UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended March 25, 2000.
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 1-11427
NEW ENGLAND BUSINESS SERVICE, INC.
----------------------------------
(Exact name of the registrant as specified in its charter)
Delaware 04-2942374
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Main Street
Groton, Massachusetts, 01471
----------------------------
(Address of principal executive offices)
(Zip Code)
(978) 448-6111
---------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 and 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
The number of common shares of the Registrant outstanding on May 8, 2000.
was 13,508,713.
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
<TABLE>
NEW ENGLAND BUSINESS SERVICE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands)
<CAPTION>
(unaudited)
Mar. 25, June 26,
2000 1999
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 9,816 $ 5,484
Accounts receivable - net 54,162 52,546
Inventories 23,516 21,538
Direct mail advertising and prepaid expenses 12,299 12,946
Deferred income tax benefit 7,271 7,189
--------- ---------
Total current assets 107,064 99,703
Property and equipment - net 60,067 55,172
Property held for sale - 839
Deferred income tax benefit 6,271 6,353
Goodwill - net 61,265 62,626
Customer Lists - net 25,881 31,590
Tradenames - net 30,997 31,610
Long-term investments 13,369 -
Other assets - net 11,303 12,369
--------- ---------
TOTAL ASSETS $ 316,217 $ 300,262
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 15,927 $ 15,478
Accrued expenses 31,794 30,297
--------- ---------
Total current liabilities 47,721 45,775
Revolving line of credit 141,500 128,000
Deferred income taxes 4,958 4,958
STOCKHOLDERS' EQUITY
Common stock 15,389 15,358
Additional paid-in capital 50,155 49,500
Accumulated other comprehensive loss (2,638) (2,654)
Retained earnings 100,774 86,902
--------- ---------
Total 163,680 149,106
Less: Treasury stock (41,642) (27,577)
--------- ---------
Stockholders' Equity 122,038 121,529
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 316,217 $ 300,262
========= =========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
<PAGE>
<TABLE>
NEW ENGLAND BUSINESS SERVICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
Mar. 25, Mar. 27, Mar. 25, Mar. 27,
2000 1999 2000 1999
------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $117,367 $115,044 $368,243 $355,027
OPERATING EXPENSES:
Cost of sales 42,555 41,920 132,224 129,728
Selling and advertising 44,403 43,444 139,014 133,779
General and administrative 17,543 17,312 56,168 53,119
-------- -------- -------- --------
Total operating expenses 104,501 102,676 327,406 316,626
INCOME FROM OPERATIONS 12,866 12,368 40,837 38,401
OTHER INCOME/(EXPENSE):
Interest income 56 133 95 185
Interest expense (2,097) (2,065) (6,122) (6,545)
Gain on pension settlement - - - 259
-------- -------- -------- --------
INCOME BEFORE TAXES 10,825 10,436 34,810 32,300
PROVISION FOR INCOME TAXES 3,344 4,217 12,657 12,691
-------- -------- -------- --------
NET INCOME 7,481 6,219 22,153 19,609
OTHER COMPREHENSIVE INCOME/(LOSS) (125) 167 16 (602)
-------- -------- -------- --------
COMPREHENSIVE INCOME $ 7,356 $ 6,386 $ 22,169 $ 19,007
======== ======== ======== ========
PER SHARE AMOUNTS:
Basic Earnings Per Share $ .55 $ .43 $ 1.61 $ 1.36
======== ======== ======== ========
Diluted Earnings Per Share $ .55 $ .42 $ 1.59 $ 1.32
======== ======== ======== ========
Dividends $ .20 $ .20 $ .60 $ .60
======== ======== ======== ========
BASIC WEIGHTED AVERAGE
SHARES OUTSTANDING 13,544 14,481 13,783 14,402
Plus incremental shares from
assumed conversion of
stock options 82 480 190 428
-------- -------- -------- --------
DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING 13,626 14,961 13,973 14,830
======== ======== ======== ========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
<PAGE>
<TABLE>
NEW ENGLAND BUSINESS SERVICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(unaudited)
<CAPTION>
Nine Months Ended
Mar. 25, Mar. 27,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 22,153 $ 19,609
Adjustments to reconcile net income to cash:
Depreciation 10,795 9,897
Amortization 8,670 9,348
Gain on disposal of assets (103) (22)
Deferred income taxes 59 82
Gain on pension settlement - (259)
Provision for losses on accounts receivable 3,143 3,038
Employee benefit charges 106 2,999
Changes in assets and liabilities:
Accounts receivable (4,751) (4,167)
Inventories and prepaid expenses (1,340) (1,350)
Accounts payable 470 (916)
Income taxes payable 1,174 (3,809)
Accrued expenses 597 (3,268)
-------- --------
Net cash provided by operating activities 40,973 31,182
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (16,045) (13,246)
Proceeds from sale of facility and equipment 1,153 545
Purchases of long-term investments (13,369) -
Acquisition of business-net of cash acquired - (191)
Other Assets - 88
-------- --------
Net cash used in investing activities (28,261) (12,804)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (75,250) (58,000)
Proceeds from borrowings under credit line 88,750 44,500
Proceeds from issuance of common stock 455 2,462
Acquisition of treasury stock (14,065) (1,489)
Dividends paid (8,280) (8,641)
-------- --------
Net cash used in financing activities (8,390) (21,168)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 10 (9)
-------- --------
NET INCREASE/ (DECREASE) IN CASH AND
CASH EQUIVALENTS 4,332 (2,799)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
5,484 10,823
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,816 $ 8,024
======== ========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation/Accounting Policies
- ---------------------------------------------
The consolidated financial statements contained in this report are unaudited
(except for June 26, 1999 amounts) but reflect all adjustments, consisting
only of normal recurring adjustments, which are, in the opinion of management,
necessary for a fair statement of the results of the interim periods
reflected. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to applicable rules and regulations of
the Securities and Exchange Commission. The consolidated financial statements
included herein should be read in conjunction with the financial statements
and notes thereto, appearing in the Company's Annual Report on Form 10-K for
the fiscal year ended June 26, 1999. Reference is made to the accounting
policies of the Company described in the notes to the consolidated financial
statements in the Company's Annual Report on Form 10-K for the fiscal year
ended June 26, 1999. The Company has consistently followed those policies in
preparing this report. The results of operations for the interim period
reported herein are not necessarily indicative of results to be expected for
the full year.
2. Acquisitions
- ----------------
In fiscal 1998 the Company acquired both Rapidforms, Inc. and McBee Systems,
Inc. As part of the purchase accounting for both acquisitions, and included in
the allocation of the acquisition cost, were liabilities recorded to cover the
anticipated costs related to plans to close redundant facilities and reduce
personnel. Approximately $5,552,000 was accrued. The remaining liability as
of March 25, 2000 was $267,000 and was related to employee termination
benefits. For the three months ended March 25, 2000, $237,000 had been spent
to reduce this liability and for the nine months ended March 25, 2000, $868,000
had been spent.
The Company anticipates that the remaining liabilities will be resolved by
the end of fiscal year 2000. Should the integration liabilities for McBee and
Rapidforms be settled at amounts less than their original estimates, the excess
will reduce the amount of recorded goodwill.
3. Inventories
- ---------------
Inventories are carried at the lower of first-in, first-out cost or market.
Inventories at March 25, 2000 and June 26, 1999 consisted of:
<TABLE>
<CAPTION> (unaudited)
Mar. 25, June 26,
2000 1999
-------- --------
<S> <C> <C>
Raw paper $ 1,621,000 $ 1,692,000
Business forms and related office products 21,895,000 19,846,000
----------- ------------
Total $23,516,000 $ 21,538,000
=========== ============
</TABLE>
<PAGE>
4. Long-Term Investments
- -------------------------
In March 2000, the Company invested $12.9 million and $.5 million,
respectively, in the common stock of Advantage Business Services Holdings, Inc.
and the convertible preferred stock of WebNow.com, Inc. These investments
represent less than a 20% voting interest in these companies. Also, the
securities are not considered to be marketable equity securities under SFAS 115
because both of the companies are currently private. These investments are
carried at cost and will periodically be evaluated to determine whether a
decline in fair value below the original cost basis has occurred and is other
than temporary. Both of the investments are classified as long term assets on
the condensed consolidated balance sheet because of their non-marketable nature
and management's intent to hold these investments for the long-term.
5. Income Taxes
- ----------------
In the third quarter of fiscal 2000 the Company received a favorable tax
ruling from the Commonwealth of Massachusetts. This tax ruling allowed the
Company to not only revise its current year estimates of total taxes that it
will be required to pay (both now and in the future), but also to amend
previous years' tax returns. The financial impact of this ruling is reflected
in the results of operations for the quarter ended March 25, 2000.
6. Financial Information by Business Segment
- ---------------------------------------------
The Company has identified three reportable segments. The first is titled
"Printed Products-Direct Marketing" and represents those business operations
that sell primarily printed products such as checks and business forms to small
businesses through direct marketing. The second segment, "Printed Products-
Direct Sales," also sells checks and business forms to small businesses;
however, they sell through either distributors or by directly selling to the
customer. "Packaging and Display Products" is the third segment and primarily
resells items including packaging and shipping supplies and retail signage.
These products 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 and other income and expense. This measure,
however, also excludes certain 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 totaling $8,445,000 and $9,215,000 for the three months
ended March 25, 2000 and March 27, 1999 and $28,702,000 and $30,006,000 for the
nine months ended March 25, 2000 and March 27, 1999, respectively, need to be
made to the reported segment results.
<PAGE>
Net sales and profit from operations for each of the Company's business
segments are set forth below (unaudited).
<TABLE>
<CAPTION>
Printed Products
----------------
Direct Packaging and
------ -------------
Marketing Direct Sales Display Products Total
--------- ------------ ---------------- -----
Three months ended
Mar. 25, 2000
<S> <C> <C> <C> <C>
Net sales $ 73,153,000 $ 26,352,000 $ 17,862,000 $117,367,000
Profit from
operations 16,513,000 1,824,000 933,000 19,270,000
</TABLE>
<TABLE>
<CAPTION>
Three months ended
Mar. 27, 1999
<S> <C> <C> <C> <C>
Net sales $ 74,265,000 $ 24,124,000 $ 16,655,000 $115,044,000
Profit from
operations 16,093,000 3,044,000 514,000 19,651,000
</TABLE>
<TABLE>
<CAPTION>
Nine months ended
Mar. 25, 2000
<S> <C> <C> <C> <C>
Net sales $235,332,000 $ 76,359,000 $ 56,552,000 $368,243,000
Profit from
operations 54,594,000 5,464,000 3,454,000 63,512,000
</TABLE>
<TABLE>
<CAPTION>
Nine months ended
Mar. 27, 1999
<S> <C> <C> <C> <C>
Net sales $232,974,000 $ 69,371,000 $ 52,682,000 $355,027,000
Profit from
operations 51,525,000 8,358,000 2,423,000 62,306,000
</TABLE>
The amounts shown reflect a shift of the allocation of centralized information
systems costs to the Printed Products-Direct Sales segment in the first three
quarters of fiscal year 2000 from the Printed Products-Direct Marketing segment
due to conversion of McBee's order-taking system to the NEBS Direct Marketing
order entry system in August 1999.
<PAGE>
7. New Accounting Pronouncements
- ---------------------------------
In June, 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
Company will adopt this standard in the beginning of fiscal 2001. The Company
has determined based on its preliminary assessment of the standard, that the
adoption of this standard will not have a material impact on its consolidated
financial statements.
8. Reclassifications
- ---------------------
Certain reclassifications have been made to the results of the comparative
prior quarter and nine-month period so as to be in conformity with the current
quarter and nine-month period presentation.
Item 2. Management's Discussion and Analysis of Financial Condition
- -------------------------------------------------------------------
and Results of Operations
-------------------------
Overview
- --------
New England Business Service, Inc. (the "Company"), was founded in 1952,
incorporated in Massachusetts in 1955 and reincorporated in Delaware in 1986.
The Company designs, produces and distributes business forms, checks,
envelopes, labels, greeting cards, signs, stationery and related printed
products and distributes packaging, shipping and warehouse supplies, software,
work clothing and other business products through direct mail, direct sales,
telesales, dealers and the internet to small businesses throughout the United
States, Canada, the United Kingdom and France.
The Company has identified three reportable segments. The first is titled
"Printed Products-Direct Marketing" and represents those business operations
that sell primarily printed products such as checks and business forms to small
businesses through direct marketing. The second segment, "Printed Products-
Direct Sales," also sells checks and business forms to small businesses;
however, they sell through either distributors or by directly selling to the
customer. "Packaging and Display Products" is the third segment and primarily
resells items including packaging and shipping supplies and retail signage.
These products are marketed through a combination of direct marketing and
direct selling efforts.
Any sentence followed by an asterisk (*) in this section constitutes a
forward-looking statement which reflects the Company's current expectations.
There can be no assurance the Company's actual performance will not differ
materially from that projected in such forward-looking statements due to the
important factors described in the section to this Management's Discussion and
Analysis of Financial Condition and Results of Operations titled "Certain
Factors That May Affect Future Results."
<PAGE>
Results of Operations
- ---------------------
Net sales increased $2.3 million or 2.0% to $117.4 million in the third
quarter of fiscal year 2000 from $115.0 million in last year's third quarter.
Net sales from the Direct Selling Segment increased $2.2 million or 9.2%, and
was attributable to growth in bank referral contracts. Net sales from the
Packaging and Display Segment also increased $1.2 million or 7.2% and was
primarily a result of expanded distribution facilities. Net sales in the
Direct Marketing Segment decreased $1.1 million or 1.5% due to higher
discounting.
Net sales increased $13.2 million or 3.8% to $368.2 million for the first
nine months of fiscal year 2000 from $355.0 million in last year's nine months.
The sales increase was due to similar reasons as outlined above regarding the
third quarter results, in addition to growth in sales of seasonal holiday cards
and personalized work clothing during the first six months of fiscal year 2000.
These products are sold principally through the Direct Marketing Segment.
For the third quarter of fiscal year 2000, cost of sales decreased slightly
to 36.3% of sales from 36.4% in last year's comparable period. For the first
nine months of fiscal year 2000, cost of sales decreased to 35.9% of sales from
36.5% in last year's comparable period. The decrease can be attributed to
operational consolidations and increased handling charges to customers, which
reduce net freight costs.
Selling and advertising expense remained consistent at 37.8% of sales in the
third quarter of fiscal year 2000 from last year's comparable quarter. For the
first nine months of fiscal year 2000 selling and advertising expense increased
slightly to 37.8% of sales from 37.7% of sales in last year's comparable
period. Management anticipates that such costs will remain consistent for the
remainder of fiscal 2000.*
General and administrative expense remained consistent at 15.0% of sales in
the third quarter of fiscal year 2000 from last year's comparable quarter.
General and administrative costs increased to 15.3% of sales in the first nine
months of fiscal year 2000 from 15.0% of sales in the last year's comparable
period. The increase was principally the result of increased spending levels
associated with the Company's program to reengineer its financial and
operational information systems and ensure its capability to operate in the
year 2000. Management anticipates that these costs will continue to increase
slightly for the remainder of fiscal 2000.* As discussed below, the Company
has had no indication that its Y2K changeover was not successful.
Interest expense remained consistent at 1.8% of sales in the third quarter of
fiscal year 2000 and 1.7% for the first nine months of fiscal year 2000
compared to 1.8% of sales in the prior year's comparable periods. The decrease
can be attributed to lower average debt outstanding used for financing
activities, partially offset by an overall increase in the effective interest
rate.
The provision for income taxes as a percentage of pre-tax income decreased to
30.9% in the third quarter of fiscal year 2000 from 40.4% in the comparable
quarter in fiscal year 1999 primarily as a result of a one-time tax benefit due
to a favorable state revenue ruling effecting both current and prior years'
taxes. On a year-to-date basis the provision for income taxes decreased to
36.4% of pre-tax income from 39.3% of pre-tax income in the prior period due to
the reason stated above. The Company anticipates that its overall effective
tax rate for future years, based on the results of the ruling, will decrease to
approximately 38.4%.*
<PAGE>
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 has determined based on its
preliminary assessment of the standard, that the adoption of this standard will
have an immaterial impact on its consolidated financial statements.
YEAR 2000
- ---------
As part of a five-year plan instituted during fiscal year 1996 to enhance the
Company's information systems and address Year 2000 issues, the Company's
operational information systems were inventoried and assessed for Year 2000
compliance, and recommended remediation efforts with respect to all of the
Company's mission critical systems were completed. The Company conducted
extensive testing to ensure the efficiency of its remediation efforts, and
based on currently available information derived from such testing and the
passing of the January 1, 2000 date, the Company is not aware of any Year 2000
compliance problems affecting its internal systems.
In addition, the Company communicated with key vendors in order to assess
their ability to maintain normal operations in the Year 2000. Based on its
assessment of the Year 2000 readiness of its key vendors and the passing of the
January 1, 2000 date, the Company is not aware of any Year 2000 compliance
problems affecting these vendors.
The Company also inventoried and assessed the majority of the systems
associated with the functioning of its plant, property and equipment. There
were no significant Year 2000 compliance problems that occurred subsequent to
January 1, 2000.
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 is not aware of any Year 2000 compliance problems affecting any
major grouping of its customers since January 1, 2000.
Liquidity and Capital Resources
- -------------------------------
Cash provided by operating activities for the nine months ended March 25,
2000 was $40.9 million and represented an increase of $9.7 million from the
$31.2 million provided in the comparable period last year. The increase in
operating cash flow was primarily the result of an increase in net income,
taxes payable and other accrued expenses, offset by a decrease in non-cash
items. The Company anticipates that cash provided by operating activities by
the full year will approximate that seen in the third quarter. Increases in
net income will be offset by commensurate reductions in other working capital
line items as certain liability balances are reduced.*
<PAGE>
Capital expenditures for the nine months ended March 25, 2000 were $16.0
million versus the $13.2 million expended during last year's comparable period.
Capital expenditures in the first nine months of fiscal year 1999 and fiscal
year 2000 included expenditures for information systems infrastructure and
manufacturing related equipment. In addition, the Company constructed a $1.2
million warehouse distribution facility in Lithia Springs, Georgia and $1.7
million addition to the Midland, Ontario location in the first nine months of
fiscal years 2000 and 1999, respectively. The Company anticipates that total
capital outlays will approximate $22 million in fiscal year 2000.* In addition
to capital expenditures, the Company invested approximately $13.4 million in
two separate companies. These investments were partially funded by borrowings
under the Company's lines of credit. Significant cash outflows also occurred
in the first nine months of fiscal 2000 to pay dividends and repurchase common
stock. Stock repurchases totaled approximately $14.1 million for the nine
months ended March 25, 2000. The Company anticipates that such stock
repurchases will continue to occur in the future.*
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 continues
to amend the terms of its committed, unsecured, revolving line of credit
agreement in order to facilitate certain transactions. The total committed
line currently stands at $165 million. At March 25, 2000, the Company had
$141.5 million of outstanding debt under this credit facility. The credit
agreement contains various restrictive covenants which, among other things,
require the Company to maintain certain minimum levels of consolidated net
worth and specific consolidated debt and fixed charge ratios. The Company is
currently in compliance with these covenants.
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 banks. These swap agreements contain
notional principal amounts and other terms determined with respect to the
Company's forecasts of future cash flows and borrowing requirements. At March
25, 2000, the notional principal amount outstanding of the interest rate swap
agreements totaled $77.5 million.
The Company anticipates that its current cash on hand, cash flow from
operations and additional availability under the line of credit will be
sufficient to meet the Company's liquidity requirements for its operations and
capital expenditures during fiscal year 2000.* However, the Company may pursue
additional acquisitions from time to time which would likely be funded through
the use of available cash, the issuance of stock, the obtaining of additional
credit, or any combination thereof.*
<PAGE>
Certain Factors That May Affect Future Results
- ----------------------------------------------
References in this section to "we", "us" and "our" refer to New England
Business Service, Inc.
We may make forward-looking statements in this report and in other documents
filed with the SEC, in press releases, and in discussions with analysts,
investors and others. These statements include:
- descriptions of our operational and strategic plans,
- expectations about our future sales and profits,
- views of conditions and trends in our markets, and
- other statements that include words like "expects", "estimates",
"anticipates", "believes" and "intends", and which describe
opinions about future events.
You should not rely on these forward-looking statements as though they were
guarantees. These statements are based on our expectations at the time the
statements are made, and we are not required to revise or update these
statements based on future developments. Known and unknown risks may cause our
actual results, performance or achievements to be materially different from
those expressed or implied by these statements.
A majority of our sales and profits come from selling standardized business
forms, checks and related products by mail order, telesales and direct sales to
a target market consisting mainly of small businesses. We believe that the
critical success factors to compete in this market include competitive pricing,
breadth of product offering, and the ability to attract and retain a large
number of individual customers. Known material risks that may affect those
critical success factors are described below.
Our core business faces increased competition from new sources, such as
office supply superstores and Internet-based vendors. Increased competition
may require us to reduce prices or offer other incentives in order to attract
new customers and retain existing customers, which could reduce our profits.
Low-price, high-volume office supply chain stores have entered our core
business of selling standardized business forms, checks and related products to
small businesses. Because of their size, these superstores have the buying
power to offer these products at competitive prices. These superstores also
offer the convenience of "one-stop shopping" for a broad array of office
supplies that we do not offer. In addition, these national superstore
competitors have greater financial strength to reduce prices or increase
promotional discounts in order to seek or retain market share.
Recently, Internet-based vendors have begun to compete in our core business.
These vendors include both start-up ventures as well as the online stores of
the office supply national chains. We believe that the favored business model
for many Internet-based vendors is to seek market share as rapidly as possible
through significantly reduced prices and deep discounting.
<PAGE>
If any of these new competitors seek to gain or retain market share through
price reductions or increased discounting, we may be forced to reduce our
prices or match the discounts in order to stay competitive, which could reduce
our profits.
Technological improvements may reduce our competitive advantage over our
smaller competitors, which could reduce our profits.
Historically, our relatively greater financial strength and size has enabled
us to offer a broader array of products, particularly those having a complex
construction, at lower prices than the small local and regional dealers,
distributors and printers who constitute our primary competition. Improvements
in the cost and quality of printing technology are enabling these smaller
competitors to gain access to products of complex design and functionality at
competitive costs. Increased competition from local and regional competitors
could force us to reduce our prices in order to attract and retain customers,
which could reduce our profits.
Because our long-term sales growth is dependent on our ability to continually
attract new customers in our target small business market, economic events that
adversely affect the small business economy may reduce our sales and profits.
Average annual sales per customer of our core products have remained
relatively stable over time. As a result, we rely, in part, on continually
attracting new customers for these mature products. Our sales and profits have
been adversely affected in the past by recession-related contractions in the
small business economy. We expect that our sales and profits will continue to
be affected by changes in the levels of small business formations and failures
and from other economic events that affect the small business economy
generally.
Because our long-term sales growth is dependent on our ability to continually
attract new customers in our target small business market, changes in the
direct marketing industry that reduce our competitive advantage in contacting
prospective customers may reduce our sales and profits.
Growth in the total number of our direct mail customers depends on continued
access to high-quality lists of newly-formed small businesses. In the past,
our ability to compile proprietary prospect lists was a distinct competitive
advantage. However, the external list compilation industry has grown more
sophisticated, and comprehensive lists of new small business formations are now
commercially available to our competitors. In addition, the Internet has the
potential to eliminate our advantage of scale in direct marketing by providing
all competitors, regardless of current size, with access to prospective
customers.
We currently rely on the speed of our delivery of promotional materials to
prospective customers to gain advantage over competitors. We are also
expanding our Internet product offerings and capabilities and seeking to
increase our visibility on the Internet. Notwithstanding these efforts, a
deterioration in our competitive advantage in contacting prospective customers
could reduce our sales and profits.
<PAGE>
In addition, the enactment of privacy laws could constrain our ability to
obtain prospect lists or telemarket to prospective customers.
The cost of paper to produce our products, catalogs and advertising materials
makes up a significant portion of our total costs. We also rely on the U.S.
Postal Service to deliver most of our promotional materials. Prices for the
various types of paper that we use have been volatile, and we expect them to
continue to be so. Third class postal rates have generally increased over the
past ten years, at times significantly. We are not sure that we will always be
able to reduce costs in other areas or increase prices for our products
sufficiently to offset increases in paper costs and postal rates. If we are
unable to offset these cost increases, our profits will be adversely affected.
Disruption in the services provided by certain of our critical vendors may
adversely affect our operating performance and profits.
In order to obtain favorable pricing, we have selected a limited number of
vendors to provide key services to our business. Examples of this are as
follows:
- MCI WorldCom provides most of the toll-free telephone lines that
we use in connection with our mail order business,
- we use United Parcel Service to deliver most of the products
that we ship to customers,
- we use R.R. Donnelley and Sons for the printing and processing
of most of the catalogs that we mail each year,
- we rely on the postal services of the countries in which we do
business to deliver our catalogs and other advertising to
customers.
In the past we have been adversely affected by disruption of some of these
services due to labor actions, system failures, adverse weather conditions and
other natural disasters. If there are future interruptions in service from one
or more of these vendors, we believe that there could be a significant
disruption to our business due to our inability to readily find alternative
service providers at comparable rates.
Sales of our standardized forms products face technological obsolescence and
changing customer preferences, which could reduce our sales and profits.
Our standardized business forms, checks and related products provide our
customers with financial and business records to manage their businesses.
Continual technological improvements have provided our target customers in
several market segments with alternative means to enact and record business
transactions. For example, the price and performance capabilities of personal
computers and related printers now provide a cost-competitive means to print
low-quality versions of our business forms on plain paper. In addition,
electronic transaction systems and off-the-shelf business software applications
have been designed to automate several of the functions performed by our
business form products.
<PAGE>
In response to the gradual obsolescence of our standardized forms business,
we continue to develop our capability to provide custom and full-color
products. However, we have less of a cost advantage with these products than
with standardized forms, due to improvements in the cost and quality of
printing technology available to our smaller local and regional competitors.
We are also seeking to introduce new products that are less susceptible to
technological obsolescence. We may develop new products internally, procure
them from third party vendors, or obtain them through the acquisition of a new
business. We generally realize lower gross margins on out-sourced products
than on products that we manufacture ourselves. The risks associated with the
acquisition of new businesses are described below.
If new printing capabilities and new product introductions do not continue to
offset the obsolescence of our standardized business forms products, there is a
risk that the number of new customers we attract and existing customers we
retain may diminish, which could reduce our sales and profits. Decreases in
sales of our historically high margin standardized business forms products due
to obsolescence could also reduce our gross margins. This reduction could in
turn adversely impact our profits unless we are able to offset the reduction
through the introduction of new high margin products and services or realize
cost savings in other areas.
Our growth strategy depends, in part, on the acquisition of complementary
businesses that address our target small business market.
The acquisition of complementary businesses that address our target small
business market has been important to our growth strategy. We intend to
continue this acquisition activity in the future. The success of this activity
depends on the following:
- our ability to identify suitable businesses and to negotiate
agreements on acceptable terms,
- our ability to obtain financing through additional borrowing, by
issuing additional shares of common stock, or through internally
generated cash flow, and
- our ability to achieve anticipated savings and growth and avoid
disruption to our existing businesses.
In evaluating a potential acquisition, we conduct a business, financial and
legal review of the target. This review is intended to confirm our
assumptions with respect to the projected future performance of the target and
to identify the benefits and risks associated with those assumptions. We
cannot be certain that our review will identify all potential risks associated
with the purchase, integration or operation of acquired businesses.
Unanticipated risks may adversely affect the benefits that we expect to obtain
from any given acquisition.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
The Company is exposed to a number of market risks, including the effects of
changes in foreign currency exchange rates and interest rates. Investments in
and advances to foreign subsidiaries and branches, and their resultant
operations, denominated in foreign currencies, create exposures to changes in
exchange rates. The Company's utilization of its revolving line of credit
creates an exposure to changes in interest rates. The effect of changes in
exchange rates and interest rates on the Company's earnings generally has been
small relative to other factors that also affect earnings, such as business
unit sales and operating margins. For more information on these market risks
and financial exposures, see the Notes to Consolidated Financial Statements
included in the Annual Report on Form 10-K for the year ended June 26, 1999.
The Company does not hold or issue financial instruments for trading, profit or
speculative purposes.
In order to 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 interest rate instruments, based on
historical foreign currency rate movements and the fair value of market-rate
sensitive instruments , 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.
PART II - OTHER INFORMATION
- ---------------------------
Item 1. LEGAL PROCEEDINGS
- --------------------------
To the Company's knowledge, no material legal proceedings are pending on the
date hereof to which the Company is a party or to which any property of the
Company is subject.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- --------------------------------------------------
Not applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
- ----------------------------------------
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
Not applicable
<PAGE>
Item 5. OTHER INFORMATION
- --------------------------
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
a. Exhibits
Exhibit No. Description
----------- -----------
10(a) Fifth Amendment to Amended and Restated Revolving Credit
Agreement dated as of January 21, 2000, by and among New
England Business Service, Inc., BankBoston, N.A. and
Fleet National Bank )together with certain other
Financial institutions, the "Banks"), BankBoston, N.A.,
as agent for the Banks, and Fleet National Bank, as
documentation agent for the Banks.
27 Financial Data Schedule
99 Independent Accountant's Review Report for the
three-month and nine-month period ended March 25, 2000.
b. Reports on Form 8-K.
Not applicable
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NEW ENGLAND BUSINESS SERVICE, INC.
----------------------------------
(Registrant)
May 9, 2000 /s/Daniel M. Junius
- ----------- -------------------
Date Daniel M. Junius
Senior Vice President-Chief
Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
FIFTH AMENDMENT TO AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
NEW ENGLAND BUSINESS SERVICE, INC.
FIFTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT
AGREEMENT dated as of January 21, 2000 (this "Amendment"), by
and among NEW ENGLAND BUSINESS SERVICE, INC. (the "Borrower"),
a Delaware corporation having its principal place of business
at 500 Main Street, Groton, Massachusetts 01471, and the
Subsidiaries of the Borrower listed on the signature pages
hereto (the "Guarantors"), BANKBOSTON, N.A., a national
banking association ("BKB"), and the other lending
institutions listed on Schedule 1 to the Credit Agreement
referred to below (together with BKB, the "Banks"),
BANKBOSTON, N.A., as agent for itself and such other lending
institutions (the "Agent"), and FLEET NATIONAL BANK, as
documentation agent for itself and such other lending
institutions (the "Documentation Agent").
WHEREAS, the Borrower wishes to acquire certain equity
interests in Advantage Business Holdings, Inc., a Delaware
corporation ("Advantage");
WHEREAS, the Borrower, the Banks, the Agent and the
Documentation Agent are parties to an Amended and Restated
Revolving Credit Agreement dated as of December 18, 1997 (as
amended and in effect from time to time, the "Credit
Agreement," capitalized terms defined therein having the same
meanings herein as therein), pursuant to which the Banks have
extended credit to the Borrower on the terms and subject to
the conditions set forth therein;
WHEREAS, the Borrower has requested that the Agent and
the Banks amend the Credit Agreement so as to permit, to the
extent required, the acquisition of such interests in
Advantage and to make certain other revisions;
WHEREAS, subject to the terms and conditions set forth
herein, the Borrower, the Banks, the Agent and the
Documentation Agent have agreed to amend the Credit Agreement
as set forth herein;
NOW, THEREFORE, in consideration of the foregoing, and
for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties
agree to amend the Credit Agreement as follows:
1. Amendments to Definitions. Section 1.1 of the
Credit Agreement is hereby amended by inserting, in the places
required by alphabetical order, the following new definitions:
"Advantage. Advantage Business Holdings, Inc., a
Delaware corporation."
"Advantage Acquisition. The acquisition by the
Borrower of (1) approximately 1,069,772 shares (constituting
approximately ten percent (10%) of the total shares) of the
common stock of Advantage and (2) warrants exercisable, upon
the terms and conditions contained therein, for the purchase
of up to approximately 1,069,772 additional shares (subject
to applicable anti-dilution adjustments) of Advantage's
common stock, provided that in connection with the
acquisition of such stock and such warrants, each of the
following conditions is met:
(a) immediately prior to and after, and after giving
effect to, the acquisition of such stock and warrants, no
Default or Event of Default shall then exist;
(b) the aggregate consideration paid or to be paid by
the Borrower or any of its Subsidiaries in connection with
the acquisition of such stock and such warrants shall not
exceed $12,200,000;
(c) the acquisition of such stock and such warrants
shall have been approved by the board of directors and, if
and to the extent required, shareholders of Advantage;
(d) the closing of the acquisition of such stock and
such warrants shall occur on or before June 30, 2000."
"Fifth Amendment Effective Date. The "Effective Date",
as defined in the Fifth Amendment To Amended and Restated
Revolving Credit Agreement dated as of January 21, 2000
among the Borrower, the Subsidiaries of the Borrower listed
on the signature pages thereto, the Agent, the Documentation
Agent and the Banks."
2. Amendment of Section 5.1.2 of the Credit
Agreement.Section 5.1.2 of the Credit Agreement is hereby amended
by deleting from subsection (iv) thereof the word "thereof".
3. Renumbering of Sections 6.15 and 6.16 of the Credit
Agreement. The Credit Agreement is hereby amended by (i) continuing
the numbering of section 6.15 (entitled "McBee Acquisition" and
including section 6.15.1 (entitled "McBee Guaranty, etc.") and section
6.15.2 (entitled "Closing Balance Sheet")) set forth in the First
Amendment to Amended and Restated Revolving Credit Agreement dated as
of May 29, 1998 among the Borrower, the Agent, the Documentation
Agent, the Banks and the Subsidiaries of the Borrower listed on the
signature pages thereto; and (2) renumbering section 6.15 (entitled
"Further Assurances") set forth in the Second Amendment to Amended and
Restated Revolving Credit Agreement dated as of January 8, 1999 among
the Borrower, the Agent, the Documentation Agent, the Banks and the
Subsidiaries of the Borrower noted on the signature pages thereto, to
"section 6.16".
4. Amendment of Section 7.3 of the Credit Agreement.
Section 7.3 of the Credit Agreement is hereby amended by:
(a) deleting the word "and" at the end of subsection
(r) thereof.
(b) inserting, immediately following subsection (r)
thereof and immediately before existing subsection (s) thereof,
new subsection (s) with the following text:
"(s) Investments by the Borrower in Advantage
consisting of (i) in connection with the Advantage Acquisition,
up to an aggregate amount of $12,200,000 for the purchase of
approximately 1,069,772 shares (constituting approximately ten
percent (10%) of the total shares) of the common stock of
Advantage and warrants exercisable, upon the terms and conditions
set forth therein, for up to approximately 1,069,772 additional
shares (subject to applicable anti-dilution adjustments) of the
common stock of Advantage and (ii) in addition to amounts
permitted by subsection (s)(i) of this section 7.3 and provided
that no Default or Event of Default has occurred and is
continuing or would occur as a result thereof, up to an aggregate
of $12,200,000 upon the exercise of the warrants described in
subsection (s)(i) of this section 7.3 in exchange for the
additional shares of the common stock of Advantage described
above; and".
(c) deleting existing subsection (s) at the end
thereof and substituting in lieu thereof the following new
subsection (t):
"(t) Investments not otherwise expressly permitted
under subsections (a)-(s) of this section 7.3, in an aggregate
amount not to exceed $5,000,000."
5. Amendment to Section 7.5 of the Credit Agreement.
Section 7.5 of the Credit Agreement is hereby amended by:
(a) deleting the word "or" between subsections (b)
and (c) of section 7.5.1.
(b) inserting in section 7.5.1, immediately before
the period (".") at the end thereof, the following text:
", (d) the Advantage Acquisition or (e) so long as
no Default or Event of Default has occurred and is continuing or
would occur as a result thereof, the acquisition by the Borrower
of up to ten percent (10%) of the common stock of Advantage upon
the exercise by the Borrower of the warrants issued by Advantage
as part of the Advantage Acquisition, with the aggregate purchase
price of such common stock upon the exercise of such warrants not
to exceed $12,200,000".
(c) deleting the word "and" immediately before clause
(h) of section 7.5.2 thereof.
(d) inserting, immediately before the period (".") at
the end of section 7.5.2 thereof, the following new text:
", and (i) the disposition for fair market value of
up to twenty percent (20%) of the common stock of Advantage."
6. Amendment of Section 7.11 of the Credit Agreement.
Section 7.11 of the Credit Agreement is hereby amended by:
(a) inserting, immediately before the comma (",") at
the end of subsection (a) thereof, the text "; provided, however,
that such Subsidiary may not, without the prior written consent
of the Agent and the Majority Banks, conduct business or
operations materially different from those conducted by the
Borrower or any other Subsidiary on the Closing Date or, as the
case may be, any date on which any such other Subsidiary is
acquired in compliance with the terms of section 7.5.1 hereof or
created (with the consent of the Agent and the Majority Banks if
its business or operations are to be materially different) in
compliance with the terms of this section 7.11".
(b) deleting the words "proper corporate
authorization" from subsection (c)(ii) of the first sentence
thereof and substituting in lieu thereof the following text:
"proper corporate or other authorization".
(c) adding the following new sentence immediately after
the first sentence thereof:
"Upon the delivery to the Agent of the items
required by subsections (c)(i) and (ii) of the immediately
preceding sentence, Schedule 5.19 to the Credit Agreement shall
be, and shall be deemed to be, automatically amended to include
such new Subsidiary."
7. Amendment of Section 7.12 of the Credit Agreement.
Section 7.12 of the Credit Agreement is hereby amended by:
(a) deleting from section 7.12.1 the text "conducted
by it on the Closing Date or on the date any such Subsidiary is
acquired in compliance with the terms of section 7.5.1" and
substituting in lieu thereof the following text:
"conducted by it on the Closing Date or, as the case
may be, any date on which any such Subsidiary is acquired in
compliance with the terms of section 7.5.1 or created (with the
consent of the Agent and the Majority Banks if its business or
operations are materially different) in compliance with the terms
of section 7.11."
(b) deleting the word "not" from the first sentence
of section 7.12.2.
8. Replacement of Schedule 5.19 to the Credit Agreement.
Schedule 5.19 to the Credit Agreement is hereby deleted in its
entirety, and Schedule 5.19 attached hereto is hereby substituted
in lieu thereof.
9. Consent Pursuant to Section 7.12.1 of the Credit
Agreement. The Borrower has informed the Agent and the Banks that
it wishes to enter into the Advantage Acquisition (as defined in
the Credit Agreement, as amended by this Amendment), pursuant to
which it will, through its acquisition of a minority interest in
Advantage, become engaged in the marketing of payroll services.
Section 7.12.1 of the Credit Agreement prohibits the Borrower and
its Subsidiaries from engaging in such operations without the
prior written consent of the Agent and the Majority Banks, and
accordingly, the Borrower has requested such consent from the
Agent and the Majority Banks. Subject to the terms and
conditions of this Amendment, each of the Agent and the Majority
Banks hereby consents to the Borrower engaging in the business of
marketing payroll services.
10. Representations and Warranties. The Borrower and
each of the Guarantors hereby represents and warrants to the
Agent and the Banks as of the date hereof, and as of any date
on which the conditions set forth in section 11 below are met,
as follows:
(a) The execution and delivery by each of the Borrower and
the Guarantors of this Amendment and all other instruments and
agreements required to be executed and delivered by the
Borrower or any of the Guarantors in connection with the
transactions contemplated hereby or referred to herein
(collectively, the "Amendment Documents"), and the performance
by each of the Borrower and the Guarantors of any of their
obligations and agreements under the Amendment Documents and
the Credit Agreement and the other Loan Documents, as amended
hereby, are within the corporate or other authority of each of
the Borrower and the Guarantors, have been authorized by all
necessary corporate proceedings on behalf of each of the
Borrower and the Guarantors, and do not and will not
contravene any provision of law or the Borrower's charter or
any of the Guarantors' charters, other incorporation or
organizational papers, by-laws or any stock provision or any
amendment thereof or of any indenture, agreement, instrument
or undertaking binding upon the Borrower or any of the
Guarantors.
(b) Each of the Amendment Documents and the Credit
Agreement and other Loan Documents, as amended hereby, to
which the Borrower or any of the Guarantors is a party
constitute legal, valid and binding obligations of such
Person, enforceable in accordance with their terms, except as
limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or affecting generally the
enforcement of creditors' rights.
(c) No approval or consent of, or filing with, any
governmental agency or authority is required to make valid and
legally binding the execution, delivery or performance by the
Borrower or any of the Guarantors of the Amendment Documents
or the Credit Agreement or other Loan Documents, as amended
hereby, or the consummation by the Borrower or any of the
Guarantors of the transactions among the parties contemplated
hereby and thereby or referred to herein.
(d) The representations and warranties contained in
section 5 of the Credit Agreement and in the other Loan
Documents were true and correct at and as of the date made.
Except to the extent of changes resulting from transactions
contemplated or permitted by the Credit Agreement and the
other Loan Documents, changes occurring in the ordinary course
of business (which changes, either singly or in the aggregate,
have not been materially adverse) and to the extent that such
representations and warranties relate expressly to an earlier
date and after giving effect to the provisions hereof, such
representations and warranties, after giving effect to this
Amendment, also are correct at and as of the date hereof and
will be correct as of the date of the consummation of the
Advantage Acquisition. (e) Each of the Borrower and the
Guarantors has performed and complied in all material respects
with all terms and conditions herein required to be performed
or complied with by it prior to or at the time hereof, and as
of the date hereof, after giving effect to the provisions of
this Amendment and the other Amendment Documents, there exists
no Event of Default or Default.
(f) Each of the Borrower and the Guarantors acknowledges and
agrees that the representations and warranties contained in this
Amendment shall constitute representations and warranties
referred to in section 11.1(e) of the Credit Agreement, a breach
of which shall constitute an Event of Default.
11. Effectiveness. This Amendment shall become effective
as of the date first written above (the "Effective Date") upon
the satisfaction of each of the following conditions, in each
case in a manner satisfactory in form and substance to the Agent
and the Banks:
(a) This Amendment shall have been duly executed and
delivered by each of the parties thereto and shall be in full
force and effect;
(b) The closing of the Advantage Acquisition shall have
occurred in compliance with the requirements contained in the
definition of Advantage Acquisition contained in the Credit
Agreement, as amended by this Amendment;
(c) The Borrower shall have delivered to the Agent a true
and correct copy of the stock purchase agreement and related
documents pursuant to which the Advantage Acquisition is
consummated, in each case duly certified by the Secretary or
Assistant Secretary of the Borrower as being true, correct and
complete and in full force and effect;
(d) The Borrower shall have delivered to the Agent a
certificate, duly certified by an officer of the Borrower, to the
effect that each of the representations and warranties made by
the Borrower and, to the best of the Borrower's knowledge,
Advantage, contained in the stock purchase agreement and other
documents executed and delivered in connection with the Advantage
acquisition were true and correct in all material respects on the
date of such closing, except to the extent that any of such
representations and warranties relate, by the express terms
thereof, solely to a date falling prior to the date of such
closing, and except to the extent that any of such
representations and warranties may have been affected by the
consummation of the transactions contemplated and permitted or
required by such stock purchase agreement and related documents;
(e) Such other items, documents, agreements, items or
actions as the Agent may reasonably request in order to
effectuate the transactions contemplated hereby.
12. Miscellaneous Provisions.
(a) Each of the Borrower and the Guarantors hereby
ratifies and confirms all of its Obligations to the Agent and the
Banks under the Credit Agreement, as amended hereby, and the
other Loan Documents, including, without limitation, the Loans,
and each of the Borrower and the Guarantors hereby affirms its
absolute and unconditional promise to pay to the Banks and the
Agent the Loans, reimbursement obligations and all other amounts
due or to become due and payable to the Banks and the Agent under
the Credit Agreement and the other Loan Documents, as amended
hereby. Except as expressly amended hereby, each of the Credit
Agreement and the other Loan Documents shall continue in full
force and effect. This Amendment and the Credit Agreement shall
hereafter be read and construed together as a single document,
and all references in the Credit Agreement, any other Loan
Document or any agreement or instrument related to the Credit
Agreement shall hereafter refer to the Credit Agreement as
amended by this Amendment.
(b) Without limiting the expense reimbursement
requirements set forth in section 14 of the Credit Agreement, the
Borrower agrees to pay on demand all costs and expenses,
including reasonable attorneys' fees, of the Agent incurred in
connection with this Amendment.
(c) THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
(WITHOUT REFERENCE TO CONFLICT OF LAWS) AND SHALL TAKE EFFECT AS
A SEALED INSTRUMENT IN ACCORDANCE WITH SUCH LAWS.
(d) This Amendment may be executed in any number of
counterparts, and all such counterparts shall together constitute
but one instrument. In making proof of this Amendment it shall
not be necessary to produce or account for more than one
counterpart signed by each party hereto by and against which
enforcement hereof is sought.
[Signature Pages Follow]
IN WITNESS WHEREOF, intending to be legally bound, each
of the undersigned has caused this Amendment to be
executed on its behalf by its officer thereunto duly
authorized, as of the date first above written.
New England Business Service, Inc.
By: /s/ Daniel M. Junius
Name: Daniel M. Junius
Title: Treasurer
BANKBOSTON, N.A.,
individually and as Agent
By: /s/ Harvey H. Thayer, Jr.
Name: Harvey H. Thayer, Jr.
Title: Managing Director
FLEET NATIONAL BANK,
individually and as Documentation Agent
By: /s/ Roger C. Boucher
Name: Roger C. Boucher
Title: Senior Vice President
FIRST UNION NATIONAL BANK,
N.A.,
successor to CoreStates Bank, N.A.
By: /s/ Mark B. Felker
Name: Mark B. Felker
Title: Senior Vice President
KEY BANK N.A.
By: /s/ Noel B. Grayson
Name: Noel B. Grayson
Title: Senior Vice President
USTRUST
By: _______________________
Name:
Title:
SUNTRUST BANK
By: /s/ W. David Windom
Name: W. David Windom
Title: Vice President
SUNTRUST BANK
By: ________________
Name:
Title:
THE BANK OF NOVA SCOTIA
By: /s/ Stephen F. Foley
Name: S.F. Foley
Title: Authorized Signatory
WACHOVIA BANK, N.A.
By: /s/ Jeffrey S. Nurkiewicz
Name: Jeffrey S. Nurkiewicz
Title: Vice President
KBC Bank N.V., formerly known as
Kredietbank N.V.
By: ________________________
Name:
Title:
KBC Bank N.V., formerly known as
Kredietbank N.V.
By: ________________________
Name:
Title:
SUMMIT BANK
By: /s/ Gary W. Tyrrell
Name: Gary W. Tyrrell
Title: Vice President & Director
Signature page to the Fifth Amendment
The undersigned hereby acknowledges the foregoing Fifth
Amendment as of the Effective Date and agrees that its
obligations under the Guaranty will extend to the Credit
Agreement, as so amended, and the other Loan Documents.
RAPIDFORMS, INC.
By: /s/ Daniel M. Junius
Name: Daniel M. Junius
Title: Treasurer
MCBEE SYSTEMS, INC.
By: /s/ Daniel M. Junius
Name: Daniel M. Junius
Title: Treasurer
RUSSELL & MILLER, INC.
By: /s/ Daniel M. Junius
Name: Daniel M. Junius
Title: Treasurer
NEBS INTERACTIVE, INC.
By: /s/ Daniel M. Junius
Name: Daniel M. Junius
Title: Treasurer
CHISWICK, INC.
By: /s/ Daniel M. Junius
Name: Daniel M. Junius
Title: Treasurer
R & M TRUST
By: Daniel M. Junius, as Trustee
under Declaration of Trust of
R&M Trust dated July 20,
1998 and filed with the
Secretary of the
Commonwealth of Massachusetts
on July 27, 1998, and not
individually
By: /s/ Daniel M. Junius
Daniel M. Junius, as Trustee under
said Declaration of Trust and not
individually
CHISWICK TRUST
By: Daniel M. Junius, as Trustee
under Declaration of Trust of
Chiswick Trust dated
September 15, 1999 and filed
with the Secretary of the
Commonwealth of Massachusetts
on September 17, 1999, and
not individually
By: /s/ Daniel M. Junius
Daniel M. Junius, as Trustee under
said Declaration of Trust and not
individually
March 10, 2000
New England Business Service, Inc.
500 Main Street
Groton, Massachusetts 01471
Re: Fifth Amendment To Amended and Restated Revolving
Credit Agreement
Ladies and Gentlemen:
Reference is hereby made to the Fifth Amendment To
Amended and Restated Revolving Credit Agreement dated as
of January 21, 2000 (the "Fifth Amendment") among New
England Business Service, Inc. (the "Borrower"), the
Subsidiaries of the Borrower listed on the signature
pages thereto (the "Guarantors"), Fleet National Bank, as
successor to BankBoston, N.A. ("Fleet") and the other
lending institutions listed on the signature pages
thereto (collectively, the "Banks"), Fleet, as agent (the
"Agent"), and Fleet, as documentation agent (the
"Documentation Agent"), amending the Amended and Restated
Revolving Credit Agreement dated as of December 18, 1997
(as amended and in effect, the "Credit Agreement").
Capitalized terms used herein without other definition
shall have the meanings assigned to them in the Credit
Agreement.
The Credit Agreement, as amended by the Fifth
Amendment, provides for the acquisition by the Borrower
of certain shares of the common stock of Advantage
Business Holdings, Inc. ("Advantage") as well as certain
warrants exercisable for the purchase of additional
shares of the common stock of Advantage. The Fifth
Amendment contemplates that the aggregate consideration
for the purchase of such stock and warrants (the
"Purchase Price") shall not exceed $12,200,000 and that
the aggregate consideration to be paid upon the exercise
of such warrants (the "Exercise Price") shall not exceed
an additional $12,200,000. The Borrower has informed the
Agent and the Banks that the actual Purchase Price will
be $12,869,357 and that the actual Exercise Price will be
$13,554,011. The Borrower has requested that the Agent
and the Majority Banks agree to amend the Fifth Amendment
to reflect such increases.
Subject to the terms and conditions set forth herein
and to the signatures of the Borrower, the Guarantors,
the Agent and the Majority Banks set forth below, each of
the Borrower, the Guarantors, the Agent and the Majority
Banks hereby agrees to the amendment of:
a. the definition of "Advantage" contained in
section 1 of the Fifth Amendment (and section 1.1 of the
Credit Agreement) so as to replace the text "Advantage
Business Holdings, Inc." with the text "Advantage
Business Services Holdings, Inc." (with such replacement
being deemed also to apply to all references to
"Advantage" or "Advantage Business Holdings, Inc."
contained in this letter);
b. the definition of "Advantage Acquisition"
contained in section 1 of the Fifth Amendment (and
section 1.1 of the Credit Agreement) so as to substitute
the dollar amount "$12,900,000" for the dollar amount
"$12,200,000" contained in subsection (b) thereof;
c. Section 4(b) of the Fifth Amendment (inserting
a new subsection 7.3(s) into the Credit Agreement) so as
to (i) substitute the dollar amount "$12,900,000" for the
dollar amount "$12,200,000" contained in subsection (i)
thereof; and (ii) substitute the dollar amount
"$13,600,000" for the dollar amount "$12,200,000"
contained in subsection (ii) thereof; and
d. Section 5(b) of the Fifth Amendment (inserting
a new subsection 7.5(d) into the Credit Agreement) so as
to substitute the dollar amount "$13,600,000" for the
dollar amount "$12,200,000".
The agreements herein made shall not extend to or
affect any obligations not expressly amended herein and
shall not impair any right of the Agent or the Banks
consequent thereon. No agreement herein made shall
extend beyond the term expressly set forth herein for
such agreement, nor shall anything contained herein be
deemed to imply any willingness of the Agent or the Banks
to agree to, or otherwise prejudice any rights of the
Agent or the Banks with respect to, any similar
agreements that may be requested for any future period.
Except as specifically amended hereby, each of the
terms and conditions of the Credit Agreement and the
other Loan Documents is hereby ratified and confirmed and
shall remain in full force and effect. Except for the
specific agreements contained herein, nothing contained
herein shall in any way prejudice, impair or affect any
rights or remedies of the Banks or the Agent under the
Credit Agreement and the other Loan Documents.
THIS LETTER SHALL FOR ALL PURPOSES BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF
THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO
CONFLICTS OF LAW).
Kindly indicate your understanding of and agreement
with the terms and conditions set forth in this letter
agreement by signing this letter below and returning a
copy thereof to the Agent at 100 Federal Street, Boston,
MA 02110, Attn: Harvey H. Thayer, Jr.
FLEET NATIONAL BANK,
as successor to BankBoston, N.A.,
individually, as Agent and as
Documentation Agent
By: /s/ Harvey H. Thayer, Jr.
Name: Harvey H. Thayer, Jr.
Title: Managing Director
FIRST UNION NATIONAL BANK,
N.A.,
as successor to CoreStates Bank, N.A.
By: /s/ Mark B. Felker
Name: Mark B. Felker
Title: Senior Vice President
KEY BANK N.A.
By: /s/ Eric S. Christensen
Name: Eric S. Christensen
Title: Vice President
US TRUST
By: _____________________
Name:
Title:
SUNTRUST BANK
By: /s/ Karen C. Copeland
Name: Karen C. Copeland
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/ [illegible]
Name: [illegible]
Title: Authorized Signatory
WACHOVIA BANK, N.A.
By: /s/ Sharon L. Prince
Name: Sharon L. Prince
Title: Vice President
KBC BANK N.V., formerly known as
Kredietbank N.V.
By: _________________________
Name:
Title:
KBC BANK N.V., formerly known as
Kredietbank N.V.
By: __________________
Name:
Title:
SUMMIT BANK
By: ____________________
Name:
Title:
ACCEPTED AND AGREED:
NEW ENGLAND BUSINESS SERVICE, INC.
By: /s/ Daniel M. Junius
Name: Daniel M. Junius
Title: Treasurer
RAPIDFORMS, INC.
By: /s/ Daniel M. Junius
Name: Daniel M. Junius
Title: Treasurer
MCBEE SYSTEMS, INC.
By: /s/ Daniel M. Junius
Name: Daniel M. Junius
Title: Treasurer
RUSSELL & MILLER, INC.
By: /s/ Daniel M. Junius
Name: Daniel M. Junius
Title: Treasurer
NEBS INTERACTIVE, INC.
By: /s/ Daniel M. Junius
Name: Daniel M. Junius
Title: Treasurer
CHISWICK, INC.
By: /s/ Daniel M. Junius
Name: Daniel M. Junius
Title: Treasurer
R & M TRUST
By: Daniel M. Junius, as Trustee
under Declaration of Trust of
R&M Trust dated July 20,
1998 and filed with the Secretary
of the Commonwealth of Massachusetts
on July 27, 1998, and not individually
By: /s/ Daniel M. Junius
Daniel M. Junius, as Trustee under
said Declaration of Trust and not
individually
CHISWICK TRUST
By: Daniel M. Junius, as Trustee
under Declaration of Trust of
Chiswick Trust dated
September 15, 1999 and filed
with the Secretary of the
Commonwealth of Massachusetts
on September 17, 1999, and
not individually
By: /s/ Daniel M. Junius
Daniel M. Junius, as Trustee under
said Declaration of Trust and not
individually
RAPIDPACK.COM, INC.
By: /s/ Daniel M. Junius
Name: Daniel M. Junius
Title: Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF NEW ENGLAND BUSINESS SERVICE, INC. AND
ITS SUBSIDIARIES AS OF MARCH 25, 2000 AND THE RELATED STATEMENTS OF
CONSOLIDATED INCOME AND CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-24-2000
<PERIOD-START> JUN-27-1999
<PERIOD-END> MAR-25-2000
<CASH> 9,816
<SECURITIES> 0
<RECEIVABLES> 59,297
<ALLOWANCES> 5,135
<INVENTORY> 23,516
<CURRENT-ASSETS> 107,064
<PP&E> 159,714
<DEPRECIATION> 99,647
<TOTAL-ASSETS> 316,217
<CURRENT-LIABILITIES> 47,721
<BONDS> 0
0
0
<COMMON> 15,389
<OTHER-SE> 106,649
<TOTAL-LIABILITY-AND-EQUITY> 316,217
<SALES> 368,243
<TOTAL-REVENUES> 368,243
<CGS> 132,224
<TOTAL-COSTS> 132,224
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,143
<INTEREST-EXPENSE> 6,122
<INCOME-PRETAX> 34,810
<INCOME-TAX> 12,657
<INCOME-CONTINUING> 22,153
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,153
<EPS-BASIC> 1.61
<EPS-DILUTED> 1.59
</TABLE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
New England Business Services, Inc.
Groton, Massachusetts
We have reviewed the condensed consolidated balance sheet of New
England Business Services, Inc. and subsidiaries (the "Company")
as of March 25, 2000, and the related condensed consolidated
statements of income and cash flows for the nine-month and three-
month periods then ended included in its report on Form 10-Q for
the period ended March 25, 2000. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information
consists principally of applying analytical procedures to
financial data and of making inquiries of persons
responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the
United States of America, the objective of which is the
expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material
modifications that should be made to such condensed
consolidated financial statements for them to be in
conformity with accounting principles generally accepted in
the United States of America.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
April 26, 2000
