critical to projected future performance of an acquired entity and
to identify the risks inherent to such projections. However, the Company can
make no assurances that its due diligence review will identify all potential
risks associated with the purchase, integration or operation of any acquired
enterprise. If any of such potential risks materialize, the Company's future
net sales and net income could be materially adversely affected.
Operating Systems; Disasters and Disruptions.
The Company has become increasingly dependent upon its manufacturing,
administrative and computer processing infrastructure and operations to
process its high volume of small dollar value orders on an efficient, cost
competitive and profitable basis. The Company has implemented commercially
reasonable safeguards to reduce the likelihood of property loss or service
disruptions and has secured property and business interruption insurance to
minimize the adverse financial consequences arising from a select group of
risks. However, the Company can make no assurances that its infrastructure and
operations are not susceptible to loss or disruption, whether caused by (i)
intentional or unintentional acts of Company personnel or third party service
providers, or (ii) natural disasters including, but not limited to,
earthquakes, fire or severe storms. In addition, the Company can make no
assurance that its insurance coverage will adequately respond to all potential
causes of property loss or service disruption. In the event that any such acts
or disasters lead to property loss or operating system disruption for which
property and business interruption insurance coverage is unavailable or
insufficient, the Company's financial performance and long-term prospects
could be materially adversely affected.
<PAGE
Computer Systems; Year 2000 Impact
The Company and its vendors have become increasingly reliant on computer
systems to process transactions and to provide relevant business information.
The majority of computer systems designed prior to the mid-1990s are
susceptible to a well-publicized problem associated with an inability to
process date-related information beyond the Year 2000. Without proactive
modifications to routines and programs, many systems of the Company and its
vendors could be rendered useless as early as June of 1999. The Company has
created a comprehensive plan to address the Year 2000 issue with respect to
both internal systems and to systems employed by critical vendors. However,
the Company can make no assurance that all Year 2000 risks to Company and
critical vendor systems can be identified and successfully negated through
modification of existing programs or other means prior to June of 1999. In the
event that any Year 2000 program deficiencies remain undetected, or in the
event that any programming modifications do not adequately address the Year
2000 issues, the Company or its vendors could experience critical operating
system failures. Any such operating system failures could have a material
adverse impact on the Company's financial performance and long-term prospects.
Raw Materials and Services; Reliance on Certain Vendors
The Company has become increasingly reliant on certain individual third-
party vendors to provide raw materials and services critical to the Company's
operations in order to gain the advantage of volume-related favorable pricing
and, in some instances, favorable contract terms. Such critical vendors and the
nature of the products or services provided include, but are not limited to,
governmental postal services for the delivery of marketing materials and in
some countries, customer packages, MCI WorldCom for the provision of toll-free
telephone services, R.R. Donnelley and Sons, Inc. for printing and processing
of marketing materials, Appleton Papers, Inc. for carbonless paper, and United
Parcel Service of America, Inc. for product delivery services. In the past, the
Company has been adversely affected by disruption in the services provided or
lack of availability of the products produced by its critical vendors resulting
from a variety of factors including labor actions, inclement weather,
disasters, systems failures and market conditions. The Company can make no
assurance that its critical vendors will remain capable of providing the level
of service or quantity of product required to support the Company's business,
nor that the Company could immediately identify alternative sources for
provision of the product or service on a similar cost basis. Any such service
disruption or product shortage could have a material adverse impact on the
Company's operating performance and net income.
Other Risks; Variability of Performance
The Company has experienced in the past and will experience in the future
quarterly and annual variations in net sales and net income as a result of many
factors, including, but not limited to, the timing of catalog mailings, catalog
response rates, product mix, margins on new product introductions, the timing
and levels of selling, general and administrative expenses, cost reduction
programs, timing of holidays and inclement weather. The Company's planned
operating expenses are based on sales forecasts. If net sales performance falls
below expectations in any given quarter or year, the Company's operating
results could be materially adversely affected.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
The Company is exposed to a number of market risks, primarily the effects
of changes in foreign currency exchange rates and interest rates. Investments
in and loans and advances to foreign subsidiaries and branches, and their
resultant operations, denominated in foreign currencies, create exposures to
changes in exchange rates. The Company's utilization of its revolving line of
credit creates an exposure to changes in interest rates. The effect of changes
in exchange rates and interest rates on the Company's earnings generally has
been small relative to other factors that also affect earnings, such as
business unit sales and operating margins. For more information on these
market risks and financial exposures, see Note 1 and Note 5 of the Notes to
Consolidated Financial Statements included in the Annual Report on Form 10-K
for the year ended June 27, 1998. The Company does not hold or issue financial
instruments for trading, profit or speculative purposes.
In order to minimize the Company's exposure to foreign currency fluctuations
with respect to the short-term intercompany loans created to fund the
operating cash requirements of the Company's European operations (see Note 2
in the Notes to Consolidated Financial Statements included in the Annual Report
on Form 10-K for the year ended June 27, 1998), the Company has entered into
forward exchange rate contracts for the amount of the loans and associated
interest. The currencies hedged are the British pound and the French franc.
While there are no specified repayment dates for the loans, the forward
exchange rate contracts are of limited duration and are replaced periodically
as they mature.
In order to effectively convert the interest rate of a portion of the
Company's debt from a Eurodollar based floating rate to a fixed rate, the
company has entered into interest rate swap agreements with major
commercial banks. Although the Company is exposed to credit and market risk in
the event of future nonperformance by any of the banks, management has no
reason to believe that such an event will occur.
Upon reviewing its derivatives and other foreign currency and interest rate
instruments, based on historical foreign currency rate movements and the fair
value of market-rate sensitive instruments at year-end, the Company does not
believe that near term changes in foreign currency or interest rates will have
a material impact on its future earnings, fair values or cash flows.
<PAGE
PART II - OTHER INFORMATION
- ---------------------------
Item 1. 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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- --------------------------------------------------
Not applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
- ----------------------------------------
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
Not applicable.
Item 5. OTHER INFORMATION
- --------------------------
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
a. Exhibits
Exhibit No. Description
---------- -----------
10(a)* Change in Control agreement dated February 23, 1999 between
the Company and Joel S. Hughes.
10(b) Third Amendment to Amended and Restated Revolving Credit
Agreement dated as of March 24, 1999, by and among New
England Business Service, Inc., BankBoston, N.A. and Fleet
National Bank (together with certain other financial
institutions, the "Banks"), BankBoston, N.A., as agent for
the Banks, and Fleet National Bank, as documentation agent
for the Banks.
11 Statement re: computation of per share earnings.
27 Financial Data Schedule
* Identifies a management contract or other compensatory plan or arrangement
in which an executive officer or director of the Company participates.
b. Reports on Form 8-K.
On March 17, 1999, on Form 8-K, the Company announced that it expected
revenue and earnings for the third fiscal quarter ending March 27, 1999 to be
below current analysts' estimates.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NEW ENGLAND BUSINESS SERVICE, INC.
----------------------------------
(Registrant)
May 11, 1999 /s/Daniel M. Junius
- ----------------- --------------------
Date Daniel M. Junius
Senior Vice President-Chief
Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
<TABLE>
Exhibit 11
----------
New England Business Service, Inc.
Statement Re Computation of Per Share Earnings
(In Thousands Except Per Share Data)
(unaudited)
<CAPTION>
Nine Months Ended
Mar. 27, Mar. 28
1999 1998
-------- --------
<S> <C> <C>
Net Income (a) $19,609 $18,826
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING (b) 14,402 13,712
Plus incremental shares from assumed
conversion of stock options 428 269
-------- --------
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING(c) 14,830 13,981
======== ========
PER SHARE AMOUNTS:
Basic Earnings Per Share (a)/(b) $ 1.36 $ 1.37
======== ========
Diluted Earnings Per Share (a)/(c) $ 1.32 $ 1.35
======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF NEW ENGLAND BUSINESS SERVICE, INC. AND ITS
SUBSIDIARIES AS OF MARCH 27, 1999 AND THE RELATED STATEMENTS OF CONSOLIDATED
INCOME AND CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-26-1999
<PERIOD-START> JUN-28-1998
<PERIOD-END> MAR-27-1999
<CASH> 8,024
<SECURITIES> 0
<RECEIVABLES> 56,767
<ALLOWANCES> 4,815
<INVENTORY> 22,312
<CURRENT-ASSETS> 100,646
<PP&E> 142,845
<DEPRECIATION> 88,339
<TOTAL-ASSETS> 301,686
<CURRENT-LIABILITIES> 43,810
<BONDS> 0
0
0
<COMMON> 15,321
<OTHER-SE> 113,911
<TOTAL-LIABILITY-AND-EQUITY> 301,686
<SALES> 355,027
<TOTAL-REVENUES> 355,027
<CGS> 130,783
<TOTAL-COSTS> 130,783
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,038
<INTEREST-EXPENSE> 6,545
<INCOME-PRETAX> 32,300
<INCOME-TAX> 12,691
<INCOME-CONTINUING> 19,609
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,609
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.32
</TABLE>
February 22, 1999
Mr. Joel S. Hughes
24 Hillington Drive
North Easton, MA 02356
Dear Joel:
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.
<PAGE> 1
(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
("Outstanding Company Voting Securities"), including shares of common
stock ($1.00 par value) of the Company (the "Stock"), 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 July 1, 2001;
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 the purpose of this Agreement a "Change
in Control" shall mean:
(a) The acquisition by any Person of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 35% or more of either (i) the then outstanding shares of the Stock
or (ii) the combined voting power of the Outstanding Company Voting
Securities; provided, however, that the following acquisitions shall
not constitute a Change of Control: (A) any acquisition directly from
the Company (excluding an acquisition by virtue of the exercise of a
conversion privilege); (B) any acquisition by the Company or by any
corporation controlled by the Company; (C) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by
the Company or any corporation controlled by the Company; or (D) any
acquisition by any corporation pursuant to a consolidation or merger,
if, following such consolidation or merger, the conditions describe
in clauses (i), (ii) and (iii) of subsection (c) of this paragraph
are satisfied; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") ceasing for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director (other than a director designated by a Person who
has entered into an agreement within the Company to effect a
transaction described in clauses (a) or (c) of this Section)
subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote or
resolution of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual
were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office
occurs
<PAGE> 2
as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board;
or
(c) Adoption by the Board of a resolution approving an
agreement of consolidation of the Company with or merger of the
Company into another corporation or business entity in each case,
unless, following such consolidation or merger, (i) more than 60% of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such consolidation or merger and/or the
combined voting power of the then outstanding voting securities of
such corporation or business entity entitled to vote generally in the
election of directors (or other persons having the general power to
direct the affairs of such entity) is then beneficially owned,
directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Stock and Outstanding Company Voting Securities
immediately prior to such consolidation or merger in substantially
the same proportions as their ownership, immediately prior to such
consolidation or merger, of the Stock and Outstanding Company Voting
Securities, as the case may be, (ii) no Person (excluding the
Company, any employee benefit plan (or related trust) of the Company
or such corporation or other business entity resulting from such
consolidation or merger and any Person beneficially owning,
immediately prior to such consolidation or merger, directly or
indirectly, 35% or more of the Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or
indirectly, 35% or more of, respectively, the then outstanding shares
of common stock of the corporation resulting from such consolidation
or merger and/or the combined voting power of the then outstanding
voting securities of such corporation or business entity entitled to
vote generally in the election of its directors (or other persons
having the general power to direct the affairs of such entity) and
(iii) at least a majority of the members of the board of directors
(or other group of persons having the general power to direct the
affairs of the corporation or other business entity) resulting from
such consolidation or merger were members of the Incumbent Board at
the time of the execution of the initial agreement providing for such
consolidation or merger; provided, that any right to receive
compensation pursuant to Section 5 below which shall vest by reason
of the action of the Board pursuant to this subsection (c) shall be
divested upon (A) the rejection of such agreement of consolidation or
merger by the stockholders of the Company or (B) its abandonment by
either party thereto in accordance with its terms; or
(d) Adoption by the requisite majority of the whole Board, or
by the holders of such majority of stock of the Company as is
required by law or by the Certificate of Incorporation or By-Laws of
the Company as then in effect, of a resolution or consent authorizing
(i) the dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company,
other than to a corporation or other business entity with respect to
which, following the such sale or other disposition, (A) more than
60% of, respectively, the then outstanding shares of common stock of
such corporation and/or the combined voting power of the outstanding
voting securities of such corporation or other entity to vote
generally in the election of its directors (or other persons having
the general power to direct its affairs) is then beneficially owned,
directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Stock and Outstanding Company Voting Securities
immediately prior to such sale or other disposition in substantially
the same proportion as their ownership,
<PAGE> 3
immediately prior to such sale or other disposition, of the Stock
and/or Outstanding Company Voting Securities, as the case may be, (B)
no Person (excluding the Company and any employee benefit plan (or
related trust) of the Company or such corporation or other business
entity and any Person beneficially owning, immediately prior to such
sale or other disposition, directly or indirectly, 35% or more of the
Stock and/or Outstanding Company Voting Securities, as the case may
be) beneficially owns, directly or indirectly, 35% or more of,
respectively, the then outstanding shares of common stock of such
corporation and/or the combined voting power of the then outstanding
voting securities of such corporation or other business entity
entitled to vote generally in the election of directors (or other
persons having the general power to direct its affairs), and (C) at
least a majority of the members of the board of directors or group of
persons having the general power to direct the affairs of such
corporation or other entity were members of the Incumbent Board at
the time of the execution of the initial agreement of action of the
Board providing for such sale or other disposition of assets of the
Company; provided, that any right to receive compensation pursuant to
Section 5 below which shall vest by reason of the action of the Board
or the stockholders pursuant to this subsection shall be divested
upon the abandonment by the Company of such dissolution, or such sale
of or other disposition of assets, as the case may be.
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, 35% or more of the combined voting power of the Company's
Outstanding 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
<PAGE> 4
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 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 twothirds 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;
<PAGE> 5
(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.
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.
<PAGE> 6
(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 twentyfour (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
<PAGE> 7
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) you shall receive an amount equal to 1.5 times the average
of your calendar year earnings from the Company, consisting for the
purposes of this Agreement of base salary and any bonus paid pursuant
to the Executive Bonus Plan, the Management Incentive Plan, Profit
Sharing Plan or similar bonus plan, during the period consisting of
the 5 most recent consecutive calendar years (or fewer than 5, if
applicable) ending on or before the date of the change of control.
For purposes of computing payment under this Agreement, compensation
for any partial calendar year, including the year during which a
change of control occurs, shall be annualized.
(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
<PAGE> 8
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
of 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.
<PAGE> 9
(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 28OG (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 Terrence W. Mahoney, 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
<PAGE> 10
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.
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.
<PAGE> 11
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
Robert J. Murray
For NEBS, Inc. Board of Directors
Agreed to this 23rd day
Of February, 1999.
Mr. Joel S. Hughes
24 Hillington Drive
North Easton, MA 02356
<PAGE> 12
THIRD AMENDMENT TO AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
NEW ENGLAND BUSINESS SERVICE, INC.
THIRD AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
dated as of March 24, 1999 (this "Amendment"), by and among 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 Subsidiaries of the Borrower listed on the
signature pages hereto (the "Guarantors"), BANKBOSTON, N.A., a national
banking association ("BKB"), and the other lending institutions listed
on Schedule 1 to the Credit Agreement referred to below (together with
BKB, the "Banks"), BANKBOSTON, N.A., as agent for itself and such other
lending institutions (the "Agent"), and FLEET NATIONAL BANK, as
documentation agent for itself and such other lending institutions (the
"Documentation Agent").
WHEREAS, the Borrower, the Banks, the Agent and the Documentation
Agent are parties to an Amended and Restated Revolving Credit Agreement
dated as of December 18, 1997 (as amended and in effect from time to
time, the "Credit Agreement", capitalized terms defined therein having
the same meanings herein as therein), pursuant to which the Banks have
extended credit to the Borrower on the terms and subject to the
conditions set forth therein;
WHEREAS, the Borrower has requested that the Agent, the
Documentation Agent and the Majority Banks amend the Credit Agreement
in certain respects;
WHEREAS, subject to the terms and conditions set forth herein, the
Majority Banks, the Agent and the Documentation Agent are willing to
amend the Credit Agreement as set forth herein;
NOW, THEREFORE, in consideration of the foregoing, and for other
good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree to amend the Credit
Agreement as follows:
1. Amendments to 7.1 of the Credit Agreement. Section 7.1 of the
Credit Agreement is hereby amended by:
(a) deleting subsection (i) thereof in its entirety
and substituting in lieu thereof the following new subsection (i) with
the following text:
"(i) Indebtedness of any and all Subsidiaries of the Borrower
(other than Russell & Miller and R&M Trust) to the Borrower or another
Subsidiary of the Borrower (i) existing on the Closing Date, and (ii)
arising after the Closing Date in an aggregate amount not to exceed
$7,500,000 at any one time;".
<PAGE>
(b) deleting the word "and" at the end of subsection (q).
(c) inserting, immediately after subsection (q) and
immediately before existing subsection (r), the following new
subsection (r) with the following text:
"(r) Indebtedness owed by the Borrower or any of its
Subsidiaries (other than Russell & Miller and R&M Trust)
to any of their respective officers, directors or employees in
connection with any deferred compensation plan, supplemental executive
retirement plan or post-retirement medical benefit plan in an aggregate
amount not to exceed $7,500,000; and".
(d) deleting existing subsection (r) in its entirety and substituting
in lieu thereof the following new subsection (s):
"(s) Indebtedness of the Borrower or any of its Subsidiaries
(other than Russell & Miller and R&M Trust) not expressly permitted
under subsections (a) through (r) of this 7.1 in an aggregate amount
not to exceed $5,000,000 at any time."
2. Representations and Warranties. The Borrower and
each of the Guarantors hereby represents and warrants to the Agent and
the Banks as of the date hereof, and as of any date on which the
conditions set forth in 3 below are met, as follows:
(a) The execution and delivery by each of the Borrower and the
Guarantors of this Amendment and all other instruments and agreements
required to be executed and delivered by the Borrower or any of the
Guarantors in connection with the transactions contemplated hereby or
referred to herein (collectively, the "Amendment Documents"), and the
performance by each of the Borrower and the Guarantors of any of their
obligations and agreements under the Amendment Documents and the Credit
Agreement and the other Loan Documents, as amended hereby, are within
the corporate or other authority of each of the Borrower and the
Guarantors, have been authorized by all necessary corporate proceedings
on behalf of each of the Borrower and the Guarantors, and do not and
will not contravene any provision of law or the Borrower's charter or
any of the Guarantors' charters, other incorporation or organizational
papers, bylaws or any stock provision or any amendment thereof or of
any indenture, agreement, instrument or undertaking binding upon the
Borrower or any of the Guarantors.
(b) Each of the Amendment Documents and the Credit Agreement and
other Loan Documents, as amended hereby, to which the Borrower or any
of the Guarantors is a party constitute legal, valid and binding
obligations of such Person, enforceable in accordance with their terms,
except as limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or affecting generally the enforcement of
creditors' rights.
(c) No approval or consent of, or filing with, any governmental
agency or authority is required to make valid and legally binding the
execution, delivery or performance by the Borrower or any of the
Guarantors of the Amendment Documents or the Credit Agreement or other
Loan Documents, as amended hereby, or the consummation by the Borrower
or any of the Guarantors of the transactions among the parties
contemplated hereby and thereby or referred to herein.
<PAGE>
(d) The representations and warranties contained in 5 of the
Credit Agreement and in the other Loan Documents were true and correct
at and as of the date made. Except to the extent of changes resulting
from transactions contemplated or permitted by the Credit Agreement and
the other Loan Documents, changes occurring in the ordinary course of
business (which changes, either singly or in the aggregate, have not
been materially adverse) and to the extent that such representations
and warranties relate expressly to an earlier date and after giving
effect to the provisions hereof, such representations and warranties,
after giving effect to this Amendment and the other Amendment
Documents, also are correct at and as of the date hereof.
(e) Each of the Borrower and the Guarantors has performed and
complied in all material respects with all terms and conditions herein
required to be performed or complied with by it prior to or at the time
hereof, and as of the date hereof, after giving effect to the
provisions of this Amendment and the other Amendment Documents, there
exists no Event of Default or Default.
(f) Each of the Borrower and the Guarantors acknowledges and
agrees that the representations and warranties contained in this
Amendment shall constitute representations and warranties referred to
in 11.1(e) of the Credit Agreement, a breach of which shall constitute
an Event of Default.
3. Effectiveness. This Amendment shall become effective as of
December 27, 1998 (the "Effective Date") upon the satisfaction of each
of the following conditions, in each case in a manner satisfactory in
form and substance to the Agent and the Banks:
(a) This Amendment shall have been duly executed and delivered by
each of the parties thereto and shall be in full force and effect; and
(b) Such other items, documents, agreements, items or actions as
the Agent may reasonably request in order to effectuate the
transactions contemplated hereby.
4. Miscellaneous Provisions.
(a) Each of the Borrower and the Guarantors hereby ratifies and
confirms all of its Obligations to the Agent and the Banks under the
Credit Agreement, as amended hereby, and the other Loan Documents,
including, without limitation, the Loans, and each of the Borrower and
the Guarantors hereby affirms its absolute and unconditional promise to
pay to the Banks and the Agent the Loans and all other amounts due or
to become due and payable to the Banks and the Agent under the Credit
Agreement and the other Loan Documents, as amended hereby. Except as
expressly amended hereby, each of the Credit Agreement and the other
Loan Documents shall continue in full force and effect. This Amendment
and the Credit Agreement shall hereafter be read and construed together
as a single document, and all references in the Credit Agreement, any
other Loan Document or any agreement or instrument related to the
Credit Agreement shall hereafter refer to the Credit Agreement as
amended by this Amendment.
<PAGE>
(b) Without limiting the expense reimbursement requirements set
forth in 14 of the Credit Agreement, the Borrower agrees to pay on
demand all costs and expenses, including reasonable attorneys' fees, of
the Agent incurred in connection with this Amendment.
(c) THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT
REFERENCE TO CONFLICT OF LAWS) AND SHALL TAKE EFFECT AS A SEALED
INSTRUMENT IN ACCORDANCE WITH SUCH LAWS.
(d) This Amendment may be executed in any number of
counterparts, and all such counterparts shall together constitute but
one instrument. In making proof of this Amendment it shall not be
necessary to produce or account for more than one counterpart signed by
each party hereto by and against which enforcement hereof is sought.
[Signature Pages Follow]
<PAGE>
Signature Page to the Third Amendment
IN WITNESS WHEREOF, intending to be legally bound, each of the
undersigned has caused this Amendment to be executed on its behalf by
its officer thereunto duly authorized, as of the date first above
written.
New England Business Service, Inc.
By: Daniel M. Junius
-----------------------------
Name: Daniel M. Junius
Title: Treasurer
BANKBOSTON, N.A.,
individually and as Agent
By: Harvey H. Thayer, Jr.
-----------------------------
Name: Harvey H. Thayer, Jr.
Title: Managing Director
FLEET NATIONAL BANK, individually and as
Documentation Agent
By: T.H. Brennan
-----------------------------
Name: T.H. Brennan
Title: VP
FIRST UNION NATIONAL BANK, N.A.,
successor to CoreStates Bank, N.A.
By: David C. Jauglid
-----------------------------
Name: David C. Jauglid
Title: Vice President
<PAGE>
Signature Page to the Third Amendment
KEY BANK N.A.
By: Noel B. Grayson
-----------------------------
Name: Noel B. Grayson
Title: VP
USTRUST
By: Brian C. Roche
-----------------------------
Name: Brian C. Roche
Title:VP
SUNTRUST BANK, ATLANTA
By: W. David Wisdom
-----------------------------
Name: W. David Wisdom
Title: Vice President
SUNTRUST BANK, ATLANTA
By: Karen Copeland
-----------------------------
Name: Karen Copeland
Title: Assistant Vice President
THE BANK OF NOVA SCOTIA
By: T. M. Pitcher
-----------------------------
Name: T. M. Pitcher
Title: Authorized Signatory
<PAGE>
Signature Page to the Third Amendment
WACHOVIA BANK, N.A.
By: Jeffrey S. Nurkiewicz
-----------------------------
Name: Jeffrey S. Nurkiewicz
Title: Vice President
KBC Bank N.V., formerly known as
Kredietbank N.V.
By: Robert Snauffer Marcel Claes
-----------------------------
Name: Robert Snauffer Marcel Claes
Title: First Vice President Deputy General Manager
SUMMIT BANK
By: Gary W. Tyrell
-----------------------------
Name: Gary W. Tyrrell
Title: Vice President & Director
Signature page to the Third Amendment
The undersigned hereby acknowledges the foregoing Third Amendment
as of the Effective Date and agrees that its obligations under the
Guaranty will extend to the Credit Agreement, as so amended, and the
other Loan Documents.
RAPIDFORMS, INC.
By: Daniel M. Junius
-----------------------------
Name: Daniel M. Junius
Title: Treasurer
MCBEE SYSTEMS, INC.
By: Daniel M. Junius
-----------------------------
Name: Daniel M. Junius
Title: Treasurer
RUSSELL & MILLER, INC.
By: Daniel M. Junius
-----------------------------
Name: Daniel M. Junius
Title: Treasurer
NEBS INTERACTIVE, INC.
By: Daniel M. Junius
-----------------------------
Name: Daniel M. Junius
Title: Treasurer
NEWSHIRE FORMS, INC.
By: Daniel M. Junius
-----------------------------
Name: Daniel M. Junius
Title: Treasurer
<PAGE>
Signature page to the Third Amendment
R & M TRUST
By: Daniel M. Junius, as Trustee under Declaration of Trust of R&M
Trust dated July 20, 1998 and filed with the Secretary of the
Commonwealth of Massachusetts on July 27, 1998, and not individually
By: Daniel M. Junius
--------------------------------------
Daniel M. Junius, as Trustee under
said Declaration of Trust and not
individually
