-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JQEdynWmYAlN/2t2d5WPPgbvPOciWO9DpChRjP23dfTByXiiWSryL8KE9n47TiSw rsmg9etDk+7Kxm3AkBjpVg== 0000205700-98-000001.txt : 19980108 0000205700-98-000001.hdr.sgml : 19980108 ACCESSION NUMBER: 0000205700-98-000001 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980107 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980107 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND BUSINESS SERVICE INC CENTRAL INDEX KEY: 0000205700 STANDARD INDUSTRIAL CLASSIFICATION: MANIFOLD BUSINESS FORMS [2761] IRS NUMBER: 042942374 STATE OF INCORPORATION: DE FISCAL YEAR END: 0627 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-11427 FILM NUMBER: 98502100 BUSINESS ADDRESS: STREET 1: 500 MAIN ST CITY: GROTON STATE: MA ZIP: 01471 BUSINESS PHONE: 5084486111 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: January 7, 1998 NEW ENGLAND BUSINESS SERVICE, INC. ---------------------------------- (Exact name of registrant as specified in its charter) Delaware 1-11427 04-2942374 - -------- ------------- ------------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 500 Main Street, Groton, MA 01471 ------------------------------------------------------------ (Address of principal executive offices) (ZIP Code) Registrant's telephone number, including area code: (978) 448-6111 -------------- Item 2. Acquisition or Disposition of Assets - --------------------------------------------- On December 23, 1997, New England Business Service, Inc. ("NEBS") acquired from CSS Industries, Inc. all of the outstanding common stock of Rapidforms Inc. ("Rapidforms") for consideration of approximately $80,000,000 in cash. The source of the cash for the purchase price was a loan made to NEBS in the ordinary course of business under a revolving line of credit with BankBoston, N.A. and Fleet National Bank, as lenders and agents thereunder, and certain other financial institutions. Rapidforms and its subsidiaries collectively sell standard business forms, stationery, merchandising products and office supplies primarily by direct mail to small businesses throughout the United States. Rapidforms' headquarters are located in Thorofare, New Jersey, with subsidiaries located in Bridgeton, New Jersey and Santa Fe Springs, California. In negotiating the amount of consideration to be paid for the stock of Rapidforms, NEBS considered, among other things, the following factors with respect to Rapidforms: historical and projected financial results, the quality and performance of management, the market values of comparable public companies, and the projected financial performance of Rapidforms and NEBS on a combined basis. There is no material relationship between NEBS and Rapidforms or any of their respective officers, directors or stockholders, other than the Stock Purchase Agreement pursuant to which the acquisition was made and the other agreements pertaining thereto. Item 5. Other Events. - ---------------------- NEBS entered into a Revolving Credit Agreement, dated as of December 18, 1997, with 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. The Revolving Credit Agreement is an amendment of an agreement previously entered into on March 26, 1997 that provided a revolving line of credit of $60,000,000, and now provides for a revolving line of credit to NEBS of $135,000,000. Item 7. Financial Statements and Exhibits - ------------------------------------------ (a) Financial Statements of Business Acquired Rapidforms, Inc. and Subsidiaries Consolidated Financial Statements for the Years Ended December 31, 1996 and 1995 and Report of Independent Public Accountants (b) Pro Forma Financial Information Pro Forma Combined Condensed Financial Statements Pro Forma Combined Condensed Consolidated Balance Sheet as of September 27, 1997 Pro Forma Combined Consolidated Statement of Income for the Year Ended June 28, 1997 Pro Forma Combined Consolidated Statement of Income for the Three Months Ended September 27, 1997 Notes to Pro Forma Combined Condensed Financial Statements (c) Exhibits Exhibit Number - -------------- 2.1 Stock Purchase Agreement by and among New England Business Service, Inc. and CSS Industries, Inc. dated as of December 5, 1997. 2.2 Agreement to Furnish Copies of Omitted Schedules and Exhibits to Stock Purchase Agreement. 10.1 Revolving Credit Agreement dated as of December 18, 1997, 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. 10.2 Agreement to Furnish Copies of Omitted Schedules and Exhibits to Revolving Credit Agreement. 23.1 Consent of Independent Accountants. ARTHUR ANDERSEN LLP RAPIDFORMS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 TOGETHER WITH AUDITORS' REPORT ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Directors, Rapidforms, Inc.: We have audited the accompanying consolidated balance sheets of Rapidforms, Inc. (a New Jersey corporation and subsidiary of CSS Industries, Inc.) and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' investment and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Rapidforms, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP ----------------------- Philadelphia, PA., February 13, 1997 RAPIDFORMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 __________________________________________________________________________________________________________________________
LIABILITIES AND ASSETS 1996 1995 SHAREHOLDER'S INVESTMENT 1996 1995 ------ ------------ ------------ ------------------------ ------------- ----------- CURRENT ASSETS: CURRENT LIABILITIES: Cash and cash equivalents $ 65,233 $ 184,973 Bank overdraft $ - $ 608,671 Accounts receivable, less Current portion of long-term debt 100,000 4,436,804 allowance for doubtful Notes payable 888,995 1,022,712 accounts of $897,375 Loan payable to affiliate 7,501,839 9,891,921 and $820,270 9,288,744 10,139,200 Accounts payable 4,238,370 4,793,098 Inventories 9,049,900 9,472,948 Customer advances 159,247 253,485 Prepaid expenses 2,035,845 2,482,877 Accrued expenses 4,768,260 3,574,243 Prepaid income taxes - 385,027 Accrued moving and relocation 13,342 262,105 Deferred income taxes 1,156,318 1,049,255 Income taxes payable 143,219 - ------------ ------------ ------------ ----------- Total current assets 21,596,040 23,714,280 Total current liabilities 17,813,272 24,843,039 ------------ ------------ ------------ ----------- LONG-TERM DEBT 850,000 949,999 ------------ ----------- PROPERTY AND EQUIPMENT: DEFERRED INCOME TAXES 2,866,495 2,706,700 Land 965,000 965,000 ------------ ----------- Buildings 8,576,737 8,498,395 MINORITY INTEREST 557,368 465,233 Machinery and equipment 19,576,926 17,528,454 ------------ ----------- Leasehold improvements 533,795 508,851 COMMITMENTS AND CONTINGENCIES ------------ ------------ (See Note 10) 29,652,458 27,500,700 SHAREHOLDERS' INVESTMENT: Less- Accumulated Class A, $.01 par value per depreciation and share, authorized 2,000,000 amortization 14,397,677 12,466,761 shares; issued and outstanding ------------ ------------ 818,500 shares 8,185 8,185 15,254,781 15,033,939 Class B, $.01 par value per ------------ ------------ share, authorized 1,000,000 shares; issued and outstanding 181,500 shares 1,815 1,815 Capital in excess of par value 2,767,941 2,265,694 Retained earnings 39,010,829 35,701,537 OTHER ASSETS 82,519 47,807 Cumulative translation adjustment (188,408) (463,164) ------------- ------------ 41,600,362 37,514,067 Less- Treasury stock-110,350 and INTANGIBLE ASSETS, less 107,050 shares of Class B, accumulated amortization at cost, respectively (1,646,665) (1,404,688) of $4,276,814 and ------------ ----------- $2,876,371 25,107,492 26,278,324 Total shareholders' investment 39,953,697 36,109,379 ------------ ------------ ------------ ----------- $ 62,040,832 $ 65,074,350 $ 62,040,832 $65,074,350 ============ ============ ============ ===========
The accompanying notes are an integral part of these statements RAPIDFORMS, INC.AND SUBSIDIARIES -------------------------------- CONSOLIDATED STATEMENTS OF INCOME ----------------------------------
For the Year Ended December 31 ----------------------------- 1996 1995 ----------- ----------- NET SALES $89,027,655 $86,138,757 COSTS AND EXPENSES: Cost of sales 40,032,810 37,628,823 Advertising and promotion 19,746,314 19,213,277 General and administrative 20,333,525 18,565,415 ----------- ----------- Operating Income 8,915,006 10,731,242 OTHER (INCOME) EXPENSE: Interest expense, net of interest income of $1,182 and $1,662 947,808 1,152,584 Other, net 26,381 (247,268) ----------- ----------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 7,940,817 9,825,926 INCOME TAXES 3,292,670 4,006,597 ----------- ----------- INCOME BEFORE MINORITY INTEREST 4,648,147 5,819,329 MINORITY INTEREST 93,345 84,663 ----------- ----------- NET INCOME $ 4,554,802 $ 5,734,666 =========== ===========
The accompanying notes are an integral part of these statements RAPIDFORMS, INC. AND SUBSIDIARIES ---------------------------------- CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT --------------------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 ----------------------------------------------
Common Stock Capital in Cumulative Total ---------------- Excess of Retained Translation Treasury Shareholders' Class A Class B Par Value Earnings Adjustment Stock Investment ------- -------- ---------- ----------- ----------- ----------- ------------ BALANCE, JANUARY 1, 1995 $ 8,185 $ 1,815 $2,218,133 $31,217,001 $(471,172) $(1,442,063) $31,531,899 Exercise of stock options - - 47,561 - - 37,375 84,936 Net Income - - - 5,734,666 - - 5,734,666 Cash dividends--$1.40 per share - - - (1,250,130) - - (1,250,130) Currency translation adjustment - - - - 8,008 - 8,008 ------- -------- ---------- ----------- ----------- ----------- ----------- BALANCE DECEMBER 31, 1995 8,185 1,815 2,265,694 35,701,537 (463,164) (1,404,688) 36,109,379 Exercise of stock options - - 57,247 - - 43,125 100,372 Purchase of stock - - - - - (285,102) (285,102) Net income - - - 4,554,802 - - 4,554,802 Cash dividends--$1.40 per share - - - (1,245,510) - - (1,245,510) Currency tranlation adjustment - - - - 274,756 - 274,756 Contribution from parent (see Note 11) - - 445,000 - - - 445,000 ------- -------- ---------- ----------- ----------- ----------- ----------- BALANCE DECEMBER 31, 1996 $ 8,185 $ 1,815 $2,767,941 $39,010,829 $(188,408) $(1,646,665) $39,953,697 ======= ======== ========== =========== =========== =========== ===========
The accompanying notes are an integral part of these statements RAPIDFORMS, INC. AND SUBSIDIARIES ---------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------------------
For the Year Ended December 31 ------------------------- 1996 1995 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,554,802 $ 5,734,666 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,737,460 3,212,905 Minority interest 93,345 84,663 Provision for doubtful accounts 478,271 352,165 Gain on disposal of property and equipment (2,208) (7,198) Deferred tax provision 119,438 1,193,980 Changes in assets and liabilities, net of effects of purchase of subsidiary-- Decrease (increase) in accounts receivable 461,143 (1,770,481) Decrease (increase) in inventories 519,990 (2,197,012) Decrease (increase) in prepaid expenses and other assets 430,487 (293,627) Decrease (increase) in prepaid income taxes 385,027 (278,664) Increase (decrease) in accounts payable and other accruals 100,389 (3,976,807) Increase in income taxes payable 143,219 - ----------- ----------- Total adjustments 6,466,561 (3,680,076) ----------- ----------- Net cash provided by operating activities 11,021,363 2,054,590 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITES: Additions to property and equipment (2,528,402) (3,852,161) Purchase of net assets of business - (1,057,683) Proceeds from disposal of property and equipment 40,371 29,339 Acquisition of minority interest - (16,368) ----------- ----------- Net cash used for investing activities (2,488,031) (4,896,873) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Loan payable to affiliate, net (1,945,082) 2,152,719 Proceeds from exercise of stock options 100,372 84,936 Proceeds from exercise of stock options at subsidiaries 16,704 24,309 Payments on long-term debt (4,654,632) (191,475) Dividends paid (1,263,425) (1,266,119) Proceeds from short-term borrowings - 611,660 (Decrease) increase in bank overdraft (608,671) 608,671 Purchase of treasury stock (285,102) - ----------- ----------- Net cash (used for) provided by financing activities (8,639,836) 2,024,701 ----------- ----------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (13,236) 30,281 ----------- ----------- Decrease in cash and cash equivalents (119,740) (787,301) ----------- ----------- CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 184,973 972,274 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR 65,233 184,973 =========== ===========
The accompanying notes are an integral part of these statements RAPIDFORMS, INC. AND SUBSIDIARIES ---------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ DECEMBER 31, 1996 AND DECEMBER 31, 1995 -------------------------------------- 1. THE COMPANY: Rapidforms, Inc. is a subsidiary of CSS Industries, Inc. ("CSS"). Rapidforms, Inc. and its subsidiaries (the "Company") collectively sell standard business forms, stationery, merchandising products and office supplies primarily by direct mail. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation - --------------------------- The consolidated financial statements include the accounts of the Company. All significant intercompany transactions and accounts have been eliminated in consolidation. Pervasiveness of Estimates - -------------------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Foreign Currency Translation - ---------------------------- The assets and liabilities of the Company's U.K. subsidiary are translated into U.S. dollars at the year-end exchange rate; income and expense items are translated at average exchange rates during the year. Translation adjustments are charged or credited to a separate component of shareholders' investment. Cash and Cash Equivalents - ------------------------- The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash and cash equivalents for the purpose of determining cash flows. At December 31, 1996 and 1995, there were no cash equivalents. -2- Inventories - ----------- Inventories are stated at the lower of first-in, first-out cost or market. Inventories consist of the following: December 31 --------------------------- 1996 1995 ------------ ------------ Raw Materials $ 1,000,809 $ 2,771,158 Work-in-process 55,028 322,886 Finished Goods 7,994,063 6,378,904 ------------ ------------ $ 9,049,900 $ 9,472,948 ============ ============ Advertising Materials - --------------------- Product catalogs for direct mail solicitation are revised several times each year and printed in large quantities. The cost of such catalogs are expensed when mailed. The direct costs of preparation, printing and binding related to unmailed catalogs and catalogs in the process of completion were $1,586,504 and $2,321,581 at December 31, 1996 and 1995, and are included in prepaid expenses. Property and Equipment - ---------------------- Property and equipment are stated at cost. Depreciation for financial reporting purposes is computed on the straight-line method, based on the following estimated useful lives: Buildings 10-40 years Machinery and equipment 3-10 years Leasehold improvements Lease term Depreciation for income tax reporting purposes is computed using accelerated methods. When property is retired or otherwise disposed of, the related cost and accumulated depreciation is eliminated from the accounts. Any gain or loss from disposition of property and equipment is included in operating income. Maintenance and repairs are charged to operations as incurred. Improvements are capitalized and depreciated over their estimated useful lives. Intangible Assets - ----------------- Intangible assets consist primarily of customer lists and goodwill and are being amortized using the straight-line method over five to forty years. -3- Income Taxes - ------------ The Company's results are included in the consolidated federal income tax return filed by CSS. Accordingly, its liability or benefit related to federal income taxes is computed on a separate company basis and is payable to or receivable from CSS. Supplemental Disclosures of Cash Flow Information - ------------------------------------------------- Cash paid during the years ended December 31, 1996 and 1995, is as follows: 1996 1995 ----------- ----------- Interest $ 952,456 $ 1,124,075 Income taxes, net $ 2,960,416 $ 3,095,027 The following table displays noncash net assets that were acquired as a result of the acquisition discussed in Note 3: December 31, 1995 ----------- Assets: Accounts receivable, net $ 196,419 Inventory 24,073 Property and equipment 204,006 Goodwill and other intangible assets 762,943 Other assets 8,940 ----------- 1,196,381 Less: Accounts payable (6,877) Accrued liabilities (131,821) ----------- Net investing activity $ 1,057,683 =========== The capital contribution from CSS discussed in Note 11 is treated as a noncash financing activity in the accompanying consolidated statements of cash flows. New Accounting Pronouncements - ----------------------------- The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," in 1996. This statement requires review and measurement methods to calculate impairment of long-lived assets, including certain identifiable intangibles and goodwill. The statement also requires that long-lived assets to be disposed of be reported at the lower of the carrying amount or fair value less costs to sell. The adoption of this statement did not have a material impact on the Company's financial condition or results of operations (see Note 3). -4- The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," during 1996. See Note 6. 3. ACQUISITIONS: - ---------------- In December 1995, the Company acquired certain assets and liabilities of Joy Art Company, Inc. for $898,000 in cash. In addition, the Company agreed to pay $160,000 over two years for a covenant not to compete. The purchase price was allocated to the fair value of the assets acquired with the excess of $762,943 allocated to customer lists which is being amortized over 10 years. During 1996, the Joy Art Company lost one of its two major customers. As a result of the loss, the Company wrote off approximately $128,000 of goodwill related to this customer. 4. BORROWINGS: - -------------- Long-term debt consists of the following: December 31 -------------------------- 1996 1995 ------------ ------------ Mortgage note payable $ --- $ 4,286,803 Economic development bonds 950,000 1,100,000 ------------ ------------ 950,000 5,386,803 Less - Current portion $ 100,000 $ 4,436,804 ------------ ------------ $ 850,000 $ 949,999 ============ ============ During 1988, a subsidiary of the Company refinanced economic development bonds that were originally issued for the construction of a manufacturing, office and warehousing facility and the purchase of new equipment. The bonds were issued in the amount of $1,700,000. Interest is payable monthly at 80% of the prime rate. The terms of the bonds, among other things, provide for a first mortgage on the subsidiary's facility, a security interest in equipment of the subsidiary, and a guarantee from the Company. In 1996, the Company paid off the remaining portion of a $4,500,000 mortgage note that became due on March 31, 1996. The Company's U.K. subsidiary had a 500,000 Pound Sterling loan facility with interest rates ranging from 8.0% to 8.3% at yearend. The balance outstanding at December 31, 1996, was $888,995. See Note 12. -5- Annual principal payments required under long-term debt are as follows: 1997 $ 100,000 1998 100,000 1999 100,000 2000 100,000 2001 100,000 2002 and thereafter 450,000 ----------- $ 950,000 =========== 5. SHAREHOLDERS' INVESTMENT: - ---------------------------- Class A and Class B common stock have voting rights of four and one votes per share, respectively. All of the Class A common shares are owned by CSS. The Company purchased 7,050 shares of Class B common stock in 1996 from two officers at a cost of $285,102. 6. INCENTIVE STOCK OPTIONS: - ---------------------------- The Company has an incentive stock option plan whereby 80,000 Class B common shares may be issued to key management personnel at fair market value. The options are excercisable at the rate of 25% per year commencing one year after the date of grant. Following is a summary of option transactions: Number Option Price of Shares Per Share --------- --------------- January 1, 1995 13,500 $ 23.55 - 30.36 Granted 1,000 35.44 Exercised (3,250) 23.55 - 30.36 -------- --------------- December 31, 1995 11,250 $ 23.55 - 35.44 Granted 2,000 40.44 Exercised (3,750) 23.55 - 30.36 Canceled (750) 25.99 -------- --------------- December 31, 1996 8,750 $ 23.55 - 40.44 ======== =============== At December 31, 1996, 4,875 options were exercisable and 21,250 options were available for grant. During 1996, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," using the pro forma disclosure method of adoption. SFAS No. 123 requires the Company to remeasure compensation cost of the stock option plan using the fair value method and disclose the effect on net income. The statement allows the Company to continue to measure compensation cost under APB No. 25, "Accounting for Stock Issued to Employees," for -6- financial reporting purposes. The effect of adoption of this pronouncement was not material. 7. INCOME TAXES: - ---------------- The Company follows the tenets of SFAS No. 109, "Accounting for Income Taxes." This statement utilizes a balance sheet approach in the financial reporting for income taxes. Deferred tax balances will be regularly adjusted to reflect the current year estimate of future tax payments. The deferred tax effect of temporary differences giving rise to the Company's deferred income tax assets and liabilities are as follows: December 31 ------------------------- 1996 1995 ----------- ----------- Deferred tax assets: Accounts receivable reserve $ 296,419 $ 285,148 Inventory valuation reserve 502,660 411,411 Other reserves 357,239 352,696 ----------- ----------- $ 1,156,318 $ 1,049,255 =========== =========== Deferred tax liabilities: Amortization and depreciation $ 2,575,113 $ 2,604,697 Other 291,382 102,003 ----------- ----------- $ 2,866,495 $ 2,706,700 =========== =========== Income tax expense consists of the following: December 31 ------------------------- 1996 1995 ----------- ----------- Current: Federal $ 2,710,142 $ 2,157,292 State 463,090 655,325 ----------- ----------- 3,173,232 2,812,617 ----------- ----------- Deferred: Federal (4,998) 1,164,881 State 124,436 29,099 ------------ ----------- 119,438 1,193,980 ------------ ----------- Income tax expense $ 3,292,670 $ 4,006,597 ============ =========== -7- A reconciliation of the effective income tax rate with the statutory federal income tax rate follows: December 31 ------------------- 1996 1995 -------- -------- Statutory rate 35.0% 35.0% State income taxes, net of federal benefit 4.8 4.5 Goodwill amortization .6 .5 Other, primarily nondeductible foreign losses 1.1 .8 -------- -------- 41.5% 40.8% ======== ======== 8. EMPLOYEE BENEFIT PLANS: - -------------------------- The Company and its subsidiaries have profit sharing plans covering substantially all employees that accumulate funds for employees' retirement. Annual contributions to the plans are authorized by the Board of Directors. Profit sharing expense was $682,312 and $508,803 in 1996 and 1995, respectively. On January 1, 1995, the Company implemented the Rapidforms Inc. 401(k) Plan. Under this plan, the Company matches 50% of employee contributions up to 4% of the employee's salary, as defined. The Company contributed $208,191 and $165,856 in 1996 and 1995, respectively, related to this plan. 9. LEASES: - ---------- Subsidiaries lease certain land, building and equipment. These leases are classified as operating leases, and the longest has a remaining term through 2001. Total rental expense under lease agreements for 1996 and 1995 was $462,747 and $416,669, respectively. In addition to the annual rental, the Company is required to pay all real estate taxes, insurance, utilities, etc., relating to these properties and equipment. The future minimum lease payments under operating leases outstanding as of December 31, 1996 (excluding Rapidforms Limited; see Note 12), are as follows: 1997 $310,032 1998 289,056 1999 295,029 2000 285,001 2001 143,173 ----------- $ 1,322,291 =========== -8- 10. COMMITMENTS AND CONTINGENCIES: - ---------------------------------- During 1985, certain officers of the Company purchased a minority interest in the Company. Under a shareholders' agreement, the Company is obligated to purchase from any such officer, upon their termination of employment, the outstanding shares they may own at a price to be determined by the Board of Directors; but, in no case, less than the amount paid by such officer. In addition, the Company and certain of its subsidiaries have adopted incentive stock option plans under which options to acquire common shares may be granted to key employees at fair market value on the date of the grant. The Company or its subsidiaries are obligated to repurchase shares granted under the incentive stock option plans upon the termination or death of the employee. The shareholders' agreement also provides that a shareholder may tender, during a specified period each year, up to the greater of 25% of the shares owned by such shareholder or the greatest number of such shares tendered by such shareholder at any one prior tender for repurchase by the Company at the formula price set forth in the shareholders' agreement. The liability of the Company and its subsidiaries to repurchase shares held by the minority shareholders and shares resulting from the exercise of all outstanding stock options was $3,862,265 at December 31, 1996. The portion relating to the Company's subsidiaries' minority shareholders has been recorded as minority interest in the accompanying balance sheet. During 1995, CSS entered into a loan agreement for $195 million. In connection with this loan agreement, Rapidforms, Inc. and subsidiaries entered into a guaranty agreement with the lender whereby Rapidforms, Inc. and subsidiaries guaranteed and became surety for the unconditional payment and performance to the lender for all obligations of CSS under this loan agreement. The Company is involved in litigation relating to matters arising out of the Company's normal business activities. Management does not expect the outcome of this litigation to have a material adverse effect on the Company's financial condition. 11. RELATED-PARTY TRANSACTIONS: - ------------------------------- The Company has a borrowing agreement with a subsidiary of CSS. The maximum amount available under this agreement is $15 million with repayment due on demand. The maximum borrowings by the Company during 1996 and 1995 under the agreement were $13,323,966 and $10,218,838, respectively. Interest is paid monthly at a rate equal to 175 basis points in excess of the LIBOR rate. Interest expense under the agreement amounted to $747,375 and $547,666 in 1996 and 1995, respectively. As of December 31, 1996 and 1995, $7,501,839 and $9,891,921 was outstanding and accrued interest payable was $45,788 and $55,074, respectively. The Company recorded management fees to CSS of $1,086,000 and $300,000 in 1996 and 1995, respectively. All management fees are included in general and administrative expenses. -9- CSS made a capital contribution to the Company of $445,000 in 1996. 12. SUBSEQUENT EVENT: - --------------------- On January 8,1997, the Company sold the stock of Rapidforms Limited, a U.K. subsidiary, for $4,300,000. The selling price is subject to adjustment based on the audited net asset value of Rapidforms Limited at December 31, 1996. The pre-tax gain from this sale for financial reporting purposes is estimated to be approximately $350,000. b) Pro Forma Financial Information PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS On December 23, 1997, New England Business Service, Inc. (the "Company") acquired all of the outstanding stock of Rapidforms, Inc. ("Rapidforms")for cash consideration of approximately $80,000,000, net of cash acquired. The following pro forma combined condensed financial statements are unaudited and have been prepared to give effect to (i) the acquisition of Rapidforms under the purchase method of accounting, (ii) the arrangements required to finance such acquisition consisting of a loan to the Company of $80,000,000 under its revolving line of credit, and (iii) adjustments based on available information and upon certain assumptions management believes are reasonable under the circumstances, as if this transaction had occurred on September 27, 1997 in the case of the combined condensed balance sheet, or on June 30, 1996 in the case of the pro forma combined condensed statements of income. The pro forma information does not purport to be indicative of the financial position or results of operations that would have been attained had the transaction occurred on the dates indicated, nor to project the Company's results of operations for any future period. The pro forma combined condensed financial statements should be read in conjunction with the separate audited financial statements and notes thereto of the Company included in its Form 10-K for the year ended June 28, 1997 and the audited financial statements and notes thereto of Rapidforms included in this Form 8-K. PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET September 27, 1997 (Unaudited) (In Thousands)
Pro Forma NEBS Rapidforms Adjustments Pro Forma (1) (1) (2)(3) Combined -------- -------- ----------- --------- ASSETS Current Assets Cash and cash equivalents $ 5,494 $ (897) $ 897 $ 5,494 Short term investments 469 2,213 (2,213) 469 Accounts receivable - net 36,997 7,386 44,383 Inventories 12,000 7,378 (1,200) 18,178 Direct mail advertising and prepaid exps 8,700 2,759 1,000 12,459 Deferred income tax benefit 7,900 1,156 544 9,600 -------- -------- -------- -------- Total current assets 71,560 19,995 (972) 90,583 Property and Equipment - net 32,351 14,338 (2,000) 44,689 Property Held for Sale 631 631 Excess of Purchase Price over Net Asset Value 29,424 11,449 51,261 92,134 Other Assets - net 9,073 10,332 (10,332) 9,073 -------- -------- -------- -------- TOTAL ASSETS $143,039 $ 56,114 $ 37,957 $237,110 ======== ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current portion of long-term debt $ 100 $ 100 Accounts payable $ 13,698 2,879 $ 250 16,827 Accrued expenses 20,257 4,978 4,206 29,441 -------- -------- -------- -------- Total current liabilities 33,955 7,957 4,456 46,368 Revolving Line of Credit 24,000 80,408 104,408 Deferred Income Taxes 18 2,866 (2,466) 418 Long-term Debt 850 850 Minority Interest 530 (530) STOCKHOLDERS' EQUITY Common stock 14,663 10 (10) 14,663 Additional paid-in capital 27,506 2,792 (2,792) 27,506 Cumulative foreign currency translation adj (1,775) (1,775) Retained earnings 61,255 42,795 (42,795) 61,255 -------- -------- -------- -------- Total 101,649 45,597 (45,597) 101,649 Less: Treasury stock (16,583) (1,686) 1,686 (16,583) -------- -------- -------- -------- Stockholders' Equity 85,066 43,911 (43,911) 85,066 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $143,039 $ 56,114 $ 37,957 $237,110 ======== ======== ========= ========
See Notes to Pro Forma Combined Condensed Financial Statements PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF INCOME For the Year Ended June 28, 1997 (unaudited) (in thousands except per share amounts)
Pro Forma Pro Forma NEBS Chiswick Rapidforms Adjustments Pro Forma (1) (1) (1) (4) Combined -------- -------- --------- --------- --------- NET SALES $263,424 $ 35,766 $ 85,087 $ $384,277 OPERATING EXPENSES: Cost of sales 94,048 20,298 39,732 154,078 Selling and advertising 90,367 10,304 25,793 5,520 131,984 General and administrative 45,949 2,868 11,127 (1,829) 58,115 Exit costs 3,803 3,803 -------- -------- -------- -------- -------- Total operating expenses 234,167 33,470 76,652 3,691 347,980 INCOME FROM OPERATIONS 29,257 2,296 8,435 (3,691) 36,297 OTHER INCOME/(EXPENSE): 2,123 (1,358) 442 (5,979) (4,772) -------- -------- -------- -------- -------- INCOME BEFORE TAXES AND MINORITY INTEREST 31,380 938 8,877 (9,670) 31,525 PROVISION FOR INCOME TAXES 12,731 375 3,289 (3,868) 12,527 -------- -------- -------- -------- -------- INCOME BEFORE MINORITY INTEREST 18,649 563 5,588 (5,802) 18,998 MINORITY INTEREST 89 (89) -------- --------- -------- -------- -------- NET INCOME $ 18,649 $ 563 $ 5,499 $ (5,713) $ 18,998 ======== ======== ======== ======== ======== PER SHARE AMOUNTS: Net Income $ 1.37 1.37 ======== ======== ======== ======== ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 13,643 274 13,917 ======== ======== ======== ======== ========
See Notes to Pro Forma Combined Condensed Financial Statements PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF INCOME For the Three Months Ended September 27, 1997 (unaudited) (in thousands except per share amounts)
Pro Forma NEBS Rapidforms Adjustments Pro Forma (1) (1) (4) --------- -------- --------- --------- NET SALES $ 75,615 $ 18,972 $ $ 94,587 OPERATING EXPENSES: Cost of sales 28,982 8,482 37,464 Selling and advertising 24,894 7,165 1,380 33,439 General and administrative 12,151 2,487 (318) 14,320 -------- -------- -------- -------- Total operating expenses 66,027 18,134 1,062 85,223 INCOME FROM OPERATIONS 9,588 838 (1,062) 9,364 OTHER INCOME/(EXPENSE): 144 70 (1,407) (1,193) -------- -------- -------- -------- INCOME BEFORE TAXES AND MINORITY INTEREST 9,732 908 (2,469) 8,171 PROVISION FOR INCOME TAXES 3,771 352 (988) 3,135 -------- -------- -------- -------- INCOME BEFORE MINORITY INTEREST 5,961 556 (1,481) 5,036 MINORITY INTEREST 19 (19) -------- -------- -------- -------- NET INCOME $ 5,961 $ 537 $ (1,462) $ 5,036 ======== ======== ======== ======== PER SHARE AMOUNTS: Net income $ .42 .36 ======== ======== ======== ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 14,145 14,145 ======== ======== ======== ========
See Notes to Pro Forma Combined Condensed Financial Statements Notes to Pro Forma Combined Condensed Financial Statements 1. On December 23, 1997, New England Business Service, Inc. ("NEBS") acquired from CSS Industries, Inc. all of the outstanding common stock of Rapidforms Inc. ("Rapidforms") for consideration of approximately $80,000,000 in cash. The source of the cash for the purchase price was a loan made to NEBS in the ordinary course of business under a revolving line of credit with BankBoston N.A. and Fleet National Bank, as lenders and agents thereunder, and certain other financial institutions. Rapidforms and its subsidiaries collectively sell standard business forms, stationery, merchandising products and office supplies primarily by direct mail to small businesses throughout the United States. Rapidform's headquarters are located in Thorofare, New Jersey, with subsidiaries located in Bridgeton, New Jersey and Santa Fe Springs, California. The Pro Forma Combined Condensed Balance Sheet has been prepared based on the Company's September 27, 1997 unaudited consolidated balance sheet and Rapidform's unaudited balance sheet as of September 31, 1997. The Pro Forma Combined Consolidated Statements of Income include the Company's historical results for the applicable periods as previously reported, including the pro-forma impact of the acquisition of all of the assets and certain liabilities of Chiswick Trading, Inc. on March 31, 1997 and Rapidform's results for the same periods, derived from management's internal financial statements. 2. The pro forma adjustments to the Combined Condensed Balance Sheets are set forth below: a.) Cash and short-term investment balances of Rapidforms have been eliminated as they were not part of the acquisition. b.) The gross purchase price of $80,408,000 was funded by the borrowing of $80,408,000 in cash under a five year, committed, unsecured, revolving line of credit. c.) Prepaid, deferred mail costs of $1,000,000 have been estimated and accrued to reflect a consistent accounting treatment with NEBS. d.) The stockholders' equity and minority interest amounts of Rapidforms, Inc. have been eliminated as required under the purchase method of accounting. e.) Historical Rapidforms current and deferred tax balances have been eliminated, as they were not part of the acquisition. Deferred taxes have been created based on asset and liability balances set up in the acquisition accounting that will have different treatment between the books and tax. f.) Estimated transaction costs of $250,000 have been accrued and added to the excess of purchase price over the net value of assets acquired. g.) Fixed assets have been adjusted to reflect estimated fair market values, resulting in a $2,000,000 reduction of the historical amounts acquired. h.) Historical inventory amounts have been adjusted to reflect estimated reserves for obsolesence resulting in a reduction of $1,200,000. 3. For purposes of these pro forma financial statements, the excess of the purchase price over the net value of acquired assets has been shown as a single item on the pro forma combined condensed balance sheet. The final allocation of the excess of purchase price over net assets acquired is subject to appraisals, evaluations and other studies of the fair value of Rapidform's assets and liabilities. The pro forma combined condensed balance sheet ascribes value to Rapidform's customer lists, their tradename and goodwill, with amortization periods for such intangibles ranging between 2 and 40 years. 4. The pro forma adjustments to the Combined Consolidated Statements of Income for the year ended June 27, 1997 and the three months ended September 27, 1997 are set forth below by line item: a) Selling and advertising - to record estimated amortization expense of the customer list intangible asset. b) General and administrative - to record estimated amortization expense of acquisition related goodwill (fiscal year 1997 - $944,000, three months ended 9/27/97 - $236,000,), to eliminate management fees recorded to Rapidform's parent company (fiscal year 1997 $1,431,000, three months ended 9/27/97 - $265,000,), to eliminate amortization of intangible assets recorded by Rapidforms during the respective period (fiscal year 1997 - $1,342,000, three months ended 9/27/97 - $289,000). c) Other Income/(Expense) - to record interest expense at 7.00% on new borrowings based on anticipated balances outstanding and to eliminate a gain ($350,000) on the sale of a subsidiary by Rapidforms to NEBS recorded during January, 1997. d) Provision for Income Taxes - to record income taxes at the effective marginal rate. e) Minority Interest - to eliminate minority interest. SIGNATURES 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) January 7, 1998 /s/John F. Fairbanks - ----------------- -------------------- Date John F. Fairbanks Vice-President-Chief Financial Officer (Principal Financial and Accounting Officer 3 EX-2.1 2 =============================================================================== STOCK PURCHASE AGREEMENT BETWEEN NEW ENGLAND BUSINESS SERVICE, INC. AND CSS INDUSTRIES, INC. December 5, 1997 =============================================================================== STOCK PURCHASE AGREEMENT This Agreement is entered into on December 5, 1997, by and among NEW ENGLAND BUSINESS SERVICE, INC., a Delaware corporation (the "Buyer"), and CSS INDUSTRIES, INC., a Delaware corporation (the "Seller"). The Buyer and the Seller are referred to collectively herein as the "Parties." W I T N E S S E T H: -------------------- WHEREAS, the Seller owns all of the outstanding Class A Common Stock of Rapidforms, Inc., a New Jersey corporation ("Rapidforms"); and WHEREAS, this Agreement contemplates a transaction in which the Buyer will purchase from the Seller, and the Seller will sell to the Buyer, all of the outstanding capital stock of Rapidforms in return for cash. AGREEMENT --------- NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows. ARTICLE I DEFINITIONS ----------- For the purposes of this Agreement, the following words and phrases, when used herein, shall have the meanings specified or referred to below: "Adjusted Net Equity" has the meaning set forth in Section 2.05(c) below. "Adverse Consequences" means all actions, suits, proceedings, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and fees, including court costs and reasonable attorneys' fees and expenses, determined after taking into effect all proceeds of insurance; provided that Adverse Consequences shall not include any damages which were not, at the time of the breach, reasonably foreseeable as a probable result of such breach. "Affiliate" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act. "Affiliated Group" means any affiliated group within the meaning of Code Section 1504 or any similar group defined under a similar provision of state, local or foreign law, of which Rapidforms or any of its Subsidiaries is a member. "Andersen" has the meaning set forth in Section 2.05(a) below. "Business Day" means any day on which banking institutions in Boston, Massachusetts are open for the transaction of banking business. "Buyer" has the meaning set forth in the preface above. "Class A Common Stock" means the Class A common stock of Rapidforms, $.01 par value per share. "Class B Common Stock" means the Class B common stock of Rapidforms, $.01 par value per share. "Closing" has the meaning set forth in Section 2.03 below. "Closing Balance Sheet" has the meaning set forth in Section 2.05(a) below. "Closing Date" has the meaning set forth in Section 2.03 below. "Closing Financial Statements" has the meaning set forth in Section 2.05(a) below. "Code" means the Internal Revenue Code of 1986, as amended. "Confidential Information" means any confidential or proprietary information concerning the businesses and affairs of Rapidforms and its Subsidiaries that is not already generally available to the public. "Controlled Group of Corporations" has the meaning set forth in Code Section 1563. "Disclosure Schedule" has the meaning set forth in Section 3.01 below. "Employee Benefit Plan" means any (a) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe benefit plan or program. "Employee Pension Benefit Plan" has the meaning set forth in ERISA Section 3(2). 2 "Employee Welfare Benefit Plan" has the meaning set forth in ERISA Section 3(1). "Encumbrances" has the meaning set forth in Section 3.01(e) below. "Environmental, Health, and Safety Laws" means all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees and rulings thereunder) of federal, state and local governments (and all agencies thereof) concerning pollution or protection of the environment, public health and safety, or employee health and safety. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Extremely Hazardous Substance" has the meaning set forth in Section 302 of the Emergency Planning and Community Right-to-Know Act of 1986, as amended. "Fiduciary" has the meaning set forth in ERISA Section 3(21). "Final Auditor" has the meaning set forth in Section 2.05(a) below. "Final Determination" means Adjusted Net Equity as agreed to by the parties, or as determined by the Final Auditor, in accordance with Section 2.05(a) below. "Financial Statements" has the meaning set forth in Section 4.07 below. "GAAP" means United States generally accepted accounting principles as in effect from time to time. "Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Indemnified Party" has the meaning set forth in Section 8.04 below. "Indemnifying Party" has the meaning set forth in Section 8.04 below. "Initial Purchase Price" has the meaning set forth in Section 2.02 below. "Intellectual Property" means (a) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof, (b) all trademarks, service marks, trade dress, logos, trade names, and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith, (c) all copyrightable works, all 3 copyrights, and all applications, registrations, and renewals in connection therewith, (d) all mask works and all applications, registrations, and renewals in connection therewith, (e) all trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals), (f) all computer software (including data and related documentation), (g) all other proprietary rights, and (h) all copies and tangible embodiments thereof (in whatever form or medium). "July 31, 1997 Balance Sheet" has the meaning set forth in Section 2.05(a). "July 31, 1997 Financial Statements" has the meaning set forth in Section 4.07 below. "Knowledge" means actual knowledge of the person without any implied duty of investigation. "Liability" means any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes. "Material Adverse Effect" means a material adverse effect on the business or financial condition of Rapidforms and its Subsidiaries taken as a whole. "Most Recent Balance Sheet" means the balance sheet contained within the Most Recent Financial Statements. "Most Recent Financial Statements" has the meaning set forth in Section 4.07 below. "Most Recent Fiscal Month End" has the meaning set forth in Section 4.07 below. "Most Recent Fiscal Year End" has the meaning set forth in Section 4.07 below. "Multiemployer Plan" has the meaning set forth in ERISA Section 3(37). "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice. "Party" has the meaning set forth in the preface above. "PBGC" means the Pension Benefit Guaranty Corporation. 4 "Person" means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof). "Prohibited Transaction" has the meaning set forth in ERISA Section 406 and Code Section 4975, but excludes any transaction so described which is exempt from the prohibitions of ERISA pursuant to ERISA Section 408 and the excise taxes of Code Section 4975 pursuant to Code Section 4975. "Purchase Price" means the amount as finally determined pursuant to Section 2.05(b) below. "Rapidforms" has the meaning set forth in the preface above. "Rapidforms Share" means any share of the Class A Common Stock and the Class B Common Stock. "Reportable Event" has the meaning set forth in ERISA Section 4043. "Securities Act" means the Securities Act of 1933, as amended. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. "Security Interest" means any mortgage, pledge, lien, encumbrance, charge, or other security interest, other than (a) mechanic's, materialmen's, and similar liens, (b) liens for Taxes not yet due and payable or for Taxes that the taxpayer is contesting in good faith through appropriate proceedings, (c) purchase money liens and liens securing rental payments under capital lease arrangements, and (d) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. "Seller" has the meaning set forth in the preface above. "Seller's Knowledge" means the Knowledge of any of the following individuals: Jack Farber, James G. Baxter, Clifford E. Pietrafitta, Stephen V. Dubin, Edward D. Muir, Richard T. Riley, Mathias J. Barton, E. Michael Wooten, and Victor Pizzuto. "Subsidiary" means any corporation with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors. "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, 5 environmental (including taxes under Code Section 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "Third Party Claim" has the meaning set forth in Section 8.04 below. "WARN" means the Worker Adjustment and Retraining Notification Act, 29 U.S.C. SectionSection 2101-2109, and related regulations. ARTICLE II PURCHASE AND SALE OF RAPIDFORMS SHARES -------------------------------------- 2.01 Basic Transaction. On and subject to the terms and conditions of this Agreement, the Buyer agrees to purchase from the Seller, and the Seller agrees to sell to the Buyer, all of the Rapidforms Shares then issued and outstanding on the Closing Date, free and clear of any and all Encumbrances, for the consideration specified below in this Article II. 2.02 Initial Purchase Price. The Buyer agrees to pay to the Seller at the Closing Eighty Million Dollars ($80,000,000.00) (the "Initial Purchase Price") by wire transfer of immediately available funds, as directed by the Seller at least one Business Day prior to Closing. 2.03 The Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Hill & Barlow, a Professional Corporation, in Boston, Massachusetts, commencing at 10:00 a.m. local time on December 23, 1997 or the Business Day following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions contemplated hereby (other than conditions with respect to actions the respective Parties will take at the Closing itself) (the "Closing Date"). The Closing shall be effective as of 12:01 a.m. on the Closing Date unless the Closing is December 31, 1997, in which case the Closing shall be effective as of the close of business on the Closing Date. 2.04 Deliveries at the Closing. At the Closing, (i) the Seller will deliver to the Buyer the various certificates, instruments, and documents referred to in Section 7.01 below, (ii) the Buyer will deliver to the Seller the various certificates, instruments, and documents referred to in Section 7.02 below, (iii) the Seller will deliver to the Buyer 6 stock certificates representing all the Rapidforms Shares issued and outstanding on the Closing Date, endorsed in blank or accompanied by duly executed assignment documents, and (iv) the Buyer will deliver to the Seller the consideration specified in Section 2.02 above. 2.05 Adjustments to Initial Purchase Price. (a) Following the Closing Date, the Seller and the Buyer shall jointly engage Arthur Andersen LLP ("Andersen"), but at the Seller's expense, to perform an audit of Rapidforms' consolidated financial statements for the period ended on the Closing Date (the "Closing Financial Statements"). In order to complete such audit, Buyer, Rapidforms and its Subsidiaries shall provide full cooperation to Seller and Andersen, including, without limitation, making available and providing reasonable access to the premises, books and records and employees of Rapidforms and its Subsidiaries, and executing customary accountant representation letters. Following the completion of such audit, which Seller and Andersen shall use their respective commercially reasonable efforts to complete within 45 calendar days after the Closing Date, the Seller shall deliver to the Buyer a true and complete copy of such Closing Financial Statements, including a balance sheet (the "Closing Balance Sheet") prepared in accordance with GAAP (excluding footnote requirements) reflecting consistent methodology and practices regarding the establishment of balance sheet reserves and liabilities and in a manner consistent with the July 31, 1997 balance sheet of Rapidforms (included on Exhibit A hereto) (the "July 31, 1997 Balance Sheet"), together with a schedule computing Rapidforms' Adjusted Net Equity (as defined below) based upon the Closing Balance Sheet. It is understood that in the preparation of the Closing Balance Sheet, the Seller may adjust reserves and accruals included in the July 31, 1997 Balance Sheet in conformity with GAAP and Rapidforms' historic methodology. The Seller shall permit the Buyer to review all work papers and computations used by Andersen in auditing such Closing Financial Statements. Within fifteen (15) calendar days following the date of delivery of such Closing Financial Statements to the Buyer, the Buyer shall either accept the Closing Balance Sheet and Rapidforms' Adjusted Net Equity based thereon or propose adjustments thereto. In the event the Buyer and the Seller fail to agree on all of the Buyer's proposed adjustments within ten (10) calendar days following the date of delivery by the Buyer of notice of such proposed adjustments, the parties shall request Price Waterhouse LLP or, in the event that such firm is unavailable to accept this assignment, such other recognized firm of auditors as the parties mutually agree (the "Final Auditor") to prepare and deliver to the Buyer and the Seller (i) a final Closing Balance Sheet in accordance with the terms hereof, adjusting only items in dispute between the Buyer and the Seller, and (ii) a final determination of the Adjusted Net Equity of Rapidforms on the Closing Date as reflected in such final Closing Balance Sheet (the "Final Determination"), which Final Determination 7 shall be binding upon the Buyer and the Seller. The services of the Final Auditor shall be paid for equally by the Buyer and the Seller. (b) Upon a Final Determination, the Initial Purchase Price shall thereupon be reduced or increased dollar for dollar to the extent that the sum of the Adjusted Net Equity of Rapidforms on the Closing Date as so finally determined plus $919,519 is less or more than Rapidforms' Adjusted Net Equity on July 31, 1997. Within five (5) Business Days after the Final Determination is made: (i) to the extent that Rapidforms' Adjusted Net Equity on the Closing Date plus $919,519 is less than Rapidforms' Adjusted Net Equity on July 31, 1997, the Seller shall remit to the Buyer the amount of such deficiency; or (ii) to the extent that Rapidforms' Adjusted Net Equity on the Closing Date plus $919,519 is more than Rapidforms' Adjusted Net Equity on July 31, 1997, the Buyer shall remit to the Seller the amount of such excess. Any such payment shall be made by wire transfer in immediately available funds to a bank account designated in writing by the Buyer or the Seller, as the case may be. If the Final Determination has not been made on or before March 15, 1998, Buyer shall pay Seller $919,519 for payment of income Taxes, and the amount of any remittance under clauses (i) and (ii) of this Section 2.05(b) shall be the amount by which Rapidforms' Adjusted Net Equity on the Closing Date is more or less than its Adjusted Net Equity on July 31, 1997. (c) For purposes of this Section 2.05, "Adjusted Net Equity" shall mean the sum of (i) total shareholders' investment, (ii) payables to Affiliates (including income taxes payable and deferred tax liabilities) and (iii) minority interest , less the sum of (i) receivables from Affiliates (including income tax assets and deferred tax assets) and (ii) the original cost of goodwill and other intangibles, where all such terms refer to amounts categorized and determined consistently with Rapidforms' July 31, 1997 Balance Sheet (included as Exhibit A hereto). 2.06 Intercompany Obligations. Upon consummation of the Closing, all payables to Affiliates and receivables from Affiliates, including without limitation with respect to income tax obligations, of or to Rapidforms, to or for the benefit of Seller and its Affiliates other than Rapidforms and its Subsidiaries, shall be cancelled and of no further force and effect, except (i) workers compensation liabilities to Seller, (ii) liabilities incurred by Seller from third parties for services provided directly to and for the benefit of Rapidforms and its Subsidiaries prior to the Closing in the Ordinary Course of Business and (iii) as otherwise set forth in this Agreement. Rapidforms and its Subsidiaries are not obligated to continue any such services referred to in clause (ii) above, and shall not be liable for any fees or penalties assessed in connection with the termination of such services. 8 ARTICLE III REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION --------------------------------------------------------- 3.01 Representations and Warranties of the Seller. The Seller represents and warrants to the Buyer that the statements contained in this Section 3.01 are correct as of the date of this Agreement and will be correct in all material respects as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 3.01), except as set forth in the disclosure schedule delivered by the Seller to the Buyer on the date hereof (the "Disclosure Schedule"). The Disclosure Schedule shall be arranged in sections corresponding to the lettered and numbered sections in this Agreement which require the disclosure. Any matter disclosed in one section of the Disclosure Schedule may be cross-referenced in other sections of the Disclosure Schedule, and shall be deemed disclosed for all purposes of the Disclosure Schedule to the extent this Agreement requires such disclosure and to the extent the relevance and significance of such disclosure is evident from such disclosure or cross-reference. (a) Organization. The Seller is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. (b) Authorization of Transaction. The Seller has full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Seller, enforceable in accordance with its terms and conditions. The Seller need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement, other than under the Hart-Scott-Rodino Act. (c) Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Seller is subject, or any provision of its charter or bylaws, or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Seller is a party or by which it is bound or to which any of its assets is subject. (d) Brokers' Fees. The Seller has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Buyer could become liable or obligated. 9 (e) Rapidforms Shares. Each Person holds of record (and, to the Seller's Knowledge, owns beneficially) the number of Rapidforms Shares set forth next to its name in Section 4.02 of the Disclosure Schedule. The Rapidforms Shares owned by the Seller are owned, and to the Seller's Knowledge, the Rapidforms Shares owned by the other holders are owned, free and clear of any restrictions on transfer (other than any restrictions under the Securities Act and state securities laws), Taxes, Security Interests, options, warrants, purchase rights, contracts, commitments, equities, claims, demands or other encumbrances, other than encumbrances with respect to Taxes not yet due and payable ("Encumbrances"). No such Person is a party to any voting trust, proxy, or other agreement or understanding with respect to the voting of any capital stock of Rapidforms. 3.02 Representations and Warranties of the Buyer. The Buyer represents and warrants to the Seller that the statements contained in this Section 3.02 are correct as of the date of this Agreement and will be correct in all material respects as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 3.02). (a) Organization of the Buyer. The Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. (b) Authorization of Transaction. The Buyer has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Buyer, enforceable in accordance with its terms and conditions. The Buyer need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement, other than under the Hart-Scott-Rodino Act. (c) Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Buyer is subject or any provision of its charter or bylaws or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Buyer is a party or by which it is bound or to which any of its assets is subject. 10 (d) Brokers' Fees. The Buyer has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Seller could become liable or obligated. (e) Investment. The Buyer is acquiring the Rapidforms Shares for investment and is not acquiring the Rapidforms Shares with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act, unless in compliance with applicable securities law. ARTICLE IV REPRESENTATIONS AND WARRANTIES ------------------------------ CONCERNING RAPIDFORMS AND ITS SUBSIDIARIES ------------------------------------------ The Seller represents and warrants to the Buyer that the statements contained in this Article IV are correct as of the date of this Agreement and will be correct in all material respects as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Article IV), except as set forth in the Disclosure Schedule (organized and cross-referenced as described in Section 3.01 above). 4.01 Organization, Qualification, and Corporate Power. Each of Rapidforms and its Subsidiaries is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. Each of Rapidforms and its Subsidiaries is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required (except where failure so to qualify would not result in a Material Adverse Effect) and each such jurisdiction is identified in Section 4.01 of the Disclosure Schedule. Each of Rapidforms and its Subsidiaries has full corporate power and authority and all material licenses, permits, and authorizations necessary to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. Section 4.01 of the Disclosure Schedule lists the directors and officers of each of Rapidforms and its Subsidiaries. The Seller has delivered to the Buyer correct and complete copies of the charter and bylaws of each of Rapidforms and its Subsidiaries (as amended to date). The minute books (containing the records of meetings of the stockholders, the board of directors, and any committees of the board of directors), the stock certificate books, and the stock record books of each of Rapidforms and its Subsidiaries are correct and complete in all material respects. None of Rapidforms and its Subsidiaries is, in any material respect, in default under or in violation of any provision of its charter or bylaws. 4.02 Capitalization. The entire authorized capital stock of Rapidforms consists of 4,000,000 Rapidforms shares, 1,000,000 of which are preferred and 3,000,000 of which are common. On the date hereof, 818,500 shares of Class A Common Stock and 72,625 shares of Class B Common Stock are issued and outstanding and 109,750 11 Rapidforms Shares are held in treasury, and 818,500 shares of Class A Common Stock and no shares of Class B Common Stock will be issued and outstanding and 182,375 shares will be held in treasury as of the Closing Date. All of the issued and outstanding Rapidforms Shares have been duly authorized, are validly issued, fully paid, and nonassessable, and are held of record by the respective stockholders as set forth in Section 4.02 of the Disclosure Schedule. As of the Closing Date, there shall be no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require Rapidforms or any of its Subsidiaries to issue, sell, or otherwise cause to become outstanding any of its capital stock. As of the Closing Date, there shall be no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to Rapidforms or its Subsidiaries. 4.03 Noncontravention. Neither the execution and the delivery of this Agreement, nor, upon and subject to compliance with the Hart-Scott-Rodino Act, the consummation of the transactions contemplated hereby, will (a) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which any of Rapidforms and its Subsidiaries is subject or any provision of the charter or bylaws of any of Rapidforms and its Subsidiaries or (b) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any material agreement, contract, lease, license, instrument, or other arrangement to which any of Rapidforms and its Subsidiaries is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of its assets). None of Rapidforms and its Subsidiaries needs to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement, other than under the Hart-Scott-Rodino Act. 4.04 Brokers' Fees. None of Rapidforms and its Subsidiaries has any Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. 4.05 Title to Assets. Rapidforms and its Subsidiaries have good and marketable title to, or a valid leasehold interest in, the properties and assets reflected on the Most Recent Balance Sheet (including such items as have been fully expensed) or acquired after the date thereof (other than real property, which is covered in Section 4.12), free and clear of all Security Interests, except for properties and assets disposed of in the Ordinary Course of Business since the date of the Most Recent Balance Sheet. 4.06 Subsidiaries. Section 4.06 of the Disclosure Schedule sets forth for each Subsidiary of Rapidforms (i) its name and jurisdiction of incorporation, (ii) the number of shares of authorized capital stock of each class of its capital stock, (iii) as of the date 12 hereof, the number of issued and outstanding shares of each class of its capital stock, the names of the holders thereof, and the number of shares held by each such holder, and (iv) as of the date hereof, the number of shares of its capital stock held in treasury. All of the issued and outstanding shares of capital stock of each Subsidiary of Rapidforms have been duly authorized and are validly issued, fully paid, and nonassessable. With respect to all shares shown in Section 4.06 of the Disclosure Schedule as owned by Rapidforms or a Subsidiary of Rapidforms, such shares are held of record and owned beneficially by such entity, free and clear of any Encumbrances. As of the Closing Date, there shall be no outstanding or authorized options, warrants, purchase rights, conversion rights, exchange rights, or other contracts or commitments that could require any of Rapidforms and its Subsidiaries to issue, sell, or otherwise cause to become outstanding any of its own capital stock. As of the Closing Date, there shall be no outstanding stock appreciation, phantom stock, profit participation, or similar rights with respect to any Subsidiary of Rapidforms. As of the Closing Date, there shall be no voting trusts, proxies, or other agreements or understandings with respect to the voting of any capital stock of any Subsidiary of Rapidforms. None of Rapidforms and its Subsidiaries controls directly or indirectly or has any direct or indirect equity participation in any corporation, partnership, trust, or other business association which is not a Subsidiary of Rapidforms. 4.07 Financial Statements. The following financial statements have been delivered to the Buyer (collectively the "Financial Statements"): (i) audited consolidated balance sheets and statements of income, shareholders' investment and cash flows as of and for the fiscal year ended December 31, 1996 (the "Most Recent Fiscal Year End") for Rapidforms and its Subsidiaries; (ii) unaudited consolidated and consolidating balance sheets and statements of income, shareholders' investment and cash flows (the "Most Recent Financial Statements") as of and for the nine months ended September 30, 1997 (the "Most Recent Fiscal Month End") for Rapidforms and its Subsidiaries; and (iii) the unaudited consolidated and consolidating balance sheets for the seven months ended July 31, 1997 for Rapidforms and its Subsidiaries (the "July 31, 1997 Financial Statements"). The Financial Statements (including the notes thereto with respect to the Most Recent Fiscal Year End) present fairly, in all material respects, the financial position of Rapidforms and its Subsidiaries as of such dates and the results of operations of Rapidforms and its Subsidiaries for such periods in conformity with GAAP; provided, however, that the Most Recent Financial Statements and the July 31, 1997 Financial Statements are subject to normal year-end adjustments (which will not, as they relate to periods prior to September 30, 1997, be material individually or in the aggregate) and lack footnotes and other presentation items. 4.08 Events Subsequent to Most Recent Fiscal Year End. Since the Most Recent Fiscal Year End, there has not been any Material Adverse Effect. Since that date: (a) none of Rapidforms and its Subsidiaries has sold, leased, transferred, or assigned any of its assets, tangible or intangible, other than (i) in 13 the Ordinary Course of Business, (ii) where any such transaction was with an Affiliate of Rapidforms or its Subsidiaries, for a fair consideration, and (iii) immaterial transactions; (b) none of Rapidforms and its Subsidiaries has entered into any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) either involving more than $250,000 or outside the Ordinary Course of Business; (c) no party (including any of Rapidforms and its Subsidiaries) has accelerated, terminated, modified, or cancelled any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) involving more than $250,000 to which any of Rapidforms and its Subsidiaries is a party or by which any of them is bound; (d) none of Rapidforms and its Subsidiaries has imposed any Security Interest upon any of its assets, tangible or intangible; (e) none of Rapidforms and its Subsidiaries has made any capital expenditure (or series of related capital expenditures) either involving more than $500,000 or outside the Ordinary Course of Business; (f) none of Rapidforms and its Subsidiaries has made any capital investment in, any loan to, or any acquisition of the securities or assets of, any other Person (or series of related capital investments, loans, and acquisitions) either involving more than $100,000 or outside the Ordinary Course of Business; (g) none of Rapidforms and its Subsidiaries has issued any note, bond, or other debt security or created, incurred, assumed, or guaranteed any indebtedness for borrowed money or capitalized lease obligation involving more than $100,000 in the aggregate; (h) none of Rapidforms and its Subsidiaries has delayed or postponed the payment of accounts payable and other Liabilities outside the Ordinary Course of Business; (i) none of Rapidforms and its Subsidiaries has cancelled, compromised, waived, or released any right or claim (or series of related rights and claims) either involving more than $100,000 or outside the Ordinary Course of Business; (j) none of Rapidforms and its Subsidiaries has granted any license or sublicense of any rights under or with respect to any Intellectual Property, other than in the Ordinary Course of Business; 14 (k) there has been no change made or authorized in the charter or bylaws of any of Rapidforms and its Subsidiaries; (l) none of Rapidforms and its Subsidiaries has issued, sold, or otherwise disposed of any of its capital stock, or granted any options, warrants, or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any of its capital stock, other than pursuant to options granted prior to the date hereof under the existing stock option plans of Rapidforms or its Subsidiaries, as described in Section 4.24 of the Disclosure Schedule; (m) none of Rapidforms and its Subsidiaries has declared, set aside, or paid any dividend or made any distribution with respect to its capital stock (whether in cash or in kind) or redeemed, purchased, or otherwise acquired any of its capital stock, except for the acquisition of minority interests in Rapidforms and certain of its Subsidiaries; (n) none of Rapidforms and its Subsidiaries has experienced any material damage, destruction, or loss (whether or not covered by insurance) to its property; (o) none of Rapidforms and its Subsidiaries has made any loan to, or entered into any other transaction with, any of its directors, officers, and employees outside the Ordinary Course of Business; (p) none of Rapidforms and its Subsidiaries has entered into any employment contract written or oral, or collective bargaining agreement, which is not terminable by Rapidforms and its Subsidiaries at will and without additional payments by Rapidforms or its Subsidiaries, or modified the terms of any existing such contract or agreement; (q) none of Rapidforms and its Subsidiaries has granted any increase in the base compensation of any of its directors, officers, and employees outside the Ordinary Course of Business; (r) none of Rapidforms and its Subsidiaries has adopted, amended, modified, or terminated any bonus, profit-sharing, incentive, severance, or other plan, contract, or commitment for the benefit of any of its directors, officers, and employees (or taken any such action with respect to any other Employee Benefit Plan); (s) none of Rapidforms and its Subsidiaries has made any other change in employment terms for any of its directors, officers, and employees outside the Ordinary Course of Business; 15 (t) none of Rapidforms and its Subsidiaries has made or pledged to make any charitable or other capital contribution outside the Ordinary Course of Business; (u) to the Seller's Knowledge, except as expressly contemplated by this Agreement or the Disclosure Schedule, there has not been any other material occurrence, event, incident, action, failure to act or transaction, outside the Ordinary Course of Business, involving any of Rapidforms and its Subsidiaries; and (v) none of Rapidforms and its Subsidiaries has committed to any of the foregoing. 4.09 Undisclosed Liabilities. To Seller's Knowledge, none of Rapidforms and its Subsidiaries has any material Liability except for (i) Liabilities set forth on the face of the Most Recent Balance Sheet, (ii) Liabilities which have arisen after the Most Recent Fiscal Month End in the Ordinary Course of Business and (iii) Liabilities otherwise disclosed in this Agreement or the Disclosure Schedule. 4.10 Legal Compliance. Each of Rapidforms and its Subsidiaries has complied in all material respects with all applicable laws currently in effect (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof), and neither the Seller nor Rapidforms or any of its Subsidiaries has received notice that any action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against any of them alleging any failure so to comply. 4.11 Tax Matters. (a) Each of Rapidforms and its Subsidiaries has filed all Tax Returns that it was required to file. All such Tax Returns were correct and complete in all material respects. All Taxes owed by any of Rapidforms and its Subsidiaries (whether or not shown on any Tax Return) have been paid or accrued. None of Rapidforms and its Subsidiaries currently is the beneficiary of any extension of time within which to file any Tax Return. No claim has ever been made by an authority in a jurisdiction where any of Rapidforms and its Subsidiaries does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. There are no Security Interests on any of the assets of any of Rapidforms and its Subsidiaries that arose in connection with any failure (or alleged failure) to pay any Tax. (b) Each of Rapidforms and its Subsidiaries has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid 16 or owing to any employee, independent contractor, creditor, stockholder, or other third party. (c) There is no dispute or claim concerning any Tax liability of any of Rapidforms or its Subsidiaries either (i) claimed or raised by any authority in writing or (ii) otherwise to Seller's Knowledge. Section 4.11 of the Disclosure Schedule lists all federal, state, local, and foreign income Tax Returns filed with respect to any of Rapidforms and its Subsidiaries for taxable periods ended on or after December 31, 1992, indicates those Tax Returns that have been audited, and indicates those Tax Returns that currently are the subject of audit. The Seller has delivered to the Buyer correct and complete copies of the relevant portions of all federal income Tax Returns of the Seller for taxable periods ended after December 31, 1992, examination reports, and statements of deficiencies assessed against or agreed to by any of Rapidforms and its Subsidiaries since December 31, 1992. (d) None of Rapidforms or its Subsidiaries has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency, nor has any Affiliated Group waived any such statute of limitations or agreed to any such extension of time in respect of income Taxes for any taxable period during which any of Rapidforms or its Subsidiaries was a member of the Affiliated Group. (e) None of Rapidforms and its Subsidiaries has filed a consent under Code Section 341(f) concerning collapsible corporations. None of Rapidforms and its Subsidiaries has made any payments, is obligated to make any payments, or is a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Code Section 280G. None of Rapidforms and its Subsidiaries has been a United States real property holding corporation within the meaning of Code Section 897(c)(2) during the applicable period specified in Code Section 897(c)(1)(A)(ii). (f) Each of Rapidforms and its Subsidiaries has disclosed on its federal income Tax Returns all positions taken therein that are reasonably likely to give rise to a substantial understatement of federal income Tax within the meaning of Code Section 6662. None of Rapidforms and its Subsidiaries is a party to any written Tax allocation or sharing agreement which will not be terminated prior to the Closing. Neither Rapidforms nor any of its Subsidiaries (A) has been a member of an Affiliated Group filing a consolidated federal income Tax Return other than a group the common parent of which is the Seller, or (B) has any Liability for the Taxes of any Person (other than any of Rapidforms and its Subsidiaries) under Treas. Reg. Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise. 17 (g) The unpaid Taxes of Rapidforms and its Subsidiaries as a whole (A) did not, as of the Most Recent Fiscal Month End, exceed the reserves for Tax liabilities as a whole (including reserves for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the Most Recent Balance Sheet and (B) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of Rapidforms and its Subsidiaries in filing their Tax Returns. 4.12 Real Property. (a) Section 4.12(a) of the Disclosure Schedule lists and describes briefly all real property that any of Rapidforms and its Subsidiaries owns. With respect to each such parcel of owned real property: (i) the identified owner has good and marketable title to the parcel of real property, free and clear of any Security Interest, easement, covenant, or other restriction, subject to installments of special assessments not yet delinquent and recorded easements, covenants, and other restrictions (recorded or unrecorded) which do not impair the current use, occupancy, or value of the property subject thereto; (ii) there are no pending or, to the Seller's Knowledge, threatened condemnation proceedings, lawsuits, or administrative actions relating to the property or other matters affecting materially and adversely the current use, occupancy, or the value thereof; (iii) the legal description for the parcel contained in the deed thereof describes such parcel fully and adequately, the buildings and improvements are located within the boundary lines of the described parcels of land, are not in violation of applicable setback requirements, zoning laws, and ordinances (and none of the properties or buildings or improvements thereon are subject to "permitted non-conforming use" or "permitted non-conforming structure" classifications), and do not encroach on any easement which may burden the land, and the land does not serve any adjoining property for any purpose inconsistent with the use of the land, and the property is not located within any flood plain or subject to any similar type restriction for which any permits or licenses necessary to the use thereof have not been obtained; (iv) all facilities have been operated and maintained in all material respects in accordance with applicable laws, rules, and regulations and, to the Seller's Knowledge, Rapidforms and its Subsidiaries have received all approvals of governmental authorities (including licenses and permits) required in connection with the ownership or operation thereof; 18 (v) to the Seller's Knowledge, there are no material leases, subleases, licenses, or other agreements, written or oral, granting to any party or parties (other than Rapidforms and its Subsidiaries) the right of use or occupancy of any portion of the parcel of real property; (vi) there are no outstanding options or rights of first refusal to purchase the parcel of real property, or any portion thereof or interest therein; (vii) there are no parties (other than Rapidforms and its Subsidiaries) in possession of any parcel of real property, other than tenants under any leases disclosed in Section 4.12(a) of the Disclosure Schedule who are in possession of space to which they are entitled; and (viii) all facilities located on each parcel of real property are supplied with utilities and other services necessary for the operation of such facilities, including gas, electricity, water, telephone, sanitary sewer, and storm sewer, all of which services are provided via public roads or via permanent, irrevocable, appurtenant easements benefiting such parcel of real property. (b) Section 4.12(b) of the Disclosure Schedule lists and describes briefly all real property leased or subleased to any of Rapidforms and its Subsidiaries. The Seller has delivered to the Buyer correct and complete copies of the leases and subleases listed in Section 4.12(b) of the Disclosure Schedule (as amended to date). With respect to each lease and sublease listed in Section 4.12(b) of the Disclosure Schedule: (i) the lease or sublease is legal, valid and binding against Rapidforms and its Subsidiaries, and, to Seller's Knowledge, against any third parties thereto, and is in full force and effect; (ii) the lease or sublease will continue to be legal, valid and binding against Rapidforms and its Subsidiaries, and, to Seller's Knowledge, against any third parties thereto, and will continue to be in full force and effect on identical terms following the consummation of the transactions contemplated hereby; (iii) neither any of Rapidforms or its Subsidiaries nor, to the Seller's Knowledge, any other party to the lease or sublease is in breach or default, and no event has occurred which, with notice or lapse of time, would constitute a breach or default or permit termination, modification, or acceleration thereunder; 19 (c) Section 4.13(c) of the Disclosure Schedule identifies each domestic and, to Seller's Knowledge after reasonable investigation (which shall not require a country-by-country search), foreign patent, copyright and trademark registration which has been issued to any of Rapidforms and its Subsidiaries with respect to any of its Intellectual Property, identifies each pending patent, copyright or trademark application which any of Rapidforms and its Subsidiaries has made with respect to any of its Intellectual Property, and identifies each license, agreement, or other permission which any of Rapidforms and its Subsidiaries has granted to any third party with respect to any of its Intellectual Property (together with any exceptions). The Seller has delivered to the Buyer a correct and complete list of all such patents, trademark or copyright registrations, applications, licenses, agreements, and permissions (as amended to date) and has made available to the Buyer correct and complete copies of all other written documentation within the Seller's possession or control evidencing ownership and prosecution (if applicable) of each such item. With respect to each item of Intellectual Property required to be identified in Section 4.13(c) of the Disclosure Schedule (including, for this purpose, each foreign patent, copyright and trademark registration not within Seller's Knowledge, but with respect to the pending patent identified in Section 4.13(c) of the Disclosure Schedule, only to Seller's Knowledge) and, as to clauses (ii) and (iii) only, with respect to each material trade name or unregistered trademark currently used by any of Rapidforms and its Subsidiaries in connection with any of its businesses: (i) Rapidforms and its Subsidiaries possess all right, title, and interest in and to the item, free and clear of any Security Interest, license, or other restriction; (ii) the item is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge; and (iii) no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand is pending or, to the Seller's Knowledge, is threatened which challenges the legality, validity, enforceability, use, or ownership of the item. (d) Section 4.13(d) of the Disclosure Schedule identifies each material item of Intellectual Property that any third party owns and that any of Rapidforms and its Subsidiaries currently uses in its business pursuant to license, sublicense, agreement, or permission. The Seller has delivered to the Buyer correct and complete copies of all such licenses, sublicenses, agreements, and permissions (as amended to date). With respect to each item of Intellectual Property required to be identified in Section 4.13(d) of the Disclosure Schedule: (i) the license, sublicense, agreement, or permission covering the item is legal, valid and binding against Rapidforms and its 21 Subsidiaries, and, to Seller's Knowledge, against any third parties thereto, and is in full force and effect; (ii) the license, sublicense, agreement, or permission will continue to be legal, valid and binding against Rapidforms and its Subsidiaries, and, to Seller's Knowledge, against any third parties thereto, and will continue to be in full force and effect on identical terms following the Closing; (iii) neither Rapidforms or its Subsidiaries nor, to Seller's Knowledge, any other party to the license, sublicense, agreement, or permission is, in breach or default, and no event has occurred which with notice or lapse of time would constitute a breach or default or permit termination, modification, or acceleration thereunder; (iv) to Seller's Knowledge, no other party to the license, sublicense, agreement, or permission has repudiated any provision thereof; (v) with respect to each sublicense, to Seller's Knowledge, the representations and warranties set forth in subsections (i) through (iv) above are true and correct with respect to the underlying license; (vi) to Seller's Knowledge, the underlying item of Intellectual Property is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge; (vii) no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand is pending or, to Seller's Knowledge, is threatened which challenges the legality, validity, or enforceability of the underlying item of Intellectual Property; and (viii) none of Rapidforms and its Subsidiaries has granted any sublicense or similar right with respect to the license, sublicense, agreement, or permission. 4.14 Tangible Assets. Rapidforms and its Subsidiaries own or lease all buildings, machinery, equipment, and other tangible assets presently used for the conduct of their businesses. To the Seller's Knowledge, each such tangible asset is in reasonably good operating condition and repair (subject to normal wear and tear). 4.15 Inventory. The inventory of Rapidforms and its Subsidiaries consists of raw materials and supplies, manufactured and purchased parts, goods in process, and finished goods reasonably expected to be used in the Ordinary Course of Business, subject only to the reserve for inventory write-down as reflected in the Most Recent 22 Balance Sheet as adjusted for the passage of time through the Closing Date in accordance with GAAP. 4.16 Contracts. Section 4.16 of the Disclosure Schedule lists the following contracts and other agreements to which any of Rapidforms and its Subsidiaries is a party, all as are currently in effect: (a) any agreement (or group of related agreements) for the lease of personal property to or from any Person providing for lease payments in excess of $100,000 per annum; (b) any agreement (or group of related agreements) for the purchase by Rapidforms and its Subsidiaries of raw materials, commodities, supplies, products, or other personal property, or for the furnishing or receipt of services to Rapidforms and its Subsidiaries, the performance of which will extend over a period of more than one year, or involve consideration in excess of $250,000, and any sales contract for the products sold by Rapidforms and its Subsidiaries that management reasonably believes will involve sales in 1997 of greater than $500,000; (c) any partnership or joint venture agreement in which Rapidforms or any of its Subsidiaries is a partner or joint venturer; (d) any agreement (or group of related agreements) under which it has created, incurred, assumed, or guaranteed any indebtedness for borrowed money in excess of $100,000 or under which it has imposed a Security Interest on any of its assets, tangible or intangible; (e) any agreement restricting the ability of Rapidforms and its Subsidiaries to compete in any business or line of business; (f) any agreement with the Seller or any of its Affiliates (other than Rapidforms and its Subsidiaries), except agreements in respect of minority interests in Rapidforms or its Subsidiaries that will be terminated at or before the Closing; (g) any profit sharing, stock option, stock purchase, stock appreciation, deferred compensation, severance, bonus or other plan or arrangement for the benefit of its current or former directors, officers, and employees, except agreements in respect of minority interests in Rapidforms or its Subsidiaries that will be terminated at or before the Closing; (h) any collective bargaining agreement; 23 (i) any written agreement or to the Seller's Knowledge, any other agreement for the employment of any individual on a full-time, part-time, consulting, or other basis providing annual compensation in excess of $50,000 or providing severance benefits, in each case, which are not terminable or amendable by Rapidforms or its Subsidiaries at will without further payments by Rapidforms or its Subsidiaries; (j) any agreement under which it has advanced or loaned any amount to any of its directors, officers, and employees outside the Ordinary Course of Business; (k) any agreement under which the consequences of a default or termination would reasonably be expected to have a Material Adverse Effect; (l) all contracts to which the Seller or its Affiliate (other than Rapidforms or its Subsidiaries) is a party and which provide a material benefit to Rapidforms or its Subsidiaries; or (m) any other agreement that is not of a type listed above, the performance of which involves consideration in excess of $250,000 per year. The Seller has delivered to the Buyer a correct and complete copy of each written agreement listed in Section 4.16 of the Disclosure Schedule (as amended to date). With respect to each such agreement: (i) the agreement is legal, valid and binding against Rapidforms and its Subsidiaries and, to Seller's Knowledge, against any third parties thereto, and is in full force and effect; (ii) the agreement will continue to be legal, valid and binding against Rapidforms and its Subsidiaries and, to Seller's Knowledge, against any third parties thereto, and will continue to be in full force and effect on identical terms following the consummation of the transactions contemplated hereby; (iii) neither Seller, Rapidforms or its Subsidiaries nor, to Seller's Knowledge, any other party is in breach or default, and no event has occurred which with notice or lapse of time would constitute a breach or default, or permit termination, modification, or acceleration, under the agreement; and (iv) no party has repudiated any provision of the agreement. 4.17 Notes and Accounts Receivable. All notes and accounts receivable of Rapidforms and its Subsidiaries are reflected properly on their books and records, and are receivables incurred in the Ordinary Course of Business, subject only to the reserves for bad debts and returns and allowances reflected in the Most Recent Balance Sheet as adjusted for the passage of time through the Closing Date in accordance with GAAP. 4.18 Powers of Attorney. There are no outstanding powers of attorney executed on behalf of any of Rapidforms and its Subsidiaries. 24 4.19 Insurance. Section 4.19 of the Disclosure Schedule sets forth the following information with respect to each insurance policy (including policies providing property, casualty, liability, and workers' compensation coverage and bond and surety arrangements) to which any of Rapidforms and its Subsidiaries has been a party, a named insured, or otherwise the beneficiary of coverage since January 1, 1993 (unless a different date is specified): (a) the name, address, and telephone number of the agent since January 1, 1985; (b) the name of the insurer, the name of the policyholder, and the name of each covered insured; (c) the policy number and the period of coverage; (d) the general type of coverage (including an indication of whether the coverage was on a claims made, occurrence, or other basis) and amount (including any deductibles and ceilings) of coverage; and (e) a description of any retroactive premium adjustments or other loss-sharing arrangements. With respect to each such insurance policy: (i) the policy is legal, valid and binding in favor of Rapidforms and its Subsidiaries and, to Seller's Knowledge, against any third parties thereto, and is in full force and effect; (ii) the policy will continue to be legal, valid and binding against Rapidforms and its Subsidiaries and, to Seller's Knowledge, against any third parties thereto, will continue to be in full force and effect on identical terms following the consummation of the transactions contemplated hereby, and will provide coverage to Rapidforms and its Subsidiaries following the Closing Date for claims relating to the period prior to the Closing Date (subject, however, to the terms and conditions contained in such policies); (iii) neither any of the Seller, Rapidforms and its Subsidiaries nor, to Seller's Knowledge, any other party to the policy is in breach or default (including with respect to the payment of premiums or the giving of notices), and no event has occurred which, with notice or the lapse of time, would constitute such a breach or default, or permit termination, modification, or acceleration, under the policy; and (iv) neither any of the Seller, Rapidforms or its Subsidiaries nor, to the Seller's Knowledge, any other party to the policy has repudiated any provision thereof. Section 4.19 of the Disclosure Schedule describes any self-insurance arrangements affecting any of Rapidforms and its Subsidiaries. 4.20 Litigation. Section 4.20 of the Disclosure Schedule sets forth each instance in which any of Rapidforms and its Subsidiaries (a) is currently subject to any outstanding injunction, judgment, order, decree, ruling, or charge or (b) is a party or, to Seller's Knowledge, is threatened to be made a party to any action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi-judicial or administrative 25 agency of any federal, state, local, or foreign jurisdiction or before any arbitrator. None of the actions, suits, proceedings, hearings, and investigations set forth in Section 4.20 of the Disclosure Schedule would reasonably be expected to result in a Material Adverse Effect. 4.21 Product Warranty. To Seller's Knowledge, each product manufactured, sold, leased, or delivered by any of Rapidforms and its Subsidiaries has been in conformity with all applicable contractual commitments and all express and implied warranties, and none of Rapidforms and its Subsidiaries has any Liability for replacement or repair thereof or other damages in connection therewith, subject only to any applicable reserve reflected in the Most Recent Balance Sheet as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of Rapidforms and its Subsidiaries. Copies of the standard terms and conditions of sale for each of Rapidforms and its Subsidiaries (containing applicable guaranty, warranty, and indemnity provisions for each of Rapidforms and its Subsidiaries) have been made available to Buyer. 4.22 Product Liability. To the Seller's Knowledge, none of Rapidforms and its Subsidiaries has any Liability arising out of any injury to individuals or property as a result of the ownership, possession, or use of any product manufactured, sold, leased, or delivered by any of Rapidforms and its Subsidiaries prior to the Closing Date. 4.23 Employees. To the Seller's Knowledge, no executive, key employee, or group of employees has any plans to terminate employment with any of Rapidforms and its Subsidiaries. Section 4.23 of the Disclosure Schedule sets forth any severance, bonus or other special arrangements between the Seller or Rapidforms and any of Rapidforms' employees which may create payment or employment obligations on the part of Rapidforms or the Buyer after the Closing Date. None of Rapidforms and its Subsidiaries is a party to or bound by any collective bargaining agreement, nor has any of them experienced any strikes, material grievances as to which a written record exists, written claims of unfair labor practices, or other collective bargaining disputes that, to Seller's Knowledge, have not been resolved. To Seller's Knowledge, no organizational effort is presently being made or threatened by or on behalf of any labor union with respect to employees of any of Rapidforms and its Subsidiaries. 4.24 Employee Benefits. (a) Section 4.24 of the Disclosure Schedule lists each Employee Benefit Plan that any of Rapidforms and its Subsidiaries maintains or to which any of Rapidforms and its Subsidiaries contributes. (i) Each such Employee Benefit Plan (and each related trust, insurance contract, or fund) complies in form and in operation in all material respects with the applicable requirements of ERISA, the Code, and other applicable laws (it being understood for purposes of determining 26 liability under Section 8.02 that any failure to so comply which results in monetary exposure shall be deemed to be material). (ii) All required reports and descriptions (including Form 5500 Annual Reports, Summary Annual Reports, and Summary Plan Descriptions) have been filed or distributed appropriately with respect to each such Employee Benefit Plan. The requirements of Part 6 of Subtitle B of Title 1 of ERISA and of Code Section 4980B have been met with respect to each such Employee Benefit Plan which is an Employee Welfare Benefit Plan. (iii) All contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each such Employee Benefit Plan which is an Employee Pension Benefit Plan and all contributions for any period ending on or before the Closing Date which are not yet due have been paid to each such Employee Pension Benefit Plan or accrued in accordance with the past custom and practice of Rapidforms and its Subsidiaries. All premiums or other payments for all periods ending on or before the Closing Date have been paid with respect to each such Employee Benefit Plan which is an Employee Welfare Benefit Plan. (iv) Each such Employee Benefit Plan which is an Employee Pension Benefit Plan meets the requirements of a "qualified plan" under Code Section 401(a). (v) The Seller has delivered to the Buyer correct and complete copies of the plan documents and summary plan descriptions, the most recent determination letter received from the Internal Revenue Service, the most recent Form 5500 Annual Report, and all related trust agreements, insurance contracts, and other funding agreements which implement each such Employee Benefit Plan. (b) With respect to each Employee Benefit Plan that any of Rapidforms, its Subsidiaries, and the Controlled Group of Corporations which includes Rapidforms and its Subsidiaries maintains or ever has maintained or to which any of them contributes, ever has contributed, or ever has been required to contribute: (i) There have been no Prohibited Transactions with respect to any such Employee Benefit Plan. No Fiduciary has any Liability for breach of fiduciary duty or any other failure to act or comply in connection with the administration or investment of the assets of any such 27 Employee Benefit Plan. No action, suit, proceeding, hearing, or investigation with respect to the administration or the investment of the assets of any such Employee Benefit Plan (other than routine claims for benefits) is pending or, to the Seller's Knowledge, threatened. To the Seller's Knowledge, there is no basis for any such action, suit, proceeding, hearing, or investigation. (ii) None of Rapidforms and its Subsidiaries sponsors, maintains or contributes to, or has ever sponsored, maintained or contributed to, or had any liability with respect to, any employee benefit plan subject to Section 302 of ERISA, Section 412 of the Code or Title IV of ERISA. (c) None of Rapidforms, its Subsidiaries, and the other members of the Controlled Group of Corporations that includes Rapidforms and its Subsidiaries (i) contributes to, (ii) since January 1, 1986 has contributed to, or (iii) to Seller's Knowledge, ever has contributed to or ever has been required to contribute to, any Multiemployer Plan or has any Liability (including withdrawal Liability) under any Multiemployer Plan. (d) None of Rapidforms and its Subsidiaries maintains or ever has maintained or contributes, ever has contributed, or ever has been required to contribute to any Employee Welfare Benefit Plan providing medical, health, or life insurance or other welfare-type benefits for current or future retired or terminated employees, their spouses, or their dependents (other than in accordance with Code Section 4980B). 4.25 Guaranties. None of Rapidforms and its Subsidiaries is a guarantor or otherwise is liable for any Liability or obligation (including indebtedness) of any other Person, other than of Rapidforms and its Subsidiaries. 4.26 Environment, Health, and Safety. (a) Each of Rapidforms, its Subsidiaries, and their respective predecessors and Affiliates has complied in all material respects with all applicable Environmental, Health, and Safety Laws, and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against any of them alleging any failure so to comply. Without limiting the generality of the preceding sentence, each of Rapidforms, its Subsidiaries, and their respective predecessors and Affiliates has obtained and been in compliance in all material respects with all of the terms and conditions of all permits, licenses, and other authorizations which, to Seller's Knowledge, are required under, and has complied in all material respects with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, and timetables which are contained in, all applicable Environmental, Health, and Safety Laws. 28 (b) None of Rapidforms and its Subsidiaries has any Liability for damage to any site, location, or body of water (surface or subsurface), for any illness of or personal injury to any employee or other individual, or for any reason under any Environmental, Health, and Safety Law. (c) To Seller's Knowledge, all properties and equipment used in the business of Rapidforms, its Subsidiaries, and their respective predecessors and Affiliates have been free of any asbestos which is friable or otherwise requires removal or notification of any hazard to any person, PCB's, methylene chloride, trichloroethylene, 1,2-trans- dichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous Substances. 4.27 Certain Business Relationships with Rapidforms and Its Subsidiaries. None of the Seller and its Affiliates (except Rapidforms and its Subsidiaries) are involved in any business arrangement or relationship with any of Rapidforms and its Subsidiaries, the continuation of which is material to the business and operations of Rapidforms and its Subsidiaries, and none of the Seller and its Affiliates owns any asset, tangible or intangible, which is used in the business of any of Rapidforms and its Subsidiaries and is material to the business and operations of Rapidforms and its Subsidiaries. 4.28 Disclosure. The representations and warranties contained in this Article IV do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Article IV not materially misleading. ARTICLE V --------- PRE-CLOSING COVENANTS --------------------- The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing. 5.01 General. Each of the Parties will use commercially reasonable efforts to take all action and to do all things necessary, proper, or advisable in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the closing conditions set forth in Article VII below). 5.02 Notices and Consents. The Seller will cause each of Rapidforms and its Subsidiaries to give any required notices to third parties, and will cause each of Rapidforms and its Subsidiaries to use its commercially reasonable efforts to obtain any third party consents, that the Buyer reasonably may request in connection with the matters referred to in Section 4.03 above. Each of the Parties will (and the Seller will cause each of Rapidforms and its Subsidiaries to) give any notices to, make any filings 29 with, and use its commercially reasonable efforts to obtain any authorizations, consents, and approvals of governments and governmental agencies in connection with the matters referred to in Section 3.01(b), Section 3.02(b), and Section 4.03 above. Without limiting the generality of the foregoing, each of the Parties will file (and the Seller will cause each of Rapidforms and its Subsidiaries to file) any Notification and Report Forms and related material that he or it may be required to file with the Federal Trade Commission and the Antitrust Division of the United States Department of Justice under the Hart- Scott-Rodino Act, will use commercially reasonable efforts to obtain (and the Seller will cause each of Rapidforms and its Subsidiaries to use its commercially reasonable efforts to obtain) an early termination of the applicable waiting period, and will make (and the Seller will cause each of Rapidforms and its Subsidiaries to make) any further filings pursuant thereto that may be necessary, proper, or advisable in connection therewith. In addition, and without limiting the generality of this Section 5.02, the Seller will commence, or will cause Rapidforms to commence, to prepare any filings and to take any other actions required under the laws of New Jersey and other local law to obtain any necessary clearances and approvals with respect to the change of control of an entity which owns real property. 5.03 Operation of Business. Without the prior written consent of the Buyer, and except as contemplated by this Agreement or the Disclosure Schedule, the Seller will not cause or permit any of Rapidforms and its Subsidiaries to engage in any practice, take any action, or enter into any transaction outside the Ordinary Course of Business. Without limiting the generality of the foregoing, unless contemplated by this Agreement or the Disclosure Schedule, the Seller will not cause or permit any of Rapidforms and its Subsidiaries to engage in any practice, take any action, or enter into any transaction of the sort described in Section 4.08 above. 5.04 Preservation of Business. The Seller will cause each of Rapidforms and its Subsidiaries to use commercially reasonable efforts to keep its business and properties substantially intact, including its present operations, physical facilities, working conditions, and material relationships with lessors, licensors, suppliers, customers, and employees. 5.05 Full Access. Subject to reasonable prior notice and the confidentiality agreement between the parties, the Seller will permit, and the Seller will cause each of Rapidforms and its Subsidiaries to permit, representatives of the Buyer to have full access at all reasonable times, and in a manner so as not to interfere with the normal business operations of Rapidforms and its Subsidiaries, to all premises, properties, personnel, books, records (including Tax records), contracts, and documents of or pertaining to each of Rapidforms and its Subsidiaries and to make copies, at its expense, of any such books, records, contracts and other documents. 5.06 Notice of Developments. The Seller will give prompt written notice to the Buyer of any material adverse development causing a breach of any of the representations and warranties in Article IV above. Each Party will give prompt written 30 notice to the other of any material adverse development causing a breach of any of its own representations and warranties in Article III above. No disclosure by any Party pursuant to this Section 5.06, however, shall be deemed to amend or supplement the Disclosure Schedule or to prevent or cure any misrepresentation, breach of warranty, or breach of covenant, absent the written agreement of the other Party to do so. 5.07 Exclusivity. The Seller will not (and the Seller will not cause or permit any of Rapidforms and its Subsidiaries to) (i) solicit, initiate, or encourage the submission of any proposal or offer from any Person relating to the acquisition of any capital stock or other voting securities, or any substantial portion of the assets of, any of Rapidforms and its Subsidiaries (including any acquisition structured as a merger, consolidation, or share exchange) or (ii) participate in any discussions or negotiations regarding, furnish any nonpublic information with respect to, or facilitate in any other manner any effort or attempt by any Person to do or seek any of the foregoing. The Seller will not vote its Rapidforms Shares in favor of any such acquisition structured as a merger, consolidation, or share exchange. The Seller will notify the Buyer immediately if any Person makes any bona fide proposal or offer with respect to any of the foregoing. 5.08 Profit-Sharing Plans. Prior to the Closing Date, the Seller shall cause all profit-sharing contributions accruing in respect of the profit- sharing plans of Rapidforms or its Subsidiaries to Persons other than employees of Rapidforms and its Subsidiaries to become the obligations of a party or parties other than Rapidforms or its Subsidiaries, and to take any and all actions necessary to terminate the participation of such Persons in such plans on or prior to the Closing Date, including the distribution to an Affiliate plan of assets allocable to such Persons. In any event, neither the Buyer nor Rapidforms nor any of its Subsidiaries shall be liable for any such accrued contributions. ARTICLE VI ---------- POST-CLOSING COVENANTS ---------------------- The Parties agree as follows with respect to the period following the Closing: 6.01 General. In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments, documents and assignments of contractual rights) as any other Party reasonably may request, all at the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor under Article VIII below). The Seller acknowledges and agrees that from and after the Closing the Buyer will be entitled to possession of all documents, books, records (including Tax records, but providing access and copies to Seller, at Seller's expense, for bona fide business purposes arising from Seller's prior ownership of Rapidforms and its Subsidiaries), agreements, and financial data of any sort relating solely to Rapidforms and its 31 Subsidiaries. The Seller shall provide access and copies to Buyer, at Buyer's expense, for bona fide business purposes arising from Buyer's ownership of Rapidforms and its Subsidiaries, to and of any Tax records in Seller's possession following the Closing. 6.02 Litigation Support. In the event and for so long as any Party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (a) any transaction contemplated under this Agreement or (b) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving any of Rapidforms and its Subsidiaries, each of the other Parties will reasonably cooperate with him or it and its counsel in the contest or defense, make available their personnel, and provide such testimony and reasonable access to their books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor under Article VIII below). 6.03 Transition. The Seller will not take any action that is designed or intended to have the effect of discouraging any lessor, licenser, customer, supplier, or other business associate of any of Rapidforms and its Subsidiaries from maintaining the same business relationships with Rapidforms and its Subsidiaries after the Closing as it maintained with Rapidforms and its Subsidiaries prior to the Closing. 6.04 Confidentiality. For a period of four years from and after the Closing Date, the Seller will treat and hold as such all of the Confidential Information, refrain from using any of the Confidential Information except in connection with this Agreement and except to the extent the same is necessary to the Seller's other businesses, and deliver promptly to the Buyer or destroy, at the request and option of the Buyer, all tangible embodiments (and all copies) of the Confidential Information which are in its possession and which are not required to be retained by the Seller under commercially reasonable legal, financial and tax document retention policies of the Seller. In the event that the Seller is requested or required (by oral question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process) to disclose any Confidential Information, if permitted by applicable law, the Seller will notify the Buyer promptly of the request or requirement so that the Buyer may seek an appropriate protective order or waive compliance with the provisions of this Section 6.04. If, in the absence of a protective order or the receipt of a waiver hereunder, the Seller is compelled to disclose any Confidential Information to any tribunal or any such other Person or entity with the power to issue legal process, or else stand liable for contempt, the Seller may disclose the Confidential Information to the tribunal or any such other Person or entity with the power to issue legal process. 6.05 Covenant Not to Compete. For a period of two years from and after the Closing Date, the Seller shall not, directly or indirectly, alone or jointly with any other 32 person, and whether as a shareholder, partner, agent or in any other capacity, without the prior written consent of the Buyer, carry on any business engaged in the direct mail marketing of stationery, business forms, checks, signage, Christmas cards and related business supplies through catalogues, flyers, or brochures to small businesses (except in the case of Christmas cards, ribbons, bows, tissue, calendars, gift tags and gift wrap, which may be sold to third party direct mail providers) in the United States, other than by holding as a passive investment shares or other securities in a company listed on a stock exchange representing (when aggregated with those held by each person connected with Seller and its Affiliates) less than 5% of the total outstanding shares of such company. If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 6.05 is invalid or unenforceable, the Parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. Notwithstanding the foregoing, this provision shall not prohibit or otherwise restrict (i) the direct or indirect activities of any business or entity that may after the Closing Date acquire a controlling interest in the Seller, or (ii) the operations of any business acquired by the Seller or it Subsidiaries after the Closing Date as long as the sale of business forms by mail is not the principal activity of such acquired business. 6.06 Employment Matters. Following the Closing, the Buyer shall cause Rapidforms and its Subsidiaries to pay all salary, bonuses, severance and profit-sharing contributions accrued for employees of Rapidforms and its Subsidiaries on the Closing Balance Sheet in the Ordinary Course of Business. For a period of eighteen months following the Closing, the Buyer shall cause Rapidforms and its Subsidiaries to pay severance to terminated employees of Rapidforms and its Subsidiaries on the terms and in amounts no less than the amounts set forth on Exhibit D. In addition, certain officers of Rapidforms who currently drive company-owned automobiles shall, following the Closing, receive title to such automobiles without cost and, in connection with such receipt, (1) shall report such receipt as required by any applicable federal and state income tax laws and (2) shall be personally responsible for any state or federal income, excise or other taxes arising from the ownership of such automobile from and after the Closing Date. 33 ARTICLE VII ----------- CONDITIONS TO OBLIGATION TO CLOSE --------------------------------- 7.01 Conditions to Obligation of the Buyer. The obligation of the Buyer to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (a) the representations and warranties set forth in Section 3.01 and Article IV above shall be true and correct in all material respects at and as of the Closing Date, as though made again at and as of such date; (b) the Seller shall have performed and complied with all of its covenants hereunder in all material respects through the Closing, provided that any breach of the covenant contained in Section 5.03 with respect to Section 4.08(g) hereof shall be deemed to be material; (c) Rapidforms and its Subsidiaries shall have procured all of the third party consents specified in Section 5.02 above, Rapidforms and its Subsidiaries shall have been released from any Liability with respect to any guaranties of obligations of the Seller and its Affiliates (other than Rapidforms and its Subsidiaries), and all employees of Rapidforms and its Subsidiaries shall have been released from any obligations to Seller and its Affiliates (other than Rapidforms and its Subsidiaries) in respect of noncompetition covenants; (d) no action, suit, or proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (i) prevent consummation of any of the transactions contemplated by this Agreement, (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, (iii) affect adversely the right of the Buyer to own Rapidforms Shares and to control Rapidforms and its Subsidiaries, or (iv) have a Material Adverse Effect on the right of any of Rapidforms and its Subsidiaries to own its assets and to operate its businesses (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect); (e) the Seller shall have delivered to the Buyer a certificate to the effect that each of the conditions specified above in Section 7.01(a) through (d) is satisfied in all respects, or which shall set forth any exceptions to such conditions, which may be waived by the Buyer; (f) all applicable waiting periods (and any extensions thereof) under the Hart-Scott-Rodino Act shall have expired or otherwise been terminated and the Parties, Rapidforms, and its Subsidiaries shall have received all other 34 authorizations, consents, and approvals of governments and governmental agencies referred to in Sections 3.01(b), 3.02(b) and 4.03 above; (g) the Seller and Rapidforms shall have obtained any and all clearances and approvals required for the transfer and conveyance of real property under all applicable New Jersey and other relevant laws. (h) the Seller shall own all of Rapidforms' Shares, and Rapidforms shall own all shares of its Subsidiaries' stock, which are issued and outstanding, free and clear of all Encumbrances, and all options, warrants, purchase rights, subscription rights, conversion rights, exchange rights or other similar rights to acquire Rapidforms Shares and its Subsidiaries' shares (other than the Buyer's rights under this Agreement) shall have been terminated; (i) the Buyer shall have received from counsel to the Seller an opinion in form and substance as set forth in Exhibit B attached hereto, addressed to the Buyer, and dated as of the Closing Date; (j) the Buyer shall have received the resignations, effective as of the Closing, of the directors and officers of Rapidforms and its Subsidiaries who are specified in writing by the Buyer at least five Business Days prior to the Closing; and (k) all actions to be taken by the Seller in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Buyer. The Closing of the transaction by the Buyer shall be deemed a waiver of any condition specified in this Section 7.01 which has not been satisfied. 7.02 Conditions to Obligation of the Seller. The obligation of the Seller to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (a) the representations and warranties set forth in Section 3.02 above shall be true and correct in all material respects at and as of the Closing Date as though made again at and as of such date; (b) the Buyer shall have performed and complied with all of its covenants hereunder in all material respects through the Closing; (c) no action, suit, or proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local, 35 or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (i) prevent consummation of any of the transactions contemplated by this Agreement or (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect); (d) the Buyer shall have delivered to the Seller a certificate to the effect that each of the conditions specified above in Section 7.02(a) through (c) is satisfied in all respects; (e) all applicable waiting periods (and any extensions thereof) under the Hart-Scott-Rodino Act shall have expired or otherwise been terminated and the Parties, Rapidforms, and its Subsidiaries shall have received all other authorizations, consents, and approvals of governments and governmental agencies referred to in Sections 3.01(b), 3.02(b), and 4.03 above, provided that the Seller shall not be required to guaranty any post-closing obligations of Rapidforms relating to any remediation agreement with the New Jersey Department of Environmental Protection described in Section 8.02(b) below, nor need any accrual in respect of such matter be recorded in the Closing Balance Sheet, and provided further that Seller shall notify Buyer prior to entering into any such remediation agreement; (f) the Seller shall have received from counsel to the Buyer an opinion in form and substance as set forth in Exhibit C attached hereto, addressed to the Seller, and dated as of the Closing Date; and (g) all actions to be taken by the Buyer in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Seller. The Closing of the transaction by the Seller shall be deemed a waiver of any condition specified in this Section 7.02 which has not been satisfied. ARTICLE VIII ------------ REMEDIES FOR BREACHES OF THIS AGREEMENT --------------------------------------- 8.01 Survival of Representations, Warranties and Covenants. All of the representations and warranties of the Seller contained in Sections 4.01 through 4.10 and Sections 4.12 through 4.28 shall survive the Closing hereunder and continue in full force and effect for a period of two years thereafter. All of the covenants contained in this Agreement and the representations and warranties contained in Article III and 37 Section 4.11 of this Agreement shall survive the Closing and continue in full force and effect until the termination of the applicable statutes of limitations. 8.02 Indemnification Provisions for Benefit of the Buyer. (a) In the event the Seller breaches (or in the event any third party alleges facts that, if true, would mean the Seller has breached) any of its representations, warranties, and covenants contained herein, provided that the Buyer makes a written claim for indemnification against the Seller pursuant to Section 11.06 below within the applicable survival period pursuant to Section 8.01 above, then the Seller agrees to indemnify the Buyer from and against the entirety of any Adverse Consequences the Buyer may suffer through and after the date of the claim for indemnification resulting from the breach, provided, however, that the Seller shall not have any obligation to compensate the Buyer in respect of any Adverse Consequences resulting from, arising out of, relating to, in the nature of, or caused by the breach of any representation, warranty or covenant of the Seller, other than the representations and warranties contained in Section 4.11 above with respect to the federal and state income taxes of Rapidforms and its Subsidiaries, and other than intentional breaches of covenants, until the Buyer has suffered Adverse Consequences by reason of all such breaches in excess of a $2,000,000 aggregate deductible (determined, for the purpose of calculating the aggregate deductible amount only, after taking into account income Tax benefits available to the Buyer), at which point the Seller will be obligated to indemnify the Buyer from and against all Adverse Consequences in excess of that amount. (b) With particular reference to the Rapidforms property in Thorofare, New Jersey, the Seller agrees to reimburse the Buyer for one-half of all costs (including reasonable legal and consulting fees and remediation expenses incurred by Rapidforms) arising out of work performed under any remediation agreement between Rapidforms and the New Jersey Department of Environmental Protection which is required pursuant to ISRA in connection with this transaction. The portion of such costs borne by the Buyer or Rapidforms and not reimbursed by the Seller will reduce, dollar for dollar, the $2,000,000 aggregate deductible described in clause (a) above, after taking into account any income Tax benefits available to the Buyer as the result of such costs. (c) The Seller shall indemnify the Buyer, Rapidforms and its Subsidiaries for all Adverse Consequences arising out of any Stock Repurchase Agreement or Option Cancellation Agreement entered into by Rapidforms or any of its Subsidiaries prior to the Closing Date. 8.03 Indemnification Provisions for Benefit of the Seller. In the event the Buyer breaches (or in the event any third party alleges facts that, if true, would mean the Buyer has breached) any of its representations, warranties, and covenants contained herein, provided that the Seller makes a written claim for indemnification against the Buyer pursuant to Section 11.06 below within the applicable survival period pursuant to Section 8.01 above, then the Buyer agrees to indemnify the Seller from and against 37 the entirety of any Adverse Consequences the Seller may suffer through and after the date of the claim for indemnification resulting from the breach. In addition, the Buyer shall indemnify the Seller for any failure by Rapidforms or its Subsidiaries to comply with WARN or any state equivalent as a result of any actions taken by the Buyer, Rapidforms or its Subsidiaries following the Closing. 8.04 Matters Involving Third Parties. (a) If any third party shall notify any Party (the "Indemnified Party") with respect to any matter (a "Third Party Claim") which may give rise to a claim for indemnification against any other Party (the "Indemnifying Party") under this Article VIII, then the Indemnified Party shall promptly notify each Indemnifying Party thereof in writing and shall provide all relevant information and documentation in the Indemnified Party's possession, except as may violate or abrogate the attorney-client privilege (provided, that if the Indemnifying Party assumes such defense, then all relevant information and documentation (including previously privileged information and documentation) shall be provided to counsel undertaking such defense at that time); provided, however, that no delay on the part of the Indemnified Party in notifying any indemnifying Party shall relieve the Indemnifying Party from any obligation hereunder unless (and then solely to the extent) the Indemnifying Party thereby is prejudiced. (b) Any Indemnifying Party will have the right to defend the Indemnified Party against the Third Party Claim with counsel of its choice so long as (i) the Indemnifying Party notifies the Indemnified Party in writing within 30 calendar days after the Indemnified Party has given notice of the Third Party Claim that the Indemnifying Party will indemnify the Indemnified Party from and against any Adverse Consequences covered by the indemnification provisions set forth above that the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim (it being the understanding of the Parties that the Indemnified Party may take such actions as are reasonable in connection with its defense until it receives such notice from the Indemnifying Party), (ii) the Third Party Claim involves only money damages and does not seek an injunction or other equitable relief, and (iii) settlement of, or an adverse judgment with respect to, the Third Party Claim is not, in the good faith judgment of the Indemnified Party, likely to establish a precedential custom or practice materially adverse to the continuing business interests of the Indemnified Party; provided, however, that if the Indemnified Party is covered, in whole or in part, by an insurance policy with respect to any Third Party Claim, then the Indemnifying Party's defense against such Third Party Claim shall be limited or precluded as required by the terms of the applicable insurance policy. (c) So long as the Indemnifying Party is conducting the defense of the Third Party Claim in accordance with Section 8.04(b) above, and subject to the provisions of any applicable insurance policies of the 38 Indemnified Party, (i) the Indemnified Party may retain separate co- counsel at its sole cost and expense and participate in the defense of the Third Party Claim, (ii) the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnifying Party (not to be withheld unreasonably), and (iii) the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Party (not to be withheld unreasonably). (d) In the event any of the conditions in Section 8.04(b) above is or becomes unsatisfied, or if otherwise required under the terms of any applicable insurance policy of the Indemnified Party, (i) the Indemnified Party may defend against, and consent to the entry of any judgment or enter into any settlement with respect to, the Third Party Claim in any manner it reasonably may deem appropriate (and the Indemnified Party need not consult with, or obtain any consent from, any Indemnifying Party in connection therewith), (ii) the Indemnifying Parties will reimburse the Indemnified Party promptly and periodically for the costs of defending against the Third Party Claim (including reasonable attorneys' fees and expenses) as and to the extent set forth in Section 8.02, (iii) the Indemnifying Parties will remain responsible for any Adverse Consequences the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim to the extent provided in this Article VIII, and (iv) the Indemnifying Party has the right to participate in such defense and discussions as to settlement or entry of a judgment, at its own expense; provided, however, that if the Indemnified Party conducts the defense of a Third Party Claim, it shall not enter into a settlement with respect thereto without the Indemnifying Party's prior approval, which shall not be unreasonably withheld, and if such approval is not granted, the Indemnified Party shall adjudicate the Third Party Claim to a final conclusion. 8.05 Purchase Price Adjustments. All indemnification payments under this Article VIII shall be deemed adjustments to the Purchase Price and the Parties agree that they will not take any positions or other actions (including reporting adjustments on their applicable Tax Returns) inconsistent with this treatment. No Purchase Price adjustment pursuant to Section 2.05, however, will be subject to the provisions of Article VIII to the extent of the amount of such adjustment. 8.06 Exclusive Remedy. Except as set forth in this Section 8.06, the indemnification provided in this Article VIII shall be the sole and exclusive remedy for any inaccuracy or breach of any representation, warranty or covenant made by any Party in this Agreement. Nothing herein shall limit any party's remedy for fraud or intentional breach of covenant. The indemnification obligations of the Seller shall in no event exceed the Purchase Price. The foregoing indemnification provisions are in addition to, and not in derogation of, any equitable remedy any Party may have for breach of any covenant. The Seller hereby agrees that it will not make any claim for 39 indemnification against any of Rapidforms and its Subsidiaries by reason of the fact that it or any of its employees or agents was a director, officer, employee, or agent of any such entity or was serving at the request of any such entity as a partner, trustee, director, officer, employee, or agent of another entity (whether such claim is for judgments, damages, penalties, fines, costs, amounts paid in settlement, losses, expenses, or otherwise and whether such claim is pursuant to any statute, charter document, bylaw, agreement, or otherwise) with respect to any action, suit, proceeding, complaint, claim, or demand brought by the Buyer against such Seller (whether such action, suit, proceeding, complaint, claim, or demand is pursuant to this Agreement, applicable law, or otherwise). ARTICLE IX ---------- TAX MATTERS ----------- The following provisions shall govern the allocation of responsibility as between Buyer and Seller for certain tax matters following the Closing Date: 9.01 Tax Sharing Agreements. Any Tax sharing agreement between the Seller and any of Rapidforms and its Subsidiaries is terminated as of the Closing Date and will have no further effect for any taxable year (whether the current year, a future year, or a past year). 9.02 Taxes of Other Persons. The Seller agrees to indemnify the Buyer from and against the entirety of any Adverse Consequences for tax periods ending on or before the Closing Date which the Buyer, Rapidforms or its Subsidiaries may suffer resulting from, arising out of, relating to, in the nature of, or caused by any Liability of any of Rapidforms and its Subsidiaries for Taxes of any Person other than any of Rapidforms and its Subsidiaries. 9.03 Income Tax Returns for Period Through the Closing Date. The Seller will include the income of Rapidforms and its Subsidiaries on the Seller's consolidated federal income Tax Returns and any consolidated state and local income Tax Returns, as appropriate, for all periods through the Closing Date and pay any federal, state and local income Taxes attributable to such income. Rapidforms and its Subsidiaries will furnish Tax information to the Seller for inclusion in the Seller's consolidated federal income Tax Return and any consolidated state and local income Tax Returns, as appropriate, for the period which includes the Closing Date in accordance with Rapidforms' past custom and practice. The Seller shall also prepare all state income Tax Returns for all periods through the Closing Date, whether or not consolidated, of Rapidforms and its Subsidiaries, Buyer shall cause Rapidforms and its Subsidiaries to assist in the preparation, sign and file such Tax Returns as so prepared in a timely manner so as not to give rise to penalties and interest, and the Seller shall make all payments due in respect of such Tax Returns. 40 9.04 Section 338(h)(10) Election. The Seller will join with the Buyer in making an election under Section 338(h)(10) of the Code (and any corresponding elections under state, local, or foreign tax law) with respect to the purchase and sale of the stock of Rapidforms hereunder. The Seller will pay any income Taxes attributable to the making of such election and will indemnify the Buyer, Rapidforms, and its Subsidiaries against any Adverse Consequences arising out of any failure to pay such tax. The Seller will also pay any state, local, or foreign income Tax (and indemnify the Buyer, Rapidforms, and its Subsidiaries against any Adverse Consequences arising out of any failure to pay such income Tax) attributable to an election under state, local, or foreign law similar to the election available under Section 338(g) of the Code (or which results from the making of an election under Section 338(g) of the Code) with respect to the purchase and sale of the stock of Rapidforms hereunder. 9.05 Other Tax Returns. The Buyer shall prepare or cause to be prepared and file or cause to be filed, in a timely manner so as not to give rise to penalties and interest, all Tax Returns for Rapidforms and its Subsidiaries not based upon income which are due to be filed after the Closing Date. 9.06 [Intentionally Omitted] 9.07 Cooperation on Tax Matters. (a) The Buyer, Rapidforms and its Subsidiaries and the Seller shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax Returns pursuant to this Section and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other party's request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Rapidforms and its Subsidiaries and the Seller agree (i) to retain all books and records with respect to Tax matters pertinent to Rapidforms and its Subsidiaries relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by the Buyer or the Seller, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (ii) to give the other party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other party so requests, Rapidforms and its Subsidiaries or the Seller, as the case may be, shall allow the other party to take possession of such books and records. (b) the Buyer and the Seller further agree, upon request, to use their commercially reasonable efforts to obtain any certificate or other document from any governmental authority or any other Person as may be necessary to 41 mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby). (c) the Buyer and the Seller further agree, upon request, to provide the other party with all information to the extent in such party's possession or control that either party may be required to report pursuant to Section 6043 of the Code and all Treasury Department Regulations promulgated thereunder. 9.08 Certain Taxes. All transfer, documentary, sales, use, stamp and registration Taxes and fees (including any penalties and interest) incurred in connection with this Agreement shall be paid by the Seller when due, and the Seller will, at its own expense, file all necessary Tax Returns and other documentation with respect to all such transfer, documentary, sales, use, stamp and registration Taxes. If required by applicable law, the Buyer will, and will cause its affiliates to, join in the execution of any such Tax Returns and other documentation. 9.09 Allocation of Purchase Price. The Buyer and Seller shall negotiate in good faith an allocation of the Purchase Price in accordance with Treas. Reg. Section 1.338(b)-2T and 3T with reference to an appraisal obtained by the Buyer from a nationally recognized appraisal firm, the cost of the appraisal to be paid by the Buyer, which appraisal shall not be binding on the parties. Each of the Buyer and Seller shall provide prior written notice to the other if such party plans to file any Tax Returns on which it takes any position inconsistent with the allocation set forth in the appraisal described in the preceding sentence. The Buyer and the Seller, respectively, will notify each other as soon as reasonably practicable of any audit adjustment or proposed audit adjustment by any taxing authority which affects the allocation. ARTICLE X --------- TERMINATION ----------- 10.1 Termination of Agreement. The Parties may terminate this Agreement as provided below: (a) the Buyer and the Seller may terminate this Agreement by mutual written consent at any time prior to the Closing; (b) the Buyer may terminate this Agreement by giving written notice to the Seller at any time prior to the Closing (i) in the event the Seller has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, the Buyer has notified the Seller of the breach, and the breach has continued without cure for a period of 30 days after the notice of breach or (ii) if the Closing shall not have occurred on or before January 31, 1998, by reason of the failure of any condition precedent under Section 7.01 hereof; and 42 (c) the Seller may terminate this Agreement by giving written notice to the Buyer at any time prior to the Closing (i) in the event the Buyer has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, the Seller has notified the Buyer of the breach, and the breach has continued without cure for a period of 30 days after the notice of breach or (ii) if the Closing shall not have occurred on or before January 31, 1998, by reason of the failure of any condition precedent under Section 7.02 hereof. 10.02 Effect of Termination. If any Party terminates this Agreement pursuant to Section 10.01 above, all rights and obligations of the Parties hereunder shall terminate without any Liability of any Party to any other Party (except for any Liability of any Party then in breach). Without limitation of the foregoing, it is specifically understood that commercially reasonable efforts of Buyer and Seller to obtain any requisite authority, actions, consents or approvals of third parties shall not require either party to expend more than $250,000 in the aggregate, assume or agree to any material obligations or Liabilities, or otherwise agree to anything that could adversely impact Buyer's or Seller's remaining business or business prospects. ARTICLE XI ---------- MISCELLANEOUS ------------- 11.01 No Third Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns except as referred to in Section 6.06. 11.02 Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they related in any way to the subject matter hereof. 11.03 Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Party; provided, however, that the Buyer may (i) assign any or all of its rights and interests hereunder to one or more of its Affiliates but not without Seller's consent, which consent shall not be unreasonably withheld or delayed and (ii) designate one or more of its Affiliates to perform its obligations hereunder (in any or all of which cases the Buyer nonetheless shall remain responsible for the performance of all of its obligations hereunder). 43 11.04 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. 11.05 Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. 11.06 Notices. All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below: If to the Seller: CSS Industries, Inc. 1845 Walnut Street, Suite 800 Philadelphia, PA 19103-4755 Attention: Stephen V. Dubin, Esq. Fax: (215) 569-9979 with a copy to: Morgan, Lewis & Bockius, LLP 2000 One Logan Square Philadelphia, PA 19103-6993 Attention: Steven M. Cohen, Esq. Fax: (215) 963-5299 If to the Buyer: New England Business Service, Inc. 500 Main Street Groton, MA 01471 Attention: John F. Fairbanks Fax: (978) 448-3320 with a copy to: Hill & Barlow, a Professional Corporation One International Place Boston, MA 02110 Attention: Terrence W. Mahoney, Esq. Fax: (617) 428-3500 Any Party may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to 44 which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth. 11.07 Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of The Commonwealth of Massachusetts without giving effect to any choice or conflict of law provision or rule (whether of The Commonwealth of Massachusetts or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than The Commonwealth of Massachusetts. 11.08 Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Buyer and the Seller. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. 11.09 Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. 11.10 Expenses. Each of the Parties, Rapidforms, and its Subsidiaries will bear its own costs and expenses (including its legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby. The Seller agrees that none of Rapidforms and its Subsidiaries has borne or will bear any of the Seller's costs and expenses (including any of its legal fees and expenses) in connection with this Agreement or any of the transactions contemplated hereby. 11.11 Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. The Parties intend that each representation, warranty, and covenant contained herein shall have independent significance. If any Party has breached any representation, warranty, or covenant contained herein in any respect, the fact that there exists another representation, warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty, or 45 covenant. With regard to all dates and time periods set forth in this Agreement, time is of the essence. 11.12 Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. 11.13 Specific Performance. Each of the Parties acknowledges and agrees that the other Party would be damaged irreparably in the event the provisions of Section 6.05 of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the Parties agrees that the other Party shall be entitled to seek an injunction or injunctions to enjoin breaches of the provisions of Section 6.05 and to enforce specifically Section 6.05 and the terms and provisions thereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matter (subject to the provisions set forth in Section 11.14 below), in addition to any other remedy to which they may be entitled, at law or in equity. 11.14 Submission to Jurisdiction. Each of the Parties submits to the jurisdiction of any state or federal court in which jurisdiction over the parties is available (provided however, that the presence of the Seller in Massachusetts in connection with the negotiation and execution of this Agreement or the Closing hereunder shall not be considered a contact with Massachusetts for purposes of the long-arm jurisdiction statute thereof), and agrees that all claims in respect of the action or proceeding may be heard and determined in any such court. . Any Party may make service on any other Party by sending or delivering a copy of the process to the Party to be served at the address and in the manner provided for the giving of notices in Section 11.06 above. ***** 46 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the date first above written. NEW ENGLAND BUSINESS SERVICE, INC. By:/s/ John F. Fairbanks -------------------------------- Title:Vice-President, CFO CSS INDUSTRIES, INC. By:/s/ Jack Farber ----------------------------------- Title: Chairman, President and Chief Executive Officer TABLE OF CONTENTS ----------------- ARTICLE I DEFINITIONS 1 ARTICLE II PURCHASE AND SALE OF RAPIDFORMS SHARES 6 2.01 Basic Transaction 6 2.02 Initial Purchase Price 6 2.03 The Closing 6 2.04 Deliveries at the Closing 6 2.05 Adjustments to Initial Purchase Price 7 2.06 Intercompany Obligations 8 ARTICLE III REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION 9 3.01 Representations and Warranties of the Seller 9 3.02 Representations and Warranties of the Buyer 10 ARTICLE IV REPRESENTATIONS AND WARRANTIES CONCERNING RAPIDFORMS AND ITS SUBSIDIARIES 11 4.01 Organization, Qualification, and Corporate Power 11 4.02 Capitalization 11 4.03 Noncontravention 12 4.04 Brokers' Fees 12 4.05 Title to Assets 12 4.06 Subsidiaries 12 4.07 Financial Statements 13 4.08 Events Subsequent to Most Recent Fiscal Year End 13 4.09 Undisclosed Liabilities 16 4.10 Legal Compliance 16 4.11 Tax Matters 16 4.12 Real Property 18 4.13 Intellectual Property 20 4.14 Tangible Assets 22 4.15 Inventory 22 4.16 Contracts 23 4.17 Notes and Accounts Receivable 24 4.18 Powers of Attorney 24 4.19 Insurance 25 4.20 Litigation 25 4.21 Product Warranty 26 4.22 Product Liability 26 4.23 Employees 26 4.24 Employee Benefits 26 4.25 Guaranties 28 4.26 Environment, Health, and Safety 28 4.27 Certain Business Relationships with Rapidforms and Its Subsidiaries 29 i 4.27 Disclosure 29 ARTICLE V PRE-CLOSING COVENANTS 29 5.01 General 29 5.02 Notices and Consents 29 5.03 Operation of Business 30 5.04 Preservation of Business 30 5.05 Full Access 30 5.06 Notice of Developments 30 5.07 Exclusivity 31 5.08 Profit-Sharing Plans 31 ARTICLE VI POST-CLOSING COVENANTS 31 6.01 General 31 6.02 Litigation Support 32 6.03 Transition 32 6.04 Confidentiality 32 6.05 Covenant Not to Compete 32 6.06 Employment Matters 33 ARTICLE VII CONDITIONS TO OBLIGATION TO CLOSE 34 7.01 Conditions to Obligations of Buyer 34 7.02 Conditions to Obligations of the Seller 35 ARTICLE VIII REMEDIES FOR BREACHES OF THIS AGREEMENT 36 8.01 Survival of Representations, Warranties and Covenants 36 8.02 Indemnification Provisions for Benefit of the Buyer 37 8.03 Indemnification Provisions for Benefit of the Seller 37 8.04 Matters Involving Third Parties 38 8.05 Purchase Price Adjustments 39 8.06 Exclusive Remedy 39 ARTICLE IX TAX MATTERS 40 9.01 Tax Sharing Agreements 40 9.02 Taxes of Other Persons 40 9.03 Income Tax Returns for Period Through the Closing Date 40 9.04 Section 338(h)(10) Election 41 9.06 [Intentionally Omitted] 41 9.07 Cooperation on Tax Matters 41 9.08 Certain Taxes 42 9.09 Allocation of Purchase Price 42 ARTICLE X TERMINATION 42 10.01 Termination of Agreement 42 10.02 Effect of Termination 43 ARTICLE XI MISCELLANEOUS 43 11.01 No Third Party Beneficiaries 43 11.02 Entire Agreement 43 11.03 Succession and Assignment 43 ii 11.04 Counterparts 44 11.05 Headings 44 11.06 Notices 44 11.07 Governing Law 45 11.08 Amendments and Waivers 45 11.09 Severability 45 11.10 Expenses 45 11.11 Construction 45 11.12 Incorporation of Exhibits and Schedules 46 11.13 Specific Performance 46 11.14 Submission to Jurisdiction 46 Exhibit A--July 31, 1997 Balance Sheet Exhibit B--Form of Opinion of Counsel to the Seller Exhibit C--Form of Opinion of Counsel to the Buyer Exhibit D--Minimum Severance Policy Disclosure Schedule--Exceptions to Representations and Warranties Concerning Rapidforms and Its Subsidiaries iii EX-2.2 3 Exhibit 2.2 NEW ENGLAND BUSINESS SERVICE, INC. 500 Main Street Groton, Massachusetts 01471 Agreement to Furnish Copies of Omitted Exhibits and Schedules to Stock Purchase Agreement with CSS Industries, Inc. New England Business Service, Inc. (the "Registrant") is not filing as exhibits to its Current Report on Form 8-K dated January 7, 1998, copies of the exhibits and schedules to the Stock Purchase Agreement among the Registrant and CSS Industries, Inc. dated December 5, 1997, which Agreement is filed as Exhibit 2.1 thereto. Registrant agrees to furnish to the Securities and Exchange Commission, upon request, copies of such omitted exhibits and schedules. Dated: January 7, 1998 NEW ENGLAND BUSINESS SERVICE, INC. (Registrant) By: /s/ JohnF.Fairbanks John F. Fairbanks Vice-President-Chief Financial Officer (Principal Financial and Accounting Officer) EX-10.1 4 AMENDED AND RESTATED -------------------- REVOLVING CREDIT AGREEMENT -------------------------- DATED as of December 18, 1997 among NEW ENGLAND BUSINESS SERVICE, INC., THE BANKS LISTED ON Schedule 1 hereto, ---------- BANKBOSTON, N.A., as Agent, and FLEET NATIONAL BANK, as Documentation Agent BANCBOSTON SECURITIES INC., Arranger TABLE OF CONTENTS 1. DEFINITIONS AND RULES OF INTERPRETATION. 1 1.1. Definitions. 1 1.2. Rules of Interpretation. 17 2. THE REVOLVING CREDIT FACILITY. 18 2.1. Commitment to Lend Syndicated Loans. 18 2.2. Requests for Loans. 18 2.3. Competitive Bid Loans. 19 2.3.1. Competitive Bid Borrowings. 19 2.3.2. Maximum Competitive Bid Loans; Funding Losses. 23 2.3.3. Repayment of Competitive Bid Loans. 23 2.4. Funds for Loans. 24 2.4.1. Funding Procedures. 24 2.4.2. Advances by Agent. 24 2.5. The Notes. 25 2.5.1. Syndicated Notes. 25 2.5.2. Competitive Bid Notes. 25 2.6. Reduction of Total Commitment. 26 2.7. Interest on Loans. 26 2.8. Conversion Options. 27 2.8.1. Conversion to Different Type of Syndicated Loan. 27 2.8.2. Continuation of Type of Syndicated Loan. 28 2.8.3. Eurodollar Rate Loans. 28 2.9. Limited Increase In Total Commitment. 28 3. REPAYMENT OF THE LOANS. 29 3.1. Maturity. 29 3.2. Mandatory Repayments of Loans. 29 3.3. Optional Repayments of Syndicated Loans. 29 4. CERTAIN GENERAL PROVISIONS. 30 4.1. Certain Fees. 30 4.1.1. Agent and Arranger Fees. 30 4.1.2. Documentation Agent's Fee. 30 4.2. Facility Fee. 30 4.3. Funds for Payments. 30 4.3.1. Payments to Agent. 30 4.3.2. No Offset, etc. 31 4.4. Computations. 31 4.5. Inability to Determine Eurodollar Rate. 32 4.6. Illegality. 32 4.7. Additional Costs, etc. 32 4.8. Capital Adequacy. 34 4.9. Certificate. 34 4.10. Indemnity. 34 4.11. Interest After Default. 35 4.11.1. Overdue Amounts. 35 4.11.2. Amounts Not Overdue. 35 4.12. Guaranties. 35 5. REPRESENTATIONS AND WARRANTIES. 35 5.1. Corporate Authority. 35 5.1.1. Incorporation; Good Standing. 35 5.1.2. Authorization. 36 5.1.3. Enforceability. 36 5.2. Governmental Approvals. 36 5.3. Title to Properties; Leases. 36 5.4. Financial Statements. 37 5.5. No Material Changes, etc. 37 5.6. Franchises, Patents, Copyrights, etc. 37 5.7. Litigation. 37 5.8. No Materially Adverse Contracts, etc. 38 5.9. Compliance With Other Instruments, Laws, etc. 38 5.10. Tax Status. 38 5.11. No Event of Default. 38 5.12. Holding Company and Investment Company Acts. 38 5.13. Absence of Financing Statements, etc. 39 5.14. Chief Executive Office. 39 5.15. Certain Transactions. 39 5.16. Employee Benefit Plans. 39 5.16.1. In General. 39 5.16.2. Terminability of Welfare Plans. 39 5.16.3. Guaranteed Pension Plans. 40 5.16.4. Multiemployer Plans. 40 5.17. Use of Proceeds. 41 5.17.1. General. 41 5.17.2. Regulations U and X. 41 5.17.3. Ineligible Securities. 41 5.18. Environmental Compliance. 41 5.19. Subsidiaries, etc. 43 5.20. Disclosure. 43 5.21. Fiscal Year. 44 5.22. Solvency. 44 5.23. Rapidforms Acquisition. 44 6. AFFIRMATIVE COVENANTS OF THE BORROWER. 44 6.1. Punctual Payment. 44 6.2. Maintenance of Office. 44 6.3. Records and Accounts. 45 6.4. Financial Statements, Certificates and Information. 45 6.5. Notices. 46 6.5.1. Defaults. 46 6.5.2. Environmental Events. 47 6.5.3. Notice of Litigation and Judgments. 47 6.6. Corporate Existence; Maintenance of Properties. 47 6.7. Insurance. 48 6.8. Taxes. 48 6.9. Inspection of Properties and Books, etc. 48 6.9.1. General. 48 6.9.2. Communication with Accountants. 49 6.10. Compliance with Laws, Contracts, Licenses, and Permits. 49 6.11. Employee Benefit Plans. 49 6.12. Use of Proceeds. 50 6.13. Rapidforms Acquisition. 50 6.13.1. Guaranty, etc. 50 6.13.2. Amendment of Certificate of Incorporation. 50 6.13.3. Closing Balance Sheet. 50 6.13.4. Obligations Under Trust Indenture. 50 6.14. Further Assurances. 50 7. CERTAIN NEGATIVE COVENANTS OF THE BORROWER. 51 7.1. Restrictions on Indebtedness. 51 7.2. Restrictions on Liens. 53 7.3. Restrictions on Investments. 55 7.4. Distributions. 56 7.5. Merger, Consolidation. 56 7.5.1. Mergers and Acquisitions. 56 7.5.2. Disposition of Assets. 56 7.6. Sale and Leaseback. 57 7.7. Compliance with Environmental Laws. 57 7.8. Employee Benefit Plans. 57 7.9. Fiscal Year. 58 7.10. Prohibition on Negative Pledges. 58 7.11. Creation and Maintenance of Subsidiaries. 58 7.12. Conduct of Business. 59 8. FINANCIAL COVENANTS OF THE BORROWER. 59 8.1. Funded Debt to EBITDA. 59 8.2. Minimum Fixed Charge Coverage Ratio. 59 8.3. Consolidated Net Worth. 59 9. CLOSING CONDITIONS. 59 9.1. Loan Documents. 59 9.2. Certified Copies of Charter Documents. 59 9.3. Corporate Action. 60 9.4. Incumbency Certificate. 60 9.5. UCC Search Results. 60 9.6. Certificates of Insurance. 60 9.7. Solvency Certificate. 60 9.8. Opinion of Counsel. 60 9.9. Payment of Fees. 61 10. CONDITIONS TO ALL BORROWINGS. 61 10.1. Representations True; No Event of Default. 61 10.2. No Legal Impediment. 61 10.3. Governmental Regulation. 61 10.4. Proceedings and Documents. 61 11. EVENTS OF DEFAULT; ACCELERATION; ETC. 62 11.1. Events of Default and Acceleration. 62 11.2. Termination of Commitments. 65 11.3. Remedies. 66 12. SETOFF. 66 13. THE AGENT. 67 13.1. Authorization. 67 13.2. Employees and Agents. 68 13.3. No Liability. 68 13.4. No Representations. 68 13.5. Payments. 69 13.5.1. Payments to Agent. 69 13.5.2. Distribution by Agent. 69 13.5.3. Delinquent Banks. 69 13.6. Holders of Notes. 70 13.7. Indemnity. 70 13.8. Agent as Bank. 70 13.9. Resignation. 70 13.10. Notification of Defaults and Events of Default. 71 13.11. Limitation on Duties. 71 14. EXPENSES. 71 15. INDEMNIFICATION. 72 16. SURVIVAL OF COVENANTS, ETC. 73 17. ASSIGNMENT AND PARTICIPATION. 73 17.1. Conditions to Assignment by Banks. 73 17.2. Certain Representations and Warranties; Limitations; Covenants. 74 17.3. Register. 75 17.4. New Notes. 75 17.5. Participations. 76 17.6. Disclosure. 76 17.7. Assignee or Participant Affiliated with the Borrower. 76 17.8. Miscellaneous Assignment Provisions. 77 17.9. Assignment by Borrower. 77 18. NOTICES, ETC. 77 19. GOVERNING LAW. 78 20. HEADINGS. 79 21. COUNTERPARTS. 79 22. ENTIRE AGREEMENT, ETC. 79 23. WAIVER OF JURY TRIAL. 79 24. CONSENTS, AMENDMENTS, WAIVERS, ETC. 80 25. SEVERABILITY. 80 26. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION. 80 26.1. Confidentiality. 80 26.2. Prior Notification. 81 26.3. Other. 81 27. TRANSITIONAL ARRANGEMENTS. 81 27.1. Original Credit Agreement Superseded. 81 27.2. Return and Cancellation of Notes. 82 27.3. Fees Under Original Credit Agreement. 82 Exhibits -------- Exhibit A - Guaranty Exhibit B - Loan Request Exhibit C - Competitive Bid Quote Request Exhibit D - Invitation For Competitive Bid Quotes Exhibit E-1 - Competitive Bid Quote Exhibit E-2 - Notice of Competitive Bid Borrowing Exhibit E-3 - Form of Notice of Competitive Bid Loans Exhibit F-1 - Syndicated Note Exhibit F-2 - Competitive Bid Note Exhibit G - Compliance Certificate Exhibit H - Assignment and Acceptance Exhibit I - Rapidforms Environmental Site Assessment Preliminary Report Schedules --------- Schedule 1 - Banks; Commitment Percentages Schedule 5.3 - Title to Property; Leases Schedule 5.5 - Distribution Since Balance Sheet Date Schedule 5.15 - Transactions with Affiliates Schedule 5.18 - Environmental Compliance Schedule 5.19 - Subsidiaries, etc. Schedule 7.1 - Existing Indebtedness Schedule 7.2 - Existing Liens Schedule 7.3 - Existing Investments AMENDED AND RESTATED -------------------- REVOLVING CREDIT AGREEMENT -------------------------- This AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT is made as of December 18, 1997, 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, BANKBOSTON, N.A., formerly known as THE FIRST NATIONAL BANK OF BOSTON, a national banking association, and the other lending institutions listed on Schedule 1 hereto, BANKBOSTON, N.A., formerly known as THE FIRST NATIONAL BANK OF BOSTON, as agent for itself and such other lending institutions, and FLEET NATIONAL BANK, as documentation agent for itself and such other lending institutions. The Borrower, the Agent, the Documentation Agent and certain of the Banks have heretofore entered into a Revolving Credit Agreement dated as of March 26, 1997 (the "Original Credit Agreement"). Each of the Borrower, the Agent, the Documentation Agent and such Banks desire, upon the terms and conditions set forth herein, to amend and restate the Original Credit Agreement in order, among other things, to increase the size of the Total Commitment and to add certain additional lending institutions as "Banks" for purposes hereof. Accordingly, the parties hereto hereby agree to amend and restate the Original Credit Agreement as follows: 1. DEFINITIONS AND RULES OF INTERPRETATION. -------------------------------------------- 1.1. Definitions. The following terms shall have the meanings set forth in this Section 1 or elsewhere in the provisions of this Credit Agreement referred to below: Affiliate. Any Person that would be considered to be an affiliate of the Borrower under Rule 144(a) of the Rules and Regulations of the Securities and Exchange Commission, as in effect on the date hereof, if the Borrower were issuing securities. Agent's Fee Letter. The side letter dated as of the Closing Date among the Agent, the Arranger and the Borrower regarding certain fees to be paid by the Borrower to the Agent and the Arranger on and after the Closing Date. -2- Agent's Head Office. The Agent's head office located at 100 Federal Street, Boston, Massachusetts 02110, or at such other location as the Agent may designate from time to time. Agent. BankBoston, N.A. acting as agent for the Banks. Agent's Special Counsel. Bingham Dana LLP or such other counsel as may be approved by the Agent. Applicable Eurodollar Rate Margin. For any fiscal quarter or portion thereof within any Interest Period with respect to any Eurodollar Rate Loan, 0.525% per annum; provided, however, that in the event that the ratio of Consolidated Funded Debt (calculated as of the last day of such fiscal quarter or portion thereof) to EBITDA (calculated for the four (4) consecutive fiscal quarters ending on the last day of such fiscal quarter or portion thereof) meets the requirements set forth in the chart below, the Applicable Eurodollar Rate Margin shall, commencing initially with the date on which the Borrower delivers to the Banks the financial statements referred to in Section 6.4(b) with respect to the fiscal quarter ended March 28, 1998 and thereafter commencing with the date on which the Borrower delivers to the Banks the financial statements referred to in Section 6.4(a) or, as the case may be, Section 6.4(b) and ending on the date of the next change to be effected pursuant to this paragraph, be the percentage set forth opposite the applicable ratio of Consolidated Funded Debt to EBITDA in the table below: Ratio of Consolidated Funded Applicable Eurodollar Debt to EBITDA Rate Margin -------------- ----------- Less than or equal to 1.0:1.0 0.350% Greater than 1.0:1.0 and less 0.400% than or equal to 1.5:1.0 Greater than 1.5:1.0 and less 0.525% than or equal to 2.0:1.0 Greater than 2.0:1.0 0.650% If any financial statements referred to above are not delivered within the time periods specified in Section 6.4(a) or, as the case may be, Section 6.4(b), then, until such financial statements are delivered, the Applicable Eurodollar Rate Margin as at the end of the fiscal period that would have been covered thereby shall, for the purposes of this definition, be deemed to be .650%. In addition, at all times while a Default or an Event of Default shall have -3- occurred and be continuing, the Applicable Eurodollar Rate Margin shall, for the purposes of this definition, be deemed to be .650%. Applicable Facility Fee Percentage. For any fiscal quarter or portion thereof, 0.225% per annum; provided, however, that in the event that the ratio of Consolidated Funded Debt (calculated as of the last day of such fiscal quarter or portion thereof) to EBITDA (calculated for the four consecutive fiscal quarters existing on the last day of such fiscal quarter or portion thereof) meets the requirements set forth in the chart below, the Applicable Facility Fee Percentage shall, commencing initially with the date on which the Borrower delivers to the Banks the financial statements referred to in Section 6.4(b) with respect to the fiscal quarter ended March 28, 1998 and thereafter commencing with the date on which the Borrower delivers to the Banks the financial statements referred to in Section 6.4(a) or, as the case may be, Section 6.4(b) and ending on the next change to be effected pursuant to this paragraph, be the percentage set forth opposite the applicable ratio of Consolidated Funded Debt to EBITDA set forth in the table below: Ratio of Consolidated Funded Applicable Facility Debt to EBITDA Fee Percentage -------------- -------------- Less than or equal to 1.0:1.0 0.150% Greater than 1.0:1.0 and less 0.200% than or equal to 1.5:1.0 Greater than 1.5:1.0 and less 0.225% than or equal to 2.0:1.0 Greater than 2.0:1.0 0.250% If any financial statements referred to above are not delivered within the time periods specified in Section 6.4(a) or, as the case may be, Section 6.4(b), then, until such financial statements are delivered, the Applicable Facility Fee Percentage as at the end of the fiscal period that would have been covered thereby shall, for the purposes of this definition, be deemed to be .250%. In addition, at all times a Default or Event of Default shall have occurred and be continuing, the Applicable Facility Fee Percentage shall, for the purposes of this definition, be .250%. Arranger. BancBoston Securities Inc. Assignment and Acceptance. See Section 17.1. -4- Balance Sheet Date. June 28, 1997. Banks. BKB and the other lending institutions listed on Schedule 1 hereto and any other Person who becomes an assignee of any rights and obligations of a Bank pursuant to Section 17. Base Rate. The higher of (i) the annual rate of interest announced from time to time by BKB at its head office in Boston, Massachusetts, as its "base rate" and (ii) one-half of one percent (1/2%) above the Federal Funds Effective Rate. For the purposes of this definition, "Federal Funds Effective Rate" shall mean, for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three funds brokers of recognized standing selected by the Agent. Base Rate Loans. Any Syndicated Loans bearing interest calculated by reference to the Base Rate. BKB. BankBoston, N.A., formerly known as The First National Bank of Boston, a national banking association, in its individual capacity. Borrower. As defined in the preamble hereto. Business Day. Any day on which banking institutions in Boston, Massachusetts, are open for the transaction of banking business and, in the case of Eurodollar Rate Loans, also a day which is a Eurodollar Business Day. Capital Assets. Fixed assets, both tangible (such as land, buildings, fixtures, machinery and equipment) and intangible (such as patents, copyrights, trademarks, franchises and goodwill); provided that Capital Assets shall not include any item customarily charged directly to expense or depreciated over a useful life of twelve (12) months or less in accordance with generally accepted accounting principles. Capital Expenditures. Amounts paid or indebtedness incurred by the Borrower or any of its Subsidiaries in connection with the purchase or lease by the Borrower or any of its Subsidiaries of Capital Assets that would be required to be capitalized and shown on the balance sheet of such Person in accordance with generally accepted accounting principles. -5- Capitalized Leases. Leases under which the Borrower or any of its Subsidiaries is the lessee or obligor, the discounted future rental payment obligations under which are required to be capitalized on the balance sheet of the lessee or obligor in accordance with generally accepted accounting principles. CERCLA. See Section 5.18. Closing Date. The first date on which the conditions set forth in Section 9 have been satisfied and any Loans are to be made. Code. The Internal Revenue Code of 1986, as amended. Commitment. With respect to each Bank, the amount set forth on Schedule 1 hereto as the amount of such Bank's commitment to make Syndicated Loans to the Borrower, as the same may be reduced from time to time; or if such commitment is terminated pursuant to the provisions hereof, zero. The Competitive Bid Loans of such Bank outstanding at any time shall not affect such Bank's Commitment. Commitment Percentage. With respect to each Bank, the percentage set forth on Schedule 1 hereto as such Bank's percentage of the aggregate Commitments of all of the Banks. The Competitive Bid Loans of such Bank outstanding at any time shall not affect such Bank's Commitment Percentage. Competitive Bid Loan(s). A borrowing hereunder consisting of one or more revolving credit loans made by any of the Banks whose offer to make a revolving credit loan as part of such borrowing has been accepted by the Borrower under the auction bidding procedure described in Section 2.3 hereof. Competitive Bid Note. See Section 2.5.2 hereof. Competitive Bid Quote. An offer by a Bank to make a Competitive Bid Loan in accordance with Section 2.3 hereof. Competitive Bid Quote Request. See Section 2.3.1(b) hereof. Competitive Bid Rate. See Section 2.3.1(d)(ii)(C) hereof. Consolidated or consolidated. With reference to any term defined herein, shall mean that term as applied to the accounts of the Borrower and its Subsidiaries, consolidated in accordance with generally accepted accounting principles. -6- Consolidated Funded Debt. At any time of determination, the sum of (i) the amount of the Loans outstanding (after giving account to any amounts requested) plus accrued but unpaid interest thereon; plus (ii) the outstanding amount of any other Indebtedness for borrowed money, in respect of Capitalized Leases or which is otherwise subject to the payment of interest plus accrued but unpaid interest on such Indebtedness, including expenses consisting of interest in respect of Capitalized Leases and including commitment fee, agency fee, facility fee, balance deficiency fee and similar fee expenses in connection with the borrowing of money. Consolidated Net Income. The consolidated net income (or deficit) of the Borrower and its Subsidiaries, after deduction of all expenses, taxes and other proper charges, determined in accordance with generally accepted accounting principles, after eliminating therefrom all extraordinary nonrecurring items of income. Consolidated Net Worth. The excess of Consolidated Total Assets over Consolidated Total Liabilities. Consolidated Total Assets. All assets of the Borrower and its Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles. Consolidated Total Interest Expense. For any period, the aggregate amount of interest required to be expensed by the Borrower and its Subsidiaries in accordance with generally accepted accounting principles during such period on all Indebtedness of the Borrower and its Subsidiaries outstanding during all or any part of such period, including expense consisting of interest in respect of Capitalized Leases and including commitment fee, agency fee, facility fee, balance deficiency fee and similar fee expense in connection with the borrowing of money. Consolidated Total Liabilities. All liabilities of the Borrower and its Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles. Conversion Request. A notice given by the Borrower to the Agent of the Borrower's election to convert or continue a Loan in accordance with Section 2.8. Credit Agreement. This Amended and Restated Revolving Credit Agreement, including the Schedules and Exhibits hereto. Default. See Section 11. -7- Distribution. The declaration or payment of any dividend on or in respect of any shares of any class of capital stock of the Borrower, other than dividends payable solely in shares of common stock of the Borrower; the purchase, redemption, or other retirement of any shares of any class of capital stock, or of any rights, warrants or options to acquire shares of any class of capital stock, of the Borrower, directly or indirectly through a Subsidiary of the Borrower or otherwise; the return of capital by the Borrower to its shareholders as such; or any other distribution on or in respect of any shares of any class of capital stock of the Borrower. Documentation Agent. Fleet National Bank, in its capacity as documentation agent. Documentation Agent's Fee Letter. The side letter dated as of the Closing Date between the Borrower and the Documentation Agent, regarding certain fees to be paid by the Borrower to the Documentation Agent on the Closing Date. Dollars or $. Dollars in lawful currency of the United States of America. Domestic Lending Office. Initially, the office of each Bank designated as such in Schedule 1 hereto; thereafter, such other office of such Bank, if any, located within the United States that will be making or maintaining Base Rate Loans. Drawdown Date. The date on which any Loan is made or is to be made, and the date on which any Loan is converted or continued in accordance with Section 2.8. EBITDA. The consolidated earnings (or loss) from the operations of the Borrower and its Subsidiaries for any period, after all expenses and other proper charges but before payment or provision for any income taxes, interest expense, depreciation or amortization for such period, determined in accordance with generally accepted accounting principles. Eligible Assignee. Any of (i) a commercial bank or finance company organized under the laws of the United States, or any State thereof or the District of Columbia, and having total assets in excess of $1,000,000,000; (ii) a savings and loan association or savings bank organized under the laws of the United States, or any State thereof or the District of Columbia, and having a net worth of at least $100,000,000, calculated in accordance with generally accepted accounting principles; (iii) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having total assets in -8- excess of $1,000,000,000, provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD; (iv) the central bank of any country which is a member of the OECD; and (v) if, but only if, an Event of Default has occurred and is continuing, any other bank, insurance company, commercial finance company or other financial institution or other Person approved by the Agent, such approval not to be unreasonably withheld. Employee Benefit Plan. Any employee benefit plan within the meaning of Section 3(2) of ERISA maintained or contributed to by the Borrower, other than a Guaranteed Pension Plan or a Multiemployer Plan. Environmental Laws. See Section 5.18(a). ERISA. The Employee Retirement Income Security Act of 1974, as amended, including all rules, regulations, decrees and orders arising thereunder. ERISA Affiliate. Any Person which is treated as a single employer with the Borrower under Section 414 of the Code. ERISA Reportable Event. A reportable event with respect to a Guaranteed Pension Plan within the meaning of Section 4043 of ERISA and the regulations promulgated thereunder as to which the requirement of notice has not been waived. Eurocurrency Reserve Rate. For any day with respect to a Eurodollar Rate Loan, the maximum rate (expressed as a decimal) at which any lender subject thereto would be required to maintain reserves under Regulation D of the Board of Governors of the Federal Reserve System (or any successor or similar regulations relating to such reserve requirements) against "Eurocurrency Liabilities" (as that term is used in Regulation D), if such liabilities were outstanding. The Eurocurrency Reserve Rate shall be adjusted automatically on and as of the effective date of any change in the Eurocurrency Reserve Rate. Eurodollar Business Day. Any day on which commercial banks are open for international business (including dealings in Dollar deposits) in London or such other eurodollar interbank market as may be selected by the Agent in its sole discretion acting in good faith. Eurodollar Lending Office. Initially, the office of each Bank designated as such in Schedule 1 hereto; thereafter, such other office of such Bank, if any, that shall be making or maintaining Eurodollar Rate Loans. -9- Eurodollar Rate. For any Interest Period with respect to a Eurodollar Rate Loan, the rate of interest equal to (i) the arithmetic average of the rates per annum for BKB (rounded upwards to the nearest 1/16 of one percent) of the rate at which BKB's Eurodollar Lending Office is offered Dollar deposits two Eurodollar Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations of such Eurodollar Lending Office are customarily conducted at or about 10:00 a.m., Boston time, for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of the Eurodollar Rate Loan of BKB to which such Interest Period applies, divided by (ii) a number equal to 1.00 minus the Eurocurrency Reserve Rate, if applicable. Eurodollar Rate Loans. Any Syndicated Loans bearing interest calculated by reference to the Eurodollar Rate. Event of Default. See Section 11. Fee Letters. The Agent's Fee Letter and the Documentation Agent's Fee Letter. generally accepted accounting principles. (i) When used in Section 8, whether directly or indirectly through reference to a capitalized term used therein, means (A) principles that are consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, in effect for the fiscal year ended on the Balance Sheet Date, and (B) to the extent consistent with such principles, the accounting practice of the Borrower reflected in its financial statements for the year ended on the Balance Sheet Date, and (ii) when used in general, other than as provided above, means principles that are (A) consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, as in effect from time to time and (B) consistently applied with past financial statements of the Borrower adopting the same principles, provided that in each case referred to in this definition of "generally accepted accounting principles" a certified public accountant would, insofar as the use of such accounting principles is pertinent, be in a position to deliver an unqualified opinion (other than a qualification regarding changes in generally accepted accounting principles) as to financial statements in which such principles have been properly applied. Guaranteed Pension Plan. Any employee pension benefit plan within the meaning of Section 3(2) of ERISA maintained or contributed to by the Borrower or any ERISA Affiliate the benefits of which are guaranteed on -10- termination in full or in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer Plan. Guaranty. A Guaranty entered into by a Subsidiary of the Borrower pursuant to Section 7.5.1 or, as the case may be, Section 7.11 hereof, pursuant to which such Subsidiary guaranties to the Banks and the Agent the payment and performance of the Obligations, each in substantially the form of Exhibit A hereto. Hazardous Substances. See Section 5.18(b). Indebtedness. All obligations, contingent and otherwise, that in accordance with generally accepted accounting principles should be classified upon the obligor's balance sheet as liabilities, including in any event and whether or not so classified: (i) all debt and similar monetary obligations, whether direct or indirect; (ii) all liabilities secured by any mortgage, pledge, security interest, lien, charge, or other encumbrance existing on property owned or acquired subject thereto, whether or not the liability secured thereby shall have been assumed; and (iii) all guarantees, endorsements and other contingent obligations whether direct or indirect in respect of indebtedness of others, including any obligation to supply funds to or in any manner to invest in, directly or indirectly, the debtor, to purchase indebtedness, or to assure the owner of indebtedness against loss, through an agreement to purchase goods, supplies, or services for the purpose of enabling the debtor to make payment of the indebtedness held by such owner or otherwise, and the obligations to reimburse the issuer in respect of any letters of credit. Ineligible Securities. Securities which may not be underwritten or dealt in by member banks of the Federal Reserve System under Section 16 of the Banking Act of 1993 (12 U.S.C. Section 24, Seventh), as amended. Interest Payment Date. (i) As to any Base Rate Loan, the last day of the calendar quarter which includes the Drawdown Date thereof; (ii) as to any Competitive Bid Loan, on the last day of the Interest Period applicable thereto; (iii) as to any Eurodollar Rate Loan, the last day of such Interest Period. Interest Period. With respect to each Loan, (i) initially, the period commencing on the Drawdown Date of such Loan and ending on the last day of one of the periods set forth below, as selected by the Borrower in a Loan Request or Notice of Competitive Bid Borrowing (A) for any Base Rate Loan, the last day of the calendar quarter; (B) for any Competitive Bid Loan, from 7 through 180 days; and (C) for any Eurodollar Rate Loan, 1, 2, 3 or 6 months; and (ii) thereafter, each period commencing on the last -11- day of the next preceding Interest Period applicable to such Loan and ending on the last day of one of the periods set forth above, as selected by the Borrower in a Conversion Request; provided that all of the foregoing provisions relating to Interest Periods are subject to the following: (a) if any Interest Period with respect to a Eurodollar Rate Loan would otherwise end on a day that is not a Eurodollar Business Day, that Interest Period shall be extended to the next succeeding Eurodollar Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Eurodollar Business Day; (b) if any Interest Period with respect to a Base Rate Loan would end on a day that is not a Business Day, that Interest Period shall end on the next succeeding Business Day; (c) if the Borrower shall fail to give notice as provided in Section 2.8, the Borrower shall be deemed to have requested a conversion of the affected Eurodollar Rate Loan to a Base Rate Loan and the continuance of all Base Rate Loans as Base Rate Loans on the last day of the then current Interest Period with respect thereto; (d) any Interest Period that begins on the last Eurodollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Eurodollar Business Day of a calendar month; and (e) any Interest Period relating to any Loan that would otherwise extend beyond the Revolving Credit Loan Maturity Date shall end on the Revolving Credit Loan Maturity Date. Investments. All expenditures made and all liabilities incurred (contingently or otherwise) for the acquisition of stock or Indebtedness of, or for loans, advances, capital contributions or transfers of property to, or in respect of any guaranties (or other commitments as described under Indebtedness), or obligations of, any Person. In determining the aggregate amount of Investments outstanding at any particular time: (i) the amount of any Investment represented by a guaranty shall be taken at not less than the principal amount of the obligations guaranteed and still outstanding; (ii) there shall be included as an Investment all interest accrued with respect to Indebtedness constituting an Investment unless and until such interest is paid; (iii) there shall be deducted in respect of each such Investment any amount received as a return of capital (but only -12- by repurchase, redemption, retirement, repayment, liquidating dividend or liquidating distribution); (iv) there shall not be deducted in respect of any Investment any amounts received as earnings on such Investment, whether as dividends, interest or otherwise, except that accrued interest included as provided in the foregoing clause (ii) may be deducted when paid; and (v) there shall not be deducted from the aggregate amount of Investments any decrease in the value thereof. Invitation for Competitive Bid Quotes. See Section 2.3.1(c) hereof. Loan Documents. This Credit Agreement, the Notes, the Fee Letters, any Guaranty and all documents evidencing or relating to any interest rate protection arrangements entered into between the Borrower and any Bank. Loan Request. See Section 2.2. Loans. Revolving credit loans made or to be made by the Banks to the Borrower pursuant to Section 2 hereof, whether Syndicated Loans or Competitive Bid Loans. Majority Banks. As of any date, the Banks holding at least sixty percent (60%) of the outstanding principal amount of the Notes on such date; and if no such principal is outstanding, the Banks whose aggregate Commitments constitutes at least sixty percent (60%) of the Total Commitment. Margin Stock. "Margin Stock" or "Margin Securities", as such terms are used in Regulations U and X of the Board of Governors of the Federal Revenue System, 12 C.F.R. Parts 221 and 224. Multiemployer Plan. Any multiemployer plan within the meaning of Section 3(37) of ERISA maintained or contributed to by the Borrower or any ERISA Affiliate. Notes. The Competitive Bid Notes and the Syndicated Notes. Notice of Competitive Bid Borrowing. See Section 2.3.1(f) hereof. Obligations. All indebtedness, obligations and liabilities of any of the Borrower and its Subsidiaries to any of the Banks and the Agent, individually or collectively, existing on the date of this Credit Agreement or arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, arising or incurred under this Credit Agreement or any of the other Loan Documents -13- (including any interest rate protection arrangements entered into between the Borrower and any Bank), or in respect of any of the Loans or any of the Notes or other instruments at any time evidencing any thereof. Original Credit Agreement. As defined in the preamble. outstanding. With respect to the Loans, the aggregate unpaid principal thereof as of any date of determination. PBGC. The Pension Benefit Guaranty Corporation created by Section 4002 of ERISA and any successor entity or entities having similar responsibilities. Permitted Liens. Liens, security interests and other encumbrances permitted by Section 7.2. Permitted Acquisition. The Rapidforms Acquisition or any other acquisition of any Person, business, division, or specified group of assets by the Borrower or any of its Subsidiaries, provided that, with respect to any other such acquisition, (1) the Agent and the Majority Banks approve, in their sole discretion, such acquisition in writing in advance or (2) each of the following conditions is met: (a) immediately prior to and after, and after giving effect to, such acquisition, no Default or Event of Default shall then exist; (b) (i) the aggregate consideration paid or to be paid by the Borrower or any of its Subsidiaries in connection with all such acquisitions (whether in the form of cash or the assumption of Indebtedness for borrowed money, debt or other similar monetary obligations by the Borrower or any of its Subsidiaries (including such Indebtedness in existence prior to the date of any such acquisition which was not incurred in connection with or contemplation thereof but excluding stock consideration) shall not exceed $5,000,000 and (ii) the aggregate consideration paid or to be paid by the Borrower or any of its Subsidiaries in connection with all such acquisitions, including consideration of the types described in clause (b) (i) of this definition and stock consideration (as valued for the purpose of such acquisitions) shall not exceed $10,000,000; (c) such acquisition shall have been approved by the board of directors and shareholders, if required, of such Person; (d) either (i) such acquisition is the acquisition of assets only (for use in substantially the same line of business as the line of business of the Borrower) or (ii) such acquisition involves the -14- purchase of the capital stock or other equity interests of a Person and each of the following conditions is met: (A) such acquisition is the acquisition of one hundred percent (100%) of the capital stock or other equity interests of such Person. (B) such Person is in substantially the same line of business as the Borrower, (C) The Borrower or a wholly owned Subsidiary of the Borrower is the survivor of any merger or consolidation with such Person; (D) not less than ten (10) Business Days prior to such acquisition, the Borrower shall notify the Banks thereof, and (E) contemporaneously with the occurrence of any such acquisition, the Borrower shall (I) cause such Person to guaranty all of the Obligations hereunder pursuant to a Guaranty in form and substance satisfactory to the Agent, which such Guaranty shall be a Loan Document hereunder, and (II) cause such Person to deliver to the Banks and the Agent (aa) evidence of proper corporate authorization, and (bb) legal opinions with respect to each of the matters and documents set forth in this clause (D), in each case, in form and substance satisfactory to the Agent and the Banks; and (e) the Agent shall have received each of the following , each in form and substance satisfactory to the Agent: (i) a compliance certificate evidencing pro forma compliance with the requirements of Section 8 hereof following the consummation of any such acquisition, (ii) due diligence summaries evidencing the Borrower's due diligence with respect to the Person or assets being acquired and (iii) such other information, including financial statements, as the Agent or the Majority Banks may request. Person. Any individual, corporation, partnership, trust, unincorporated association, business, or other legal entity, and any government or any governmental agency or political subdivision thereof. Rapidforms. Rapidforms, Inc., a New Jersey corporation. Rapidforms Acquisition. The acquisition by the Borrower of one hundred percent (100%) of the capital stock of Rapidforms and its Subsidiaries on the terms and conditions set forth below: -15- (i) the closing of the Rapidforms Acquisition shall occur on or before, but not after, January 30, 1998; (ii) the terms and conditions of the Rapidforms Acquisition shall be substantially those set forth in the Rapidforms Stock Purchase Agreement. Without limiting the generality of the foregoing, (A) the Initial Purchase Price (as defined in the Rapidforms Stock Purchase Agreement) shall not exceed $80,000,000, (B) the price (the "Final Purchase Price") to which the Initial Purchase Price is, or may be, increased pursuant to Section 2.05 of the Rapidforms Stock Purchase Agreement shall not exceed $82,500,000, (C) neither Rapidforms nor any of its Subsidiaries shall have, nor shall the Borrower have assumed, any indebtedness for borrowed money, debt or other similar monetary obligations, including guaranties of the obligations of others (with the guaranty obligations of Rapidforms and each of its Subsidiaries in respect of the Amended and Restated Loan Agreement dated July 21, 1997 among CSS Industries, Inc., CoreStates Bank, N.A. and Merrill Lynch & Co. being released in their entirety prior to the consummation of the Rapidforms Acquisition) in excess of $1,250,000 in the aggregate, and (D) the Borrower shall have acquired one hundred percent (100%) of the capital stock of each of Rapidforms and its Subsidiaries; (iii) there shall be no material adverse change in the environmental status of the real properties of Rapidforms and/or its Subsidiaries from that described in the preliminary updates of Phase I site assessments attached hereto as Exhibit I, with any additional disclosures arising from additional investigation by the consultants preparing such Phase I site assessments being deemed to constitute changes from such preliminary updates; (iv) there shall be no material misstatements in or omissions from the materials furnished to the Agent, the Banks and the Arranger for their review in connection with the Rapidforms Acquisition; (v) upon consummation of the Rapidforms Acquisition, the stock and assets of Rapidforms and its Subsidiaries shall be free and clear of any and all liens and encumbrances (other than purchase money security interests on equipment, equipment leases, the mortgage of the real property located in Bridgeton, New Jersey securing -16- obligations under the Trust Indenture and other liens on personal property securing obligations under the Trust Indenture as revealed by the UCC search results regarding Rapidforms and its Subsidiaries delivered by the Borrower to the Agent prior to the execution of the Rapidforms Stock Purchase Agreement; (vi) promptly following the consummation of the Rapidforms Acquisition, the Borrower shall deliver to the Agent revisions to the disclosure schedules attached to this Credit Agreement and the other Loan Documents, and an updated certificate of locations of the Borrower and its Subsidiaries, in each case reflecting the materials disclosed by the Rapidforms Stock Purchase Agreement; and (vii) all parties to the Rapidforms Stock Purchase Agreement shall have received all necessary consent and approvals. Rapidforms Stock Purchase Agreement. The Rapidforms Stock Purchase Agreement between the Borrower and CSS Industries, Inc. dated as of December 5, 1997. Real Estate. All real property at any time owned or leased (as lessee or sublessee) by the Borrower or any of its Subsidiaries. Record. The grid attached to a Note, or the continuation of such grid, or any other similar record, including computer records, maintained by any Bank with respect to any Loan referred to in such Note. Revolving Credit Loan Maturity Date. December 18, 2002. Section 20 Subsidiary. A Subsidiary of the bank holding company controlling any Bank, which Subsidiary has been granted authority by the Federal Reserve Board to underwrite and deal in certain Ineligible Securities. Subsidiary. Any corporation, association, trust, or other business entity of which the designated parent shall at any time own directly or indirectly through a Subsidiary or Subsidiaries at least a majority (by number of votes) of the outstanding Voting Stock. Syndicated Loan(s). See Section 2.1 hereof. Syndicated Note. See Section 2.5.1 hereof. -17- Total Commitment. The sum of the Commitments of the Banks, as in effect from time to time, which amount shall, as of the Closing Date, be $135,000,000, but which may be increased to $165,000,000 upon the terms and conditions set forth in Section 2.9 hereof. Trust Indenture. The Trust Indenture dated as of December 1, 1988 by and among the New Jersey Economic Development Authority, New Jersey National Bank, as Trustee, and Chemical Bank, as Tender Agent. Type. As to any Syndicated Loan, its nature as a Base Rate Loan or a Eurodollar Rate Loan. Voting Stock. Stock or similar interests, of any class or classes (however designated), the holders of which are at the time entitled, as such holders, to vote for the election of a majority of the directors (or persons performing similar functions) of the corporation, association, trust or other business entity involved, whether or not the right so to vote exists by reason of the happening of a contingency. 1.2 Rules of Interpretation. (a) A reference to any document or agreement shall include such document or agreement as amended, modified or supplemented from time to time in accordance with its terms and the terms of this Credit Agreement. (b) The singular includes the plural and the plural includes the singular. (c) A reference to any law includes any amendment or modification to such law. (d) A reference to any Person includes its permitted successors and permitted assigns. (e) Accounting terms not otherwise defined herein have the meanings assigned to them by generally accepted accounting principles applied on a consistent basis by the accounting entity to which they refer. (f) The words "include", "includes" and "including" are not limiting. (g) All terms not specifically defined herein or by generally accepted accounting principles, which terms are defined in the Uniform Commercial Code as in effect in the Commonwealth of -18- Massachusetts, have the meanings assigned to them therein, with the term "instrument" being that defined under Article 9 of the Uniform Commercial Code. (h) Reference to a particular "Section " refers to that section of this Credit Agreement unless otherwise indicated. (i) The words "herein", "hereof", "hereunder" and words of like import shall refer to this Credit Agreement as a whole and not to any particular section or subdivision of this Credit Agreement. 2. THE REVOLVING CREDIT FACILITY. --------------------------------- 2.1 Commitment to Lend Syndicated Loans. Subject to the terms and conditions set forth in this Credit Agreement, each of the Banks severally agrees to lend to the Borrower and the Borrower may borrow, repay, and reborrow from time to time between the Closing Date and the Revolving Credit Loan Maturity Date upon notice by the Borrower to the Agent given in accordance with Section 2.2, such sums ("Syndicated Loans") as are requested by the Borrower up to a maximum aggregate principal amount outstanding (after giving effect to all amounts requested) at any one time equal to such Bank's Commitment (without regard to any Competitive Bid Loans of such Bank outstanding at such time), provided that (i) the sum of the outstanding amount of the Syndicated Loans (after giving effect to all amounts requested) plus the outstanding aggregate principal amount of all Competitive Bid Loans made by all Banks shall not at any time exceed the Total Commitment and (ii) at all times the outstanding aggregate principal amount of all Syndicated Loans made by each Bank shall equal such Bank's Commitment Percentage of the outstanding aggregate principal amount of all Syndicated Loans made pursuant to the terms of this Credit Agreement. The Syndicated Loans shall be made pro rata in accordance with each Bank's Commitment Percentage. Each request for a Syndicated Loan hereunder shall constitute a representation and warranty by the Borrower that the conditions set forth in Section 9 and Section 10, in the case of the initial Syndicated Loans to be made on the Closing Date, and Section 10, in the case of all other Syndicated Loans, have been satisfied on the date of such request. 2.2 Requests for Loans. The Borrower shall give to the Agent written notice in the form of Exhibit B hereto (or telephonic notice confirmed in a writing in the form of Exhibit B hereto) of each Syndicated Loan requested hereunder (a "Loan Request") by 10:00 a.m. (i) on the proposed Drawdown Date of any Base Rate Loan and (ii) two (2) Eurodollar Business Days prior to the proposed Drawdown Date of any Eurodollar Rate Loan. Each such notice shall specify (A) the principal -19- amount of the Syndicated Loan requested, (B) the proposed Drawdown Date of such Syndicated Loan, (C) the Interest Period for such Syndicated Loan and (D) the Type of such Syndicated Loan. Promptly upon receipt of any such notice, the Agent shall notify each of the Banks thereof. Each such notice shall be irrevocable and binding on the Borrower and shall obligate the Borrower to accept the Syndicated Loan requested from the Banks on the proposed Drawdown Date. Each Loan Request shall be in a minimum aggregate amount of $1,000,000 or any integral multiple of $500,000 in excess thereof. 2.3 Competitive Bid Loans. 2.3.1 Competitive Bid Borrowings. (a) The Competitive Bid Option. In addition to the Syndicated Loans permitted to be made hereunder pursuant to Section 2.1 hereof, the Borrower may, from time to time from the Closing Date until the Revolving Credit Loan Maturity Date pursuant to the terms of this Section 2.3, cause the Agent to request the Banks to make offers to fund Competitive Bid Loans to the Borrower from time to time prior to the Revolving Credit Loan Maturity Date. The Banks may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept such offers in the manner set forth in this Section 2.3. Each Bank may make Competitive Bid Loans in an aggregate amount (after giving effect to all amounts requested) not to exceed the lesser of $20,000,000 and the Total Commitment, provided that the aggregate amount of all outstanding Syndicated Loans (after giving effect to all amounts requested) plus the aggregate amount of all outstanding Competitive Bid Loans (after giving effect to all amounts requested) shall at no time exceed the Total Commitment. (b) Competitive Bid Quote Request. When the Borrower wishes to request offers to make Competitive Bid Loans under this Section 2.3, it shall transmit to the Agent by telex or facsimile a Competitive Bid Quote Request substantially in the form of Exhibit C attached hereto (a "Competitive Bid Quote Request") so as to be received no later than 1:00 p.m. (Boston time) on the Business Day prior to the requested Drawdown Date, specifying (i) the requested Drawdown Date (which must be a Business Day), (ii) the amount of such Competitive Bid Loan (which must be a minimum of $1,000,000 or any greater integral multiple of $500,000 and may not exceed the Total Commitment), and (iii) the Interest Period of such Competitive Bid Loan (which may not extend beyond the Revolving Credit Loan Maturity Date). Contemporaneously with the transmission of each Competitive Bid Quote Request, the Borrower shall pay to the Agent, for the Agent's own account, a work fee -20- in the amount of $750. The Borrower may request offers to make Competitive Bid Loans for one amount and three Interest Periods in a single Competitive Bid Quote Request. (c) Invitation for Competitive Bid Quotes; Alternative Manner of Auction. Subsequent to timely receipt of a Competitive Bid Quote Request, the Agent shall send to the Banks by telex or facsimile an Invitation for Competitive Bid Quotes substantially in the form of Exhibit D attached hereto (an "Invitation for Competitive Bid Quotes"), as promptly as possible but not later than 3:00 p.m. (Boston time) on the Business Day prior to the requested Drawdown Date which shall constitute an invitation by the Borrower to each Bank to submit Competitive Bid Quotes offering to make Competitive Bid Loans to which such Competitive Bid Quote Request relates in accordance with this Section 2.3. If, after receipt by the Agent of a Competitive Bid Quote Request from the Borrower in accordance with subsection (b) of this Section 2.3.1, the Agent or any Bank shall be unable to complete any procedure of the auction process described in subsections (c) through (f) (inclusive) of this Section 2.3.1 due to the inability of such Person to transmit or receive communications through the means specified therein, such Person may rely on telephonic notice for the transmission or receipt of such communications. In any case where such Person shall rely on telephone transmission or receipt, any communication made by telephone shall, as soon as possible thereafter, be followed by written confirmation thereof. (d) Submission and Contents of Competitive Bid Quotes. (i) Each Bank may submit a Competitive Bid Quote containing an offer or offers to make Competitive Bid Loans in response to any Invitation for Competitive Bid Quotes. Each Competitive Bid Quote must comply with the requirements of this subsection (d) and must be submitted to the Agent by telex or facsimile not later than 10:00 a.m. (Boston time) on the requested Drawdown Date, provided that Competitive Bid Quotes may be made by the Agent in its capacity as a Bank only if it notifies the Borrower of the terms of its Competitive Bid Quote no later than 9:30 a.m. (Boston time) on the requested Drawdown Date. Subject to the provisions of Section Section 9, 10 and 11 hereof, any Competitive Bid Quote so made shall be irrevocable except with the written consent of the Agent given on the instructions of the Borrower. -21- (ii) Each Competitive Bid Quote shall be in substantially the form of Exhibit E-1 attached hereto (a "Competitive Bid Quote") and shall in any case specify: (A) the requested Drawdown Date and Interest Periods, (B) the principal amount of the Competitive Bid Loan for which each such offer is being made, which principal amount (x) may be greater than the Commitment Amount of the quoting Bank but may not exceed the Total Commitment, (y) must be $1,000,000 or a larger multiple of $500,000 and (z) may not exceed the aggregate principal amount of Competitive Bid Loans for which offers were requested, (C) the rate of interest per annum (rounded to the nearest 1/1000th of 1%) (the "Competitive Bid Rate") offered for each such Competitive Bid Loan, and (D) the identity of the quoting Bank. (iii) Any Competitive Bid Quote shall be disregarded if it: (A) is not substantially in the form of Exhibit E-1 attached hereto or does not specify all of the information required by subsection (d)(ii) of this Section 2.3.1; (B) contains qualifying, conditional or similar language (except that it may, in the case of a quote relating to more than one Interest Period, contain the condition that the Bank will fund any one, but not more, of the Competitive Bid Loans offered in such Competitive Bid Quote); (C) proposes terms other than or in addition to those set forth in the applicable Invitation for Competitive Bid Quotes; or (D) arrives after the time set forth in subsection (d)(i) of this Section 2.3.1. (e) Notice to Borrower. Not later than 10:30 a.m. (Boston time) on the requested Drawdown Date, the Agent shall notify the Borrower of the terms of all Competitive Bid Quotes submitted by -22- the Banks in accordance with subsection (d) of this Section 2.3.1. The Agent's notice to the Borrower shall specify (i) the aggregate principal amount of Competitive Bid Loans for which offers have been received for each Interest Period specified in the related Competitive Bid Quote Request, and (ii) the respective principal amounts and Competitive Bid Rates so offered. (f) Acceptance and Notice by Borrower. Not later than 11:00 a.m. (Boston time) on the requested Drawdown Date, the Borrower shall notify the Agent, and the Agent shall promptly notify each Bank with respect to its offer, of the Borrower's acceptance or non-acceptance of the offers of which it was notified pursuant to subsection (e) of this Section 2.3.1. In the case of an acceptance, such notice shall (i) be substantially in the form of Exhibit E-2 attached hereto (a "Notice of Competitive Bid Borrowing"), (ii) be irrevocable by the Borrower, and (iii) specify the aggregate principal amount of offers for each Interest Period that are accepted. Each acceptance by the Borrower of Competitive Bid Loans hereunder shall constitute a representation and warranty by the Borrower that the conditions set forth in Section Section 9 and 10 hereof have been satisfied on the date of such acceptance. The Borrower may accept any Competitive Bid Quote in whole or in part; provided that: (A) the aggregate principal amount of each Competitive Bid Loan may not exceed the applicable amount set forth in the related Competitive Bid Quote Request, (B) the aggregate principal amount of each Competitive Bid Loan must be $1,000,000 or a larger multiple of $500,000, and (C) acceptance of offers may only be made on the basis of ascending Competitive Bid Rates. (g) Allocation by Agent; Usage of Commitments. If offers are made by two or more Banks with the same Competitive Bid Rates, for a greater aggregate principal amount than the amount in respect of which offers are accepted for the related Interest Period, the principal amount of Competitive Bid Loans in respect of which such offers are accepted shall be allocated by the Agent among such Banks as nearly as possible (in such multiples, not less than $100,000 as the Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers. If any such Bank has indicated a minimum acceptable Competitive Bid Loan in its -22- Competitive Bid Request, and under the procedures of this subsection (g), the Agent would have allocated to it an amount less than such minimum, such Competitive Bid Quote will instead be deemed to have been withdrawn. Determination by the Agent of the amounts of Competitive Bid Loans and the allocation thereof shall be conclusive in the absence of manifest error. The Agent shall, promptly after the funding of any Competitive Bid Loan, notify the Banks thereof pursuant to a notice substantially in the form of Exhibit E-3 attached hereto. (h) Funding of Competitive Bid Loans. If, on or prior to the Drawdown Date of any Competitive Bid Loan, the Total Commitment has not terminated in full and if, on such Drawdown Date, the applicable conditions of Section Section 4 and 10 hereof are satisfied, the Bank or Banks whose offers the Borrower has accepted will fund each Competitive Bid Loan so accepted as provided in Section 2.4.1 hereof. 2.3.2 Maximum Competitive Bid Loans; Funding Losses. (a) Notwithstanding any other provision herein to the contrary, at no time shall the aggregate principal amount of Competitive Bid Loans outstanding at any time exceed the lesser of (i) the Total Commitment minus the aggregate principal amount of Syndicated Loans outstanding at such time and (ii) $20,000,000. (b) If after acceptance of any Competitive Bid Quote pursuant to Section 2.3.1(f) hereof, the Borrower fails to borrow any Competitive Bid Loan so accepted on the date specified therefor, the Borrower shall indemnify the Bank funding such Loan against any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Bank to fund or maintain such unborrowed Competitive Bid Loans, including, without limitation, compensation as provided in Section 4.10 hereof. 2.3.3 Repayment of Competitive Bid Loans. The principal of each Competitive Bid Loan shall become absolutely due and payable by the Borrower on the last day of the Interest Period relating thereto, and the Borrower hereby absolutely and unconditionally promises to pay to the Agent, for the accounts of the relevant Banks, on the last day of the Interest Period relating thereto the principal amount of all such Competitive Bid Loans plus interest thereon at the applicable Competitive Bid Rate. Subject to the terms of this Credit Agreement, the Borrower may reborrow any amounts so repaid from time to time prior to the Revolving Credit Loan Maturity Date. -24- 2.4 Funds for Loans. 2.4.1 Funding Procedures. Not later than 1:30 p.m. (Boston time) on the proposed Drawdown Date of any Syndicated Loans or Competitive Bid Loans, as applicable, each of the relevant Banks will make available to the Agent, at the Agent's Head Office, in immediately available funds, the amount of such Bank's Commitment Percentage of the amount of the requested Syndicated Loans or the amount of such Bank's Competitive Bid Loan, as applicable. Upon receipt from each Bank of such amount, and upon receipt of the documents required by Section Section 9 and 10 hereof and the satisfaction of the other conditions set forth therein, to the extent applicable, the Agent will make available to the Borrower the aggregate amount of such Loans made available to the Agent by the relevant Banks. The failure or refusal of any Bank to make available to the Agent its Commitment Percentage of the requested Syndicated Loans on any Drawdown Date shall not excuse any other Bank from making available to the Agent the amount of such other Bank's Commitment Percentage of any requested Syndicated Loans. 2.4.2 Advances by Agent. The Agent may, unless notified to the contrary by any Bank prior to a Drawdown Date, assume that such Bank has made available to the Agent on such Drawdown Date the amount of such Bank's Commitment Percentage of the Syndicated Loans (or, in the case of Competitive Bid Loans, the amount of such Bank's accepted offers of Competitive Bid Loans, if any) to be made on such Drawdown Date, and the Agent may (but it shall not be required to), in reliance upon such assumption, make available to the Borrower a corresponding amount. If any Bank makes available to the Agent such amount on a date after such Drawdown Date, such Bank shall pay to the Agent on demand an amount equal to the product of (a) the average computed for the period referred to in clause (c) below, of the weighted average interest rate paid by the Agent for federal funds acquired by the Agent during each day included in such period, times (b) the amount of such Bank's Commitment Percentage of such Syndicated Loans (or accepted offers of Competitive Bid Loans, as applicable), times (c) a fraction, the numerator of which is the number of days that elapse from and including such Drawdown Date to the date on which the amount of such Bank's Syndicated Loans or Competitive Bid Loans, as applicable, shall become immediately available to the Agent, and the denominator of which is 365. A statement of the Agent submitted to such Bank with respect to any amounts owing under this Section 2.4.2 shall be prima facie evidence of the amount due and owing to the Agent by such Bank. If the amount of such Bank's -25- Syndicated Loans or Competitive Bid Loans, as applicable, is not made available to the Agent by such Bank within three (3) Business Days following such Drawdown Date, the Agent shall be entitled to recover such amount from the Borrower on demand, with interest thereon at the rate per annum applicable to the Syndicated Loans or Competitive Bid Loans, as applicable, made on such Drawdown Date. Any payment by the Borrower to the Agent of any Syndicated Loans or Competitive Bid Loans pursuant to this Section 2.4.2 shall be deemed to be a payment of the Loans that were to be made by the Bank that failed to make such Syndicated Loans or Competitive Bid Loans, as applicable. 2.5 The Notes. 2.5.1 Syndicated Notes. The Syndicated Loans shall be evidenced by separate promissory notes of the Borrower in substantially the form of Exhibit F-1 attached hereto (each a "Syndicated Note"), dated as of the Closing Date and completed with appropriate insertions. A Syndicated Note shall be payable to the order of each Bank in a principal amount equal to such Bank's Commitment Amount or, if less, the outstanding amount of all Syndicated Loans made by such Bank, plus interest accrued thereon, as set forth below. The Borrower irrevocably authorizes each Bank to make, at or about the time of the Drawdown Date of any Syndicated Loan or at the time of receipt of any payment of principal on such Bank's Syndicated Note, an appropriate notation on the Record attached to such Bank's Syndicated Note reflecting the making of such Syndicated Loan or (as the case may be) the receipt of such payment. The outstanding amount of the Syndicated Loans set forth on such Bank's Record shall be prima facie evidence of the principal amount thereof owing and unpaid to such Bank, but the failure to record, or any error in so recording, any such amount on such Bank's Record shall not limit or otherwise affect the obligations of the Borrower hereunder or under any Syndicated Note to make payments of principal of or interest on any Syndicated Note when due. 2.5.2 Competitive Bid Notes. The Competitive Bid Loans shall be evidenced by separate promissory notes of the Borrower in substantially the form of Exhibit F-2 attached hereto (each a "Competitive Bid Note"), dated as of the Closing Date and completed with appropriate insertions. A Competitive Bid Note shall be payable to the order of each Bank in a principal amount equal to $20,000,000, or if less, the outstanding amount of all Competitive Bid Loans made by such Bank to the Borrower hereunder, as set -26- forth in Section 2.3 hereof, plus interest accrued thereon, as set forth below. The Borrower irrevocably authorizes each Bank to make, at or about the time of the Drawdown Date of any Competitive Bid Loan made by such Bank or at the time of receipt of the payment of principal of such Competitive Bid Loan, an appropriate notation on the Record attached to such Bank's Competitive Bid Note reflecting the making of such Competitive Bid Loan and repayments thereof. All such notations shall constitute prima facie evidence of the amount of such Competitive Bid Loans and the repayments thereof, but the failure to record, or any error in so recording such amount on such Bank's Record shall not limit or otherwise affect the obligations of the Borrower hereunder or under any Competitive Bid Note to make payments of principal or interest on any Competitive Bid Note when due. 2.6 Reduction of Total Commitment. The Borrower shall have the right at any time and from time to time upon five (5) Business Days prior written notice to the Agent to reduce by $1,000,000 or an integral multiple thereof or terminate entirely the unborrowed portion of the Total Commitment, whereupon the Commitments of the Banks shall be reduced pro rata in accordance with their respective Commitment Percentages of the amount specified in such notice or, as the case may be, terminated. Promptly after receiving any notice of the Borrower delivered pursuant to this Section 2.6, the Agent will notify the Banks of the substance thereof. Upon the effective date of any such reduction or termination, the Borrower shall pay to the Agent for the respective accounts of the Banks the full amount of any commitment fee then accrued on the amount of the reduction. No reduction or termination of the Commitments or of the Total Commitment may be reinstated. 2.7 Interest on Loans. Except as otherwise provided in Section 4.11, (a) Each Base Rate Loan shall bear interest for the period commencing with the Drawdown Date thereof and ending on the last day of the Interest Period with respect thereto at the Base Rate. (b) Each Eurodollar Rate Loan shall bear interest for the period commencing with the Drawdown Date thereof and ending on the last day of the Interest Period with respect thereto at a rate per annum equal to the sum of the Applicable Eurodollar Rate Margin plus the Eurodollar Rate determined for such Interest Period. (c) Each Competitive Bid Loan shall bear interest at the rate per annum specified in the applicable Competitive Bid Quote with respect to such Competitive Bid Loan. -27- (d) The Borrower promises to pay interest on each Loan in arrears on each Interest Payment Date with respect thereto. (e) The Borrower shall not request any Eurodollar Rate Loans with an Interest Period in excess of one (1) month hereunder and the Banks shall not be required to make any Eurodollar Rate Loans with an Interest Period in excess of one (1) month hereunder until the earlier of (a) January 31, 1998, and (b) the date upon which the Agent advises the Borrower that the Arranger has completed the syndication of the Loans hereunder in a manner satisfactory to the Agent and the Arranger; provided, however, that with respect to (i) any Eurodollar Rate Loans made in accordance with the requirements of this sentence and (ii) any Eurodollar Rate Loans outstanding on the Closing Date, the Borrower shall convert such Eurodollar Rate Loans to Base Rate Loans on any date on which the Agent notifies the Borrower that it and the Arranger will be completing the syndication of the Loans, and the Borrower shall pay any costs or expenses associated therewith in accordance with the requirements of Section 4.10. 2.8 Conversion Options. 2.8.1 Conversion to Different Type of Syndicated Loan. The Borrower may elect from time to time to convert any outstanding Syndicated Loan to a Syndicated Loan of another Type, provided that (i) with respect to any such conversion of a Syndicated Loan to a Base Rate Loan, the Borrower shall give the Agent written notice of such election by 10:00 a.m. on the proposed conversion date of such Syndicated Loan; (ii) with respect to any such conversion of a Eurodollar Rate Loan into a Base Rate Loan, such conversion shall only be made on the last day of the Interest Period with respect thereto; (iii) with respect to any such conversion of a Base Rate Loan to a Eurodollar Rate Loan, the Borrower shall give the Agent at least two (2) Eurodollar Business Days' prior written notice of such election and (iv) no Syndicated Loan may be converted into a a Eurodollar Rate Loan when any Default or Event of Default has occurred and is continuing. On the date on which such conversion is being made, each Bank shall take such action as is necessary to transfer its Commitment Percentage of such Syndicated Loans to its Domestic Lending Office or its Eurodollar Lending Office, as the case may be. All or any part of the outstanding Syndicated Loans of any Type may be converted as provided herein, provided that partial conversions shall be in an aggregate principal amount of $500,000 or a whole multiple thereof. Each Conversion Request relating to -28- the conversion of a Syndicated Loan to a Eurodollar Rate Loan shall be irrevocable by the Borrower. 2.8.2 Continuation of Type of Syndicated Loan. Any Syndicated Loan of any Type may be continued as such upon the expiration of an Interest Period with respect thereto by compliance by the Borrower with the notice provisions contained in Section 2.8.1; provided that no Eurodollar Rate Loan may be continued as such when any Default or Event of Default has occurred and is continuing, but shall be automatically converted to a Base Rate Loan on the last day of the first Interest Period relating thereto ending during the continuance of any Default or Event of Default of which the officers of the Agent active upon the Borrower's account have actual knowledge. In the event that the Borrower fails to provide any such notice with respect to the continuation of any Eurodollar Rate Loan or Base Rate Loan as such, then such Eurodollar Rate Loan shall be automatically converted to a Base Rate Loan on the last day of the first Interest Period relating thereto, and such Base Rate Loan shall be continued as a Base Rate Loan on the last day of the first Interest Period relating thereto. The Agent shall notify the Banks promptly when any such automatic conversion contemplated by this Section 2.8 is scheduled to occur. 2.8.3 Eurodollar Rate Loans. Any conversion to or from Eurodollar Rate Loans shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of all Eurodollar Rate Loans having the same Interest Period shall not be less than $1,000,000 or a whole multiple of $500,000 in excess thereof. 2.9 Limited Increase In Total Commitment. Unless a Default or Event of Default has occurred and is continuing, the Borrower may request that the Total Commitment be increased to $165,000,000 hereunder, subject to the approval of the Agent, provided, however, that (i) any Bank which is a party to this Credit Agreement prior to such increase may elect to fund a share of the increase (as allocated by the Agent), thereby increasing its Commitment hereunder, but no Bank shall be required to do so, (ii) in the event that it becomes necessary to include a new Bank to provide additional funding under this Section 2.9, such new Bank must be reasonably acceptable to the Agent, and (iii) the Banks' Commitment Percentages shall be correspondingly adjusted and Notes issued or amended and such other changes shall be made to the Loan Documents, as necessary, to reflect any such increase in the Total Commitment. Any such increase (whether to $165,000,000 or to a lesser amount) shall require, among other things, the satisfaction of such conditions precedent as the Agent may require, including, without limitation, the obtaining by any Bank of requisite internal approvals, the Agent's receipt of evidence of applicable corporate authorization and other corporate documentation from the Borrower and the legal opinion of counsel to the Borrower, each in form and substance satisfactory to the Agent, such Banks as are participating in such increase and the Borrower. REPAYMENT OF THE LOANS. ----------------------- 3.1 Maturity. The Borrower promises to pay on the Revolving Credit Loan Maturity Date, and there shall become absolutely due and payable on the Revolving Credit Loan Maturity Date, all of the Loans outstanding on such date, together with any and all accrued and unpaid interest thereon. 3.2 Mandatory Repayments of Loans. If at any time the sum of the outstanding amount of the Loans exceeds the Total Commitment, then the Borrower shall immediately pay the amount of such excess to the Agent for application to the Loans for the respective accounts of the Banks. Each prepayment of Loans shall be allocated among the Banks, in proportion, as nearly as practicable to the respective unpaid principal amount of each Bank's Syndicated Note, with adjustments to the extent practicable to equalize any prior payments or repayments not exactly in proportion, and if no Syndicated Loans are outstanding, the Competitive Bid Loans, in proportion, as nearly as practicable, to the unpaid principal amount of each Bank's Competitive Bid Note. If at any time the sum of the outstanding amount of the Competitive Bid Loans exceeds $20,000,000, then the Borrower shall immediately pay the amount of such excess to the Agent for application to the Competitive Bid Loans made by the Banks, in proportion, as nearly as practicable, to the unpaid principal amount of each Bank's Competitive Bid Note. 3.3 Optional Repayments of Syndicated Loans. The Borrower shall have the right, at its election, to repay the outstanding amount of the Syndicated Loans, as a whole or in part, at any time without penalty or premium, provided that all prepayments of Eurodollar Rate Loans prior to the end of the Interest Period relating thereto shall obligate the Borrower to pay any breakage costs associated with such Eurodollar Rate Loans in accordance with Section 4.10 hereof. The Borrower shall give the Agent written notice, no later than 10:00 a.m., Boston time, (a) on the Business Day of any proposed repayment pursuant to this Section 3.3 of Base Rate Loans, and (b) two (2) Eurodollar Business Days notice of any proposed repayment pursuant to this Section 3.3 of Eurodollar Rate Loans, in each case, specifying the proposed date of payment of such Syndicated Loans and the -30- principal amount to be paid. Each such partial prepayment of the Loans shall be in an integral multiple of $500,000, shall be accompanied by the payment of accrued interest on the principal repaid to the date of payment and shall be applied first to the principal of Base Rate Loans and then to the principal of Eurodollar Rate Loans. Each partial prepayment shall be allocated among the Banks, in proportion, as nearly as practicable, to the respective unpaid principal amount of each Bank's Syndicated Note, with adjustments to the extent practicable to equalize any prior repayments not exactly in proportion. CERTAIN GENERAL PROVISIONS. --------------------------- 4.1 Certain Fees. 4.1.1 Agent and Arranger Fees. The Borrower agrees to pay to each of the Agent and the Arranger the fees described in the Agent's Fee Letter, upon the terms and conditions set forth therein. 4.1.2 Documentation Agent's Fee. The Borrower agrees to pay to the Documentation Agent the fees described in the Documentation Agent's Fee Letter, upon the terms and conditions set forth therein. 4.2 Facility Fee. The Borrower agrees to pay to the Agent for the accounts of the Banks in accordance with their respective Commitment Percentages a facility fee calculated at the rate of the Applicable Facility Fee Percentage on the average daily amount during each calendar quarter or portion thereof from the Closing Date to the Revolving Credit Loan Maturity Date of the Total Commitment during such calendar quarter. The facility fee shall be payable quarterly in arrears on the first day of each calendar quarter for the immediately preceding calendar quarter commencing on the first such date following the date hereof, with a final payment on the Revolving Credit Maturity Date or any earlier date on which the Commitments shall terminate. 4.3 Funds for Payments. 4.3.1 Payments to Agent. All payments of principal, interest, commitment fees and any other amounts due hereunder or under any of the other Loan Documents shall be made to the Agent, for the respective accounts of the Banks and the Agent, at the Agent's Head Office or at such other location in the Boston, Massachusetts area that the Agent may from time to time designate, in each case in immediately available funds. -31- 4.3.2 No Offset, etc. All payments by the Borrower hereunder and under any of the other Loan Documents shall be made without setoff or counterclaim and free and clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restrictions or conditions of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein unless the Borrower is compelled by law to make such deduction or withholding. If any such obligation is imposed upon the Borrower with respect to any amount payable by it hereunder or under any of the other Loan Documents, the Borrower will pay to the Agent, for the account of the Banks or (as the case may be) the Agent, on the date on which such amount is due and payable hereunder or under such other Loan Document, such additional amount in Dollars as shall be necessary to enable the Banks or the Agent to receive the same net amount which the Banks or the Agent would have received on such due date had no such obligation been imposed upon the Borrower. The Borrower will deliver promptly to the Agent certificates or other valid vouchers for all taxes or other charges deducted from or paid with respect to payments made by the Borrower hereunder or under such other Loan Document. 4.4 Computations. All computations of interest on Competitive Bid Loans or Eurodollar Rate Loans and fees shall be based on a 360-day year and paid for the actual number of days elapsed. All computations of interest on Base Rate Loans shall be based on a 365-day year and paid for the actual number of days elapsed. Except as otherwise provided in the definition of the term "Interest Period" with respect to Eurodollar Rate Loans, whenever a payment hereunder or under any of the other Loan Documents becomes due on a day that is not a Business Day, the due date for such payment shall be extended to the next succeeding Business Day, and interest shall accrue during such extension. The outstanding amount of the Loans as reflected on the Records from time to time shall be considered correct and binding on the Borrower unless within five (5) Business Days after the Borrower's receipt of any notice from the Agent or any of the Banks of such outstanding amount, the Borrower shall notify the Agent or such Bank to the contrary. 4.5. Inability to Determine Eurodollar Rate. In the event that, prior to the commencement of any Interest Period relating to any Eurodollar Rate Loan, the Agent shall determine that adequate and reasonable methods do not exist for ascertaining the Eurodollar Rate that would otherwise determine the rate of interest to be applicable to any Eurodollar Rate Loan during any Interest Period, the Agent shall -32- forthwith give notice of such determination (which shall be conclusive and binding on the Borrower and the Banks) to the Borrower and the Banks. In such event (i) any Loan Request or Conversion Request with respect to Eurodollar Rate Loans shall be automatically withdrawn and, shall be deemed a request for Base Rate Loans, (ii) each Eurodollar Rate Loan will automatically, on the last day of the then current Interest Period thereof, become a Base Rate Loan, and (iii) the obligations of the Banks to make Eurodollar Rate Loans shall be suspended until the Agent determines that the circumstances giving rise to such suspension no longer exist, whereupon the Agent shall so notify the Borrower and the Banks. 4.6 Illegality. Notwithstanding any other provisions herein, if any present or future law, regulation, treaty or directive or in the interpretation or application thereof shall make it unlawful for any Bank to make or maintain Eurodollar Rate Loans, such Bank shall forthwith give notice of such circumstances to the Borrower and the other Banks and thereupon (i) the commitment of such Bank to make Eurodollar Rate Loans or convert Loans of another Type to Eurodollar Rate Loans shall forthwith be suspended and (ii) such Bank's Syndicated Loans then outstanding as Eurodollar Rate Loans, if any, shall be converted automatically to Base Rate Loans on the last day of each Interest Period applicable to such Eurodollar Rate Loans or within such earlier period as may be required by law. The Borrower hereby agrees promptly to pay the Agent for the account of such Bank, upon demand by such Bank, any additional amounts necessary to compensate such Bank for any costs incurred by such Bank in making any conversion in accordance with this Section 4.6, including any interest or fees payable by such Bank to lenders of funds obtained by it in order to make or maintain its Eurodollar Rate Loans hereunder. 4.7 Additional Costs, etc. If any present or future applicable law, which expression, as used herein, includes statutes, rules and regulations thereunder and interpretations thereof by any competent court or by any governmental or other regulatory body or official charged with the administration or the interpretation thereof and requests, directives, instructions and notices at any time or from time to time hereafter made upon or otherwise issued to any Bank or the Agent by any central bank or other fiscal, monetary or other authority (whether or not having the force of law), shall: (a) subject any Bank or the Agent to any tax, levy, impost, duty, charge, fee, deduction or withholding of any nature with respect to this Credit Agreement, the other Loan Documents, such Bank's Commitment or the Loans (other than taxes based upon or measured by the income or profits of such Bank or the Agent), or -33- (b) materially change the basis of taxation (except for changes in taxes on income or profits) of payments to any Bank of the principal of or the interest on any Loans or any other amounts payable to any Bank or the Agent under this Credit Agreement or the other Loan Documents, or (c) impose or increase or render applicable (other than to the extent specifically provided for elsewhere in this Credit Agreement) any special deposit, reserve, assessment, liquidity, capital adequacy or other similar requirements (whether or not having the force of law) against assets held by, or deposits in or for the account of, or loans by, or commitments of an office of any Bank, or (d) impose on any Bank or the Agent any other conditions or requirements with respect to this Credit Agreement, the other Loan Documents, the Loans, such Bank's Commitment, or any class of loans or commitments of which any of the Loans or such Bank's Commitment forms a part, and the result of any of the foregoing is (i) to increase the cost to any Bank of making, funding, issuing, renewing, extending or maintaining any of the Loans or such Bank's Commitment, or (ii) to reduce the amount of principal, interest or other amount payable to such Bank or the Agent hereunder on account of such Bank's Commitment or any of the Loans, or (iii) to require such Bank or the Agent to make any payment or to forego any interest or other sum payable hereunder, the amount of which payment or foregone interest or other sum is calculated by reference to the gross amount of any sum receivable or deemed received by such Bank or the Agent from the Borrower hereunder, then, and in each such case, the Borrower will, upon demand made by such Bank or (as the case may be) the Agent at any time and from time to time and as often as the occasion therefor may arise, pay to such Bank or the Agent such additional amounts as will be sufficient to compensate such Bank or the Agent for such additional cost, reduction, payment or foregone interest or other sum. 4.8. Capital Adequacy. If after the date hereof any Bank or the Agent determines that (i) the adoption of or change in any law, governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) regarding capital requirements for banks or bank holding companies or any change in the interpretation or application -34- thereof by a court or governmental authority with appropriate jurisdiction, or (ii) compliance by such Bank or the Agent or any corporation controlling such Bank or the Agent with any law, governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) of any such entity regarding capital adequacy, has the effect of reducing the return on such Bank's or the Agent's commitment with respect to any Loans to a level below that which such Bank or the Agent could have achieved but for such adoption, change or compliance (taking into consideration such Bank's or the Agent's then existing policies with respect to capital adequacy and assuming full utilization of such entity's capital) by any amount deemed by such Bank or (as the case may be) the Agent to be material, then such Bank or the Agent may notify the Borrower of such fact. To the extent that the amount of such reduction in the return on capital is not reflected in the Base Rate, the Borrower agrees to pay such Bank or (as the case may be) the Agent the amount of such reduction in the return on capital as and when such reduction is determined upon presentation by such Bank or (as the case may be) the Agent of a certificate in accordance with Section 4.9 hereof. Each Bank shall allocate such cost increases among its customers in good faith and on an equitable basis. 4.9. Certificate. A certificate setting forth any additional amounts payable pursuant to Section 4.7 or 4.8 and a brief explanation of such amounts which are due, submitted by any Bank or the Agent to the Borrower, shall be conclusive, absent manifest error, that such amounts are due and owing. 4.10. Indemnity. The Borrower agrees to indemnify each Bank and to hold each Bank harmless from and against any loss, cost or expense (including loss of anticipated profits) that such Bank may sustain or incur as a consequence of (i) default by the Borrower in payment of the principal amount of or any interest on any Eurodollar Rate Loans or Competitive Bid Rate Loans as and when due and payable, including any such loss or expense arising from interest or fees payable by such Bank to lenders of funds obtained by it in order to maintain its Eurodollar Rate Loans or Competitive Bid Rate Loans, (ii) default by the Borrower in making a borrowing after the Borrower has given (or is deemed to have given) a Loan Request or a Conversion Request relating thereto in accordance with Section 2.2 or Section 2.8 or a Notice of Competitive Bid Borrowing in accordance with Section 2.3.1(f) hereof, or (iii) the making of any payment of a Eurodollar Rate Loan or Competitive Bid Rate Loan or the making of any conversion of any such Eurodollar Rate Loan to a Base Rate Loan on a day that is not the last day of the applicable Interest Period with respect thereto, including interest or fees payable by such Bank to lenders of funds obtained by it in order to maintain any such Loans. -35- 4.11. Interest After Default. 4.11.1 Overdue Amounts. Overdue principal and (to the extent permitted by applicable law) interest on the Loans and all other overdue amounts payable hereunder or under any of the other Loan Documents shall bear interest compounded monthly and payable on demand at a rate per annum equal to four percent (4%) above the Base Rate until such amount shall be paid in full (after as well as before judgment). 4.11.2 Amounts Not Overdue. During the continuance of a Default or an Event of Default the principal of the Loans not overdue shall, until such Default or Event of Default has been cured or remedied or such Default or Event of Default has been waived by the Majority Banks pursuant to Section 24, bear interest at a rate per annum equal to the greater of (i) four percent (4%) above the rate of interest otherwise applicable to such Loans or (ii) the rate of interest applicable to overdue principal pursuant to Section 4.11.1. 4.12. Guaranties. The payment and performance of the Obligations shall be guaranteed by each Subsidiary of the Borrower which becomes a party to a Guaranty pursuant to Section 7.5.1 or Section 7.11. 5. REPRESENTATIONS AND WARRANTIES. ----------------------------------- The Borrower represents and warrants to the Banks and the Agent as follows: 5.1. Corporate Authority. 5.1.1. Incorporation; Good Standing. Each of the Borrower and its Subsidiaries (i) is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation, (ii) has all requisite corporate power to own its property and conduct its business as now conducted and as presently contemplated, and (iii) is in good standing as a foreign corporation and is duly authorized to do business in each jurisdiction where such qualification is necessary except where a failure to be so qualified would not have a materially adverse effect on the business, assets or financial condition of the Borrower or its Subsidiaries. 5.1.2. Authorization. The execution, delivery and performance of this Credit Agreement and the other Loan Documents to which the Borrower or any of its Subsidiaries is or is to become a party and the transactions contemplated hereby and thereby (i) are within -36- the corporate authority of such Person, (ii) have been duly authorized by all necessary corporate proceedings, (iii) do not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which the Borrower or any of its Subsidiaries is subject or any judgment, order, writ, injunction, license or permit applicable to the Borrower or any of its Subsidiaries and (iv) do not conflict with any provision of the corporate charter or bylaws of, or any agreement or other instrument binding upon, the Borrower or any of its Subsidiaries. 5.1.3. Enforceability. The execution and delivery of this Credit Agreement and the other Loan Documents to which the Borrower or any of its Subsidiaries is or is to become a party will result in valid and legally binding obligations of such Person, enforceable against it in accordance with the respective terms and provisions hereof and thereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. 5.2. Governmental Approvals. The execution, delivery and performance by the Borrower and any of its Subsidiaries of this Credit Agreement and the other Loan Documents to which the Borrower or any of its Subsidiaries is or is to become a party and the transactions contemplated hereby and thereby do not require the approval or consent of, or filing with, any governmental agency or authority other than those already obtained. 5.3. Title to Properties; Leases. Except as indicated on Schedule 5.3 hereto, the Borrower and its Subsidiaries own all of the assets reflected in the consolidated balance sheet of the Borrower and its Subsidiaries as at the Balance Sheet Date or acquired since that date (except property and assets sold or otherwise disposed of in the ordinary course of business since that date), subject to no rights of others, including any mortgages, leases, conditional sales agreements, title retention agreements, liens or other encumbrances except Permitted Liens. 5.4. Financial Statements. There has been furnished to the Agent a consolidated balance sheet of the Borrower and its Subsidiaries as at the Balance Sheet Date, and a consolidated statement of income and a consolidated statement of cash flow for the fiscal year then ended, including the opinion thereof expressed by and signed by the Borrower's independent certified public accountants. Such balance sheet, statement -37- of income and statement of cash flow have been prepared in accordance with generally accepted accounting principles and fairly present the financial condition of the Borrower as at the close of business on the date thereof and the results of operations for the fiscal year then ended. There are no contingent liabilities of the Borrower or any of its Subsidiaries as of such date involving material amounts, known to the Borrower not disclosed in said balance sheet and the related notes thereto. 5.5. No Material Changes, etc. Since the Balance Sheet Date there has occurred no materially adverse change in the financial condition or business of the Borrower and its Subsidiaries as shown on or reflected in the consolidated balance sheet of the Borrower and its Subsidiaries as at the Balance Sheet Date, or the consolidated statement of income for the fiscal year then ended, other than changes in the ordinary course of business that have not had any materially adverse effect on the business or financial condition of the Borrower and its Subsidiaries on a consolidated basis. Except as set forth on Schedule 5.5 hereto, the Borrower has not, since the Balance Sheet Date, made any Distributions. 5.6. Franchises, Patents, Copyrights, etc. Each of the Borrower and its Subsidiaries possesses all franchises, patents, copyrights, trademarks, trade names, licenses and permits, and rights in respect of the foregoing, adequate for the conduct of its business substantially as now conducted without known conflict with any rights of others. 5.7. Litigation. There are no actions, suits, proceedings or investigations of any kind pending or threatened against the Borrower or any of its Subsidiaries before any court, tribunal or administrative agency or board that, if adversely determined, might, in any case materially adversely affect the properties, assets, financial condition or business of the Borrower and its Subsidiaries on a consolidated basis or materially impair the right of the Borrower and its Subsidiaries, considered as a whole, to carry on business substantially as now conducted by them, or result in any substantial liability not adequately covered by insurance, or for which adequate reserves are not maintained on the consolidated balance sheet of the Borrower, or which question the validity of this Credit Agreement or any of the other Loan Documents, or any action taken or to be taken pursuant hereto or thereto. 5.8. No Materially Adverse Contracts, etc. Neither the Borrower nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation that has or is expected in the future to have a materially adverse effect on the business, assets or financial condition of the Borrower and of its Subsidiaries on a consolidated basis. Neither the Borrower nor any of its -38- Subsidiaries is a party to any contract or agreement that has or is expected, in the judgment of the Borrower's officers, to have any materially adverse effect on the business of the Borrower and its Subsidiaries on a consolidated basis. 5.9. Compliance With Other Instruments, Laws, etc. Neither the Borrower nor any of its Subsidiaries is in violation of any provision of its charter documents, bylaws, or any agreement or instrument to which it may be subject or by which it or any of its properties may be bound or any decree, order, judgment, statute, license, rule or regulation, in any of the foregoing cases in a manner that could result in the imposition of substantial penalties or materially and adversely affect the financial condition, properties or business of the Borrower and its Subsidiaries on a consolidated basis. 5.10. Tax Status. The Borrower and its Subsidiaries (i) have made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which any of them is subject, (ii) have paid all taxes and other governmental assessments and charges shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and by appropriate proceedings and (iii) have set aside on their books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the Borrower knows of no basis for any such claim. 5.11. No Event of Default. No Default or Event of Default has occurred and is continuing. 5.12. Holding Company and Investment Company Acts. Neither the Borrower nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of a "holding company", or an affiliate" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935; nor is it an "investment company", or an "affiliated company" or a "principal underwriter" of an "investment company", as such terms are defined in the Investment Company Act of 1940. 5.13. Absence of Financing Statements, etc. Except with respect to Permitted Liens, there is no financing statement, security agreement, chattel mortgage, real estate mortgage or other document filed or recorded with any filing records, registry, or other public office, that purports to cover, affect or give notice of any present or possible future -39- lien on, or security interest in, any assets or property of the Borrower or any of its Subsidiaries or rights thereunder. 5.14. Chief Executive Office. The Borrower's chief executive office is located at 500 Main Street, Groton, Massachusetts 01471. 5.15. Certain Transactions. Except as set forth on Schedule 5.15, none of the officers, directors, or employees of the Borrower or any of its Subsidiaries is presently a party to any transaction with the Borrower or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Borrower, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. 5.16. Employee Benefit Plans. 5.16.1 In General. Each Employee Benefit Plan and each Guaranteed Pension Plan has been maintained and operated in compliance in all material respects with the applicable provisions of ERISA and, to the extent applicable, the Code, including but not limited to the provisions thereunder respecting prohibited transactions and the bonding of fiduciaries and other persons handling plan funds as required by Section 412 of ERISA. The Borrower has heretofore delivered to the Agent the most recently completed annual report, Form 5500, with all required attachments, and actuarial statement required to be submitted under Section 103(d) of ERISA, with respect to each Guaranteed Pension Plan. 5.16.2. Terminability of Welfare Plans. No Employee Benefit Plan which is an employee welfare benefit plan within the meaning of Section 3(1) or Section 3(2)(B) of ERISA provides benefit coverage subsequent to termination of employment except as required by Title I, Part 6 of ERISA or applicable state insurance laws. The Borrower may terminate each such Plan at any time (or at any time subsequent to the expiration of any applicable bargaining agreement) in the discretion of the Borrower or such ERISA Affiliate without liability to any Person other than for claims arising prior to termination. 5.16.3. Guaranteed Pension Plans. Each contribution required to be made to a Guaranteed Pension Plan, whether required to be made to avoid the incurrence of an accumulated funding deficiency, -40- the notice or lien provisions of Section 302(f) of ERISA, or otherwise, has been timely made. No waiver of an accumulated funding deficiency or extension of amortization periods has been received with respect to any Guaranteed Pension Plan, and neither the Borrower nor any ERISA Affiliate is obligated to or has posted security in connection with an amendment of a Guaranteed Pension Plan pursuant to Section 307 of ERISA or Section 401(a)(29) of the Code. No liability to the PBGC (other than required insurance premiums, all of which have been paid) has been incurred by the Borrower or any ERISA Affiliate with respect to any Guaranteed Pension Plan and there has not been any ERISA Reportable Event, or any other event or condition which presents a material risk of termination of any Guaranteed Pension Plan by the PBGC; provided, however, that prior to the Closing Date, the Borrower terminated its sole Guaranteed Pension Plan as a standard termination pursuant to Section 4041(b) of ERISA and, as of the Closing Date, is in the process of distributing all assets of such plan to the participants therein. Based on the latest valuation of each Guaranteed Pension Plan (which in each case occurred within twelve months of the date of this representation), and on the actuarial methods and assumptions employed for that valuation, the aggregate benefit liabilities of all such Guaranteed Pension Plans within the meaning of Section 4001 of ERISA did not exceed the aggregate value of the assets of all such Guaranteed Pension Plans, disregarding for this purpose the benefit liabilities and assets of any Guaranteed Pension Plan with assets in excess of benefit liabilities. 5.16.4. Multiemployer Plans. Neither the Borrower nor any ERISA Affiliate is contributing or has ever contributed or been obligated to contribute to any Multiemployer Plan. 5.17. Use of Proceeds. 5.17.1. General. The proceeds of the Loans shall be used (a)(i) to finance acquisitions permitted by Section 7.5, (ii) to finance repurchases of the Borrower's common stock and other Distributions to the extent permitted by Section 7.4, and (iii) to refinance existing Indebtedness of the Borrower to the Agent and certain of the Banks under the Original Credit Agreement and (b) for working capital and general corporate purposes. 5.17.2. Regulations U and X. No portion of any Loan is to be used, except as otherwise permitted herein, for the purpose of purchasing or carrying any "margin security" or "margin stock" as such terms are used in Regulations U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and -41- 224, nor is any portion of any Loan to be used in any manner which, after giving effect to Section 7.5.1 and Permitted Acquisitions or to Section 7.11 or otherwise, would be in violation of such Regulations U or X. 5.17.3. Ineligible Securities. No portion of the proceeds of any Loan is to be used for the purpose of (a) knowingly purchasing, or providing credit support for the purchase of, Ineligible Securities from a Section 20 Subsidiary during any period in which such Section 20 Subsidiary makes a market in such Ineligible Securities, (b) knowingly purchasing, or providing credit support for the purchase of, during the underwriting or placement period, any Ineligible Securities being underwritten or privately placed by a Section 20 Subsidiary, or (c) making, or providing credit support for the making of, payments of principal or interest on Ineligible Securities underwritten or privately placed by a Section 20 Subsidiary and issued by or for the benefit of the Borrower, any of its Subsidiaries or any other Affiliate of the Borrower. 5.18. Environmental Compliance. The Borrower has taken all necessary steps to investigate the past and present condition and usage of the Real Estate and the operations conducted thereon and, based upon such diligent investigation, has determined that: (a) none of the Borrower, its Subsidiaries or any operator of the Real Estate or any operations thereon is in violation, or alleged violation, of any judgment, decree, order, law, license, rule or regulation pertaining to environmental matters, including without limitation, those arising under the Resource Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 as amended ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or any state or local statute, regulation, ordinance, order or decree relating to health, safety or the environment (hereinafter "Environmental Laws"), which violation would have a material adverse effect on the environment or the business, assets or financial condition of the Borrower and its Subsidiaries on a consolidated basis; (b) except as set forth on Schedule 5.18 attached hereto: neither the Borrower nor any of its Subsidiaries has received notice from any third party including, without limitation, any federal, state or local governmental authority, (i) that any one of them has been identified by the United States Environmental Protection Agency ("EPA") as a potentially responsible party under CERCLA -42- with respect to a site listed on the National Priorities List, 40 C.F.R. Part 300 Appendix B; (ii) that any hazardous waste, as defined by 42 U.S.C. Section 6903(5), any hazardous substances as defined by 42 U.S.C. Section 9601(14), any pollutant or contaminant as defined by 42 U.S.C. Section 9601(33) and any toxic substances, oil or hazardous materials or other chemicals or substances regulated by any Environmental Laws ("Hazardous Substances") which any one of them has generated, transported or disposed of has been found at any site at which a federal, state or local agency or other third party has conducted or has ordered that the Borrower or any of its Subsidiaries conduct a remedial investigation, removal or other response action pursuant to any Environmental Law; or (iii) that it is or shall be a named party to any claim, action, cause of action, complaint, or legal or administrative proceeding (in each case, contingent or otherwise) arising out of any third party's incurrence of costs, expenses, losses or damages of any kind whatsoever in connection with the release of Hazardous Substances; (c) except as set forth on Schedule 5.18 attached hereto: (i) no portion of the Real Estate has been used for the handling, processing, storage or disposal of Hazardous Substances except in accordance with applicable Environmental Laws; and no underground tank or other underground storage receptacle for Hazardous Substances is located on any portion of the Real Estate; (ii) in the course of any activities conducted by the Borrower, its Subsidiaries or operators of its properties, no Hazardous Substances have been generated or are being used on the Real Estate except in accordance with applicable Environmental Laws; (iii) there have been no releases (i.e. any past or present releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, disposing or dumping) or threatened releases of Hazardous Substances on, upon, into or from the properties of the Borrower or its Subsidiaries, which releases would have a material adverse effect on the value of any of the Real Estate or adjacent properties or the environment; (iv) to the best of the Borrower's knowledge, there have been no releases on, upon, from or into any real property in the vicinity of any of the Real Estate which, through soil or groundwater contamination, may have come to be located on, and which would have a material adverse effect on the value of, the Real Estate; and (v) in addition, any Hazardous Substances that have been generated on any of the Real Estate have been transported offsite only by carriers having an identification number issued by the EPA, treated or disposed of only by treatment or disposal facilities maintaining valid permits as required under applicable Environmental Laws, which transporters and facilities -43- have been and are, to the best of the Borrower's knowledge, operating in compliance with such permits and applicable Environmental Laws; and (d) None of the Borrower and its Subsidiaries, or any of the other Real Estate is subject to any applicable environmental law requiring the performance of Hazardous Substances site assessments, or the removal or remediation of Hazardous Substances, or the giving of notice to any governmental agency or the recording or delivery to other Persons of an environmental disclosure document or statement by virtue of the transactions set forth herein and contemplated hereby, or as a condition to the recording of any Mortgage or to the effectiveness of any other transactions contemplated hereby. 5.19. Subsidiaries, etc. Schedule 5.19 hereto sets forth all Subsidiaries of the Borrower. Except as set forth on Schedule 5.19 hereto, neither the Borrower nor any Subsidiary of the Borrower is engaged in any joint venture or partnership with any other person. Except for domestic Subsidiaries of the Borrower which are party to a Guaranty, no domestic Subsidiary of the Borrower (a) is presently engaged in business activities of any kind or nature (except that such Subsidiary may have qualified to do business in a foreign jurisdiction), (b) has a net worth or assets of more than a de minimis value or (c) has issued any capital stock to any person other than the Borrower or a Subsidiary of the Borrower. 5.20. Disclosure. No representation or warranty made by the Borrower or any of its Subsidiaries in this Credit Agreement or any agreement, instrument, document, certificate or other written statement furnished to the Agent or any Bank by or on behalf of the Borrower or any of its Subsidiaries in connection with any of the transactions contemplated by any of the Loan Documents contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein not misleading in light of the circumstances in which they are made. 5.21. Fiscal Year. Each of the Borrower and its Subsidiaries has a fiscal year which ends during June of each calendar year and fiscal quarters which end during September, December and March of each calendar year. 5.22. Solvency. The Borrower, on a consolidated basis with its Subsidiaries (both before and after giving effect to the transactions contemplated by the Credit Agreement and the other Loan Documents), (i) is solvent, (ii) has assets having a fair value in excess of its liabilities, (iii) -44- has assets having a fair value in excess of the amount required to pay its liabilities on its debts as they become due and matured, and (iv) has, and expects to continue to have, access to adequate capital for the conduct of its business and the ability to pay its debts as they mature. 5.23. Rapidforms Acquisition. Upon the closing (if any) of the Rapidforms Acquisition, each of the representations and warranties made by the Borrower and, to the best of the Borrower's knowledge, CSS Industries, Inc. contained in the Rapidforms Stock Purchase Agreement shall have been true and correct in all material respects when made and shall continue to be 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 the Rapidforms Stock Purchase Agreement. 6. AFFIRMATIVE COVENANTS OF THE BORROWER. ----------------------------------------- The Borrower covenants and agrees that, so long as any Loan or Note is outstanding or any Bank has any obligation to make any Loans: 6.1. Punctual Payment. The Borrower will duly and punctually pay or cause to be paid the principal and interest on the Loans and the closing fees, facility fees and Agent's fee provided for in this Credit Agreement, all in accordance with the terms of this Credit Agreement and the Notes. 6.2. Maintenance of Office. The Borrower will maintain its chief executive office in Groton, Massachusetts, or at such other place in the United States of America as the Borrower shall designate upon written notice to the Agent, where notices, presentations and demands to or upon the Borrower in respect of the Loan Documents may be given or made. 6.3. Records and Accounts. The Borrower will (a) keep, and cause each of its Subsidiaries to keep, true and accurate records and books of account in which full, true and correct entries will be made in accordance with generally accepted accounting principles; (b) maintain adequate accounts and reserves for all taxes (including income taxes), depreciation, depletion, obsolescence and amortization of its properties and the properties of its Subsidiaries, contingencies, and other reserves; and (c) will at all times have engaged Deloitte & Touche, LLP or other independent certified public accountants satisfactory to the Agent as its accountants, with no more than thirty (30) days elapsing between the -45- termination of any such accountants as the Borrower's accountants and the engagement of successor accountants satisfactory to the Agent. 6.4 Financial Statements, Certificates and Information. The Borrower will deliver to each of the Banks: (a) as soon as practicable, but in any event not later than ninety (90) days after the end of each fiscal year of the Borrower, the consolidated balance sheet of the Borrower and its Subsidiaries and the consolidating balance sheet of the Borrower and its Subsidiaries, each as at the end of such year, and the related consolidated statement of income and consolidated statement of cash flow and consolidating statement of income and consolidating statement of cash flow for such year, each setting forth in comparative form the figures for the previous fiscal year and all such consolidated and consolidating statements to be in reasonable detail, prepared in accordance with generally accepted accounting principles, and certified without qualification by Deloitte & Touche LLP or by other independent certified public accountants satisfactory to the Agent together with a written statement from such accountants to the effect that they have read a copy of this Credit Agreement, and that, in making the examination necessary to said certification, they have obtained no knowledge of any Default or Event of Default, or, if such accountants shall have obtained knowledge of any then existing Default or Event of Default they shall disclose in such statement any such Default or Event of Default; provided that such accountants shall not be liable to the Banks for failure to obtain knowledge of any Default or Event of Default; (b) as soon as practicable, but in any event not later than forty- five (45) days after the end of each of the fiscal quarters of the Borrower, copies of the unaudited consolidated balance sheet of the Borrower and its Subsidiaries and the unaudited consolidating balance sheet of the Borrower and its Subsidiaries, each as at the end of such quarter, and the related consolidated statement of income and consolidated statement of cash flow and consolidating statement of income and consolidating statement of cash flow for the portion of the Borrower's fiscal year then elapsed, all in reasonable detail and prepared in accordance with generally accepted accounting principles, together with a certification by the principal financial or accounting officer of the Borrower that the information contained in such financial statements fairly presents the financial position of the Borrower and its Subsidiaries on the date thereof (subject to year-end adjustments); -46- (c) simultaneously with the delivery of the financial statements referred to in subsections (a) and (b) above, a statement certified by the principal financial or accounting officer of the Borrower in substantially the form of Exhibit G hereto and setting forth in reasonable detail computations evidencing compliance with the covenants contained in Section 8 and (if applicable) reconciliations to reflect changes in generally accepted accounting principles since the Balance Sheet Date; (d) contemporaneously with the filing or mailing thereof, copies of all material of a financial nature filed with the Securities and Exchange Commission or sent to the stockholders of the Borrower; and (e) from time to time such other financial data and information (including accountants' management letters) as the Agent or any Bank may reasonably request. 6.5. Notices. 6.5.1. Defaults. The Borrower will promptly notify the Agent and each of the Banks in writing of the occurrence of any Default or Event of Default. If any Person shall give any notice or take any other action in respect of a claimed default (whether or not constituting an Event of Default) under this Credit Agreement or any other note, evidence of indebtedness, indenture or other obligation to which or with respect to which the Borrower or any of its Subsidiaries is a party or obligor, whether as principal or surety, the Borrower shall forthwith give written notice thereof to each of the Banks, describing the notice or action and the nature of the claimed default. 6.5.2. Environmental Events. The Borrower will promptly give notice to the Agent (i) of any violation of any Environmental Law that the Borrower or any of its Subsidiaries reports in writing or is reportable by such Person in writing (or for which any written report supplemental to any oral report is made) to any federal, state or local environmental agency and (ii) upon becoming aware thereof, of any inquiry, proceeding, investigation, or other action, including a notice from any agency of potential environmental liability, of any federal, state or local environmental agency or board, that has the potential to materially affect the assets, liabilities, financial conditions or operations of the Borrower and its Subsidiaries on a consolidated basis. -47- 6.5.3. Notice of Litigation and Judgments. The Borrower will, and will cause each of its Subsidiaries to, give notice to the Agent in writing within fifteen (15) days of becoming aware of any litigation or proceedings threatened in writing or any pending litigation and proceedings affecting the Borrower or any of its Subsidiaries or to which the Borrower or any of its Subsidiaries is or becomes a party involving an uninsured claim against the Borrower or any of its Subsidiaries that could reasonably be expected to have a materially adverse effect on the Borrower and its Subsidiaries on a consolidated basis and stating the nature and status of such litigation or proceedings. The Borrower will, and will cause each of its Subsidiaries to, give notice to the Agent, in writing, in form and detail satisfactory to the Agent, within ten (10) days of any judgment not covered by insurance, final or otherwise, against the Borrower or any of its Subsidiaries in an amount in excess of $1,000,000. 6.6. Corporate Existence; Maintenance of Properties. The Borrower will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and those of its Subsidiaries and will not, and will not cause or permit any of its Subsidiaries to, convert to a limited liability company or limited liability partnership. The Borrower (i) will cause all of its properties and those of its Subsidiaries used or useful in the conduct of its business or the business of its Subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment, (ii) will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Borrower may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times, and (iii) will, and will cause each of its Subsidiaries to, continue to engage primarily in the businesses now conducted by them and in related businesses; provided that nothing in this Section 6.6 shall prevent the Borrower from discontinuing the operation and maintenance of any of its properties or those of its Subsidiaries or terminating the corporate existence of any Subsidiary if such discontinuance or termination is, in the judgment of the Borrower, desirable in the conduct of its or their business and that do not in the aggregate materially adversely affect the business of the Borrower and its Subsidiaries on a consolidated basis. 6.7. Insurance. The Borrower will, and will cause each of its Subsidiaries to, maintain with financially sound and reputable insurers insurance with respect to its properties and business against such casualties and contingencies as shall be in accordance with the general practices of businesses engaged in similar activities in similar geographic -48- areas and in amounts, containing such terms, in such forms and for such periods as may be reasonable and prudent. 6.8. Taxes. The Borrower will, and will cause each of its Subsidiaries to, duly pay and discharge, or cause to be paid and discharged, before the same shall become overdue, all taxes, assessments and other governmental charges (other than taxes, assessments and other governmental charges imposed by foreign jurisdictions that in the aggregate are not material to the business or assets of the Borrower on an individual basis or of the Borrower and its Subsidiaries on a consolidated basis) imposed upon it and its real properties, sales and activities, or any part thereof, or upon the income or profits therefrom, as well as all claims for labor, materials, or supplies that if unpaid might by law become a lien or charge upon any of its property; provided that any such tax, assessment, charge, levy or claim need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if the Borrower or such Subsidiary shall have set aside on its books adequate reserves with respect thereto; and provided further that the Borrower and each Subsidiary of the Borrower will pay all such taxes, assessments, charges, levies or claims forthwith upon the commencement of proceedings to foreclose any lien that may have attached as security therefor. 6.9. Inspection of Properties and Books, etc. 6.9.1. General. The Borrower shall permit the Banks, through the Agent or any of the Banks' other designated representatives, to visit and inspect any of the properties of the Borrower or any of its Subsidiaries to examine the books of account of the Borrower and its Subsidiaries (and to make copies thereof and extracts therefrom), to conduct periodic commercial finance examinations, and to discuss the affairs, finances and accounts of the Borrower and its Subsidiaries with, and to be advised as to the same by, its and their officers, all at such reasonable times and intervals as the Agent or any Bank may reasonably request. 6.9.2. Communication with Accountants. The Borrower authorizes the Agent and, if accompanied by the Agent, the Banks to communicate directly with the Borrower's independent certified public accountants following advance notice to the Borrower offering the Borrower the opportunity to be part of any oral communication with such accountants and authorizes such accountants to disclose to the Agent and the Banks any and all financial statements and other supporting financial documents and schedules including copies of any management letter with respect to the business, -49- financial condition and other affairs of the Borrower or any of its Subsidiaries. At the request of the Agent, the Borrower shall deliver a letter addressed to such accountants instructing them to comply with the provisions of this Section 6.9.2. 6.10. Compliance with Laws, Contracts, Licenses, and Permits. The Borrower will, and will cause each of its Subsidiaries to, comply with (i) the applicable laws and regulations wherever its business is conducted, including all Environmental Laws, (ii) the provisions of its charter documents and by-laws, (iii) all agreements and instruments by which it or any of its properties may be bound and (iv) all applicable decrees, orders, and judgments. If at any time while any Loan or Note is outstanding or any Bank has any obligation to make Loans hereunder, any authorization, consent, approval, permit or license from any officer, agency or instrumentality of any government shall become necessary or required in order that the Borrower may fulfill any of its obligations hereunder, the Borrower will immediately take or cause to be taken all reasonable steps within the power of the Borrower to obtain such authorization, consent, approval, permit or license and furnish the Banks with evidence thereof. 6.11. Employee Benefit Plans. The Borrower will (i) promptly, upon request of the Agent, furnish to the Agent a copy of the most recent actuarial statement required to be submitted under Section 103(d) of ERISA and Annual Report, Form 5500, with all required attachments, in respect of each Guaranteed Pension Plan and (ii) promptly upon receipt or dispatch, furnish to the Agent any notice, report or demand sent or received in respect of a Guaranteed Pension Plan under Section Section 302, 4041, 4042, 4043, 4063, 4065, 4066 and 4068 of ERISA, or in respect of a Multiemployer Plan, under Section Section 4041A, 4202, 4219, 4242, or 4245 of ERISA. 6.12. Use of Proceeds. The Borrower will use the proceeds of the Loans solely (a) (i) to finance acquisitions permitted by Section 7.5, (ii) to finance repurchases of the Borrower's common stock or other Distributions to the extent permitted by Section 7.4, and (iii) to refinance existing Indebtedness of the Borrower to the Agent and certain of the Banks under the Original Credit Agreement, and (b) for working capital and general corporate purposes, and not in violation of Regulations U or X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224. 6.13. Rapidforms Acquisition. 6.13.1. Guaranty, etc. Promptly but in any event within twenty-one (21) days following the consummation of the Rapidforms Acquisition, each of Rapidforms and its material Subsidiaries shall -50- execute and deliver to the Agent a Guaranty, in the form of Exhibit A hereto, of the Obligations under this Credit Agreement and the other Loan Documents, together with such evidence of corporate authorization, other corporate documentation and legal opinions (including, where applicable, local counsel opinions) as the Agent may reasonably request. 6.13.2. Amendment of Certificate of Incorporation. Promptly following the consummation of the Rapidforms Acquisition, the Borrower shall cause the filing of an amendment to the Certificate of Incorporation of Russell & Miller, Inc. with the Secretary of State for the State of Delaware deleting the Eighth Article thereof in its entirety. 6.13.3. Closing Balance Sheet. The Borrower shall deliver to the Agent and the Banks, promptly upon receipt thereof from CSS Industries, Inc., the audited Closing Balance Sheet (as defined in the Rapidforms Stock Purchase Agreement). 6.13.4. Obligations Under Trust Indenture. On or before March 15, 1998, the Borrower shall (a) repay the indebtedness of Rapidforms and its affiliates in respect of the Trust Indenture, and the bonds issued pursuant thereto and (b) cause the release of any and all mortgages, liens, security interests or other encumbrances securing any obligations with respect thereto. 6.14. Further Assurances. The Borrower will, and will cause each of its Subsidiaries to, cooperate with the Banks and the Agent and execute such further instruments and documents as the Banks or the Agent shall reasonably request to carry out to their satisfaction the transactions contemplated by this Credit Agreement and the other Loan Documents. 7. CERTAIN NEGATIVE COVENANTS OF THE BORROWER. ----------------------------------------------- The Borrower covenants and agrees that, so long as any Loan or Note is outstanding or any Bank has any obligation to make any Loans: 7.1. Restrictions on Indebtedness. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume, guarantee or be or remain liable, contingently or otherwise, with respect to any Indebtedness other than: (a) Indebtedness to the Banks and the Agent arising under any of the Loan Documents; -51- (b) current liabilities of the Borrower incurred in the ordinary course of business not incurred through (i) the borrowing of money, or (ii) the obtaining of credit except for credit on an open account basis customarily extended and in fact extended in connection with normal purchases of goods and services; (c) Indebtedness in respect of taxes, assessments, governmental charges or levies and claims for labor, materials and supplies to the extent that payment therefor shall not at the time be required to be made in accordance with the provisions of Section 6.8; (d) Indebtedness in respect of judgments or awards that have been in force for less than the applicable period for taking an appeal so long as execution is not levied thereunder or in respect of which the Borrower shall at the time in good faith be prosecuting an appeal or proceedings for review and in respect of which a stay of execution shall have been obtained pending such appeal or review; (e) endorsements for collection, deposit or negotiation and warranties of products or services, in each case incurred in the ordinary course of business; (f) obligations under Capitalized Leases not exceeding $5,000,000 in aggregate amount at any time outstanding; (g) Indebtedness incurred in connection with the acquisition after the date hereof of any real or personal property by the Borrower or any Subsidiary of the Borrower, provided that the aggregate principal amount of such Indebtedness of the Borrower and its Subsidiaries shall not exceed the aggregate amount of $5,000,000 at any one time; (h) Indebtedness existing on the date of this Credit Agreement and listed and described on Schedule 7.1 hereto; (i) Indebtedness of any and all Subsidiaries of the Borrower to the Borrower (i) existing on the Closing Date, and (ii) after the Closing Date, in an aggregate amount not to exceed $7,500,000; (j) Indebtedness of the Borrower to any and all Subsidiaries of the Borrower, which Indebtedness is subordinated to the Obligations on terms and conditions satisfactory to the Agent, in an aggregate amount not to exceed $10,000,000; (k) Indebtedness in respect of (i) overseas lines of credit of the Borrower or any of its Subsidiaries, (ii) letters of credit, (iii) the -52- granting of surety, appeal, bid, performance or other similar bonds or (iv) guaranties or other contingent obligations in respect of Indebtedness of any Person, all of which Indebtedness described in clauses (i) - (iv) of this subparagraph (k), in the aggregate, shall not exceed $10,000,000; (l) Indebtedness with respect to interest rate protection agreements between the Borrower and any of the Banks; (m) Indebtedness for borrowed money, debt or similar monetary obligations assumed in respect of Permitted Acquisitions (other than the Rapidforms Acquisition), to the extent permitted by paragraph 2(b) of the definition thereof, and other Indebtedness assumed in respect of Permitted Acquisitions (other than the Rapidforms Acquisition) and existing prior to the date of any Permitted Acquisition and not created in contemplation thereof; (n) In the event that the Rapidforms Acquisition is consummated in accordance with the terms and conditions for such acquisition set forth in the definition of Rapidforms Acquisition and otherwise within this Credit Agreement, (i) until March 15, 1998, Indebtedness of Rapidforms under or in respect of the Trust Indenture in an aggregate amount not to exceed $1,250,000, and (ii) additional Indebtedness of Rapidforms and its Subsidiaries (other than Indebtedness for borrowed money, debt or other similar obligations) assumed in respect of the Rapidforms Acquisition and existing prior to the date of the execution of the Rapidforms Stock Purchase Agreement and not created in contemplation of the Rapidforms Acquisition; (o) Indebtedness not expressly permitted under Subsections (a) through (n) of this Section 7.1 in an aggregate amount not to exceed $5,000,000 at any time. 7.2. Restrictions on Liens. The Borrower will not, and will not permit any of its Subsidiaries to, (i) create or incur or suffer to be created or incurred or to exist any lien, encumbrance, mortgage, pledge, charge, restriction or other security interest of any kind upon any of its property or assets of any character whether now owned or hereafter acquired, or upon the income or profits therefrom; (ii) transfer any of such property or assets or the income or profits therefrom for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to payment of its general creditors; (iii) acquire, or agree or have an option to acquire, any property or assets upon conditional sale or other title retention or purchase money security agreement, device -53- or arrangement; (iv) suffer to exist for a period of more than thirty (30) days after the same shall have been incurred any Indebtedness or claim or demand against it that if unpaid might by law or upon bankruptcy or insolvency, or otherwise, be given any priority whatsoever over its general creditors; or (v) sell, assign, pledge or otherwise transfer any accounts, contract rights, general intangibles, chattel paper or instruments, with or without recourse; provided that the Borrower and any Subsidiary of the Borrower may create or incur or suffer to be created or incurred or to exist: (a) liens to secure taxes, assessments and other government charges in respect of obligations not overdue or liens on properties to secure claims for labor, material or supplies in respect of obligations not overdue; (b) deposits or pledges made in connection with, or to secure payment of, workmen's compensation, unemployment insurance, old age pensions or other social security obligations; (c) liens on properties in respect of judgments or awards, the Indebtedness with respect to which is permitted by Section 7.1(d); (d) liens of carriers, warehousemen, mechanics and materialmen, and other like liens on properties, in existence less than one hundred twenty (120) days from the date of creation thereof in respect of obligations not overdue; (e) encumbrances consisting of easements, rights of way, zoning restrictions, restrictions on the use of real property and defects and irregularities in the title thereto, landlord's or lessor's liens under leases to which the Borrower or a Subsidiary of the Borrower is a party, and other minor liens or encumbrances none of which in the opinion of the Borrower interferes materially with the use of the property affected in the ordinary conduct of the business of the Borrower and its Subsidiaries, which defects do not individually or in the aggregate have a materially adverse effect on the business of the Borrower individually or of the Borrower and its Subsidiaries on a consolidated basis; (f) presently outstanding liens listed on Schedule 7.2 hereto; (g) purchase money security interests in or purchase money mortgages on real or personal property acquired after the date hereof to secure purchase money Indebtedness of the type and amount permitted by Section 7.1(g), incurred in connection with the -54- acquisition of such property, which security interests or mortgages cover only the real or personal property so acquired; (h) rights of lessors under Capitalized Leases permitted by Section 7.1(f); (i) liens on assets acquired pursuant to Permitted Acquisitions (other than the Rapidforms Acquisition) and securing Indebtedness otherwise permitted by Section 7.1(m) and the definition of Permitted Acquisitions; (j) liens on any capital stock of the Borrower or other Margin Stock for so long as such stock constitutes Margin Stock; and (k) in the event that the Rapidforms Acquisition is consummated in accordance with the terms and conditions set forth in the definition of Rapidforms Acquisition and otherwise in this Credit Agreement, (i) until March 15, 1998, liens on Real Estate located in Bridgeton, New Jersey, on equipment, on deposit accounts held at Fleet Bank, N.A. and on books and records relating to such Real Estate, all of which secure obligations of Rapidforms or its Subsidiaries under and in respect of the Trust Indenture; and (ii) liens on assets of Rapidforms and its Subsidiaries securing Indebtedness otherwise permitted by Section 7.1(n). 7.3. Restrictions on Investments. The Borrower will not, and will not permit any of its Subsidiaries to, make or permit to exist or to remain outstanding any Investment except Investments in: (a) marketable direct or guaranteed obligations of the United States of America that mature within one (1) year from the date of purchase by the Borrower; (b) demand deposits, certificates of deposit, bankers acceptances and time deposits of United States banks having total assets in excess of $1,000,000,000, and demand deposits or certificates of deposit of foreign banks having total assets in excess of the equivalent of $25,000,000,000; (c) securities commonly known as "commercial paper" issued by a corporation organized and existing under the laws of the United States of America or any state thereof that at the time of purchase have been rated and the ratings for which are not less than "P 1" if rated by Moody's Investors Services, Inc., and not less than "A 1" if rated by Standard and Poor's; -55- (d) Investments existing on the date hereof and listed on Schedule 7.3 hereto; (e) Investments with respect to Indebtedness permitted by Section 7.1(i) and Section 7.1(j) so long as such entities remain Subsidiaries of the Borrower; (f) Investments consisting of any Guaranty; (g) Investments consisting of promissory notes received as proceeds of asset dispositions permitted by Section 7.5.2; (h) Investments consisting of loans and advances to employees for moving, entertainment, travel, hardship and other similar expenses in the ordinary course of business not to exceed $1,000,000 in the aggregate at any time outstanding; and (i) tax exempt municipal bonds or bond funds rated AA or higher by Standard and Poor's Ratings Group or Moody's Investors Services, Inc.; (j) Investments (i) existing as of the Closing Date, in Subsidiaries of the Borrower and (ii) made following the Closing Date in Subsidiaries of the Borrower in an aggregate amount for all such Subsidiaries not to exceed $7,500,000; (k) Investments in respect of (i) Permitted Acquisitions (other than the Rapidforms Acquisition) to the extent permitted by the definition thereof and (ii) the Rapidforms Acquisition to the extent permitted by the definition thereof and Section 7.1(n); (l) Investments by a foreign Subsidiary in marketable direct or guaranteed obligations of the national government of its country of incorporation that mature within one (1) year following the date of purchase by such Subsidiary; (m) Investments by the Borrower in its capital stock held as treasury stock (existing as of the Closing Date or to the extent repurchased in accordance with the requirements of Section 7.4) or in any employee benefit plan of the Borrower; and (n) Investments not otherwise expressly permitted under Subsections (a) - (m) of this Section 7.3, in an aggregate amount not to exceed $5,000,000 at any one time. -56- 7.4. Distributions. The Borrower will not make any Distributions; provided, however, that so long as no Default or Event of Default has occurred and is continuing or would occur after giving effect thereto, and subject in particular to the Borrower's continuing compliance with its covenants set forth in Section Section 8.1-8.3 hereof, the Borrower (a) may pay dividends on its common stock in an aggregate amount not to exceed $20,000,000 in any fiscal year of the Borrower and (b) may make repurchases of its own issued and outstanding common stock pursuant to any stock repurchase plan approved by its Board of Directors in an aggregate amount not to exceed, $50,000,000. 7.5. Merger, Consolidation. 7.5.1. Mergers and Acquisitions. The Borrower will not, and will not permit any of its Subsidiaries to, become a party to any merger or consolidation, or agree to or effect any asset acquisition or stock acquisition (other than the acquisition of assets in the ordinary course of business consistent with past practices) except (a) the merger or consolidation of one or more of the Subsidiaries of the Borrower with and into the Borrower, (b) the merger or consolidation of two or more Subsidiaries of the Borrower, or (c) Permitted Acquisitions. 7.5.2. Disposition of Assets. The Borrower will not, and will not permit any of its Subsidiaries to, become a party to or agree to or effect any disposition of assets, other than (a) the sale of inventory, (b) the license or lease of intellectual property in the ordinary course of business, and (c) the disposition of assets, in each case set forth in clauses (a), (b) and (c) hereof in the ordinary course of business and consistent with past practices, (d) dispositions of capital stock of the Borrower and other Margin Stock for so long as such stock constitutes Margin Stock, and (e) other dispositions of assets in an aggregate amount not to exceed the lesser of (i) $5,000,000 and (ii) five percent (5%) of Consolidated Total Assets (determined as of the date or dates of such dispositions). 7.6. Sale and Leaseback. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any arrangement, directly or indirectly, whereby the Borrower or any Subsidiary of the Borrower shall sell or transfer any property owned by it in order then or thereafter to lease such property or lease other property that the Borrower or any Subsidiary of the Borrower intends to use for substantially the same purpose as the property being sold or transferred. -57- 7.7. Compliance with Environmental Laws. Except as set forth in Schedule 5.18 hereto, the Borrower will not, and will not permit any of its Subsidiaries to, (i) use any of the Real Estate or any portion thereof for the handling, processing, storage or disposal of Hazardous Substances, (ii) cause or permit to be located on any of the Real Estate any underground tank or other underground storage receptacle for Hazardous Substances, (iii) generate any Hazardous Substances on any of the Real Estate, (iv) conduct any activity at any Real Estate or use any Real Estate in any manner so as to cause a release (i.e. releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping) or threatened release of Hazardous Substances on, upon or into the Real Estate or (v) otherwise conduct any activity at any Real Estate or use any Real Estate in any manner that would violate any Environmental Law or bring such Real Estate in violation of any Environmental Law. 7.8. Employee Benefit Plans. Neither the Borrower nor any ERISA Affiliate will: (a) engage in any "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975 of the Code which could result in a material liability for the Borrower or any of its Subsidiaries; or (b) permit any Guaranteed Pension Plan to incur an "accumulated funding deficiency", as such term is defined in Section 302 of ERISA, whether or not such deficiency is or may be waived; or (c) fail to contribute to any Guaranteed Pension Plan to an extent which, or terminate any Guaranteed Pension Plan in a manner which, could result in the imposition of a lien or encumbrance on the assets of the Borrower or any of its Subsidiaries pursuant to Section 302(f) or Section 4068 of ERISA; or (d) amend any Guaranteed Pension Plan in circumstances requiring the posting of security pursuant to Section 307 of ERISA or Section 401(a)(29) of the Code; or (e) permit or take any action which would result in the aggregate benefit liabilities (with the meaning of Section 4001 of ERISA) of all Guaranteed Pension Plans exceeding the value of the aggregate assets of such Plans, disregarding for this purpose the benefit liabilities and assets of any such Plan with assets in excess of benefit liabilities. -58- 7.9. Fiscal Year. Neither the Borrower nor any of its Subsidiaries will change the date of the end of its fiscal year or any fiscal quarter from that set forth in Section 5.22 hereof. 7.10. Prohibition on Negative Pledges. Neither the Borrower nor any of its Subsidiaries will enter into, or be or become bound by or subject to, any agreement prohibiting the creation or assumption of any lien or security interest upon its properties, whether now owned or hereafter acquired. 7.11. Creation and Maintenance of Subsidiaries. Neither the Borrower nor any of its Subsidiaries shall create any Subsidiary (other than any Subsidiaries existing on the Closing Date and disclosed in Section 5.19 hereto) unless (a) one hundred percent (100%) of the capital stock or other equity interests (subject to the exclusion of any legally required directors' qualifying shares) of such Subsidiary are owned directly or indirectly by the Borrower, (b) prior to the formation of such Subsidiary, the Borrower shall notify the Agent and the Banks thereof, and (c) contemporaneously with the formation of such Subsidiary, the Borrower shall (i) cause such Subsidiary to guaranty all of the Obligations hereunder pursuant to a Guaranty, which Guaranty shall be a Loan Document hereunder, and (ii) cause such Subsidiary to deliver to the Banks and the Agent satisfactory evidence of proper corporate authorization and legal opinions with respect to such Guaranty. In the event that any domestic Subsidiary existing on the Closing Date and disclosed on Schedule 5.19 shall hereafter become engaged in business of any kind or nature (except that such Subsidiary is qualified to do business in a foreign jurisdiction), shall have a net worth or assets of more than a de minimis value or shall have issued any capital stock to any person other than the Borrower or a Subsidiary of the Borrower, then the Borrower shall immediately notify the Agent and the Banks thereof and shall immediately cause such Subsidiary to comply with the requirement of such subsection (c) hereof. 7.12. Conduct of Business. Neither the Borrower nor any of its Subsidiaries will, without the prior written consent of the Agent and the Majority Banks, conduct any business or operations materially different from those conducted by it on the Closing Date or on the date any such Subsidiary is acquired in compliance with the terms of Section 7.5.1. 8. FINANCIAL COVENANTS OF THE BORROWER. ---------------------------------------- 8.1. Funded Debt to EBITDA. The Borrower will not as of the end of any four (4) consecutive fiscal quarters of the Borrower ending on any quarter end, permit the ratio of (a) Consolidated Funded Debt as at -59- such quarter end to (b) EBITDA for such four (4) consecutive fiscal quarters then ended to be greater than 2.5:1.0. 8.2. Minimum Fixed Charge Coverage Ratio. The Borrower will not, as at the end of any four (4) consecutive fiscal quarters of the Borrower ending on any quarter end, permit the ratio of (a) EBITDA for such period minus Capital Expenditures for such period to (b) Consolidated Total Interest Expense for such period plus any scheduled amortization payments on Indebtedness permitted by Section 7.1, to be less than 4.0:1.0. 8.3. Consolidated Net Worth. The Borrower will not permit Consolidated Net Worth at any time to be less than the sum of (i) $70,000,000 plus (ii) on a cumulative basis, fifty percent (50%) of positive Consolidated Net Income for each fiscal quarter beginning with the fiscal quarter ended March 28, 1998. 9. CLOSING CONDITIONS. ----------------------- The obligations of the Banks to make the initial Loans shall be subject to the satisfaction of the following conditions precedent on or prior to December 18, 1997: 9.1. Loan Documents. Each of the Loan Documents shall have been duly executed and delivered by the respective parties thereto, shall be in full force and effect and shall be in form and substance satisfactory to each of the Banks. Each Bank shall have received a fully executed copy of each such document. 9.2. Certified Copies of Charter Documents. Each of the Banks shall have received from the Borrower a copy, certified by a duly authorized officer of such Person to be true and complete on the Closing Date, of each of (i) its charter or other incorporation documents as in effect on such date of certification, and (ii) its by-laws as in effect on such date. 9.3. Corporate Action. All corporate action necessary for the valid execution, delivery and performance by the Borrower and each of its Subsidiaries of this Credit Agreement and the other Loan Documents to which it is or is to become a party shall have been duly and effectively taken, and evidence thereof satisfactory to the Banks shall have been provided to each of the Banks. 9.4. Incumbency Certificate. Each of the Banks shall have received from the Borrower an incumbency certificate, dated as of the Closing Date, signed by a duly authorized officer of the Borrower, and giving the name and bearing a specimen signature of each individual who -60- shall be authorized: (i) to sign, in the name and on behalf of the Borrower, each of the Loan Documents; (ii) to make Loan Requests, Conversion Requests, Competitive Bid Quote Requests and Notices of Competitive Bid Borrowing; and (iii) to give notices and to take other action on its behalf under the Loan Documents. 9.5. UCC Search Results. The Agent shall have received from the Borrower the results of UCC searches in jurisdictions certified by the Borrower as constituting the location of all offices and locations, including the chief executive office, of the Borrower and in such other jurisdictions as the Agent may request, indicating no liens other than Permitted Liens and otherwise in form and substance satisfactory to the Agent. 9.6. Certificates of Insurance. The Agent shall have received a certificate of insurance from an independent insurance broker dated as of the Closing Date, identifying insurers, types of insurance, insurance limits, and policy terms, and otherwise describing the insurance obtained in accordance with the provisions hereof. 9.7. Solvency Certificate. Each of the Banks shall have received an officer's certificate of the Borrower dated as of the Closing Date as to the solvency of the Borrower and its Subsidiaries following the consummation of the transactions contemplated herein and in form and substance satisfactory to the Banks. 9.8. Opinion of Counsel. Each of the Banks and the Agent shall have received a favorable opinion addressed to the Banks and the Agent, dated as of the Closing Date, in form and substance satisfactory to the Banks and the Agent, from Hill & Barlow, counsel to the Borrower and its Subsidiaries. 9.9. Payment of Fees. As required by Section 4.1, the Borrower shall have paid to the Agent, the Arranger and the Documentation Agent the fees described in the Fee Letters. 10. CONDITIONS TO ALL BORROWINGS. --------------------------------- The obligations of the Banks to make any Loan, whether on or after the Closing Date, shall also be subject to the satisfaction of the following conditions precedent: 10.1. Representations True; No Event of Default. Each of the representations and warranties of any of the Borrower and its Subsidiaries contained in this Credit Agreement, the other Loan Documents or in any document or instrument delivered pursuant to or in connection with this Credit Agreement shall be true as of the date as of -61- which they were made and shall also be true at and as of the time of the making of such Loan, with the same effect as if made at and as of that time (except to the extent of changes resulting from transactions contemplated or permitted by this Credit Agreement and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse, and to the extent that such representations and warranties relate expressly to an earlier date) and no Default or Event of Default shall have occurred and be continuing. 10.2. No Legal Impediment. No change shall have occurred in any law or regulations thereunder or interpretations thereof that in the reasonable opinion of any Bank would make it illegal for such Bank to make such Loan. 10.3. Governmental Regulation. Each Bank shall have received such statements in substance and form reasonably satisfactory to such Bank as such Bank shall require for the purpose of compliance with any applicable regulations of the Comptroller of the Currency or the Board of Governors of the Federal Reserve System. 10.4 Proceedings and Documents. All proceedings in connection with the transactions contemplated by this Credit Agreement, the other Loan Documents and all other documents incident thereto shall be satisfactory in substance and in form to the Banks and to the Agent and the Agent's Special Counsel, and the Banks, the Agent and such counsel shall have received all information and such counterpart originals or certified or other copies of such documents as the Agent may reasonably request. 11. EVENTS OF DEFAULT; ACCELERATION; ETC. ------------------------------------------ 11.1. Events of Default and Acceleration. If any of the following events ("Events of Default" or, if the giving of notice or the lapse of time or both is required, then, prior to such notice or lapse of time, "Defaults") shall occur: (a) the Borrower shall fail to pay any principal of the Loans when the same shall become due and payable, whether at the stated date of maturity or any accelerated date of maturity or at any other date fixed for payment; (b) the Borrower shall fail to pay any interest on the Loans, the facility fee, or other sums due hereunder or under any of the other Loan Documents, when the same shall become due and -62- payable, whether at the stated date of maturity or any accelerated date of maturity or at any other date fixed for payment; (c) the Borrower shall fail to comply with any of its covenants contained in Section Section 6, 7 or 8; (d) the Borrower or any of its Subsidiaries shall fail to perform any term, covenant or agreement contained herein or in any of the other Loan Documents (other than those specified elsewhere in this Section 11) for fifteen (15) days after written notice of such failure has been given to the Borrower by the Agent; (e) any representation or warranty of the Borrower or any of its Subsidiaries in this Credit Agreement or any of the other Loan Documents or in any other document or instrument delivered pursuant to or in connection with this Credit Agreement shall prove to have been false in any material respect upon the date when made or deemed to have been made or repeated; (f) the Borrower or any of its Subsidiaries shall fail to pay at maturity, or within any applicable period of grace, any obligation for borrowed money or credit received or in respect of any Capitalized Leases, or fail to observe or perform any material term, covenant or agreement contained in any agreement by which it is bound (excluding, however, any such term, covenant or agreement relating to the pledge or disposition of capital stock of the Borrower or other Margin Stock for so long as such stock constitutes Margin Stock), evidencing or securing borrowed money or credit received or in respect of any Capitalized Leases for such period of time as would permit (assuming the giving of appropriate notice if required) the holder or holders thereof or of any obligations issued thereunder to accelerate the maturity thereof; (g) the Borrower or any of its Subsidiaries shall make an assignment for the benefit of creditors, or admit in writing its inability to pay or generally fail to pay its debts as they mature or become due, or shall petition or apply for the appointment of a trustee or other custodian, liquidator or receiver of the Borrower or any of its Subsidiaries or of any substantial part of the assets of the Borrower or any of its Subsidiaries or shall commence any case or other proceeding relating to the Borrower or any of its Subsidiaries under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law of any jurisdiction, now or hereafter in effect, or shall take any action to authorize or in furtherance of any of the foregoing, or if any such -63- petition or application shall be filed or any such case or other proceeding shall be commenced against the Borrower or any of its Subsidiaries and the Borrower or any of its Subsidiaries shall indicate its approval thereof, consent thereto or acquiescence therein or such petition or application shall not have been dismissed within forty-five (45) days following the filing thereof; (h) a decree or order is entered appointing any such trustee, custodian, liquidator or receiver or adjudicating the Borrower or any of its Subsidiaries bankrupt or insolvent, or approving a petition in any such case or other proceeding, or a decree or order for relief is entered in respect of the Borrower or any Subsidiary of the Borrower in an involuntary case under federal bankruptcy laws as now or hereafter constituted; (i) there shall remain in force, undischarged, unsatisfied and unstayed, for more than thirty days, whether or not consecutive, any final judgment against the Borrower or any of its Subsidiaries that, with other outstanding final judgments, undischarged, against the Borrower or any of its Subsidiaries exceeds in the aggregate $1,000,000; (j) if any of the Loan Documents shall be cancelled, terminated, revoked or rescinded, in each case otherwise than with the express prior written agreement, consent or approval of the Banks, or any action at law, suit or in equity or other legal proceeding to cancel, revoke or rescind any of the loan documents shall be commenced by or on behalf of the Borrower or any of its Subsidiaries party thereto or any of their respective stockholders, or any court or any other governmental or regulatory authority or agency of competent jurisdiction shall make a determination that, or issue a judgment, order, decree or ruling to the effect that, any one or more of the Loan Documents is illegal, invalid or unenforceable in accordance with the terms thereof; (k) the Borrower or any ERISA Affiliate incurs any liability to the PBGC or a Guaranteed Pension Plan pursuant to Title IV of ERISA in an aggregate amount exceeding $2,000,000; the Borrower or any ERISA Affiliate is assessed withdrawal liability pursuant to Title IV of ERISA by a Multiemployer Plan requiring aggregate annual payments exceeding $2,000,000, or any of the following occurs with respect to a Guaranteed Pension Plan: (i) an ERISA Reportable Event, or a failure to make a required installment or other payment (within the meaning of Section 302(f)(1) of ERISA), provided the Agent determines in its reasonable discretion that such event -64- (A) could be expected to result in liability of the Borrower to the PBGC or the Plan in an aggregate amount exceeding $2,000,000 and (B) could constitute grounds for the termination of such Plan by the PBGC, for the appointment by the appropriate United States District Court of a trustee to administer such Plan or for the imposition of a lien in favor of the Guaranteed Pension Plan; (ii) the appointment by a United States District Court of a trustee to administer such Plan; or (iii) the institution by the PBGC of proceedings to terminate such Plan; (l) the Borrower or any of its Subsidiaries shall be enjoined, restrained or in any way prevented by the order of any court or any administrative or regulatory agency from conducting any material part of its business and such order shall continue in effect for more than thirty (30) days; (m) there shall occur any material damage to, or loss, theft or destruction of, any assets of the Borrower or its Subsidiaries, whether or not insured, or any strike, lockout, labor dispute, embargo, condemnation, act of God or public enemy, or other casualty, which in any such case causes, for more than fifteen (15) consecutive days, the cessation or substantial curtailment of revenue producing activities at any facility of the Borrower or any of its Subsidiaries if such event or circumstance is not covered by business interruption insurance and would have a material adverse effect on the business or financial condition of the Borrower and its Subsidiaries on a consolidated basis; (n) there shall occur the loss, suspension or revocation of, or failure to renew, any license or permit now held or hereafter acquired by the Borrower or any of its Subsidiaries if such loss, suspension, revocation or failure to renew would have a material adverse effect on the business or financial condition of the Borrower and its Subsidiaries on a consolidated basis; (o) the Borrower or any of its Subsidiaries shall be indicted for a state or federal crime, or any civil or criminal action shall otherwise have been brought or threatened against the Borrower or any of its Subsidiaries, a punishment for which in any such case could include the forfeiture of any assets of the Borrower and its Subsidiaries having a fair market value in excess of $5,000,000; or (p) (i) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended, but other than Jay Rhoads and/or Richard Rhoads) shall -65- have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of twenty percent (20%) or more of the outstanding shares of common stock of the Borrower; (ii) Jay Rhoads and/or Richard Rhoads shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of twenty-five percent (25%) or more of the outstanding shares of common stock of the Borrower; or (iii) during any period of twelve (12) consecutive calendar months, individuals who were directors of the Borrower on the first day of such period shall cease to constitute a majority of the board of directors of the Borrower; then, and in any such event, so long as the same may be continuing, the Agent may, and upon the request of the Majority Banks shall, by notice in writing to the Borrower declare all amounts owing with respect to this Credit Agreement, the Notes and the other Loan Documents to be, and they shall thereupon forthwith become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower; provided that in the event of any Event of Default specified in Section 11.1(g) or 11.1(h), all such amounts shall become immediately due and payable automatically and without any requirement of notice from the Agent or any Bank. 11.2. Termination of Commitments. If any one or more of the Events of Default specified in Section 11.1(g) or Section 11.1(h) shall occur, any unused portion of the credit hereunder shall forthwith terminate and each of the Banks shall be relieved of all obligations to make Loans to the Borrower. If any other Event of Default shall have occurred and be continuing, or if on any Drawdown Date the conditions precedent to the making of the Loans to be made on such Drawdown Date are not satisfied, the Agent may and, upon the request of the Majority Banks, shall, by notice to the Borrower, terminate the unused portion of the credit hereunder, and upon such notice being given such unused portion of the credit hereunder shall terminate immediately and each of the Banks shall be relieved of all further obligations to make Loans. If any such notice is given to the Borrower the Agent will forthwith furnish a copy thereof to each of the Banks. No termination of the credit hereunder shall relieve the Borrower of any of the Obligations or any of its existing obligations to any of the Banks arising under other agreements or instruments. 11.3. Remedies. In case any one or more of the Events of Default shall have occurred and be continuing, and whether or not the Banks shall have accelerated the maturity of the Loans pursuant to Section 11.1, each Bank, if owed any amount with respect to the Loans, may, with the consent of -66- the Majority Banks but not otherwise, proceed to protect and enforce its rights by suit in equity, action at law or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Credit Agreement and the other Loan Documents or any instrument pursuant to which the Obligations to such Bank are evidenced, including as permitted by applicable law the obtaining of the ex parte appointment of a receiver, and, if such amount shall have become due, by declaration or otherwise, proceed to enforce the payment thereof or any other legal or equitable right of such Bank. No remedy herein conferred upon any Bank or the Agent or the holder of any Note is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or any other provision of law. 121. SETOFF. ------------- Regardless of the adequacy of any collateral, during the continuance of any Event of Default, any deposits or other sums credited by or due from any of the Banks to the Borrower and any securities or other property of the Borrower in the possession of such Bank may be applied to or set off by such Bank against the payment of Obligations and any and all other liabilities, direct, or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, of the Borrower to such Bank. Each of the Banks agrees with each other Bank that (i) if an amount to be set off is to be applied to Indebtedness of the Borrower to such Bank, other than Indebtedness evidenced by the Notes held by such Bank, such amount shall be applied ratably to such other Indebtedness and to the Indebtedness evidenced by all such Notes held by such Bank, and (ii) if such Bank shall receive from the Borrower, whether by voluntary payment, exercise of the right of setoff, counterclaim, cross action, enforcement of the claim evidenced by the Notes held by such Bank by proceedings against the Borrower at law or in equity or by proof thereof in bankruptcy, reorganization, liquidation, receivership or similar proceedings, or otherwise, and shall retain and apply to the payment of the Note or Notes held by such Bank any amount in excess of its ratable portion of the payments received by all of the Banks with respect to the Notes held by all of the Banks, such Bank will make such disposition and arrangements with the other Banks with respect to such excess, either by way of distribution, pro tanto assignment of claims, subrogation or otherwise as shall result in each Bank receiving in respect of the Notes held by its proportionate payment as contemplated by this Credit Agreement; provided that if all or any part of such excess payment is thereafter recovered from such Bank, such disposition and arrangements -67- shall be rescinded and the amount restored to the extent of such recovery, but without interest. 13. THE AGENT. --------------- 13.1. Authorization. (a) The Agent is authorized to take such action on behalf of each of the Banks and to exercise all such powers as are hereunder and under any of the other Loan Documents and any related documents delegated to the Agent, together with such powers as are reasonably incident thereto, provided that no duties or responsibilities not expressly assumed herein or therein shall be implied to have been assumed by the Agent. (b) The relationship between the Agent and each of the Banks is that of an independent contractor. The use of the term "Agent" is for convenience only and is used to describe, as a form of convention, the independent contractual relationship between the Agent and each of the Banks. Nothing contained in this Credit Agreement nor the other Loan Documents shall be construed to create an agency, trust or other fiduciary relationship between the Agent and any of the Banks. (c) As an independent contractor empowered by the Banks to exercise certain rights and perform certain duties and responsibilities hereunder and under the other Loan Documents, the Agent is nevertheless a "representative" of the Banks, as that term is defined in Article 1 of the Uniform Commercial Code, for purposes of actions for the benefit of the Banks and the Agent with respect to all collateral security and guaranties contemplated by the Loan Documents. 13.2. Employees and Agents. The Agent may exercise its powers and execute its duties by or through employees or agents and shall be entitled to take, and to rely on, advice of counsel concerning all matters pertaining to its rights and duties under this Credit Agreement and the other Loan Documents. The Agent may utilize the services of such Persons as the Agent in its sole discretion may reasonably determine, and all reasonable fees and expenses of any such Persons shall be paid by the Borrower. 13.3. No Liability. Neither the Agent nor any of its shareholders, directors, officers or employees nor any other Person assisting them in their duties nor any agent or employee thereof, shall be liable for any waiver, consent or approval given or any action taken, or omitted to be -68- taken, in good faith by it or them hereunder or under any of the other Loan Documents, or in connection herewith or therewith, or be responsible for the consequences of any oversight or error of judgment whatsoever, except that the Agent or such other Person, as the case may be, may be liable for losses due to its willful misconduct or gross negligence. 13.4. No representations. The Agent shall not be responsible for the execution or validity or enforceability of this Credit Agreement, the Notes, any of the other Loan Documents or any instrument at anytime constituting, or intended to constitute, collateral security for the Notes, or for the value of any such collateral security or for the validity, enforceability or collectability of any such amounts owing with respect to the Notes, or for any recitals or statements, warranties or representations made herein or in any of the other Loan Documents or in any certificate or instrument hereafter furnished to it by or on behalf of the Borrower, or be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements herein or in any instrument at any time constituting, or intended to constitute, collateral security for the Notes or to inspect any of the properties, books or records of the Borrower or any of its Subsidiaries. The Agent shall not be bound to ascertain whether any notice, consent, waiver or request delivered to it by the Borrower or any holder of any of the Notes shall have been duly authorized or is true, accurate and complete. The Agent has not made nor does it now make any representations or warranties, express or implied, nor does it assume any liability to the Banks, with respect to the credit worthiness or financial conditions of the Borrower or any of its Subsidiaries. Each Bank acknowledges that it has, independently and without reliance upon the Agent or any other Bank, and based upon such information and documents as it has deemed appropriate, made its own credit analysis and decision to enter into this Credit Agreement. 13.5. Payments. 13.5.1. Payments to Agent. A payment by the Borrower to the Agent hereunder or any of the other Loan Documents for the account of any Bank shall constitute a payment to such Bank. The Agent agrees promptly to distribute to each Bank such Bank's pro rata share of payments received by the Agent for the account of the Banks except as otherwise expressly provided herein or in any of the other Loan Documents. 13.5.2. Distribution by Agent. If in the opinion of the Agent the distribution of any amount received by it in such capacity hereunder, under the Notes or under any of the other Loan Documents might involve it in liability, it may refrain from making -69- distribution until its right to make distribution shall have been adjudicated by a court of competent jurisdiction. If a court of competent jurisdiction shall adjudge that any amount received and distributed by the Agent is to be repaid, each Person to whom any such distribution shall have been made shall either repay to the Agent its proportionate share of the amount so adjudged to be repaid or shall pay over the same in such manner and to such Persons as shall be determined by such court. 13.5.3. Delinquent Banks. Notwithstanding anything to the contrary contained in this Credit Agreement or any of the other Loan Documents, any Bank that fails (i) to make available to the Agent its pro rata share of any Loan or (ii) to comply with the provisions of Section 12 with respect to making dispositions and arrangements with the other Banks, where such Bank's share of any payment received, whether by setoff or otherwise, is in excess of its pro rata share of such payments due and to payable to all of the Banks, in each case as, when and to the full extent required by the provisions of this Credit Agreement, shall be deemed delinquent (a "Delinquent Bank") and shall be deemed a Delinquent Bank until such time as such delinquency is satisfied. A Delinquent Bank shall be deemed to have assigned any and all payments due to it from the Borrower, whether on account of outstanding Loans, interest, fees or otherwise, to the remaining nondelinquent Banks for application to, and reduction of, their respective pro rata shares of all outstanding Syndicated Loans. The Delinquent Bank hereby authorizes the Agent to distribute such payments to the nondelinquent Banks in proportion to their respective pro rata shares of all outstanding Syndicated Loans. A Delinquent Bank shall be deemed to have satisfied in full a delinquency when and if, as a result of application of the assigned payments to all outstanding Syndicated Loans of the nondelinquent Banks, the Banks' respective pro rata shares of all outstanding Syndicated Loans have returned to those in effect immediately prior to such delinquency and without giving effect to the nonpayment causing such delinquency. 13.6. Holders of Notes. The Agent may deem and treat the payee of any Note as the absolute owner thereof for all purposes hereof until it shall have been furnished in writing with a different name by such payee or by a subsequent holder. 13.7. Indemnity. The Banks ratably agree hereby to indemnify and hold harmless the Agent and its Affiliates from and against any and all claims, actions and suits (whether groundless or otherwise), losses, -70- damages, costs, expenses (including any expenses for which the Agent or any of its Affiliates has not been reimbursed by the Borrower as required by Section 14), and liabilities of every nature and character arising out of or related to this Credit Agreement, the Notes, or any of the other Loan Documents or the transactions contemplated or evidenced hereby or thereby, or the Agent's or any of its Affiliate's actions taken hereunder or thereunder, except to the extent that any of the same shall be directly caused by the Agent's or such Affiliate's willful misconduct or gross negligence. 13.8. Agent as Bank. In its individual capacity, BKB shall have the same obligations and the same rights, powers and privileges in respect to its Commitment and the Loans made by it, and as the holder of any of the Notes, as it would have were it not also the Agent. 13.9. Resignation. The Agent may resign at any time by giving sixty (60) days prior written notice thereof to the Banks and the Borrower. Upon any such resignation, the Majority Banks shall have the right to appoint a successor Agent. Unless a Default or Event of Default shall have occurred and be continuing, such successor Agent shall be reasonably acceptable to the Borrower. If no successor Agent shall have been so appointed by the Majority Banks and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a financial institution having a rating of not less than A or its equivalent by Standard & Poor's Corporation. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation, the provisions of this Credit Agreement and the other Loan Documents shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. 13.10. Notification of Defaults and Events of Default. Each Bank hereby agrees that, upon learning of the existence of a Default or an Event of Default, it shall promptly notify the Agent thereof. The Agent hereby agrees that upon receipt of any notice under this Section 13.10 it shall promptly notify the other Banks of the existence of such Default or Event of Default. 13.11. Limitation on Duties. Notwithstanding anything to the contrary contained in this Credit Agreement or any other Loan Document, neither the Documentation Agent, in its capacity as such, nor the -71- Arranger shall have any obligations hereunder or under any other Loan Document, or any fiduciary relationship with any Bank. 14. EXPENSES. -------------- The Borrower agrees to pay (i) the reasonable costs of producing and reproducing this Credit Agreement, the other Loan Documents and the other agreements and instruments mentioned herein, (ii) any taxes (including any interest and penalties in respect thereto) payable by the Agent, any of its Affiliates or any of the Banks (other than taxes based upon the Agent's, such Affiliate's or any Bank's net income) on or with respect to the transactions contemplated by this Credit Agreement (the Borrower hereby agreeing to indemnify the Agent and each Bank with respect thereto), (iii) the reasonable fees, expenses and disbursements of the Agent's Special Counsel or any local counsel to the Agent incurred in connection with the preparation, administration or interpretation of the Loan Documents and other instruments mentioned herein, each closing hereunder, and amendments, modifications, approvals, consents or waivers hereto or hereunder, (iv) the reasonable fees, expenses and disbursements of the Agent incurred by the Agent in connection with the preparation, syndication, administration or interpretation of the Loan Documents and other instruments mentioned herein, including in connection with the conduct of any commercial finance examinations, (v) all reasonable out- of-pocket expenses (including without limitation reasonable attorneys' fees and costs, which attorneys may be employees of any Bank or the Agent, and reasonable consulting, accounting, appraisal, and similar professional fees and charges) incurred by any Bank or the Agent in connection with (A) the enforcement of or preservation of rights under any of the Loan Documents against the Borrower or any of its Subsidiaries or the administration thereof after the occurrence of a Default or Event of Default and (B) any litigation, proceeding or dispute whether arising hereunder or otherwise, in any way related to any Bank's or the Agent's relationship with the Borrower or any of its Subsidiaries and (vi) all reasonable fees, expenses and disbursements of any Bank or the Agent incurred in connection with UCC searches. The covenants of this Section 14 shall survive payment or satisfaction of payment of amounts owing with respect to the Notes. 15. INDEMNIFICATION. --------------------- The Borrower agrees to indemnify and hold harmless the Agent and the Banks from and against any and all claims, actions and suits whether groundless or otherwise, and from and against any and all liabilities, losses, damages and expenses of every nature and character arising out of this Credit Agreement or any of the other Loan Documents or the -72- transactions contemplated hereby including, without limitation, (i) any actual or proposed use by the Borrower or any of its Subsidiaries of the proceeds of any of the Loans, (ii) the Borrower or any of its Subsidiaries entering into or performing this Credit Agreement or any of the other Loan Documents or (iii) with respect to the Borrower and its Subsidiaries and their respective properties and assets, the violation of any Environmental Law, the presence, disposal, escape, seepage, leakage, spillage, discharge, emission, release or threatened release of any Hazardous Substances or any action, suit, proceeding or investigation brought or threatened with respect to any Hazardous Substances (including, but not limited to claims with respect to wrongful death, personal injury or damage to property), in each case including, without limitation, the reasonable fees and disbursements of counsel and allocated costs of internal counsel incurred in connection with any such investigation, litigation or other proceeding. In litigation, or the preparation therefor, the Banks and the Agent shall be entitled to select their own counsel and, in addition to the foregoing indemnity, the Borrower agrees to pay promptly the reasonable fees and expenses of such counsel. If, and to the extent that the obligations of the Borrower under this Section 15 are unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment in satisfaction of such obligations which is permissible under applicable law. The covenants contained in this Section 15 shall survive payment of satisfaction in full of all other obligations. 16. SURVIVAL OF COVENANTS, ETC. -------------------------------- All covenants, agreements, representations and warranties made herein, in the Notes, in any of the other Loan Documents or in any documents or other papers delivered by or on behalf of the Borrower or any of its Subsidiaries pursuant hereto shall be deemed to have been relied upon by the Banks and the Agent, notwithstanding any investigation heretofore or hereafter made by any of them, and shall survive the making by the Banks of the Loans, as herein contemplated, and shall continue in full force and effect so long as any amount due under this Credit Agreement or the Notes or any of the other Loan Documents remains outstanding or any Bank has any obligation to make any Loans, and for such further time as may be otherwise expressly specified in this Credit Agreement. All statements contained in any certificate or other paper delivered to any Bank or the Agent at any time by or on behalf of the Borrower or any of its Subsidiaries pursuant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by the Borrower or such Subsidiary hereunder. -73- 17. ASSIGNMENT AND PARTICIPATION. ---------------------------------- 17.1. Conditions to Assignment by Banks. Except as provided herein, each Bank may assign to one or more Eligible Assignees all or a portion of its interests, rights and obligations under this Credit Agreement (including all or a portion of its Commitment Percentage and Commitment and the same portion of the Loans at the time owing to it) and the Notes held by it; provided that (i) each of the Agent and, unless a Default or Event of Default shall have occurred and be continuing, the Borrower shall have given its prior written consent to such assignment, which consent, in the case of the Borrower and the Agent, will not be unreasonably withheld, (ii) each such assignment shall be of a constant, and not a varying, percentage of all the assigning Bank's rights and obligations under this Credit Agreement, (iii) each assignment shall be in an amount that is a whole multiple of $5,000,000, and (iv) each Bank which is a Bank on the date hereof shall retain, free of any such assignment, an amount of its Commitment of not less than $5,000,000, and (v) the parties to such assignment shall execute and deliver to the Agent, for recording in the Register (as hereinafter defined), an Assignment and Acceptance, substantially in the form of Exhibit H hereto (an "Assignment and Acceptance"), together with any Notes subject to such assignment. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five (5) Business Days after the execution thereof, (i) the assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Bank hereunder, and (ii) the assigning Bank shall, to the extent provided in such assignment and upon payment to the Agent of the registration fee referred to in Section 17.3, be released from its obligations under this Credit Agreement. 17.2. Certain Representations and Warranties; Limitations; Covenants. By executing and delivering an Assignment and Acceptance, the parties to the assignment thereunder confirm to and agree with each other and the other parties hereto as follows: (a) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim, the assigning Bank makes no representation or warranty, express or implied, and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Credit Agreement, the other Loan Documents or any other instrument or document -74- furnished pursuant hereto or the attachment, perfection or priority of any security interest or mortgage; (b) the assigning Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower and its Subsidiaries or any other Person primarily or secondarily liable in respect of any of the Obligations, or the performance or observance by the Borrower and its Subsidiaries or any other Person primarily or secondarily liable in respect of any of the Obligations of any of their obligations under this Credit Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; (c) such assignee confirms that it has received a copy of this Credit Agreement, together with copies of the most recent financial statements referred to in Section 5.4 and Section 6.4 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (d) such assignee will, independently and without reliance upon the assigning Bank, the Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Credit Agreement; (e) such assignee represents and warrants that it is an Eligible Assignee; (f) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Credit Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto; (g) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Credit Agreement are required to be performed by it as a Bank; and (h) such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance. 17.3. Register. The Agent shall maintain a copy of each Assignment and Acceptance delivered to it and a register or similar list (the "Register") for the recordation of the names and addresses of the Banks and the Commitment Percentage of, and principal amount of the -75- Loans owing to the Banks from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Agent and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this Credit Agreement. The Register shall be available for inspection by the Borrower and the Banks at any reasonable time and from time to time upon reasonable prior notice. Upon each such recordation, the assigning Bank agrees to pay to the Agent a registration fee in the sum of $3,500. 17.4. New Notes. Upon its receipt of an Assignment and Acceptance executed by the parties to such assignment, together with each Note subject to such assignment, the Agent shall (i) record the information contained therein in the Register, and (ii) give prompt notice thereof to the Borrower and the Banks (other than the assigning Bank). Within five (5) Business Days after receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Agent, in exchange for each surrendered Note, a new Note to the order of such Eligible Assignee in an amount equal to the amount assumed by such Eligible Assignee pursuant to such Assignment and Acceptance and, if the assigning Bank has retained some portion of its obligations hereunder, a new Note to the order of the assigning Bank in an amount equal to the amount retained by it hereunder. Such new Notes shall provide that they are replacements for the surrendered Notes, shall be in an aggregate principal amount equal to the aggregate principal amount of the surrendered Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of the assigned Notes. Within five (5) days of issuance of any new Notes pursuant to this Section 17.4, the Borrower shall deliver an opinion of counsel, addressed to the Banks and the Agent, relating to the due authorization, execution and delivery of such new Notes and the legality, validity and binding effect thereof, in form and substance reasonably satisfactory to the Banks. The surrendered Notes shall be cancelled and returned to the Borrower. 17.5. Participations. Each Bank may sell participations to one or more banks or other entities in all or a portion of such Bank's rights and obligations under this Credit Agreement and the other Loan Documents; provided that (i) each such participation shall be in an amount of not less than $5,000,000, (ii) any such sale or participation shall not affect the rights and duties of the selling Bank hereunder to the Borrower and (iii) the only rights granted to the participant pursuant to such participation arrangements with respect to waivers, amendments or modifications of the Loan Documents shall be the rights to approve waivers, amendments or modifications that would reduce the principal of or the interest rate on any Loans, extend the term or increase the amount of the Commitment of such Bank as it relates to such participant, reduce the amount of any -76- facility fees to which such participant is entitled or extend any regularly scheduled payment date for principal or interest. 17.6. Disclosure. The Borrower agrees that in addition to disclosures made in accordance with standard and customary banking practices any Bank may disclose information obtained by such Bank pursuant to this Credit Agreement to assignees or participants and potential assignees or participants hereunder; provided that such assignees or participants or potential assignees or participants shall agree (i) to treat in confidence such information unless such information otherwise becomes public knowledge, (ii) not to disclose such information to a third party, except as required by law or legal process and (iii) not to make use of such information for purposes of transactions unrelated to such contemplated assignment or participation. 17.7. Assignee or Participant Affiliated with the Borrower. If any assignee Bank is an Affiliate of the Borrower, then any such assignee Bank shall have no right to vote as a Bank hereunder or under any of the other Loan Documents for purposes of granting consents or waivers or for purposes of agreeing to amendments or other modifications to any of the Loan Documents or for purposes of making requests to the Agent pursuant to Section 11.1 or Section 11.2, and the determination of the Majority Banks shall for all purposes of this Agreement and the other Loan Documents be made without regard to such assignee Bank's interest in any of the Loans. If any Bank sells a participating interest in any of the Loans to a participant, and such participant is the Borrower or an Affiliate of the Borrower, then such transferor Bank shall promptly notify the Agent of the sale of such participation. A transferor Bank shall have no right to vote as a Bank hereunder or under any of the other Loan Documents for purposes of granting consents or waivers or for purposes of agreeing to amendments or modifications to any of the Loan Documents or for purposes of making requests to the Agent pursuant to Section 11.1 or Section 11.2 to the extent that such participation is beneficially owned by the Borrower or any Affiliate of the Borrower, and the determination of the Majority Banks shall for all purposes of this Agreement and the other Loan Documents be made without regard to the interest of such transferor Bank in the Loans to the extent of such participation. 17.8. Miscellaneous Assignment Provisions. Any assigning Bank shall retain its rights to be indemnified pursuant to Section 15 with respect to any claims or actions arising prior to the date of such assignment. If any assignee Bank is not incorporated under the laws of the United States of America or any state thereof, it shall, prior to the date on which any interest or fees are payable hereunder or under any of the other Loan Documents for its account, deliver to the Borrower and the Agent -77- certification as to its exemption from deduction or withholding of any United States federal income taxes. If BKB transfers all of its interest, rights and obligations under this Credit Agreement, the Agent shall, in consultation with the Borrower and with the consent of the Borrower and the Majority Banks, appoint another Bank to act as a reference bank hereunder for purposes of the definition of Eurodollar Rate. Anything contained in this Section 17 to the contrary notwithstanding, any Bank may at any time pledge all or any portion of its interest and rights under this Credit Agreement (including all or any portion of its Notes) to any of the twelve Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or the enforcement thereof shall release the pledgor Bank from its obligations hereunder or under any of the other Loan Documents. 17.9. Assignment by Borrower. The Borrower shall not assign or transfer any of its rights or obligations under any of the Loan Documents without the prior written consent of each of the Banks. 18. NOTICES, ETC. ------------------ Except as otherwise expressly provided in this Credit Agreement, all notices and other communications made or required to be given pursuant to this Credit Agreement or the Notes shall be in writing and shall be delivered in hand, mailed by United States registered or certified first class mail, postage prepaid, sent by overnight courier, or sent by telegraph, telecopy, telefax or telex and confirmed by delivery via courier or postal service, addressed as follows: (a) if to the Borrower, at 500 Main Street, Groton, Massachusetts 01471, Attention: John F. Fairbanks, or at such other address for notice as the Borrower shall last have furnished in writing to the Person giving the notice; (b) if to the Agent, at 100 Federal Street, Boston, Massachusetts 02110, USA, Attention: Harvey H. Thayer, Jr., Director, or such other address for notice as the Agent shall last have furnished in writing to the Person giving the notice; and (c) if to any Bank, at such Bank's address set forth on Schedule 1 hereto, or such other address for notice as such Bank shall have last furnished in writing to the Person giving the notice. Any such notice or demand shall be deemed to have been duly given or made and to have become effective (i) if delivered by hand, overnight courier or facsimile to a responsible officer of the party to which it is directed, at the time of the receipt thereof by such officer or the sending of -78- such facsimile and (ii) if sent by registered or certified first-class mail, postage prepaid, on the third Business Day following the mailing thereof. 19. GOVERNING LAW. ------------------- THIS CREDIT AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED THEREIN, ARE CONTRACTS UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS CREDIT AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN Section 18. THE BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. 20. HEADINGS. -------------- The captions in this Credit Agreement are for convenience of reference only and shall not define or limit the provisions hereof. 21. COUNTERPARTS. ------------------ This Credit Agreement and any amendment hereof may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, and all of which together shall constitute one instrument. In proving this Credit Agreement it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. 22. ENTIRE AGREEMENT, ETC. --------------------------- The Loan Documents and any other documents executed in connection herewith or therewith express the entire understanding of the parties with respect to the transactions contemplated hereby. Neither -79- this Credit Agreement nor any term hereof may be changed, waived, discharged or terminated, except as provided in Section 24. 23. WAIVER OF JURY TRIAL. -------------------------- The Borrower hereby waives its right to a jury trial with respect to any action or claim arising out of any dispute in connection with this Credit Agreement, the Notes or any of the other Loan Documents, any rights or obligations hereunder or thereunder or the performance of such rights and obligations. Except as prohibited by law, the Borrower hereby waives any right it may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. The Borrower (i) certifies that no representative, agent or attorney of any Bank or the Agent has represented, expressly or otherwise, that such Bank or the Agent would not, in the event of litigation, seek to enforce the foregoing waivers and (ii) acknowledges that the Agent and the Banks have been induced to enter into this Credit Agreement, the other Loan Documents to which it is a party by, among other things, the waivers and certifications contained herein. 24. CONSENTS, AMENDMENTS, WAIVERS, ETC. ---------------------------------------- Except as otherwise expressly provided in this Credit Agreement, any consent or approval required or permitted by this Credit Agreement to be given by one or more or all of the Banks may be given, and any term of this Credit Agreement or of any other instrument related hereto or mentioned herein may be amended, and the performance or observance by the Borrower of any terms of this Credit Agreement or such other instrument or the continuance of any Default or Event of Default may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but only with, the written consent of the Borrower and the written consent of the Majority Banks. Notwithstanding the foregoing, the rate of interest on the Notes (other than interest accruing pursuant to Section 4.11.2 following the effective date of any waiver by the Majority Banks of the Default or Event of Default relating thereto), the term of the Notes, the amount of the Commitments of the Banks, and the amount of the facility fee hereunder may not be changed without the written consent of the Borrower and the written consent of each Bank affected thereby; the definition of Majority Banks may not be amended without the written consent of all of the Banks; and the amount of the Agent's fee and Section 13 may not be amended without the written consent of the Agent. No waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon. No course of dealing or delay or omission on the part of any Bank in -80- exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon the Borrower shall entitle the Borrower to other or further notice or demand in similar or other circumstances. 25. SEVERABILITY. ------------------ The provisions of this Credit Agreement are severable and if any one clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Credit Agreement in any jurisdiction. 26. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION. --------------------------------------------------- 26.1. Confidentiality. Each of the Agent and the Banks agrees to keep any information delivered or made available to it by or on behalf of the Borrower or any its Subsidiaries confidential from anyone other than its employees, officers, attorneys and other advisors or any Section 20 Subsidiary, provided that nothing herein shall prevent the Agent or such Bank from disclosing such information upon the order or request of any court or administrative agency or authority, upon the request or demand of any regulatory agency or authority, to the extent that such information has been publicly disclosed other than as a result of a disclosure by the Agent or such Bank, otherwise as required by law or to any actual or potential assignee or participant hereof pursuant to Section 17.6. The Borrower agrees that it will, and will cause each of its Subsidiaries to, keep any information delivered or made available to it by or on behalf of the Agent or any of the Banks confidential from anyone other than its employees, officers, attorneys and other advisors, provided that nothing herein shall prevent the Borrower from disclosing such information upon the order or request of any court or administrative agency or authority, upon the request or demand of any regulatory agency or authority, to the extent that such information has been publicly disclosed other than as a result of disclosure by the Borrower or any of its Subsidiaries, or otherwise as required by law. 26.2. Prior Notification. Unless specifically prohibited by applicable law or court order, each of the Banks and the Agent shall, prior to disclosure thereof, notify the Borrower of any request for disclosure of any such non-public information by any governmental agency or representative thereof (other than any such request in connection with an -81- examination of the financial condition of such Bank by such governmental agency) or pursuant to legal process. 26.3. Other. In no event shall any Bank or the Agent be obligated or required to return any materials furnished to it or any Section 20 Subsidiary by the Borrower. The obligations of each Bank under this Section 26 shall supersede and replace the obligations of such Bank under any confidentiality letter in respect of the financing contemplated by this Credit Agreement or the Original Credit Agreement and signed and delivered by such Bank to the Borrower prior to the date hereof, and shall be binding upon any assignee of, or purchaser of any participation in, any interest in any of the Loans from any Bank. 27. TRANSITIONAL ARRANGEMENTS. ------------------------------- 27.1. Original Credit Agreement Superseded. This Agreement shall supersede the Original Credit Agreement in its entirety, except as provided in this Section 27. On the Closing Date, the rights and obligations of the parties under the Original Credit Agreement and the "Notes" (as defined in the Original Credit Agreement) issued in favor of the Banks under the Original Credit Agreement (as defined therein) shall (other than any rights available to the Agent and the Banks under Section 16 and Section 17 of the Original Credit Agreement), be subsumed within and be governed by this Credit Agreement and the other Loan Documents; provided, however, that each of the "Loans" (as defined in the Original Credit Agreement) outstanding under the Original Credit Agreement on the Closing Date shall, for purposes of this Credit Agreement, be Loans, and shall continue to bear interest or be subject to fees at the respective rates in effect immediately prior to the Closing Date, in the case of Base Rate Loans, and immediately prior to the end of the applicable Interest Period, in the case of Eurodollar Rate Loans and Competitive Bid Loans (with the Applicable Eurodollar Rate Margin to be applied on and after the Closing Date to be equal to the Applicable Eurodollar Rate Margin set forth herein and the Applicable Eurodollar Rate Margin to be applied before the Closing Date to be the Applicable Eurodollar Rate Margin (as defined in the Original Credit Agreement)). 27.2. Return and Cancellation of Notes. Upon its receipt of its Note or Notes hereunder on the Closing Date, each Bank will promptly return to the Borrower, marked "Canceled", any notes of the Borrower held by such Bank pursuant to the Original Credit Agreement. 27.3. Fees Under Original Credit Agreement. All facility, Agent's and other fees and expenses owing or accruing under or in respect of the Original Credit Agreement through the Closing Date shall be calculated as -82- of the Closing Date (prorated in the case of any fractional periods), and shall be paid in accordance with the method, and on the dates, specified in the Original Credit Agreement, as if the Original Credit Agreement were still in effect. 28. Replacement Documents. --------------------------- Upon receipt of an affidavit (reasonably satisfactory in form and substance to the Borrower) of an officer of any Bank or the Agent as to the loss, theft, destruction or mutilation of any Note or any Guaranty, the Borrower will issue, in lieu thereof, a replacement Note or Guaranty in the form previously executed and delivered by the Borrower to such Bank or the Agent; provided, however, that the Borrower acknowledges and agrees that any such affidavit need not contain an indemnification from the Agent or, as the case may be, such Bank. [Remainder of page intentionally left blank] -83- IN WITNESS WHEREOF, the undersigned have duly executed this Credit Agreement as a sealed instrument as of the date first set forth above. NEW ENGLAND BUSINESS SERVICE, INC. By: /s/ John F. Fairbanks --------------------- John F. Fairbanks Vice President and Chief Financial Officer BANKBOSTON, N.A. formerly known as The First National Bank of Boston, individually and as Agent By: /s/ Harvey H. Thayer, Jr. ------------------------- Harvey H. Thayer, Jr. Director FLEET NATIONAL BANK, individually and as Documentation Agent By: /s/ Mary M. Barcus ------------------ Mary M. Barcus Senior Vice President EX-10.2 5 Exhibit 10.2 NEW ENGLAND BUSINESS SERVICE, INC. 500 Main Street Groton, Massachusetts 01471 Agreement to Furnish Copies of Omitted Exhibits and Schedules to Revolving Credit Agreement New England Business Service, Inc. (the "Registrant") is not filing as exhibits to its Current Report on Form 8-K dated January 7, 1998, copies of the exhibits and schedules to the Revolving Credit Agreement dated as of December 18, 1997, 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, which Agreement is filed as Exhibit 2.1 thereto. Registrant agrees to furnish to the Securities and Exchange Commission, upon request, copies of such omitted exhibits and schedules. Dated: January 7, 1998 NEW ENGLAND BUSINESS SERVICE, INC. (Registrant) By: /s/ John F. Fairbanks --------------------- John F. Fairbanks Vice President-Chief Financial Officer (Principal Financial and Accounting Officer) EX-23.1 6 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 13, 1997, included in this Form 8-K into New England Business Service, Inc.'s previously filed Registration Statement Nos. 2-69422, 2-72662, 33-38925, 33-43900 and 33-56227 and 333-32719 on Form S-8 and Registration Statement No. 333-26499 on Form S-3. /s/ Arthur Andersen LLP - ----------------------- Philadelphia, PA January 7, 1998 -----END PRIVACY-ENHANCED MESSAGE-----