-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, pDwBupZZKxywY40NTK75PES7yMznMg/fyrh7wfw56yx/GOLW4kCsY3jzcAe6Bx9z uW/uiM06+Dr1GybNMfAEoA== 0000910647-94-000012.txt : 19940921 0000910647-94-000012.hdr.sgml : 19940921 ACCESSION NUMBER: 0000910647-94-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940920 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND BUSINESS SERVICE INC CENTRAL INDEX KEY: 0000205700 STANDARD INDUSTRIAL CLASSIFICATION: 2761 IRS NUMBER: 042942374 STATE OF INCORPORATION: DE FISCAL YEAR END: 0627 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-08564 FILM NUMBER: 94549603 BUSINESS ADDRESS: STREET 1: 500 MAIN ST CITY: GROTON STATE: MA ZIP: 01471 BUSINESS PHONE: 5084486111 10-K 1 NEBS 10-K FISCAL YEAR ENDED 6-24-94 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended June 24, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1945 (NO FEE REQUIRED) For the transition period from to . Commission File No. 0-8564 New England Business Service, Inc. (Exact name of registrant as specified in its charter) Delaware 04-2942374 (State or other jurisdiction of (IRS Employer Identification number) incorporation or organization) 500 Main Street 01471 Groton, Massachusetts (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (508) 448-6111 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock ($1.00 par value) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ( 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the Registrant's Common Stock, par value $1.00 per share, held by stockholders who are not affiliates of the Registrant at August 31, 1994 as computed by reference to the closing price of such stock on that date was approximately $225,640,000. The number of shares of Registrant's Common Stock, par value $1.00 per share, outstanding at August 31, 1994 was 15,475,550. Documents Incorporated By Reference 1. Portions of the Annual Report to Stockholders for the fiscal year ended June 24, 1994 are incorporated by reference into Items 5, 6, 7 and 8 (Part II) and Item 14 (Part IV) of this Report. Such Annual Report, except for the parts therein which have been specifically incorporated by reference, shall not be deemed "filed" for the purposes of this report on Form 10-K. 2. Portions of the Proxy Statement sent to stockholders in connection with the Annual Meeting to be held on October 28, 1994 are incorporated by reference into Items 10, 11,12 and 13 (Part III) of this Report. Such Proxy Statement, except for the parts therein which have been specifically incorporated by reference, shall not be deemed "filed" for the purposes of this report on Form 10-K. PART I ITEM 1. BUSINESS Founded in 1952, New England Business Service, Inc. (which, with its branch, NEBS Business Stationery in the United Kingdom, and its wholly-owned subsidiaries, SYCOM Inc. of Madison, Wisconsin, NEBS Business Forms Limited of Midland, Ontario and NEBS Software, Inc. of Nashua, New Hampshire shall be referred to as the "Company") is a Delaware corporation whose principal executive offices are located at 500 Main Street, Groton, Massachusetts 01471. Its telephone number is (508) 448-6111. Reference is made to the information contained in Note 11, Financial Information by Geographic Area, in the Notes to the Consolidated Financial Statements on page 25 of the Company's Annual Report to Stockholders for the fiscal year ended June 24, 1994. Products The Company's product line consists of well over 1,000 standardized imprinted manual and computer business forms, stationery, custom forms designed to meet specific needs of individual customers, other printed products and a line of small business accounting software. Products are either specifically designed for different lines of business or are generally usable by all small businesses and professional offices. Their value is enhanced by high quality, fast delivery, and competitive prices. Typical examples of the Company's standardized manual business forms are billing forms, work orders, job proposals and purchase orders, all of which provide small businesses with the financial and other records necessary to properly manage their businesses. Stationery, including letterheads, envelopes and business cards, is available in a variety of formats and ink colors to provide small businesses with their desired image. Checks and check writing systems are offered to facilitate the writing and recording of checks as well as the posting of the related bookkeeping entries. Marketing products, such as advertising labels, pricing tags and labels, signage and seasonal greeting cards, are designed to promote customer awareness. In addition, a line of filing system products has been designed specifically for use by small professional offices. The Company also offers a line of NEBS(R) proprietary software, computer forms (both continuous and laser) and other computer related products. NEBS propriety software includes checkwriting, billing and mailing application packages as well as a variety of simpler form-filling software, all of which are compatible with business forms offered by the Company. The Company's computer forms are compatible with over 3,500 personal computer software packages developed by third parties and used by small businesses. The Company's One-Write Plus(R) line of accounting software is designed for the business automating for the first time. One - Write Plus integrates accounting and payroll functions with basic word processing, mail merge, a spreadsheet link, a backup utility and a menu organizer. Modeled on the manual one-write accounting system, the software combines the benefits of computerized accounting with the familiar format of the manual method used by more than five million small businesses. One-Write Plus consumes a wide variety of NEBS forms, such as multi-purpose checks, payroll checks, accounts-payable checks, laser forms, tax forms, invoices, statements, labels, letterheads and other general business forms. One-Write Plus has an established leadership position within the small business market, having been well received for over ten years by tens of thousands of customers. 2 Product Development and Research The Company's products are designed principally by its product development staff. To generate new product ideas, the Company relies upon an ongoing program of personal field research, including calls on customers and prospective customers, focus groups and mail surveys as well as unsolicited inquiries and suggestions. After the product research is completed, the information is turned over to a product designer who employs traditional as well as computer-aided design methods to create the final product, whether it be an estimate form for contractors or merchandise bags for retailers. Throughout this process, feedback from customers and prospects is maintained. The Company has an internal software development group that develops the program code for new software products and upgrades. From time to time, outside contractors may be employed or sub- routines licensed as part of developing all or a part of a product. Sales and Marketing To generate sales, the Company relies almost exclusively upon promotional materials it mails to its over 1,285,000 customers and its list of over 6,500,000 prospective customers. All of these materials contain one or more order forms to be completed by the customer or prospective customer and either telephoned, mailed or faxed to the Company. The Company promotes the use of its toll-free telephone and fax lines and over 80% of its orders are received by these means. The Company also utilizes a dealer network to provide products to that portion of the small business market which would not normally order by mail. The Company also employs a small outside sales force to facilitate the distribution of its software product line through software and computer distributors and retailers. The Company attributes much of its success to its ability to capitalize on the unique characteristics of mail order marketing. This ability, coupled with telemarketing, allows it to select and penetrate geographically dispersed but, in the aggregate, significant markets. Within these markets the Company targets small businesses with 20 or fewer employees through specialized promotions and products specifically designed for them. The Company maintains its customer and prospect lists in such a way that it can, with the use of sophisticated database marketing software, select names and plan mailings based on whether the recipients are customers or prospects, the types of business they are in, and if customers, what they purchased, how recently they purchased, how frequently they purchased and how much they purchased. The Company compiles prospect names from telephone directories and other sources as well as renting prospect lists from others. The Company's promotional materials are of three types: catalogs of various sizes, promotional circulars with samples, and inserts included with outgoing invoices, statements and shipments. In addition, the Company utilizes space advertising in magazines and post card packages to generate sales leads from prospective customers. The Company relies on the U. S. Post Office for distribution of its advertising materials. Over the past few years, postage rates for third class mail have increased periodically. The Company has been able to absorb these increases through cost reduction programs and selective price increases. Raw Materials, Production and Distribution The Company produces semi-finished business forms on high speed roll fed presses from raw paper. The Company also purchases partially printed forms from a number of sources at competitive prices. The Company has no long-term contracts with any of its suppliers and has not experienced a shortage of paper for its products, catalogs or advertising brochures in over 20 years. The cost of paper used for products and advertising materials constitutes, directly or indirectly, less than 20% of sales. 3 The Company has specialized presses for short-run printing and other pieces of production equipment for typesetting and imprinting customer headings. These include computerized typesetters, platemaking systems, letter presses and offset presses. In addition, it has manual and semi-automatic bindery equipment. The Company has a number of presses which it has designed specifically for the specialized short-run needs of its market. The Company believes these specialized presses allow it to produce customer orders more efficiently than would be possible with the equipment which is available from typical press equipment suppliers. The Company's software products are duplicated and packaged by outside vendors. The Company has no significant backlog of orders. It is the Company's policy to ship customer orders for most product lines within two days from receipt of order. In fiscal 1994, over 71% of its orders were shipped within two days and 88% within five days. To allow for such prompt shipments, the Company maintains significant inventories of raw paper ($721,000 at year-end in fiscal 1994) and partially printed business forms and related office products ($7,019,000 at year-end in fiscal 1994). To further reduce the time between receipt of an order and delivery to the customer, as well as to better manage its inventory balances, the Company has increased its investment in high speed roll fed presses which convert raw paper into semi-finished forms for inventory. The Company ships its products by United Parcel Service (UPS) and Parcel Post. The Company bills the customer for the shipping charges on all orders shipped on open account while it absorbs the normal surface shipping charges for those customers (approximately 10%) who remit payment with their orders. Competition The Company's primary competition for printed products sold is the local job shop printer of which there are approximately 35,000 located in the United States and other companies marketing business forms by mail order. In addition, there are approximately 20,000 retail stationery stores located throughout the United States, many of which offer preprinted business forms to businesses in their immediate trading area. Local printers have the advantage of physical proximity to their customers, but frequently lack design expertise and are generally unable to offer products of complex construction or continuous forms for desktop computers. In addition, the cost of producing a small order for a single customer works to their disadvantage. Typically, preprinted business forms offered by stationers are limited to general purpose forms suitable for use by a broad cross-section of businesses and are not designed for specific lines of businesses nor imprinted with the customer's name, address or phone number. Presently, there are approximately 10 to 15 companies marketing business forms and supplies by mail, some of which are divisions of larger companies. The Company believes that the primary competitive factors considered by customers are printing accuracy, guaranteed satisfaction, speed of delivery, service, availability of a complete product line and price. The Company believes that it is the largest mail order marketer of business forms to the very small business market in the United States and Canada. The Company's One-Write Plus line of accounting software competes primarily with 5 to 10 other major software products marketed to small businesses to fulfill their complete accounting needs. The One-Write Plus software seeks to combine strong accounting controls with ease of use. 4 Employees Including its subsidiaries, the Company had approximately 2,083 full-time and part-time employees at year-end. It has a number of employee benefit plans, including medical and hospitalization insurance, a cash profit sharing plan, a salary deferral 401(k) plan and a defined benefit pension plan. Environment There have been no material effects on the Company or any of its subsidiaries arising from their compliance with federal, state, and local statutes and regulations relating to the protection of the environment. Executive Officers of the Company Except for William C. Lowe, who was elected by the Board of Directors on November 12, 1993, all of the Company's executive officers were elected to office on October 22, 1993 at the first meeting of the Board of Directors following the Annual Meeting. Each officer holds office until the first meeting of the Board following the next Annual Meeting and until a successor is chosen. For information concerning executive officers who are also directors of the Company, refer to the Company's Proxy Statement incorporated herein by Item 10 of this Report. Information concerning other executive officers follows. Robert S. Brown, Jr., age 47, joined the Company in 1971 and has served in numerous capacities in operations and marketing, both in the United States and Canada. In 1986, Mr. Brown assumed the position of Advertising & Product Development Director. In 1988, he became Market Management and Product Development Director. In 1989, he was elected Vice President NEBS Business Forms Marketing & Product Development and in 1991, Vice President - General Manager, Marketing. In April, 1994, he assumed his present position as Vice President - General Manager, Subsidiaries. Russell V. Corsini, Jr., age 51, joined the Company in 1982 as Corporate Controller and was elected Vice President, Chief Financial Officer in October, 1983. ITEM 2. PROPERTIES The Company owns land and buildings housing its offices and production facilities in Massachusetts, New Hampshire, Arizona, Missouri, Wisconsin, Ontario and the United Kingdom. The Company leases office facilities in New Hampshire, Texas and Arizona. The Company owns land for future expansion in Georgia. The Company's corporate offices are located in an office building in Groton, Massachusetts. This building, which was completed in 1978 and expanded in 1982, contains 125,000 square feet of floor space and is located on 36 acres of land. It provides offices for marketing, administration, information resources, purchasing, finance, and executive personnel. In Townsend, Massachusetts, six miles from its Groton headquarters, the Company has a production and administration facility situated on 15 acres of land, containing 120,000 square feet of floor space. This building,which originally housed all of the Company's operations, was built in 1959 and expanded from time to time up through 1989. In Peterborough, New Hampshire, the Company owns a production facility, built in 1975 and expanded in 1978, which contains 128,000 square feet of floor space and is situated on 48 acres of land. 5 In Maryville, Missouri, the Company owns a 95,000 square foot production facility situated on 50 acres of land and built in 1980. In Flagstaff, Arizona, the Company owns a 91,000 square foot production and administration facility situated on 24 acres of land and built in 1985. In Madison, Wisconsin, the Company's subsidiary SYCOM, Inc. owns a 56,000 square foot office and production facility situated on 5 acres of land. This facility was built and expanded during the period 1971 through 1992. In Douglasville, Georgia, the Company has purchased 14 acres of land for the purpose of constructing a facility at a future time. In Midland, Ontario, the Company's Canadian subsidiary, NEBS Business Forms Limited, owns a 97,000 square foot office and production facility situated on 8 acres of land. This facility was constructed in 1985 and expanded in 1989. In Chester, England, the Company owns a 38,000 square foot office and production facility situated on 4 acres of land. This facility was constructed in 1989. The Company also leases office space in Nashua, New Hampshire (25,000 square feet), Dallas, Texas (5,000 square feet) and Phoenix, Arizona (14,000 square feet). The Company believes the production and office facilities now in existence are adequate for its present and foreseeable future needs. ITEM 3. LEGAL PROCEEDINGS To the Company's knowledge, no material legal proceedings are pending on the date hereof to which the Company is a party or to which any property of the Company is subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The section entitled "Common Stock" located on page 27, and footnotes 4, 5, 6 and 12 to the Consolidated Financial Statements on pages 22-23 and page 25 of the Company's Annual Report to Stockholders for the fiscal year ended June 24, 1994 are incorporated herein by reference. The number of record holders of the Company's Common stock at August 31, 1994 was 889. The Company estimates the number of beneficial owners of the Company's Common stock to be 5,700 at August 31, 1994. 6 ITEM 6. SELECTED FINANCIAL DATA The section entitled "Eleven Year Summary" located on pages 14 and 15 of the Company's Annual Report to Stockholders for the fiscal year ended June 24, 1994 is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The section entitled "Management Discussion and Analysis" located on pages 26 and 27 of the Company's Annual Report to Stockholders for the fiscal year ended June 24, 1994 is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA The Consolidated Financial Statements and notes thereto located on pages 16-25 and 27 of the Company's Annual Report to Stockholders for the fiscal year ended June 24, 1994 are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The sections entitled "Nominees for Election as Directors" located on pages 3 and 4, of the Company's Proxy Statement for the Annual Meeting of Stockholders to be held October 28, 1994 is incorporated herein by reference. See also "Executive Officers of the Company" in Item 1 above in this Report. ITEM 11. EXECUTIVE COMPENSATION The section entitled "Compensation of Officers and Directors" located on pages 5-7 of the Company's Proxy Statement for the Annual Meeting of Stockholders to be held October 28, 1994 is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The section entitled "Voting Securities" located on pages 1 and 2 of the Company's Proxy Statement for the Annual Meeting of Stockholders to be held October 28, 1994 is incorporated herein by reference. ITEM 13. CERTAIN BUSINESS RELATIONSHIPS - COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The section entitled "Certain Business Relationships - Compensation Committee Interlocks and Insider Participation" located on page 4 of the Company's Proxy Statement for the Annual Meeting of Stockholders to be held October 28, 1994 is incorporated herein by reference. 7 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) The following financial statements which are located on the following pages of the Company's Annual Report to Stockholders for the fiscal year ended June 24, 1994 are incorporated herein by reference.
Page(s) Independent Auditors' Report 27 Consolidated Balance Sheets as of June 24, 1994 and June 25, 1993 16-17 Statements of Consolidated Income for the fiscal years ended June 24, 1994, June 25, 1993 and June 26, 1992 18 Statements of Consolidated Stockholders' Equity for the fiscal years ended June 24, 1994, June 25, 1993 and June 26, 1992 19 Statements of Consolidated Cash Flows for the fiscal years ended June 24, 1994, June 25, 1993 and June 26, 1992 20 Notes to Consolidated Financial Statements 21-25
(2) The following financial statement schedules are filed as part of this report and are located on the following pages:
Page(s) Independent Auditors' Report 12 Schedule I Marketable Securities - Other Investments 13 Schedule V Property, Plant and Equipment 14 Schedule VI Accumulated Depreciation of Property, Plant and Equipment 15 Schedule VIII Valuation and Qualifying Accounts 16 Schedule IX Short-Term Borrowings 17 Schedule X Supplementary Income Statement Information 18
Schedules II, III, IV, VII, XI, XII, XIII and XIV are omitted as not applicable or not required under Regulation S-X. (3) Exhibits required to be filed by Item 601 of Regulation S-K: (3)(a) Certificate of Incorporation of the Registrant. (Incorporated by reference to the Company's Current Report on Form 8-K dated October 31, 1986.) (3)(b) Certificate of Merger of New England Business Service, Inc. (a Massachusetts corporation) and the Company, dated October 24, 1986 amending the Certificate of Incorporation of the Company by adding Articles 14 and 15 thereto. (Incorporated by reference to the Company's Current Report on Form 8-K dated October 31, 1986.) 8 (3)(c) By-Laws of the Registrant. (Incorporated by reference to Exhibit (3)(c) to the Company's Annual Report on Form 10-K for the fiscal year ended June 29, 1990, filed September 14, 1990.) (4) Specimen stock certificate for shares of Common Stock, par value $1.00 per share. (Incorporated by reference to the Company's Post-Effective Amendment No. 1 to the Registration Statement on Form S-8 (Registration No. 2-72662).) (9) Not applicable. (10)(a) NEBS 1990 Key Employee Stock Option and Stock Appreciation Rights Plan dated July 27, 1990. (Incorporated by reference to Exhibit (10)(a) to the Company's Annual Report on Form 10-K for the fiscal year ended June 29, 1990, filed September 14, 1990.) (10)(b) Executive Bonus Plan for 1994. (10)(c) Executive Bonus Plan for 1995. (10)(d) Line of Credit Agreement, dated November 1, 1993, between the Company and The First National Bank of Boston. (10)(e) NEBS Deferred Compensation Plan for Outside Directors. (Incorporated by reference to Exhibit 10(d) to the Company's Annual Report on Form 10-K for the fiscal year ended June 25, 1982, filed September 23, 1982.) (10)(f) NEBS 1994 Key Employee and Eligible Director Stock Option and Stock Appreciation Rights Plan dated July 22, 1994. (10)(g) NEBS Stock Compensation Plan dated July 25, 1994. (10)(h) Separation Agreement dated December 17, 1993 between the Company and Bartley H. Calder. (10)(i) Key Employee Non-Incentive Stock Option Agreement between the Company and William C. Lowe granted as of November 12, 1993. (11) Not applicable. (12) Not applicable. (13) The Annual Report to Stockholders for the fiscal year ended June 24, 1994. (16) Not applicable. (18) Not applicable. (19) Not applicable. (21) List of Subsidiaries. (22) Not applicable. 9 (23) Consent of Deloitte & Touche LLP. (24) Not applicable. (27) Article 5 Financial Data Schedule. (28) Not applicable. 10 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NEW ENGLAND BUSINESS SERVICE, INC. (Registrant) BY /s/ William C. Lowe (William C. Lowe, President and Chief Executive Officer) Date: September 19, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Name Title Date /s/ Richard H. Rhoads Chairman and Director September 19, 1994 (Richard H. Rhoads) /s/ William C. Lowe President, Chief Executive September 19, 1994 (William C. Lowe) Officer and Director /s/ Peter A. Brooke Director September 19, 1994 (Peter A. Brooke) /s/ Benjamin H. Lacy Director September 19, 1994 (Benjamin H. Lacy) /s/ Robert J. Murray Director September 19, 1994 (Robert J. Murray) /s/ Frank L. Randall, JR. Director September 19, 1994 (Frank L. Randall, Jr.) /s/ Jay R. Rhoads, Jr. Director September 19, 1994 (Jay R. Rhoads, Jr.) /s/ Robert Ripp Director September 19, 1994 (Robert Ripp) /s/ Russell V. Corsini, Jr. Principal Financial and September 19, 1994 (Russell V. Corsini, Jr.) Accounting Officer
11 INDEPENDENT AUDITORS' REPORT New England Business Service, Inc. We have audited the consolidated financial statements of New England Business Service, Inc. and its subsidiaries as of June 24, 1994, and June 25, 1993, and for each of the three years in the period ended June 24, 1994, and have issued our report thereon dated July 22, 1994; such financial statements and report are included in your 1994 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedules of New England Business Service, Inc. and its subsidiaries, listed in Item 14. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ DELOITTE & TOUCHE LLP Deloitte & Touche LLP Boston, Massachusetts July 22, 1994 12 SCHEDULE I NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES MARKETABLE SECURITIES - OTHER INVESTMENTS June 24, 1994
Amount at Which Each Portfolio of Equity Number of Market Value Security Issues and Name of Issuer Shares or Units- of Each Issue Each Other Security and Title of Principal Amount Cost of at Balance Issue Carried in Each Issue of Bonds and Notes Each Issue Sheet Date the Balance Sheet Industrial Development Authority Bonds $2,605,000 $ 2,605,000 $ 2,605,700 $ 2,605,000 Municipal Power Revenue Bonds 2,305,000 2,523,100 2,411,400 2,411,100 Transportation Bonds 2,275,000 2,410,600 2,354,700 2,345,100 General Obligation Notes 2,045,000 2,066,300 2,048,200 2,045,000 Housing Finance Authority Bonds 1,990,000 2,010,500 1,996,400 1,996,900 Municipal Redevelopment Bonds 1,990,000 1,990,000 1,983,300 1,990,000 Honolulu Hawaii City & County Refunding & Improvement - Series 1993 B Bonds, Dated 04/01/93 1,925,000 1,921,400 1,921,400 1,925,000 Variable Rate Municipal Bonds 1,500,000 1,553,400 1,523,200 1,525,000 Education Revenue Bonds 1,500,000 1,505,300 1,494,300 1,500,000 Water & Sewer Resource Bonds 1,000,000 1,106,400 1,053,200 1,021,000 Tax Exempt Mutual Fund Preferred Shares - Van Kampen Merritt 50 2,510,900 2,510,900 2,503,100 Tax Exempt Mutual Fund Preferred Shares - Muniyield 50 2,500,100 2,500,100 2,500,100 Tax Exempt Mutual Fund Preferred Shares - Van Kampen Merritt Advantage 40 2,000,000 2,000,000 2,000,000 Tax Exempt Mutual Fund Preferred Shares - Intercapital Quality 30 1,500,000 1,500,000 1,500,000 Tax Exempt Mutual Fund Preferred Shares - Miscellaneous 30 1,500,000 1,500,000 1,500,000 Canadian Bank Mortgage Notes 594,000 594,000 617,100 594,000 Canadian Government & Provincial Bonds: Maturity 6 months or less 1,182,700 1,182,700 1,245,900 1,182,700 Maturity 6 months to 12 months 2,586,900 2,586,900 2,692,000 2,586,900 Maturity over 12 months 994,100 994,100 1,021,900 994,100 Canadian Provincial Bonds 2,472,600 2,472,600 2,558,400 2,472,600 Accrued Income 334,300 Total $37,533,300 $37,538,100 $37,531,900
13 SCHEDULE V NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES PROPERTY, PLANT AND EQUIPMENT (000's Omitted)
Balance at Deductions, Balance Beginning Additions Retirements at End Description of Period at Cost or Sales of Period Year Ended June 26, 1992: Land and Buildings $ 36,660 $1,695 $ 141 $ 38,214 Equipment 53,704 7,974 1,024 60,654 Total $ 90,364 $9,669 $1,165 $ 98,868 Year Ended June 25, 1993: Land and Buildings $ 38,214 $ 646 $1,082 $ 37,778 Equipment 60,654 5,829 1,862 64,621 Total $ 98,868 $6,475 $2,944 $102,399 Year Ended June 24, 1994: Land and Buildings $ 37,778 $ 794 $ 155 $ 38,417 Equipment 64,621 5,260 3,233 66,648 Total $102,399 $6,054 $3,388 $105,065
14 SCHEDULE VI NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT (000's Omitted)
Balance at Additions Deductions, Balance Beginning Charged to Retirements at End Description of Period Expenses or Sales of Period Year Ended June 26, 1992: Land and Buildings $14,300 $1,607 $ 141 $15,766 Equipment 32,674 6,901 1,024 38,551 Total $46,974 $8,508 $1,165 $54,317 Year Ended June 25, 1993: Land and Buildings $15,766 $1,528 $ 150 $17,144 Equipment 38,551 7,201 1,607 44,145 Total $54,317 $8,729 $1,757 $61,289 Year Ended June 24, 1994: Land and Buildings $17,144 $1,571 $ - $18,849 Equipment 44,145 7,646 3,266 48,525 Total $61,289 $9,217 $3,266 $67,374
15 SCHEDULE VIII NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (000's Omitted)
Additions Balance at Charged Deductions Balance at Beginning Charged to Other from End of of Period to Income Accounts(1) Reserves(2) Period Reserves deducted from assets to which they apply: For doubtful accounts receivable: Year ended June 26, 1992 $3,134 $3,336 $105 $3,439 $3,136 Year ended June 25, 1993 3,136 2,815 30 3,037 2,944 Year ended June 24, 1994 2,944 2,799 - 2,731 3,012 For sales returns and allowances: Year ended June 26, 1992 628 593 - 628 593 Year ended June 25, 1993 593 779 - 593 779 Year ended June 24, 1994 779 1,078 - 779 1,078 Recovery of accounts previously written off. Accounts written off.
16 SCHEDULE IX NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES SHORT-TERM BORROWINGS
Amounts Weighted Balance Outstanding Average at End Weighted During the Period Interest Rate Line of Credit, of the Average During the Year Ended Period Interest Rate Maximum Average(1) Period(2) (000's Omitted) (000's Omitted) June 24, 1994 - - - - - June 25, 1993 - - - - - June 26, 1992 - - $10,000 $833 0.6% The average amount outstanding during the year was determined based upon the amounts outstanding at each month end. The weighted average interest rate for the fiscal year 1992 was calculated by dividing actual interest expense on short- term borrowings by average month-end amounts outstanding in each year.
17 SCHEDULE X NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT INFORMATION (000's Omitted)
Year Ended June 24, June 25, June 26, 1994 1993 1992 Charged to Costs and Expenses: Maintenance and Repairs $4,501 $5,297 $4,879 Advertising Costs (see Statements of Consolidated Income)
18 EX-10 2 EXHIBIT 10(B) - EXECUTIVE BONUS PLAN FOR 1994 1994 NEBS EXECUTIVE BONUS PLAN (Effective as of June 26, 1993) This Executive Bonus Plan was adopted by the Board of Directors of New England Business Serve, Inc. (the "Company") onOctober 22, 1993 upon the recommendation of its Organization andCompensation Committee for the purpose of providing incentive compensation for the senior executives of the Company. This Plan shall be governed by the following definitions and calculations. I. Participants. The Participants in the Plan for the 1994 ------------ fiscal year of the Company (the "Year") and their respective Target Percentages shall be as follows: A. Officers of the Company. ----------------------- Bartley H. Calder, President and CEO 60% Robert S. Brown, Vice President - General Manager, Marketing 40% Christopher H. Corbett, Vice President - General Manager, Manufacturing 40% and Information Resources Edward M. Bolesky, Vice President- General Manager, Administration 40% and Customer Relations Russell V. Corsini, Jr., Vice President - Finance 40% Sally C. Davis, Vice President - Human Resources 40% Thomas M. Freeze, Treasurer 40% Timothy D. Althof, Corporate Controller 40% B. CEOs of Subsidiaries. -------------------- Robert T. Richardson, President NEBS Business Forms, Ltd. 40% Robert A. Lay, President and Chief Executive SYCOM, Inc. 40% David G. Booth, Managing Director NEBS Business Stationery 40% C. Directors of Business Units and of Manufacturing. ------------------------------------------------ Steve H. Dedo, Business Forms Director 40% Linda A. Jacobs, Marketing Products Director 40% Ronald F. Verni, Vice President - General Manager, Computer Forms/ 40% Software and OWP Steven G. Schlerf, Manufacturing Director 40% No Participant shall be eligible to participate in the NEBS Profit Sharing Plan for any year in which he or she is entitled to participate in this Plan. II. Target Bonus. The Target Bonus payable to a Participant with ------------ respect to the Year shall be an amount arrived at by multiplying his or her base salary initially fixed for the Year by his or her Target Bonus Percentage. III. Actual Bonuses. -------------- A. Officers of the Company. The Actual Bonus of each ----------------------- of the Participants who is an Officer of the Company, other than Ronald F. Verni, shall be calculated by multiplying his or her Target Bonus by a percentage which shall be 50% of the sum of (i) a "Consolidated Sales Factor" equal to the -2- percentage which the consolidated net sales in the Year are of $259,734,000 (the "targeted consolidated net sales" for the Year), and (ii) a "Consolidated Profit Factor" equal to the percentage which the consolidated earnings per share of the Year are of $1.00 per share (the "targeted consolidated earnings per share" for the Year), as described below: 1. Consolidated Sales Factor equals 100% plus ------------------------- 6.25% for each one percent by which consolidated net sales are more than the targeted consolidated net sales for the Year, or 100% minus 6.25% for each one percent by which consolidated net sales are less than the targeted consolidated net sales for the Year (calculated in either case to the nearest one-tenth of one percent), provided that the Sales Factor shall be 0% if net sales for the Year are less than $238,955,000. 2. Consolidated Profit Factor equals 100% plus -------------------------- 7.14% for each one percent by which consolidated earnings per share are more than the targeted consolidated earnings per share for the Year, or 100% minus 7.14% for each one percent by which consolidated earnings per share are less than the targeted consolidated earnings per share for the Year (calculated in either case to the nearest one-tenth of one percent), provided that the profit factor shall be 0% if the earnings per share for the Year are less than $.93. No bonuses shall be payable to the Officers under this plan if the Company's consolidated earnings per share for the Year are less than $.85. B. Chief Executive Officers of Subsidiary Business ----------------------------------------------- Units. ----- 1. The Chief Executive of SYCOM, Inc. and the Managing Director of NEBS Business Stationery shall be paid an actual bonus which shall be the sum of the following four products: -3- (a) 15% of his Target Bonus times the Consolidated Sales Factor determined pursuant to Section A.1 above; (b) 15% of his Target Bonus times the Consolidated Profit Factor determined pursuant to Section A.2 above; (c) 35% of his Target Bonus times his unit's sales factor determined pursuant to Section 3 or 5 below; and (d) 35% of his Target Bonus times his unit's profit factor determined pursuant to Section 4 or 6 below. 2. The President of NEBS Business Forms Limited shall be paid an actual bonus which will be the sum of the following six products. (a) 15% of his Target Bonus times the Consolidated Sales Factor determined pursuant to Section A.1 above; (b) 15% of his Target Bonus times the Consolidated Profit Factor determined pursuant to Section A.2 above; (c) 25% of his Target Bonus times his unit's sales factor determined pursuant to Section 7 below; (d) 25% of his Target Bonus times his unit's profit factor determined pursuant to Section 8 below; (e) 10% of his Target Bonus times the sales factor of NEBS Business Stationery determined pursuant to Section 5 below; and (f) 10% of his Target Bonus times the profit factor of NEBS Business Stationery determined pursuant to Section 6 below. 3. Sales Factor of SYCOM, Inc. equals 100% plus --------------------------- 12.5% for each one percent by which its net sales are more than $15,253,000 (its "targeted net sales" for the Year), or 100% minus 12.5% for each one percent by which its net sales are less than its targeted net sales for the Year (calculated in either case to the nearest one-tenth of one percent), provided that the Sales Factor of Sycom, Inc. shall be 0% if its -4- net sales for the Year are less than $14,643,000. 4. Profit Factor of SYCOM, Inc. equals 100% plus ---------------------------- 6.25% for each one percent by which its profit from operations is more than $2,160,000 (its "targeted profit from operations" for the Year), or 100% minus 6.25% for each one percent by which its targeted profit from operations is less than its targeted profit from operations for the Year (calculated in either case to the nearest one-tenth of one percent), provided that the profit factor shall be 0% if its profit from operations for the Year is less than $1,987,000. 5. Sales Factor of NEBS Business Stationery ---------------------------------------- equals 100% plus 4.17% for each one percent by which its net sales are more than 3,343,000 pounds (its "targeted net sales" for the Year), or 100% minus 4.17% for each one percent by which its net sales are less than its targeted net sales for the Year (calculated in either case to the nearest one-tenth of one percent), provided that the Sales Factor shall be 0% if its net sales for the Year are less than 2,942,000 pound. 6. Profit Factor of NEBS Business Stationery ----------------------------------------- equals 100% plus 0.5% for each one percent by which its profit from operations is more than 69,000 pounds (its "targeted profit from operations") for the Year, or 100% minus 0.5% for each one percent by which its profit from operations is less than its targeted profit from operations for the Year (calculated in either case to the nearest one-tenth of one percent), provided that the profit factor shall be 0% if its profit from operations for the Year is negative. 7. Sales Factor of NEBS Business Forms Limited ------------------------------------------- equals 100% plus 10% for each one percent by which its net sales are more than $22,815,000 Canadian (its "targeted net sales" for the Year), or 100% minus 10% for each one percent by which its net sales are less than its targeted net sales for the Year (calculated in either case to the nearest one-tenth of one percent), provided that the Sales Factor shall be 0% if its net sales for the Year are less than $21,674,000 Canadian. -5- 8. Profit Factor of NEBS Business Forms Limited -------------------------------------------- equals 100% plus 5% for each one percent by which its profit from operations is more than $4,789,000 (its "targeted profit from operations" for the Year), or 100% minus 5% for each one percent by which its profit from operations is less than its targeted profit from operations for the Year (calculated in either case to the nearest one-tenth of one percent), provided that the profit factor shall be 0% if its profit from operations for the Year is less than $4,310,000. No bonuses shall be paid to any CEO of a subsidiary business unit if (i) the consolidated earnings per share are less than 85% of the targeted consolidated earnings per share for the year or (ii) the profit from operations of his business unit is less than 85% of the targeted profit from operations for the Year of such unit(or negative in the case of NEBS Business Stationery). C. The Business Unit and Manufacturing Directors. --------------------------------------------- 1. The Directors of the Business Forms and Marketing Products Units and the Vice-President - General Manager, Computer Forms/Software and OWP shall be paid an actual bonus which shall be the sum of the following two products: (a) 50% of his or her Target Bonus times his or her unit's sales factor determined pursuant to Sections 2,3 or 4, respectively below; and (b) 50% of his or her Target Bonus times the Consolidated Profit Factor determined pursuant to Section A.2 above. 2. Sales Factor of Business Forms Unit equals 100% ----------------------------------- plus 12.5% for each one percent by which its net sales are more than $103,928,000 (its "targeted net sales for the Year"), or 100% minus 12.5% for each one percent by which its net sales are less than its targeted net sales for the Year (calculated in either case to the nearest one-tenth of one percent), provided that the Sales Factor shall be 0% if its net sales for the Year are less than $99,771,000. -6- 3. Sales Factor of Marketing Products Unit equals --------------------------------------- 100% plus 12.5% for each one percent by which its net sales are more than $35,977,000 (its "targeted net sales" for the Year), or 100% minus 12.5% for each one percent by which its net sales are less than its targeted net sales for the Year (calculated in either case to the nearest one-tenth of one percent), provided that the Sales Factor shall be 0% if its net sales for the Year are less than $34,538,000. 4. Sales Factor of Computer Forms and Software ------------------------------------------- Unit equals 100% plus 5% for each one percent ---- by which its net sales are more than $68,407,000 (its "targeted net sales" for the Year), or 100% minus 5% for each one percent by which its net sales are less than its targeted net sales for the Year (calculated in either case to the nearest one-tenth of one percent), provided that the Sales Factor shall be 0% if its net sales for the Year are less than $61,566,000. 5. The Director of Manufacturing shall be paid an actual bonus which will be the sum of the following two products: (a) 50% of his Target Bonus times the Sales Factor of Domestic NEBS; and (b) 50% of his Target Bonus times the Consolidated Profit Factor determined pursuant to Section A.2 above; 6. Sales Factor of Domestic NEBS equals 100% plus ----------------------------- 5.06% for each one percent by which the Company's domestic net sales are more than $221,611,000 (its "targeted domestic net sales" for the Year), or 100% minus 5.06% for each one percent by which its domestic net sales re less than is targeted domestic net sales for the Year (calculated in either case to the nearest one-tenth of one percent), provided that the Sales Factor shall be 0% if its domestic net sales for the Year are less than $199,704,000. No bonus shall be paid to any Business Unit Director or to the Director of Manufacturing if (i) the consolidated earnings per -7- share are less than 85% of the targeted consolidated earnings per share for the year. IV. Certain Definitions and Other Provisions. ---------------------------------------- A. All references to "net" sales shall refer to consolidated net sales of the Company or net sales of a subsidiary business unit or business unit, as the case may be, as reported or used in calculating the Company's audited consolidated earnings. B. For purposes of calculating the Consolidated Profit factor, consolidated earnings per share for the Year shall be determined by dividing the consolidated net income from continuing operations for the Year by the weighted average number of shares of Common Stock outstanding during the Year. Consolidated net income from continuing operations shall mean such consolidated income, after taxes and after provision for executive bonuses under this Plan, determined in accordance with all of the accounting policies employed in the preparation of the Company's audited financial statements for the Year. C. Consolidated net income, targeted consolidated net income, the actual or targeted profit from operations of any subsidiary business unit or the actual or targeted net sales of any subsidiary business unit or business unit may, at the discretion of the Organization and Compensation Committee, be adjusted to eliminate the effect of (a) either the acquisition or the divestiture by the Company of any -8- subsidiary or division during the Year, and/or (b) the imposition during the Year by Massachusetts or any other state or states of sales taxes on services, materials or supplies purchased by the Company the effect of which is not allowed for in the Company's annual budget for the 1994 fiscal year or (c) any abatement of taxes or material increase or decrease in Federal or State corporate tax rates. Any such discretionary adjustment shall be decided upon by the Organization and Compensation Committee, and shall be announced to the affected Participants, promptly after the occurrence of the motivating event. D. "Profit from Operations" for any subsidiary business unit of the Company shall be determined consistently with the process whereby its targeted profit from operations for the Year was determined and shall not reflect any charge for executive bonuses payable under this Plan. E. Domestic net sales for the Year means consolidated net sales less the net sales of NEBS Business Forms, Ltd. and NEBS Business Stationery. F. Should a Participant die, retire, or become totally disabled during the Year, he or she or his or her estate shall be entitled to receive a bonus pro-rated in accordance with the percentage of his or her annual salary earned from the beginning of the Year up to the date of death, retirement or disability. Should a Participant's employment by the Company or a subsidiary business unit be terminated for any -9- other reason, payment of any bonus hereunder for the year in which such termination occurs is at the sole discretion of the Organization and Compensation Committee. G. This Plan shall be effective commencing as of June 26, 1993. H. The intended operation of the foregoing formulas for calculating actual bonuses are shown graphically in the exhibits annexed hereto, which are incorporated herein by this reference. -10- EX-10 3 EXHIBIT 10(C) - EXECUTIVE BONUS PLAN FOR 1995 1995 NEBS EXECUTIVE BONUS PLAN (Effective as of June 25, 1994) This Executive Bonus Plan was adopted by the Board of Directors of New England Business Serve, Inc. (the "Company") on July 22, 1994 upon the recommendation of its Organization and Compensation Committee for the purpose of providing incentive compensation for the senior executives and managers of the Company and its subsidiaries. This Plan shall be governed by the following definitions and calculations. I. Participants. The Participants in the Plan for the 1995 fiscal year of the Company (the "Year") and their respective Target Bonus Percentages shall be as follows: A. Officers of the Company. William C. Lowe, President, Chief Executive Officer 70% Timothy D. Althof, Vice President, Corporate Controller 50% Edward M. Bolesky, Vice President - General Manager, Operations 50% Robert S. Brown, Vice President-General Manager, Subsidiaries 50% Christopher H. Corbett, Vice President, Information Systems 50% Russell V. Corsini, Jr., Vice President, Chief Financial Officer 50% Sally C. Davis, Vice President - Manual Business Forms 50% Thomas W. Freeze, Vice President - Finance and Administration, Image Products 50% The Treasurer/Secretary (1) B. CEOs of Subsidiaries. Robert T. Richardson, President and Chief Executive, NEBS Business Forms, Ltd. 40% Robert A. Lay, President and Chief Executive, SYCOM, Inc. 40% David G. Booth, Managing Director, NEBS Business Stationery 40% C. General Managers of Business Units. Michael F. Dowd, General Manager, Manual Business Forms and Direct Marketing 40%(2) Linda A. Jacobs, General Manager, Image Products 40%(3) The General Manager, Computer Forms and Software (4) D. Selected Directors. Peter J. Zarrilla, Corporate Director - Human Resources 30%(5) John Winzeler, Manufacturing Director 20% Steve Schlerf, Image Manufacturing Director 40% John Gamelin, Operations Director (NCF/Software) 20% Dave Foster, Finance Director (NCF/Software) 20% Karen Hartzell, Customer Relations Director 20% Joe Cali, Finance Director (Manual Business Forms) 20% Gregg Walsh, Operations Controller 20% Such percentage as shall be approved by the Board of Directors upon such officer's election. 50% effective January 1, 1995 if promoted to Vice President as of that date. 50% effective January 1, 1995 if promoted to Vice President as of that date. Such percentage as shall be approved by the Organization and Compensation Committee upon such General Manager's appointment. 50% effective January 1, 1995 if promoted to Vice President as of that date.
No Participant shall be eligible to participate in the NEBS Profit Sharing Plan for any year in which he or she is entitled to participate in this Plan. II. Target Bonus. The Target Bonus payable to a Participant with respect to the Year shall be an amount arrived at by multiplying his or her base salary initially fixed for the Year by his or her Target Bonus Percentage. III. Actual Bonuses. A. President, Chief Executive Officer and Vice President, Chief Financial Officer. 1. The Actual Bonus of each of these Participants shall be calculated by multiplying his Target Bonus by a percentage which shall be 50% of the sum of (i) a "Consolidated Sales Factor" based on the percentage which the consolidated net sales for the Year are of $272, 000,000 (the "targeted consolidated net sales" for the Year), and (ii) a "Consolidated Profit Factor" based on the percentage which the consolidated earnings per share for the Year are of $1.30 per share (the "targeted consolidated earnings per share" for the Year), as described below: (a) Consolidated Sales Factor equals 100% plus 6.48% for each one percent by which consolidated net sales are more than the targeted consolidated net sales for the Year, or 100% minus 6.48% for each one percent by which consolidated net sales are less than the targeted consolidated net sales for the Year (calculated in either case to the nearest one-tenth of one percent), provided that the Sales Factor shall be 0% if consolidated net sales for the Year are less than $251,000,000. (b) Consolidated Profit Factor equals 100% plus 6.48% for each one percent (1.3 cents) by which consolidated earnings per share are more than the targeted consolidated earnings per share for the Year up to and including $1.43 and 9.72% for each one percent (1.3 cents) by which consolidated earnings per share are more than $1.43, or 100% minus 6.48% for each one percent (1.3 cents) by which consolidated earnings per share are less than $1.30 (calculated in either case to the nearest one-tenth of one percent), provided that the profit factor shall be 0% if the earnings per share for the Year are less than $1.20. 2. No bonuses shall be paid to either of these Officers if the Company's consolidated earnings per share for the Year are less than $1.11. B. Chief Executives of Subsidiary Business Units. 1. Each of the Chief Executives of NEBS Business Forms, Ltd. and SYCOM , Inc. and the Managing Director of NEBS Business Stationery shall be paid an actual bonus which shall be the sum of the following products: (a) 15% of his Target Bonus times the Consolidated Sales Factor; (b) 15% of his Target Bonus times the Consolidated Profit Factor; (c) The sum of his unit's quarterly sales factor awards determined pursuant to Section 2 below; and (d) The sum of his unit's quarterly profit factor awards determined pursuant to Section 3. 2. The Quarterly Sales Factor Awards of the several subsidiary business units shall reflect the degree of attainment (up to 100%) of the following quarterly unit sales goals: (000,000)
Q1 Q2 Q3 Q4 NEBS Business Forms $6.0 $6.1 $6.4 $6.2 SYCOM, Inc. $3.8 $3.7 $3.9 $3.7 NEBS Business Stationery [$L]0.694 [$L]0.765 [$L]0.779 [$L]0.765
Successful attainment of each quarterly sales goal earns the participant 8.75% of his Target Bonus.. Each 1% of performance below the quarterly sales goal results in a 20% reduction in the quarterly award. For quarterly performance at 95% or less of a quarterly sales goal, the quarterly award for this factor shall be 0. 3. The Quarterly Profit Factor Awards of the several subsidiary business units shall reflect the degree of attainment (up to 100%) of the following quarterly unit profit from operations goals: (000,000)
Q1 Q2 Q3 Q4 NEBS Business Forms $1.0 $0.9 $1.2 $1.1 SYCOM, Inc. $0.7 $0.7 $0.7 $0.8 NEBS Business Stationery [$L](0.105) [$L](0.017) [$L](0.009) [$L](0.067)
Successful attainment of each quarterly profit from operations goal earns the participant 8.75% of his Target Bonus. Each 1% of performance below the quarterly profit from operations goal results in a 20% reduction in the quarterly award. For quarterly performance at 95% or less of a quarterly profit from operations goal, the quarterly award for this factor shall be 0. 4. All performance calculations pursuant to Sections 2 and 3 shall be made to the nearest one-tenth of one percent. No bonus shall be paid to any CEO of a subsidiary business unit if the consolidated earnings per share for the Year are less than 1.11. C. The Officers and General Managers in Charge of the Company's Business Units. 1. The Vice President - Manual Business Forms, the Vice President-Finance and Administration, Image Products, the General Manager, Manual Business Forms and Direct Marketing, the General Manager, Computer Forms and Software (when appointed), and the General Manager, Image Products, shall be paid an actual bonus which shall be the sum of the following: (a) 20% of his or her Target Bonus times the Consolidated Sales Factor; (b) 20% of his or her Target Bonus times the Consolidated Profit Factor; (c) the sum of his or her unit's quarterly sales factor awards determined pursuant to Section 2 below; (d) the sum of his or her unit's quarterly profit factor awards determined pursuant to Section 3 below; and (e) 20% of his or her Target Bonus times his or her Additional Factor determined by the President on the basis of the Qualitative Measurements shown on Appendix A annexed hereto. 2. The Quarterly Sales Factor Awards of the several business units shall reflect the degree of attainment (up to 100%) of the following quarterly unit sales goals: (000,000)
Q1 Q2 Q3 Q4 Manual Business Forms $25.7 $25.1 $28.6 $26.9 Computer Forms and Software $14.3 $18.7 $21.4 $18.8 Image Products $13.4 $19.0 $16.2 $15.3
Successful attainment of each quarterly sales goal earns the participant 5% of his or her Target Bonus. Each 1% of performance below a quarterly sales goal results in a 20% reduction in the quarterly award. For quarterly performance at 95% or less of a quarterly sales goal, the quarterly award for this factor shall be 0. 3. The Quarterly Profit Factor Awards of the several business units shall reflect the degree of attainment (up to 100%) of the following quarterly unit profit from operations goals: (000,000)
Q1 Q2 Q3 Q4 Manual Business Forms $9.4 $9.2 $10.3 $9.6 Computer Forms and Software $0.1 $1.1 $ 2.4 $2.7 Image Products $0.7 $3.1 $ 1.5 $1.4
Successful attainment of each quarterly profit from operations goal earns the participant 5% of his or her Target Bonus.. Each 1% of performance below a quarterly profit from operations goal results in a 20% reduction in the quarterly award. For quarterly performance at 95% or less of a quarterly profit from operations goal, the quarterly award for this factor shall be 0. 4. All performance calculations pursuant to Sections 2 and 3 shall be made to the nearest one-tenth of one percent. No bonus shall be paid to any of these executives if the consolidated earnings per share for the Year are less than $1.11. D. Other Corporate Officers. 1. The Vice President-General Manager, Subsidiaries shall be paid an actual bonus which shall be the sum of the following eight products: (a) 20% of his Target Bonus times the Consolidated Sales Factor; (b) 20% of his Target Bonus times the Consolidated Profit Factor; (c) 10% of his Target Bonus multiplied six times, once each by six fractions of which the denominator is 35 in each instance and the six numerators are the percentage of his Target Bonus earned by the Chief Executive of each of the three Subsidiary Business Units based upon (a) the sum of his unit's quarterly sales awards and (b) the sum of his unit's quarterly profit from operations awards for the Year. 2. The Vice President, Information Systems shall be paid an actual bonus which shall be the sum of the following three products: (a) 20% of his Target Bonus times the Consolidated Sales Factor; (b) 20% of his Target Bonus times the Consolidated Profit Factor; and (c) 60% of his Target Bonus times his Additional Factor determined by the President on the basis of the Qualitative Measurements shown on Appendix A annexed hereto. 3. The Vice President-General Manager, Operations shall be paid an actual bonus which shall be the sum of the following three products: (a) 20% of his Target Bonus times the Consolidated Sales Factor; (b) 20% of his Target Bonus times the Consolidated Profit Factor; and (c) 60% of his Target Bonus times his Additional Factor determined by the President on the basis of the Qualitative Measurements shown on Appendix A annexed hereto. 4. The Vice President, Corporate Controller shall be paid an actual bonus which shall be the sum of the following three products: (a) 35% of his Target Bonus times the Consolidated Sales Factor; (b) 35% of his Target Bonus times the Consolidated Profit Factor; and (c) 30% of his Target Bonus times his Additional Factor determined by the President on the basis of the Qualitative Measurements shown on Appendix A annexed hereto. 5. No bonus shall be paid to any of these officers if the consolidated earnings per share for the Year are less than 1.11. E. Selected Directors. 1. The Corporate Director-Human Resources shall be paid an actual bonus which shall be the sum of the following three products: (a) 30% of his Target Bonus times the Consolidated Sales Factor; (b) 30% of his Target Bonus times the Consolidated Profit Factor; and (c) 40% of his Target Bonus times his Additional Factor determined by the President on the basis of the Qualitative Measurements shown on Appendix A annexed hereto. 2. The Manufacturing Director shall be paid an actual bonus which shall be the sum of the following: (a) 20% of his Target Bonus times the Consolidated Sales Factor; (b) 20% of his Target Bonus times the Consolidated Profit Factor; and (c) the sum of the quarterly sales factor awards of Domestic NEBS for this director determined pursuant Section 9 below; (d) the sum of the quarterly profit factor awards of Domestic NEBS for this director determined pursuant to Section 10 below; and (e) 40% of his Target Bonus times his Additional Factor determined by the Vice President-Operations on the basis of the Qualitative Measurements shown on Appendix A annexed hereto. 3. The Image Manufacturing Director shall be paid an actual bonus which shall be the sum of the following: (a) 20% of his Target Bonus times the Consolidated Sales Factor; (b) 20% of his Target Bonus times the Consolidated Profit Factor; (c) the sum of the Image Product Unit's quarterly sales factor awards determined pursuant to Section 2 of Section C above; (d) the sum of the Image Product Unit's quarterly profit factor awards determined pursuant to Section 3 above of Section C above; and (e) 20% of his Target Bonus times his Additional Factor determined by the General Manager-Image Products on the basis of the Qualitative Measurements shown on Appendix A annexed hereto. 4. The Operations Director (NCF/Software) shall be paid by an actual bonus which shall be the sum of the following: (a) 20% of his Target Bonus times the Consolidated Sales Factor; (b) 20% of his Target Bonus times the Consolidated Profit Factor; (c) the sum of the NCF/Software Unit's quarterly sales factor awards determined pursuant to Section 2 of Section C above; (d) the sum of the NCF/Software Unit's quarterly profit factor awards determined pursuant to Section 3 of Section C above; and (e) 20% of his Target Bonus times his Additional Factor determined by the General Manager, Computer Forms and Software on the basis of the Qualitative Measurements shown on Appendix A annexed hereto. 5. The Finance Director (NCF/Software) shall be paid by an actual bonus which shall be the sum of the following: (a) 20% of his Target Bonus times the Consolidated Sales Factor; (b) 20% of his Target Bonus times the Consolidated Profit Factor; (c) the sum of the NCF/Software Unit's quarterly sales factor awards determined pursuant to Section 2 of Section C above; (d) the sum of the NCF/Software Unit's quarterly profit factor awards determined pursuant to Section 3 of Section C above; and (e) 20% of his Target Bonus times his Additional Factor determined by the General Manager, Computer Forms and Software on the basis of the Qualitative Measurements shown on Appendix A annexed hereto. 6. The Customer Relations Director shall be paid an actual bonus which shall be the sum of the following: (a) 20% of her Target Bonus times the Consolidated Sales Factor; (b) 20% of her Target Bonus times the Consolidated Profit Factor; and (c) the sum of the quarterly sales factor awards of Domestic NEBS for this director determined pursuant Section 9 below. (d) the sum of the quarterly profit factor awards of Domestic NEBS for this director determined pursuant to Section 10 below. (e) 40% of her Target Bonus times her Additional Factor determined by the Vice President-General Manager, Operations on the basis of the Qualitative Measurements shown on Appendix A annexed hereto. 7. The Finance Director (Manual Business Forms) shall be paid by an actual bonus which shall be the sum of the following: (a) 20% of his Target Bonus times the Consolidated Sales Factor; (b) 20% of his Target Bonus times the Consolidated Profit Factor; (c) the sum of the quarterly sales factor awards of the Manual Business Forms Unit determined pursuant to Section 2 of Section C above; (d) the sum of the quarterly profit factor awards of the Manual Business Form Unit determined pursuant to Section 3 of Section C above; (e) 20% of his Target Bonus times his Additional Factor determined by the General Manager, Manual Business Forms on the basis of the Qualitative Measurements shown on Appendix A annexed hereto. 8. The Operations Controller shall be paid an actual bonus which shall be the sum of the following: (a) 20% of his Target Bonus times the Consolidated Sales Factor; (b) 20% of his Target Bonus times the Consolidated Profit Factor; and (c) the sum of the quarterly sales factor awards of Domestic NEBS for this director determined pursuant to Section 9 below; (d) the sum of the quarterly profit factor awards of Domestic NEBS for this director determined pursuant to Section 10 below; (e) 20% of his Target Bonus times his Additional Factor determined by the Vice President-General Manager, Operations on the basis of the Qualitative Measurements shown on Appendix A annexed hereto. 9. The Quarterly Sales Factor Awards of Domestic NEBS shall reflect the degree of attainment (up to 100%) of the following quarterly sales goals: (000,000)
Q1 Q2 Q3 Q4 53.4M 62.8M 66.2M 61.0M
Successful attainment of each quarterly sales goal earns the Operations Director 5% and each of the Manufacturing Director and the Customer Relations Director 2 1/2% of his or her Target Bonus. Each 1% of performance below the quarterly sales goal results in a 20% reduction in the quarterly award. For quarterly performance at 95% or less of quarterly sales goals, the quarterly award for this factor shall be 0. 10. The Quarterly Profit Factor Awards of Domestic NEBS shall reflect the degree of attainment (up to 100%) of the following quarterly profit from operations goals: (000,000)
Q1 Q2 Q3 Q4 $10.2 $13.3 $14.2 $13.7
Successful attainment of each quarterly profit from operations goal earns the Operations Director 5% and each of the Manufacturing Director and the Customer Relations Director 2 1/2% of his or her Target Bonus. Each 1% of performance below the quarterly profit from operations goal results in a 20% reduction in the quarterly award. For quarterly performance at 95% or less of quarterly profit from operations goals, the quarterly award for this factor shall be 0%. 11. All performance calculations pursuant to Sections 9 and 10 shall be made to the nearest one-tenth of one percent. No bonus shall be paid to any of these executives if the consolidated earnings per share for the Year are less than $1.11. IV. Bonus Payouts. 80% of the payout will be in the form of cash; 20% of the payout will be in the form of NEBS Stock with a share price which is established at the close of trading on the NASDAQ National Market on the third business day following the issuance of the press release disclosing the Company's financial results for the fourth quarter of the Year. All bonus payments, including those earned by attainment of quarterly performance goals, will be made within 60 days after the close of the Year. V. Certain Definitions and Other Provisions. A. All references to "net" sales shall refer to consolidated net sales of the Company or net sales of a subsidiary business unit or business unit, as the case may be, as reported or used in calculating the Company's audited consolidated earnings. B. For purposes of calculating the Consolidated Profit Factor, consolidated earnings per share for the Year shall be determined by dividing the consolidated net income from continuing operations for the Year by the weighted average number of shares of Common Stock outstanding during the Year. Consolidated net income from continuing operations shall mean such consolidated income, after taxes and after provision for executive bonuses under this Plan, determined in accordance with all of the accounting policies employed in the preparation of the Company's audited financial statements for the Year. C. Actual or targeted consolidated earnings per share, actual or targeted consolidated sales, the actual or targeted profit from operations of any subsidiary business unit , business unit or Domestic NEBS or the actual or targeted net sales of any subsidiary business unit, business unit or Domestic NEBS may, at the discretion of the Organization and Compensation Committee, be adjusted to eliminate the effect of (a) either the acquisition or the divestiture by the Company of any subsidiary or division during the Year, and/or (b) the imposition during the Year by Massachusetts or any other state or states of sales taxes on services, materials or supplies purchased by the Company or any subsidiary of the Company the effect of which is not allowed for in the Company's annual budget for the 1995 fiscal year or (c) any abatement of taxes or material increase or decrease in Federal or State corporate tax rates. It is the intention of the Organization and Compensation Committee that any such discretionary adjustment shall be made by it, and shall be announced to the affected Participants, promptly after the occurrence of the motivating event, but failure to act promptly shall not deprive the Committee of its power to make such an adjustment at a later time. D. "Profit from Operations" for any subsidiary business unit or business unit of the Company or Domestic NEBS shall be determined consistently with the process whereby its targeted profit from operations for the Year was determined and shall not reflect any charge for executive bonuses payable under this Plan. E. Domestic NEBS for the purposes of this Plan means the Company without its subsidiaries SYCOM , Inc., NEBS Business Forms, Ltd., or NEBS Business Stationery, but including its subsidiary NEBS Software, Inc. F. Should a Participant die, retire, or become totally disabled during the Year, he or she or his or her estate shall be entitled to receive a bonus pro-rated in accordance with the percentage of his or her annual salary earned from the beginning of the Year up to the date of death, retirement or disability. Should a Participant's employment by the Company or a subsidiary business unit be terminated for any other reason, payment of any bonus hereunder for the year in which such termination occurs is at the sole discretion of the Organization and Compensation Committee. G. If a Participant assumes a new position during the Year, the Organization and Compensation Committee may make an appropriate adjustment in his or her target bonus and/or the means of calculating his or her actual bonus, effective from and after that event. H. This Plan shall be effective commencing June 25, 1994. I. The intended operation of the foregoing formulas for calculating actual bonuses at the consolidated Company level are shown graphically in the exhibits annexed hereto, which are incorporated herein by this reference. 1995 NEBS EXECUTIVE BONUS PLAN Appendix A
POSITION FY95 QUALITATIVE MEASUREMENTS Vice President-General Manager, Operations NEBS Manufacturing (30% of Target Bonus) 10% Manufacturing Cost of Sales/Revenue <= 31.1% 10% Customer Complaints/Shipped Items <= 0.46% 5% Printed Orders Shipped in 3 Days or Less >= 76.5% 5% Inventory Turns in FY95 Without Increase in >= 6.84x Stockouts NEBS Administration (30% of Target Bonus) 10% Administration Cost/Revenue <= 11.0% 10% Customer Complaints/Booked Items <= 0.65% 5% Administration Service Performance >= 94.0% 5% Outbound Bookings >= $5.758M Vice President, Information Systems (60% of Target Bonus) 10% Total Cost of IS & Telecommunications <= $9.7M (Excl. PrintNet and Project 90) 10% Enterprise Wide Service Level >= 99.0% 10% Maintain Phone Line Availability and Service Level for Administration >= 98.8% 25% Reduce FY95 Cost of Quality $0.5M 5% Delivery of PrintNet to Schedule Vice President - Manual Business Forms (20% of Target Bonus) 10% Integration of NBF into Image Product Line for Total Customer Offering 10% Establishment of Effective Program to Sell NBF Products to NCF Customers, Achieving At Least $7M/Quarter by Q4 ALL FOOTNOTE REFERENCES ON LAST PAGE OF APPENDIX. 1995 NEBS EXECUTIVE BONUS PLAN Appendix A Vice President - Finance and Administration, Image Products (20% of Target Bonus) 10% Establish Administration Function to Support Image Business Unit 10% Establish Effective Communication with Corporate Finance General Manager, Manual Business Forms and Direct Marketing (20% of Target Bonus) 10% Development of Successful Direct Mail Advertising Program for Cross-Company Use 10% Develop a Business Opportunity Around DMA and Mail Processing List Rental Income >= $0.5M Mail Processing Revenue >= $0.1M General Manager, Image Products (20% of Target Bonus) 10% Successful Establishment of New Stationery Product Line -- At Least Rate of $3M/Quarter by Q4 with Break-even PFO in Q4 10% Establishment of new Brochure Product Offering -- At least Rate of $.5M /Quarter Revenue by Q4 The General Manager, Computer Forms and Software (20% of Target Bonus) 10% Improve Service Performance(3) to 85% or Better and Ability to Launch Consortium Beginning of FY96 5% Establish GST Product in Market 5% Achieve Windows Accounting Product Release Date of January 15, 1995 Vice President, Corporate Controller (30% of Target Bonus) 15% Establishment of Meaningful Measurements for Each Business Unit 15% Maintenance of Timely Awareness of Business Unit Performance Along with Management of Balanced Quarter to Quarter Performance 1995 NEBS EXECUTIVE BONUS PLAN Appendix A The Treasurer/Secretary (30% of Target Bonus) 15% Establish an investor relations plan in conjunction with the repositioning of the Company by December 1, 1994. Then execute the plan as approved through year-end. 15% Develop a transfer pricing policy and procedure for the Company that integrates tax, legal, financial, and operating considerations. This plan should also address administrative and control aspects. To be completed and implemented by May 15, 1995. Corporate Director -- Human Resources (40% of Target Bonus) 20% Departmental Expense < $4.0M 10% Maintain Effective Corporate Communications 1.05 and Management Programs as Measured by Survey Overall Employee Morale Measures >= index (NEBS as 10% Maintain Effective Awareness of Employee a place to Issues and Interaction with Officer/Executive work) Team Image Manufacturing Director (50% of Target Bonus) 20% FY95 Stationery Cost of Sales <= 46.4% of Note: This number includes both standard Net Sales and custom stationery through direct mail. 10% Custom Cost Sales <= 47.5% of Note: This number includes all custom Net Sales through direct mail except custom stationery which is included in the above. 15% By January 1, 1995, position Image Business Unit to produce full color brochure printing independent of our current source (Instacolor). Per current plan, develop an in-house prepress capability in Phoenix, outsourcing the printing to a local printer. 5% Starburst Cost Neutral (breakeven @ PFO for the year) Operations Director (NCF/Software)(20% of Target Bonus) 20% NCF/Software Service Performance(3) for FY95 >= 85.0% Finance Director (NCF/Software) (20% of Target Bonus) 20% Set up a central system that allows for the timely retrieval of P&L information by product managers and directors of the business Finance Director (Manual Business Forms) (20% of Target Bonus) 10% Develop a Business Opportunity Around Mail >= $0.1M Processing for FY95 (Revenue) 10% Large Account Sales for FY95 >= $1.0M Manufacturing Director (40% of Target Bonus) 8% Manufacturing Cost of Sales/Revenue(1) for FY95 <= 29.5% 8% Manufacturing Customer Complaints/Shipped Items for FY95 <= 0.38% 4% Printed Orders Shipped in 3 Days or Less >= 76.5% 8% To Support the Achievement of Operations Objectives 12% * To develop and begin implementation of a systems plan for Manufacturing that results in improved measurable performance. * To optimize the team-based organization in Manufacturing that results in lower costs, higher quality, and improved service. * To develop a base forms strategy for NEBS that optimizes our backward integration effort. * To develop a plan to improve the delivery of late orders in the NEBS order fulfillment system. 1995 NEBS EXECUTIVE BONUS PLAN Appendix A Customer Relations Director (40% of Target Bonus) 8% Administration Cost/Revenue(2) <= 6.8% 8% Administration Customer Complaints/Booked Items <= 0.65% 4% Administration Service Performance(4) >= 94.0% 8% To Support the Achievement of Operations Objectives 12% * To develop and execute a plan to implement Project 90 in Telemarketing and Customer Service. The implementation plan is expected to be completed in FY95 in Telemarketing with Customer Service being completed in FY96. * To achieve 2/20 objectives in Telemarketing ($285K) and Order Entry ($500K). * To complete the Administration expansion project in Flagstaff and develop an Administration expansion plan that optimizes service and reduces cost. * To improve the effectiveness of the Customer Service department through a reengineering effort that will result in improved service, lower costs, and higher quality. Operations Controller (20% of Target Bonus) 3% Manufacturing Cost of Sales/Revenue(1) <= 11.0% 3% Administration Customer Complaints/Booked Items <= 0.65% 3% Administration Cost/Revenue(2) <= 31.1% 3% Manufacturing Customer Complaints/Shipped Items <= 0.46% 8% * To support the achievement of specific operations objectives, including the development of a base forms strategy and achievement of domestic bad debt objectives * To support the achievement of remaining 2/20 Operations objectives 1995 NEBS EXECUTIVE BONUS PLAN Appendix A FOOTNOTE REFERENCES Revenue = Domestic NEBS Net Sales excluding orders shipped from Peterborough (i.e., all Custom and Standard products produced in Peterborough). Revenue = Domestic NEBS Net Sales excluding DFS and Custom products. Service Performance = Percentage of incoming customer calls handled by the Technical Support Group in the Computer Forms and Software business unit (Nashua). Service Performance = Percentage of incoming customer calls handled by all departments (consolidated) reporting to Customer Relations Director.
EX-10 4 EXHIBIT 10(D) - LINE OF CREDIT AGREEMENT November 1, 1993 Mr. Thomas W. Freeze Treasurer New England Business Service Inc. 500 Main Street Groton, MA 01471 Dear Tom: This letter will serve to confirm that The First National Bank of Boston (the "Bank") holds available for New England Business Service, Inc. a $10,000,000 unsecured line of credit to extend through October 31, 1994. All borrowings under this line will be payable on demand. This line shall be available for general corporate purposes. As compensation for this line of credit, you agree to pay a fee of 1/4% per annum (calculated on the basis of a 360-day year) on the full amount of the facility. This will be payable quarterly in arrears on the last banking day of each calendar quarter ending in March, June, September and December. At your option, borrowings will be priced at the rates we quote you as: our Alternate Base Rate [the higher of the Bank's announced Base Rate or overnight Federal Funds rate plus rate plus 1/2%], or our 1, 2, or 3-month reserve-adjusted Eurodollar Rate plus 3/8%, the Eurodollar Rate being determined by the Bank at 10:00 a.m. Boston time on the day (which shall be a business day) two business days prior to the date of the requested borrowing. Requests for borrowings at these pricing options must be received by 11:00 a.m. Boston time on the date of the requested borrowing, (in the case of Base Rate Loans) and at least one business day before the time for determining the relevant rate (in the case of Eurodollar Rate Loans). Eurodollar Rate Loans may be requested for interest periods of one, two, or three months; and no loan shall have an interest period that extends beyond the expiration of this line of credit. All loans will be made by crediting the proceeds thereof to your demand deposit account maintained at the Bank. Each Alternate Base Rate loan made under this line of credit must be in a minimum amount of $500,000, or any larger amount which is an integral multiple of $100,000. All Eurodollar Rates will be adjusted for reserves, if any. Borrowings under the Eurodollar pricing option must be in minimum increments of $1,000,000 or greater multiples of $100,000. If any Eurodollar Rate Loans are paid on a date other than the last day of the applicable interest period (whether by reason of voluntary prepayment, acceleration or otherwise), you shall compensate us for any funding losses and other costs (including lost profits) incurred as a result of such prepayment. Our willingness to offer -2- Eurodollar Rates is subject to the availability of funding sources and the continued legality of our offering such pricing options. You agree to reimburse us for any increased costs (taxes, regulatory reserves or assessments, etc.) incurred by us in connection with borrowings at such pricing options. We may also quote you "money market" rates (it being understood that we are under no obligation to do so), establishing the fixed rate of interest at which we are willing to make money market loans to you in the amount and for the interest period requested. Money market loans may be requested for interest periods of up to 60 days. We will require that money market loans be in minimum increments of $1,000,000 or greater multiples of $100,000. No voluntary prepayment of money market loans will be permitted. All borrowings shall be evidenced by, and all principal and interest shall be payable in accordance with the terms of a promissory note in the form attached hereto. You authorize us to record each borrowing and the corresponding information on the schedule forming a part of such promissory note, and this schedule, together with our corresponding records of debit and credit, shall constitute the official record of all borrowings under this facility. You agree that this record shall be prima facie evidence of the amounts of the borrowings under this facility. The availability of loans under this facility is subject to our usual condition that we continue to be satisfied with the affairs of New England Business Service, Inc. and to any substantive changes in governmental regulations or monetary policies. If the foregoing satisfactorily sets forth the terms and conditions of this line of credit, please execute and return the enclosed copy of this letter and the attached promissory note. We are pleased to provide this line and look forward to the ongoing development of our relationship. Sincerely, /s/Thomas F. Farley /s/ Chris D. Francis Thomas F. Farley Chris D. Francis Vice President Assistant Vice President Accepted: New England Business Service, Inc. By: /s/ Thomas W. Freeze Title: Treasurer Date: 11/10/93 NEW ENGLAND BUSINESS SERVICE, INC. COMMERCIAL PROMISSORY NOTE $10,000,000 November 1, 1993 Boston, Massachusetts FOR VALUE RECEIVED, the undersigned (jointly and severally if more than one) promise(s) to pay to the order of THE FIRST NATIONAL BANK OF BOSTON (together with any successors or assigns, the "Bank"), a national banking association with its Head Office at 100 Federal Street, Boston, Massachusetts 02110, the aggregate principal amount of all loans made Bank to the undersigned pursuant to the letter agreement between the Bank an the undersigned dated November 1, 1993, as shown in the schedule at hereto (the "Note Schedule"), together with interest on each loan from date such loan is made until the maturity thereof at the applicable rate forth in the Note Schedule. The principal amount of each loan shall be payable on demand or, if demand is not earlier made, on the last day of the applicable interest period, if any, indicated in the Note Schedule. Interest on the principal amount of each loan shall be payable in arrears on the same day as the principal amount is due, provided that (i) interest on each loan bearing interest at the Base Rate shall be payable on the last day of each quarter, beginning on the first of such dates occurring after the date such loan and when such loan is due, and (ii) if the maturity of any loan is more than three months from the date of such loan, then interest shall be payable at intervals of three months and when such loan is due. Loans which are shown as bearing interest at the Base Rate shall bear interest at a rate per annum equal to the greater of (i) the rate of interest announced from time to time by the Bank at its head force as its "Base Rate", and (ii) the rate equal to the weighted average of the published rates on overnight Federal Funds transactions with members of the Federal Reserve System plus 1/2%. The applicable floating rate shall change as and when the Base Rate changes, and changes in the Base Rate shall take effect on the day announced unless otherwise specified in the announcement. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed including holidays and days on which the Bank is not open for the conduct of banking business. SECTION 1. PAYMENT TERMS. 1.1 PAYMENTS; PREPAYMENTS. All payments hereunder shall be made by the undersigned to the Bank in United States currency at the Bank's address specified above (or at such other address as the bank may specify), in immediately available funds on or before 2:00 p.m. (Boston, Massachusetts time) on the due date thereof. Payments received by the Bank prior to the occurrence of an Event of Default (as defined in Section 2) will be applied first to fees, expenses and other amounts due hereunder (excluding principal and interest); second, to accrued interest; and third to outstanding principal; after the occurrence of an Event of Default, payments will be applied to the Obligations under this Note as the Bank determines in its sole discretion. Subject to Section 1.2, the undersigned pay all or a portion of the amount owed earlier than it is due without premium or other charge. 2 1.2 PREPAYMENT CHARGE. If any loan made under this Note bears interest at a fixed rate and any payment of principal is made for any reason on any day other than the date scheduled therefor, whether voluntary or as a result of acceleration or otherwise, the undersigned shall reimburse the Bank for the loss, if any, including any lost profits, resulting from such prepayment, as reasonably determined by the Bank. The undersigned shall pay such loss upon presentation by the Bank of a statement of the amount of such loss, setting forth the Bank's calculation thereof, which notice and calculation (including the method of calculation) shall be deemed true and correct absent manifest error. 1.3 DEFAULT RATE. To the extent permitted by applicable law, upon and after the occurrence of an Event of Default (whether or not the Bank has accelerated payment of this Note), interest on principal and overdue interest shall, at the option of the Bank, be payable on demand at a rate per annum equal to 2.00% above the greater of the rate of interest otherwise payable hereunder or the Base Rate. (check if 1.4 DEPOSIT ACCOUNT. The undersigned shall maintain with applicable) the Bank a commercial demand deposit account. The undersigned requests and authorizes the Bank to debit such account for amounts due hereunder on each date such amounts become due. The undersigned shall maintain sufficient collected balances in this account to pay any such amounts as they become due. SECTION 2. DEFAULTS AND REMEDIES. 2.1 DEFAULT. The occurrence of any of the following events or conditions shall constitute an "Event of Default" hereunder: (a) (i) default in the payment when due of the principal of or interest on this Note or (ii) any other default in the payment or performance of this Note or of any other Obligation or (iii) default in the payment or performance of any obligation of and Obligor to others for borrowed money or in respect of any extension of credit or accommodation or under any lease; (b) failure of any representation or warranty herein or in any agreement, instrument, document or financial statement delivered to the Bank in connection herewith to be true and correct in any material respect; (c) default or breach of any condition under any mortgage, security agreement, assignment of lease, or other agreement securing, constituting or otherwise relating to any collateral for the Obligations; (d) failure to furnish the Bank promptly on request with financial information about, or to permit inspection by the Bank of any books, records and properties of, any Obligor; (e) merger, consolidation, sale of all or substantially all of the assets or change in control of any Obligor; or 3 (f) any Obligor generally not paying its debts as they become due; the death, dissolution, termination of existence or insolvency of any Obligor; the appointment of a trustee, receiver, custodian, liquidator or other similar official for such Obligor or any substantial part of its property or the assignment for the benefit of creditors by any Obligor; or the commencement of any proceedings under any bankruptcy or insolvency laws by or against any Obligor. As used herein, "Obligation" means any obligation hereunder or otherwise of any Obligor to the Bank or to any of its affiliates, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising; and the "Obligor" means the undersigned, any guarantor or any other person primarily or secondarily liable hereunder or in respect hereof, including any person or entity who has pledged or granted to the Bank a security interest in, or other lien on, property on behalf of the undersigned as collateral for the Obligations. 2.2 REMEDIES. Upon an Event of Default described in edition 2.1(f) immediately and automatically, and upon or after the occurrence of any other Event of Default at the option of the Bank, all Obligations of the undersigned shall become immediately due and payable without notice or demand, and the Bank shall then have in any jurisdiction where enforcement hereof is sought, the rights and remedies of a secured party under the Uniform Commercial Code of Massachusetts. All rights and remedies of the Bank are cumulative and are exclusive of any rights or remedies provided by law or in equity or any other agreement, and may be exercised separately or concurrently. SECTION 3. MISCELLANEOUS. 3.1 WAIVER; AMENDMENT. No delay or omission on the part of the Bank in exercising any right hereunder shall operate as a waiver of such right or of any other right under this Note. No waiver or any right or any amendment hereto shall be effective unless in writing and signed by the Bank, nor shall a waiver on one occasion bar or waive the exercise of any such right on any future occasion. Without limiting the generality of the foregoing, the acceptance by the Bank of any late payment shall not be deemed to be a waiver of the Event of Default arising as consequence thereof. Each Obligor waives presentment, demand, notice, protest, and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note or of any collateral for the Obligations, and assents to any extensions or postponements of the time of payment and to any other indulgences under this Note or with respect to any such collateral, to any substitutions, exchanges or releases of any such collateral, and to any additions or releases of any other parties or persons primarily or secondarily liable hereunder, that from time to time may be granted by the Bank in connection herewith. 3.2 TAXES. The undersigned agrees to indemnify the Bank and hold it harmless from and against any transfer taxes, documentary taxes, assessment or charges made by any governmental authority by reason of the execution, delivery, and performance of this Note or any collateral for the Obligations. 3.3 EXPENSES. The undersigned will pay on demand all reasonable expenses of the Bank in connection with the preparation, administration, default, collection, waiver or amendment of the Obligations or in connection with the Bank's exercise, preservation or enforcement of any of its rights, 4 remedies or options thereunder, including, without limitation, fees of outside legal counsel or the allocation costs of in-house legal counsel, accounting, consulting, brokerage or other similar professional fees or expenses, and any fees or expenses associated with any travel or other costs relating to any appraisals or examinations conducted in connection with the Obligations or any collateral therefor, and the amount of all such expenses shall, until paid, bear interest at the rate applicable to principal hereunder (including any default rate) and be an Obligation secured by any such collateral. 3.4 BANK RECORDS. The entries on the records of the Bank (including any appearing on the Note) shall be prima facie evidence of the aggregate principal amount outstanding under this Note and interest accrued thereon. 3.5 INFORMATION. The undersigned shall furnish the Bank from time to time with such financial statements and other information relating to any Obligor or any collateral securing this Note as the Bank may require. All such information shall be true and correct and fairly represent the financial condition and the operating results of such Obligor as of the date and for the periods for which the same are furnished. The undersigned shall permit representatives of the Bank to inspect its properties and its books and records, and to make copies or abstracts thereof. Each Obligor authorizes the Bank to release and disclose to its affiliates, agents and contractors any financial statements and other information relating to said Obligor provided to or prepared by or for the Bank in connection with any Obligation. The undersigned will notify the Bank promptly of the existence or upon the occurrence of any Event of Default or event which, with the giving of notice or the passage of time or both, would become an Event of Default. 3.6 GOVERNING LAW; CONSENT TO JURISDICTION. This Note is intended to take effect as a sealed instrument and shall be governed by, and construed in accordance with, the laws of The Commonwealth of Massachusetts, without regard to this conflict of law rules. The undersigned agrees that any suit for the enforcement of this Note may be brought in the courts of such state or any Federal Court sitting in such state and consents to the non-exclusive jurisdiction of each such court and to service of process in any such suit being made upon the undersigned by mail at the address specified below. The undersigned 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 suite was brought in an inconvenient court. 3.7 SEVERABILITY; AUTHORIZATION TO COMPLETE; PARAGRAPH HEADINGS. If any provision of this Note shall be invalid, illegal or unenforceable, such provisions shall be severable from the remainder of this Note and the validity, legality and enforceability of the remaining provision shall not in any way be affected or impaired thereby. The Bank is hereby authorized, without further notice, to fill any blank spaces on this Note and to date this Note as the date funds are first advanced hereunder. Paragraph headings are for the convenience of reference only and are not a part of this Note and shall not affect its interpretation 5 3.8 JURY WAIVER. THE BANK (BY ITS ACCEPTANCE OF THIS NOTE) AND THE UNDERSIGNED AGREE THAT NEITHER OF THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, OR ANY OTHER ACTION BASED UPON, OR ARISING OUT OF, THIS NOTE, ANY RELATED INSTRUMENTS, ANY COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH SHALL BE SUBJECT TO NO EXCEPTIONS. NEITHER THE BANK NOR THE UNDERSIGNED HAS AGREED WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. Address: New England Business Service, Inc. 500 Main Street By: /s/ Thomas W. Freeze (Number) (Street) (Type Name) Thomas W. Freeze Title: Treasurer Groton, MA 01471 (City, State) (Zip Code) EX-10 5 EXHIBIT 10F - NEBS 1994 KEY STOCK OPTION PLAN NEW ENGLAND BUSINESS SERVICE, INC. NEBS 1994 KEY EMPLOYEE AND ELIGIBLE DIRECTOR STOCK OPTION AND STOCK APPRECIATION RIGHTS PLAN TABLE OF CONTENTS 1. PURPOSE AND GENERAL MATTERS 1 A. PURPOSE 1 B. GENERAL MATTERS 1 2. ADMINISTRATION 2 3. STOCK 3 A. SHARES RESERVED UNDER THE PLAN 3 B. STATUS OF SHARES IN TERMINATED OR SURRENDERED OPTIONS 3 C. ADJUSTMENT OF SHARES RESERVED UNDER THE PLAN 4 4. ELIGIBILITY 4 A. EMPLOYEES 4 B. ELIGIBLE DIRECTORS 5 5. TERMS AND CONDITIONS OF OPTIONS 5 A. NUMBER OF SHARES AND MAXIMUM FAIR MARKET VALUE 5 B. OPTION PRICE 6 C. EXPIRATION OF OPTIONS 6 D. EXERCISE 6 E. WAITING PERIOD 7 F. TERMINATION OF EMPLOYMENT OR ELIGIBLE DIRECTOR STATUS 7 G. ASSIGNABILITY OF OPTIONS AND STOCK APPRECIATION RIGHTS 8 H. STOCKHOLDER RIGHTS 8 I. SECURITIES LAW COMPLIANCE AND OTHER CONDITIONS 8 J. NON-INCENTIVE STOCK OPTIONS 8 6. STOCK APPRECIATION RIGHTS 9 A. IN GENERAL 9 B. COMMITTEE'S POWER TO INCLUDE APPRECIATION RIGHTS IN OPTION GRANT 9 C. FORM OF APPRECIATION DISTRIBUTIONS 10 D. TAX WITHHOLDING REQUIRED 10 E. COMPLIANCE WITH SHORT-SWING PROFITS RULE 10 F. COMMITTEE'S POWER TO LIMIT ANNUAL AMOUNT OF APPRECIATION DISTRIBUTIONS 11 7. REPLACEMENT OPTIONS 11 8. REORGANIZATION 11 9. AMENDMENT 12 10. EFFECTIVE DATE AND TERM OF PLAN 13 A. EFFECTIVE DATE 13 B. TERM OF PLAN 14 11. CHANGE IN CONTROL 14
NEW ENGLAND BUSINESS SERVICE, INC. NEBS 1994 KEY EMPLOYEE AND ELIGIBLE DIRECTOR STOCK OPTION AND STOCK APPRECIATION RIGHTS PLAN DATED July 22, 1994 1. Purpose and General Matters (a) Purpose. The purpose of the NEBS Key Employee and Eligible Director Stock Option and Stock Appreciation Rights Plan (the "Plan") is to provide a means whereby New England Business Service, Inc. (the "Company"), by granting options to purchase stock in the Company and stock appreciation rights in connection with certain of such options, can attract and retain persons of ability as key employees of the Company or of any corporation a majority of the voting stock of which is owned by the Company (a "Subsidiary") and as non-employee directors of the Company. It is also the purpose of the Plan to provide a performance incentive to option holders and to encourage stock ownership in the Company by such key employees and non-employee directors. (b) General Matters. It is intended that options granted under the Plan shall constitute either "incentive stock options," within the meaning of Section 422 of the Internal Revenue Code of 1986, as from time to time amended (the "Code"), or "non-incentive stock options," as determined by the Committee appointed pursuant to Section 2 of the Plan in its sole discretion and indicated on each form of option agreement (the "Option Agreement"), and the terms of the Plan and Option Agreements shall be construed accordingly; provided, however, that non-employee directors shall be granted non-incentive stock options only. Except as otherwise provided herein, the words parent and subsidiary shall be interpreted in accordance with Section 422 and Section 424 of the Code. 2. Administration The Plan shall be administered and interpreted by a committee (the "Committee") appointed by (and serving at the pleasure of) the Company's Board of Directors (the "Board"). The Committee shall consist of not less than two members of the Board, each of whom while serving as such shall be, and during the one year prior to such service shall have been, a person who in the opinion of counsel to the Company is (i) a "Disinterested Person," as such term is used in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Act"), and (ii) an "Outside Director," as such term is used in proposed regulation 1.162-27(e)(3) under Section 162(m) of the Code. A majority of the Committee members present at any meeting at which a quorum is present, and any acts approved in writing by all members without a meeting, shall constitute acts of the Committee. Subject to the provisions of the Plan the Committee shall determine with respect to options granted to employees of the Company or any Subsidiary: (a) the employees to whom options shall be granted; (b) the number of shares to be optioned to each employee; (c) whether any option granted hereunder to an employee shall be an incentive stock option or a non-incentive stock option; (d) whether or not any option granted hereunder to an employee shall contain stock appreciation rights (as provided in Section 6 below); and (e) the terms and conditions of each agreement between the Company and the employee to whom the Company has granted any option under the Plan. Notwithstanding the foregoing, with respect to options granted to non- employee directors of the Company who are Disinterested Directors, this Plan is intended to meet the requirements of Rule 16b-3(c)(2)(ii) promulgated under the Act and accordingly is intended to be self-governing with respect to such options. To this end, the Plan requires no discretionary action by any administrative body with regard to any transaction involving such options, but to the extent (if any) that questions of interpretation and construction arise, such questions shall be resolved by the Committee. Consistent with the foregoing, the Committee shall have full authority to administer the Plan, including authority to interpret and construe any provisions of the Plan and to adopt rules and regulations for administering the Plan, as it may deem necessary. Decisions of the Committee shall be final and binding on all persons who have an interest in the Plan. No members of the Committee or of the Board shall be held liable for any action or determination made in good faith with respect to the Plan or any option granted hereunder. 3. Stock (a) Shares Reserved under the Plan. Subject to the provisions of clause (c) below, the stock which shall be the subject of the options and appreciation rights granted under the Plan shall be shares of the Company's Common Stock, par value $1 per share (the "Stock"), and the total number of shares of Stock as to which options may be granted under the Plan shall not exceed 1,200,000. (b) Status of Shares in Terminated or Surrendered Options. If any outstanding option under the Plan expires or is terminated for any reason, or is surrendered pursuant to Section 6 below, then the shares of Stock allocable to the unexercised or surrendered portion of such option, less any shares distributed in payment of stock appreciation rights upon such surrender, shall be added to the remaining number of shares as to which future options may be granted under the Plan. (c) Adjustment of Shares Reserved under the Plan. If the Company shall combine or split the Stock or shall declare thereon any dividend payable in shares of Stock, or shall reclassify or take any other action of a similar nature affecting the Stock, then the number and class of shares of Stock which may thereafter be optioned (in the aggregate and to any participant) shall be adjusted accordingly, and, in the case of each option outstanding at the time of any such action, the number and class of shares which may thereafter be purchased pursuant to such option and the option price per share shall be adjusted to such extent as may be determined by the Board, upon recommendation of the Committee, to be necessary to maintain unimpaired and unenlarged the rights of the holder of such option, and any such determination shall be conclusive and binding upon such holder. After any such adjustment, the term "Stock" shall be deemed to mean the Stock as so adjusted. 4. Eligibility (a) Employees. All employees of the Company or of any Subsidiary ("Employees") shall be eligible to participate in the Plan and to receive grants of stock options ("Employee Options") hereunder, except that no Employee shall be granted an incentive stock option if, at the time the option is granted, such Employee owns stock of the Company which, taking into account the attribution rules of Section 424(d) of the Code, possesses more than ten per cent (10%) of the total combined voting power of all classes of the Company's stock then outstanding. Officers and directors of the Company or of any Subsidiary who are full-time Employees and who otherwise meet the foregoing terms of eligibility shall be eligible to participate in the Plan and to receive grants of Employee Options hereunder. (b) Eligible Directors. "Eligible Directors" shall mean directors of the Company who are directors on the date of grant, who are not Employees, and who are not eligible to participate under any other Company stock related plan (unless in the opinion of counsel to the Company such participation would not impair the status of such Eligible Director as a Disinterested Person and an Outside Director). All options granted under the Plan to Eligible Directors shall be non-incentive stock options within the meaning of Section 422 of the Code. Each Eligible Director who is such on the 30th day following the date on which each Annual Meeting of the Stockholders of the Company (the "Annual Meeting") is held during the term of the Plan shall on such 30th day be granted a stock option (a "Director Option") to purchase 1,000 shares of Stock; provided that the first such grant to each Eligible Director shall be for an option to purchase 3,000 shares of Stock. The date of grant of a Director Option under the Plan to an Eligible Director shall be the applicable day referred to immediately above. 5. Terms and Conditions of Options (a) Number of Shares and Maximum Fair Market Value. Each Option Agreement shall state the total number of shares to which it pertains. The maximum number of shares of Stock with respect to which Employee Options may be granted under the Plan to any Employee during any single calendar year shall be 80,000 shares. The aggregate fair market value (determined at the time the option is granted) of the Stock with respect to which incentive stock options become exercisable for the first time by an individual during any calendar year (under all the plans of his or her employer corporation and its parent and subsidiary corporations) shall not exceed $100,000. (b) Option Price. Each Option Agreement shall state a single option price applicable to all of the shares to which it pertains. The option price per share shall be the fair market value (the "Fair Market Value") of a share of Stock on the day the option is granted. For purposes of determining the option price (and for all other valuation purposes under the Plan) the Fair Market Value of a share of Stock shall be the last sales price per share of the Stock as reported on the NASDAQ National Market prior to the date on which such option is granted (or on or prior to the date as to which such other valuation is made), or, if the Stock is not then listed on the NASDAQ National Market or if no price has been so reported within one week prior to the date of such issuance (or within one week prior to such other valuation date), such market value shall be as determined by a principal market maker for the Stock designated by the Committee. (c) Expiration of Options. Each Option Agreement shall state the date on which it shall expire, which (i) shall be ten (10) years from the date of grant in the case of Director Options; (ii) shall not be more than ten (10) years from the date of grant for Employee Options; and (iii) shall otherwise be as determined by the Committee. (d) Exercise. Any option may be exercised by the holder thereof (or his personal representative if exercised pursuant to clause (iii) of subsection (f) below) giving notice in writing of such exercise to the Vice President-Finance of the Company during the period that it is exercisable. The option price for the number of shares for which the option is exercised shall be due and payable at the time of such exercise. It shall be payable in United States dollars and may be paid in cash or by certified check, bank cashier's check, the surrendering of shares of the Company's Stock (which shall be valued at its Fair Market Value on the date of surrender in accordance with Section 5(b) of the Plan) or any other means approved by the Vice President-Finance. The time of exercise of any option shall be the time at which such notice of exercise and payment are received by the Vice President-Finance. (e) Waiting Period. Each Director Option shall not be exercisable in whole or in part until six (6) months after its date of grant. The Committee may, in its discretion, provide that an Employee Option may not be exercised in whole or in part for any period or periods of time specified by the Committee. Except as so provided, any option may be exercised in whole at any time or in part from time to time during its term, provided that no option may be exercised for less than ten (10) shares unless the issue of a lesser number is enough to exhaust the option. (f) Termination of Employment or Eligible Director Status. (i) Each Employee Option held by an Employee whose employment terminates other than by reason of retirement or death shall expire upon such cessation of employment. (ii) Subject to clause (iii) of this sub-section (f) and Section 8 below, if an Employee retires holding an unexpired Employee Option, such option shall be exercisable by him or her during the remainder of the term thereof or during the three (3) months following retirement, whichever period is shorter, and only as to not more than the number of shares as to which it was exercisable immediately prior to retirement. (iii) Subject to Section 8 below, if an optionee dies holding an unexpired Employee or Director Option, such option shall be exercisable by his or her personal representative as to not more than the number of shares as to which it was exercisable immediately prior to such employee's death, during, and only during, the period beginning with such death and ending with the earlier of the first anniversary of such death or the expiration date of the option. (iv) Subject to clause (iii) of this sub-section (f) and Section 8 below, if an Eligible Director ceases to serve as a director of the Company for any reason other than death while holding an unexpired Director Option, such option shall be exercisable by him or her during the remainder of the term thereof or during the three (3) months following the date that he or she ceases to serve as a director of the Company, whichever period is shorter, and only as to not more than the number of shares as to which it was exercisable immediately prior to such date of cessation of service as a director. (g) Assignability of Options and Stock Appreciation Rights. No option or stock appreciation right shall be assignable or transferable except by will or by the laws of descent and distribution as provided in clause (iii) of sub- section (f) above. During the lifetime of an optionee, any option or stock appreciation rights granted to him or her shall be exercisable only by the optionee (h) Stockholder Rights. No person shall have any rights as a stockholder with respect to the shares of Stock subject to any option granted under the Plan until he or she shall have been issued a stock certificate for such shares. (i) Securities Law Compliance and Other Conditions. The Committee may include in each Option Agreement such requirements as it may deem necessary or advisable to assure compliance with all applicable state and federal securities laws and regulations. Any Option Agreement may contain such other provisions as the Committee shall deem advisable. (j) Non-Incentive Stock Options. Notwithstanding any other provisions of this Plan, the Committee may grant options which in one or more respects do not meet the requirements for incentive stock options established by Section 422 of the Code. The Committee shall indicate in each Option Agreement whether an incentive stock option within the meaning of Section 422 of the Code or a non-incentive stock option is thereby granted. Except as to Director Options and as otherwise provided in this Plan, the Committee, in its sole discretion, shall establish the terms and conditions for each non- incentive stock option which it grants. Such terms and conditions may, but need not, include some or all of the provisions of this Plan with respect to incentive stock options. If the Committee grants an option which in all respects meets the requirements for incentive stock options it may nonetheless designate such option a non-incentive stock option in the Option Agreement. No shares of Stock shall be delivered pursuant to the exercise of a non-incentive stock option unless arrangements satisfactory to the Company's Vice President-Finance have been made for any required federal, state or local income tax or other withholdings. 6. Stock Appreciation Rights (a) In General. A stock appreciation right is a right granted to the holder of an Employee Option granted under this Plan to receive, pursuant to the terms of the right, an amount payable in shares of Stock, or, at the election of the Committee, cash or a combination of cash and shares of Stock, in each case equal to the increase in the value of the shares covered by the option to which the stock appreciation right is related, all as more particularly set forth below in this Section 6. (b) Committee's Power to Include Appreciation Rights in Option Grant. Any Employee Option Agreement may provide that the option holder is entitled to receive, with respect to all or a stated percentage of the shares of Stock purchasable thereunder from time to time (or any portion thereof) and subject to the surrender of the option to purchase such shares, an appreciation distribution by the Company in an amount equal to the difference between the Fair Market Value, on the date of such surrender, of the shares of Stock as to which such option is surrendered and the aggregate option price for such shares. Such surrender shall be deemed to have occurred as of the date the Vice President-Finance of the Company receives written notice of such surrender. (c) Form of Appreciation Distributions. If the option is so surrendered, in whole or in part, the appreciation distribution to which the option holder is entitled shall be made in the form of shares of Stock, provided that the Committee shall be entitled, in its sole discretion, to discharge the Company's obligation by the payment of cash, or partly by the payment of cash and partly by the delivery of shares of Stock, so long as the total value of such payment is equal to the aggregate value of the shares of Stock which the surrendering optionee is entitled to receive. (d) Tax Withholding Required. No shares of Stock shall be delivered or cash payment made in discharge of a stock appreciation right unless arrangements satisfactory to the Company's Vice President-Finance have been made for any required federal, state or local income tax or other withholdings. (e) Compliance with Short-Swing Profits Rule. If the option holder is at the time of the option surrender considered an officer or director of the Company for purposes of Section 16(b) of the Act, or was such an officer or director at any time during the six-month period immediately preceding the option surrender, and made any purchase or sale of Stock during such six-month period, then the option can only be surrendered after the first six months of its term and then only during the periods commencing on the third and ending on the twelfth business days following the days on which the Company's quarterly or annual summary statements of sales and earnings are released to the public. (f) Committee's Power to Limit Annual Amount of Appreciation Distributions. Notwithstanding any other provision of the Plan, the Committee may, from time to time, determine the maximum amount of cash or Stock which may be delivered upon exercise of stock appreciation rights in any year. The Committee may further determine that, if the amount to be received by an option holder exercising any such rights is reduced in any year by reason of this limitation, all or a portion of the amount not delivered may be delivered in a later year or years. 7. Replacement Options The Committee may permit the voluntary surrender of all or a portion of any Employee Option granted under this Plan conditioned upon the granting to the option holder of a new Employee Option issued under the Plan for the same or a different number of shares. The new option (which may contain stock appreciation rights) shall be exercisable at such price, during such period and in accordance with such other terms and conditions as the Committee may determine, consistently with the provisions of this Plan, without regard to the price, period of exercise, or other terms or conditions of the option surrendered. 8. Reorganization In case of any one or more reclassifications, changes, or exchanges of outstanding shares of the Company's Stock (other than as provided in sub- section (c) of Section 3), or consolidations of the Company with, or mergers of the Company into, other corporations, or other recapitalizations or reorganizations (other than consolidations with a Subsidiary in which the Company is the continuing corporation and which do not result in any reclassifications, change or exchange of outstanding shares of the Company's Stock), or in case of any one or more sales or conveyances to another corporation of the property of the Company as an entirety, or substantially as an entirety (any and all of which are hereinafter in this section called "Reorganizations"), the holder of each option then or thereafter outstanding shall have the right, upon any subsequent exercise thereof, to acquire the same kind and amount of securities and property which such holder would then hold if such holder had exercised such option immediately before the first of such Reorganizations and continued to hold all securities and property which came to such holder as a result of that and subsequent Reorganizations, less all securities and property surrendered or cancelled pursuant to any of same (the rights provided by Section 3(c) and this Section 8 being continuing and cumulative) except that, notwithstanding any provision of clause (ii), or (iii) or (iv) of subsection (f) of Section 5 to the contrary, the Board shall have the right, upon no less than thirty (30) days' notice to the holder of each outstanding option, to terminate the period in which all outstanding options may be exercised at the time of such Reorganization. Such notice shall be effective when mailed to such option holder by certified or registered mail addressed to him or her at the holder's address of record or when delivered in hand to such option holder. In such event all outstanding options, other than options as to which one of the events referred to in Sections 5(f)(ii), (iii) or (iv) has occurred, may be exercised, in whole or in part, and all outstanding options as to which one of the events referred to in Sections 5(f)(ii), (iii) or (iv) has occurred may be exercised, but only to the extent therein permitted, and only at any time prior to such Reorganization. A liquidation shall be deemed a Reorganization for the foregoing purposes. 9. Amendment The Board may alter, amend, suspend or terminate the Plan at any time and from time to time and may alter and amend all Option Agreements granted hereunder, except that without the approval of the holders of at least a majority of the Company's outstanding voting stock represented and voted at a meeting at which a quorum is present (provided the shares voting for approval also constitute a majority of the required quorum): (a) The number of shares of Stock which may be reserved for issuance under the Plan may not be increased or decreased except as required by Section 3(c) above; (b) The option price may not be fixed at less than the Fair Market Value of the Stock on the date an option is granted; (c) The period during which an option may be exercised may not be extended (but options may be voluntarily surrendered for options having a later expiration date if the Committee shall offer to effect such an exchange as provided in Section 7); (d) The class or classes of persons eligible for options may not be altered; and (e) No other change may be made which, pursuant to the Code or regulations thereunder or Section 16(b) of the Act and the rules and regulations promulgated thereunder, requires action by the Company's shareholders. No amendment shall be made to the provisions of the Plan that relate to the granting of Director Options more than once every six months except to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, or the rules thereunder. No amendment of the Plan may, without the consent of the holder of an outstanding option granted under the plan, adversely affect the rights of such holder under such option. 10. Effective Date and Term of Plan (a) Effective Date. The Plan shall become effective on the date it is adopted by the Board, but before any options granted under the Plan shall become exercisable, the Plan must be approved by the holders of at least a majority of the Company's outstanding voting stock represented and voting at a duly held meeting at which a quorum is present, provided the shares voting for approval also constitute at least a majority of the required quorum. If such stockholder approval is not obtained, then any options previously granted under the Plan shall terminate and no further options shall be granted. Subject to such limitation, the Committee may grant Employee Options under the Plan at any time after the adoption of the Plan by the Board and before the date fixed herein for termination of the Plan and Director Options shall be granted as provided under the Plan. (b) Term of Plan. The Plan shall terminate on the 10th anniversary of the date of the Plan's adoption by the Board. Any options outstanding under the Plan at the time of its termination shall continue to have force and effect in accordance with the provisions set forth in the Option Agreements evidencing such options. 11. Change in Control For the purpose of this Plan a "Change in Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of 35% or more of either (I) the then outstanding shares of the Stock or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of the directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a consolidation or merger, if, following such consolidation or merger, the conditions described in clauses (I), (ii), and (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a consolidation or merger, if, following such consolidation or merger, the conditions described in clauses (i), (ii), and (iii) of subsection (c) of this Section are satisfied; or (b) Individuals who, as of the effective date of the Plan determined pursuant to Section 10(a) above, constitute the Board (the "Incumbent Board") ceasing for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to such effective date whose election, or nomination for election by the Company's shareholders, was approved by a vote or resolution of at lease a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Adoption by the Board of a resolution approving an agreement of consolidation of the Company with or merger of the Company into another corporation or business entity in each case, unless, following such consolidation or merger, (i) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such consolidation or merger and/or the combined voting power of the then outstanding voting securities of such corporation or business entity entitled to vote generally in the election of directors (or other persons having the general power to direct the affairs of such entity) is then beneficially owned, directly or indirectly, by all or substantially of the individuals and entities who were the beneficial owners, respectively, of the Stock and Outstanding Company Voting Securities immediately prior to such consolidation or merger in substantially the same proportions as their ownership, immediately prior to such consolidation or merger, of the Stock and/or Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation or other business entity resulting from such consolidation or merger and any Person beneficially owning, immediately prior to such consolidation or merger, directly or indirectly, 35% and/or more of the Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 35% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such consolidation or merger or the combined voting power of the then outstanding voting securities of such corporation or business entity entitled to vote generally in the election of its directors (or other persons having the general power to direct the affairs of such entity) and (iii) at least a majority of the members of the board of directors (or other group of persons having the general power to direct the affairs of the corporation or other business entity) resulting from such consolidation or merger were members of the Incumbent Board at the time of the execution of the initial agreement providing for such consolidation or merger; provided that any right to purchase shares of Stock which shall vest by reason of the action of the Board pursuant to this subsection (c) shall be divested, with respect to any shares not already purchased by the optionee or his personal representative, upon (i) the rejection of such agreement of consolidation or merger by the stockholders of the Company or (ii) its abandonment by either party thereto in accordance with its terms; or (d) Adoption by the requisite majority of the whole Board, or by the holders of such majority of stock of the Company as is required by law or by the Certificate of Incorporation or By-Laws of the Company as then in effect, of a resolution or consent authorizing (I) the dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation or other business entity with respect to which, following such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and/or the combined voting power of the outstanding voting securities of such corporation or other entity entitled to vote generally in the election of its directors (or other persons having the general power to direct its affairs) is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Stock and/or Outstanding Company Voting securities, as the case may be, (B) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation or other business entity and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 35% or more of the Stock and/or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 35% or more of, respectively, the then outstanding shares of common stock of such corporation and/or the combined voting power of the then outstanding voting securities of such corporation or other business entity entitled to vote generally in the election of directors (or other persons having the general power to direct its affairs) and (C) at least a majority of the members of the board of directors or group of persons having the general power to direct the affairs of such corporation or other entity were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company; provided that any right to purchase shares of Stock which shall vest by reason of the action of the Board or the stockholders pursuant to this subsection (d) shall be divested, with respect to any shares not already purchased by the optionee or his personal representative, upon the abandonment by the Company of such dissolution, or such sale or other disposition of assets, as the case may be. EX-10 6 EXHIBIT 10G - NEBS STOCK COMPENSATION PLAN DATED JULY 25, 1994 NEW ENGLAND BUSINESS SERVICE, INC. STOCK COMPENSATION PLAN SECTION 1. Purpose. The purpose of this Stock Compensation Plan (the "Plan") of New England Business Service, Inc. (the "Company") is to provide for the mandatory or voluntary receipt of shares of the Company's Common Stock, valued at full market value as of the date of grant, in lieu of an equivalent amount of cash, in payment (in whole or in part) of certain types of regular, bonus or other special compensation payable to directors of the Company and officers and other key employees of the Company and its subsidiaries, thereby creating, encouraging and facilitating increased ownership of Common Stock by such directors and key employees and, through such ownership, enhancing the identity of interest between them and the Company's shareholders. SECTION 2. Definitions. In addition to the terms defined elsewhere in the Plan, the following shall be defined terms under the Plan: 2.01. "Award" means any award of Stock granted to a Participant under the Plan. 2.02. "Board" means the Board of Directors of the Company. 2.03. "Code" means the Internal Revenue Code of 1986, as amended from time to time. Reference to any provision of the Code shall be deemed to include successor provisions thereto and regulations thereunder. 2.04. "Committee" means the Organization and Compensation Committee of the Board, or such other Board committee as may be designated by the Board to administer the Plan, provided, however, that the Committee, shall always consist of two or more directors, each of whom while serving as such shall be a person who in the opinion of counsel to the Company is (i) a "Disinterested Person," as such term is used in Rule 16b-3 promulgated under the Exchange Act, and (ii) an "Outside Director," as such term is used in proposed Regulation 1.162-27(e)(3) under Section 162(m) of the Code or a successor regulation. A majority of the Committee members present at any meeting at which a quorum is present, and any acts approved in writing by all members without a meeting, shall constitute acts of the Committee. 2.05. "Company" is defined in Section 1. 2.06. "Covered Employee" has the same meaning as set forth in section 162(m) of the Code, and successor provisions. 2.07. "Employee" means any salaried employee, including officer-employees, of the Company or any Subsidiary. 2.08. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. References to any provision of the Exchange Act shall be deemed to include successor provisions thereto and regulations thereunder. 2.09. "Participant" means a person who, as a director of the Company or an Employee has been granted an Award under the Plan. 2.10. "Plan" is defined in Section 1. 2.11. "Rule 16b-3" means Rule 16b-3, as from time to time amended and applicable to Participants, promulgated by the Securities and Exchange Commission under Section 16 of the Exchange Act. 2.12. "Stock" means the Common Stock, $1.00 par value, of the Company and such other securities of the Company as may be substituted for Stock pursuant to Section 4 below. 2.13. "Subsidiary" means any corporation with respect to which the Company owns, directly or indirectly, 50% or more of the total combined voting power of all classes of stock. In addition, any other related entity may be designated by the Board as a Subsidiary, provided such entity's financial statements would be consolidated with those of the Company under generally accepted accounting principles. 2.14. "Year" means a fiscal year of the Company. SECTION 3. Administration 3.01. Authority of the Committee. The Plan shall be administered by the Committee. The Committee shall have full and final authority to take the following actions, in each case subject to and consistent with the provisions of the Plan: i. to select and designate Employees as Participants; ii. to designate Subsidiaries; iii. to determine the Awards to be granted to each Employee-Participant; iv. to determine whether, to what extent, and under what circumstances an Award will be deferred either automatically, at the election of the Committee, or at the election of the Participant; v. to prescribe the form of any Award agreements which need not be identical for each Participant; vi. to adopt, amend, suspend, waive, and rescind such rules and regulations not inconsistent with the specific terms of the Plan, and appoint such agents, as the Committee may deem necessary or advisable to administer the Plan; vii. to correct any defect or supply any omission or reconcile any inconsistency in the Plan and to construe and interpret the Plan and any Award, rules and regulations, Award Agreement, or other instrument hereunder; and viii. to make all other decisions and determinations as may be required under the terms of the Plan or as the Committee may deem necessary or advisable for the administration of the Plan. 3.02 Manner of Exercise of Committee Authority. Unless authority is otherwise reserved under the terms of the Plan, or applicable law, the Committee shall have full and sole discretion in exercising its authority under the Plan. Any action of the Committee with respect to the Plan shall be final, conclusive, and binding on all persons, including the Company, Subsidiaries, Participants and any person claiming any rights under the Plan from or through any Participant. The express grant of any specific power to the Committee, and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee. A consent signed by all members of the Committee shall constitute the act of the Committee without the necessity, in such event, of holding a meeting. 3.03 Limitation of Liability. Each member of the Committee shall be entitled, in good faith, to rely or act upon any report or other information furnished to him by any officer or other employee of the Company or any Subsidiary, the Company's independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan. No member of the Committee, nor any officer or employee of the Company acting on behalf of the Committee, shall be personally liable for any activity, determination, or interpretation taken or made in good faith with respect to the Plan and all members of the Committee and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect to any such action, determination, or interpretation. SECTION 4. Shares Subject to the Plan. The total number of shares of Stock reserved and available for Awards under the Plan shall be 300,000. If the Company shall combine or split the Stock or shall declare thereon any dividend payable in shares of Stock, or shall reclassify or take any other action of a similar nature affecting the Stock, then the number and class of shares of Stock which shall thereafter be reserved and available for Awards under the Plan shall be adjusted accordingly. SECTION 5. Eligibility. Awards may be granted only to individuals who are directors of the Company or Employees. SECTION 6. Awards. 6.01. General. All shares of Stock issued pursuant to Awards shall be issued in lieu of cash compensation equal in value to the Fair Market Value of such shares on the date of the Award. The Fair Market Value of a share of Stock on the date of an Award shall be the last sales price per share of the Stock as reported on the NASDAQ National Market prior to the date of the Award or, if the Stock is not then listed on the NASDAQ National Market or if no price has been so reported within one week prior to the date of such Award, such market value shall be determined by a principal market maker for the Stock designed by the Committee. Awards may be granted on the terms and conditions set forth in this Section 6. In addition, the Committee may impose on any Award to an Employee, at the date of grant, such additional terms and conditions, not inconsistent with the provisions of the plan, as the Committee shall determine. 6.02. Performance Awards. The Committee is authorized to grant Performance Awards to Employees on the following terms and conditions: i. Award and Conditions. Performance Awards to Covered Employees are intended to be "qualified performance-based compensation" within the meaning of section 162(m) of the Code and shall be paid solely on account of the attainment of one or more pre-established performance goals (within the meaning of section 162(m) (4)(C) and any regulations relating thereto) determined by the Committee. ii. The payout of any such Award to a Covered Employee may be reduced, but not increased, based on the degree of attainment of other performance criteria or otherwise at the discretion of the Committee. iii. Other Terms. Subject to Section 6.05 below, a Performance Award shall be denominated and payable in shares of Stock, and have such other terms as shall be determined by the Committee. iv. The satisfaction of the performance goals on account of which a Performance Award is to be made, shall be certified by the Committee before such Award is made. 6.03. Awards of Stock in Payment of Directors' Compensation. The Committee is authorized to make awards of Stock to non-employee Directors who elect to receive such Stock in lieu of all or part of their retainers or fees on the following terms and conditions: Awards of Stock in payment or partial payment of Directors' compensation are intended to be "participant directed transactions" within the meaning of Section (d) of Rule 16b-3. All such awards shall be made pursuant to irrevocable elections made by non- employee Directors of the Company at least six months in advance of the effective date of the award. Such elections shall be made by a written notice of election signed by the electing Director and delivered or mailed to the Chief Financial Officer, Treasurer or Secretary of the Company and shall specify either (a) the annual retainer or retainers or meeting attendance fee or fees which shall be paid in whole or in part in Stock, and the percentage of each such retainer or fee which shall be paid in Stock; or (b) that all or certain specified payments to be received within each twelve-month period commencing on the first day of a specified calendar month (or a specified portion of such payments) shall continue to be paid in Stock until such election is amended or revoked by another notice given in the same manner at least six months prior to the effective date of such amendment or revocation. 6.04. Other Awards. The Committee is authorized to grant to Employees such other Awards as are deemed by the Committee to be consistent with the purposes of the Plan, including, without limitation, Stock issued to Employees in lieu of cash bonuses or portions of bonuses. 6.05. Stand-Alone, Tandem, and Substitute Awards. Awards to Employees granted under the Plan may, in the discretion of the Committee, be granted either alone or, as a part of or in tandem with, or in substitution for, any award granted under any other plan of the Company, or any Subsidiary, or any other right of a Participant to receive payment from the Company or any Subsidiary. If an Award is granted in substitution for another award, the Committee shall require the surrender of such other award in consideration for the grant of the new Award hereunder. Awards granted in addition to or as a part of or in tandem with other awards may be granted either as of the same time as or a different time from the grant of such other awards. SECTION 7. General Restrictions Applicable to Awards. 7.01. Restrictions Under Rule 16b-3. 7.01.1. Six-Month Holding Period. Unless a Participant could otherwise transfer Stock without incurring liability under Section 16(b) of the Exchange Act, shares of Stock issued under the Plan shall be held for at least six months from the date of acquisition. 7.01.2. Compliance with Rule 16b-3. It is the intent of the Company that this Plan comply in all respects with Rule 16b-3 in connection with any Award granted to a person who is subject to Section 16 of the Exchange Act. Accordingly, if any provision of this Plan or any Award Agreement does not comply with the requirements of Rule 16b-3 as then applicable to any such person, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements with respect to such person. 7.02. Registration and Listing Compliance. The Company shall not be obligated to distribute any Shares with respect to any Award in a transaction subject to regulatory approval, registration, or any other applicable requirement of federal or state law, or subject to a listing requirement under any listing or similar agreement between the Company and any national securities exchange, until such laws, regulations, and contractual obligations of the Company have been complied with in full, although the Company shall be obligated to use its best efforts to obtain any such approval and comply with such requirements as promptly as practicable. 7.03. Stock Certificates. All shares of Stock delivered under the Plan pursuant to any Award shall be subject to such stop-transfer order and other restrictions as the Committee may deem advisable under applicable federal or state laws, or rules and regulations thereunder, and the rules of NASDAQ or any national securities exchange on which the Stock is listed. The Committee may cause a legend or legends to be placed on any certificates representing shares of Stock to make appropriate reference to such restrictions or any other restrictions that may be applicable to such shares. In addition, during any period in which shares of Stock are subject to restrictions under the terms of the Plan or any Award Agreement the Committee may require the Participant to enter into an agreement providing that certificates representing any shares of Stock issuable or issued pursuant to an Award shall remain in the physical custody of the Company or such other person as the Committee may designate. SECTION 8. Amendments. The Board may amend, alter, suspend, discontinue or terminate the Plan without the consent of stockholders or Participants, except that any such amendment, alteration, suspension, discontinuation, or termination shall be subject to the approval of the Company's stockholders within one year after such Board action if such stockholder approval is required by any federal or state law or regulation or the rules of NASDAQ or any stock exchange on which the Shares may be listed, or if the Board in its discretion determines that obtaining such stockholder approval is for any reason advisable. SECTION 9. General Provisions. 9.01. No Stockholder Rights. No Award shall confer on any Participant any of the rights of a stockholder of the Company unless and until shares of Stock are duly issued or transferred to the participant in accordance with the terms of the Award. 9.02. Tax Withholding. The Company or any Subsidiary is authorized to withhold from any Award granted, or any payroll or other payment to a Participant, amounts of withholding and other taxes due with respect thereto, and to take such other action as the Committee may deem necessary or advisable to enable the Company and Participants to satisfy obligations for the payment of withholding taxes and other tax liabilities relating to any Award. This authority shall include authority to withhold or receive Shares or other property and to make cash payments in respect thereof in satisfaction of Participant's tax obligations. 9.03. No Right to Employment. Nothing contained in the Plan or any Award Agreement shall confer, and no grant of an Award shall be construed as conferring, upon any employee any right to continue in the employ of the Company or any Subsidiary or to interfere in any way with the right of the Company or any Subsidiary to terminate his employment at any time or increase or decrease his compensation from the rate in existence at the time of granting of an Award. 9.04. Other Compensatory Arrangements. The Company or any Subsidiary shall be permitted to adopt other or additional compensation arrangements (which may include arrangements which relate to Awards), and such arrangements may be either generally applicable or applicable only in specific cases. 9.05. Fractional Shares. No fractional shares of Stock shall be issued or delivered pursuant to the Plan or any Award. The Committee shall determine whether cash or other property shall be issued or paid in lieu of fractional shares or whether such fractional Shares or any rights thereto shall be forfeited or otherwise eliminated. 9.06. Governing Law. The validity, construction, and effect of the Plan, any rules and regulations relating to the Plan, and any Award Agreement shall be determined in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of laws, and applicable federal law. SECTION 10. Effective Date and Duration. The Plan shall become effective as of June 25, 1994, provided, however, that within one year after such date, the Plan shall have been approved by the affirmative vote of the holders of a majority of the shares of Stock present or represented and entitled to vote (and the affirmative vote of a majority of the shares of Stock voting) at a meeting of the Company's stockholders, or any adjournment thereof. If so approved the Plan shall continue in force until June 24, 2004. EX-10 7 EXHIBIT 10H - SEPARATION AGREEMENT MEMORANDUM TO: Bartley H. Calder FROM: Richard H. Rhoads DATE: December 17, 1993 RE: Separation Agreement - -------------------------------------------------------------------------------- The following is an outline of the separation agreement between you and NEBS. The provisions illustrated below constitute the total benefits which will be provided to you as part of your separation from NEBS. 1. TERMINATION OF EMPLOYMENT On behalf of NEBS Board of Directors, your resignation as President and CEO is accepted effective December 31, 1993. Between November 11 and December 31, you will be considered on leave of absence with pay and will not exercise any power of the positions you have held at NEBS. 2. SEVERANCE PAY You will receive eleven months of severance pay. This pay will begin on January 1, 1994 and end on November 30, 1994. These payments will be deposited directly on or about the fifteenth of each month into the bank account you have designated. If, at the conclusion of this period, you have not been employed, NEBS will pay you additional monthly payments ($24,166.66) for up to twelve months or until you become employed, whichever occurs earlier. your continued receipt of severance payments is conditioned upon the terms set forth in paragraph 14 below. 3. You will be entitled to receive 6/12 of the executive bonus which you would be entitled to receive pursuant to the FY94 NEBS Executive Bonus Plan (effective as of June 28, 1993) if such bonuses are paid for FY94. The fraction represents a pro-ration based on six months of active service during the fiscal year. 4. VACATION PAY You will receive any accrued and unused vacation pay, which will be paid to you in a lump sum during the first week of January, 1994 5. OUTPLACEMENT COUNSELING To assist you in your search for a new job, NEBS will provide you with outplacement counseling at a cost not to exceed $43,500 (15% of your base salary) by a company of your choice, through such time, not later than November 30, 1995, or until you become employed, whichever occurs earlier. 6. STOCK OPTIONS You will have until December 31, 1993 to exercise all or any portion of the options which have been granted to you. After December 31, 1993, all unexercised grants will be null and void, in accordance with their terms. 7. HEALTH CARE NEBS will continue to pay your medical/dental/vision plan coverages at the established employee contribution level through June 30, 1995 (18 months from your termination date). This 18-month time frame will cover the period in which you normally would have the opportunity to continue coverage under the provisions of COBRA. You will be provided with further details regarding this subject under separate cover from Jim Savage in early January. 8. FSA If you are currently contributing to a health care FSA, we will continue to make payroll deductions through June 30, 1995. 9. LIFE INSURANCE Your life insurance will terminate effective December 31, 1993. If you wish to convert your lift insurance to an individual plan, you must contact CIGNA by January 30, 1994. 10. 401(k) PLAN Your participation in the 401(k) plan will cease December 31, 1993. Documentation regarding the distribution of your account balance will be provided to you in early January. 11. PENSION PLAN You are vested in the NEBS Pension Plan with credited service through December 31, 1993 and will be entitled to receive a future pension benefit under the terms and conditions of the Plan. 12. DISABILITY PROGRAMS Your NEBS disability programs will cease on December 31, 1993. If you are interested in a personal protection plan, we can provide the information for your review. 13. FINANCIAL COUNSELING You may continue to use the financial planning services of G.W. & Wade, Inc. through December 31, 1994 and the service of that firm for the preparation of your 1994 tax return. 14. USE AND DISCLOSURE OF TRADE SECRETS AND OTHER CONFIDENTIAL INFORMATION You represent that to the best of your knowledge, you do not now have, and you agree that you shall promptly return to NEBS, anything tangible or electronically keep or stored which constitutes, represents, evidences or records any trade secret or other confidential information of NEBS, retaining no copies thereof. You agree that you will not any time after November 11, 1993, directly or indirectly, use or disclose to any person any trade secrets or other confidential information of NEBS. The term "trade secret or other confidential information" shall mean any secret or confidential scientific, design, process, procedures, formula, invention or improvement, including without limitation, marketing plans or strategies, product development plans, business acquisition plans, new personnel acquisition plans, technical processes, research and development processesm and each of the Company's customer lists. If you enter into employment with a "competitor of NEBS" prior to November 30, 1995, or if you use or disclose trade secrets or other confidential information of NEBS as defined in the preceding paragraph, you severance pay and benefits will be immediately terminated. "Competitor of NEBS" means: (a) any of the following names companies or any companies controlled by, controlling or under common control with any of them, or any successor to the business forms businesses of any of them by merger, split-off or acquisition of assets: Deluxe Corp., Moore Corp. Ltd., R.R. Donnelley & Sons Co., Rapid Forms, Quill, Ennis Business Forms, Inc., Alpha Graphics, Reynolds & Reynolds Co., Wallace Computer Services, Inc., American Business Products, John Harland Co., Duplex Products, Inc., Paris Business Forms, Inc., Inmac Corp., Viking or Staples, Inc., Office Depot or any other operator of a chain of office supply "superstores"; or (b) any individual, firm or corporation engaged in the United States, Canada or the United Kingdom in any of the following businesses in which NEBS was engaged or was actively planning to engage prior to November 11, 1993: the manufacture, processing, distribution or sale by direct marketing or otherwise of business forms, business forms software, stationery, business cards, printed marketing products commonly used by small business, or equipment or software for desktop publishing. I have asked Jim Savage to contact you in order to answer any questions you may have regarding your benefits. NEW ENGLAND BUSINESS SERVICE, INC. By: /s/ Richard H. Rhoads ---------------------- Richard H. Rhoads Chairman Dated: 12/20/93 ------------------- /s/ Bartley H. Calder - ----------------------- Bartley H. Calder Dated: 12/20/93 -------------- EX-10 8 EXHIBIT 10(I) - KEY EMPLOYEE NON-INCENTIVE STOCK OPTION AGREEMENT NEW ENGLAND BUSINESS SERVICE, INC. KEY EMPLOYEE STOCK OPTION AND STOCK APPRECIATION RIGHTS PLAN KEY EMPLOYEE NON-INCENTIVE STOCK OPTION AGREEMENT ------------- NOTE: THIS IS A NON-INCENTIVE STOCK OPTION. BEFORE EXERCISING IT, READ SECTION 9, BELOW, AND THE PROSPECTUS REFERRED TO THEREIN TO AVOID UNANTICIPATED TAX CONSEQUENCES. This non-incentive stock option (the "Option") is granted as of November 12, 1993, by New England Business Service, Inc., a Delaware Corporation (the "Company"), to William C. Lowe of Concord, Massachusetts (the "Grantee"), an employee of the Company. 1. Shares Subject to Option ------------------------ Pursuant to the provisions of the Company's Key Employee Stock Option and Stock Appreciation Rights Plan dated October 26, 1990 (the "Plan"), the Company hereby grants to the Grantee an Option to purchase 300,000 of the Company's Common Stock (par value $1.00 per share) (the "Optioned Shares") at a price of $16.25 per share in accordance with and subject to all the terms and conditions hereinafter set forth. The plan and any amendments thereto are hereby incorporated by reference and made a part hereof. -1- 2. Term and Exercise of Option --------------------------- Except as otherwise provided in the Plan or in this Option, the Option shall terminate at the close of business on November 12, 2003 or ten years from the date of grant, whichever is earlier, and may be exercised only by the Grantee or, to the extent provided in Section 3(b) hereof, by his legal representative. While the Option is effective and the Grantee continues to be employed, the Option Shares shall become available for purchase by the Grantee in minimum installments of ten (10) shares unless the issue of a lesser number is enough to exhaust the Option. The Grantee's right to purchase shares pursuant to this Option shall vest according to the following schedule: Date Number of Shares Price if Exercised ---- ---------------- In Full ------------------ January 3, 1994 75,000 $1,218,750.00 January 3, 1995 75,000 1,218,750.00 January 3, 1996 75,000 1,218,750.00 January 3, 1997 75,000 1,218,750.00 Provided that the right to purchase all of the remaining shares purchasable hereunder shall vest and become exercisable immediately upon the occurrence of a Change in Control of the Company as defined in Paragraph 6 below. -2- Unpurchased portions of available installments may be accumulated and subsequently purchased by the Grantee prior to the expiration of the Option. 3. Terms and Conditions of Exercise of Option ------------------------------------------ Each exercise and purchase of Optioned Shares pursuant to the Option shall be subject to the following terms and conditions: (a) The Grantee shall have remained in the continuous employ of the Company from the date of the Option grant until the date of exercise (or in the circumstances specified in Section 5(f)(ii) of the Plan until a date not more than three months prior to the date of exercise). (b) If the Grantee dies, then his legal representative or the person or persons to whom his rights under the Option shall pass by will or by the applicable laws of descent and distribution shall be entitled, subject to the condition that no Option shall be exercisable after the expiration of ten years from the date it was granted, within twelve months after the date of his death or prior to the expiration date of the Option, whichever is earlier, to exercise the Option to the extent that the Grantee would have been entitled to exercise the Option on the date of his death. -3- (c) The Grantee shall exercise the Option by giving written notice of such exercise to the Vice President-Finance of the Company at the Company's principal place of business, accompanied by the full purchase price of the Optioned Shares so being purchased, together with any tax or excise, if any, due in respect of the issue thereof, in cash, by certified or bank check, or by the surrendering of shares of the Company's stock. Such notice shall be effective when received by the Vice President-Finance. (d) The stated price and number of Optioned Shares purchasable hereunder are subject to adjustment as provided in Section 8 of the Plan. (e) No Optioned Shares shall be issued pursuant to this Option grant unless arrangements satisfactory to the Vice President-Finance have been made for any required federal or state tax or other withholdings. 4. Option Non-Transferable ----------------------- The Option may not be transferred or assigned by the Grantee or by operation of law other than by will or by the laws of descent and distribution. It may be exercised during the lifetime of the Grantee only by him or her. -4- 5. Right to Terminate ------------------ Nothing contained in the Option Grant shall restrict the right of the Company or a subsidiary of the Company to terminate the employment of the Grantee at any time. 6. Change in Control ----------------- For the purpose of this Option a "Change in Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of either (i) the then outstanding shares of the Stock or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of the directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a consolidation -5- or merger, if, following such consolidation or merger, the conditions described in clauses (i), (ii), and (iii) of subsection (c) of this Section (6) are satisfied; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") ceasing for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote or resolution of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Adoption by the Board of Directors of the Company (the "Board") of a resolution approving an agreement of a consolidation of the Company with or merger of the Company into another corporation or business entity in each case, unless, following such consolidation or merger, (i) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such -6- consolidation or merger and/or the combined voting power of the then outstanding voting securities of such corporation or business entity entitled to vote generally in the election of directors (or other persons having the general power to direct the affairs of such entity) is then beneficially owned, directly or indirectly, by all or substantially of the individuals and entities who were the beneficial owners, respectively, of the Stock and Outstanding Company Voting Securities immediately prior to such consolidation or merger in substantially the same proportions as their ownership, immediately prior to such consolidation or merger, of the Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation or other business entity resulting from such consolidation or merger and any Person beneficially owning, immediately prior to such consolidation or merger, directly or indirectly, 35% or more of the Stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, 35% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such consolidation or merger or the combined voting power the then outstanding voting securities of such corporation or business entity entitled to vote generally in the election of its directors (or other persons having the general power -7- to direct the affairs of such entity) and (iii) at least a majority of the members of the board of directors (or other group of persons having the general power to direct the affairs of the corporation or other business entity) resulting from such consolidations or merger were members of the Incumbent Board at the time of the execution of the initial agreement providing for such consolidation or merger; provided that any right to purchase shares of Stock which shall vest by reason of the action of the Board pursuant to this clause (c) shall be divested, with respect to any shares not already purchased by the Grantee or his personal representative, upon (i) the rejection of such agreement of consolidation or merger by the stockholders of the Company, of (ii) its abandonment by either party thereto in accordance with its terms; or (d) Adoption by the requisite majority of the whole Board, or by the holders of such majority of stock of the Company as is required by law or by the Certificate of Incorporation or By-Laws of the Company as then in effect, of a resolution or consent authorizing (i) the dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation or other business entity with respect to which, following the such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and/or the combined -8- voting power of the outstanding voting securities of such corporation or other entity entitled to vote generally in the election of its directors (or other persons having the general power to direct its affairs) is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Stock and/or Outstanding Company Voting securities, as the case may be, (B) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation or other business entity and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 35% or more of the Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 35% or more of, respectively, the then outstanding shares of common stock of such corporation and/or the combined voting power of the then outstanding voting securities of such corporation or other business entity entitled to vote generally in the election of directors or other persons having the general power to direct its affairs and (C) at least a majority of the members of the board of directors or group of persons having -9- the general power to direct the affairs of such corporation or other entity were members of the Incumbent Board at the time of the execution of the initial agreement of action of the Board providing for such sale or other disposition of assets of the Company; provided that any right to purchase shares of Stock which shall vest by reason of the action of the Board or the stockholders pursuant to this clause (d) shall be divested, with respect to any shares not already purchased by the Grantee or his personal representative, upon the abandonment by the Company of such dissolution, or such sale or other disposition of assets, as the case may be. 7. Dissolution or Reorganization ----------------------------- Prior to a "Reorganization" as defined in Section 8 of the Plan, the Board of Directors of the Company (the "Board") may decide to terminate each outstanding Option. If the Board so decides, it shall give not less than thirty (30) days notice to the Grantee of each outstanding Option that the period in which all outstanding Options may be exercised will terminate at the time of such Reorganization. Such notice shall be effective when mailed to the Grantee by certified or registered mail addressed to him or her at the Grantee's address of record or when delivered in hand to the Grantee. Following such notice all outstanding Options other than Options as to which one of the events referred to -10- in Sections 5(f)(ii) or (iii) of the Plan has occurred, may be exercised, in whole or in part, and all outstanding Options as to which one of the events referred to in Sections 5(f)(ii) or (iii) of the Plan has occurred may be exercised, but only to the extent therein permitted, and only at any time prior to such Reorganization. 8. Restrictions on Transfer of Stock --------------------------------- The shares of Common Stock issued on exercise of the Option shall be subject to any restrictions on transfer the in effect pursuant to the Certificate of Incorporation or By-laws of the Company and to any other restrictions or provisions attached hereto and made a part hereof or set forth in any other contract or agreement binding on the Grantee. 9. Notice Concerning Federal Income Taxation ----------------------------------------- As the Option granted hereby is a non-incentive stock option (a "NISO"), the holder will recognize compensation income for regular federal income tax purposes on the date this option is exercised in the amount by which the fair market value of the shares on the date of exercise exceeds the option price. The holder must remit both federal and -11- state withholding taxes to the Company with respect to compensation income realized on the purchased shares. Optionees are urged to review the Prospectus for the offering under which the Option is granted for a more detailed discussion of current Federal tax law governing NISOs. (CORPORATE SEAL) NEW ENGLAND BUSINESS SERVICE, INC. By: /s/ Russell V. Corsini ----------------------- Russell V. Corsini Vice President - Finance The foregoing Option is hereby accepted subject to all of the terms and conditions set forth herein, the provisions set forth in the New England Business Service, Inc., Key Employee Stock Option and Stock Appreciation Rights Plan dated October 26, 1990, a copy of which attached hereto, and such conditions and limitations as the Company's Board of Directors or Stock Option Committee may impose in accordance with the Plan. /s/ William C. Lowe -------------------- Grantee -12- EX-13 9 ANNUAL REPORT TO STOCKHOLDERS 1994 THIS DOCUMENT IS A COPY OF THE ANNUAL REPORT TO STOCKHOLDERS, FILED ON SEPTEMBER 12, 1994 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION. [LOGO OF NEBS APPEARS HERE] ANNUAL REPORT 1994 THE NATION'S LEADING SUPPLIER OF BUSINESS FORMS FOR SMALL BUSINESS (PHOTO) NEBS Customers: Jane and Gene Behrens Avenida Art Gallery Calgary, Alberta ABOUT NEBS NEBS is the nation's leading supplier of business forms and other printed and related products for small businesses. The Company's primary method for reaching its market is by mail direct to the end user. During 1994, 1,285,000 small businesses purchased one or more NEBS products. The NEBS product line is comprised of standardized and customized business forms, stationery and related products for both manual and computer applications. In addition, the Company markets a broad line of printed promotional materials and proprietary accounting software targeted to small businesses. In a typical week, the Company's seven production facilities located in the US, Canada and the UK receive and process approximately 50,000 orders with an average order value of approximately $100. NEBS has retained its long standing market leadership by providing the products small businesses need, at low prices, with high quality and outstanding service to its customers. FINANCIAL HIGHLIGHTS
(In thousands of dollars except per share amounts) - ---------------------------------------------------------------------- For the Fiscal Year Ended June 24, 1994 (A) June 25, 1993 - ---------------------------------------------------------------------- Net Sales $251,253 $237,144 Income Before Income Taxes 27,599 24,090 Net Income 15,563 14,217 Earnings Per Share $ 1.01 $ .93 Dividends Per Share .80 .80 - ---------------------------------------------------------------------- Operating Statistics - ---------------------------------------------------------------------- Return on Stockholders' Equity 15.6% 15.0% Income Before Income Taxes as a Percent of Sales 11.0% 10.2% Net Income as a Percent of Sales 6.2% 6.0% Working Capital $ 55,196 $ 43,673 Stockholders' Equity 99,479 94,668 Book Value Per Share $ 6.43 $ 6.19 - ----------------------------------------------------------------------
(A) Included in the 1994 results is a $5.45 million pretax charge, or $.21 per share, related to a restructuring program. (PHOTO) (PHOTO) Avenida Art Gallery... Portrait of a Successful NEBS Customer When Jane Behrens started a modest gallery and framing shop from her home in 1989, she never dreamed that one day her husband, Gene, would join her full time and they would employ more than 15 people. Over the past five years there have been a number of improvements in how they do business. The one constant, however, has been their reliance on NEBS to help project an artistic, tasteful image. We asked the Behrenses to explain. "NEBS helped us develop a personalized image that fits our business. Our custom labels, which we adhere to the back of every frame, present a professional look and help us bring in repeat business. We also use our logo on NEBS invoices for a coordinated look which, in our business, is important to project." Responding to why they've become loyal NEBS customers, the Behrenses cited the quality, accuracy and the speed with which NEBS handles every order. "We'll stay with NEBS because we know they'll always get our order right and on time!" About this year's Annual Report... In this year's Annual Report, we would like to share with you some of the many ways we have applied innovative technology to help us meet and even exceed our customers' expectations. From our electronic storage of logo images which guarantees quality reproductions to our powerful new computer and telephone systems which improve customer service to the ultra-fast turnaround and competitive pricing new technology supports, we invite you to explore how NEBS technology responds. 1 TO OUR STOCKHOLDERS FINANCIAL PERFORMANCE We are pleased to report the Company's financial performance strengthened for the year. Sales increased 6% to a record $251,253,000 and represented the strongest year-over-year performance since 1989. Earnings increased 9.5% to $15,563,000 while earnings per share increased to $1.01 from last year's $.93. Earnings for the year were impacted by a $.21 restructuring charge while those of the final quarter reflected the full benefit of the related cost savings. The Company's financial condition remained strong. Cash and short term investments increased 46% to $40,988,000, an increase of $12,870,000 over the prior year. Return on stockholders' equity increased to 15.6% and dividends were paid for the 31st consecutive year. THE HIGHLIGHTS 1994 was a rewarding year for the Company. Sales strengthened and customers served increased 6% to 1,285,000. Earnings, at the fourth quarter run rate, rebounded significantly from recent years. The primary factors which drove these favorable results are highlighted below. BASE BUSINESS STABILIZED Following several difficult years, sales of the Company's standardized manual forms and checks, labels, stationery and related product lines stabilized during the year. The gradually improving domestic small business economy was one of the key forces driving this improvement. Additionally, effective product line management, new product introductions and more targeted direct mail and dealer promotional programs were important contributing factors to the improved performance of these important product lines. COMPUTER PRODUCTS GROWTH Sales of the Company's computer forms, checks, One-Write Plus(R) and other NEBS proprietary small business accounting software and related products continued their strong record of growth. During the year, these computer related products were sold directly by mail and indirectly through the Company's dealer network and others to over 350,000 small businesses. OPERATIONS ENHANCED The Company takes great pride in its ability to respond to the 45,000 customers who order weekly with fast service at low cost. During the year, customer service was further enhanced through a variety of programs which shortened order cycle time and improved customer access through the Company's toll-free telephone lines. Technology played a key role in these gains which included the implementation of a direct to plate imaging system, the installation of call routing technology, an integrated PC and mainframe sales system in telemarketing and the completion of a new electronic storage system for customer artwork. COST STRUCTURE IMPROVED Earnings for the year grew well in excess of the growth in sales. Contributing to the increased profitability were more effective marketing programs, stable material costs and the leverage of additional sales on fixed costs. In addition, the margin improvement was supported by the successful restructuring program. A number of cost reduction measures were taken including the realignment of the Company's marketing and manufacturing organizations. THE SUBSIDIARIES The sales performance of the Company's Canadian and UK subsidiaries was impacted by the continuing weak economies in both countries. However, with the introduction of new products and other marketing programs, we are anticipating improved sales results in these units. SYCOM, the Company's domestic subsidiary, refocused its marketing efforts which enhanced its profitability considerably. In summary, the improved financial performance for the year reflected the favorable results of a broad array of marketing initiatives and cost reduction programs against the backdrop of a gradually improving domestic small business economy. The benefits of these initiatives and programs will continue to support the Company's performance as it goes forward. 2 THE FUTURE Looking to the future, opportunity is emerging from the ever changing needs and preferences of the small business market as well as from new printing and related technologies. The Company's customer base of 1,285,000 small businesses positions it well to capitalize on these dynamics. Further, the magnitude of the Company's market is significant. Small businesses are estimated to consume in excess of $10 billion of short-run printed products annually. The Company's short-run printing and order fulfillment capability will be extended to target new segments of this large market. Computerization of the small business represents a large and growing market for the Company's computer forms, software and related product lines and services. Although computerization and related technologies will continue to influence the demand for selected manual forms, the overall impact of technology on the Company's product lines and operations is anticipated to be a positive one. Another important market trend relates to the fact that small businesses are becoming increasingly discerning, sophisticated and desirous of creating and promoting their own distinctive images. New design, composition and printing technologies are facilitating the fulfillment of these emerging customer needs. We believe this growing interest in image-conveying products has the potential to be significant and we plan to make the required investments in equipment, systems and skills to capitalize upon it. GOALS FOR 1995 Looking ahead to 1995, our goals for the year are to continue to make important investments in the future development of the business, to achieve continued growth in earnings and a record level of sales. The Company's 1994 financial performance and the many successful initiatives implemented during the year provide us with confidence that these objectives can and will be achieved. WORDS OF THANKS What provides us with our greatest promise for the future is the talent and dedication of the Company's 2,083 employees located in the US, Canada and the UK. Their unhesitating willingness to always go the extra mile has made and will continue to make a real and positive difference. We are proud to be associated with them. Finally, we thank you our Stockholders for your continued support of and interest in this business. Serving your best long term interests always has been and continues to be our primary objective. (PHOTO) (PHOTO) /s/ Richard H. Rhoads /s/ William C. Lowe Richard H. Rhoads William C. Lowe Chairman President, Chief Executive Officer September 9, 1994 3 THE NEBS STORY OVERVIEW NEBS, founded over 40 years ago, is the nation's leading supplier of business forms and products designed to satisfy the highly specialized needs of the vast small business market. The Company's primary method of distribution is mail order direct to the ultimate small business user. During 1994, NEBS served 1,285,000 small businesses in the United States, Canada, and the United Kingdom. FINANCIAL RECORD Over the past ten years, NEBS consolidated sales grew from slightly over $125,000,000 to a record level of $251,253,000 in 1994. The Company enjoys strong profit margins, return on equity and cash flow. Cash dividends have been paid for 31 consecutive years. NEBS PRODUCT LINE The NEBS product line consists primarily of standardized business forms such as invoices, statements, checks and purchase orders used by most small businesses. Many of these forms are available on recycled paper. NEBS also markets an array of other printed products including greeting crds, stationery, business cards, advertising and mailing labels and other promotional products. In addition to the standardized forms used by most businesses, the Company markets highly targeted forms and related products designed to meet the needs of specific small business segments. Examples include repair tags for bicycle shops, estimating forms for electrical contractors, appraisal forms for jewelry stores, greeting cards for realtors and insurance agents, as well as important companion products such as portable registers, envelopes and drawing boards. (continued) (PHOTO) "Competitive prices on the forms we need. That's why my grandmother chose NEBS and why 2 generations later we're still loyal" Dan Wolfe, West Point Lumber & Hardware, Valley Station, Kentucky 4 (PHOTO) NEBS Technology Responds... Providing businesses like Dan's with the same old fashioned value today requires some high-tech thinking especially for low quantity needs. The solution -- employ high-speed, long-run printing presses for the base form and specialized short-run equipment for personalized imprinting. This cutting- edge equipment customized by our team of engineers promises NEBS will be the supplier of choice for generations to come. 5 THE NEBS STORY NEBS also markets a full line of products for the growing number of small businesses computerizing one or more of their business functions. NEBS computer forms (invoices, statements, and checks) are compatible with all the major accounting software packages used by small businesses. The Company also offers a full line of proprietary software to help computer users fill out a broad range of NEBS forms and related products. Additionally, the Company markets the NEBS One-Write Plus software package designed specifically to meet the accounting needs of small businesses. Further, NEBS offers customized business forms for both manual and computer applications. Customized manual forms allow the Company to offer products to businesses when their needs or preferences are unique. Continuous custom forms provide small businesses with forms compatible with virtually any software package they use. Significantly, the Company's product line is both critical for the functioning of the customer's business and consumable. Therefore, the initial installation of most of the Company's products tends to provide a continuing revenue stream as the initial order is consumed and subsequent reorders are placed. As selling expenses for reorders are minimal, they are far more profitable than initial orders. Over 80% of the Company's sales originate from customers who previously have purchased from NEBS. NEBS Small Business Market NEBS focuses primarily on the small end of the overall business market, i.e. those businesses with 20 or fewer employees. NEBS customers include small retail shops, auto (continued) (PHOTO) "Excellent products and delivery. Sometimes it surprises us how fast NEBS can get products to us." Richard & Wilma Hinderleiter, Valley Pie Company, Phoenix, Arizona 6 (PHOTO) NEBS Technology Responds... Customers like Richard and Wilma are in for more surprises. With our new auto- sequencing presses we've reduced the time it takes to produce an order. With interactive voice technologies customers can call for automated information about their order, right down to the expected delivery time. And, best of all, our new electronic systems bypass labor-intensive manual steps so we can keep prices down and speed delivery even more. 7 THE NEBS STORY service stations, contractors, photographers and florists, the offices of doctors and dentists as well as small manufacturers and wholesalers. There are an estimated 10,000,000 small businesses within the three countries in which the Company operates (US, Canada, UK). During 1994, the Company sold one or more of its products to 1,285,000 of these businesses. Important aspects of the Company's small business market are the large number of prospective customers it provides, as well as its diversity, both geographically and by type of business. Further, as each individual customer has relatively minimal forms requirements, no one customer is critical to the Company's overall sales performance. NEBS Marketing and Distribution Channels The major portion of the Company's sales are generated by mail order catalogs and other promotional materials mailed by the Company to its customers and prospective customers. During a typical year, the Company mails over 50,000,000 catalogs and other promotional materials. At any one time there can be as many as 20 different NEBS catalogs in circulation. The Company compiles and maintains a database of over 8,000,000 small businesses in its national and international markets. These lists are segmented in a multitude of ways to ensure the most effective mailings. In addition, the Company rents lists from outside sources. The Company maintains a staff of over 200 knowledgeable telephone sales representatives who receive incoming (continued) (PHOTO) "I faxed my check order for the first time and couldn't believe it. Why, in 3 days it was at my door!" Karen Lautzenheiser, Dixie Vac Service, Inc., Louisville, Kentucky 8 (PHOTO) NEBS Technology Responds... We still manage to amaze and please even 20 year customers like Karen simply by keeping abreast with the latest technological advances. Utilizing state-of-the- art fax technology customers can now reach us at their convenience, 24 hours a day. What's more, within one hour after their fax arrives, their order can be on its way to electronic processing. For most products, imprinting and shipping takes place the very next day making NEBS the leader in speed and delivery of imprinted products. 9 THE NEBS STORY telephone orders and place outgoing sales calls to current and prospective customers. The Company's DFS unit markets a specifically designed version of its product line through a broad array of dealers including local printers, business forms dealers and computer stores. The Company also has access to the One-Write Plus network of software distributors and retailers. The Company believes its current three methods of distribution (mail order, phone, dealers) enable it to serve its customers effectively however and wherever they prefer to do business. However, the Company continually evaluates alternative marketing and distribution channels to better serve its market. Operations In a typical week, NEBS receives, processes, prints and ships approximately 50,000 orders from its seven production facilities. The Company's policy is to ship most orders within two working days. Next day shipment service and express delivery are available upon request for most product lines. To provide its customers with business forms and other printed products in small quantities at low prices, NEBS employs high-speed, long-run printing presses for the base forms and specialized short-run equipment for personalized imprinting and other customer required variable data. Much of the imprinting equipment is designed or modified by the Company's engineers for its specialized applications. The Company's commitment to creating customer goodwill drives its continual search for ways to reduce costs, improve quality and speed delivery, all backed by a 100% guarantee of satisfaction. (continued) (PHOTO) "NEBS One-Write Plus. It's great! Easier than any other software we've ever tried!" James and Jenna Auxier, Lawnmower Headquarters, West Palm Beach, Florida 10 (PHOTO) NEBS Technology Responds... The Auxiers, NEBS customers since 1982, are putting the power of the computer to work for their business. They've chosen NEBS software because it helps them perform all their accounting functions faster and easier than ever before. Technology is at work for us and now through our software it is working just as hard for our customers. 11 THE NEBS STORY The Future The needs and preferences of the small business market always have been and continue to be in a state of evolution and transition. One constant, however, has been the need of small businesses to find new ways to prosper in their increasingly competitive marketplace. NEBS challenge is not only to keep up with, but also to foresee, these changing needs and preferences. The Company is committed to doing so and believes its over 40 years of accumulated insight into this market together with the application of emerging technologies will enable it to meet this challenge. Most critically however, the Company will continue to capitalize on its two most significant strengths . . . its talented group of 2,083 employees and the goodwill of its over 1,285,000 small business customers located throughout the United States, Canada and the United Kingdom. (PHOTO) "The best value for computer checks. And so easy to reorder! I call, mention my name and they do the rest." Elaine Warner, Skillins Green House, Falmouth, Maine 12 (PHOTO) NEBS Technology Responds... Offering value and service are the ways Skillins, a fourth generation business, stays successful and competitive. Value and service are also key at NEBS. That's why we've invested in powerful PC telemarketing workstations. At the touch of a key, our order-entry reps can call up the customer's sales history, product illustrations, even a list of compatible products. 13 ELEVEN YEAR SUMMARY NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
(In thousands of dollars except per share amounts and other statistics) - -------------------------------------------------------------------------------------------------------------------- For the Fiscal Year Ended June 24, 1994 (B) June 25, 1993 June 26, 1992 June 28, 1991 June 29, 1990 - -------------------------------------------------------------------------------------------------------------------- INCOME STATISTICS (A) Net Sales $251,253 $237,144 $232,435 $231,838 $233,113 Income before income taxes and accounting changes 27,599 24,090 24,862 34,095 33,415 Percent of sales 11.0% 10.2% 10.7% 14.7% 14.3% Taxes on income 12,036 9,873 8,925 13,765 12,792 Percent of sales 4.8% 4.2% 3.8% 5.9% 5.5% Income from continuing operations before accounting changes 15,563 14,217 15,937 20,330 20,623 Percent of sales 6.2% 6.0% 6.9% 8.8% 8.8% Percent of stockholders' equity 15.6% 15.0% 16.9% 18.9% 19.9% Per common share 1.01 0.93 1.02 1.24 1.23 Net Income 15,563 14,217 15,471 20,330 21,148 Percent of sales 6.2% 6.0% 6.7% 8.8% 9.1% Percent of stockholders' equity 15.6% 15.0% 16.4% 18.9% 20.4% Per common share 1.01 0.93 0.99 1.24 1.26 Dividends per common share 0.80 0.80 0.80 0.80 0.76 - ------------------------------------------------------------------------------------------------------------------ BALANCE SHEET STATISTICS Current assets 85,288 68,966 74,784 87,468 84,311 Current liabilities 30,092 25,293 25,649 24,094 21,596 Working capital 55,196 43,673 49,135 63,374 62,715 Current Ratio 2.8 2.7 2.9 3.6 3.9 Total Assets 131,691 120,624 121,056 133,602 130,280 Long-term debt 0 0 0 0 3,319 Stockholders' equity 99,479 94,668 94,124 107,802 103,858 Average common shares outstanding 15,364 15,269 15,664 16,342 16,835 Book value per common share 6.43 6.19 6.18 6.61 6.17 - ------------------------------------------------------------------------------------------------------------------ OTHER FINANCIAL STATISTICS Capital expenditures 6,054 6,475 9,669 9,166 8,818 Depreciation and amortization 11,623 9,953 9,531 9,001 8,689 Profit sharing contribution 3,133 2,891 3,296 4,273 4,271 - ------------------------------------------------------------------------------------------------------------------- OTHER STATISTICS (A) Number of employees 2,083 2,217 2,180 2,045 2,154 Number of stockholders 5,700 5,400 4,100 3,700 3,600 Number of active customers 1,285,000 1,210,000 1,195,000 1,173,000 1,179,000 Facilities (in square feet) 794,000 793,000 768,000 765,000 765,000
Average common shares outstanding have been retroactively adjusted for stock splits of 2-for-1 in November 1983, and 2-for-1 in November 1986. (A) Years from 1984 through 1989 have been restated to eliminate a discontinued operation. (B) Included in the 1994 results is a $5.45 million pretax charge, or $.21 per share, related to a restructuring program. 14
- ------------------------------------------------------------------------------------------------------------------------------- For the Fiscal Year Ended June 30, 1989 June 24, 1988 June 26, 1987 June 27, 1986 June 28, 1985 June 29, 1984 - ------------------------------------------------------------------------------------------------------------------------------- INCOME STATISTICS (A) Net Sales $225,931 $202,423 $172,574 $158,927 $142,765 $127,309 Income before income taxes and accounting changes 39,109 36,804 36,852 32,009 22,782 24,981 Percent of sales 17.3% 18.2% 21.4% 20.1% 16.0% 19.6% Taxes on income 15,074 14,500 17,936 15,654 10,630 12,600 Percent of sales 6.7% 7.2% 10.4% 9.8% 7.4% 9.9% Income from continuing operations before accounting changes 24,035 22,304 18,916 16,355 12,152 12,381 Percent of sales 10.6% 11.0% 11.0% 10.3% 8.5% 9.7% Percent of stockholders' equity 23.6% 22.8% 22.7% 23.7% 21.6% 26.4% Per common share 1.40 1.29 1.10 0.96 0.72 0.73 Net Income 22,189 22,431 19,130 16,893 12,979 13,034 Percent of sales 9.8% 11.1% 11.1% 10.6% 9.1% 10.2% Percent of stockholders' equity 21.8% 22.9% 23.0% 24.5% 23.1% 27.8% Per common share 1.29 1.30 1.12 0.99 0.76 0.77 Dividends per common share 0.66 0.54 0.44 0.29 0.25 0.22 - ------------------------------------------------------------------------------------------------------------------------------- BALANCE SHEET STATISTICS Current assets 84,398 80,256 69,956 62,321 48,141 43,998 Current liabilities 20,020 17,949 18,718 17,524 14,175 13,614 Working capital 64,378 62,307 51,238 44,797 33,966 30,384 Current Ratio 4.2 4.5 3.7 3.6 3.4 3.2 Total Assets 130,238 123,566 111,009 94,057 81,723 74,756 Long-term debt 6,688 5,720 6,938 6,099 9,879 13,598 Stockholders' equity 101,897 97,995 83,340 68,900 56,163 46,936 Average common shares outstanding 17,193 17,265 17,138 17,056 16,996 16,928 Book value per common share 5.93 5.67 4.84 4.04 3.30 2.77 - ------------------------------------------------------------------------------------------------------------------------------- OTHER FINANCIAL STATISTICS Capital expenditures 11,123 9,366 3,699 2,876 10,085 9,011 Depreciation and amortization 8,195 7,109 5,233 4,722 3,514 2,395 Profit sharing contribution 4,792 4,245 3,618 3,236 2,395 2,260 - ------------------------------------------------------------------------------------------------------------------------------- OTHER STATISTICS (A) Number of employees 2,002 1,928 1,797 1,632 1,745 1,636 Number of stockholders 3,600 2,700 2,600 2,500 2,200 983 Number of active customers 1,125,000 1,064,000 977,000 916,000 909,000 856,000 Facilities (in square feet) 748,000 689,000 679,000 623,000 623,000 510,000
15 CONSOLIDATED BALANCE SHEETS NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
June 24, 1994 and June 25, 1993 (in thousands except share data) - ----------------------------------------------------------------------------------------------------------------------------------- Assets Notes June 24, 1994 June 25, 1993 - ----------------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 1 $ 3,456 $ 10,061 Short-term investments - at cost 1 37,532 18,057 Accounts receivable (less allowance for doubtful accounts of $3,012 in 1994 and $2,944 in 1993) 1 27,963 26,707 Inventories 1 7,740 8,663 Direct mail advertising materials 1 1,698 1,391 Prepaid expenses 1,439 1,925 Deferred income tax benefit 1,10 5,460 2,162 - ----------------------------------------------------------------------------------------------------------------------------------- Total current assets 85,288 68,966 - ----------------------------------------------------------------------------------------------------------------------------------- Property and Equipment: 1,3 Land and buildings 38,417 37,778 Less accumulated depreciation 18,849 17,144 - ----------------------------------------------------------------------------------------------------------------------------------- Net 19,568 20,634 - ----------------------------------------------------------------------------------------------------------------------------------- Equipment 66,648 64,621 Less accumulated depreciation 48,525 44,145 - ----------------------------------------------------------------------------------------------------------------------------------- Net 18,123 20,476 - ----------------------------------------------------------------------------------------------------------------------------------- Property and equipment - net 37,691 41,110 - ----------------------------------------------------------------------------------------------------------------------------------- Other Assets (less accumulated amortization of $9,057 in 1994 and $6,719 in 1993) 1,2 8,712 10,548 - ----------------------------------------------------------------------------------------------------------------------------------- Total $131,691 $120,624 ===================================================================================================================================
See notes to consolidated financial statements. 16
June 24, 1994 and June 25, 1993 (in thousands except share data) - ----------------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Notes June 24, 1994 June 25, 1993 - ----------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Accounts payable 3 $ 6,702 $ 7,039 Federal and state income taxes 1,10 2,519 1,580 Accrued profit-sharing distribution 6 2,627 2,114 Accrued payroll expense 5,466 5,454 Accrued employee benefit expense 7,8 5,637 5,237 Deferred revenue 1 1,233 753 Accrued restructuring charge 9 1,887 Other accrued expenses 4,021 3,116 - ----------------------------------------------------------------------------------------------------------------------------------- Total current liabilities 30,092 25,293 - ----------------------------------------------------------------------------------------------------------------------------------- Deferred Grants 1 326 317 - ----------------------------------------------------------------------------------------------------------------------------------- Deferred Income Taxes 1,10 1,794 346 - ----------------------------------------------------------------------------------------------------------------------------------- Commitments and Contingencies 3 Stockholders' Equity: Preferred stock 4 Common stock, par value, $1 per share -- authorized, 40,000,000 shares; issued, 15,571,803 shares in 1994 and 15,408,979 shares in 1993 4,5 15,572 15,409 Additional paid-in capital 9,480 7,090 Cumulative foreign currency translation adjustment 1 (2,152) (1,057) Retained earnings 78,306 75,033 - ----------------------------------------------------------------------------------------------------------------------------------- Total 101,206 96,475 - ----------------------------------------------------------------------------------------------------------------------------------- Less treasury stock, at cost -- 105,584 shares in 1994 and 117,795 shares in 1993 4 (1,727) (1,807) - ----------------------------------------------------------------------------------------------------------------------------------- Stockholders' equity (outstanding, 15,466,219 shares in 1994 and 15,291,184 shares in 1993) 99,479 94,668 - ----------------------------------------------------------------------------------------------------------------------------------- Total $131,691 $120,624 ===================================================================================================================================
17 STATEMENTS OF CONSOLIDATED INCOME NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
FOR THE FISCAL YEARS ENDED JUNE 24, 1994, JUNE 25, 1993 AND JUNE 26, 1992 (IN THOUSANDS EXCEPT PER SHARE DATA) - ------------------------------------------------------------------------------------------------------------------------- Notes 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------- NET SALES 1 $ 251,253 $237,144 $232,435 OPERATING EXPENSES: 1 Cost of sales including shipping costs 92,166 90,370 87,164 Selling and advertising 67,685 70,957 71,266 General and administrative 6,7,8 59,607 53,016 51,290 Restructuring charge 9 5,450 - ------------------------------------------------------------------------------------------------------------------------- Total operating expenses 224,908 214,343 209,720 - ------------------------------------------------------------------------------------------------------------------------- INCOME FROM OPERATIONS 26,345 22,801 22,715 - ------------------------------------------------------------------------------------------------------------------------- OTHER INCOME (EXPENSE): Investment income 1,254 1,307 2,421 Interest expense (18) (274) - ------------------------------------------------------------------------------------------------------------------------- Total other income 1,254 1,289 2,147 - ------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 27,599 24,090 24,862 PROVISION FOR INCOME TAXES 1,10 12,036 9,873 8,925 - ------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 15,563 14,217 15,937 CUMULATIVE EFFECT OF ACCOUNTING CHANGE -- NET OF TAXES 1,8 (466) - ------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 15,563 $ 14,217 $ 15,471 ========================================================================================================================= PER SHARE AMOUNTS: 1 Income Before Cumulative Effect of Accounting Change $ 1.01 $ .93 $ 1.02 Cumulative Effect of Accounting Change -- Net of Taxes (.03) - ------------------------------------------------------------------------------------------------------------------------- Net Income $ 1.01 $ .93 $ .99 ========================================================================================================================= Dividends $ .80 $ .80 $ .80 ========================================================================================================================= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 1 15,364 15,269 15,664 =========================================================================================================================
See notes to consolidated financial statements. 18 STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
FOR THE FISCAL YEARS ENDED JUNE 24, 1994, JUNE 25, 1993 AND JUNE 26, 1992 (IN THOUSANDS) - ------------------------------------------------------------------------------------------------------------------------------------ Common Stock Cumulative ------------------- Foreign Number At Par Additional Currency of Value Paid-In Treasury Translation Retained Notes Shares Amount Capital Stock Adjustment Earnings - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, JUNE 28, 1991 16,320 $16,320 $ 5,822 $ (20) $ 1,147 $84,533 Issuance of common stock to employees pursuant to stock plans 5,6 77 77 1,086 122 Dividends paid (12,631) Acquisition of treasury stock 4 (17,841) Retirement of treasury stock 4 (1,000) (1,000) 15,340 (14,340) Foreign currency translation adjustment 38 Net income 15,471 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, JUNE 26, 1992 15,397 15,397 6,908 (2,399) 1,185 73,033 Issuance of common stock to employees pursuant to stock plans 5,6 12 12 182 592 Dividends paid (12,217) Foreign currency translation adjustment (2,242) Net income 14,217 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, JUNE 25, 1993 15,409 15,409 7,090 (1,807) (1,057) 75,033 Issuance of common stock to employees pursuant to stock plans 5,6 163 163 2,390 80 Dividends paid (12,290) Foreign currency translation adjustment (1,095) Net income 15,563 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, JUNE 24, 1994 15,572 $15,572 $ 9,480 $ (1,727) $ (2,152) $78,306 ====================================================================================================================================
See notes to consolidated financial statements. 19 STATEMENTS OF CONSOLIDATED CASH FLOWS NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
FOR THE FISCAL YEARS ENDED JUNE 24, 1994, JUNE 25, 1993 AND JUNE 26, 1992 (IN THOUSANDS) - -------------------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $15,563 $14,217 $15,471 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,623 9,953 9,531 Deferred income taxes (1,946) (540) (478) Restructuring charge 1,887 Provision for losses on accounts receivable 2,799 2,815 3,404 Provision for pension cost 403 300 303 Provision for postretirement benefits 62 70 818 Deferred grants (6) (73) 72 Changes in assets and liabilities: Accounts receivable (4,630) (3,207) (3,777) Inventories and advertising material 462 2,293 (159) Prepaid expenses 376 535 (367) Accounts payable (277) (223) 727 Income taxes payable 928 (845) 2,330 Other accrued expenses 2,417 (375) 520 - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 29,661 24,920 28,395 - -------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (6,054) (6,475) (9,669) Acquisition of product line (334) (9,750) Short-term investments (20,093) 2,141 15,808 - -------------------------------------------------------------------------------------------------------------------------------- Net cash (used) provided by investing activities (26,481) (14,084) 6,139 - -------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowing 10,181 Repayment of debt (41) (123) (13,324) Proceeds from issuing common stock 2,633 786 1,285 Purchase of treasury stock (17,841) Dividends paid (12,290) (12,217) (12,631) - -------------------------------------------------------------------------------------------------------------------------------- Net cash used by financing activities (9,698) (11,554) (32,330) - -------------------------------------------------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE ON CASH (87) (157) 38 - -------------------------------------------------------------------------------------------------------------------------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (6,605) (875) 2,242 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 10,061 10,936 8,694 - -------------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,456 $10,061 $10,936 ================================================================================================================================ SUPPLEMENTAL CASH FLOW DISCLOSURE: Income taxes paid $13,425 $10,995 $ 7,652 ================================================================================================================================ Interest paid $ 0 $ 118 $ 191 ================================================================================================================================ On January 15, 1993, the Company purchased the One-Write Plus product line and assumed certain liabilities of MECA Software, Inc. for $9,750 cash. In conjunction with the acquisition, liabilities were assumed as follows: Fair value of assets acquired: Tangible assets $ 859 Other assets 9,975 Deferred revenue on support contracts (791) Cash paid (9,750) - -------------------------------------------------------------------------------------------------------------------------------- Liabilities assumed $ 293 ================================================================================================================================
See notes to consolidated financial statements. 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF CONSOLIDATION The financial statements are consolidated to include the accounts of New England Business Service, Inc. (the "Company") and its wholly-owned subsidiaries. The Company and its subsidiaries operate primarily in a single industry segment consisting of the sale of business forms and related software and other types of printed business products. The accounts of the Company's foreign entities have been translated into U. S. dollars in accordance with Statement of Financial Accounting Standards No. 52. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS The Company considers its holdings in short-term money market accounts and certificates of deposit with an original maturity to the Company of three months or less to be cash equivalents. Short-term investments are stated at cost which approximates market value. Short-term investments are primarily tax-exempt municipal debt instruments which have a fixed maturity beyond three months. In addition, the Company has other tax-exempt municipal debt instruments redeemable at par value through a put option which can be exercised by the Company at time periods of one week to one year. PROVISION FOR DOUBTFUL ACCOUNTS For doubtful customer accounts, a provision is recorded equal to a percentage, based upon experience of open account sales. This percentage was approximately 1.0% during the fiscal year ended June 24, 1994, approximately 1.2% during the fiscal year ended June 25, 1993, and approximately 1.5% during the fiscal year ended June 26, 1992. INVENTORIES Inventories are carried at the lower of first-in, first-out cost or market. At year end, inventories consisted of:
1994 1993 - --------------------------------------------------------------------------- Raw paper $ 721,000 $ 781,000 Business forms and related office products 7,019,000 7,882,000 - --------------------------------------------------------------------------- Total $7,740,000 $8,663,000 ===========================================================================
DIRECT MAIL ADVERTISING MATERIALS Direct mail advertising materials are carried at cost and expensed as used. PROPERTY AND EQUIPMENT Property and equipment are carried at cost. Depreciation is computed over the estimated useful lives (three to twenty years) of the assets using the straight-line method. OTHER ASSETS Other assets consisting principally of purchased customer lists, acquired software, tradename, covenant not to compete, goodwill and customer and other contracts are amortized on a straight-line basis over their estimated lives ranging from five to twenty years. REVENUE RECOGNITION Revenue is recognized from sales other than software support contracts when a product is shipped. Revenue on software support contracts is recognized ratably over the contract period, generally twelve months. Insignificant vendor and post contract support obligations, if any, are recognized upon shipment. MAILING LISTS Costs of compiling and maintaining mailing lists are charged to costs and expenses as incurred. CAPITALIZED SOFTWARE DEVELOPMENT COSTS AND PURCHASED SOFTWARE The Company follows Statement of Financial Accounting Standards No. 86, "Accounting for the Cost of Computer Software to be Sold, Leased, or Otherwise Marketed" ("SFAS No. 86"). Costs incurred prior to the establishment of technological feasibility, as defined in SFAS No. 86, are charged to research and development expense. Software development costs are capitalized from the establishment of technological feasibility until the product is available for general release. Development costs associated with product enhancements that extend the original product's life or significantly improve the original product's marketability are also capitalized if technological feasibility of the enhancement has been established. Software purchased as part of a business acquisition is recorded at its estimated fair value. Amortization of capitalized software development costs is provided on a product-by-product basis at the greater of the amount computed using (a) the ratio of current gross revenues for a product to the total of current and anticipated future gross revenues or (b) the straight-line method over the remaining estimated economic life of the product. No software development costs were capitalized in 1994, 1993 or 1992. Purchased software costs acquired in connection with the acquisition of the One-Write Plus product line are being amortized in accordance with the provisions of SFAS No. 86. Amortization expense of $1,383,000 and $553,000 was charged to operations in fiscal 1994 and 1993, respectively. Unamortized costs of $4,849,000 and $5,475,000 are included in other assets at June 24, 1994 and June 25, 1993, respectively. INCOME TAXES Effective June 26, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). This statement supersedes Statement of Financial Accounting Standards No. 96, "Accounting for Income Taxes," which was adopted by the Company in 1990. The cumulative effect of adopting SFAS No. 109 was not significant to the Company's financial statements. The adoption did result in certain reclassifications of deferred tax assets and liabilities. Deferred income taxes primarily represent the income tax effect of the difference between straight-line depreciation recorded for financial reporting purposes and accelerated depreciation deducted for tax purposes, and the effects of the income tax treatment of items such as pensions, postretirement benefits other than pensions, vacation expense, restructuring charge and the provisions for doubtful accounts and sales returns. DEFERRED GRANTS Deferred grants represent unearned income related to government grants to fund employee hiring, training and capital investment in the United Kingdom. Grants are recognized in income in the year in which related employee hiring and training costs are incurred or over the life of the related capital investment. PER SHARE AMOUNTS Net income per share amounts are computed based upon the weighted average number of shares of common stock outstanding during each fiscal year. Shares issuable under common stock options have been excluded from the computations since their inclusion would have no significant dilutive effect. 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES CONCENTRATION OF CREDIT RISK The Company extends credit to customers on an unsecured basis in the normal course of business. No individual industry or industry segment is significant to the Company's customer base. The Company has policies in place governing the extension of credit and collection of amounts due from customers. FAIR VALUE OF FINANCIAL INSTRUMENTS The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments" which requires the disclosure of fair value of most financial instruments, both assets and liabilities, for which it is practical to estimate fair value. The statement is required to be adopted no later than fiscal 1996. The date of adoption has not been determined. INVESTMENTS IN DEBT AND EQUITY SECURITIES The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" which addresses the accounting and reporting of such investments. The statement is required to be adopted no later than fiscal 1995. The Company plans to adopt this statement in the first quarter of fiscal 1995. POSTEMPLOYMENT BENEFITS The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" which is required to be adopted by the Company no later than fiscal year 1995. This statement will require accrual of benefits (such as severance benefits) provided by an employer to former or inactive employees and their beneficiaries after employment but before retirement. The costs of these benefits are currently expensed on a pay-as-you-go basis. The impact of this new standard has not been fully determined but is not expected to be material. The Company plans to adopt this statement in the first quarter of fiscal 1995. RECLASSIFICATIONS Certain reclassifications have been made to the 1993 and 1992 financial statements to conform with the 1994 presentation. 2. ACQUISITION OF PRODUCT LINE On January 15, 1993, the Company's wholly- owned subsidiary, NEBS Software, Inc., acquired the One-Write Plus ("OWP") product line from MECA Software, Inc. ("MECA"). The purchase price of the acquisition, including transaction costs, was $9,750,000 cash, plus the assumption of certain liabilities, of which $500,000 was held in escrow subject to final determination of the purchase price. During fiscal year 1994, the purchase price was finalized resulting in total purchase price consideration of $10,282,000. The acquisition was accounted for under the purchase method of accounting and, accordingly, OWP's results of operations are included in the accompanying financial statements from the date of acquisition. The purchase price has been allocated to the net assets acquired based on the fair value of such assets and liabilities. The Company had also entered into a one-year arrangement for research and development management under which MECA could earn up to $1,200,000. This agreement included contingent payments of $1,000,000 of which $350,000 had expired unearned as of June 25, 1993. The remaining $200,000 relates to compensation for management services, of which $100,000 was charged to expense in 1993. During fiscal 1994, the Company negotiated a settlement regarding the termination of the remaining contingent payments under these agreements. Compensation for management services of $17,000 was charged to expense in fiscal 1994. The following summary presents pro forma consolidated results of operations (unaudited) of the Company as if the acquisition of OWP had been consummated at the beginning of the periods presented:
1993 1992 - -------------------------------------------------------------- Net Sales $ 241,786,000 $ 239,108,000 Net Income $ 13,610,000 $ 13,934,000 Net Income Per Share $ .89 $ .89
The pro forma operating results are presented for comparative purposes only and do not purport to present the Company's actual operating results had the acquisition of OWP occurred on the assumed date, or results which may occur in the future. 3. DEBT OBLIGATIONS AND LEASES A line of credit agreement with a major commercial bank allows the Company to borrow up to $10,000,000 at the bank's base lending rate or 3/8% above the Eurodollar rate at the Company's option (5.3% at June 24, 1994). This line may be terminated at any time by either party. At June 24, 1994 and at June 25, 1993, no amounts were outstanding. The capitalized cost of leased equipment, acquired in 1992 and located in the United Kingdom, was $120,000 and $144,000 at June 24, 1994 and June 25, 1993 with related accumulated amortization of $100,000 and $72,000 at June 24, 1994 and June 25, 1993, respectively. The future minimum lease payments of approximately $36,000 in the aggregate are due over the next five years. The final installment on notes payable totaling $14,000 at June 26, 1992 was paid during fiscal 1993. The above amounts relating to notes payable and capitalized leases have been included in accounts payable. The minimum rental commitments for operating leases of certain facilities and equipment total $969,000 in the aggregate, and are payable over the next five years. Total rental expense was $605,000, $300,000 and $233,000, in 1994, 1993, and 1992, respectively. 4. EQUITY TRANSACTIONS On November 10, 1989, the Company issued a stock purchase right to stockholders for each outstanding share of common stock of the Company. Each right becomes exercisable upon occurrence of certain events, as provided in the Rights Agreement, and entitles the registered holder to purchase from the Company a "Unit" solely consisting of one one-hundredth of a share of "Preferred Stock" at a Purchase Price of $75.00 per Unit, subject to adjustment to prevent dilution. In addition, upon the occurrence of certain events, the registered holder will thereafter have the right to receive, upon payment of the Purchase Price, additional shares of common stock and/or cash and/or other securities, as provided in the Rights Agreement. The rights will expire on November 10, 1999. The Company may redeem the rights at a price of $.01 per right. 22 There are 1,000,000 authorized and unissued shares of $1.00 par value preferred stock. On November 14, 1991, pursuant to an agreement, the Company repurchased 1,000,000 shares of its common stock from a current director and former Chairman of the Board of the Company. The Company paid $15.25 per share, the market value on that date. The Company subsequently retired the shares. 5. STOCK OPTIONS At the October 1990 annual meeting, the stockholders ratified the NEBS 1990 Key Employee Stock Option and Stock Appreciation Rights Plan. Under the "1990 Plan," options or stock appreciation rights for up to 1,000,000 shares of common stock may be granted. At June 24, 1994, 122,192 shares are reserved under this plan for granting of future options. Stock options are granted to purchase stock at fair market value as of the date the option is granted. Each option is exercisable in full in one to three years from the date of grant and the options expire no later than ten years from the date of grant. In addition, the plan permits the holder of a stock option to make payment for optioned shares by surrendering shares of the Company's common stock valued at their fair market value on the date of surrender. The Company had an incentive stock option and stock appreciation rights plan under which key employees could be granted stock options or stock options and stock appreciation rights for up to 900,000 shares of common stock. This plan (the "1980 Plan") expired in 1990, although outstanding options are still exercisable. There were no outstanding stock appreciation rights under either of the plans during 1994, 1993 or 1992. A summary of stock option activity under the plans and other arrangements during 1994, 1993, and 1992 is as follows:
1994 1993 1992 - ---------------------------------------------------------------------------------------------------------- Number of shares: Subject to option at beginning of year 918,214 641,843 572,273 Granted during the year 512,073 312,441 147,217 Exercised at $14.50 to $19.75 per share (162,836) (11,657) (52,790) Expired (126,708) (24,413) (24,857) - ---------------------------------------------------------------------------------------------------------- Subject to option at end of year 1,140,743 918,214 641,843 ========================================================================================================== Grant price per share $15.88 - 16.25 $14.75 $19.75 ========================================================================================================== Options outstanding at end of year: Aggregate option price $19,526,000 $16,414,000 $12,417,000 Expiration dates 1994 to 2003 1993 to 2002 1992 to 2001 Shares as to which options are exercisable 691,443 592,560 490,186 Price range of outstanding options $14.50 - 25.25 $14.50 - 25.25 $12.25 - 25.25
6. PROFIT-SHARING PLANS The Company and its subsidiaries have profit-sharing plans for substantially all of their employees who have completed one year of service. Distributions are based on net income and payments are made five times a year and for 1994, 1993, and 1992, distributions under the plans (which were charged to general and administrative expense) aggregated $3,133,000, $2,891,000, and $3,296,000, respectively. The Company also has a deferred profit-sharing and employee stock ownership plan covering substantially all domestic employees who have completed one year of service. At June 24, 1994, 293,707 shares are reserved for issuance under this plan. Contributions to the plan are made by way of participant salary deferrals and Company contributions of shares of common stock equal to one-half of participant deferrals subject to a maximum of 3% of eligible pay. The Company's contributions (generally from treasury shares) totaled 41,427 shares in 1994, 27,943 shares in 1993, and 26,267 shares in 1992 with a fair market value of approximately $650,000, $450,000, and $469,000, respectively (which was charged to general and administrative expense). 7. PENSION PLANS The Company has a defined-benefit, trusteed pension plan which provides retirement benefits for substantially all of its domestic employees. Benefits under the plan are primarily based on e employee's compensation during the five years before retirement and the number of years of service. The Company funds current pension cost up to the maximum deductible amount allowed by the Internal Revenue Code. The components of net pension cost for 1994, 1993, and 1992 are as follows:
1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------- Service cost-benefits earned during the period $ 1,431,000 $ 1,241,000 $ 1,204,000 Interest cost on projected benefit obligation 1,694,000 1,521,000 1,335,000 Actual return on plan assets (188,000) (2,728,000) (2,594,000) Net amortization and deferral (2,534,000) 266,000 358,000 - ----------------------------------------------------------------------------------------------------------------- Net pension cost $ 403,000 $ 300,000 $ 303,000 =================================================================================================================
The following table sets forth the plan's funded status and obligations as of June 24, 1994 and June 25, 1993:
1994 1993 - ----------------------------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $14,649,000 in 1994 and $13,309,000 in 1993 $ 15,399,000 $ 13,601,000 ================================================================================================================= Projected benefit obligation $(23,643,000) $(20,642,000) Plan assets at fair value, primarily stocks and bonds 24,193,000 24,517,000 - ----------------------------------------------------------------------------------------------------------------- Plan assets in excess of projected benefit obligation 550,000 3,875,000 Add prior service cost 2,508,000 2,665,000 Less: Unamortized net asset at July 1, 1985 being recognized over sixteen years 1,903,000 2,166,000 Unrecognized net gain 4,480,000 7,296,000 - ----------------------------------------------------------------------------------------------------------------- Net pension liability (included in accrued employee benefit expense) $ (3,325,000) $ (2,922,000) =================================================================================================================
23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES Assumptions used in the accounting as of June 24, 1994 and June 25, 1993 were:
1994 1993 - ------------------------------------------------------------------------------ Discount rate 8.3% 8.3% Rate of increase in compensation levels 5.5 5.5 Expected long-term rate of return on assets 9.0 9.0
The Company's Canadian subsidiary has a similar plan for its employees. The amounts are not significant. In addition, during fiscal 1993 the Company established a supplemental executive retirement plan which is currently unfunded. Executive employees are eligible to become members of the plan upon designation by the Board of Directors. Benefits under the plan are based on the employees' annual earnings and years of service. Provision for this benefit is charged to operations over the employees' term of employment. The amounts are not significant. 8. Postretirement Benefits Other Than Pensions Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS No. 106") was implemented in 1992. The first quarter of 1992 was restated to reflect the immediate recognition of the transition amount of $717,000 or $466,000 net of income taxes ($.03 per share). The accumulated postretirement benefit obligation ("APBO") is $709,000 and $657,000 at June 24, 1994 and June 25, 1993, respectively. This statement requires the accrual of postretirement benefits other than pensions (such as health care benefits) during the years an employee provides services. The Company sponsors a defined benefit postretirement plan that provides health and dental care benefits for retired Corporate Officers. The plan is contributory and retirees' contributions are adjusted annually. The plan is not funded. The net postretirement liability is included in accrued employee benefit expense. The following table sets forth the plan's funded status and obligations as of June 24, 1994 and June 25, 1993:
1994 1993 - ------------------------------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $ 372,000 $ 367,000 Eligible active plan participants 59,000 54,000 Other active plan participants 278,000 236,000 - ------------------------------------------------------------------------------------------------------------- 709,000 657,000 Plan assets at fair value 0 0 - ------------------------------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation in excess of plan assets 709,000 657,000 - ------------------------------------------------------------------------------------------------------------- Unrecognized net gain 174,000 188,000 - ------------------------------------------------------------------------------------------------------------- Net postretirement liability (included in accrued employee benefit expense) $ 883,000 $ 845,000 ============================================================================================================= The components of postretirement benefits cost for 1994 and 1993 are as follows: Service cost $ 23,000 $ 23,000 Interest on accumulated postretirement benefit obligation 53,000 56,000 Amortization of gain (14,000) (9,000) - ------------------------------------------------------------------------------------------------------------- Net periodic postretirement cost $ 62,000 $ 70,000 =============================================================================================================
For measurement purposes, a 13% annual rate of increase in the cost of providing medical benefits was assumed in 1994, reducing by 1% per year to a trend rate of 6% for fiscal 2001. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8.3% and 8.5% in 1994 and 1993, respectively. The health care cost trend has a significant effect on the amounts reported. An increase of 1% in the rate of increase would have had an effect of increasing the APBO by $113,000 and the net periodic postretirement cost by $12,000. 9. Restructuring Charge During the first quarter of fiscal 1994, the Company recorded a $6,000,000 pretax charge related to a restructuring program. The objectives of this program were to increase the Company's competitiveness, permit investments in new business development, and to strengthen margins. The restructuring program included the realignment of the Company's marketing and manufacturing organizations. The restructuring charge consisted of approximately $4,700,000 of anticipated cash payments related to employee termination and other postemployment benefits in conjunction with staff reductions throughout the Company totaling 5% of the 2,200 employee work force. In addition, approximately $700,000 was related to the noncash write-down of operating assets, and approximately $600,000 was related to the anticipated cash outflows for facility closing and relocation costs associated with the closing of two small administrative facilities. In the fourth quarter of fiscal 1994, the Company reviewed the status of the restructuring plan and concluded that certain operating assets that were planned for disposal would be retained by the Company. Based upon this review, the restructuring charge was reduced by the $550,000 that was originally allocated for the estimated noncash charges associated with these assets. Approximately $3,563,000 of the total anticipated cash outflows were made as of June 24, 1994 with substantially all of the remaining $1,737,000 of cash outflows to be made over the next two quarters. 10. Income Taxes The components of income before income taxes were as follows:
1994 1993 1992 - --------------------------------------------------------------------------------------- United States $25,238,000 $20,815,000 $20,902,000 Canadian 2,361,000 3,275,000 3,960,000 - --------------------------------------------------------------------------------------- Total $27,599,000 $24,090,000 $24,862,000 =======================================================================================
Provisions for income taxes under SFAS No. 109 in 1994 and SFAS No. 96 in 1993 and 1992 consist of: Currently payable: Federal $ 9,837,000 $ 6,706,000 $ 6,645,000 State 3,145,000 2,400,000 816,000 Canadian 978,000 1,320,000 1,686,000 - --------------------------------------------------------------------------------------- Total 13,960,000 10,426,000 9,147,000 Deferred (1,924,000) (553,000) (222,000) - --------------------------------------------------------------------------------------- Total $12,036,000 $ 9,873,000 $ 8,925,000 =======================================================================================
24 Cumulative earnings of the Company's Canadian subsidiary are subject to withholding taxes of approximately $1,752,000 in the event such earnings are distributed to the United States. No tax provision has been made as the Company's intent is to reinvest all earnings. The tax effects of significant items comprising the Company's net deferred tax asset (liability) as of June 24, 1994 are as follows:
Current Noncurrent - --------------------------------------------------------------------------- Deferred tax assets: Accrued expenses $ 824,000 Accrued vacation 642,000 Allowance for doubtful accounts 1,120,000 Pension plans 1,486,000 Other 1,388,000 $ 100,000 - --------------------------------------------------------------------------- Deferred tax liabilities: Depreciation (1,603,000) Other (191,000) - --------------------------------------------------------------------------- Net deferred tax asset (liability) $5,460,000 $(1,694,000) ===========================================================================
During the first quarter of 1994, Federal tax legislation was enacted in which the principal provision was to increase the overall tax rate. This had no material effect on the Company's annual results. A reconciliation of the provisions for income taxes to the U. S. Federal income tax statutory rates follows:
1994 1993 1992 - ------------------------------------------------------------------------------ Statutory tax rate 35.0% 34.0% 34.0% State income taxes (less federal tax benefits) 6.4 6.2 6.0 State tax refund (4.0) Other -- net 2.2 .8 (0.1) - ------------------------------------------------------------------------------ Effective tax rate 43.6% 41.0% 35.9% ==============================================================================
11. FINANCIAL INFORMATION BY GEOGRAPHIC AREA The Company markets its products directly to small businesses and professional offices in the United States, Canada and the United Kingdom. Income from operations reflects all identifiable operating expenses. Investment income, interest expense and income taxes are excluded from geographic area operating data. Sales or transfers between geographic areas were not material. General corporate expenses are included under the Company's domestic operations.
(In Thousands) 1994 DOMESTIC INTERNATIONAL CONSOLIDATED - ------------------------------------------------------------------------------------ Net sales $230,543 $20,710 $251,253 Income from operations 24,795 1,550 26,345 Identifiable assets 108,998 22,693 131,691 1993 - ------------------------------------------------------------------------------------ Net sales $215,184 $21,960 $237,144 Income from operations 20,561 2,240 22,801 Identifiable assets 98,814 21,810 120,624 1992 - ------------------------------------------------------------------------------------ Net sales $209,654 $22,781 $232,435 Income from operations 20,657 2,058 22,715 Identifiable assets 98,118 22,938 121,056
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following financial information is in thousands of dollars except per share amounts.
FIRST SECOND THIRD FOURTH TOTAL 1994 QUARTER QUARTER QUARTER QUARTER YEAR - ----------------------------------------------------------------------------------------------- Net sales $59,820 $65,550 $63,424 $62,459 $251,253 Gross profit 36,769 42,685 40,112 39,521 159,087 Income before income taxes 1,305 8,891 8,609 8,794 27,599 Net income 762 4,967 4,919 4,915 15,563 Earnings per share $ .05 $ .32 $ .32 $ .32 $ 1.01 =============================================================================================== Dividends per share $ .20 $ .20 $ .20 $ .20 $ .80 =============================================================================================== 1993 - ----------------------------------------------------------------------------------------------- Net sales $57,322 $60,284 $59,377 $60,161 $237,144 Gross profit 35,599 36,924 36,270 37,981 146,774 Income before income taxes 5,293 5,546 5,860 7,391 24,090 Net income 3,206 3,332 3,362 4,317 14,217 Earnings per share $ .21 $ .22 $ .22 $ .28 $ .93 =============================================================================================== Dividends per share $ .20 $ .20 $ .20 $ .20 $ .80 ===============================================================================================
13. SUBSEQUENT EVENT On July 8, 1994, the Company acquired a 19 percent equity interest in GST Software, plc (GST) for $1,800,000 together with an option to acquire the balance of GST shares. GST is a privately held company based in the United Kingdom which develops and markets desktop publishing graphic design software which the Company will market under an exclusive distribution agreement in North America. 25 MANAGEMENT DISCUSSION AND ANALYSIS NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities was $29.7 million in 1994 representing an 18.8% increase from the $25.0 million provided in 1993. This increase was due to higher operating earnings in 1994 as well as the effects of depreciation, amortization and the unexpended restructuring reserve. In 1993, cash from operations decreased $3.5 million from 1992 due to lower operating earnings in 1993 and changes in the balances of current assets and liabilities. Working capital at June 24, 1994 amounted to $55.2 million including $41.0 million of cash and short-term investments. This compares to $43.7 million of working capital and cash and short-term investment balances of $28.1 million at the end of fiscal 1993. The increase in working capital was due primarily to increases in cash and short-term investments as the 1993 balances were effected by the acquisition of the One-Write Plus product line. The increases in deferred income tax benefit and accounts receivable were offset somewhat by increases in accrued expenses compared to the prior year. Capital expenditures of $6.1 million in 1994 were slightly below the $6.5 million in 1993 and well below the $9.7 million in 1992. At year end, the Company was committed for approximately $1.5 million for expansion and improvement of the telemarketing and customer service areas. On July 8, 1994, the Company acquired a 19 percent equity interest in GST Software, plc for $1.8 million together with an option to acquire the balance of GST shares. In addition to its present cash and investment balances, the Company has consistently generated sufficient cash internally to fund its needs for working capital, dividends and capital expenditures. However, should the Company need additional funds, it has an unsecured line of credit with a major bank for $10 million. At present, there are no outstanding balances against this line. RESULTS OF OPERATIONS 1994 VERSUS 1993 Net sales increased 6.0% from $237.1 million in 1993 to $251.3 million in 1994. This sales increase was composed of price increases of approximately 1.8% or $4.3 million and unit volume growth of 4.2% or $9.9 million. The computer forms, OWP software, marketing products and custom forms product lines contributed to the growth. Cost of sales decreased from 38.1% of sales in 1993 to 36.7% in 1994. This decrease was the result of product mix changes, price increases in several units with stable material costs, improved productivity and effective cost management within the Company's production facilities. Selling and advertising expenses decreased from 29.9% of sales in 1993 to 26.9% in 1994. This decrease reflected a restructuring program implemented in the first quarter of 1994 and more effective marketing and advertising programs. General and administrative costs increased from 22.4% of sales in 1993 to 23.7% in 1994. This increase was due primarily to costs associated with servicing the Company's expanded software product line. During the first quarter of fiscal 1994, the Company recorded a $6.0 million pretax charge related to a restructuring program. The objectives of this program were to increase the Company's competitiveness, permit investments in new business development and to strengthen margins. The restructuring program included the realignment of the Company's marketing and manufacturing organizations. The restructuring charge consisted of approximately $4.7 million of anticipated cash payments related to employee termination and other postemployment benefits in conjunction with staff reductions throughout the Company totaling 5% of the 2,200 employee work force. In addition, approximately $.7 million was related to the noncash write-down of operating assets and approximately $.6 million was related to the anticipated cash outflows for facility closing and relocation costs associated with the closing of two small administrative facilities. In the fourth quarter of fiscal 1994, the Company reviewed the status of the restructuring plan and concluded that certain operating assets that were planned for disposal would be retained by the Company. Based upon this review, the restructuring charge was reduced by the $.55 million originally allocated for the estimated noncash charges associated with these assets. Approximately $3.6 million of the total anticipated cash outflows were made as of June 24, 1994 with substantially all of the remaining $1.7 million of cash outflows to be made over the next two quarters. Substantially all of the expected savings are associated with reduced staffing levels throughout the Company and on an annual basis will approximately cover the restructuring charge. The provision for income taxes as a percentage of pre-tax income increased from 1993 due to a smaller proportion of tax exempt income resulting from lower interest rates and changes in Federal tax laws creating a higher corporate tax rate and less favorable treatment of certain foreign source income. In 1994, the Company's adoption of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes" was not significant to the financial statements. The adoption did result in certain reclassifications of deferred tax assets and liabilities. 1993 VERSUS 1992 Net sales increased 2.0% from $232.4 million in 1992 to $237.1 million in 1993. This sales increase was composed of price increases of approximately 1.8% or $4.4 million and unit volume growth of .2% or $.3 million. Growth in the computer forms, software, dealer, UK, and custom forms business units was somewhat offset by a modest sales decline in the manual business forms unit. Cost of sales increased from 37.5% of sales in 1992 to 38.1% in 1993. This increase was the result of product mix changes, increased start up costs associated with changes in production processes for certain products and lower than expected incoming order volume. Selling and advertising expenses decreased from 30.7% of sales in 1992 to 29.9% in 1993. This decrease reflected the refinement of marketing programs, mostly in the latter half of the year, which resulted in a 10% reduction in selling and advertising costs during that period. General and administrative costs as a percent of sales remained approximately the same as the prior year. Investment income decreased due to lower interest rates and lower investable balances. The lower balances were caused by 1992 treasury share purchases, the 1992 payoff of the remaining balance of the industrial revenue financing for the Flagstaff, Arizona manufacturing facility and the January, 1993 acquisition of One-Write Plus. In addition, investment income in 1992 reflected the interest received on a state tax refund which had the effect of increasing net income by $.3 million or $.02 per share. 26 The provision for income taxes as a percent of pre-tax income increased from 1992 due to the impact of the refund in 1992 of state taxes from the fiscal years 1988 through 1990 which had the effect of increasing net income by $1.0 million or $.06 per share. Without this refund, the tax rate would have been approximately the same for both periods. In 1992, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits other than Pensions" which requires the accrual method of accounting for certain postretirement benefits. The cumulative effect of adopting Statement 106 was $.7 million ($.47 million after tax). The quarterly results for the first quarter of 1992 were restated to reflect this adoption. OTHER SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" was issued in December, 1991 and must be adopted no later than fiscal 1996. SFAS No. 112, "Employers' Accounting for Postemployment Benefits" was issued in November, 1992 and must be adopted no later than fiscal 1995. SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" was issued in May, 1993 and must be adopted no later than fiscal 1995. The Company plans to adopt these Statements within the required period and does not expect any of them will have a material effect on its financial position or results of operations. COMMON STOCK The Company's Common Stock is traded in the over-the-counter market and quoted on the NASDAQ National Market System. High and low bid prices of the Company's Common Stock for each quarter by NASDAQ were as follows:
- -------------------------------------------------------------------------------- FISCAL 1994 HIGH LOW FISCAL 1993 HIGH LOW - -------------------------------------------------------------------------------- 1st Quarter 17 1/4 15 1/2 1st Quarter 16 1/4 14 1/2 2nd Quarter 19 3/4 14 3/4 2nd Quarter 19 3/4 14 1/2 3rd Quarter 21 3/4 18 1/4 3rd Quarter 19 3/4 15 1/4 4th Quarter 21 3/4 17 3/4 4th Quarter 18 1/2 15 1/2
AUDITORS' REPORT To the Board of Directors and Stockholders of New England Business Service, Inc.: We have audited the accompanying consolidated balance sheets of New England Business Service, Inc. and its subsidiaries as of June 24, 1994 and June 25, 1993, and the related statements of consolidated income, consolidated stockholders' equity, and consolidated cash flows for each of the three years in the period ended June 24, 1994. 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, such consolidated financial statements present fairly, in all material respects, the financial position of the companies at June 24, 1994 and June 25, 1993 and the results of their operations and their cash flows for each of the three years in the period ended June 24, 1994 in conformity with generally accepted accounting principles. As discussed in Note 8 to the consolidated financial statements, in 1992 the Company adopted the provisions of Statement of Financial Accounting Standards No. 106. As discussed in Note 1 to the consolidated financial statements, effective June 26, 1993, the Company changed its method of accounting for income taxes to conform to Statement of Financial Accounting Standards No. 109. /s/ Deloitte & Touche LLP Boston, Massachusetts July 22, 1994 27 CORPORATE OFFICERS [PICTURE OF RICHARD H. RHOADS APPEARS HERE] Richard H. Rhoads [PICTURE OF SALLY C. DAVIS, CHRISTOPHER H. CORBETT, AND RUSSELL V. CORSINI, JR. APPEARS HERE] Sally C. Davis, Christopher H. Corbett, Russell V. Corsini, Jr. [PICTURE OF WILLIAM C. LOWE APPEARS HERE] William C. Lowe [PICTURE OF THOMAS W. FREEZE, ROBERT S. BROWN, JR., TIMOTHY D. ALTHOF, AND EDWARD M. BOLESKY APPEARS HERE] Thomas W. Freeze, Robert S. Brown, Jr., Timothy D. Althof, Edward M. Bolesky Not Pictured: John F. Fairbanks 28 BOARD OF DIRECTORS Richard H. Rhoads Chairman of the Board Peter A. Brooke Chairman and Chief Executive Officer of Advent International Corporation (an international venture capital management firm) Benjamin H. Lacy Assistant Secretary; Of Counsel, Hill & Barlow, a Professional Corporation William C. Lowe President, Chief Executive Officer Robert J. Murray Executive Vice President, North Atlantic Group, The Gillette Company Frank L. Randall, Jr. Vice Chairman (retired), North American Phillips Corp. Jay R. Rhoads, Jr. Chairman of the Board (retired), NEBS Robert Ripp Corporate Vice President - Finance, AMP Incorporated BOARD COMMITTEES Executive Committee Benjamin H. Lacy William C. Lowe Richard H. Rhoads Audit Committee Peter A. Brooke Benjamin H. Lacy Robert J. Murray Nominating Committee Frank L. Randall, Jr. Jay R. Rhoads, Jr. Robert Ripp Organization and Compensation Committee Peter A. Brooke Benjamin H. Lacy Robert J. Murray Stock Option Committee Peter A. Brooke Benjamin H. Lacy Robert J. Murray NEBS Foundation Directors Peter A. Brooke Benjamin H. Lacy Jay R. Rhoads, Jr. CORPORATE OFFICERS Richard H. Rhoads Chairman of the Board William C. Lowe President, Chief Executive Officer Timothy D. Althof Vice President, Corporate Controller Edward M. Bolesky Vice President - General Manager, Operations Robert S. Brown, Jr. Vice President - General Manager, Subsidiaries Christopher H. Corbett Vice President, Information Systems Russell V. Corsini, Jr. Vice President, Chief Financial Officer Sally C. Davis Vice President - Manual Business Forms John F. Fairbanks Treasurer and Secretary Thomas W. Freeze Vice President - Finance and Administration, Image Products SUBSIDIARY CHIEF EXECUTIVES NEBS Business Forms, Ltd. Robert T. Richardson NEBS Business Stationery David G. Booth SYCOM, Inc. Robert A. Lay CORPORATE OFFICE NEBS 500 Main Street Groton, MA 01471 Telephone: 508-448-6111 ANNUAL MEETING The annual meeting of stockholders will be held on Friday, October 28, 1994 at 10:00 am. at the Company's offices in Groton, Massachusetts. FORM 1O-K AVAILABLE A copy of the annual report filed with the Securities and Exchange Commission on Form 10-K is available to shareholders, without charge, upon written request to: John F. Fairbanks, Treasurer and Secretary, NEBS, 500 Main Street Groton, MA 01471 LEGAL COUNSEL Hill & Barlow, a Professional Corporation, One International Place Boston, Massachusetts AUDITORS Deloitte & Touche LLP 125 Summer Street Boston, Massachusetts TRANSFER AGENT AND REGISTRAR The First National Bank of Boston Boston, Massachusetts [LOGO OF NEBS APPEARS HERE] New England Business Service, Inc. 500 Main Street Groton, Massachusetts 01471 Printed on Recycled Paper [RECYCLING LOGO APPEARS HERE] 40% Pre-Consumer Content 10% Post-Consumer Content GRAPHICS APPENDIX LIST ---------------------- Page Where Graphic Appears Description of Graphic - --------------- ---------------------- Outside Front Cover Graphic of NEBS logo and photograph of NEBS Customers: Jane and Gene Behrens Inside Front Cover Graphic of various NEBS product catalogs Page 1 Portrait photograph of NEBS Customers: Jane and Gene Behrens Page 3 Photographs of Richard H. Rhoads, Chairman and William C. Lowe President, Chief Executive Officer Page 4 Graphic of various items of NEBS product line Page 5 Photograph of NEBS Customer: Dan Wolfe Page 6 Graphic of various items of NEBS product line Page 7 Photograph of NEBS Customers: Richard and Wilma Hinderleiter Page 8 Graphic of various items of NEBS product line Page 9 Photograph of NEBS Customer: Karen Lautzenheiser Page 10 Graphic of various items of NEBS product line Page 11 Photograph of NEBS Customers: James and Jenna Auxier Page 12 Graphic of various items of NEBS product line Page 13 Photograph of NEBS Customer: Elaine Warner Page 28 Photograph of NEBS Corporate Officers: Richard H. Rhoads, William C. Lowe, Sally C. Davis, Christopher H. Corbett, Russell V. Corsini, Jr., Thomas W. Freeze, Robert S. Brown, Jr., Timothy D. Althof, Edward M. Bolesky Outside Back Cover Graphic of NEBS logo EX-21 10 LIST OF SUBSIDIARIES LIST OF SUBSIDIARIES SYCOM, Inc. NEBS Software, Inc. NEBS Business Forms Limited EX-23 11 INDEPENDENT AUDITORS' CONSENT Exhibit 23 INDEPENDENT AUDITORS' CONSENT - ----------------------------- We consent to the incorporation by reference in Registration Statement Nos. 2-69422, 2-72662, 33-38925 and 33-43900 of New England Business Service, Inc. on Form S-8 of our annual reports dated July 22, 1994, appearing and incorporated by reference in this Annual Report on Form 10-K of New England Business Service, Inc. for the year ended June 24, 1994. /s/Deloitte & Touche LLP Boston, Massachusetts September 19, 1994 EX-27 12 ARTICLE 5 FDS FOR 1994 10-K
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF NEW ENGLAND BUSINESS SERVICE, INC. AND ITS SUBSIDIARIES AS OF JUNE 24, 1994 AND THE RELATED STATEMENTS OF CONSOLIDATED INCOME, STOCKHOLDERS' EQUITY, AND CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 YEAR JUN-24-1994 JUN-24-1994 3,456 37,532 27,963 3,012 7,740 85,288 105,065 67,374 131,691 30,092 0 15,572 0 0 83,907 131,691 251,253 251,253 92,166 132,742 (1,254) 2,799 0 27,599 12,036 15,563 0 0 0 15,563 1.01 1.01
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