<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 26, 1999
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-11427
--------------
NEW ENGLAND BUSINESS SERVICE, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2942374
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) number)
500 Main Street 01471
Groton, Massachusetts (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (978) 448-6111
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
on
Title of each class which registered
------------------- -----------------------
<S> <C>
Common Stock ($1.00 par value) New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Registrant's Common Stock, par value $1.00
per share, held by stockholders who are not affiliates of the Registrant at
August 27, 1999 as computed by reference to the closing price of such stock on
that date was approximately $385,034,782.
The number of shares of Registrant's Common Stock, par value $1.00 per
share, outstanding at August 27, 1999 was 13,972,382.
Documents Incorporated By Reference
Portions of the Proxy Statement sent to stockholders in connection with the
Annual Meeting to be held on October 22, 1999 are incorporated by reference
into Items 10, 11, 12 and 13 (Part III) of this Report. Such Proxy Statement,
except for the parts therein which have been specifically incorporated by
reference, shall not be deemed "filed" for the purposes of this report on Form
10-K.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
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, advertising specialties 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.
In December 1997, the Company acquired all of the outstanding common stock
of Rapidforms, Inc. ("Rapidforms") for consideration of approximately
$82,136,000 in cash (net of cash acquired). Rapidforms designs, produces and
markets business forms, business supplies, in-store retail merchandising
supplies, holiday greeting cards and promotional products sold principally by
direct mail to small businesses across the United States.
In June 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") for consideration of approximately $48,518,000 in cash
(net of cash acquired) and $12,600,000 in Company common stock. McBee
manufactures and markets checks and related products to small businesses in
the United States and Canada through a dedicated field sales force.
The Company reports its operations in three different segments entitled
"Printed Products--Direct Marketing", "Printed Products--Direct Sales" and
"Packaging and Display Products". The first two segments sell primarily
printed business products such as checks and business forms but use different
distribution methods, and the latter segment primarily serves as a reseller of
packaging and shipping supplies and retail signage. Additional financial
information regarding the segments and the amounts of net sales and operating
profit attributable to each of the Company's segments, as well as information
for the Company's geographic areas, for the last three fiscal years is
contained in the Notes to the Consolidated Financial Statements included in
this Annual Report on Form 10-K.
Products
The Company's product line consists of an extensive range of standardized
imprinted manual and computer business forms, custom forms, checks and check
writing systems, envelopes, labels, greeting cards, signs, stationery and
other printed products principally designed and imprinted in-house. The
Company also distributes a variety of industrial shipping and packaging
products including corrugated boxes, polyethylene bags, tape, labels and
shrink wrap as well as retail packaging supplies such as bags, ribbons, gift
wrap and bows. In addition, the Company distributes a variety of other
business products commonly used by small businesses, including merchandising
displays, presentation folders, promotional products, work clothing and
software. Products are either specifically designed for individual lines of
business or are of a type generally used by small businesses and professional
offices. The Company's full range of products are enhanced by high quality,
fast delivery, competitive prices and extensive product guarantees.
The Company's standard manual business forms include billing forms, work
orders, job proposals, purchase orders, invoices and personnel forms. Standard
manual business forms are designed to provide small businesses with the
financial and other business records necessary to efficiently manage a
business. The Company's stationery line, including letterhead, envelopes and
business cards, is available in a variety of formats and ink colors designed
to provide small businesses with a professional image. Checks and check
writing systems are designed to facilitate payments, the recording of
transactional information and the posting of related bookkeeping entries.
1
<PAGE>
The Company also offers a full line of printed products compatible with most
accounting software packages commonly used by small businesses. The Company's
computer business forms, including checks, billing forms, work orders,
purchase orders and invoices, are designed to provide small businesses with
the computer compatible records necessary to efficiently manage a business.
Promotional products, including labels, pricing tags, signage, advertising
specialties, presentation folders and seasonal greeting cards, are designed to
fulfill a variety of selling and marketing activities and to provide small
businesses with a professional image. Additionally, the Company markets a line
of filing systems, accountants' supplies and appointment products specifically
for use in small professional offices.
The majority of the Company's standard products are imprinted to provide
small businesses with an affordable, professional image. Standard imprint
options include consecutive numbering, logos, customer names, addresses, and
phone numbers. The Company also offers a wide range of custom printing
alternatives and a custom logo design service.
The Company's packaging and shipping supplies, including bags and bag
closures, bubble and polystyrene fill, wrapping materials, boxes, tapes and
mailers, are used principally by small wholesalers, manufacturers and
distributors to package, distribute and market their products. The Company's
line of retail supplies, including signs, merchandising supplies, bags,
ribbons, gift wrap and bows, are used by small retailers to display, market
and package their products.
The Company also sells the Company Colors(TM) line of work clothing,
including an array of jackets, shirts, hats, sweatshirts, and uniforms
commonly worn in the workplace. The Company Colors line may be embroidered
with business names, logos, and employee names to provide a small business
with a coordinated and professional image.
The Company distributes Form Magic(R), a proprietary form-filling software
package, third-party accounting software including Peachtree's One-Write
Plus(R) and Intuit's Quickbooks(R), and a line of products designed by
MySoftware Company. Software distributed by the Company is designed to perform
a variety of the tasks required to manage and promote a small business, and is
compatible with the business forms and other printed products offered by the
Company.
For a further discussion of the risks and uncertainties associated with
customer preferences and the market for forms and related printed products,
see "Certain Factors That May Affect Future Results" included in Part II, Item
7 to this Annual Report on Form 10-K.
Product Development and Research
The Company's products are designed principally by an in-house product
development staff or are obtained from third-party sources. The Company relies
upon direct field research with customers and prospects, focus groups, mail
surveys, feedback from distributors, salespeople, representatives and
unsolicited suggestions to generate new product ideas. Product design efforts
are accomplished or directed by Company design personnel who employ manual and
computer design methods to create products. Product design efforts range from
minor revisions of existing manual business forms to the creation of an
entirely new line of products such as the Company Colors line of work
clothing. Throughout the design process, the Company solicits comments and
feedback from customers and prospects, and tests market acceptance through a
variety of direct mail and selling test methods.
For a further discussion of the risks and uncertainties associated with the
technological changes affecting future demand for the Company's standardized
business forms and related products, see "Certain Factors That May Affect
Future Results" included in Part II, Item 7 to this Annual Report on Form 10-
K.
2
<PAGE>
Sales and Marketing
The Company has established three distinct channels of distribution. The
Company's primary channel is direct mail in which approximately 100 million
pieces of promotional advertising offering the Company's products are
delivered by mail to customers and prospective customers each year under the
NEBS(R), RapidForms(R), Chiswick(R), Histacount(R), SYCOM(R), R&M Retail
Merchandising(R), Visual Display Solutions(TM), Bags & Bows(TM), NCS National
Clothier Supply(R), Main Street(R), Holiday Expressions(TM), Ad Ideas(TM),
ASH(R), NAPCO(R), Education Matters(TM), Company Colors, Business
Envelopes(TM) and SFL(TM) brand names. The Company's direct mail efforts are
also supplemented by the prospecting and account development efforts of an
outbound telemarketing group.
The Company's success to date has largely been the result of effective
direct marketing and the strength of its customer relationships. Targeted
direct mail marketing in combination with focused telemarketing allows the
Company to identify and penetrate numerically and geographically dispersed
but, in the aggregate, significant markets. The Company targets small
businesses with 100 or fewer employees within these markets with specialized
promotions and products specifically designed to meet small business needs. In
the direct mail channel, the Company's promotional materials contain one or
more order forms to be completed by the customer and either mailed, faxed or
telephoned to the Company's telesales and customer service group. The Company
and its subsidiaries also maintain World Wide Web sites for promotion and
order taking.
The Company's promotional materials include several catalogs containing a
comprehensive display of the Company's forms and checks, packaging supplies
and retail merchandising supplies product offerings. In addition, the Company
utilizes smaller catalogs focused on specific products or targeted to a
specific small business segment, promotional circulars with samples, flyers,
and inserts included with invoices, statements and product shipments. The
Company relies to a lesser extent on advertising space in magazines and post
card packages to generate sales leads from prospective customers. The Company
utilizes the United States or the local country postal service for
distribution of most of its advertising materials.
The Company's second principal channel of distribution is through a field
sales organization of over 450 people, primarily dedicated to marketing
McBee(R) brand checks and check writing systems, Chiswick brand packaging and
shipping supplies, or Russell & Miller brand retail merchandising and display
products. Initial order support, product reorders and routine service in the
direct sales channel is provided by a network of customer service
representatives located throughout the United States and Canada.
The principal focus of the McBee sales force is to generate first-time
buyers for check and check writing system products. Prospective customer leads
are generated for the McBee sales force under referral arrangements with small
business accountants and commercial banks representing approximately 21,000
geographically dispersed branch offices. The McBee sales effort typically
targets small business customers with fewer than 10 employees.
The principal focus of the Chiswick and Russell & Miller sales force has
been to develop high-potential customer relationships initially established
through the direct mail channel. The Chiswick and Russell & Miller sales
effort typically supports businesses with more than 100 employees or retail
chains with geographically dispersed store locations.
The Company's third principal distribution channel is through a network of
independent dealers. The Company distributes a full line of private label
standard and custom printed products, including manual and computer forms,
checks, greeting cards and labels through this dealer network. The Company's
independent dealers typically include local printers, business forms dealers,
stationers, computer stores and system houses and number approximately 25,000.
The Company believes that its sophisticated and extensive marketing
database, customer/prospect lists and referral sources constitute a
competitive advantage. The Company is able to select names and plan promotions
based on a variety of attributes including status as a customer or prospect,
line of business, product purchase
3
<PAGE>
history, purchase frequency or purchase dollar volume. With this data, the
Company is able to create and deliver cost-effective marketing programs to
small businesses through direct mail, direct sales, outbound telemarketing,
the internet or the dealer channel.
For a further discussion of the risks and uncertainties associated with the
small business market and the Company's direct mail channel, see "Certain
Factors That May Affect Future Results" included in Part II, Item 7 to this
Annual Report on Form 10-K.
Raw Materials, Production and Distribution
The Company's production and distribution system is designed to process a
high volume of small dollar orders on a cost-effective basis. The production
and procurement of printed product base stock is driven by forecasts of demand
for the Company's products. The Company produces semi-finished base business
forms, check stock and related products in long runs on high-speed, roll-fed
presses from raw paper. The Company also purchases base stock from a number of
industry sources at competitive prices. The raw paper and carbonless paper
used by the Company to produce base stock is purchased from a limited number
of vendors at competitive prices.
In response to a customer order, the Company's base printed products are
subsequently personalized with a variety of imprint options including customer
names, addresses, phone numbers, consecutive numbering and logos. The Company
operates equipment specifically designed to meet the demands of short-run
personalized printing. Typesetting and imprinting of customer headings are
accomplished with computerized typesetters, platemaking systems, letter
presses, offset presses and digital presses. In addition, the Company utilizes
manual and semi-automatic bindery equipment. A number of the Company's
imprinting presses have been designed internally or substantially modified to
meet the short-run demands of small businesses. These specialized presses
allow the Company to produce small-order quantities with greater efficiency
than would be possible with stock equipment available from typical printing
press equipment suppliers.
During the past two years, the Company has experienced an increase in the
proportion of revenue generated by the sale of stock business products
produced by third parties, including Chiswick brand industrial packaging and
warehouse supplies, and Bags & Bows retail supplies. The Company principally
utilizes a "pick and pack" operation to aggregate stock products from
warehoused inventory into distinct order groups and to package these order
groups for shipment to the customer. The Company's stock business products are
obtained from a large number of suppliers at competitive prices.
In addition, the Company relies on a limited number of suppliers to produce
and drop-ship products directly to Company customers. The Company believes
that alternative sources are generally available for products purchased from
third-party vendors, and is continually evaluating its sourcing of these
third-party supplied products.
The Company has no significant backlog of orders. The Company's objective is
to produce and ship product as expeditiously as possible following receipt of
a customer's order. During fiscal year 1999, approximately 70% of printed
products were produced and shipped within one day and approximately 90% within
four days of order. The Company's stock business products are routinely
shipped within 24 hours of receipt of a customer order.
To facilitate expeditious production and shipment of product, the Company
maintains significant inventories of raw paper ($1,692,000 at June 26, 1999),
and partially printed business forms, packaging, shipping and retail supplies,
and related business products ($19,846,000 at June 26, 1999).
The Company primarily ships its products to customers by United Parcel
Service of America, Inc. The Company uses Parcel Post and overnight delivery
services for distribution of the remainder of its products to customers in the
U.S. and for its international businesses.
4
<PAGE>
For a further discussion of the risks and uncertainties associated with the
Company's reliance on certain individual third-party vendors to provide raw
materials and services critical to the Company's operation, see "Certain
Factors That May Affect Future Results" included in Part II, Item 7 to this
Annual Report on Form 10-K.
Competition
The small business forms and business supplies industry is highly
competitive. The Company believes that it is well positioned in the small
business marketplace, with a reputation for reasonable prices and high
quality, reliability and service.
The Company's primary competitors for printed products are the local
printers, business forms dealers, contract stationers and office products
superstores located throughout each of its geographic markets. Local printers
have an advantage of physical proximity to customers, but generally do not
have the capability of producing a broad array of products, particularly those
having a complex construction. In addition, most local printers lack the
economies of scale to produce a small order for a single customer on a cost-
effective basis. General purpose, preprinted business forms offered by
stationers and office product superstores are typically price competitive with
the Company's forms, but lack the design and functionality for specific lines
of business and the custom printing options available with the Company's
products. The Company's principal competitors for stock business products are
the large number of local and regional business supplies jobbers, distributors
and retailers throughout the United States and Canada.
At present, the Company is aware of more than twenty major independent
companies or divisions of larger companies in its geographic markets marketing
printed products and business supplies to small businesses through direct
mail, distributors, or a direct sales force. The primary competitive factors
influencing a customer's purchase decision are product guarantees, breadth of
product line, speed of delivery, price and customer service. The Company
believes it is the leading direct marketer of business forms, checks and
related printed products to the very small business market in the United
States, Canada and the United Kingdom. The Company defines the very small
business market as businesses with fewer than 20 employees.
For a further discussion of the risks and uncertainties associated with the
competitive landscape for the Company's products, see "Certain Factors That
May Affect Future Results" included in Part II, Item 7 to this Annual Report
on Form 10-K.
Employees
The Company had 3,727 full and part-time employees at June 26, 1999. The
Company believes its relationship with its employees to be satisfactory.
Environment
To the Company's knowledge, no material action or liability exists on the
date hereof arising from the Company's compliance with federal, state and
local statutes and regulations relating to protection of the environment.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in Groton,
Massachusetts. The Company's principal operating facilities consist of
manufacturing, administrative and warehouse facilities and are located in the
United States, Canada, the United Kingdom and France. Of its principal
operating facilities, the Company owns 901,100 square feet in the aggregate in
Flagstaff, Arizona, Groton and Townsend, Massachusetts, Maryville, Missouri,
Peterborough, New Hampshire, Thorofare, New Jersey, Ogden, Utah, Midland and
Toronto, Ontario and Chester, England, and leases 582,851 square feet in the
aggregate in Santa Fe Springs, California, Sudbury, Massachusetts, Parsippany,
New Jersey, Athens, Ohio, Damascus, Virginia and Tours, France. The Company
5
<PAGE>
also leases space in over 80 locations in the United States and Canada for
sales purposes. The Company has committed to lease an additional 60,000 square
feet of warehouse space in Lithia Springs, Georgia beginning in the fall of
1999.
The Company believes its existing production and office facilities are
adequate for its present and foreseeable future needs.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is involved in disputes and/or litigation
encountered in the ordinary course of its business. The Company does not
believe that the ultimate impact of the resolution of such outstanding matters
will have a material effect on the Company's business, operating results or
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of stockholders during the fourth
quarter of fiscal 1999.
ITEM 4.1 EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers are elected to office by the Board of
Directors at the first board meeting following the Annual Meeting of
Stockholders or at other board meetings as appropriate, and hold office until
the first board meeting following the next Annual Meeting and until a
successor is chosen. Information regarding the Company's executive officers is
presented below.
Robert J. Murray, age 58, has been a director of the Company since 1991. Mr.
Murray has been Chairman of the Board, President and Chief Executive Officer
of the Company since 1995. Mr. Murray retired from The Gillette Company, a
diversified consumer products company, in 1995, having been with Gillette for
more than 34 years. From 1991 until his retirement in 1995, Mr. Murray was
Executive Vice President, North Atlantic Group of Gillette. Mr. Murray is a
director of Fleet National Bank, LoJack Corporation, Hannaford Bros. Co. and
Allmerica Financial Corporation.
George P. Allman, age 57, joined the Company in 1996, and he has been Senior
Vice President and President of Diversified Operations since October 1998.
Prior to that, he served as Vice President, Diversified Operations from 1996
to 1998, and as Vice President, Retail Sales and Operations during 1996. Prior
to joining the Company, he was a private investor during 1995, and founded and
served as President of GPA Associates, Inc., a diversified promotional
products supplier, from 1984 to 1995.
Edward M. Bolesky, age 53, joined the Company in 1981, and he has been
Senior Vice President and President of NEBS Direct Marketing since October
1998. Prior to that, he served as Vice President, Direct Marketing/Telesales
and Service from 1996 to 1998, as Vice President, Business Solutions and
Operations from 1995 to 1996, as Vice President, Manufacturing and Information
Systems during 1995, as Vice President, Operations from 1994 to 1995, and
prior to that in numerous capacities in operations and administration.
John F. Fairbanks, age 38, joined the Company in 1994, and he has been
Senior Vice President and President of Chiswick since October 1998. Prior to
that, he served as Vice President and Chief Financial Officer from 1996 to
1998, and as Vice President and Corporate Controller during 1996. He also
served as Treasurer from 1994 to 1996 and during 1998, and as Secretary from
1994 to 1996. Prior to joining the Company, he served as Vice President and
Treasurer of M/A-COM, Inc., a supplier of microwave semiconductors, components
and sub-systems, from 1992 to 1994.
Joel S. Hughes, age 54, joined the Company in February 1999, and he has been
Senior Vice President, Corporate Channel Marketing since that date. Prior to
joining the Company, he served as Vice President of Marketing, Sales and
Service of Harvard Business School Publishing from 1992 to 1999.
6
<PAGE>
Daniel M. Junius, age 47, joined the Company in October 1998, and he has
been Senior Vice President and Chief Financial Officer and Treasurer since
that date. Prior to joining the Company, he served as Vice President, Finance
and Chief Financial Officer of Nashua Corporation, a supplier of specialty
imaging products and services, from 1995 to 1998, and as Treasurer of Nashua
Corporation from 1985 to 1998.
Richard T. Riley, age 43, has been Senior Vice President and President of
Rapidforms since October 1998. Mr. Riley joined the Company in 1997 in
connection with the Company's acquisition of Rapidforms, Inc., where he has
been President since 1992. During 1998 he held the additional office of Vice
President of the Company.
Steven G. Schlerf, age 47, joined the Company in 1979, and he has been
Senior Vice President, Manufacturing and Technical Operations since October
1998. Prior to that, he served as Vice President, Manufacturing and Technical
Operations from 1996 to 1998, as Vice President, Image Manufacturing and
Product Development from 1995 to 1996, as Director, Manufacturing from 1991 to
1995, and prior to that in a variety of capacities in manufacturing and
operations.
Robert D. Warren, age 48, joined the Company in 1996, and he has been Senior
Vice President, Business Management and Development since October 1998. Prior
to that, he served as Vice President, Business Management and Development from
1996 to 1998, and as Vice President, Business Management and Business
Solutions during 1996. Prior to joining the Company, he served as Vice
President, Marketing for Gillette Stationery Products, North America of The
Gillette Company from 1992 to 1996.
7
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Common Stock
The Company's Common Stock is listed and traded on the New York Stock
Exchange under the symbol "NEB". For the fiscal periods indicated, the high and
low sales prices for shares of the Company's Common Stock as reported on the
New York Stock Exchange--Composite Transactions Reporting System were as
follows:
<TABLE>
<CAPTION>
Fiscal 1999 High Low
- ----------- ---- ---
<S> <C> <C>
1st Quarter.......... 32 1/4 26 15/16
2nd Quarter.......... 36 3/16 27 1/16
3rd Quarter.......... 39 9/16 24
4th Quarter.......... 29 9/16 26 1/2
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1998 High Low
- ----------- ---- ---
<S> <C> <C>
1st Quarter........... 32 1/2 25 3/4
2nd Quarter........... 33 13/16 29 1/8
3rd Quarter........... 34 1/4 30 5/8
4th Quarter........... 34 1/2 30
As of August 27, 1999, there were 605 stockholders of record, and the Company
believes that as of such date there were approximately 6,200 beneficial owners
of the Company's Common Stock, based on information provided by the Company's
transfer agent. Information with respect to dividends paid on the Company's
Common Stock during the past two fiscal years is shown in the Notes to the
Consolidated Financial Statements included in this Annual Report on Form 10-K.
</TABLE>
8
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR SUMMARY
(In thousands, except per share amounts and Other Statistics)
<TABLE>
<CAPTION>
June 26, June 27, June 28, June 29, June 30,
For the fiscal year ended 1999(A) 1998(B) 1997(C) 1996(D) 1995(E)
- ------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income Statistics
Net sales................ $ 470,477 $ 355,767 $ 263,424 $ 254,954 $ 263,724
Income before income tax-
es...................... 43,742 41,405 31,380 21,055 28,492
Percent of sales........ 9.3% 11.6% 11.9% 8.3% 10.8%
Provision for income
taxes.................. 17,291 16,471 12,731 8,306 11,818
Percent of sales........ 3.7% 4.6% 4.8% 3.3% 4.5%
Net income before equity
in losses of invest-
ment.................... 26,451 24,934 18,649 12,749 16,674
Percent of sales........ 5.6% 7.0% 7.1% 5.0% 6.3%
Percent of stockholders'
equity................. 21.8% 21.8% 23.1% 16.8% 18.2%
Per diluted common
share.................. 1.81 1.77 1.38 .86 1.09
Net income............... 26,451 24,934 18,649 11,929 16,298
Percent of sales........ 5.6% 7.0% 7.1% 4.7% 6.2%
Percent of stockholders'
equity................. 21.8% 21.8% 23.1% 15.7% 17.8%
Per diluted common
share.................. 1.81 1.77 1.38 .81 1.07
Dividends per common
share................... .80 .80 .80 .80 .80
- ---------------------------------------------------------------------------------
Balance Sheet Statistics
Current assets........... $ 99,703 $ 101,060 $ 68,426 $ 71,334 $ 77,509
Current liabilities...... 45,775 50,677 33,327 27,273 32,169
Working capital.......... 53,928 50,383 35,099 44,061 45,340
Current ratio............ 2.2 2.0 2.1 2.6 2.4
Total assets............. 300,262 307,577 141,196 103,542 124,546
Long-term debt........... 128,000 141,000 27,000 0 0
Stockholders' equity..... 121,529 114,505 80,581 75,916 91,523
Diluted weighted average
shares outstanding...... 14,640 14,106 13,525 14,811 15,295
Book value per common
share................... 8.65 8.01 5.92 5.42 6.16
- ---------------------------------------------------------------------------------
Other Financial Statis-
tics
Capital expenditures..... $ 16,866 $ 13,275 $ 9,567 $ 9,388 $ 10,804
Depreciation and amorti-
zation.................. 24,845 15,218 9,090 10,329 12,676
- ---------------------------------------------------------------------------------
Other Statistics
Number of employees...... 3,727 3,738 2,164 2,014 2,055
Number of stockholders... 6,200 6,000 6,000 5,800 5,600
Number of 24-month cus-
tomers.................. 2,526,000 2,507,000 1,651,000 1,535,000 1,565,000
Facilities (in square
feet)................... 1,531,000 1,594,000 886,000 708,000 743,000
</TABLE>
- --------
(A) Included in the 1999 results is a $.3 million pretax gain, or $.01 per
diluted share, from the settlement of the Company's Canadian defined
benefit pension plan.
(B) Included in the 1998 results is a $.9 million pretax gain, or $.04 per
diluted share, from the settlement of the Company's U.S. defined-benefit
pension plan and curtailment of the Company's Canadian defined-benefit
pension plan.
(C) Included in the 1997 results is a $3.8 million pretax charge, or $.17 per
diluted share, related to the elimination of the Company's retail
initiative with Kinko's and a $2.2 million pretax gain, or $.10 per
diluted share, from the curtailment of the Company's U.S. defined-benefit
pension plan.
(D) Included in the 1996 results is a $3.0 million pretax charge, or $.12 per
diluted share, related to the closure of the Company's Flagstaff, Arizona
manufacturing facility.
(E) Included in the 1995 results is a $2.0 million pretax charge, or $.07 per
diluted share, related to integration of the Company's SYCOM subsidiary.
See the Notes to the Consolidated Financial Statements included in this Annual
Report on Form 10-K.
9
<PAGE>
ITEM 7. 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.
In December 1997, the Company acquired all of the outstanding common stock
of Rapidforms, Inc. ("Rapidforms") for consideration of approximately
$82,136,000 in cash (net of cash acquired). Rapidforms designs, produces and
markets business forms, business supplies, in-store retail merchandising
supplies, holiday greeting cards and promotional products sold principally by
direct mail to small businesses across the United States.
In June 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") for consideration of approximately $48,518,000 in cash
(net of cash acquired) and $12,600,000 in Company common stock. McBee
manufactures and markets checks and related products to small businesses in
the United States and Canada through a dedicated field sales force.
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 of this Management's Discussion and
Analysis of Financial Condition and Results of Operations titled "Certain
Factors That May Affect Future Results".
Results of Operations
1999 versus 1998
Over the past several years the Company had made a series of acquisitions
intended to augment the three segments of the Company's business. The first
two segments, Printed Products--Direct Marketing and Printed Products--Direct
Sales, sell primarily printed business products. The third segment, Packaging
and Display Products, serves as a reseller of packing and shipping supplies
and retail signage. Net sales increased $114.7 million, or 32.2%, to $470.5
million for fiscal year 1999 from $355.8 million in fiscal year 1998. The
Rapidforms and McBee acquisitions during fiscal 1998 were primarily
responsible for the sales increase of approximately $103.5 million, or 29.0%,
in the Printed Products--Direct Marketing and Printed Products--Direct Sales
segments. The remaining increase in sales, $11.2 million, or 3.2%, was
attributable to growth in the Packing and Display Products segment, which was
primarily the result of the Rapidforms acqusition as one of its subsidiaries
is classified in this segment.
For fiscal year 1999, cost of sales decreased to 36.6% of sales from 38.0%
in fiscal year 1998. This decrease was due to an increase in revenue generated
by higher margin products associated with the acquisition of McBee, increased
handling charges which help offset transportation charges and increased
efficiencies in the Company's U.S operating units primarily selling business
forms and related printed products tied in part, to acquisition integration
related efficiencies. These factors counteracted the impact of $1.4 million 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 percentage of sales is anticipated to decrease slightly during
fiscal year 2000 due to continued improvement in integration efficiencies.*
10
<PAGE>
Selling and advertising expense increased to 37.2% of sales in fiscal year
1999 from 34.2% of sales in fiscal year 1998. 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 $623,000 in costs during the year 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 1.7% of sales in fiscal year 1998 to 2.6%
of sales in fiscal year 1999 due to the effect of intangible assets created in
the McBee acquisition and the full year impact of the Rapidforms acquisition.
Selling and advertising expense as a percentage of sales is expected to
increase slightly during fiscal year 2000 due to increased marketing efforts
in most of the businesses.*
General and administrative expense remained flat at 15.2% of sales in fiscal
year 1999 and 1998. The year-to-year similarity was the result of a lower
ratio of general and administrative expense to sales associated with the
Company's McBee subsidiary, which offset $642,000 of general and
administrative spending related primarily to systems integration efforts among
Rapidforms, McBee and the Company. During fiscal year 1999, 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, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use," reduced
amounts charged to expense in fiscal 1999 by $1,907,000. General and
administrative expense as a percentage of sales is expected to increase
slightly during fiscal year 2000 due to an increase in spending on information
systems.*
During fiscal year 1998, the Company amended its defined benefit pension
plan for Canadian employees of NEBS Business Forms, Ltd. to freeze
participation and to allow participants to rollover accrued benefits under the
plan to a defined contribution retirement plan. The Company recorded a
curtailment gain of $313,000 during fiscal year 1998 associated with the
freeze and resultant benefit rollover. During fiscal year 1999, the Company
settled this plan and recorded a settlement gain of $259,000.
Interest expense increased over the prior year to 1.8% of sales in fiscal
year 1999 compared to 1.3% of sales in fiscal year 1998. This increase in
expense was attributable to debt incurred to finance the acquisitions of
Rapidforms in December, 1997 and McBee in June of 1998.
The provision for income taxes as a percentage of pretax income decreased
from 39.8% in fiscal year 1998 to 39.5% in fiscal year 1999 due to a reduction
in the Company's effective state tax rate.
The Company will continue to seek opportunities to acquire companies,
businesses and product lines to enhance the Company's competitive position in
the marketplace or to gain access to new markets, products, competencies or
technologies.* In addition, the Company is continuing to capitalize on the
marketing and cost reduction opportunities presented by integration of the
businesses acquired during fiscal years 1997 and 1998.* The Company will
continue to seek opportunities to enhance the cost structure of the Company,
to improve operating efficiencies, and to fund investments in support of the
Company's strategies.*
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard will be adopted by the
Company in fiscal year 2001. The Company is still evaluating the impact of
this standard on its consolidated financial statements.
1998 versus 1997
Net sales increased $92.4 million, or 35.1%, to $355.8 million for fiscal
year 1998 from $263.4 million in fiscal year 1997. Of the net sales increase,
$84.8 million, or 91.8%, was attributable to acquisitions completed during
fiscal years 1998 and 1997. The acquisitions of Rapidforms and McBee during
fiscal year 1998 accounted for $38.0 million and $4.7 million of the increase,
respectively. The acquisitions of Chiswick Trading, Inc. and Standard Forms,
Ltd. during fiscal year 1997 contributed $38.3 million and $3.8 million,
respectively, to the acquisition-related net sales growth during fiscal year
1998. The balance of the net sales increase of $7.6 million was primarily
attributable to price increases effected during the fiscal year and to
moderate growth in certain product lines.
11
<PAGE>
Cost of sales as a percentage of net sales increased from 35.7% in fiscal
year 1997 to 38.0% in fiscal year 1998. The increased percentage was primarily
the result of an increase in revenue generated by lower margin products
associated with the businesses acquired by the Company during fiscal years
1998 and 1997. The acquired businesses higher cost of sales is due to the
nature of their products, markets and distribution methods.
Selling and advertising expense as a percentage of sales decreased slightly
from 34.3% in fiscal year 1997 to 34.2% in fiscal year 1998. The impact of a
higher ratio of selling and advertising expense to net sales in the acquired
businesses and a significant increase in amortization expense associated with
acquisition related intangibles was more than fully offset by improved selling
and advertising efficiency in the Company's core businesses.
General and administrative expense decreased as percentage of net sales from
17.4% in fiscal year 1997 to 15.2% in fiscal year 1998. The decline was
principally the result of a lower ratio of general and administrative expense
to net sales associated with the Company's newly acquired businesses and a
reduction in corporate general and administrative expense during fiscal year
1998. The reductions in the ratio of general and administrative expense to net
sales was partially offset by increased spending levels associated with the
Company's program to reengineer its financial and operational information
systems.
During fiscal year 1998, payments related to accruals for the previous
year's exit costs were completed and there were no significant changes in
estimates of such exit costs.
During fiscal year 1997, the Company amended its defined benefit pension
plan for U.S.-based employees of New England Business Service, Inc. to freeze
participation and to eliminate further benefit accruals. In fiscal year 1998,
the Company terminated the defined benefit pension plan and settled all plan
obligations. The Company recorded a plan curtailment gain of $2,187,000 and a
plan settlement gain of $556,000 in fiscal years 1997 and 1998, respectively,
associated with the amendment and termination of this plan.
Interest expense, net of interest income, increased from $64,000 in fiscal
year 1997 to $4,334,000 or 1.2% of net sales in fiscal year 1998. The increase
in net interest expense is the result of the issuance of debt to finance
acquisitions completed during the two fiscal years.
The provision for income taxes as a percentage of pretax income decreased
from 40.6% in fiscal year 1997 to 39.8% in fiscal year 1998 principally due to
a reduction in the Company's effective state tax rate.
In fiscal 1998, the Company adopted SFAS No. 128, "Earnings Per Share",
which did not have a significant impact on the consolidated financial
statements.
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 principally focus on system remediation rather than system replacement. The
Company's operational information systems have been inventoried and assessed
for Year 2000 compliance, and approximately 95% of the Company's mission
critical systems have been remediated as of June 26, 1999. The Company
believes, based on available information, that it will be able to complete the
remediation and testing of all critical operating systems by October 1999.*
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,
12
<PAGE>
French 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 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.*
The Company believes the postal service and utility exposures represent the
worst case scenarios. 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.*
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, the majority of which has been expensed as of June
26, 1999. Due to the modification of the Company's plans to focus on
remediation rather than replacement, $6 million has been expensed for
remediation in fiscal year 1999 along with $2 million of additional capital
and another $1 million will be expensed in fiscal year 2000.*
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
"Certain Factors That May Affect Future Results" included in this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Liquidity and Capital Resources
Cash provided by operating activities amounted to $46.4 million in fiscal
year 1999, approximately $3.9 million, or 9.0%, higher than the $42.5 million
provided in fiscal year 1998. This increase in cash provided by operating
activities was composed of a $1.5 million increase in net income and a $9.5
million increase in non-cash depreciation and amortization expense, offset in
part by a comparative reduction of $9.1 million in the amount of cash provided
by working capital and other non-cash adjustments to reported net income. In
fiscal year 1998, cash provided by operating activities increased $4.7
million, or 12.6%, from the $37.8 million dollars provided in fiscal year 1997
due principally to a $6.3 million increase in net income and a $6.1 million
increase in non-cash depreciation and amortization expense, offset in part by
a comparative reduction of $7.7 million in the amount of cash provided by
working capital and other non-cash adjustments to reported net income.
Working capital as of June 26, 1999 amounted to $53.9 million including $5.5
million of cash and short-term investments. This balance represents an
increase of $3.5 million from the working capital balance of $50.4 million,
including cash and short-term investments of $10.8 million, at the end of
fiscal year 1998. This increase in working capital is not a significant change
from the prior year, as there were no acquisitions during the year, and excess
cash is used to reduce outstanding debt on a timely basis.
Working capital increased in fiscal year 1998 by $15.3 million principally
due to an increase in cash provided by operating activities and the addition
of the working capital balances of companies acquired during fiscal year 1998.
The Company does not expect to experience any significant change to the amount
of working capital investment required to support its business during fiscal
year 2000.*
Capital expenditures of $16.9 million in fiscal year 1999 represented a $3.6
million increase from the $13.3 million expended in fiscal year 1998 and a
$7.3 million increase from the $9.6 million expended in fiscal year 1997.
Capital expenditures over the three-year period have included significant
investment in the purchase,
13
<PAGE>
development and implementation of information systems infrastructure and
operating systems. In addition, capital expenditures in fiscal year 1999
included a $1.2 million expansion of the Company's Midland, Ontario
manufacturing facility and in fiscal year 1998 included the construction of a
$3.0 million telemarketing facility in Flagstaff, Arizona. The Company expects
capital expenditures to approximate $18.0 million dollars in fiscal year 2000,
which will include additional planned improvements in information systems
infrastructure and new warehouse space being constructed in Lithia Springs,
Georgia.*
The Company repurchased 509,600 shares of the Company's common stock for
$14.0 million in cash during fiscal year 1999 and 1,056,100 shares of common
stock for $17.7 million in cash during fiscal year 1997. The Company did not
repurchase any shares of common stock in fiscal 1998. In addition, the Company
declared and paid a cash dividend of $.80 per share during each of the last
three fiscal years, amounting to a total of $11.5 million in fiscal 1999,
$11.0 million in fiscal 1998 and $10.7 million in fiscal 1997.
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. The Company
currently has a committed, unsecured, revolving line of credit agreement which
totals $165 million and which matures on December 18, 2002. At June 26, 1999,
the Company had $128.0 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. As of June
26, 1999, the Company was in compliance with these provisions.
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 two 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 June 26, 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 foreign subsidiaries and affiliates,
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 June 26, 1999, the Company had an
outstanding forward exchange rate contract for $1.7 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.*
Certain Factors That May Affect Future Results
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 Annual Report
on Form 10-K, in other reports filed under the Securities Act of 1934, 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,
14
<PAGE>
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 direct mail 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 of 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.
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 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, a significant
percentage 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. Until recently, coated paper costs for promotional materials have
increased steadily. In addition, certain segments of the paper market
15
<PAGE>
periodically have demonstrated considerable price volatility. 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.
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. 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, or that the Company will be able to maintain its inherent
cost advantage. 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.
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
16
<PAGE>
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, 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
support 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.
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 in January, 2000. 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 January, 2000. 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
17
<PAGE>
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 U.S. 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, or 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to a number of market risks, primarily due to 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 (which carries a variable interest rate) creates an
exposure to changes in interest rates. The effect, however, 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. This is because (i) foreign earnings have
not been repatriated, the magnitude of foreign currency transactions has been
minimal and forward foreign currency contracts have been entered into to hedge
foreign exchange fluctuations; (ii) interest rates have not fluctuated
significantly and a significant portion of the Company's borrowings are fixed
through interest swaps. The Company does have a component of its borrowings
that is not hedged. A 10% upward movement in interest rates would impact
earnings and cash flows by approximately $1.6 million dollars. For more
information on these market risks and financial exposures, see the Notes to
Consolidated Financial Statements included in this Annual Report on Form 10-K.
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 a short-term intercompany loan created to fund the operating
cash requirements of the Company's European operations (see the Notes to
Consolidated Financial Statements included in this Annual Report on Form 10-
K), the Company has entered into a forward exchange rate contract for the
amount of the loan and associated interest. The currency hedged is the British
pound. While there is no specified repayment date for the loan, the forward
exchange rate contract is of limited duration and is replaced periodically as
it matures.
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.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The Company's financial statements, together with the independent auditors'
report thereon, appear beginning on page F-1 of this Annual Report on Form 10-
K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company will furnish to the Securities and Exchange Commission not later
than 120 days after the close of its fiscal year ended June 26, 1999 a
definitive Proxy Statement (the "Proxy Statement") for the Annual Meeting of
Stockholders to be held on October 22, 1999. The information required by this
Item concerning the directors of the Company is incorporated by reference to
"Election of Directors" in the Proxy Statement. The information required by
this Item concerning the executive officers of the Company appears in Part I,
Item 4.1 to this Annual Report on Form 10-K.
Section 16(a) Beneficial Ownership Reporting Compliance
Information regarding compliance with Section 16(a) beneficial ownership
reporting requirements is located in the Proxy Statement under the heading
"Section 16(a) Beneficial Ownership Reporting Compliance" and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
"Election of Directors" and "Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
"Voting Securities" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
"Certain Relationships and Related Transactions" and "Compensation Committee
Interlocks and Insider Participation in Compensation Decisions" in the Proxy
Statement.
19
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(a)(1) Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
New England Business Service, Inc. and Subsidiaries
Consolidated Balance Sheets as of June 26, 1999 and June 27, 1998......... F-2
Statements of Consolidated Income and Comprehensive Income for the fiscal
years ended June 26, 1999, June 27, 1998 and June 28, 1997............... F-3
Statements of Consolidated Stockholders' Equity for the fiscal years ended
June 26, 1999, June 27, 1998 and June 28, 1997........................... F-4
Statements of Consolidated Cash Flows for the fiscal years ended June 26,
1999, June 27, 1998 and
June 28, 1997............................................................ F-5
Notes to Consolidated Financial Statements................................ F-6
Independent Auditors' Report.............................................. F-19
</TABLE>
(a)(2) Financial Statement Schedule
<TABLE>
<S> <C>
Schedule II Valuation and Qualifying Accounts.............................. F-20
</TABLE>
Schedules I, III, IV and V are omitted as they are not applicable or required
under Regulation S-X.
(a)(3) List of Exhibits
Exhibits required to be filed by Item 601 of Regulation S-K are listed in the
exhibit index beginning on page X-1.
(b) Reports on Form 8-K
Not applicable.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
New England Business Service, Inc.
(Registrant)
/s/ Robert J. Murray
By: _________________________________
(Robert J. Murray, Chairman,
President
and Chief Executive Officer)
Date: September 10, 1999
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of the undersigned officers and
directors of New England Business Service, Inc., a Delaware corporation (the
"Company"), hereby constitutes and appoints Robert J. Murray and Daniel M.
Junius, and each of them, with full power to act without the other, his or her
true and lawful attorney-in-fact, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities (until revoked in writing) to sign the Company's Annual
Report on Form 10-K for the fiscal year ended June 26, 1999, and any and all
amendments thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact or
either of them, or their or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Name Title Date
/s/ Robert J. Murray Chairman, President September 10,
- ------------------------------------- and Chief Executive 1999
(Robert J. Murray) Officer and
Director (Principal
Executive Officer)
/s/ Neil S. Fox Director September 10,
- ------------------------------------- 1999
(Neil S. Fox)
/s/ Robert L. Gable Director September 10,
- ------------------------------------- 1999
(Robert L. Gable)
/s/ Benjamin H. Lacy Director September 10,
- ------------------------------------- 1999
(Benjamin H. Lacy)
/s/ Herbert W. Moller Director September 10,
- ------------------------------------- 1999
(Herbert W. Moller)
/s/ Richard H. Rhoads Director September 10,
- ------------------------------------- 1999
(Richard H. Rhoads)
/s/ Brian E. Stern Director September 10,
- ------------------------------------- 1999
(Brian E. Stern)
/s/ M. Anne Szostak Director September 10,
- ------------------------------------- 1999
(M. Anne Szostak)
/s/ Daniel M. Junius Senior Vice September 10,
- ------------------------------------- President-Chief 1999
(Daniel M. Junius) Financial Officer
and Treasurer
(Principal
Financial and
Accounting Officer)
21
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
New England Business Service, Inc. and Subsidiaries
Consolidated Balance Sheets as of June 26, 1999 and June 27, 1998......... F-2
Statements of Consolidated Income and Comprehensive Income for the fiscal
years ended June 26, 1999, June 27, 1998 and June 28, 1997............... F-3
Statements of Consolidated Stockholders' Equity for the fiscal years ended
June 26, 1999, June 27, 1998 and June 28, 1997........................... F-4
Statements of Consolidated Cash Flows for the fiscal years ended June 26,
1999, June 27, 1998 and June 28, 1997.................................... F-5
Notes to Consolidated Financial Statements................................ F-6
Independent Auditors' Report.............................................. F-19
Schedule II Valuation and Qualifying Accounts............................. F-20
</TABLE>
F-1
<PAGE>
NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 26, 1999 and June 27, 1998
(In thousands of dollars except share data)
<TABLE>
<CAPTION>
June 26, 1999 June 27, 1998
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................... $ 5,484 $ 10,823
Accounts receivable (less allowance for doubtful
accounts of $4,899 in 1999 and $4,257 in 1998)... 52,546 50,985
Inventories....................................... 21,538 20,970
Direct mail advertising materials, net and prepaid
expenses......................................... 12,946 12,289
Deferred income tax benefit....................... 7,189 5,993
-------- --------
Total current assets........................... 99,703 101,060
Property and Equipment:
Land and buildings............................... 42,169 35,712
Equipment........................................ 103,453 96,250
-------- --------
Property and equipment........................... 145,622 131,962
Less accumulated depreciation.................... (90,450) (80,032)
-------- --------
Property and equipment, net..................... 55,172 51,930
Property Held for Sale............................ 839 1,131
Deferred Income Tax Benefit....................... 6,353 2,652
Goodwill, net..................................... 62,626 75,586
Tradenames, net................................... 31,610 30,332
Customer Lists, net............................... 31,590 43,878
Other Assets...................................... 12,369 1,008
-------- --------
Total.......................................... $300,262 $307,577
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................. $ 15,478 $ 16,038
Federal and state income taxes.................... -- 2,733
Accrued profit-sharing/bonus distribution......... 2,496 2,426
Accrued payroll expense........................... 11,245 8,794
Accrued employee benefit expense.................. 4,990 3,305
Accrued exit costs/restructuring charge........... 1,135 5,389
Deferred income taxes............................. 2,068 1,879
Other accrued expenses............................ 8,363 10,113
-------- --------
Total current liabilities...................... 45,775 50,677
Revolving Line of Credit.......................... 128,000 141,000
Deferred Income Taxes............................. 4,958 1,395
Commitments and Contingencies
Stockholders' Equity:
Preferred stock
Common stock, par value, $1 per share--authorized,
40,000,000 shares; issued, 15,358,436 shares in
1999 and 15,185,240 shares in 1998; outstanding,
14,053,634 shares in 1999 and 14,300,533 shares
in 1998.......................................... 15,358 15,185
Additional paid-in capital........................ 49,500 44,559
Accumulated other comprehensive loss.............. (2,654) (2,337)
Retained earnings................................. 86,902 71,962
-------- --------
Total.......................................... 149,106 129,369
Less treasury stock, at cost--1,304,802 shares in
1999 and 884,707 shares in 1998.................. (27,577) (14,864)
-------- --------
Total stockholders' equity..................... 121,529 114,505
-------- --------
Total.......................................... $300,262 $307,577
======== ========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME AND COMPREHENSIVE INCOME
For the Fiscal Years Ended June 26, 1999, June 27, 1998 and June 28, 1997
(In thousands except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net Sales......................................... $470,477 $355,767 $263,424
Operating Expenses:
Cost of sales including shipping costs.......... 172,241 135,225 94,048
Selling and advertising......................... 175,026 121,571 90,367
General and administrative...................... 71,454 54,101 45,949
Exit costs...................................... -- -- 3,803
-------- -------- --------
Total operating expenses...................... 418,721 310,897 234,167
-------- -------- --------
Income From Operations............................ 51,756 44,870 29,257
Other Income (Expense):
Interest income................................. 221 237 420
Interest expense................................ (8,494) (4,571) (484)
Gain on pension curtailment/settlement.......... 259 869 2,187
-------- -------- --------
Total other income (expense).................. (8,014) ( 3,465) 2,123
-------- -------- --------
Income Before Income Taxes........................ 43,742 41,405 31,380
Provision For Income Taxes........................ 17,291 16,471 12,731
-------- -------- --------
Net Income........................................ 26,451 24,934 18,649
Other Comprehensive Loss.......................... (317) (575) (1)
-------- -------- --------
Comprehensive Income.............................. $ 26,134 $ 24,359 $ 18,648
======== ======== ========
Per Share Amounts:
Basic earnings per share........................ $ 1.84 $ 1.81 $ 1.39
======== ======== ========
Diluted earnings per share...................... $ 1.81 $ 1.77 $ 1.38
======== ======== ========
Dividends....................................... $ .80 $ .80 $ .80
======== ======== ========
Basic Weighted Average Shares Outstanding......... 14,352 13,781 13,397
Plus incremental shares from assumed conversion
of stock options............................... 288 325 128
-------- -------- --------
Diluted Weighted Average Shares Outstanding....... 14,640 14,106 13,525
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
For the Fiscal Years Ended June 26, 1999, June 27, 1998 and June 28, 1997
(In thousands)
<TABLE>
<CAPTION>
Common Stock
Issued
-------------- Accumulated
Number At Par Additional Other
of Value Paid-In Comprehensive Retained Treasury
Shares Amount Capital Loss Earnings Stock Total
------ ------- ---------- ------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 29, 1996.. 14,005 $14,005 $13,603 $(1,761) $ 50,069 $ 0 $ 75,916
Issuance of common stock
to employees pursuant
to stock plans
including tax benefit.. 246 246 4,899 877 6,022
Issuance of common stock
to acquire a business.. 365 365 8,035 8,400
Dividends paid.......... (10,694) (10,694)
Acquisition of treasury
stock.................. (17,711) (17,711)
Foreign currency
translation
adjustment............. (1) (1)
Net income.............. 18,649 18,649
------ ------- ------- ------- -------- -------- --------
Balance, June 28, 1997.. 14,616 14,616 26,537 (1,762) 58,024 (16,834) 80,581
Issuance of common stock
to employees pursuant
to stock plans
including tax benefit.. 187 187 5,804 1,970 7,961
Issuance of common stock
to acquire a business.. 382 382 12,218 12,600
Dividends paid.......... (10,996) (10,996)
Foreign currency
translation
adjustment............. (575) (575)
Net income.............. 24,934 24,934
------ ------- ------- ------- -------- -------- --------
Balance, June 27, 1998.. 15,185 15,185 44,559 (2,337) 71,962 (14,864) 114,505
Issuance of common stock
to employees pursuant
to stock plans
including tax benefit.. 173 173 4,941 1,318 6,432
Dividends paid.......... (11,511) (11,511)
Acquisition of treasury
stock.................. (14,031) (14,031)
Foreign currency
translation
adjustment............. (317) (317)
Net income.............. 26,451 26,451
------ ------- ------- ------- -------- -------- --------
Balance, June 26, 1999.. 15,358 $15,358 $49,500 $(2,654) $ 86,902 $(27,577) $121,529
====== ======= ======= ======= ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the Fiscal Years Ended June 26, 1999, June 27, 1998 and June 28, 1997
(In thousands of dollars)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income..................................... $ 26,451 $ 24,934 $ 18,649
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................. 12,432 9,296 8,280
Amortization................................. 12,413 5,922 810
Gain on pension settlement/curtailment....... (259) (869) (2,187)
(Gain)/loss on disposal of equipment......... 514 (94) 935
Deferred income taxes........................ (640) 1,852 2,569
Exit costs................................... (2,875) (1,119) (381)
Provision for losses on accounts receivable.. 4,151 3,293 2,612
Employee benefit charges..................... 3,003 3,980 (143)
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable........................ (5,685) (3,332) 61
Inventories and advertising material....... (2,466) (1,503) 2,566
Prepaid expenses........................... 1,244 2,054 (732)
Accounts payable........................... 32 (3,908) 852
Income taxes payable....................... (2,750) 2,228 2,198
Other accrued expenses..................... 792 (205) 1,674
--------- --------- --------
Net cash provided by operating
activities.............................. 46,357 42,529 37,763
Cash Flows From Investing Activities:
Additions to property and equipment............ (16,866) (13,275) (9,567)
Acquisition of businesses--net of cash
acquired...................................... (256) (131,596) (40,174)
Proceeds from sale of facilities and
equipment..................................... 877 262 406
Proceeds from sale of other assets............. 140 -- --
Investment in other assets..................... (20) (371) --
Purchases of investments....................... -- (1,561) (3,800)
Proceeds from sale and maturities of
investments................................... -- 2,023 14,199
--------- --------- --------
Net cash used by investing activities.... (16,125) (144,518) (38,936)
Cash Flows From Financing Activities:
Repayment of debt.............................. (113,500) (25,650) (13,495)
Proceeds from credit line--net of issuance
costs......................................... 100,500 138,900 39,342
Proceeds from issuance of common stock......... 2,923 3,469 4,486
Acquisition of treasury stock.................. (14,031) -- (17,711)
Dividends paid................................. (11,511) (10,996) (10,694)
--------- --------- --------
Net cash provided (used) by financing
activities.............................. (35,619) 105,723 1,928
Effect of Exchange Rate Changes on Cash........ 48 (276) 102
--------- --------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents................................... (5,339) 3,458 857
Cash and Cash Equivalents at Beginning of
Year.......................................... 10,823 7,365 6,508
--------- --------- --------
Cash and Cash Equivalents at End of Year....... $ 5,484 $ 10,823 $ 7,365
========= ========= ========
Supplemental Cash Flow Disclosure:
Interest paid.................................. $ 8,867 $ 3,791 $ 365
========= ========= ========
Income taxes paid.............................. $ 20,232 $ 11,574 $ 7,553
========= ========= ========
Stock issued in connection with acquisitions... $ -- $ 12,600 $ 8,400
========= ========= ========
Stock issued pursuant to employee benefit
plans......................................... $ 2,774 $ 3,836 $ 1,123
========= ========= ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Description of Business and Basis of Consolidation--The financial statements
include the accounts of New England Business Service, Inc. and its wholly-
owned subsidiaries (the "Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation. The Company sells
primarily printed business products such as checks and business forms through
a variety of channels and also serves as a reseller of packaging and shipping
supplies and retail signage.
Foreign Currency Translation--The financial statements of the Company's
foreign subsidiaries are measured in the respective subsidiary's functional
currency and then translated into U.S. dollars. All balance sheet accounts
have been translated using the year-end rate of exchange, while income
statement accounts have been translated using the average rates prevailing
throughout the year. Resulting translation gains or losses are accumulated in
a separate component of stockholders' equity entitled "Accumulated other
comprehensive loss." Foreign currency transaction gains and losses, including
those related to intercompany transactions, are recorded directly in the
income statement and are immaterial.
Cash and Cash Equivalents--The Company considers its holdings in short-term
money market accounts and certificates of deposit with an original maturity of
three months or less to be cash equivalents.
Inventories--Inventories are generally carried at the lower of first-in,
first-out cost or market. At year end, inventories consisted of:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Raw paper........................................... $ 1,692,000 $ 1,622,000
Business forms and related office products.......... 19,846,000 19,348,000
----------- -----------
Total............................................. $21,538,000 $20,970,000
=========== ===========
</TABLE>
Direct Mail Advertising--The Company expenses the production costs of
advertising at the time the advertising is initiated, except for direct-
response advertising, which is capitalized and amortized over its expected
period of future benefit; this period is generally not in excess of six
months. Direct-response advertising consists primarily of product catalogs and
associated mailing costs. As of June 26, 1999 and June 27, 1998, $8,400,000
and $6,578,000, respectively, was reported as direct advertising assets.
Advertising expense included in selling and advertising was approximately
$56,680,000 in 1999, $46,271,000 in 1998, and $36,411,000 in 1997.
Property and Equipment--Property and equipment are carried at cost.
Depreciation is computed over the estimated useful lives (three to twenty
years) of the assets using the straight-line method. Property held for sale is
stated at the lower of cost or estimated net realizable value.
Goodwill--Goodwill acquired is being amortized on a straight-line basis over
periods of 20 to 40 years. Accumulated amortization amounted to $3,369,000 and
$1,649,000 at June 26, 1999 and June 27, 1998, respectively.
F-6
<PAGE>
Customer Lists, Tradenames and Other Assets--Customer lists, tradenames and
other assets are amortized using the straight-line method or the effective-
interest method over their estimated lives. The range of estimated lives and
accumulated amortization balances for each category of assets are as follows:
<TABLE>
<CAPTION>
1999 1998
Accumulated Accumulated
Description Lives Amortization Amortization
----------- ---------- ------------ ------------
<S> <C> <C> <C>
Customer lists.......................... 2-18 years $14,861,000 $6,509,000
Tradenames.............................. 40 years 1,090,000 268,000
Other assets:
Covenant not to compete................ 5 years 270,000 150,000
Debt issue costs....................... 5 years 175,000 62,000
Assembled workforce.................... 6 years 885,000 --
Bank referral agreements............... 20 years 401,000 --
</TABLE>
Revenue Recognition--Revenue from sales is recognized when a product is
shipped.
Income Taxes--The provision for income taxes is determined based upon the
Company's computed total income tax obligation for the year and the change in
the Company's deferred tax balances from year to year. Deferred income taxes
reflect the impact of temporary differences between assets and liabilities
recognized for financial reporting purposes and such amounts recognized for
tax purposes. Such deferred tax assets and liabilities are also adjusted to
reflect changes in the U.S. and applicable foreign tax laws when enacted.
Future tax benefits are recognized to the extent realization of such benefit
is more likely than not to occur.
Significant Estimates--In the process of preparing its consolidated
financial statements, the Company estimates the appropriate carrying value of
certain assets and liabilities which are not readily apparent from other
sources. The primary estimates underlying the Company's consolidated financial
statements include allowances for doubtful accounts, inventory obsolescence,
deferrals of mail advertising costs, accruals for bonuses, recoverability of
deferred tax assets, goodwill and other intangible assets. Actual results may
differ from these estimates.
Per Share Amounts--Basic earnings per share amounts are computed based upon
the weighted average number of shares of common stock outstanding during each
fiscal year. Diluted earnings per share amounts are computed by also giving
consideration to potentially dilutive stock options outstanding. A
reconciliation of outstanding shares is shown on the statements of
consolidated income and comprehensive income.
Concentration of Credit Risk--The Company extends credit to approximately
1.8 million geographically dispersed customers on an unsecured basis in the
normal course of business. No individual industry or industry segment is
significant to the Company's customer base. The Company has in place policies
governing the extension of credit and collection of amounts due from
customers.
Derivatives--The Company has entered into a variety of intercompany
transactions between members of the consolidated group (which have different
functional currencies) that present foreign currency risk. The Company has
purchased foreign currency forward contracts to minimize the effect of
fluctuating foreign currencies on its reported income; however, these
contracts do not qualify under generally accepted accounting principles for
hedge treatment. Accordingly, these contracts are carried in the financial
statements at the current forward foreign exchange rates, with the changes in
forward rates reflected directly in income. The offsetting exchange movements
on the intercompany balances are also recognized directly to income.
The Company has entered into interest rate swaps that qualify as matched
swaps that are linked by designation with a balance sheet liability and have
opposite interest rate characteristics of such balance sheet item. Matched
interest rate swaps qualify for settlement accounting. Under settlement
accounting, periodic net cash settlements under the swap agreements are
recognized in income on an accrual basis. These settlements are offset against
interest expense in the statements of consolidated income and comprehensive
income.
F-7
<PAGE>
Impairment of Long-Lived Assets--The Company evaluates the recoverability of
long-lived assets in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." There were no adjustments
to the carrying value of any long-lived assets in 1999, 1998 or 1997.
Accounting for Stock-Based Compensation--SFAS No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic-value method prescribed in Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations.
New Accounting Pronouncements--In March 1998, the AICPA issued Statement of
Position ("SOP") 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 fiscal year 1999, approximately
$1,907,000 in costs which previously would have been expensed have been
capitalized under the caption "Property and equipment, net." The AICPA has
also issued SOP 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, the implementation did not impact the consolidated
financial statements.
In June, 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
standard 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.
Reclassifications--Certain reclassifications have been made to the 1998 and
1997 financial statements to conform with the 1999 presentation.
2. Acquisitions
Fiscal 1997 Acquisitions
On January 8, 1997, the Company acquired the outstanding stock of Standard
Forms Limited ("SFL"), a U.K.-based company, for approximately $4,300,000. The
Company incurred acquisition fees of approximately $300,000 in connection with
the acquisition. SFL markets business forms and stationery by direct mail and
through a direct sales force, principally to automotive accounts in the U.K.
and in France. The acquisition was accounted for using the purchase method of
accounting. Accordingly, SFL's results of operations are included in the
accompanying financial statements from the date of acquisition. The excess
purchase price, including acquisition costs, over the fair value of the net
tangible assets acquired, was $4,952,000, of which $1,000,000 was allocated to
SFL's customer list and the balance of $3,952,000 to goodwill. The goodwill is
being amortized over a period of 25 years.
On March 31, 1997, the Company acquired substantially all of the assets and
assumed certain liabilities of Chiswick Trading, Inc. ("Chiswick") for
consideration of approximately $34,600,000 in cash (net of cash acquired), and
365,217 shares of Company common stock valued at approximately $8,400,000, for
an aggregate purchase price of approximately $43,000,000. The Company incurred
acquisition fees of approximately $400,000 in connection with the acquisition.
Chiswick markets retail and industrial packaging, and shipping and warehouse
supplies, sold primarily to small wholesalers, manufacturers and retailers.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, Chiswick's results of operations are included in the accompanying
financial statements from the date of acquisition. The purchase price,
including acquisition costs, was allocated to the net tangible assets acquired
based on the fair value of such assets and liabilities. The excess cost over
fair value of the net tangible assets acquired was $34,724,000, of which
$6,000,000 was allocated to customer lists, $1,000,000 to a non-compete
agreement and the balance of $27,724,000 to goodwill. The goodwill is being
amortized over a period of 40 years.
F-8
<PAGE>
Fiscal 1998 Acquisitions
On December 23, 1997, the Company acquired all of the outstanding common
stock of Rapidforms, Inc. ("Rapidforms") for consideration of approximately
$82,136,000 in cash (net of cash acquired). The Company also incurred fees of
approximately $407,000 in connection with the acquisition. Rapidforms and its
subsidiaries collectively sell business forms, stationery, merchandising
products and office supplies primarily by direct mail to small businesses
throughout the United States. The acquisition was accounted for using the
purchase method of accounting. Accordingly, Rapidforms' results of operations
are included in the accompanying financial statements from the date of
acquisition. The purchase price, including acquisition costs, was allocated to
the net tangible assets acquired based on the fair value of such assets and
liabilities. The excess cost over fair value of the net tangible assets
acquired was $63,009,000, of which $21,000,000 was allocated to customer
lists, $15,700,000 to tradenames, and the balance of $26,309,000 to goodwill.
The goodwill is being amortized on a straight-line basis over a period of 40
years, while customer lists and the tradenames arising from this transaction
are being amortized over their respective useful lives.
As part of the purchase accounting for the Rapidforms acquisition and
included in the allocation of the acquisition costs, 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 is related
to employee termination benefits, and approximately $300,000 is related to
termination of certain contractual obligations. The liability associated with
the Rapidforms integration plan remaining as of June 26, 1999 was $188,000.
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") for consideration of approximately $48,518,000 in cash
(net of cash acquired), and 382,352 shares of Company common stock valued at
approximately $12,600,000, for an aggregate purchase price of $61,118,000. The
Company also incurred fees of approximately $780,000 in connection with the
acquisition. McBee manufactures and markets a line of checks and related
products to small businesses throughout the United States and Canada through a
dedicated field sales force. The acquisition was accounted for using the
purchase method of accounting. Accordingly, McBee's results of operations are
included in the accompanying financial statements from the date of
acquisition. The purchase price, including acquisition costs, was allocated to
the net tangible assets acquired based on the fair value of such assets and
liabilities. The excess cost over fair value of the net tangible assets
acquired was $52,898,000, of which $15,600,000 was allocated to customer
lists, $15,600,000 to tradenames, $4,900,000 to an assembled work force,
$7,400,000 to bank referral agreements, and the balance of $9,398,000 to
goodwill. The goodwill is being amortized on a straight-line basis over a
period of 40 years, while customer lists, the assembled work force, the bank
referral agreements and the tradenames arising from this transaction are being
amortized over their respective useful lives.
As part of the purchase accounting for the McBee acquisition and included in
the allocation of the acquisition costs, a liability of $1,642,000 was
recorded to cover the 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 June 26, 1999 was
$947,000.
F-9
<PAGE>
The following unaudited pro forma financial information reflects the
consolidated results of operations of the Company for the years ended June 27,
1998 and June 28, 1997 as though the acquisitions described above had occurred
on the first day of the respective fiscal year. The pro forma operating
results are presented for comparative purposes only and do not purport to
present the Company's actual operating results had the acquisitions been
consummated on June 29, 1997 or June 30, 1996, or results which may occur in
the future.
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net sales....................................... $457,581,000 $443,182,000
Net income...................................... 24,961,000 18,932,000
Net income per diluted share.................... 1.73 1.34
</TABLE>
3. Debt Obligations and Leases
The Company had previously entered into a five year, $165,000,000,
committed, unsecured, revolving line of credit agreement that expires on
December 18, 2002. Under this credit agreement, the Company has the option to
borrow at the Eurodollar rate plus a spread or the agent bank's base lending
rate prevailing from time to time. The effective interest rate as of June 26,
1999 was 5.60%. 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. At June 26, 1999, $128,000,000 was outstanding under this line.
Debt issuance costs incurred in connection with this facility are amortized
over the term of the agreement using the effective-interest method.
The Company leases facilities and equipment under long-term operating leases
with non-related parties. The future minimum rental commitments for operating
leases of certain facilities and equipment are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended June
----------------------
<S> <C>
2000.............................. $6,128,000
2001.............................. 4,333,000
2002.............................. 2,674,000
2003.............................. 2,572,000
2004.............................. 2,656,000
Thereafter........................ 7,517,000
</TABLE>
Total rental expense was $6,587,000, $2,988,000, and $1,053,000, in 1999,
1998, and 1997, respectively. Included in those amounts were payments for
properties leased from a former executive officer of $1,171,000, $998,000 and
$184,000 in 1999, 1998 and 1997, respectively.
4. Financial Instruments
In order to minimize exposure to foreign currency fluctuations with respect
to short-term, dollar-based intercompany loans to fund SFL's operations (see
Notes 1 and 2), the Company has entered into forward exchange rate contracts
for the amount of the loans and associated interest. At June 26, 1999, the
Company had an outstanding forward rate contract for $1,700,000 worth of Pound
Sterling. The fair value of this contract was nominal at the end of the year.
Gains or losses on this contract and those previously closed have been
immaterial.
F-10
<PAGE>
The Company has entered into interest rate swap agreements with two major
commercial banks in order to effectively convert the interest rate of a
portion of the Company's outstanding revolving credit debt from a Eurodollar-
based floating rate to a fixed rate. The agreements expire on different dates,
and the total notional principal amount decreases over time. Although the
Company is exposed to credit and market risk in the event of future non-
performance by any of the banks, management has no reason to believe that such
an event will occur. Information regarding the agreements as of June 26, 1999
follows:
<TABLE>
<CAPTION>
Fixed Fair Agreement
Notional Principal Amount Interest Rate Value Expiration Date
------------------------- ------------- --------- ----------------
<S> <C> <C> <C>
$45,000,000.................... 5.79% $(129,800) June 8, 2001
40,000,000.................... 5.62% (7,500) January 30, 2001
</TABLE>
As of June 26, 1999 and June 27, 1998, the carrying value of all other
financial instruments approximated fair value.
5. Equity Transactions
The Company has issued a stock purchase right to stockholders for each
outstanding share of common stock of the Company. Each right becomes
exercisable upon the occurrence of certain events, as provided in the Rights
Agreement, and entitles the registered holder to purchase from the Company a
"Unit" consisting of one one-hundredth of a share of preferred stock at a
purchase price of $75.00 per Unit, subject to adjustment to prevent dilution.
In addition, upon the occurrence of certain events, the registered holder will
thereafter have the right to receive, upon payment of the purchase price,
additional shares of common stock and/or cash and/or other securities, as
provided in the Rights Agreement. The rights will expire on October 20, 2004.
The Company may redeem the rights at a price of $.01 per right. The Company
also has authorized but not issued 1,000,000 shares of $1.00 par value
preferred stock.
During fiscal 1997, the Company repurchased 1,015,100 shares of the
Company's common stock for approximately $16,679,000, which completed a
repurchase authorized in April 1996. On October 25, 1996, the Company's Board
of Directors authorized the repurchase of up to two million shares of the
Company's common stock over a two year period. As of June 28, 1997, 41,000
shares had been purchased under the October 1996 repurchase plan at a
cumulative cost of approximately $1,032,000, and no additional purchases were
made during 1998 or 1999 under that plan. On October 23, 1998, the Company's
Board of Directors authorized the repurchase of up to two million additional
shares of the Company's common stock over a two year period, replacing the
October, 1996 authorization. As of June 26, 1999, 509,600 shares had been
purchased under the October, 1998 authorization, at a cumulative cost of
$14,030,743.
6. Stock Options
At the Company's October 1997 annual meeting, the stockholders approved the
NEBS Key Employee and Eligible Director Stock Option and Stock Appreciation
Rights Plan (the "1997 Plan"). The 1997 Plan amended and restated the
Company's 1990 plan (described below) and 1994 plan (also described below) and
incorporated the two plans into the 1997 Plan. Under the 1997 Plan, the
Company was authorized to issue 1,300,000 shares of common stock pursuant to
the granting of stock options or stock appreciation rights in addition to the
shares remaining available for issuance under the 1990 and 1994 option plans.
At the Company's 1994 annual meeting, the stockholders approved the NEBS
1994 Key Employee and Eligible Director Stock Option and Stock Appreciation
Rights Plan (the "1994 Plan"). Under the 1994 Plan, the Company was authorized
to issue up to 1,200,000 shares of common stock pursuant to the granting of
stock options or stock appreciation rights.
At the Company's 1990 annual meeting, the stockholders approved the NEBS
1990 Key Employee Stock Option and Stock Appreciation Rights Plan (the "1990
Plan"). Under the 1990 Plan, the Company was authorized to issue up to
1,000,000 shares of common stock pursuant to the granting of stock options or
stock appreciation rights.
F-11
<PAGE>
At the Company's 1980 annual meeting, the stockholders approved the NEBS
1980 Stock Option Plan (the "1980 Plan"). Under the 1980 Plan, the Company was
authorized to issue up to 900,000 shares of common stock pursuant to stock
options or stock appreciation rights. The 1980 Plan expired in 1990, although
shares of common stock may be issued pursuant to options still outstanding.
Under the terms of the Company's stock option plans, options are granted to
purchase stock at fair market value on the date of the option grant. Options
granted have been exercisable in full in terms of up to nine years from the
date of grant and the options expire no later than ten years from the date of
grant. Generally, the options vest and become exercisable over a four year
period, commencing one year after the grant date. As of June 26, 1999,
2,759,083 shares of common stock are reserved for issuance under the Company's
stock option plans, of which 2,210,111 are subject to outstanding options and
548,972 remain available for future option grants.
Options for 1,053,769 shares, 854,907 shares and 624,538 shares were
immediately exercisable under all option arrangements at June 26, 1999, June
27, 1998 and June 28, 1997, respectively. There were no outstanding stock
appreciation rights under any of the plans during 1999, 1998 or 1997.
A summary of stock option activity under the Company's stock option plans
during 1999, 1998, and 1997 follows:
<TABLE>
<CAPTION>
Weighted-
Number of Per Share Average
Shares Option Price Exercise Price
--------- -------------- --------------
<S> <C> <C> <C>
June 29, 1996....................... 1,299,709 $14.75 - 25.25 $18.47
Granted........................... 720,432 15.38 - 26.38 21.69
Exercised......................... (245,436) 14.75 - 22.25 17.31
Expired........................... (112,210) 15.38 - 25.25 21.45
---------
June 28, 1997....................... 1,662,495 14.75 - 26.38 19.89
Granted........................... 470,500 29.13 - 33.13 30.69
Exercised......................... (180,890) 14.75 - 25.75 18.59
Expired........................... (60,235) 15.38 - 30.00 20.66
---------
June 27, 1998....................... 1,891,870 14.75 - 33.13 22.66
Granted........................... 597,452 28.88 - 33.88 28.03
Exercised......................... (188,344) 14.75 - 30.00 19.03
Expired........................... (90,867) 15.38 - 33.13 28.49
---------
June 26, 1999....................... 2,210,111
=========
</TABLE>
The following table presents information with regard to all stock options
outstanding at June 26, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------- ---------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (years) Price Exercisable Price
-------- ----------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$14.75 - 15.88.......... 280,066 5.7 $15.29 234,577 $15.27
17.88 - 19.75.......... 459,788 6.1 18.30 425,377 18.31
20.13 - 20.75.......... 114,172 6.3 20.68 112,422 20.69
25.75 - 33.88.......... 1,356,085 8.6 28.34 281,393 27.81
--------- --- ------ --------- ------
2,210,111 7.0 $24.20 1,053,769 $20.42
========= === ====== ========= ======
</TABLE>
The Company applies APB Opinion No. 25 to account for its various stock
plans. Accordingly, pursuant to the terms of the plans, no compensation cost
has been recognized for the stock plans. However, if the Company
F-12
<PAGE>
had determined compensation cost for stock option grants issued during 1999
and 1998 under the provisions of SFAS No. 123, the Company's net income and
net income per share would have been reduced to the pro forma amounts shown
below:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income:
As reported........................... $26,451,000 $24,934,000 $18,649,000
Pro forma............................. 24,911,000 24,357,000 17,999,000
Net income per diluted share:
As reported........................... $ 1.81 $ 1.77 $ 1.38
Pro forma............................. 1.70 1.73 1.33
</TABLE>
The pro forma net income reflects the compensation cost only for those
options granted since 1996. Compensation cost is reflected over a stock
option's vesting period and compensation cost for options granted prior to
June 30, 1995 is not considered. Therefore, the full potential impact of
compensation cost for the Company's stock plans under SFAS No. 123 may not be
reflected in the pro forma net income amounts presented above.
The fair value of each stock option granted in 1999, 1998 and 1997 under the
Company's stock option plans was estimated on the date of grant using the
Black-Scholes option-pricing model. The following key assumptions were used to
value grants issued for each year:
<TABLE>
<CAPTION>
Weighted-
Average Average Dividend
Risk Free Rate Expected Life Volatility Yield
-------------- ------------- ---------- --------
<S> <C> <C> <C> <C>
1997........................ 6.28% 7.5 years 29.91% 3.7%
1998........................ 5.54% 5.4 years 28.53% 2.6%
1999........................ 5.94% 5.5 years 24.12% 2.8%
</TABLE>
The weighted-average fair values per share of stock options granted during
1999, 1998 and 1997 were $6.98, $8.51 and $6.40, respectively. It should be
noted that the Black-Scholes option pricing model used in the calculation was
designed to value readily tradable stock options with relatively short lives.
The options granted to employees are not tradable and have contractual lives
of up to ten years. However, management believes that the assumptions used and
the model applied to value the awards yield a reasonable estimate of the fair
value of the grants made under the circumstances.
At the 1994 annual meeting, the stockholders approved the New England
Business Service, Inc. Stock Compensation Plan (the "Stock Compensation
Plan"). Under the Stock Compensation Plan, up to 300,000 shares of common
stock may be issued to the Company's directors and employees in lieu of cash
compensation otherwise payable. At June 26, 1999, 286,295 shares remain
reserved for issuance under the Stock Compensation Plan. The number and value
of shares issued under this plan have been nominal.
7. 401(k) and Profit-Sharing Plans
The Company sponsors several 401(k) plans covering substantially all of the
Company's domestic employees. Contributions to the plans are made by way of
participant salary deferrals and Company contributions. Company contributions
include combinations of matching, fixed and discretionary contributions
subject to a maximum Company obligation ranging from 4% to 9% of an employee's
eligible pay. The Company's aggregate contributions to the plans were
$6,410,000 in fiscal 1999, $4,795,000 in fiscal 1998, and $1,123,000 in fiscal
1997.
The Company and its subsidiaries maintained a profit-sharing plan for
substantially all employees who completed one year of service. Distributions
were based on net income and payments were made five times a
F-13
<PAGE>
year. For 1997, distributions under the plans (which were charged to general
and administrative expense) aggregated $1,138,000. The Company terminated this
plan during 1997. In conjunction with the termination of this plan, the
Company instituted a transition plan, under which substantially all employees
received a predetermined portion of their salary during the third and fourth
quarters of fiscal 1997. Payments under the transition plan amounted to
$1,908,000 and were also charged to general and administrative expense.
8. Pension Plans
The Company sponsored a defined-benefit, trusteed pension plan (the "DB
Plan") which provided retirement benefits for the majority of its domestic
employees. During the second quarter of 1997, the Company amended its DB Plan.
The amendment specifically froze plan participation at December 31, 1996 and
eliminated further benefit accruals after June 28, 1997. The Company recorded
a plan curtailment gain of $2,187,000 as a component of other income during
1997 associated with the plan amendment. In 1998 the Company terminated the
plan and settled all obligations. The Company recorded a plan settlement gain
of $556,000 associated with the DB plan termination. The Company also
maintains two similar plans for its Canadian employees. During fiscal 1998,
the Company amended its Canadian DB Plan to freeze participation at December
31, 1997 and recorded a plan curtailment gain of $313,000 associated with this
action. The Company recorded a plan settlement gain of $259,000 during 1999
related to the Canadian plan termination.
The components of net pension income for 1997 are as follows:
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
Service cost-benefits earned during the period............... $ 635,000
Interest cost on projected benefit obligation................ 1,879,000
Actual return on plan assets................................. (1,746,000)
Net amortization and deferral................................ (1,903,000)
-----------
Net pension income......................................... $(1,135,000)
===========
</TABLE>
The assumptions used for the computation of net pension income for 1997 are
as follows:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Discount rate......................................................... 8.0%
Rate of increase in compensation levels............................... 5.0%
Expected long-term rate of return on assets........................... 9.0%
</TABLE>
In addition, the Company has a supplemental executive retirement plan which
is currently unfunded. Executive employees are eligible to become members of
the plan upon designation by the Board of Directors. Benefits under the plan
are based on each participant's annual earnings and years of service.
Provision for this benefit is charged to operations over the participant's
term of employment. The amounts are not significant.
9. Postretirement Benefits Other Than Pensions
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," requires the accrual of postretirement benefits other than pensions
(such as health care benefits) during the years an employee provides service
to the Company. The Company sponsors a defined benefit postretirement plan
that provides health and dental care benefits for retired Company officers.
The plan is contributory, and retirees' contributions are adjusted annually.
F-14
<PAGE>
The following table sets forth the plan's funded status and obligations as
of June 26, 1999 and June 27, 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Accumulated postretirement benefit obligation
("APBO"):
Retirees.......................................... $ 461,000 $ 638,000
Eligible active plan participants................. -- --
Other active plan participants.................... 522,000 589,000
---------- ----------
Total........................................... 983,000 1,227,000
Plan assets at fair value........................... -- --
Accumulated postretirement benefit obligation in
excess of plan assets............................ 983,000 1,227,000
Unrecognized net gain (loss)...................... 259,000 (73,000)
---------- ----------
Net postretirement liability (included in
accrued employee benefit expense).............. $1,242,000 $1,154,000
========== ==========
</TABLE>
The components of net periodic postretirement benefits cost for 1999, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Service cost................................. $ 62,000 $ 47,000 $ 43,000
Interest on accumulated postretirement
benefit obligation.......................... 70,000 78,000 75,000
Amortization of gain......................... (14,000) (5,000) (3,000)
-------- -------- --------
Net periodic postretirement cost........... $118,000 $120,000 $115,000
======== ======== ========
</TABLE>
For measurement purposes, an 8% annual rate of increase in the cost of
providing medical benefits was assumed in 1999 with a reduction of 1% per year
to a trend rate of 6% for fiscal 2003.
The weighted average discount rate used in determining the APBO was 7.0% in
1999 and 1998.
The health care cost trend has a significant effect on the amounts reported.
An increase of 1% in the rate of increase would have had an effect of
increasing the APBO by $142,000 and the net periodic postretirement benefits
cost by $25,000.
10. Exit Costs
During the first quarter of fiscal year 1997, the Company reached a decision
to eliminate the Company's print desks in Kinko's stores, its administrative
offices in Phoenix and its stationery plant in Scottsdale, Arizona. The
accompanying statements of consolidated income and comprehensive income
include a $3,803,000 pretax charge for exit costs associated with this plan
recognized during the year ended June 28, 1997. The $3,803,000 pretax charge
for exit costs consisted of estimated costs related to facility closures of
$485,000, estimated equipment write-offs of $1,105,000 and estimated
termination benefits of $2,213,000. Approximately 230 employees were
terminated as a result of the restructuring plan. As of June 26, 1999, the
payment of termination benefits, write-offs of equipment and closure of
facilities were complete. There was not a material change from the liability
originally reported.
11. Income Taxes
The components of income before income taxes were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
United States.......................... $43,069,000 $39,817,000 $30,149,000
Foreign................................ 673,000 1,588,000 1,231,000
----------- ----------- -----------
Total................................ $43,742,000 $41,405,000 $31,380,000
=========== =========== ===========
</TABLE>
F-15
<PAGE>
Provisions for income taxes under SFAS No. 109 in 1999, 1998 and 1997
consist of:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Currently payable:
Federal............................. $14,253,000 $10,369,000 $ 7,350,000
State............................... 3,004,000 3,517,000 2,376,000
Foreign............................. 674,000 733,000 436,000
----------- ----------- -----------
Total............................. 17,931,000 14,619,000 10,162,000
Deferred.............................. (640,000) 1,852,000 2,569,000
----------- ----------- -----------
Total............................. $17,291,000 $16,471,000 $12,731,000
=========== =========== ===========
</TABLE>
The tax effects of significant items comprising the Company's net deferred
tax assets as of June 26, 1999 and June 27, 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------ -----------------------
Current Noncurrent Current Noncurrent
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Deferred tax assets:
Pension plans......... $ 119,000
Accrued vacation...... $ 1,512,000 1,108,000
Allowance for doubtful
accounts............. 926,000 612,000
Accrued expenses...... 1,201,000 2,719,000
Sales returns and
allowances........... 327,000 400,000
Inventory............. 1,668,000 579,000
Employee benefit
reserves............. 1,555,000 456,000
Amortization of
intangible assets.... -- $ 4,803,000 -- $1,960,000
Depreciation.......... -- 933,000 -- 157,000
Other................. -- 617,000 -- 535,000
Deferred tax
liabilities:
Amortization.......... -- (2,343,000) -- (299,000)
Depreciation.......... -- (2,335,000) -- (768,000)
Deferred mail
advertising.......... (1,813,000) -- (1,672,000) --
Other................. (255,000) (280,000) (207,000) (328,000)
----------- ----------- ----------- ----------
Net deferred tax
assets................. $ 5,121,000 $ 1,395,000 $ 4,114,000 $1,257,000
=========== =========== =========== ==========
</TABLE>
Current and non-current amounts have been further segregated on the balance
sheet due to the effect of different tax jurisdictions.
A reconciliation of the provisions for income taxes to the U.S. Federal
income tax statutory rates follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate....................................... 35.0% 35.0% 35.0%
State income taxes (less federal tax benefits)........... 4.2 6.3 6.2
Other--net............................................... .3 (1.5) (0.6)
---- ---- ----
Effective tax rate....................................... 39.5% 39.8% 40.6%
==== ==== ====
</TABLE>
12. Segment Information
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", in 1999. Accordingly, it has segmented
its operations in a manner that reflects how its chief operating decision
maker reviews the results of the businesses that make up the consolidated
entity.
F-16
<PAGE>
The Company has identified three reportable segments. The first segment is
titled "Printed Products--Direct Marketing" and represents those business
operations that sell primarily printed business 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 the products 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 $40,954,000, $29,145,000 and $22,118,000 for 1999, 1998
and 1997, respectively, need to be made to the reported segment results.
The following table presents certain segment information:
<TABLE>
<CAPTION>
Printed Products
----------------------------- Packaging and
Direct Marketing Direct Sales Display Products Total
---------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C>
1999
Net sales............. $306,660,000 $93,585,000 $70,232,000 $470,477,000
Profit from
operations........... 69,528,000 11,294,000 3,874,000 84,696,000
Depreciation.......... 9,808,000 1,679,000 945,000 12,432,000
Capital expenditures.. 12,987,000 2,725,000 1,154,000 16,866,000
1998
Net sales............. $268,814,000 $27,908,000 $59,045,000 $355,767,000
Profit from
operations........... 63,806,000 3,060,000 3,684,000 70,550,000
Depreciation.......... 8,442,000 447,000 407,000 9,296,000
Capital expenditures.. 11,010,000 1,066,000 1,199,000 13,275,000
1997
Net sales............. $232,065,000 $19,613,000 $11,746,000 $263,424,000
Profit from
operations........... 53,133,000 (753,000) 1,118,000 53,498,000
Depreciation.......... 7,455,000 674,000 151,000 8,280,000
Capital expenditures.. 8,300,000 870,000 397,000 9,567,000
</TABLE>
Total revenues for printed products amounted to $400,245,000, $296,722,000
and $251,678,000 in 1999, 1998 and 1997, respectively. Total revenues for
packaging and display products are shown under the "packaging and display
products" heading.
Geographic net sales are identified as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
U.S-based........................... $431,362,000 $325,791,000 $237,130,000
International....................... 39,115,000 29,976,000 26,294,000
------------ ------------ ------------
Total............................. $470,477,000 $355,767,000 $263,424,000
============ ============ ============
</TABLE>
F-17
<PAGE>
Geographic net property and equipment assets are identified as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
U.S-based.............................. $47,000,000 $43,966,000 $25,402,000
International.......................... 8,172,000 7,964,000 7,017,000
----------- ----------- -----------
Total................................ $55,172,000 $51,930,000 $32,419,000
=========== =========== ===========
</TABLE>
13. Quarterly Financial Information (Unaudited)
The following financial information is in thousands of dollars, except per
share amounts.
<TABLE>
<CAPTION>
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1999
Net sales.................... $112,686 $127,297 $115,044 $115,450 $470,477
Gross profit................. 70,774 80,710 72,760 73,992 298,236
Income before income taxes... 9,127 12,737 10,436 11,442 43,742
Net income................... 5,478 7,912 6,219 6,842 26,451
Diluted earnings per share... .37 .53 .42 .47 1.81
======== ======== ======== ======== ========
Dividends per share.......... $ .20 $ .20 $ .20 $ .20 $ .80
======== ======== ======== ======== ========
1998
Net sales.................... $ 75,615 $ 81,651 $ 98,002 $100,499 $355,767
Gross profit................. 46,604 51,194 60,564 62,180 220,542
Income before income taxes... 9,732 10,541 10,727 10,405 41,405
Net income................... 5,961 6,483 6,382 6,108 24,934
Diluted earnings per share... .43 .46 .45 .43 1.77
======== ======== ======== ======== ========
Dividends per share.......... $ .20 $ .20 $ .20 $ .20 $ .80
======== ======== ======== ======== ========
</TABLE>
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of New England Business Service,
Inc.:
We have audited the accompanying consolidated balance sheets of New England
Business Service, Inc. and subsidiaries as of June 26, 1999 and June 27, 1998
and the related statements of consolidated income and comprehensive income,
consolidated stockholders' equity, and consolidated cash flows for each of the
three years in the period ended June 26, 1999. Our audits also included the
financial statement schedule listed under Item 14(a)(2). These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of New England Business Service,
Inc. and subsidiaries as of June 26, 1999 and June 27, 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended June 26, 1999 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
As discussed in Note 1 to the financial statements, in 1999 the Company
changed its method of accounting for the costs of computer software developed
for internal use to conform with AICPA Statement of Position 98-1 "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use".
/s/ Deloitte & Touche LLP
Boston, Massachusetts
July 26, 1999
F-19
<PAGE>
SCHEDULE II
NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands of dollars)
<TABLE>
<CAPTION>
Additions
------------------ Balance
Balance at Charged Deductions at
Beginning Charged to Other from End of
Period to Income Accounts Reserves(2) Period
---------- --------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
Reserves deducted from
assets to which they
apply:
For doubtful accounts
receivable:
Year ended June 28,
1997................... $3,343 $2,612 $ 0 $2,604 $3,351
Year ended June 27,
1998................... 3,351 3,293 1,053(1) 3,440 4,257
Year ended June 26,
1999................... 4,257 4,151 0 3,509 4,899
Reserves included in
liabilities:
For sales returns and
allowances:
Year ended June 28,
1997................... $1,072 $ 993 $ 0 $1,072 $ 993
Year ended June 27,
1998................... 993 866 300(1) 993 1,166
Year ended June 26,
1999................... 1,166 20 0 201 985
</TABLE>
- --------
(1) Acquired in acquisitions.
(2) Accounts written off.
F-20
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<C> <S>
3.1.1 Certificate of Incorporation of the Registrant. (Incorporated
by reference to Exhibit 7(a) to the Company's Current Report
on Form 8-K dated October 31, 1986.)
3.1.2 Certificate of Merger of New England Business Service, Inc. (a
Massachusetts corporation) and the Company, dated October 24,
1986 amending the Certificate of Incorporation of the Company
by adding Articles 14 and 15 thereto. (Incorporated by
reference to Exhibit 7(a) to the Company's Current Report on
Form 8-K dated October 31, 1986.)
3.1.3 Certificate of Designations, Preferences and Rights of Series A
Participating Preferred Stock of the Company, dated October
27, 1989. (Incorporated by reference to Exhibit (3)(c) to the
Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1995.)
3.2 By-Laws of the Registrant, as amended through July 23, 1999;
filed herewith.
4.1 Specimen stock certificate for shares of Common Stock, par
value $1.00 per share. (Incorporated by reference to Exhibit
(4)(a) to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1995.)
4.2 Amended and Restated Rights Agreement, dated as of October 27,
1989 as amended as of October 20, 1994 (the "Rights
Agreement"), between New England Business Service, Inc. and
BankBoston, N.A., as rights agent, including as Exhibit B the
forms of Rights Certificate Election to Exercise.
(Incorporated by reference to Exhibit 4 of the Company's
Current Report on Form 8-K dated October 25, 1994.)
10.1.1 Amended and Restated Revolving Credit Agreement dated as of
December 18, 1997, by and among the Company, BankBoston, N.A.
("BankBoston"), Fleet National Bank ("Fleet") and certain
other financial institutions. (Incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K dated
January 7, 1998.)
10.1.2 First Amendment to Amended and Restated Revolving Credit
Agreement dated as of May 29, 1998, by and among the Company,
BankBoston, Fleet and certain other financial institutions.
(Incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K dated June 18, 1998.)
10.1.3 Second Amendment to Amended and Restated Revolving Credit
Agreement dated as of January 8, 1999, by and among the
Company, BankBoston, Fleet and certain other financial
institutions. (Incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended December 26, 1998.)
10.1.4 Third Amendment to Amended and Restated Revolving Credit
Agreement dated as of March 24, 1999, by and among the
Company, BankBoston, Fleet and certain other financial
institutions. (Incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 27, 1999.)
10.2 Stock Purchase Agreement by and between New England Business
Service, Inc. and CSS Industries, Inc. dated as of December 5,
1997. (Incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated January 7, 1998.)
10.3 Stock Purchase Agreement by and between New England Business
Service, Inc. and ROMO Corp. dated as of May 1, 1998.
(Incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K dated June 18, 1998.)
10.4 Asset Purchase Agreement by and among New England Business
Service, Inc., NEBS Business Forms Ltd., McBee Systems of
Canada, Inc. and ROMO Corp. dated as of May 1, 1998.
(Incorporated by reference to Exhibit 2.3 to the Company's
Current Report on Form 8-K dated June 18, 1998.)
</TABLE>
X-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<C> <S>
10.5* NEBS 1997 Key Employee and Eligible Director Stock Option and
Stock Appreciation Rights Plan dated July 25, 1997 (including
amendment and restatement of the NEBS 1990 Key Employee Stock
Option and Stock Appreciation Rights Plan and the NEBS 1994
Key Employee and Eligible Director Stock Option and Stock
Appreciation Rights Plan), amended through October 23, 1998.
(Incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 26, 1998.)
10.6* Stock Option Agreement dated February 2, 1996 between the
Company and Robert J. Murray. (Incorporated by reference to
Exhibit 10.8 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 27, 1998.)
10.7* Stock Option Agreement dated as of July 27, 1990 between the
Company and Richard H. Rhoads; filed herewith.
10.8* NEBS Deferred Compensation Plan for Outside Directors.
(Incorporated by reference to Exhibit (10)(d) to the
Company's Annual Report on Form 10-K for the fiscal year
ended June 25, 1982.)
10.9.1* New England Business Service, Inc. Deferred Compensation Plan
dated June 25, 1994. (Incorporated by reference to Exhibit
(10)(g) to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1995.)
10.9.2* First Restated Trust Agreement for the New England Business
Service, Inc. Deferred Compensation Plan. (Restated effective
April 1, 1998.) (Incorporated by reference to Exhibit 10.11.2
to the Company's Annual Report on Form 10-K for the fiscal
year ended June 27, 1998.)
10.10* Supplemental Retirement Plan for Executive Employees of New
England Business Service, Inc. (Incorporated by reference to
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended September 26, 1998.)
10.11* New England Business Service, Inc. Stock Compensation Plan
dated July 25, 1994, amended through October 23, 1998.
(Incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 26, 1998.)
10.12* Form of Restricted Stock Award Agreement issuable under the
Company's Stock Compensation Plan in connection with the
Executive Bonus Plans for 1999 and 2000; filed herewith.
10.13* Executive Bonus Plan for 2000; filed herewith.
10.14* Change in Control agreement dated November 27, 1996 between
the Company and Robert J. Murray. (Incorporated by reference
to Exhibit (10)(o) to the Company's Annual Report on Form 10-
K for the fiscal year ended June 28, 1997.)
10.15* Change in Control agreement dated November 27, 1996 between
the Company and John F. Fairbanks. (Incorporated by reference
to Exhibit (10)(p) to the Company's Annual Report on Form 10-
K for the fiscal year ended June 28, 1997.)
10.16* Change in Control agreement dated November 27, 1996 between
the Company and George P. Allman. (Incorporated by reference
to Exhibit (10)(q) to the Company's Annual Report on Form 10-
K for the fiscal year ended June 28, 1997.)
10.17* Change in Control agreement dated November 27, 1996 between
the Company and Robert D. Warren. (Incorporated by reference
to Exhibit (10)(r) to the Company's Annual Report on Form 10-
K for the fiscal year ended June 28, 1997.)
10.18* Change in Control agreement dated November 27, 1996 between
the Company and Edward M. Bolesky. (Incorporated by reference
to Exhibit (10)(t) to the Company's Annual Report on Form 10-
K for the fiscal year ended June 28, 1997.)
10.19* Change in Control agreement dated November 27, 1996 between
the Company and Steven G. Schlerf. (Incorporated by reference
to Exhibit (10)(u) to the Company's Annual Report on Form 10-
K for the fiscal year ended June 28, 1997.)
</TABLE>
X-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<C> <S>
10.20* Change in Control agreement dated April 2, 1997 between the
Company and Richard T. Riley. (Incorporated by reference to
Exhibit (10.23) to the Company's Annual Report on Form 10-K
for the fiscal year ended June 27, 1998.)
10.21* Change in Control agreement dated November 18, 1998 between the
Company and Daniel M. Junius. (Incorporated by reference to
Exhibit (10)(a) to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended December 26, 1998.)
10.22* Change in Control agreement dated April 2, 1997 between the
Company and Joel S. Hughes. (Incorporated by reference to
Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 27, 1999.)
10.23* Form of amendment dated July 23, 1999 to the Change in Control
Agreements included as Exhibits 10.14 through 10.22 hereto;
filed herewith.
10.24** Agreement dated as of September 19, 1995 between New England
Business Service, Inc. and Appleton Papers, Inc. (Incorporated
by reference to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended December 27, 1997.)
21 List of Subsidiaries.
23 Independent Auditors Consent--Deloitte & Touche LLP.
24 Power of Attorney (included in the signature page of this
Annual Report on Form 10-K).
27 Article 5 Financial Data Schedule.
</TABLE>
- --------
* Identifies a management contract or compensatory plan or arrangement in
which an executive officer or director of the Company participates.
** Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
X-3
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
(Through July 23, 1999)
BY-LAWS
OF
NEW ENGLAND BUSINESS SERVICE, INC.
ARTICLE ONE
Stockholders
Section 1. Annual Meetings. The annual meeting of the stockholders shall
be held at 10:00 a.m. on the fourth Friday of October in each year (or if that
be a legal holiday in the place where the meeting is to be held, on the next
succeeding full business day), or at such other date and time as shall be
designated from time to time by the Directors and stated in the notice of the
meeting. The purposes for which the annual meeting is to be held, in addition
to those prescribed by law, by the Certificate of Incorporation or by these By-
laws, may be specified by the Directors or the Chairman of the Board or the
President. If no annual meeting is held in accordance with the foregoing
provisions, the Directors shall cause the meeting to be held as soon thereafter
as convenient.
Section 2. Special Meetings. Special meetings of the stockholder may be
called by the Chairman of the Board, the President or the Directors. No call of
a special meeting of the stockholders shall be required if such notice of the
meeting shall have been waived in writing (including a telegram) by every
stockholder entitled to notice thereof, or by his attorney thereunto authorized.
Section 3. Place of Meetings. All meetings of stockholders shall be held
at the principal office of the corporation unless a different place (within the
United States) is fixed by the Directors or the Chairman of the Board or the
President and stated in the notice of the meeting.
Section 4. Notices. Except as otherwise provided by law, notice of all
meetings of stockholders shall be given as follows, to wit: A written notice,
stating the place, day and hour thereof, shall be given by the Secretary (or
person or persons calling the meeting), not less than 10 nor more than sixty
days before the meeting, to each stockholder entitled to vote thereat and to
each stockholder who, by law, the Certificate of Incorporation, or these By-
laws, is entitled to such notice, by leaving such notice with him or at his
residence or usual place of business, or by mailing it postage prepaid, and
addressed to such stockholder at his address as it appears upon the books of the
corporation. Notices of all meetings of stockholders shall state the purposes
for which the meetings are called. No notice need be given to any stockholder
if a written waiver of
<PAGE>
notice, executed before or after the meeting by the stockholder or his attorney
thereunto authorized, is filed with the records of the meeting.
Section 5. Notice of Stockholder Nominations and Business; Annual Meeting
of Stockholders. Nominations of persons for election to the Board of Directors
and the proposal of business to be considered by the stockholders may be made at
an annual meeting of stockholders (a) pursuant to the corporation's notice of
meeting pursuant to Section 4 of this ARTICLE ONE, (b) by or at the direction of
the Board of Directors, or (c) by any stockholder of the corporation who was a
stockholder of record at the time of giving of notice provided for in this By-
law, who is entitled to vote at the meeting and who complies with the notice
procedures set forth in this By-law.
For nominations or other business to be properly brought before an annual
meeting by a stockholder pursuant to clause (c) of the first paragraph of this
By-law, the stockholder must have given timely notice thereof in writing to the
Secretary at the principal executive offices of the corporation not later than
the close of business on the 90th day nor earlier than the close of business on
the 120th day prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is more than 30 days before or after such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the close of
business on the 120th day prior to such annual meeting and not later than the
close of business on the later of the 90th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made by the corporation. In no event will the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election as a Director all information relating to such person that
is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
Director if elected); (b) as to any other business desired to be brought before
the meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial owner,
if any, on whose behalf the proposal is made; and (c) as to the stockholder
giving the notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made (i) the name and address of such stockholder, as
they appear on the corporation's books, and of such beneficial owner, and (ii)
the class and number of shares of the corporation which are owned beneficially
and of record by such stockholder and such beneficial owner.
Anything contained in the second sentence of the second paragraph of this
By-law to the contrary notwithstanding, in the event that the number of persons
to be elected to the Board of Directors is increased and there is no public
announcement naming all of the nominees for Director or specifying the size of
the increased Board of Directors made by the corporation at least 100 days prior
to the first anniversary of the preceding year's
2
<PAGE>
annual meeting, a stockholder's notice required by this By-law will also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the corporation.
Section 6. Notice of Stockholder Nominations and Business; Special Meetings
of Stockholders. Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
corporation's notice of meeting pursuant to Section 4 of this ARTICLE ONE.
Nominations of persons for election to the Board of Directors may be made at a
special meeting of stockholders at which Directors are to be elected pursuant to
the corporation's notice of meeting (a) by or at the direction of the Board of
Directors, or (b) by any stockholder of the corporation who is a stockholder of
record at the time of giving notice provided by this By-law, who shall be
entitled to vote at the meeting and who complies with the notice procedures set
forth in this By-law. In the event the corporation calls a special meeting of
stockholders for the purpose of electing one or more persons to the Board of
Directors, any such stockholder may nominate a person or persons (as the case
may be), for election to such position(s) as specified in the corporation's
notice of meeting, if the stockholder's notice required by the second paragraph
of Section 5 of ARTICLE ONE shall be delivered to the Secretary at the principal
executive offices of the corporation not earlier than the close of business on
the 120th day prior to such special meeting and not later than the close of
business on the later of the 90th day prior to such special meeting or the 10th
day following the day on which public announcement is first made of the date of
the special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
Section 7. Notice of Stockholder Nominations and Business; General. Only
such persons who are nominated in accordance with the procedures set forth in
these By-laws shall be eligible to serve as Directors and only such business
shall be conducted at a meeting of stockholders as shall have been brought
before the meeting in accordance with the procedures set forth in these By-laws.
Except as otherwise provided by law, the Certificate of Incorporation or these
By-laws, the presiding officer of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought before the
meeting was made or proposed, as the case may be, in accordance with the
procedures set forth in these By-laws and, if any proposed nomination or
business is not in compliance with these By-laws, to declare that such defective
nomination or proposal shall be disregarded.
For purposes of these By-laws, "public announcement" shall mean disclosure
in a press release reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
3
<PAGE>
Anything contained in the foregoing provisions of these By-laws to the
contrary notwithstanding, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in these By-laws. Nothing in these By-laws
shall be deemed to affect the rights (a) of stockholders to request the
inclusion of proposals in the corporation's proxy statement pursuant to Rule
14a-8 under the Exchange Act, or (b) of the holders of any series of Preferred
Stock to elect directors under specified circumstances.
Section 8. Quorum. At any meeting of stockholders a quorum for the
transaction of business shall consist of one or more individuals appearing in
person and/or as proxies and owning and/or representing a majority of the shares
of the corporation then outstanding and entitled to vote, provided that in the
absence of a quorum, the stockholders may, by majority vote, adjourn the meeting
from time to time until a quorum shall be present.
Section 9. Voting and Proxies. Each stockholder shall have one vote for
each share of stock entitled to vote, and a proportionate vote for any
fractional share entitled to vote, held by him of record according to the
records of the corporation, unless otherwise provided by the Certificate of
Incorporation or by resolution or resolutions of the Board of Directors
establishing rights of Preferred Stock as provided for in the Certificate of
Incorporation. Stockholders may vote either in person or by written proxy dated
not more than three years before the meeting named therein, unless the proxy
provides for a longer period. Proxies shall be filed with the Secretary before
being voted at any meeting or any adjournment thereof. Every proxy must be
signed by the stockholder or by his attorney-in-fact. A proxy purporting to be
executed by or on behalf of a stockholder shall be deemed valid unless
challenged at or prior to its exercise.
Section 10. Action at Meeting. When a quorum is present, the action of
the stockholders on any matter properly brought before such meeting shall be
decided by the holders of a majority of the stock present or represented and
entitled to vote and voting on such matter, except where a different vote is
required by law, the Certificate of Incorporation or these By-laws. Any
election by stockholders shall be determined by a plurality of the votes cast by
the stockholders entitled to vote at the election. No ballot shall be required
for such election unless requested by a stockholder present or represented at
the meeting and entitled to vote in the election.
Section 11. Special Action. Any action to be taken by the stockholders
may be taken without a meeting if all stockholders entitled to vote on the
matter consent to the action by a writing filed with the records of the meetings
of stockholders. Such consent shall be treated for all purposes as a vote at a
meeting.
Section 12. Record Date. The Directors may fix in advance a time which
shall be not more than sixty days prior to (a) the date of any meeting of
stockholders and not less than ten days prior to such meeting, (b) the date for
the payment of any dividend or the making of any distribution to stockholders,
or (c) the last day on which the consent or dissent of stockholders may be
effectively expressed for any purpose, as the record date
4
<PAGE>
for determining the stockholders having the right to notice of and to vote at
such meeting and any adjournment thereof, the right to receive such dividend or
distribution, or the right to give consent or dissent. The Board of Directors
may fix a new record date, or confirm an existing record date, for the purpose
of determining the stockholders entitled to vote at any adjourned or postponed
meeting. In each such case only stockholders of record on such record date shall
have such right, notwithstanding any transfer of stock on the books of the
corporation after the record date.
Section 13. Stockholder List. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city or other municipality or community
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
Section or the books of the corporation, or to vote at any meeting of
stockholders.
ARTICLE TWO
Directors
Section 1. Powers. The Board of Directors, subject to any action at any
time taken by such stockholders as then have the right to vote, shall have the
entire charge, control and management of the corporation, its property and
business and may exercise all or any of its power.
Section 2. Election. A Board of Directors of such number, not less than
3, nor more than 9, as shall be fixed by the stockholders, shall be elected by
the stockholders at the annual meeting.
Section 3. Vacancies. Any vacancy at any time existing in the Board may
be filled by the Board at any meeting. The stockholders having voting power
may, at a special meeting called at least in part for the purpose, choose a
successor to a Director whose office is vacant, and the person so chosen shall
displace any successor chosen by the Directors.
Section 4. Enlargement of the Board. The number of the Board of Directors
may be increased and one or more additional Directors elected at any special
meeting of the stockholders, called at least in part for the purpose, or by the
Directors by vote of a majority of the Directors then in office.
5
<PAGE>
Section 5. Tenure. Except as otherwise provided by law, by the
Certificate of Incorporation or by these By-laws, Directors shall hold office
until the next annual meeting of stockholders and thereafter until their
successors are chosen and qualified. Any Director may resign by delivering his
written resignation to the corporation at its principal office or to the
Chairman of the Board, the President or the Secretary. Such resignation shall
be effective upon receipt unless it is specified to be effective at some other
time or upon the happening of some other event.
Section 6. Removal. A Director may be removed from office with or without
cause by vote of a majority of the stockholders entitled to vote in the election
of Directors.
Section 7. Annual Meetings. Immediately after each annual meeting of
stockholders and at the place thereof, if a quorum of the Directors elected at
such meeting is present, there shall be a meeting of the Directors without
notice; but if such a quorum of the Directors elected thereat is not present at
such meeting, or if present does not proceed immediately thereafter to hold a
meeting of the Directors, the annual meeting of the Directors shall be called in
the manner hereinafter provided with respect to the call of special meetings of
Directors.
Section 8. Regular Meetings. Regular meetings of the Directors may be
held at such times and places as shall from time to time be fixed by resolution
of the Board and no notice need be given of regular meetings held at times and
places so fixed, provided however, that any resolution relating to the holding
of regular meetings shall remain in force only until the next annual meeting of
stockholders, and that if at any meeting of Directors at which a resolution is
adopted fixing the times or place or places for any regular meetings any
Director is absent, no meeting shall be held pursuant to such resolution until
either each such absent Director has in writing or by telegram approved the
resolution or seven days have elapsed after a copy of the resolution certified
by the Secretary has been mailed postage prepaid, addressed to each such absent
Director at his last known home or business address.
Section 9. Special Meetings. Special meetings of the Directors may be
called by the Chairman of the Board, the President, the Treasurer or any two
Directors and shall be held at the place designated in the call thereof.
Section 10. Notices. Notices of any special meeting of the Directors
shall be given by the Secretary to each Director, by mailing to him, postage
prepaid, and addressed to him at his address as registered on the books of the
corporation, or if not so registered at his last known home or business address,
a written notice of such meeting at least four days before the meeting or by
delivering such notice to him at least forty-eight hours before the meeting or
by sending to him at least forty-eight hours before the meeting, by prepaid
telegram addressed to him at such address, notice of such meeting. If the
Secretary refuses or neglects for more than twenty-four hours after receipt of
the call to give notice of such special meeting, or if the office of the
Secretary is vacant or the Secretary is incapacitated, such notice may be given
by the officer or one of the Directors
6
<PAGE>
calling the meeting. Notice need not be given to any Director if a written
waiver of notice, executed by him before or after the meeting, is filed with the
records of the meeting, or to any Director who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him. A
notice or waiver of notice of a Directors' meeting need not specify the purpose
of the meeting.
Section 11. Quorum. At any meeting of the Directors a majority of the
number of Directors required to constitute a full Board, as fixed in or
determined pursuant to these By-laws as then in effect, shall constitute a
quorum for the transaction of business; provided always that any number of
Directors (whether one or more and whether or not constituting a quorum) present
at any meeting or at any adjourned meeting may make any reasonable adjournment
thereof.
Section 12. Action at Meeting. At any meeting of the Directors at which a
quorum is present, the action of the Directors on any matter brought before the
meeting shall be decided by the vote of a majority of those present and voting,
unless a different vote is required by law, the Certificate of Incorporation, or
these By-laws.
Section 13. Special Action. Any action by the Directors may be taken
without a meeting if a written consent thereto is signed by all the Directors
and filed with the records of the Directors' meetings. Such consent shall be
treated as a vote of the Directors for all purposes.
Section 14. Committees. The Directors may, by vote of a majority of the
number of Directors required to constitute a full Board as fixed in or
determined pursuant to these By-laws as then in effect, elect from their number
an executive or other committees and may by like vote delegate thereto some or
all of their powers except those which by law, the Certificate of Incorporation
or these By-laws they are prohibited from delegating. Except as the Directors
may otherwise determine, any such committee may make rules for the conduct of
its business, but unless otherwise provided by the Directors or in such rules,
its business shall be conducted as nearly as may be in the same manner as is
provided by these By-laws for the Directors.
ARTICLE THREE
Officers
Section 1. Enumeration. The officers of the corporation shall be a
President, a Treasurer, a Secretary, and such Vice Presidents, Assistant
Treasurers, Assistant Secretaries, and other officers as may from time to time
be determined by the Directors.
Section 2. Election. The President, Treasurer and Secretary shall be
elected annually by the Directors at their first meeting following the annual
meeting of stockholders. Other officers may be chosen by the Directors at such
meeting or at any other meeting.
7
<PAGE>
Section 3. Qualification. The President may, but need not be, a Director.
No officer need be a stockholder. Any two or more offices may be held by the
same person, provided that the President and the Secretary shall not be the same
person. Any officer may be required by the Directors to give bond for the
faithful performance of his duties to the corporation in such amount and with
such sureties as the Directors may determine.
Section 4. Tenure. Except as otherwise provided by law, by the
Certificate of Incorporation or by these By-laws, the President, Treasurer and
Secretary shall hold office until the first meeting of the Directors following
the annual meeting of stockholders, and thereafter until his successor is chosen
and qualified. Other officers shall hold office until the first meeting of the
Directors following the annual meeting of stockholders unless a shorter term is
specified in the vote choosing or appointing them. Any officer may resign by
delivering his written resignation to the corporation at its principal office or
to the Chairman of the Board, the President or the Secretary, and such
resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event.
Section 5. Removal. The Directors may remove any officer with or without
cause by a vote of a majority of the entire number of Directors then in office,
provided, that an officer may be removed for cause only after reasonable notice
and opportunity to be heard by the Board of Directors prior to action thereon.
Section 6. Chairman of the Board. If the Directors shall appoint a
Chairman of the Board, he shall preside at all meetings of the Board and of the
stockholders at which he shall be present. In the absence or disability of the
President, the powers and duties of the President shall be exercised and
performed by the Chairman of the Board. He shall, subject to the Board of
Directors, be responsible for the long-range planning of the corporation. He
shall perform such duties and have such powers additional to the foregoing as
the Board shall from time to time designate.
Section 7. President. In the absence or disability of the Chairman of the
Board, the President shall, when present, preside at all meetings of the
stockholders and of the Directors. Except as otherwise expressly provided by
these By-laws or by action of the Board, it shall be the duty of the President,
and he shall have the power, to see that all orders and resolutions of the
Directors are carried into effect. The President, as soon as reasonably
possible after the close of each fiscal year, shall submit to the Directors a
report of the operations of the corporation for such year and a statement of its
affairs and shall from time to time report to the Directors all matters within
his knowledge which the interests of the corporation may require to be brought
to its notice. The President shall perform such duties and have such powers
additional to the foregoing as the Directors shall designate.
Section 8. Vice Presidents. Each Vice President shall have such powers
and perform such duties as the Directors shall from time to time designate.
8
<PAGE>
Section 9. Treasurer. The Treasurer shall keep full and accurate accounts
of receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositaries as shall be designated by the Directors or
in the absence of such designation in such depositaries as he shall from time to
time deem proper. He shall disburse the funds of the corporation as shall be
ordered by the Directors, taking proper vouchers for such disbursements. He
shall promptly render to the President and to the Directors such statements of
his transactions and accounts as the President and Directors respectively may
from time to time require. The Treasurer shall perform such duties and have
such powers additional to the foregoing as the Directors may designate.
Section 10. Assistant Treasurer. In the absence or disability of the
Treasurer, his powers and duties shall be performed by the Assistant Treasurer,
if only one, or if more than one, by the one designated for the purpose by the
Directors. Each Assistant Treasurer shall have such other powers and perform
such other duties as the Directors shall from time to time designate.
Section 11. Secretary and Assistant Secretary. The Secretary or an
Assistant Secretary, if one be elected, shall record all proceedings of the
stockholders in a book to be kept therefor and, if there be no Secretary or
Assistant Secretary of the Board of Directors, shall also record all proceedings
of the Directors in a book to be kept therefor. If there be more than one
Assistant Secretary, then the one designated to so record such proceedings by
the Directors shall do so, otherwise a Temporary Secretary designated by the
person presiding at a meeting, shall perform the duties of the Secretary.
Unless the Directors shall appoint a transfer agent and/or registrar or other
officer or officers for the purpose, the Secretary shall be charged with the
duties of keeping or causing to be kept, accurate records of all stock
outstanding, stock certificates issued and stock transfers; and, subject to such
other duties or different rules as shall be adopted from time to time by the
Directors, such records may be kept solely in the stock certificate books. The
Secretary and each Assistant Secretary shall have such other powers and perform
such other duties additional to the foregoing as the Directors may from time to
time designate.
ARTICLE FOUR
Provisions Relating to Capital Stock
Section 1. Certificates of Stock. The shares of the corporation shall be
represented by a certificate or shall be uncertificated. Certificates shall be
signed by, or in the name of the corporation by, the Chairman or Vice-Chairman
of the Board of Directors, or the President or a Vice President and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the corporation.
Upon the face or back of each stock certificate issued to represent any
partly paid shares, or upon the books and records of the corporation in the case
of uncertificated partly paid shares, shall be set forth the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
9
<PAGE>
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Within a reasonable time after the issuance or transfer of uncertificated
stock, the corporation shall send to the registered owner thereof a written
notice containing the information required to be set forth or stated on
certificates pursuant to Sections 151, 156, 202(a) or 218(a) or a statement that
the corporation will furnish without charge to each stockholder who so requests
the powers, designations, preferences and relative participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
Any of or all the signatures on a certificate may be facsimile. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
Section 2. Transfer of Stock. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Upon receipt of proper transfer instructions from
the registered owner of uncertificated shares such uncertificated shares shall
be cancelled and issuance of new equivalent uncertificated shares or certificate
shares shall be made to the person entitled thereto and the transaction shall be
recorded upon the books of the corporation.
Section 3. Equitable Interests Not Recognized. The corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person except as may be otherwise expressly provided by law.
Section 4. Lost or Destroyed Certificates. The Directors of the
corporation may, subject to any contrary provision of law, determine the
conditions upon which a new
10
<PAGE>
certificate of stock may be issued in place of any certificate alleged to have
been lost, stolen, destroyed, or mutilated.
ARTICLE FIVE
Stock in Other Corporations
Except as the Directors may otherwise designate, the Chairman of the Board,
President or Treasurer may waive notice of, and appoint any person or persons to
act as proxy or attorney-in-fact for this corporation (with or without power of
substitution) at any meeting of stockholders or shareholders of any other
corporation or organization the securities of which may be held by the
corporation.
ARTICLE SIX
Inspection of Records
Books, accounts, documents and records of the corporation shall be open to
inspection by any Director at all times during the usual hours of business. The
original, or attested copies, of the Certificate of Incorporation, By-laws and
records of all meeting of the incorporators and stockholders, and the stock and
transfer records, which shall contain the names of all stockholders and the
record address and the amount of stock held by each, shall be kept in
Massachusetts at the principal office of the corporation, or at an office of its
transfer agent or of the Secretary. Said copies and records need not be all
kept in the same office. They shall be available at all reasonable times to the
inspection of any stockholder for any proper purpose but not to secure a list of
stockholders for the purpose of selling said list or copies thereof or of using
the same for a purpose other than in the interest of the applicant, as a
stockholder, relative to the affairs of the corporation.
ARTICLE SEVEN
Checks, Notes, Drafts and Other Instruments
Checks, notes, drafts and other instruments for the payment of money drawn
or endorsed in the name of the corporation may be signed by any officer or
officers or person or person authorized by the Directors to sign the same. No
officer or person shall sign any such instrument as aforesaid unless authorized
by the Directors to do so.
ARTICLE EIGHT
Seal
The seal of the corporation shall be circular in form, bearing its name,
the word "Delaware," and the year of its incorporation. The Treasurer shall
have custody of the seal and may affix it (as may any other officer authorized
by the Directors) to any instrument requiring the corporate seal.
11
<PAGE>
ARTICLE NINE
Fiscal Year
The fiscal year of the Corporation shall be the year ending with the last
Saturday of June in each year.
ARTICLE TEN
Amendments
These By-laws may at any time be amended by vote of the stockholders,
provided that notice of the substance of the proposed amendment is stated in the
notice of the meeting. If authorized by the Certificate of Incorporation, the
Directors may also make, amend, or repeal these By-laws in whole or in part,
except with respect to any provisions thereof which by law, the Certificate of
Incorporation, or these By-laws requires action by the stockholders. Not later
than the time of giving notice of the meeting of stockholders next following the
making, amending or repealing by the Directors of any By-law, notice thereof
stating the substance of such change shall be given to all stockholders entitled
to vote on amending the By-laws. Any By-law adopted by the Directors may be
amended or repealed by the stockholders.
ARTICLE ELEVEN
Indemnification
Section 1. Right to Indemnification. Each person who was or is made a
party to or is otherwise involved (including, without limitation, as a witness)
in any actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that such person is or was a Director or officer of the corporation or
that, being or having been such a Director or officer of the Corporation, such
person is or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to any
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as such a Director or
officer or in any other capacity while serving as such a Director or officer,
shall be indemnified and held harmless by the corporation to the full extent
permitted by the Delaware General Corporation Law (the "DGCL"), as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the corporation to provide broader
indemnification rights than permitted prior thereto), or by other applicable law
as then in effect, against all expense, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) actually and reasonably incurred or suffered by such indemnitee in
connection therewith and such indemnification shall continue as to an indemnitee
who has ceased to be a Director or officer and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; provided,
12
<PAGE>
however, that except as provided in Section 2 of this ARTICLE ELEVEN with
respect to proceedings seeking to enforce rights to indemnification, the
corporation shall indemnify any such indemnitee in connection with a proceeding
(or part thereof) initiated by any such indemnitee only if such proceeding (or
part thereof) was authorized or ratified by the Board of Directors. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the corporation the expenses incurred in
defending (or otherwise appearing in) any such proceeding in advance of its
final disposition (hereinafter an "advancement of expenses"); provided, however,
that an advancement of expenses shall be made only upon delivery to the
corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of
such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal that such indemnitee is not entitled to be indemnified for such expenses
under this Section or otherwise.
Section 2. Right of Indemnitee to Bring Suit. If a claim under Section 1
of this ARTICLE ELEVEN is not paid in full by the corporation within 60 days
after a written claim has been received by the corporation, except in the case
of a claim for an advancement of expenses, in which case the applicable period
shall be 20 days, the indemnitee may at any time thereafter bring suit against
the corporation to recover the unpaid amount of the claim. If successful in
whole or in part in any such suit, or in a suit brought by the corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. The indemnitee shall be presumed to be entitled to
indemnification under this ARTICLE ELEVEN upon submission of a written claim
(and, in an action brought to enforce a claim for an advancement of expenses,
where the required undertaking has been tendered to the corporation), and
thereafter the corporation shall have the burden of proof that the indemnitee is
not so entitled. Neither the failure of the corporation (including the Board of
Directors, independent legal counsel or the stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances nor an actual determination by the
corporation (including the Board of Directors, independent legal counsel or the
stockholders) that the indemnitee is not entitled to indemnification shall be a
defense to the suit or create a presumption that the indemnitee is not so
entitled.
Section 3. Non-Exclusivity of Rights. The rights to indemnification and
to the advancement of expenses conferred by this ARTICLE ELEVEN shall not be
exclusive of any other right that any person may have or hereafter acquire under
any statute, agreement, vote of stockholders or disinterested Directors,
provisions of the Certificate of Incorporation or By-laws of the corporation or
otherwise. Notwithstanding any amendment to or repeal of this ARTICLE ELEVEN,
any indemnitee shall be entitled to indemnification in accordance with the
provisions hereof with respect to any acts or omissions of such indemnitee
occurring prior to such amendment or repeal.
Section 4. Insurance. The corporation may maintain insurance, at its
expense, to protect itself and any Director, officer, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense,
13
<PAGE>
liability or loss, whether or not the corporation would have the power to
indemnify such person against such expense, liability or loss under the DGCL.
ARTICLE TWELVE
Principal and Registered Offices
Section 1. Principal Office. The corporation's principal office shall be
500 Main Street, Groton, Massachusetts or such other place as the Board of
Directors may designate.
Section 2. Registered Office. The corporation's registered office shall
be 229 South State Street, City of Dover, County of Kent, Delaware, or such
other place as the Board of Directors may designate.
14
<PAGE>
EXHIBIT 10.7
NEW ENGLAND BUSINESS SERVICE, INC.
STOCK OPTION AGREEMENT
NEW ENGLAND BUSINESS SERVICE, INC., a Delaware corporation (the "Company")
hereby grants to Richard H. Rhoads of Farmers Row, Groton, Massachusetts (the
"Grantee") an option (the "Option") to purchase 20,000 shares of the Company's
Common Stock par value $1.00 per share (the "Stock") at the uniform price of
$14.75 per share at any time during the period commencing July 27, 1991 and
ending July 27, 2000.
The Grantee hereby accepts the Option granted herein subject to the terms
and conditions set forth below:
1. This Option may be exercised by the Grantee (or his personal
representative if exercised pursuant to Paragraph 3 below) by giving notice in
writing of such exercise to the Vice President-Finance of the Company during the
period that it is exercisable. The price for the number of shares for which the
Option is exercised shall be due and payable at the time of such exercise. It
shall be payable in United States dollars and may be paid in cash, by certified
check, by bank cashier's check, by the surrendering of shares of the Stock
(which shall be valued at their fair market value on the date of surrender) or
by any other means approved by the Board of Directors. The fair market value of
any shares so tendered shall be deemed to be the last sales price per share of
the Stock as reported on the NASDAQ National Market prior to the date on which
the notice of option exercise is received by the Vice President-Finance.
2. This option may be exercised in whole at any time, or in part from time
to time, during its term providing that it may not be exercised for less than
500 shares unless the issue of a lesser number is enough to exhaust the option.
3. If the Option remains exercisable upon the death of the Grantee, it may
be exercised by his personal representatives as to not more than the number of
shares as to which it was exercisable immediately prior to such death, during
and only during the period beginning
1
<PAGE>
with the date of death and ending with the earlier of the first anniversary of
such date of death or the expiration date of the Option.
4. This Option shall not be assignable or transferable except by will or
by the laws of descent or distribution to the extent provided in Paragraph 3
above. During the lifetime of the Grantee this Option shall be exercisable only
by him or his guardian or legal representative.
5. The Grantee shall have no rights as a stockholder with respect to the
shares of Stock subject to this Option until he shall have been issued a stock
certificate for such shares.
6. If the Company shall combine or split the Stock or shall declare
thereon any dividend payable in shares of Stock, or shall reclassify or take any
other action of a similar nature affecting the Stock, then the number and class
of shares of stock which may thereafter be purchased pursuant to this Option and
the option price per share shall be adjusted to such extent as may he determined
by the Board of Directors of the Company to be necessary to maintain,
unimpaired, the rights of the Grantee, and any such determination shall be
conclusive and binding upon the Grantee. After any such adjustment the term
"Stock" shall be deemed to mean the Stock as so adjusted.
7. In the case of any one or more reclassifications, changes or exchanges
of outstanding shares of the Stock (other than as provided in Paragraph 6 above)
or consolidations of the Company with, or mergers of the Company into, other
corporations, or other reclassifications or reorganizations (other-than
consolidations with a subsidiary in which the Company is the continuing
corporation and which do not result in any reclassifications, changes or
exchanges of outstanding shares of the Stock), or in case of any one or more
sales or conveyances to any other corporation of the property of the Company as
an entirety, or substantially as an entirety (any and all of which are
hereinafter in this paragraph called "Reorganizations") the Grantee shall have
the right, upon any subsequent exercise hereof, to acquire the same kind and
amount of securities and property which he would then hold if he had exercised
this Option immediately before the first of such Reorganizations and continued
to hold
2
<PAGE>
all securities and property which came to him as a result of that and subsequent
Reorganizations, less all securities and property surrendered by and cancelled
pursuant to any of the same (the rights provided by Paragraph 6 and this
Paragraph 7 being continuing and cumulative) except that (notwithstanding the
provisions of Paragraph 7) the Board of Directors of the Company shall have the
right, upon not less than thirty (30) days notice to the Grantee, to terminate
the period in which this option may be exercised at the time of such
Reorganization. A liquidation shall be deemed a Reorganization for the
foregoing purposes.
8. The Grantee understands that the shares of Stock issued upon the
exercise of this Option will not have been registered under the Securities Act
of 1933 and may not be sold, assigned or transferred in the absence of an
effective registration statement under said Act, an opinion of counsel
satisfactory to the Company that such registration is not, in the circumstances,
required or evidence satisfactory to the Company that the shares have been sold
in compliance with Rule 144 formulated under said Act. The Grantee agrees the
certificate (s) representing shares of the Stock issued upon the exercise of
this option may bear an appropriate legend to the foregoing effect.
The Grantee represents to the Company that he intends to acquire any shares
of the Stock which may be issued to him upon the exercise of this Option for
investment, for his own account, and without a view to the resale or other
distribution of such shares in, or in connection with, a distribution of the
Stock.
3
<PAGE>
WITNESS the execution hereto under seal this 15 day of October, 1990, as of July
27, 1990.
NEW ENGLAND BUSINESS SERVICE, INC.
By: /s/ Russell V. Corsini, Jr.
----------------------------
Its Vice President-Finance
ACCEPTED October 16, 1990
/s/ Richard H. Rhoads
- ----------------------
Richard H. Rhoads
4
<PAGE>
EXHIBIT 10.12
Revised
New England Business Service, Inc.
RESTRICTED STOCK AWARD AGREEMENT
(NEW ENGLAND BUSINESS SERVICE, INC.
STOCK COMPENSATION PLAN)
<PAGE>
NEW ENGLAND BUSINESS SERVICE, INC.
RESTRICTED STOCK AWARD AGREEMENT
(New England Business Service, Inc. Stock Compensation Plan)
TABLE OF CONTENTS
-----------------
PREAMBLE .................................................................... 1
1. SHARES SUBJECT TO THE RESTRICTED STOCK AWARD ............................. 1
2. TERMS AND CONDITIONS OF THE RESTRICTED STOCK AWARD ....................... 1
2.1 Withholding Taxes ................................................... 1
2.2 Vesting, Forfeiture or Early Vesting of Unvested Awarded Shares ..... 2
2.3 Restrictions on Transfer and Escrow of Unvested Awarded Shares;
Delivery of Vested Shares; Stockholder Rights ....................... 3
2.4 Investment Representation ........................................... 3
2.5 Provision of Information ............................................ 4
2.6 Compliance with the Plan ............................................ 4
3. RIGHT TO TERMINATE ....................................................... 4
4. ADJUSTMENT IN SHARES ..................................................... 4
5. RESTRICTIONS ON TRANSFER OF STOCK ........................................ 4
6. NOTICE CONCERNING TAX MATTERS ............................................ 5
7. GOVERNING LAW; ETC. ...................................................... 5
8. DEFINITIONS .............................................................. 5
8.1 "Agreement" ......................................................... 5
8.2 "Awarded Shares" .................................................... 5
8.3 "Board" ............................................................. 5
8.4 "Bonus" ............................................................. 5
8.5 "Change in Control" ................................................. 5
<PAGE>
8.6 "Code"............................................................. 5
8.7 "Committee"........................................................ 5
8.8 "Common Stock"..................................................... 5
8.9 "Company".......................................................... 5
8.10 "Date of Grant".................................................... 5
8.11 "Disability"....................................................... 5
8.12 "Executive"........................................................ 6
8.13 "Fair Market Value"................................................ 6
8.14 "Family"........................................................... 6
8.15 "Issuer"........................................................... 6
8.16 "Plan"............................................................. 6
8.17 "Restricted Stock Award"........................................... 6
8.18 "Retirement"....................................................... 6
8.19 "Service".......................................................... 6
8.20 "Subsidiary"....................................................... 6
8.21 "Vesting Period"................................................... 6
9. CHANGE IN CONTROL....................................................... 6
10. AMENDMENTS.............................................................. 6
<PAGE>
New England Business Service, Inc.
RESTRICTED STOCK AWARD AGREEMENT
(NEW ENGLAND BUSINESS SERVICE, INC.
STOCK COMPENSATION PLAN)
Preamble
--------
This restricted stock award agreement (the "Agreement") is made and
entered into as of ______________, ___ (the "Date of Grant") by New England
Business Service, Inc. (the "Issuer") and ______________________________
(the "Executive"), a key employee of the Issuer or a Subsidiary of the Issuer
(hereunder individually and collectively referred to as the "Company").
1. Shares Subject to the Restricted Stock Award.
---------------------------------------------
Pursuant to the provisions of the New England Business Service, Inc. Stock
Compensation Plan (the "Plan"), as in effect on the Date of Grant, the Issuer
hereby grants to the Executive a restricted stock award ("Restricted Stock
Award") of ____________ shares of its Common Stock (the "Awarded Shares").
The Awarded Shares are being issued to the Executive in lieu of twenty-five
percent (25%) of the gross bonus awarded to the Executive for the fiscal year
ended June ___, ____ (the "Bonus") pursuant to the Executive Bonus Plan of the
Company adopted by the Board for such fiscal year and are valued for purposes of
this Agreement at $_______ per share, the Fair Market Value of a share of Common
Stock on the Date of Grant, in accordance with and subject to all the terms and
conditions of the Plan and subject to the terms and conditions hereinafter set
forth. The Plan and any amendments are hereby incorporated by reference and made
a part hereof.
2. Terms and Conditions of the Restricted Stock Award.
---------------------------------------------------
The issuance of Awarded Shares pursuant to the Restricted Stock Award shall
be subject to the following terms and conditions.
2.1 Withholding Taxes. Notwithstanding anything to the contrary in
-----------------
Section 2.3(b), the Issuer's obligation to deliver vested Awarded Shares
pursuant to this Restricted Stock Award shall be subject to the Executive's
satisfaction of all applicable federal, state and local income and employment
tax withholding obligations. Without limiting the generality of the foregoing,
the Company shall have the right to deduct from payments of any kind otherwise
due to the Executive any federal, state or local taxes of any kind required by
law to be withheld with respect to any Awarded Shares issued
______________________
1 Capitalized terms not otherwise defined herein are defined in Section 8
below.
1
<PAGE>
pursuant to this Restricted Stock Award. The Executive may satisfy such
withholding obligations by having the Company withhold vested and unrestricted
Awarded Shares, or by delivering to the Company already owned unrestricted
shares of Common Stock, having a Fair Market Value as of the date of delivery of
such unrestricted shares equal to the amount required to be withheld.
2.2 Vesting, Forfeiture or Early Vesting of Unvested Awarded Shares.
----------------------------------------------------------------
(a) Unless vested earlier or forfeited as provided in (b) or (c)
below, the Awarded Shares shall become vested in the Executive on the third
anniversary of the Date of Grant, and shall thereon be released from escrow and
delivered to the Executive, subject to the satisfaction of the condition set
forth in Section 2.1 above.
(b) The Awarded Shares shall remain unvested and subject to the
restrictions of this Section 2.2 and Section 2.3 until the third anniversary of
the Date of Grant (the "Vesting Period"). If the Executive's Service terminates
during the Vesting Period, the following shall occur:
(i) if the Executive ceases to perform Service by reason of death,
Disability or Retirement, all Awarded Shares shall thereupon immediately vest in
the Executive (or in the case of death, in the person or persons to whom the
Awarded Shares pass by will or by the laws of descent and distribution) or his
permitted transferee(s) pursuant to Section 2.3(a) and shall no longer be
subject to the restrictions of this Section 2.2 and Section 2.3 hereof;
(ii) if the Executive voluntarily terminates Service or his Service
is involuntarily terminated for "cause", as determined in good faith by the
Board or Committee (which determination shall be binding on both the Company and
the Executive and/or his permitted transferee(s) pursuant to Section 2.3(a)),
the Awarded Shares shall thereupon be forfeited in their entirety to the Issuer
without any further action by the Issuer or the Executive and for no
consideration;
(iii) if the Executive's Service is involuntarily terminated
without cause, the Awarded Shares shall thereupon be forfeited in their entirety
to the Issuer without any further action by the Issuer or the Executive and for
no consideration; provided, however, that the Committee may, in its sole
discretion, waive the forfeiture of all or any portion of the Awarded Shares and
such shares shall thereupon immediately vest in the Executive and no longer be
subject to the restrictions of this Section 2.2 and Section 2.3 hereof.
(c) Notwithstanding any of the foregoing, if a Change in Control of
the Company occurs during the Vesting Period and prior to any forfeiture of all
or any portion of the Awarded Shares pursuant to this Section 2.2, all such
unvested Awarded Shares that were not forfeited by termination of the
Executive's Service prior to the occurrence of the Change of Control shall
thereupon immediately vest in the Executive and the restrictions of this Section
2.2 and Section 2.3 shall terminate.
2
<PAGE>
2.3 Restrictions on Transfer and Escrow of Unvested Awarded Shares;
---------------------------------------------------------------
Delivery of Vested Shares; Stockholder Rights. The Executive hereby agrees to
- ---------------------------------------------
the following conditions:
(a) Awarded Shares which are not yet vested may not be sold,
hypothecated or otherwise disposed of by the Executive or anyone claiming
through him; provided, however, that Awarded Shares may be transferred by the
Executive, either directly or in trust, to one or more members of Executive's
Family, or to a family partnership or other entity for the exclusive benefit of
one or more members of Executive's Family if and only to the extent that (i) the
Executive notifies the Committee in writing of his desire to transfer Awarded
Shares and the Committee does not within thirty (30) days of such notification
advise the Executive in writing that such transfer will not be allowed and
(ii) such Family member or trust or family partnership for the benefit thereof
executes an agreement, in form satisfactory to the Committee, to be subject to
all of the terms and conditions of this Agreement including, without limitation,
the restrictions to which the Awarded Shares were subject prior to such
transfer.
(b) Awarded Shares which are not yet vested shall be held in escrow
by the Issuer. Upon the vesting of any Awarded Shares pursuant to Section 2.2
and the satisfaction of all obligations imposed by Section 2.1, the Issuer shall
promptly cause a certificate to be issued for the Awarded Shares (or portion
thereof which has vested) and shall deliver such certificate to the Executive or
his permitted transferee(s) pursuant to Section 2.3(a).
(c) Subject to the terms hereof, the Executive shall have all the
rights of a stockholder with respect to the Awarded Shares while they are held
in escrow, and prior to their forfeiture pursuant to Section 2.2, including
without limitation, the right to vote the Awarded Shares, except as provided in
(d) below.
(d) Any dividends declared and paid with respect to the Awarded
Shares while they are held in escrow, and prior to their forfeiture pursuant to
Section 2.2, shall not be paid to the Executive but shall instead be
automatically reinvested in shares of Common Stock at the Fair Market Value of a
share of Common Stock on the date of such dividend payment, and such additional
shares of Common Stock shall be deemed additional Awarded Shares (granted, for
purposes of Section 2.2 only, on the Date of Grant) and shall be subject to the
forfeiture and other provisions of Section 2.2 and this section 2.3.
2.4 Investment Representation. The Executive shall hold the Awarded
-------------------------
Shares for investment and not with a view to or for resale in connection with,
any public distribution of such Shares, and, if requested, shall deliver to the
Issuer an appropriate certification to that effect. This restriction shall
terminate upon the registration of such Shares under federal securities laws or
if, in the opinion of counsel for the Issuer, such Shares may be resold without
registration.
3
<PAGE>
2.5 Provision of Information. The Issuer will furnish upon request of the
------------------------
Executive copies of the certificate of incorporation of the Issuer, as amended,
and by-laws of the Issuer, as amended, and such publicly available financial and
other information concerning the Issuer and its business and prospects as may be
reasonably requested by the Executive in connection with the issuance or
purchase of Awarded Shares pursuant to this Agreement.
2.6 Compliance with the Plan. The Executive shall comply with all terms
------------------------
and conditions of the Plan (a copy of which is attached hereto) and of this
Agreement. All decisions under, and interpretations of the provisions of the
Plan and of this Agreement by the Board or by the Committee shall be final,
binding and conclusive upon the Company and its successors and assigns and upon
the Executive and anyone claiming through the Executive.
3. Right to Terminate.
------------------
Nothing contained in the Plan or in this Agreement shall restrict the right
of the Company to terminate the employment of the Executive at any time and for
any reason, with or without notice, or shall otherwise affect the terms and
conditions of the Executive's employment except as specifically provided in the
Plan or in this Agreement.
4. Adjustment in Shares.
--------------------
Appropriate adjustment shall be made by the Board or by the Committee in
the number and kind of the Awarded Shares issued pursuant to this Restricted
Stock Award to give effect to any stock dividends, stock splits, stock
combinations, recapitalizations and other similar changes in the capital
structure of the Issuer after the Date of Grant. In the event of a change of the
Common Stock resulting from a merger or similar reorganization, or sale of all
or substantially all of the assets of Issuer to a corporation that does not
result in a Change of Control, the number and kind of the Awarded Shares issued
pursuant to this Agreement shall be appropriately adjusted in such a manner as
the Board or the Committee shall deem equitable to prevent dilution or
enlargement of the rights granted hereunder.
5. Restriction on Transfer of Stock.
---------------------------------
The Awarded Shares shall be subject to any restrictions then in effect
pursuant to the certificate of incorporation or by-laws of the Issuer and to any
other restrictions or provisions attached hereto and made a part hereof or set
forth in any other contract or agreement binding on the Executive.
4
<PAGE>
6. Notice Concerning Tax Matters.
-----------------------------
The Company makes no representation about the tax treatment to the
Executive with respect to the receipt of the Restricted Stock Award or the
acquisition, holding or disposition of the Awarded Shares. THE EXECUTIVE IS
URGED TO CONSULT A PROFESSIONAL TAX ADVISER OF HIS OR HER OWN CHOOSING FOR
ADVICE AS TO THE TAX CONSEQUENCES (INCLUDING THE APPLICATION OF SECTION 83 OF
THE CODE) OF RECEIVING A RESTRICTED STOCK AWARD OR OF HOLDING OR SELLING AWARDED
SHARES ISSUED PURSUANT TO THE AGREEMENT.
7. Governing Law; Etc.
-------------------
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the Commonwealth of Massachusetts. This Agreement
shall be binding upon and inure to the benefit of the heirs and legal
representatives of the Executive and the successors and assigns of the Issuer,
but shall not be assigned by the Executive at any time, except as otherwise
permitted by Section 2.3(a) hereof, without the prior written permission of the
Issuer.
8. Definitions.
------------
8.1 "Agreement" has the meaning defined in the Preamble above.
8.2 "Awarded Shares" has the meaning defined in Section 1 above.
8.3 "Board" means the Board of Directors of the Issuer.
8.4 "Bonus" has the meaning set forth in Section 1 above.
8.5 "Change in Control" has the meaning set forth in Section 9 below.
8.6 "Code" means the Internal Revenue Code of 1986, as heretofore and
hereafter amended, and the regulations promulgated thereunder.
8.7 "Committee" means the Organization and Compensation Committee of the
Board of Directors of the Issuer.
8.8 "Common Stock" means the common stock, $1.00 par value, of the Issuer.
8.9 "Company" has the meaning defined in the preamble above.
8.10 "Date of Grant" has the meaning defined in the Preamble above.
8.11 "Disability" has the meaning defined in Code Section 22(e)(3).
5
<PAGE>
8.12 "Executive" has the meaning defined in the Preamble above.
8.13 "Fair Market Value" means the last sales price per share of Common
Stock as reported on the New York Stock Exchange prior to the Date of Grant (or
other date on which such valuation is made) or if no price has been so reported
within one week prior to the Date of Grant (or other date on which such
valuation is made), fair market value shall be determined by a principal market
for the Common Stock designated by the Committee (or if no such market maker is
designated, by the Board in its good faith business judgment).
8.14 "Family" means the Participant's (i) spouse and lineal descendants of
such spouse; (ii) lineal descendants and the spouses of such lineal descendants:
(iii) lineal ancestors and the spouses of such lineal ancestors; and (iv)
siblings and the spouses and children of such siblings.
8.15 "Issuer" has the meaning defined in the Preamble above.
8.16 "Plan" has the meaning defined in Section 1 above.
8.17 "Restricted Stock Award" has the meaning defined in Section 1 above.
8.18 "Retirement" means the actual cessation of the Executive's Services
on or after the date that he attains age 60.
8.19 "Service" means the performance of work for the Company as an
employee.
8.20 "Subsidiary" has the meaning defined in Code Section 424(f).
8.21 "Vesting Period" has the meaning defined in Section 2.2 above.
9. Change in Control.
-----------------
For the purpose of this Agreement a "Change in Control" shall have the same
meaning as defined in Section 11 of the NEBS 1997 Key Employee and Eligible
Director Stock Option and Stock Appreciation Rights Plan.
10. Amendments.
-----------
Any amendment to this Agreement, or waiver of any terms hereof, may be made
only pursuant to a writing executed by the Issuer and the Executive.
6
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first appearing above.
EXECUTIVE
_______________________________
Signature
Address of Executive:
_______________________________
_______________________________
NEW ENGLAND BUSINESS SERVICE, INC.
By:_____________________________
Name
Title
7
<PAGE>
Exhibit 10.13
FY2000 NEBS EXECUTIVE BONUS PLAN
(EFFECTIVE AS OF JUNE 28, 1999)
This Executive Bonus Plan (the "Plan") was adopted by the Board of
Directors of New England Business Service, Inc. (the "Company") on July 23, 1999
upon the recommendation of its Organization and Compensation Committee for the
purpose of providing incentive compensation for the senior executives and
managers of the Company and its subsidiaries. This Plan shall be governed by
the following definitions and calculations.
I. Participants. The participants in the Plan for the 2000 fiscal year of the
-------------
Company (the "Year") and their respective target bonus percentages shall be
as follows:
A. Officers of the Company.
------------------------
Chairman, President & Chief Executive Officer 70%
Senior Vice President and President, Diversified Operations 60%
Senior Vice President and President, NEBS Direct Marketing 60%
Senior Vice President and President, Chiswick Trading 60%
Senior Vice President and President, RapidForms 60%
Senior Vice President, Information Systems 60%
Senior Vice President, Chief Financial Officer 60%
Senior Vice President, Human Resources 60%
Senior Vice President, Manufacturing and Technical Operations 60%
Senior Vice President, Business Management and Development 60%
Senior Vice President, Corporate Channel Marketing 60%
Vice President and President, McBee Systems 60%
Vice President, Investor Relations 50%
Vice President, Controller 50%
General Counsel and Secretary 50%
1
<PAGE>
B. CEOs of Subsidiaries.
---------------------
Managing Director, NEBS Business Stationery 40%
President and Chief Executive, NEBS Business Forms, Ltd. 40%
II. Target Bonus. The target bonus payable to a participant with respect to
the Year shall be an amount arrived at by multiplying his base salary at
the end of the Year by his target bonus percentage.
III. Actual Bonus. The actual bonus of each participant shall be calculated
-------------
based on actual results vs. targeted objectives. No bonus shall be paid if
the Company's consolidated net income for the Year is less than 90% of the
targeted net income objective.
A. Chairman, President & Chief Executive Officer.
----------------------------------------------
The actual bonus of this participant shall be the sum of the following:
(a) Each 1% by which consolidated net sales are more than 95% up to
105% of the targeted consolidated net sales for the Year equals
5.6% of his base salary, plus each 1% by which consolidated net
sales are more than 10.5% of the targeted consolidated net sales
for the Year equals 2.8% of his base salary; and
(b) Each 1% by which consolidated net income is more than 95% up to
105% of the targeted consolidated net income for the Year
equals 5.6% of his base salary, plus each 1% which consolidated
net income is more than 105% of the targeted consolidated net
income for the Year equals 2.8% of his base salary; and
(c) Up to 14% of his base salary based on his attainment of
certain personal objectives established by the Organization and
Compensation Committee, as determined by the latter.
B. Senior Vice President, Business Management & Development; Senior Vice
President, Chief Financial Officer; Senior Vice President, Human
Resources; Senior Vice President, Information Systems; Senior Vice
President, Manufacturing and Technical Operations; Senior Vice
President, Corporate Channel Marketing.
2
<PAGE>
The actual bonus of these participants shall be the sum of the
following:
(a) Each 1% by which consolidated net sales are more than 95% up to
105% of the targeted consolidated net sales for the Year equals
4.8% of his base salary, plus each 1% by which consolidated net
sales are more than 105% of the targeted consolidated net sales
for the Year equals 2.4% of his base salary; and
(b) Each 1% by which consolidated net income is more than 95% up to
105% of the targeted consolidated net income for the Year equals
4.8% of his base salary, plus each 1% by which consolidated net
income is more than 105% of the targeted consolidated net income
for the Year equals 2.4% of his base salary; and
(c) Up to 12% of his base salary based on the degree of his
attainment of certain personal objectives established by the
Chairman, President & Chief Executive Officer, as determined by
the latter.
C. Senior Vice President and President, Chiswick Trading.
The actual bonus of this Participant shall be the sum of the following:
(a) Each 1% by which channel net sales are more than 95% up to 105%
of the targeted channel net sales for the Year equals 4.8% of his
base salary, plus each 1% by which channel net sales are more
than 105% of the targeted channel net sales for the Year equals
2.4% of his base salary; and
(b) Each 1% by which consolidated net income is more than 95% up to
105% of the targeted consolidated net income for the Year
equals 3.0% of his base salary, plus each 1% by which
consolidated net income is more than 105% of the targeted
consolidated net income for the Year equals 1.5% of his base
salary; and
(c) Each 1% by which channel profit from operations is more than
95% up to 105% of the targeted channel profit from operation for
the Year equals 1.8% of his base salary. Payment for the
attainment of channel profit from operations will be capped at
200% of target payment (105%) achievement); and
(d) Up to 12% of his base salary based on his attainment of certain
personal objectives established by the Chairman, President &
Chief Executive Officer, as determined by the latter.
3
<PAGE>
D. Senior Vice President and President, Diversified Operations.
The actual bonus of this participant shall be the sum of the following:
(a) Each 1% by which consolidated net income is more than 95% up to
105% of the targeted consolidated net income for the Year equals
3.0% of his base salary, plus each 1% by which consolidated net
income is more than 105% of the targeted consolidated net income
for the year equals 1.5% of his base salary; and
(b) Each 1% by which consolidated net sales are more than 95% up to
105% of the targeted consolidated net sales for the Year equals
1.8% of his base salary, plus each 1% by which consolidated net
sales are more than 105% of the targeted consolidated net sales
for the Year equals 0.9% of his base salary; and
(c) Each 1% by which channel net sales are more than 95% up to 105%
of the targeted channel net sales for the Year equals 2.4% of his
base salary, plus each 1% by which channel net sales are more
than 105% of the targeted channel net sales for the Year equals
1.2% of his base salary; and
(d) Each 1% by which channel profit from operations is more than 95%
up to 105% of the targeted channel profit from operations for the
Year equals 2.4% of his base salary. Payment for the attainment
of channel profit from operations will be capped at 200% of
target payment (105%); and
(e) Up to 12% of his base salary based on the degree of his
attainment of certain personal objectives established by the
Chairman, President & Chief Executive Officer, as determined by
the latter.
E. Senior Vice President and President, NEBS Direct Marketing; Senior
Vice President and President, RapidForms.
The actual bonus of these participants shall be the sum of the
following:
(a) Each 1% by which consolidated net income is more than 95% up to
105% of the targeted consolidated net income for the Year equals
3.0% of his base salary, plus each 1% by which consolidated net
income is more than 105% of the targeted consolidated net income
for the Year equals 1.5% of his base salary; and
4
<PAGE>
(b) Each 1% by which channel net sales are more than 95% up to
105% of the targeted channel net sales for the Year equals 3.0%
of his base salary, plus each 1% by which channel net sales are
more than 105% of the targeted channel net sales for the Year
equals 1.5% of his base salary; and
(c) Each 1% by which combined net sales of the NEBS Direct
Marketing and RapidForms channels are more than 95% up to
105% of the targeted combined net sales of the NEBS Direct
Marketing and RapidForms channels for the Year equals 1.8% of
his base salary, plus each 1% by which combined net sales of the
NEBS Direct Marketing and RapidForms channels are more than
105% of the targeted combined net sales of NEBS the Direct
Marketing and RapidForms channels for the Year equals 0.9% of
his base salary; and
(d) Each 1% by which channel profit form operations is more than
95% up to 105% of the targeted channel profit from operations for
the Year equals 1.8% of his base salary. Payment for the
attainment of channel profit from operations will be capped at
200% of target payment (105%) achievement; and
(e) Up to 12% of his base salary based on the degree of his
attainment of certain personal objectives established by the
Chairman, President and Chief Executive Officer, as determined by
the latter.
F. Vice President and President, McBee Systems.
The actual bonus of this participant shall be the sum of the following:
(a) Each 1% by which consolidated net income is more than 95% up to
105% of the targeted consolidated net income for the Year equals
3.0% of his base salary, plus each 1% by which consolidated net
sales are more than 105% of the targeted consolidated net sales
for the Year equals 1.5% of his base salary; and
(b) Each 1% by which McBee Systems profit from operations are
more than 95% up to 105% of the targeted McBee Systems profit
from operations for the Year equals 3.6% of his base salary, plus
each 1% by which McBee Systems profit from operations are more
than 105% of the targeted McBee Systems profit from operations
for the Year equals 1.8% of his base salary; and
5
<PAGE>
(c) Each 1% by which McBee Systems net sales are more than 95% up
to 105% of the targeted McBee Systems net sales for the Year
equals 3.0% of this base salary, plus each 1% by which McBee
Systems net sales is more than 105% of the targeted McBee
Systems net sales for the Year equals 1.5% of his base salary;
and
(d) Up to 12.0% of his base salary based on the degree of attainment
of certain personal objectives established by the Chairman,
President & Chief Executive Officer, as determined by the latter.
G. Vice President, Investor Relations; Vice President, Controller; General
Counsel and Secretary.
The actual bonus of these participants shall be the sum of the
following:
(a) Each 1% by which consolidated net sales are more than 95% up to
105% of the targeted consolidated net sales for the Year equals
4.0% of his base salary, plus each 1% by which consolidated net
sales are more than 105% of the targeted consolidated net sales
for the Year equals 2.0% of his base salary; and
(b) Each 1% by which consolidated net income is more than 95% up to
105% of the targeted consolidated net income for the Year equals
4.0% of his base salary, plus each 1% by which consolidated net
income is more than 105% of the targeted consolidated net income
for the Year equals 2.0% of his base salary; and
(c) Up to 10% of his base salary based on the degree of his
attainment of certain personal objectives established by the
Chairman, President & Chief Executive Officer, as determined by
the latter.
H. Chief Executive Officers of Subsidiaries.
The actual bonus of these participants shall be the sum of the
following:
(a) Each 1% by which consolidated net income is more than 95% up to
105% of the targeted consolidated net income for the Year equals
2.0% of his base salary, plus each 1% by which consolidated net
income is more than 105% of the targeted consolidated net income
for the Year equals 1.0% of his base salary; and
6
<PAGE>
(b) Each 1% by which subsidiary net sales are more than 95% up to
105% of the targeted subsidiary net sales for the Year equals
3.2% of his base salary, plus each 1% by which subsidiary net
sales are more than 105% of the targeted subsidiary net sales for
the Year equals 1.6% of his base salary; and
(c) Each 1% by which subsidiary profit from operations is more than
95% up to 105% of the targeted subsidiary profit from operations
for the Year equals 1.2% of his base salary. Payment for the
attainment of channel profit from operations will be capped at
200% of target payment (105% achievement); and
(d) Up to 8% of his base salary based on the degree of his attainment
of certain personal objectives established by the Chairman,
President & Chief Executive Officer, as determined by the latter.
a) Bonus Payments
- -- --------------
A. For participants with 60% or 70% bonus targets; 75% of the gross payment
will be in the form of cash; 25% of the gross payment will be in the
form of NEBS Stock with a share price which is established at the close
of trading on the New York Stock Exchange on the third business day
following the issuance of the press release disclosing the Company's
financial results for the fourth fiscal quarter of the Year. Cash
payment will be made within 60 days after the close of the Year. Stock
awarded under the plan will be in the form of Restricted Stock with
terms and conditions detailed in the form of a Restricted Stock
Agreement attached hereto.
B. For participants with 40% or 50% bonus targets: 75% of the net payment
will be in the form of cash; 25% of the net payment will be in the form
of NEBS Stock with a share price which is established at the close of
trading on the New York Stock Exchange on the third business day
following the issuance of the press release disclosing the Company's
financial results for the fourth fiscal quarter of the Year. All bonus
payments will be made within 60 days after the close of the Year.
C. At their option and with the authorization of the Chief Executive
Officer, participants, other than the Chief Executive Officer and the
four next most highly compensated executive officers, may receive their
bonus entirely in cash if the payment earned is less than 25% of
annualized base salary.
7
<PAGE>
V. Certain Definitions and Other Provisions.
-----------------------------------------
A. All references to "net" sales shall refer to consolidated net sales of
the Company or net sales of a distribution channel or a business unit,
as the case may be, as reported or used in calculating the Company's
audited consolidated earnings.
B. For purposes of calculating the actual bonuses, consolidated net income
for the Year shall mean such consolidated income, after taxes and after
provision for executive bonuses under this plan, determined in
accordance with all of the accounting policies employed in the
preparation of the Company's audited financial statements for the Year.
C. Actual or targeted consolidated net income; actual or targeted
consolidated sales; actual or targeted profit from operations of any
business unit or distribution channel; or actual or targeted net sales
of any business unit or distribution channel man, at the discretion of
the Organization and Compensation Committee, be adjusted to eliminate
the effect of (a) either the acquisition or the divestiture by the
Company of any subsidiary or division during the Year, and/or (b) the
imposition during the Year by Massachusetts or any other state or states
of sales taxes on services, materials or supplies purchased by the
Company or any subsidiary of the Company the effect of which is not
allowed for in the Company's annual budget for the 2000 fiscal year or
(c) any abatement of taxes or material increase or decrease in Federal
or State corporate tax rates. It is the intention of the Organization
and Compensation Committee that any such discretionary adjustment shall
be made by it, and shall be announced to the affected participants,
promptly after the occurrence of the motivating event, but failure to
act promptly shall not deprive the Committee of its power to make such
an adjustment at a later date.
D. Should a participant die, retire, or become totally disabled during the
Year, he or his estate shall be entitled to receive a bonus prorated in
accordance with the percentage of his annual salary earned from the
beginning of the Year up to the date of death, retirement or disability.
Should a participant's employment by the Company or a subsidiary
business unit be terminated for any other reason, payment of any bonus
hereunder for the Year in which such termination occurs is at the sole
discretion of the Organization and Compensation Committee.
E. If a participant assumes a new position during the Year, the
Organization and Compensation Committee may make an appropriate
adjustment in his target bonus and/or the means of calculating his
actual bonus, effective from and after that event.
8
<PAGE>
F. If a Change of Control event (as defined in Section 11 of the
Company's 1997 Key Employee and Eligible Director Stock Option and Stock
Appreciation Rights Plan) occurs, the Company will within sixty (60)
days following such event pay each participant a prorated bonus through
the date thereof as hereinafter provided, whereupon this Plan will
terminate. The portion of the bonus based on factors other than personal
objectives shall be calculated based on a comparison of (i) actual
results of the Company through the end of the calendar quarter next
preceding the Change in Control event to (ii) the targeted quarterly
performance criteria set forth on the schedules attached hereto. The
portion of the bonus based on personal objectives will be calculated
through the end of the calendar quarter next preceding the Change of
Control event to the extent equitable and reasonably practicable in the
judgment of the Organization and Compensation Committee. Qualitative
measurements for which such calculation is not equitable or reasonably
practicable will be disregarded and the percentage of the bonus
otherwise allocated thereto under the terms hereof will be reallocated
in even percentages to the sales and earnings components of the bonus
calculation. After determining the full year bonus based on the extent
to which the aforesaid quarterly targets have been achieved, the amount
of the full year bonus will be prorated by multiplying the same by a
fraction the numerator of which is the number of days between the
beginning of the fiscal year and the date of the Change of Control event
and the denominator of which would be 365. The determination of the
amount of any bonus payable under this paragraph to the Chairman,
President & Chief Executive Officer shall be made by the Organization
and Compensation Committee and for all other participants the
determination of the amount of any bonus payable shall be made by the
Chairman, President & Chief Executive Officer and in each instance the
determination shall be final and binding on the Company and all
participants.
G. In the event of any material, unusual and non-recurring charge to
income purchase or sale of any material business unit by the Company, or
other material event affecting the ability of the participants to
achieve the performance targets established under this Plan, the
Organization and Compensation Committee shall review such performance
targets and make such adjustments with respect thereto as it deems
reasonable and equitable in light of the purposes of this Plan. Any and
all adjustments made by the Organization and Compensation Committee
under this paragraph shall be final and binding on the Company and all
participants.
9
<PAGE>
H. The Organization and Compensation Committee may in its discretion
terminate the Plan as of the end of any fiscal quarter. If the Plan is
so terminated, the Company shall pay out bonuses to the participants in
such amounts as are appropriate and equitable in light of the Company's
and participants' performance through the end of such quarter and the
targets established hereunder. The determination of the amount of any
bonuses payable under this paragraph shall be made by the Organization
and Compensation Committee in line with the objectives set for each
participant, and its determination shall be final and binding on the
Company and all participants.
I. The personal objectives referred to herein and the application of
certain provisions hereof are described in the FY00 Scorecard prepared
by the Senior Vice President, Human Resources.
J. This Plan shall be effective commencing June 28, 1999.
10
<PAGE>
Exhibit 10.23
July 24, 1999
Name of Officer
Re: Change in Control Agreement
---------------------------
Dear :
----------
Reference is made to the Change in Control Agreement dated November 27,
1996 (the "Agreement") between New England Business Service, Inc. (the
"Company") and you. Capitalized terms used in this letter and not otherwise
defined herein shall have the meanings ascribed to them in the Agreement.
The Board of Directors of the Company has determined that it is desirable
to amend certain provisions of the Agreement in order to induce you to remain in
the employ of the Company.
Now, therefore, in consideration of the foregoing, the Company and you
agree as follows:
1. Section 5(iii)(B) of the Agreement is hereby deleted in its entirety and
the following substituted therefor:
"(B) you shall receive an amount equal to 1.5 times the sum of (X)
your annualized base salary 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), plus (y) the average of the actual bonuses
earned during each of the 3 most recent fiscal years (or fewer than 3, if
applicable) ending on or before the change in control; provided that any
bonus earned for a partial fiscal year included in the foregoing
calculation shall be recalculated to equal the amount that you would have
earned for the entire fiscal year."
2. Except as amended by this letter, the terms and conditions of the
Agreement remain in full force and effect, without revocations or change.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will constitute our agreement on the subject.
Sincerely
NEW ENGLAND BUSINESS SERVICE, INC.
By:
--------------------------
Daniel M. Junius
for NEBS, Inc. Board of Directors
Agreed and Accepted:
- --------------------------
Name of Officer
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
Name of Subsidiary Jurisdiction of Incorporation
- --------------------------- -----------------------------
NEBS Business Forms Limited (Canada)
Shirlite, Ltd. (United Kingdom)
Standard Forms, Ltd. (United Kingdom)
McBee Systems, Inc. (Colorado)
Rapidforms, Inc. (New Jersey)
Russell & Miller, Inc. (Delaware)
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of New England Business Service, Inc:
We consent to the incorporation by reference in Registration Statement Nos.
2-72662, 33-38925, 33-56227, 333-32719, 333-44825 and 333-44819 of New England
Business Service, Inc. on Form S-8 and Registration Statement Nos. 333-26499 and
333-57657 of New England Business Service, Inc. on Form S-3 of our report dated
July 26, 1999, appearing in this Annual Report on Form 10-K of New England
Business Service, Inc. for the year ended June 26, 1999.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
September 10, 1999
<TABLE> <S> <C>
<PAGE>
<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 JUNE 26 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> YEAR
<FISCAL-YEAR-END> JUN-26-1999
<PERIOD-START> JUN-28-1998
<PERIOD-END> JUN-26-1999
<CASH> 5,484
<SECURITIES> 0
<RECEIVABLES> 52,546
<ALLOWANCES> 4,899
<INVENTORY> 21,538
<CURRENT-ASSETS> 99,703
<PP&E> 145,622
<DEPRECIATION> 90,450
<TOTAL-ASSETS> 300,262
<CURRENT-LIABILITIES> 45,775
<BONDS> 0
0
0
<COMMON> 15,358
<OTHER-SE> 106,171
<TOTAL-LIABILITY-AND-EQUITY> 300,262
<SALES> 470,477
<TOTAL-REVENUES> 470,477
<CGS> 172,241
<TOTAL-COSTS> 172,241
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,151
<INTEREST-EXPENSE> 8,494
<INCOME-PRETAX> 43,742
<INCOME-TAX> 17,291
<INCOME-CONTINUING> 26,451
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,451
<EPS-BASIC> 1.84
<EPS-DILUTED> 1.81
</TABLE>
