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 September 25, 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 November 4, 1999
was 13,855,212.
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
- ----------------------------
<TABLE>
NEW ENGLAND BUSINESS SERVICE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands)
<CAPTION>
(unaudited)
Sept. 25, June 26,
1999 1999
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 4,070 $ 5,484
Accounts receivable - net 53,796 52,546
Inventories 21,506 21,538
Direct mail advertising and prepaid expenses 16,368 12,946
Deferred income tax benefit 7,271 7,189
-------- --------
Total current assets 103,011 99,703
Property and equipment - net 56,998 55,172
Property held for sale 847 839
Deferred income tax benefit 6,271 6,353
Goodwill - net 62,311 62,626
Customer Lists - net 29,767 31,590
Tradenames - net 31,405 31,610
Other assets - net 12,015 12,369
-------- --------
TOTAL ASSETS $302,625 $ 300,262
======== ========
LIABILITIES AND STOCKHOLDERS'EQUITY
Current Liabilities
Accounts payable $ 16,527 $ 15,478
Accrued expenses 30,253 30,297
-------- --------
Total current liabilities 46,780 45,775
Revolving line of credit 130,000 128,000
Deferred income taxes 5,068 4,958
STOCKHOLDERS'EQUITY
Common stock 15,372 15,358
Additional paid-in capital 49,812 49,500
Accumulated other comprehensive loss (2,425) (2,654)
Retained earnings 90,081 86,902
-------- --------
Total 152,840 149,106
Less: Treasury stock (32,063) (27,577)
-------- --------
Stockholders' Equity 120,777 121,529
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $302,625 $300,262
======== ========
</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
Sept. 25, Sept. 26,
1999 1998
--------- ---------
<S> <C> <C>
NET SALES $113,424 $112,686
OPERATING EXPENSES:
Cost of sales 39,949 41,555
Selling and advertising 43,202 42,307
General and administrative 18,525 17,545
-------- --------
Total operating expenses 101,676 101,407
INCOME FROM OPERATIONS 11,748 11,279
OTHER INCOME/(EXPENSE):
Interest income 15 27
Interest expense (1,984) (2,179)
-------- --------
INCOME BEFORE TAXES 9,779 9,127
PROVISION FOR INCOME TAXES 3,802 3,649
-------- --------
NET INCOME 5,977 5,478
-------- --------
OTHER COMPREHENSIVE INCOME (LOSS) 229 (206)
-------- --------
COMPREHENSIVE INCOME $ 6,206 $ 5,272
======== ========
PER SHARE AMOUNTS:
Basic Earnings Per Share $ .43 $ .38
======== ========
Diluted Earnings Per Share $ .42 $ .37
======== ========
Dividends $ .20 $ .20
======== ========
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 13,988 14,327
Plus incremental shares from assumed
conversion of stock options 296 480
-------- --------
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 14,284 14,807
======== ========
</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>
Three Months Ended
Sept. 25 Sept. 26
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 5,977 $ 5,478
Adjustments to reconcile net income to cash:
Depreciation 3,618 3,412
Amortization 2,818 3,050
Loss on disposal of asset 24 31
Deferred income taxes 32 38
Exit costs (411) (740)
Other non-cash items 1,084 2,218
Changes in assets and liabilities:
Accounts receivable (2,284) (3,152)
Inventories and prepaid expenses (3,442) (5,479)
Accounts payable 1,133 2,461
Income taxes payable 2,615 708
Accrued expenses (2,180) (1,004)
--------- ---------
Net cash provided by operating activities 8,984 7,021
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (5,364) (6,383)
Acquisition of business - (164)
Other Assets - (32)
--------- ---------
Net cash used in investing activities (5,364) (6,579)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (27,000) (17,000)
Proceeds from borrowings under credit line 29,000 10,500
Proceeds from issuance of common stock 223 257
Acquisition of treasury stock (4,486) (58)
Dividends paid (2,798) (2,864)
--------- ---------
Net cash provided by (used in)financing (5,061) (9,165)
activities
EFFECT OF EXCHANGE RATE CHANGES ON CASH 27 (27)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,414) (8,750)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,484 10,823
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,070 $ 2,073
========= =========
</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 26, 1999 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 26, 1999. 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 26, 1999. 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
- ----------------
In fiscal 1998 the Company acquired both Rapidforms, Inc. and McBee Systems,
Inc. As part of the purchase accounting for the both acquisitions, and
included in the allocation of the acquisition cost, were liabilities recorded
to cover the anticipated costs related to plans to close redundant facilities
and reduce personnel. Approximately $5,552,000 was accrued. The liability
associated with the integration plans remaining as of September 25, 1999 was
$721,000 ($414,000 having been spent in the first quarter to reduce this
liability. The Company anticipates that the remaining liabilities will be
resolved by the end of fiscal year 2000.
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.
3. Inventories
- --------------
Inventories are carried at the lower of first-in, first-out cost or market.
Inventories at September 25, 1999 and June 26, 1999 consisted of:
<TABLE>
<CAPTION>
(unaudited)
Sept. 25, June 26,
1999 1999
----------- -----------
<S> <C> <C>
Raw paper $ 1,394,000 $ 1,692,000
Business forms and related office products 20,112,000 19,846,000
---------- -----------
Total $21,506,000 $21,538,000
=========== ===========
</TABLE>
<PAGE
4. Financial Information by Business Segment
- --------------------------------------------
The Company has identified three reportable segments. The first is titled
"Printed Products-Direct Marketing" and represents those business operations
that sell primarily printed products such as checks and business forms to
small businesses through direct marketing. The second segment, "Printed
Products-Direct Sales," also sells checks and business forms to small
businesses; however, they sell through either distributors or by directly
selling to the customer. "Packaging and Display Products" is the third
segment and primarily sells items that require limited value-adding work.
These items include packaging and shipping supplies and retail signage
and are marketed through a combination of direct marketing and direct
selling efforts.
The Company evaluates segment performance and allocates resources
based on a profit from operations measure. This measure is akin to income
from operations as reported on the statements of consolidated income and
comprehensive income in that it excludes interest income and expense.
This measure, however, also excludes a number of items that are reported
within income from operations. These include amortization, 401(k)
expenses, integration charges and corporate overhead. These items are not
used by the chief operating decision maker in assessing segment results.
In order to reconcile the segment numbers to the Company's income before
income taxes, adjustments representing the items listed above totalling
$7,786,000 and $8,342,000 for 1999 and 1998, respectively, need to be
made to the reported segment results.
Net sales, profit from operations and capital expenditures for
each of the Company's business segments are set forth below.
<PAGE
<TABLE>
<CAPTION>
Printed Products
------------------------------ Packaging and
Direct Marketing Direct Sales Display Products Total
---------------- ------------ ---------------- -----
(unaudited)
Three months ended
Sept. 25, 1999
<S> <C> <C> <C> <C>
Net sales 72,416,000 $23,495,000 $17,513,000 $113,424,000
Profit from
operations 16,881,000 1,575,000 1,078,000 19,534,000
Capital
expenditures 3,708,000 1,007,000 649,000 5,364,000
</TABLE>
<TABLE>
<CAPTION>
(unaudited)
Three months ended
Sept. 26, 1998
<S> <C> <C> <C> <C>
Net sales $73,526,000 $22,531,000 $16,629,000 $112,686,000
Profit from
operations 16,599,000 2,427,000 595,000 19,621,000
Capital
Expenditures 5,433,000 793,000 157,000 6,383,000
</TABLE>
The amounts shown reflect a shift of the allocation of centralized
information systems costs to the Printed Products-Direct Sales segment
in the first quarter of fiscal year 2000 from the Printed Products-
Direct Marketing segment due to conversion of McBee's order-taking
system to NEBS Direct Marketing order entry system in August 1999.
<TABLE>
<CAPTION>
Geographic net sales are identified as follows:
(unaudited)
Three Months Ended
Sept. 25, Sept. 26,
1999 1998
<S> ------------ ------------
<C> <C>
U.S.-based $104,094,000 $103,526,000
International 9,330,000 9,160,000
------------ ------------
Total $113,424,000 $112,686,000
============ ============
</TABLE>
<PAGE
Geographic net property and equipment assets are identified as follows:
<TABLE>
<CAPTION>
(unaudited)
Sept. 25, June 26,
1999 1999
----------- -----------
<S> <C> <C>
U.S.-based $48,827,000 $47,000,000
International 8,171,000 8,172,000
----------- -----------
Total $56,998,000 $55,172,000
=========== ===========
</TABLE>
5. New Accounting Pronouncements
- -------------------------------
In June, 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
Company will adopt this standard in fiscal 2001. 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"), was founded in 1952,
incorporated in Massachusetts in 1955 and reincorporated in Delaware in 1986.
The Company 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 direct mail, direct sales,
telesales, dealers and the internet to small businesses throughout the United
States, Canada, the United Kingdom and France.
The Company has identified three reportable segments. The first is titled
"Printed Products-Direct Marketing" and represents those business operations
that sell primarily printed products such as checks and business forms to
small businesses through direct marketing. The second segment, "Printed
Products-Direct Sales," also sells checks and business forms to small
businesses; however, they sell through either distributors or by directly
selling to the customer. "Packaging and Display Products" is the third
segment and primarily sells items that require limited value-adding work.
These items include packaging and shipping supplies and retail signage
and are marketed through a combination of direct marketing and direct
selling efforts.
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 that 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 "Certain
Factors That May Affect Future Results."
Results of Operations
- ---------------------
Net sales increased $.7 million or less than 1% to $113.4 million in the
first quarter of fiscal year 2000 from $112.7 million in last year's first
quarter. The sales increase was composed of approximately a $.8 million
increase associated with the Printed Products-Direct Sales and Packaging and
Display segments offset by a slight decline in sales of the Company's other
segment, Printed Products-Direct Marketing. Sales were temporarily affected
at McBee, the prime contributor to the Printed Products-Direct Sales
Segment, as a result of the conversion of their order entry system to the one
used by the NEBS channel during the quarter. Demand for core products was
also impacted by the highly disruptive east coast hurricane in September.
<PAGE>
For the first quarter of fiscal year 2000, cost of sales decreased to 35.2%
of sales from 36.9% in last year's comparable period. The decrease was the
result of improved efficiencies and increased handling charges which offset
normal transportation charges. Cost of sales as a percent of sales is
anticipated to remain consistent with the first quarter's results for the
remainder of the fiscal year.*
Selling and advertising expense increased to 38.1% of sales in the first
quarter of fiscal year 2000 from 37.5% of sales in last year's comparable
quarter. The increase was due primarily to commissions paid 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 overtime costs related to the Company's conversion of
the McBee order-taking system to the NEBS Direct Marketing order entry system.
Selling and advertising expense as a percentage of sales is expected to be
slightly lower than the first quarter for the remainder of the fiscal year.*
General and administrative expense increased to 16.3% of sales in the first
quarter of fiscal year 2000 from 15.6% in last year's comparable quarter. The
increase was principally the result of increased spending levels associated
with the Company's program to reengineer its financial and operational
information systems. General and administrative expense as a percent of sales
is expected to be slightly lower than the first quarter throughout the
remainder of the fiscal year.*
Interest expense decreased to 1.7% of sales in the first quarter of fiscal
year 2000 as compared to 1.9% of sales in last years comparable quarter. The
decrease is the result of repayment of debt attributable to the acquisitions
of Rapidforms and McBee during fiscal year 1998.
The provision for income taxes as a percentage of pre-tax income decreased
to 38.9% in the first quarter of fiscal year 2000 from 39.9% in the comparable
quarter in fiscal year 1998 due to a reduction in the Company's effective
state tax rate.
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard does have a direct impact
on the consolidated financial statements and will be adopted by the Company in
fiscal year 2001. The Company is currently evaluating the impact this standard
will have 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 experienced delays in certain facets of
the reengineering effort, and as a result modified its Year 2000 plan to focus
on system remediation rather than system replacement. The Company's
operational information systems have been inventoried and assessed for Year
2000 compliance, and recommended remediation efforts with respect to all of
the Company's mission critical systems have been completed. The Company has
conducted extensive testing to ensure the efficacy of its remediation efforts,
and based on currently available information derived from such testing, the
Company is not aware of any Year 2000 compliance problems affecting its
internal systems that would have a material adverse effect on its business
operations or financial prospects as a result of the Year 2000 transition.
In addition, the Company has communicated with key vendors in order to
assess their ability to maintain normal operations in the Year 2000. Such key
vendors include, but are not limited to, MCI Worldcom, R.R. Donnelley and
Sons, Appleton Papers, and United Parcel Service of America, Inc. The Company
has also monitored the Year 2000 compliance activities of the U.S., Canadian
and U.K. postal services and pertinent local and regional utilities. Relying
on public announcements and other information provided by these key vendors,
the Company is currently not aware of any Year 2000 compliance problems with
any of them that could have a material adverse effect on the Company's
business operations or financial prospects. Based on its assessment of the
Year 2000 readiness of its key vendors, the Company has not developed
contingency plans to contract on a standby basis with alternative sources of
the products and services supplied by these vendors.
Moreover, the Company believes that there are no reasonable or cost
effective contingency plans that can be developed to fully address disruptions
in telephone, postal, electrical or similar services. In the event of
regional disruptions in telephone service, the Company has developed
contingency plans to re-route incoming customer calls to alternate facilities.
In addition, the Company has back-up generators at some of its facilities
which can provide electrical power for administrative functions for a limited
period in the event of power outages. Although the Company should be able to
take customer orders during the period of a limited power outage, it will be
unable to fulfill orders during any such period. As a result, the Company can
make no assurances that Year 2000-related disruptions in telephone, postal,
electrical or similar services would not have a material adverse effect on the
Company's business operations or financial 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 2.5 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.
<PAGE>
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, almost all of which has been spent as of September
25, 1999. Due to the modification of the Company's plans to focus on
remediation rather than replacement, $3 million has been allocated in the
Company plans for remediation in fiscal year 2000.
Liquidity and Capital Resources
- -------------------------------
Cash provided by operating activities for the three months ended September
25, 1999 was $ 9.0 million and represented an increase of $2.0 million from
the $7.0 million provided in the comparable period last year. The increase in
operating cash flow was the result of an increase in net income and decreased
investment in working capital offset by a decrease in non-cash items between
the comparable periods.
Working capital at September 25, 1999 amounted to $56.2 million, including
$4.0 million of cash and short term investments. At June 26, 1999, working
capital amounted to $53.9 million, including cash and short term investments
of $5.5 million. The $2.3 million increase in working capital during the
period is principally due to higher mail inventory due to the seasonal nature
of the greeting card and workwear businesses. During the three months ended
September 25, 1999, $4.5 million was spent to repurchase 158,457 shares of the
Company's common stock.
Capital expenditures for the three months ended September 25, 1999 were $5.4
million versus the $6.4 million expended during last year's comparable period.
Capital expenditures in the first quarter of fiscal year 1999 included
expenditures for information systems infrastructure and manufacturing related
equipment. In the first quarter of fiscal year 1999 the Company constructed a
$1.7 million addition to their facility in Midland, Ontario. 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 $18 to $20 million in fiscal year
2000.*
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. The total committed line currently stands at $165 million. At
September 25, 1999, the Company had $130 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 September 25, 1999, the notional principal
amount outstanding of the interest rate swap agreements totaled $85 million.
In order to minimize the Company's exposure to foreign currency fluctuations
with respect to an intercompany loan to a foreign subsidiary, the Company has
entered into a short-term forward exchange rate contract with a major
commercial bank in a currency amount directly corresponding to the short-term
intercompany loan amount. At September 25, 1999, the Company had an
outstanding forward exchange rate contract for $ 1.6 million worth of Pound
Sterling.
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 2000.* 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>
Certain Factors That May Affect Future Results
- ------------------------------------------------------------------
References in this section to "we", "us" and "our" refer to New England
Business Service, Inc.
We may make forward-looking statements in this report and in other
documents filed with the SEC, in press releases, and in discussions with
analysts, investors and others. These statements include:
- descriptions of our operational and strategic plans,
- expectations about our future sales and profits,
- views of conditions and trends in our markets, and
- other statements that include words like "expects", "estimates",
"anticipates", "believes" and "intends", and which describe
opinions about future events.
You should not rely on these forward-looking statements as though they
were guarantees. These statements are based on our expectations at the time
the statements are made, and we are not required to revise or update these
statements based on future developments. Known and unknown risks may cause
our actual results, performance or achievements to be materially different
from those expressed or implied by these statements.
<PAGE>
A majority of our sales and profits come from selling standardized
business forms, checks and related products by mail order and telesales to a
target market consisting mainly of small businesses. We believe that the
critical success factors to compete in this market include competitive
pricing, breadth of product offering, and the ability to attract and retain a
large number of individual customers. Known material risks that may affect
those critical success factors are described below.
Our core business faces increased competition from new sources, such as
office supply superstores and Internet-based vendors. Increased competition
may require us to reduce prices or offer other incentives in order to attract
new customers and retain existing customers, which could reduce our profits.
Low-price, high-volume office supply chain stores have entered our core
business of selling standardized business forms, checks and related products
to small businesses. Because of their size, these superstores have the buying
power to offer these products at competitive prices. These superstores also
offer the convenience of "one-stop shopping" for a broad array of office
supplies that we do not offer. In addition, these national superstore
competitors have greater financial strength to reduce prices or increase
promotional discounts in order to seek or retain market share.
Recently, Internet-based vendors have begun to compete in our core
business. These vendors include both start-up ventures as well as the online
stores of the office supply national chains. We believe that the favored
business model for many Internet-based vendors is to seek market share as
rapidly as possible through significantly reduced prices and deep discounting.
If any of these new competitors seek to gain or retain market share
through price reductions or increased discounting, we may be forced to reduce
our prices or match the discounts in order to stay competitive, which could
reduce our profits.
Technological improvements may reduce our competitive advantage over our
smaller competitors, which could reduce our profits.
Historically, our relatively greater financial strength and size has
enabled us to offer a broader array of products, particularly those having a
complex construction, at lower prices than the small local and regional
dealers, distributors and printers who constitute our primary competition.
Improvements in the cost and quality of printing technology are enabling these
smaller competitors to gain access to products of complex design and
functionality at competitive costs. Increased competition from local and
regional competitors could force us to reduce our prices in order to attract
and retain customers, which could reduce our profits.
Because our long-term sales growth is dependent on our ability to
continually attract new customers in our target small business market,
economic events that adversely affect the small business economy may reduce
our sales and profits.
<PAGE>
Average annual sales per customer of our core products have remained
relatively stable over time. As a result, we rely, in part, on continually
attracting new customers for these mature products. Our sales and profits
have been adversely affected in the past by recession-related contractions in
the small business economy. We expect that our sales and profits will
continue to be affected by changes in the levels of small business formations
and failures and from other economic events that affect the small business
economy generally.
Because our long-term sales growth is dependent on our ability to
continually attract new customers in our target small business market, changes
in the direct marketing industry that reduce our competitive advantage in
contacting prospective customers may reduce our sales and profits.
Growth in the total number of our direct mail customers depends on
continued access to high-quality lists of newly-formed small businesses. In
the past, our ability to compile proprietary prospect lists was a distinct
competitive advantage. However, the external list compilation industry has
grown more sophisticated, and comprehensive lists of new small business
formations are now commercially available to our competitors. In addition,
the Internet has the potential to eliminate our advantage of scale in direct
marketing by providing all competitors, regardless of current size, with
access to prospective customers.
We currently rely on the speed of our delivery of promotional materials
to prospective customers to gain advantage over competitors. We are also
expanding our Internet product offerings and capabilities and seeking to
increase our visibility on the Internet. Notwithstanding these efforts, a
deterioration in our competitive advantage in contacting prospective customers
could reduce our sales and profits.
In addition, the enactment of privacy laws could constrain our ability to
obtain prospect lists or telemarket to prospective customers.
Increases in the cost of paper and in postal rates increase our costs,
which we may be unable to offset by reducing costs in other areas or by
raising prices.
The cost of paper to produce our products, catalogs and advertising
materials makes up a significant portion of our total costs. We also rely on
the U.S. Postal Service to deliver most of our promotional materials. Prices
for the various types of paper that we use have been volatile, and we expect
them to continue to be so. Third class postal rates have generally increased
over the past ten years, at times significantly. We are not sure that we will
always be able to reduce costs in other areas or increase prices for our
products sufficiently to offset increases in paper costs and postal rates. If
we are unable to offset these cost increases, our profits will be adversely
affected.
Disruption in the services provided by certain of our critical vendors
may adversely affect our operating performance and profits.
<PAGE>
In order to obtain favorable pricing, we have selected a limited number
of vendors to provide key services to our business. Examples of this are as
follows:
- MCI WorldCom provides most of the toll-free telephone lines that
we use in connection with our mail order business,
- we use United Parcel Service to deliver most of the products
that we ship to customers,
- we use R.R. Donnelley and Sons for the printing and processing
of most of the catalogs that we mail each year,
- we rely on the postal services of the countries in which we do
business to deliver our catalogs and other advertising to
customers.
In the past we have been adversely affected by disruption of some of
these services due to labor actions, system failures, adverse weather
conditions and other natural disasters. If there are future interruptions in
service from one or more of these vendors, we believe that there could be a
significant disruption to our business due to our inability to readily find
alternative service providers at comparable rates.
Sales of our standardized forms products face technological obsolescence
and changing customer preferences, which could reduce our sales and profits.
Our standardized business forms, checks and related products provide our
customers with the financial and business records to manage their businesses.
Continual technological improvements have provided our target customers in
several market segments with alternative means to enact and record business
transactions. For example, the price and performance capabilities of personal
computers and related printers now provide a cost-competitive means to print
low-quality versions of our business forms on plain paper. In addition,
electronic transaction systems and off-the-shelf business software
applications have been designed to automate several of the functions performed
by our business form products.
In response to the gradual obsolescence of our standardized forms
business, we continue to develop our capability to provide custom and full-
color products. However, we have less of a cost advantage with these products
than with standardized forms, due to improvements in the cost and quality of
printing technology available to our smaller local and regional competitors.
We are also seeking to introduce new products that are less susceptible to
technological obsolescence. We may develop new products internally, procure
them from third party vendors, or obtain them through the acquisition of a new
business. We generally realize lower gross margins on out-sourced products
than on products that we manufacture ourselves. The risks associated with the
acquisition of new businesses are described below.
<PAGE>
If new printing capabilities and new product introductions do not
continue to offset the obsolescence of our standardized business forms
products, there is a risk that the number of new customers we attract and
existing customers we retain may diminish, which could reduce our sales and
profits. Decreases in sales of our historically high margin standardized
business forms products due to obsolescence could also reduce our gross
margins. This reduction could in turn adversely impact our profits unless we
are able to offset the reduction through the introduction of new high margin
products and services or realize cost savings in other areas.
Our growth strategy depends, in part, on the acquisition of complementary
businesses that address our target small business market.
The acquisition of complementary businesses that address our target small
business market has been important to our growth strategy. We intend to
continue this acquisition activity in the future. The success of this
activity depends on the following:
- our ability to identify suitable businesses and to negotiate
agreements on acceptable terms,
- our ability to obtain financing through additional borrowing, by
issuing additional shares of common stock, or through internally
generated cash flow, and
- our ability to achieve anticipated savings and growth and avoid
disruption to our existing businesses.
In evaluating a potential acquisition, we conduct a business, financial
and legal review of the target. This review is intended to confirm our
assumptions with respect to the projected future performance of the target and
to identify the benefits and risks associated with those assumptions. We
cannot be certain that our review will identify all potential risks associated
with the purchase, integration or operation of acquired businesses.
Unanticipated risks may adversely affect the benefits that we expect to obtain
from any given acquisition.
<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 the Notes to Consolidated Financial
Statements included in the Annual Report on Form 10-K for the year ended
June 26, 1999. 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 the
Notes to Consolidated Financial Statements included in the Annual Report on
Form 10-K for the year ended June 26, 1999), the Company has entered into
forward exchange rate contracts for the amount of the loans and associated
interest. The currency hedged is the British pound. 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) Fourth Amendment to Amended and Restated Revolving Credit
Agreement dated as of September 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.
27 Financial Data Schedule
b. Reports on Form 8-K.
Not applicable
<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)
November 9, 1999 /s/Daniel M. Junius
- ----------------- --------------------
Date Daniel M. Junius
Senior Vice President-Chief
Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
FOURTH AMENDMENT TO AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
NEW ENGLAND BUSINESS SERVICE, INC.
FOURTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT dated as of
September 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 wishes to enter into certain corporate restructuring
transactions pursuant to which Chiswick, Inc., a Massachusetts corporation
("Chiswick"), will become a wholly-owned subsidiary of the Borrower (such
transaction being hereinafter referred to as the "Chiswick Restructuring
Transaction");
WHEREAS, the Borrower wishes to contribute certain of its assets consisting
of its Chiswick business division (which division consists of the Chiswick-
brand industrial products business and the Bags & Bows-brand retail products
business) to Chiswick;
WHEREAS, Chiswick will contribute, on an ongoing basis from time to time,
excess cash flow to Chiswick Trust, a voluntary association with transferable
shares organized under and by virtue of the laws of the Commonwealth of
Massachusetts (commonly referred to as a Massachusetts business trust)
("Chiswick Trust");
WHEREAS, Chiswick Trust intends to loan substantially all of its cash
assets to the Borrower, which loans shall be evidenced by an Unsecured
Subordinated Promissory Note (as hereinafter defined);
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 and the Banks amend the
Credit Agreement so as to permit, to the extent required, the Chiswick
Restructuring Transaction and the other transactions described in the foregoing
recitals;
WHEREAS, subject to the terms and conditions set forth herein, the
Borrower, the Banks, the Agent and the Documentation Agent have agreed 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 Definitions. Section 1.1 of the Credit Agreement is
hereby amended by:
(a) adding the following new definitions to section1.1 of the Credit
Agreement in the proper alphabetical order:
"Chiswick". Chiswick, Inc., a Massachusetts corporation.
"Chiswick Contribution Agreement. The agreement pursuant to which
Chiswick will contribute cash generated from its operations to Chiswick
Trust, in form and substance (including any modifications thereof)
satisfactory to the Agent."
"Chiswick Restructuring Transaction. The contribution by the
Borrower to Chiswick of those assets of the Borrower's Chiswick business
division, which division consists of the Chiswick-brand industrial
products business and the Bags & Bows-brand retail products business."
"Chiswick Trust. Chiswick Trust, a voluntary association with
transferable shares organized under and by virtue of the laws of the
Commonwealth of Massachusetts (commonly referred to as a Massachusetts
business trust)."
"Chiswick Trust Intercompany Subordination Agreement. The
Intercompany Subordination Agreement after the date hereof among the
Agent, the Borrower and Chiswick Trust, and in form and substance
satisfactory to the Agent."
(b) amending the definition of "Loan Documents" by inserting the text
"the Chiswick Intercompany Subordination Agreement and any other subordination
arrangements entered into pursuant to section7.1(j) or (p)" immediately after
the text "the Fee Letters" and immediately before the text "the Intercompany
Subordination Agreement".
(c) amending the definition of "Unsecured Subordinated Promissory Note"
by deleting the text of such definition in its entirety and restating it as
follows:
Unsecured Subordinated Promissory Note. Collectively, the
promissory notes evidencing the Indebtedness permitted by section7.1(p)(i)
and (ii), in each case in form and substance (including modifications
thereto) satisfactory to the Agent.
2. Amendment of section5.1.1 of the Credit Agreement. Section 5.1.1 of
the Credit Agreement is hereby deleted in its entirety, and the following new
section5.1.1 is hereby substituted in lieu thereof:
"5.1.1. Organization; Good Standing.
Each of the Borrower and its Subsidiaries (i) is a corporation or, in
the case of R&M Trust and Chiswick Trust, a Massachusetts business trust,
duly organized, validly existing and, except in the case of R&M Trust and
Chiswick Trust (with respect to which no such concept is applicable), in
good standing under the laws of its jurisdiction of organization, (ii) has
all requisite power to own its property and conduct its business as now
conducted and as presently contemplated and (iii) is in good standing as a
foreign corporation or other entity and is duly authorized to do business
in each jurisdiction where such qualification is necessary except where a
failure to be so qualified would not have a materially adverse effect on
the business, assets or financial condition of the Borrower or such
Subsidiary."
3. Amendment of section6.6 of the Credit Agreement.
Section 6.6 of the Credit Agreement is hereby amended by inserting in the
first sentence thereof, immediately after the text "Subsidiaries (and, in the
case of R&M Trust" and immediately before the text "its existence, rights and
franchises" the words "and Chiswick Trust, as the case may be".
4. Amendment of section6.14 of the Credit Agreement.
Section 6.14 of the Credit Agreement is hereby amended by deleting section6.14
in its entirety and restating section6.14 as follows:
"6.14. Certain Intercompany Payments. The Borrower will, and will,
as applicable, cause each of Russell & Miller, Chiswick Trust and R&M
Trust to, (a) promptly upon Russell & Miller's receipt thereof, cause all
royalty payments received by Russell & Miller pursuant to any of the
Trademark License Agreements (net of reasonable expenses incurred by
Russell & Miller in connection with the maintenance, protection and
enforcement of its related trademark intellectual property rights and the
performance of its obligations under the Trademark License Agreements) to
be paid to R&M Trust as capital contributions, (b) promptly upon R&M
Trust's receipt thereof, cause R&M Trust to lend to the Borrower pursuant
to an Unsecured Subordinated Promissory Note all amounts (net of
reasonable, ordinary course operating expenses) received by it pursuant to
clause (a) of this section6.14 or otherwise, and (c) promptly upon
Chiswick Trust's receipt thereof, cause Chiswick Trust to lend to the
Borrower pursuant to an Unsecured Subordinated Promissory Note all amounts
(net of reasonable, ordinary course operating expenses) received by it
from time to time from Chiswick."
5. Amendment of section7.1 of the Credit Agreement. Section 7.1 of the
Credit Agreement is hereby amended by:
(a) deleting, in subsections (b), (f), (g), (i), (j), (k), (r) and (s)
thereof, the parenthetical "(other than Russell & Miller and R&M Trust)" or
"(other than Russell & Miller or R&M Trust)", as applicable from
sectionsection7.1(b), (f), (g), (i), (j), (k), (r) and (s) thereof and
substituting in place thereof the parenthetical "(other than Russell & Miller,
Chiswick Trust and R&M Trust)" or "(other than Russell & Miller, Chiswick Trust
or R&M Trust)", as applicable;
(b) deleting subsection (p) thereof in its entirety and substituting
in lieu thereof the following the new subsection (p):
(p) Indebtedness of the Borrower to (i) R&M Trust under and
pursuant to an Unsecured Subordinated Promissory Note from the Borrower to R&M
Trust, which such Indebtedness is subordinated to the Obligations on terms and
conditions satisfactory to the Agent, which shall include the Intercompany
Subordination Agreement and (ii) Chiswick Trust under and pursuant to an
Unsecured Subordinated Promissory Note from the Borrower to Chiswick Trust,
which such Indebtedness is subordinated to the Obligations on terms and
conditions satisfactory to the Agent, which shall include the Chiswick Trust
Intercompany Subordination Agreement; and"
(c) (i) deleting the word "and" which appears at the end of
section7.1(r); (ii) deleting the period which appears at the end of
section7.1(s) and substituting in place thereof a semicolon and the word "and";
and (iii) inserting, immediately after subsection (s) the new following
subsection:
(t) Indebtedness of the Borrower to any landlord of
Chiswick consisting of (i) a guaranty by the Borrower of payment
under any real estate lease initially entered into by the Borrower
and assigned to Chiswick pursuant to the Chiswick Restructuring
Transaction, or (ii) a continuation of the Borrower's obligations as
tenant under such lease following the assignment to Chiswick.
6. Amendment of section7.3 of the Credit Agreement. Section 7.3 of the
Credit Agreement is hereby amended by:
(a) deleting clause (ii) from subsection (j) thereof in its
entirety and substituting in lieu thereof the following clause (ii):
"(ii) made following the Closing Date in Subsidiaries of the
Borrower (other than R&M Trust and Chiswick Trust) in an aggregate amount
(other than Investments permitted by section7.3(n), section7.3(o) or
section7.3(p)) for all such Subsidiaries (other than R&M Trust and Chiswick
Trust) not to exceed $7,500,000;".
(b) deleting subsection (p) thereof in its entirety and
substituting in lieu there the following new subsection (p):
(p) without limiting the Investments permitted by section7.3(j), (i)
Investments in R&M Trust by Rapidforms, McBee & Russell & Miller pursuant to
the R&M Contribution Agreement and (ii) Investments in Chiswick Trust by
Chiswick pursuant to the Chiswick Contribution Agreement."
(c) deleting the word "and" at the end of subsection (q) thereof;
(d) inserting, immediately following subsection (q) thereof and
immediately before existing subsection (r) thereof, new subsection (r) with the
following text:
"(r) in connection with the Chiswick Restructuring Transaction,
Investments consisting of the capital contribution by the Borrower to Chiswick
of those assets of the Borrower's Chiswick business division, which division
consists of the Chiswick-brand industrial products business and the Bags &
Bows-brand retail products business; and"
(e) deleting existing subsection (r) at the end thereof and
substituting in lieu thereof the following new subsection (s):
"(s) Investments not otherwise expressly permitted under
subsections (a)-(r) of this section7.3, in an aggregate amount not to exceed
$5,000,000."
7. Amendment to section7.5.2 of the Credit Agreement. Section 7.5.2 of
the Credit Agreement is hereby amended by:
(a) deleting the word "and" immediately before clause (g) thereof;
(b) inserting, immediately before the period (".") at the end
thereof the following new subsection (h):
" and (h) in connection with the Chiswick Restructuring
Transaction, the transfer by the Borrower of those assets of the Borrower's
Chiswick business division, which division consists of the Chiswick-brand
industrial products business and the Bags & Bows-brand retail products
business."
8. Amendment of section7.12 of the Credit Agreement. Section 7.12 of
the Credit Agreement is hereby amended by deleting section7.12 in its entirety
and restating it as follows:
7.12. Conduct of Business; Agreements Regarding Certain
Subsidiaries.
7.12.1. General. Neither the Borrower nor any of its
Subsidiaries will, without the prior written consent of the Agent and
the Majority Banks, conduct any business or operations materially
different from those conducted by it on the Closing Date or on the
date any such Subsidiary is acquired in compliance with the terms of
section7.5.1.
7.12.2. R&M Trust and Chiswick Trust. Neither R&M Trust
nor Chiswick Trust shall not conduct any business or activities other
than the lending to the Borrower pursuant to an Unsecured
Subordinated Promissory Note of all amounts (net of reasonable,
ordinary course operating expenses) received by it, whether by way of
capital contributions pursuant to the R&M Contribution Agreement, the
Chiswick Contribution Agreement or otherwise, and shall have no
assets other than cash (which shall be loaned to the Borrower in
accordance with section6.14) and Indebtedness owed by the Borrower to
it as permitted by section7.1(p). Without limiting the foregoing and
notwithstanding any of the carve-outs contained in section7.2 (other
than section7.2(a)), section7.3 (other than section7.3(b) (with
respect to Investments by R&M Trust or Chiswick Trust, as the case
may be, in deposit accounts maintained with BKB until amounts held
therein are loaned to the Borrower pursuant to section6.14),
section7.3(f) and section7.3(p)) or section7.11, the Borrower shall
not permit R&M Trust or Chiswick Trust, as the case may be, to
encumber their respective assets in any manner described in
section7.2, to make or permit to exist or remain outstanding any
Investments, or to create or acquire any Subsidiaries.
9. Replacement of Schedule 5.19 to the Credit Agreement. Schedule 5.19
to the Credit Agreement is hereby deleted in its entirety, and Schedule 5.19
attached hereto is hereby substituted in lieu thereof.
10. 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 section12
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, by-
laws 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.
(d) The representations and warranties contained in section5 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 and will be correct as of the
respective dates of the consummation of the Chiswick Restructuring
Transaction and of the effectiveness of the Chiswick Trust Contribution
Agreement (as each such capitalized term is defined in the Credit
Agreement, as amended hereby).
(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 section11.1(e) of
the Credit Agreement, a breach of which shall constitute an Event of
Default.
11. Effectiveness. This Amendment shall become effective as of September
__, 1999 (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) Each of this Amendment and the Guaranty by each of Chiswick and
Chiswick Trust shall have been duly executed and delivered by each of the
parties thereto and shall be in full force and effect;
(b) The Borrower and the Guarantors shall have delivered to the Agent
(i) copies of any amendments to their charter documents, other organizational
papers and by-laws effective since the dates on which such charter documents,
other organizational papers and by-laws were last delivered to the Agent, with
all such amendments being duly certified as true and correct by an officer of
each such Person and without other amendment thereto, (ii) an incumbency
certificate for each person authorized to sign this Amendment and (iii)
authorizing resolutions authorizing this Amendment and the transactions
contemplated hereby; and
(c) Such other items, documents, agreements, items or actions as the
Agent may reasonably request in order to effectuate the transactions
contemplated hereby.
12. 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,
reimbursement obligations 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.
(b) Without limiting the expense reimbursement requirements set forth in
section14 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]
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:/s/ Daniel M. Junius
-----------------------
Name: Daniel M. Junius
Title:Senior Vice President,
Chief Financial Officer,
Treasurer
BANKBOSTON, N.A.,
individually and as Agent
By:/s/ Harvey H. Thayer, Jr.
---------------------------
Name: Harvey H. Thayer, Jr.
Title: Managing Director
FLEET NATIONAL BANK,
individually and as
Documentation Agent
By:/s/ T.H. Brennen
-------------------
Name: T.H. Brennen
Title: VP
FIRST UNION NATIONAL BANK, N.A.,
successor to CoreStates Bank,N.A.
By:/s/ Mark B. Felker
---------------------
Name: Mark B. Felker
Title: Senior Vice President
KEY BANK N.A.
By:/s/ Noel B. Grayson
----------------------
Name: Noel B. Grayson
Title: Senior Vice President
USTRUST
By:/s/ Anthony Wilson
---------------------
Name: Anthony Wilson
Title: Senior Vice President
SUNTRUST BANK, ATLANTA
By:/s/ W. David Wisdom
----------------------
Name: W. David Wisdom
Title: Vice President
SUNTRUST BANK, ATLANTA
By:
---
Name:
Title:
THE BANK OF NOVA SCOTIA
By:/s/ T.M. Pitcher
------------------
Name: T.M. Pitcher
Title: Authorized Signatory
WACHOVIA BANK, N.A.
By:/s/ Jeffrey S. Nurkiewicz
----------------------------
Name: Jeffrey S. Nurkiewicz
Title: Vice President
KBC Bank N.V., formerly known
as Kredietbank N.V.
By:
---
Name:
Title:
KBC Bank N.V., formerly known
as Kredietbank N.V.
By:
---
Name:
Title:
SUMMIT BANK
By:
---
Name:
Title:
Signature page
to the Fourth Amendment
The undersigned hereby acknowledges the foregoing
Fourth 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:/s/ Daniel M. Junius
-----------------------
Name: Daniel M. Junius
Title: Treasurer
MCBEE SYSTEMS, INC.
By:/s/ Daniel M. Junius
-----------------------
Name: Daniel M. Junius
Title: Treasurer
RUSSELL & MILLER, INC.
By:/s/ Daniel M. Junius
-----------------------
Name: Daniel M. Junius
Title: Treasurer
NEBS INTERACTIVE, INC.
By:/s/ Daniel M. Junius
-----------------------
Name: Daniel M. Junius
Title: Treasurer
CHISWICK, INC.
By:/s/ Daniel M. Junius
-----------------------
Name: Daniel M. Junius
Title: Treasurer
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:/s/ Daniel M. Junius
-----------------------
Daniel M. Junius, as
Trustee under
said Declaration of
Trust and not
individually
CHISWICK TRUST
Daniel M. Junius, as
Trustee under
Declaration of Trust of
Chiswick Trust dated
September 15, 1999 and
Filed with the
Secretary of the
Commonwealth of
Massachusetts
on September __, 1999,
and not individually
By:/s/ Daniel M. Junius
-----------------------
Daniel M. Junius, as
Trustee under said
Declaration of Trust
and not individually
<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
SEPTEMBER 25, 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> 3-MOS
<FISCAL-YEAR-END> JUN-24-2000
<PERIOD-START> JUN-27-1999
<PERIOD-END> SEP-25-1999
<CASH> 4,070
<SECURITIES> 0
<RECEIVABLES> 58,778
<ALLOWANCES> 4,982
<INVENTORY> 21,506
<CURRENT-ASSETS> 103,011
<PP&E> 151,078
<DEPRECIATION> 94,080
<TOTAL-ASSETS> 302,625
<CURRENT-LIABILITIES> 46,780
<BONDS> 0
0
0
<COMMON> 15,372
<OTHER-SE> 105,405
<TOTAL-LIABILITY-AND-EQUITY> 302,625
<SALES> 113,424
<TOTAL-REVENUES> 113,424
<CGS> 39,949
<TOTAL-COSTS> 39,949
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,076
<INTEREST-EXPENSE> 1,984
<INCOME-PRETAX> 9,779
<INCOME-TAX> 3,802
<INCOME-CONTINUING> 5,977
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,977
<EPS-BASIC> .43
<EPS-DILUTED> .42
</TABLE>
