-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MfrdpQA1AvCLtiXr4D/x207+4aOo3+lsXP8Si/4Z7WF4QHeHZa3NVCNTCP6lznsO zEXEd9mGhKorYjACi00U8Q== 0000927016-01-502798.txt : 20010906 0000927016-01-502798.hdr.sgml : 20010906 ACCESSION NUMBER: 0000927016-01-502798 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010905 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND BUSINESS SERVICE INC CENTRAL INDEX KEY: 0000205700 STANDARD INDUSTRIAL CLASSIFICATION: MANIFOLD BUSINESS FORMS [2761] IRS NUMBER: 042942374 STATE OF INCORPORATION: DE FISCAL YEAR END: 0627 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-11427 FILM NUMBER: 1731240 BUSINESS ADDRESS: STREET 1: 500 MAIN ST CITY: GROTON STATE: MA ZIP: 01471 BUSINESS PHONE: 5084486111 10-K405 1 d10k405.txt FORM 10-K405 FOR 06/30/2001 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2001 OR [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 1-11427 ---------------- NEW ENGLAND BUSINESS SERVICE, INC. (Exact name of registrant as specified in its charter) Delaware 04-2942374 (State or other jurisdiction of (IRS Employer Identification number) incorporation or organization) 500 Main Street 01471 Groton, Massachusetts (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (978) 448-6111 Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange Title of each class on which registered ------------------- ----------------------- Common Stock ($1.00 par value) New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the Registrant's Common Stock, par value $1.00 per share, held by stockholders who are not affiliates of the Registrant at August 22, 2001 as computed by reference to the closing price of such stock on that date was approximately $245,101,063. The number of shares of Registrant's Common Stock, par value $1.00 per share, outstanding at August 22, 2001 was 12,570,858. Documents Incorporated By Reference Portions of the Proxy Statement sent to stockholders in connection with the Annual Meeting to be held on October 26, 2001 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 New England Business Service, Inc. (the "Company") was founded in 1952, incorporated in Massachusetts in 1955 and reincorporated in Delaware in 1986. The Company designs, produces and distributes business forms, checks, envelopes, labels, greeting cards, signs, stationery and related printed products, and distributes packaging, shipping and warehouse supplies, software, work and promotional apparel, advertising specialties and other business products through direct mail, direct sales, telesales, dealers and the Internet to small businesses throughout the United States, Canada, the United Kingdom and France. The Company also designs, embroiders and sells specialty apparel products through distributors and independent sales representatives to the promotional products/advertising specialty industry, primarily in the United States. During the past five years the Company has completed several acquisitions which are described below. In January 1997, the Company acquired the outstanding stock of Standard Forms Limited ("SFL"), a U.K-based company for consideration of approximately $4.3 million. SFL markets a line of business forms and stationery by direct mail and through a direct sales force, principally to automotive accounts in the U.K. and France. In March 1997, the Company acquired substantially all of the assets and assumed certain liabilities of Chiswick Trading, Inc. ("Chiswick") for consideration of approximately $34.6 million in cash (net of cash acquired) and approximately $8.4 million in Company common stock. Chiswick markets a line of retail and industrial packaging, shipping and warehouse supplies sold primarily by direct mail to small wholesalers, manufacturers and retailers. In December 1997, the Company acquired all of the outstanding common stock of Rapidforms, Inc. ("Rapidforms") for consideration of approximately $82.1 million in cash (net of cash acquired). Rapidforms designs, produces and markets business forms, business supplies, holiday greeting cards and promotional products sold principally by direct mail to small businesses across the United States. As part of the Rapidforms acquisition, the Company also acquired Rapidforms' wholly-owned subsidiary, Russell & Miller, Inc., which primarily sells in-store retail merchandising supplies. In June 1998, the Company acquired all of the outstanding common stock of McBee Systems, Inc. and all of the assets of McBee Systems of Canada, Inc. (collectively "McBee") for consideration of approximately $48.5 million in cash (net of cash acquired) and $12.6 million in Company common stock. McBee manufactures and markets checks and related products to small businesses in the United States and Canada through a dedicated field sales force. In July 2000, the Company acquired all the outstanding shares of PremiumWear, Inc. ("PremiumWear"). The purchase price was $13.50 per share in cash and totaled approximately $39.0 million (net of cash acquired) for the shares plus debt assumed of $3.9 million. PremiumWear designs, embroiders and sells specialty apparel products through distributors and independent sales representatives to the promotional products/advertising specialty industry, primarily in the United States. Over the past several years, management has assessed the operations of the company in several different ways. In the first quarter of fiscal year 2001, the Company further changed its internal reporting for segments. This change was precipitated by the acquisition of PremiumWear and the realignment of the Company's international subsidiaries. The Company has now identified five reportable segments. Prior year figures have been restated so as to match the current year presentation. The first segment is "Direct Marketing-US" and represents those business operations that sell primarily printed products such as checks and business forms to small businesses through direct marketing in the United States. The second segment, "Direct Sales-US," also sells primarily checks and business forms to small businesses; however, they sell primarily through distributors or by directly selling to the customer in the United States. The third segment, "Apparel", utilizes independent sales 2 representatives to market its specialty apparel products and to solicit orders from customers in the promotional products/advertising specialty industry. "Packaging and Display Products", the fourth segment, primarily resells packaging and shipping supplies and retail signage marketed through both direct marketing and direct selling efforts. The fifth segment, "International", sells primarily printed products such as checks and business forms to small businesses in Europe and Canada through direct marketing, distributors or a direct sales force. Additional financial information regarding the segments, including the net sales and operating profit attributable to each of the Company's segments for the last three fiscal years, is contained in the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K. Products The Company's product lines consist of an extensive range of standardized imprinted manual and computer forms, custom forms, checks and check writing systems, envelopes, labels, greeting cards, signs, stationery and other printed products principally designed and imprinted in-house. Most forms are either specifically designed for individual lines of business or are of a type generally used by small businesses and professional offices. In addition, the Company distributes a variety of other business products commonly used by small businesses, including merchandising displays, presentation folders, promotional products, work apparel and software. These products are primarily sold by the companies in the Direct Marketing-U.S., Direct Sales-U.S. and International segments. The Company, primarily through its Packaging and Display Products segment, also distributes a variety of industrial shipping and packaging products including corrugated boxes, polyethylene bags, tape, labels and shrink wrap as well as retail packaging supplies such as bags, ribbons, gift wrap and bows. The Company's full range of products is enhanced by high quality, fast delivery, competitive prices and extensive product guarantees. The Company's standard manual forms include billing forms, work orders, job proposals, purchase orders, invoices and personnel forms. Standard manual forms are designed to provide small businesses with the financial and other business records necessary to efficiently manage a business. The Company's stationery line, including letterhead, envelopes and business cards, is available in a variety of formats and ink colors designed to provide small businesses with a professional image. Checks and check writing systems are designed to facilitate payments, the recording of transactional information and the posting of related bookkeeping entries. The Company also offers a full line of printed products compatible with most accounting software packages commonly used by small businesses. The Company's computer forms, including checks, billing forms, work orders, purchase orders and invoices, provide computer compatible records necessary to efficiently manage a business. Promotional products, including labels, pricing tags, signage, advertising specialties, presentation folders and greeting cards, are designed to fulfill a variety of selling and marketing activities and to provide small businesses with a professional image. Additionally, the Company markets a line of filing systems, accountants' supplies and appointment products specifically for use in small professional offices. The majority of the Company's standard products are imprinted to provide small businesses with a professional image. Standard imprint options include consecutive numbering, logos, customer names, addresses, and phone numbers. The Company also offers a wide range of custom printing alternatives and a custom logo design service. The Company also sells the Company ColorsTM line of work apparel, including an array of jackets, shirts, pants, hats, sweatshirts, and uniforms commonly worn in the workplace. The Company Colors line may be embroidered with business names, logos, and employee names to provide a small business with a coordinated and professional image. 3 The Company distributes Form Magic(R), a proprietary form-filling software package, third-party accounting software including Peachtree's One-Write Plus(R) and Intuit's Quickbooks(R), and a line of products designed by MySoftware Company. Software distributed by the Company is designed to perform a variety of the tasks required to manage and promote a small business, and is compatible with certain business forms and other printed products offered by the Company. The Company, primarily through its Packaging and Display Products segment, sells packaging and shipping supplies, including bags and bag closures, bubble and polystyrene fill, wrapping materials, boxes, tapes and mailers, used principally by small wholesalers, manufacturers and distributors to package, distribute and market their products. The Company's line of retail supplies, including signs, merchandising supplies, bags, ribbons, gift wrap and bows, are used by small retailers to display, market and package their products. The Company, through its PremiumWear subsidiary, sells knit and woven sport shirts under the Munsingwear(R), Jockey(R) and Field & Stream(R) labels to promotional products/advertising specialty customers pursuant to licenses from Perry Ellis International, Inc., Jockey International and Field & Stream Licensing, respectively. The Company sells its Page & Tuttle(R) brand of knit golf shirts and coordinated apparel to advertising specialty customers and golf course pro shops throughout the U.S. Distribution of PremiumWear products to customers is through a network of independent sales representatives. Also, PremiumWear receives commission income from representing other companies' products to the promotional products industry. For a further discussion of the risks and uncertainties associated with customer preferences and the market for forms and related printed products and apparel, see "Certain Factors That May Affect Future Results" included in Part II, Item 7 to this Annual Report on Form 10-K. Product Development and Research Products sold by all of the Company's segments are designed either by an in-house product development staff or are obtained from third-party sources. The Company relies upon direct field research with customers and prospects, focus groups, mail surveys, feedback from distributors, salespeople and representatives, and unsolicited suggestions to generate new product ideas. Product design efforts are accomplished or directed by Company design personnel who employ manual and computer design methods to create products. Product design efforts range from minor revisions of existing manual business forms to the creation of an entirely new line of products such as the Company Colors line of work and promotional apparel. Throughout the design process, the Company solicits comments and feedback from customers and prospects, and tests market acceptance through a variety of methods. For a further discussion of the risks and uncertainties associated with the technological changes affecting future demand for the Company's business forms and related products, see "Certain Factors That May Affect Future Results" included in Part II, Item 7 to this Annual Report on Form 10-K. Sales and Marketing The Company has four distinct channels of distribution. The Company's primary channel, used by all segments except for PremiumWear, is direct mail, in which up to 100 million pieces of promotional advertising offering the Company's products are delivered by mail to customers and prospective customers each year under the NEBS(R), RapidForms(R), McBee(R), Chiswick(R), Histacount(R), SYCOM(R), R&M Retail Merchandising Products(R), Visual Display SolutionsTM, Bags & BowsTM, NCS National Clothier Supply(R), Main Street(R), Holiday Expressions(R), Ad IdeasTM, ASH(R), NAPCO(R), Education Matters(R), Company ColorsTM, Business EnvelopesTM and SFLTM brand names. The Company's direct mail efforts are supplemented by the prospecting and account development efforts of an outbound telemarketing group. The Company's success to date has largely been the result of effective direct marketing and the strength of its customer relationships. Targeted direct mail marketing in combination with focused telemarketing allows the 4 Company to identify and penetrate geographically dispersed but, in the aggregate, significant markets. The Company targets small businesses with 100 or fewer employees within these markets with specialized promotions and products specifically designed to meet small business needs. In the direct mail channel, the Company's promotional materials contain one or more order forms to be completed by the customer and either mailed, faxed or telephoned to the Company's telesales and customer service group. The Company and its subsidiaries also maintain numerous Internet sites for promotion, customer education and order taking. The Company's promotional materials include several catalogs containing a comprehensive display of the Company's forms and checks, work and promotional apparel, packaging supplies and retail merchandising supplies product offerings. In addition, the Company utilizes smaller catalogs focused on specific products or targeted to a specific small business segment, promotional circulars with samples, flyers, and inserts included with invoices, statements and product shipments. To a lesser extent, the Company relies on advertising space in magazines and post card packages to generate sales leads from prospective customers. The Company utilizes the United States or the local country postal service for distribution of most of its advertising materials. The Company's second principal channel of distribution, used primarily by the Direct Sales-U.S. and Packaging and Display Products segments, is through a field sales organization of over 400 employees, primarily dedicated to marketing McBee brand checks and check writing systems, Chiswick brand packaging and shipping supplies, or Russell & Miller brand retail merchandising and display products. Initial order support, product reorders and routine service in the direct sales channel is provided by a network of customer service representatives located throughout the United States and Canada. The principal focus of the McBee sales force in the Direct Sales-U.S. segment is to generate first-time buyers for check and check writing system products. Prospective customer leads are generated for the McBee sales force under referral arrangements with accountants servicing small businesses and commercial banks representing approximately 26,000 geographically dispersed branch offices. The McBee sales effort typically targets small business customers with fewer than 10 employees. The principal focus of the Chiswick and Russell & Miller sales forces in the Packaging and Display Products segment is to develop high-potential customer relationships initially established through the direct mail channel. The Chiswick and Russell & Miller sales efforts typically support businesses with more than 100 employees or retail chains with geographically dispersed store locations. The Company's third principal distribution channel is a network of independent dealers used primarily by the Direct Sales-U.S. segment. The Company distributes a full line of private label standard and custom printed products, including manual and computer forms, checks, greeting cards and labels through this dealer network. The Company's approximately 25,000 independent dealers typically include local printers, business forms dealers, stationers, computer stores and system houses. The Company's PremiumWear subsidiary represents the fourth channel of distribution by utilizing independent sales representatives to market its products and to solicit orders from customers. All products are distributed to customers through PremiumWear's distribution facility in Tennessee. The Company also has entered into alliance marketing agreements with third- party vendors to offer payroll, accounting, web-page development, and direct marketing services to the company's customers. Revenue from these alliances is generated in the form of royalties and commissions received from the third- party vendors. The Company believes that its sophisticated and extensive marketing database, customer/prospect lists and referral sources used by most segments constitute a competitive advantage. The Company is able to select names and plan promotions based on a variety of attributes including status as a customer or prospect, line of business, product purchase history, purchase frequency or purchase dollar volume. With this data, the Company is able to create and deliver cost-effective marketing programs to small businesses through direct mail, direct sales, outbound telemarketing, the Internet or the dealer channel. 5 For a further discussion of the risks and uncertainties associated with the small business market and the Company's various channels see "Certain Factors That May Affect Future Results" included in Part II, Item 7 to this Annual Report on Form 10-K. Raw Materials, Production and Distribution The Company's production and distribution systems for all segments are designed to process a high volume of small dollar orders on a cost-effective basis. The production and procurement of printed product base stock is driven by forecasts of demand for the Company's printed products. The Company produces semi-finished base business forms, check stock and related products in long runs on high-speed, roll-fed presses from bond and carbonless papers. The bond and carbonless papers used by the Company to produce base stock are purchased from a limited number of vendors at competitive prices. The Company also purchases printed base stock from a number of industry sources at competitive prices. In response to a customer order for a printed product, the Company's base printed products are personalized with a variety of imprint options including customer name, address, phone number, consecutive numbering and logo. The Company operates equipment specifically designed to meet the demands of short- run personalized printing. Typesetting and imprinting of customer headings are accomplished with computerized typesetters, platemaking systems, letter presses, offset presses and digital presses. In addition, the Company utilizes manual and semi-automatic bindery equipment. A number of the Company's imprinting presses have been designed internally or substantially modified to meet the short-run demands of small businesses. These specialized presses allow the Company to produce small-order quantities with greater efficiency than would be possible with stock equipment available from typical printing press equipment suppliers. During the past three years, primarily from business within the Packaging and Display Products segment, the Company has experienced an increase in the revenue generated by the sale of stock business products produced by third parties, but shipped to customers by the Company, including industrial packaging and warehouse supplies, and retail supplies. The Company principally utilizes a "pick and pack" operation to aggregate stock products from warehoused inventory into distinct order groups and to package these order groups for shipment to the customer. The Company's stock business products are obtained from a large number of suppliers at competitive prices. In addition, the Company relies on a limited number of suppliers to produce and drop-ship products directly to Company customers. The Company believes that alternative sources are generally available for products purchased from third-party vendors, and is continually evaluating its sourcing of these third-party supplied products. PremiumWear, which comprises the Apparel segment, primarily sources its product from "full package" manufacturers or garment assembly companies in various foreign countries. There currently is reasonable availability of raw materials, manufacturing and assembly capacity for this product line. The Company has no significant backlog of orders. The Company's objective is to produce and ship product as expeditiously as possible following receipt of a customer's order. During fiscal year 2001, approximately 70% of printed products were produced and shipped within one day and approximately 90% within four days of order. The Company's stock business products are routinely shipped within 24 hours of receipt of a customer order. To facilitate expeditious production and shipment of product, the Company maintains inventories of unprinted paper and in process apparel ($3.3 million at June 30, 2001), and partially printed business forms, packaging, shipping and retail supplies, work and promotional apparel and related business products ($39.3 million at June 30, 2001). The Company ships its products to customers primarily by United Parcel Service of America, Inc. The Company uses parcel post or overnight delivery services for distribution of the remainder of its products to customers in the U.S. and for its international businesses. For a further discussion of the risks and uncertainties associated with the Company's reliance on certain individual third-party vendors to provide raw materials and services critical to the Company's operation, see 6 "Certain Factors That May Affect Future Results" included in Part II, Item 7 to this Annual Report on Form 10-K. Competition The small business forms and supplies industry is highly competitive. The Company believes that it is well positioned in the small business marketplace, with a reputation for reasonable prices, high quality and reliability and dependable service. The Company's primary competitors for printed products are the local printers, business forms dealers, contract stationers and office products superstores located throughout each of its geographic markets. Local printers have an advantage of physical proximity to customers, but generally do not have the capability of producing a broad array of products, particularly those having a complex construction. In addition, most local printers lack the economies of scale to produce a small order for a single customer on a cost- effective basis. General purpose, preprinted business forms offered by stationers and office product superstores are typically price competitive with the Company's forms, but lack the design and functionality for specific lines of business and the custom printing options available with the Company's products. The Company's principal competitors for stock business products are the numerous local and regional business supplies jobbers, distributors and retailers throughout the United States and Canada. At present, the Company is aware of more than twenty major independent companies or divisions of larger companies in its geographic markets offering printed products and business supplies to small businesses through direct mail, distributors, or a direct sales force. The primary competitive factors influencing a customer's purchase decision are product guarantees, breadth of product line, speed of delivery, product quality, price and customer service. The Company believes it is the leading direct marketer of business forms, checks and related printed products to the very small business market in the United States, Canada and the United Kingdom. The Company defines the very small business market as businesses with fewer than 20 employees. The Company's PremiumWear subsidiary operates in the promotional products/advertising specialty marketplace for apparel which has become increasingly competitive and is characterized by a number of broad-line companies. The principal competitive features are pricing, styling, quality (both in material and production), product availability and customization services such as embroidery and screen printing. For a further discussion of the risks and uncertainties associated with the competitive landscape for the Company's products, see "Certain Factors That May Affect Future Results" included in Part II, Item 7 to this Annual Report on Form 10-K. Employees The Company had 3,819 full and part-time employees at June 30, 2001. The Company believes its relationship with its employees to be satisfactory. Environment To the Company's knowledge, no material action or liability exists on the date hereof arising from the Company's compliance with federal, state and local statutes and regulations relating to protection of the environment. 7 ITEM 2. PROPERTIES The Company's principal executive offices are located in Groton, Massachusetts. The Company's principal operating facilities consist of manufacturing, administrative and warehouse facilities and are located in the United States, Canada, the United Kingdom and France. Of all of its operating facilities, the Company owns approximately 832,100 square feet in the aggregate in Flagstaff, Arizona, Groton and Townsend, Massachusetts, Maryville, Missouri, Peterborough, New Hampshire, Thorofare, New Jersey, Ogden, Utah, Midland, Ontario and Chester, England, and leases approximately 780,900 square feet in the aggregate in Santa Fe Springs, California, Sudbury, Massachusetts, Lithia Springs, Georgia, Athens, Ohio, Minnetonka, Minnesota, Clarksville, Tennessee, Chateau-Renault, France and in approximately 54 locations in the United States and Canada for sales offices. The Company believes its existing production and office facilities are adequate for its present and foreseeable future needs. ITEM 3. LEGAL PROCEEDINGS On June 30, 2000, a lawsuit entitled "Perry Ellis International, Inc. v. PremiumWear, Inc.", was filed in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida. The case has been removed to federal court and is currently pending in the United States District Court for the Southern District of Florida. On April 11, 2001, the court granted the plaintiff's motion to amend its complaint to add the Company as a co- defendant. The amended complaint relates to a Right of First Refusal Agreement dated as of May 22, 1996 (the "RFR Agreement") between the plaintiff and PremiumWear, Inc., and to the Company's acquisition of all the outstanding shares of PremiumWear in July 2000. In the amended complaint, the plaintiff alleges breach of the RFR Agreement and breach of an implied covenant of good faith and fair dealing against PremiumWear as a result of PremiumWear's alleged failure to notify the plaintiff of certain discussions between PremiumWear and the Company preceding the Company's agreement to purchase all of the outstanding shares of PremiumWear. The amended complaint also alleges that the Company tortiously interfered with the plaintiff's rights under the RFR Agreement by allegedly inducing PremiumWear to breach its obligations to the plaintiff under the RFR Agreement. The plaintiff is seeking damages in an unspecified amount, attorneys' fees, interest and costs. The Company believes the allegations in the amended complaint are without merit and intends to defend the lawsuit vigorously. From time to time the Company is involved in other disputes and/or litigation encountered in the ordinary course of its business. The Company does not believe that the ultimate impact of the resolution of such other outstanding matters will have a material effect on the Company's business, operating results or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of stockholders during the fourth quarter of fiscal 2001. ITEM 4.1 EXECUTIVE OFFICERS OF THE REGISTRANT The Company's executive officers are elected to office by the Board of Directors at the first board meeting following the Annual Meeting of Stockholders or at other board meetings as appropriate, and hold office until the first board meeting following the next Annual Meeting and until a successor is chosen. Information regarding the Company's executive officers is presented below. Robert J. Murray, age 60, has been Chairman of the Board, President and Chief Executive Officer of the Company since 1995. Mr. Murray retired from The Gillette Company, a diversified consumer products company, in 1995, having been with Gillette for more than 34 years. From 1991 until his retirement in 1995, Mr. Murray was Executive Vice President, North Atlantic Group of Gillette. Mr. Murray has been a director of the Company 8 since 1991 and is also a director of LoJack Corporation, Allmerica Financial Corporation and the Delhaize Group. George P. Allman, age 59, joined the Company in 1996, and he has been Senior Vice President and President--Diversified Operations since 1998. Prior to that he served as Vice President--Diversified Operations from 1996 to 1998, and as Vice President--Retail Sales and Operations during 1996. David E. Berg, age 44, has been Senior Vice President and President-- PremiumWear since 2000. Mr. Berg joined the Company in 2000 in connection with the Company's acquisition of PremiumWear, Inc., where he has been President since 1997. Prior to that, he served as PremiumWear's Executive Vice President of Sales and Marketing from 1995 to 1997. Mr. Berg has also served as PremiumWear's Chief Executive Officer since 1999, and he served as Chief Operating Officer from 1996 to 1999. John F. Fairbanks, age 40, joined the Company in 1994, and he has been Senior Vice President and President--Chiswick since 1998. Prior to that, he served as Vice President and Chief Financial Officer from 1996 to 1998, as Vice President and Corporate Controller during 1996, and prior to that in different capacities in corporate administration. Daniel M. Junius, age 49, joined the Company in 1998, and he has been Senior Vice President, Chief Financial Officer and Treasurer since 1998. Prior to joining the Company, he served as Vice President--Finance and Chief Financial Officer of Nashua Corporation, a supplier of specialty imaging products and services, from 1995 to 1998, and as Treasurer of Nashua Corporation for more than five years previous to 1995. Richard T. Riley, age 45, joined the Company in 1997 in connection with the Company's acquisition of Rapidforms, Inc., and has been Senior Vice President and President--NEBS Direct Marketing since July 2001. Prior to that he served as Senior Vice President and President--Integrated Marketing Services from 2000 to June 2001, and as Senior Vice President and President--Rapidforms from 1998 to 2000. He served as President of Rapidforms, Inc. from 1992 to June 2001, and during 1998 he held the additional title of Vice President of the Company. Steven G. Schlerf, age 49, joined the Company in 1979, and he has been Senior Vice President--Manufacturing and Technical Operations since 1998. Prior to that he served as Vice President--Manufacturing and Technical Operations from 1996 to 1998, and prior to that in a variety of capacities in manufacturing and operations. Robert D. Warren, age 50, joined the Company in 1996, and he has been Senior Vice President and President--International since 2000. Prior to that he served as Senior Vice President--Business Management and Development from 1998 to 2000, as Vice President--Business Management and Development from 1996 to 1998, and as Vice President--Business Management and Business Solutions during 1996. 9 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Common Stock The Company's Common Stock is listed and traded on the New York Stock Exchange under the symbol "NEB". For the fiscal periods indicated, the high and low sales prices for shares of the Company's Common Stock as reported on the New York Stock Exchange--Composite Transactions Reporting System were as follows:
Fiscal 2001 High Low - ----------- ----- ----- 1st Quarter............. 22.00 16.19 2nd Quarter............. 21.38 14.69 3rd Quarter............. 21.87 16.31 4th Quarter............. 19.45 16.90
Fiscal 2000 High Low - ----------- ----- ----- 1st Quarter............. 31.00 26.81 2nd Quarter............. 29.94 18.00 3rd Quarter............. 24.44 15.38 4th Quarter............. 17.50 13.25
As of August 22, 2001, there were 582 stockholders of record, and the Company believes that as of such date there were approximately 6,000 beneficial owners of the Company's Common Stock, based on information provided by the Company's transfer agent. Information with respect to dividends paid on the Company's Common Stock during the past two fiscal years is shown in the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K. 10 ITEM 6. SELECTED FINANCIAL DATA FIVE YEAR SUMMARY (In thousands, except per share amounts and Other Statistics)
June 30, June 24, June 26, June 27, June 28, For the fiscal year ended 2001(A) 2000(B) 1999(C) 1998(D) 1997(E) - ------------------------- --------- --------- --------- --------- --------- Income Statement Statistics Net sales................ $586,091 $523,053 $503,933 $380,189 $279,540 Income before income taxes................... 30,726 45,697 43,742 41,405 31,380 Percent of sales....... 5.2% 8.7% 8.7% 10.9% 11.2% Provision for income taxes................. 11,983 16,339 17,291 16,471 12,731 Percent of sales....... 2.0% 3.1% 3.4% 4.3% 4.6% Net income............... 18,743 29,358 26,451 24,934 18,649 Percent of sales....... 3.2% 5.6% 5.3% 6.6% 6.7% Percent of stockholders' equity.. 14.9% 24.2% 23.1% 30.9% 24.6% Per diluted common share................. 1.43 2.12 1.81 1.77 1.38 Dividends per common share................... .80 .80 .80 .80 .80 - --------------------------------------------------------------------------------- Balance Sheet Statistics Current assets........... $138,016 $108,216 $ 97,903 $100,009 $ 68,426 Current liabilities...... 68,606 52,254 45,775 50,677 33,327 Working capital.......... 69,410 55,962 52,128 49,332 35,099 Current ratio............ 2.0 2.1 2.1 2.0 2.1 Total assets............. 377,684 323,671 300,262 307,577 141,196 Long-term debt........... 179,168 133,500 128,000 141,000 27,000 Obligations under capital lease................... 2,873 2,429 0 0 0 Stockholders' equity..... 113,903 125,729 121,529 114,505 80,581 Diluted weighted average shares outstanding...... 13,143 13,868 14,640 14,106 13,525 Book value per common share................... 9.11 9.31 8.65 8.01 5.92 - --------------------------------------------------------------------------------- Cash Flow Statistics EBITDA (F)............... $ 73,183 $ 80,043 $ 77,081 $ 61,194 $ 40,954 Percent of sales....... 12.5% 15.3% 15.3% 16.1% 14.7% Net cash provided by operating activities.... 55,571 53,104 45,608 41,478 37,763 Net cash used by investing activities.... (65,783) (33,168) (16,125) (144,207) (38,936) Net cash provided (used) by financing activities.............. 13,958 (20,086) (35,619) 105,412 1,928 Capital expenditures..... (26,836) (21,057) (16,866) (13,275) (9,567) Depreciation and amortization............ 28,979 25,721 24,845 15,218 9,090 - --------------------------------------------------------------------------------- Other Statistics Number of employees...... 3,819 3,779 3,727 3,738 2,164 Number of stockholders... 6,000 6,000 6,200 6,000 6,000 Number of 24-month customers............... 2,650,000 2,602,000 2,526,000 2,507,000 1,651,000 Facilities (in square feet)................... 1,613,000 1,659,000 1,531,000 1,594,000 886,000 - ---------------------------------------------------------------------------------
(A) Included in the 2001 results is a $7.3 million net after tax charge, or $.55 per diluted share, related to restructuring and integration activities. (B) Included in the 2000 results is a $.9 million tax benefit, or $.07 per diluted share, from a favorable letter ruling effecting prior years' taxes. (C) Included in the 1999 results is a $.3 million pretax gain, or $.01 per diluted share, from the settlement of the Company's Canadian defined benefit pension plan. (D) Included in the 1998 results is a $.9 million pretax gain, or $.04 per diluted share, from the settlement of the Company's U.S. defined-benefit pension plan and curtailment of the Company's Canadian defined-benefit pension plan. (E) Included in the 1997 results is a $3.8 million pretax charge, or $.17 per diluted share, related to the elimination of the Company's retail initiative with Kinko's and a $2.2 million pretax gain, or $.10 per diluted share, from the curtailment of the Company's U.S. defined-benefit pension plan. (F) Earnings before interest expense, taxes, depreciation and amortization. See the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K. 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview New England Business Service, Inc. (the "Company") was founded in 1952, incorporated in Massachusetts in 1955 and reincorporated in Delaware in 1986. The Company designs, produces and distributes business forms, checks, envelopes, labels, greeting cards, signs, stationery and related printed products and distributes packaging, shipping and warehouse supplies, software, work and promotional apparel and other business products through direct mail, direct sales, telesales, dealers and the Internet to small businesses throughout the United States, Canada, the United Kingdom and France. During the past five years the Company has completed several acquisitions, the most recent of which is described below. The Company also designs, embroiders and sells specialty apparel products through distributors and independent sales representatives to the promotional/advertising specialty industry, primarily in the United States. In July 2000, the Company acquired all the outstanding shares of PremiumWear, Inc. The purchase price was $13.50 per share in cash and totaled approximately $39.0 million (net of cash acquired) for the shares plus debt assumed of $3.9 million. PremiumWear designs, embroiders and sells specialty apparel products through distributors and independent sales representatives to the promotional products/advertising specialty industry, primarily in the United States. The Company's fiscal year ends the last Saturday of June. The Company's results for fiscal year 2001 contained 53 weeks, whereas fiscal years 2000 and 1999 contained 52 weeks. In the first quarter of fiscal year 2001, the Company changed its internal reporting for segments. This change was precipitated by the acquisition of PremiumWear and the realignment of the Company's international subsidiaries. Prior year figures have been restated so as to match the current year presentation. The Company has now identified five reportable segments. The first segment is "Direct Marketing-US" and represents those business operations that sell primarily printed products such as checks and business forms to small businesses through direct marketing in the United States. The second segment, "Direct Sales-US," also sells primarily checks and business forms to small businesses; however, they sell primarily through distributors or by directly selling to the customer in the United States. The third segment, "Apparel", utilizes independent sales representatives to market its specialty apparel products and to solicit orders from customers in the promotional products/advertising specialty industry. "Packaging and Display Products", the fourth segment, primarily resells packaging and shipping supplies and retail signage marketed through both direct marketing and direct selling efforts. The fifth segment, "International", sells primarily printed products such as checks and business forms to small businesses in Europe and Canada through direct marketing, distributors or a direct sales force. Any sentence followed by an asterisk (*) in this section constitutes a forward-looking statement which reflects the Company's current expectations. There can be no assurance the Company's actual performance will not differ materially from those projected in such forward-looking statements due to the important factors described in the section of this Management's Discussion and Analysis of Financial Condition and Results of Operations titled "Certain Factors That May Affect Future Results". Results of Operations 2001 versus 2000 Net sales increased $63.0 million, or 12.1%, to $586.1 million for fiscal year 2001 from $523.1 million in fiscal year 2000. The sales increase was composed of a $64.6 million increase associated with the Direct Sales-US, Packaging and Display and Apparel segments. Included in this increase are $56.9 million in sales from the PremiumWear, Inc. operation, which makes up the Apparel segment, purchased in July 2000 and hence not part of the comparable figures for fiscal year 2000. These increases were offset by a slight decline, of $1.6 million, in sales of the Company's Direct Marketing-US and International segments. 12 For fiscal year 2001, cost of sales increased to 43.6% of sales from 40.4% in fiscal year 2000. The increase was due primarily to the addition of PremiumWear, which incurs a higher cost of sales as a percentage of sales than the Company's other businesses. Excluding PremiumWear, cost of sales was 40.3% of sales, which is consistent with fiscal year 2000. In fiscal 2001, increased handling charges and freight discounts and improvement in plant efficiencies were offset by increases in material costs year-to-year due to a shift in product sales towards outsourced products. Cost of sales as a percentage of sales is anticipated to remain relatively consistent with fiscal year 2001 during fiscal year 2002.* Selling and advertising expense decreased to 33.7% of sales in fiscal year 2001 from 34.9% of sales in fiscal year 2000. The year to year decrease was due primarily to the addition of PremiumWear, which has a significantly lower selling and advertising expense as a percentage of sales than in the Company's other businesses. Selling and advertising expense as a percentage of sales is anticipated to decrease slightly during fiscal year 2002.* General and administrative expense declined as a percentage of sales from 14.4% of sales in fiscal year 2000 to 14.0% in fiscal year 2001. The decrease was due to the lower general and administrative expense as a percentage of sales incurred in PremiumWear. Without considering the effect of PremiumWear, general and administrative expense as a percentage of sales would have climbed due to increased investment in information systems and general corporate expenses. Additionally, during the year, the Company recognized an impairment charge of $1.7 million for the write-off of capitalized internal-use software related to an enterprise resource planning system the Company no longer plans to implement. The Company also recognized an impairment charge of $.5 million for the write-off of its investment in a privately owned web hosting company. These charges are included in general and administrative expenses. General and administrative expense as a percentage of sales is anticipated to remain relatively consistent with fiscal year 2001 during fiscal year 2002.* During fiscal year 2001, the Company undertook two separate restructuring actions. The first resulted in a restructuring charge of $3.5 million to provide for costs primarily associated with the Company's decision to more closely align its direct marketing and direct sales activities. As part of the restructuring program, the McBee US headquarters has been relocated from Parsippany, New Jersey to the existing RapidForms facility in Thorofare, New Jersey. In addition, the McBee manufacturing plant in Damascus, Virginia was closed and a portion of leased warehousing space currently occupied by Chiswick in Sudbury, Massachusetts was vacated. In Canada, the McBee sales and marketing organizations were combined with the local NEBS Direct Marketing operation and are operating under the NEBS name. Approximately 140 employees have been or will be affected by the restructuring either through elimination of their positions or relocation. The second restructuring action resulted in the Company recording an additional restructuring charge of $3.6 million to provide for costs associated with the Company's decision to eliminate excess capacity by closing a manufacturing facility in Ogden, Utah and a leased distribution facility in Sudbury, Massachusetts, along with other actions to reduce the workforce in various locations. Approximately 175 employees have been or will be affected by the restructuring, either through elimination of their positions or relocation. The following is a table of the charges incurred and the cash paid pursuant to these actions (in millions of dollars):
Balance Charge for Payments or reductions Balance Type of Liability June 24, 2000 the period for the period June 30, 2001 - ----------------- ------------- ---------- ---------------------- ------------- First Restructuring Employee termination benefit costs.......... $-- $2.2 $(1.3) $.9 Facility closure costs.. -- 1.3 (.6) .7 Second Restructuring Employee termination benefit costs.......... -- 2.9 (.5) 2.4 Facility closure costs.. -- .7 -- .7
The activities related to all restructuring actions identified above are anticipated to be completed by the Company during fiscal year 2002.* 13 Interest expense increased to 2.3% of sales in fiscal year 2001 from 1.7% of sales in fiscal year 2000. The increase is the result of additional debt, primarily from the PremiumWear acquisition in July 2000, additional treasury share repurchases, and higher interest rates in the current year. Interest expense as a percentage of sales is anticipated to remain relatively consistent with fiscal year 2001 during fiscal year 2002.* The provision for income taxes as a percentage of pre-tax income increased to 39.0% in fiscal year 2001 from 35.8% in fiscal year 2000. The lower fiscal year 2000 provision was due to a favorable letter ruling affecting prior years' state tax rates. The Company anticipates that its effective tax rate for fiscal year 2002 will be relatively consistent with fiscal year 2001.* The Company will continue to seek opportunities to acquire companies, businesses and product lines to enhance the Company's competitive position in the marketplace or to gain access to new markets, products, competencies or technologies such as the PremiumWear acquisition completed in July 2000.* In addition, the Company will continue to seek opportunities to enhance the cost structure of the Company, to improve operating efficiencies, and to fund investments in support of the Company's strategies.* 2000 versus 1999 Net sales increased $19.2 million, or 3.8%, to $523.1 million for fiscal year 2000 from $503.9 million in fiscal year 1999. The net sales increase was due to growth in sales of seasonal holiday cards and personalized work apparel sold principally through the Direct Marketing-U.S. and International segments. Net sales increased in the Packaging and Display segment primarily as a result of expanded distribution facilities. In the Direct Sales-U.S. segment, net sales growth was attributable to an increase in orders derived from bank referral contracts. For fiscal year 2000, cost of sales decreased to 40.4% of sales from 40.5% in fiscal year 1999. This change was partially due to increased efficiencies in the Company's U.S. operating units primarily selling business forms and related printed products tied in part to the benefits from acquisition integration activities in fiscal 2000 which helped offset higher transportation costs. Selling and advertising expense decreased to 34.9% of sales in fiscal year 2000 from 35.0% of sales in fiscal year 1999. The decrease was due primarily to reduced direct mail costs. This decrease was partially offset by higher selling and advertising expense generated by the McBee sales force. General and administrative expense increased to 14.4% of sales in fiscal year 2000 from 14.2% in fiscal year 1999. During fiscal year 2000, the Company continued to increase spending levels associated with its program to re- engineer financial and operational information systems. Interest expense was at 1.7% of sales in fiscal years 2000 and 1999. The provision for income taxes as a percentage of pretax income decreased from 39.5% in fiscal year 1999 to 35.8% in fiscal year 2000 primarily as a result of a one-time tax benefit due to a favorable letter ruling effecting both current and prior years' state taxes. New Accounting Pronouncements In the first quarter of fiscal 2001, the Company adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This adoption resulted in an initial credit of $.4 million (net of tax) to Accumulated Other Comprehensive Loss. However, the adoption of the Standard had an immaterial impact on net income for the period. In the fourth quarter of fiscal 2001, the Company adopted Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition". This SAB was intended to clarify certain elements of revenue recognition. It has been supplemented by a "frequently asked questions" document. Adoption of this SAB did not materially impact the Company's revenue recognition practices. 14 In the fourth quarter of fiscal 2001, the Company adopted the Emerging Issues Task Force Consensus No. 00-10, "Accounting for Shipping and Handling Fees and Costs". The consensus states that a seller of goods should classify fees attributable to shipping and handling in the income statement as revenues. The Company had previously netted such fees against shipping and handling costs in the cost of sales line. In fiscal years 2001, 2000 and 1999, approximately $42 million, $37.7 million and $33.5 million, respectively, which previously would have reduced cost of sales, have been classified as revenues. There was no effect on reported net income. In July 2001, the FASB issued SFAS No. 141, "Business Combinations," which supersedes APB Opinion No. 16, "Business Combinations," and SFAS No. 142, "Goodwill and Intangible Assets," which supercedes APB opinion No. 17, "Intangible Assets". SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations and modifies the application of the purchase accounting method. The elimination of the pooling-of-interests method is effective for transactions initiated after June 30, 2001. The remaining provisions of SFAS No. 141 will be effective for transactions accounted for using the purchase method that are completed after June 30, 2001. SFAS No. 142 eliminates the current requirement to amortize goodwill and indefinite-lived intangible assets, addresses the amortization of intangible assets with a defined life and addresses the impairment testing and recognition for goodwill and intangible assets. SFAS No. 142 will apply to goodwill and intangible assets arising from transactions completed before and after the Statement's effective date. SFAS No. 142 is effective for fiscal 2002. Adoption of these statements will result in $98.3 million of goodwill and tradenames, currently being amortized over periods of 20 to 40 years, no longer requiring recurring amortization. Additionally, an intangible asset called assembled workforce will be reclassified to goodwill and will result in $2.3 million, currently being amortized over a period of 6 years, no longer requiring recurring amortization. In fiscal year 2002, approximately $3.9 million which previously would have been amortized will not require amortization. No restatement of prior periods is required; instead a footnote disclosure will identify the historical effect on earnings. Liquidity and Capital Resources Cash provided by operating activities amounted to $55.6 million in fiscal year 2001, approximately $2.5 million, or 4.7%, higher than the $53.1 million provided in fiscal year 2000. This increase in cash provided by operating activities was composed principally of a $10.6 million decrease in net income, a $3.3 million increase in non-cash depreciation and amortization, a $2.2 million charge for asset impairments, $7.1 million for exit costs and $.5 million in the amount of cash provided by working capital and other non-cash adjustments to reported net income. In fiscal year 2000, cash provided by operating activities increased $7.5 million, or 16.4%, from the $45.6 million dollars provided in fiscal year 1999 due principally to a $2.9 million increase in net income and a $.9 million increase in non-cash depreciation and amortization expense, plus an increase of $3.7 million in the amount of cash provided by working capital and other non-cash adjustments to reported net income. Working capital as of June 30, 2001 amounted to $69.4 million, including $7.2 million of cash and short-term investments. This represents an increase of $13.5 million from the working capital balance of $55.9 million, including cash and short-term investments of $3.5 million, at the end of fiscal year 2000. The increase in working capital during the period is principally due to the effect of the PremiumWear, Inc. acquisition in July 2000. The Company does not expect to experience any significant change to the amount of working capital investment required to support its business during fiscal year 2002.* Working capital increased in fiscal year 2000 by $3.8 million, which was not a significant change. Capital expenditures of $26.8 million in fiscal year 2001 represented a $5.7 million increase from the $21.1 million expended in fiscal year 2000 and a $9.9 million increase from the $16.9 million expended in fiscal year 1999. Capital expenditures over the three-year period have included significant investments in the purchase, development and implementation of information systems infrastructure, operating systems and the Company's website and manufacturing related equipment. In fiscal year 2001, over $5.0 million was invested in information systems and embroidery and distribution capacity for the company's recently acquired PremiumWear business. Capital expenditures in fiscal year 2000 included an investment of $1.0 million in a leased distribution center in Lithia Springs, Georgia; and in fiscal year 1999 included a $1.2 million expansion of the Company's Midland, 15 Ontario manufacturing facility. The Company expects capital expenditures to approximate $16.5 million in fiscal year 2002, which will include additional planned improvements in information systems infrastructure and investments to enhance manufacturing capability.* The Company repurchased 1,111,432 shares of the Company's common stock for $17.6 million in cash during fiscal year 2001, 595,157 shares of the Company's common stock for $14.2 million in cash during fiscal year 2000 and 509,600 shares of the Company's common stock for $14.0 million in cash during fiscal year 1999. In addition, the Company declared and paid a cash dividend of $.80 per share during each of the last three fiscal years, amounting to a total of $10.4 million in fiscal 2001, $11.0 million in fiscal 2000 and $11.5 million in fiscal 1999. The Company still has authorization from its Board to purchase an additional 1,202,600 shares of its stock. In addition to its present cash and short-term investment balances, the Company has consistently generated sufficient cash internally to fund its needs for working capital, dividends and capital expenditures. The Company currently has a committed, unsecured, revolving credit agreement for $200 million. Subsequent to the end of the fiscal year, in July 2001, the Company amended the agreement to decrease the participating banks to seven and extend the facility maturity date to July 2004. At June 30, 2001, the Company had $178.5 million of outstanding debt under this credit facility. The credit agreement contains various restrictive covenants which, among other things, require the Company to maintain certain minimum levels of consolidated net worth and specific consolidated debt and fixed charge ratios. The Company is in compliance with these provisions. Subsequent to the end of the fiscal year, during July 2001, the Company entered into a committed, unsecured, revolving credit agreement for $10 million. Under this credit agreement the Company has the option to borrow at the Eurodollar rate plus a spread or the agent bank's lending rate prevailing from time to time. The credit agreement contains various restrictive covenants which, among other things, require the Company to maintain certain minimum levels of consolidated net worth and specific consolidated debt and fixed charge ratios. In order to effectively fix the interest rate on a portion of the debt outstanding under the revolving line of credit, the Company has entered into seven interest rate swap agreements with three of the banks party to the credit agreements. These swap agreements contain notional principal amounts and other terms (including rate of interest paid and received and maturity date) determined with respect to the Company's forecasts of future cash flows and borrowing requirements. At June 30, 2001 the notional principal amount outstanding under the interest rate swap agreements totaled $160.0 million. The Company anticipates that its current cash on hand, cash flow from operations and additional availability under the lines of credit will be sufficient to meet the Company's liquidity requirements for its operations and capital expenditures during fiscal year 2002.* However, the Company may pursue additional acquisitions from time to time, such as the acquisitions mentioned in "Overview", which would likely be funded through the use of available cash, the issuance of stock, the obtaining of additional credit, or any combination thereof.* Certain Factors That May Affect Future Results References in this section to "we", "us" and "our" refer to New England Business Service, Inc. We may make forward-looking statements in this report and in other documents filed with the SEC, in press releases, and in discussions with analysts, investors and others. These statements include: . descriptions of our operational and strategic plans, . expectations about our future sales and profits, . views of conditions and trends in our markets, and . other statements that include words like "expects", "estimates", "anticipates", "believes" and "intends", and which describe opinions about future events. 16 You should not rely on these forward-looking statements as though they were guarantees. These statements are based on our expectations at the time the statements are made, and we are not required to revise or update these statements based on future developments. Known and unknown risks may cause our actual results, performance or achievements to be materially different from those expressed or implied by these statements. A majority of our sales and profits come from selling standardized business forms, checks and related products by mail order, telesales and direct sales to a target market consisting mainly of small businesses. We believe that the critical success factors to compete in this market include competitive pricing, breadth of product offering, product quality and the ability to attract and retain a large number of individual customers. Known material risks that may affect those critical success factors are described below. A majority of the sales in our newly-acquired apparel business come from selling knit and woven sport shirts under labels licensed from third parties to the promotional products/advertising specialty industry. We believe that the critical success factors to compete in this market include product quality, timely fulfillment of customer orders and brand awareness. Known material risks that may affect those success factors are also described below. Our printed product lines face increased competition from new sources, such as office supply superstores and Internet-based vendors. Increased competition may require us to reduce prices or offer other incentives in order to attract new customers and retain existing customers, which could reduce our profits. Low-price, high-volume office supply chain stores have entered our core business of selling standardized business forms, checks and related products to small businesses. Because of their size, these superstores have the buying power to offer many of these products at competitive prices. These superstores also offer the convenience of "one-stop shopping" for a broad array of office supplies that we do not offer. In addition, national superstore competitors have greater financial strength to reduce prices or increase promotional discounts in order to seek or retain market share. Recently, Internet-based vendors have begun to compete in our core business. These vendors include both start-up ventures as well as the online sites of the office supply national chains. One business model for many Internet-based vendors is to seek market share as rapidly as possible through significantly reduced prices and deep discounting. If any of these new competitors seek to gain or retain market share through price reductions or increased discounting, we may be forced to reduce our prices or match the discounts in order to stay competitive, which could reduce our profits. Technological improvements may reduce our competitive advantage over our smaller competitors, which could reduce our profits. Historically, our relatively greater financial strength and size have enabled us to offer a broader array of products, particularly those having a complex construction, at lower prices than the small local and regional dealers, distributors and printers who constitute our primary competition. Improvements in the cost and quality of printing technology are enabling these smaller competitors to gain access to products of complex design and functionality at competitive costs. Increased competition from local and regional competitors could force us to reduce our prices in order to attract and retain customers, which could reduce our profits. Because our long-term sales growth is dependent on our ability to continually attract new customers in our target small business market, economic events that adversely affect the small business economy may reduce our sales and profits. Average annual sales per customer of our core products have remained relatively stable over time. As a result, we rely, in part, on continually attracting new customers for these mature products. Our sales and profits 17 have been adversely affected by economic-related contractions in the small business economy. We expect that our sales and profits will continue to be affected by changes in the levels of small business formations and failures and from other economic events that affect the small business economy generally. Because our long-term sales growth is dependent on our ability to continually attract new customers in our target small business market, changes in the direct marketing industry that reduce our competitive advantage in contacting prospective customers may reduce our sales and profits. Growth in the total number of our direct mail customers depends on continued access to high-quality lists of newly-formed small businesses. In the past, our ability to compile proprietary prospect lists was a distinct competitive advantage. However, the external list compilation industry has grown more sophisticated and comprehensive lists of new small business formations are now commercially available to our competitors. In addition, the Internet has the potential to eliminate our advantage of scale in direct marketing by providing all competitors, regardless of current size, with access to prospective customers. We currently rely on the speed of our delivery of promotional materials to prospective customers to gain advantage over competitors. We are also expanding our Internet product offerings and capabilities and seeking to increase our visibility on the Internet. Notwithstanding these efforts, a deterioration in our competitive advantage in contacting prospective customers could reduce our sales and profits. In addition, the enactment of privacy laws could constrain our ability to obtain prospect lists or to telemarket to prospective customers. Increases in the cost of paper and in postal rates adversely impact our costs, which we may be unable to offset by reducing costs in other areas or by raising prices. The cost of paper to produce our products, catalogs and advertising materials makes up a significant portion of our total costs. Also we rely on the U.S. Postal Service to deliver most of our promotional materials. Prices for the various types of paper that we use have been volatile, and we expect them to continue to be so. Third class postal rates have generally increased over the past ten years, at times significantly. We are not sure that we will always be able to reduce costs in other areas or to increase prices for our products sufficiently to offset increases in paper costs and postal rates. If we are unable to offset these cost and expense increases, our profits will be adversely affected. Disruption in the services provided by certain of our critical vendors may adversely affect our operating performance and profits. In order to obtain favorable pricing, we have selected a limited number of vendors to provide key services to our business. Examples of this are as follows: . we use MCI WorldCom to provide a majority of the toll-free telephone lines for our direct marketing business, . we use United Parcel Service to deliver most of the products that we ship to customers, . we rely on the postal services of the countries in which we do business to deliver our catalogs and other advertising material to customers. In the past, we have been adversely affected by disruption of some of these services due to labor actions, system failures, adverse weather conditions and other natural disasters. If there are future interruptions in service from one or more of these vendors, we believe that there could be a significant disruption to our business due to our inability to readily find alternative service providers at comparable rates. 18 Sales of our standardized forms products face technological obsolescence and changing customer preferences, which could reduce our sales and profits. Our standardized business forms, checks and related products provide our customers with financial and business records to manage their businesses. Continual technological improvements have provided our target customers in several market segments with alternative means to enact and record business transactions. For example, the price and performance capabilities of personal computers and related printers now provide a cost-competitive means to print low-quality versions of our business forms on plain paper. In addition, electronic transaction systems and off-the-shelf business software applications have been designed to automate several of the functions performed by our business form products. In response to the gradual obsolescence of our standardized forms business, we continue to develop our capability to provide custom and full-color products. However, we have less of a cost advantage with these products than with standardized forms, due to improvements in the cost and quality of printing technology available to our smaller local and regional competitors. We are also seeking to introduce new products that are less susceptible to technological obsolescence. We may develop new products internally, procure them from third party vendors, or obtain them through the acquisition of a new business. We generally realize lower gross margins on outsourced products than on products that we manufacture ourselves. The risks associated with the acquisition of new businesses are described below. If new printing capabilities and new product introductions do not continue to offset the obsolescence of our standardized business forms products, there is a risk that the number of new customers we attract and existing customers we retain may diminish, which could reduce our sales and profits. Decreases in sales of our historically high margin standardized business forms products due to obsolescence could also reduce our gross margins. This reduction could in turn adversely impact our profits unless we are able to offset the reduction through the introduction of new high margin products and services or realize cost savings in other areas. We source our apparel products from offshore third party manufacturers. Difficulty in securing reliable sources for these products could adversely affect our ability to maintain inventory levels that are adequate to satisfy customer demand. We purchase a majority of our apparel products either from "full package" manufacturers in various foreign countries, or through 807 programs (assembly only) in Central America. In most cases these same manufacturers supply other apparel companies, many of which are significantly larger than our apparel business and are able, when necessary, to secure preferential treatment from the manufacturers. The availability of product from these manufacturers can also be adversely affected by social and economic conditions in their respective regions. Any significant disruption in our relationships with our current manufacturers could adversely affect our apparel business to the extent we cannot readily find alternative sources of supply at comparable levels of price and quality. Inaccurate forecasting of the demand for specific apparel styles and sizes could reduce our sales and profits. We believe that success in our apparel business depends in part on our ability to immediately ship ordered products, either directly or through our distributors. Given the relatively long lead time in procuring inventory, we must estimate demand for specific styles and sizes well in advance of receiving firm orders from customers in order to ensure the timely availability of these products. Inaccurate forecasting of demand for specific styles and sizes can result in either lost sales due to product unavailability, or reduced margins from overstocked items. Failure of our apparel licensors to adequately promote our licensed brands and protect those brands from infringement could reduce our sales and profits. We believe that brand awareness is an important factor to the end-user of our apparel products, and in that regard we market and sell a majority of our apparel products under nationally-recognized brands licensed from 19 third parties. In each case, the licensor is primarily responsible for promoting its brand and protecting its brand from infringement. The failure of one or more of our licensors to adequately promote or defend their brands could diminish the perceived value of those brands to our customers, which could lead to reduced sales and profits. Our growth strategy depends, in part, on the acquisition of complementary businesses that address our target small business market. The acquisition of complementary businesses that address our target small business market has been important to our growth strategy. We intend to continue this acquisition activity in the future. The success of this activity depends on the following: . our ability to identify suitable businesses and to negotiate agreements on acceptable terms, . our ability to obtain financing through additional borrowings, by issuing additional shares of common stock, or through internally generated cash flow, and . our ability to achieve anticipated savings and growth and avoid disruption to our existing businesses. In evaluating a potential acquisition, we conduct a business, financial and legal review of the target. This review is intended to support our assumptions with respect to the projected future performance of the target and to identify the benefits and risks associated with those assumptions. We cannot be certain that our review will identify all potential risks associated with the purchase, integration or operation of acquired businesses. Unanticipated risks may adversely affect the benefits that we expect to obtain from any given acquisition. Any write-down of our investment in Advantage Business Services Holdings, Inc. required under generally accepted accounting principles could reduce our reported earnings. As of the date of this Annual Report on Form 10-K, we have invested a total of $30.5 million for a minority investment in Advantage Business Services Holdings, Inc., a closely-held payroll processing company. This investment is currently reported on our balance sheet at our cost. If, as a result of Advantage's performance or other economic factors beyond our control, the value of this investment on our books exceeds the realizable value of the investment in the market, then we may be required under generally accepted accounting principles to write-down the reported value of the investment, which could reduce our reported earnings for the period in which the write- down occurs. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to a number of market risks, primarily due to the effects of changes in foreign currency exchange rates and interest rates. Investments in and loans and advances to foreign subsidiaries and branches, and their resultant operations, denominated in foreign currencies, create exposures to changes in exchange rates. The Company's utilization of its revolving line of credit (which carries a variable interest rate) creates an exposure to changes in interest rates. The effect, however, of changes in exchange rates and interest rates on the Company's earnings generally has been small relative to other factors that also affect earnings, such as business unit sales and operating margins. This is because (i) foreign operations represent a relatively small portion of the Company's total activity, the magnitude of foreign currency transactions has been minimal and forward foreign currency contracts have been historically entered into to hedge certain foreign exchange rate fluctuations; (ii) a significant portion of the Company's borrowings are fixed through interest rate swaps. In order to effectively convert the interest rate of a portion of the Company's debt from a Eurodollar-based floating rate to a fixed rate, the Company has entered into interest rate swap agreements with major commercial banks. Although the Company is exposed to credit and market risk in the event of future nonperformance by any of the banks, management has no reason to believe that such an event will occur. The Company does, however, have a component of its borrowings that is not hedged. A 10% upward movement in interest rates would impact earnings and cash flows by approximately $.1 million because of this 20 unhedged position. For more information on these market risks and financial exposures, see the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. The Company does not hold or issue financial instruments for trading, profit or speculative purposes. As described above, while the Company has historically hedged short-term foreign exchange exposures, all such positions were closed in fiscal 2000. This is because the Company either had its foreign subsidiaries repay any dollar advances or converted such advances to equity positions in the subsidiaries. Accordingly, as of the end of the year, the Company had minimal exposure to exchange rate fluctuation. Upon reviewing its derivatives and other foreign currency and interest rate instruments, based on historical foreign currency rate movements and the fair value of market-rate sensitive instruments at year-end, the Company does not believe that changes in foreign currency or interest rates will have a material impact on its near term earnings, fair values or cash flows. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA The Company's financial statements, together with the independent auditors' report thereon, appear beginning on page F-1 of this Annual Report on Form 10- K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 21 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Company will furnish to the Securities and Exchange Commission not later than 120 days after the close of its fiscal year ended June 30, 2001 a definitive Proxy Statement (the "Proxy Statement") for the Annual Meeting of Stockholders to be held on October 26, 2001. The information required by this Item concerning the directors of the Company who have been nominated for reelection is incorporated by reference to "Election of Directors" in the Proxy Statement. Benjamin H. Lacy, a director since 1970, has decided to retire from NEBS Board and will not be standing for reelection at the above-mentioned Annual Meeting of Stockholders. The information required by this item concerning Mr. Lacy is as follows: Mr. Lacy, age 75, has been Chairman of the Board and, prior to July 2000, President of The Clipper Ship Foundation, Inc., a grant- making charitable foundation, since 1995. Prior to that he was a partner of, and subsequently of counsel to, the law firm of Hill & Barlow, a professional corporation. The information required by this Item concerning the executive officers of the Company appears in Part I, Item 4.1 to this Annual Report on Form 10-K. Section 16(a) Beneficial Ownership Reporting Compliance Information regarding compliance with Section 16(a) beneficial ownership reporting requirements is located in the Proxy Statement under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference to "Election of Directors" and "Executive Compensation" in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference to "Voting Securities" in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference to "Certain Relationships and Related Transactions" in the Proxy Statement. 22 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K The following documents are filed as part of this report: (a)(1) Consolidated Financial Statements
Page ---- New England Business Service, Inc. and Subsidiaries Consolidated Balance Sheets as of June 30, 2001 and June 24, 2000......... F-2 Statements of Consolidated Income for the fiscal years ended June 30, 2001, June 24, 2000 and June 26, 1999............................................................ F-3 Statements of Consolidated Stockholders' Equity for the fiscal years ended June 30, 2001, June 24, 2000 and June 26, 1999........................... F-4 Statements of Consolidated Cash Flows for the fiscal years ended June 30, 2001, June 24, 2000 and June 26, 1999.................................... F-5 Notes to Consolidated Financial Statements................................ F-6 Independent Auditors' Report.............................................. F-20 (a)(2) Financial Statement Schedule Schedule II -- Valuation and Qualifying Accounts.......................... F-21
Schedules I, III, IV and V are omitted as they are not applicable or required under Regulation S-X. (a)(3) List of Exhibits Exhibits required to be filed by Item 601 of Regulation S-K are listed in the exhibit index beginning on page X-1. (b) Reports on Form 8-K None 23 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. New England Business Service, Inc. (Registrant) /s/ Robert J. Murray By: _________________________________ (Robert J. Murray, Chairman, President and Chief Executive Officer) Date: September 1, 2001 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each of the undersigned officers and directors of New England Business Service, Inc., a Delaware corporation (the "Company"), hereby constitutes and appoints Robert J. Murray and Daniel M. Junius, and each of them, with full power to act without the other, his or her true and lawful attorney-in-fact, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities (until revoked in writing) to sign the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2001, and any and all amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
Name Title Date ---- ----- ---- /s/ Robert J. Murray Chairman, President and September 1, 2001 ______________________________________ Chief Executive Officer (Robert J. Murray) and Director (Principal Executive Officer) /s/ William T. End Director September 1, 2001 ______________________________________ (William T. End) /s/ Neil S. Fox Director September 1, 2001 ______________________________________ (Neil S. Fox) /s/ Robert L. Gable Director September 1, 2001 ______________________________________ (Robert L. Gable) /s/ Benjamin H. Lacy Director September 1, 2001 ______________________________________ (Benjamin H. Lacy) /s/ Thomas J. May Director September 1, 2001 ______________________________________ (Thomas J. May)
24
Name Title Date ---- ----- ---- /s/ Herbert W. Moller Director September 1, 2001 ______________________________________ (Herbert W. Moller) /s/ Brian E. Stern Director September 1, 2001 ______________________________________ (Brian E. Stern) /s/ M. Anne Szostak Director September 1, 2001 ______________________________________ (M. Anne Szostak) /s/ Daniel M. Junius Senior Vice President, September 1, 2001 ______________________________________ Chief Financial Officer (Daniel M. Junius) and Treasurer (Principal Financial and Accounting Officer)
25 INDEX TO FINANCIAL STATEMENTS
Page ---- New England Business Service, Inc. and Subsidiaries Consolidated Balance Sheets as of June 30, 2001 and June 24, 2000......... F-2 Statements of Consolidated Income for the fiscal years ended June 30, 2001, June 24, 2000 and June 26, 1999............................................................ F-3 Statements of Consolidated Stockholders' Equity for the fiscal years ended June 30, 2001, June 24, 2000 and June 26, 1999........................... F-4 Statements of Consolidated Cash Flows for the fiscal years ended June 30, 2001, June 24, 2000 and June 26, 1999.................................... F-5 Notes to Consolidated Financial Statements................................ F-6 Independent Auditors' Report.............................................. F-20 Schedule II--Valuation and Qualifying Accounts............................ F-21
F-1 NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2001 and June 24, 2000 (In thousands of dollars, except share data)
June 30, 2001 June 24, 2000 ------------- ------------- ASSETS Current Assets: Cash and cash equivalents......................... $ 7,154 $ 3,469 Accounts receivable (less allowance for doubtful accounts of $5,344 in 2001 and $5,037 in 2000)... 59,529 55,483 Inventories....................................... 42,599 24,578 Direct mail advertising materials, net and prepaid expenses......................................... 13,601 16,445 Deferred income tax benefit....................... 15,133 8,241 --------- --------- Total current assets........................... 138,016 108,216 Property and Equipment: Land and buildings............................... 45,884 43,553 Equipment........................................ 146,782 122,163 --------- --------- Property and equipment........................... 192,666 165,716 Less accumulated depreciation.................... (115,598) (101,310) --------- --------- Property and equipment, net..................... 77,068 64,406 Deferred Income Tax Benefit....................... 16,986 8,796 Goodwill, net..................................... 68,274 60,567 Tradenames, net................................... 30,073 30,792 Customer Lists, net............................... 16,650 23,974 Long-Term Investments............................. 12,869 13,369 Other Assets...................................... 17,748 13,551 --------- --------- Total.......................................... $ 377,684 $ 323,671 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable.................................. $ 18,546 $ 18,951 Federal and state income taxes.................... 2,868 117 Accrued bonus distribution........................ 2,218 2,382 Accrued payroll expense........................... 10,344 11,894 Accrued employee benefit expense.................. 10,790 6,839 Accrued exit costs/restructuring charge........... 4,665 147 Accrued derivative contracts at fair value........ 4,517 -- Obligations under capital lease--current portion.. 1,323 819 Current portion of long-term debt................. 120 -- Deferred income taxes............................. 3,378 1,761 Other accrued expenses............................ 9,837 9,344 --------- --------- Total current liabilities...................... 68,606 52,254 Obligations Under Capital Lease................... 1,550 1,610 Long-Term Debt.................................... 179,168 133,500 Deferred Income Taxes............................. 14,457 10,578 Commitments and Contingencies Stockholders' Equity: Preferred stock Common stock, par value, $1 per share--authorized, 40,000,000 shares; issued, 15,511,093 shares in 2001 and 15,399,447 shares in 2000; outstanding, 12,499,702 shares in 2001 and 13,499,488 shares in 1999.......................................... 15,511 15,399 Additional paid-in capital........................ 52,083 50,337 Unamortized value of restricted stock awards...... (157) (115) Accumulated other comprehensive loss.............. (7,417) (3,399) Retained earnings................................. 113,628 105,278 --------- --------- Total.......................................... 173,648 167,500 Less treasury stock, at cost--3,011,391 shares in 2001 and 1,899,959 shares in 2000................ (59,745) (41,771) --------- --------- Total stockholders' equity..................... 113,903 125,729 --------- --------- Total.......................................... $ 377,684 $ 323,671 ========= =========
See notes to consolidated financial statements. F-2 NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME For the Fiscal Years Ended June 30, 2001, June 24, 2000 and June 26, 1999 (In thousands, except per share data)
2001 2000 1999 -------- -------- -------- Net Sales......................................... $586,091 $523,053 $503,933 Cost of sales including shipping costs.......... 255,458 211,181 204,284 -------- -------- -------- Gross Profit...................................... 330,633 311,872 299,649 Operating Expenses: Selling and advertising......................... 197,509 182,425 176,439 General and administrative...................... 82,207 75,264 71,454 Exit costs...................................... 7,145 -- -- -------- -------- -------- Total operating expenses...................... 286,861 257,689 247,893 Income From Operations............................ 43,772 54,183 51,756 Other Income (Expense): Interest income................................. 432 139 221 Interest expense................................ (13,478) (8,625) (8,494) Gain on pension curtailment/settlement.......... -- -- 259 -------- -------- -------- Total other income (expense).................. (13,046) (8,486) (8,014) -------- -------- -------- Income Before Income Taxes........................ 30,726 45,697 43,742 Provision For Income Taxes........................ 11,983 16,339 17,291 -------- -------- -------- Net Income........................................ $ 18,743 $ 29,358 $ 26,451 ======== ======== ======== Per Share Amounts: Basic earnings per share........................ $ 1.44 $ 2.14 $ 1.84 ======== ======== ======== Diluted earnings per share...................... $ 1.43 $ 2.12 $ 1.81 ======== ======== ======== Dividends....................................... $ .80 $ .80 $ .80 ======== ======== ======== Basic Weighted Average Shares Outstanding......... 13,015 13,717 14,352 Plus incremental shares from assumed conversion of stock options and contingently returnable shares......................................... 128 151 288 -------- -------- -------- Diluted Weighted Average Shares Outstanding....... 13,143 13,868 14,640 ======== ======== ========
See notes to consolidated financial statements. F-3 NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY For the Fiscal Years Ended June 30, 2001, June 24, 2000 and June 26, 1999 (In thousands)
Common Stock Issued -------------- Unamortized Accumulated Number At Par Additional Value Other Total of Value Paid-in of Restricted Comprehensive Retained Treasury Stockholders' Shares Amount Capital Stock Awards Income/(Loss) Earnings Stock Equity ------ ------- ---------- ------------- ------------- -------- -------- ------------- Balance, June 27, 1998............. 15,185 $15,185 $44,559 $ 0 $(2,337) $ 71,962 $(14,864) $114,505 Issuance of common stock to employees pursuant to stock plans including tax benefit...... 173 173 4,941 1,318 6,432 Dividends paid.... (11,511) (11,511) Acquisition of treasury stock... (14,031) (14,031) Net income........ 26,451 26,451 Foreign currency translation adjustment....... (317) (317) ------ ------- ------- ----- ------- -------- -------- -------- Balance, June 26, 1999............. 15,358 15,358 49,500 0 (2,654) 86,902 (27,577) 121,529 Issuance of common stock to employees pursuant to stock plans including tax benefit...... 41 41 837 (165) 713 Dividends paid.... (10,982) (10,982) Amortization of restricted stock awards........... 50 50 Acquisition of treasury stock... (14,194) (14,194) Net income........ 29,358 29,358 Foreign currency translation adjustment....... (770) (770) Net unrealized investment gains............ 25 25 ------ ------- ------- ----- ------- -------- -------- -------- Balance, June 24, 2000............. 15,399 15,399 50,337 (115) (3,399) 105,278 (41,771) 125,729 Issuance of common stock to employees pursuant to stock plans including tax benefit...... 112 112 1,746 (188) (334) 1,336 Dividends paid.... (10,393) (10,393) Amortization of restricted stock awards........... 146 146 Acquisition of treasury stock... (17,640) (17,640) Net income........ 18,743 18,743 Foreign currency translation adjustment....... (635) (635) Net unrealized investment losses........... (213) (213) Net unrealized losses on derivatives held for hedging purposes......... (3,019) (3,019) Cumulative effect adjustment recorded upon the adoption of SFAS No. 133.. 391 391 Net pension adjustment....... (542) (542) ------ ------- ------- ----- ------- -------- -------- -------- Balance, June 30, 2001............. 15,511 $15,511 $52,083 $(157) $(7,417) $113,628 $(59,745) $113,903 ====== ======= ======= ===== ======= ======== ======== ======== Comprehensive Income ------------- Balance, June 27, 1998............. Issuance of common stock to employees pursuant to stock plans including tax benefit...... Dividends paid.... Acquisition of treasury stock... Net income........ $26,451 Foreign currency translation adjustment....... (317) ------------- Balance, June 26, 1999............. $26,134 ============= Issuance of common stock to employees pursuant to stock plans including tax benefit...... Dividends paid.... Amortization of restricted stock awards........... Acquisition of treasury stock... Net income........ $29,358 Foreign currency translation adjustment....... (770) Net unrealized investment gains............ 25 ------------- Balance, June 24, 2000............. $28,613 ============= Issuance of common stock to employees pursuant to stock plans including tax benefit...... Dividends paid.... Amortization of restricted stock awards........... Acquisition of treasury stock... Net income........ $18,743 Foreign currency translation adjustment....... (635) Net unrealized investment losses........... (213) Net unrealized losses on derivatives held for hedging purposes......... (3,019) Cumulative effect adjustment recorded upon the adoption of SFAS No. 133.. 391 Net pension adjustment....... (542) ------------- Balance, June 30, 2001............. $14,725 =============
See notes to consolidated financial statements. F-4 NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS For the Fiscal Years Ended June 30, 2001, June 24, 2000 and June 26, 1999 (In thousands of dollars)
2001 2000 1999 -------- -------- --------- Cash Flows From Operating Activities: Net income...................................... $ 18,743 $ 29,358 $ 26,451 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation................................... 16,464 14,168 12,432 Amortization................................... 12,515 11,553 12,413 Gain on pension settlement/curtailment......... -- -- (259) (Gain)/loss on disposal of equipment........... 386 (175) 514 Asset impairment loss.......................... 2,207 -- -- Deferred income taxes.......................... (32) 1,463 (640) Exit costs..................................... 7,145 -- -- Provision for losses on accounts receivable.... 4,659 4,203 4,151 Employee benefit charges....................... 240 121 3,003 Changes in assets and liabilities, net of acquisitions: Accounts receivable.......................... 2,200 (7,294) (5,685) Inventories and advertising materials........ (2,469) (5,542) (2,466) Prepaid expenses and other assets............ 549 (1,165) 495 Accounts payable............................. (5,235) 3,457 32 Income taxes payable......................... 2,682 606 (2,750) Other accrued expenses....................... (4,483) 2,351 (2,083) -------- -------- --------- Net cash provided by operating activities.. 55,571 53,104 45,608 Cash Flows From Investing Activities: Additions to property and equipment............. (26,836) (21,057) (16,866) Acquisition of businesses--net of cash acquired....................................... (38,976) -- (256) Proceeds from sale of facilities and equipment.. 29 1,258 877 Proceeds from sale of other assets.............. -- -- 140 Investment in other assets...................... -- (13,369) (20) -------- -------- --------- Net cash used by investing activities...... (65,783) (33,168) (16,125) Cash Flows From Financing Activities: Repayment of debt............................... (83,968) (96,250) (113,500) Proceeds from credit line--net of issuance costs.......................................... 125,900 101,406 100,500 Repayment of obligations under capital lease.... (1,007) (592) -- Proceeds from issuance of common stock.......... 1,066 526 2,923 Acquisition of treasury stock................... (17,640) (14,194) (14,031) Dividends paid.................................. (10,393) (10,982) (11,511) -------- -------- --------- Net cash provided (used) by financing activities................................ 13,958 (20,086) (35,619) Effect of Exchange Rate Changes on Cash......... (61) (65) 48 -------- -------- --------- Net Increase (Decrease) in Cash and Cash Equivalents.................................... 3,685 (215) (6,088) Cash and Cash Equivalents at Beginning of Year.. 3,469 3,684 9,772 -------- -------- --------- Cash and Cash Equivalents at End of Year........ $ 7,154 $ 3,469 $ 3,684 ======== ======== ========= Supplemental Cash Flow Disclosure: Interest paid................................... $ 13,331 $ 8,417 $ 8,867 ======== ======== ========= Income taxes paid............................... $ 10,715 $ 14,514 $ 20,232 ======== ======== ========= Stock issued pursuant to employee benefit plans.......................................... $ -- $ -- $ 2,774 ======== ======== ========= Purchase of equipment under capital lease....... $ 1,451 $ 3,021 $ -- ======== ======== =========
See notes to consolidated financial statements. F-5 NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Description of Business and Basis of Consolidation--The financial statements include the accounts of New England Business Service, Inc. and its wholly-owned subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. The Company sells primarily printed business products such as checks and business forms and work/promotional apparel through a variety of channels, serves as a reseller of packaging and shipping supplies and retail signage and designs, sources and distributes embroidered and unembroidered apparel for ad specialties applications. Fiscal Year--The Company's fiscal year ends the last Saturday of June. The Company's results for fiscal year 2001 contained 53 weeks, whereas fiscal years 2000 and 1999 contained 52 weeks. Significant Estimates--In the process of preparing its consolidated financial statements, the Company estimates the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. Actual results may differ from these estimates. Foreign Currency Translation--The financial statements of the Company's foreign subsidiaries are measured in the respective subsidiary's functional currency and then translated into U.S. dollars. All balance sheet accounts have been translated using the year-end rate of exchange, while income statement accounts have been translated using the average rates prevailing throughout the year. Resulting translation gains or losses are accumulated in a separate component of stockholders' equity entitled "Accumulated other comprehensive loss." Foreign currency transaction gains and losses, including those related to intercompany transactions that are expected to be settled in the short term are recorded directly in the income statement and are immaterial in all periods presented; intercompany foreign currency transaction gains and losses incurred on balances of a long term investment nature are recorded as translation gains and losses. Cash and Cash Equivalents--The Company considers its holdings in short-term money market accounts and certificates of deposit with an original maturity of three months or less to be cash equivalents. Inventories--Inventories are generally carried at the lower of first-in, first-out cost or market. At year end, inventories consisted of:
2001 2000 ----------- ----------- Raw Material......................................... $ 1,821,000 $ 1,804,000 Work in Process...................................... 1,459,000 -- Finished Goods....................................... 39,319,000 22,774,000 ----------- ----------- Total.............................................. $42,599,000 $24,578,000 =========== ===========
Long-Term Investments--In March 2000, the Company invested $12,900,000 and $500,000, respectively, in the common stock of Advantage Business Services Holdings, Inc. and the convertible preferred stock of WebNow.com, Inc. These investments represent less than a 20% voting interest in these companies. Also, the securities are not considered to be marketable equity securities under SFAS 115 because both of the companies are currently privately held and, hence, the securities are restricted and have no readily determinable market value. These investments have been carried at cost and will periodically be evaluated to determine whether a decline in fair value below the original cost basis has occurred and is other than temporary. Both of the investments have been classified as long-term assets on the consolidated balance sheet because of their non-marketable nature and management's intent to hold these investments for the long term. In the fourth quarter of fiscal 2001, the Company recognized an impairment charge of $500,000 and wrote off its investment in WebNow, Inc. F-6 Direct Mail Advertising--The Company expenses the production costs of advertising at the time the advertising is initiated, except for direct- response advertising, which is capitalized and amortized over its expected period of future benefit; this period is not in excess of six months. Direct- response advertising consists primarily of product catalogs and associated mailing costs. As of June 30, 2001 and June 24, 2000, $7,569,000 and $10,773,000, respectively, were reported as direct advertising assets and included in direct mail advertising materials, net and prepaid expenses in the consolidated balance sheets. Advertising expense included in selling and advertising was $61,030,000 in 2001, $59,243,000 in 2000, and $56,680,000 in 1999. 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. Leased Property Under Capital Leases--Property under capital leases is amortized over the lives of the respective leases or the estimated useful lives of the assets whichever is shorter. Goodwill--Goodwill acquired is being amortized on a straight-line basis over periods of 20 to 40 years. Accumulated amortization amounted to $7,288,000 and $5,079,000 at June 30, 2001 and June 24, 2000, respectively. Customer Lists, Tradenames and Other Assets--Customer lists, tradenames and other assets are amortized using the straight-line method or the effective- interest method over their estimated lives. The ranges of estimated lives and accumulated amortization balances for each category of assets are as follows:
2001 2000 Accumulated Accumulated Description Lives Amortization Amortization - ----------- ---------- ------------ ------------ Customer lists............................. 2-18 years $29,776,000 $22,462,000 Tradenames................................. 40 years 2,727,000 1,907,000 Other assets: Covenant not to compete.................. 2-5 years 801,000 390,000 Debt issue costs......................... 3-5 years 537,000 294,000 Assembled workforce...................... 6 years 2,518,000 1,701,000 Long-term contracts...................... 16 years 331,000 -- Bank referral agreements................. 20 years 1,141,000 771,000
Revenue Recognition--Revenue is recognized on product sales at the point in time when persuasive evidence of an arrangement exists, the price is fixed and final, delivery has occurred and there is reasonable assurance of collection of the sales proceeds. The Company generally obtains purchase authorizations from its customers for a specified amount of product at a specified price and considers delivery to have occurred at the point of shipment. While the Company does provide its customers with a right of return, revenue is not deferred. Rather, a reserve for sales returns is provided in accordance with Statement of Financial Accounting Standards ("SFAS") No. 48 based on significant historical experience. Income Taxes--The provision for income taxes is determined based upon the Company's computed total income tax obligation for the year and the change in the Company's deferred tax balances from year to year. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. Such deferred tax assets and liabilities are also adjusted to reflect changes in the U.S. and applicable foreign tax laws when enacted and changes in blended state tax rates. Future tax benefits are recognized to the extent realization of such benefit is more likely than not to occur. F-7 Per Share Amounts--Basic earnings per share amounts are computed based upon the weighted average number of shares of common stock outstanding during each fiscal year less any contingently returnable shares. Diluted earnings per share amounts are computed by also giving consideration to potentially dilutive stock options outstanding and the above mentioned contingently returnable shares. Common stock equivalents totaling approximately 1.7 million outstanding stock options are not included in the computation of earnings per share as they are anti-dilutive. A reconciliation of outstanding shares is shown on the statements of consolidated income. Concentration of Credit Risk--The Company extends credit to approximately 1.8 million geographically dispersed customers on an unsecured basis in the normal course of business. No individual industry or industry segment is significant to the Company's customer base. The Company has in place policies governing the extension of credit and collection of amounts due from customers. Derivatives--In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Company has adopted this Statement in fiscal year 2001. Such adoption resulted in an initial credit of $391,000 (net of tax) to Accumulated Other Comprehensive Loss. The Company is exposed to interest rate risk relating to its variable rate debt. As part of its overall strategy to manage the level of exposure to the risk of interest rate fluctuations, the Company uses interest rate swaps which qualify and are designated as cash flow hedges. On the date the Company enters into a derivative contract, management designates the derivative as a hedge of the identified cash flow exposure. The Company does not enter into derivative transactions that do not qualify as hedges. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. In this documentation, the Company specifically identifies the asset, liability, firm commitment, or forecasted transaction that has been designated as a hedged item and states how the hedging instrument is expected to hedge the risks related to the hedged item. The Company formally measures effectiveness of its hedging relationships both at the hedge inception and on an ongoing basis in accordance with its risk management policy. The Company may discontinue hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; when the derivative expires or is sold, terminated, or exercised; or when the derivative is redesignated to no longer be a hedge instrument. As discussed above, the Company designates certain derivatives as cash flow hedges. For all qualifying and highly effective cash flow hedges, the changes in the fair value of the derivative are recorded in other comprehensive income (OCI) (see note 11). There can be, however, a portion of the hedge that is deemed "ineffective" and which can result in a charge to the Company's income statement. For the year ending June 30, 2001 the Company's ineffective portion of the hedge was immaterial to interest expense. Impairment of Long-Lived Assets--The Company evaluates the recoverability of long-lived assets in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." In fiscal 2001, the Company recognized an impairment charge of $1,707,000 for the write-off of capitalized internal-use software related to an enterprise resource planning system the Company no longer plans to implement. There were no adjustments to the carrying value of any long-lived assets in 2000 or 1999. F-8 Accounting for Stock-Based Compensation--SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic-value method prescribed in Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. When awards are made to consultants or individuals who are other than employees, the Company does apply the precepts of SFAS 123 and the Emerging Issue Task Force Consensus No. 96-18 "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services." New Accounting Pronouncements--As described above, in the first quarter of fiscal 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This adoption resulted in an initial credit of $391,000 (net of tax) to Accumulated Other Comprehensive Loss. However, the adoption of the Standard had an immaterial impact on net income for the period. In the fourth quarter of fiscal 2001, the Company adopted Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition". This SAB was intended to clarify certain elements of revenue recognition. It has been supplemented by a "frequently asked questions" document. Adoption of this SAB did not materially impact the Company's revenue recognition practices. In the fourth quarter of fiscal 2001, the Company adopted the Emerging Issues Task Force Consensus No. 00-10, "Accounting for Shipping and Handling Fees and Costs". The consensus states that a seller of goods should classify fees attributable to shipping and handling in the income statement as revenues. The Company had previously netted such fees against shipping and handling costs in the cost of sales line. In fiscal years 2001, 2000 and 1999, approximately $41,989,000, $37,667,000 and $33,456,000, respectively, which previously would have reduced cost of sales, have been classified as revenues. There was no effect on reported net income. In July 2001, the FASB issued SFAS No. 141, "Business Combinations," which supersedes APB Opinion No. 16, "Business Combinations," and SFAS No. 142 "Goodwill and Intangible Assets" which supercedes APB opinion No. 17, "Intangible Assets". SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations and modifies the application of the purchase accounting method. The elimination of the pooling-of-interests method is effective for transactions initiated after June 30, 2001. The remaining provisions of SFAS No. 141 will be effective for transactions accounted for using the purchase method that are completed after June 30, 2001. SFAS No. 142 eliminates the current requirement to amortize goodwill and indefinite-lived intangible assets, addresses the amortization of intangible assets with a defined life and addresses the impairment testing and recognition for goodwill and intangible assets. SFAS No. 142 will apply to goodwill and intangible assets arising from transactions completed before and after the Statement's effective date. SFAS No. 142 is effective for fiscal 2002. Adoption of these statements will result in $98,347,000 of goodwill and tradenames, currently being amortized over periods of 20 to 40 years, no longer requiring recurring amortization. Additionally, an intangible asset called assembled workforce will be reclassified to goodwill and will result in $2,382,000, currently being amortized over a period of 6 years, no longer requiring recurring amortization. No restatement of prior periods is required; instead a footnote disclosure will identify the historical effect on earnings. In fiscal year 2002, approximately $3,900,000 which previously would have been amortized will not require amortization. Reclassifications--Certain reclassifications have been made to the 2000 and 1999 financial statements to conform with the 2001 presentation. 2. 2000 Acquisition In July 2000, the Company acquired all the outstanding shares of PremiumWear, Inc. The purchase price was $13.50 per share in cash and totaled approximately $38,976,000 (net of cash acquired) for the shares plus debt assumed of $3,856,000. The Company also incurred fees of approximately $602,000 in connection with the acquisition. The acquisition was accounted for using the purchase method of accounting. Accordingly, F-9 PremiumWear's results of operations are included in the accompanying financial statements from the date of acquisition. The purchase price, including acquisition costs, was allocated to the net tangible assets acquired based on the fair value of such assets and liabilities. The excess cost over fair value of the net tangible assets acquired was $16,013,000, of which $5,300,000 and $583,000 were allocated to long-term contracts and non-compete agreements, respectively, and the balance of $10,130,000 to goodwill. The goodwill is currently being amortized on a straight-line basis over a period of 20 years, while the long-term contracts and non-compete agreements are being amortized over their respective useful lives. Such amortization will be impacted in the future by the Company's adoption of SFAS No. 142. The following unaudited pro forma financial information reflects the consolidated results of operations of the Company for the years ended June 30, 2001, June 24, 2000 and June 26, 1999 as though the acquisition described above had occurred on the first day of the respective fiscal year. The pro forma operating results are presented for comparative purposes only and do not purport to present the Company's actual operating results had the acquisitions been consummated on June 28, 1998 or results which may occur in the future:
2001 2000 1999 ------------ ------------ ------------ Net sales.......................... $588,180,000 $575,610,000 $548,017,000 Net income......................... 18,772,000 28,172,000 23,971,000 Net income per diluted share....... 1.43 2.03 1.64
In connection with this transaction a complaint entitled "Perry Ellis International, Inc. v. PremiumWear Inc.", was filed. The Company was subsequently named a co-defendant. The amended complaint relates to a Right of First Refusal Agreement dated as of May 22, 1996 (the "RFR Agreement") between the plaintiff and PremiumWear, Inc., and to the Company's acquisition of all the outstanding shares of PremiumWear in July 2000. In the amended complaint, the plaintiff alleges breach of the RFR Agreement and breach of an implied covenant of good faith and fair dealing against PremiumWear as a result of PremiumWear's alleged failure to notify the plaintiff of certain discussions between PremiumWear and the Company preceding the Company's agreement to purchase all of the outstanding shares of PremiumWear. The amended complaint also alleges that the Company tortiously interfered with the plaintiff's rights under the RFR Agreement by allegedly inducing PremiumWear to breach its obligations to the plaintiff under the RFR Agreement. The plaintiff is seeking damages in an unspecified amount, attorneys' fees, interest and costs. The Company believes the allegations in the amended complaint are without merit and intends to defend the lawsuit vigorously. 3. Restructuring and Impairment of Assets During fiscal year 2001, the Company undertook two distinct restructuring actions. The first involved a restructuring charge of $3,500,000 to provide for costs primarily associated with the Company's decision to more closely align its direct marketing and direct sales activities. As part of the restructuring program, the McBee US headquarters has been relocated from Parsippany, New Jersey to the existing RapidForms facility in Thorofare, New Jersey. In addition, the McBee manufacturing plant in Damascus, Virginia has been closed and a portion of leased warehousing space currently occupied by Chiswick in Sudbury, Massachusetts has been vacated. In Canada, the McBee sales and marketing organizations have been combined with NEBS Direct Marketing and are operating under the NEBS name. Approximately 140 employees have been affected by the restructuring either through elimination of their positions or relocation. Pursuant to this plan, the following charges and payments have been recorded:
Charge Balance for the Payments or reductions Balance Type of Liability June 24, 2000 period for the period June 30, 2001 ----------------- ------------- ---------- ---------------------- ------------- Employee termination Benefit costs.......... $-- $2,185,000 $(1,328,000) $857,000 Facility closure costs.. -- 1,315,000 (643,000) 672,000
The second restructuring resulted in the Company recording an additional restructuring charge of $3,645,000 to provide for costs associated with the Company's decision to eliminate excess capacity by closing a manufacturing facility in Ogden, Utah and a leased distribution facility in Sudbury, Massachusetts, along with F-10 other actions to reduce the workforce in various locations. Approximately 175 employees have been or will be affected by the restructuring, either through elimination of their positions or relocation. Pursuant to this plan, the following charges and payments have been recorded:
Balance Charge for Payments or reductions Balance Type of Liability June 24, 2000 the period for the period June 30, 2001 ----------------- ------------- ---------- ---------------------- ------------- Employee termination benefit costs.......... $-- $2,900,000 $(509,000) $2,391,000 Facility closure costs.. -- 745,000 -- 745,000
The activities related to all restructuring actions identified above are anticipated to be completed by the Company during fiscal year 2002. 4. Debt Obligations and Leases The Company has maintained a committed line of credit up to $200,000,000 over the past three years (the "Line of Credit"). In July 2001, subsequent to the end of the fiscal year, the Company amended and restated the Line of Credit to extend the maturity date to July 2004. Under the Line of Credit, the Company has the option to borrow at the Eurodollar rate plus a spread or the agent bank's base lending rate prevailing from time to time. The effective interest rate as of June 30, 2001 and June 24, 2000 was 4.8% and 7.4%, respectively. The credit agreement contains various restrictive covenants which, among other things, require the Company to maintain certain minimum levels of consolidated net worth and specific consolidated debt and fixed charge ratios. The Company was in compliance with such covenants and as of June 30, 2001, $178,500,000 was outstanding under this line. Debt issuance costs incurred in connection with this facility are amortized over the term of the agreement using the effective-interest method. In addition, the Company has entered into a revolving line of credit with a bank in the amount of $10,000,000, maturing July 2002. The terms and conditions of this line are substantially similar to the Line of Credit described above. There were no borrowings outstanding under this arrangement as of June 30, 2001. The Company has a $788,000 seven-year bank term loan with annual interest of 9.25% maturing December 2006. The loan is secured by certain property, plant and equipment at the Company's Tennessee distribution facility. The Company has $670,000 and $296,000 outstanding at June 30, 2001 under an unsecured, uncommitted letter of credit line and standby letter of credit, respectively. The Company leases facilities and equipment under long-term leases with unrelated parties; several of these qualify as capitalized leases. The future minimum rental commitments for leases of certain facilities and equipment are as follows:
Operating Capitalized Fiscal Year Ended June Leases Leases ---------------------- ----------- ----------- 2002............................................... $ 5,808,000 $1,514,000 2003............................................... 4,741,000 1,171,000 2004............................................... 3,984,000 363,000 2005............................................... 3,628,000 101,000 2006............................................... 3,446,000 6,000 Thereafter......................................... 2,025,000 -- ----------- ---------- Total minimum lease payments....................... $23,632,000 3,155,000 =========== Less amount representing interest.................. 282,000 Present value of net minimum lease payments including current ---------- maturities of $1,323,000........................... $2,873,000 ==========
The Company's investment in real property under capital leases (net) was $2,676,000 and $2,428,000 in 2001 and 2000, respectively. F-11 Total rental expense was $7,674,000, $6,476,000 and $6,587,000, in 2001, 2000, and 1999, respectively. Included in those amounts were payments for properties leased from a former executive officer of $1,174,000, $1,035,000 and $1,171,000 in 2001, 2000 and 1999, respectively. 5. Financial Instruments In order to minimize exposure to foreign currency fluctuations with respect to foreign currency exposures, the Company may enter into forward exchange rate contracts for the amount of the exposure. At June 30, 2001, the Company had no outstanding forward currency contracts. Gains or losses on those previously closed have been immaterial. The Company has entered into seven interest rate swap agreements with three major commercial banks in order to effectively convert the interest rate of a portion of the Company's outstanding revolving credit debt from a Eurodollar- based floating rate to a fixed rate. The agreements expire on different dates, and the total notional principal amount decreases over time. Although the Company is exposed to credit and market risk in the event of future non- performance by any of the banks, management has no reason to believe that such an event will occur. Information regarding the agreements as of June 30, 2001 follows:
Fixed Agreement Notional Principal Amount Interest Rate Fair Value Expiration Date ------------------------- ------------- ----------- ---------------- $15,000,000...................... 5.71% $ (165,000) January 8, 2002 25,000,000...................... 6.44 (722,000) October 19, 2002 25,000,000...................... 4.69 (132,000) December 8, 2002 25,000,000...................... 6.95 (1,151,000) March 7, 2003 25,000,000...................... 7.10 (1,178,000) June 29, 2003 25,000,000...................... 6.91 (1,239,000) July 7, 2003 20,000,000...................... 5.00 70,000 June 8, 2004
As of June 30, 2001 and June 24, 2000, the carrying value of all other financial instruments approximated fair value. 6. Equity Transactions The Company has issued a stock purchase right to stockholders for each outstanding share of common stock of the Company. Each right becomes exercisable upon the occurrence of certain events, as provided in the Rights Agreement, and entitles the registered holder to purchase from the Company a "Unit" consisting of one one-hundredth of a share of preferred stock at a purchase price of $75.00 per Unit, subject to adjustment to prevent dilution. In addition, upon the occurrence of certain events, the registered holder will thereafter have the right to receive, upon payment of the purchase price, additional shares of common stock and/or cash and/or other securities, as provided in the Rights Agreement. The rights will expire on October 20, 2004. The Company may redeem the rights at a price of $.01 per right. The Company also has authorized but not issued 1,000,000 shares of $1.00 par value preferred stock. On October 23, 1998, the Company's Board of Directors authorized the repurchase of up to two million additional shares of the Company's common stock over a two year period, replacing an earlier authorization. As of October 20, 2000, the expiration of the 1998 authorization, 1,403,257 shares had been purchased at a cumulative cost of $33,718,000. On October 20, 2000, the Company's Board of Directors authorized the repurchase of up to two million shares, replacing the expiring 1998 authorization. The new authorization expires on October 31, 2003. As of June 30, 2001, 797,400 shares had been purchased under the October 2000, authorization at a cumulative cost of $12,147,000. 7. Stock Options And Awards At the Company's October 1997 annual meeting, the stockholders approved the NEBS Key Employee and Eligible Director Stock Option and Stock Appreciation Rights Plan (the "1997 Plan"). The 1997 Plan amended and restated the Company's 1990 plan and 1994 plan and incorporated the two plans into the 1997 Plan. Under the 1997 Plan, the Company was authorized to issue 1,300,000 shares of common stock pursuant to the granting F-12 of stock options or stock appreciation rights in addition to the shares remaining available for issuance under the 1990 and 1994 option plans (these plans had authorized the issuance of up to 1,200,000 and 1,000,000 shares, respectively). In addition to shares issuable under these plans, the Company approved and adopted the NEBS 2000 Stock Option Plan for PremiumWear Employees (the "2000 Plan"). Under the 2000 Plan, the Company was authorized to issue 105,083 shares of the Company's common stock pursuant to the granting of stock options. Under the terms of the Company's stock option plans, options are granted to purchase stock at fair market value on the date of the option grant. Options granted have been exercisable in full in terms of up to nine years from the date of grant and the options expire no later than ten years from the date of grant. Generally, the options vest and become exercisable over a four year period. As of June 30, 2001, 2,737,933 shares of common stock are reserved for issuance under the Company's stock option plans, of which 2,437,037 are subject to outstanding options and 300,896 remain available for future option grants. During fiscal 2000, the Company repurchased outstanding options for 861,385 shares at a cost of $430,693 and charged such buyout amount to compensation expense in general and administrative expenses. Options for 1,464,204, 1,158,775 and 1,053,769 shares were currently exercisable under all option arrangements at June 30, 2001, June 24, 2000 and June 26, 1999, respectively. There were no outstanding stock appreciation rights under any of the plans during 2001, 2000 or 1999. A summary of activity under the Company's stock option plans during 2001, 2000, and 1999 follows:
Weighted- Number of Per Share Average Shares Option Price Exercise Price --------- -------------- -------------- June 27, 1998....................... 1,891,870 $14.75 - 33.13 $22.66 Granted........................... 597,452 28.88 - 33.88 28.03 Exercised......................... (188,344) 14.75 - 30.00 19.03 Expired........................... (92,867) 15.38 - 33.13 28.51 --------- June 26, 1999....................... 2,208,111 14.75 - 33.88 24.20 --------- Granted........................... 407,300 13.88 - 27.69 27.35 Repurchased....................... (861,385) 25.75 - 33.88 28.34 Exercised......................... (30,233) 14.75 - 20.75 17.31 Expired........................... (112,070) 25.75 - 33.88 28.68 --------- June 24, 2000....................... 1,611,723 14.75 - 33.88 22.63 --------- Granted........................... 1,054,151 15.00 - 20.88 17.28 Exercised......................... (96,000) 14.75 - 19.75 15.27 Expired........................... (132,837) 15.00 - 30.00 19.90 --------- June 30, 2001....................... 2,437,037 14.75 - 33.88 20.73 =========
The following table presents information with regard to all stock options outstanding at June 30, 2001:
Options Outstanding Options Exercisable --------------------------------- -------------------------- Weighted- Average Remaining Weighted- Contractual Average Weighted- Number Life Exercise Number Average Range of Exercise Price Outstanding (years) Price Exercisable Exercise Price ----------------------- ----------- ----------- --------- ----------- -------------- $13.88 - 16.56.......... 733,789 7.94 $15.10 327,268 $15.19 17.88 - 19.75.......... 552,092 5.31 18.51 456,842 18.35 20.13 - 21.50.......... 405,456 7.97 20.85 163,581 20.78 25.75 - 33.13.......... 745,700 6.81 27.87 516,513 27.64 --------- ---- ------ --------- ------ 2,437,037 7.09 $20.73 1,464,204 $21.20 ========= ==== ====== ========= ======
F-13 The Company applies APB Opinion No. 25 to account for its various stock plans. Accordingly, pursuant to the terms of the plans, no compensation cost has been recognized for the stock plans. However, if the Company had determined compensation cost for stock option grants made since 1996 under the provisions of SFAS No. 123, (the 1996 date coinciding with the adoption of SFAS No. 123 for disclosure purposes), the Company's net income and net income per share would have been reduced to the pro forma amounts shown below:
2001 2000 1999 ----------- ----------- ----------- Net income: As reported........................... $18,743,000 $29,358,000 $26,451,000 Pro forma............................. 16,827,000 27,921,000 24,911,000 Net income per diluted share: As reported........................... $ 1.43 $ 2.12 $ 1.81 Pro forma............................. 1.28 2.01 1.70
The pro forma net income reflects the compensation cost only for those options granted since 1996. Compensation cost is reflected over a stock option's vesting period and compensation cost for options granted prior to June 30, 1995 is not considered. Therefore, the full potential impact of compensation cost for the Company's stock plans under SFAS No. 123 may not be reflected in the pro forma net income amounts presented above. The fair value of each stock option granted in 2001, 2000 and 1999 under the Company's stock option plans was estimated on the date of grant using the Black-Scholes option-pricing model. The following key assumptions were used to value grants issued for each year:
Weighted- Average Average Dividend Risk Free Rate Expected Life Volatility Yield -------------- ------------- ---------- -------- 1999........................ 5.94% 5.5 years 24.12% 2.8% 2000........................ 6.20% 5.5 years 21.49% 2.9% 2001........................ 4.73% 5.1 years 33.98% 4.6%
The weighted-average fair values per share of stock options granted during 2001, 2000 and 1999 were $4.11, $6.41 and $6.98, respectively. It should be noted that the Black-Scholes option pricing model used in the calculation was designed to value readily tradable stock options with relatively short lives. The options granted to employees are not tradable and have contractual lives of up to ten years. Management believes that the assumptions used and the model applied to value the awards yield a reasonable estimate of the fair value of the grants made under the circumstances. The Company also maintains a Stock Compensation Plan (the "Stock Compensation Plan"). Under the Stock Compensation Plan, up to 300,000 shares of common stock may be issued to the Company's directors and employees in lieu of cash compensation otherwise payable. At June 30, 2001, 259,871 shares remain reserved for issuance under the Stock Compensation Plan. During fiscal year 2001 and 2000, the Company awarded restricted stock to several executive employees under the Stock Compensation Plan. For these awards, which vest after three years, the fair market value of the shares is expensed over the vesting period. The unamortized portion of deferred compensation expense is recorded as a reduction of shareholder's equity. Recipients of all restricted shares have the right to vote such shares and receive dividends. 8. Benefit Plans The Company sponsors several 401(k) plans covering substantially all of the Company's domestic employees. Contributions to the plans are made by way of participant salary deferrals and Company contributions. Company contributions include combinations of matching, fixed and discretionary contributions, F-14 subject to a maximum Company obligation ranging from 4% to 9% of an employee's eligible pay. The Company's aggregate contributions to the plans were $7,017,000 in fiscal 2001, $6,638,000 in fiscal 2000, and $6,410,000 in fiscal 1999. During fiscal 1998, the Company amended one of its Canadian defined benefit plans to freeze participation at December 31, 1997 and recorded a plan curtailment gain of $313,000 associated with this action. The Company recorded a plan settlement gain of $259,000 during 1999 related to the Canadian plan termination. SFAS No. 87, "Employers' Accounting for Pensions," requires the accrual of pension benefits during the years an employee provides service to the Company. The Company has a supplemental executive retirement plan which is currently unfunded. Executive employees are eligible to become members of the plan upon designation by the Board of Directors. Benefits under the plan are based on each participant's annual earnings and years of service. Provision for this benefit is charged to operations over the participant's term of employment. The following table sets forth the plans' funded status and obligations as of June 30, 2001 and June 24, 2000:
2001 2000 ----------- ---------- Change in benefit obligation: Benefit obligation at beginning of year......... $ 1,350,000 $1,064,000 Service cost.................................... 185,000 144,000 Interest cost................................... 119,000 81,000 Actuarial loss (excluding assumptions changes).. 1,280,000 235,000 Actuarial loss/(gain) due to assumptions changes........................................ 141,000 (174,000) ----------- ---------- Benefit obligation at end of year............. $ 3,075,000 $1,350,000 =========== ========== Funded status: Accumulated benefit obligation ("ABO") in excess of plan assets................................. $ 3,075,000 $1,350,000 Unrecognized net loss........................... (1,481,000) (65,000) Unrecognized prior service cost................. (766,000) (842,000) ----------- ---------- Net benefit liability......................... $ 828,000 $ 443,000 =========== ========== Amounts recognized in the consolidated balance sheets: Accrued benefit liability....................... $ 2,526,000 $ 915,000 Intangible asset................................ (766,000) (472,000) Accumulated other comprehensive income.......... (932,000) -- ----------- ---------- Net amount recognized......................... $ 828,000 $ 443,000 =========== ==========
The components of net periodic benefit cost for 2001, 2000 and 1999 are as follows:
2001 2000 1999 -------- -------- -------- Service cost.................................... $185,000 $144,000 $ 71,000 Interest cost................................... 119,000 81,000 36,000 Amortization of prior service cost.............. 77,000 77,000 38,000 Recognized actuarial loss (gain)................ 5,000 (5,000) -- -------- -------- -------- Net periodic benefit cost..................... $386,000 $297,000 $145,000 ======== ======== ========
For measurement purposes a 4.0% annual rate of increase in compensation cost was assumed in 2001 and 2000. The weighted average discount rate used in determining the ABO was 7.25% and 7.75% in 2001 and 2000, respectively. F-15 SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," requires the accrual of postretirement benefits other than pensions (such as health care benefits) during the years an employee provides service to the Company. The Company sponsors a defined benefit postretirement plan that provides health and dental care benefits for retired Company officers and health and insurance benefits for certain PremiumWear, Inc. retirees. The plans are contributory, and retirees' contributions are adjusted annually. The following table sets forth the plans' funded status and obligations as of June 30, 2001 and June 24, 2000:
2001 2000 ---------- ---------- Accumulated postretirement benefit obligation ("APBO"): Retirees........................................... $1,102,000 $ 394,000 Eligible active plan participants.................. -- -- Other active plan participants..................... 499,000 447,000 ---------- ---------- Total............................................ 1,601,000 841,000 Plan assets at fair value............................ -- -- Accumulated postretirement benefit obligation in excess of plan assets............................. 1,601,000 841,000 Unrecognized net gain.............................. 551,000 493,000 ---------- ---------- Net postretirement liability (included in accrued employee benefit expense)....................... $2,152,000 $1,334,000 ========== ==========
The components of net periodic postretirement benefits cost for 2001, 2000 and 1999 are as follows:
2001 2000 1999 -------- -------- -------- Service cost................................. $ 71,000 $ 76,000 $ 62,000 Interest on accumulated postretirement benefit obligation.......................... 62,000 68,000 70,000 Amortization of gain......................... (41,000) (17,000) (14,000) -------- -------- -------- Net periodic postretirement cost........... $ 92,000 $127,000 $118,000 ======== ======== ========
For measurement purposes, a 7.0% annual rate of increase in the cost of providing medical benefits was assumed in 2001 with a reduction to a trend rate of 6% for fiscal 2002 and beyond. The weighted average discount rate used in determining the APBO was 7.5% in 2001 and 2000. The health care cost trend has an effect on the amounts reported. An increase of 1% in the rate of increase would have had an effect of increasing the APBO by $187,000 and the net periodic postretirement benefits cost by $4,000. 9. Income Taxes The components of income before income taxes were as follows:
2001 2000 1999 ----------- ----------- ----------- United States........................... $30,312,000 $46,166,000 $43,069,000 Foreign................................. 414,000 (469,000) 673,000 ----------- ----------- ----------- Total................................. $30,726,000 $45,697,000 $43,742,000 =========== =========== ===========
F-16 Provisions for income taxes under SFAS No. 109 in 2001, 2000 and 1999 consist of:
2001 2000 1999 ----------- ----------- ----------- Currently payable: Federal............................. $10,884,000 $15,270,000 $14,253,000 State............................... 726,000 (126,000) 3,004,000 Foreign............................. 405,000 (268,000) 674,000 ----------- ----------- ----------- Total............................... 12,015,000 14,876,000 17,931,000 Deferred.............................. (32,000) 1,463,000 (640,000) ----------- ----------- ----------- Total............................. $11,983,000 $16,339,000 $17,291,000 =========== =========== ===========
The tax effects of significant items comprising the Company's net deferred tax assets as of June 30, 2001 and June 24, 2000 are as follows:
2001 2000 ------------------------ ------------------------ Current Noncurrent Current Noncurrent ----------- ----------- ----------- ----------- Deferred tax assets: Accrued vacation........ $ 1,655,000 $ 1,550,000 Allowance for doubtful accounts............... 1,762,000 1,512,000 Accrued expenses........ 3,159,000 906,000 Sales returns and allowances............. 426,000 360,000 Inventory............... 2,468,000 1,786,000 Employee benefit reserves............... 3,040,000 2,127,000 Other comprehensive income................. 2,406,000 Amortization of intangible assets...... -- $ 8,739,000 -- $ 6,780,000 Depreciation............ -- 2,509,000 -- 1,590,000 Net operating loss carryforward........... -- 4,730,000 -- -- Business tax credit carryforward........... -- 69,000 -- -- Other................... 217,000 939,000 -- 426,000 Deferred tax liabilities: Amortization............ -- (5,153,000) -- (3,690,000) Depreciation............ -- (8,635,000) -- (6,066,000) Deferred mail advertising............ (1,338,000) -- (1,446,000) -- Other................... (2,040,000) (669,000) (315,000) (822,000) ----------- ----------- ----------- ----------- Net deferred tax assets/(liabilities)..... $11,755,000 $ 2,529,000 $ 6,480,000 $(1,782,000) =========== =========== =========== ===========
Current and non-current amounts have been further segregated on the balance sheet due to the effect of different tax jurisdictions. As a result of the PremiumWear, Inc. acquisition, the Company has a net operating loss carryforward for regular federal tax purposes of approximately $15,635,000, which will begin to expire in 2005. The utilization of these losses is subject to an annual limitation as set forth in IRC 382. The maximum amount of net operating losses that may be utilized by the Company in any period is limited to $2,176,000 per year. In addition, as a result of the acquisition, the Company has general business tax credit carryforwards of $69,000, which expire between 2001 and 2004. A reconciliation of the provisions for income taxes to the U.S. Federal income tax statutory rates follows:
2001 2000 1999 ---- ---- ---- Statutory tax rate....................................... 35.0% 35.0% 35.0% State income taxes (less federal tax benefits)........... .8 2.4 4.2 Letter ruling benefit (less federal tax expense)......... -- (2.3) -- Other--net............................................... 3.2 .7 .3 ---- ---- ---- Effective tax rate....................................... 39.0% 35.8% 39.5% ==== ==== ====
F-17 The letter ruling benefit shown above is the result of a one-time tax benefit due to a favorable state tax letter ruling received during fiscal year 2000 affecting prior years. 10. Segment Information In the first quarter of 2001, the Company changed its internal reporting for segments. This change was precipitated by the acquisition of PremiumWear, Inc. and the realignment of the Company's international subsidiaries. The Company has now identified five reportable segments. Prior year figures have been restated so as to match the current year presentation. The first is "Direct Marketing-US" and represents those business operations that sell primarily printed products such as checks and business forms to small businesses through direct marketing in the United States. The second segment, "Direct Sales-US," also sells primarily checks and business forms to small businesses; however, they sell primarily through distributors or by directly selling to the customer in the United States. The third segment, "Apparel", utilizes independent sales representatives to market its specialty apparel products and to solicit orders from customers in the promotional products/advertising specialty industry. "Packaging and Display Products", the fourth segment, primarily resells packaging and shipping supplies and retail signage marketed through a combination of direct marketing and direct selling efforts. The fifth segment, "International", sells primarily printed products such as checks and business forms to small businesses in Europe and Canada through direct marketing, distributors or by directly selling to the customer. The Company evaluates segment performance and allocates resources based on a profit from operations measure. This measure is akin to income from operations as reported on the statements of consolidated income in that it excludes interest and other income and expense. This measure, however, also excludes certain items that are reported within income from operations. These include management incentive compensation, amortization, 401(k) expenses, integration charges, restructuring charges, impairment charges and corporate expenses. The chief operating decision-maker, in assessing segment results, does not consider these items. In order to reconcile the segment numbers to the Company's income before income taxes, adjustments representing the items listed above totaling $56,283,000, $39,747,000 and $40,954,000 for the years ended June 30, 2001, June 24, 2000 and June 26, 1999, respectively, need to be made to the reported segment results. Net sales and profit from operations for each of the Company's business segments are set forth below:
Direct Direct Packaging and Marketing-US Sales-US Apparel Display Products International Total ------------ ------------ ----------- ---------------- ------------- ------------ 2001 Net sales.............. $299,135,000 $104,603,000 $56,853,000 $84,354,000 $41,146,000 $586,091,000 Profit from operations............ 69,097,000 8,661,000 2,677,000 3,729,000 2,845,000 87,009,000 Adjustments listed above................. (56,283,000) Income before income taxes................. 30,726,000 2000 Net sales.............. 299,908,000 99,196,000 -- 82,023,000 41,926,000 523,053,000 Profit from operations............ 70,998,000 8,234,000 -- 4,565,000 1,647,000 85,444,000 Adjustments listed above................. (39,747,000) Income before income taxes................. 45,697,000 1999 Net sales.............. 297,643,000 88,869,000 -- 77,000,000 40,421,000 503,933,000 Profit from operations............ 67,797,000 10,741,000 -- 3,874,000 2,284,000 84,696,000 Adjustments listed above................. (40,954,000) Income before income taxes................. 43,742,000
F-18 11. Comprehensive Income Other Comprehensive Income consists of foreign currency translation adjustments, unrealized gains/losses on investments and changes in the fair market value of cash flow hedges. Comprehensive income for the year ending June 30, 2001 also includes the impact of the Company's adoption of SFAS No. 133 discussed in note 1. The Company's comprehensive income is set forth below:
June 30, June 24, June 26, 2001 2000 1999 ----------- ----------- ----------- Net Income.......................... $18,743,000 $29,358,000 $26,451,000 Change in unrealized gains and losses on investments, net of tax.. (213,000) 25,000 -- Change in foreign currency translation adjustments, net....... (635,000) (770,000) (317,000) Pension adjustments, net of tax..... (542,000) -- -- Unrealized losses on derivatives held for hedging purposes, net of tax................................ (3,019,000) -- -- ----------- ----------- ----------- Other comprehensive income before cumulative effect adjustment....... 14,334,000 28,613,000 26,134,000 Cumulative effect adjustment recorded upon the adoption of SFAS No. 133, net of tax................ 391,000 -- -- ----------- ----------- ----------- Comprehensive Income................ $14,725,000 $28,613,000 $26,134,000 =========== =========== ===========
12. Quarterly Financial Information (Unaudited) The following financial information is in thousands of dollars, except per share amounts.
First Second Third Fourth Total Quarter Quarter Quarter Quarter Year -------- -------- -------- -------- -------- 2001 Net sales.................... $141,118 $166,475 $132,857 $145,641 $586,091 Gross profit................. 79,195 95,093 74,472 81,873 330,633 Income before income taxes... 4,630 14,429 5,815 5,852 30,726 Net income................... 2,824 8,802 3,547 3,570 18,743 Diluted earnings per share... .21 .66 .27 .28 1.43 ======== ======== ======== ======== ======== Dividends per share.......... $ .20 $ .20 $ .20 $ .20 $ .80 ======== ======== ======== ======== ======== 2000 Net sales.................... $122,155 $147,592 $126,640 $126,666 $523,053 Gross profit................. 73,475 87,732 74,812 75,853 311,872 Income before income taxes... 9,779 14,206 10,825 10,887 45,697 Net income................... 5,977 8,695 7,481 7,205 29,358 Diluted earnings per share... .42 .62 .55 .53 2.12 ======== ======== ======== ======== ======== Dividends per share.......... $ .20 $ .20 $ .20 $ .20 $ .80 ======== ======== ======== ======== ========
13. Subsequent Events In August 2001, the Company invested $17.7 million in the common stock of Advantage Business Service Holdings, Inc. This investment is in addition to the Company's current holdings at June 30, 2001 and in aggregate represents a voting interest of 17.7%. F-19 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of New England Business Service, Inc.: We have audited the accompanying consolidated balance sheets of New England Business Service, Inc. and subsidiaries as of June 30, 2001 and June 24, 2000 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 30, 2001. Our audits also included the financial statement schedule listed under Item 14(a)(2). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of New England Business Service, Inc. and subsidiaries as of June 30, 2001 and June 24, 2000, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2001 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 1 to the financial statements, in 2001 the Company adopted SFAS 133 "Accounting for Derivative Instruments and Hedging Activity" and EITF 00-10, "Accounting for Shipping and Handling Fees and Costs." /s/ Deloitte & Touche LLP Boston, Massachusetts July 31, 2001 F-20 SCHEDULE II NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (in thousands of dollars)
Additions Balance at --------------- Deductions Balance at Beginning Charged from End of Period to Income Other Reserves(2) Period ---------- --------- ----- ----------- ---------- Reserves deducted from assets to which they apply: For doubtful accounts receivable: Year ended June 26, 1999.................. 4,257 4,151 0 3,509 4,899 Year ended June 24, 2000.................. 4,899 4,203 0 4,065 5,037 Year ended June 30, 2001.................. 5,037 4,659 422(1) 4,774 5,344 For inventory obsolescence: Year ended June 26, 1999.................. 3,447 1,523 0 2,237 2,733 Year ended June 24, 2000.................. 2,733 1,008 0 1,227 2,514 Year ended June 30, 2001.................. 2,514 8,736 1,700(1) 7,355 5,595 Reserves included in liabilities: For sales returns and allowances: Year ended June 26, 1999.................. 1,166 985 0 1,166 985 Year ended June 24, 2000.................. 985 1,059 0 985 1,059 Year ended June 30, 2001.................. 1,059 1,021 0 1,059 1,021
- -------- (1) Acquired in acquisitions. (2) Accounts written off. F-21 EXHIBIT INDEX
Exhibit Number Description ------- ----------- 3.1.1 Certificate of Incorporation of the Registrant. (Incorporated by reference to Exhibit 7(a) to the Company's Current Report on Form 8-K dated October 31, 1986.) 3.1.2 Certificate of Merger of New England Business Service, Inc. (a Massachusetts corporation) and the Company, dated October 24, 1986 amending the Certificate of Incorporation of the Company by adding Articles 14 and 15 thereto. (Incorporated by reference to Exhibit 7(a) to the Company's Current Report on Form 8-K dated October 31, 1986.) 3.1.3 Certificate of Designations, Preferences and Rights of Series A Participating Preferred Stock of the Company, dated October 27, 1989. (Incorporated by reference to Exhibit (3)(c) to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995.) 3.2 By-Laws of the Registrant, as amended through July 28, 2000. (Incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 24, 2000.) 4.1 Specimen stock certificate for shares of Common Stock, par value $1.00 per share. (Incorporated by reference to Exhibit (4)(a) to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995.) 4.2 Amended and Restated Rights Agreement, dated as of October 27, 1989 as amended as of October 20, 1994 (the "Rights Agreement"), between New England Business Service, Inc. and Fleet National Bank (formerly known as BankBoston, N.A.), as rights agent, including as Exhibit B the forms of Rights Certificate and Election to Exercise. (Incorporated byreference to Exhibit 4 of the Company's Current Report on Form 8-K dated October 20,1994.) 10.1 Second Amended and Restated Revolving Credit Agreement dated as of July 13, 2001, by and among the Company, Fleet National Bank, and certain other financial institutions; filed herewith. 10.2 Revolving Credit Agreement dated as of July 13, 2001, by and between the Company and Fleet National Bank; filed herewith. 10.3.1 Lease Agreement dated as of March 31, 1997, relating to 33 Union Avenue, Sudbury, Massachusetts ("33 Union Avenue Lease"); filed herewith. 10.3.2 Amendment No. 1 to 33 Union Avenue Lease dated as of January 28, 1988; filed herewith. 10.3.3 Assignment and Assumption Agreement as of September 27, 1999 relating to 33 Union Avenue Lease; filed herewith. 10.4 Lease Agreement dated as of June 3, 1998, relating to 1055 East State Street, Athens, Ohio; filed herewith. 10.5 Agreement and Plan of Merger, dated as of May 26, 2000, among the Company, Penguin Sub, Inc. and PremiumWear, Inc. (Incorporated by reference to Exhibit (d)(1) to the Company's Schedule TO dated June 9, 2000.) 10.6* NEBS 1997 Key Employee and Eligible Director Stock Option and Stock Appreciation RightsPlan dated July 25, 1997 (including amendment and restatement of the NEBS 1990 KeyEmployee Stock Option and Stock Appreciation Rights Plan and the NEBS 1994 KeyEmployee and Eligible Director Stock Option and Stock Appreciation Rights Plan), amended through October 23, 1998. (Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 26, 1998.) 10.7* Stock Option Agreement dated February 2, 1996 between the Company and Robert J. Murray. (Incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended June 27, 1998.)
X-1
Exhibit Number Description ------- ----------- 10.8* NEBS Deferred Compensation Plan for Outside Directors. (Incorporated by reference to Exhibit (10)(d) to the Company's Annual Report on Form 10-K for the fiscal year ended June 25, 1982.) 10.9.1* New England Business Service, Inc. Deferred Compensation Plan dated June 25, 1994. (Incorporated by reference to Exhibit (10)(g) to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995.) 10.9.2* First Restated Trust Agreement for the New England Business Service, Inc. Deferred Compensation Plan, restated effective April 1, 1998. (Incorporated by reference to Exhibit 10.11.2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 27, 1998.) 10.10* Supplemental Retirement Plan for Executive Employees of New England Business Service ,Inc. (Incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 26, 1998.) 10.11* New England Business Service, Inc. Stock Compensation Plan dated July 25, 1994, amended through October 23, 1998. (Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 26, 1998.) 10.12* Form of Restricted Stock Award Agreement issuable under the Company's Stock Compensation Plan in connection with the Executive Bonus Plans for 1999 and 2000 (Incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended June 26, 1999.) 10.13* Performance Restricted Stock Plan for 2002; file herewith. 10.14* Change in Control Severance Agreement dated August 2, 2001 between the Company and Robert J. Murray; filed herewith. 10.15.1* Form of Change in Control Severance Agreement between the Company and certain executive officers of the Company; filed herewith. 10.15.2* List of executive officers of the Company who have entered into Change in Control Severance Agreements and the dates thereof; filed herewith. 10.16* Employment Agreement dated May 26, 2000 between PremiumWear, Inc. and David E. Berg. (Incorporated by reference to Exhibit 99.4 (a) to the Current Report on Form 8-K dated May 26, 2000 of PremiumWear, Inc. (File No. 000-28501)). 10.17.1* Amended and Restated Change in Control Severance Agreement dated as of May 22, 2000 between PremiumWear, Inc. and David E. Berg. (Incorporated by reference to Exhibit 99.3 to the Current Report on Form 8-K dated May 26, 2000 of PremiumWear, Inc. (File No. 000- 28501)). 10.17.2* First Amendment to Amended and Restated Change in Control Severance Agreement dated as of May 26, 2000 between PremiumWear, Inc. and David E. Berg. (Incorporated by reference to Exhibit 99.5 (a) to the Current Report on Form 8-K dated May 26, 2000 of PremiumWear, Inc. (File No. 000-28501)). 10.18* Employment Agreement dated June 29, 2001 between the Company and Richard T. Riley; filed herewith. 10.19* NEBS 2000 Stock Option Plan for PremiumWear Employees dated July 14, 2000. (Incorporated by reference to Exhibit 99 to the Company's Registration Statement on Form S-8 (File No. 333-43028), filed on August 4, 2000). 21 List of Subsidiaries.
X-2
Exhibit Number Description ------- ----------- 23 Independent Auditors Consent--Deloitte & Touche LLP. 24 Power of Attorney (included in the signature page of this Annual Report on Form 10-K).
- -------- * Identifies a management contract or compensatory plan or arrangement in which an executive officer or director of the Company participates. X-3 EX-10.1 3 dex101.txt SECOND AMENDED AND RESTATED REVOLVING CREDIT EXHIBIT 10.1 SECOND AMENDED AND RESTATED --------------------------- REVOLVING CREDIT AGREEMENT -------------------------- DATED as of July 13, 2001 among NEW ENGLAND BUSINESS SERVICE, INC., THE BANKS LISTED ON Schedule 1 hereto, -------- - FLEET NATIONAL BANK, as Agent, and CITIZENS BANK OF MASSACHUSETTS, as Syndication Agent FLEET SECURITIES, INC., as Arranger TABLE OF CONTENTS 1. DEFINITIONS AND RULES OF INTERPRETATION........................................ 1 --------------------------------------- 1.1. Definitions......................................................... 1 ----------- 1.2. Rules of Interpretation............................................. 20 ----------------------- 2. THE REVOLVING CREDIT FACILITY.................................................. 21 ----------------------------- 2.1. Commitment to Lend Syndicated Loans................................. 21 ----------------------------------- 2.2. Requests for Loans.................................................. 21 ------------------ 2.3. Competitive Bid Loans............................................... 22 --------------------- 2.3.1. Competitive Bid Borrowings............................... 22 -------------------------- 2.3.2. Maximum Competitive Bid Loans; Funding Losses............ 25 --------------------------------------------- 2.3.3. Repayment of Competitive Bid Loans....................... 26 ---------------------------------- 2.4. Funds for Loans..................................................... 26 --------------- 2.4.1. Funding Procedures....................................... 26 ------------------ 2.4.2. Advances by Agent........................................ 26 ----------------- 2.5. The Notes........................................................... 27 --------- 2.5.1. Syndicated Notes......................................... 27 ---------------- 2.5.2. Competitive Bid Notes.................................... 28 --------------------- 2.6. Reduction of Total Commitment....................................... 28 ----------------------------- 2.7. Interest on Loans................................................... 28 ----------------- 2.8. Conversion Options.................................................. 30 ------------------ 2.8.1. Conversion to Different Type of Syndicated Loan.......... 30 ----------------------------------------------- 2.8.2. Continuation of Type of Syndicated Loan.................. 30 --------------------------------------- 2.8.3. Eurodollar Rate Loans.................................... 31 --------------------- 2.9. Limited Increase In Total Commitment................................ 31 ------------------------------------ 3. REPAYMENT OF THE LOANS......................................................... 31 ---------------------- 3.1. Maturity............................................................ 31 -------- 3.2. Mandatory Repayments of Loans....................................... 31 ----------------------------- 3.3. Optional Repayments of Syndicated Loans............................. 32 --------------------------------------- 4. CERTAIN GENERAL PROVISIONS..................................................... 32 -------------------------- 4.1. Agent and Arranger Fees............................................. 32 ----------------------- 4.2. Facility Fee and Utilization Fee.................................... 32 -------------------------------- 4.3. Funds for Payments.................................................. 33 ------------------ 4.3.1. Payments to Agent........................................ 33 ----------------- 4.3.2. No Offset, etc........................................... 33 -------------- 4.3.3. Non-U.S. Banks........................................... 34 ----------------- 4.4. Computations........................................................ 35 ------------ 4.5. Inability to Determine Eurodollar Rate.............................. 35 -------------------------------------- 4.6. Illegality.......................................................... 35 ---------- 4.7. Additional Costs, etc............................................... 36 --------------------- 4.8. Capital Adequacy.................................................... 37 ----------------
-ii- 4.9. Certificate......................................................... 37 ----------- 4.10. Indemnity.......................................................... 37 --------- 4.11. Interest After Default............................................. 38 ---------------------- 4.11.1. Overdue Amounts......................................... 38 --------------- 4.11.2. Amounts Not Overdue..................................... 38 ------------------- 4.12. Guaranties......................................................... 38 ---------- 5. REPRESENTATIONS AND WARRANTIES................................................. 38 ------------------------------ 5.1. Corporate Authority................................................. 38 ------------------- 5.1.1. Organization; Good Standing.............................. 39 --------------------------- 5.1.2. Authorization............................................ 39 ------------- 5.1.3. Enforceability........................................... 39 -------------- 5.2. Governmental Approvals.............................................. 39 ---------------------- 5.3. Title to Properties; Leases......................................... 39 --------------------------- 5.4. Financial Statements................................................ 40 -------------------- 5.4.1. Financial Statements..................................... 40 -------------------- 5.4.2. Projections................................................ 40 ----------- 5.5. No Material Changes, etc............................................ 41 ------------------------ 5.6. Franchises, Patents, Copyrights, etc................................ 41 ------------------------------------ 5.7. Litigation.......................................................... 41 ---------- 5.8. No Materially Adverse Contracts, etc................................ 41 ------------------------------------ 5.9. Compliance With Other Instruments, Laws, etc........................ 42 -------------------------------------------- 5.10. Tax Status......................................................... 42 ---------- 5.11. No Event of Default................................................ 42 ------------------- 5.12. Holding Company and Investment Company Acts........................ 42 ------------------------------------------- 5.13. Absence of Financing Statements, etc............................... 42 ------------------------------------ 5.14. Chief Executive Office............................................. 42 ---------------------- 5.15. Certain Transactions............................................... 42 -------------------- 5.16. Employee Benefit Plans............................................. 43 ---------------------- 5.16.1. In General.............................................. 43 ---------- 5.16.2. Terminability of Welfare Plans.......................... 43 ------------------------------ 5.16.3. Guaranteed Pension Plans................................ 43 ------------------------ 5.16.4. Multiemployer Plans..................................... 44 ------------------- 5.17. Use of Proceeds.................................................... 44 --------------- 5.17.1. General................................................. 44 ------- 5.17.2. Regulations U and X..................................... 45 ------------------- 5.17.3. Ineligible Securities................................... 45 --------------------- 5.18. Environmental Compliance........................................... 45 ------------------------ 5.19. Subsidiaries, etc.................................................. 47 ------------------ 5.20. Disclosure......................................................... 47 ---------- 5.21. Fiscal Year........................................................ 47 ----------- 5.22. Solvency........................................................... 47 -------- 5.23. Financing Statements. -------------------- 6. AFFIRMATIVE COVENANTS OF THE BORROWER.......................................... 49 ------------------------------------- 6.1. Punctual Payment.................................................... 49 ----------------
-iii- 6.2. Maintenance of Office............................................... 49 --------------------- 6.3. Records and Accounts................................................. 49 -------------------- 6.4. Financial Statements, Certificates and Information.................. 50 -------------------------------------------------- 6.5. Notices............................................................. 51 ------- 6.5.1. Defaults................................................. 51 -------- 6.5.2. Environmental Events..................................... 51 -------------------- 6.5.3. Notice of Litigation and Judgments........................ 52 ---------------------------------- 6.6. Corporate or Other Existence; Maintenance of Properties............. 52 ------------------------------------------------------- 6.7. Insurance........................................................... 52 --------- 6.8. Taxes............................................................... 53 ----- 6.9. Inspection of Properties and Books, etc............................. 53 ---------------------------------------- 6.9.1. General.................................................. 53 ------- 6.9.2. Communication with Accountants........................... 53 ------------------------------ 6.10. Compliance with Laws, Contracts, Licenses, and Permits............. 53 ------------------------------------------------------ 6.11. Employee Benefit Plans............................................. 54 ---------------------- 6.12. Use of Proceeds.................................................... 54 --------------- 6.13. Certain Intercompany Payments...................................... 54 ----------------------------- 6.14. Further Assurances................................................. 55 ------------------ 7. CERTAIN NEGATIVE COVENANTS OF THE BORROWER..................................... 55 ------------------------------------------ 7.1. Restrictions on Indebtedness........................................ 55 ---------------------------- 7.2. Restrictions on Liens............................................... 59 --------------------- 7.3. Restrictions on Investments.......................................... 60 --------------------------- 7.4. Restricted Payments................................................. 62 ------------------- 7.5. Merger, Consolidation and Disposition of Assets..................... 62 ----------------------------------------------- 7.5.1. Mergers and Acquisitions................................. 62 ------------------------ 7.5.2. Disposition of Assets.................................... 62 --------------------- 7.6. Sale and Leaseback.................................................. 63 ------------------ 7.7. Compliance with Environmental Laws.................................. 63 ---------------------------------- 7.8. Employee Benefit Plans.............................................. 63 ---------------------- 7.9. Fiscal Year......................................................... 64 ----------- 7.10. Prohibition on Negative Pledges.................................... 64 ------------------------------- 7.11. Creation and Maintenance of Subsidiaries........................... 64 ---------------------------------------- 7.12. Conduct of Business; Agreements Regarding Certain Subsidiaries..... 65 -------------------------------------------------------------- 7.12.1. General................................................. 65 ------- 7.12.2. R&M Trust and Chiswick Trust............................ 65 ---------------------------- 7.14. Subordinated and Pari Passu Indebtedness.......................... 66 ---------------------------------------- 8. FINANCIAL COVENANTS OF THE BORROWER............................................ 66 ----------------------------------- 8.1. Funded Debt to EBITDA............................................... 66 --------------------- 8.2. Minimum Fixed Charge Coverage Ratio................................. 66 ----------------------------------- 9. CLOSING CONDITIONS............................................................. 67 ------------------ 9.1. Loan Documents...................................................... 67 --------------
-iv- 9.2. Certified Copies of Charter Documents............................... 67 ------------------------------------- 9.3. Corporate Action.................................................... 67 ---------------- 9.4. Incumbency Certificate.............................................. 67 ---------------------- 9.5. UCC Search Results.................................................. 67 ------------------ 9.6. Certificates of Insurance........................................... 68 ------------------------- 9.7. Solvency Certificate................................................ 68 -------------------- 9.8. Opinion of Counsel.................................................. 68 ------------------ 9.9. Payment of Fees..................................................... 68 --------------- 9.10. No Material Adverse Change......................................... 68 -------------------------- 10. CONDITIONS TO ALL BORROWINGS.................................................. 68 ---------------------------- 10.1. Representations True; No Event of Default.......................... 68 ----------------------------------------- 10.2. No Legal Impediment................................................ 69 ------------------- 10.3. Governmental Regulation............................................ 69 ----------------------- 10.4. Proceedings and Documents.......................................... 69 ------------------------- 11. EVENTS OF DEFAULT; ACCELERATION; ETC.......................................... 69 ------------------------------------ 11.1. Events of Default and Acceleration................................. 69 ---------------------------------- 11.2. Termination of Commitments......................................... 73 -------------------------- 11.3. Remedies........................................................... 73 -------- 12. SETOFF........................................................................ 73 ------ 13. THE AGENT..................................................................... 74 --------- 13.1. Authorization...................................................... 74 ------------- 13.2. Employees and Agents............................................... 75 -------------------- 13.3. No Liability....................................................... 75 ------------ 13.4. No Representations................................................. 75 ------------------ 13.4.2. Closing Documentation, etc............................... 76 -------------------------- 13.5. Payments........................................................... 76 -------- 13.5.1. Payments to Agent....................................... 76 ----------------- 13.5.2. Distribution by Agent................................... 76 --------------------- 13.5.3. Delinquent Banks........................................ 76 ---------------- 13.6. Holders of Notes................................................... 77 ---------------- 13.7. Indemnity.......................................................... 77 --------- 13.8. Agent as Bank...................................................... 77 ------------- 13.9. Resignation........................................................ 77 ----------- 13.10. Notification of Defaults and Events of Default.................... 78 ---------------------------------------------- 13.11. Limitation on Duties.............................................. 78 -------------------- 14. EXPENSES...................................................................... 78 -------- 15. INDEMNIFICATION............................................................... 79 --------------- 16. SURVIVAL OF COVENANTS, ETC.................................................... 79 -------------------------- 17. ASSIGNMENT AND PARTICIPATION.................................................. 80 ---------------------------- 17.1. Conditions to Assignment by Banks.................................. 80 --------------------------------- 17.2. Certain Representations and Warranties; Limitations; Covenants..... 80 -------------------------------------------------------------- 17.3. Register........................................................... 81 -------- 17.4. New Notes.......................................................... 81 ---------
-v- 17.5. Participations..................................................... 82 -------------- 17.6. Disclosure......................................................... 82 ---------- 17.7. Assignee or Participant Affiliated with the Borrower............... 82 ---------------------------------------------------- 17.8. Miscellaneous Assignment Provisions................................ 83 ----------------------------------- 17.9. Assignment by Borrower............................................. 83 ---------------------- 18. NOTICES, ETC.................................................................. 83 ------------ 19. GOVERNING LAW................................................................. 84 ------------- 20. HEADINGS...................................................................... 84 -------- 21. COUNTERPARTS.................................................................. 85 ------------ 22. ENTIRE AGREEMENT, ETC......................................................... 85 --------------------- 23. WAIVER OF JURY TRIAL.......................................................... 85 -------------------- 24. CONSENTS, AMENDMENTS, WAIVERS, ETC............................................ 86 ---------------------------------- 25. SEVERABILITY.................................................................. 87 ------------ 26. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION................................. 87 --------------------------------------------- 26.1. Confidentiality.................................................... 87 --------------- 26.2. Prior Notification................................................. 87 ------------------ 26.3. Other.............................................................. 88 ----- 27. TRANSITIONAL ARRANGEMENTS..................................................... 88 ------------------------- 27.1. First Amended and Restated Credit Agreement Superseded............. 88 ------------------------------------------------------ 27.2. Return and Cancellation of Notes................................... 89 -------------------------------- 27.3. Fees Under First Amended and Restated Credit Agreement............. 89 ------------------------------------------------------ 28. Replacement Documents.......................................................... 89 ---------------------
SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT -------------------------- This SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT is made as of July ___, 2001, by and among NEW ENGLAND BUSINESS SERVICE, INC. (the "Borrower"), a Delaware corporation having its principal place of business at 500 Main Street, Groton, Massachusetts 01471, FLEET NATIONAL BANK, formerly known as BANKBOSTON, N.A., a national banking association, and the other lending institutions listed on Schedule 1 hereto, FLEET NATIONAL BANK, formerly known as -------- - BANKBOSTON, N.A. as agent for itself and such other lending institutions, and CITIZENS BANK OF MASSACHUSETTS, as syndication agent. The Borrower, the Agent, Fleet National Bank, as Documentation Agent, and certain of the Banks have heretofore entered into an Amended and Restated Revolving Credit Agreement dated as of December 18, 1997 (the "First Amended and Restated Credit Agreement"), which in turn was an amendment and restatement of a Revolving Credit Agreement dated as of March 26, 1997 (the "Original Credit Agreement"). Each of the Borrower, the Agent and such Banks desire, upon the terms and conditions set forth herein, to amend and restate the First Amended and Restated Credit Agreement in order, among other things, to increase the size of the Total Commitment and to add certain additional lending institutions as "Banks" for purposes hereof. Accordingly, the parties hereto hereby agree to amend and restate the First Amended and Restated Credit Agreement on the following terms and conditions: 1. DEFINITIONS AND RULES OF INTERPRETATION. --------------------------------------- 1.1. Definitions. The following terms shall have the meanings set forth in ----------- this (S)1 or elsewhere in the provisions of this Credit Agreement referred to below: Advantage. Advantage Business Services Holdings, Inc., a Delaware --------- corporation. Affiliate. Any Person that would be considered to be an affiliate of the --------- Borrower, any Subsidiary of the Borrower or any Bank under Rule 144(a) of the Rules and Regulations of the Securities and Exchange Commission, as in effect on the date hereof, if the Borrower, any Subsidiary of the Borrower or any Bank were issuing securities. Agent's Fee Letter. The side letter dated as of the Closing Date among the ------------------ Agent, the Arranger and the Borrower regarding certain fees to be paid by the Borrower to the Agent and the Arranger on and after the Closing Date. Agent's Head Office. The Agent's head office located at 100 Federal ------------------- Street, Boston, Massachusetts 02110, or at such other location as the Agent may designate from time to time. -2- Agent. Fleet National Bank acting as agent for the Banks. ----- Agent's Special Counsel. Bingham Dana LLP or such other counsel as may be ----------------------- approved by the Agent. Applicable Eurodollar Rate Margin. For any fiscal quarter or portion --------------------------------- thereof within any Interest Period with respect to any Eurodollar Rate Loan, 1.25% per annum; provided, however, that in the event that the ratio of -------- ------- Consolidated Funded Debt (calculated as of the last day of such fiscal quarter or portion thereof) to EBITDA (calculated for the four (4) consecutive fiscal quarters ending on the last day of such fiscal quarter or portion thereof) meets the requirements set forth in the chart below, the Applicable Eurodollar Rate Margin shall, commencing initially with the date on which the Borrower delivers to the Banks the financial statements referred to in (S)6.4(a) with respect to the fiscal year ended June 30, 2001 and thereafter commencing with the date on which the Borrower delivers to the Banks the financial statements referred to in (S)6.4(a) or, as the case may be, (S)6.4(b) and ending on the date of the next change to be effected pursuant to this paragraph, be the percentage set forth opposite the applicable ratio of Consolidated Funded Debt to EBITDA in the table below: Ratio of Consolidated Funded Applicable Eurodollar Debt to EBITDA Rate Margin -------------- ----------- Less than or equal to 1.0:1.0 0.55% Greater than 1.0:1.0 and less than or 0.60% equal to 1.5:1.0 Greater than 1.5:1.0 and less than or 0.75% equal to 2.0:1.0 Greater than 2.0:1.0 and less than or 0.80% equal to 2.25:1.0 Greater than 2.25:1 1.25% If any financial statements referred to above are not delivered within the time periods specified in (S)6.4(a) or, as the case may be, (S)6.4(b), then, until such financial statements are delivered, the Applicable Eurodollar Rate Margin as at the end of the fiscal period that would have been covered thereby shall, for the purposes of this definition, be deemed to be 1.25%. In addition, at all times while a Default or an Event of Default shall have occurred and be continuing, the Applicable Eurodollar Rate Margin shall, for the purposes of this definition, be deemed to be 1.25%. Applicable Facility Fee Percentage. For any fiscal quarter or portion ---------------------------------- thereof, 0.375% per annum; provided, however, that in the event that the ratio -------- ------- of Consolidated Funded Debt (calculated as of the last day of such fiscal quarter -3- or portion thereof) to EBITDA (calculated for the four consecutive fiscal quarters existing on the last day of such fiscal quarter or portion thereof) meets the requirements set forth in the chart below, the Applicable Facility Fee Percentage shall, commencing initially with the date on which the Borrower delivers to the Banks the financial statements referred to in (S)6.4(a) with respect to the fiscal year ended June 30, 2001 and thereafter commencing with the date on which the Borrower delivers to the Banks the financial statements referred to in (S)6.4(a) or, as the case may be, (S)6.4(b) and ending on the next change to be effected pursuant to this paragraph, be the percentage set forth opposite the applicable ratio of Consolidated Funded Debt to EBITDA set forth in the table below: Ratio of Consolidated Funded Applicable Facility Debt to EBITDA Fee Percentage -------------- -------------- Less than or equal to 1.0:1.0 0.200% Greater than 1.0:1.0 and less than or 0.250% equal to 1.5:1.0 Greater than 1.5:1.0 and less than or 0.250% equal to 2.0:1.0 Greater than 2.0:1.0 0.375% If any financial statements referred to above are not delivered within the time periods specified in (S)6.4(a) or, as the case may be, (S)6.4(b), then, until such financial statements are delivered, the Applicable Facility Fee Percentage as at the end of the fiscal period that would have been covered thereby shall, for the purposes of this definition, be deemed to be 0.375%. In addition, at all times while a Default or Event of Default shall have occurred and be continuing, the Applicable Facility Fee Percentage shall, for the purposes of this definition, be 0.375%. Applicable Pension Legislation. At any time, any pension or retirement ------------------------------ benefits legislation (be it national, federal, provincial, territorial or otherwise) then applicable to the Borrower or any of its Subsidiaries. Arranger. Fleet Securities, Inc. -------- Assignment and Acceptance. See (S)17.1. ------------------------- Balance Sheet Date. June 24, 2000. ------------------ Banks. Fleet and the other lending institutions listed on Schedule 1 hereto ----- -------- - and any other Person who becomes an assignee of any rights and obligations of a Bank pursuant to (S)17. -4- Base Rate. The higher of (i) the variable per annum rate of interest so --------- designated from time to time by Fleet at its head office in Boston, Massachusetts, as its "prime rate," such rate being a reference rate and not necessarily representing the lowest or best rate being charged to any customer, and (ii) one-half of one percent (1/2%) above the Federal Funds Effective Rate. For the purposes of this definition, "Federal Funds Effective Rate" shall mean, for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three funds brokers of recognized standing selected by the Agent. Changes in the Base Rate resulting from any changes in Fleet's "prime rate" shall take place immediately without notice or demand of any kind. Base Rate Loans. Any Syndicated Loans bearing interest calculated by --------------- reference to the Base Rate. Borrower. As defined in the preamble hereto. -------- Business Day. Any day on which banking institutions in Boston, ------------ Massachusetts, are open for the transaction of banking business and, in the case of Eurodollar Rate Loans, also a day which is a Eurodollar Business Day. Capital Assets. Fixed assets, both tangible (such as land, buildings, -------------- fixtures, machinery and equipment) and intangible (such as patents, copyrights, trademarks, franchises and goodwill); provided that Capital Assets shall not -------- include any item customarily charged directly to expense or depreciated over a useful life of twelve (12) months or less in accordance with generally accepted accounting principles. Capital Expenditures. Amounts paid or Indebtedness incurred by the -------------------- Borrower or any of its Subsidiaries in connection with (i) the purchase or lease by the Borrower or any of its Subsidiaries of Capital Assets that would be required to be capitalized and shown on the balance sheet of such Person in accordance with generally accepted accounting principles or (ii) the lease of any assets by the Borrower or any Subsidiary of the Borrower under any Synthetic Lease to the extent that such assets would have been Capital Assets had the Synthetic Lease been treated as a Capitalized Lease. Capitalized Leases. Leases under which the Borrower or any of its ------------------ Subsidiaries is the lessee or obligor, the discounted future rental payment obligations under which are required to be capitalized on the balance sheet of the lessee or obligor in accordance with generally accepted accounting principles. CERCLA. See (S)5.18. ------ -5- Chiswick. Chiswick, Inc., a Massachusetts corporation and a wholly-owned -------- Subsidiary of the Borrower. Chiswick Contribution Agreement. The agreement, dated as of October 25, -------- ---------------------- 1999, pursuant to which Chiswick agreed to contribute cash generated from its operations to Chiswick Trust. Chiswick Trust. Chiswick Trust, a voluntary association with transferable -------------- shares organized under and by virtue of the laws of the Commonwealth of Massachusetts (commonly referred to as a Massachusetts business trust) and a wholly-owned Subsidiary of Chiswick. Chiswick Trust Intercompany Subordination Agreement. The Chiswick Trust -------- ----- ------------------------------------ Intercompany Subordination Agreement, dated as of October 25, 1999, among the Agent, the Borrower and Chiswick Trust. Closing Date. The first date on which the conditions set forth in (S)9 ------------ have been satisfied and any Loans are to be made. Code. The Internal Revenue Code of 1986, as amended. ---- Commitment. With respect to each Bank, the amount set forth on Schedule 1 ---------- -------- - hereto as the amount of such Bank's commitment to make Syndicated Loans to the Borrower, as the same may be reduced from time to time; or if such commitment is terminated pursuant to the provisions hereof, zero. The Competitive Bid Loans of such Bank outstanding at any time shall not affect such Bank's Commitment. Commitment Percentage. With respect to each Bank, the percentage set forth --------------------- on Schedule 1 hereto as such Bank's percentage of the aggregate Commitments of -------- - all of the Banks. The Competitive Bid Loans of such Bank outstanding at any time shall not affect such Bank's Commitment Percentage. Competitive Bid Loan(s). A borrowing hereunder consisting of one or more ----------------------- revolving credit loans made by any of the Banks whose offer to make a revolving credit loan as part of such borrowing has been accepted by the Borrower under the auction bidding procedure described in (S)2.3 hereof. Competitive Bid Note. See (S)2.5.2 hereof. -------------------- Competitive Bid Quote. An offer by a Bank to make a Competitive Bid Loan --------------------- in accordance with (S)2.3 hereof. Competitive Bid Quote Request. See (S)2.3.1(b) hereof. ----------------------------- Competitive Bid Rate. See (S)2.3.1(d)(ii)(C) hereof. -------------------- Consolidated or consolidated. With reference to any term defined herein, ------------ ------------ shall mean that term as applied to the accounts of the Borrower and its -6- Subsidiaries, consolidated in accordance with generally accepted accounting principles. Consolidated Funded Debt. At any time of determination, the sum of (i) the ------------ ------ ---- amount of the Loans outstanding (after giving account to any amounts requested) plus accrued but unpaid interest thereon; plus (ii) the outstanding amount of - ---- ---- any other Indebtedness for borrowed money (other than intercompany Indebtedness owed by the Borrower and its Subsidiaries to each other and permitted by the terms hereof) in respect of Capitalized Leases, Synthetic Leases or which is otherwise subject to the payment of interest plus accrued but unpaid interest on ---- such Indebtedness, including expenses consisting of interest in respect of Capitalized Leases, Synthetic Leases and including commitment fee, agency fee, facility fee, utilization fee, balance deficiency fee and similar fee expenses in connection with the borrowing of money. Consolidated Net Income. The consolidated net income (or deficit) of the ----------------------- Borrower and its Subsidiaries, after deduction of all expenses, taxes and other proper charges, determined in accordance with generally accepted accounting principles, after eliminating therefrom all extraordinary nonrecurring items. Consolidated Net Worth. The excess of Consolidated Total Assets over ---------------------- Consolidated Total Liabilities. Consolidated Total Assets. All assets of the Borrower and its Subsidiaries ------------------------- determined on a consolidated basis in accordance with generally accepted accounting principles. Consolidated Total Interest Expense. For any period, the aggregate amount ----------------------------------- of interest required to be expensed by the Borrower and its Subsidiaries in accordance with generally accepted accounting principles during such period on all Indebtedness of the Borrower and its Subsidiaries outstanding during all or any part of such period, including expense consisting of interest in respect of Capitalized Leases, Synthetic Leases and including commitment fee, agency fee, facility fee, utilization fee, balance deficiency fee and similar fee expense in connection with the borrowing of money. Consolidated Total Liabilities. All liabilities of the Borrower and its ------------------------------ Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles. Conversion Request. A notice given by the Borrower to the Agent of the ------------------ Borrower's election to convert or continue a Loan in accordance with (S)2.8. Credit Agreement. This Second Amended and Restated Revolving Credit ---------------- Agreement, including the Schedules and Exhibits hereto. Default. See (S)11. ------- -7- Distribution. The declaration or payment of any dividend on or in respect ------------ of any shares of any class of capital stock of the Borrower, other than dividends payable solely in shares of common stock of the Borrower; the purchase, redemption, or other retirement of any shares of any class of capital stock, or of any rights, warrants or options to acquire shares of any class of capital stock, of the Borrower, directly or indirectly through a Subsidiary of the Borrower or otherwise (including the setting apart of assets for a sinking or other analogous fund to be used for such purpose); the return of capital by the Borrower to its shareholders as such; or any other distribution on or in respect of any shares of any class of capital stock of the Borrower. Dollars or $. Dollars in lawful currency of the United States of America. ------- - domestic. With respect to any Subsidiary of the Borrower, any Subsidiary -------- which has been incorporated or organized under the laws of any state of the United States or the District of Columbia. Domestic Lending Office. Initially, the office of each Bank designated as ----------------------- such in Schedule 1 hereto; thereafter, such other office of such Bank, if any, -------- - located within the United States that will be making or maintaining Base Rate Loans. Drawdown Date. The date on which any Loan is made or is to be made, and ------------- the date on which any Loan is converted or continued in accordance with (S)2.8. EBITDA. The consolidated earnings (or loss) from the operations of the ------ Borrower and its Subsidiaries for any period, after all expenses and other proper charges but before payment or provision for any income taxes, interest expense, depreciation or amortization for such period, and excluding the Restructuring Charges (to the extent taken), in each case determined in accordance with generally accepted accounting principles. For purposes hereof, EBITDA shall include, on a pro forma basis, EBITDA (calculated for any --- ----- applicable period, commencing with the four consecutive fiscal quarters of the Borrower ending in the quarter in which such Permitted Acquisition is made) of any Subsidiary acquired by means of a Permitted Acquisition (including historical earnings and cash flows associated with such Subsidiary and any incurrence or reduction of Indebtedness associated with such Permitted Acquisition, but excluding any projected synergies or similar benefits expected to be realized as a result of such event). Eligible Assignee. Any of (i) a commercial bank or finance company ----------------- organized under the laws of the United States, or any State thereof or the District of Columbia, and having total assets in excess of $1,000,000,000; (ii) a savings and loan association or savings bank organized under the laws of the United States, or any State thereof or the District of Columbia, and having a net worth of at least $100,000,000, calculated in accordance with generally accepted accounting principles; (iii) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, -8- and having total assets in excess of $1,000,000,000, provided that such bank is -------- acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD; (iv) the central bank of any country which is a member of the OECD; and (v) if, but only if, an Event of Default has occurred and is continuing, any other bank, insurance company, commercial finance company or other financial institution or other Person approved by the Agent, such approval not to be unreasonably withheld. Employee Benefit Plan. Any employee benefit plan within the meaning of --------------------- (S)3(2) of ERISA maintained or contributed to by the Borrower or any of its Subsidiaries other than a Guaranteed Pension Plan or a Multiemployer Plan. Environmental Laws. See (S)5.18(a). ------------------ ERISA. The Employee Retirement Income Security Act of 1974, as amended, ----- including all rules, regulations, decrees and orders arising thereunder. ERISA Affiliate. Any Person which is treated as a single employer with the --------------- Borrower or any of its Subsidiaries under (S)414 of the Code. ERISA Reportable Event. A reportable event with respect to a Guaranteed ---------------------- Pension Plan within the meaning of (S)4043 of ERISA and the regulations promulgated thereunder as to which the requirement of notice has not been waived. Eurocurrency Reserve Rate. For any day with respect to a Eurodollar Rate ------------------------- Loan, the maximum rate (expressed as a decimal) at which any lender subject thereto would be required to maintain reserves under Regulation D of the Board of Governors of the Federal Reserve System (or any successor or similar regulations relating to such reserve requirements) against "Eurocurrency Liabilities" (as that term is used in Regulation D), if such liabilities were outstanding. The Eurocurrency Reserve Rate shall be adjusted automatically on and as of the effective date of any change in the Eurocurrency Reserve Rate. Eurodollar Business Day. Any day on which commercial banks are open for ----------------------- international business (including dealings in Dollar deposits) in London or such other eurodollar interbank market as may be selected by the Agent in its sole discretion acting in good faith. Eurodollar Lending Office. Initially, the office of each Bank designated ------------------------- as such in Schedule 1 hereto; thereafter, such other office of such Bank, if -------- - any, that shall be making or maintaining Eurodollar Rate Loans. Eurodollar Rate. For any Interest Period with respect to a Eurodollar Rate --------------- Loan, the rate of interest equal to (i) the arithmetic average of the rates per annum for Fleet (rounded upwards to the nearest 1/16 of one percent) of the rate at which Fleet's Eurodollar Lending Office is offered Dollar deposits two -9- Eurodollar Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations of such Eurodollar Lending Office are customarily conducted at or about 10:00 a.m., Boston time, for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of the Eurodollar Rate Loan of Fleet to which such Interest Period applies, divided by (ii) a number equal to 1.00 minus the Eurocurrency Reserve Rate, if applicable. Eurodollar Rate Loans. Any Syndicated Loans bearing interest calculated by --------------------- reference to the Eurodollar Rate. Event of Default. See (S)11. ---------------- First Amended and Restated Credit Agreement. As defined in the preamble. ------------------------------------------- Fleet. Fleet National Bank, formerly known as BankBoston, N.A., formerly ----- known as The First National Bank of Boston, a national banking association, in its individual capacity. generally accepted accounting principles. (i) When used in (S)8, whether ---------------------------------------- directly or indirectly through reference to a capitalized term used therein, means (A) principles that are consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, in effect for the fiscal year ended on the Balance Sheet Date, and (B) to the extent consistent with such principles, the accounting practice of the Borrower reflected in its financial statements for the year ended on the Balance Sheet Date, and (ii) when used in general, other than as provided above, means principles that are (A) consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, as in effect from time to time and (B) consistently applied with past financial statements of the Borrower adopting the same principles, provided that in each case referred to in -------- this definition of "generally accepted accounting principles" a certified public accountant would, insofar as the use of such accounting principles is pertinent, be in a position to deliver an unqualified opinion (other than a qualification regarding changes in generally accepted accounting principles) as to financial statements in which such principles have been properly applied. Guaranteed Pension Plan. Any employee pension benefit plan within the ----------------------- meaning of (S)3(2) of ERISA maintained or contributed to by the Borrower or any of its Subsidiaries or any ERISA Affiliate of the Borrower or any of its Subsidiaries the benefits of which are guaranteed on termination in full or in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer Plan. Guarantors. McBee, Chiswick, PremiumWear, Rapidforms, Russell & Miller, ---------- R&M Trust, Chiswick Trust, Veripack, PWI and any other Subsidiary of -10- the Borrower which guaranties the Obligations pursuant to and upon the terms and conditions set forth in a Guaranty. Guaranty. Collectively, (a) the Guaranty dated on or prior to the Closing -------- Date from each of the Guarantors in favor of the Agent and the Banks and (b) the Guaranties dated as of the date required by (S)7.5.1 or, as the case may be, (S)7.11 hereof from each Subsidiary required to become a Guarantor pursuant to (S)7.5.1 or, as the case may be, (S)7.11 hereof, pursuant to which each such Subsidiary guaranties to the Banks and the Agent the payment and performance of the Obligations, each in substantially the form of Exhibit A hereto. ------- - Hazardous Substances. See (S)5.18(b). -------------------- Indebtedness. As to any Person and whether recourse is secured by or is ------------ otherwise available against all or only a portion of the assets of such Person and whether or not contingent, but without duplication: (a) every obligation of such Person for money borrowed, (b) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses, (c) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person, (d) every obligation of such Person issued or assumed as the deferred purchase price of property or services (including securities repurchase agreements but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business which are not overdue or which are being contested in good faith), (e) every obligation of such Person under any Capitalized Lease, (f) every obligation of such Person under any Synthetic Lease, (g) all sales by such Person of (i) accounts or general intangibles for money due or to become due, (ii) chattel paper, instruments or documents creating or evidencing a right to payment of money or (iii) other receivables (collectively "receivables"), whether pursuant to a purchase ----------- facility or otherwise, other than in connection with the disposition of the business operations of such Person relating thereto or a disposition of defaulted receivables for collection and not as a financing arrangement, and together with any obligation of such Person -11- to pay any discount, interest, fees, indemnities, penalties, recourse, expenses or other amounts in connection therewith, (h) every obligation of such Person (an "equity related purchase ------ ------- -------- obligation") to purchase, redeem, retire or otherwise acquire for value any ---------- shares of capital stock issued by such Person or any rights measured by the value of such capital stock, (i) every obligation of such Person under any forward contract, futures contract, swap, option or other financing agreement or arrangement (including, without limitation, caps, floors, collars and similar agreements), the value of which is dependent upon interest rates, currency exchange rates, commodities or other indices (a "derivative contract"), ---------- -------- (j) every obligation in respect of Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent that such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent that the terms of such Indebtedness provide that such Person is not liable therefor and such terms are enforceable under applicable law, (k) every obligation, contingent or otherwise, of such Person guaranteeing, or having the economic effect of guarantying or otherwise acting as surety for, any obligation of a type described in any of clauses (a) through (j) (the "primary obligation") of another Person (the "primary ------- ---------- ------- obligor"), in any manner, whether directly or indirectly, and including, ------- without limitation, any obligation of such Person (i) to purchase or pay (or advance or supply funds for the purchase of) any security for the payment of such primary obligation, (ii) to purchase property, securities or services for the purpose of assuring the payment of such primary obligation, or (iii) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such primary obligation. The "amount" or "principal amount" of any Indebtedness at any time of ------ --------- ------ determination represented by (t) any Indebtedness, issued at a price that is less than the principal amount at maturity thereof, shall be the amount of the liability in respect thereof determined in accordance with generally accepted accounting principles, (u) any Capitalized Lease shall be the principal component of the aggregate of the rentals obligation under such Capitalized Lease payable over the term thereof that is not subject to termination by the lessee, (v) any sale of receivables shall be the amount of unrecovered capital or principal investment of the purchaser (other than the Borrower or any of its wholly-owned Subsidiaries) thereof, excluding amounts representative of yield or interest earned on such investment, (w) any Synthetic Lease shall be the stipulated loss value, termination value or other equivalent amount, (x) any derivative contract shall be the maximum amount of any termination or loss -12- payment required to be paid by such Person if such derivative contract were, at the time of determination, to be terminated by reason of any event of default or early termination event thereunder, whether or not such event of default or early termination event has in fact occurred, (y) any equity related purchase obligation shall be the maximum fixed redemption or purchase price thereof inclusive of any accrued and unpaid dividends to be comprised in such redemption or purchase price and (z) any guaranty or other contingent liability referred to in clause (k) shall be an amount equal to the stated or determinable amount of the primary obligation in respect of which such guaranty or other contingent obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. Ineligible Securities. Securities which may not be underwritten or dealt --------------------- in by member banks of the Federal Reserve System under Section 16 of the Banking Act of 1993 (12 U.S.C. (S)24, Seventh), as amended. Intercompany Subordination Agreement. The Intercompany Subordination ------------------------------------ Agreement, dated as of October 8, 1998, among the Agent, the Borrower and R&M Trust. Interest Payment Date. (i) As to any Base Rate Loan, the last day of the --------------------- calendar quarter which includes the Drawdown Date thereof; (ii) as to any Competitive Bid Loan, on the last day of the Interest Period applicable thereto; (iii) as to any Eurodollar Rate Loan, the last day of such Interest Period. Interest Period. With respect to each Loan, (i) initially, the period --------------- commencing on the Drawdown Date of such Loan and ending on the last day of one of the periods set forth below, as selected by the Borrower in a Loan Request or Notice of Competitive Bid Borrowing (A) for any Base Rate Loan, the last day of the calendar quarter; (B) for any Competitive Bid Loan, from 7 through 180 days; and (C) for any Eurodollar Rate Loan, 1, 2, 3 or 6 months; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Loan and ending on the last day of one of the periods set forth above, as selected by the Borrower in a Conversion Request; provided that -------- all of the foregoing provisions relating to Interest Periods are subject to the following: (a) if any Interest Period with respect to a Eurodollar Rate Loan would otherwise end on a day that is not a Eurodollar Business Day, that Interest Period shall be extended to the next succeeding Eurodollar Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Eurodollar Business Day; (b) if any Interest Period with respect to a Base Rate Loan would end on a day that is not a Business Day, that Interest Period shall end on the next succeeding Business Day; -13- (c) if the Borrower shall fail to give notice as provided in (S)2.8, the Borrower shall be deemed to have requested a conversion of the affected Eurodollar Rate Loan to a Base Rate Loan and the continuance of all Base Rate Loans as Base Rate Loans on the last day of the then current Interest Period with respect thereto; (d) any Interest Period that begins on the last Eurodollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Eurodollar Business Day of a calendar month; and (e) any Interest Period relating to any Loan that would otherwise extend beyond the Revolving Credit Loan Maturity Date shall end on the Revolving Credit Loan Maturity Date. Interim Balance Sheet Date. March 24, 2001. -------------------------- Investments. All expenditures made and all liabilities incurred ----------- (contingently or otherwise) for the acquisition of stock or Indebtedness of, or for loans, advances, capital contributions or transfers of property to, or in respect of any guaranties (or other commitments as described under Indebtedness), or obligations of, any Person. In determining the aggregate amount of Investments outstanding at any particular time: (i) the amount of any Investment represented by a guaranty shall be taken at not less than the principal amount of the obligations guaranteed and still outstanding; (ii) there shall be included as an Investment all interest accrued with respect to Indebtedness constituting an Investment unless and until such interest is paid; (iii) there shall be deducted in respect of each such Investment any amount received as a return of capital (but only by repurchase, redemption, retirement, repayment, liquidating dividend or liquidating distribution); (iv) there shall not be deducted in respect of any Investment any amounts received as earnings on such Investment, whether as dividends, interest or otherwise, except that accrued interest included as provided in the foregoing clause (ii) may be deducted when paid; and (v) there shall not be deducted from the aggregate amount of Investments any decrease in the value thereof. Invitation for Competitive Bid Quotes. See (S)2.3.1(c) hereof. ------------------------------------- Loan Documents. This Credit Agreement, the Notes, the Agent's Fee Letter, -------------- the Chiswick Trust Intercompany Subordination Agreement and any other subordination arrangements entered into pursuant to (S)7.1(j) or (o), the Intercompany Subordination Agreement and any other subordination agreements entered into pursuant to (S)7.1(j) or (o), the Guaranty and all documents evidencing or relating to any interest rate protection arrangements entered into between the Borrower and any Bank. Loan Request. See (S)2.2. ------------ -14- Loans. Revolving credit loans made or to be made by the Banks to the ----- Borrower pursuant to (S)2 hereof, whether Syndicated Loans or Competitive Bid Loans. Majority Banks. As of any date, Banks having at least sixty percent (60%) -------------- of the aggregate amount of the Commitments or, if the Commitments shall have been terminated, holding Notes evidencing at least sixty percent (60%) of the aggregate unpaid principal amount of the Loans. Margin Stock. "Margin Stock" or "Margin Securities", as such terms are ------------ used in Regulations U and X of the Board of Governors of the Federal Revenue System, 12 C.F.R. Parts 221 and 224. McBee. McBee Systems, Inc., a Colorado corporation and a wholly-owned ----- Subsidiary of Rapidforms. Multiemployer Plan. Any multiemployer plan within the meaning of (S)3(37) ------------------ of ERISA maintained or contributed to by the Borrower or any of its Subsidiaries or any ERISA Affiliate of the Borrower or any of its Subsidiaries. Notes. The Competitive Bid Notes and the Syndicated Notes. ----- Notice of Competitive Bid Borrowing. See (S)2.3.1(f) hereof. ----------------------------------- Obligations. All indebtedness, obligations and liabilities of any of the ----------- Borrower and its Subsidiaries to any of the Banks and the Agent, individually or collectively, existing on the date of this Credit Agreement or arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, arising or incurred under this Credit Agreement or any of the other Loan Documents (including any interest rate protection arrangements entered into between the Borrower and any Bank), or in respect of any of the Loans or any of the Notes or other instruments at any time evidencing any thereof. Original Credit Agreement. As defined in the preamble. ------------------------- outstanding. With respect to the Loans, the aggregate unpaid principal ----------- thereof as of any date of determination. PBGC. The Pension Benefit Guaranty Corporation created by (S)4002 of ERISA ---- and any successor entity or entities having similar responsibilities. Permitted Liens. Liens, security interests and other encumbrances --------------- permitted by (S)7.2. Permitted Acquisition. Any acquisition of any Person, business, division, --------------------- or specified group of assets by the Borrower or any Guarantor, provided that, -------- with respect to any such acquisition, (1) the Agent and the Majority Banks -15- approve, in their sole discretion, such acquisition in writing in advance or (2) each of the following conditions is met: (a) immediately prior to and after, and after giving effect to, such acquisition, no Default or Event of Default shall then exist; (b) (i) the aggregate consideration paid or to be paid by the Borrower or any Guarantor in connection with any single such acquisition (including consideration in the form of cash or the assumption of Indebtedness for borrowed money, debt or other similar monetary obligations by the Borrower or any Guarantor (including such Indebtedness in existence prior to the date of such acquisition which was not incurred in connection with or contemplation thereof) but excluding stock or other equity interest consideration) shall not exceed $30,000,000 and (ii) the aggregate consideration paid or to be paid by the Borrower or any Guarantor in connection with any such acquisition, including consideration of the types described in clause (b)(i) of this definition and stock or other equity interest consideration (as valued for the purpose of such acquisitions) shall not exceed $40,000,000; (c) (i) the aggregate consideration paid or to be paid by the Borrower or any Guarantor in connection with all such acquisitions (including consideration in the form of cash or the assumption of Indebtedness for borrowed money, debt or other similar monetary obligations by the Borrower or any Guarantor (including such Indebtedness in existence prior to the date of any such acquisition which was not incurred in connection with or contemplation thereof) but excluding stock or other equity interest consideration) shall not exceed $60,000,000 and (ii) the aggregate consideration paid or to be paid by the Borrower or any Guarantor in connection with all such acquisitions, including consideration of the types described in clause (c)(i) of this definition and stock or other equity interest consideration (as valued for the purpose of such acquisitions) shall not exceed $80,000,000; (d) such acquisition shall have been approved by the board of directors and shareholders, if required, or other applicable management of such Person; (e) either (i) such acquisition is the acquisition of assets only (for use in substantially the same line of business as the line of business of the Borrower or any of its Subsidiaries) or (ii) such acquisition involves the purchase of the capital stock or other equity interests of a Person and each of the following conditions is met: (A) such acquisition is the acquisition of one hundred percent (100%) of the capital stock or other equity interests of such Person. -16- (B) such Person is in substantially the same line of business as the Borrower or any of its Subsidiaries, (C) The Borrower or a Guarantor is the survivor of any merger or consolidation with such Person; (D) not less than ten (10) Business Days prior to such acquisition, the Borrower shall notify the Banks thereof, and (E) contemporaneously with the occurrence of any such acquisition, the Borrower shall (I) cause such Person, if such Person shall be engaged in business of any kind or nature (other than having qualified to do business in a foreign jurisdiction) or shall have a net worth or assets of more than a de minimis value, to guaranty all -- ------- of the Obligations hereunder pursuant to the Guaranty, and (II) cause such Person to deliver to the Banks and the Agent (aa) evidence of proper corporate or other entity authorization, and (bb) legal opinions with respect to each of the matters and documents set forth in this clause (E), in each case, in form and substance satisfactory to the Agent and the Banks; and (f) the Agent shall have received each of the following, each in form and substance satisfactory to the Agent: (i) a compliance certificate evidencing pro forma compliance with the requirements of (S)8 hereof --- ----- following the consummation of any such acquisition, (ii) due diligence summaries evidencing the Borrower's or such Guarantor's, as the case may be, due diligence with respect to the Person or assets being acquired and (iii) such other information, including financial statements, as the Agent or the Majority Banks may request. Permitted Joint Venture. Investment by the Borrower or any Guarantor in any ----------------------- Person, provided that, with respect to any such Investment, (1) the Agent and -------- the Majority Banks approve, in their sole discretion, such Investment in writing in advance or (2) each of the following conditions is met: (a) immediately prior to and after, and after giving effect to, such Investment, no Default or Event of Default shall then exist; (b) subject to the limitations set forth in subsection (d) of this definition, (i) the aggregate consideration paid or to be paid by the Borrower or any Guarantor in connection with all such Investments (including consideration in the form of cash or the assumption of Indebtedness for borrowed money, debt or other similar monetary obligations by the Borrower or any Guarantor (including any such Indebtedness in existence prior to the date of such Investment which was not incurred in connection with or in contemplation thereof) but excluding stock or other equity interest consideration) shall not exceed $10,000,000, and (ii) the aggregate consideration paid or to be paid by the Borrower or any Guarantor in connection with all such Investments, including consideration of the type -17- described in and included in clause (b)(i) of this definition and stock or other equity interest consideration (as valued for the purpose of any such Investment) shall not exceed $20,000,000; (c) such Investment shall have been approved by the board of directors and shareholders, if required, or other applicable management of such Person; (d) (i) such Person is in substantially the same line of business as the Borrower or any of its Subsidiaries or (ii) in a different line of business from that of the Borrower or any of its Subsidiaries so long as, and notwithstanding the limitations set forth in subsection (b) of this definition, (A) the aggregate consideration paid or to be paid by the Borrower or any Guarantor in connection with such Investment under this subsection (d)(ii) (including consideration in the form of cash or the assumption of Indebtedness for borrowed money, debt or other similar monetary obligations by the Borrower or such Guarantor (including any such Indebtedness in existence prior to the date of such Investment which was not incurred in connection with or in contemplation thereof) but excluding stock or other equity interest consideration) shall not exceed $1,000,000, and (B) the aggregate consideration paid or to be paid by the Borrower or any Guarantor in connection with such Investment under this subsection (d)(ii), including consideration of the type described in and included in clause (d)(ii)(A) of this definition and stock or other equity interest consideration (as valued for the purpose of any such Investment) shall not exceed $5,000,000; (e) following the making of such Investment, neither the Borrower nor any of its Subsidiaries shall own a majority or more of the capital stock or other equity interests of such Person; (f) not less than ten (10) Business Days prior to the making of such Investment, the Borrower shall notify the Banks thereof; and (g) the Agent shall have received each of the following, each in form and substance satisfactory to the Agent: (i) a compliance certificate evidencing pro forma compliance with the requirements of (S)8 hereof --- ----- following the making of any such Investment, (ii) due diligence summaries evidencing the Borrower's or such Guarantor's, as the case may be, due diligence with respect to the Person, and (iii) such other information, including financial statements, as the Agent or the Majority Banks may request. Person. Any individual, corporation, limited liability company, limited ------ liability partnership, trust, other unincorporated association, business, or other legal entity, and any government or any governmental agency or political subdivision thereof. -18- PremiumWear. PremiumWear, Inc., a Delaware corporation and a wholly-owned ----------- Subsidiary of the Borrower. PWI. PWI Holdings, Inc., a Delaware corporation and a wholly-owned --- Subsidiary of PremiumWear. R&M Contribution Agreement. The agreement, dated as of December 28, 1998, -------------------------- pursuant to which each of Rapidforms, McBee and Russell & Miller contributes cash generated from its respective operations to R&M Trust (including, in the case of Russell & Miller, royalty payments made to it under any of the Trademark License Agreements). R&M Trust. R&M Trust, a voluntary association with transferable shares --------- organized under and by virtue of the laws of the Commonwealth of Massachusetts (commonly referred to as a Massachusetts business trust) and a wholly-owned Subsidiary of Russell & Miller. Rapidforms. Rapidforms, Inc., a New Jersey corporation and a wholly-owned ---------- Subsidiary of the Borrower. Real Estate. All real property at any time owned or leased (as lessee or ----------- sublessee) by the Borrower or any of its Subsidiaries. Record. The grid attached to a Note, or the continuation of such grid, or ------ any other similar record, including computer records, maintained by any Bank with respect to any Loan referred to in such Note. Restricted Payment. In relation to the Borrower and its Subsidiaries, any ------------------ (a) Distribution, (b) payment or prepayment by the Borrower or its Subsidiaries (i) to the Borrower's or any Subsidiary's shareholders (or other equity holders), in each case, other than to the Borrower, or (ii) to any Affiliate of the Borrower or any Subsidiary or any Affiliate of the Borrower's or such Subsidiary's shareholders (or other equity holders), in each case, other than to the Borrower or (c) derivatives or other transactions with any financial institution, commodities or stock exchange or clearinghouse (a "Derivatives ----------- Counterparty") obligating the Borrower or any Subsidiary to make payments to - ------------ such Derivatives Counterparty as a result of any change in market value of any capital stock of the Borrower or such Subsidiary. Restructuring Charges. The restructuring charges taken by the Borrower in --------------------- any fiscal year and disclosed and described to the Agent and the Banks in writing; provided that (a) the aggregate amount of cash and non-cash -------- ---- restructuring charges for the Borrower's 2001 fiscal year shall not exceed $12,000,000; and (b) any restructuring charges taken in any fiscal year following the Borrower's 2001 fiscal year may be cash or non-cash restructuring charges, but only $5,000,000 of non-cash restructuring charges (and no cash restructuring charges) shall be excluded from EBITDA for such fiscal year. Revolving Credit Loan Maturity Date. July 13, 2004. ----------------------------------- -19- Russell & Miller. Russell & Miller, Inc., a Delaware corporation and a ---------------- wholly-owned Subsidiary of McBee. Section 20 Subsidiary. A Subsidiary of the bank holding company --------------------- controlling any Bank, which Subsidiary has been granted authority by the Federal Reserve Board to underwrite and deal in certain Ineligible Securities. Subsidiary. Any corporation, association, trust, or other business entity ---------- of which the designated parent shall at any time own directly or indirectly through a Subsidiary or Subsidiaries at least a majority (by number of votes) of the outstanding Voting Stock. Syndicated Loan(s). See (S)2.1 hereof. ------------------ Syndicated Note. See (S)2.5.1 hereof. --------------- Synthetic Lease. Any lease of goods or other property, whether real or --------------- personal, which is treated as an operating lease under generally accepted accounting principles and as a loan or financing for U.S. income tax purposes. Total Commitment. The sum of the Commitments of the Banks, as in effect ---------------- from time to time, which amount shall, as of the Closing Date, be $200,000,000. Trademark License Agreements. The separate agreements pursuant to which ---------------------------- each of the Borrower or one or more of its Subsidiaries have licensed or will license from Russell & Miller (i) all United States and foreign trademarks, service marks, common law marks, trade names and trade dress owned by Russell & Miller, and (ii) all United States and foreign trademarks, service marks, common law marks, trade names and trade dress licensed by Russell & Miller that Russell & Miller is legally and/or contractually able to sublicense to the Borrower and its Subsidiaries, in form and substance (including any modifications thereto) satisfactory to the Agent. Type. As to any Syndicated Loan, its nature as a Base Rate Loan or a ---- Eurodollar Rate Loan. Unfunded Commitments. The amount equal to the Total Commitment minus the -------------------- ----- sum of (a) the outstanding aggregate principal amount of all Syndicated Loans and (b) the outstanding aggregate principal amount of all Competitive Bid Loans. Unsecured Subordinated Promissory Note. Collectively, the promissory notes -------------------------------------- evidencing the Indebtedness permitted by (S)7.1(o)(i) and (ii), in each case, in form and substance (including any modifications thereof) satisfactory to the Agent. Veripack. Veripack.com, Inc., a Delaware corporation and a wholly-owned -------- Subsidiary of Chiswick. -20- Voting Stock. Stock or similar interests, of any class or classes (however ------------ designated), the holders of which are at the time entitled, as such holders, to vote for the election of a majority of the directors (or persons performing similar functions) of the corporation, association, trust or other business entity involved, whether or not the right so to vote exists by reason of the happening of a contingency. 1.2. Rules of Interpretation. ----------------------- (a) A reference to any document or agreement shall include such document or agreement as amended, modified or supplemented from time to time in accordance with its terms and the terms of this Credit Agreement. (b) The singular includes the plural and the plural includes the singular. (c) A reference to any law includes any amendment or modification to such law. (d) A reference to any Person includes its permitted successors and permitted assigns. (e) Accounting terms not otherwise defined herein have the meanings assigned to them by generally accepted accounting principles applied on a consistent basis by the accounting entity to which they refer. (f) The words "include", "includes" and "including" are not limiting. (g) All terms not specifically defined herein or by generally accepted accounting principles, which terms are defined in the Uniform Commercial Code as in effect in the Commonwealth of Massachusetts, have the meanings assigned to them therein, with the term "instrument" being that defined under Article 9 of the Uniform Commercial Code. (h) Reference to a particular "(S)" refers to that section of this Credit Agreement unless otherwise indicated. (i) The words "herein", "hereof", "hereunder" and words of like import shall refer to this Credit Agreement as a whole and not to any particular section or subdivision of this Credit Agreement. (j) Unless otherwise expressly indicated, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including," the words "to" and "until" each mean "to but excluding," and the word "through" means "to and including." -21- (k) This Credit Agreement and the other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are, however, cumulative and are to be performed in accordance with the terms thereof. (l) This Credit Agreement and the other Loan Documents are the result of negotiation among, and have been reviewed by counsel to, among others, the Agent and the Borrower and are the product of discussions and negotiations among all parties. Accordingly, this Credit Agreement and the other Loan Documents are not intended to be construed against the Agent or any of the Banks merely on account of the Agent's or any Bank's involvement in the preparation of such documents. (m) All calculations of the financial covenant ratios and requirements contained in (S)8 hereof, together with the ratio of Consolidated Funded Debt to EBITDA for purposes of the definitions of Applicable Eurodollar Rate Margin and Applicable Facility Fee Percentage, shall exclude the effects of Statement No. 133 of the Financial Accounting Standards Board. 2. THE REVOLVING CREDIT FACILITY. ----------------------------- 2.1. Commitment to Lend Syndicated Loans. Subject to the terms and ----------------------------------- conditions set forth in this Credit Agreement, each of the Banks severally agrees to lend to the Borrower and the Borrower may borrow, repay, and reborrow from time to time between the Closing Date and the Revolving Credit Loan Maturity Date upon notice by the Borrower to the Agent given in accordance with (S)2.2, such sums ("Syndicated Loans" and expressly excluding any Competitive Bid Loan) as are requested by the Borrower up to a maximum aggregate principal amount outstanding (after giving effect to all amounts requested) at any one time equal to such Bank's Commitment (without regard to any Competitive Bid Loans of such Bank outstanding at such time), provided that (i) the sum of the -------- outstanding amount of the Syndicated Loans (after giving effect to all amounts requested) plus the outstanding aggregate principal amount of all Competitive ---- Bid Loans made by all Banks shall not at any time exceed the Total Commitment and (ii) at all times the outstanding aggregate principal amount of all Syndicated Loans made by each Bank shall equal such Bank's Commitment Percentage of the outstanding aggregate principal amount of all Syndicated Loans made pursuant to the terms of this Credit Agreement. The Syndicated Loans shall be made pro rata in accordance with each Bank's Commitment Percentage. Each request --- ---- for a Syndicated Loan hereunder shall constitute a representation and warranty by the Borrower that the conditions set forth in (S)9 and (S)10, in the case of the initial Syndicated Loans to be made on the Closing Date, and (S)10, in the case of all other Syndicated Loans, have been satisfied on the date of such request. 2.2. Requests for Loans. The Borrower shall give to the Agent written ------------------ notice in the form of Exhibit B hereto (or telephonic notice confirmed in a --------- -22- writing in the form of Exhibit B hereto) of each Syndicated Loan requested --------- hereunder (a "Loan Request") by 10:00 a.m. (i) on the proposed Drawdown Date of any Base Rate Loan and (ii) two (2) Eurodollar Business Days prior to the proposed Drawdown Date of any Eurodollar Rate Loan. Each such notice shall specify (A) the principal amount of the Syndicated Loan requested, (B) the proposed Drawdown Date of such Syndicated Loan, (C) the Interest Period for such Syndicated Loan and (D) the Type of such Syndicated Loan. Promptly upon receipt of any such notice, the Agent shall notify each of the Banks thereof. Each such notice shall be irrevocable and binding on the Borrower and shall obligate the Borrower to accept the Syndicated Loan requested from the Banks on the proposed Drawdown Date. Each Loan Request shall be in a minimum aggregate amount of $1,000,000 or any integral multiple of $500,000 in excess thereof. 2.3. Competitive Bid Loans. --------------------- 2.3.1. Competitive Bid Borrowings. (a) The Competitive Bid Option. In -------------------------- -------------------------- addition to the Syndicated Loans permitted to be made hereunder pursuant to (S)2.1 hereof, the Borrower may, from time to time from the Closing Date until the Revolving Credit Loan Maturity Date pursuant to the terms of this (S)2.3, cause the Agent to request the Banks to make offers to fund Competitive Bid Loans to the Borrower from time to time prior to the Revolving Credit Loan Maturity Date. The Banks may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept such offers in the manner set forth in this (S)2.3. Each Bank may make Competitive Bid Loans in an aggregate amount (after giving effect to all amounts requested) not to exceed the lesser of $20,000,000 and the Total Commitment, provided that the aggregate amount of -------- all outstanding Syndicated Loans (after giving effect to all amounts requested) plus the aggregate amount of all outstanding Competitive Bid ---- Loans (after giving effect to all amounts requested) shall at no time exceed the Total Commitment. (b) Competitive Bid Quote Request. When the Borrower wishes to ----------------------------- request offers to make Competitive Bid Loans under this (S)2.3, it shall transmit to the Agent by telex or facsimile a Competitive Bid Quote Request substantially in the form of Exhibit C attached hereto (a "Competitive Bid ------- - Quote Request") so as to be received no later than 1:00 p.m. (Boston time) on the Business Day prior to the requested Drawdown Date, specifying (i) the requested Drawdown Date (which must be a Business Day), (ii) the amount of such Competitive Bid Loan (which must be a minimum of $1,000,000 or any greater integral multiple of $500,000 and may not exceed the Total Commitment), and (iii) the Interest Period of such Competitive Bid Loan (which may not extend beyond the Revolving Credit Loan Maturity Date). Contemporaneously with the transmission of each Competitive Bid Quote Request, the Borrower shall pay to the Agent, for the Agent's own account, a work fee in the amount of $750. The Borrower may request offers to make -23- Competitive Bid Loans for one amount and three Interest Periods in a single Competitive Bid Quote Request. (c) Invitation for Competitive Bid Quotes; Alternative Manner of ------------------------------------------------------------ Auction. Subsequent to timely receipt of a Competitive Bid Quote Request, ------- the Agent shall send to the Banks by telex or facsimile an Invitation for Competitive Bid Quotes substantially in the form of Exhibit D attached --------- hereto (an "Invitation for Competitive Bid Quotes"), as promptly as possible but not later than 3:00 p.m. (Boston time) on the Business Day prior to the requested Drawdown Date which shall constitute an invitation by the Borrower to each Bank to submit Competitive Bid Quotes offering to make Competitive Bid Loans to which such Competitive Bid Quote Request relates in accordance with this (S)2.3. If, after receipt by the Agent of a Competitive Bid Quote Request from the Borrower in accordance with subsection (b) of this (S)2.3.1, the Agent or any Bank shall be unable to complete any procedure of the auction process described in subsections (c) through (f) (inclusive) of this (S)2.3.1 due to the inability of such Person to transmit or receive communications through the means specified therein, such Person may rely on telephonic notice for the transmission or receipt of such communications. In any case where such Person shall rely on telephone transmission or receipt, any communication made by telephone shall, as soon as possible thereafter, be followed by written confirmation thereof. (d) Submission and Contents of Competitive Bid Quotes. -------------------------------------------------- (i) Each Bank may submit a Competitive Bid Quote containing an offer or offers to make Competitive Bid Loans in response to any Invitation for Competitive Bid Quotes. Each Competitive Bid Quote must comply with the requirements of this subsection (d) and must be submitted to the Agent by telex or facsimile not later than 10:00 a.m. (Boston time) on the requested Drawdown Date, provided that -------- Competitive Bid Quotes may be made by the Agent in its capacity as a Bank only if it notifies the Borrower of the terms of its Competitive Bid Quote no later than 9:30 a.m. (Boston time) on the requested Drawdown Date. Subject to the provisions of (S)(S)9, 10 and 11 hereof, any Competitive Bid Quote so made shall be irrevocable except with the written consent of the Agent given on the instructions of the Borrower. (ii) Each Competitive Bid Quote shall be in substantially the form of Exhibit E-1 attached hereto (a "Competitive Bid Quote") and ----------- shall in any case specify: (A) the requested Drawdown Date and Interest Periods, (B) the principal amount of the Competitive Bid Loan for which each such offer is being made, which -24- principal amount (x) may be greater than the Commitment Amount of the quoting Bank but may not exceed the Total Commitment, (y) must be $1,000,000 or a larger multiple of $500,000 and (z) - - may not exceed the aggregate principal amount of Competitive Bid Loans for which offers were requested, (C) the rate of interest per annum (rounded to the nearest 1/1000th of 1%) (the "Competitive Bid Rate") offered for each such Competitive Bid Loan, and (D) the identity of the quoting Bank. (iii) Any Competitive Bid Quote shall be disregarded if it: (A) is not substantially in the form of Exhibit E-1 ----------- attached hereto or does not specify all of the information required by subsection (d)(ii) of this (S)2.3.1; (B) contains qualifying, conditional or similar language (except that it may, in the case of a quote relating to more than one Interest Period, contain the condition that the Bank will fund any one, but not more, of the Competitive Bid Loans offered in such Competitive Bid Quote); (C) proposes terms other than or in addition to those set forth in the applicable Invitation for Competitive Bid Quotes; or (D) arrives after the time set forth in subsection (d)(i) of this (S)2.3.1. (e) Notice to Borrower. Not later than 10:30 a.m. (Boston time) on ------------------ the requested Drawdown Date, the Agent shall notify the Borrower of the terms of all Competitive Bid Quotes submitted by the Banks in accordance with subsection (d) of this (S)2.3.1. The Agent's notice to the Borrower shall specify (i) the aggregate principal amount of Competitive Bid Loans for which offers have been received for each Interest Period specified in the related Competitive Bid Quote Request, and (ii) the respective principal amounts and Competitive Bid Rates so offered. (f) Acceptance and Notice by Borrower. Not later than 11:00 a.m. --------------------------------- (Boston time) on the requested Drawdown Date, the Borrower shall notify the Agent, and the Agent shall promptly notify each Bank with respect to its offer, of the Borrower's acceptance or non-acceptance of the offers of which it was notified pursuant to subsection (e) of this (S)2.3.1. In the case of an acceptance, such notice shall (i) be substantially in the form of Exhibit E-2 attached hereto (a "Notice of Competitive Bid Borrowing"), ----------- -25- (ii) be irrevocable by the Borrower, and (iii) specify the aggregate principal amount of offers for each Interest Period that are accepted. Each acceptance by the Borrower of Competitive Bid Loans hereunder shall constitute a representation and warranty by the Borrower that the conditions set forth in (S)(S)9 and 10 hereof have been satisfied on the date of such acceptance. The Borrower may accept any Competitive Bid Quote in whole or in part; provided that: -------- (A) the aggregate principal amount of each Competitive Bid Loan may not exceed the applicable amount set forth in the related Competitive Bid Quote Request, (B) the aggregate principal amount of each Competitive Bid Loan must be $1,000,000 or a larger multiple of $500,000, and (C) acceptance of offers may only be made on the basis of ascending Competitive Bid Rates. (g) Allocation by Agent; Usage of Commitments. If offers are made by ----------------------------------------- two or more Banks with the same Competitive Bid Rates, for a greater aggregate principal amount than the amount in respect of which offers are accepted for the related Interest Period, the principal amount of Competitive Bid Loans in respect of which such offers are accepted shall be allocated by the Agent among such Banks as nearly as possible (in such multiples, not less than $100,000 as the Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers. If any such Bank has indicated a minimum acceptable Competitive Bid Loan in its Competitive Bid Request, and under the procedures of this subsection (g), the Agent would have allocated to it an amount less than such minimum, such Competitive Bid Quote will instead be deemed to have been withdrawn. Determination by the Agent of the amounts of Competitive Bid Loans and the allocation thereof shall be conclusive in the absence of manifest error. The Agent shall, promptly after the funding of any Competitive Bid Loan, notify the Banks thereof pursuant to a notice substantially in the form of Exhibit E-3 attached hereto. ----------- (h) Funding of Competitive Bid Loans. If, on or prior to the -------------------------------- Drawdown Date of any Competitive Bid Loan, the Total Commitment has not terminated in full and if, on such Drawdown Date, the applicable conditions of (S)(S)4 and 10 hereof are satisfied, the Bank or Banks whose offers the Borrower has accepted will fund each Competitive Bid Loan so accepted as provided in (S)2.4.1 hereof. 2.3.2. Maximum Competitive Bid Loans; Funding Losses. (a) --------------------------------------------- Notwithstanding any other provision herein to the contrary, at no time shall the aggregate principal amount of Competitive Bid Loans -26- outstanding at any time exceed the lesser of (i) the Total Commitment minus ----- the aggregate principal amount of Syndicated Loans outstanding at such time and (ii) $20,000,000. (b) If after acceptance of any Competitive Bid Quote pursuant to (S)2.3.1(f) hereof, the Borrower fails to borrow any Competitive Bid Loan so accepted on the date specified therefor, the Borrower shall indemnify the Bank funding such Loan against any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Bank to fund or maintain such unborrowed Competitive Bid Loans, including, without limitation, compensation as provided in (S)4.10 hereof. 2.3.3. Repayment of Competitive Bid Loans. The principal of each ---------------------------------- Competitive Bid Loan shall become absolutely due and payable by the Borrower on the last day of the Interest Period relating thereto, and the Borrower hereby absolutely and unconditionally promises to pay to the Agent, for the accounts of the relevant Banks, on the last day of the Interest Period relating thereto the principal amount of all such Competitive Bid Loans plus interest thereon at the applicable Competitive ---- Bid Rate. Subject to the terms of this Credit Agreement, the Borrower may reborrow any amounts so repaid from time to time prior to the Revolving Credit Loan Maturity Date. 2.4. Funds for Loans. --------------- 2.4.1. Funding Procedures. Not later than 1:30 p.m. (Boston time) ------------------ on the proposed Drawdown Date of any Syndicated Loans or Competitive Bid Loans, as applicable, each of the relevant Banks will make available to the Agent, at the Agent's Head Office, in immediately available funds, the amount of such Bank's Commitment Percentage of the amount of the requested Syndicated Loans or the amount of such Bank's Competitive Bid Loan, as applicable. Upon receipt from each Bank of such amount, and upon receipt of the documents required by (S)(S)9 and 10 hereof and the satisfaction of the other conditions set forth therein, to the extent applicable, the Agent will make available to the Borrower the aggregate amount of such Loans made available to the Agent by the relevant Banks. The failure or refusal of any Bank to make available to the Agent its Commitment Percentage of the requested Syndicated Loans on any Drawdown Date shall not excuse any other Bank from making available to the Agent the amount of such other Bank's Commitment Percentage of any requested Syndicated Loans. 2.4.2. Advances by Agent. The Agent may, unless notified to the ----------------- contrary by any Bank prior to a Drawdown Date, assume that such Bank has made available to the Agent on such Drawdown Date the amount of such Bank's Commitment Percentage of the Syndicated Loans (or, in the case of Competitive Bid Loans, the amount of such Bank's accepted offers of Competitive Bid Loans, if any) to be made on such Drawdown Date, and the Agent may (but it shall not be required to), in -27- reliance upon such assumption, make available to the Borrower a corresponding amount. If any Bank makes available to the Agent such amount on a date after such Drawdown Date, such Bank shall pay to the Agent on demand an amount equal to the product of (a) the average computed for the period referred to in clause (c) below, of the weighted average interest rate paid by the Agent for federal funds acquired by the Agent during each day included in such period, times (b) the amount of such Bank's Commitment ----- Percentage of such Syndicated Loans (or accepted offers of Competitive Bid Loans, as applicable), times (c) a fraction, the numerator of which is the ----- number of days that elapse from and including such Drawdown Date to the date on which the amount of such Bank's Syndicated Loans or Competitive Bid Loans, as applicable, shall become immediately available to the Agent, and the denominator of which is 365. A statement of the Agent submitted to such Bank with respect to any amounts owing under this (S)2.4.2 shall be prima facie evidence of the amount due and owing to the Agent by such Bank. ----- ----- If the amount of such Bank's Syndicated Loans or Competitive Bid Loans, as applicable, is not made available to the Agent by such Bank within three (3) Business Days following such Drawdown Date, the Agent shall be entitled to recover such amount from the Borrower on demand, with interest thereon at the rate per annum applicable to the Syndicated Loans or Competitive Bid Loans, as applicable, made on such Drawdown Date. Any payment by the Borrower to the Agent of any Syndicated Loans or Competitive Bid Loans pursuant to this (S)2.4.2 shall be deemed to be a payment of the Loans that were to be made by the Bank that failed to make such Syndicated Loans or Competitive Bid Loans, as applicable. 2.5. The Notes. --------- 2.5.1. Syndicated Notes. The Syndicated Loans shall be evidenced by ---------------- separate promissory notes of the Borrower in substantially the form of Exhibit F-1 attached hereto (each a "Syndicated Note"), dated as of the ----------- Closing Date and completed with appropriate insertions. A Syndicated Note shall be payable to the order of each Bank in a principal amount equal to such Bank's Commitment Amount or, if less, the outstanding amount of all Syndicated Loans made by such Bank, plus interest accrued thereon, as set ---- forth below. The Borrower irrevocably authorizes each Bank to make, at or about the time of the Drawdown Date of any Syndicated Loan or at the time of receipt of any payment of principal on such Bank's Syndicated Note, an appropriate notation on the Record attached to such Bank's Syndicated Note reflecting the making of such Syndicated Loan or (as the case may be) the receipt of such payment. The outstanding amount of the Syndicated Loans set forth on such Bank's Record shall be prima facie evidence of the principal ----- ----- amount thereof owing and unpaid to such Bank, but the failure to record, or any error in so recording, any such amount on such Bank's Record shall not limit or otherwise affect the Obligations of the Borrower hereunder or -28- under any Syndicated Note to make payments of principal of or interest on any Syndicated Note when due. 2.5.2. Competitive Bid Notes. The Competitive Bid Loans shall be --------------------- evidenced by separate promissory notes of the Borrower in substantially the form of Exhibit F-2 attached hereto (each a "Competitive Bid Note"), dated ----------- as of the Closing Date and completed with appropriate insertions. A Competitive Bid Note shall be payable to the order of each Bank in a principal amount equal to $20,000,000, or if less, the outstanding amount of all Competitive Bid Loans made by such Bank to the Borrower hereunder, as set forth in (S)2.3 hereof, plus interest accrued thereon, as set forth ---- below. The Borrower irrevocably authorizes each Bank to make, at or about the time of the Drawdown Date of any Competitive Bid Loan made by such Bank or at the time of receipt of the payment of principal of such Competitive Bid Loan, an appropriate notation on the Record attached to such Bank's Competitive Bid Note reflecting the making of such Competitive Bid Loan and repayments thereof. All such notations shall constitute prima facie ----------- evidence of the amount of such Competitive Bid Loans and the repayments thereof, but the failure to record, or any error in so recording such amount on such Bank's Record shall not limit or otherwise affect the Obligations of the Borrower hereunder or under any Competitive Bid Note to make payments of principal or interest on any Competitive Bid Note when due. 2.6. Reduction of Total Commitment. The Borrower shall have the right at ----------------------------- any time and from time to time upon five (5) Business Days prior written notice to the Agent to reduce by $1,000,000 or an integral multiple thereof or terminate entirely the unborrowed portion of the Total Commitment, whereupon the Commitments of the Banks shall be reduced pro rata in accordance with their --- ---- respective Commitment Percentages of the amount specified in such notice or, as the case may be, terminated. Promptly after receiving any notice of the Borrower delivered pursuant to this (S)2.6, the Agent will notify the Banks of the substance thereof. Upon the effective date of any such reduction or termination, the Borrower shall pay to the Agent for the respective accounts of the Banks the full amount of any commitment fee then accrued on the amount of the reduction. No reduction or termination of the Commitments or of the Total Commitment may be reinstated. 2.7. Interest on Loans. Except as otherwise provided in (S)4.11, ----------------- (a) Each Base Rate Loan shall bear interest for the period commencing with the Drawdown Date thereof and ending on the last day of the Interest Period with respect thereto at the Base Rate. (b) Each Eurodollar Rate Loan shall bear interest for the period commencing with the Drawdown Date thereof and ending on the last day of the Interest Period with respect thereto at a rate per annum equal to the sum of the Applicable Eurodollar Rate Margin plus the Eurodollar Rate ---- determined for such Interest Period. -29- (c) Each Competitive Bid Loan shall bear interest at the rate per annum specified in the applicable Competitive Bid Quote with respect to such Competitive Bid Loan. (d) The Borrower promises to pay interest on each Loan in arrears on each Interest Payment Date with respect thereto. (e) Upon any request by the Borrower to increase the Total Commitment in accordance with (S)2.9, the Borrower shall not request any Eurodollar Rate Loans with an Interest Period in excess of one (1) month hereunder and the Banks shall not be required to make any Eurodollar Rate Loans with an Interest Period in excess of one (1) month hereunder until the date (if any) upon which the Agent advises the Borrower that the Arranger has completed the syndication of the Loans in order to accommodate such increase in a manner satisfactory to the Agent and the Arranger; provided, -------- however, that with respect to (i) any Eurodollar Rate Loans made in ------- accordance with the requirements of this sentence and (ii) any Eurodollar Rate Loans outstanding on the date of any request to increase the Total Commitment in accordance with (S)2.9, the Borrower shall convert such Eurodollar Rate Loans to Base Rate Loans on any date on which the Agent notifies the Borrower that it and the Arranger will be completing the additional syndication of the Loans pursuant to (S)2.9, and the Borrower shall pay any costs or expenses associated therewith in accordance with the requirements of (S)4.10. -30- 2.8. Conversion Options. ------------------ 2.8.2. Conversion to Different Type of Syndicated Loan. The ----------------------------------------------- Borrower may elect from time to time to convert any outstanding Syndicated Loan to a Syndicated Loan of another Type, provided that (i) with respect -------- to any such conversion of a Eurodollar Rate Loan into a Base Rate Loan, such conversion shall only be made on the last day of the Interest Period with respect thereto; (ii) with respect to any such conversion of a Base Rate Loan to a Eurodollar Rate Loan, the Borrower shall give the Agent at least two (2) Eurodollar Business Days' prior written notice of such election and (iii) no Base Rate Loan may be converted into a Eurodollar Rate Loan when any Default or Event of Default has occurred and is continuing. On the date on which such conversion is being made, each Bank shall take such action as is necessary to transfer its Commitment Percentage of such Syndicated Loans to its Domestic Lending Office or its Eurodollar Lending Office, as the case may be. All or any part of the outstanding Syndicated Loans of any Type may be converted as provided herein, provided that partial conversions shall be in an aggregate -------- principal amount of $500,000 or a whole multiple thereof. Each Conversion Request relating to the conversion of a Base Rate Loan to a Eurodollar Rate Loan shall be irrevocable by the Borrower. 2.8.2. Continuation of Type of Syndicated Loan. Any Syndicated --------------------------------------- Loan of any Type may be continued as such upon the expiration of an Interest Period with respect thereto by compliance by the Borrower with the notice provisions contained in (S)2.8.1; provided that no Eurodollar Rate -------- Loan may be continued as such when any Default or Event of Default has occurred and is continuing, but shall be automatically converted to a Base Rate Loan on the last day of the first Interest Period relating thereto ending during the continuance of any Default or Event of Default of which the officers of the Agent active upon the Borrower's account have actual knowledge. In the event that the Borrower fails to provide any such notice with respect to the continuation of any Eurodollar Rate Loan or Base Rate Loan as such, then such Eurodollar Rate Loan shall be automatically converted to a Base Rate Loan on the last day of the first Interest Period relating thereto, and such Base Rate Loan shall be continued as a Base Rate Loan on the last day of the first Interest Period relating thereto. The Agent shall notify the Banks promptly when any such automatic conversion contemplated by this (S)2.8 is scheduled to occur. -31- 2.8.3. Eurodollar Rate Loans. Any conversion to or from Eurodollar --------------------- Rate Loans shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of all Eurodollar Rate Loans having the same Interest Period shall not be less than $1,000,000 or a whole multiple of $500,000 in excess thereof. 2.9. Limited Increase In Total Commitment. Unless a Default or Event of ------------------------------------ Default has occurred and is continuing, the Borrower may request that the Total Commitment be increased to $225,000,000 hereunder, subject to the approval of the Agent, provided, however, that (i) any Bank which is a party to this Credit -------- ------- Agreement prior to such increase may elect to fund its pro rata share of the increase, thereby increasing its Commitment hereunder, but no Bank shall be required to do so, (ii) in the event any Bank elects not to fund its pro rata share of the increase (or any additional amount that is offered pursuant to this clause (ii)), the Borrower may elect to offer such unfunded amount on a pro rata basis to each Bank that elected to fund its pro rata share of the increase (or such additional amount offered pursuant to this clause (ii)) or to a new Bank, (iii) in the event that it becomes necessary to include a new Bank to provide additional funding under this (S)2.9, such new Bank must be reasonably acceptable to the Agent, (iv) the Banks' Commitment Percentages shall be correspondingly adjusted, (v) each new Bank shall make all (if any) such payments to the other Banks as may be necessary to result in the Syndicated Loans to be made by such new Bank being equal to such new Bank's Commitment Percentage (as then in effect) of the aggregate principal amount of all Syndicated Loans outstanding to the Borrower as of such date, and (vi) Notes issued or amended and such other changes shall be made to the Loan Documents, as shall be necessary to reflect any such increase in the Total Commitment. Any such increase (whether to $225,000,000 or to a lesser amount) shall require, among other things, the satisfaction of such conditions precedent as the Agent may require, including, without limitation, the obtaining by any Bank of requisite internal approvals, the Agent's receipt of evidence of applicable corporate authorization and other corporate documentation from the Borrower and the legal opinion of counsel to the Borrower, each in form and substance satisfactory to the Agent, such Banks as are participating in such increase and the Borrower. 3. REPAYMENT OF THE LOANS. ---------------------- 3.1. Maturity. The Borrower promises to pay on the Revolving Credit Loan -------- Loan Maturity Date, and there shall become absolutely due and payable on the Revolving Credit Loan Maturity Date, all of the Loans outstanding on such date, together with any and all accrued and unpaid interest thereon. 3.2. Mandatory Repayments of Loans. If at any time the sum of the ----------------------------- outstanding amount of the Loans exceeds the Total Commitment, then the Borrower shall immediately pay the amount of such excess to the Agent for application to the Loans for the respective accounts of the Banks. Each prepayment of Loans shall be allocated among the Banks, in proportion, as -32- nearly as practicable to the respective unpaid principal amount of each Bank's Syndicated Note, with adjustments to the extent practicable to equalize any prior payments or repayments not exactly in proportion, and if no Syndicated Loans are outstanding, the Competitive Bid Loans, in proportion, as nearly as practicable, to the unpaid principal amount of each Bank's Competitive Bid Note. If at any time the sum of the outstanding amount of the Competitive Bid Loans exceeds $20,000,000, then the Borrower shall immediately pay the amount of such excess to the Agent for application to the Competitive Bid Loans made by the Banks, in proportion, as nearly as practicable, to the unpaid principal amount of each Bank's Competitive Bid Note. 3.3. Optional Repayments of Syndicated Loans. The Borrower shall have the --------------------------------------- right, at its election, to repay the outstanding amount of the Syndicated Loans, as a whole or in part, at any time without penalty or premium, provided that all -------- prepayments of Eurodollar Rate Loans prior to the end of the Interest Period relating thereto shall obligate the Borrower to pay any breakage costs associated with such Eurodollar Rate Loans in accordance with (S)4.10 hereof. The Borrower shall give the Agent written notice, no later than 10:00 a.m., Boston time, (a) on the Business Day of any proposed repayment pursuant to this (S)3.3 of Base Rate Loans, and (b) two (2) Eurodollar Business Days notice of any proposed repayment pursuant to this (S)3.3 of Eurodollar Rate Loans, in each case, specifying the proposed date of payment of such Syndicated Loans and the principal amount to be paid. Each such partial prepayment of the Loans shall be in an integral multiple of $500,000, shall be accompanied by the payment of accrued interest on the principal repaid to the date of payment and shall be applied first to the principal of Base Rate Loans and then to the principal of Eurodollar Rate Loans. Each partial prepayment shall be allocated among the Banks, in proportion, as nearly as practicable, to the respective unpaid principal amount of each Bank's Syndicated Note, with adjustments to the extent practicable to equalize any prior repayments not exactly in proportion. 4. CERTAIN GENERAL PROVISIONS. -------------------------- 4.1. Agent and Arranger Fees. The Borrower agrees to pay to each of the ----------------------- Agent and the Arranger the fees described in the Agent's Fee Letter, upon the terms and conditions set forth therein. 4.2. Facility Fee and Utilization Fee. (a) The Borrower agrees to pay to -------------------------------- the Agent for the accounts of the Banks in accordance with their respective Commitment Percentages a facility fee calculated at the rate of the Applicable Facility Fee Percentage on the average daily amount during each calendar quarter or portion thereof from the Closing Date to the Revolving Credit Loan Maturity Date of the Total Commitment during such calendar quarter. The facility fee shall be payable quarterly in arrears on the first day of each calendar quarter for the immediately preceding calendar quarter commencing on the first such date following the date hereof, with a final payment on the Revolving Credit Maturity Date or any earlier date on which the Commitments shall terminate. -33- (b) The Borrower agrees to pay to the Agent for the accounts of the Banks in accordance with their respective Commitment Percentages a utilization fee calculated at the rate of 0.125% per annum on the average daily amount of the Loans outstanding during each calendar quarter or portion thereof from the date hereof to the Revolving Credit Loan Maturity Date; provided, however, that no -------- ------- such fee shall be payable for any calendar quarter or portion thereof during which the average aggregate amount of the Loans outstanding during such calendar quarter or portion thereof (after giving effect to all amounts requested) does not exceed fifty percent (50%) of the Total Commitment in effect during such calendar quarter or portion thereof; provided, further, that if the Total -------- ------- Commitment is increased or decreased during any calendar quarter pursuant to (S)2.9 hereof or otherwise in accordance with the terms hereof, no such fee shall be payable for (i) that portion of the calendar quarter elapsing prior to the date of such increase or decrease (such period, the "Initial Period") if the average aggregate amount of the Loans outstanding during such Initial Period (after giving effect to all amounts requested) does not exceed fifty percent (50%) of the Total Commitment in effect during such Initial Period, and (ii) that portion of the calendar quarter elapsing from the date of such increase or decrease to the end of such calendar quarter (such period, the "Secondary Period") if the average aggregate amount of the Loans outstanding (after giving effect to all amounts requested) during such Secondary Period does not exceed fifty percent (50%) of the Total Commitment in effect during such Secondary Period; with the same mechanism as set forth in this proviso for determination of whether a utilization fee is payable for any portion of any calendar quarter being used to make such determination in the event that the amount of the Total Commitment changes more than once during any calendar quarter. The utilization fee shall be payable quarterly in arrears on the first day of each calendar quarter for the immediately preceding calendar quarter commencing on the first such date following the date hereof, with a final payment on the Revolving Credit Maturity Date or any earlier date on which the Commitments shall terminate. 4.3. Funds for Payments. ------------------ 4.3.1. Payments to Agent. All payments of principal, interest, ----------------- commitment fees and any other amounts due hereunder or under any of the other Loan Documents shall be made to the Agent, for the respective accounts of the Banks and the Agent, at the Agent's Head Office or at such other location in the Boston, Massachusetts area that the Agent may from time to time designate, in each case in immediately available funds. 4.3.2. No Offset, etc. All payments by the Borrower hereunder and -------------- under any of the other Loan Documents shall be made without setoff or counterclaim and free and clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restrictions or conditions of any nature now or hereafter imposed or levied by any jurisdiction or any political -34- subdivision thereof or taxing or other authority therein unless the Borrower is compelled by law to make such deduction or withholding. If any such obligation is imposed upon the Borrower with respect to any amount payable by it hereunder or under any of the other Loan Documents, the Borrower will pay to the Agent, for the account of the Banks or (as the case may be) the Agent, on the date on which such amount is due and payable hereunder or under such other Loan Document, such additional amount in Dollars as shall be necessary to enable the Banks or the Agent to receive the same net amount which the Banks or the Agent would have received on such due date had no such obligation been imposed upon the Borrower. The Borrower will deliver promptly to the Agent certificates or other valid vouchers for all taxes or other charges deducted from or paid with respect to payments made by the Borrower hereunder or under such other Loan Document. 4.3.3. Non-U.S. Banks. the Agent and each Bank that is not a U.S. --------------- Person as defined in Section 7701(a)(30) of the Code for federal income tax purposes (a "Non-U.S. Bank") hereby agrees that, if and to the extent it ------------- is legally able to do so, it shall, prior to the date of the first payment by the Borrower hereunder to be made to such Bank or the Agent or for such Bank's or the Agent's account, deliver to the Borrower and the Agent, as applicable, such certificates, documents or other evidence, as and when required by the Code or Treasury Regulations issued pursuant thereto, including (a) in the case of a Non-U.S. Bank that is a "bank" for purposes of Section 881(c)(3)(A) of the Code, two (2) duly completed copies of Internal Revenue Service Form W-8BEN or Form W-8ECI and any other certificate or statement of exemption required by Treasury Regulations, or any subsequent versions thereof or successors thereto, properly completed and duly executed by such Bank or the Agent establishing that with respect to payments of principal, interest or fees hereunder it is (i) not subject to United States federal withholding tax under the Code because such payment is effectively connected with the conduct by such Bank or Agent of a trade or business in the United States or (ii) totally exempt or partially exempt from United States federal withholding tax under a provision of an applicable tax treaty and (b) in the case of a Non-U.S. Bank that is not a "bank" for purposes of Section 881(c)(3)(A) of the Code, a certificate in form and substance reasonably satisfactory to the Agent and the Borrower and to the effect that (i) such Non-U.S. Bank is not a "bank" for purposes of Section 881(c)(3)(A) of the Code, is not subject to regulatory or other legal requirements as a bank in any jurisdiction, and has not been treated as a bank for purposes of any tax, securities law or other filing or submission made to any governmental authority, any application made to a rating agency or qualification for any exemption from any tax, securities law or other legal requirements, (ii) is not a ten (10) percent shareholder for purposes of Section 881(c)(3)(B) of the Code and (iii) is not a controlled foreign corporation receiving interest from a related person for purposes of Section 881(c)(3)(C) of the Code, together with a properly completed -35- Internal Revenue Service Form W-8 or W-9, as applicable (or successor forms). Each Bank or the Agent agrees that it shall, promptly upon a change of its lending office or the selection of any additional lending office, to the extent the forms previously delivered by it pursuant to this section are no longer effective, and promptly upon the Borrower's or the Agent's reasonable request after the occurrence of any other event (including the passage of time) requiring the delivery of a Form W-8BEN, Form W-8ECI, Form W-8 or W-9 in addition to or in replacement of the forms previously delivered, deliver to the Borrower and the Agent, as applicable, if and to the extent it is properly entitled to do so, a properly completed and executed Form W-8BEN, Form W-8ECI, Form W-8 or W-9, as applicable (or any successor forms thereto). 4.4. Computations. All computations of interest on Competitive Bid Loans ------------ or Eurodollar Rate Loans and fees shall be based on a 360-day year and paid for the actual number of days elapsed. All computations of interest on Base Rate Loans shall be based on a 365-day year and paid for the actual number of days elapsed. Except as otherwise provided in the definition of the term "Interest Period" with respect to Eurodollar Rate Loans, whenever a payment hereunder or under any of the other Loan Documents becomes due on a day that is not a Business Day, the due date for such payment shall be extended to the next succeeding Business Day, and interest shall accrue during such extension. The outstanding amount of the Loans as reflected on the Records from time to time shall be considered correct and binding on the Borrower unless within five (5) Business Days after the Borrower's receipt of any notice from the Agent or any of the Banks of such outstanding amount, the Borrower shall notify the Agent or such Bank to the contrary. 4.5. Inability to Determine Eurodollar Rate. In the event that, prior to -------------------------------------- the commencement of any Interest Period relating to any Eurodollar Rate Loan, the Agent shall determine that adequate and reasonable methods do not exist for ascertaining the Eurodollar Rate that would otherwise determine the rate of interest to be applicable to any Eurodollar Rate Loan during any Interest Period, the Agent shall forthwith give notice of such determination (which shall be conclusive and binding on the Borrower and the Banks) to the Borrower and the Banks. In such event (i) any Loan Request or Conversion Request with respect to Eurodollar Rate Loans shall be automatically withdrawn and, shall be deemed a request for Base Rate Loans, (ii) each Eurodollar Rate Loan will automatically, on the last day of the then current Interest Period thereof, become a Base Rate Loan, and (iii) the obligations of the Banks to make Eurodollar Rate Loans shall be suspended until the Agent determines that the circumstances giving rise to such suspension no longer exist, whereupon the Agent shall so notify the Borrower and the Banks. 4.6. Illegality. Notwithstanding any other provisions herein, if any ---------- present or future law, regulation, treaty or directive or in the interpretation or application thereof shall make it unlawful for any Bank to make or maintain Eurodollar Rate Loans, such Bank shall forthwith give notice of such -36- circumstances to the Borrower and the other Banks and thereupon (i) the commitment of such Bank to make Eurodollar Rate Loans or convert Loans of another Type to Eurodollar Rate Loans shall forthwith be suspended and (ii) such Bank's Syndicated Loans then outstanding as Eurodollar Rate Loans, if any, shall be converted automatically to Base Rate Loans on the last day of each Interest Period applicable to such Eurodollar Rate Loans or within such earlier period as may be required by law. The Borrower hereby agrees promptly to pay the Agent for the account of such Bank, upon demand by such Bank, any additional amounts necessary to compensate such Bank for any costs incurred by such Bank in making any conversion in accordance with this (S)4.6, including any interest or fees payable by such Bank to lenders of funds obtained by it in order to make or maintain its Eurodollar Rate Loans hereunder. 4.7. Additional Costs, etc. If any present or future applicable law, --------------------- which expression, as used herein, includes statutes, rules and regulations thereunder and interpretations thereof by any competent court or by any governmental or other regulatory body or official charged with the administration or the interpretation thereof and requests, directives, instructions and notices at any time or from time to time hereafter made upon or otherwise issued to any Bank or the Agent by any central bank or other fiscal, monetary or other authority (whether or not having the force of law), shall: (a) subject any Bank or the Agent to any tax, levy, impost, duty, charge, fee, deduction or withholding of any nature with respect to this Credit Agreement, the other Loan Documents, such Bank's Commitment or the Loans (other than taxes based upon or measured by the income or profits of such Bank or the Agent), or (b) materially change the basis of taxation (except for changes in taxes on income or profits) of payments to any Bank of the principal of or the interest on any Loans or any other amounts payable to any Bank or the Agent under this Credit Agreement or the other Loan Documents, or (c) impose or increase or render applicable (other than to the extent specifically provided for elsewhere in this Credit Agreement) any special deposit, reserve, assessment, liquidity, capital adequacy or other similar requirements (whether or not having the force of law) against assets held by, or deposits in or for the account of, or loans by, or commitments of an office of any Bank, or (d) impose on any Bank or the Agent any other conditions or requirements with respect to this Credit Agreement, the other Loan Documents, the Loans, such Bank's Commitment, or any class of loans or commitments of which any of the Loans or such Bank's Commitment forms a part, and the result of any of the foregoing is (i) to increase the cost to any Bank of making, funding, issuing, renewing, extending or maintaining any of the Loans or such Bank's Commitment, or -37- (ii) to reduce the amount of principal, interest or other amount payable to such Bank or the Agent hereunder on account of such Bank's Commitment or any of the Loans, or (iii) to require such Bank or the Agent to make any payment or to forego any interest or other sum payable hereunder, the amount of which payment or foregone interest or other sum is calculated by reference to the gross amount of any sum receivable or deemed received by such Bank or the Agent from the Borrower hereunder, then, and in each such case, the Borrower will, upon demand made by such Bank or (as the case may be) the Agent at any time and from time to time and as often as the occasion therefor may arise, pay to such Bank or the Agent such additional amounts as will be sufficient to compensate such Bank or the Agent for such additional cost, reduction, payment or foregone interest or other sum. 4.8. Capital Adequacy. If after the date hereof any Bank or the Agent ---------------- determines that (i) the adoption of or change in any law, governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) regarding capital requirements for banks or bank holding companies or any change in the interpretation or application thereof by a court or governmental authority with appropriate jurisdiction, or (ii) compliance by such Bank or the Agent or any corporation controlling such Bank or the Agent with any law, governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) of any such entity regarding capital adequacy, has the effect of reducing the return on such Bank's or the Agent's commitment with respect to any Loans to a level below that which such Bank or the Agent could have achieved but for such adoption, change or compliance (taking into consideration such Bank's or the Agent's then existing policies with respect to capital adequacy and assuming full utilization of such entity's capital) by any amount deemed by such Bank or (as the case may be) the Agent to be material, then such Bank or the Agent may notify the Borrower of such fact. To the extent that the amount of such reduction in the return on capital is not reflected in the Base Rate, the Borrower agrees to pay such Bank or (as the case may be) the Agent the amount of such reduction in the return on capital as and when such reduction is determined upon presentation by such Bank or (as the case may be) the Agent of a certificate in accordance with (S)4.9 hereof. Each Bank shall allocate such cost increases among its customers in good faith and on an equitable basis. 4.9. Certificate. A certificate setting forth any additional amounts ----------- payable pursuant to (S)4.7 or 4.8 and a brief explanation of such amounts which are due, submitted by any Bank or the Agent to the Borrower, shall be conclusive, absent manifest error, that such amounts are due and owing. 4.10. Indemnity. The Borrower agrees to indemnify each Bank and to hold --------- each Bank harmless from and against any loss, cost or expense (including loss of anticipated profits) that such Bank may sustain or incur as a -38- consequence of (i) default by the Borrower in payment of the principal amount of or any interest on any Eurodollar Rate Loans or Competitive Bid Rate Loans as and when due and payable, including any such loss or expense arising from interest or fees payable by such Bank to lenders of funds obtained by it in order to maintain its Eurodollar Rate Loans or Competitive Bid Rate Loans, (ii) default by the Borrower in making a borrowing after the Borrower has given (or is deemed to have given) a Loan Request or a Conversion Request relating thereto in accordance with (S)2.2 or (S)2.8 or a Notice of Competitive Bid Borrowing in accordance with (S)2.3.1(f) hereof, or (iii) the making of any payment of a Eurodollar Rate Loan or Competitive Bid Rate Loan or the making of any conversion of any such Eurodollar Rate Loan to a Base Rate Loan on a day that is not the last day of the applicable Interest Period with respect thereto, including interest or fees payable by such Bank to lenders of funds obtained by it in order to maintain any such Loans. 4.11. Interest After Default. ---------------------- 4.11.1. Overdue Amounts. Overdue principal and (to the extent --------------- permitted by applicable law) interest on the Loans and all other overdue amounts payable hereunder or under any of the other Loan Documents shall bear interest compounded monthly and payable on demand at a rate per annum equal to four percent (4%) above the Base Rate until such amount shall be paid in full (after as well as before judgment). 4.11.2. Amounts Not Overdue. During the continuance of a Default or ------------------- an Event of Default the principal of the Loans not overdue shall, until such Default or Event of Default has been cured or remedied or such Default or Event of Default has been waived by the Majority Banks pursuant to (S)24, bear interest at a rate per annum equal to the greater of (i) four percent (4%) above the rate of interest otherwise applicable to such Loans or (ii) the rate of interest applicable to overdue principal pursuant to (S)4.11.1. 4.12. Guaranties. The payment and performance of the Obligations shall be ---------- guaranteed by each domestic Subsidiary of the Borrower engaged in business of any kind or nature (other than having qualified to do business in a foreign jurisdiction) or that has a net worth or assets of more than a de minimis value -- ------- or that has issued any capital stock or other equity interests to any person other than the Borrower or a Subsidiary of the Borrower, and each Person which becomes a party to a Guaranty pursuant to (S) 7.5.1 or (S) 7.11. 5. REPRESENTATIONS AND WARRANTIES. ------------------------------ The Borrower represents and warrants to the Banks and the Agent as follows: 5.1. Corporate Authority. ------------------- -39- 5.1.1. Organization; Good Standing. Each of the Borrower and its --------------------------- Subsidiaries (i) is a corporation or other entity or, in the case of R&M Trust and Chiswick Trust, a Massachusetts business trust, duly organized, validly existing and, except in the case of R&M Trust and Chiswick Trust (with respect to which no such concept is applicable), in good standing under the laws of its jurisdiction of organization, (ii) has all requisite power to own its property and conduct its business as now conducted and as presently contemplated, and (iii) is in good standing as a foreign corporation or other entity and is duly authorized to do business in each jurisdiction where such qualification is necessary except where a failure to be so qualified would not have a materially adverse effect on the business, assets or financial condition of the Borrower or such Subsidiary. 5.1.2. Authorization. The execution, delivery and performance of ------------- this Credit Agreement and the other Loan Documents to which the Borrower or any of its Subsidiaries is or is to become a party and the transactions contemplated hereby and thereby (i) are within the corporate or other authority of such Person, (ii) have been duly authorized by all necessary corporate or other proceedings, (iii) do not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which the Borrower or any of its Subsidiaries is subject or any judgment, order, writ, injunction, license or permit applicable to the Borrower or any of its Subsidiaries and (iv) do not conflict with any provision of the corporate charter or bylaws or other organizational documents of, or any agreement or other instrument binding upon, the Borrower or any of its Subsidiaries. 5.1.3. Enforceability. The execution and delivery of this Credit -------------- Agreement and the other Loan Documents to which the Borrower or any of its Subsidiaries is or is to become a party will result in valid and legally binding obligations of such Person, enforceable against it in accordance with the respective terms and provisions hereof and thereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. 5.2. Governmental Approvals. The execution, delivery and performance by ---------------------- the Borrower and any of its Subsidiaries of this Credit Agreement and the other Loan Documents to which the Borrower or any of its Subsidiaries is or is to become a party and the transactions contemplated hereby and thereby do not require the approval or consent of, or filing with, any governmental agency or authority other than those already obtained. 5.3. Title to Properties; Leases. Except as indicated on Schedule 5.3 --------------------------- -------- --- hereto, the Borrower and its Subsidiaries own all of the assets reflected in the -40- consolidated balance sheet of the Borrower and its Subsidiaries as at the Interim Balance Sheet Date or acquired since that date (except property and assets sold or otherwise disposed of in the ordinary course of business since that date), subject to no rights of others, including any mortgages, leases, conditional sales agreements, title retention agreements, liens or other encumbrances except Permitted Liens. 5.4. Financial Statements. -------------------- 5.4.1. Financial Statements -------------------- There has been furnished to the Agent a consolidated balance sheet of the Borrower and its Subsidiaries as at the Balance Sheet Date, and a consolidated statement of income and a consolidated statement of cash flow for the fiscal year then ended, including the opinion thereof expressed by and signed by the Borrower's independent certified public accountants. In addition, there has been furnished to the Agent a consolidated balance sheet of the Borrower and its Subsidiaries prepared by management as at the Interim Balance Sheet Date, and a consolidated statement of income and a consolidated statement of cash flow prepared by management for the fiscal quarter ended on the Interim Balance Sheet Date. All such balance sheets, statements of income and statements of cash flow have been prepared in accordance with generally accepted accounting principles (except, in the case of the consolidated balance sheet, the consolidated statement of income and the consolidated statement of cash flow prepared as of the Interim Balance Sheet Date, for year-end adjustments, the absence of footnotes and any other items permitted to be excluded from Form 10-Q by the Securities Exchange Act of 1934, as amended) and fairly present the financial condition of the Borrower as at the close of business on the dates thereof and the results of operations for the fiscal year and fiscal quarter then ended. There are no contingent liabilities of the Borrower or any of its Subsidiaries as of such date involving material amounts, known to the Borrower, which were not disclosed in such balance sheets and the notes related thereto, other than contingent liabilities under open letters of credit permitted under Section 7.1(k) of the First Amended and Restated Credit Agreement. 5.4.2. Projections. ----------- The projections of the annual operating budgets of the Borrower and its Subsidiaries on a consolidated basis, balance sheets and cash flow statements for the 2001 to 2005 fiscal years, copies of which were delivered to each Bank prior to the Closing Date, disclose all assumptions made with respect to general economic, financial and market conditions used in formulating such projections, and any such projections delivered to the Banks in accordance with the terms hereof following the Closing Date shall also disclose all assumptions made with respect to general economic, financial and market conditions used in formulating such -41- projections. The projections are based upon reasonable estimates and assumptions, have been prepared on the basis of the assumptions stated therein and reflect the reasonable estimates of the Borrower and its Subsidiaries of the results of operations and other information projected therein. 5.5. No Material Changes, etc. ------------------------ Since the Interim Balance Sheet Date there has occurred no materially adverse change in the financial condition or business of the Borrower and its Subsidiaries as shown on or reflected in the consolidated balance sheet of the Borrower and its Subsidiaries as at the Interim Balance Sheet Date, or the consolidated statement of income for the fiscal quarter then ended, other than changes in the ordinary course of business that have not had any materially adverse effect on the business or financial condition of the Borrower and its Subsidiaries on a consolidated basis. Except as set forth on Schedule 5.5 -------- --- hereto, the Borrower has not, since the Interim Balance Sheet Date, made any Restricted Payments. 5.6. Franchises, Patents, Copyrights, etc. Each of the Borrower and its ------------------------------------ Subsidiaries possesses all franchises, patents, copyrights, trademarks, trade names, licenses and permits, and rights in respect of the foregoing, adequate for the conduct of its business substantially as now conducted without known conflict with any rights of others. 5.7. Litigation. Except as set forth on Schedule 5.7, there are no ---------- -------- --- actions, suits, proceedings or investigations of any kind pending or threatened against the Borrower or any of its Subsidiaries before any court, tribunal or administrative agency or board that, if adversely determined, might, in any case materially adversely affect the properties, assets, financial condition or business of the Borrower and its Subsidiaries on a consolidated basis or materially impair the right of the Borrower and its Subsidiaries, considered as a whole, to carry on business substantially as now conducted by them, or result in any substantial liability not adequately covered by insurance, or for which adequate reserves are not maintained on the consolidated balance sheet of the Borrower, or which question the validity of this Credit Agreement or any of the other Loan Documents, or any action taken or to be taken pursuant hereto or thereto. 5.8. No Materially Adverse Contracts, etc. Neither the Borrower nor any ------------------------------------ any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation that has or is expected in the future to have a materially adverse effect on the business, assets or financial condition of the Borrower and of its Subsidiaries on a consolidated basis. Neither the Borrower nor any of its Subsidiaries is a party to any contract or agreement that has or is expected, in the judgment of the Borrower's officers, to have any materially adverse effect on the business of the Borrower and its Subsidiaries on a consolidated basis. -42- 5.9 Compliance With Other Instruments, Laws, etc. Neither the Borrower -------------------------------------------- nor any of its Subsidiaries is in violation of any provision of its charter documents, bylaws, or any agreement or instrument to which it may be subject or by which it or any of its properties may be bound or any decree, order, judgment, statute, license, rule or regulation, in any of the foregoing cases in a manner that could result in the imposition of substantial penalties or materially and adversely affect the financial condition, properties or business of the Borrower and its Subsidiaries on a consolidated basis. 5.10 Tax Status. The Borrower and its Subsidiaries (i) have made or filed ---------- all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which any of them is subject, (ii) have paid all taxes and other governmental assessments and charges shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and by appropriate proceedings and (iii) have set aside on their books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the Borrower knows of no basis for any such claim. 5.11 No Event of Default. No Default or Event of Default has occurred and ------------------- is continuing. 5.12 Holding Company and Investment Company Acts. Neither the Borrower nor ------------------------------------------- any of its Subsidiaries is a "holding company", or a "subsidiary company" of a "holding company", or an affiliate" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935; nor is it an "investment company", or an "affiliated company" or a "principal underwriter" of an "investment company", as such terms are defined in the Investment Company Act of 1940. 5.13 Absence of Financing Statements, etc. Except with respect to ------------------------------------ Permitted Liens, precautionary filings made by lessors with respect to equipment leased to the Borrower and notice filings made by third parties with respect to equipment and/or inventory held by the Borrower and owned by such third party, there is no financing statement (other than those identified in Section 6.15), security agreement, chattel mortgage, real estate mortgage or other document filed or recorded with any filing records, registry, or other public office, that purports to cover, affect or give notice of any present or possible future lien on, or security interest in, any assets or property of the Borrower or any of its Subsidiaries or rights thereunder. 5.14 Chief Executive Office. The Borrower's chief executive office located ---------------------- at 500 Main Street, Groton, Massachusetts 01471. 5.15 Certain Transactions. Except as set forth on Schedule 5.15, none of -------------------- -------- ---- the officers, directors, or employees of the Borrower or any of its Subsidiaries is presently a party to any transaction with the Borrower or any of its -43- Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Borrower, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. 5.16 Employee Benefit Plans. ---------------------- 5.16.1. In General. ---------- Each Employee Benefit Plan and each Guaranteed Pension Plan has been maintained and operated in compliance in all material respects with the applicable provisions of ERISA and all Applicable Pension Legislation, to the extent applicable, the Code, including but not limited to the provisions thereunder respecting prohibited transactions and the bonding of fiduciaries and other persons handling plan funds as required by (S)412 of ERISA. The Borrower has heretofore delivered to the Agent the most recently completed annual report, Form 5500, with all required attachments, and actuarial statement required to be submitted under (S)103(d) of ERISA, with respect to each Guaranteed Pension Plan. 5.16.2. Terminability of Welfare Plans. ------------------------------ No Employee Benefit Plan which is an employee welfare benefit plan within the meaning of (S)3(1) or (S)3(2)(B) of ERISA provides benefit coverage subsequent to termination of employment except as set forth in Schedule 5.16 or as otherwise required by Title I, Part 6 of ERISA or -------- ---- applicable state insurance laws. The Borrower and any Subsidiary of the Borrower, as the case may be, may terminate its Employee Benefit Plan(s) at any time (or at any time subsequent to the expiration of any applicable bargaining agreement) in the discretion of the Borrower or such Subsidiary or such ERISA Affiliate of the Borrower or such Subsidiary without liability to any Person other than for claims arising prior to termination. 5.16.3. Guaranteed Pension Plans. ------------------------ Each contribution required to be made to a Guaranteed Pension Plan, whether required to be made to avoid the incurrence of an accumulated funding deficiency, the notice or lien provisions of (S)302(f) of ERISA, or otherwise, has been timely made. No waiver of an accumulated funding deficiency or extension of amortization periods has been received with respect to any Guaranteed Pension Plan, and none of the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate of the Borrower or any Subsidiary is obligated to or has posted security in connection with an amendment of a Guaranteed Pension Plan pursuant to (S)307 of ERISA or (S)401(a)(29) of the Code. No liability to the PBGC -44- (other than required insurance premiums, all of which have been paid) has been incurred by the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate of the Borrower or any Subsidiary with respect to any Guaranteed Pension Plan and there has not been any ERISA Reportable Event, or any other event or condition which presents a material risk of termination of any Guaranteed Pension Plan by the PBGC. Based on the latest valuation of each Guaranteed Pension Plan (which in each case occurred within twelve months of the date of this representation), and on the actuarial methods and assumptions employed for that valuation, the aggregate benefit liabilities of all such Guaranteed Pension Plans within the meaning of (S)4001 of ERISA did not exceed the aggregate value of the assets of all such Guaranteed Pension Plans, disregarding for this purpose the benefit liabilities and assets of any Guaranteed Pension Plan with assets in excess of benefit liabilities. 5.16.4. Multiemployer Plans. ------------------- None of the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate of the Borrower or any Subsidiary is contributing or has ever contributed or been obligated to contribute to any Multiemployer Plan. 5.17. Use of Proceeds. --------------- 5.17.1. General. ------- The proceeds of the Loans shall be used (a)(i) to finance acquisitions permitted by (S)7.5, (ii) to finance repurchases of the Borrower's common stock and other Restricted Payments to the extent permitted by (S)7.4, and (iii) to refinance existing Indebtedness of the Borrower to the Agent and certain of the Banks under the First Amended and Restated Credit Agreement and (b) for working capital and general corporate purposes. -45- 5.17.2. Regulations U and X. ------------------- No portion of any Loan is to be used, except as otherwise permitted herein, for the purpose of purchasing or carrying any "margin security" or "margin stock" as such terms are used in Regulations U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224, nor is any portion of any Loan to be used in any manner which, after giving effect to (S)7.5.1 and Permitted Acquisitions and Permitted Joint Ventures or to (S)7.11 or otherwise, would be in violation of such Regulations U or X. The aggregate amount of Margin Stock owned by the Borrower and its Subsidiaries does not exceed 25% (by value) of the consolidated assets of the Borrower and its Subsidiaries. 5.17.3. Ineligible Securities. --------------------- No portion of the proceeds of any Loan is to be used for the purpose of (a) knowingly purchasing, or providing credit support for the purchase of, Ineligible Securities from a Section 20 Subsidiary during any period in which such Section 20 Subsidiary makes a market in such Ineligible Securities, (b) knowingly purchasing, or providing credit support for the purchase of, during the underwriting or placement period, any Ineligible Securities being underwritten or privately placed by a Section 20 Subsidiary, or (c) making, or providing credit support for the making of, payments of principal or interest on Ineligible Securities underwritten or privately placed by a Section 20 Subsidiary and issued by or for the benefit of the Borrower, any of its Subsidiaries or any other Affiliate of the Borrower. 5.18. Environmental Compliance. ------------------------ The Borrower has taken all necessary steps to investigate the past and present condition and usage of the Real Estate and the operations conducted thereon and, based upon such diligent investigation, has determined that: (a) none of the Borrower, its Subsidiaries or any operator of the Real Estate or any operations thereon is in violation, or alleged violation, of any judgment, decree, order, law, license, rule or regulation pertaining to environmental matters, including without limitation, those arising under the Resource Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 as amended ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or any state or local statute, regulation, ordinance, order or decree relating to health, safety or the environment (hereinafter "Environmental Laws"), which violation would have a material adverse effect on the environment or the business, assets or financial condition of the Borrower and its Subsidiaries on a consolidated basis; -46- (b) except as set forth on Schedule 5.18 attached hereto: neither the -------- ---- Borrower nor any of its Subsidiaries has received notice from any third party including, without limitation, any federal, state or local governmental authority, (i) that any one of them has been identified by the United States Environmental Protection Agency ("EPA") as a potentially responsible party under CERCLA with respect to a site listed on the National Priorities List, 40 C.F.R. Part 300 Appendix B; (ii) that any hazardous waste, as defined by 42 U.S.C. (S)6903(5), any hazardous substances as defined by 42 U.S.C. (S)9601(14), any pollutant or contaminant as defined by 42 U.S.C. (S)9601(33) and any toxic substances, oil or hazardous materials or other chemicals or substances regulated by any Environmental Laws ("Hazardous Substances") which any one of them has generated, transported or disposed of has been found at any site at which a federal, state or local agency or other third party has conducted or has ordered that the Borrower or any of its Subsidiaries conduct a remedial investigation, removal or other response action pursuant to any Environmental Law; or (iii) that it is or shall be a named party to any claim, action, cause of action, complaint, or legal or administrative proceeding (in each case, contingent or otherwise) arising out of any third party's incurrence of costs, expenses, losses or damages of any kind whatsoever in connection with the release of Hazardous Substances; (c) except as set forth on Schedule 5.18 attached hereto: (i) no -------- ---- portion of the Real Estate has been used for the handling, processing, storage or disposal of Hazardous Substances except in accordance with applicable Environmental Laws; and no underground tank or other underground storage receptacle for Hazardous Substances is located on any portion of the Real Estate; (ii) in the course of any activities conducted by the Borrower, its Subsidiaries or operators of its properties, no Hazardous Substances have been generated or are being used on the Real Estate except in accordance with applicable Environmental Laws; (iii) there have been no releases (i.e. any past or present releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, disposing or dumping) or threatened releases of Hazardous Substances on, upon, into or from the properties of the Borrower or its Subsidiaries, which releases would have a material adverse effect on the value of any of the Real Estate or adjacent properties or the environment; (iv) to the best of the Borrower's knowledge, there have been no releases on, upon, from or into any real property in the vicinity of any of the Real Estate which, through soil or groundwater contamination, may have come to be located on, and which would have a material adverse effect on the value of, the Real Estate; and (v) in addition, any Hazardous Substances that have been generated on any of the Real Estate have been transported offsite only by carriers having an identification number issued by the EPA (or the equivalent thereof in any foreign jurisdiction), treated or disposed of only by treatment or disposal facilities maintaining valid permits as required -47- under applicable Environmental Laws, which transporters and facilities have been and are, to the best of the Borrower's knowledge, operating in compliance with such permits and applicable Environmental Laws; and (d) None of the Borrower and its Subsidiaries, or any of the other Real Estate is subject to any applicable environmental law requiring the performance of Hazardous Substances site assessments, or the removal or remediation of Hazardous Substances, or the giving of notice to any governmental agency or the recording or delivery to other Persons of an environmental disclosure document or statement by virtue of the transactions set forth herein and contemplated hereby, or as a condition to the recording of any Mortgage or to the effectiveness of any other transactions contemplated hereby. 5.19. Subsidiaries, etc. ------------------ Schedule 5.19 hereto sets forth all Subsidiaries of the Borrower. Except -------- ---- as set forth on Schedule 5.19 hereto (which Schedule 5.19 shall be, and shall be -------- ---- ------------- deemed to be, automatically amended to include any Permitted Joint Ventures), neither the Borrower nor any Subsidiary of the Borrower is engaged in any joint venture or partnership with any other person. Except for domestic Subsidiaries of the Borrower which are party to the Guaranty, as of the Closing Date no domestic Subsidiary of the Borrower (a) is presently engaged in business activities of any kind or nature (except that such Subsidiary may have qualified to do business in a foreign jurisdiction), (b) has a net worth or assets of more than a de minimis value or (c) has issued any capital stock or other equity -- ------- interests to any person other than the Borrower or a Subsidiary of the Borrower. 5.20. Disclosure. ---------- No representation or warranty made by the Borrower or any of its Subsidiaries in this Credit Agreement or any agreement, instrument, document, certificate or other written statement furnished to the Agent or any Bank by or on behalf of the Borrower or any of its Subsidiaries in connection with any of the transactions contemplated by any of the Loan Documents contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein not misleading in light of the circumstances in which they are made. 5.21. Fiscal Year. ----------- Each of the Borrower and its Subsidiaries has a fiscal year which ends on the last Saturday of June of each calendar year and fiscal quarters which end during September, December and March of each calendar year. The Borrower's 2001 fiscal year ended on June 30, 2001. 5.22. Solvency. The Borrower, on a consolidated basis with its Subsidiaries -------- (both before and after giving effect to the transactions contemplated by the Credit Agreement and the other Loan Documents), (i) is -48- solvent, (ii) has assets having a fair value in excess of its liabilities, (iii) has assets having a fair value in excess of the amount required to pay its liabilities on its debts as they become due and matured, and (iv) has, and expects to continue to have, access to adequate capital for the conduct of its business and the ability to pay its debts as they mature. 5.23. Financing Statements. (a) As of the date hereof, neither the Borrower -------------------- nor any of its Subsidiaries has any Indebtedness outstanding to, or commitments to borrow or otherwise receive credit from, FBS Business Finance Corporation ("FBS"), and all liens securing any such Indebtedness which existed prior to the date hereof have been released by FBS. But for an oversight on the part of FBS, financing statement number 1910688 filed with the Minnesota Secretary of State's office and financing statement number 97-272 filed in Robeson County, North Carolina would have been terminated prior to the date hereof. (b) As of the date hereof, neither the Borrower nor any of its Subsidiaries has any Indebtedness outstanding to, or commitments to borrow or otherwise receive credit from, PNC, N.A. (successor to Midlantic National Bank) ("PNC"), and all liens securing any such Indebtedness which existed prior to the date hereof have been released by PNC. But for an oversight on the part of PNC, financing statement number 1736869 filed with the New Jersey Secretary of State's office would have been terminated prior to the date hereof. (c) As of the date hereof, neither the Borrower nor any of its Subsidiaries has any Indebtedness outstanding to, or commitments to borrow or otherwise receive credit from, The New Jersey Economic Development Authority (the "NJ Authority"), and all liens securing any such Indebtedness which existed prior to the date hereof have been released by the NJ Authority. But for an oversight on the part of the NJ Authority, financing statement number 1736871 filed with the New Jersey Secretary of State's office would have been terminated prior to the date hereof. (d) As of the date hereof, neither the Borrower nor any of its Subsidiaries has any Indebtedness outstanding to, or commitments to borrow or otherwise receive credit from, the Colorado National Bank ("CNB"), and all liens securing any such Indebtedness which existed prior to the date hereof have been released by CNB. But for an oversight on the part of CNB, financing statement number 1503756 filed with the New Jersey Secretary of State's office would have been terminated prior to the date hereof. (e) CIT Financial USA, Inc. ("CIT") has filed financing statements against all of the Borrower's now owned or hereafter acquired items of equipment financed or leased by CIT with the Connecticut Secretary of State's Office (financing statement number 2009058), the Minnesota Secretary of State's Office (financing statement number 2242483) and the Texas Secretary of State's Office (financing statement number 00-538837) in connection with the -49- Borrower's leasing of certain equipment from CIT. Under the terms of the Master Lease Agreement, dated as of June 1, 1997 (the "Master Lease Agreement"), by and between SHL Financial Services ("SHL") and the Borrower, the interest granted to CIT (the successor to SHL) by the Borrower extends only to the specific equipment noted therein. The Borrower has no Indebtedness to CIT other than the Indebtedness incurred under the terms of the Master Lease Agreement. (f) As of the date hereof and other than Indebtedness to U.S. Bank National Association ("U.S. Bank") set forth on Schedule 7.1 hereto, neither the -------- --- Borrower nor any of its Subsidiaries has any Indebtedness outstanding to, or commitments to borrow or otherwise receive credit from, U.S. Bank. The financing statement filed by U.S. Bank with the Minnesota Secretary of State's office (financing statement number 2245279) against the PremiumWear securities account maintained at U.S. Bancorp Investments was filed in connection with letters of credit issued by U.S. Bank on behalf of PremiumWear; such letters of credit have expired and will not be renewed. But for an oversight on the part of U.S. Bank, financing statement number 2245279 filed with the Minnesota Secretary of State's office would have been terminated prior to the date hereof. 6. AFFIRMATIVE COVENANTS OF THE BORROWER. ------------------------------------- The Borrower covenants and agrees that, so long as any Loan or Note is outstanding or any Bank has any obligation to make any Loans: 6.1. Punctual Payment. The Borrower will duly and punctually pay or cause ---------------- to be paid the principal and interest on the Loans and the closing fees, facility fees, utilization fees and Agent's fee provided for in this Credit Agreement, all in accordance with the terms of this Credit Agreement and the Notes. 6.2. Maintenance of Office. The Borrower will maintain its chief executive --------------------- office in Groton, Massachusetts, or at such other place in the United States of America as the Borrower shall designate upon written notice to the Agent, where notices, presentations and demands to or upon the Borrower in respect of the Loan Documents may be given or made. 6.3. Records and Accounts. The Borrower will (a) keep, and cause each of -------------------- its Subsidiaries to keep, true and accurate records and books of account in which full, true and correct entries will be made in accordance with generally accepted accounting principles; (b) maintain adequate accounts and reserves for all taxes (including income taxes), depreciation, depletion, obsolescence and amortization of its properties and the properties of its Subsidiaries, contingencies, and other reserves; and (c) will at all times have engaged Deloitte & Touche, LLP or other independent certified public accountants satisfactory to the Agent as its accountants, with no more than thirty (30) days elapsing between the termination of any such accountants as the Borrower's accountants and the engagement of successor accountants satisfactory to the Agent. -50- 6.4. Financial Statements, Certificates and Information. The Borrower will -------------------------------------------------- deliver to each of the Banks: (a) as soon as practicable, but in any event not later than ninety (90) days after the end of each fiscal year of the Borrower, the consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such year, and the related consolidated statement of income and consolidated statement of cash flow for such year, each setting forth in comparative form the figures for the previous fiscal year and all such consolidated statements to be in reasonable detail, prepared in accordance with generally accepted accounting principles, and certified without qualification by Deloitte & Touche LLP or by other independent certified public accountants satisfactory to the Agent together with a written statement from such accountants to the effect that they have read a copy of this Credit Agreement, and that, in making the examination necessary to said certification, they have obtained no knowledge of any Default or Event of Default, or, if such accountants shall have obtained knowledge of any then existing Default or Event of Default they shall disclose in such statement any such Default or Event of Default; provided that such -------- accountants shall not be liable to the Banks for failure to obtain knowledge of any Default or Event of Default; (b) as soon as practicable, but in any event not later than forty- five (45) days after the end of each of the fiscal quarters of the Borrower, copies of the unaudited consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such quarter, and the related consolidated statement of income and consolidated statement of cash flow for the portion of the Borrower's fiscal year then elapsed, all in reasonable detail and prepared in accordance with generally accepted accounting principles, together with a certification by the principal financial or accounting officer of the Borrower that the information contained in such financial statements fairly presents the financial position of the Borrower and its Subsidiaries on the date thereof (subject to year-end adjustments); (c) simultaneously with the delivery of the financial statements referred to in subsections (a) and (b) above, a statement certified by the principal financial or accounting officer of the Borrower in substantially the form of Exhibit G hereto and setting forth in reasonable detail ------- - computations evidencing compliance with the covenants contained in (S)8 and (if applicable) reconciliations to reflect changes in generally accepted accounting principles since the Balance Sheet Date; (d) contemporaneously with the filing or mailing thereof, copies of all material of a financial nature filed with the Securities and Exchange Commission or sent to the stockholders of the Borrower; and (e) from time to time upon request of the Agent, annual projections of the Borrower and its Subsidiaries updating those -51- projections delivered to the Banks and referred to in (S)5.4.2 or, if applicable, updating any later such projections delivered in response to a request pursuant to this (S)6.4(e); and (f) from time to time such other financial data and information (including accountants' management letters) as the Agent or any Bank may reasonably request. 6.5. Notices. ------- 6.5.1. Defaults. The Borrower will promptly notify the Agent and -------- each of the Banks in writing of the occurrence of any Default or Event of Default. If any Person shall give any notice or take any other action in respect of a claimed default (whether or not constituting an Event of Default) under this Credit Agreement or any other note, evidence of indebtedness, indenture or other obligation to which or with respect to which the Borrower or any of its Subsidiaries is a party or obligor, whether as principal or surety, the Borrower shall forthwith give written notice thereof to each of the Banks, describing the notice or action and the nature of the claimed default. 6.5.2. Environmental Events. The Borrower will promptly give notice -------------------- to the Agent (i) of any violation of any Environmental Law that the Borrower or any of its Subsidiaries reports in writing or is reportable by such Person in writing (or for which any written report supplemental to any oral report is made) to any federal, state or local environmental agency and (ii) upon becoming aware thereof, of any inquiry, proceeding, investigation, or other action, including a notice from any agency of potential environmental liability, of any federal, state or local environmental agency or board, that has the potential to materially affect the assets, liabilities, financial conditions or operations of the Borrower and its Subsidiaries on a consolidated basis. -52- 6.5.3. Notice of Litigation and Judgments. The Borrower will, and ---------------------------------- will cause each of its Subsidiaries to, give notice to the Agent in writing within fifteen (15) days of becoming aware of any litigation or proceedings threatened in writing or any pending litigation and proceedings affecting the Borrower or any of its Subsidiaries or to which the Borrower or any of its Subsidiaries is or becomes a party involving an uninsured claim against the Borrower or any of its Subsidiaries that could reasonably be expected to have a materially adverse effect on the Borrower and its Subsidiaries on a consolidated basis and stating the nature and status of such litigation or proceedings. The Borrower will, and will cause each of its Subsidiaries to, give notice to the Agent, in writing, in form and detail satisfactory to the Agent, within ten (10) days of any judgment not covered by insurance, final or otherwise, against the Borrower or any of its Subsidiaries in an amount in excess of $1,000,000. 6.6. Corporate or Other Existence; Maintenance of Properties. The Borrower ------------------------------------------------------- will do or cause to be done all things necessary to preserve and keep in full force and effect its legal existence, rights and franchises and those of its Subsidiaries (and, in the case of R&M Trust and Chiswick Trust, as the case may be, its existence, rights and franchises as a Massachusetts business trust) and will not, and will not cause or permit any of its Subsidiaries to, convert to a limited liability company or limited liability partnership. The Borrower (i) will cause all of its properties and those of its Subsidiaries used or useful in the conduct of its business or the business of its Subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment, (ii) will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Borrower may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times, and (iii) will, and will cause each of its Subsidiaries to, continue to engage primarily in the businesses now conducted by them and in related businesses; provided that -------- nothing in this (S)6.6 shall prevent the Borrower from discontinuing the operation and maintenance of any of its properties or those of its Subsidiaries or terminating the corporate existence of any Subsidiary if such discontinuance or termination is, in the judgment of the Borrower, desirable in the conduct of its or their business and that do not in the aggregate materially adversely affect the business of the Borrower and its Subsidiaries on a consolidated basis. 6.7. Insurance. The Borrower will, and will cause each of its Subsidiaries --------- to, maintain with financially sound and reputable insurers insurance with respect to its properties and business against such casualties and contingencies as shall be in accordance with the general practices of businesses engaged in similar activities in similar geographic areas and in amounts, containing such terms, in such forms and for such periods as may be reasonable and prudent. -53- 6.8. Taxes. The Borrower will, and will cause each of its Subsidiaries ---- to, duly pay and discharge, or cause to be paid and discharged, before the same shall become overdue, all taxes, assessments and other governmental charges (other than taxes, assessments and other governmental charges imposed by foreign jurisdictions that in the aggregate are not material to the business or assets of the Borrower on an individual basis or of the Borrower and its Subsidiaries on a consolidated basis) imposed upon it and its real properties, sales and activities, or any part thereof, or upon the income or profits therefrom, as well as all claims for labor, materials, or supplies that if unpaid might by law become a lien or charge upon any of its property; provided that any such tax, -------- assessment, charge, levy or claim need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if the Borrower or such Subsidiary shall have set aside on its books adequate reserves with respect thereto; and provided further that the Borrower -------- ------- and each Subsidiary of the Borrower will pay all such taxes, assessments, charges, levies or claims forthwith upon the commencement of proceedings to foreclose any lien that may have attached as security therefor. 6.9. Inspection of Properties and Books, etc. ---------------------------------------- 6.9.1. General. The Borrower shall permit the Banks, through the ------- Agent or any of the Banks' other designated representatives, to visit and inspect any of the properties of the Borrower or any of its Subsidiaries to examine the books of account of the Borrower and its Subsidiaries (and to make copies thereof and extracts therefrom), to conduct periodic commercial finance examinations, and to discuss the affairs, finances and accounts of the Borrower and its Subsidiaries with, and to be advised as to the same by, its and their officers, all at such reasonable times and intervals as the Agent or any Bank may reasonably request. 6.9.2. Communication with Accountants. The Borrower authorizes the ------------------------------ Agent and, if accompanied by the Agent, the Banks to communicate directly with the Borrower's independent certified public accountants following advance notice to the Borrower offering the Borrower the opportunity to be part of any oral communication with such accountants and authorizes such accountants to disclose to the Agent and the Banks any and all financial statements and other supporting financial documents and schedules including copies of any management letter with respect to the business, financial condition and other affairs of the Borrower or any of its Subsidiaries. At the request of the Agent, the Borrower shall deliver a letter addressed to such accountants instructing them to comply with the provisions of this (S)6.9.2. 6.10. Compliance with Laws, Contracts, Licenses, and Permits. The ------------------------------------------------------ Borrower will, and will cause each of its Subsidiaries to, comply with (i) the applicable laws and regulations wherever its business is conducted, including all Environmental Laws, (ii) the provisions of its charter documents and by- laws, (iii) all agreements and instruments by which it or any of its -54- properties may be bound and (iv) all applicable decrees, orders, and judgments. If at any time while any Loan or Note is outstanding or any Bank has any obligation to make Loans hereunder, any authorization, consent, approval, permit or license from any officer, agency or instrumentality of any government shall become necessary or required in order that the Borrower may fulfill any of its obligations hereunder, the Borrower will immediately take or cause to be taken all reasonable steps within the power of the Borrower to obtain such authorization, consent, approval, permit or license and furnish the Banks with evidence thereof. 6.11. Employee Benefit Plans. The Borrower will, and will cause each ---------------------- Subsidiary of the Borrower that has maintained or contributed to an Employee Benefit Plan or Guaranteed Pension Plan to, (i) promptly, upon request of the Agent, furnish to the Agent a copy of the most recent actuarial statement required to be submitted under (S)103(d) of ERISA and Annual Report, Form 5500, with all required attachments, in respect of each Guaranteed Pension Plan and (ii) promptly upon receipt or dispatch, furnish to the Agent any notice, report or demand sent or received in respect of a Guaranteed Pension Plan under (S)(S)302, 4041, 4042, 4043, 4063, 4065, 4066 and 4068 of ERISA, or in respect of a Multiemployer Plan, under (S)(S)4041A, 4202, 4219, 4242, or 4245 of ERISA, and (iii) promptly furnish to the Agent, upon request by the Agent, a copy of all actuarial statements required to be submitted under all Applicable Pension Legislation. 6.12. Use of Proceeds. The Borrower will use the proceeds of the Loans --------------- solely (a) (i) to finance acquisitions permitted by (S)7.5, (ii) to finance repurchases of the Borrower's common stock and other Restricted Payments to the extent permitted by (S)7.4, and (iii) to refinance existing Indebtedness of the Borrower to the Agent and certain of the Banks under the First Amended and Restated Credit Agreement, and (b) for working capital and general corporate purposes, and not to purchase, carry, or otherwise own stock of (or any other Investment in) any entity where (after giving effect to the same) the value of the Margin Stock owned by the Borrower or its Subsidiaries would (in the aggregate) exceed 25% (by value) of the consolidated assets of the Borrower and its Subsidiaries. The Borrower shall not use the proceeds of the Loans in any way in violation of Regulations U or X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224. 6.13. Certain Intercompany Payments. The Borrower will, and will, as ----------------------------- applicable, cause each of Russell & Miller, Chiswick Trust and R&M Trust to, (a) promptly upon Russell & Miller's receipt thereof, cause all royalty payments received by Russell & Miller pursuant to any of the Trademark License Agreements (net of reasonable expenses incurred by Russell & Miller in connection with the maintenance, protection and enforcement of its related trademark intellectual property rights and the performance of its obligations under the Trademark License Agreements) to be paid to R&M Trust as capital contributions, (b) promptly upon R&M Trust's receipt thereof, cause R&M Trust to lend to the Borrower pursuant to an Unsecured Subordinated Promissory Note all amounts (net of reasonable, -55- ordinary course operating expenses) received by it pursuant to clause (a) of this (S)6.13 or otherwise, and (c) promptly upon Chiswick Trust's receipt thereof, cause Chiswick Trust to lend to the Borrower pursuant to an Unsecured Subordinated Promissory Note all amounts (net of reasonable, ordinary course operating expenses) received by it from time to time from Chiswick. 6.14. Further Assurances. The Borrower will, and will cause each of its ------------------ Subsidiaries to, cooperate with the Banks and the Agent and execute such further instruments and documents as the Banks or the Agent shall reasonably request to carry out to their satisfaction the transactions contemplated by this Credit Agreement and the other Loan Documents. 6.15. Indebtedness to CIT. ------------------- The Borrower will only incur Indebtedness to CIT in connection with the leasing of equipment from CIT. 6.16. Post-Closing Matters. The Borrower will: ------------ ------- (a) within ninety (90) days after the Closing Date, terminate the financing statements (file number 1910688 filed with the Minnesota Secretary of State's office and file number 97-272 filed in Robeson County, North Carolina) filed by FBS against all of the assets of PremiumWear; (b) within ninety (90) days after the Closing Date, terminate the financing statement (file number 1736869 filed with the New Jersey Secretary of State's office) filed by PNC against all of the assets of Rapidforms; (c) within ninety (90) days after the Closing Date, terminate the financing statement (file number 1736871 filed with the New Jersey Secretary of State's office) filed by the NJ Authority against all of the assets of Rapidforms; (d) within ninety (90) days after the Closing Date, terminate the financing statement (file number 1503756 filed with the New Jersey Secretary of State's office) filed by CNB against all of the assets of McBee; and (e) within ninety (90) days after the Closing Date, terminate the financing statement (file number 2245279 filed with the Minnesota Secretary of State's office) filed by U.S. Bank against the PremiumWear securities account maintained at U.S. Bancorp Investments. 7. CERTAIN NEGATIVE COVENANTS OF THE BORROWER. ------------------------------------------ The Borrower covenants and agrees that, so long as any Loan or Note is outstanding or any Bank has any obligation to make any Loans: 7.1. Restrictions on Indebtedness. The Borrower will not, and will not ---------------------------- permit any of its Subsidiaries to, create, incur, assume, guarantee or be or -56- remain liable, contingently or otherwise, with respect to any Indebtedness other than: (a) Indebtedness to the Banks and the Agent arising under any of the Loan Documents; (b) current liabilities of the Borrower and its Subsidiaries (other than Russell & Miller, Chiswick Trust and R&M Trust) incurred in the ordinary course of business not incurred through (i) the borrowing of money, or (ii) the obtaining of credit except for credit on an open account basis customarily extended and in fact extended in connection with normal purchases of goods and services; (c) Indebtedness in respect of taxes, assessments, governmental charges or levies and claims for labor, materials and supplies to the extent that payment therefor shall not at the time be required to be made in accordance with the provisions of (S)6.8; (d) Indebtedness in respect of judgments or awards that have been in force for less than the applicable period for taking an appeal so long as execution is not levied thereunder or in respect of which the Borrower shall at the time in good faith be prosecuting an appeal or proceedings for review and in respect of which a stay of execution shall have been obtained pending such appeal or review; (e) endorsements for collection, deposit or negotiation and warranties of products or services, in each case incurred in the ordinary course of business; (f) obligations of the Borrower or any of its Subsidiaries (other than Russell & Miller, Chiswick Trust and R&M Trust) under Capitalized Leases not exceeding $5,000,000 in aggregate at any time outstanding; (g) Indebtedness incurred in connection with the acquisition after the date hereof of any real or personal property by the Borrower or any of its Subsidiaries (other than Chiswick Trust and R&M Trust), provided that -------- the aggregate principal amount of such Indebtedness of the Borrower and its Subsidiaries (other than Chiswick Trust and R&M Trust) shall not exceed the aggregate amount of $5,000,000 at any one time; (h) Indebtedness existing on the date of this Credit Agreement and listed and described on Schedule 7.1 hereto; -------- --- (i) Indebtedness of (i) any and all Guarantors (other than Russell & Miller, Chiswick Trust and R&M Trust) to the Borrower or another Guarantor (other than Russell & Miller, Chiswick Trust and R&M Trust) and (ii) any other Subsidiary of the Borrower to the Borrower or another Subsidiary of the Borrower (other than Russell & Miller, Chiswick Trust -57- and R&M Trust), in an aggregate amount not to exceed $10,000,000 at any one time; (j) Indebtedness of the Borrower to (i) any and all Guarantors (other than Russell & Miller, Chiswick Trust and R&M Trust) in an aggregate amount not to exceed $20,000,000 at any time and (ii) any and all other Subsidiaries of the Borrower (other than Russell & Miller, Chiswick Trust and R&M Trust) in an aggregate amount not to exceed $5,000,000 at any time; provided, however, that any and all Indebtedness under clause (i) or (ii) -------- ------- of this subsection (j) shall be subordinated to the Obligations on terms and conditions satisfactory to the Agent; (k) Indebtedness of the Borrower or any of its Subsidiaries (other than Russell & Miller, Chiswick Trust or R&M Trust) in respect of (i) overseas lines of credit, (ii) letters of credit, (iii) the granting of surety, appeal, bid, performance or other similar bonds or (iv) guaranties or other contingent obligations in respect of Indebtedness of any Person, all of which Indebtedness described in clauses (i) - (iv) of this subparagraph (k), in the aggregate, shall not exceed $15,000,000; (l) Indebtedness with respect to interest rate protection agreements between the Borrower and any of the Banks; (m) Indebtedness for borrowed money, debt or similar monetary obligations assumed in respect of Permitted Acquisitions, to the extent permitted by paragraph 2(b) and (c) of the definition thereof, and other Indebtedness assumed in respect of Permitted Acquisitions and existing prior to the date of any Permitted Acquisition and not created in contemplation thereof; (n) obligations in respect of royalty payments owed by any of the Borrower or any of its Subsidiaries to Russell & Miller under and pursuant to any of the Trademark License Agreements; (o) Indebtedness of the Borrower to (i) R&M Trust under and pursuant to an Unsecured Subordinated Promissory Note from the Borrower to R&M Trust, which such Indebtedness is subordinated to the Obligations on terms and conditions satisfactory to the Agent, which shall include the Intercompany Subordination Agreement, and (ii) Chiswick Trust under and pursuant to an Unsecured Subordinated Promissory Note from the Borrower to Chiswick Trust, which such Indebtedness is subordinated to the Obligations on terms and conditions satisfactory to the Agent, which shall include the Chiswick Trust Intercompany Subordination Agreement; (p) Indebtedness of Russell & Miller permitted under Subsection (g) and Indebtedness of Russell & Miller, R&M Trust and Chiswick Trust not expressly permitted under subsections (a) through (o) of this (S)7.1, in -58- an aggregate amount (owed by either or all such entities) not to exceed $5,000,000 at any time; (q) Indebtedness owed by the Borrower or any of its Subsidiaries (other than Russell & Miller, Chiswick Trust and R&M Trust) to any of their respective officers, directors or employees in connection with any deferred compensation plan, post-retirement medical or life insurance benefit plan, supplemental executive retirement plan or post-retirement medical benefit plan in an aggregate amount not to exceed $15,000,000; (r) so long as no Default or Event of Default shall have occurred and be continuing or would occur as a result of the incurrence of any thereof and with the prior written consent of the Agent, (i) unsecured Indebtedness of the Borrower up to an aggregate amount (the "Additional Amount") not in excess of $75,000,000, consisting of: ---------- ------ (A) up to an amount equal to $75,000,000 (but not to exceed, when combined with amounts of Indebtedness incurred pursuant to clause (i)(B) of this (S)7.1(r), the Additional Amount) of Indebtedness which is expressly subordinated and made junior to the payment and performance in full of the Obligations; and (B) up to $75,000,000 (but not to exceed, when combined with amounts of Indebtedness incurred pursuant to clause (i)(A) of this (S)7.1(r), the Additional Amount) of Indebtedness which may rank pari passu with the Obligations, or ---------- (ii) unsecured Indebtedness of the Borrower and the Guarantors under a three hundred and sixty-four (364) day facility provided by Fleet in an aggregate amount not to exceed $10,000,000; provided, however, that the sum of the Total Commitment plus the aggregate -------- ------- ---- amount of any Indebtedness otherwise permitted by this (S)7.1(r) shall not at any time exceed $250,000,000 and the terms of any Indebtedness permitted pursuant to this (S)7.1(r) shall include such terms and conditions as the Agent may require; provided, further, that prior to the incurrence of any -------- ------- Indebtedness pursuant to (S)7.1(r)(i), the Borrower shall provide to the Agent and each of the Banks pro forma financial statements and compliance --- ----- certificates in the form of Exhibit G indicating that for the period from ------- - the date of the incurrence of such Indebtedness until the Revolving Credit Loan Maturity Date, no Default or Event of Default would result from the incurrence of such Indebtedness; and (s) Indebtedness of the Borrower or any of its Subsidiaries consisting of obligations arising under any awards made pursuant to any stock option, stock appreciation right, restricted stock or other stock- based compensation plan of the Borrower or its Subsidiaries to employees or directors of the Borrower or its Subsidiaries; -59- (t) Indebtedness of the Borrower or any of its Subsidiaries (other than Russell & Miller, Chiswick Trust or R&M Trust) not expressly permitted under subsections (a)-(s) of this (S)7.1, in an aggregate amount not to exceed $5,000,000 at any time. 7.2. Restrictions on Liens. The Borrower will not, and will not permit --------------------- any of its Subsidiaries to, (i) create or incur or suffer to be created or incurred or to exist any lien, encumbrance, mortgage, pledge, charge, restriction or other security interest of any kind upon any of its property or assets of any character whether now owned or hereafter acquired, or upon the income or profits therefrom; (ii) transfer any of such property or assets or the income or profits therefrom for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to payment of its general creditors; (iii) acquire, or agree or have an option to acquire, any property or assets upon conditional sale or other title retention or purchase money security agreement, device or arrangement; (iv) suffer to exist for a period of more than thirty (30) days after the same shall have been incurred any Indebtedness or claim or demand against it that if unpaid might by law or upon bankruptcy or insolvency, or otherwise, be given any priority whatsoever over its general creditors; or (v) sell, assign, pledge or otherwise transfer any accounts, contract rights, general intangibles, chattel paper or instruments, with or without recourse; provided that the Borrower and any -------- Subsidiary of the Borrower may create or incur or suffer to be created or incurred or to exist: (a) liens to secure taxes, assessments and other government charges in respect of obligations not overdue or liens on properties to secure claims for labor, material or supplies in respect of obligations not overdue; (b) deposits or pledges made in connection with, or to secure payment of, workmen's compensation, unemployment insurance, old age pensions or other social security obligations; (c) liens on properties in respect of judgments or awards, the Indebtedness with respect to which is permitted by (S)7.1(d); (d) liens of carriers, warehousemen, mechanics and materialmen, and other like liens on properties, in existence less than one hundred twenty (120) days from the date of creation thereof in respect of obligations not overdue; (e) encumbrances consisting of easements, rights of way, zoning restrictions, restrictions on the use of real property and defects and irregularities in the title thereto, landlord's or lessor's liens under leases to which the Borrower or a Subsidiary of the Borrower is a party, and other minor liens or encumbrances none of which in the opinion of the Borrower interferes materially with the use of the property affected in the ordinary conduct of the business of the Borrower and its Subsidiaries, which defects do not individually or in the aggregate have a materially -60- adverse effect on the business of the Borrower individually or of the Borrower and its Subsidiaries on a consolidated basis; (f) presently outstanding liens listed on Schedule 7.2 hereto; -------- --- (g) purchase money security interests in or purchase money mortgages on real or personal property acquired after the date hereof to secure purchase money Indebtedness of the type and amount permitted by (S)7.1(g), incurred in connection with the acquisition of such property, which security interests or mortgages cover only the real or personal property so acquired; (h) rights of lessors under Capitalized Leases permitted by (S)7.1(f); (i) liens on assets acquired pursuant to Permitted Acquisitions and securing Indebtedness otherwise permitted by (S)7.1(m) and the definition of Permitted Acquisitions; and (j) liens on any capital stock of the Borrower or other Margin Stock for so long as such stock constitutes Margin Stock. 7.3. Restrictions on Investments. The Borrower will not, and will not --------------------------- permit any of its Subsidiaries to, make or permit to exist or to remain outstanding any Investment except Investments in: (a) marketable direct or guaranteed obligations of the United States of America that mature within one (1) year from the date of purchase by the Borrower; (b) demand deposits, certificates of deposit, bankers acceptances and time deposits of United States banks having total assets in excess of $1,000,000,000, and demand deposits or certificates of deposit of foreign banks having total assets in excess of the equivalent of $25,000,000,000; (c) securities commonly known as "commercial paper" issued by a corporation organized and existing under the laws of the United States of America or any state thereof that at the time of purchase have been rated and the ratings for which are not less than "P 1" if rated by Moody's Investors Services, Inc., and not less than "A 1" if rated by Standard and Poor's; (d) Investments existing on the date hereof and listed on Schedule -------- 7.3 hereto; --- (e) Investments with respect to Indebtedness permitted by (S)7.1(i) and (S)7.1(j) so long as such entities remain Subsidiaries of the Borrower; -61- (f) Investments consisting of the Guaranty and any guaranty in favor of Fleet from any Subsidiary or Subsidiaries of the Borrower guarantying Indebtedness permitted by (S)7.1(r)(ii); (g) Investments consisting of promissory notes received as proceeds of asset dispositions permitted by (S)7.5.2; (h) Investments consisting of loans and advances to employees for moving, entertainment, travel, hardship and other similar expenses in the ordinary course of business not to exceed $1,000,000 in the aggregate at any time outstanding; and (i) tax exempt municipal bonds or bond funds rated AA or higher by Standard and Poor's Ratings Group or Moody's Investors Services, Inc.; (j) Investments by the Borrower and the Guarantors in (i) Guarantors (other than R&M Trust or Chiswick Trust), and (ii) other Subsidiaries of the Borrower (other than R&M Trust and Chiswick Trust) in an aggregate amount not to exceed $10,000,000; (k) Investments in respect of Permitted Acquisitions to the extent permitted by the definition thereof; (l) Investments by a foreign Subsidiary in marketable direct or guaranteed obligations of the national government of its country of incorporation that mature within one (1) year following the date of purchase by such Subsidiary; (m) Investments by (i) the Borrower in its capital stock held as treasury stock (existing as of the Closing Date or to the extent repurchased in accordance with the requirements of (S)7.4) or (ii) the Borrower or any Subsidiary of the Borrower in connection with or in any employee benefit plan of the Borrower or such Subsidiary; (n) without limiting the Investments permitted by (S)7.3(j), (i) Investments in R&M Trust by Rapidforms, McBee and Russell & Miller pursuant to the R&M Contribution Agreement and (ii) Investments in Chiswick Trust by Chiswick pursuant to the Chiswick Contribution Agreement; (o) Investments with respect to Indebtedness permitted by (S)7.1(o); (p) Investments with respect to the acquisition of common stock and/or other equity interests of Advantage permitted by (S)7.5.1(d); (q) Investments by the Borrower in Permitted Joint Ventures; provided, however, that except to the extent actually received by the -------- ------- Borrower in cash by way of distributions or otherwise, any income generated -62- by such Investment in any Permitted Joint Ventures shall not be included in calculations of EBITDA, Consolidated Net Income or any similar income or earnings based concepts hereunder; (r) Investments by a Subsidiary that is not a Guarantor in (i) the Borrower or any Guarantor and (ii) other Subsidiaries that are not Guarantors in an aggregate amount not to exceed $15,000,000. (s) Investments not otherwise expressly permitted under subsections (a) - (r) of this (S)7.3, in an aggregate amount not to exceed $5,000,000 at any one time. 7.4. Restricted Payments. The Borrower will not make any Restricted ------------------- Payments other than (a) payments to Affiliates who are employees, officers and directors in connection with services as employees, officers and directors pursuant to arrangements which have been approved by the Board of Directors of the Borrower (or a committee thereof), or are otherwise made in the ordinary course of business of the Borrower and (b) so long as no Default or Event of Default has occurred and is continuing or would occur after giving effect thereto, and subject in particular to the Borrower's continuing compliance with its covenants set forth in (S)(S)8.1-8.3 hereof, the Borrower (i) may pay dividends on its common stock in an aggregate amount not to exceed $20,000,000 in any fiscal year of the Borrower and (ii) may make repurchases of its own issued and outstanding common stock pursuant to any stock repurchase plan approved by its Board of Directors in an aggregate amount not to exceed $25,000,000 from the Closing Date to the Revolving Credit Loan Maturity Date provided that immediately after each such repurchase the aggregate amount of the Banks' Unfunded Commitments equals or exceeds $10,000,000. 7.5. Merger, Consolidation and Disposition of Assets. ----------------------------------------------- 7.5.1. Mergers and Acquisitions. The Borrower will not, and will not ------------------------ permit any of its Subsidiaries to, become a party to any merger or consolidation, or agree to or effect any asset acquisition or acquisition of stock or other equity interests (other than the acquisition of assets in the ordinary course of business consistent with past practices) except (a) the merger or consolidation of one or more of the Subsidiaries of the Borrower with and into the Borrower, (b) the merger or consolidation of two or more Subsidiaries of the Borrower, (c) Permitted Acquisitions, (d) so long as no Default or Event of Default has occurred and is continuing or would occur as a result thereof, the acquisition by the Borrower of common stock and/or other equity interests of Advantage after the Closing Date, whether by the exercise of the Advantage warrants held by the Borrower as of the Closing Date or otherwise, provided that the aggregate purchase price for such common stock and/or other equity interests of Advantage does not exceed $18,000,000 or (e) Permitted Joint Ventures. 7.5.2. Disposition of Assets. The Borrower will not, and will not --------------------- permit any of its Subsidiaries to, become a party to or agree to or effect -63- any disposition of assets, other than (a) the sale of inventory, (b) the license or lease of intellectual property in the ordinary course of business, and (c) the disposition of assets, in each case set forth in clauses (a), (b) and (c) hereof in the ordinary course of business and consistent with past practices, (d) dispositions of capital stock of the Borrower and other Margin Stock for so long as such stock constitutes Margin Stock, (e) the use of cash or other property to make Permitted Investments, (f) other dispositions of assets in an aggregate amount not to exceed the lesser of (i) $5,000,000 and (ii) five percent (5%) of Consolidated Total Assets (determined as of the date or dates of such dispositions), and (g) the disposition for fair market value of the common stock and/or other equity interests of Advantage held by the Borrower. Notwithstanding the restrictions contained above in (S)7.5.1 and (S)7.5.2, the Borrower or any Guarantor (other than Russell & Miller, R&M Trust and Chiswick Trust) may transfer assets owned by it to the Borrower or any other Guarantor (other than Russell & Miller, R&M Trust and Chiswick Trust). 7.6. Sale and Leaseback. The Borrower will not, and will not permit any ------------------ of its Subsidiaries to, enter into any arrangement, directly or indirectly, whereby the Borrower or any Subsidiary of the Borrower shall sell or transfer any property owned by it in order then or thereafter to lease such property or lease other property that the Borrower or any Subsidiary of the Borrower intends to use for substantially the same purpose as the property being sold or transferred. 7.7. Compliance with Environmental Laws. Except as set forth in Schedule ---------------------------------- -------- 5.18 hereto, the Borrower will not, and will not permit any of its Subsidiaries - ---- to, (i) use any of the Real Estate or any portion thereof for the handling, processing, storage or disposal of Hazardous Substances, (ii) cause or permit to be located on any of the Real Estate any underground tank or other underground storage receptacle for Hazardous Substances, (iii) generate any Hazardous Substances on any of the Real Estate, (iv) conduct any activity at any Real Estate or use any Real Estate in any manner so as to cause a release (i.e. releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping) or threatened release of Hazardous Substances on, upon or into the Real Estate or (v) otherwise conduct any activity at any Real Estate or use any Real Estate in any manner that would violate any Environmental Law or bring such Real Estate in violation of any Environmental Law. 7.8. Employee Benefit Plans. Neither the Borrower nor any ERISA Affiliate ---------------------- will: (a) engage in any "prohibited transaction" within the meaning of (S)406 of ERISA or (S)4975 of the Code which could result in a material liability for the Borrower or any of its Subsidiaries; or -64- (b) permit any Guaranteed Pension Plan to incur an "accumulated funding deficiency", as such term is defined in (S)302 of ERISA, whether or not such deficiency is or may be waived; or (c) fail to contribute to any Guaranteed Pension Plan to an extent which, or terminate any Guaranteed Pension Plan in a manner which, could result in the imposition of a lien or encumbrance on the assets of the Borrower or any of its Subsidiaries pursuant to (S)302(f) or (S)4068 of ERISA; or (d) amend any Guaranteed Pension Plan in circumstances requiring the posting of security pursuant to (S)307 of ERISA or (S)401(a)(29) of the Code; or (e) permit or take any action which would result in the aggregate benefit liabilities (with the meaning of (S)4001 of ERISA) of all Guaranteed Pension Plans exceeding the value of the aggregate assets of such Plans, disregarding for this purpose the benefit liabilities and assets of any such Plan with assets in excess of benefit liabilities; or (f) permit or take any action which would contravene any Applicable Pension Legislation. 7.9 Fiscal Year. Neither the Borrower nor any of its Subsidiaries will ----------- change the date of the end of its fiscal year or any fiscal quarter from that set forth in (S)5.21 hereof. 7.10 Prohibition on Negative Pledges. Neither the Borrower nor any of its ------------------------------- Subsidiaries will enter into, or be or become bound by or subject to, any agreement prohibiting the creation or assumption of any lien or security interest upon its properties, whether now owned or hereafter acquired. 7.11 Creation and Maintenance of Subsidiaries. Neither the Borrower nor any ---------------------------------------- of its Subsidiaries shall create any Subsidiary (other than any Subsidiaries existing on the Closing Date and disclosed in (S)5.19 hereto) unless (a) one hundred percent (100%) of the capital stock or other equity interests (subject to the exclusion of any legally required directors' qualifying shares) of such Subsidiary are owned directly or indirectly by the Borrower; provided, however, -------- ------- that such Subsidiary may not, without the prior written consent of the Agent and the Majority Banks, conduct business or operations materially different from those conducted by the Borrower or any other Subsidiary on the Closing Date or, as the case may be, any date on which any such other Subsidiary is acquired in compliance with the terms of (S)7.5.1 or created (with the consent of the Agent and the Majority Banks if the business or operations are to be materially different) in compliance with the terms of this (S)7.11, (b) prior to the formation of such Subsidiary, the Borrower shall notify the Agent and the Banks thereof, and (c) contemporaneously with the formation of such Subsidiary, the Borrower shall (i) cause such Subsidiary, if such Subsidiary shall engage in business of any kind or nature (other than qualifying to do -65- business in a foreign jurisdiction), shall have a net worth or assets of more than a de minimis value or shall issue any capital stock to any person other -- ------- than the Borrower or a Subsidiary of the Borrower, to guaranty all of the Obligations hereunder pursuant to the Guaranty, and (ii) cause such Subsidiary to deliver to the Banks and the Agent satisfactory evidence of proper corporate or other authorization and legal opinions with respect to such Guaranty. Upon the delivery to the Agent of the items required by subsections (c)(i) and (ii) of the immediately preceding sentence, Schedule 5.19 shall be, and shall be ------------- deemed to be, automatically amended to include such new Subsidiary. In the event that any domestic Subsidiary existing on or after the Closing Date and disclosed on Schedule 5.19 shall hereafter become engaged in business of any kind or ------------- nature (except that such Subsidiary is qualified to do business in a foreign jurisdiction), shall have a net worth or assets of more than a de minimis value ---------- or shall have issued any capital stock to any person other than the Borrower or a Subsidiary of the Borrower, then the Borrower shall immediately notify the Agent and the Banks thereof and shall immediately cause such Subsidiary to comply with the requirement of such subsection (c) hereof. 7.12 Conduct of Business; Agreements Regarding Certain Subsidiaries. -------------------------------------------------------------- 7.12.1 General. Neither the Borrower nor any of its Subsidiaries ------- will, without the prior written consent of the Agent and the Majority Banks, conduct any business or operations materially different from those conducted by it on the Closing Date or, as the case may be, any date on which any such Subsidiary is acquired in compliance with the terms of (S)7.5.1 or created (with the consent of the Agent and the Majority Banks if its business or operations are materially different) in compliance with the terms of (S)7.11. 7.12.2 R&M Trust and Chiswick Trust. Neither R&M Trust nor Chiswick ---------------------------- Trust shall conduct any business or activities other than the lending to the Borrower pursuant to an Unsecured Subordinated Promissory Note of all amounts (net of reasonable, ordinary course operating expenses) received by it, whether by way of capital contributions pursuant to the R&M Contribution Agreement, the Chiswick Contribution Agreement or otherwise, and shall have no assets other than cash (which shall be loaned to the Borrower in accordance with (S)6.13) and Indebtedness owed by the Borrower to it as permitted by (S)7.1(o). Without limiting the foregoing and notwithstanding any of the carve-outs contained in (S)7.2 (other than (S)7.2(a)), (S)7.3 (other than (S)7.3(b) (with respect to Investments by R&M Trust or Chiswick Trust, as the case may be, in a deposit account maintained with Fleet until amounts held therein are loaned to the Borrower pursuant to (S)6.13), (S)7.3(f) and (S)7.3(n)) or (S)7.11, the Borrower shall not permit R&M Trust or Chiswick Trust, as the case may be, to encumber their respective assets in any manner described in (S)7.2, to make or permit to exist or remain outstanding any Investments, or to create or acquire any Subsidiaries. The Borrower shall also not permit, without the prior written approval of the -66- Agent and the Majority Banks, any amendment to or modification of the Chiswick Contribution Agreement, the Chiswick Trust Intercompany Subordination Agreement, the R&M Contribution Agreement or the Intercompany Subordination Agreement. 7.13. Transactions with Affiliates. Except as otherwise expressly ---------------------------- permitted hereby, the Borrower will not, and will not permit any of its Subsidiaries to, engage in any transaction with any Affiliate (other than as permitted by Section 7.4(a) hereof), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such Affiliate or, to the knowledge of the Borrower, any corporation, partnership, trust or other entity in which any such Affiliate has a substantial interest or is an officer, director, trustee or partner, on terms more favorable to such Person than would have been obtainable on an arm's-length basis in the ordinary course of business. 7.14. Subordinated and Pari Passu Indebtedness. The Borrower will not, ---------------------------------------- and will not permit any of its Subsidiaries to, amend, supplement or otherwise modify the terms of any of the subordinated or pari passu Indebtedness permitted ---- ----- by (S)7.1(r)(i) (other than any extension of the date of payment therefor or any reductions in the rate at which interest or other fees are payable to the holders thereof in connection therewith) or prepay, redeem or repurchase any of the subordinated or pari passu Indebtedness permitted by (S)7.1(r)(i). ---- ----- 8. FINANCIAL COVENANTS OF THE BORROWER. ----------------------------------- The Borrower covenants and agrees that, so long as any Loan or Note is outstanding or any Bank has any obligation to make any Loans: 8.1 Funded Debt to EBITDA. The Borrower will not as of the end of any --------------------- four (4) consecutive fiscal quarters of the Borrower ending on any quarter end, permit the ratio of (a) Consolidated Funded Debt as at such quarter end to (b) EBITDA for such four (4) consecutive fiscal quarters then ended to be greater than 2.5:1.0. 8.2 Minimum Fixed Charge Coverage Ratio. The Borrower will not, as at ----------------------------------- the end of any four (4) consecutive fiscal quarters of the Borrower ending on any quarter end, permit the ratio of (a) EBITDA for such period minus Capital ----- Expenditures for such period to (b) Consolidated Total Interest Expense for such period plus any scheduled amortization payments on Indebtedness for borrowed ---- money or in respect of any Capitalized Leases permitted by (S)7.1, to be less than (a) 3.75:1.00 for any such period ending on or after June 30, 2001 through the end of the third fiscal quarter of 2002 and (b) 4.00:1.00 for any such period ending thereafter. -67- 8.3. Consolidated Net Worth. The Borrower will not permit Consolidated ---------------------- Net Worth at any time to be less than the sum of (a) $100,000,000, plus (b) on a ---- cumulative basis, fifty percent (50%) of positive Consolidated Net Income for each fiscal quarter beginning with the fiscal quarter ended June 30, 2001, plus ---- (c) one hundred percent (100%) of the proceeds of any sale by the Borrower or any Subsidiary of (i) equity securities issued by the Borrower or such Subsidiary, or (ii) warrants or subscription rights for equity securities issued by the Borrower or such Subsidiary. 9. CLOSING CONDITIONS. ------------------ The obligations of the Banks to make the initial Loans shall be subject to the satisfaction of the following conditions precedent on or prior to the Closing Date. 9.1 Loan Documents. Each of the Loan Documents shall have been duly -------------- executed and delivered by the respective parties thereto, shall be in full force and effect and shall be in form and substance satisfactory to each of the Banks. Each Bank shall have received a fully executed copy of each such document. 9.2 Certified Copies of Charter Documents. Each of the Banks shall have ------------------------------------- received from the Borrower and each of its Guarantors a copy, certified by a duly authorized officer of such Person to be true and complete on the Closing Date, of each of (i) its charter or other incorporation documents as in effect on such date of certification, and (ii) its by-laws as in effect on such date. 9.3 Corporate Action. All corporate action necessary for the valid ---------------- execution, delivery and performance by the Borrower and each of its Subsidiaries of this Credit Agreement and the other Loan Documents to which it is or is to become a party shall have been duly and effectively taken, and evidence thereof satisfactory to the Banks shall have been provided to each of the Banks. 9.4 Incumbency Certificate. Each of the Banks shall have received from ---------------------- the Borrower and each of the Guarantors an incumbency certificate, dated as of the Closing Date, signed by a duly authorized officer of the Borrower or such Guarantor, as applicable, and giving the name and bearing a specimen signature of each individual who shall be authorized: (i) to sign, in the name and on behalf of the Borrower or such Guarantor, as applicable, each of the Loan Documents; (ii) on behalf of the Borrower to make Loan Requests, Conversion Requests, Competitive Bid Quote Requests and Notices of Competitive Bid Borrowing; and (iii) to give notices and to take other action on its behalf under the Loan Documents. 9.5 UCC Search Results. The Agent shall have received from the Borrower ------------------ the results of UCC searches in jurisdictions certified by the Borrower as constituting the location of all offices and locations, including the chief executive offices, of the Borrower and the Guarantors and in such other -68- jurisdictions as the Agent may request, indicating no liens other than Permitted Liens and otherwise in form and substance satisfactory to the Agent. 9.6 Certificates of Insurance. The Agent shall have received a ------------------------- certificate of insurance from an independent insurance broker dated as of the Closing Date, identifying insurers, types of insurance, insurance limits, and policy terms, and otherwise describing the insurance obtained in accordance with the provisions hereof. 9.7 Solvency Certificate. Each of the Banks shall have received an -------------------- officer's certificate of the Borrower dated as of the Closing Date as to the solvency of the Borrower and its Subsidiaries following the consummation of the transactions contemplated herein and in form and substance satisfactory to the Banks. 9.8 Opinion of Counsel. (a) Each of the Banks and the Agent shall have ------------------ received a favorable opinion addressed to the Banks and the Agent, dated as of the Closing Date, in form and substance satisfactory to the Banks and the Agent, from Hill & Barlow, counsel to the Borrower and its Subsidiaries. (b) Each of the Banks and the Agent shall have received a favorable opinion addressed to the Banks and the Agent, dated as of the Closing Date, in form and substance satisfactory to the Banks and the Agent, from each of Drinker Biddle & Shanley LLP, counsel to Rapidforms, and Lindquist & Vennum P.L.L.P., counsel to McBee. 9.9 Payment of Fees. As required by (S)4.1, the Borrower shall have paid --------------- to the Agent and the Arranger the fees described in the Agent's Fee Letter, together with all reasonable out-of-pocket expenses of the Agent, including but not limited to reasonable attorneys' fees and disbursements. 9.10 No Material Adverse Change. The Agent and the Banks shall be -------------------------- satisfied that there shall have occurred no material adverse change since the Interim Balance Sheet Date in the business, operations, assets, properties or condition (financial or otherwise) of the Borrower and its Subsidiaries, taken as a whole. 10. CONDITIONS TO ALL BORROWINGS. ---------------------------- The obligations of the Banks to make any Loan, whether on or after the Closing Date, shall also be subject to the satisfaction of the following conditions precedent: 10.1 Representations True; No Event of Default. Each of the ----------------------------------------- representations and warranties of any of the Borrower and its Subsidiaries contained in this Credit Agreement, the other Loan Documents or in any document or instrument delivered pursuant to or in connection with this Credit Agreement shall be true as of the date as of which they were made and shall also be true at and as of the time of the making of such Loan, with the same -69- effect as if made at and as of that time (except to the extent of changes resulting from transactions contemplated or permitted by this Credit Agreement and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse, and to the extent that such representations and warranties relate expressly to an earlier date) and no Default or Event of Default shall have occurred and be continuing. 10.2 No Legal Impediment. No change shall have occurred in any law or ------------------- regulations thereunder or interpretations thereof that in the reasonable opinion of any Bank would make it illegal for such Bank to make such Loan. 10.3 Governmental Regulation. Each Bank shall have received such ----------------------- statements in substance and form reasonably satisfactory to such Bank as such Bank shall require for the purpose of compliance with any applicable regulations of the Comptroller of the Currency or the Board of Governors of the Federal Reserve System. 10.4 Proceedings and Documents. All proceedings in connection with the ------------------------- transactions contemplated by this Credit Agreement, the other Loan Documents and all other documents incident thereto shall be satisfactory in substance and in form to the Banks and to the Agent and the Agent's Special Counsel, and the Banks, the Agent and such counsel shall have received all information and such counterpart originals or certified or other copies of such documents as the Agent may reasonably request. 11. EVENTS OF DEFAULT; ACCELERATION; ETC. ------------------------------------ 11.1 Events of Default and Acceleration. If any of the following events ---------------------------------- ("Events of Default" or, if the giving of notice or the lapse of time or both is required, then, prior to such notice or lapse of time, "Defaults") shall occur: (a) the Borrower shall fail to pay any principal of the Loans when the same shall become due and payable, whether at the stated date of maturity or any accelerated date of maturity or at any other date fixed for payment; (b) the Borrower shall fail to pay any interest on the Loans, the facility fee or utilization fee, or other sums due hereunder or under any of the other Loan Documents, when the same shall become due and payable, whether at the stated date of maturity or any accelerated date of maturity or at any other date fixed for payment; (c) the Borrower shall fail to comply with any of its covenants contained in (S)(S)6, 7 or 8; (d) the Borrower or any of its Subsidiaries shall fail to perform any term, covenant or agreement contained herein or in any of the other Loan Documents (other than those specified elsewhere in this (S)11) for -70- fifteen (15) days after written notice of such failure has been given to the Borrower by the Agent; (e) any representation or warranty of the Borrower or any of its Subsidiaries in this Credit Agreement or any of the other Loan Documents or in any other document or instrument delivered pursuant to or in connection with this Credit Agreement shall prove to have been false in any material respect upon the date when made or deemed to have been made or repeated; (f) the Borrower or any of its Subsidiaries shall fail to pay at maturity, or within any applicable period of grace, any obligation for borrowed money or credit received or in respect of any Capitalized Leases, or fail to observe or perform any material term, covenant or agreement contained in any agreement by which it is bound (excluding, however, any such term, covenant or agreement relating to the pledge or disposition of capital stock of the Borrower or other Margin Stock for so long as such stock constitutes Margin Stock), evidencing or securing borrowed money or credit received or in respect of any Capitalized Leases for such period of time as would permit (assuming the giving of appropriate notice if required) the holder or holders thereof or of any obligations issued thereunder to accelerate the maturity thereof; (g) the Borrower or any of its Subsidiaries shall make an assignment for the benefit of creditors, or admit in writing its inability to pay or generally fail to pay its debts as they mature or become due, or shall petition or apply for the appointment of a trustee or other custodian, liquidator or receiver of the Borrower or any of its Subsidiaries or of any substantial part of the assets of the Borrower or any of its Subsidiaries or shall commence any case or other proceeding relating to the Borrower or any of its Subsidiaries under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law of any jurisdiction, now or hereafter in effect, or shall take any action to authorize or in furtherance of any of the foregoing, or if any such petition or application shall be filed or any such case or other proceeding shall be commenced against the Borrower or any of its Subsidiaries and the Borrower or any of its Subsidiaries shall indicate its approval thereof, consent thereto or acquiescence therein or such petition or application shall not have been dismissed within forty-five (45) days following the filing thereof; (h) a decree or order is entered appointing any such trustee, custodian, liquidator or receiver or adjudicating the Borrower or any of its Subsidiaries bankrupt or insolvent, or approving a petition in any such case or other proceeding, or a decree or order for relief is entered in respect of the Borrower or any Subsidiary of the Borrower in an involuntary case under federal bankruptcy laws as now or hereafter constituted; -71- (i) there shall remain in force, undischarged, unsatisfied and unstayed, for more than thirty days, whether or not consecutive, any final judgment against the Borrower or any of its Subsidiaries that, with other outstanding final judgments, undischarged, against the Borrower or any of its Subsidiaries exceeds in the aggregate $1,000,000; (j) if any of the Loan Documents shall be cancelled, terminated, revoked or rescinded, in each case otherwise than with the express prior written agreement, consent or approval of the Banks, or any action at law, suit or in equity or other legal proceeding to cancel, revoke or rescind any of the loan documents shall be commenced by or on behalf of the Borrower or any of its Subsidiaries party thereto or any of their respective stockholders, or any court or any other governmental or regulatory authority or agency of competent jurisdiction shall make a determination that, or issue a judgment, order, decree or ruling to the effect that, any one or more of the Loan Documents is illegal, invalid or unenforceable in accordance with the terms thereof; (k) the Borrower or any ERISA Affiliate incurs any liability to the PBGC or a Guaranteed Pension Plan pursuant to Title IV of ERISA in an aggregate amount exceeding $2,000,000; the Borrower or any ERISA Affiliate is assessed withdrawal liability pursuant to Title IV of ERISA by a Multiemployer Plan requiring aggregate annual payments exceeding $2,000,000, or any of the following occurs with respect to a Guaranteed Pension Plan: (i) an ERISA Reportable Event, or a failure to make a required installment or other payment (within the meaning of (S)302(f)(1) of ERISA), provided the Agent determines in its reasonable discretion that such event (A) could be expected to result in liability of the Borrower to the PBGC or the Plan in an aggregate amount exceeding $2,000,000 and (B) could constitute grounds for the termination of such Plan by the PBGC, for the appointment by the appropriate United States District Court of a trustee to administer such Plan or for the imposition of a lien in favor of the Guaranteed Pension Plan; (ii) the appointment by a United States District Court of a trustee to administer such Plan; or (iii) the institution by the PBGC of proceedings to terminate such Plan; (l) the Borrower or any of its Subsidiaries shall be enjoined, restrained or in any way prevented by the order of any court or any administrative or regulatory agency from conducting any material part of its business and such order shall continue in effect for more than thirty (30) days; (m) there shall occur any material damage to, or loss, theft or destruction of, any assets of the Borrower or its Subsidiaries, whether or not insured, or any strike, lockout, labor dispute, embargo, condemnation, act of God or public enemy, or other casualty, which in any such case causes, for more than fifteen (15) consecutive days, the cessation or substantial curtailment of revenue producing activities at any facility of the Borrower or any of its Subsidiaries if such event or circumstance is -72- not covered by business interruption insurance and would have a material adverse effect on the business or financial condition of the Borrower and its Subsidiaries on a consolidated basis; (n) there shall occur the loss, suspension or revocation of, or failure to renew, any license or permit now held or hereafter acquired by the Borrower or any of its Subsidiaries if such loss, suspension, revocation or failure to renew would have a material adverse effect on the business or financial condition of the Borrower and its Subsidiaries on a consolidated basis; (o) the Borrower or any of its Subsidiaries shall be indicted for a state or federal crime, or any civil or criminal action shall otherwise have been brought or threatened against the Borrower or any of its Subsidiaries, a punishment for which in any such case could include the forfeiture of any assets of the Borrower and its Subsidiaries having an aggregate fair market value in excess of $5,000,000; or (p) (i) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of twenty percent (20%) or more of the outstanding shares of common stock of the Borrower; or (ii) during any period of twelve (12) consecutive calendar months, individuals who were directors of the Borrower on the first day of such period shall cease to constitute a majority of the board of directors of the Borrower; (q) the holders of any Indebtedness permitted pursuant to Section 7.1(r) shall accelerate the maturity of all or any part of such Indebtedness, the terms of such Indebtedness shall be amended, supplemented or otherwise modified (except as permitted by Section 7.14 hereto) without the prior written consent of the Agent and the Majority Banks, such Indebtedness (other than Indebtedness permitted pursuant to Section 7.1(r)(ii)) shall be prepaid, redeemed or repurchased in whole or in part or an offer to prepay, redeem or repurchase such Indebtedness (other than Indebtedness permitted pursuant to Section 7.1(r)(ii)) in whole or in part shall have been made; then, and in any such event, so long as the same may be continuing, the Agent may, and upon the request of the Majority Banks shall, by notice in writing to the Borrower declare all amounts owing with respect to this Credit Agreement, the Notes and the other Loan Documents to be, and they shall thereupon forthwith become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower; provided that in the event of any Event of Default specified in -------- (S)11.1(g), 11.1(h) or 11.1(q), all such amounts shall become immediately due and payable automatically and without any requirement of notice from the Agent or any Bank. -73- 11.2 Termination of Commitments. If any one or more of the Events of -------------------------- Default specified in (S)11.1(g) or (S)11.1(h) shall occur, any unused portion of the credit hereunder shall forthwith terminate and each of the Banks shall be relieved of all obligations to make Loans to the Borrower. If any other Event of Default shall have occurred and be continuing, or if on any Drawdown Date the conditions precedent to the making of the Loans to be made on such Drawdown Date are not satisfied, the Agent may and, upon the request of the Majority Banks, shall, by notice to the Borrower, terminate the unused portion of the credit hereunder, and upon such notice being given such unused portion of the credit hereunder shall terminate immediately and each of the Banks shall be relieved of all further obligations to make Loans. If any such notice is given to the Borrower the Agent will forthwith furnish a copy thereof to each of the Banks. No termination of the credit hereunder shall relieve the Borrower of any of the Obligations or any of its existing obligations to any of the Banks arising under other agreements or instruments. 11.3 Remedies. In case any one or more of the Events of Default shall have -------- occurred and be continuing, and whether or not the Banks shall have accelerated the maturity of the Loans pursuant to (S)11.1, each Bank, if owed any amount with respect to the Loans, may, with the consent of the Majority Banks but not otherwise, proceed to protect and enforce its rights by suit in equity, action at law or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Credit Agreement and the other Loan Documents or any instrument pursuant to which the Obligations to such Bank are evidenced, including as permitted by applicable law the obtaining of the ex -- parte appointment of a receiver, and, if such amount shall have become due, by - ----- declaration or otherwise, proceed to enforce the payment thereof or any other legal or equitable right of such Bank. No remedy herein conferred upon any Bank or the Agent or the holder of any Note is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or any other provision of law. 12. SETOFF. ------ The Borrower hereby grants to the Agent and each of the Banks a continuing lien, security interest and right of setoff as security for all liabilities and obligations to the Agent and each Bank, whether now existing or hereafter arising, upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of the Agent or such Bank or any Bank Affiliate and their successors and assigns or in transit to any of them. Regardless of the adequacy of any collateral, during the continuance of any Event of Default, any deposits or other sums credited by or due from any of the Banks to the Borrower and any securities or other property of the Borrower in the possession of such Bank may be applied to or set off by such Bank against the payment of Obligations and any and all other liabilities, direct, or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, -74- of the Borrower to such Bank. ANY AND ALL RIGHTS TO REQUIRE ANY BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. Each of the Banks agree with each other Bank that (a) if an amount to be set off is to be applied to Indebtedness of the Borrower to such Bank, other than Indebtedness evidenced by the Notes held by such Bank, such amount shall be applied ratably to such other Indebtedness and to the Indebtedness evidenced by all such Notes held by such Bank, and (b) if such Bank shall receive from the Borrower, whether by voluntary payment, exercise of the right of setoff, counterclaim, cross action, enforcement of the claim evidenced by the Notes held by such Bank by proceedings against the Borrower at law or in equity or by proof thereof in bankruptcy, reorganization, liquidation, receivership or similar proceedings, or otherwise, and shall retain and apply to the payment of the Note or Notes held by such Bank any amount in excess of its ratable portion of the payments received by all of the Banks with respect to the Notes held by all of the Banks, such Bank will make such disposition and arrangements with the other Banks with respect to such excess, either by way of distribution, pro tanto assignment of claims, subrogation or --------- otherwise as shall result in each Bank receiving in respect of the Notes held by it, its proportionate payment as contemplated by this Credit Agreement; provided that if all or any part of such excess payment is thereafter recovered from such Bank, such disposition and arrangements shall be rescinded and the amount restored to the extent of such recovery, but without interest. 13. THE AGENT. --------- 13.1 Authorization. ------------- (a) The Agent is authorized to take such action on behalf of each of the Banks and to exercise all such powers as are hereunder and under any of the other Loan Documents and any related documents delegated to the Agent, together with such powers as are reasonably incident thereto, provided that -------- no duties or responsibilities not expressly assumed herein or therein shall be implied to have been assumed by the Agent. (b) The relationship between the Agent and each of the Banks is that of an independent contractor. The use of the term "Agent" is for convenience only and is used to describe, as a form of convention, the independent contractual relationship between the Agent and each of the Banks. Nothing contained in this Credit Agreement nor the other Loan Documents shall be construed to create an agency, trust or other fiduciary relationship between the Agent and any of the Banks. (c) As an independent contractor empowered by the Banks to exercise certain rights and perform certain duties and responsibilities hereunder and under the other Loan Documents, the Agent is -75- nevertheless a "representative" of the Banks, as that term is defined in Article 1 of the Uniform Commercial Code, for purposes of actions for the benefit of the Banks and the Agent with respect to all collateral security and guaranties contemplated by the Loan Documents. 13.2. Employees and Agents. The Agent may exercise its power and -------------------- execute its duties by or through employees or agents and shall be entitled to take, and to rely on, advice of counsel concerning all matters pertaining to its rights and duties under this Credit Agreement and the other Loan Documents. The Agent may utilize the services of such Persons as the Agent in its sole discretion may reasonably determine, and all reasonable fees and expenses of any such Persons shall be paid by the Borrower. 13.3. No Liability. Neither the Agent nor any of its shareholders, ------------ directors, officers or employees nor any other Person assisting them in their duties nor any agent or employee thereof, shall be liable for any waiver, consent or approval given or any action taken, or omitted to be taken, in good faith by it or them hereunder or under any of the other Loan Documents, or in connection herewith or therewith, or be responsible for the consequences of any oversight or error of judgment whatsoever, except that the Agent or such other Person, as the case may be, may be liable for losses due to its willful misconduct or gross negligence. 13.4. No Representations. ------------------ 13.4.1 General. ------- The Agent shall not be responsible for the execution or validity or enforceability of this Credit Agreement, the Notes, any of the other Loan Documents or any instrument at anytime constituting, or intended to constitute, collateral security for the Notes, or for the value of any such collateral security or for the validity, enforceability or collectability of any such amounts owing with respect to the Notes, or for any recitals or statements, warranties or representations made herein or in any of the other Loan Documents or in any certificate or instrument hereafter furnished to it by or on behalf of the Borrower or any of its Subsidiaries, or be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements herein or in any instrument at any time constituting, or intended to constitute, collateral security for the Notes or to inspect any of the properties, books or records of the Borrower or any of its Subsidiaries. The Agent shall not be bound to ascertain whether any notice, consent, waiver or request delivered to it by the Borrower or any holder of any of the Notes shall have been duly authorized or is true, accurate and complete. The Agent has not made nor does it now make any representations or warranties, express or implied, nor does it assume any liability to the Banks, with respect to the credit worthiness or financial conditions of the Borrower or any of its Subsidiaries. Each Bank acknowledges that it has, independently and without reliance upon the Agent or any other Bank, and based upon such information and documents as it has -76- deemed appropriate, made its own credit analysis and decision to enter into this Credit Agreement. 13.4.2. Closing Documentation, etc. For purposes of determining -------------------------- compliance with the conditions set forth in (S)9, each Bank that has executed this Credit Agreement shall be deemed to have consented to, approved or accepted, or to be satisfied with, each document and matter either sent, or made available, by the Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to such Bank, unless an officer of the Agent active upon the Borrower's account shall have received notice from such Bank not less than two (2) days prior to the Closing Date specifying such Bank's objection thereto and such objection shall not have been withdrawn by notice to the Agent to such effect on or prior to the Closing Date. 13.5. Payments. -------- 13.5.1. Payments to Agent. A payment by the Borrower to the Agent ----------------- hereunder or any of the other Loan Documents for the account of any Bank shall constitute a payment to such Bank. The Agent agrees promptly to distribute to each Bank such Bank's pro rata share of payments received by --- ---- the Agent for the account of the Banks except as otherwise expressly provided herein or in any of the other Loan Documents. 13.5.2. Distribution by Agent. If in the opinion of the Agent the --------------------- distribution of any amount received by it in such capacity hereunder, under the Notes or under any of the other Loan Documents might involve it in liability, it may refrain from making distribution until its right to make distribution shall have been adjudicated by a court of competent jurisdiction. If a court of competent jurisdiction shall adjudge that any amount received and distributed by the Agent is to be repaid, each Person to whom any such distribution shall have been made shall either repay to the Agent its proportionate share of the amount so adjudged to be repaid or shall pay over the same in such manner and to such Persons as shall be determined by such court. 13.5.3. Delinquent Banks. Notwithstanding anything to the contrary ---------------- contained in this Credit Agreement or any of the other Loan Documents, any Bank that fails (i) to make available to the Agent its pro rata share of --- ---- any Loan or (ii) to comply with the provisions of (S)12 with respect to making dispositions and arrangements with the other Banks, where such Bank's share of any payment received, whether by setoff or otherwise, is in excess of its pro rata share of such payments due and payable to all of the --- ---- Banks, in each case as, when and to the full extent required by the provisions of this Credit Agreement, shall be deemed delinquent (a "Delinquent Bank") and shall be deemed a Delinquent Bank until such time as such delinquency is satisfied. A Delinquent Bank shall be deemed to have assigned any and all payments due to it from the -77- Borrower, whether on account of outstanding Loans, interest, fees or otherwise, to the remaining nondelinquent Banks for application to, and reduction of, their respective pro rata shares of all outstanding --- ---- Syndicated Loans. The Delinquent Bank hereby authorizes the Agent to distribute such payments to the nondelinquent Banks in proportion to their respective pro rata shares of all outstanding Syndicated Loans. A --- ---- Delinquent Bank shall be deemed to have satisfied in full a delinquency when and if, as a result of application of the assigned payments to all outstanding Syndicated Loans of the nondelinquent Banks, the Banks' respective pro rata shares of all outstanding Syndicated Loans have --- ---- returned to those in effect immediately prior to such delinquency and without giving effect to the nonpayment causing such delinquency. 13.6. Holders of Notes. The Agent may deem and treat the payee of any ---------------- Note as the absolute owner thereof for all purposes hereof until it shall have been furnished in writing with a different name by such payee or by a subsequent holder. 13.7. Indemnity. The Banks ratably agree hereby to indemnify and hold --------- harmless the Agent and its Affiliates from and against any and all claims, actions and suits (whether groundless or otherwise), losses, damages, costs, expenses (including any expenses for which the Agent or any of its Affiliates has not been reimbursed by the Borrower as required by (S)14), and liabilities of every nature and character arising out of or related to this Credit Agreement, the Notes, or any of the other Loan Documents or the transactions contemplated or evidenced hereby or thereby, or the Agent's or any of its Affiliate's actions taken hereunder or thereunder, except to the extent that any of the same shall be directly caused by the Agent's or such Affiliate's willful misconduct or gross negligence. 13.8. Agent as Bank. In its individual capacity, Fleet shall have the ------------- same obligations and the same rights, powers and privileges in respect to its Commitment and the Loans made by it, and as the holder of any of the Notes, as it would have were it not also the Agent. 13.9. Resignation. The Agent may resign at any time by giving sixty (60) ----------- days prior written notice thereof to the Banks and the Borrower. Upon any such resignation, the Majority Banks shall have the right to appoint a successor Agent. Unless a Default or Event of Default shall have occurred and be continuing, such successor Agent shall be reasonably acceptable to the Borrower. If no successor Agent shall have been so appointed by the Majority Banks and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a financial institution having a rating of not less than A or its equivalent by Standard & Poor's Corporation. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and -78- obligations hereunder. After any retiring Agent's resignation, the provisions of this Credit Agreement and the other Loan Documents shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. 13.10. Notification of Defaults and Events of Default. Each Bank hereby ---------------------------------------------- agrees that, upon learning of the existence of a Default or an Event of Default, it shall promptly notify the Agent thereof. The Agent hereby agrees that upon receipt of any notice under this (S)13.10 it shall promptly notify the other Banks of the existence of such Default or Event of Default. 13.11. Limitation on Duties. Notwithstanding anything to the contrary -------------------- contained in this Credit Agreement or any other Loan Document, the Arranger shall not have any obligations hereunder or under any other Loan Document, or any fiduciary relationship with any Bank. 14. EXPENSES. -------- The Borrower agrees to pay (i) the reasonable costs of producing and reproducing this Credit Agreement, the other Loan Documents and the other agreements and instruments mentioned herein, (ii) any taxes (including any interest and penalties in respect thereto) payable by the Agent, any of its Affiliates or any of the Banks (other than taxes based upon the Agent's, such Affiliate's or any Bank's net income) on or with respect to the transactions contemplated by this Credit Agreement (the Borrower hereby agreeing to indemnify the Agent and each Bank with respect thereto), (iii) the reasonable fees, expenses and disbursements of the Agent's Special Counsel or any local counsel to the Agent incurred in connection with the preparation, administration or interpretation of the Loan Documents and other instruments mentioned herein, each closing hereunder, and amendments, modifications, approvals, consents or waivers hereto or hereunder, (iv) the reasonable fees, expenses and disbursements of the Agent incurred by the Agent in connection with the preparation, syndication, administration or interpretation of the Loan Documents and other instruments mentioned herein, including in connection with the conduct of any commercial finance examinations, (v) all reasonable out-of-pocket expenses (including without limitation reasonable attorneys' fees and costs, which attorneys may be employees of any Bank or the Agent, and reasonable consulting, accounting, appraisal, and similar professional fees and charges) incurred by any Bank or the Agent in connection with (A) the enforcement of or preservation of rights under any of the Loan Documents against the Borrower or any of its Subsidiaries or the administration thereof after the occurrence of a Default or Event of Default and (B) any litigation, proceeding or dispute whether arising hereunder or otherwise, in any way related to any Bank's or the Agent's relationship with the Borrower or any of its Subsidiaries and (vi) all reasonable fees, expenses and disbursements of any Bank or the Agent incurred in connection with UCC searches. The covenants of this (S)14 shall survive payment or satisfaction of payment of amounts owing with respect to the Notes. -79- 15. INDEMNIFICATION. --------------- The Borrower agrees to indemnify and hold harmless the Agent and the Banks and their respective shareholders, directors, officers, agents, Subsidiaries and Affiliates (the "Indemnified Parties") from and against any and all claims, actions and suits whether groundless or otherwise, and from and against any and all liabilities, losses, damages and costs and expenses of every nature and character arising out of this Credit Agreement or any of the other Loan Documents or the transactions contemplated hereby including, without limitation, (i) any actual or proposed use by the Borrower or any of its Subsidiaries of the proceeds of any of the Loans, (ii) the Borrower or any of its Subsidiaries entering into or performing this Credit Agreement or any of the other Loan Documents or (iii) with respect to the Borrower and its Subsidiaries and their respective properties and assets, the violation of any Environmental Law, the presence, disposal, escape, seepage, leakage, spillage, discharge, emission, release or threatened release of any Hazardous Substances or any action, suit, proceeding or investigation brought or threatened with respect to any Hazardous Substances (including, but not limited to claims with respect to wrongful death, personal injury or damage to property), in each case including, without limitation, the reasonable fees and disbursements of counsel and allocated costs of internal counsel incurred in connection with any such investigation, litigation or other proceeding. In litigation, or the preparation therefor, the Indemnified Parties shall be entitled to select their own counsel and, in addition to the foregoing indemnity, the Borrower agrees to pay promptly the reasonable fees and expenses of such counsel. If, and to the extent that the obligations of the Borrower under this (S)15 are unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment in satisfaction of such obligations which is permissible under applicable law. The covenants contained in this (S)15 shall survive payment of satisfaction in full of all other obligations. 16. SURVIVAL OF COVENANTS, ETC. -------------------------- All covenants, agreements, representations and warranties made herein, in the Notes, in any of the other Loan Documents or in any documents or other papers delivered by or on behalf of the Borrower or any of its Subsidiaries pursuant hereto shall be deemed to have been relied upon by the Banks and the Agent, notwithstanding any investigation heretofore or hereafter made by any of them, and shall survive the making by the Banks of the Loans, as herein contemplated, and shall continue in full force and effect so long as any amount due under this Credit Agreement or the Notes or any of the other Loan Documents remains outstanding or any Bank has any obligation to make any Loans, and for such further time as may be otherwise expressly specified in this Credit Agreement. All statements contained in any certificate or other paper delivered to any Bank or the Agent at any time by or on behalf of the Borrower or any of its Subsidiaries pursuant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by the Borrower or such Subsidiary hereunder. -80- 17. ASSIGNMENT AND PARTICIPATION. ---------------------------- 17.1. Conditions to Assignment by Banks. Except as provided herein, each --------------------------------- Bank may assign to one or more Eligible Assignees all or a portion of its interests, rights and obligations under this Credit Agreement (including all or a portion of its Commitment Percentage and Commitment and the same portion of the Loans at the time owing to it) and the Notes held by it; provided that (i) -------- each of the Agent and, unless a Default or Event of Default shall have occurred and be continuing, the Borrower shall have given its prior written consent to such assignment, which consent, in the case of the Borrower and the Agent, will not be unreasonably withheld, (ii) each such assignment shall be of a constant, and not a varying, percentage of all the assigning Bank's rights and obligations under this Credit Agreement, (iii) each assignment shall be in an amount that is a whole multiple of $5,000,000, and (iv) each Bank which is a Bank on the date hereof shall retain, free of any such assignment, an amount of its Commitment of not less than $5,000,000, and (v) the parties to such assignment shall execute and deliver to the Agent, for recording in the Register (as hereinafter defined), an Assignment and Acceptance, substantially in the form of Exhibit H ------- - hereto (an "Assignment and Acceptance"), together with any Notes subject to such assignment. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five (5) Business Days after the execution thereof, (i) the assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Bank hereunder, and (ii) the assigning Bank shall, to the extent provided in such assignment and upon payment to the Agent of the registration fee referred to in (S)17.3, be released from its obligations under this Credit Agreement. 17.2. Certain Representations and Warranties; Limitations; Covenants. By -------------------------------------------------------------- executing and delivering an Assignment and Acceptance, the parties to the assignment thereunder confirm to and agree with each other and the other parties hereto as follows: (a) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim, the assigning Bank makes no representation or warranty, express or implied, and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Credit Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto or the attachment, perfection or priority of any security interest or mortgage; (b) the assigning Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower and its Subsidiaries or any other Person primarily or secondarily liable in respect of any of the Obligations, or the performance -81- or observance by the Borrower and its Subsidiaries or any other Person primarily or secondarily liable in respect of any of the Obligations of any of their obligations under this Credit Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; (c) such assignee confirms that it has received a copy of this Credit Agreement, together with copies of the most recent financial statements referred to in (S)5.4 and (S)6.4 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (d) such assignee will, independently and without reliance upon the assigning Bank, the Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Credit Agreement; (e) such assignee represents and warrants that it is an Eligible Assignee; (f) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Credit Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto; (g) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Credit Agreement are required to be performed by it as a Bank; and (h) such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance. 17.3. Register. The Agent shall maintain a copy of each Assignment and -------- Acceptance delivered to it and a register or similar list (the "Register") for the recordation of the names and addresses of the Banks and the Commitment Percentage of, and principal amount of the Loans owing to the Banks from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Agent and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this Credit Agreement. The Register shall be available for inspection by the Borrower and the Banks at any reasonable time and from time to time upon reasonable prior notice. Upon each such recordation, the assigning Bank agrees to pay to the Agent a registration fee in the sum of $3,500. 17.4. New Notes. Upon its receipt of an Assignment and Acceptance --------- executed by the parties to such assignment, together with each Note subject to such assignment, the Agent shall (i) record the information contained therein in -82- the Register, and (ii) give prompt notice thereof to the Borrower and the Banks (other than the assigning Bank). Within five (5) Business Days after receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Agent, in exchange for each surrendered Note, a new Note to the order of such Eligible Assignee in an amount equal to the amount assumed by such Eligible Assignee pursuant to such Assignment and Acceptance and, if the assigning Bank has retained some portion of its obligations hereunder, a new Note to the order of the assigning Bank in an amount equal to the amount retained by it hereunder. Such new Notes shall provide that they are replacements for the surrendered Notes, shall be in an aggregate principal amount equal to the aggregate principal amount of the surrendered Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of the assigned Notes. Within five (5) days of issuance of any new Notes pursuant to this (S)17.4, the Borrower shall deliver an opinion of counsel, addressed to the Banks and the Agent, relating to the due authorization, execution and delivery of such new Notes and the legality, validity and binding effect thereof, in form and substance reasonably satisfactory to the Banks. The surrendered Notes shall be cancelled and returned to the Borrower. 17.5. Participations. Each Bank may sell participations to one or more -------------- banks or other entities in all or a portion of such Bank's rights and obligations under this Credit Agreement and the other Loan Documents; provided -------- that (i) each such participation shall be in an amount of not less than $5,000,000, (ii) any such sale or participation shall not affect the rights and duties of the selling Bank hereunder to the Borrower and (iii) the only rights granted to the participant pursuant to such participation arrangements with respect to waivers, amendments or modifications of the Loan Documents shall be the rights to approve waivers, amendments or modifications that would reduce the principal of or the interest rate on any Loans, extend the term or increase the amount of the Commitment of such Bank as it relates to such participant, reduce the amount of any facility fees to which such participant is entitled or extend any regularly scheduled payment date for principal or interest. 17.6. Disclosure. The Borrower agrees that in addition to disclosures ---------- made in accordance with standard and customary banking practices any Bank may disclose information obtained by such Bank pursuant to this Credit Agreement to assignees or participants and potential assignees or participants hereunder; provided that such assignees or participants or potential assignees or - -------- participants shall agree (i) to treat in confidence such information unless such information otherwise becomes public knowledge, (ii) not to disclose such information to a third party, except as required by law or legal process and (iii) not to make use of such information for purposes of transactions unrelated to such contemplated assignment or participation. 17.7. Assignee or Participant Affiliated with the Borrower. If any ---------------------------------------------------- assignee Bank is an Affiliate of the Borrower, then any such assignee Bank shall have no right to vote as a Bank hereunder or under any of the other Loan -83- Documents for purposes of granting consents or waivers or for purposes of agreeing to amendments or other modifications to any of the Loan Documents or for purposes of making requests to the Agent pursuant to (S)11.1 or (S)11.2, and the determination of the Majority Banks shall for all purposes of this Agreement and the other Loan Documents be made without regard to such assignee Bank's interest in any of the Loans. If any Bank sells a participating interest in any of the Loans to a participant, and such participant is the Borrower or an Affiliate of the Borrower, then such transferor Bank shall promptly notify the Agent of the sale of such participation. A transferor Bank shall have no right to vote as a Bank hereunder or under any of the other Loan Documents for purposes of granting consents or waivers or for purposes of agreeing to amendments or modifications to any of the Loan Documents or for purposes of making requests to the Agent pursuant to (S)11.1 or (S)11.2 to the extent that such participation is beneficially owned by the Borrower or any Affiliate of the Borrower, and the determination of the Majority Banks shall for all purposes of this Agreement and the other Loan Documents be made without regard to the interest of such transferor Bank in the Loans to the extent of such participation. 17.8. Miscellaneous Assignment Provisions. Any assigning Bank shall ----------------------------------- retain its rights to be indemnified pursuant to (S)15 with respect to any claims or actions arising prior to the date of such assignment. If any assignee Bank is not incorporated under the laws of the United States of America or any state thereof, it shall, prior to the date on which any interest or fees are payable hereunder or under any of the other Loan Documents for its account, deliver to the Borrower and the Agent certification as to its exemption from deduction or withholding of any United States federal income taxes in accordance with (S)4.3.3. If Fleet transfers all of its interest, rights and obligations under this Credit Agreement, the Agent shall, in consultation with the Borrower and with the consent of the Borrower and the Majority Banks, appoint another Bank to act as a reference bank hereunder for purposes of the definition of Eurodollar Rate. Anything contained in this (S)17 to the contrary notwithstanding, any Bank may at any time pledge all or any portion of its interest and rights under this Credit Agreement (including all or any portion of its Notes) to any of the twelve Federal Reserve Banks organized under (S)4 of the Federal Reserve Act, 12 U.S.C. (S)341. No such pledge or the enforcement thereof shall release the pledgor Bank from its obligations hereunder or under any of the other Loan Documents. 17.9. Assignment by Borrower. The Borrower shall not assign or transfer ---------------------- any of its rights or obligations under any of the Loan Documents without the prior written consent of each of the Banks. 18. NOTICES, ETC. ------------ Except as otherwise expressly provided in this Credit Agreement, all notices and other communications made or required to be given pursuant to this Credit Agreement or the Notes shall be in writing and shall be delivered in hand, mailed by United States registered or certified first class mail, postage prepaid, sent by overnight courier, or sent by telegraph, telecopy, telefax or -84- telex and confirmed by delivery via courier or postal service, addressed as follows: (a) if to the Borrower, at 500 Main Street, Groton, Massachusetts 01471, Attention: Daniel M. Junius, or at such other address for notice as the Borrower shall last have furnished in writing to the Person giving the notice; (b) if to the Agent, at 100 Federal Street, Boston, Massachusetts 02110, USA, Attention: Harvey H. Thayer, Jr., Managing Director, or such other address for notice as the Agent shall last have furnished in writing to the Person giving the notice; and (c) if to any Bank, at such Bank's address set forth on Schedule 1 -------- - hereto, or such other address for notice as such Bank shall have last furnished in writing to the Person giving the notice. Any such notice or demand shall be deemed to have been duly given or made and to have become effective (i) if delivered by hand, overnight courier or facsimile to a responsible officer of the party to which it is directed, at the time of the receipt thereof by such officer or the sending of such facsimile and (ii) if sent by registered or certified first-class mail, postage prepaid, on the third Business Day following the mailing thereof. 19. GOVERNING LAW. ------------- THIS CREDIT AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED THEREIN, ARE CONTRACTS UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS CREDIT AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN (S)18. THE BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. 20. HEADINGS. -------- The captions in this Credit Agreement are for convenience of reference only and shall not define or limit the provisions hereof. -85- 21. COUNTERPARTS. ------------ This Credit Agreement and any amendment hereof may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, and all of which together shall constitute one instrument. In proving this Credit Agreement it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. Delivery by facsimile by any of the parties hereto of an executed counterpart hereof or of any amendment or waiver hereto shall be as effective as an original executed counterpart hereof or of such amendment or waiver and shall be considered a representation that an original executed counterpart hereof or such amendment or waiver, as the case may be, will be delivered. 22. ENTIRE AGREEMENT, ETC. --------------------- The Loan Documents and any other documents executed in connection herewith or therewith express the entire understanding of the parties with respect to the transactions contemplated hereby. Neither this Credit Agreement nor any term hereof may be changed, waived, discharged or terminated, except as provided in (S)24. 23. WAIVER OF JURY TRIAL. -------------------- THE BORROWER HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS CREDIT AGREEMENT, THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY, INCLUDING ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS OR ACTIONS OF THE AGENT OR ANY BANK RELATING TO THE ADMINISTRATION OF THE LOANS OR ENFORCEMENT OF THE LOAN DOCUMENTS AND AGREES THAT IT WILL NOT SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. Except as prohibited by law, the Borrower hereby waives any right it may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. The Borrower (a) certifies that no representative, agent or attorney of any Bank or the Agent has represented, expressly or otherwise, that such Bank or the Agent would not, in the event of litigation, seek to enforce the foregoing waivers and (b) acknowledges that the Agent and the Banks have been induced to enter into this Credit Agreement, the other Loan Documents to which it is a party by, among other things, the waivers and certifications contained herein. -86- 24. CONSENTS, AMENDMENTS, WAIVERS, ETC. ---------------------------------- Except as otherwise expressly provided in this Credit Agreement, any consent or approval required or permitted by this Credit Agreement to be given by the Banks may be given, and any term of this Credit Agreement, the other Loan Documents or any other instrument related hereto or mentioned herein may be amended, and the performance or observance by the Borrower or any of its Subsidiaries of any terms of this Credit Agreement, the other Loan Documents or such other instrument or the continuance of any Default or Event of Default may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but only with, the written consent of the Borrower and the written consent of the Majority Banks. Notwithstanding the foregoing, no amendment, modification or waiver shall: (a) without the written consent of the Borrower and each Bank directly affected thereby: (i) reduce or forgive the principal amount of any Loans, or reduce the rate of interest on the Notes or the amount of the facility fee or utilization fee (other than interest accruing pursuant to (S)4.11.2 following the effective date of any waiver by the Majority Banks of the Default or Event of Default relating thereto); (ii) increase the amount of such Bank's Commitment or extend the expiration date of such Bank's Commitment; (iii) postpone or extend the Revolving Credit Loan Maturity Date or any other regularly scheduled dates for payments of principal of, or interest on, the Loans or any fees or other amounts payable to such Bank (it being understood that (A) a waiver of the application of the default rate of interest pursuant to (S)4.11.2, and (B) any vote to rescind any acceleration made pursuant to (S)11.1 of amounts owing with respect to the Loans and other Obligations and (C) any modifications of the provisions relating to amounts, timing or application of prepayments of Loans and other Obligations, shall require only the approval of the Majority Banks); and (iv) other than pursuant to a transaction permitted by the terms of this Credit Agreement, release all or substantially all of the Guarantors from their guaranty obligations under the Guaranty; (b) without the written consent of the Borrower and all of the Banks, amend or waive this (S)24 or the definition of Majority Banks; -87- (c) without the written consent of the Agent, amend or waive (S)13, the amount or time of payment of the Agent's fee payable for the Agent's account or any other provision applicable to the Agent. No waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon. No course of dealing or delay or omission on the part of the Agent or any Bank in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon the Borrower shall entitle the Borrower to other or further notice or demand in similar or other circumstances. 25. SEVERABILITY. ------------ The provisions of this Credit Agreement are severable and if any one clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Credit Agreement in any jurisdiction. 26. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION. --------------------------------------------- 26.1. Confidentiality. Each of the Agent and the Banks agrees to keep any --------------- information delivered or made available to it by or on behalf of the Borrower or any its Subsidiaries confidential from anyone other than its employees, officers, attorneys and other advisors or any Section 20 Subsidiary, provided -------- that nothing herein shall prevent the Agent or such Bank from disclosing such information upon the order or request of any court or administrative agency or authority, upon the request or demand of any regulatory agency or authority, to the extent that such information has been publicly disclosed other than as a result of a disclosure by the Agent or such Bank, otherwise as required by law or to any actual or potential assignee or participant hereof pursuant to (S)17.6. The Borrower agrees that it will, and will cause each of its Subsidiaries to, keep any information delivered or made available to it by or on behalf of the Agent or any of the Banks confidential from anyone other than its employees, officers, attorneys and other advisors, provided that nothing herein -------- shall prevent the Borrower from disclosing such information upon the order or request of any court or administrative agency or authority, upon the request or demand of any regulatory agency or authority, to the extent that such information has been publicly disclosed other than as a result of disclosure by the Borrower or any of its Subsidiaries, or otherwise as required by law. 26.2. Prior Notification. Unless specifically prohibited by applicable ------------------ law or court order, each of the Banks and the Agent shall, prior to disclosure thereof, notify the Borrower of any request for disclosure of any such non- public information by any governmental agency or representative thereof (other than any such request in connection with an examination of the financial condition of such Bank by such governmental agency) or pursuant to legal process. -88- 26.3. Other. In no event shall any Bank or the Agent be obligated or ----- required to return any materials furnished to it or any Section 20 Subsidiary by the Borrower. The obligations of each Bank under this (S)26 shall supersede and replace the obligations of such Bank under any confidentiality letter in respect of the financing contemplated by this Credit Agreement or the Original Credit Agreement and signed and delivered by such Bank to the Borrower prior to the date hereof, and shall be binding upon any assignee of, or purchaser of any participation in, any interest in any of the Loans from any Bank. 27. TRANSITIONAL ARRANGEMENTS. ------------------------- 27.1. First Amended and Restated Credit Agreement Superseded. This ------------------------------------------------------ Agreement shall supersede the First Amended and Restated Credit Agreement in its entirety, except as provided in this (S)27. On the Closing Date, the rights and obligations of the parties under the First Amended and Restated Credit Agreement and the "Notes" (as defined in the First Amended and Restated Credit Agreement) issued in favor of the Banks under the First Amended and Restated Credit Agreement (as defined therein) shall (other than any rights available to the Agent and the Banks under (S)16 and (S)17 of the First Amended and Restated Credit Agreement), be subsumed within and be governed by this Credit Agreement and the other Loan Documents; provided, however, that each of the "Loan" (as -------- ------- defined in the First Amended and Restated Credit Agreement) outstanding under the First Amended and Restated Credit Agreement on the Closing Date shall, for purposes of this Credit Agreement, be Loans (with (i) each Bank being deemed to make such purchases (in the case of (A) any Bank which was not party to the First Amended and Restated Credit Agreement and (B) any Bank which was a party to the First Amended and Restated Credit Agreement and whose Commitment Percentage under this Agreement exceeds its "Commitment Percentage" (as defined in the First Amended and Restated Credit Agreement) under the First Amended and Restated Credit Agreement)), dispositions (in the case of any Bank which was a party to the First Amended and Restated Credit Agreement whose Commitment Percentage under this Agreement is less than its "Commitment Percentage" (as defined under the First Amended and Restated Credit Agreement) under the First Amended and Restated Credit Agreement)) and arrangements with the other Banks with respect to any Eurodollar Rate Loans in existence on the Closing Date as shall result in each Bank being deemed to hold its pro rata share (in accordance -------- with its Commitment Percentage) of each such Eurodollar Rate Loan until the end of the Interest Period applicable thereto, and (ii) each Bank party to the First Amended and Restated Credit Agreement hereby waiving any breakage costs to which it might have otherwise have been entitled under (S)4.10 of First Amended and Restated Credit Agreement with respect to Eurodollar Rate Loans existing on the Closing Date; and provided further that each of the "Loans" (as defined in the -------- ------- First Amended and Restated Credit Agreement) outstanding under the First Amended and Restated Credit Agreement on the Closing Date shall continue to bear interest or be subject to fees at the respective rates in effect immediately prior to the Closing Date, in the case of Base Rate Loans, and immediately prior to the end of the applicable -89- Interest Period, in the case of Eurodollar Rate Loans and Competitive Bid Loans (with the Applicable Eurodollar Rate Margin to be applied on and after the Closing Date to be equal to the Applicable Eurodollar Rate Margin set forth herein and the Applicable Eurodollar Rate Margin to be applied before the Closing Date to be the Applicable Eurodollar Rate Margin (as defined in the First Amended and Restated Credit Agreement)). 27.2. Return and Cancellation of Notes. Upon its receipt of its Note or -------------------------------- Notes hereunder on the Closing Date, each Bank will promptly return to the Borrower, marked "Canceled", any notes of the Borrower held by such Bank pursuant to the First Amended and Restated Credit Agreement. 27.3. Fees Under First Amended and Restated Credit Agreement. All ------------------------------------------------------ facility, Agent's and other fees and expenses owing or accruing under or in respect of the First Amended and Restated Credit Agreement through the Closing Date shall be calculated as of the Closing Date (prorated in the case of any fractional periods), and shall be paid in accordance with the method, and on the dates, specified in the First Amended and Restated Credit Agreement, as if the First Amended and Restated Credit Agreement were still in effect. 28. Replacement Documents. --------------------- Upon receipt of an affidavit (reasonably satisfactory in form and substance to the Borrower) of an officer of any Bank or the Agent as to the loss, theft, destruction or mutilation of any Note or the Guaranty, the Borrower will or will cause each of the Guarantors to issue, in lieu thereof, a replacement Note or a replacement Guaranty, as applicable, in the form previously executed and delivered by the Borrower or the Guarantors to such Bank or the Agent; provided, -------- however, that the Borrower acknowledges and agrees that any such affidavit need - ------- not contain an indemnification from the Agent or, as the case may be, such Bank. [Remainder of page intentionally left blank] IN WITNESS WHEREOF, the undersigned have duly executed this Credit Agreement as a sealed instrument as of the date first set forth above. BORROWER: NEW ENGLAND BUSINESS SERVICE, INC. By: /s/ Daniel M. Junius Name: Daniel M. Junius Title: Senior Vice President, CFO and Treasurer BANKS: FLEET NATIONAL BANK formerly known as BankBoston, N.A., individually and as Agent By: /s/ Irene Bertozzi Bartenstein Name: Irene Bertozzi Bartenstein Title: Vice President KEY BANK N.A. By: /s/ Lisa Turilli Name: Lisa Turilli Title: Vice President CITIZENS BANK OF MASSACHUSETTS, as successor to USTrust By: /s/ Daniel Bernard Name: Daniel Bernard Title: Vice President SUNTRUST BANK By: /s/ Karen C. Copeland Name: Karen Copeland Title: Vice President THE BANK OF NOVA SCOTIA By: /s/ T.M. Pitcher Name: T.M. Pitcher Title: Authorized Signatory NATIONAL CITY BANK By: /s/ Tara M. Handforth Name: Tara M. Handforth Title: Assistant Vice President WEBSTER BANK By: /s/ Juliana B. Dalton Name: Juliana B. Dalton Title: Vice President EX-10.2 4 dex102.txt REVOLVING CREDIT AGREEMENT DTD JULY 13, 2001 EXHIBIT 10.2 REVOLVING CREDIT AGREEMENT -------------------------- DATED as of July 13, 2001 among NEW ENGLAND BUSINESS SERVICE, INC., THE BANKS LISTED ON Schedule 1 hereto, -------- - and FLEET NATIONAL BANK, as Agent TABLE OF CONTENTS 1. DEFINITIONS AND RULES OF INTERPRETATION......................................................... 1 --------------------------------------- 1.1. Definitions.......................................................................... 1 ----------- 1.2. Rules of Interpretation.............................................................. 19 ----------------------- 2. THE REVOLVING CREDIT FACILITY................................................................... 20 ----------------------------- 2.1. Commitment to Lend................................................................... 20 ------------------ 2.2. Requests for Loans................................................................... 20 ------------------ 2.3. [Reserved]........................................................................... 21 2.4. Funds for Loans...................................................................... 21 --------------- 2.4.1. Funding Procedures........................................................ 21 ------------------ 2.4.2. Advances by Agent......................................................... 21 ----------------- 2.5. The Notes............................................................................ 22 --------- 2.6. Reduction of Total Commitment........................................................ 22 ----------------------------- 2.7. Interest on Loans.................................................................... 23 ----------------- 2.8. Conversion Options................................................................... 23 ------------------ 2.8.1. Conversion to Different Type of Loan...................................... 23 ------------------------------------ 2.8.2. Continuation of Type of Loan.............................................. 23 ---------------------------- 2.8.3. Eurodollar Rate Loans..................................................... 24 --------------------- 3. REPAYMENT OF THE LOANS.......................................................................... 24 ---------------------- 3.1. Maturity............................................................................. 24 -------- 3.2. Mandatory Repayments of Loans........................................................ 24 ----------------------------- 3.3. Optional Repayments of Loans......................................................... 24 ---------------------------- 4. CERTAIN GENERAL PROVISIONS...................................................................... 25 -------------------------- 4.1. Agent Fees........................................................................... 25 ---------- 4.2. Facility Fee and Utilization Fee..................................................... 25 -------------------------------- 4.3. Funds for Payments................................................................... 26 ------------------ 4.3.1. Payments to Agent......................................................... 26 ----------------- 4.3.2. No Offset, etc............................................................ 26 -------------- 4.3.3. Non-U.S. Banks............................................................ 26 -------------- 4.4. Computations......................................................................... 27 ------------ 4.5. Inability to Determine Eurodollar Rate............................................... 27 -------------------------------------- 4.6. Illegality........................................................................... 28 ---------- 4.7. Additional Costs, etc................................................................ 28 --------------------- 4.8. Capital Adequacy..................................................................... 29 ---------------- 4.9. Certificate.......................................................................... 30 ----------- 4.10. Indemnity........................................................................... 30 --------- 4.11. Interest After Default.............................................................. 30 ---------------------- 4.11.1. Overdue Amounts.......................................................... 30 --------------- 4.11.2. Amounts Not Overdue...................................................... 31 ------------------- 4.12. Guaranties.......................................................................... 31 ---------- 5. REPRESENTATIONS AND WARRANTIES.................................................................. 31 ------------------------------ 5.1. Corporate Authority.................................................................. 31 -------------------
-ii- 5.1.1. Organization; Good Standing............................................... 31 --------------------------- 5.1.2. Authorization............................................................. 31 ------------- 5.1.3. Enforceability............................................................ 32 -------------- 5.2. Governmental Approvals............................................................... 32 ---------------------- 5.3. Title to Properties; Leases.......................................................... 32 --------------------------- 5.4. Financial Statements................................................................. 32 -------------------- 5.4.1. Financial Statements...................................................... 32 -------------------- 5.4.2. Projections................................................................. 33 ----------- 5.5. No Material Changes, etc............................................................. 33 ------------------------ 5.6. Franchises, Patents, Copyrights, etc................................................. 34 ------------------------------------ 5.7. Litigation........................................................................... 34 ---------- 5.8. No Materially Adverse Contracts, etc................................................. 34 ------------------------------------ 5.9. Compliance With Other Instruments, Laws, etc......................................... 34 -------------------------------------------- 5.10. Tax Status.......................................................................... 35 ---------- 5.11. No Event of Default................................................................. 35 ------------------- 5.12. Holding Company and Investment Company Acts......................................... 35 ------------------------------------------- 5.13. Absence of Financing Statements, etc................................................ 35 ------------------------------------ 5.14. Chief Executive Office.............................................................. 35 ---------------------- 5.15. Certain Transactions................................................................ 35 -------------------- 5.16. Employee Benefit Plans.............................................................. 36 ---------------------- 5.16.1. In General............................................................... 36 ---------- 5.16.2. Terminability of Welfare Plans........................................... 36 ------------------------------ 5.16.3. Guaranteed Pension Plans................................................. 36 ------------------------ 5.16.4. Multiemployer Plans...................................................... 37 ------------------- 5.17. Use of Proceeds..................................................................... 37 --------------- 5.17.1. General.................................................................. 37 ------- 5.17.2. Regulations U and X...................................................... 37 ------------------- 5.17.3. Ineligible Securities.................................................... 37 --------------------- 5.18. Environmental Compliance............................................................ 38 ------------------------ 5.19. Subsidiaries, etc................................................................... 39 ------------------ 5.20. Disclosure.......................................................................... 40 ---------- 5.21. Fiscal Year......................................................................... 40 ----------- 5.22. Solvency............................................................................ 40 -------- 5.23. Financing Statements................................................................ 40 --------- ---------- 6. AFFIRMATIVE COVENANTS OF THE BORROWER........................................................... 41 ------------------------------------- 6.1. Punctual Payment..................................................................... 42 ---------------- 6.2. Maintenance of Office................................................................ 42 --------------------- 6.3. Records and Accounts.................................................................. 42 -------------------- 6.4. Financial Statements, Certificates and Information................................... 42 -------------------------------------------------- 6.5. Notices.............................................................................. 43 ------- 6.5.1. Defaults.................................................................. 43 -------- 6.5.2. Environmental Events...................................................... 44 -------------------- 6.5.3. Notice of Litigation and Judgments......................................... 44 ----------------------------------
-iii- 6.6. Corporate or Other Existence; Maintenance of Properties.............................. 44 ------------------------------------------------------- 6.7. Insurance............................................................................ 45 --------- 6.8. Taxes................................................................................ 45 ----- 6.9. Inspection of Properties and Books, etc.............................................. 45 ---------------------------------------- 6.9.1. General................................................................... 45 ------- 6.9.2. Communication with Accountants............................................ 46 ------------------------------ 6.10. Compliance with Laws, Contracts, Licenses, and Permits.............................. 46 ------------------------------------------------------ 6.11. Employee Benefit Plans.............................................................. 46 ---------------------- 6.12. Use of Proceeds..................................................................... 47 --------------- 6.13. Certain Intercompany Payments....................................................... 47 ----------------------------- 6.14. Further Assurances.................................................................. 47 ------------------ 6.15. Post-Closing Matters................................................................ 47 ------------ ------- 7. CERTAIN NEGATIVE COVENANTS OF THE BORROWER...................................................... 48 ------------------------------------------ 7.1. Restrictions on Indebtedness......................................................... 48 ---------------------------- 7.2. Restrictions on Liens................................................................ 50 --------------------- 7.3. Restrictions on Investments.......................................................... 52 --------------------------- 7.4. Restricted Payments.................................................................. 54 ------------------- 7.5. Merger, Consolidation and Disposition of Assets...................................... 54 ----------------------------------------------- 7.5.1. Mergers and Acquisitions.................................................. 54 ------------------------ 7.5.2. Disposition of Assets..................................................... 55 --------------------- 7.6. Sale and Leaseback................................................................... 55 ------------------ 7.7. Compliance with Environmental Laws................................................... 55 ---------------------------------- 7.8. Employee Benefit Plans............................................................... 55 ---------------------- 7.9. Fiscal Year.......................................................................... 56 ----------- 7.10. Prohibition on Negative Pledges..................................................... 56 ------------------------------- 7.11. Creation and Maintenance of Subsidiaries............................................ 56 ---------------------------------------- 7.12. Conduct of Business; Agreements Regarding Certain Subsidiaries...................... 57 -------------------------------------------------------------- 7.12.1. General.................................................................. 57 ------- 7.12.2. R&M Trust and Chiswick Trust............................................. 57 ---------------------------- 8. FINANCIAL COVENANTS OF THE BORROWER............................................................. 58 ----------------------------------- 8.1. Funded Debt to EBITDA................................................................ 58 --------------------- 8.2. Minimum Fixed Charge Coverage Ratio.................................................. 58 ----------------------------------- 9. CLOSING CONDITIONS.............................................................................. 59 ------------------ 9.1. Loan Documents....................................................................... 59 -------------- 9.2. Certified Copies of Charter Documents................................................ 59 ------------------------------------- 9.3. Corporate Action..................................................................... 59 ---------------- 9.4. Incumbency Certificate............................................................... 59 ---------------------- 9.5. UCC Search Results................................................................... 60 ------------------ 9.6. Certificates of Insurance............................................................ 60 ------------------------- 9.7. Solvency Certificate................................................................. 60 -------------------- 9.8. Opinion of Counsel................................................................... 60 ------------------
-iv- 9.9. Payment of Fees...................................................................... 60 --------------- 9.10. No Material Adverse Change.......................................................... 60 -------------------------- 10. CONDITIONS TO ALL BORROWINGS................................................................... 61 ---------------------------- 10.1. Representations True; No Event of Default........................................... 61 ----------------------------------------- 10.2. No Legal Impediment................................................................. 61 ------------------- 10.3. Governmental Regulation............................................................. 61 ----------------------- 10.4. Proceedings and Documents........................................................... 61 ------------------------- 11. EVENTS OF DEFAULT; ACCELERATION; ETC........................................................... 61 ------------------------------------ 11.1. Events of Default and Acceleration.................................................. 61 ---------------------------------- 11.2. Termination of Commitments.......................................................... 65 -------------------------- 11.3. Remedies............................................................................ 65 -------- 12. SETOFF......................................................................................... 66 ------ 13. THE AGENT...................................................................................... 66 --------- 13.1. Authorization....................................................................... 66 ------------- 13.2. Employees and Agents................................................................ 67 -------------------- 13.3. No Liability........................................................................ 67 ------------ 13.4. No Representations.................................................................. 67 ------------------ 13.4.1. General.................................................................. 67 ------- 13.4.2. Closing Documentation, etc............................................... 68 -------------------------- 13.5. Payments............................................................................ 68 -------- 13.5.1. Payments to Agent........................................................ 68 ----------------- 13.5.2. Distribution by Agent.................................................... 68 --------------------- 13.5.3. Delinquent Banks......................................................... 69 ---------------- 13.6. Holders of Notes.................................................................... 69 ---------------- 13.7. Indemnity........................................................................... 69 --------- 13.8. Agent as Bank....................................................................... 70 ------------- 13.9. Resignation......................................................................... 70 ----------- 13.10. Notification of Defaults and Events of Default..................................... 70 ---------------------------------------------- 13.11. Limitation on Duties............................................................... 70 -------------------- 14. EXPENSES....................................................................................... 70 -------- 15. INDEMNIFICATION................................................................................ 71 --------------- 16. SURVIVAL OF COVENANTS, ETC..................................................................... 72 -------------------------- 17. ASSIGNMENT AND PARTICIPATION................................................................... 72 ---------------------------- 17.1. Conditions to Assignment by Banks................................................... 72 --------------------------------- 17.2. Certain Representations and Warranties; Limitations; Covenants...................... 73 -------------------------------------------------------------- 17.3. Register............................................................................ 74 -------- 17.4. New Notes........................................................................... 74 --------- 17.5. Participations...................................................................... 75 -------------- 17.6. Disclosure.......................................................................... 75 ---------- 17.7. Assignee or Participant Affiliated with the Borrower................................ 75 ---------------------------------------------------- 17.8. Miscellaneous Assignment Provisions................................................. 76 ----------------------------------- 17.9. Assignment by Borrower.............................................................. 76 ---------------------- 18. NOTICES, ETC................................................................................... 76 ------------
-v- 19. GOVERNING LAW.................................................................................. 77 ------------- 20. HEADINGS....................................................................................... 77 -------- 21. COUNTERPARTS................................................................................... 77 ------------ 22. ENTIRE AGREEMENT, ETC.......................................................................... 78 --------------------- 23. WAIVER OF JURY TRIAL........................................................................... 78 -------------------- 24. CONSENTS, AMENDMENTS, WAIVERS, ETC............................................................. 79 ---------------------------------- 25. SEVERABILITY................................................................................... 80 ------------ 26. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION.................................................. 80 --------------------------------------------- 26.1. Confidentiality..................................................................... 80 --------------- 26.2. Prior Notification.................................................................. 80 ------------------ 26.3. Other............................................................................... 81 ----- 27. REPLACEMENT DOCUMENTS.......................................................................... 82 ---------------------
REVOLVING CREDIT AGREEMENT -------------------------- This REVOLVING CREDIT AGREEMENT is made as of July ___, 2001, by and among NEW ENGLAND BUSINESS SERVICE, INC. (the "Borrower"), a Delaware corporation having its principal place of business at 500 Main Street, Groton, Massachusetts 01471, FLEET NATIONAL BANK, a national banking association, and the other lending institutions listed on Schedule 1 hereto, FLEET NATIONAL BANK, as agent -------- - for itself and such other lending institutions. 1. DEFINITIONS AND RULES OF INTERPRETATION. --------------------------------------- 1.1. Definitions. The following terms shall have the meanings set forth ----------- in this (S)1 or elsewhere in the provisions of this Credit Agreement referred to below: Advantage. Advantage Business Services Holdings, Inc., a Delaware --------- corporation. Affiliate. Any Person that would be considered to be an affiliate of the --------- Borrower, any Subsidiary of the Borrower or any Bank under Rule 144(a) of the Rules and Regulations of the Securities and Exchange Commission, as in effect on the date hereof, if the Borrower, any Subsidiary of the Borrower or any Bank were issuing securities. Agent's Fee Letter. The side letter dated as of the Closing Date among the ------------------ Agent and the Borrower regarding certain fees to be paid by the Borrower to the Agent on and after the Closing Date. Agent's Head Office. The Agent's head office located at 100 Federal ------------------- Street, Boston, Massachusetts 02110, or at such other location as the Agent may designate from time to time. Agent. Fleet National Bank acting as agent for the Banks. ----- Agent's Special Counsel. Bingham Dana LLP or such other counsel as may be ----------------------- approved by the Agent. Applicable Eurodollar Rate Margin. For any fiscal quarter or portion --------------------------------- thereof within any Interest Period with respect to any Eurodollar Rate Loan, 1.25% per annum; provided, however, that in the event that the ratio of -------- ------- Consolidated Funded Debt (calculated as of the last day of such fiscal quarter or portion thereof) to EBITDA (calculated for the four (4) consecutive fiscal quarters ending on the last day of such fiscal quarter or portion thereof) meets the requirements set forth in the chart below, the Applicable Eurodollar Rate Margin shall, commencing initially with the date on which the Borrower delivers to the Banks the financial statements referred to in (S)6.4(a) with respect to the fiscal year ended June 30, 2001 and thereafter commencing with the date on -2- which the Borrower delivers to the Banks the financial statements referred to in (S)6.4(a) or, as the case may be, (S)6.4(b) and ending on the date of the next change to be effected pursuant to this paragraph, be the percentage set forth opposite the applicable ratio of Consolidated Funded Debt to EBITDA in the table below: Ratio of Consolidated Funded Applicable Eurodollar Debt to EBITDA Rate Margin -------------- ----------- Less than or equal to 1.0:1.0 0.55% Greater than 1.0:1.0 and less than or 0.60% equal to 1.5:1.0 Greater than 1.5:1.0 and less than or 0.75% equal to 2.0:1.0 Greater than 2.0:1.0 and less than or 0.80% equal to 2.25:1.0 Greater than 2.25:1 1.25% If any financial statements referred to above are not delivered within the time periods specified in (S)6.4(a) or, as the case may be, (S)6.4(b), then, until such financial statements are delivered, the Applicable Eurodollar Rate Margin as at the end of the fiscal period that would have been covered thereby shall, for the purposes of this definition, be deemed to be 1.25%. In addition, at all times while a Default or an Event of Default shall have occurred and be continuing, the Applicable Eurodollar Rate Margin shall, for the purposes of this definition, be deemed to be 1.25%. Applicable Facility Fee Percentage. For any fiscal quarter or portion ---------------------------------- thereof, 0.375% per annum; provided, however, that in the event that the ratio -------- ------- of Consolidated Funded Debt (calculated as of the last day of such fiscal quarter or portion thereof) to EBITDA (calculated for the four consecutive fiscal quarters existing on the last day of such fiscal quarter or portion thereof) meets the requirements set forth in the chart below, the Applicable Facility Fee Percentage shall, commencing initially with the date on which the Borrower delivers to the Banks the financial statements referred to in (S)6.4(a) with respect to the fiscal year ended June 30, 2001 and thereafter commencing with the date on which the Borrower delivers to the Banks the financial statements referred to in (S)6.4(a) or, as the case may be, (S)6.4(b) and ending on the next change to be effected pursuant to this paragraph, be the percentage set forth opposite the applicable ratio of Consolidated Funded Debt to EBITDA set forth in the table below: -3- Ratio of Consolidated Funded Applicable Facility Debt to EBITDA Fee Percentage -------------- -------------- Less than or equal to 1.0:1.0 0.200% Greater than 1.0:1.0 and less than or 0.250% equal to 1.5:1.0 Greater than 1.5:1.0 and less than or 0.250% equal to 2.0:1.0 Greater than 2.0:1.0 0.375% If any financial statements referred to above are not delivered within the time periods specified in (S)6.4(a) or, as the case may be, (S)6.4(b), then, until such financial statements are delivered, the Applicable Facility Fee Percentage as at the end of the fiscal period that would have been covered thereby shall, for the purposes of this definition, be deemed to be 0.375%. In addition, at all times while a Default or Event of Default shall have occurred and be continuing, the Applicable Facility Fee Percentage shall, for the purposes of this definition, be 0.375%. Applicable Pension Legislation. At any time, any pension or retirement ------------------------------ benefits legislation (be it national, federal, provincial, territorial or otherwise) then applicable to the Borrower or any of its Subsidiaries. Assignment and Acceptance. See (S)17.1. ------------------------- Balance Sheet Date. June 24, 2000. ------------------ Banks. Fleet and the other lending institutions listed on Schedule 1 hereto ----- -------- - and any other Person who becomes an assignee of any rights and obligations of a Bank pursuant to (S)17. Base Rate. The higher of (i) the variable per annum rate of interest so --------- designated from time to time by Fleet at its head office in Boston, Massachusetts, as its "prime rate," such rate being a reference rate and not necessarily representing the lowest or best rate being charged to any customer, and (ii) one-half of one percent (1/2%) above the Federal Funds Effective Rate. For the purposes of this definition, "Federal Funds Effective Rate" shall mean, for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three funds brokers of recognized standing selected -4- by the Agent. Changes in the Base Rate resulting from any changes in Fleet's "prime rate" shall take place immediately without notice or demand of any kind. Base Rate Loans. Any Loans bearing interest calculated by reference to the --------------- Base Rate. Borrower. As defined in the preamble hereto. -------- Business Day. Any day on which banking institutions in Boston, ------------ Massachusetts, are open for the transaction of banking business and, in the case of Eurodollar Rate Loans, also a day which is a Eurodollar Business Day. Capital Assets. Fixed assets, both tangible (such as land, buildings, -------------- fixtures, machinery and equipment) and intangible (such as patents, copyrights, trademarks, franchises and goodwill); provided that Capital Assets shall not -------- include any item customarily charged directly to expense or depreciated over a useful life of twelve (12) months or less in accordance with generally accepted accounting principles. Capital Expenditures. Amounts paid or Indebtedness incurred by the -------------------- Borrower or any of its Subsidiaries in connection with (i) the purchase or lease by the Borrower or any of its Subsidiaries of Capital Assets that would be required to be capitalized and shown on the balance sheet of such Person in accordance with generally accepted accounting principles or (ii) the lease of any assets by the Borrower or any Subsidiary of the Borrower under any Synthetic Lease to the extent that such assets would have been Capital Assets had the Synthetic Lease been treated as a Capitalized Lease. Capitalized Leases. Leases under which the Borrower or any of its ------------------ Subsidiaries is the lessee or obligor, the discounted future rental payment obligations under which are required to be capitalized on the balance sheet of the lessee or obligor in accordance with generally accepted accounting principles. CERCLA. See (S)5.18. ------ Chiswick. Chiswick, Inc., a Massachusetts corporation and a wholly-owned -------- Subsidiary of the Borrower. Chiswick Contribution Agreement. The agreement, dated as of October 25, -------- ---------------------- 1999, pursuant to which Chiswick agreed to contribute cash generated from its operations to Chiswick Trust. Chiswick Trust. Chiswick Trust, a voluntary association with transferable -------------- shares organized under and by virtue of the laws of the Commonwealth of Massachusetts (commonly referred to as a Massachusetts business trust) and a wholly-owned Subsidiary of Chiswick. Chiswick Trust Intercompany Subordination Agreement. The Chiswick Trust -------- ----- ------------------------------------ Intercompany Subordination Agreement, dated as of October 25, 1999, among the Agent, the Borrower and Chiswick Trust. -5- Closing Date. The first date on which the conditions set forth in (S)9 ------------ have been satisfied and any Loans are to be made. Code. The Internal Revenue Code of 1986, as amended. ---- Commitment. With respect to each Bank, the amount set forth on Schedule 1 ---------- -------- - hereto as the amount of such Bank's commitment to make Loans to the Borrower, as the same may be reduced from time to time; or if such commitment is terminated pursuant to the provisions hereof, zero. Commitment Percentage. With respect to each Bank, the percentage set forth --------------------- on Schedule 1 hereto as such Bank's percentage of the aggregate Commitments of -------- - all of the Banks. Consolidated or consolidated. With reference to any term defined herein, ------------ ------------ shall mean that term as applied to the accounts of the Borrower and its Subsidiaries, consolidated in accordance with generally accepted accounting principles. Consolidated Funded Debt. At any time of determination, the sum of (i) the ------------ ------ ---- amount of the Loans outstanding (after giving account to any amounts requested) plus accrued but unpaid interest thereon; plus (ii) the outstanding amount of - ---- ---- any other Indebtedness for borrowed money (other than intercompany Indebtedness owed by the Borrower and its Subsidiaries to each other and permitted by the terms hereof) in respect of Capitalized Leases, Synthetic Leases or which is otherwise subject to the payment of interest plus accrued but unpaid interest on ---- such Indebtedness, including expenses consisting of interest in respect of Capitalized Leases, Synthetic Leases and including commitment fee, agency fee, facility fee, utilization fee, balance deficiency fee and similar fee expenses in connection with the borrowing of money. Consolidated Net Income. The consolidated net income (or deficit) of the ----------------------- Borrower and its Subsidiaries, after deduction of all expenses, taxes and other proper charges, determined in accordance with generally accepted accounting principles, after eliminating therefrom all extraordinary nonrecurring items. Consolidated Net Worth. The excess of Consolidated Total Assets over ---------------------- Consolidated Total Liabilities. Consolidated Total Assets. All assets of the Borrower and its Subsidiaries ------------------------- determined on a consolidated basis in accordance with generally accepted accounting principles. Consolidated Total Interest Expense. For any period, the aggregate amount ----------------------------------- of interest required to be expensed by the Borrower and its Subsidiaries in accordance with generally accepted accounting principles during such period on all Indebtedness of the Borrower and its Subsidiaries outstanding during all or any part of such period, including expense consisting of interest in respect of Capitalized Leases, Synthetic Leases and including commitment fee, agency fee, -6- facility fee, utilization fee, balance deficiency fee and similar fee expense in connection with the borrowing of money. Consolidated Total Liabilities. All liabilities of the Borrower and its ------------------------------ Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles. Conversion Request. A notice given by the Borrower to the Agent of the ------------------ Borrower's election to convert or continue a Loan in accordance with (S)2.8. Credit Agreement. This Revolving Credit Agreement, including the Schedules ---------------- and Exhibits hereto. Default. See (S)11. ------- Distribution. The declaration or payment of any dividend on or in respect ------------ of any shares of any class of capital stock of the Borrower, other than dividends payable solely in shares of common stock of the Borrower; the purchase, redemption, or other retirement of any shares of any class of capital stock, or of any rights, warrants or options to acquire shares of any class of capital stock, of the Borrower, directly or indirectly through a Subsidiary of the Borrower or otherwise (including the setting apart of assets for a sinking or other analogous fund to be used for such purpose); the return of capital by the Borrower to its shareholders as such; or any other distribution on or in respect of any shares of any class of capital stock of the Borrower. Dollars or $. Dollars in lawful currency of the United States of America. ------- - domestic. With respect to any Subsidiary of the Borrower, any Subsidiary -------- which has been incorporated or organized under the laws of any state of the United States or the District of Columbia. Domestic Lending Office. Initially, the office of each Bank designated as ----------------------- such in Schedule 1 hereto; thereafter, such other office of such Bank, if any, -------- - located within the United States that will be making or maintaining Base Rate Loans. Drawdown Date. The date on which any Loan is made or is to be made, and ------------- the date on which any Loan is converted or continued in accordance with (S)2.8. EBITDA. The consolidated earnings (or loss) from the operations of the ------ Borrower and its Subsidiaries for any period, after all expenses and other proper charges but before payment or provision for any income taxes, interest expense, depreciation or amortization for such period, and excluding the Restructuring Charges (to the extent taken), in each case determined in accordance with generally accepted accounting principles. For purposes hereof, EBITDA shall include, on a pro forma basis, EBITDA (calculated for any --------- applicable period, commencing with the four consecutive fiscal quarters of the Borrower ending in the quarter in which such -7- Permitted Acquisition is made) of any Subsidiary acquired by means of a Permitted Acquisition (including historical earnings and cash flows associated with such Subsidiary and any incurrence or reduction of Indebtedness associated with such Permitted Acquisition, but excluding any projected synergies or similar benefits expected to be realized as a result of such event). Eligible Assignee. Any of (i) a commercial bank or finance company ----------------- organized under the laws of the United States, or any State thereof or the District of Columbia, and having total assets in excess of $1,000,000,000; (ii) a savings and loan association or savings bank organized under the laws of the United States, or any State thereof or the District of Columbia, and having a net worth of at least $100,000,000, calculated in accordance with generally accepted accounting principles; (iii) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having total assets in excess of $1,000,000,000, provided that such -------- bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD; (iv) the central bank of any country which is a member of the OECD; and (v) if, but only if, an Event of Default has occurred and is continuing, any other bank, insurance company, commercial finance company or other financial institution or other Person approved by the Agent, such approval not to be unreasonably withheld. Employee Benefit Plan. Any employee benefit plan within the meaning of --------------------- (S)3(2) of ERISA maintained or contributed to by the Borrower or any of its Subsidiaries other than a Guaranteed Pension Plan or a Multiemployer Plan. Environmental Laws. See (S)5.18(a). ------------------ ERISA. The Employee Retirement Income Security Act of 1974, as amended, ----- including all rules, regulations, decrees and orders arising thereunder. ERISA Affiliate. Any Person which is treated as a single employer with the --------------- Borrower or any of its Subsidiaries under (S)414 of the Code. ERISA Reportable Event. A reportable event with respect to a Guaranteed ---------------------- Pension Plan within the meaning of (S)4043 of ERISA and the regulations promulgated thereunder as to which the requirement of notice has not been waived. Eurocurrency Reserve Rate. For any day with respect to a Eurodollar Rate ------------------------- Loan, the maximum rate (expressed as a decimal) at which any lender subject thereto would be required to maintain reserves under Regulation D of the Board of Governors of the Federal Reserve System (or any successor or similar regulations relating to such reserve requirements) against "Eurocurrency Liabilities" (as that term is used in Regulation D), if such liabilities were outstanding. The Eurocurrency Reserve Rate shall be adjusted automatically on and as of the effective date of any change in the Eurocurrency Reserve Rate. -8- Eurodollar Business Day. Any day on which commercial banks are open for ----------------------- international business (including dealings in Dollar deposits) in London or such other eurodollar interbank market as may be selected by the Agent in its sole discretion acting in good faith. Eurodollar Lending Office. Initially, the office of each Bank designated ------------------------- as such in Schedule 1 hereto; thereafter, such other office of such Bank, if -------- - any, that shall be making or maintaining Eurodollar Rate Loans. Eurodollar Rate. For any Interest Period with respect to a Eurodollar Rate --------------- Loan, the rate of interest equal to (i) the arithmetic average of the rates per annum for Fleet (rounded upwards to the nearest 1/16 of one percent) of the rate at which Fleet's Eurodollar Lending Office is offered Dollar deposits two Eurodollar Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations of such Eurodollar Lending Office are customarily conducted at or about 10:00 a.m., Boston time, for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of the Eurodollar Rate Loan of Fleet to which such Interest Period applies, divided by (ii) a number equal to 1.00 minus the Eurocurrency Reserve Rate, if applicable. Eurodollar Rate Loans. Any Loans bearing interest calculated by reference --------------------- to the Eurodollar Rate. Event of Default. See (S)11. ---------------- First Amended and Restated Credit Agreement. The First Amended and ------------------------------------------- Restated Credit Agreement, dated as of December 18, 1997, as amended and in effect from time to time, by and among the Borrower, Fleet National Bank (f/k/a BankBoston, N.A.), as agent, the lending institutions listed on the signature pages thereto and Fleet National Bank, as documentation agent for itself and such other lending institutions. Fleet. Fleet National Bank, a national banking association, in its ----- individual capacity. generally accepted accounting principles. (i) When used in (S)8, whether ---------------------------------------- directly or indirectly through reference to a capitalized term used therein, means (A) principles that are consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, in effect for the fiscal year ended on the Balance Sheet Date, and (B) to the extent consistent with such principles, the accounting practice of the Borrower reflected in its financial statements for the year ended on the Balance Sheet Date, and (ii) when used in general, other than as provided above, means principles that are (A) consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, as in effect from time to time and (B) consistently applied with past financial statements of the Borrower adopting the same principles, provided that in each case referred to in -------- this -9- definition of "generally accepted accounting principles" a certified public accountant would, insofar as the use of such accounting principles is pertinent, be in a position to deliver an unqualified opinion (other than a qualification regarding changes in generally accepted accounting principles) as to financial statements in which such principles have been properly applied. Guaranteed Pension Plan. Any employee pension benefit plan within the ----------------------- meaning of (S)3(2) of ERISA maintained or contributed to by the Borrower or any of its Subsidiaries or any ERISA Affiliate of the Borrower or any of its Subsidiaries the benefits of which are guaranteed on termination in full or in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer Plan. Guarantors. McBee, Chiswick, PremiumWear, Rapidforms, Russell & Miller, ---------- R&M Trust, Chiswick Trust, Veripack, PWI and any other Subsidiary of the Borrower which guaranties the Obligations pursuant to and upon the terms and conditions set forth in a Guaranty. Guaranty. Collectively, (a) the Guaranty dated on or prior to the Closing -------- Date from each of the Guarantors in favor of the Agent and the Banks and (b) the Guaranties dated as of the date required by (S)7.5.1 or, as the case may be, (S)7.11 hereof from each Subsidiary required to become a Guarantor pursuant to (S)7.5.1 or, as the case may be, (S)7.11 hereof, pursuant to which each such Subsidiary guaranties to the Banks and the Agent the payment and performance of the Obligations, each in substantially the form of Exhibit A hereto. ------- - Hazardous Substances. See (S)5.18(b). -------------------- Indebtedness. As to any Person and whether recourse is secured by or is ------------ otherwise available against all or only a portion of the assets of such Person and whether or not contingent, but without duplication: (a) every obligation of such Person for money borrowed, (b) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses, (c) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person, (d) every obligation of such Person issued or assumed as the deferred purchase price of property or services (including securities repurchase agreements but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business which are not overdue or which are being contested in good faith), -10- (e) every obligation of such Person under any Capitalized Lease, (f) every obligation of such Person under any Synthetic Lease, (g) all sales by such Person of (i) accounts or general intangibles for money due or to become due, (ii) chattel paper, instruments or documents creating or evidencing a right to payment of money or (iii) other receivables (collectively "receivables"), whether pursuant to a purchase ----------- facility or otherwise, other than in connection with the disposition of the business operations of such Person relating thereto or a disposition of defaulted receivables for collection and not as a financing arrangement, and together with any obligation of such Person to pay any discount, interest, fees, indemnities, penalties, recourse, expenses or other amounts in connection therewith, (h) every obligation of such Person (an "equity related purchase ------ ------- -------- obligation") to purchase, redeem, retire or otherwise acquire for value any ---------- shares of capital stock issued by such Person or any rights measured by the value of such capital stock, (i) every obligation of such Person under any forward contract, futures contract, swap, option or other financing agreement or arrangement (including, without limitation, caps, floors, collars and similar agreements), the value of which is dependent upon interest rates, currency exchange rates, commodities or other indices (a "derivative contract"), ---------- -------- (j) every obligation in respect of Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent that such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent that the terms of such Indebtedness provide that such Person is not liable therefor and such terms are enforceable under applicable law, (k) every obligation, contingent or otherwise, of such Person guaranteeing, or having the economic effect of guarantying or otherwise acting as surety for, any obligation of a type described in any of clauses (a) through (j) (the "primary obligation") of another Person (the "primary ------- ---------- ------- obligor"), in any manner, whether directly or indirectly, and including, ------- without limitation, any obligation of such Person (i) to purchase or pay (or advance or supply funds for the purchase of) any security for the payment of such primary obligation, (ii) to purchase property, securities or services for the purpose of assuring the payment of such primary obligation, or (iii) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such primary obligation. -11- The "amount" or "principal amount" of any Indebtedness at any time of ------ --------- ------ determination represented by (t) any Indebtedness, issued at a price that is less than the principal amount at maturity thereof, shall be the amount of the liability in respect thereof determined in accordance with generally accepted accounting principles, (u) any Capitalized Lease shall be the principal component of the aggregate of the rentals obligation under such Capitalized Lease payable over the term thereof that is not subject to termination by the lessee, (v) any sale of receivables shall be the amount of unrecovered capital or principal investment of the purchaser (other than the Borrower or any of its wholly-owned Subsidiaries) thereof, excluding amounts representative of yield or interest earned on such investment, (w) any Synthetic Lease shall be the stipulated loss value, termination value or other equivalent amount, (x) any derivative contract shall be the maximum amount of any termination or loss payment required to be paid by such Person if such derivative contract were, at the time of determination, to be terminated by reason of any event of default or early termination event thereunder, whether or not such event of default or early termination event has in fact occurred, (y) any equity related purchase obligation shall be the maximum fixed redemption or purchase price thereof inclusive of any accrued and unpaid dividends to be comprised in such redemption or purchase price and (z) any guaranty or other contingent liability referred to in clause (k) shall be an amount equal to the stated or determinable amount of the primary obligation in respect of which such guaranty or other contingent obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. Ineligible Securities. Securities which may not be underwritten or dealt --------------------- in by member banks of the Federal Reserve System under Section 16 of the Banking Act of 1993 (12 U.S.C. (S)24, Seventh), as amended. Intercompany Subordination Agreement. The Intercompany Subordination ------------------------------------ Agreement, dated as of October 8, 1998, among the Agent, the Borrower and R&M Trust. Interest Payment Date. (i) As to any Base Rate Loan, the last day of the --------------------- calendar quarter which includes the Drawdown Date thereof; (ii) as to any Eurodollar Rate Loan, the last day of such Interest Period. Interest Period. With respect to each Loan, (i) initially, the period --------------- commencing on the Drawdown Date of such Loan and ending on the last day of one of the periods set forth below, as selected by the Borrower in a Loan Request (A) for any Base Rate Loan, the last day of the calendar quarter; and (B) for any Eurodollar Rate Loan, 1, 2, 3 or 6 months; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Loan and ending on the last day of one of the periods set forth above, as selected by the Borrower in a Conversion Request; provided that all of the -------- foregoing provisions relating to Interest Periods are subject to the following: -12- (a) if any Interest Period with respect to a Eurodollar Rate Loan would otherwise end on a day that is not a Eurodollar Business Day, that Interest Period shall be extended to the next succeeding Eurodollar Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Eurodollar Business Day; (b) if any Interest Period with respect to a Base Rate Loan would end on a day that is not a Business Day, that Interest Period shall end on the next succeeding Business Day; (c) if the Borrower shall fail to give notice as provided in (S)2.8, the Borrower shall be deemed to have requested a conversion of the affected Eurodollar Rate Loan to a Base Rate Loan and the continuance of all Base Rate Loans as Base Rate Loans on the last day of the then current Interest Period with respect thereto; (d) any Interest Period that begins on the last Eurodollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Eurodollar Business Day of a calendar month; and (e) any Interest Period relating to any Loan that would otherwise extend beyond the Revolving Credit Loan Maturity Date shall end on the Revolving Credit Loan Maturity Date. Interim Balance Sheet Date. March 24, 2001. -------------------------- Investments. All expenditures made and all liabilities incurred ----------- (contingently or otherwise) for the acquisition of stock or Indebtedness of, or for loans, advances, capital contributions or transfers of property to, or in respect of any guaranties (or other commitments as described under Indebtedness), or obligations of, any Person. In determining the aggregate amount of Investments outstanding at any particular time: (i) the amount of any Investment represented by a guaranty shall be taken at not less than the principal amount of the obligations guaranteed and still outstanding; (ii) there shall be included as an Investment all interest accrued with respect to Indebtedness constituting an Investment unless and until such interest is paid; (iii) there shall be deducted in respect of each such Investment any amount received as a return of capital (but only by repurchase, redemption, retirement, repayment, liquidating dividend or liquidating distribution); (iv) there shall not be deducted in respect of any Investment any amounts received as earnings on such Investment, whether as dividends, interest or otherwise, except that accrued interest included as provided in the foregoing clause (ii) may be deducted when paid; and (v) there shall not be deducted from the aggregate amount of Investments any decrease in the value thereof. -13- Loan Documents. This Credit Agreement, the Notes, the Agent's Fee Letter, -------------- the Chiswick Trust Intercompany Subordination Agreement, the Intercompany Subordination Agreement, any other subordination agreements entered into pursuant to (S)7.1(j) or (o), the Guaranty and all documents evidencing or relating to any interest rate protection arrangements entered into between the Borrower and any Bank. Loan Request. See (S)2.2. ------------ Loans. Revolving credit loans made or to be made by the Banks to the ----- Borrower pursuant to (S)2 hereof. Majority Banks. As of any date, the Banks holding at least sixty percent -------------- (60%) of the outstanding principal amount of the Notes on such date; and if no such principal is outstanding, the Banks whose aggregate Commitments constitute at least sixty percent (60%) of the Total Commitment. Margin Stock. "Margin Stock" or "Margin Securities", as such terms are ------------ used in Regulations U and X of the Board of Governors of the Federal Revenue System, 12 C.F.R. Parts 221 and 224. McBee. McBee Systems, Inc., a Colorado corporation and a wholly-owned ----- Subsidiary of Rapidforms. Multiemployer Plan. Any multiemployer plan within the meaning of (S)3(37) ------------------ of ERISA maintained or contributed to by the Borrower or any of its Subsidiaries or any ERISA Affiliate of the Borrower or any of its Subsidiaries. Note. See Section (S)2.5.1. ---- Obligations. All indebtedness, obligations and liabilities of any of the ----------- Borrower and its Subsidiaries to any of the Banks and the Agent, individually or collectively, existing on the date of this Credit Agreement or arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, arising or incurred under this Credit Agreement or any of the other Loan Documents (including any interest rate protection arrangements entered into between the Borrower and any Bank), or in respect of any of the Loans or any of the Notes or other instruments at any time evidencing any thereof. outstanding. With respect to the Loans, the aggregate unpaid principal ----------- thereof as of any date of determination. PBGC. The Pension Benefit Guaranty Corporation created by (S)4002 of ERISA ---- and any successor entity or entities having similar responsibilities. Permitted Liens. Liens, security interests and other encumbrances --------------- permitted by (S)7.2. -14- Permitted Acquisition. Any acquisition of any Person, business, division, --------------------- or specified group of assets by the Borrower or any Guarantor, provided that, -------- with respect to any such acquisition, (1) the Agent and the Majority Banks approve, in their sole discretion, such acquisition in writing in advance or (2) each of the following conditions is met: (a) immediately prior to and after, and after giving effect to, such acquisition, no Default or Event of Default shall then exist; (b) (i) the aggregate consideration paid or to be paid by the Borrower or any Guarantor in connection with any single such acquisition (including consideration in the form of cash or the assumption of Indebtedness for borrowed money, debt or other similar monetary obligations by the Borrower or any Guarantor (including such Indebtedness in existence prior to the date of such acquisition which was not incurred in connection with or contemplation thereof) but excluding stock or other equity interest consideration) shall not exceed $30,000,000 and (ii) the aggregate consideration paid or to be paid by the Borrower or any Guarantor in connection with any such acquisition, including consideration of the types described in clause (b)(i) of this definition and stock or other equity interest consideration (as valued for the purpose of such acquisitions) shall not exceed $40,000,000; (c) (i) the aggregate consideration paid or to be paid by the Borrower or any Guarantor in connection with all such acquisitions (including consideration in the form of cash or the assumption of Indebtedness for borrowed money, debt or other similar monetary obligations by the Borrower or any Guarantor (including such Indebtedness in existence prior to the date of any such acquisition which was not incurred in connection with or contemplation thereof) but excluding stock or other equity interest consideration) shall not exceed $60,000,000 and (ii) the aggregate consideration paid or to be paid by the Borrower or any Guarantor in connection with all such acquisitions, including consideration of the types described in clause (c)(i) of this definition and stock or other equity interest consideration (as valued for the purpose of such acquisitions) shall not exceed $80,000,000; (d) such acquisition shall have been approved by the board of directors and shareholders, if required, or other applicable management of such Person; (e) either (i) such acquisition is the acquisition of assets only (for use in substantially the same line of business as the line of business of the Borrower or any of its Subsidiaries) or (ii) such acquisition involves the purchase of the capital stock or other equity interests of a Person and each of the following conditions is met: -15- (A) such acquisition is the acquisition of one hundred percent (100%) of the capital stock or other equity interests of such Person. (B) such Person is in substantially the same line of business as the Borrower or any of its Subsidiaries, (C) The Borrower or a Guarantor is the survivor of any merger or consolidation with such Person; (D) not less than ten (10) Business Days prior to such acquisition, the Borrower shall notify the Banks thereof, and (E) contemporaneously with the occurrence of any such acquisition, the Borrower shall (I) cause such Person, if such Person shall be engaged in business of any kind or nature (other than having qualified to do business in a foreign jurisdiction) or shall have a net worth or assets of more than a de minimis value, to guaranty all -- ------- of the Obligations hereunder pursuant to the Guaranty, and (II) cause such Person to deliver to the Banks and the Agent (aa) evidence of proper corporate or other entity authorization, and (bb) legal opinions with respect to each of the matters and documents set forth in this clause (E), in each case, in form and substance satisfactory to the Agent and the Banks; and (f) the Agent shall have received each of the following, each in form and substance satisfactory to the Agent: (i) a compliance certificate evidencing pro forma compliance with the requirements of (S)8 hereof --- ----- following the consummation of any such acquisition, (ii) due diligence summaries evidencing the Borrower's or such Guarantor's, as the case may be, due diligence with respect to the Person or assets being acquired and (iii) such other information, including financial statements, as the Agent or the Majority Banks may request. Permitted Joint Venture. Investment by the Borrower or any Guarantor in any ----------------------- Person, provided that, with respect to any such Investment, (1) the Agent and -------- the Majority Banks approve, in their sole discretion, such Investment in writing in advance or (2) each of the following conditions is met: (a) immediately prior to and after, and after giving effect to, such Investment, no Default or Event of Default shall then exist; (b) subject to the limitations set forth in subsection (d) of this definition, (i) the aggregate consideration paid or to be paid by the Borrower or any Guarantor in connection with all such Investments (including consideration in the form of cash or the assumption of Indebtedness for borrowed money, debt or other similar monetary obligations by the Borrower or any Guarantor (including any such Indebtedness in existence prior to the date of such Investment which was not incurred in -16- connection with or in contemplation thereof) but excluding stock or other equity interest consideration) shall not exceed $10,000,000, and (ii) the aggregate consideration paid or to be paid by the Borrower or any Guarantor in connection with all such Investments, including consideration of the type described in and included in clause (b)(i) of this definition and stock or other equity interest consideration (as valued for the purpose of any such Investment) shall not exceed $20,000,000; (c) such Investment shall have been approved by the board of directors and shareholders, if required, or other applicable management of such Person; (d) (i) such Person is in substantially the same line of business as the Borrower or any of its Subsidiaries or (ii) in a different line of business from that of the Borrower or any of its Subsidiaries so long as, and notwithstanding the limitations set forth in subsection (b) of this definition, (A) the aggregate consideration paid or to be paid by the Borrower or any Guarantor in connection with such Investment under this subsection (d)(ii) (including consideration in the form of cash or the assumption of Indebtedness for borrowed money, debt or other similar monetary obligations by the Borrower or such Guarantor (including any such Indebtedness in existence prior to the date of such Investment which was not incurred in connection with or in contemplation thereof) but excluding stock or other equity interest consideration) shall not exceed $1,000,000, and (B) the aggregate consideration paid or to be paid by the Borrower or any Guarantor in connection with such Investment under this subsection (d)(ii), including consideration of the type described in and included in clause (d)(ii)(A) of this definition and stock or other equity interest consideration (as valued for the purpose of any such Investment) shall not exceed $5,000,000; (e) following the making of such Investment, neither the Borrower nor any of its Subsidiaries shall own a majority or more of the capital stock or other equity interests of such Person; (f) not less than ten (10) Business Days prior to the making of such Investment, the Borrower shall notify the Banks thereof; and (g) the Agent shall have received each of the following, each in form and substance satisfactory to the Agent: (i) a compliance certificate evidencing pro forma compliance with the requirements of (S)8 hereof --------- following the making of any such Investment, (ii) due diligence summaries evidencing the Borrower's or such Guarantor's, as the case may be, due diligence with respect to the Person, and (iii) such other information, including financial statements, as the Agent or the Majority Banks may request. Person. Any individual, corporation, limited liability company, limited ------ liability partnership, trust, other unincorporated association, business, or other -17- legal entity, and any government or any governmental agency or political subdivision thereof. PremiumWear. PremiumWear, Inc., a Delaware corporation and a wholly-owned ----------- Subsidiary of the Borrower. PWI. PWI Holdings, Inc., a Delaware corporation and a wholly-owned --- Subsidiary of PremiumWear. R&M Contribution Agreement. The agreement, dated as of December 28, 1998, -------------------------- pursuant to which each of Rapidforms, McBee and Russell & Miller contributes cash generated from its respective operations to R&M Trust (including, in the case of Russell & Miller, royalty payments made to it under any of the Trademark License Agreements). R&M Trust. R&M Trust, a voluntary association with transferable shares --------- organized under and by virtue of the laws of the Commonwealth of Massachusetts (commonly referred to as a Massachusetts business trust) and a wholly-owned Subsidiary of Russell & Miller. Rapidforms. Rapidforms, Inc., a New Jersey corporation and a wholly-owned ---------- Subsidiary of the Borrower. Real Estate. All real property at any time owned or leased (as lessee or ----------- sublessee) by the Borrower or any of its Subsidiaries. Record. The grid attached to a Note, or the continuation of such grid, or ------ any other similar record, including computer records, maintained by any Bank with respect to any Loan referred to in such Note. Restricted Payment. In relation to the Borrower and its Subsidiaries, any ------------------ (a) Distribution, (b) payment or prepayment by the Borrower or its Subsidiaries (i) to the Borrower's or any Subsidiary's shareholders (or other equity holders), in each case, other than to the Borrower, or (ii) to any Affiliate of the Borrower or any Subsidiary or any Affiliate of the Borrower's or such Subsidiary's shareholders (or other equity holders), in each case, other than to the Borrower or (c) derivatives or other transactions with any financial institution, commodities or stock exchange or clearinghouse (a "Derivatives ----------- Counterparty") obligating the Borrower or any Subsidiary to make payments to - ------------ such Derivatives Counterparty as a result of any change in market value of any capital stock of the Borrower or such Subsidiary. Restructuring Charges. The restructuring charges taken by the Borrower in --------------------- any fiscal year and disclosed and described to the Agent and the Banks in writing; provided that (a) the aggregate amount of cash and non-cash -------- ---- restructuring charges for the Borrower's 2001 fiscal year shall not exceed $12,000,000; and (b) any restructuring charges taken in any fiscal year following the Borrower's 2001 fiscal year may be cash or non-cash restructuring charges, -18- but only $5,000,000 of non-cash restructuring charges (and no cash restructuring charges) shall be excluded from EBITDA for such fiscal year. Revolving Credit Loan Maturity Date. July _________, 2002. ----------------------------------- Russell & Miller. Russell & Miller, Inc., a Delaware corporation and a ---------------- wholly-owned Subsidiary of McBee. Second Amended and Restated Revolving Credit Agreement. The Second Amended ------------------------------------------------------ and Restated Revolving Credit Agreement, dated as of July , 2001, by and among the Borrower, the Agent, the lending institutions listed on Schedule 1 thereto, Citizens Bank of Massachusetts, as syndication agent, and Fleet Securities, Inc., as arranger. Section 20 Subsidiary. A Subsidiary of the bank holding company --------------------- controlling any Bank, which Subsidiary has been granted authority by the Federal Reserve Board to underwrite and deal in certain Ineligible Securities. Subsidiary. Any corporation, association, trust, or other business entity ---------- of which the designated parent shall at any time own directly or indirectly through a Subsidiary or Subsidiaries at least a majority (by number of votes) of the outstanding Voting Stock. Synthetic Lease. Any lease of goods or other property, whether real or --------------- personal, which is treated as an operating lease under generally accepted accounting principles and as a loan or financing for U.S. income tax purposes. Total Commitment. The sum of the Commitments of the Banks, as in effect ---------------- from time to time, which amount shall, as of the Closing Date, be $10,000,000. Trademark License Agreements. The separate agreements pursuant to which ---------------------------- each of the Borrower or one or more of its Subsidiaries have licensed or will license from Russell & Miller (i) all United States and foreign trademarks, service marks, common law marks, trade names and trade dress owned by Russell & Miller, and (ii) all United States and foreign trademarks, service marks, common law marks, trade names and trade dress licensed by Russell & Miller that Russell & Miller is legally and/or contractually able to sublicense to the Borrower and its Subsidiaries, in form and substance (including any modifications thereto) satisfactory to the Agent. Type. As to any Loan, its nature as a Base Rate Loan or a Eurodollar Rate ---- Loan. Unfunded Commitments. The amount equal to the Total Commitment minus the -------------------- ----- sum of the outstanding aggregate principal amount of all Loans. Unsecured Subordinated Promissory Note. Collectively, the promissory notes -------------------------------------- evidencing the Indebtedness permitted by (S)7.1(o)(i) and (ii), in each case, -19- in form and substance (including any modifications thereof) satisfactory to the Agent. Veripack. Veripack.com, Inc., a Delaware corporation and a wholly-owned -------- Subsidiary of Chiswick. Voting Stock. Stock or similar interests, of any class or classes (however ------------ designated), the holders of which are at the time entitled, as such holders, to vote for the election of a majority of the directors (or persons performing similar functions) of the corporation, association, trust or other business entity involved, whether or not the right so to vote exists by reason of the happening of a contingency. 1.2. Rules of Interpretation. ----------------------- (a) A reference to any document or agreement shall include such document or agreement as amended, modified or supplemented from time to time in accordance with its terms and the terms of this Credit Agreement. (b) The singular includes the plural and the plural includes the singular. (c) A reference to any law includes any amendment or modification to such law. (d) A reference to any Person includes its permitted successors and permitted assigns. (e) Accounting terms not otherwise defined herein have the meanings assigned to them by generally accepted accounting principles applied on a consistent basis by the accounting entity to which they refer. (f) The words "include", "includes" and "including" are not limiting. (g) All terms not specifically defined herein or by generally accepted accounting principles, which terms are defined in the Uniform Commercial Code as in effect in the Commonwealth of Massachusetts, have the meanings assigned to them therein, with the term "instrument" being that defined under Article 9 of the Uniform Commercial Code. (h) Reference to a particular "(S)" refers to that section of this Credit Agreement unless otherwise indicated. (i) The words "herein", "hereof", "hereunder" and words of like import shall refer to this Credit Agreement as a whole and not to any particular section or subdivision of this Credit Agreement. -20- (j) Unless otherwise expressly indicated, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including," the words "to" and "until" each mean "to but excluding," and the word "through" means "to and including." (k) This Credit Agreement and the other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are, however, cumulative and are to be performed in accordance with the terms thereof. (l) This Credit Agreement and the other Loan Documents are the result of negotiation among, and have been reviewed by counsel to, among others, the Agent and the Borrower and are the product of discussions and negotiations among all parties. Accordingly, this Credit Agreement and the other Loan Documents are not intended to be construed against the Agent or any of the Banks merely on account of the Agent's or any Bank's involvement in the preparation of such documents. (m) All calculations of the financial covenant ratios and requirements contained in (S)8 hereof, together with the ratio of Consolidated Funded Debt to EBITDA for purposes of the definitions of Applicable Eurodollar Rate Margin and Applicable Facility Fee Percentage, shall exclude the effects of Statement No. 133 of the Financial Accounting Standards Board. 2. THE REVOLVING CREDIT FACILITY. ----------------------------- 2.1. Commitment to Lend. Subject to the terms and conditions set forth in ------------------ this Credit Agreement, each of the Banks severally agrees to lend to the Borrower and the Borrower may borrow, repay, and reborrow from time to time between the Closing Date and the Revolving Credit Loan Maturity Date upon notice by the Borrower to the Agent given in accordance with (S)2.2, such sums as are requested by the Borrower up to a maximum aggregate principal amount outstanding (after giving effect to all amounts requested) at any one time equal to such Bank's Commitment, provided that the sum of the outstanding amount of the Loans -------- (after giving effect to all amounts requested) shall not at any time exceed the Total Commitment. The Loans shall be made pro rata in accordance with each --- ---- Bank's Commitment Percentage. Each request for a Loan hereunder shall constitute a representation and warranty by the Borrower that the conditions set forth in (S)9 and (S)10, in the case of the initial Loans to be made on the Closing Date, and (S)10, in the case of all other Loans, have been satisfied on the date of such request. 2.2. Requests for Loans. The Borrower shall give to the Agent written ------------------ notice in the form of Exhibit B hereto (or telephonic notice confirmed in a ------- - writing in the form of Exhibit B hereto) of each Loan requested hereunder (a ------- - "Loan Request") by 10:00 a.m. (i) on the proposed Drawdown Date of any Base Rate Loan and (ii) two (2) Eurodollar Business Days prior to the proposed -21- Drawdown Date of any Eurodollar Rate Loan. Each such notice shall specify (A) the principal amount of the Loan requested, (B) the proposed Drawdown Date of such Loan, (C) the Interest Period for such Loan and (D) the Type of such Loan. Promptly upon receipt of any such notice, the Agent shall notify each of the Banks thereof. Each such notice shall be irrevocable and binding on the Borrower and shall obligate the Borrower to accept the Loan requested from the Banks on the proposed Drawdown Date. Each Loan Request shall be in a minimum aggregate amount of $1,000,000 or any integral multiple of $500,000 in excess thereof. 2.3. [Reserved]. 2.4. Funds for Loans. --------------- 2.4.1. Funding Procedures. Not later than 1:30 p.m. (Boston time) on ------------------ the proposed Drawdown Date of any Loans, each of the relevant Banks will make available to the Agent, at the Agent's Head Office, in immediately available funds, the amount of such Bank's Commitment Percentage of the amount of the requested Loans. Upon receipt from each Bank of such amount, and upon receipt of the documents required by (S)(S)9 and 10 hereof and the satisfaction of the other conditions set forth therein, to the extent applicable, the Agent will make available to the Borrower the aggregate amount of such Loans made available to the Agent by the relevant Banks. The failure or refusal of any Bank to make available to the Agent its Commitment Percentage of the requested Loans on any Drawdown Date shall not excuse any other Bank from making available to the Agent the amount of such other Bank's Commitment Percentage of any requested Loans. 2.4.2. Advances by Agent. The Agent may, unless notified to the ----------------- contrary by any Bank prior to a Drawdown Date, assume that such Bank has made available to the Agent on such Drawdown Date the amount of such Bank's Commitment Percentage of the Loans to be made on such Drawdown Date, and the Agent may (but it shall not be required to), in reliance upon such assumption, make available to the Borrower a corresponding amount. If any Bank makes available to the Agent such amount on a date after such Drawdown Date, such Bank shall pay to the Agent on demand an amount equal to the product of (a) the average computed for the period referred to in clause (c) below, of the weighted average interest rate paid by the Agent for federal funds acquired by the Agent during each day included in such period, times (b) the amount of such Bank's Commitment Percentage of such ----- Loans, times (c) a fraction, the numerator of which is the number of days ----- that elapse from and including such Drawdown Date to the date on which the amount of such Bank's Loans shall become immediately available to the Agent, and the denominator of which is 365. A statement of the Agent submitted to such Bank with respect to any amounts owing under this (S)2.4.2 shall be prima facie evidence of the amount due and owing to the ----- ----- Agent by -22- such Bank. If the amount of such Bank's Loans is not made available to the Agent by such Bank within three (3) Business Days following such Drawdown Date, the Agent shall be entitled to recover such amount from the Borrower on demand, with interest thereon at the rate per annum applicable to the Loans made on such Drawdown Date. Any payment by the Borrower to the Agent of any Loans pursuant to this (S)2.4.2 shall be deemed to be a payment of the Loans that were to be made by the Bank that failed to make such Loans. 2.5. The Notes. --------- The Loans shall be evidenced by separate promissory notes of the Borrower in substantially the form of Exhibit C attached hereto (each a --------- "Note"), dated as of the Closing Date and completed with appropriate insertions. A Note shall be payable to the order of each Bank in a principal amount equal to such Bank's Commitment Amount or, if less, the outstanding amount of all Loans made by such Bank, plus interest accrued ---- thereon, as set forth below. The Borrower irrevocably authorizes each Bank to make, at or about the time of the Drawdown Date of any Loan or at the time of receipt of any payment of principal on such Bank's Note, an appropriate notation on the Record attached to such Bank's Note reflecting the making of such Loan or (as the case may be) the receipt of such payment. The outstanding amount of the Loans set forth on such Bank's Record shall be prima facie evidence of the principal amount thereof owing ----- ----- and unpaid to such Bank, but the failure to record, or any error in so recording, any such amount on such Bank's Record shall not limit or otherwise affect the Obligations of the Borrower hereunder or under any Note to make payments of principal of or interest on any Note when due. 2.6. Reduction of Total Commitment. The Borrower shall have the right at ----------------------------- any time and from time to time upon five (5) Business Days prior written notice to the Agent to reduce by $1,000,000 or an integral multiple thereof or terminate entirely the unborrowed portion of the Total Commitment, whereupon the Commitments of the Banks shall be reduced pro rata in accordance with their --- ---- respective Commitment Percentages of the amount specified in such notice or, as the case may be, terminated. Promptly after receiving any notice of the Borrower delivered pursuant to this (S)2.6, the Agent will notify the Banks of the substance thereof. Upon the effective date of any such reduction or termination, the Borrower shall pay to the Agent for the respective accounts of the Banks the full amount of any commitment fee then accrued on the amount of the reduction. No reduction or termination of the Commitments or of the Total Commitment may be reinstated. 2.7. Interest on Loans. Except as otherwise provided in (S)4.11, ----------------- (a) Each Base Rate Loan shall bear interest for the period commencing with the Drawdown Date thereof and ending on the last day of the Interest Period with respect thereto at the Base Rate. -23- (b) Each Eurodollar Rate Loan shall bear interest for the period commencing with the Drawdown Date thereof and ending on the last day of the Interest Period with respect thereto at a rate per annum equal to the sum of the Applicable Eurodollar Rate Margin plus the Eurodollar Rate ---- determined for such Interest Period. (c) The Borrower promises to pay interest on each Loan in arrears on each Interest Payment Date with respect thereto. 2.8. Conversion Options. ------------------ 2.8.1. Conversion to Different Type of Loan. The Borrower may elect ------------------------------------ from time to time to convert any outstanding Loan to a Loan of another Type, provided that (i) with respect to any such conversion of a Eurodollar -------- Rate Loan into a Base Rate Loan, such conversion shall only be made on the last day of the Interest Period with respect thereto; (ii) with respect to any such conversion of a Base Rate Loan to a Eurodollar Rate Loan, the Borrower shall give the Agent at least two (2) Eurodollar Business Days' prior written notice of such election and (iii) no Base Rate Loan may be converted into a Eurodollar Rate Loan when any Default or Event of Default has occurred and is continuing. On the date on which such conversion is being made, each Bank shall take such action as is necessary to transfer its Commitment Percentage of such Loans to its Domestic Lending Office or its Eurodollar Lending Office, as the case may be. All or any part of the outstanding Loans of any Type may be converted as provided herein, provided -------- that partial conversions shall be in an aggregate principal amount of $500,000 or a whole multiple thereof. Each Conversion Request relating to the conversion of a Base Rate Loan to a Eurodollar Rate Loan shall be irrevocable by the Borrower. 2.8.2. Continuation of Type of Loan. Any Loan of any Type may be ---------------------------- continued as such upon the expiration of an Interest Period with respect thereto by compliance by the Borrower with the notice provisions contained in (S)2.8.1; provided that no Eurodollar Rate Loan may be continued as such -------- when any Default or Event of Default has occurred and is continuing, but shall be automatically converted to a Base Rate Loan on the last day of the first Interest Period relating thereto ending during the continuance of any Default or Event of Default of which the officers of the Agent active upon the Borrower's account have actual knowledge. In the event that the Borrower fails to provide any such notice with respect to the continuation of any Eurodollar Rate Loan or Base Rate Loan as such, then such Eurodollar Rate Loan shall be automatically converted to a Base Rate Loan on the last day of the first Interest Period relating thereto, and such Base Rate Loan shall be continued as a Base Rate Loan on the last day of the first Interest Period relating thereto. The Agent shall notify the Banks promptly when any such automatic conversion contemplated by this (S)2.8 is scheduled to occur. -24- 2.8.3. Eurodollar Rate Loans. Any conversion to or from Eurodollar --------------------- Rate Loans shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of all Eurodollar Rate Loans having the same Interest Period shall not be less than $1,000,000 or a whole multiple of $500,000 in excess thereof. 3. REPAYMENT OF THE LOANS. ---------------------- 3.1. Maturity. The Borrower promises to pay on the Revolving Credit Loan -------- Maturity Date, and there shall become absolutely due and payable on the Revolving Credit Loan Maturity Date, all of the Loans outstanding on such date, together with any and all accrued and unpaid interest thereon. 3.2. Mandatory Repayments of Loans. If at any time the sum of the ----------------------------- outstanding amount of the Loans exceeds the Total Commitment, then the Borrower shall immediately pay the amount of such excess to the Agent for application to the Loans for the respective accounts of the Banks. Each prepayment of Loans shall be allocated among the Banks, in proportion, as nearly as practicable to the respective unpaid principal amount of each Bank's Note, with adjustments to the extent practicable to equalize any prior payments or repayments not exactly in proportion. 3.3. Optional Repayments of Loans. The Borrower shall have the right, at ---------------------------- its election, to repay the outstanding amount of the Loans, as a whole or in part, at any time without penalty or premium, provided that all prepayments of -------- Eurodollar Rate Loans prior to the end of the Interest Period relating thereto shall obligate the Borrower to pay any breakage costs associated with such Eurodollar Rate Loans in accordance with (S)4.10 hereof. The Borrower shall give the Agent written notice, no later than 10:00 a.m., Boston time, (a) on the Business Day of any proposed repayment pursuant to this (S)3.3 of Base Rate Loans, and (b) two (2) Eurodollar Business Days notice of any proposed repayment pursuant to this (S)3.3 of Eurodollar Rate Loans, in each case, specifying the proposed date of payment of such Loans and the principal amount to be paid. Each such partial prepayment of the Loans shall be in an integral multiple of $500,000, shall be accompanied by the payment of accrued interest on the principal repaid to the date of payment and shall be applied first to the principal of Base Rate Loans and then to the principal of Eurodollar Rate Loans. Each partial prepayment shall be allocated among the Banks, in proportion, as nearly as practicable, to the respective unpaid principal amount of each Bank's Note, with adjustments to the extent practicable to equalize any prior repayments not exactly in proportion. 4. CERTAIN GENERAL PROVISIONS. -------------------------- 4.1. Agent Fees. The Borrower agrees to pay to the Agent the fees ---------- described in the Agent's Fee Letter, upon the terms and conditions set forth therein. -25- 4.2. Facility Fee and Utilization Fee. (a) The Borrower agrees to pay to -------------------------------- the Agent for the accounts of the Banks in accordance with their respective Commitment Percentages a facility fee calculated at the rate of the Applicable Facility Fee Percentage on the average daily amount during each calendar quarter or portion thereof from the Closing Date to the Revolving Credit Loan Maturity Date of the Total Commitment during such calendar quarter. The facility fee shall be payable quarterly in arrears on the first day of each calendar quarter for the immediately preceding calendar quarter commencing on the first such date following the date hereof, with a final payment on the Revolving Credit Maturity Date or any earlier date on which the Commitments shall terminate. (b) The Borrower agrees to pay to the Agent for the accounts of the Banks in accordance with their respective Commitment Percentages a utilization fee calculated at the rate of 0.125% per annum on the average daily amount of the Loans outstanding during each calendar quarter or portion thereof from the date hereof to the Revolving Credit Loan Maturity Date; provided, however, that no -------- ------- such fee shall be payable for any calendar quarter or portion thereof during which the average aggregate amount of the Loans outstanding during such calendar quarter or portion thereof (after giving effect to all amounts requested) does not exceed fifty percent (50%) of the Total Commitment in effect during such calendar quarter or portion thereof The utilization fee shall be payable quarterly in arrears on the first day of each calendar quarter for the immediately preceding calendar quarter commencing on the first such date following the date hereof, with a final payment on the Revolving Credit Maturity Date or any earlier date on which the Commitments shall terminate. 4.3. Funds for Payments. ------------------ 4.3.1. Payments to Agent. All payments of principal, interest, ----------------- commitment fees and any other amounts due hereunder or under any of the other Loan Documents shall be made to the Agent, for the respective accounts of the Banks and the Agent, at the Agent's Head Office or at such other location in the Boston, Massachusetts area that the Agent may from time to time designate, in each case in immediately available funds. 4.3.2. No Offset, etc. All payments by the Borrower hereunder and -------------- under any of the other Loan Documents shall be made without setoff or counterclaim and free and clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restrictions or conditions of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein unless the Borrower is compelled by law to make such deduction or withholding. If any such obligation is imposed upon the Borrower with respect to any amount payable by it hereunder or under any of the other Loan Documents, the Borrower will pay to the Agent, for the account of the Banks or (as the case may be) the Agent, on the date on which such amount is due and -26- payable hereunder or under such other Loan Document, such additional amount in Dollars as shall be necessary to enable the Banks or the Agent to receive the same net amount which the Banks or the Agent would have received on such due date had no such obligation been imposed upon the Borrower. The Borrower will deliver promptly to the Agent certificates or other valid vouchers for all taxes or other charges deducted from or paid with respect to payments made by the Borrower hereunder or under such other Loan Document. 4.3.3. Non-U.S. Banks. The Agent and each Bank that is not a U.S. -------------- Person as defined in Section 7701(a)(30) of the Code for federal income tax purposes (a "Non-U.S. Bank") hereby agrees that, if and to the extent it is ------------- legally able to do so, it shall, prior to the date of the first payment by the Borrower hereunder to be made to such Bank or the Agent or for such Bank's or the Agent's account, deliver to the Borrower and the Agent, as applicable, such certificates, documents or other evidence, as and when required by the Code or Treasury Regulations issued pursuant thereto, including (a) in the case of a Non-U.S. Bank that is a "bank" for purposes of Section 881(c)(3)(A) of the Code, two (2) duly completed copies of Internal Revenue Service Form W-8BEN or Form W-8ECI and any other certificate or statement of exemption required by Treasury Regulations, or any subsequent versions thereof or successors thereto, properly completed and duly executed by such Bank or the Agent establishing that with respect to payments of principal, interest or fees hereunder it is (i) not subject to United States federal withholding tax under the Code because such payment is effectively connected with the conduct by such Bank or Agent of a trade or business in the United States or (ii) totally exempt or partially exempt from United States federal withholding tax under a provision of an applicable tax treaty and (b) in the case of a Non-U.S. Bank that is not a "bank" for purposes of Section 881(c)(3)(A) of the Code, a certificate in form and substance reasonably satisfactory to the Agent and the Borrower and to the effect that (i) such Non-U.S. Bank is not a "bank" for purposes of Section 881(c)(3)(A) of the Code, is not subject to regulatory or other legal requirements as a bank in any jurisdiction, and has not been treated as a bank for purposes of any tax, securities law or other filing or submission made to any governmental authority, any application made to a rating agency or qualification for any exemption from any tax, securities law or other legal requirements, (ii) is not a ten (10) percent shareholder for purposes of Section 881(c)(3)(B) of the Code and (iii) is not a controlled foreign corporation receiving interest from a related person for purposes of Section 881(c)(3)(C) of the Code, together with a properly completed Internal Revenue Service Form W-8 or W-9, as applicable (or successor forms). Each Bank or the Agent agrees that it shall, promptly upon a change of its lending office or the selection of any additional lending office, to the extent the forms previously delivered by it pursuant to this section are no longer effective, and promptly upon the Borrower's or the Agent's reasonable request after the occurrence of any other event (including the passage of time) requiring the delivery of a Form W-8BEN, -27- Form W-8ECI, Form W-8 or W-9 in addition to or in replacement of the forms previously delivered, deliver to the Borrower and the Agent, as applicable, if and to the extent it is properly entitled to do so, a properly completed and executed Form W-8BEN, Form W-8ECI, Form W-8 or W-9, as applicable (or any successor forms thereto). 4.4. Computations. All computations of interest on Eurodollar Rate Loans ------------ and fees shall be based on a 360-day year and paid for the actual number of days elapsed. All computations of interest on Base Rate Loans shall be based on a 365-day year and paid for the actual number of days elapsed. Except as otherwise provided in the definition of the term "Interest Period" with respect to Eurodollar Rate Loans, whenever a payment hereunder or under any of the other Loan Documents becomes due on a day that is not a Business Day, the due date for such payment shall be extended to the next succeeding Business Day, and interest shall accrue during such extension. The outstanding amount of the Loans as reflected on the Records from time to time shall be considered correct and binding on the Borrower unless within five (5) Business Days after the Borrower's receipt of any notice from the Agent or any of the Banks of such outstanding amount, the Borrower shall notify the Agent or such Bank to the contrary. 4.5. Inability to Determine Eurodollar Rate. In the event that, prior to -------------------------------------- the commencement of any Interest Period relating to any Eurodollar Rate Loan, the Agent shall determine that adequate and reasonable methods do not exist for ascertaining the Eurodollar Rate that would otherwise determine the rate of interest to be applicable to any Eurodollar Rate Loan during any Interest Period, the Agent shall forthwith give notice of such determination (which shall be conclusive and binding on the Borrower and the Banks) to the Borrower and the Banks. In such event (i) any Loan Request or Conversion Request with respect to Eurodollar Rate Loans shall be automatically withdrawn and, shall be deemed a request for Base Rate Loans, (ii) each Eurodollar Rate Loan will automatically, on the last day of the then current Interest Period thereof, become a Base Rate Loan, and (iii) the obligations of the Banks to make Eurodollar Rate Loans shall be suspended until the Agent determines that the circumstances giving rise to such suspension no longer exist, whereupon the Agent shall so notify the Borrower and the Banks. 4.6. Illegality. Notwithstanding any other provisions herein, if any ---------- present or future law, regulation, treaty or directive or in the interpretation or application thereof shall make it unlawful for any Bank to make or maintain Eurodollar Rate Loans, such Bank shall forthwith give notice of such circumstances to the Borrower and the other Banks and thereupon (i) the commitment of such Bank to make Eurodollar Rate Loans or convert Loans of another Type to Eurodollar Rate Loans shall forthwith be suspended and (ii) such Bank's Loans then outstanding as Eurodollar Rate Loans, if any, shall be converted automatically to Base Rate Loans on the last day of each Interest Period applicable to such Eurodollar Rate Loans or within such earlier period as may be required by law. The Borrower hereby agrees promptly to pay the Agent for the account of such Bank, upon demand by such Bank, any additional -28- amounts necessary to compensate such Bank for any costs incurred by such Bank in making any conversion in accordance with this (S)4.6, including any interest or fees payable by such Bank to lenders of funds obtained by it in order to make or maintain its Eurodollar Rate Loans hereunder. 4.7. Additional Costs, etc. If any present or future applicable law, which --------------------- expression, as used herein, includes statutes, rules and regulations thereunder and interpretations thereof by any competent court or by any governmental or other regulatory body or official charged with the administration or the interpretation thereof and requests, directives, instructions and notices at any time or from time to time hereafter made upon or otherwise issued to any Bank or the Agent by any central bank or other fiscal, monetary or other authority (whether or not having the force of law), shall: (a) subject any Bank or the Agent to any tax, levy, impost, duty, charge, fee, deduction or withholding of any nature with respect to this Credit Agreement, the other Loan Documents, such Bank's Commitment or the Loans (other than taxes based upon or measured by the income or profits of such Bank or the Agent), or (b) materially change the basis of taxation (except for changes in taxes on income or profits) of payments to any Bank of the principal of or the interest on any Loans or any other amounts payable to any Bank or the Agent under this Credit Agreement or the other Loan Documents, or (c) impose or increase or render applicable (other than to the extent specifically provided for elsewhere in this Credit Agreement) any special deposit, reserve, assessment, liquidity, capital adequacy or other similar requirements (whether or not having the force of law) against assets held by, or deposits in or for the account of, or loans by, or commitments of an office of any Bank, or (d) impose on any Bank or the Agent any other conditions or requirements with respect to this Credit Agreement, the other Loan Documents, the Loans, such Bank's Commitment, or any class of loans or commitments of which any of the Loans or such Bank's Commitment forms a part, and the result of any of the foregoing is (i) to increase the cost to any Bank of making, funding, issuing, renewing, extending or maintaining any of the Loans or such Bank's Commitment, or (ii) to reduce the amount of principal, interest or other amount payable to such Bank or the Agent hereunder on account of such Bank's Commitment or any of the Loans, or (iii) to require such Bank or the Agent to make any payment or to forego any interest or other sum payable hereunder, the amount of which payment or foregone interest or other sum is -29- calculated by reference to the gross amount of any sum receivable or deemed received by such Bank or the Agent from the Borrower hereunder, then, and in each such case, the Borrower will, upon demand made by such Bank or (as the case may be) the Agent at any time and from time to time and as often as the occasion therefor may arise, pay to such Bank or the Agent such additional amounts as will be sufficient to compensate such Bank or the Agent for such additional cost, reduction, payment or foregone interest or other sum. 4.8. Capital Adequacy. If after the date hereof any Bank or the Agent ---------------- determines that (i) the adoption of or change in any law, governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) regarding capital requirements for banks or bank holding companies or any change in the interpretation or application thereof by a court or governmental authority with appropriate jurisdiction, or (ii) compliance by such Bank or the Agent or any corporation controlling such Bank or the Agent with any law, governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) of any such entity regarding capital adequacy, has the effect of reducing the return on such Bank's or the Agent's commitment with respect to any Loans to a level below that which such Bank or the Agent could have achieved but for such adoption, change or compliance (taking into consideration such Bank's or the Agent's then existing policies with respect to capital adequacy and assuming full utilization of such entity's capital) by any amount deemed by such Bank or (as the case may be) the Agent to be material, then such Bank or the Agent may notify the Borrower of such fact. To the extent that the amount of such reduction in the return on capital is not reflected in the Base Rate, the Borrower agrees to pay such Bank or (as the case may be) the Agent the amount of such reduction in the return on capital as and when such reduction is determined upon presentation by such Bank or (as the case may be) the Agent of a certificate in accordance with (S)4.9 hereof. Each Bank shall allocate such cost increases among its customers in good faith and on an equitable basis. 4.9. Certificate. A certificate setting forth any additional amounts ----------- payable pursuant to (S)4.7 or 4.8 and a brief explanation of such amounts which are due, submitted by any Bank or the Agent to the Borrower, shall be conclusive, absent manifest error, that such amounts are due and owing. 4.10. Indemnity. The Borrower agrees to indemnify each Bank and to hold --------- each Bank harmless from and against any loss, cost or expense (including loss of anticipated profits) that such Bank may sustain or incur as a consequence of (i) default by the Borrower in payment of the principal amount of or any interest on any Eurodollar Rate Loans as and when due and payable, including any such loss or expense arising from interest or fees payable by such Bank to lenders of funds obtained by it in order to maintain its Eurodollar Rate Loans, (ii) default by the Borrower in making a borrowing after the Borrower has given (or is deemed to have given) a Loan Request or a Conversion Request relating thereto in accordance with (S)2.2 or (S)2.8, or (iii) the making of any payment of a -30- Eurodollar Rate Loan or the making of any conversion of any such Eurodollar Rate Loan to a Base Rate Loan on a day that is not the last day of the applicable Interest Period with respect thereto, including interest or fees payable by such Bank to lenders of funds obtained by it in order to maintain any such Loans. 4.11. Interest After Default. ---------------------- 4.11.1. Overdue Amounts. Overdue principal and (to the extent --------------- permitted by applicable law) interest on the Loans and all other overdue amounts payable hereunder or under any of the other Loan Documents shall bear interest compounded monthly and payable on demand at a rate per annum equal to four percent (4%) above the Base Rate until such amount shall be paid in full (after as well as before judgment). 4.11.2. Amounts Not Overdue. During the continuance of a Default or ------------------- an Event of Default the principal of the Loans not overdue shall, until such Default or Event of Default has been cured or remedied or such Default or Event of Default has been waived by the Majority Banks pursuant to (S)24, bear interest at a rate per annum equal to the greater of (i) four percent (4%) above the rate of interest otherwise applicable to such Loans or (ii) the rate of interest applicable to overdue principal pursuant to (S)4.11.1. 4.12. Guaranties. The payment and performance of the Obligations shall be ---------- guaranteed by each domestic Subsidiary of the Borrower engaged in business of any kind or nature (other than having qualified to do business in a foreign jurisdiction) or that has a net worth or assets of more than a de minimis value -- ------- or that has issued any capital stock or other equity interests to any person other than the Borrower or a Subsidiary of the Borrower, and each Person which becomes a party to a Guaranty pursuant to (S) 7.5.1 or (S) 7.11. 5. REPRESENTATIONS AND WARRANTIES. ------------------------------ The Borrower represents and warrants to the Banks and the Agent as follows: 5.1. Corporate Authority. ------------------- 5.1.1. Organization; Good Standing. Each of the Borrower and its --------------------------- Subsidiaries (i) is a corporation or other entity or, in the case of R&M Trust and Chiswick Trust, a Massachusetts business trust, duly organized, validly existing and, except in the case of R&M Trust and Chiswick Trust (with respect to which no such concept is applicable), in good standing under the laws of its jurisdiction of organization, (ii) has all requisite power to own its property and conduct its business as now conducted and as presently contemplated, and (iii) is in good standing as a foreign corporation or other entity and is duly authorized to do business in each jurisdiction where such qualification is necessary except where a -31- failure to be so qualified would not have a materially adverse effect on the business, assets or financial condition of the Borrower or such Subsidiary. 5.1.2. Authorization. The execution, delivery and performance of ------------- this Credit Agreement and the other Loan Documents to which the Borrower or any of its Subsidiaries is or is to become a party and the transactions contemplated hereby and thereby (i) are within the corporate or other authority of such Person, (ii) have been duly authorized by all necessary corporate or other proceedings, (iii) do not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which the Borrower or any of its Subsidiaries is subject or any judgment, order, writ, injunction, license or permit applicable to the Borrower or any of its Subsidiaries and (iv) do not conflict with any provision of the corporate charter or bylaws or other organizational documents of, or any agreement or other instrument binding upon, the Borrower or any of its Subsidiaries. 5.1.3. Enforceability. The execution and delivery of this Credit -------------- Agreement and the other Loan Documents to which the Borrower or any of its Subsidiaries is or is to become a party will result in valid and legally binding obligations of such Person, enforceable against it in accordance with the respective terms and provisions hereof and thereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. 5.2. Governmental Approvals. The execution, delivery and performance by ---------------------- the Borrower and any of its Subsidiaries of this Credit Agreement and the other Loan Documents to which the Borrower or any of its Subsidiaries is or is to become a party and the transactions contemplated hereby and thereby do not require the approval or consent of, or filing with, any governmental agency or authority other than those already obtained. 5.3. Title to Properties; Leases. Except as indicated on Schedule 5.3 --------------------------- -------- --- hereto, the Borrower and its Subsidiaries own all of the assets reflected in the consolidated balance sheet of the Borrower and its Subsidiaries as at the Interim Balance Sheet Date or acquired since that date (except property and assets sold or otherwise disposed of in the ordinary course of business since that date), subject to no rights of others, including any mortgages, leases, conditional sales agreements, title retention agreements, liens or other encumbrances except Permitted Liens. -32- 5.4. Financial Statements. -------------------- 5.4.1. Financial Statements -------------------- There has been furnished to the Agent a consolidated balance sheet of the Borrower and its Subsidiaries as at the Balance Sheet Date, and a consolidated statement of income and a consolidated statement of cash flow for the fiscal year then ended, including the opinion thereof expressed by and signed by the Borrower's independent certified public accountants. In addition, there has been furnished to the Agent a consolidated balance sheet of the Borrower and its Subsidiaries prepared by management as at the Interim Balance Sheet Date, and a consolidated statement of income and a consolidated statement of cash flow prepared by management for the fiscal quarter ended on the Interim Balance Sheet Date. All such balance sheets, statements of income and statements of cash flow have been prepared in accordance with generally accepted accounting principles (except, in the case of the consolidated balance sheet, the consolidated statement of income and the consolidated statement of cash flow prepared as of the Interim Balance Sheet Date, for year-end adjustments, the absence of footnotes and any other items permitted to be excluded from Form 10-Q by the Securities Exchange Act of 1934, as amended) and fairly present the financial condition of the Borrower as at the close of business on the dates thereof and the results of operations for the fiscal year and fiscal quarter then ended. There are no contingent liabilities of the Borrower or any of its Subsidiaries as of such date involving material amounts, known to the Borrower, which were not disclosed in such balance sheets and the notes related thereto, other than contingent liabilities under open letters of credit permitted under Section 7.1(k) of the First Amended and Restated Credit Agreement. 5.4.2. Projections. ----------- The projections of the annual operating budgets of the Borrower and its Subsidiaries on a consolidated basis, balance sheets and cash flow statements for the 2001 to 2005 fiscal years, copies of which were delivered to each Bank prior to the Closing Date, disclose all assumptions made with respect to general economic, financial and market conditions used in formulating such projections, and any such projections delivered to the Banks in accordance with the terms hereof following the Closing Date shall also disclose all assumptions made with respect to general economic, financial and market conditions used in formulating such projections. The projections are based upon reasonable estimates and assumptions, have been prepared on the basis of the assumptions stated therein and reflect the reasonable estimates of the Borrower and its Subsidiaries of the results of operations and other information projected therein. 5.5. No Material Changes, etc. ------------------------ -33- Since the Interim Balance Sheet Date there has occurred no materially adverse change in the financial condition or business of the Borrower and its Subsidiaries as shown on or reflected in the consolidated balance sheet of the Borrower and its Subsidiaries as at the Interim Balance Sheet Date, or the consolidated statement of income for the fiscal quarter then ended, other than changes in the ordinary course of business that have not had any materially adverse effect on the business or financial condition of the Borrower and its Subsidiaries on a consolidated basis. Except as set forth on Schedule 5.5 -------- --- hereto, the Borrower has not, since the Interim Balance Sheet Date, made any Restricted Payments. 5.6. Franchises, Patents, Copyrights, etc. Each of the Borrower and its ------------------------------------ Subsidiaries possesses all franchises, patents, copyrights, trademarks, trade names, licenses and permits, and rights in respect of the foregoing, adequate for the conduct of its business substantially as now conducted without known conflict with any rights of others. 5.7. Litigation. Except as set forth on Schedule 5.7, there are no ---------- -------- --- actions, suits, proceedings or investigations of any kind pending or threatened against the Borrower or any of its Subsidiaries before any court, tribunal or administrative agency or board that, if adversely determined, might, in any case materially adversely affect the properties, assets, financial condition or business of the Borrower and its Subsidiaries on a consolidated basis or materially impair the right of the Borrower and its Subsidiaries, considered as a whole, to carry on business substantially as now conducted by them, or result in any substantial liability not adequately covered by insurance, or for which adequate reserves are not maintained on the consolidated balance sheet of the Borrower, or which question the validity of this Credit Agreement or any of the other Loan Documents, or any action taken or to be taken pursuant hereto or thereto. 5.8. No Materially Adverse Contracts, etc. Neither the Borrower nor any of ------------------------------------ its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation that has or is expected in the future to have a materially adverse effect on the business, assets or financial condition of the Borrower and its Subsidiaries on a consolidated basis. Neither the Borrower nor any of its Subsidiaries is a party to any contract or agreement that has or is expected, in the judgment of the Borrower's officers, to have any materially adverse effect on the business of the Borrower and its Subsidiaries on a consolidated basis. 5.9. Compliance With Other Instruments, Laws, etc. Neither the Borrower -------------------------------------------- nor any of its Subsidiaries is in violation of any provision of its charter documents, bylaws, or any agreement or instrument to which it may be subject or by which it or any of its properties may be bound or any decree, order, judgment, statute, license, rule or regulation, in any of the foregoing cases in a manner that could result in the imposition of substantial penalties or materially and adversely affect the financial condition, properties or business of the Borrower and its Subsidiaries on a consolidated basis. -34- 5.10. Tax Status. The Borrower and its Subsidiaries (i) have made or filed ---------- all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which any of them is subject, (ii) have paid all taxes and other governmental assessments and charges shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and by appropriate proceedings and (iii) have set aside on their books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the Borrower knows of no basis for any such claim. 5.11. No Event of Default. No Default or Event of Default has occurred and ------------------- is continuing. 5.12. Holding Company and Investment Company Acts. Neither the Borrower ------------------------------------------- nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of a "holding company", or an affiliate" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935; nor is it an "investment company", or an "affiliated company" or a "principal underwriter" of an "investment company", as such terms are defined in the Investment Company Act of 1940. 5.13. Absence of Financing Statements, etc. Except with respect to ------------------------------------ Permitted Liens, precautionary filings made by lessors with respect to equipment leased to the Borrower and notice filings made by third parties with respect to equipment and/or inventory held by the Borrower and owned by such third party, there is no financing statement (other than those identified in Section 6.15), security agreement, chattel mortgage, real estate mortgage or other document filed or recorded with any filing records, registry, or other public office, that purports to cover, affect or give notice of any present or possible future lien on, or security interest in, any assets or property of the Borrower or any of its Subsidiaries or rights thereunder. 5.14. Chief Executive Office. The Borrower's chief executive office is ---------------------- located at 500 Main Street, Groton, Massachusetts 01471. 5.15. Certain Transactions. Except as set forth on Schedule 5.15, none of -------------------- -------- ---- the officers, directors, or employees of the Borrower or any of its Subsidiaries is presently a party to any transaction with the Borrower or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Borrower, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. 5.16. Employee Benefit Plans. ---------------------- -35- 5.16.1. In General. ---------- Each Employee Benefit Plan and each Guaranteed Pension Plan has been maintained and operated in compliance in all material respects with the applicable provisions of ERISA and all Applicable Pension Legislation, to the extent applicable, the Code, including but not limited to the provisions thereunder respecting prohibited transactions and the bonding of fiduciaries and other persons handling plan funds as required by (S)412 of ERISA. The Borrower has heretofore delivered to the Agent the most recently completed annual report, Form 5500, with all required attachments, and actuarial statement required to be submitted under (S)103(d) of ERISA, with respect to each Guaranteed Pension Plan. 5.16.2. Terminability of Welfare Plans. ------------------------------ No Employee Benefit Plan which is an employee welfare benefit plan within the meaning of (S)3(1) or (S)3(2)(B) of ERISA provides benefit coverage subsequent to termination of employment except as set forth in Schedule 5.16 or as otherwise required by Title I, Part 6 of ERISA or -------- ---- applicable state insurance laws. The Borrower and any Subsidiary of the Borrower, as the case may be, may terminate its Employee Benefit Plan(s) at any time (or at any time subsequent to the expiration of any applicable bargaining agreement) in the discretion of the Borrower or such Subsidiary or such ERISA Affiliate of the Borrower or such Subsidiary without liability to any Person other than for claims arising prior to termination. 5.16.3. Guaranteed Pension Plans. ------------------------ Each contribution required to be made to a Guaranteed Pension Plan, whether required to be made to avoid the incurrence of an accumulated funding deficiency, the notice or lien provisions of (S)302(f) of ERISA, or otherwise, has been timely made. No waiver of an accumulated funding deficiency or extension of amortization periods has been received with respect to any Guaranteed Pension Plan, and none of the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate of the Borrower or any Subsidiary is obligated to or has posted security in connection with an amendment of a Guaranteed Pension Plan pursuant to (S)307 of ERISA or (S)401(a)(29) of the Code. No liability to the PBGC (other than required insurance premiums, all of which have been paid) has been incurred by the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate of the Borrower or any Subsidiary with respect to any Guaranteed Pension Plan and there has not been any ERISA Reportable Event, or any other event or condition which presents a material risk of termination of any Guaranteed Pension Plan by the PBGC. Based on the latest valuation of each Guaranteed Pension Plan (which in each case occurred within twelve months of the date of this representation), and on the actuarial methods and assumptions employed for that valuation, the aggregate benefit liabilities of all such Guaranteed Pension Plans within -36- the meaning of (S)4001 of ERISA did not exceed the aggregate value of the assets of all such Guaranteed Pension Plans, disregarding for this purpose the benefit liabilities and assets of any Guaranteed Pension Plan with assets in excess of benefit liabilities. 5.16.4. Multiemployer Plans. ------------------- None of the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate of the Borrower or any Subsidiary is contributing or has ever contributed or been obligated to contribute to any Multiemployer Plan. 5.17. Use of Proceeds. --------------- 5.17.1. General. ------- The proceeds of the Loans shall be used (a) to purchase common stock and/or other equity interests of Advantage and (b) for working capital and general corporate purposes. 5.17.2. Regulations U and X. ------------------- No portion of any Loan is to be used, except as otherwise permitted herein, for the purpose of purchasing or carrying any "margin security" or "margin stock" as such terms are used in Regulations U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224, nor is any portion of any Loan to be used in any manner which, after giving effect to (S)7.5.1 and Permitted Acquisitions and Permitted Joint Ventures or to (S)7.11 or otherwise, would be in violation of such Regulations U or X. 5.17.3. Ineligible Securities. --------------------- No portion of the proceeds of any Loan is to be used for the purpose of (a) knowingly purchasing, or providing credit support for the purchase of, Ineligible Securities from a Section 20 Subsidiary during any period in which such Section 20 Subsidiary makes a market in such Ineligible Securities, (b) knowingly purchasing, or providing credit support for the purchase of, during the underwriting or placement period, any Ineligible Securities being underwritten or privately placed by a Section 20 Subsidiary, or (c) making, or providing credit support for the making of, payments of principal or interest on Ineligible Securities underwritten or privately placed by a Section 20 Subsidiary and issued by or for the benefit of the Borrower, any of its Subsidiaries or any other Affiliate of the Borrower. 5.18. Environmental Compliance. ------------------------ -37- The Borrower has taken all necessary steps to investigate the past and present condition and usage of the Real Estate and the operations conducted thereon and, based upon such diligent investigation, has determined that: (a) none of the Borrower, its Subsidiaries or any operator of the Real Estate or any operations thereon is in violation, or alleged violation, of any judgment, decree, order, law, license, rule or regulation pertaining to environmental matters, including without limitation, those arising under the Resource Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 as amended ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or any state or local statute, regulation, ordinance, order or decree relating to health, safety or the environment (hereinafter "Environmental Laws"), which violation would have a material adverse effect on the environment or the business, assets or financial condition of the Borrower and its Subsidiaries on a consolidated basis; (b) except as set forth on Schedule 5.18 attached hereto: neither the -------- ---- Borrower nor any of its Subsidiaries has received notice from any third party including, without limitation, any federal, state or local governmental authority, (i) that any one of them has been identified by the United States Environmental Protection Agency ("EPA") as a potentially responsible party under CERCLA with respect to a site listed on the National Priorities List, 40 C.F.R. Part 300 Appendix B; (ii) that any hazardous waste, as defined by 42 U.S.C. (S)6903(5), any hazardous substances as defined by 42 U.S.C. (S)9601(14), any pollutant or contaminant as defined by 42 U.S.C. (S)9601(33) and any toxic substances, oil or hazardous materials or other chemicals or substances regulated by any Environmental Laws ("Hazardous Substances") which any one of them has generated, transported or disposed of has been found at any site at which a federal, state or local agency or other third party has conducted or has ordered that the Borrower or any of its Subsidiaries conduct a remedial investigation, removal or other response action pursuant to any Environmental Law; or (iii) that it is or shall be a named party to any claim, action, cause of action, complaint, or legal or administrative proceeding (in each case, contingent or otherwise) arising out of any third party's incurrence of costs, expenses, losses or damages of any kind whatsoever in connection with the release of Hazardous Substances; (c) except as set forth on Schedule 5.18 attached hereto: (i) no -------- ---- portion of the Real Estate has been used for the handling, processing, storage or disposal of Hazardous Substances except in accordance with applicable Environmental Laws; and no underground tank or other underground storage receptacle for Hazardous Substances is located on any portion of the Real Estate; (ii) in the course of any activities conducted by the Borrower, its Subsidiaries or operators of its properties, -38- no Hazardous Substances have been generated or are being used on the Real Estate except in accordance with applicable Environmental Laws; (iii) there have been no releases (i.e. any past or present releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, disposing or dumping) or threatened releases of Hazardous Substances on, upon, into or from the properties of the Borrower or its Subsidiaries, which releases would have a material adverse effect on the value of any of the Real Estate or adjacent properties or the environment; (iv) to the best of the Borrower's knowledge, there have been no releases on, upon, from or into any real property in the vicinity of any of the Real Estate which, through soil or groundwater contamination, may have come to be located on, and which would have a material adverse effect on the value of, the Real Estate; and (v) in addition, any Hazardous Substances that have been generated on any of the Real Estate have been transported offsite only by carriers having an identification number issued by the EPA (or the equivalent thereof in any foreign jurisdiction), treated or disposed of only by treatment or disposal facilities maintaining valid permits as required under applicable Environmental Laws, which transporters and facilities have been and are, to the best of the Borrower's knowledge, operating in compliance with such permits and applicable Environmental Laws; and (d) None of the Borrower and its Subsidiaries, or any of the other Real Estate is subject to any applicable environmental law requiring the performance of Hazardous Substances site assessments, or the removal or remediation of Hazardous Substances, or the giving of notice to any governmental agency or the recording or delivery to other Persons of an environmental disclosure document or statement by virtue of the transactions set forth herein and contemplated hereby, or as a condition to the recording of any Mortgage or to the effectiveness of any other transactions contemplated hereby. 5.19. Subsidiaries, etc. ------------------ Schedule 5.19 hereto sets forth all Subsidiaries of the Borrower. Except -------- ---- as set forth on Schedule 5.19 hereto (which Schedule 5.19 shall be, and shall be -------- ---- ------------- deemed to be, automatically amended to include any Permitted Joint Ventures), neither the Borrower nor any Subsidiary of the Borrower is engaged in any joint venture or partnership with any other person. Except for domestic Subsidiaries of the Borrower which are party to the Guaranty, as of the Closing Date no domestic Subsidiary of the Borrower (a) is presently engaged in business activities of any kind or nature (except that such Subsidiary may have qualified to do business in a foreign jurisdiction), (b) has a net worth or assets of more than a de minimis value or (c) has issued any capital stock or other equity -- ------- interests to any person other than the Borrower or a Subsidiary of the Borrower. 5.20. Disclosure. ---------- -39- No representation or warranty made by the Borrower or any of its Subsidiaries in this Credit Agreement or any agreement, instrument, document, certificate or other written statement furnished to the Agent or any Bank by or on behalf of the Borrower or any of its Subsidiaries in connection with any of the transactions contemplated by any of the Loan Documents contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein not misleading in light of the circumstances in which they are made. 5.21. Fiscal Year. ----------- Each of the Borrower and its Subsidiaries has a fiscal year which ends on the last Saturday of June of each calendar year and fiscal quarters which end during September, December and March of each calendar year. The Borrower's 2001 fiscal year ended on June 30, 2001. 5.22. Solvency. The Borrower, on a consolidated basis with its -------- Subsidiaries (both before and after giving effect to the transactions contemplated by the Credit Agreement and the other Loan Documents), (i) is solvent, (ii) has assets having a fair value in excess of its liabilities, (iii) has assets having a fair value in excess of the amount required to pay its liabilities on its debts as they become due and matured, and (iv) has, and expects to continue to have, access to adequate capital for the conduct of its business and the ability to pay its debts as they mature. 5.23. Financing Statements. (a) As of the date hereof, neither the -------------------- Borrower nor any of its Subsidiaries has any Indebtedness outstanding to, or commitments to borrow or otherwise receive credit from, FBS Business Finance Corporation ("FBS"), and all liens securing any such Indebtedness which existed prior to the date hereof have been released by FBS. But for an oversight on the part of FBS, financing statement number 1910688 filed with the Minnesota Secretary of State's office and financing statement number 97-272 filed in Robeson County, North Carolina would have been terminated prior to the date hereof. (b) As of the date hereof, neither the Borrower nor any of its Subsidiaries has any Indebtedness outstanding to, or commitments to borrow or otherwise receive credit from, PNC, N.A. (successor to Midlantic National Bank) ("PNC"), and all liens securing any such Indebtedness which existed prior to the date hereof have been released by PNC. But for an oversight on the part of PNC, financing statement number 1736869 filed with the New Jersey Secretary of State's office would have been terminated prior to the date hereof. (c) As of the date hereof, neither the Borrower nor any of its Subsidiaries has any Indebtedness outstanding to, or commitments to borrow or otherwise receive credit from, The New Jersey Economic Development Authority (the "NJ Authority"), and all liens securing any such Indebtedness which existed prior to the date hereof have been released by the NJ Authority. But for an oversight on the part of the NJ Authority, financing statement number 1736871 -40- filed with the New Jersey Secretary of State's office would have been terminated prior to the date hereof. (d) As of the date hereof, neither the Borrower nor any of its Subsidiaries has any Indebtedness outstanding to, or commitments to borrow or otherwise receive credit from, the Colorado National Bank ("CNB"), and all liens securing any such Indebtedness which existed prior to the date hereof have been released by CNB. But for an oversight on the part of CNB, financing statement number 1503756 filed with the New Jersey Secretary of State's office would have been terminated prior to the date hereof. (e) CIT Financial USA, Inc. ("CIT") has filed financing statements against all of the Borrower's now owned or hereafter acquired items of equipment financed or leased by CIT with the Connecticut Secretary of State's Office (financing statement number 2009058), the Minnesota Secretary of State's Office (financing statement number 2242483) and the Texas Secretary of State's Office (financing statement number 00-538837) in connection with the Borrower's leasing of certain equipment from CIT. Under the terms of the Master Lease Agreement, dated as of June 1, 1997 (the "Master Lease Agreement"), by and between SHL Financial Services ("SHL") and the Borrower, the interest granted to CIT (the successor to SHL) by the Borrower extends only to the specific equipment noted therein. The Borrower has no Indebtedness to CIT other than the Indebtedness incurred under the terms of the Master Lease Agreement. (f) As of the date hereof and other than Indebtedness to U.S. Bank National Association ("U.S. Bank") set forth on Schedule 7.1 hereto, neither the Borrower -------- --- nor any of its Subsidiaries has any Indebtedness outstanding to, or commitments to borrow or otherwise receive credit from, U.S. Bank. The financing statement filed by U.S. Bank with the Minnesota Secretary of State's office (financing statement number 2245279) against the PremiumWear securities account maintained at U.S. Bancorp Investments was filed in connection with letters of credit issued by U.S. Bank on behalf of PremiumWear; such letters of credit have expired and will not be renewed. But for an oversight on the part of U.S. Bank, financing statement number 2245279 filed with the Minnesota Secretary of State's office would have been terminated prior to the date hereof. 6. AFFIRMATIVE COVENANTS OF THE BORROWER. ------------------------------------- The Borrower covenants and agrees that, so long as any Loan or Note is outstanding or any Bank has any obligation to make any Loans: 6.1. Punctual Payment. The Borrower will duly and punctually pay or cause ---------------- to be paid the principal and interest on the Loans and the closing fees, facility fees, utilization fees and Agent's fee provided for in this Credit Agreement, all in accordance with the terms of this Credit Agreement and the Notes. -41- 6.2. Maintenance of Office. The Borrower will maintain its chief executive --------------------- office in Groton, Massachusetts, or at such other place in the United States of America as the Borrower shall designate upon written notice to the Agent, where notices, presentations and demands to or upon the Borrower in respect of the Loan Documents may be given or made. 6.3. Records and Accounts. The Borrower will (a) keep, and cause each of -------------------- its Subsidiaries to keep, true and accurate records and books of account in which full, true and correct entries will be made in accordance with generally accepted accounting principles; (b) maintain adequate accounts and reserves for all taxes (including income taxes), depreciation, depletion, obsolescence and amortization of its properties and the properties of its Subsidiaries, contingencies, and other reserves; and (c) will at all times have engaged Deloitte & Touche, LLP or other independent certified public accountants satisfactory to the Agent as its accountants, with no more than thirty (30) days elapsing between the termination of any such accountants as the Borrower's accountants and the engagement of successor accountants satisfactory to the Agent. 6.4. Financial Statements, Certificates and Information. The Borrower will -------------------------------------------------- deliver to each of the Banks: (a) as soon as practicable, but in any event not later than ninety (90) days after the end of each fiscal year of the Borrower, the consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such year, and the related consolidated statement of income and consolidated statement of cash flow for such year, each setting forth in comparative form the figures for the previous fiscal year and all such consolidated statements to be in reasonable detail, prepared in accordance with generally accepted accounting principles, and certified without qualification by Deloitte & Touche LLP or by other independent certified public accountants satisfactory to the Agent together with a written statement from such accountants to the effect that they have read a copy of this Credit Agreement, and that, in making the examination necessary to said certification, they have obtained no knowledge of any Default or Event of Default, or, if such accountants shall have obtained knowledge of any then existing Default or Event of Default they shall disclose in such statement any such Default or Event of Default; provided that such -------- accountants shall not be liable to the Banks for failure to obtain knowledge of any Default or Event of Default; (b) as soon as practicable, but in any event not later than forty- five (45) days after the end of each of the fiscal quarters of the Borrower, copies of the unaudited consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such quarter, and the related consolidated statement of income and consolidated statement of cash flow for the portion of the Borrower's fiscal year then elapsed, all in reasonable detail and prepared in accordance with generally accepted accounting principles, together with a certification by the principal financial or accounting officer of the Borrower that the information contained in such -42- financial statements fairly presents the financial position of the Borrower and its Subsidiaries on the date thereof (subject to year-end adjustments); (c) simultaneously with the delivery of the financial statements referred to in subsections (a) and (b) above, a statement certified by the principal financial or accounting officer of the Borrower in substantially the form of Exhibit D hereto and setting forth in reasonable detail ------- - computations evidencing compliance with the covenants contained in (S)8 and (if applicable) reconciliations to reflect changes in generally accepted accounting principles since the Balance Sheet Date; (d) contemporaneously with the filing or mailing thereof, copies of all material of a financial nature filed with the Securities and Exchange Commission or sent to the stockholders of the Borrower; and (e) from time to time upon request of the Agent, annual projections of the Borrower and its Subsidiaries updating those projections delivered to the Banks and referred to in (S)5.4.2 or, if applicable, updating any later such projections delivered in response to a request pursuant to this (S)6.4(e); and (f) from time to time such other financial data and information (including accountants' management letters) as the Agent or any Bank may reasonably request. 6.5. Notices. ------- 6.5.1. Defaults. The Borrower will promptly notify the Agent and -------- each of the Banks in writing of the occurrence of any Default or Event of Default. If any Person shall give any notice or take any other action in respect of a claimed default (whether or not constituting an Event of Default) under this Credit Agreement or any other note, evidence of indebtedness, indenture or other obligation to which or with respect to which the Borrower or any of its Subsidiaries is a party or obligor, whether as principal or surety, the Borrower shall forthwith give written notice thereof to each of the Banks, describing the notice or action and the nature of the claimed default. 6.5.2. Environmental Events. The Borrower will promptly give notice -------------------- to the Agent (i) of any violation of any Environmental Law that the Borrower or any of its Subsidiaries reports in writing or is reportable by such Person in writing (or for which any written report supplemental to any oral report is made) to any federal, state or local environmental agency and (ii) upon becoming aware thereof, of any inquiry, proceeding, investigation, or other action, including a notice from any agency of potential environmental liability, of any federal, state or local environmental agency or board, that has the potential to materially affect the assets, liabilities, financial conditions or operations of the Borrower and its Subsidiaries on a consolidated basis. -43- 6.5.3. Notice of Litigation and Judgments. The Borrower will, and ---------------------------------- will cause each of its Subsidiaries to, give notice to the Agent in writing within fifteen (15) days of becoming aware of any litigation or proceedings threatened in writing or any pending litigation and proceedings affecting the Borrower or any of its Subsidiaries or to which the Borrower or any of its Subsidiaries is or becomes a party involving an uninsured claim against the Borrower or any of its Subsidiaries that could reasonably be expected to have a materially adverse effect on the Borrower and its Subsidiaries on a consolidated basis and stating the nature and status of such litigation or proceedings. The Borrower will, and will cause each of its Subsidiaries to, give notice to the Agent, in writing, in form and detail satisfactory to the Agent, within ten (10) days of any judgment not covered by insurance, final or otherwise, against the Borrower or any of its Subsidiaries in an amount in excess of $1,000,000. 6.6. Corporate or Other Existence; Maintenance of Properties. The Borrower ------------------------------------------------------- will do or cause to be done all things necessary to preserve and keep in full force and effect its legal existence, rights and franchises and those of its Subsidiaries (and, in the case of R&M Trust and Chiswick Trust, as the case may be, its existence, rights and franchises as a Massachusetts business trust) and will not, and will not cause or permit any of its Subsidiaries to, convert to a limited liability company or limited liability partnership. The Borrower (i) will cause all of its properties and those of its Subsidiaries used or useful in the conduct of its business or the business of its Subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment, (ii) will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Borrower may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times, and (iii) will, and will cause each of its Subsidiaries to, continue to engage primarily in the businesses now conducted by them and in related businesses; provided that -------- nothing in this (S)6.6 shall prevent the Borrower from discontinuing the operation and maintenance of any of its properties or those of its Subsidiaries or terminating the corporate existence of any Subsidiary if such discontinuance or termination is, in the judgment of the Borrower, desirable in the conduct of its or their business and that do not in the aggregate materially adversely affect the business of the Borrower and its Subsidiaries on a consolidated basis. 6.7. Insurance. The Borrower will, and will cause each of its Subsidiaries --------- to, maintain with financially sound and reputable insurers insurance with respect to its properties and business against such casualties and contingencies as shall be in accordance with the general practices of businesses engaged in similar activities in similar geographic areas and in amounts, containing such terms, in such forms and for such periods as may be reasonable and prudent. 6.8. Taxes. The Borrower will, and will cause each of its Subsidiaries to, ----- duly pay and discharge, or cause to be paid and discharged, before the same shall become overdue, all taxes, assessments and other governmental charges (other than taxes, assessments and other governmental charges imposed by -44- foreign jurisdictions that in the aggregate are not material to the business or assets of the Borrower on an individual basis or of the Borrower and its Subsidiaries on a consolidated basis) imposed upon it and its real properties, sales and activities, or any part thereof, or upon the income or profits therefrom, as well as all claims for labor, materials, or supplies that if unpaid might by law become a lien or charge upon any of its property; provided -------- that any such tax, assessment, charge, levy or claim need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if the Borrower or such Subsidiary shall have set aside on its books adequate reserves with respect thereto; and provided further -------- ------- that the Borrower and each Subsidiary of the Borrower will pay all such taxes, assessments, charges, levies or claims forthwith upon the commencement of proceedings to foreclose any lien that may have attached as security therefor. 6.9. Inspection of Properties and Books, etc. ---------------------------------------- 6.9.1. General. The Borrower shall permit the Banks, through the ------- Agent or any of the Banks' other designated representatives, to visit and inspect any of the properties of the Borrower or any of its Subsidiaries to examine the books of account of the Borrower and its Subsidiaries (and to make copies thereof and extracts therefrom), to conduct periodic commercial finance examinations, and to discuss the affairs, finances and accounts of the Borrower and its Subsidiaries with, and to be advised as to the same by, its and their officers, all at such reasonable times and intervals as the Agent or any Bank may reasonably request. 6.9.2. Communication with Accountants. The Borrower authorizes the ------------------------------ Agent and, if accompanied by the Agent, the Banks to communicate directly with the Borrower's independent certified public accountants following advance notice to the Borrower offering the Borrower the opportunity to be part of any oral communication with such accountants and authorizes such accountants to disclose to the Agent and the Banks any and all financial statements and other supporting financial documents and schedules including copies of any management letter with respect to the business, financial condition and other affairs of the Borrower or any of its Subsidiaries. At the request of the Agent, the Borrower shall deliver a letter addressed to such accountants instructing them to comply with the provisions of this (S)6.9.2. 6.10. Compliance with Laws, Contracts, Licenses, and Permits. The Borrower ------------------------------------------------------ will, and will cause each of its Subsidiaries to, comply with (i) the applicable laws and regulations wherever its business is conducted, including all Environmental Laws, (ii) the provisions of its charter documents and by-laws, (iii) all agreements and instruments by which it or any of its properties may be bound and (iv) all applicable decrees, orders, and judgments. If at any time while any Loan or Note is outstanding or any Bank has any obligation to make Loans hereunder, any authorization, consent, approval, permit or license from any officer, agency or instrumentality of any government shall become necessary or required in order that the Borrower may fulfill any of its obligations -45- hereunder, the Borrower will immediately take or cause to be taken all reasonable steps within the power of the Borrower to obtain such authorization, consent, approval, permit or license and furnish the Banks with evidence thereof. 6.11. Employee Benefit Plans. The Borrower will, and will cause each ---------------------- Subsidiary of the Borrower that has maintained or contributed to an Employee Benefit Plan or Guaranteed Pension Plan to, (i) promptly, upon request of the Agent, furnish to the Agent a copy of the most recent actuarial statement required to be submitted under (S)103(d) of ERISA and Annual Report, Form 5500, with all required attachments, in respect of each Guaranteed Pension Plan and (ii) promptly upon receipt or dispatch, furnish to the Agent any notice, report or demand sent or received in respect of a Guaranteed Pension Plan under (S)(S)302, 4041, 4042, 4043, 4063, 4065, 4066 and 4068 of ERISA, or in respect of a Multiemployer Plan, under (S)(S)4041A, 4202, 4219, 4242, or 4245 of ERISA, and (iii) promptly furnish to the Agent, upon request by the Agent, a copy of all actuarial statements required to be submitted under all Applicable Pension Legislation. 6.12. Use of Proceeds. The Borrower will use the proceeds of the Loans --------------- solely (a) to purchase common stock and/or other equity interests of Advantage and (b) for working capital and general corporate purposes, and not in violation of Regulations U or X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224. 6.13. Certain Intercompany Payments. The Borrower will, and will, as ----------------------------- applicable, cause each of Russell & Miller, Chiswick Trust and R&M Trust to, (a) promptly upon Russell & Miller's receipt thereof, cause all royalty payments received by Russell & Miller pursuant to any of the Trademark License Agreements (net of reasonable expenses incurred by Russell & Miller in connection with the maintenance, protection and enforcement of its related trademark intellectual property rights and the performance of its obligations under the Trademark License Agreements) to be paid to R&M Trust as capital contributions, (b) promptly upon R&M Trust's receipt thereof, cause R&M Trust to lend to the Borrower pursuant to an Unsecured Subordinated Promissory Note all amounts (net of reasonable, ordinary course operating expenses) received by it pursuant to clause (a) of this (S)6.13 or otherwise, and (c) promptly upon Chiswick Trust's receipt thereof, cause Chiswick Trust to lend to the Borrower pursuant to an Unsecured Subordinated Promissory Note all amounts (net of reasonable, ordinary course operating expenses) received by it from time to time from Chiswick. 6.14. Further Assurances. The Borrower will, and will cause each of its ------------------ Subsidiaries to, cooperate with the Banks and the Agent and execute such further instruments and documents as the Banks or the Agent shall reasonably request to carry out to their satisfaction the transactions contemplated by this Credit Agreement and the other Loan Documents. 6.15. Indebtedness to CIT. ------------------- -46- The Borrower will only incur Indebtedness to CIT in connection with the leasing of equipment from CIT. 6.16. Post-Closing Matters. The Borrower will: -------------------- (a) within ninety (90) days after the Closing Date, terminate the financing statements (file number 1910688 filed with the Minnesota Secretary of State's office and file number 97-272 filed in Robeson County, North Carolina) filed by FBS against all of the assets of PremiumWear; (b) within ninety (90) days after the Closing Date, terminate the financing statement (file number 1736869 filed with the New Jersey Secretary of State's office) filed by PNC against all of the assets of Rapidforms; (c) within ninety (90) days after the Closing Date, terminate the financing statement (file number 1736871 filed with the New Jersey Secretary of State's office) filed by the NJ Authority against all of the assets of Rapidforms; (d) within ninety (90) days after the Closing Date, terminate the financing statement (file number 1503756 filed with the New Jersey Secretary of State's office) filed by CNB against all of the assets of McBee; and (e) within ninety (90) days after the Closing Date, terminate the financing statement (file number 2245279 filed with the Minnesota Secretary of State's office) filed by U.S. Bank against the PremiumWear securities account maintained at U.S. Bancorp Investments. 7. CERTAIN NEGATIVE COVENANTS OF THE BORROWER. ------------------------------------------ The Borrower covenants and agrees that, so long as any Loan or Note is outstanding or any Bank has any obligation to make any Loans: 7.1. Restrictions on Indebtedness. The Borrower will not, and will not ---------------------------- permit any of its Subsidiaries to, create, incur, assume, guarantee or be or remain liable, contingently or otherwise, with respect to any Indebtedness other than: (a) Indebtedness to the Banks and the Agent arising under any of the Loan Documents; (b) current liabilities of the Borrower and its Subsidiaries (other than Russell & Miller, Chiswick Trust and R&M Trust) incurred in the ordinary course of business not incurred through (i) the borrowing of money, or (ii) the obtaining of credit except for credit on an open account basis customarily extended and in fact extended in connection with normal purchases of goods and services; (c) Indebtedness in respect of taxes, assessments, governmental charges or levies and claims for labor, materials and supplies to the -47- extent that payment therefor shall not at the time be required to be made in accordance with the provisions of (S)6.8; (d) Indebtedness in respect of judgments or awards that have been in force for less than the applicable period for taking an appeal so long as execution is not levied thereunder or in respect of which the Borrower shall at the time in good faith be prosecuting an appeal or proceedings for review and in respect of which a stay of execution shall have been obtained pending such appeal or review; (e) endorsements for collection, deposit or negotiation and warranties of products or services, in each case incurred in the ordinary course of business; (f) obligations of the Borrower or any of its Subsidiaries (other than Russell & Miller, Chiswick Trust and R&M Trust) under Capitalized Leases not exceeding $5,000,000 in aggregate at any time outstanding; (g) Indebtedness incurred in connection with the acquisition after the date hereof of any real or personal property by the Borrower or any of its Subsidiaries (other than Chiswick Trust and R&M Trust), provided that -------- the aggregate principal amount of such Indebtedness of the Borrower and its Subsidiaries (other than Chiswick Trust and R&M Trust) shall not exceed the aggregate amount of $5,000,000 at any one time; (h) Indebtedness existing on the date of this Credit Agreement and listed and described on Schedule 7.1 hereto; -------- --- (i) Indebtedness of (i) any and all Guarantors (other than Russell & Miller, Chiswick Trust and R&M Trust) to the Borrower or another Guarantor (other than Russell & Miller, Chiswick Trust and R&M Trust) and (ii) any other Subsidiary of the Borrower to the Borrower or another Subsidiary of the Borrower (other than Russell & Miller, Chiswick Trust and R&M Trust), in an aggregate amount not to exceed $10,000,000 at any one time; (j) Indebtedness of the Borrower to (i) any and all Guarantors (other than Russell & Miller, Chiswick Trust and R&M Trust) in an aggregate amount not to exceed $20,000,000 at any time and (ii) any and all other Subsidiaries of the Borrower (other than Russell & Miller, Chiswick Trust and R&M Trust) in an aggregate amount not to exceed $5,000,000 at any time; provided, however, that any and all Indebtedness under clause (i) or (ii) -------- ------- of this subsection (j) shall be subordinated to the Obligations on terms and conditions satisfactory to the Agent; (k) Indebtedness of the Borrower or any of its Subsidiaries (other than Russell & Miller, Chiswick Trust or R&M Trust) in respect of (i) overseas lines of credit, (ii) letters of credit, (iii) the granting of surety, appeal, bid, performance or other similar bonds or (iv) guaranties or other -48- contingent obligations in respect of Indebtedness of any Person, all of which Indebtedness described in clauses (i) - (iv) of this subparagraph (k), in the aggregate, shall not exceed $15,000,000; (l) Indebtedness with respect to interest rate protection agreements between the Borrower and any of the Banks; (m) Indebtedness for borrowed money, debt or similar monetary obligations assumed in respect of Permitted Acquisitions, to the extent permitted by paragraph 2(b) and (c) of the definition thereof, and other Indebtedness assumed in respect of Permitted Acquisitions and existing prior to the date of any Permitted Acquisition and not created in contemplation thereof; (n) obligations in respect of royalty payments owed by any of the Borrower or any of its Subsidiaries to Russell & Miller under and pursuant to any of the Trademark License Agreements; (o) Indebtedness of the Borrower to (i) R&M Trust under and pursuant to an Unsecured Subordinated Promissory Note from the Borrower to R&M Trust, which such Indebtedness is subordinated to the Obligations on terms and conditions satisfactory to the Agent, which shall include the Intercompany Subordination Agreement, and (ii) Chiswick Trust under and pursuant to an Unsecured Subordinated Promissory Note from the Borrower to Chiswick Trust, which such Indebtedness is subordinated to the Obligations on terms and conditions satisfactory to the Agent, which shall include the Chiswick Trust Intercompany Subordination Agreement; (p) Indebtedness of Russell & Miller permitted under Subsection (g) and Indebtedness of Russell & Miller, R&M Trust and Chiswick Trust not expressly permitted under subsections (a) through (o) of this (S)7.1, in an aggregate amount (owed by either or all such entities) not to exceed $5,000,000 at any time; (q) Indebtedness owed by the Borrower or any of its Subsidiaries (other than Russell & Miller, Chiswick Trust and R&M Trust) to any of their respective officers, directors or employees in connection with any deferred compensation plan, post-retirement medical or life insurance benefit plan, supplemental executive retirement plan or post-retirement medical benefit plan in an aggregate amount not to exceed $15,000,000; (r) Indebtedness of the Borrower and its Subsidiaries to the Agent and the Banks under the Second Amended and Restated Revolving Credit Agreement and the other Loan Documents (as defined in the Second Amended and Restated Revolving Credit Agreement); (s) Indebtedness of the Borrower or any of its Subsidiaries consisting of obligations arising under any awards made pursuant to any -49- stock option, stock appreciation right, restricted stock or other stock- based compensation plan of the Borrower or its Subsidiaries to employees or directors of the Borrower or its Subsidiaries; and (t) Indebtedness of the Borrower or any of its Subsidiaries (other than Russell & Miller, Chiswick Trust or R&M Trust) not expressly permitted under subsections (a)-(s) of this (S)7.1, in an aggregate amount not to exceed $5,000,000 at any time. 7.2. Restrictions on Liens. The Borrower will not, and will not permit any --------------------- of its Subsidiaries to, (i) create or incur or suffer to be created or incurred or to exist any lien, encumbrance, mortgage, pledge, charge, restriction or other security interest of any kind upon any of its property or assets of any character whether now owned or hereafter acquired, or upon the income or profits therefrom; (ii) transfer any of such property or assets or the income or profits therefrom for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to payment of its general creditors; (iii) acquire, or agree or have an option to acquire, any property or assets upon conditional sale or other title retention or purchase money security agreement, device or arrangement; (iv) suffer to exist for a period of more than thirty (30) days after the same shall have been incurred any Indebtedness or claim or demand against it that if unpaid might by law or upon bankruptcy or insolvency, or otherwise, be given any priority whatsoever over its general creditors; or (v) sell, assign, pledge or otherwise transfer any accounts, contract rights, general intangibles, chattel paper or instruments, with or without recourse; provided that the Borrower and any Subsidiary of the Borrower -------- may create or incur or suffer to be created or incurred or to exist: (a) liens to secure taxes, assessments and other government charges in respect of obligations not overdue or liens on properties to secure claims for labor, material or supplies in respect of obligations not overdue; (b) deposits or pledges made in connection with, or to secure payment of, workmen's compensation, unemployment insurance, old age pensions or other social security obligations; (c) liens on properties in respect of judgments or awards, the Indebtedness with respect to which is permitted by (S)7.1(d); (d) liens of carriers, warehousemen, mechanics and materialmen, and other like liens on properties, in existence less than one hundred twenty (120) days from the date of creation thereof in respect of obligations not overdue; (e) encumbrances consisting of easements, rights of way, zoning restrictions, restrictions on the use of real property and defects and irregularities in the title thereto, landlord's or lessor's liens under leases to which the Borrower or a Subsidiary of the Borrower is a party, and -50- other minor liens or encumbrances none of which in the opinion of the Borrower interferes materially with the use of the property affected in the ordinary conduct of the business of the Borrower and its Subsidiaries, which defects do not individually or in the aggregate have a materially adverse effect on the business of the Borrower individually or of the Borrower and its Subsidiaries on a consolidated basis; (f) presently outstanding liens listed on Schedule 7.2 hereto; -------- --- (g) purchase money security interests in or purchase money mortgages on real or personal property acquired after the date hereof to secure purchase money Indebtedness of the type and amount permitted by (S)7.1(g), incurred in connection with the acquisition of such property, which security interests or mortgages cover only the real or personal property so acquired; (h) rights of lessors under Capitalized Leases permitted by (S)7.1(f); (i) liens on assets acquired pursuant to Permitted Acquisitions and securing Indebtedness otherwise permitted by (S)7.1(m) and the definition of Permitted Acquisitions; and (j) liens on any capital stock of the Borrower or other Margin Stock for so long as such stock constitutes Margin Stock. 7.3. Restrictions on Investments. The Borrower will not, and will not --------------------------- permit any of its Subsidiaries to, make or permit to exist or to remain outstanding any Investment except Investments in: (a) marketable direct or guaranteed obligations of the United States of America that mature within one (1) year from the date of purchase by the Borrower; (b) demand deposits, certificates of deposit, bankers acceptances and time deposits of United States banks having total assets in excess of $1,000,000,000, and demand deposits or certificates of deposit of foreign banks having total assets in excess of the equivalent of $25,000,000,000; (c) securities commonly known as "commercial paper" issued by a corporation organized and existing under the laws of the United States of America or any state thereof that at the time of purchase have been rated and the ratings for which are not less than "P 1" if rated by Moody's Investors Services, Inc., and not less than "A 1" if rated by Standard and Poor's; (d) Investments existing on the date hereof and listed on Schedule -------- 7.3 hereto; --- (e) Investments with respect to Indebtedness permitted by (S)7.1(i) and (S)7.1(j) so long as such entities remain Subsidiaries of the Borrower; -51- (f) Investments consisting of the Guaranty and any guaranty from a Subsidiary of the Borrower issued in connection with the Second Amended and Restated Revolving Credit Agreement and in favor of the agent and the lending institutions party thereto. (g) Investments consisting of promissory notes received as proceeds of asset dispositions permitted by (S)7.5.2; (h) Investments consisting of loans and advances to employees for moving, entertainment, travel, hardship and other similar expenses in the ordinary course of business not to exceed $1,000,000 in the aggregate at any time outstanding; and (i) tax exempt municipal bonds or bond funds rated AA or higher by Standard and Poor's Ratings Group or Moody's Investors Services, Inc.; (j) Investments by the Borrower and the Guarantors in (i) Guarantors (other than R&M Trust or Chiswick Trust), and (ii) other Subsidiaries of the Borrower (other than R&M Trust and Chiswick Trust) in an aggregate amount not to exceed $10,000,000; (k) Investments in respect of Permitted Acquisitions to the extent permitted by the definition thereof; (l) Investments by a foreign Subsidiary in marketable direct or guaranteed obligations of the national government of its country of incorporation that mature within one (1) year following the date of purchase by such Subsidiary; (m) Investments by (i) the Borrower in its capital stock held as treasury stock (existing as of the Closing Date or to the extent repurchased in accordance with the requirements of (S)7.4) or (ii) the Borrower or any Subsidiary of the Borrower in connection with or in any employee benefit plan of the Borrower or such Subsidiary; (n) without limiting the Investments permitted by (S)7.3(j), (i) Investments in R&M Trust by Rapidforms, McBee and Russell & Miller pursuant to the R&M Contribution Agreement and (ii) Investments in Chiswick Trust by Chiswick pursuant to the Chiswick Contribution Agreement; (o) Investments with respect to Indebtedness permitted by (S)7.1(o); (p) Investments with respect to the acquisition of common stock and/or other equity interests of Advantage permitted by (S)7.5.1(d); (q) Investments by the Borrower in Permitted Joint Ventures; provided, however, that except to the extent actually received by the -------- ------- Borrower in cash by way of distributions or otherwise, any income generated by such Investment in any Permitted Joint Ventures shall not be included in -52- calculations of EBITDA, Consolidated Net Income or any similar income or earnings based concepts hereunder; (r) Investments by a Subsidiary that is not a Guarantor in (i) the Borrower or any Guarantor and (ii) other Subsidiaries that are not Guarantors in an aggregate amount not to exceed $15,000,000. (s) Investments not otherwise expressly permitted under subsections (a) - (r) of this (S)7.3, in an aggregate amount not to exceed $5,000,000 at any one time. 7.4. Restricted Payments. The Borrower will not make any Restricted ------------------- Payments other than (a) payments to Affiliates who are employees, officers and directors in connection with services as employees, officers and directors pursuant to arrangements which have been approved by the Board of Directors of the Borrower (or a committee thereof), or are otherwise made in the ordinary course of business of the Borrower and (b) so long as no Default or Event of Default has occurred and is continuing or would occur after giving effect thereto, and subject in particular to the Borrower's continuing compliance with its covenants set forth in (S)(S)8.1-8.3 hereof, the Borrower (i) may pay dividends on its common stock in an aggregate amount not to exceed $20,000,000 in any fiscal year of the Borrower and (ii) may make repurchases of its own issued and outstanding common stock pursuant to any stock repurchase plan approved by its Board of Directors in an aggregate amount not to exceed $25,000,000 from the Closing Date to the Revolving Credit Loan Maturity Date provided that immediately after each such repurchase the aggregate amount of the Banks' (as defined in the Second Amended and Restated Revolving Credit Agreement) Unfunded Commitments (as defined in the Second Amended and Restated Revolving Credit Agreement) under the Second Amended and Restated Revolving Credit Agreement equals or exceeds $10,000,000. 7.5. Merger, Consolidation and Disposition of Assets. ----------------------------------------------- 7.5.1. Mergers and Acquisitions. The Borrower will not, and will not ------------------------ permit any of its Subsidiaries to, become a party to any merger or consolidation, or agree to or effect any asset acquisition or acquisition of stock or other equity interests (other than the acquisition of assets in the ordinary course of business consistent with past practices) except (a) the merger or consolidation of one or more of the Subsidiaries of the Borrower with and into the Borrower, (b) the merger or consolidation of two or more Subsidiaries of the Borrower, (c) Permitted Acquisitions, (d) so long as no Default or Event of Default has occurred and is continuing or would occur as a result thereof, the acquisition by the Borrower of common stock and/or other equity interests of Advantage after the Closing Date, whether by the exercise of the Advantage warrants held by the Borrower as of the Closing Date or otherwise, provided that the aggregate purchase price for such common stock and/or other equity interests of Advantage does not exceed $18,000,000 or (e) Permitted Joint Ventures. -53- 7.5.2. Disposition of Assets. The Borrower will not, and will not --------------------- permit any of its Subsidiaries to, become a party to or agree to or effect any disposition of assets, other than (a) the sale of inventory, (b) the license or lease of intellectual property in the ordinary course of business, and (c) the disposition of assets, in each case set forth in clauses (a), (b) and (c) hereof in the ordinary course of business and consistent with past practices, (d) dispositions of capital stock of the Borrower and other Margin Stock for so long as such stock constitutes Margin Stock, (e) the use of cash or other property to make Permitted Investments, (f) other dispositions of assets in an aggregate amount not to exceed the lesser of (i) $5,000,000 and (ii) five percent (5%) of Consolidated Total Assets (determined as of the date or dates of such dispositions), and (g) the disposition for fair market value of the common stock and/or other equity interests of Advantage held by the Borrower. Notwithstanding the restrictions contained above in (S)7.5.1 and (S)7.5.2, the Borrower or any Guarantor (other than Russell & Miller, R&M Trust and Chiswick Trust) may transfer assets owned by it to the Borrower or any other Guarantor (other than Russell & Miller, R&M Trust and Chiswick Trust). 7.6. Sale and Leaseback. The Borrower will not, and will not permit any of ------------------ its Subsidiaries to, enter into any arrangement, directly or indirectly, whereby the Borrower or any Subsidiary of the Borrower shall sell or transfer any property owned by it in order then or thereafter to lease such property or lease other property that the Borrower or any Subsidiary of the Borrower intends to use for substantially the same purpose as the property being sold or transferred. 7.7. Compliance with Environmental Laws. Except as set forth in Schedule ---------------------------------- -------- 5.18 hereto, the Borrower will not, and will not permit any of its Subsidiaries - ---- to, (i) use any of the Real Estate or any portion thereof for the handling, processing, storage or disposal of Hazardous Substances, (ii) cause or permit to be located on any of the Real Estate any underground tank or other underground storage receptacle for Hazardous Substances, (iii) generate any Hazardous Substances on any of the Real Estate, (iv) conduct any activity at any Real Estate or use any Real Estate in any manner so as to cause a release (i.e. releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping) or threatened release of Hazardous Substances on, upon or into the Real Estate or (v) otherwise conduct any activity at any Real Estate or use any Real Estate in any manner that would violate any Environmental Law or bring such Real Estate in violation of any Environmental Law. 7.8. Employee Benefit Plans. Neither the Borrower nor any ERISA Affiliate ---------------------- will: (a) engage in any "prohibited transaction" within the meaning of (S)406 of ERISA or (S)4975 of the Code which could result in a material liability for the Borrower or any of its Subsidiaries; or -54- (b) permit any Guaranteed Pension Plan to incur an "accumulated funding deficiency", as such term is defined in (S)302 of ERISA, whether or not such deficiency is or may be waived; or (c) fail to contribute to any Guaranteed Pension Plan to an extent which, or terminate any Guaranteed Pension Plan in a manner which, could result in the imposition of a lien or encumbrance on the assets of the Borrower or any of its Subsidiaries pursuant to (S)302(f) or (S)4068 of ERISA; or (d) amend any Guaranteed Pension Plan in circumstances requiring the posting of security pursuant to (S)307 of ERISA or (S)401(a)(29) of the Code; or (e) permit or take any action which would result in the aggregate benefit liabilities (with the meaning of (S)4001 of ERISA) of all Guaranteed Pension Plans exceeding the value of the aggregate assets of such Plans, disregarding for this purpose the benefit liabilities and assets of any such Plan with assets in excess of benefit liabilities; or (f) permit or take any action which would contravene any Applicable Pension Legislation. 7.9. Fiscal Year. Neither the Borrower nor any of its Subsidiaries will ----------- change the date of the end of its fiscal year or any fiscal quarter from that set forth in (S)5.21 hereof. 7.10. Probation on Negative Pledges. Neither the Borrower nor any of its ----------------------------- Subsidiaries will enter into, or be or become bound by or subject to, any agreement prohibiting the creation or assumption of any lien or security interest upon its properties, whether now owned or hereafter acquired. 7.11. Creation and Maintenance of Subsidiaries. Neither the Borrower nor ---------------------------------------- any of its Subsidiaries shall create any Subsidiary (other than any Subsidiaries existing on the Closing Date and disclosed in (S)5.19 hereto) unless (a) one hundred percent (100%) of the capital stock or other equity interests (subject to the exclusion of any legally required directors' qualifying shares) of such Subsidiary are owned directly or indirectly by the Borrower; provided, however, -------- ------- that such Subsidiary may not, without the prior written consent of the Agent and the Majority Banks, conduct business or operations materially different from those conducted by the Borrower or any other Subsidiary on the Closing Date or, as the case may be, any date on which any such other Subsidiary is acquired in compliance with the terms of (S)7.5.1 or created (with the consent of the Agent and the Majority Banks if the business or operations are to be materially different) in compliance with the terms of this (S)7.11, (b) prior to the formation of such Subsidiary, the Borrower shall notify the Agent and the Banks thereof, and (c) contemporaneously with the formation of such Subsidiary, the Borrower shall (i) cause such Subsidiary, if such Subsidiary shall engage in business of any kind or nature (other than qualifying to do -55- business in a foreign jurisdiction), shall have a net worth or assets of more than a de minimis value or shall issue any capital stock to any person other -- ------- than the Borrower or a Subsidiary of the Borrower, to guaranty all of the Obligations hereunder pursuant to the Guaranty, and (ii) cause such Subsidiary to deliver to the Banks and the Agent satisfactory evidence of proper corporate or other authorization and legal opinions with respect to such Guaranty. Upon the delivery to the Agent of the items required by subsections (c)(i) and (ii) of the immediately preceding sentence, Schedule 5.19 shall be, and shall be ------------- deemed to be, automatically amended to include such new Subsidiary. In the event that any domestic Subsidiary existing on or after the Closing Date and disclosed on Schedule 5.19 shall hereafter become engaged in business of any kind or ------------- nature (except that such Subsidiary is qualified to do business in a foreign jurisdiction), shall have a net worth or assets of more than a de minimis value -- ------- or shall have issued any capital stock to any person other than the Borrower or a Subsidiary of the Borrower, then the Borrower shall immediately notify the Agent and the Banks thereof and shall immediately cause such Subsidiary to comply with the requirement of such subsection (c) hereof. 7.12. Conduct of Business; Agreements Regarding Certain Subsidiaries. -------------------------------------------------------------- 7.12.1. General. Neither the Borrower nor any of its Subsidiaries ------- will, without the prior written consent of the Agent and the Majority Banks, conduct any business or operations materially different from those conducted by it on the Closing Date or, as the case may be, any date on which any such Subsidiary is acquired in compliance with the terms of (S)7.5.1 or created (with the consent of the Agent and the Majority Banks if its business or operations are materially different) in compliance with the terms of (S)7.11. 7.12.2. R&M Trust and Chiswick Trust. Neither R&M Trust nor ---------------------------- Chiswick Trust shall conduct any business or activities other than the lending to the Borrower pursuant to an Unsecured Subordinated Promissory Note of all amounts (net of reasonable, ordinary course operating expenses) received by it, whether by way of capital contributions pursuant to the R&M Contribution Agreement, the Chiswick Contribution Agreement or otherwise, and shall have no assets other than cash (which shall be loaned to the Borrower in accordance with (S)6.13) and Indebtedness owed by the Borrower to it as permitted by (S)7.1(o). Without limiting the foregoing and notwithstanding any of the carve-outs contained in (S)7.2 (other than (S)7.2(a)), (S)7.3 (other than (S)7.3(b) (with respect to Investments by R&M Trust or Chiswick Trust, as the case may be, in a deposit account maintained with Fleet until amounts held therein are loaned to the Borrower pursuant to (S)6.13), (S)7.3(f) and (S)7.3(n)) or (S)7.11, the Borrower shall not permit R&M Trust or Chiswick Trust, as the case may be, to encumber their respective assets in any manner described in (S)7.2, to make or permit to exist or remain outstanding any Investments, or to create or acquire any Subsidiaries. The Borrower shall also not permit, without the prior written approval of the Agent and the Majority Banks, any amendment to or modification of the Chiswick Contribution Agreement, the Chiswick Trust Intercompany -56- Subordination Agreement, the R&M Contribution Agreement or the Intercompany Subordination Agreement. 7.13. Transactions with Affiliates. Except as otherwise expressly ---------------------------- permitted hereby, the Borrower will not, and will not permit any of its Subsidiaries to, engage in any transaction with any Affiliate (other than as permitted by Section 7.4(a) hereof), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such Affiliate or, to the knowledge of the Borrower, any corporation, partnership, trust or other entity in which any such Affiliate has a substantial interest or is an officer, director, trustee or partner, on terms more favorable to such Person than would have been obtainable on an arm's-length basis in the ordinary course of business. 8. FINANCIAL COVENANTS OF THE BORROWER. ----------------------------------- The Borrower covenants and agrees that, so long as any Loan or Note is outstanding or any Bank has any obligation to make any Loans: 8.1. Funded Debt to EBITDA. The Borrower will not as of the end of any --------------------- four (4) consecutive fiscal quarters of the Borrower ending on any quarter end, permit the ratio of (a) Consolidated Funded Debt as at such quarter end to (b) EBITDA for such four (4) consecutive fiscal quarters then ended to be greater than 2.5:1.0. 8.2. Minimum Fixed Charge Coverage Ratio. The Borrower will not, as at the ----------------------------------- end of any four (4) consecutive fiscal quarters of the Borrower ending on any quarter end, permit the ratio of (a) EBITDA for such period minus Capital ----- Expenditures for such period to (b) Consolidated Total Interest Expense for such period plus any scheduled amortization payments on Indebtedness for borrowed ---- money or in respect of any Capitalized Leases permitted by (S)7.1, to be less than (a) 3.75:1.00 for any such period ending on or after June 30, 2001 through the end of the third fiscal quarter of 2002 and (b) 4.00:1.00 for any such period ending thereafter. 8.3. Consolidated Net Worth. The Borrower will not permit Consolidated ---------------------- Net Worth at any time to be less than the sum of (a) $100,000,000, plus (b) on a ---- cumulative basis, fifty percent (50%) of positive Consolidated Net Income for each fiscal quarter beginning with the fiscal quarter ended June 30, 2001, plus ---- (c) one hundred percent (100%) of the proceeds of any sale by the Borrower or any Subsidiary of (i) equity securities issued by the Borrower or such Subsidiary, or (ii) warrants or subscription rights for equity securities issued by the Borrower or such Subsidiary. -57- 9. CLOSING CONDITIONS. ------------------ The obligations of the Banks to make the initial Loans shall be subject to the satisfaction of the following conditions precedent on or prior to the Closing Date. 9.1. Loan Documents. Each of the Loan Documents shall have been duly -------------- executed and delivered by the respective parties thereto, shall be in full force and effect and shall be in form and substance satisfactory to each of the Banks. Each Bank shall have received a fully executed copy of each such document. 9.2. Certified Copies of Charter Documents. Each of the Banks shall have ------------------------------------- received from the Borrower and each of its Guarantors a copy, certified by a duly authorized officer of such Person to be true and complete on the Closing Date, of each of (i) its charter or other incorporation documents as in effect on such date of certification, and (ii) its by-laws as in effect on such date. 9.3. Corporate Action. All corporate action necessary for the valid ---------------- execution, delivery and performance by the Borrower and each of its Subsidiaries of this Credit Agreement and the other Loan Documents to which it is or is to become a party shall have been duly and effectively taken, and evidence thereof satisfactory to the Banks shall have been provided to each of the Banks. 9.4. Incumbency Certificate. Each of the Banks shall have received from ---------------------- the Borrower and each of the Guarantors an incumbency certificate, dated as of the Closing Date, signed by a duly authorized officer of the Borrower or such Guarantor, as applicable, and giving the name and bearing a specimen signature of each individual who shall be authorized: (i) to sign, in the name and on behalf of the Borrower or such Guarantor, as applicable, each of the Loan Documents; (ii) on behalf of the Borrower to make Loan Requests and Conversion Requests; and (iii) to give notices and to take other action on its behalf under the Loan Documents. 9.5. UCC Search Results. The Agent shall have received from the Borrower ------------------ the results of UCC searches in jurisdictions certified by the Borrower as constituting the location of all offices and locations, including the chief executive offices, of the Borrower and the Guarantors and in such other jurisdictions as the Agent may request, indicating no liens other than Permitted Liens and otherwise in form and substance satisfactory to the Agent. 9.6. Certificates of Insurance. The Agent shall have received a ------------------------- certificate of insurance from an independent insurance broker dated as of the Closing Date, identifying insurers, types of insurance, insurance limits, and policy terms, and otherwise describing the insurance obtained in accordance with the provisions hereof. 9.7. Solvency Certificate. Each of the Banks shall have received an -------------------- officer's certificate of the Borrower dated as of the Closing Date as to the -58- solvency of the Borrower and its Subsidiaries following the consummation of the transactions contemplated herein and in form and substance satisfactory to the Banks. 9.8. Opinion of Counsel. (a) Each of the Banks and the Agent shall have ------------------ received a favorable opinion addressed to the Banks and the Agent, dated as of the Closing Date, in form and substance satisfactory to the Banks and the Agent, from Hill & Barlow, counsel to the Borrower and its Subsidiaries. (b) Each of the Banks and the Agent shall have received a favorable opinion addressed to the Banks and the Agent, dated as of the Closing Date, in form and substance satisfactory to the Banks and the Agent, from each of Drinker Biddle & Shanley LLP, counsel to Rapidforms, and Lindquist & Vennum P.L.L.P., counsel to McBee. 9.9. Payment of Fees. As required by (S)4.1, the Borrower shall have paid --------------- to the Agent and the Arranger the fees described in the Agent's Fee Letter, together with all reasonable out-of-pocket expenses of the Agent, including but not limited to reasonable attorneys' fees and disbursements. 9.10. No Material Adverse Change. The Agent and the Banks shall be -------------------------- satisfied that there shall have occurred no material adverse change since the Interim Balance Sheet Date in the business, operations, assets, properties or condition (financial or otherwise) of the Borrower and its Subsidiaries, taken as a whole. 10. CONDITIONS TO ALL BORROWINGS. ---------------------------- The obligations of the Banks to make any Loan, whether on or after the Closing Date, shall also be subject to the satisfaction of the following conditions precedent: 10.1. Representations True; No Event of Default. Each of the ----------------------------------------- representations and warranties of any of the Borrower and its Subsidiaries contained in this Credit Agreement, the other Loan Documents or in any document or instrument delivered pursuant to or in connection with this Credit Agreement shall be true as of the date as of which they were made and shall also be true at and as of the time of the making of such Loan, with the same effect as if made at and as of that time (except to the extent of changes resulting from transactions contemplated or permitted by this Credit Agreement and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse, and to the extent that such representations and warranties relate expressly to an earlier date) and no Default or Event of Default shall have occurred and be continuing. -59- 10.2. No Legal Impediment. No change shall have occurred in any law or ------------------- regulations thereunder or interpretations thereof that in the reasonable opinion of any Bank would make it illegal for such Bank to make such Loan. 10.3. Governmental Regulation. Each Bank shall have received such ----------------------- statements in substance and form reasonably satisfactory to such Bank as such Bank shall require for the purpose of compliance with any applicable regulations of the Comptroller of the Currency or the Board of Governors of the Federal Reserve System. 10.4. Proceedings and Documents. All proceedings in connection with the ------------------------- transactions contemplated by this Credit Agreement, the other Loan Documents and all other documents incident thereto shall be satisfactory in substance and in form to the Banks and to the Agent and the Agent's Special Counsel, and the Banks, the Agent and such counsel shall have received all information and such counterpart originals or certified or other copies of such documents as the Agent may reasonably request. 11. EVENTS OF DEFAULT; ACCELERATION; ETC. ------------------------------------ 11.1. Events of Default and Acceleration. If any of the following events ---------------------------------- ("Events of Default" or, if the giving of notice or the lapse of time or both is required, then, prior to such notice or lapse of time, "Defaults") shall occur: (a) the Borrower shall fail to pay any principal of the Loans when the same shall become due and payable, whether at the stated date of maturity or any accelerated date of maturity or at any other date fixed for payment; (b) the Borrower shall fail to pay any interest on the Loans, the facility fee or utilization fee, or other sums due hereunder or under any of the other Loan Documents, when the same shall become due and payable, whether at the stated date of maturity or any accelerated date of maturity or at any other date fixed for payment; (c) the Borrower shall fail to comply with any of its covenants contained in (S)(S)6, 7 or 8; (d) the Borrower or any of its Subsidiaries shall fail to perform any term, covenant or agreement contained herein or in any of the other Loan Documents (other than those specified elsewhere in this (S)11) for fifteen (15) days after written notice of such failure has been given to the Borrower by the Agent; (e) any representation or warranty of the Borrower or any of its Subsidiaries in this Credit Agreement or any of the other Loan Documents or in any other document or instrument delivered pursuant to or in connection with this Credit Agreement shall prove to have been false -60- in any material respect upon the date when made or deemed to have been made or repeated; (f) the Borrower or any of its Subsidiaries shall fail to pay at maturity, or within any applicable period of grace, any obligation for borrowed money or credit received (including, without limitation, under or in respect of the Second Amended and Restated Revolving Credit Agreement) or in respect of any Capitalized Leases, or fail to observe or perform any material term, covenant or agreement contained in any agreement by which it is bound (excluding, however, any such term, covenant or agreement relating to the pledge or disposition of capital stock of the Borrower or other Margin Stock for so long as such stock constitutes Margin Stock), evidencing or securing borrowed money or credit received or in respect of any Capitalized Leases for such period of time as would permit (assuming the giving of appropriate notice if required) the holder or holders thereof or of any obligations issued thereunder to accelerate the maturity thereof; (g) the Borrower or any of its Subsidiaries shall make an assignment for the benefit of creditors, or admit in writing its inability to pay or generally fail to pay its debts as they mature or become due, or shall petition or apply for the appointment of a trustee or other custodian, liquidator or receiver of the Borrower or any of its Subsidiaries or of any substantial part of the assets of the Borrower or any of its Subsidiaries or shall commence any case or other proceeding relating to the Borrower or any of its Subsidiaries under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law of any jurisdiction, now or hereafter in effect, or shall take any action to authorize or in furtherance of any of the foregoing, or if any such petition or application shall be filed or any such case or other proceeding shall be commenced against the Borrower or any of its Subsidiaries and the Borrower or any of its Subsidiaries shall indicate its approval thereof, consent thereto or acquiescence therein or such petition or application shall not have been dismissed within forty-five (45) days following the filing thereof; (h) a decree or order is entered appointing any such trustee, custodian, liquidator or receiver or adjudicating the Borrower or any of its Subsidiaries bankrupt or insolvent, or approving a petition in any such case or other proceeding, or a decree or order for relief is entered in respect of the Borrower or any Subsidiary of the Borrower in an involuntary case under federal bankruptcy laws as now or hereafter constituted; (i) there shall remain in force, undischarged, unsatisfied and unstayed, for more than thirty days, whether or not consecutive, any final judgment against the Borrower or any of its Subsidiaries that, with other outstanding final judgments, undischarged, against the Borrower or any of its Subsidiaries exceeds in the aggregate $1,000,000; -61- (j) if any of the Loan Documents shall be cancelled, terminated, revoked or rescinded, in each case otherwise than with the express prior written agreement, consent or approval of the Banks, or any action at law, suit or in equity or other legal proceeding to cancel, revoke or rescind any of the loan documents shall be commenced by or on behalf of the Borrower or any of its Subsidiaries party thereto or any of their respective stockholders, or any court or any other governmental or regulatory authority or agency of competent jurisdiction shall make a determination that, or issue a judgment, order, decree or ruling to the effect that, any one or more of the Loan Documents is illegal, invalid or unenforceable in accordance with the terms thereof; (k) the Borrower or any ERISA Affiliate incurs any liability to the PBGC or a Guaranteed Pension Plan pursuant to Title IV of ERISA in an aggregate amount exceeding $2,000,000; the Borrower or any ERISA Affiliate is assessed withdrawal liability pursuant to Title IV of ERISA by a Multiemployer Plan requiring aggregate annual payments exceeding $2,000,000, or any of the following occurs with respect to a Guaranteed Pension Plan: (i) an ERISA Reportable Event, or a failure to make a required installment or other payment (within the meaning of (S)302(f)(1) of ERISA), provided the Agent determines in its reasonable discretion that such event (A) could be expected to result in liability of the Borrower to the PBGC or the Plan in an aggregate amount exceeding $2,000,000 and (B) could constitute grounds for the termination of such Plan by the PBGC, for the appointment by the appropriate United States District Court of a trustee to administer such Plan or for the imposition of a lien in favor of the Guaranteed Pension Plan; (ii) the appointment by a United States District Court of a trustee to administer such Plan; or (iii) the institution by the PBGC of proceedings to terminate such Plan; (l) the Borrower or any of its Subsidiaries shall be enjoined, restrained or in any way prevented by the order of any court or any administrative or regulatory agency from conducting any material part of its business and such order shall continue in effect for more than thirty (30) days; (m) there shall occur any material damage to, or loss, theft or destruction of, any assets of the Borrower or its Subsidiaries, whether or not insured, or any strike, lockout, labor dispute, embargo, condemnation, act of God or public enemy, or other casualty, which in any such case causes, for more than fifteen (15) consecutive days, the cessation or substantial curtailment of revenue producing activities at any facility of the Borrower or any of its Subsidiaries if such event or circumstance is not covered by business interruption insurance and would have a material adverse effect on the business or financial condition of the Borrower and its Subsidiaries on a consolidated basis; (n) there shall occur the loss, suspension or revocation of, or failure to renew, any license or permit now held or hereafter acquired by -62- the Borrower or any of its Subsidiaries if such loss, suspension, revocation or failure to renew would have a material adverse effect on the business or financial condition of the Borrower and its Subsidiaries on a consolidated basis; (o) the Borrower or any of its Subsidiaries shall be indicted for a state or federal crime, or any civil or criminal action shall otherwise have been brought or threatened against the Borrower or any of its Subsidiaries, a punishment for which in any such case could include the forfeiture of any assets of the Borrower and its Subsidiaries having an aggregate fair market value in excess of $5,000,000; or (p) (i) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of twenty percent (20%) or more of the outstanding shares of common stock of the Borrower; or (ii) during any period of twelve (12) consecutive calendar months, individuals who were directors of the Borrower on the first day of such period shall cease to constitute a majority of the board of directors of the Borrower; then, and in any such event, so long as the same may be continuing, the Agent may, and upon the request of the Majority Banks shall, by notice in writing to the Borrower declare all amounts owing with respect to this Credit Agreement, the Notes and the other Loan Documents to be, and they shall thereupon forthwith become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower; provided that in the event of any Event of Default specified in -------- (S)11.1(g) or 11.1(h), all such amounts shall become immediately due and payable automatically and without any requirement of notice from the Agent or any Bank. 11.2. Termination of Commitments. If any one or more of the Events of -------------------------- Default specified in (S)11.1(g) or (S)11.1(h) shall occur, any unused portion of the credit hereunder shall forthwith terminate and each of the Banks shall be relieved of all obligations to make Loans to the Borrower. If any other Event of Default shall have occurred and be continuing, or if on any Drawdown Date the conditions precedent to the making of the Loans to be made on such Drawdown Date are not satisfied, the Agent may and, upon the request of the Majority Banks, shall, by notice to the Borrower, terminate the unused portion of the credit hereunder, and upon such notice being given such unused portion of the credit hereunder shall terminate immediately and each of the Banks shall be relieved of all further obligations to make Loans. If any such notice is given to the Borrower the Agent will forthwith furnish a copy thereof to each of the Banks. No termination of the credit hereunder shall relieve the Borrower of any of the Obligations or any of its existing obligations to any of the Banks arising under other agreements or instruments. -63- 11.3. Remedies. In case any one or more of the Events of Default shall -------- have occurred and be continuing, and whether or not the Banks shall have accelerated the maturity of the Loans pursuant to (S)11.1, each Bank, if owed any amount with respect to the Loans, may, with the consent of the Majority Banks but not otherwise, proceed to protect and enforce its rights by suit in equity, action at law or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Credit Agreement and the other Loan Documents or any instrument pursuant to which the Obligations to such Bank are evidenced, including as permitted by applicable law the obtaining of the ex parte appointment of a receiver, and, if such amount shall have become -- ----- due, by declaration or otherwise, proceed to enforce the payment thereof or any other legal or equitable right of such Bank. No remedy herein conferred upon any Bank or the Agent or the holder of any Note is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or any other provision of law. 12. SETOFF. ------ The Borrower hereby grants to the Agent and each of the Banks a continuing lien, security interest and right of setoff as security for all liabilities and obligations to the Agent and each Bank, whether now existing or hereafter arising, upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of the Agent or such Bank or any Bank Affiliate and their successors and assigns or in transit to any of them. Regardless of the adequacy of any collateral, during the continuance of any Event of Default, any deposits or other sums credited by or due from any of the Banks to the Borrower and any securities or other property of the Borrower in the possession of such Bank may be applied to or set off by such Bank against the payment of Obligations and any and all other liabilities, direct, or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, of the Borrower to such Bank. ANY AND ALL RIGHTS TO REQUIRE ANY BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. Each of the Banks agree with each other Bank that (a) if an amount to be set off is to be applied to Indebtedness of the Borrower to such Bank, other than Indebtedness evidenced by the Notes held by such Bank, such amount shall be applied ratably to such other Indebtedness and to the Indebtedness evidenced by all such Notes held by such Bank, and (b) if such Bank shall receive from the Borrower, whether by voluntary payment, exercise of the right of setoff, counterclaim, cross action, enforcement of the claim evidenced by the Notes held by such Bank by proceedings against the Borrower at law or in equity or by proof thereof in bankruptcy, reorganization, liquidation, receivership or similar proceedings, or otherwise, and shall retain and apply to the payment of the Note or Notes held by such Bank any amount in excess of its ratable portion of the payments -64- received by all of the Banks with respect to the Notes held by all of the Banks, such Bank will make such disposition and arrangements with the other Banks with respect to such excess, either by way of distribution, pro tanto assignment of --- ----- claims, subrogation or otherwise as shall result in each Bank receiving in respect of the Notes held by it, its proportionate payment as contemplated by this Credit Agreement; provided that if all or any part of such excess payment -------- is thereafter recovered from such Bank, such disposition and arrangements shall be rescinded and the amount restored to the extent of such recovery, but without interest. 13. THE AGENT. --------- 13.1. Authorization. ------------- (a) The Agent is authorized to take such action on behalf of each of the Banks and to exercise all such powers as are hereunder and under any of the other Loan Documents and any related documents delegated to the Agent, together with such powers as are reasonably incident thereto, provided that no duties or responsibilities not expressly assumed herein or -------- therein shall be implied to have been assumed by the Agent. (b) The relationship between the Agent and each of the Banks is that of an independent contractor. The use of the term "Agent" is for convenience only and is used to describe, as a form of convention, the independent contractual relationship between the Agent and each of the Banks. Nothing contained in this Credit Agreement nor the other Loan Documents shall be construed to create an agency, trust or other fiduciary relationship between the Agent and any of the Banks. (c) As an independent contractor empowered by the Banks to exercise certain rights and perform certain duties and responsibilities hereunder and under the other Loan Documents, the Agent is nevertheless a "representative" of the Banks, as that term is defined in Article 1 of the Uniform Commercial Code, for purposes of actions for the benefit of the Banks and the Agent with respect to all collateral security and guaranties contemplated by the Loan Documents. 13.2. Employees and Agents. The Agent may exercise its powers and execute -------------------- its duties by or through employees or agents and shall be entitled to take, and to rely on, advice of counsel concerning all matters pertaining to its rights and duties under this Credit Agreement and the other Loan Documents. The Agent may utilize the services of such Persons as the Agent in its sole discretion may reasonably determine, and all reasonable fees and expenses of any such Persons shall be paid by the Borrower. 13.3. No Liability. Neither the Agent nor any of its shareholders, ------------ directors, officers or employees nor any other Person assisting them in their duties nor any agent or employee thereof, shall be liable for any waiver, consent or approval given or any action taken, or omitted to be taken, in good faith by it -65- or them hereunder or under any of the other Loan Documents, or in connection herewith or therewith, or be responsible for the consequences of any oversight or error of judgment whatsoever, except that the Agent or such other Person, as the case may be, may be liable for losses due to its willful misconduct or gross negligence. 13.4. No Representations. ------------------ 13.4.1. General. ------- The Agent shall not be responsible for the execution or validity or enforceability of this Credit Agreement, the Notes, any of the other Loan Documents or any instrument at anytime constituting, or intended to constitute, collateral security for the Notes, or for the value of any such collateral security or for the validity, enforceability or collectability of any such amounts owing with respect to the Notes, or for any recitals or statements, warranties or representations made herein or in any of the other Loan Documents or in any certificate or instrument hereafter furnished to it by or on behalf of the Borrower or any of its Subsidiaries, or be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements herein or in any instrument at any time constituting, or intended to constitute, collateral security for the Notes or to inspect any of the properties, books or records of the Borrower or any of its Subsidiaries. The Agent shall not be bound to ascertain whether any notice, consent, waiver or request delivered to it by the Borrower or any holder of any of the Notes shall have been duly authorized or is true, accurate and complete. The Agent has not made nor does it now make any representations or warranties, express or implied, nor does it assume any liability to the Banks, with respect to the credit worthiness or financial conditions of the Borrower or any of its Subsidiaries. Each Bank acknowledges that it has, independently and without reliance upon the Agent or any other Bank, and based upon such information and documents as it has deemed appropriate, made its own credit analysis and decision to enter into this Credit Agreement. 13.4.2. Closing Documentation, etc. For purposes of determining -------------------------- compliance with the conditions set forth in (S)9, each Bank that has executed this Credit Agreement shall be deemed to have consented to, approved or accepted, or to be satisfied with, each document and matter either sent, or made available, by the Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to such Bank, unless an officer of the Agent active upon the Borrower's account shall have received notice from such Bank not less than two (2) days prior to the Closing Date specifying such Bank's objection thereto and such objection shall not have been withdrawn by notice to the Agent to such effect on or prior to the Closing Date. 13.5. Payments. -------- -66- 13.5.1. Payments to Agent. A payment by the Borrower to the Agent ----------------- hereunder or any of the other Loan Documents for the account of any Bank shall constitute a payment to such Bank. The Agent agrees promptly to distribute to each Bank such Bank's pro rata share of payments received by --- ---- the Agent for the account of the Banks except as otherwise expressly provided herein or in any of the other Loan Documents. 13.5.2. Distribution by Agent. If in the opinion of the Agent the --------------------- distribution of any amount received by it in such capacity hereunder, under the Notes or under any of the other Loan Documents might involve it in liability, it may refrain from making distribution until its right to make distribution shall have been adjudicated by a court of competent jurisdiction. If a court of competent jurisdiction shall adjudge that any amount received and distributed by the Agent is to be repaid, each Person to whom any such distribution shall have been made shall either repay to the Agent its proportionate share of the amount so adjudged to be repaid or shall pay over the same in such manner and to such Persons as shall be determined by such court. 13.5.3. Delinquent Banks. Notwithstanding anything to the contrary ---------------- contained in this Credit Agreement or any of the other Loan Documents, any Bank that fails (i) to make available to the Agent its pro rata share of --- ---- any Loan or (ii) to comply with the provisions of (S)12 with respect to making dispositions and arrangements with the other Banks, where such Bank's share of any payment received, whether by setoff or otherwise, is in excess of its pro rata share of such payments due and payable to all of the --- ---- Banks, in each case as, when and to the full extent required by the provisions of this Credit Agreement, shall be deemed delinquent (a "Delinquent Bank") and shall be deemed a Delinquent Bank until such time as such delinquency is satisfied. A Delinquent Bank shall be deemed to have assigned any and all payments due to it from the Borrower, whether on account of outstanding Loans, interest, fees or otherwise, to the remaining nondelinquent Banks for application to, and reduction of, their respective pro rata shares of all outstanding Loans. The Delinquent Bank hereby --- ---- authorizes the Agent to distribute such payments to the nondelinquent Banks in proportion to their respective pro rata shares of all outstanding Loans. --- ---- A Delinquent Bank shall be deemed to have satisfied in full a delinquency when and if, as a result of application of the assigned payments to all outstanding Loans of the nondelinquent Banks, the Banks' respective pro --- rata shares of all outstanding Loans have returned to those in effect ---- immediately prior to such delinquency and without giving effect to the nonpayment causing such delinquency. 13.6. Holders of Notes. The Agent may deem and treat the payee of any Note ---------------- as the absolute owner thereof for all purposes hereof until it shall have been furnished in writing with a different name by such payee or by a subsequent holder. -67- 13.7. Indemnity. The Banks ratably agree hereby to indemnify and hold --------- harmless the Agent and its Affiliates from and against any and all claims, actions and suits (whether groundless or otherwise), losses, damages, costs, expenses (including any expenses for which the Agent or any of its Affiliates has not been reimbursed by the Borrower as required by (S)14), and liabilities of every nature and character arising out of or related to this Credit Agreement, the Notes, or any of the other Loan Documents or the transactions contemplated or evidenced hereby or thereby, or the Agent's or any of its Affiliate's actions taken hereunder or thereunder, except to the extent that any of the same shall be directly caused by the Agent's or such Affiliate's willful misconduct or gross negligence. 13.8. Agent as Bank. In its individual capacity, Fleet shall have the same ------------- obligations and the same rights, powers and privileges in respect to its Commitment and the Loans made by it, and as the holder of any of the Notes, as it would have were it not also the Agent. 13.9. Resignation. The Agent may resign at any time by giving sixty (60) ----------- days prior written notice thereof to the Banks and the Borrower. Upon any such resignation, the Majority Banks shall have the right to appoint a successor Agent. Unless a Default or Event of Default shall have occurred and be continuing, such successor Agent shall be reasonably acceptable to the Borrower. If no successor Agent shall have been so appointed by the Majority Banks and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a financial institution having a rating of not less than A or its equivalent by Standard & Poor's Corporation. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation, the provisions of this Credit Agreement and the other Loan Documents shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. 13.10. Notification of Defaults and Events of Default. Each Bank hereby ---------------------------------------------- agrees that, upon learning of the existence of a Default or an Event of Default, it shall promptly notify the Agent thereof. The Agent hereby agrees that upon receipt of any notice under this (S)13.10 it shall promptly notify the other Banks of the existence of such Default or Event of Default. 13.11. Limitation on Duties. Notwithstanding anything to the contrary -------------------- contained in this Credit Agreement or any other Loan Document, the Arranger shall not have any obligations hereunder or under any other Loan Document, or any fiduciary relationship with any Bank. 14. EXPENSES. -------- -68- The Borrower agrees to pay (i) the reasonable costs of producing and reproducing this Credit Agreement, the other Loan Documents and the other agreements and instruments mentioned herein, (ii) any taxes (including any interest and penalties in respect thereto) payable by the Agent, any of its Affiliates or any of the Banks (other than taxes based upon the Agent's, such Affiliate's or any Bank's net income) on or with respect to the transactions contemplated by this Credit Agreement (the Borrower hereby agreeing to indemnify the Agent and each Bank with respect thereto), (iii) the reasonable fees, expenses and disbursements of the Agent's Special Counsel or any local counsel to the Agent incurred in connection with the preparation, administration or interpretation of the Loan Documents and other instruments mentioned herein, each closing hereunder, and amendments, modifications, approvals, consents or waivers hereto or hereunder, (iv) the reasonable fees, expenses and disbursements of the Agent incurred by the Agent in connection with the preparation, syndication, administration or interpretation of the Loan Documents and other instruments mentioned herein, including in connection with the conduct of any commercial finance examinations, (v) all reasonable out-of-pocket expenses (including without limitation reasonable attorneys' fees and costs, which attorneys may be employees of any Bank or the Agent, and reasonable consulting, accounting, appraisal, and similar professional fees and charges) incurred by any Bank or the Agent in connection with (A) the enforcement of or preservation of rights under any of the Loan Documents against the Borrower or any of its Subsidiaries or the administration thereof after the occurrence of a Default or Event of Default and (B) any litigation, proceeding or dispute whether arising hereunder or otherwise, in any way related to any Bank's or the Agent's relationship with the Borrower or any of its Subsidiaries and (vi) all reasonable fees, expenses and disbursements of any Bank or the Agent incurred in connection with UCC searches. The covenants of this (S)14 shall survive payment or satisfaction of payment of amounts owing with respect to the Notes. 15. INDEMNIFICATION. --------------- The Borrower agrees to indemnify and hold harmless the Agent and the Banks and their respective shareholders, directors, officers, agents, Subsidiaries and Affiliates (the "Indemnified Parties") from and against any and all claims, actions and suits whether groundless or otherwise, and from and against any and all liabilities, losses, damages and costs and expenses of every nature and character arising out of this Credit Agreement or any of the other Loan Documents or the transactions contemplated hereby including, without limitation, (i) any actual or proposed use by the Borrower or any of its Subsidiaries of the proceeds of any of the Loans, (ii) the Borrower or any of its Subsidiaries entering into or performing this Credit Agreement or any of the other Loan Documents or (iii) with respect to the Borrower and its Subsidiaries and their respective properties and assets, the violation of any Environmental Law, the presence, disposal, escape, seepage, leakage, spillage, discharge, emission, release or threatened release of any Hazardous Substances or any action, suit, proceeding or investigation brought or threatened with respect to any Hazardous Substances (including, but not limited to claims with respect to -69- wrongful death, personal injury or damage to property), in each case including, without limitation, the reasonable fees and disbursements of counsel and allocated costs of internal counsel incurred in connection with any such investigation, litigation or other proceeding. In litigation, or the preparation therefor, the Indemnified Parties shall be entitled to select their own counsel and, in addition to the foregoing indemnity, the Borrower agrees to pay promptly the reasonable fees and expenses of such counsel. If, and to the extent that the obligations of the Borrower under this (S)15 are unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment in satisfaction of such obligations which is permissible under applicable law. The covenants contained in this (S)15 shall survive payment of satisfaction in full of all other obligations. 16. SURVIVAL OF COVENANTS, ETC. -------------------------- All covenants, agreements, representations and warranties made herein, in the Notes, in any of the other Loan Documents or in any documents or other papers delivered by or on behalf of the Borrower or any of its Subsidiaries pursuant hereto shall be deemed to have been relied upon by the Banks and the Agent, notwithstanding any investigation heretofore or hereafter made by any of them, and shall survive the making by the Banks of the Loans, as herein contemplated, and shall continue in full force and effect so long as any amount due under this Credit Agreement or the Notes or any of the other Loan Documents remains outstanding or any Bank has any obligation to make any Loans, and for such further time as may be otherwise expressly specified in this Credit Agreement. All statements contained in any certificate or other paper delivered to any Bank or the Agent at any time by or on behalf of the Borrower or any of its Subsidiaries pursuant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by the Borrower or such Subsidiary hereunder. 17. ASSIGNMENT AND PARTICIPATION. ---------------------------- 17.1. Conditions to Assignment by Banks. Except as provided herein, each --------------------------------- Bank may assign to one or more Eligible Assignees all or a portion of its interests, rights and obligations under this Credit Agreement (including all or a portion of its Commitment Percentage and Commitment and the same portion of the Loans at the time owing to it) and the Notes held by it; provided that (i) -------- each of the Agent and, unless a Default or Event of Default shall have occurred and be continuing, the Borrower shall have given its prior written consent to such assignment, which consent, in the case of the Borrower and the Agent, will not be unreasonably withheld, (ii) each such assignment shall be of a constant, and not a varying, percentage of all the assigning Bank's rights and obligations under this Credit Agreement, (iii) each assignment shall be in an amount that is a whole multiple of $1,000,000, and (iv) each Bank which is a Bank on the date hereof shall retain, free of any such assignment, an amount of its Commitment of not less than $1,000,000, and (v) the parties to such assignment shall execute and deliver to the Agent, for recording in the Register (as hereinafter defined), an Assignment and Acceptance, substantially in the form of Exhibit E ------- - hereto (an -70- "Assignment and Acceptance"), together with any Notes subject to such assignment. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five (5) Business Days after the execution thereof, (i) the assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Bank hereunder, and (ii) the assigning Bank shall, to the extent provided in such assignment and upon payment to the Agent of the registration fee referred to in (S)17.3, be released from its obligations under this Credit Agreement. 17.2. Certain Representations and Warranties; Limitations; Covenants. By -------------------------------------------------------------- executing and delivering an Assignment and Acceptance, the parties to the assignment thereunder confirm to and agree with each other and the other parties hereto as follows: (a) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim, the assigning Bank makes no representation or warranty, express or implied, and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Credit Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto or the attachment, perfection or priority of any security interest or mortgage; (b) the assigning Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower and its Subsidiaries or any other Person primarily or secondarily liable in respect of any of the Obligations, or the performance or observance by the Borrower and its Subsidiaries or any other Person primarily or secondarily liable in respect of any of the Obligations of any of their obligations under this Credit Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; (c) such assignee confirms that it has received a copy of this Credit Agreement, together with copies of the most recent financial statements referred to in (S)5.4 and (S)6.4 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (d) such assignee will, independently and without reliance upon the assigning Bank, the Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Credit Agreement; -71- (e) such assignee represents and warrants that it is an Eligible Assignee; (f) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Credit Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto; (g) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Credit Agreement are required to be performed by it as a Bank; and (h) such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance. 17.3. Register. The Agent shall maintain a copy of each Assignment and -------- Acceptance delivered to it and a register or similar list (the "Register") for the recordation of the names and addresses of the Banks and the Commitment Percentage of, and principal amount of the Loans owing to the Banks from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Agent and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this Credit Agreement. The Register shall be available for inspection by the Borrower and the Banks at any reasonable time and from time to time upon reasonable prior notice. Upon each such recordation, the assigning Bank agrees to pay to the Agent a registration fee in the sum of $3,500. 17.4. New Notes. Upon its receipt of an Assignment and Acceptance --------- executed by the parties to such assignment, together with each Note subject to such assignment, the Agent shall (i) record the information contained therein in the Register, and (ii) give prompt notice thereof to the Borrower and the Banks (other than the assigning Bank). Within five (5) Business Days after receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Agent, in exchange for each surrendered Note, a new Note to the order of such Eligible Assignee in an amount equal to the amount assumed by such Eligible Assignee pursuant to such Assignment and Acceptance and, if the assigning Bank has retained some portion of its obligations hereunder, a new Note to the order of the assigning Bank in an amount equal to the amount retained by it hereunder. Such new Notes shall provide that they are replacements for the surrendered Notes, shall be in an aggregate principal amount equal to the aggregate principal amount of the surrendered Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of the assigned Notes. Within five (5) days of issuance of any new Notes pursuant to this (S)17.4, the Borrower shall deliver an opinion of counsel, addressed to the Banks and the Agent, relating to the due authorization, execution and delivery of such new Notes and the legality, validity and binding effect thereof, in form and substance reasonably -72- satisfactory to the Banks. The surrendered Notes shall be cancelled and returned to the Borrower. 17.5. Participations. Each Bank may sell participations to one or more -------------- banks or other entities in all or a portion of such Bank's rights and obligations under this Credit Agreement and the other Loan Documents; provided -------- that (i) each such participation shall be in an amount of not less than $1,000,000, (ii) any such sale or participation shall not affect the rights and duties of the selling Bank hereunder to the Borrower and (iii) the only rights granted to the participant pursuant to such participation arrangements with respect to waivers, amendments or modifications of the Loan Documents shall be the rights to approve waivers, amendments or modifications that would reduce the principal of or the interest rate on any Loans, extend the term or increase the amount of the Commitment of such Bank as it relates to such participant, reduce the amount of any facility fees to which such participant is entitled or extend any regularly scheduled payment date for principal or interest. 17.6. Disclosure. The Borrower agrees that in addition to disclosures made ---------- in accordance with standard and customary banking practices any Bank may disclose information obtained by such Bank pursuant to this Credit Agreement to assignees or participants and potential assignees or participants hereunder; provided that such assignees or participants or potential assignees or - -------- participants shall agree (i) to treat in confidence such information unless such information otherwise becomes public knowledge, (ii) not to disclose such information to a third party, except as required by law or legal process and (iii) not to make use of such information for purposes of transactions unrelated to such contemplated assignment or participation. 17.7. Assignee or Participant Affiliated with the Borrower. If any ---------------------------------------------------- assignee Bank is an Affiliate of the Borrower, then any such assignee Bank shall have no right to vote as a Bank hereunder or under any of the other Loan Documents for purposes of granting consents or waivers or for purposes of agreeing to amendments or other modifications to any of the Loan Documents or for purposes of making requests to the Agent pursuant to (S)11.1 or (S)11.2, and the determination of the Majority Banks shall for all purposes of this Agreement and the other Loan Documents be made without regard to such assignee Bank's interest in any of the Loans. If any Bank sells a participating interest in any of the Loans to a participant, and such participant is the Borrower or an Affiliate of the Borrower, then such transferor Bank shall promptly notify the Agent of the sale of such participation. A transferor Bank shall have no right to vote as a Bank hereunder or under any of the other Loan Documents for purposes of granting consents or waivers or for purposes of agreeing to amendments or modifications to any of the Loan Documents or for purposes of making requests to the Agent pursuant to (S)11.1 or (S)11.2 to the extent that such participation is beneficially owned by the Borrower or any Affiliate of the Borrower, and the determination of the Majority Banks shall for all purposes of this Agreement and the other Loan Documents be made without regard to the interest of such transferor Bank in the Loans to the extent of such participation. -73- 17.8. Miscellaneous Assignment Provisions. Any assigning Bank shall retain ----------------------------------- its rights to be indemnified pursuant to (S)15 with respect to any claims or actions arising prior to the date of such assignment. If any assignee Bank is not incorporated under the laws of the United States of America or any state thereof, it shall, prior to the date on which any interest or fees are payable hereunder or under any of the other Loan Documents for its account, deliver to the Borrower and the Agent certification as to its exemption from deduction or withholding of any United States federal income taxes in accordance with (S)4.3.3. If Fleet transfers all of its interest, rights and obligations under this Credit Agreement, the Agent shall, in consultation with the Borrower and with the consent of the Borrower and the Majority Banks, appoint another Bank to act as a reference bank hereunder for purposes of the definition of Eurodollar Rate. Anything contained in this (S)17 to the contrary notwithstanding, any Bank may at any time pledge all or any portion of its interest and rights under this Credit Agreement (including all or any portion of its Notes) to any of the twelve Federal Reserve Banks organized under (S)4 of the Federal Reserve Act, 12 U.S.C. (S)341. No such pledge or the enforcement thereof shall release the pledgor Bank from its obligations hereunder or under any of the other Loan Documents. 17.9. Assignment by Borrower. The Borrower shall not assign or transfer ---------------------- any of its rights or obligations under any of the Loan Documents without the prior written consent of each of the Banks. 18. NOTICES, ETC. ------------ Except as otherwise expressly provided in this Credit Agreement, all notices and other communications made or required to be given pursuant to this Credit Agreement or the Notes shall be in writing and shall be delivered in hand, mailed by United States registered or certified first class mail, postage prepaid, sent by overnight courier, or sent by telegraph, telecopy, telefax or telex and confirmed by delivery via courier or postal service, addressed as follows: (a) if to the Borrower, at 500 Main Street, Groton, Massachusetts 01471, Attention: Daniel M. Junius, or at such other address for notice as the Borrower shall last have furnished in writing to the Person giving the notice; (b) if to the Agent, at 100 Federal Street, Boston, Massachusetts 02110, USA, Attention: Harvey H. Thayer, Jr., Managing Director, or such other address for notice as the Agent shall last have furnished in writing to the Person giving the notice; and (c) if to any Bank, at such Bank's address set forth on Schedule 1 -------- - hereto, or such other address for notice as such Bank shall have last furnished in writing to the Person giving the notice. Any such notice or demand shall be deemed to have been duly given or made and to have become effective (i) if delivered by hand, overnight courier or facsimile to a responsible officer of the party to which it is directed, at the time -74- of the receipt thereof by such officer or the sending of such facsimile and (ii) if sent by registered or certified first-class mail, postage prepaid, on the third Business Day following the mailing thereof. 19. GOVERNING LAW. ------------- THIS CREDIT AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED THEREIN, ARE CONTRACTS UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS CREDIT AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN (S)18. THE BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. 20. HEADINGS. -------- The captions in this Credit Agreement are for convenience of reference only and shall not define or limit the provisions hereof. 21. COUNTERPARTS. ------------ This Credit Agreement and any amendment hereof may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, and all of which together shall constitute one instrument. In proving this Credit Agreement it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. Delivery by facsimile by any of the parties hereto of an executed counterpart hereof or of any amendment or waiver hereto shall be as effective as an original executed counterpart hereof or of such amendment or waiver and shall be considered a representation that an original executed counterpart hereof or such amendment or waiver, as the case may be, will be delivered. 22. ENTIRE AGREEMENT, ETC. --------------------- The Loan Documents and any other documents executed in connection herewith or therewith express the entire understanding of the parties with respect to the transactions contemplated hereby. Neither this Credit Agreement -75- nor any term hereof may be changed, waived, discharged or terminated, except as provided in (S)24. 23. WAIVER OF JURY TRIAL. -------------------- THE BORROWER HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS CREDIT AGREEMENT, THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY, INCLUDING ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS OR ACTIONS OF THE AGENT OR ANY BANK RELATING TO THE ADMINISTRATION OF THE LOANS OR ENFORCEMENT OF THE LOAN DOCUMENTS AND AGREES THAT IT WILL NOT SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. Except as prohibited by law, the Borrower hereby waives any right it may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. The Borrower (a) certifies that no representative, agent or attorney of any Bank or the Agent has represented, expressly or otherwise, that such Bank or the Agent would not, in the event of litigation, seek to enforce the foregoing waivers and (b) acknowledges that the Agent and the Banks have been induced to enter into this Credit Agreement, the other Loan Documents to which it is a party by, among other things, the waivers and certifications contained herein. 24. CONSENTS, AMENDMENTS, WAIVERS, ETC. ---------------------------------- Except as otherwise expressly provided in this Credit Agreement, any consent or approval required or permitted by this Credit Agreement to be given by the Banks may be given, and any term of this Credit Agreement, the other Loan Documents or any other instrument related hereto or mentioned herein may be amended, and the performance or observance by the Borrower or any of its Subsidiaries of any terms of this Credit Agreement, the other Loan Documents or such other instrument or the continuance of any Default or Event of Default may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but only with, the written consent of the Borrower and the written consent of the Majority Banks. Notwithstanding the foregoing, no amendment, modification or waiver shall: (a) without the written consent of the Borrower and each Bank directly affected thereby: (i) reduce or forgive the principal amount of any Loans, or reduce the rate of interest on the Notes or the amount of the -76- facility fee or utilization fee (other than interest accruing pursuant to (S)4.11.2 following the effective date of any waiver by the Majority Banks of the Default or Event of Default relating thereto); (ii) increase the amount of such Bank's Commitment or extend the expiration date of such Bank's Commitment; (iii) postpone or extend the Revolving Credit Loan Maturity Date or any other regularly scheduled dates for payments of principal of, or interest on, the Loans or any fees or other amounts payable to such Bank (it being understood that (A) a waiver of the application of the default rate of interest pursuant to (S)4.11.2, and (B) any vote to rescind any acceleration made pursuant to (S)11.1 of amounts owing with respect to the Loans and other Obligations and (C) any modifications of the provisions relating to amounts, timing or application of prepayments of Loans and other Obligations, shall require only the approval of the Majority Banks); and (iv) other than pursuant to a transaction permitted by the terms of this Credit Agreement, release all or substantially all of the Guarantors from their guaranty obligations under the Guaranty; (b) without the written consent of the Borrower and all of the Banks, amend or waive this (S)24 or the definition of Majority Banks; (c) without the written consent of the Agent, amend or waive (S)13, the amount or time of payment of the Agent's fee payable for the Agent's account or any other provision applicable to the Agent. No waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon. No course of dealing or delay or omission on the part of the Agent or any Bank in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon the Borrower shall entitle the Borrower to other or further notice or demand in similar or other circumstances. 25. SEVERABILITY. ------------ The provisions of this Credit Agreement are severable and if any one clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Credit Agreement in any jurisdiction. -77- 26. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION. --------------------------------------------- 26.1. Confidentiality. Each of the Agent and the Banks agrees to keep any --------------- information delivered or made available to it by or on behalf of the Borrower or any its Subsidiaries confidential from anyone other than its employees, officers, attorneys and other advisors or any Section 20 Subsidiary, provided -------- that nothing herein shall prevent the Agent or such Bank from disclosing such information upon the order or request of any court or administrative agency or authority, upon the request or demand of any regulatory agency or authority, to the extent that such information has been publicly disclosed other than as a result of a disclosure by the Agent or such Bank, otherwise as required by law or to any actual or potential assignee or participant hereof pursuant to (S)17.6. The Borrower agrees that it will, and will cause each of its Subsidiaries to, keep any information delivered or made available to it by or on behalf of the Agent or any of the Banks confidential from anyone other than its employees, officers, attorneys and other advisors, provided that nothing herein -------- shall prevent the Borrower from disclosing such information upon the order or request of any court or administrative agency or authority, upon the request or demand of any regulatory agency or authority, to the extent that such information has been publicly disclosed other than as a result of disclosure by the Borrower or any of its Subsidiaries, or otherwise as required by law. 26.2. Prior Notification. Unless specifically prohibited by applicable law ------------------ or court order, each of the Banks and the Agent shall, prior to disclosure thereof, notify the Borrower of any request for disclosure of any such non- public information by any governmental agency or representative thereof (other than any such request in connection with an examination of the financial condition of such Bank by such governmental agency) or pursuant to legal process. 26.3. Other. In no event shall any Bank or the Agent be obligated or ----- required to return any materials furnished to it or any Section 20 Subsidiary by the Borrower. The obligations of each Bank under this (S)26 shall supersede and replace the obligations of such Bank under any confidentiality letter in respect of the financing contemplated by this Credit Agreement or the Original Credit Agreement and signed and delivered by such Bank to the Borrower prior to the date hereof, and shall be binding upon any assignee of, or purchaser of any participation in, any interest in any of the Loans from any Bank. -78- 27. REPLACEMENT DOCUMENTS. --------------------- Upon receipt of an affidavit (reasonably satisfactory in form and substance to the Borrower) of an officer of any Bank or the Agent as to the loss, theft, destruction or mutilation of any Note or the Guaranty, the Borrower will or will cause each of the Guarantors to issue, in lieu thereof, a replacement Note or a replacement Guaranty, as applicable, in the form previously executed and delivered by the Borrower or the Guarantors to such Bank or the Agent; provided, -------- however, that the Borrower acknowledges and agrees that any such affidavit need - ------- not contain an indemnification from the Agent or, as the case may be, such Bank. [Remainder of page intentionally left blank] -79- IN WITNESS WHEREOF, the undersigned have duly executed this Credit Agreement as a sealed instrument as of the date first set forth above. BORROWER: NEW ENGLAND BUSINESS SERVICE, INC. By: /s/ Daniel M. Junius Name: Daniel M. Junius Title: Senior Vice President, CFO and Treasurer BANKS: FLEET NATIONAL BANK, individually and as Agent By: /s/ Harvey H. Thayer, Jr. Name: Harvey H. Thayer, Jr. Title: Managing Director EX-10.3.1 5 dex1031.txt LEASE AGREEMENT DTD MARCH 31, 1997 EXHIBIT 10.3.1 LEASE ----- LANDLORD: Theodore Pasquarello, as Trustee of the E. B. Realty Trust TENANT: New England Business Service, Inc. PREMISES: The land and improvements located thereon and consisting of a 117,000 square foot building (the "Building") located at 33 Union Avenue, Sudbury, MA 01776 and more particularly described on Exhibit A --------- TABLE OF CONTENTS
Page ARTICLE I REFERENCE DATA 1.1 Subjects Referred to............................................ 1 ARTICLE II PREMISES 2.1 Lease of Premises............................................... 3 ARTICLE III TERM OF THE LEASE 3.1 Preparation for Occupancy and Possession........................ 3 3.2 Commencement and Expiration of Term............................. 3 ARTICLE IV FIXED RENT 4.1 Fixed Rent...................................................... 4 ARTICLE V TAX CHARGES 5.1 Definitions..................................................... 4 5.2 Additional Rent................................................. 4 5.3 Refund of Taxes................................................. 5 5.4 Permitted Contests.............................................. 5 ARTICLE VI OPERATING EXPENSES 6.1 Definitions..................................................... 6 6.2 Additional Rent................................................. 6 ARTICLE VII USE OF PREMISES 7.1 Permitted Uses.................................................. 6 7.2 Installations and Alterations by Tenant......................... 7 ARTICLE VIII ASSIGNMENT AND SUBLETTING 8.1 Prohibition..................................................... 9 8.2 Other Requirements and Provisions............................... 10
-2- ARTICLE IX RESPONSIBILITY FOR REPAIRS AND CONDITION OF PREMISES 9.1 Landlord Repairs and Maintenance................................ 11 9.2 Tenant's Agreement.............................................. 12 9.3 Heavy Machinery................................................. 12 9.4 Utilities....................................................... 12 9.5 Interruption or Curtailment of Services......................... 13 ARTICLE X INDEMNITY AND INSURANCE 10.1 Tenant's Indemnity.............................................. 13 10.2 Insurance....................................................... 14 10.3 Tenant's Risk................................................... 14 10.4 Injury Caused by Third Parties.................................. 15 10.5 Landlord's Insurance............................................ 15 ARTICLE XI LANDLORD'S ACCESS TO PREMISES 11.1 Landlord's Rights............................................... 15 ARTICLE XII DAMAGE OR DESTRUCTION 12.1 Restoration..................................................... 16 12.2 Rent............................................................ 17 ARTICLE XIII CONDEMNATION 13.1 Termination of Lease............................................ 17 13.2 Awards.......................................................... 18 ARTICLE XIV DEFAULT 14.1 Tenant's Default................................................ 18 ARTICLE XV MISCELLANEOUS PROVISIONS 15.1 Extra Hazardous Use............................................. 22 15.2 Waiver.......................................................... 23 15.3 Covenant of Quiet Enjoyment..................................... 23 15.4 Force Majeure, etc.............................................. 23 15.5 Assignment of Rents and Transfer of Title....................... 24 15.6 Rules and Regulations........................................... 24 15.7 Additional Charges.............................................. 24
-3- 15.8 Invalidity of Particular Provisions............................. 24 15.9 Provisions Binding.............................................. 24 15.10 Notices......................................................... 25 15.11 When Lease Becomes Binding...................................... 25 15.12 Paragraph Headings.............................................. 25 15.13 Rights of Mortgagee and Ground Lessor........................... 25 15.14 Estoppel Certificates........................................... 27 15.15 Remedying Defaults.............................................. 27 15.16 Holding Over.................................................... 27 15.17 Surrender of Premises........................................... 28 ARTICLE XVI BROKERAGE 16.1 Brokerage....................................................... 28 ARTICLE XVII ENVIRONMENTAL MATTERS 17.1 Indemnification................................................. 29 17.2 Third Party Claims.............................................. 30 17.3 Response Actions................................................ 31 17.4 Successors and Assigns.......................................... 32 ARTICLE XVIII EXCULPATORY CLAUSE 18.1 Limitation on Liability......................................... 32 18.2 Actions Against Landlord........................................ 32 ARTICLE XIX SUBMISSION TO JURISDICTION, ETC. 19.1 Governing Law................................................... 33 19.2 Recovery of Fees................................................ 33 ARTICLE XX LANDLORD'S EQUITY............................................ 33 20.1 Landlord's Equity Requirement................................... 33
LEASE ----- This Lease is entered into as of this 31st day of March, 1997, by and between Theodore Pasquarello, not individually but as Trustee of E. B. Realty Trust under Declaration of Trust dated January 28, 1988 (hereinafter referred to as "Landlord") and New England Business Service, Inc., a Delaware corporation (hereinafter referred to as "Tenant"). WHEREAS, Landlord is the owner of the Premises, as defined in Paragraph 1.1 hereof; and WHEREAS, Tenant desires to lease the Premises from Landlord and Landlord desires to lease such Premises to Tenant; NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions hereinafter contained, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows: ARTICLE I --------- REFERENCE DATA 1.1: SUBJECTS REFERRED TO. --------------------- Each reference in this Lease to any of the following subjects shall be construed to incorporate the data stated for that subject in this Section 1.1: LANDLORD'S ADDRESS: 490 Boston Post Road Sudbury, MA 01776 Attention: Theodore Pasquarello TENANT'S ORIGINAL ADDRESS: 500 Main Street Groton, MA 01471 -2- PREMISES: The land and improvements located thereon and consisting of a 117,000 square foot building (the "Building") located at 33 Union Avenue, Sudbury, MA 01776 and more particularly described on Exhibit A --------- COMMENCEMENT DATE: April 1, 1997 FIXED RENT: Period Rent ------ ---- 4/1/97-3/31/2000 $585,000 annually, payable in equal monthly installments of $48,750 4/1/2000-3/31/2003 $620,100 annually, payable in equal monthly installments of $51,675 4/1/2003-3/31/2007 $657,306 annually, payable in equal monthly installments of $54,775.50 TENANT'S SHARE OF OPERATING EXPENSES: Period Tenant's Share of Operating Expenses ------ ------------------------------------ 4/1/97-3/31/2000 $58,500 annually, payable in equal monthly installments of $4,875 4/1/2000-3/31/2003 $62,010 annually, payable in equal monthly installments of $5,167.50 4/1/2003-3/31/2007 $65,730.60 annually, payable in equal monthly installments of $5,477.55 PERMITTED USE: Warehousing, storage and distribution of materials in connection with or relating to Tenant's current business as conducted as of the date of this Lease. Permitted Use includes general office use in connection -3- with warehousing, storage and distribution activities. PUBLIC LIABILITY INSURANCE LIMITS: $5,000,000 per occurrence for bodily injury (including death) and $1,000,000 per occurrence for property damage TERM: Ten (10) years ARTICLE II ---------- PREMISES -------- 2.1 LEASE OF PREMISES. Landlord hereby demises and leases to Tenant, and ----------------- Tenant hereby accepts from Landlord, the Premises, for the Term of this Lease and subject to any and all existing encumbrances, conditions, covenants, easements, restrictions, rights of way and other matters of record and to such matters as may be disclosed by inspection or survey and subject to and with the benefit of the terms, covenants, conditions and provisions of this Lease. Attached hereto as Exhibit B is a copy of a title policy dated December 16, 1993 --------- insuring the Premises. Landlord makes no representation or warranty concerning title to the Premises. ARTICLE III ----------- TERM OF THE LEASE ----------------- 3.1 AS-IS CONDITION. Tenant agrees that it has inspected and examined, or --------------- caused to be inspected and examined, the Premises and that it is fully familiar and satisfied with the physical condition and state of repair thereof, and Tenant does hereby agree to accept the Premises in their existing condition and state of repair "as is". Except as expressly otherwise provided herein, Landlord shall have no obligation to do any work or make any installation or alteration of any kind to the Premises. Nothing in the foregoing sentence shall be construed to reduce Landlord's obligations under (S)9.1 below. Except as otherwise expressly set forth in this Lease, any work performed in the Premises by Tenant shall be done at Tenant's sole cost and expense, in accordance with the terms of (S)7.2. 3.2 COMMENCEMENT AND EXPIRATION OF TERM. The term of this Lease (herein ----------------------------------- referred to as the "Term") shall commence on the Commencement Date, as defined in (S)1.1 and shall terminate on March 31, 2007, unless sooner terminated as herein provided (the "Expiration Date"). -4- ARTICLE IV ---------- FIXED RENT ---------- 4.1 FIXED RENT. (A) Tenant agrees to pay to Landlord, or as directed by ----------- Landlord, without offset, abatement, deduction or demand (except as otherwise provided in (S)9.5) the Fixed Rent. The Fixed Rent shall be payable in lawful money of the United States, in equal monthly installments, in advance, on the first day of each and every calendar month during the Term of this Lease at Landlord's Address, or at such other place as Landlord shall from time to time designate by notice. (B) Fixed Rent for any partial month shall be prorated on a daily basis. (C) If any installment of Fixed Rent, additional rent or any other sums due hereunder are not paid when due and such failure shall continue for ten (10) days after notice thereof, Tenant shall pay on demand, in addition to any other additional charges due under this Lease, an administrative fee equal to 2% of the overdue payment (the "Late Fee"). Notwithstanding the foregoing, if any installment of Fixed Rent, additional rent or any other sums due hereunder are not paid by the due date on two or more occasions during any 12-month period, Landlord shall thereafter have the right to charge a Late Fee if any such sums are not paid within ten (10) days of the due date. ARTICLE V --------- TAX CHARGES ----------- 5.1 DEFINITIONS. ----------- For purposes of this Article V, "Real Estate Taxes" shall mean all or any of the real estate taxes and assessments imposed on the Premises for the then current Tax Year by any governmental authority having jurisdiction upon the Premises and Building, or any tax or assessment to the extent hereafter imposed in substitution for such real estate taxes and/or assessments. Real Estate Taxes exclude income taxes and all estate, succession, inheritance and transfer taxes. The term "Tax Year" shall mean the period from July 1, 1996 through June 30, 1997 and each subsequent fiscal year thereafter. 5.2 ADDITIONAL RENT. Tenant shall pay to Landlord during the Term of this --------------- Lease, as additional rent, all Real Estate Taxes. If any Tax -5- Year is only partially within the Term, all payments pursuant hereto shall be appropriately prorated, based on the portion of the Tax Year which is within the Term. Landlord shall send to Tenant copies of the tax bills for the Premises promptly upon receipt thereof and Tenant shall remit the full payment of such tax bill directly to Landlord within fifteen (15) days of receipt of such bill. Notwithstanding the foregoing, Tenant may elect to pay all Real Estate Taxes directly to the applicable taxing authority provided that (i) Tenant shall notify Landlord within 15 days of its receipt of the tax bill that Tenant has elected to pay the tax bill directly to the taxing authority; (ii) Tenant shall deliver to Landlord receipted copies of such paid bills no later than ten (10) days prior to the date when due; and (iii) any failure by Tenant to pay Real Estate Taxes as required by this Article V shall be deemed a default under (S)14.1(A)(1) and Tenant shall be liable for all costs and expenses incurred by Landlord as a result of any breach by Tenant of its obligations under this Article V. 5.3 REFUND OF TAXES. If Landlord receives any refund of Real Estate Taxes --------------- for any Tax Year for which Tenant has made a payment pursuant hereto, Landlord shall (after deducting from such refund all reasonable expenses, including reasonable attorneys' fees, incurred in connection therewith) pay Tenant, if Tenant is not in default hereunder, the remainder of the refund. 5.4 PERMITTED CONTESTS. Notwithstanding anything to the contrary herein, ------------------ Tenant shall have the right, subject to the conditions stated below, to contest by appropriate legal proceedings the amount or validity of any Real Estate Taxes. During the pendency of such legal proceedings, Tenant shall not be required to pay the contested Real Estate Taxes, provided that the following conditions are satisfied: (a) The proceedings stay the collection, realization or enforcement of any such contested Real Estate Tax; (b) The delay in any such payment, does not subject the Premises, or any portion thereof, to any liens or possible sale, forfeiture, foreclosure or loss (including loss of appeal rights related to such contest); (c) Tenant shall escrow amount(s) equal to the Real Estate Taxes that would have been due and payable but for such proceedings, and any interest accruing thereon and any additions thereto; (d) Tenant shall indemnify and hold harmless Landlord against any losses, damages, costs, and expenses (including reasonable -6- attorneys' fees and disbursements) suffered by Landlord as a result of such contest; (e) Tenant shall not settle any such proceedings on terms that would adversely affect Landlord in any respect without Landlord's prior written consent; (f) Tenant shall promptly provide Landlord with copies of all pleadings, agreements and other written communications resulting from such proceedings. ARTICLE VI ---------- OPERATING EXPENSES ------------------ 6.1 DEFINITIONS. ----------- For purposes of this Article VI, "Operating Expenses" shall mean all expenses reasonably incurred by Landlord, on an accrual basis, for the operation and maintenance of the Premises and all expenses incurred as a result of Landlord's compliance with any of its obligations hereunder, and shall include (without limitation), depreciation of any expenditure for any capital improvement which is intended to result in a reduction of Operating Expenses and any and all expenses incurred by Landlord in connection with compliance with any law, rule, order, ordinance, regulation or requirement of any governmental authority having or asserting jurisdiction or any order, rule, requirement or regulation of any utility company, insurer of Landlord or the New England Fire Insurance Rating Association (or successor organization) first applicable after the date hereof. 6.2 ADDITIONAL RENT. Tenant shall pay to Landlord during the Term of this --------------- Lease, as additional rent, Tenant's Share of Operating Expenses (as defined in Article I hereof) in the same manner as described in (S)4.1 for the payment of Fixed Rent. Except as otherwise set forth in (S)9.1(B), in no event shall Tenant's Share of Operating Expenses exceed the amounts set forth in Article I hereof. ARTICLE VII ----------- USE OF PREMISES --------------- 7.1 PERMITTED USES. (A) Tenant agrees that the Premises shall be used -------------- and occupied by Tenant solely for the Permitted Uses or for any uses permitted by applicable zoning laws, provided that Tenant obtains -7- Landlord's prior written consent, which consent shall not be unreasonably withheld. (B) Tenant agrees to conform to the following provisions during the Term of this Lease: (1) Tenant will not place on the exterior of the Premises (including both interior and exterior surfaces of doors and interior surfaces of windows) or on any part of the Building outside the Premises, any sign, symbol, advertisement or the like which is visible to public view outside of the Premises without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed. (2) Tenant shall not perform any act or carry on any practice which may injure the Premises or cause any offensive odors or loud noise or cause a nuisance. (3) Tenant shall, in its use of the Premises, subject to Landlord's compliance with Article IX, comply with all applicable laws and rules, orders, regulations and requirements of all governmental and quasi-governmental authorities having or asserting jurisdiction and any insurer of Landlord or of all or any part of the Building. 7.2 INSTALLATIONS AND ALTERATIONS BY TENANT. (A) Tenant shall not make ---------------------------------------- or perform, or permit the making or performance of, any alterations, improvements, additions or other physical changes in or about the Premises (collectively, "Alterations") (other than non-structural Alterations to the interior of the Premises costing less than $20,000 in the aggregate during any 12 month period and not affecting Building systems or reducing the value or utility of the Building) without Landlord's prior written consent. Landlord agrees not to unreasonably withhold its consent to any Alterations which are nonstructural, do not involve the Building's systems and are not visible from outside the Building, provided that such Alterations do not reduce the value or utility of the Building. All Alterations shall be done at Tenant's expense and at such times and in accordance with any reasonable rules and regulations established by Landlord. Prior to making any Alterations, Tenant (i) shall submit to Landlord plans and specifications for each proposed Alteration, (ii) shall, at its expense, obtain all permits, approvals and certificates required by any governmental or quasi-governmental bodies, and (iii) shall furnish to Landlord duplicate original policies of worker's compensation insurance (covering all persons to be employed by Tenant and Tenant's contractors and subcontractors in connection with such Alteration) and comprehensive public liability (including property damage coverage) insurance in such form, with such companies, for such periods and in such amounts as -8- Landlord may reasonably require, naming Landlord and its agents as additional insureds. All materials and equipment to be incorporated in the Building as a result of all alterations or improvements shall be of at least comparable quality to the then existing improvements. No such materials or equipment shall be subject to any lien, encumbrance, chattel mortgage, title retention or security agreement. All work performed by Tenant to the Premises shall be done in compliance with all applicable laws and regulations. (B) All Alterations and all fixtures, paneling, partitions, railings, equipment and like installations installed in the Building at any time either by Tenant or by Landlord on Tenant's behalf shall, upon installation, become the property of Landlord (unless otherwise agreed in writing by Landlord and Tenant) and remain upon and be surrendered with the Premises unless Landlord, by notice to Tenant given on or before the expiration of the Term of this Lease, elects to relinquish Landlord's right thereto and to have them removed by Tenant, in which event, they shall be removed by Tenant at the expiration or earlier termination of the Term of this Lease and at Tenant's expense. Tenant shall repair any damage to the Premises or the Building caused by any removal of such Alterations. (C) All trade fixtures, articles of personal property and all business machinery and equipment and furniture owned or installed by Tenant solely at its expense in the Premises ("Tenant's Removable Property") shall, remain the property of Tenant and may be removed by Tenant at any time prior to the expiration of this Lease, provided that Tenant, at its expense, shall repair any damage to the Premises or the Building caused by any installation and/or removal of Tenant's Removable Property. (D) Notice is hereby given that Landlord shall not be liable for any labor or materials furnished or to be furnished to Tenant. Tenant shall not permit any mechanic's or other lien for any such labor or materials to attach to or affect the reversion or other estate or interest of Landlord in and to the Premises. Whenever and as often as any mechanic's lien shall have been filed against the Premises based upon any act of, or for work claimed to have been done for, or materials furnished to, Tenant, or of, for or to anyone claiming through Tenant, Tenant shall forthwith take such action, by bonding, deposit or payment, as will remove or satisfy the lien. -9- ARTICLE VIII ------------ ASSIGNMENT AND SUBLETTING ------------------------- 8.1 PROHIBITION. Tenant covenants and agrees that neither this Lease nor ------------ the term and estate hereby granted, nor any interest herein or therein, will be assigned (including, without limitation, by operation of law), mortgaged, pledged, encumbered or otherwise transferred, and that neither the Premises nor any part thereof will be encumbered in any manner by reason of any act or omission on the part of Tenant, or used or occupied or permitted to be used or occupied by anyone other than Tenant or for any use or purpose except as may be permitted by (S)7.1, or be sublet (which term, without limitation, shall include granting of concessions, licenses and the like) in whole or in part, without, in each instance, Tenant having first received the express written consent of Landlord. Landlord agrees that it will not withhold or delay consent to subletting by a third party if, in Landlord's reasonable discretion, Landlord is reasonably satisfied that (i) the identity of such third party is of a type and character suitable for a suburban warehouse/office building, and (ii) the type of business that such third party proposes to operate in the Premises is permitted under applicable zoning regulations. If this Lease be assigned, or if the Premises or any part thereof be sublet or occupied by anyone other than Tenant, Landlord may collect rent and other charges from the assignee, subtenant or occupant, and apply the net amount collected to the Fixed Rent and other charges herein reserved, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of this covenant, the acceptance of the assignee, subtenant or occupant as a tenant or a release of Tenant from the further performance by Tenant of its obligations hereunder. The consent by Landlord to an assignment or subletting shall in no way be construed to relieve Tenant or any successor from obtaining the express consent in writing of Landlord to any further assignment or subletting. Notwithstanding anything to the contrary in the foregoing, no consent of Landlord shall be required for (i) any sublease or occupancy agreement with an entity controlled by, under common control with or controlling Tenant; (ii) a pledge or assignment of Tenant's interest in this Lease pursuant to a leasehold mortgage; or (iii) an assignment of the Lease to any successor of Tenant by merger, consolidation or acquisition of all or substantially all the stock or assets of Tenant; provided that (A) Tenant shall deliver to Landlord at least 30 days' advance notice of any such sublease or occupancy agreement or such leasehold mortgage; (B) Tenant shall provide Landlord with complete copies of any leasehold mortgage promptly after the execution of any such mortgage; (C) in the case of a merger, consolidation or sale, the net worth of Tenant's successor (determined in accordance with generally accepted accounting principles) immediately after such merger, consolidation or sale is equal to or greater -10- than $60,000,000; and (D) Tenant shall remain liable for the performance of Tenant's obligations hereunder during the balance of the Term. In any case where Landlord shall consent to such assignment, subletting or use, Tenant shall remain fully liable for Tenant's obligations under this Lease, including, without limitation, the obligation to pay the rent and other amounts provided under this Lease. At Landlord's election, it shall be a condition of the validity of any such assignment, that, upon Landlord's request, the assignee shall agree directly with Landlord, in form reasonably satisfactory to Landlord, to be bound by all the obligations of Tenant, including, without limitation, the obligation to pay rent and other amounts provided under this Lease and the covenant against further assignment, subletting and use. 8.2 OTHER REQUIREMENTS AND PROVISIONS. ---------------------------------- (A) No assignment of this Lease shall be effective unless and until Tenant delivers to Landlord duplicate originals of the instrument of assignment (wherein the assignee assumes the performance of Tenant's obligations under this Lease) and any accompanying documents. (B) No sublease (or other occupancy agreement) of all or any part of the Premises shall be effective unless and until Tenant delivers to Landlord duplicate originals of the instrument of sublease and any accompanying documents (wherein the sublessee (or other occupier) assumes the performance of Tenant's obligations as to the subleased space). Any such sublease (or other occupancy agreement) shall be subject and subordinate to this Lease. (C) Any assignment or sublease shall neither release Tenant from its liability for the performance of Tenant's obligations hereunder during the balance of the Term of this Lease nor constitute Landlord's consent to any further assignment or sublet of this Lease. If a sublease to which Landlord has consented is assigned or all or any portion of the Premises is further sublet without in each instance, the prior consent of Landlord, then Tenant shall immediately terminate such sublease, or arrange for the termination thereof, and proceed expeditiously to have the occupant thereunder dispossessed. (D) Tenant shall pay to Landlord, promptly upon demand therefor, all reasonable costs and expenses (including, without limitation, reasonable attorneys' fees and disbursements) incurred by Landlord in connection with any assignment of this Lease or sublease of all or any part of the Premises. -11- (E) Any profit resulting from any such assignment or subletting shall be 100% payable to Landlord. ARTICLE IX ---------- RESPONSIBILITY FOR REPAIRS AND CONDITION OF PREMISES ---------------------------------------------------- 9.1 LANDLORD REPAIRS AND MAINTENANCE. -------------------------------- (A) Landlord agrees to keep in good working order, condition and repair the roof (but not the ceiling in the Building), foundation, exterior walls and structure of the Building. Landlord shall also be responsible for landscaping of the Premises and repairs to and maintenance of the common driveways and parking areas located on the Premises, including lighting of such areas and removal of snow and ice. (B) Landlord shall keep in good working order, condition and repair the existing septic, heating, ventilating and air-conditioning systems servicing the Building in place as of the Commencement Date, (collectively, the "Building Systems"). Tenant shall pay Landlord, as additional rent, and in the manner set forth below, (i) for all costs incurred by Landlord in connection with any and all maintenance performed on the Building Systems during the Term of this Lease (but not for replacements or other items of a capital nature), and (ii) for all costs incurred by Landlord in connection with any repairs or replacements (including without limitation items of a capital nature) made to the Building Systems during the period commencing on the fifth (5th) anniversary of the Commencement Date and continuing through the remainder of the Term of this Lease. Landlord shall submit to Tenant copies of Landlord's invoices detailing any such costs and Tenant shall pay to Landlord the entire amount of such costs, as additional rent, within thirty (30) days of receipt of Landlord's invoices. Any amounts paid by Tenant under the terms of this (S)9.1(B) shall not be deemed to be payment of Tenant's Share of Operating Expenses, and shall be in addition to Tenant's obligations under Article VI. (C) Landlord shall in no event be responsible to Tenant for the replacement of glass in the Building or for the doors leading to the Building (except to the extent any damage thereto is caused by Landlord), or for any condition in the Premises or the Building caused by any negligence or misconduct of Tenant, its employees, agents, invitees or contractors (including any non-permitted use thereof). Except as otherwise provided in this Lease, Landlord shall not be responsible for making any other improvements or repairs to the Building. Landlord shall not be liable for any failure to make repairs which, under the provisions of this Section 9.1 or elsewhere in this Lease, Landlord has undertaken to make, unless -12- Tenant has given notice to Landlord of the need to make such repairs and Landlord has failed to commence to make such repairs within a reasonable time after receipt of such notice, or fails to proceed with reasonable due diligence to complete such repairs. 9.2 TENANT'S AGREEMENT. (A) Tenant will keep the Premises in good order, ------------------- condition and repair, reasonable wear and tear excepted, excepting only those repairs for which Landlord is responsible under the terms of this Lease or which are necessitated by the occurrence of a fire or other casualty or by the exercise of the power of eminent domain; and Tenant shall surrender the Premises, at the end of the Term of this Lease, in such condition. Without limitation, Tenant shall maintain and use the Premises in accordance with all reasonable, rules and regulations of Landlord and all governmental agencies having jurisdiction and shall, at Tenant's own expense, obtain all permits, licenses and the like required by applicable law for Tenant's use of the Premises, other than occupancy permits of general application. Tenant shall be responsible for the provision of adequate security to the Premises and to Tenant's personnel. Tenant shall be responsible for the cost of repairs which may be made necessary by reason of damage to the Premises caused by Tenant or its contractors or invitees. (B) If repairs are required to be made by Tenant pursuant to the terms hereof and are not made within the time periods allowed hereunder, Landlord may demand that Tenant make the same forthwith, and, if Tenant refuses or neglects to commence such repairs and complete the same with reasonable dispatch after such demand, Landlord may (but shall not be required to) make or cause such repairs to be made at Tenant's expense and shall not be responsible to Tenant for any loss or damage that may occur to Tenant's stock or business by reason thereof unless caused by Landlord's negligence or willful misconduct. 9.3 HEAVY MACHINERY. Any moving of machinery or equipment by Tenant shall --------------- be at the sole risk and hazard of Tenant, and Tenant will exonerate, indemnify and save Landlord harmless against and from any liability, loss, injury, claim or suit resulting directly or indirectly from such moving. 9.4 UTILITIES. Tenant shall pay directly to the proper authorities --------- charged with the collection thereof all charges for water, septic, gas, electricity, telephone and other utilities or services used or consumed on the Premises, all such charges to be paid as the same from time to time become due. -13- 9.5 INTERRUPTION OR CURTAILMENT OF SERVICES. Upon reasonable advance --------------------------------------- notice to Tenant (except in case of emergency), Landlord reserves the right to temporarily interrupt, curtail, stop or suspend (a) the heating and air conditioning services in the Building and (b) the operation of the plumbing and electric systems in the Building, when necessary by reason of accident or emergency, or for repairs, alterations, maintenance, replacements or improvements in the reasonable judgment of Landlord desirable or necessary to be made, or by reason of difficulty or inability in securing supplies or labor, or strikes, or any other cause beyond the reasonable control of Landlord, whether such other cause be similar or dissimilar to those hereinabove specifically mentioned, until said cause has been removed. This Lease shall not be affected or any of the Tenant's obligations hereunder reduced, and the Landlord shall have no responsibility or liability for any such interruption, curtailment, stoppage, or suspension of services or systems as in this Section 9.5 above provided, except that (i) Landlord shall exercise reasonable diligence to eliminate the cause of same as soon as reasonably practicable; (ii) Landlord shall use diligent efforts to minimize any interruption of Tenant's use and enjoyment of the Premises, and (iii) if all of the Premises are rendered unfit for occupancy by Tenant for thirty (30) consecutive days, the Fixed Rent shall abate from and after the thirty (30) days and until the Premises are again rendered fit for Tenant's occupancy. ARTICLE X --------- INDEMNITY AND INSURANCE ----------------------- 10.1 TENANT'S INDEMNITY. To the maximum extent this agreement may be made ------------------- effective according to law, Tenant agrees to indemnify and save harmless Landlord and Landlord's agents, affiliates, contractors and the employees of the foregoing from and against all claims of whatever nature arising from any act, omission or negligence of Tenant or Tenant's contractors, licensees, invitees, agents, servants or employees or arising from any accident, injury or damage whatsoever caused to any person, or to the property of any person, occurring on account of or based upon the act, omission or negligence or misconduct of Tenant or Tenant's contractors, licensees, invitees, agents servants or employees or arising from any breach by Tenant of the terms and conditions of this Lease. This indemnity and hold harmless agreement shall include indemnity against all costs, expenses and liabilities (including, but not limited to, reasonable attorney's fees and disbursements) incurred in connection with any such claim or proceeding brought thereon and the defense thereof. Tenant's liability hereunder shall survive any expiration or termination of this Lease. Nothing in the foregoing shall be construed to include indemnity with respect to any claim of whatever nature to the extent (and only to the -14- extent) caused by the gross negligence or willful misconduct of Landlord, Landlord's agents, affiliates, contractors and employees or by a failure of Landlord to perform its obligations hereunder. Nothing in this Section 10.1 shall be construed to reduce or otherwise affect Landlord's obligations pursuant to Article XVII hereof. 10.2 INSURANCE. (A) Tenant agrees to maintain in full force, from the ---------- date upon which Tenant first enters the Premises for any reason throughout the Term of this Lease and thereafter so long as Tenant is in occupancy of any part of the Premises, (i) "all risk" property insurance covering all present and future Tenant's Removable Property and Tenant's improvements and betterments to a limit of not less than the full replacement cost thereof and (ii) a policy of general liability and property damage insurance (including broad form contractual liability, independent contractor's hazard and completed operations coverage) in respect of the Premises and the conduct or operation of business therein, with Landlord and any permitted mortgagee under Section 15.13 hereof of which Tenant has received written notice, including John Hancock Mutual Life Insurance Company, (and such other persons as are in privity of estate with Landlord as may be set out in notice from time to time) named as an additional insured, and with limits of not less than the amount of Public Liability Insurance specified in Section 1.1. Tenant shall deliver to Landlord certificates of insurance and receipts evidencing payment of the premiums for such insurance on or before the Commencement Date and annually thereafter. Each such policy shall be noncancellable and nonamendable with respect to Landlord and Landlord's said designees without twenty (20) days' prior notice to Landlord. (B) Tenant hereby waives and releases Landlord from any and all liabilities, claims and losses on account of damage to Tenant's Removable Property for which Landlord is or may be held liable to the extent Tenant either is required to maintain insurance pursuant to Section 10.2(A) or actually receives insurance proceeds on account thereof. Landlord hereby waives and releases Tenant from any and all liabilities, claims and losses on account of damage to the Building for which Tenant is or may be held liable to the extent Landlord actually receives insurance proceeds on account thereof or to the extent Landlord would have received such proceeds had Landlord maintained the insurance required by Section 10.5 of this Lease. Each party hereto shall secure waiver of subrogation endorsements from their respective insurance carriers. 10.3 TENANT'S RISK. Except as provided herein, to the maximum extent this -------------- agreement may be made effective according to law, Tenant agrees to use and occupy the Premises and to use such other portions of the Building as Tenant is herein given the right to use at Tenant's own risk; -15- and Landlord shall have no responsibility or liability for any loss of or damage to Tenant's Removable Property or for any other property of any kind, nature and description which may be in or upon the Premises or the Building. The provisions of this Section shall be applicable from and after the execution of this Lease and until the end of the Term of this Lease, and during such further period as Tenant may use or be in occupancy of any part of the Premises or of the Building. 10.4 INJURY CAUSED BY THIRD PARTIES. To the maximum extent this agreement ------------------------------- may be made effective according to law, Tenant agrees that Landlord shall not be responsible or liable to Tenant, or to those claiming by, through or under Tenant, for any loss or damage that may be occasioned by or through the acts or omissions of any third parties, except to the extent (and only to the extent) caused by the gross negligence or willful misconduct of Landlord, Landlord's agents, affiliates, contractors and employees. 10.5 LANDLORD'S INSURANCE. Landlord shall insure the Building against -------------------- damage or destruction by fire or other casualties insurable under a standard "all risk" endorsement in an amount equal to one hundred percent (100%) of the replacement cost of the Building (exclusive of footings and foundations). Landlord agrees to maintain a policy of commercial general liability and property damage insurance in commercially reasonable limits. The costs of all insurance carried by Landlord with respect to the Premises shall be Operating Expenses. ARTICLE XI ---------- LANDLORD'S ACCESS TO PREMISES ----------------------------- 11.1 LANDLORD'S RIGHTS. Landlord shall have the right upon reasonable ------------------ advance notice to enter the Premises at all reasonable hours for the purpose of inspecting or making repairs to the Premises, and Landlord shall also have the right to make access available at all reasonable hours to prospective or existing mortgagees, purchasers or, during the last 12 months of the term, prospective tenants of any part of the Premises. Notwithstanding the foregoing, Landlord shall have the right to enter the Premises at any time without notice in the event of an emergency. Any exercise of Landlord's right of entry under this Section 11.1 shall be conducted at such times and in such manner as to minimize interference with Tenant's operations on the Premises. -16- ARTICLE XII ----------- DAMAGE OR DESTRUCTION --------------------- 12.1 RESTORATION. (A) If the Building is totally or partially damaged or ------------ destroyed, thereby rendering the Building totally or partially inaccessible or unusable, then (unless such damage was caused by Tenant, its agents, employees, invitees, or contractors) Landlord shall diligently repair and restore the Building, to substantially the same condition it was in prior to such damage or destruction and only to the extent of insurance proceeds received by Landlord; provided, however, that if in Landlord's reasonable judgment such repair and restoration cannot be completed within ninety (90) days after the occurrence of such damage or destruction (taking into account the time needed for effecting a satisfactory settlement with any insurance company involved, removal of debris, preparation of plans and issuance of all required governmental permits), then Landlord shall have the right, at its sole option, to terminate this Lease by giving written notice of termination within forty-five (45) days after the occurrence of such damage or destruction. Landlord shall notify Tenant within 45 days whether Landlord intends to repair and whether Landlord anticipates that repairs to the Premises will exceed 180 days to bring to completion. If Landlord's notice states that such repairs are not expected to be completed within 180 days, Tenant shall be entitled to terminate this Lease by notice to Landlord given within fifteen (15) days of receipt of Landlord's notice, and this Lease shall then terminate as if such date were the date of the ordinary expiration of the Term. In addition, in the event that Landlord has not completed the repairs required of it under this Section 12.1(A) within one- hundred eighty (180) days of the damage or destruction, such period to be subject to extension pursuant to (S)15.4 (but in no event extended beyond a total of 270 days), Tenant shall have the right, at its option, to terminate this Lease by delivering written notice of termination to Landlord within thirty (30) days after the expiration of such one hundred eighty day period, as the same may be extended as set forth above. (B) Notwithstanding anything herein to the contrary, Landlord shall not be obligated to restore the Building and shall have the right to terminate this Lease if (1) the holder of any Mortgage (as such term is defined in Section 15.13 hereof) fails or refuses to make insurance proceeds available for such repair and restoration, or (2) the cost of repairing and restoring the Building would exceed fifty percent (50%) of the replacement value of the Building. If Landlord is released from its obligation to restore the Building as a result of this subsection (B) but fails to terminate this Lease, Landlord shall promptly notify Tenant and Tenant shall have the option to terminate this Lease by written notice to Landlord. -17- 12.2 RENT. If the Lease is terminated pursuant to Section 12.1 above, ----- then all Fixed Rent and additional rent shall be apportioned (based on the portion of the Building which is usable after such damage or destruction) and paid to the date of termination. If this Lease is not terminated as a result of such damage or destruction, then until such repair and restoration of the Building is substantially complete, Tenant shall be required to pay the Fixed Rent, additional rent and other sums due hereunder only for the portion of the Building that is fit for Tenant's occupancy while such repair and restoration are being made. Landlord shall bear the expenses of repairing and restoring the Building; provided, however, that Landlord shall not be required to repair or restore any alteration, improvement or addition previously made by Tenant at Tenant's expense or any of Tenant's Removable Property. Notwithstanding anything in this Lease to the contrary, if any damage or destruction to the Premises was caused by the act or omission of Tenant or any agent, employee, contractor or invitee of Tenant, then Tenant shall pay the amount by which such expenses of repair or restoration to the Premises exceed the insurance proceeds, if any, actually received by Landlord on account of such damage or destruction. ARTICLE XIII ------------ CONDEMNATION ------------ 13.1 TERMINATION OF LEASE. If the Premises or the Building or the means --------------------- of access thereto are totally taken or condemned by any governmental or quasi- governmental authority for any public or quasi-public use or purpose, thereby rendering the Premises totally or substantially inaccessible or unusable, or are sold under threat of such a taking or condemnation (collectively, "condemned"), then this Lease shall terminate on the date title thereto vests in such authority and Fixed Rent and additional rent shall be apportioned as of such date. In the event that either (i) Tenant's reasonable means of access to the Premises is taken or condemned or (ii) only a "substantial part" of the Premises is taken or condemned, either Landlord or Tenant, at its option, by delivery of notice to the other party within 30 days following the date on which Tenant shall receive notice of vesting of title, may terminate this Lease as of the date of vesting of title. A "substantial part" shall be 60 percent or more of the Premises. In the event either Landlord or Tenant does not elect to exercise such termination option, this Lease shall remain in effect, except the Fixed Rent and additional rent shall be abated as of the date of vesting of title in an amount apportioned according to the portion (measured in square feet) of the Premises so condemned or taken, and Landlord and Tenant shall execute an amendment to this Lease specifying the new Fixed Rent and -18- additional rent. In the event of any taking or condemnation and if neither Landlord nor Tenant exercises its option to terminate, Landlord, at its expense, will restore the remaining portion of the Premises with reasonable diligence to at least the condition existing prior to such condemnation or taking. 13.2 AWARDS. All awards, damages and other compensation paid by any ------- governmental or quasi-governmental authority on account of any condemnation shall belong to Landlord, and Tenant assigns to Landlord all rights to such awards, damages and compensation. Tenant shall not make any claim against Landlord or the authority for any portion of such award, damages or compensation attributable to damage to the Premises, value of the unexpired portion of the Term of this Lease, loss of profits or goodwill, leasehold improvements or severance damages. Nothing contained herein, however, shall prevent Tenant from pursuing a separate claim against the authority for the value of improvements, alterations, additions, furnishings and trade fixtures installed in the Building at Tenant's expense and for relocation expenses. ARTICLE XIV ----------- DEFAULT ------- 14.1 TENANT'S DEFAULT. (A) If at any time subsequent to the date of this ----------------- Lease any one or more of the following events (herein referred to as a "Default of Tenant") shall happen: (1) Tenant shall fail to pay Fixed Rent, additional rent or any other amounts payable under this Lease, when due and such failure shall continue for ten (10) days after notice thereof, except that if Landlord gives such notice twice in any period of twelve successive months, thereafter no such notice shall be required; or (2) Tenant shall neglect or fail to perform or observe any other covenant herein contained on Tenant's part to be performed or observed and Tenant shall fail to remedy the same within thirty (30) days after notice to Tenant specifying such neglect or failure, or if such failure is of such a nature that Tenant cannot reasonably remedy the same within such thirty (30) day period, Tenant shall fail to commence promptly to remedy the same and to prosecute such remedy to completion with diligence and continuity, but in no event longer than ninety (90) days after notice to Tenant; or -19- (3) Tenant's leasehold interest in the Premises shall be taken on execution or by other process of law directed against Tenant; or (4) Tenant shall make an assignment for the benefit of creditors or shall file a voluntary petition in bankruptcy or shall be adjudicated bankrupt or insolvent, or shall file any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief for itself under any present or future Federal, State, or other statute, law or regulation for the relief of debtors, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of Tenant or of all or any substantial part of its properties, or shall admit in writing its inability to pay its debts generally as they become due; or (5) A petition shall be filed against Tenant in bankruptcy or under any other law seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any present or future Federal, State or other statute, law or regulation and shall remain undismissed or unstayed for an aggregate of ninety (90) days (whether or not consecutive), or if any debtor in possession trustee, receiver or liquidator of Tenant or of all or any substantial part of its properties or of the Premises shall be appointed without the consent or acquiescence of Tenant, respectively and such appointment shall remain unvacated or unstayed for an aggregate of ninety (90) days (whether or not consecutive); (6) A Default of Tenant shall occur under either (i) that certain Lease of even date herewith between Theodore Pasquarello and Eileen Pasquarello, as Trustees of The Paris Trust (the "Paris Trust Landlord"), as landlord and Tenant, as tenant for premises located at 31 Union Avenue, Sudbury; or (ii) that certain Lease between the Paris Trust Landlord, as landlord and Tenant, as tenant for the land and improvements located thereon at 25 Union Avenue, Sudbury; -20- then in any such case (a) if such Default of Tenant shall occur prior to the Commencement Date, this Lease shall ipso facto, and without further act on the ---- ----- part of the Landlord, terminate, and (b) if such Default of Tenant shall occur after the Commencement Date, Landlord or Landlord's agent may immediately, or at any time thereafter, without demand or notice, enter into and upon the Premises, or any part thereof in the name of the whole, and repossess the same and upon such entry this Lease shall terminate or Landlord may terminate this Lease at any time thereafter by notice to Tenant, specifying a date not less than five (5) days after the giving of such notice on which this Lease shall terminate and this Lease shall come to an end on the date specified therein as fully and completely as if such date were the date herein originally fixed for the expiration of the Term of this Lease (Tenant hereby waiving any rights of redemption under M.G.L. ch. 186, sec. 11), and Tenant will then quit and surrender the Premises to Landlord, but Tenant shall remain liable as hereinafter provided. (B) If this Lease shall have been terminated as provided in this Article, or if any execution or attachment shall be issued against Tenant or any of Tenant's property whereupon the Premises shall be taken or occupied by someone other than Tenant, then Landlord may, without notice, reenter the Premises, either by summary proceedings, ejectment or otherwise, and remove and dispossess Tenant and all other persons and any and all property from the Premises, as if this Lease had not been made, and Tenant hereby waives the service of notice of intention to reenter or to institute legal proceedings to that end. (C) In the event of any termination of this Lease, Tenant shall pay the Fixed Rent, additional rent and all other amounts payable hereunder up to the time of such termination, and thereafter Tenant, until the end of what would have been the Term of this Lease in the absence of such termination, and whether or not the Premises shall have been relet, shall be liable to Landlord for, and shall pay to Landlord, as liquidated current damages, the Fixed Rent, additional rent and all other amounts payable hereunder had such termination not occurred, less the net proceeds, if any, of any reletting of the Premises, after deducting all reasonable expenses in connection with such reletting, including, without limitation, all reasonable repossession costs, brokerage commissions, legal expenses, advertising and marketing costs, expenses of employees, alteration and tenant improvement costs and expenses of preparation for such reletting. Tenant shall pay such damages to Landlord monthly on the days on which the Fixed Rent and additional rent would have been payable hereunder had this Lease not been terminated. Landlord shall use reasonable efforts to relet the Premises. -21- (D) At any time after the termination of this Lease, whether or not Landlord shall have collected any damages pursuant to Section 14.1(C), as liquidated final damages, and in lieu of all damages payable by Tenant pursuant to Section 14.1(C) thereafter, at Landlord's election, Tenant shall pay to Landlord an amount which at the time of such election represents the then value of the excess, if any, of (1) the Fixed Rent, additional rent and all other amounts which would have been payable by Tenant hereunder (conclusively presuming the annual payments with respect to real estate taxes and expense escalation obligations to be the same as were payable for the preceding year) for the period commencing with the date of Landlord's election and ending with the date contemplated as the expiration date hereof if this Lease had not so terminated, over (2) the aggregate fair rental value of the Premises for the same period. (E) In case of any Default of Tenant, reentry or expiration and dispossession by summary proceedings or otherwise, Landlord may (1) relet the Premises or any part or parts thereof, either in the name of Landlord or otherwise, for a term or terms which may in Landlord's good faith judgment be equal to or less than or exceed the period which would otherwise have reasonable constituted the balance of the Term of this Lease and may grant reasonable concessions of free rent to the extent that Landlord considers advisable and necessary to relet the same, and (2) may make such alterations, repairs and decoration in and to the Premises as Landlord in its reasonable judgment considers advisable and necessary for the purpose of reletting the Premises, and the making of such alterations, repairs and decorations shall not operate or be construed to release Tenant from liability hereunder. Landlord shall in no event be liable in any way whatsoever for failure to relet the Premises, or in the event that the Premises are relet, for failure to collect the rent under such reletting provided Landlord uses reasonable efforts to collect the rent. Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Tenant being evicted to dispossessed, or in the event of Landlord obtaining possession of the Premises, by reason of the violation by Tenant of any of the covenants and conditions of this Lease. (F) The specified remedies to which Landlord may resort hereunder are not intended to be exclusive of any remedies or means of redress to which Landlord may at any time be entitled lawfully, and Landlord may invoke and remedy (including the remedy of specific performance) allowed at law or in equity as if specific remedies were not herein provided. (G) All reasonable costs and expenses incurred by or on behalf of Landlord (including, without limitation, reasonable attorneys' fees and -22- expenses) in enforcing its rights hereunder or occasioned by any Default of Tenant shall be paid by Tenant promptly upon demand. ARTICLE XV ---------- MISCELLANEOUS PROVISIONS ------------------------ 15.1 EXTRA HAZARDOUS USE. (A) Tenant covenants and agrees that Tenant -------------------- will not do or permit anything to be done in or upon the Premises, or bring in anything or keep anything therein, which would increase the rate of property or liability insurance of the Premises or of the Building above the standard rate applicable to Premises as of the Commencement Date being occupied for the Permitted Use; and Tenant further agrees that, in the event that Tenant shall do or permit any of the foregoing, Tenant will promptly pay to Landlord, on demand, any such resulting increase. (B) Tenant shall not (either with or without negligence) cause or permit the escape, disposal or release of any hazardous substances, or materials. Tenant shall not allow the storage or use of hazardous substances or materials on or in the Premises in any manner, nor allow to be brought into any portion of the Building any such materials or substances except for hazardous substances or materials disclosed in writing to the Landlord for use in the ordinary course of the conduct of the Permitted Use, all such substances or materials to be used and stored in compliance with applicable laws and regulations. Tenant shall not store any flammable substances in the Premises, unless such flammable substances are stored in areas with in-rack sprinkling. Any such hazardous substances or flammable substances shall be stored, used and disposed of in accordance with all applicable laws and regulations. Without limitation, hazardous substances and materials shall include those described in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., M.G.L. Chapter 21E and any other applicable federal, state or local laws and the regulations adopted under these acts. If any lender or governmental agency shall ever require testing to ascertain whether or not there has been any release of hazardous materials as a result of a breach by Tenant of the provisions of this (S)15.1(B), then the reasonable costs thereof shall be reimbursed by Tenant to Landlord upon demand as additional charges. In addition, Tenant shall execute affidavits, representations and the like from time to time at Landlord's reasonable request concerning Tenant's best knowledge and belief regarding the presence of hazardous substances or materials on the Premises. In all events, Tenant shall indemnify Landlord from and against any and all Environmental Damages (as defined in (S)17.1) asserted by any third party -23- or governmental authority and either occurring during the Term of this Lease or resulting from any violation by Tenant (or its employees, agents, invitees, or contractors) of any environmental laws pertaining to the Premises or caused by Tenant (or its agents, employees, invitees, or contractors) or persons acting under the direction of Tenant (except to the extent caused by Landlord or persons acting under the direction of Landlord). The within covenants shall survive the expiration or earlier termination of the Term of this Lease. Nothing in this Section 15.1 shall be construed to reduce or otherwise affect Landlord's obligations pursuant to Article XVII hereof. In the event of any conflict between this Section and Article XVII, the provisions of Article XVII shall control. 15.2 WAIVER. The failure of either Landlord or Tenant to insist in any ------- one or more instances upon the strict performance of any one or more of the obligations of this Lease, or to exercise any election herein contained, shall not be construed as a waiver or relinquishment for the future of the performance of such one or more obligations of this Lease or of the right to exercise such election, and such right to insist upon strict performance shall continue and remain in full force and effect with respect to any subsequent breach, act or omission. The receipt by Landlord of Fixed Rent, additional rent or other payments due hereunder or partial payments thereof with knowledge of breach by Tenant of any obligation of this Lease shall not be deemed a waiver of such breach. 15.3 COVENANT OF QUIET ENJOYMENT. Landlord covenants that, if Tenant ---------------------------- shall timely perform all of its obligations hereunder, then, subject to the provisions of this Lease, Tenant shall, during the Term of this Lease, peaceably and quietly occupy and enjoy the full possession of the Premises without hindrance by Landlord or any party claiming through or under Landlord. 15.4 FORCE MAJEURE, ETC. (A) If either Tenant or Landlord is in any way ------------------- delayed or prevented from performing any of its obligations under this Lease (excluding any monetary obligations of Tenant, including without limitation Tenant's obligation to pay Fixed Rent and additional rent) due to fire, act of God, governmental act or failure to act, strike, labor dispute, inability to procure materials, war or any other cause beyond such party's reasonable control (whether similar or dissimilar to the foregoing events), then the time for performance of such obligation shall be excused for the period equal to the period of such delay or prevention and extended for a period equal to the period of such delay or prevention. (B) In no event shall either party be liable to the other for any indirect or consequential damages suffered by either from any cause whatsoever. -24- 15.5 ASSIGNMENT OF RENTS AND TRANSFER OF TITLE. (A) If Landlord shall ----------------------------------------- assign Landlord's interest in this Lease or in the rents payable hereunder to the holder of a mortgage covering the Premises (regardless of whether or not such assignment is conditional in nature), then such assignment shall not be construed as an assumption by the assignee of any of the obligations of Landlord hereunder unless such assignee (1) by notice sent to Tenant, specifically otherwise elects, or (2) forecloses on its mortgage, or (3) takes possession of the Premises. (B) In the event of any transfer of title to the Premises by Landlord, Landlord shall thereafter be released from the performance and observance of all covenants and obligations hereunder occurring after the date of such transfer and the transferee shall be deemed the Landlord under this Lease from and after the date of such transfers, except for the provisions of Articles XVII and XX (which shall not be binding upon the transferee), provided that in no event shall the original Landlord be relieved of any obligations pursuant to Article XVII, which obligations shall survive any such transfer in the manner and to the extent set forth in (S)17.1. 15.6 RULES AND REGULATIONS. Tenant shall abide by all reasonable rules ---------------------- and regulations reasonably established by Landlord from time to time for the operation of the Premises. Landlord agrees to use reasonable efforts to insure that any such rules and regulations are uniformly enforced, but Landlord shall not be liable to Tenant for the violation of any such rules or regulations by any other tenant or occupant of the Premises or persons conducting business with such tenant or occupant. 15.7 ADDITIONAL CHARGES. If Tenant shall fail to pay when due any sums ------------------ under this Lease, Landlord shall have the same rights and remedies as Landlord has hereunder for failure to pay Fixed Rent. 15.8 INVALIDITY OF PARTICULAR PROVISIONS. If any provision of this -------------------------------------- Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, then the remainder of this Lease and the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby. 15.9 PROVISIONS BINDING. Except as herein otherwise provided, the ------------------- provisions of this Lease shall be binding upon and shall inure to the benefit of the parties hereto and each of their respective successors and assigns, subject to the provisions herein restricting assignment or subletting. -25- 15.10 NOTICES. All notices or other permitted or required communications -------- hereunder shall be in writing and shall be deemed duly given when delivered in person (with receipt therefor), or when sent by Express Mail or overnight courier service (provided a receipt will be obtained) or by certified or registered mail, return receipt requested, postage prepaid to the following addresses: If to Landlord, addressed to Landlord at Landlord's Address (or to such other address or addresses as may from time to time hereafter be designated by Landlord by notice). If to Tenant, addressed to Tenant at Tenant's Original Address. 15.11 WHEN LEASE BECOMES BINDING. The submission of this document for --------------------------- examination and negotiation does not constitute an offer to lease, or a reservation of, or option for, the Premises, and this document shall become effective and binding only upon the execution and delivery hereof by both Landlord and Tenant. All negotiations, consideration, representations and understandings between Landlord and Tenant are incorporated herein and this Lease expressly supersedes any proposals or other written documents relating hereto. This Lease may be modified or altered only by written agreement signed by Landlord and Tenant, and no act or omission of any employee or agent of Landlord shall alter, change or modify any of the provisions hereof. This Lease shall not be recorded, but Landlord shall, on request from Tenant, execute and acknowledge, a Notice of Lease pursuant to M.G.L. Chapter 183, (S)4. 15.12 PARAGRAPH HEADINGS. The paragraph headings throughout this Lease ------------------- are for convenience and reference only, and the words contained therein shall in no way be held to explain, modify, amplify or aid in the interpretation, construction or meaning of the provisions of this Lease. 15.13 RIGHTS OF MORTGAGEE AND GROUND LESSOR. (A) This Lease is subject -------------------------------------- and subordinate to the lien, provisions, operation and effect of all mortgages, deeds of trust, ground leases or other security instruments which may now encumber the Building or the Premises (collectively, "Mortgages"; individually, "Mortgage"), to all funds and indebtedness intended to be secured thereby, and to all renewals, extensions, modifications, recastings or refinancings thereof. The holder of any Mortgage to which this Lease is subordinate shall have the right (subject to any required approval of the holder of any superior Mortgage) at any time to declare this Lease to be superior to the lien, provisions, operation and effect of such Mortgage and Tenant shall execute, -26- acknowledge and deliver all documents required by such holder in confirmation thereof provided such documents are in form and substance reasonably satisfactory to Tenant. The holder of any Mortgage placed on the Premises after the date of this Lease may elect to subordinate this Lease to such Mortgage, provided that the holder shall deliver to Tenant a Non-disturbance and Attornment Agreement, on a commercially reasonable form, whereby such holder agrees not to disturb Tenant's rights under this Lease provided that Tenant is not in default beyond applicable cure periods hereunder. Tenant acknowledges that John Hancock Mutual Life Insurance Company and The First National Bank of Boston are permitted mortgagees of the Landlord under this Lease. The notice address of John Hancock is: John Hancock Place, Post Office Box 111, Boston, MA 02117 and the notice address of the Bank is: 100 Federal Street, Boston, MA 02110, Attention Elise Pricone. Landlord agrees to use reasonable efforts to obtain from John Hancock, a Non-disturbance Agreement, on John Hancock's standard form, within 90 days of the Commencement Date of this Lease. (B) In confirmation of the foregoing subordination, Tenant shall at Landlord's request promptly execute any requisite or appropriate document. If the Premises are sold at foreclosure or transferred by a deed-in-lieu of foreclosure, then, at the request of such purchaser, Tenant shall attorn to such purchaser and shall recognize such purchaser as the landlord under this Lease provided that such purchaser agrees not to disturb Tenant's possession of the Premises and agrees to be bound by and assume Landlord's obligations hereunder except such purchaser shall not be (1) bound by any payment of the Fixed Rent or additional payments due hereunder for more than one (1) month in advance, (2) bound by any amendment of this Lease made without the consent of the holder of each Mortgage existing as of the date of such amendment provided Tenant had notice of such Mortgage, (3) liable for damages for any breach, act or omission of any prior landlord, and (4) subject to any offsets or defenses which Tenant might have against any prior landlord. Within fifteen (15) days after the request of such purchaser, Tenant shall execute, acknowledge and deliver confirmation of such attornment and non-disturbance agreement in form reasonably acceptable to Tenant. (C) After Tenant receives notice from any person, firm or other entity that it holds a Mortgage on the Building or the Premises, no notice from Tenant to Landlord alleging any default by Landlord shall be effective unless and until a copy of the same is given to such holder, provided that Tenant shall have been furnished with the name and address of such holder. Any such holder shall have thirty (30) days after its receipt of notice from Tenant of a default by Landlord under this Lease to cure such default before Tenant may exercise any remedy hereunder. The curing of -27- any of Landlord's defaults by such holder shall be treated as performance by Landlord. (D) This Lease is subject to Landlord obtaining on or before the Commencement Date, the consent of John Hancock. 15.14 ESTOPPEL CERTIFICATES. At any time and from time to time upon not ---------------------- less than fifteen (15) days prior written notice, Tenant and each subtenant or assignee of Tenant or occupant of the Premises shall execute, acknowledge and deliver to Landlord and/or any other person or entity designated by Landlord, an estoppel certificate (1) certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that this Lease is in full force and effect as modified and stating the modifications), (2) stating the dates to which the rent and any other charges have been paid, (3) stating whether or not, to the best of Tenant's knowledge, Landlord is in default in the performance of any obligation of Landlord contained in this Lease, and, if so, specifying the nature of such default, (4) stating the address to which notices are to be sent, and (5) certifying to such other matters as Landlord may reasonably request. Tenant acknowledges that time is of the essence to the delivery of such statements. Upon request, Tenant agrees to furnish Landlord with Tenant's current annual reports and any other financial information of Tenant as Landlord may reasonably request from time to time. 15.15 REMEDYING DEFAULTS. Upon five business days' notice to Tenant, ------------------- Landlord shall have the right, but shall not be required, to pay such sums or perform such acts which may be necessary or appropriate by reason of the failure or neglect of Tenant to perform any of its obligations under this Lease beyond any applicable notice and grace period hereunder. If Landlord, in connection with the foregoing, makes any reasonable expenditures or incurs any obligations for the payment of money, Tenant agrees to pay to Landlord within five (5) days of demand all such sums. After a Default of Tenant in the payment of Fixed Rent, additional rent or other amounts payable hereunder, such amounts shall, at the option of Landlord, bear interest from the due date thereof at a rate equal to five percent (5%) over the rate of interest reported from time to time in the Wall Street Journal as being the "prime rate" then in effect and shall be payable by Tenant to Landlord on demand by Landlord. Notwithstanding anything to the contrary contained herein, the interest to be paid by Tenant to Landlord hereunder shall be limited to the then maximum legal rate thereof. 15.16 HOLDING OVER. If Tenant does not immediately surrender the Premises ------------- upon the expiration or earlier termination of the Term of this Lease, then Tenant shall become a tenant by the month and the rent shall -28- be increased to 150% of the monthly installments of Fixed Rent, additional rent and all other amounts that would have been payable pursuant to the provisions of this Lease if the Term of this Lease had continued during such holdover period. Such rent shall be computed on a monthly basis and shall be payable on the first day of such holdover period and the first day of each calendar month thereafter during such holdover period until the Premises have been vacated. Landlord's acceptance of such rent shall not in any manner adversely affect Landlord's other rights and remedies, including Landlord's right to evict Tenant and to recover damages. 15.17. SURRENDER OF PREMISES. Upon the expiration or earlier termination ---------------------- of the Term of this Lease, Tenant shall peaceably quit and surrender to Landlord the Premises in good order and condition, together with all alterations, additions and improvements which may have been made or installed in, on or to the Premises prior to or during the Term of this Lease (subject, however, to the provisions of Section 7.2(B)), excepting only ordinary wear and use, eminent domain, and damage by fire or other casualty. Tenant shall remove all of Tenant's Removable Property and all items specified by Landlord pursuant to Section 7.2(B) and shall, at its expense, repair and restore the Premises to the condition existing prior to installation and repair any damage to the Premises or the Building due to such removal. Any of Tenant's Removable Property which shall remain in the Building or on the Premises after the expiration or termination of the Term of this Lease shall be deemed conclusively to have been abandoned, and either may be retained by Landlord as its property or may be disposed of, at Tenant's sole cost and expense, in such manner as Landlord may see fit. 15.18. PAYMENTS BY TENANT. All amounts payable by Tenant under the terms ------------------- of this Lease, including without limitation, all payments of Fixed Rent, additional rent under Articles V and VI and all payments under (S)9.1(B), shall be paid to Landlord without offset, abatement, deduction or demand. ARTICLE XVI ----------- BROKERAGE --------- 16.1 BROKERAGE. Landlord and Tenant each represent to the other that it --------- has dealt with no broker in connection with this Lease. Landlord and Tenant each agree to indemnify and hold the other harmless from any brokerage commission, and any other loss, damage or expense, including reasonable attorneys' fees, resulting from any dealings by such party in breach of the foregoing representation. -29- ARTICLE XVII ------------ 17.1 INDEMNIFICATION. Landlord shall defend (with counsel selected by --------------- Landlord) and indemnify Tenant from and against any and all Environmental Damages (as defined below) asserted by any third party (including, without limitation, any sub-tenant, assignee or other successor to Tenant's interest hereunder but only to the extent Landlord would have been liable to Tenant hereunder in the absence of any such sublease, assignment or other transfer) or governmental authority. Landlord's obligations under this Article XVII shall survive and continue in full force and effect (subject only to any applicable statutes of limitations) for a period of three (3) years from the expiration date of this Lease (the "Termination Date"), except that Landlord's indemnity obligations under this Article XVII as to matters caused directly by Landlord or persons acting under the direction of Landlord during the Term of this Lease shall survive beyond the Termination Date and that if there are any pending claims under the terms of this Article XVII existing on the Termination Date (whether or not asserted in a case of law) or if there is any response action which Landlord is obligated to perform under (S)17.3 and of which Landlord has received notice on or before the Termination Date, Landlord's obligations under this Article XVII solely as to such pending claims or such response action, shall be extended until such time as the pending claims have been resolved or such response action has been completed, respectively. "Environmental Damages" means all claims, judgments, damages, losses, penalties, fines, liabilities (including as well strict liability), encumbrances, liens, costs, and expenses of investigation and defense of any claim, whether or not such claim is ultimately defeated, and of any good faith settlement, of whatever kind or nature, contingent or otherwise, matured or unmatured, foreseeable or unforseeable, including without limitation reasonable attorneys' fees and disbursements and consultants' fees and response costs, any of which are incurred at any time as a result of the existence of oil or hazardous materials upon, about or beneath the Premises and/or any properties downgradient from or cross-gradient to the Premises, or migrating or threatening to migrate to or from the Premises, and any violation by Landlord of any applicable environmental law pertaining to the Premises (except as specifically provided in the next paragraph), all to the extent (and only to the extent) resulting from any existence or migration of oil or hazardous materials, provided that the violation, existence, migration and/or threat of migration occurred or arose prior to the Term of this Lease and is disclosed in certain reports and other documents identified in Exhibit C attached hereto and treating --------- each report and document as applying equally to the Property, the 31 Union Avenue property and the 25 Union property or occurred or arose during the Lease -30- Term and was caused directly by Landlord or persons acting under the direction of Landlord. The foregoing indemnity shall not apply to any Environmental Damages resulting from, relating to, or arising out of the release or threat of release of oil or hazardous materials occurring during the Term of the Lease (unless directly caused by Landlord) or resulting from Tenant's (or its employees', agents' invitees' or contractors') violation of any environmental laws or caused by Tenant's use, operation, or occupation of the Premises or from any breach by Tenant of the provisions of (S)15.1 of this Lease. 17.2 THIRD PARTY CLAIMS. ------------------ (A) If any third party shall notify either Landlord or Tenant with respect to any matter (a "Third Party Claim") which may give rise to a claim for ----------------- indemnification against Landlord under this Article XVII or a claim for indemnification against Tenant under (S)15.1, then the party receiving notice shall promptly notify the other party in writing; provided, however, that no -------- ------- delay in notifying the other party shall relieve that party from any obligation hereunder unless (and then solely to the extent) such party is prejudiced. (B) Landlord agrees to defend Third Party Claims which arise solely out of Landlord's indemnity obligations under (S)17.1 and so long as Landlord is conducting the defense of the Third Party Claim in accordance with Section 17.1 above, (i) Tenant may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third Party Claim, (ii) Tenant will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of Landlord, and (iii) Landlord will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of Tenant (not to be withheld unreasonably). (C) If Landlord does not defend against the Third Party Claim as required by (S)17.2(B), however, (i) Tenant may defend against, and consent to the entry of any judgment or enter into any settlement with respect to, the Third Party Claim in any manner it reasonably may deem appropriate (provided that Landlord may participate in any such action, at its own expense, and Landlord shall have the right to reject any settlement proposal by Tenant), (ii) Landlord will reimburse Tenant promptly and periodically for the costs of defending against the Third Party Claim (including reasonable attorneys' fees and expenses), and (iii) Landlord will remain responsible for any Environmental Damages Tenant may suffer -31- resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim to the extent (and only to the extent) provided in this Article XVII. (D) Tenant agrees to defend Third Party Claims which arise out of Tenant's indemnity obligations under (S)15.1 and so long as Tenant is conducting the defense of the Third Party Claim in accordance with Section 15.1, (i) Landlord may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third Party Claim, (ii) Landlord will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of Tenant (not to be withheld unreasonably), and (iii) Tenant will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of Landlord (not to be withheld unreasonably). (E) If Tenant does not defend against the Third Party Claim as required by (S)17.2(D), however, (i) Landlord may defend against, and consent to the entry of any judgment or enter into any settlement with respect to, the Third Party Claim in any manner it reasonably may deem appropriate (provided that Tenant may participate in any such action, at its own expense), (ii) Tenant will reimburse Landlord promptly and periodically for the costs of defending against the Third Party Claim (including reasonable attorneys' fees and expenses), and (iii) Tenant will remain responsible for any Environmental Damages Landlord may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim to the fullest extent provided in this Article XVII and in Section 15.1. 17.3 RESPONSE ACTIONS. If Tenant or Landlord is required by applicable law ---------------- to remediate oil or hazardous materials on or under the Premises or migrating or threatening to migrate through, under or beyond the Premises, or to take any other response actions related to the Premises and/or any migration or threat of migration, then Landlord shall promptly undertake all such response actions in accordance with all applicable laws. Upon completion of each response action, Landlord shall reasonably restore any affected portion of the Premises to the condition existing prior to the commencement of such response action. If the response action is the result of any breach by Tenant of the terms of (S)15.1 or otherwise results from any environmental condition occurring during the Term of this Lease, Tenant shall reimburse promptly and periodically Landlord, as additional rent, for all costs incurred by Landlord in connection with such response action. Tenant agrees, upon reasonable prior written notice from Landlord, to grant Landlord or its contractors access to the Premises to carry out -32- such response actions as Landlord deems appropriate, provided, however, that Landlord shall use reasonable efforts to prevent any interruption of Tenant's (or any permitted subtenant's or assignee's) conduct of business at the Premises. Landlord agrees to coordinate its activities with Tenant so as to minimize any inconvenience to or interruption of the normal use and enjoyment of the Premises by Tenant and by any permitted subtenant and/or assignee consistent with Landlord's obligations hereunder and under any applicable judgment, decree or settlement. 17.4 SUCCESSORS AND ASSIGNS. This Article XVII is binding upon and inures ---------------------- to the benefit of Landlord and Tenant only. The parties acknowledge that Tenant has a right to terminate this Lease in the event of a default by Landlord or Theodore Pasquarello under the provisions of (S)2 of that certain Letter of Credit Agreement of even date herewith between Landlord, Tenant, Theodore Pasquarello and the Paris Trust Landlord. In the event that this Lease is assigned or the Premises are sublet by Tenant as permitted hereunder, then Landlord's obligations under this Article XVII shall thereafter be owed only to New England Business Service, Inc. and not to any of Tenant's subtenants, successors, transferees, or assigns. In the event the Premises are acquired by a mortgagee of the Premises at foreclosure sale or by a deed-in-lieu of foreclosure, the provisions of this Article XVII shall not apply to such mortgagee. ARTICLE XVIII ------------- EXCULPATORY CLAUSE ------------------ 18.1 LIMITATION ON LIABILITY. Notwithstanding anything to the contrary ----------------------- herein, Landlord's liability for its negligence or failure to perform its obligations hereunder including all of Landlord's obligations under (S)17 shall be limited to its interest in the Premises. Tenant shall neither seek to enforce nor enforce any judgment or other remedy against any other asset of Landlord or any individual who holds any interest in Landlord. 18.2 ACTIONS AGAINST LANDLORD. In any claim made by Tenant against ------------------------ Landlord alleging that Landlord has acted unreasonably where Landlord had an obligation to act reasonably, Tenant shall have no right to recover damages (except as permitted under (S)19.2) from Landlord and Tenant's sole and exclusive recourse against Landlord shall be an action seeking specific performance of Landlord's obligation to act reasonably. -33- ARTICLE XIX ------------ SUBMISSION TO JURISDICTION, ETC. -------------------------------- 19.1 GOVERNING LAW. This Lease shall be construed in accordance with the ------------- laws of the Commonwealth of Massachusetts. All actions or proceedings relating, directly or indirectly, to this Lease shall be litigated only in courts located within the Commonwealth of Massachusetts. Landlord, Tenant, their partners, trustees, and their successors and assigns hereby subject themselves to the jurisdiction of any state or federal court located within the Commonwealth of Massachusetts. 19.2 RECOVERY OF FEES. If either party commences any action or proceeding ---------------- against the other in connection with this Lease and such action or proceeding is disposed of, by settlement, judgment or otherwise, the prevailing party shall be entitled to recover from the other its reasonable disbursements (including reasonable attorneys' fees) and the reasonable fees and disbursements of consultants or experts incurred in connection with such action or proceedings. ARTICLE XX ----------- LANDLORD'S EQUITY ----------------- 20.1 LANDLORD'S EQUITY REQUIREMENT. Landlord agrees that it shall not ----------------------------- enter into any new loan (or refinance any existing loan) secured by all or any portion of the Premises such that the aggregate loan-to-value ratio of all such loans, determined on the basis of the fair market value of the Premises at the time of entering into the new loan, exceeds a loan-to-value ratio of 75%. This Article XX is binding upon and inures to the benefit of original Landlord and Tenant only, and shall not be binding on successors, assigns or transferees of Landlord. In the event that this Lease is assigned or the Premises are sublet by Tenant as permitted hereunder, then Landlord's obligations under Article XX shall thereafter be owed only to New England Business Service, Inc. and not to any of Tenant's subtenants, successors, transferees, or assigns. In the event the Premises are acquired by a mortgagee of the Premises at foreclosure sale or by a deed-in-lieu of foreclosure, the provisions of this Article XX shall not apply to such mortgagee. -34- IN WITNESS WHEREOF, each of Landlord and Tenant has caused this Lease to be duly executed as of the date first written above LANDLORD: By:_______________________________ Theodore Pasquarello, not individually but as Trustee of E. B. Realty Trust TENANT: NEW ENGLAND BUSINESS SERVICE, INC. By:________________________________ Name:______________________________ Title:_____________________________ EX-10.3.2 6 dex1032.txt AMENDMENT NO 1 TO 23 UNION AVE LEASE EXHIBIT 10.3.2 AMENDMENT No. 1 OF LEASE ------------------------ This Amendment No. 1 of Lease (this "Amendment") dated as of June 12, 1997 between Theodore Pasquarello, not individually but as Trustee of the E.B. Realty Trust under Declaration of Trust dated January 28, 1988 ("Landlord") and New England Business Service, Inc. ("Tenant"). WHEREAS, Landlord and Tenant are parties to a certain Lease dated as of March 31, 1997 for the land and the building located at 33 Union Avenue, Sudbury, Massachusetts (the "Lease"). WHEREAS, Landlord and Tenant desire to amend the Lease as hereinafter set forth. Capitalized terms not defined herein shall have the same meanings ascribed to them in the Lease. NOW THEREFORE, for good and valuable consideration, Landlord and Tenant hereby agree to amend the Lease as follows: A. Effective as of March 31, 1997 the second sentence of (S)17.4 of the Lease which stated that "[t]he parties acknowledge that Tenant has a right to terminate this Lease in the event of a default by Landlord or Theodore Pasquarello under the provisions of (S)2 of that certain Letter of Credit Agreement of even date herewith between Landlord, Tenant, Theodore Pasquarello and the Paris Trust Landlord" is hereby deleted and the following sentence substituted therefore: The parties acknowledge that certain of Landlord's obligations under this Article XVII are secured by a limited Guaranty of Theodore Pasquarello dated as of March 31, 1997. B. The terms and provisions of the Lease are hereby ratified and confirmed. C. This Amendment shall be binding upon the parties and upon their successors and assigns. IN WITNESS WHEREOF, this Amendment No. 1 of Lease has been executed by Landlord and Tenant as a sealed instrument as of the date first written above. LANDLORD: By:__________________________________ Theodore Pasquarello, not indivdually but as Trustee of E.B. Realty Trust TENANT: NEW ENGLAND BUSINESS SERVICE, INC. By:__________________________________ Name:________________________________ Title:_______________________________ EX-10.3.3 7 dex1033.txt ASSIGNMENT AND ASSUMPTION AGREEMENT EXHIBIT 10.3.3 ASSIGNMENT AND ASSUMPTION AGREEMENT (33 Union Avenue, Sudbury, MA 01776) ASSIGNMENT AND ASSUMPTION AGREEMENT, effective as of September 27, 1999, by and between New England Business Service, a Delaware corporation ("Assignor"), and Chiswick, Inc., a Massachusetts corporation and a wholly-owned subsidiary of Assignor ("Assignee"). WITNESSETH: ---------- WHEREAS, Assignor, as Tenant, and Theodore Pasquarello, Trustee of The E.B. Realty Trust under a Declaration of Trust dated January 28, 1988, as Landlord, have entered into a Lease dated as of March 31, 1997 and recorded with the Middlesex County (Southern District) Registry of Deeds in Book 27361, Page 346 on June 5, 1997 (the "Lease") of premises known and numbered as 33 Union Avenue, Sudbury, Massachusetts 01776; and WHEREAS, Assignor desires to assign all of its right, title and interest in the Lease to Assignee, and Assignee desires to assume all of the rights and obligations of Assignor thereunder; NOW, THEREFORE, in consideration of the foregoing and the other agreements and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Assignment. Assignor hereby assigns to Assignee all of its right, ---------- title and interest in, to and under the Lease, to have and to hold the same, for the remainder of the term of said Lease, subject to the covenants, terms, provisions and conditions of the Lease. 2. Assumption. Assignee hereby accepts the foregoing assignment and ---------- assumes and agrees to perform all of the obligations of Assignor under the Lease. 3. Successors and Assigns. The covenants, conditions and agreements ---------------------- contained herein shall bind and inure to the benefit of Assignor and Assignee, their successors and assigns. IN WITNESS WHEREOF, the parties have hereunto set their respective hands as of the date first above written. ASSIGNOR: ASSIGNEE: NEW ENGLAND BUSINESS CHISWICK, INC. SERVICE, INC. By:__________________________ By:__________________________ Name: Daniel M. Junius Name: Daniel M. Junius Title: Treasurer Title: Treasurer The undersigned, as Landlord under the Lease referred to in the foregoing instrument, joins in this Assignment and Assumption Agreement solely for the purpose of consenting to the assignment of the Lease from Assignor to Assignee. This Assignment and Assumption Agreement shall neither release Assignor from its liability for the performance of tenant's obligations under the Lease nor constitute the undersigned's consent to any further assignment or sublet of the Lease. LANDLORD: THE E.B. REALTY TRUST By:__________________________ Theodore Pasquarello, not individually but as Trustee of The E.B. Realty Trust EX-10.4 8 dex104.txt LEASE AGREEMENT AS OF JUNE 3, 1998 Exhibit 10.4 LEASE BETWEEN SCOTT RML CO. AND MCBEE SYSTEMS, INC. June 3, 1998 -i- TABLE OF CONTENTS ARTICLE 1 PREMISES: TERM ..........................................................1 SECTION 1.1 LEASED PREMISES ......................................1 SECTION 1.2 TERM .................................................1 ARTICLE 2 RENTAL; PAYMENT .........................................................1 SECTION 2.1 RENTAL ...............................................2 SECTION 2.2 MANNER AND PLACE OF PAYMENT ..........................2 SECTION 2.3 NET LEASE ............................................2 SECTION 2.4 RIGHT OF OFFSET ......................................2 ARTICLE 3 CONDITION; REPAIRS; IMPROVEMENTS; LIENS .................................3 SECTION 3.1 CONDITION ............................................3 SECTION 3.2 REPAIRS AND MAINTENANCE ..............................3 SECTION 3.3 IMPROVEMENTS .........................................4 SECTION 3.4 LIENS ................................................4 ARTICLE 4 USE AND POSSESSION OF PREMISES ..........................................4 SECTION 4.1 POSSESSION ...........................................5 SECTION 4.2 USE ..................................................5 SECTION 4.3 COMPLIANCE; INDEMNIFICATION ..........................5 SECTION 4.4 NO WASTE .............................................5 ARTICLE 5 ASSIGNMENT AND SUBLETTING; CONVEYANCE OF FEE ............................5 SECTION 5.1 ASSIGNMENT AND SUBLETTING ............................6 SECTION 5.2 CONVEYANCE OF FEE ESTATE .............................6 SECTION 5.3 ESTOPPEL CERTIFICATE .................................6 ARTICLE 6 NON-LIABILITY OF LESSOR; LITIGATION .....................................7 SECTION 6.1 NON-LIABILITY OF LESSOR ..............................7 SECTION 6.2 LITIGATION ...........................................7 ARTICLE 7 INSURANCE; DAMAGE TO IMPROVEMENTS .......................................7 SECTION 7.1 LIABILITY INSURANCE ..................................7 SECTION 7.2 FIRE AND EXTENDED COVERAGE INSURANCE .................8 -ii- SECTION 7.3 WORKMEN COMPENSATION AND UNEMPLOYMENT COMPENSATION INSURANCE ...............................8 SECTION 7.4 PARTIAL DAMAGE TO IMPROVEMENTS .......................8 SECTION 7.5 TOTAL DESTRUCTION ....................................9 SECTION 7.6 INSURED PARTIES ......................................9 SECTION 7.7 WAIVER OF SUBROGATION ................................9 ARTICLE 8 CONDEMNATION; ZONING OR OTHER GOVERNMENTAL CHANGES ......................9 SECTION 8.1 GOVERNMENTAL ACTION .................................10 SECTION 8.2 COMPLETE TAKING .....................................10 SECTION 8.3 PARTIAL TAKING ......................................10 ARTICLE 9 TAXES, ASSESSMENTS AND OTHER CHARGES ...................................11 SECTION 9.1 TAXES AND GENERAL ASSESSMENTS .......................11 SECTION 9.2 SPECIAL ASSESSMENTS .................................12 SECTION 9.3 PRORATION FIRST AND LAST YEARS ......................12 SECTION 9.4 CONTEST OF TAXES ....................................12 ARTICLE 10 DEFAULT ................................................................12 SECTION 10.1 EVENTS OF DEFAULT ...................................12 SECTION 10.2 LESSOR'S REMEDIES ...................................13 ARTICLE 11 TERMINATION OF LEASE ...................................................15 SECTION 11.1 TRADE FIXTURES AND PERSONAL PROPERTY ................15 SECTION 11.2 REMOVAL .............................................15 SECTION 11.3 SIGN ................................................15 ARTICLE 12 COVENANT OF QUIET POSSESSION ...........................................15 ARTICLE 13 WAIVER PROVISION .......................................................16 SECTION 13.1 ACCEPTANCE OF RENT NOT WAIVER .......................16 SECTION 13.2 NO WAIVER ...........................................16 SECTION 13.3 REMEDIES ............................................17 ARTICLE 14 SUBORDINATION ..........................................................17 SECTION 14.1 ...........................................................17 -iii- ARTICLE 15 HAZARDOUS WASTE ........................................................17 SECTION 15.1 LESSOR'S CONSENT REQUIRED ...........................18 SECTION 15.2 COMPLIANCE WITH ENVIRONMENTAL LAWS ..................18 SECTION 15.3 HAZARDOUS SUBSTANCES HANDLING .......................18 SECTION 15.4 NOTICES .............................................19 SECTION 15.5 DEFINITION OF HAZARDOUS SUBSTANCES ..................19 SECTION 15.6 INDEMNIFICATION OF LESSOR ...........................21 SECTION 15.7 WITHHOLDING CONSENT TO PROPOSED TRANSFEREES .........21 ARTICLE 16 OPTION TO PURCHASE/RIGHT OF FIRST REFUSAL ..............................22 SECTION 16.1 OPTION TO PURCHASE ..................................22 SECTION 16.2 RIGHT OF FIRST REFUSAL ..............................23 ARTICLE 18 GENERAL PROVISIONS .....................................................25 SECTION 18.1 HOLDING OVER ........................................25 SECTION 18.2 TIME OF THE ESSENCE .................................25 SECTION 18.3 BENEFIT .............................................26 SECTION 18.4 RECORDING ...........................................26 SECTION 18.5 TITLES ..............................................26 SECTION 18.6 INSPECTION OF PREMISES ..............................26 SECTION 18.7 AMENDMENT OR MODIFICATION ...........................26 SECTION 18.8 SEVERABILITY ........................................27 SECTION 18.9 NOTICES .............................................27 -iv- LEASE THIS LEASE INDENTURE is made and entered into as of the 1st day of __________, 1998 by and between SCOTT RML CO., a Colorado general Partnership, (hereinafter referred to in this lease as the "Lessor"), and McBEE SYSTEMS, INC., a Colorado corporation, (hereinafter referred to in this Lease as the "Lessee"). WITNESSETH, THAT: In consideration of the rents and mutual covenants herein contained, Lessor and Lessee do hereby covenant, promise and agree as follows: ARTICLE I PREMISES: TERM SECTION 1.1 LEASED PREMISES: Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the real property located in County of Athens, State of Ohio, and described as set forth on Exhibit A, subject, however, to easements, rights-of-way, reservations and restrictions of record and all building and zoning ordinances, together with all buildings and improvements thereon (sometimes called "Premises" "Leased Premises"). SECTION 1.2 TERM: TO HAVE AND TO HOLD the Leased Premises unto Lessee, its successors and assigns, for a term of ten (10) years, commencing at twelve o'clock noon on ______, 1998, and ending at twelve o'clock noon ______, 2008. ARTICLE 2 RENTAL; PAYMENT SECTION 2.1 RENTAL: In consideration of the aforesaid demise and lease, Lessee hereby covenants and agrees to pay to Lessor each lease year for the Leased Premises an annual 1 rental of Eight Hundred and Fifty-Two Thousand Dollars ($852,000), payable in equal monthly installments of Seventy-One Thousand Dollars ($71,000) beginning on the first day of the commencement of this lease and continuing on the first day of each month thereafter through ________, 2003 thereafter an annual rental of Nine Hundred and Eighteen Thousand Dollars ($918,000) payable in equal monthly installments of Seventy-Six Thousand Five Hundred Dollars ($76,500) during the remainder of the term hereof. Rental for any fractional month at the beginning or the end of the lease term shall be prorated. SECTION 2.2 MANNER AND PLACE OF PAYMENT: All rental payments made by Lessee under this Lease to Lessor shall be made in legal tender of the United States of America and without notice and shall be paid to Lessor at the address as indicated hereinafter for the purpose of giving notices, or at such other place as Lessor may from time to time direct in writing. SECTION 2.3 NET LEASE: It is the purpose and intent of Lessor and Lessee that the rent payable hereunder shall be absolutely net to Lessor so that this Lease shall yield, net, to Lessor the rent as hereinabove provided, free of any charges, assessments, or impositions of any kind charged, assessed, or imposed on or against the premises, and without abatement, deduction or set-off by the Lessee except as expressly set forth herein and Lessor shall not be expected or required to pay any such charge, assessment or imposition, or be under any obligation or liability hereunder except as herein expressly set forth, and that all costs, expenses and obligations of any kind relating to the maintenance, preservation, care, repair and operation of the premises, including all replacements, alterations, and additions as hereinafter provided which may arise or become due during the term of this Lease, and any such costs shall be borne by and be the sole responsibility of the Lessee. SECTION 2.4 RIGHT OF OFFSET: The beneficial owners of the entities comprising the partners of Lessor are also the beneficial owners of ROMO Corp., a Colorado corporation ("ROMO"), and as such have benefited substantially and directly by the sale on the date hereof by ROMO to New England Business Service, Inc., a Delaware corporation ("NEBS"), of all of the issued and outstanding capital stock of Lessee, and substantially all of the assets of an affiliate of 2 Lessee, pursuant to a Stock Purchase Agreement and an Asset Purchase Agreement, each dated May 1, 1998 (collectively, the "Purchase Agreements"). In consideration of the foregoing, and as an inducement to NEBS and Lessee to forego alternative methods of security, Lessor acknowledges and agrees that Lessee may set off against any amounts due to Lessor under this Lease, including any rental described in Section 2.1 above, all or any portion of any amounts due to Lessee, NEBS, or any affiliate of NEBS, under either or both of the Purchase Agreements or any related agreement (such as the Seller Stockholders Agreement), including any and all Adverse Consequences (as defined in the Purchase Agreements); provided, however, that Lessee shall have a right of set off hereunder only if (i) Lessee has made a written claim for indemnification under Article VIII of the applicable Purchase Agreement and (ii) within 45 calendar days of making such written claim, Lessee has not received full compensation therefor. The right of offset granted herein is in addition to, and not in derogation of, any additional remedies which may be available to NEBS, Lessee, or their affiliates in respect of such amounts or to Lessee under this Lease. Lessee's right of offset herein is primary, and no recourse need be taken by NEBS or Lessee against ROMO or any other responsible person in respect of the Purchase Agreements before Lessee's exercise of such right of offset. ARTICLE 3 CONDITION; REPAIRS; IMPROVEMENTS; LIENS SECTION 3.1 CONDITION: Lessee hereby acknowledges that upon acceptance of occupancy, it will have received the Leased Premises in good order and repair and that no representations as to the condition and repair thereof will have been made by Lessor prior to or at the time of execution of this Lease or acceptance of occupancy. SECTION 3.2 REPAIRS AND MAINTENANCE: During the term of this Lease, Lessee shall maintain the building and the improvements, now or at any time hereafter located on the leased premises, in good repair and condition, except for reasonable wear and tear and damage by fire or other casualty, and Lessee shall make promptly all necessary repairs, including any and all repairs necessitated by the act or omission, intentional or negligent, of Lessee, its agents, employees, 3 tenant, subtenants, invitees, patrons, or other persons, whether interior or exterior, at Lessee's sole expense. All equipment of Lessee or installed by Lessee shall be the sole responsibility of Lessee and shall be maintained by Lessee at Lessee's sole expense. Lessee hereby agrees to replace all broken glass with glass of the same size and quality as that broken, and will keep the leased premises and appurtenances in a clean and healthy condition according to all applicable laws, regulations and direction of the proper public officers during the term of this Lease at Lessee's sole expense, and will, without injury thereto, remove the snow and ice from the roof of the improvements on the leased premises, when necessary. Lessee shall also be responsible to maintain the exterior structural components of the building, including the roof and parking lot. Notwithstanding the foregoing, in no event shall Lessee be liable for any costs or obligations to the extent arising out of the negligence or wilful misconduct of Lessor. SECTION 3.3 IMPROVEMENTS: Lessee may, at its option and at its sole expense, but only with the prior written approval of Lessor, which shall not be unreasonably withheld, make such alterations and improvements to the leased premises as it may deem advisable, provided that such alterations and improvements are done in a good and workmanlike manner. All buildings and improvements constructed on the leased premises at any time or from time to time during the term of this Lease shall be and remain a part of the real estate (notwithstanding the fact that the Lessee pays for the construction thereof) and at the termination of this Lease, whether by expiration of time or otherwise, Lessee shall surrender the leased premises with all buildings and improvements thereon in good condition, ordinary wear and tear and damage by fire or other casualty excepted. Notwithstanding the foregoing, in no event shall any alteration or improvement costing less than $50,000 require the prior approval of Lessor. SECTION 3.4 LIENS: Whenever Lessee shall repair, demolish, construct, remodel or rebuild improvements on the leased premises, Lessee covenants to discharge or cause to be discharged every lien filed against the leased premises and Lessee agrees to indemnify and save Lessor harmless from any and all liability, loss or expense with respect thereto. No default shall be declared under the provisions of this Section 3.4 so long as Lessee, in good faith and by appropriate 4 proceedings, is contesting the amount or validity of any lien against the leased premises, provided Lessee shall deposit with Lessor the amount of the lien claimed or gives a bond or other proper guarantee of such payment and, provided, further, that within thirty (30) days after final determination fixing Lessee's liability, Lessee shall discharge such liability with all interest, penalties or costs incident thereto. ARTICLE 4 USE AND POSSESSION OF PREMISES SECTION 4.1 POSSESSION: Lessee shall have and is entitled to the exclusive possession of the leased premises as of the commencement date of the term of this Lease. SECTION 4.2 USE: During the term of this Lease, Lessee shall use the leased premises for the operation of a printing business or for any other lawful use. SECTION 4.3 COMPLIANCE; INDEMNIFICATION: Lessor represents that to its knowledge the proposed use of the leased premises complies with all provisions of any and all present statutes, ordinances and regulations imposed by the State, the Federal Government or any city, county or other governmental regulations in force, relating to the structure, maintenance, operation, use and occupancy of the leased premises, and all buildings and improvements now placed thereon, and all sidewalks, alleys and passageways contiguous or appurtenant thereto, and Lessee hereby agrees to comply, at all times during the term of this Lease, with all such provisions, whether now or hereafter in force. Lessee agrees to acquire and maintain its own Ohio State Sales Tax License, and to comply with all applicable Ohio State Sales Tax Laws and regulations. Lessee further agrees that in the event of noncompliance or contest, to indemnify and save harmless Lessor from any and all demands, actions, causes of action, penalties or claims of any nature whatsoever, including reasonable attorneys' fees expended by Lessor which may arise by reason of or in connection with Lessee's failure to so comply, except for such demands, actions or causes of action which result from a noncompliance or contest arising from Lessor's representation hereunder, which shall be Lessor's responsibility. 5 SECTION 4.4 NO WASTE: Lessee hereby agrees, during the term of this Lease, not to commit physical waste or suffer or permit physical waste to be committed on the leased premises, or to permit a nuisance thereon. ARTICLE 5 ASSIGNMENT AND SUBLETTING; CONVEYANCE OF FEE SECTION 5.1 ASSIGNMENT AND SUBLETTING: Lessee shall not assign this Lease, or any interest therein, or sublet the Leased Premises, or any part thereof, without Lessor's prior written consent. Such consent shall not be unreasonably delayed and shall be granted unless Lessor reasonably determines that the proposed assignee, sublessee, or other transferee (i) will use the Leased Premises for other than the Permitted Uses, or (ii) will create a nuisance or hazardous condition at the Leased Premises. No assignment or subleasing shall release or discharge Lessee, or any guarantor thereof, from any of its or their duties or obligations hereunder. Any permitted assignee or sublessee shall, by proper written instrument, approved by Lessor, assume and agree to perform all of the terms, covenants and conditions of this Lease to be performed and kept by Lessee, a copy of which instrument shall be delivered to Lessor within ten (10) days after Lessor's consent to such assignment or sublease. The consent of the Lessor to an assignment or subletting shall not be construed to relieve the Lessee from obtaining the prior written consent of the Lessor to any further assignment or subletting. A sublease shall not include any transfer of Lessee's interest by operation of law, merger or consolidation, or the transfer or sale of a controlling interest in Lessee. SECTION 5.2 CONVEYANCE OF FEE ESTATE: Subject to Lessee's Right of First Refusal under Section 16.2 hereof, Lessor may convey its interest in the fee estate, the Lease and reversionary interest in the Leased Premises without the consent of Lessee. Any sale or conveyance of the fee estate and reversionary interest in the leased premises by Lessor shall release Lessor from all obligations hereunder arising after the date of consummation of such sale or conveyance, but any such sale or conveyance shall not be deemed to terminate this lease, and the grantee thereof shall succeed to the interests of and shall be obligated to perform the covenants of Lessor hereunder. 6 SECTION 5.3 ESTOPPEL CERTIFICATE: Lessor and Lessee agree at any time and from time to time, upon not less than twenty (20) days prior written request by either of them to the other, to execute, acknowledge and deliver to the requesting party a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified, and stating the modifications), and the date to which the rental and other charges have been paid in advance, if any, it being intended that any such statement delivered pursuant to this Section 5.3 may be relied upon by any prospective purchaser of the fee, or mortgagee or assignee of any mortgage upon the fee or leasehold interest in the leased premises, or by any assignee of the Lessee. ARTICLE 6 NON-LIABILITY OF LESSOR; LITIGATION SECTION 6.1 NON-LIABILITY OF LESSOR: Except to the extent caused by Lessor's negligence or wilful misconduct, Lessor shall not be liable to Lessee, its agents, employees, tenants, subtenants, invitees, patrons or any other person whomsoever, for injury or death to any person or damage to or loss of property in or upon the leased premises, or upon the driveways, parking lots and sidewalks contiguous or appertaining thereto, which may arise or be alleged to exist by reason of or in connection with Lessee's use and occupancy of the leased premises during the term hereof, and Lessee hereby covenants and agrees to assume any and all liability and expense therefor, and to indemnify and protect and save Lessor harmless therefrom. Lessee shall further indemnify Lessor for any damage caused to the leased premises or any improvements thereon by the act or omission, intentional or negligent, of Lessee, its agents, employees, tenants, subtenants, patrons or other persons. SECTION 6.2 LITIGATION: If Lessor shall, without any fault on its part, be made party to any litigation, arising on account of this Lease or through of by virtue of the leased premises, commenced by of against Lessee, Lessee shall and will pay all costs and reasonable attorneys' fees incurred by of imposed on Lessor by of in connection with such litigation. If the interests of Lessor 7 and Lessee are not adverse, Lessee may elect to defend of prosecute such litigation also on behalf of Lessor and shall save Lessor harmless from any and all reasonable costs, fees, claims, damages of other expenses which might arise from such litigation. ARTICLE 7 INSURANCE; DAMAGE TO IMPROVEMENTS SECTION 7.1 LIABILITY INSURANCE: Lessee agrees to maintain and pay the premiums for general liability insurance, including but not by way of limitation, liability insurance, covering the leased premises, the sidewalks, alleys, passageways and parking lots contiguous of appurtenant thereto, covering injuries to persons and property, in the minimum limits of Two Million Dollars ($2,000,000) per occurrence. SECTION 7.2 FIRE AND EXTENDED COVERAGE INSURANCE: The maintenance and payment of premiums for fire and extended coverage insurance covering the building and the plant equipment and furniture and fixtures being leased on the leased premises shall be the responsibility and expense of Lessee. All proceeds of such policies shall be payable to Lessor and Lessee, Lessee shall also provide such insurance as it desires on its personal property such as equipment, resalable inventory, furniture and trade fixtures; all proceeds of such policies shall be payable to Lessee, except as provided in Article 17 hereof. SECTION 7.3 WORKMEN COMPENSATION AND UNEMPLOYMENT COMPENSATION INSURANCE: Lessee agrees to maintain and pay the premiums for workmen's compensation and unemployment compensation insurance for each employee of Lessee and further agrees to be responsible for any claim by any such employee for workmen's or unemployment compensation. No employee or agent of Lessee shall be considered an employee or agent of Lessor. Lessee agrees to indemnify and hold harmless Lessor from any claim by an employee or agent of Lessee to workmen's or unemployment compensation. 8 SECTION 7.4 PARTIAL DAMAGE TO IMPROVEMENTS: If, during the term of this Lease, the improvements located on the leased premises are damaged to an extent less than total destruction as defined in Section 7.5 below, by fire or other acts of God, Lessor agrees, as soon as reasonably possible after the occurrence of such loss or damage, to repair or rebuild the improvements so that they shall be, after repair, in substantially the same condition as they existed immediately prior to such loss or damage. Such repairs shall be done in a good and workmanlike manner and at the sole expense of Lessor. During the repair or rebuilding, the rental hereunder shall be equitably adjusted. SECTION 7.5 TOTAL DESTRUCTION: If, during the term of this Lease, the improvements located on the leased premises shall be totally destroyed or damaged, by fire or other casualty, to the extent that (i) access or parking associated with the improvements are materially adversely affected or (ii) all or any material portion of the Leased Premises are rendered untenable for use by Lessee in the manner that the same were being used immediately prior to such damage or destruction, Lessee, at its option, may either repair and rebuild the then remaining improvements to a condition substantially similar to the improvements immediately prior to such destruction or damage or elect to not rebuild and to terminate this Lease. If the Lessee does not elect whether to repair or terminate within forty-five (45) days after the date of the total damage or destruction, then it shall be deemed that the parties have elected not to rebuild and elected to terminate this Lease. If Lessee elects to rebuild, construction shall be commenced as soon as reasonably possible, shall be performed in a good and workmanlike manner and shall be completed with due diligence. SECTION 7.6 INSURED PARTIES: The policies of insurance described in Section 7.1 shall name Lessor and Lessee as insureds thereunder as their interests appear and a certificate of coverage or memorandum of the policy shall be furnished to Lessor. Such policy or policies, as well as the policies of insurance described in Sections 7.2 and 7.3, shall be placed with companies qualified to do business in Ohio and in good standing, and shall provide that there can be no termination or cancellation thereof without thirty (30) days' prior written notice to all insured parties named therein. 9 SECTION 7.7 WAIVER OF SUBROGATION: The parties agree on behalf of any insurer providing fire and extended coverage insurance and any other property damage insurance as required hereunder to waive any right of subrogation any such insurer of either party may acquire or claim against the other party by reason of the payment of any loss under such insurance, which waiver shall be effective as long as both parties are empowered to grant such waivers under standard insurance practices without the payment of additional premiums. ARTICLE 8 CONDEMNATION; ZONING OR OTHER GOVERNMENTAL CHANGES SECTION 8.1 GOVERNMENTAL ACTION: Action by any public or quasi-public authority under power of eminent domain or resulting in a change of zoning or governmental changes prohibiting or restricting the use of the premises for a printing business (referred to in this Lease as "governmental action"), relating to the leased premises or any part thereof, shall give rise to the rights and duties subsequently described in this Article. SECTION 8.2 COMPLETE TAKING: If the entire leased premises be taken by governmental action, this Lease shall terminate and expire as of the date of such taking and Lessee thereupon shall be released from any liability thereafter accruing hereunder, and the award, if any, shall be payable to Lessor and Lessee as their interests shall be determined. SECTION 8.3 PARTIAL TAKING: If only part of the leased premises be taken and the part remaining cannot, in Lessee's reasonable business judgment, be used by Lessee for the purpose to which the leased premises were put at the time of such taking, this Lease shall terminate with the same effect as a complete taking, and the award, if any shall be payable to Lessor. If only part of the leased premises be taken and the part remaining can, in Lessee's reasonable business judgment, be used by Lessee for the purpose to which the leased premises were put at the time of such taking, this Lease shall continue in full force and effect as to the said remaining portion, but the rental shall be reduced equitably and the award, if any, shall be payable to Lessor. 10 ARTICLE 9 TAXES, ASSESSMENTS AND OTHER CHARGES SECTION 9.1 TAXES AND GENERAL ASSESSMENTS. Lessee will pay before the same become delinquent, as additional rent hereunder, for each and every year during the term hereof, all lawful taxes and then current installments on general assessments of every kind and all water rents and utilities including gas, electricity, sewer and other public charges, if any, as shall or may hereafter by any lawful agency be imposed, levied or assessed upon the leased premises or any part thereof or interest therein or any improvements that are now or hereafter may be placed upon the leased premises, and will deliver to Lessor evidence of payment of all such taxes, charges and assessments; and if at any time any such tax or charge or assessment shall become due or payable and Lessee shall neglect to pay such tax, charge or assessment together with all interest, penalties, fines and costs accruing or imposed thereon, if any, it shall be lawful and proper for Lessor, in addition to its other remedies hereafter set forth, to pay the same at any time thereafter and from the time of payment thereof by Lessor the sum or sums so paid shall bear interest at the rate of ten percent (lO%) per annum, and the amount of any and all such payments so made by Lessor shall be deemed and taken as additional rent for the leased premises to be due from and payable by Lessee. Lessor shall promptly deliver to Lessee any tax bills or assessments received by Lessor and shall promptly notify Lessee of any payments made on Lessee's behalf hereunder. SECTION 9.2 SPECIAL ASSESSMENTS. Lessee will pay before the same become delinquent for each and every year during the term hereof, the then current installments of special assessments of every kind as shall or may hereafter by any lawful agency be imposed, levied or assessed upon the leased premises or any part thereof or interest therein or any improvements that are now or hereafter may be placed upon the leased premises. SECTION 9.3 PRORATION FIRST AND LAST YEARS. All taxes and the current installments of general assessments of every kind and all water rent and sewer and other public 11 charges, if any, payable for the portions of the first and last calendar years in which this Lease is in effect shall be equitably prorated between Lessor and Lessee and shall be paid or credited in the first instance as of the date of commencement of the term hereof, and in the second instance as of the date of expiration of the term hereof, whether by expiration of time or otherwise. SECTION 9.4 CONTEST OF TAXES. No default shall be declared under the provisions of this Article 9 so long as Lessee, in good faith and by appropriate proceedings, is contesting the amount or validity of any tax or assessment levied against the leased premises, provided Lessee shall deposit with Lessor the amount of the taxes claimed or gives proper guarantee of such payment and, provided, further, that within thirty (30) days after final determination fixing Lessee's liability, Lessee shall discharge such liability with all interest, penalties or costs incident thereto. ARTICLE 10 DEFAULT SECTION 10.1 EVENTS OF DEFAULT: This Lease is made upon the express condition that Lessor may pursue such remedies to which it is entitled by law and in accordance with Section 10.2, in the event of the occurrence of any one or more of the following events of default: (a) Lessee shall fail to pay the rent herein reserved, or any part thereof, and such default shall continue for ten (10) days after written notice of such default given by Lessor to Lessee; or (b) Lessee shall fail to perform or keep any of the other terms, covenants and conditions herein contained on the part of Lessee to be performed and kept, and such failure shall continue and not be cured for a period of thirty (30) days after written notice thereof has been given by Lessor to Lessee, or if more than thirty (30) days is reasonably required to cure such matter 12 complained of, if Lessee shall fail to commence to correct the same within said thirty (30) day period and shall thereafter fail to prosecute the same to completion with reasonable diligence; or (c) Lessee shall (i) be adjudicated a bankrupt or insolvent, or (ii) file a petition in bankruptcy or for reorganization, or for the adoption of an arrangement under the Bankruptcy Act (as it now exists or is in the future amended) or (iii) make an assignment of its property for the benefit of its creditors. SECTION 10.2 LESSOR'S REMEDIES: In the event of a default by Lessee as defined in Section 10.1 above, Lessor shall have the right to either: (a) Terminate this Lease and end the term hereof by giving to Lessee written notice of such termination, in which event Lessor shall be entitled to recover from Lessee the present value, at the time of such termination, of the excess, if any, of the amount of rent reserved in this Lease for the then balance of the term hereof over the then fair market rental value of the leased premises for the same period such present value to be determined by discounting all future excess rent amounts at the rate of eight percent (8%) per annum. It is understood and agreed that the "reasonable rental value" shall be the amount of rental which Lessor can obtain as rent for the remaining balance of the term hereof, or (b) Without resuming possession of the leased premises or terminating this Lease, to sue for and recover or distrain for all rents and other sums, including damages, at any time and from time to time accruing hereunder; or (c) Without demand or notice, reenter and take possession of the leased premises, or any part thereof, and repossess the same as of Lessor's former estate, and expel the Lessee and those claiming through or under the Lessee, and remove the effects of both or either (forcibly, if necessary), without being deemed guilty of any manner of trespass and without prejudice to any remedies for arrears of rent or preceding breach of covenant, in which event Lessor may, from time 13 to time, without terminating this Lease, relet the leased premises, or any part thereof, for such term or terms, and at such rental or rentals, and upon such other terms and conditions as Lessor may deem advisable, with the right to make alterations and repairs to the leased premises, and such reentry or taking of possession of the leased premises by Lessor shall not be construed as an election on Lessor's part to terminate this Lease, unless a written notice of termination be given to Lessee, or unless the termination be given to Lessee, or unless the termination thereof be decreed by a court of competent jurisdiction. In the event of Lessor's election to proceed under this subparagraph (c), such repossession shall not relieve Lessee of its obligation and liability under this Lease, all of which shall survive such repossession, and Lessee shall pay to Lessor as current liquidated damages, the basic rental and additional rent and other sums hereinafter provided which would be payable hereunder if such repossession had not occurred, less the net proceeds, if any, of any reletting of the leased premises after deducting all of Lessor's reasonable third-party expenses in connection with such reletting, including but without limitation, all repossession costs, brokerage commissions, legal expenses, attorneys' fees, expenses of employees, alteration costs and expenses of preparation for such reletting. Lessee shall pay such current damages to Lessor on the days on which the basic rent would have been payable hereunder if possession had not been retaken and Lessor shall be entitled to receive the same from Lessee on each such day. ARTICLE 11 TERMINATION OF LEASE SECTION 11.1 TRADE FIXTURES AND PERSONAL PROPERTY: Subject to any rights Lessor may have under Article 17 hereof, all trade fixtures and personal property installed on the leased premises by Lessee or acquired by Lessee at any time during the term of this Lease, shall be and remain the property of Lessee. Upon the termination of this Lease, by expiration of time or otherwise, provided that Lessee has not been in default hereunder, Lessee shall have the right to remove any and all of the said trade fixtures and personal property from the leased premises; provided, however, that Lessee shall, at its own expense, immediately repair any and all damage to 14 the leased premises to as good condition as when the said leased premises were first occupied by Lessee, ordinary wear and tear excepted. SECTION 11.2 REMOVAL: Upon the termination of this Lease, whether by expiration of time or otherwise, if Lessor shall request in writing, Lessee shall promptly remove any additions, fixtures and installations placed on the leased premises by Lessee and designated in said written request of Lessor, and repair any damage occasioned by such removals at Lessee's expense, and in default thereof, Lessor may effect such removals and repairs and Lessee shall pay the Lessor the cost thereof, with interest at the rate of ten percent (10%) per annum from the date of payment by Lessor. SECTION 11.3 SIGN: Lessor may, at any time within the six-month period immediately prior to the termination of the term of this Lease, place a reasonable "For Rent" sign upon the leased premises. ARTICLE 12 COVENANT OF QUIET POSSESSION Lessor hereby covenants and agrees that it has good right and lawful authority to lease the leased premises and execute this Lease and that Lessee, its successors and assigns, upon payment of the rent herein reserved and the performance and keeping of all of the other terms, covenants and conditions hereof to be performed and kept by the Lessee, shall and may peaceably and quietly hold and enjoy the leased premises during the term hereof. ARTICLE 13 WAIVER PROVISION SECTION 13.1 ACCEPTANCE OF RENT NOT WAIVER: The acceptance of rent by Lessor or its agent shall not be deemed to be a waiver of any breach of Lessee of any term, 15 covenant or condition herein contained, or of the right of Lessor to reenter or terminate this Lease for any event of default. SECTION 13.2 NO WAIVER: None of the terms, covenants or conditions of this Lease to be performed and kept by Lessee, shall in any manner be altered, waived, modified, changed or abandoned except by written instrument, to be signed and delivered by Lessor and not otherwise. No act or acts, omission or omissions, or any waiver, acquiescence, or forgiveness by Lessor to any default or breach in the failure of performance, either in whole or in part, by Lessee of any of the terms, covenants or conditions of this Lease, shall be deemed or construed to be: (a) An extinguishment of such covenant or condition, the breach whereof has been waived, or (b) A waiver by Lessor of its right to declare termination of this Lease or to reenter the leased premises for any subsequent breach, or (c) A waiver of the right of Lessor at all times in the future to insist upon the full and complete performance by Lessee of each and all of the terms, covenants and conditions to be performed by Lessee according to the provisions of this Lease, in the manner and to the same extent as the same are herein covenanted to be performed and kept by Lessee. SECTION 13.3 REMEDIES: No remedy herein or otherwise conferred upon or reserved to Lessor shall be considered exclusive of any other remedy not inconsistent with the provisions of this Lease, but the same shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Further, subject to the terms hereof, all powers and remedies given by this Lease to Lessor may be exercised from time to time and as often as occasion may arise or as may be deemed expedient. No delay or omission of Lessor to exercise any right or power arising from any default shall impair any such right or power or shall be considered to be a waiver of any such default or in acquiescence therein. 16 ARTICLE 14 SUBORDINATION SECTION 14.1 Lessee agrees that this Lease is and shall be, at all times, subject and subordinate to the lien of any mortgage(s) or deed(s) of trust which Lessor or its assigns shall make covering said premises and to any and all advances to be made thereunder and to the interest granted thereby; provided, however, that regardless of any default under any mortgage(s) or deed(s) of trust or any possession or sale of said premises under such mortgage(s) or deed(s) of trust, Lessee shall not be relieved of its obligations under this Lease and so long as Lessee performs all covenants and conditions of this Lease, and continues to pay rent to whomsoever may be lawfully entitled to same, this Lease and Lessee's possession hereunder shall not be disturbed by the mortgagee(s) or beneficiary of said deed(s) of trust or anyone claiming under or through them. Lessee agrees to execute any and all commercially reasonable instruments in writing which may be required by Lessor and reasonably acceptable to Lessee to subordinate Lessee's right to the lien of such mortgage(s) or deed(s) of trust, subject to the terms of this section. Lessor shall use diligent efforts to obtain a form of subordination and non-disturbance agreement reasonably acceptable to Lessee from its current mortgagee, and shall obtain such an agreement from any future mortgagee. ARTICLE 15 HAZARDOUS WASTE SECTION 15.1 LESSOR'S CONSENT REQUIRED. Lessee shall not cause or permit any Hazardous Substances, as defined in Section 15.5 below, to be brought upon or kept or used in or about the leased premises, including the building and the real property upon which the building is located by Lessee, its agents, employees, contractors, or invitees, unless (a) such Hazardous Substances are necessary for Lessee's business and (b) Lessee first obtains the written consent of Lessor. Landlord specifically consents to Hazardous Material being maintained in reasonable quantities on the Premises necessary for day-to-day operations, which are stored, used and disposed of in compliance with conservative industry practice and all governmental requirements. 17 SECTION 15.2 COMPLIANCE WITH ENVIRONMENTAL LAWS. Lessee shall at all times and in all respects comply with all local, state, and federal laws, ordinances, regulations, and orders (collectively, "Hazardous Substances Laws") relating to industrial hygiene, environmental protection, or the use, analysis, generation. manufacture, storage, disposal, or transportation of any Hazardous Substances. SECTION 15.3 HAZARDOUS SUBSTANCES HANDLING: Lessee shall at its own expense procure, maintain in effect, and comply with all conditions of any and all permits, licenses, and other governmental and regulatory approvals required for Lessee's use of the premises, including, without limitation, discharge of (appropriately treated) materials or wastes into or through any sanitary sewer serving the premises. Except as discharged into the sanitary sewer in strict accordance and conformity with all applicable Hazardous Substances Laws, Lessee shall cause any and all Hazardous Substances removed from the premises to be removed and transported solely for duly licensed haulers to duly licensed facilities for final disposal of such materials and wastes. Lessee shall in all respects handle, treat, deal with, and manage any and all Hazardous Substances in, or under, or about the premises in total conformity with all applicable Hazardous Substances Laws and prudent industry practices regarding management of such Hazardous Substances. Upon expiration or earlier termination of the term of the Lease, Lessee shall cause all Hazardous Substances introduced by Lessee to be removed from the premises and to be transported for use, storage, or disposal in accordance and compliance with all applicable Hazardous Substances Laws; provided, however, that Lessee shall not take any remedial action in response to the presence of any Hazardous Substances in or about the premises, nor enter into any settlement agreement, consent decree, or other compromise in respect to any claims relating to any Hazardous Substances in any way connected with the premises without first notifying Lessor of Lessee's intention to do so and affording Lessor ample opportunity to appear, intervene, or otherwise appropriate assert and protect Lessor's interest with respect thereto. Nothing in this Section shall be construed to require Lessee to remediate or otherwise incur any costs with respect to Hazardous Substances present at the Premises prior to the Term hereof or which are introduced by parties other than Lessee, its employees, agents, invitees or contractors. 18 SECTION 15.4 NOTICES: If at any time Lessee shall become aware, or have reasonable cause to believe, that any Hazardous Substance has come to be located on or beneath the premises, Lessee shall, immediately upon discovering such presence or suspected presence of the Hazardous Substance, give written notice of that condition to Lessor. In addition, Lessor or Lessee, as the case may be, shall immediately notify the other in writing of (i) any enforcement, cleanup, removal, or other governmental or regulatory action instituted, completed, or threatened pursuant to any Hazardous Substances Laws, (ii) any claim made or threatened by any person against Lessor or Lessee or the Premises relating to damage, contribution, cost recovery, compensation, loss or injury resulting from or claimed to result from any Hazardous Substances, and (iii) any reports made to any local, state or federal environmental agency arising out of or in connection with any Hazardous Substances in or removed from the premises, including any complaints, notices, warnings, or asserted violations in connection therewith. The notifying party shall also supply to the other as promptly as possible, and in any event within five (5) business days after it first receives or sends the same, copies of all claims, reports, complaints, notices, warnings, or asserted violations relating in any way to the Premises or Lessor or Lessee's use thereof. SECTION 15.5 DEFINITION OF HAZARDOUS SUBSTANCES: As used in this Lease, the term "Hazardous Substance or Substances" means any radioactive, hazardous, or toxic substance, material, waste or similar term, the presence of which at premises, or the discharge or emission of which from the premises, is prohibited by Hazardous Substances Laws or which require special handling in collection, storage, treatment, or disposal by any governmental requirements. The term Hazardous Material Substances includes, but is not limited to, any material, substance, waste or similar term which is: (a) Defined as hazardous material under the laws of the United States, or the State of Ohio, as amended from time to time; (b) Defined as a hazardous substance under Section 311 of the Federal Water Pollution Control Act (33 U.S.C. Section 1317) as amended from time to time; 19 (c) Defined as a hazardous waste under Section 1004 of the Federal Resource Conservation and Recovery Act ("RCRA") (42 U.S.C. Section 6901, et seq.) as -- --- amended from time to time; (d) Defined as a hazardous waste substance under Section 101 of the Comprehensive Environmental Response, Compensation and Liability Act, ("CERCLA") and ("SARA") (42 U.S.C. Section 9601, et seq.) as amended from time to time; (e) Defined as a radioactive, hazardous, or toxic substance, waste, material or similar term in any rules and regulations, as amended from time to time, which are adopted by any administrative agency; including, but not limited to the Environmental Protection Agency, the Occupational Safety and Health Administration, and any such similar state or local agency having jurisdiction over the premises, whether or not such rules and regulations have the force of law; (f) Determined to contain asbestos or polychlorinated biphenyls; (g) Defined as radioactive, hazardous, or toxic waste, substance, material or similar term in any other statute, regulation, rule or law presently in effect, or enacted or adopted at any time after the date of this Lease, by local, state or the United States government; or (h) Subject to regulation under the Toxic Substances Control Act ("TSCA") (15 U.S.C. Section 2601, et seq.) as amended from time to time. SECTION 15.6 INDEMNIFICATION OF LESSOR: Lessee shall indemnify, defend (by counsel reasonably acceptable to Lessor), protect, and hold harmless Lessor, and each of Lessor's partners, employees, agents, attorneys, successors and assigns, from and against any and all claims, liabilities, penalties, fines, judgments forfeitures, losses (including, without limitation, diminution in the value of the premises, damages for the loss or restriction on use of rentable or usable space or of any amenity of the premises, reasonable third-party costs, or expenses (including attorneys' fees, 20 consultant fees, and expert fees) for the death of or injury to any person or damage to any property whatsoever arising from or caused in whole or in part, directly or indirectly, by (A) Lessee's use, analysis, storage, transportation, disposal, release, threatened release, discharge, or generation of Hazardous Substances to, in, on, under, about, or from the premises, or (B) Lessee's failure to comply with any Hazardous Substances Law. Lessee's obligations under this Section shall include, without limitation, and whether foreseeable or unforeseeable, any and all costs incurred in connection with any investigation of site conditions, and any and all reasonable third-party costs of any required or necessary repair, cleanup, detoxification, or decontamination of the premises (including without limitation, the soil and ground water on or under the premises), and the preparation and implementation of any closure, remedial action, or other required plans in connection therewith. Lessee's obligations under this Section shall survive the expiration or earlier termination of the term of the Lease. For purposes of the release and indemnity provisions hereof, any acts or omissions of Lessee, or by employees, agent, assignees, contractors, or subcontractors of Lessee or others acting for or on behalf of Lessee (other than Lessor) (whether or not they are negligent, intentional, willful, or unlawful) shall be strictly attributable to Lessee. SECTION 15.7 WITHHOLDING CONSENT TO PROPOSED TRANSFEREES: Lessee acknowledges and agrees that it shall not be unreasonable for Lessor to withhold its consent to any proposed assignment, subletting, or transfer of Lessee's interest in the Lease if (i) the anticipated use of the Premises by the proposed assignee, subtenant, or transferee (collectively, a "Transferee") involves the generation, storage, use, treatment, or disposal of Hazardous Substances; (ii) the proposed Transferee has been required by any prior lessor, lender, or governmental authority to make remedial action in connection with Hazardous Substances contaminating a property, if the contamination resulted from such Transferee's actions or use of the property in question; or (iii) the proposed Transferee is subject to an enforcement order issued by any governmental authority in connection with the use, disposal, or storage of a Hazardous Substance. ARTICLE 16 OPTION TO PURCHASE / RIGHT OF FIRST REFUSAL 21 SECTION 16.1 OPTION TO PURCHASE: Provided this Lease has not been terminated by reason of default by Lessee and provided Lessee gives Lessor Notice of Purchase after ____________, 2003 and on or prior to ___________, 2008, Lessee shall have the option to purchase the Premises for a consideration equal to the fair market value on the date of Notice of Purchase. Lessee shall give written notice to Lessor of its intent to purchase, which shall be deemed to be Notice of Purchase, whereupon the parties agree to negotiate an agreed upon fair market value in good faith. If after thirty (30) days the parties are unable to agree, the premises shall be appraised. The Lessor and the Lessee shall each appoint one M.A.I. appraiser who shall in turn jointly choose a third M.A.I. appraiser. The three appraisers then named shall act with promptness, and the decision of any two as to the proper consideration for the purchase of the premises shall be binding upon the parties hereto. In making such determination, the appraisers shall apply the standards for current fair market value utilizing the then current capitalization rate for the Athens, Ohio area. If such option is exercised, as herein provided, the Lessor and Lessee shall, within thirty (30) days after agreement of the parties or determination by the appraisers, execute and deliver a formal contract of sale which shall provide that the sale shall be cash and that ten percent (10%) of the amount of such cash payment shall be paid upon the execution and delivery of the contract. The balance of the cash payment shall be made at the closing of title, which shall take place no later than sixty (60) days following the execution of the contract. The contract shall provide, among other things, for a general warranty deed and that the Lessee shall take title subject to liens, set forth in Exhibit B, but the Lessee shall not be obligated to take title subject to any other lien or other encumbrance arising between the date of possession, and the date of the delivery of the deed, including any deed of trust placed thereon by Lessor. Adjustment and prorations for taxes, water rates and insurance premiums are to be made as of the date of closing. SECTION 16.2 RIGHT OF FIRST REFUSAL: At any time Lessor shall have the right to offer the Leased premises to a bona fide third-party purchaser. Lessee shall be granted the right of first refusal to purchase the premises on the same terms and conditions as is granted such bona fide 22 third-party purchaser. Such right shall exist for a period of sixty (60) days from date of receipt of notice of sale which shall contain the terms and conditions granted and the identity of the proposed purchaser. If Lessee shall not exercise its right of first refusal, Lessor shall be entitled to sell such premises to such proposed purchaser upon the terms and conditions stated. Any such sale shall be consummated no later than six (6) months after such written notice from Lessor. If such sale is consummated as provided in this Section 16.2 to a bona-fide third-party purchaser, this Lease Agreement shall continue in full force and effect, in accordance with all of its terms and conditions hereof, including, but not limited to, Lessee's right to purchase under Section 16.1. Notwithstanding this right of first refusal, nothing shall preclude Lessor and its successors and assigns from transferring interests in the Lessor among the present owners of the Lessor or to their descendants or trusts of which they are the beneficiaries, whether or not for consideration, provided such transferee shall remain subject to this Lease and this right of first refusal in Lessee. ARTICLE 17 GENERAL PROVISIONS SECTION 17.1 HOLDING OVER: If, after the expiration of the term of this Lease, Lessee shall remain in possession of the leased premises and shall continue to pay rent without written agreement as to such possession, Lessee shall be regarded as a tenant from month to month, at a monthly rental, payable in advance, equivalent to the monthly installments of the annual rental paid during the last month of the term of this Lease, and subject to all of the terms and conditions hereof except those relating to the term of this Lease. SECTION 17.2 TIME OF THE ESSENCE: It is specifically understood and agreed that time of the payment of each and every installment of rent and performance of each and every of the terms, covenants and conditions hereof, is of the essence of this Lease. 23 SECTION 17.3 BENEFIT: This Lease and the terms, covenants conditions, provisions and agreements herein contained shall be binding upon and inure to the benefit of Lessor and Lessee and upon and to their respective heirs, personal representatives, successors and assigns. SECTION 17.4 RECORDING: This Lease or any part hereof shall not be placed of public record without the prior written consent of Lessor. The parties hereto shall, however, at the request of either party hereto, enter into a Memorandum of Lease, in recordable form, which shall contain only the following items: a reference to this Lease stating the date of execution and the names of the Lessor and Lessee; a description of the leased premises as set forth herein; and the term of the Lease including the dates of commencement and termination. SECTION 17.5 TITLES: It is understood that the titles to the articles herein are inserted only a matter of convenience and for reference, and in no way define or limit the scope or intent of this Lease, nor do they in any way affect this Lease. SECTION 17.6 INSPECTION OF PREMISES: Lessor shall have the right, upon prior written notice to Lessee, to enter the premises during business hours for the purposes of (i) inspecting same, (ii) performing obligations of Lessee hereunder which Lessee may neglect or refuse to perform, (iii) showing the premises to persons wishing to purchase Lessor's interest herein, and (iv) showing the leased premises to a prospective Lessee within the six-month period prior to the termination of this Lease. The provisions contained in this Section 18.6 shall not impose on Lessor any of Lessee's obligations under this Lease. Lessor shall use diligent efforts to minimize disruption of Lessee's conduct of business at the Leased Premises. SECTION 17.7 AMENDMENT OR MODIFICATION: Lessee acknowledges and agrees that it has not relied upon any statements, representations, agreements or warranties except such as are expressed herein and that no amendment or modification of this Lease shall be valid and binding unless expressed in writing and executed by the parties hereto in the same manner as the execution of this Lease. 24 SECTION 17.8 SEVERABILITY: If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws effective during the term of this Lease, then and in that event it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby, and it is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be added as a part of this Lease a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable. SECTION 17.9 NOTICES: Any notice which may be required to be given hereunder from either of the parties to the other shall be in writing. Said notice unless otherwise specifically provided herein, may be served personally or shall be deemed duly served if sent by registered mail, return receipt requested, addressed as follows: (a) to Lessor: Scott RML Co. c/o Scott Capital Corp. 333 South Allison Parkway Suite 209 Lakewood, Colorado 80226 (b) If to Lessee: McBee Systems, Inc. 299 Cherry Hill Road Parsippany, NJ 07054 Copies to: NEBS, Inc. 500 Main Street Groton, MA 01471 Hill & Barlow One International Place Boston, MA 02110-2607 Attention: Terrence W. Mahoney, Esq. 25 or at such other address as either of the parties may hereafter designate in writing. Service by registered mail shall be deemed complete as of the day next following the day of mailing of such notice. IN WITNESS WHEREOF, the parties hereto have executed this Lease Indenture in duplicate as of the date and year first above written notwithstanding the actual date of execution. LESSOR: SCOTT RML CO. by: Scott Capital Corp General Partner By /s/ Bill Caldwell, Jr. -------------------------------- Vice President LESSEE: McBEE SYSTEMS, INC., a Colorado corporation By /s/ John F. Fairbanks -------------------------------- Vice President 26 STATE OF COLORADO CITY AND COUNTY OF DENVER The foregoing instrument was acknowledged before me this 12th day of May 1998, by Bill Caldwell, Jr. as the President of Scott Capital Corp., as General Partner of Scott RML Co. WITNESS my hand and official seal. /s/ Francis P. King --------------------------- Notary Public My Commission expires: - ---------------------------- [SEAL] Commonwealth of Massachusetts COUNTY OF SUFFOLK The foregoing instrument was acknowledged before me this 3rd day of June, 1998, by John F. Fairbanks as Vice President of McBee Systems, Inc., a Colorado corporation. WITNESS my hand and official seal. /s/ [ILLEGIBLE] ----------------------------- Notary Public My Commission expires: February 2, 2001 - -------------------------- [SEAL] 27 EX-10.13 9 dex1013.txt PERFORMANCE RESTRICTED STOCK PLAN FOR 2002 EXHIBIT 10.13 FY2002 NEBS PERFORMANCE RESTRICTED STOCK PLAN (EFFECTIVE JULY 1, 2001) This Performance Restricted Stock Plan (the "Plan") was adopted by the Organization and Compensation Committee of the Board of Directors of New England Business Service, Inc. (the "Company") on August 2, 2001 for the purpose of providing incentive compensation for senior executives of the Company in lieu of an annual grant of stock options. This Plan shall be governed by the following definitions and calculations. I. Participants. The participants in the Plan for the 2002 fiscal year of the Company (the "Year") and their respective target bonus amounts shall be as follows: Chairman, President & Chief Executive Officer $300,000 Senior Vice President & President, Diversified Operations $200,000 Senior Vice President & President, Chiswick $200,000 Senior Vice President & President, PremiumWear $200,000 Senior Vice President & President, NEBS Direct Marketing $200,000 Senior Vice President & President, International $200,000 Senior Vice President, Chief Financial Officer & Treasurer $200,000 Senior Vice President, Manufacturing & Technical Operations $200,000 Senior Vice President, Information Systems $100,000 Senior Vice President, Human Resources $100,000 Vice President, Corporate Controller $100,000 Vice President, General Counsel & Secretary $100,000 Calculation of Actual Bonus. The actual bonus of each participant shall be calculated based on the actual earnings per share of the Company's common stock for the Year ("EPS") vs. the targeted objective established by the Organization and Compensation Committee. No bonus shall be paid if the Company's EPS is more than $.20 below targeted EPS. A. Chairman, President & Chief Executive Officer. The actual bonus of this participant shall be calculated as follows: $300,000 will be earned for the achievement of targeted EPS. Each $.01 per share increase in EPS above target equals $15,000 additional bonus pay-out with a maximum payment equal to $450,000. Each $.01 decrease in EPS below target equals a reduction in payment of $7,500. No bonus shall be paid if earnings per share is more than $.20 below targeted EPS. 1 B. Senior Vice President & President, Diversified Operations; Senior Vice President & President, Chiswick; Senior Vice President & President, PremiumWear; Senior Vice President & President, NEBS Direct Marketing; Senior Vice President & President, International; Senior Vice President, Chief Financial Officer & Treasurer; Senior Vice President, Manufacturing & Technical Operations The actual bonuses of these participants shall be calculated as follows: $200,000 will be earned for the achievement of targeted EPS. Each $.01 per share increase in EPS above target equals $10,000 additional bonus pay-out with a maximum payment equal to $300,000. Each $.01 decrease in EPS below target equals a reduction in payment of $5,000. No bonus shall be paid if earnings per share is more than $.20 below targeted EPS. C. Senior Vice President, Information Systems; Senior Vice President, Human Resources; Vice President, Corporate Controller; Vice President, General Counsel & Secretary The actual bonuses of these participants shall be calculated as follows: $100,000 will be earned for the achievement of targeted EPS. Each $.01 per share increase in EPS above target equals $5,000 additional bonus pay-out with a maximum payment equal to $150,000. Each $.01 decrease in EPS below target equals a reduction in payment of $2,500. No bonus shall be paid if earnings per share is more than $.20 below targeted EPS. D. Bonus Payments. Bonus payments will be in the form of NEBS Stock with a share price which is established at the close of trading on the New York Stock Exchange on the third business day following the issuance of the press release disclosing the Company's financial results for the fourth fiscal quarter of the Year. Stock awarded under the Plan will be in the form of restricted stock issued pursuant to the New England Business Service Inc. Stock Compensation Plan, with terms and conditions detailed in the form of a Restricted Stock Award Agreement attached hereto as Schedule A. II. Certain Definitions and Other Provisions. A. For purposes of calculating the actual bonuses, EPS shall mean basic earnings per share, determined in accordance with all of the accounting policies employed in the preparation of the Company's audited financial statements for the Year. B. Actual or targeted EPS may, at the discretion of the Organization and Compensation Committee, be adjusted to eliminate the effect of (i) 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 2 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 2002 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 a motivating event, but the failure to act promptly shall not deprive the Committee of its power to make such an adjustment at a later date. C. Should a participant die, retire, or become totally disabled during the Year, he or his estate shall be entitled to receive a bonus pro-rated based on the number of days from the beginning of the Year to the date of death, retirement or disability, divided by 365. Should a participant's employment by the Company or any 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. D. If a participant assumes a new position during the Year, the Organization and Compensation Committee may make an appropriate adjustment to his target bonus and/or the means of calculating his actual bonus, effective from and after that event. E. If a Change in Control event (as defined in Paragraph J below) occurs, the Company will within sixty (60) days following such event pay each participant a prorated bonus through the date thereof as hereinafter provided, whereupon this Plan will terminate. The bonus payment hereunder will be the greater of (i) 50% of the targeted bonus or (ii) the target bonus amount multiplied by a fraction, the numerator of which is the number of days from the beginning of the Year to the date of the Change in Control, and the denominator of which is 365. Anything contained in this Plan to the contrary notwithstanding, any payments under this Plan following the occurrence of a Change in Control event shall be made solely in cash. F. In the event of any material, unusual and non-recurring charge to income, purchase or sale of any material business unit by the Company, or other material event affecting the ability of the Company to achieve the targeted EPS established under this Plan, the Organization and Compensation Committee shall review such EPS target and make such adjustments with respect thereto as it deems reasonable and equitable in light of the purposes of this Plan. Any and all adjustments made by the Organization and Compensation Committee under this paragraph shall be finding and binding on the Company and all participants. 3 G. The Organization and Compensation Committee may in its discretion terminate the Plan as of the end of any fiscal quarter. If the Plan is so terminated, the Company shall pay out bonuses to the participants in such amounts as are appropriate and equitable in light of the Company's performance through the end of such quarter and the targets established hereunder. The determination of the amount of any bonuses payable under this paragraph shall be made by the Organization and Compensation Committee, which determination shall be final and binding on the Company and all participants. H. Nothing contained in this Plan shall confer, and no grant of a bonus hereunder shall be construed as conferring, upon any employee any right to continue in the employment of the Company or any subsidiary of the Company or to interfere in any way with the right of the Company or any subsidiary to terminate the employee's employment at any time or increase or decrease his compensation from the rate in existence as of the effective date of this Plan or the granting of any bonus hereunder. I. This Plan shall be effective commencing July 1, 2001. J. A "Change in Control" shall be deemed to have occurred if any of the events set forth in any of the following subparagraphs shall have occurred: (1) any Person (as defined below) is or becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of the Company representing 35% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in subparagraph (3)(a) below; (2) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date this Plan was adopted, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board of Directors or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then in office who either were directors on the date this Plan was adopted or whose appointment, election or nomination for election was previously so approved or recommended; (3) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with another corporation, other than (a) a merger or consolidation which would 4 result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (b) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company of its Affiliates (as defined below)) representing 35% or more of the combined voting power of the Company's then outstanding securities; or (4) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. For purposes of the foregoing definition of a Change in Control event, the following terms have the meanings indicated below: (i) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Securities Exchange Act of 1934 (the "Exchange Act"); (ii) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act; and (iii) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (A) the Company or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (C) an underwriter temporarily holding securities pursuant to an offering of such securities and (D) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. 5 SCHEDULE A NEW ENGLAND BUSINESS SERVICE, INC. RESTRICTED STOCK AWARD AGREEMENT (NEW ENGLAND BUSINESS SERVICE, INC. STOCK COMPENSATION PLAN) PREAMBLE -------- This restricted stock award agreement (the "Agreement") is made and entered into as of ______________, 2002 (the "Date of Grant") by New England Business Service, Inc. (the "Issuer") and _____________________ (the "Executive"), a key employee of the Issuer or a Subsidiary1 of the Issuer (hereunder individually and collectively referred to as the "Company"). 1. SHARES SUBJECT TO THE RESTRICTED STOCK AWARD. Pursuant to the provisions of the New England Business Service, Inc. Stock Compensation Plan (the "Plan"), as in effect on the Date of Grant, the Issuer hereby grants to the Executive a restricted stock award ("Restricted Stock Award") of _____________ shares of its Stock (the "Awarded Shares"). The Awarded Shares are being issued to the Executive in lieu of one hundred percent (100%) of the gross bonus awarded to the Executive for the fiscal year ended June 29, 2002 (the "Bonus Award") pursuant to the FY2002 NEBS Performance Restricted Stock Plan adopted by the Organization and Compensation Committee of the Board for such fiscal year and are valued for purposes of this Agreement at $________ per share, the Fair Market Value of a share of Stock on the Date of Grant, in accordance with and subject to all the terms and conditions of the Plan and subject to the terms and conditions hereinafter set forth. The Plan and any amendments are hereby incorporated by reference and made a part hereof. 2. TERMS AND CONDITIONS OF THE RESTRICTED STOCK AWARD. The issuance of Awarded Shares pursuant to the Restricted Stock Award shall be subject to the following terms and conditions. 2.1 Withholding Taxes. Notwithstanding anything to the contrary in Section 2.3(b), the Issuer's obligation to deliver vested Awarded Shares pursuant to this Restricted Stock Award shall be subject to the Executive's satisfaction of all applicable federal, state and local income and employment tax withholding obligations. Without limiting the generality of the foregoing, the Company shall have the right to deduct from payments of any kind otherwise due to the Executive any federal, state or local taxes of any kind required by law to be withheld with respect to any Awarded Shares issued pursuant to this Restricted Stock Award. The Executive may satisfy such withholding obligations by having the Company withhold vested and unrestricted Awarded Shares, or by delivering to the Company already owned unrestricted shares of Stock, having a Fair Market Value as of the date of delivery of such unrestricted shares equal to the amount required to be withheld. 2.2 Vesting, Forfeiture or Early Vesting of Unvested Awarded Shares. (a) Except as provided in this Section 2.2, the Awarded Shares shall remain unvested and subject to the restrictions of this Section 2.2 and Section 2.3 until the third annual meeting of stockholders of the Issuer that follows the Date of Grant of the Awarded Shares (the "Vesting Period"). - ------------------------ /1/ Capitalized terms not otherwise defined herein are defined in Section 8 below. 6 (i) So long as the Executive's Service continues, the Awarded Shares shall vest in the Executive (and shall no longer be subject to the restrictions of this Section 2.2 and Section 2.3 hereof) in accordance with the following vesting schedule(rounded up to the nearest whole share):
Vesting Schedule - --------------------------------------------------------------------------------------------------------------------- Percentage of Awarded Cumulative Percentage Vesting Date --------------------- of Shares Vesting Awarded Shares -------------- Vested - --------------------------------------------------------------------------------------------------------------------- Date of 1st annual meeting of 15% 15% stockholders following Date of Grant - --------------------------------------------------------------------------------------------------------------------- Date of 2nd annual meeting of 35% 50% stockholders following Date of Grant - --------------------------------------------------------------------------------------------------------------------- Date of 3rd annual meeting of 50% 100% stockholders following Date of Grant - ---------------------------------------------------------------------------------------------------------------------
(ii) If the Executive ceases to perform Service by reason of death, Disability or Retirement, all Awarded Shares not previously vested pursuant to this Section 2.2 shall thereupon immediately vest in the Executive (or in the case of death, in the person or persons to whom the Awarded Shares pass by will or by the laws of descent and distribution) or his permitted transferees pursuant to Section 2.3(a) and shall no longer be subject to the restrictions of this Section 2.2 and Section 2.3 hereof. (iii) If the Executive voluntarily terminates Service or his Service is involuntarily terminated for "cause", as determined in good faith by the Board or Committee (which determination shall be binding on both the Company and the Executive and/or his permitted transferee(s) pursuant to Section 2.3(a)), the Awarded Shares not previously vested pursuant to this Section 2.2 shall thereupon be forfeited in their entirety to the Issuer without any further action by the Issuer or the Executive and for no consideration. (iv) If the Executive's Service is involuntarily terminated without cause, the Awarded Shares not previously vested pursuant to this Section 2.2 shall thereupon be forfeited in their entirety to the Issuer without any further action by the Issuer or the Executive and for no consideration; provided, however, that the Committee may, in its sole discretion, waive the forfeiture of all or any portion of the unvested Awarded Shares and such shares shall thereupon immediately vest in the Executive and no longer be subject to the restrictions of this Section 2.2 and Section 2.3 hereof. (b) Notwithstanding any of the foregoing, if a Change in Control occurs during the Vesting Period and prior to any forfeiture of all or any portion of the Awarded Shares pursuant to this Section 2.2, all Awarded Shares that were not previously 7 vested pursuant to this Section 2.2 and not forfeited by termination of the Executive's Service prior to the occurrence of the Change in Control shall thereupon immediately vest in the Executive and the restrictions of this Section 2.2 and Section 2.3 shall terminate. 2.3 Restrictions on Transfer and Escrow of Unvested Awarded Shares; Delivery of Vested Shares; Stockholder Rights. The Executive hereby agrees to the following conditions: (a) Awarded Shares which are not yet vested may not be sold, hypothecated or otherwise disposed of by the Executive or anyone claiming through him; provided, however, that Awarded Shares may be transferred by the Executive, either directly or in trust, to one or more members of Executive's Family, or to a family partnership or other entity for the exclusive benefit of one or more members of Executive's Family if and only to the extent that (i) the Executive notifies the Committee in writing of his desire to transfer Awarded Shares and the Committee does not within thirty (30) days of such notification advise the Executive in writing that such transfer will not be allowed and (ii) such Family member or trust or family partnership for the benefit thereof executes an agreement to be subject to all of the terms and conditions of this Agreement. (b) Awarded Shares which are not yet vested shall be held in escrow by the Issuer. Upon the vesting of any Awarded Shares pursuant to Section 2.2 and the satisfaction of all obligations imposed by Section 2.1, the Issuer shall promptly cause a certificate to be issued for the Awarded Shares (or portion thereof which has vested) and shall deliver such certificate to the Executive or his permitted transferee(s) pursuant to Section 2.3(a). (c) Subject to the terms hereof, the Executive shall have all the rights of a stockholder with respect to the Awarded Shares while they are held in escrow, and prior to their forfeiture pursuant to Section 2.2, including without limitation, the right to vote the Awarded Shares, except as provided in (d) below. (d) Any dividends declared and paid with respect to the Awarded Shares while they are held in escrow, and prior to their forfeiture pursuant to Section 2.2, shall not be paid to the Executive but shall instead be automatically reinvested in shares of Stock at the Fair Market Value of a share of Stock on the date of such dividend payment, and such additional shares of Stock shall be deemed additional Awarded Shares (granted, for purposes of Section 2.2 only, on the Date of Grant) and shall be subject to the forfeiture and other provisions of Section 2.2 and this Section 2.3. 2.4 Investment Representation. The Executive shall hold the Awarded Shares for investment and not with a view to, or for resale in connection with, any public distribution of such Shares, and if requested, shall deliver to the Issuer an appropriate certification to that effect. This restriction shall terminate upon the registration of such Shares under federal securities laws or if, in the opinion of counsel for the Issuer, such Shares may be resold without registration. 2.5 Provision of Information. The Issuer will furnish upon request of the Executive copies of the certificate of incorporation of the Issuer, as amended, and by-laws of the Issuer, as amended, and such publicly available financial and other information concerning the Issuer and its business and prospects as may be reasonably requested by the Executive in connection with the issuance or purchase of Awarded Shares pursuant to this Agreement. 8 2.6 Compliance with the Plan. The Executive shall comply with all terms and conditions of the Plan (a copy of which is attached hereto) and of this Agreement. All decisions under, and interpretations of, the provisions of the Plan and of this Agreement by the Board or by the Committee shall be final, binding and conclusive upon the Company and its successors and assigns and upon the Executive and anyone claiming through the Executive. 3. RIGHT TO TERMINATE. Nothing contained in the Plan or in this Agreement shall restrict the right of the Company to terminate the employment of the Executive at any time and for any reason, with or without notice, or shall otherwise affect the terms and conditions of the Executive's employment except as specifically provided in either the Plan or in this Agreement. 4. ADJUSTMENT IN SHARES. Appropriate adjustment shall be made by the Board or by the Committee in the number and kind of the Awarded Shares issued pursuant to this Restricted Stock Award to give effect to any stock dividends, stock splits, stock combinations, recapitalizations and other similar changes in the capital structure of the Issuer after the Date of Grant. In the event of a change of the Stock resulting from a merger or similar reorganization as to which the Issuer is the surviving corporation, or sale of all or substantially all of the assets of Issuer to a corporation that does not result in a Change in Control, the number and kind of the Awarded Shares issued pursuant to this Agreement shall be appropriately adjusted in such a manner as the Board or the Committee shall deem equitable to prevent dilution or enlargement of the rights granted hereunder. 5. RESTRICTIONS ON TRANSFER OF STOCK. The Awarded Shares shall be subject to any restrictions then in effect pursuant to the certificate of incorporation or by-laws of the Issuer and to any other restrictions or provisions attached hereto and made a part hereof or set forth in any other contract or agreement binding on the Executive. 6. NOTICE CONCERNING TAX MATTERS. The Company makes no representation about the tax treatment to the Executive with respect to the receipt of the Restricted Stock Award or the acquisition, holding or disposition of the Awarded Shares. THE EXECUTIVE IS URGED TO CONSULT A PROFESSIONAL TAX ADVISER OF HIS OR HER OWN CHOOSING FOR ADVICE AS TO THE TAX CONSEQUENCES (INCLUDING THE APPLICATION OF SECTION 83 OF THE CODE) OF RECEIVING A RESTRICTED STOCK AWARD OR OF HOLDING OR SELLING AWARDED SHARES ISSUED PURSUANT TO THIS AGREEMENT. 7. GOVERNING LAW; ETC. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without giving effect to principles of conflicts of law, and applicable federal law. This Agreement shall be binding upon and inure to the benefit of the heirs and legal representatives of the Executive and the successors and assigns of the Issuer, but shall not be assigned 9 by the Executive at any time, except as otherwise permitted by Section 2.3(a) hereof, without the prior written permission of the Issuer. 8. DEFINITIONS. 8.1 "Affiliate" has the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act. 8.2 "Agreement" has the meaning defined in the Preamble above. 8.3 "Awarded Shares" has the meaning defined in Section 1 above. 8.4 "Beneficial Owner" has the meaning set forth in Rule 13d-3 under the Exchange Act. 8.5 "Board" means the Board of Directors of the Issuer. 8.6 "Bonus Award" has the meaning set forth in Section 1 above. 8.7 "Change in Control" means the occurrence of any of the following events: (a) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Issuer representing 35% or more of either the then outstanding shares of common stock of the Issuer or the combined voting power of the Issuer's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in subparagraph (c)(i) below; (b) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Issuer) whose appointment or election by the Board of Directors or nomination for election by the Issuer's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; (c) there is consummated a merger or consolidation of the Issuer or any direct or indirect Subsidiary of the Issuer with another corporation, other than (i) a merger or consolidation which would result in the voting securities of the Issuer outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the securities of the Issuer or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Issuer (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Issuer (not including in the securities Beneficially Owned by such Person any securities acquired directly from the 10 Issuer of its Affiliates) representing 35% or more of the combined voting power of the Issuer's then outstanding securities; or (d) the stockholders of the Issuer approve a plan of complete liquidation or dissolution of the Issuer or there is consummated an agreement for the sale or disposition by the Issuer of all or substantially all of the Issuer's assets, other than a sale or disposition by the Issuer of all or substantially all of the Issuer's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Issuer in substantially the same proportions as their ownership of the Issuer immediately prior to such sale. 8.8 "Code" means the Internal Revenue Code of 1986, as heretofore and hereafter amended, and the regulations promulgated thereunder. 8.9 "Committee" has the meaning defined in the Plan. 8.10 "Company" has the meaning defined in the Preamble above. 8.11 "Date of Grant" has the meaning defined in the Preamble above. 8.12 "Disability" has the meaning defined in Code Section 22(e)(3). 8.13 "Exchange Act" means the Securities Exchange Act of 1934, as heretofore and hereafter amended. 8.14 "Executive" has the meaning defined in the Preamble above. 8.15 "Fair Market Value" means the last sales price per share of Stock as reported on the New York Stock Exchange prior to the Date of Grant (or other date on which such valuation is made) or if no price has been so reported within one week prior to the Date of Grant (or other date on which such valuation is made), fair market value shall be determined by a principal market maker for the Stock designated by the Committee (or if no such market maker is designated, by the Board in its good faith business judgment). 8.16 "Family" means the Participant's: (i) spouse and lineal descendants of such spouse; (ii) lineal descendants and the spouses of such lineal descendants: (iii) lineal ancestors and the spouses of such lineal ancestors; and (iv) siblings and the spouses and children of such siblings. 8.16 "Issuer" has the meaning defined in the Preamble above. 8.17 "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (a) the Issuer or any of its Subsidiaries, (b) a trustee or other fiduciary holding securities under an employee benefit plan of the Issuer or any of its Affiliates, (c) an underwriter temporarily holding securities pursuant to an offering of such securities and (d) a corporation owned, directly or indirectly, by the stockholders of the Issuer in substantially the same proportions as their ownership of stock of the Issuer. 8.18 "Plan" has the meaning defined in Section 1 above. 8.19 "Restricted Stock Award" has the meaning defined in Section 1 above. 8.20 "Retirement" means the actual cessation of the Executive's Services on or after the date that he attains age 62. 11 8.21 "Service" means the performance of work for the Company or a Subsidiary as an employee. 8.22 "Stock" has the meaning defined in the Plan. 8.23 "Subsidiary" has the meaning defined in Code Section 424(f). 8.24 "Vesting Period" has the meaning defined in Section 2.2 above. 9. Amendments. Any amendment to this Agreement, or waiver of any terms hereof, may be made only pursuant to a writing executed by the Issuer and the Executive. IN WITNESS WHEREOF, the undersigned have executed this Agreement under seal as of the date first appearing above. EXECUTIVE ___________________________________ Signature Address of Executive: ___________________________________ ___________________________________ NEW ENGLAND BUSINESS SERVICE, INC. CORPORATE SEAL By: ________________________________ Name: Title: EX-10.14 10 dex1014.txt CHANGE IN CONTROL SEVERANCE AGREEMENT EXHIBIT 10.14 CHANGE IN CONTROL SEVERANCE AGREEMENT ------------------------------------- THIS AGREEMENT, dated August 2, 2001, is made by and between New England Business Service, Inc., a Delaware corporation with its principal offices at 500 Main Street, Groton, Massachusetts 01471 (the "Company"), and Robert J. Murray (the "Executive") residing in Cohasset, Massachusetts 02025. WHEREAS, the Company considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of the Company and its stockholders; and WHEREAS, the Executive has made and is expected to make, due to the Executive's intimate knowledge of the business and affairs of the Company, its policies, methods, personnel, and problems, a significant contribution to the profitability, growth, and financial strength of the Company; and WHEREAS, the Company, as a publicly-held corporation, recognizes that the possibility of a Change in Control may exist, and that such possibility and the uncertainty and questions which it may raise among management may result in the departure or distraction of the Executive in the performance of the Executive's duties, to the detriment of the Company and its stockholders; and WHEREAS, it is in the best interests of the Company and its stockholders to reinforce and encourage the continued attention and dedication of management personnel, including the Executive, to their assigned duties without distraction and to ensure the continued availability to the Company of the Executive in the event of a Change in Control; NOW, THEREFORE, in consideration of the foregoing and other respective covenants and agreements of the parties herein contained, the parties hereto agree as follows: 1. Defined Terms. The definitions of capitalized terms used in this ------------- Agreement are provided in Section 15. 2. Term of Agreement. The term of this Agreement (the "Term") shall ----------------- commence on the date hereof and shall continue in effect through June 30, 2004; provided, however, that commencing on July 1, 2004 and each July 1 thereafter, - -------- ------- the Term shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company or the Executive shall have given notice not to extend the Term; and further provided, however, ------- -------- ------- that if a Change in Control shall have occurred during the Term, the Term shall expire on the last day of the twenty-fourth (24/th/) month following the month in which such Change in Control occurred. 3. Company's Covenants Summarized. In order to induce the Executive to ------------------------------ remain in the employ of the Company and in consideration of the Executive's covenants in Section 4, the Company, under the conditions described herein, shall pay the Executive the Severance Payments and the other payments and benefits described herein. Except as provided in Section 9.1, no Severance Payments shall be payable under this Agreement unless there shall have been (or, pursuant to the second sentence of Section 6.1, there shall be deemed to have been) a 1 termination of the Executive's employment with the Company following a Change in Control and during the Term. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company. 4. The Executive's Covenants. Subject to the terms and conditions of ------------------------- this Agreement, in the event of a Potential Change in Control, the Executive shall remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the date of the first occurrence of a Potential Change in Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive's employment for Good Reason or by reason of death, Disability or Retirement, or (iv) the termination by the Company of the Executive's employment for any reason. 5. Compensation Other Than Severance Payments. ------------------------------------------ 5.1 If the Executive fails to perform the Executive's full-time duties with the Company following a Change in Control as a result of incapacity due to physical or mental illness, during any period when the Executive so fails to perform the Company shall pay the Base Salary to the Executive, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement (other than the Company's short- or long-term disability plan, as applicable, but including any bonus or incentive plan) maintained by the Company during such period, until the Executive resumes the full time performance of such duties or the Executive's employment is terminated by the Company for Disability. 5.2 If the Executive's employment shall be terminated for any reason following a Change in Control, the Company shall pay the Base Salary to the Executive through the Date of Termination, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of the Company's compensation and benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason. 5.3 Except as expressly provided herein, if the Executive's employment shall be terminated for any reason following a Change in Control, the Company shall pay to the Executive the Executive's normal post-termination compensation and benefits as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company's retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the occurrence of the first event or circumstance constituting Good Reason. 6. Severance Payments. ------------------ 6.1 If the Executive's employment is terminated within twenty-four (24) months following a Change in Control, other than (a) by the Company for Cause, (b) by reason of death or Disability, or (c) by the Executive without Good Reason, then the Company shall pay the Executive the amounts, and provide the Executive the benefits, described in this Section 6.1 2 ("Severance Payments") and Section 6.2, in addition to any payments and benefits to which the Executive is entitled under Section 5. For purposes of this Agreement, the Executive's employment shall be deemed to have been terminated within twenty-four (24) months following a Change in Control and during the Term by the Company without Cause or by the Executive with Good Reason, if (i) the Executive's employment is terminated by the Company without Cause during a Potential Change in Control Period, or (ii) the Executive terminates his employment for Good Reason during a Potential Change in Control Period. Except as described above or in Section 9.1, the Executive shall not be entitled to benefits pursuant to this Section 6.1 unless a Change in Control shall have occurred during the Term. (A) The Company shall pay to the Executive a lump sum severance payment, in cash, equal to two and one-half (2-1/2) times the sum of (i) the Base Salary, and (ii) the target annual bonus available to the Executive pursuant to the Company's annual executive bonus plan or any successor plan (but excluding any special performance or incentive plan) in respect of the fiscal year in which the Date of Termination occurs (without giving effect to any event or circumstance constituting Good Reason), assuming for this purpose attainment of 100% of any applicable target; provided, however, that if the applicable target bonus would have been pro-rated for a partial fiscal year, such target bonus shall be recalculated for purposes of this Section 6.1(A) to equal the amount that for which the Executive would have been eligible for the entire fiscal year. (B) For the thirty (30) month period immediately following the Date of Termination, the Company shall arrange to provide the Executive and his dependents life, disability, accident and health insurance benefits substantially similar to those provided to the Executive and his dependents immediately prior to the Date of Termination or, if more favorable to the Executive, those provided to the Executive and his dependents immediately prior to the first occurrence of an event or circumstance constituting Good Reason, at no greater after-tax cost to the Executive than the cost to the Executive immediately prior to such date or occurrence. If, at the end of the 30-month period following the Date of Termination, the Executive has not previously become eligible to receive comparable benefits from a new employer or pursuant to a government-sponsored health insurance or health care program, then the Company shall arrange, at its sole cost and expense, to enable the Executive to convert coverage for the Executive and the Executive's dependents being provided hereunder to individual policies or program, if applicable, upon the same terms as other former employees of the Company may apply for such conversion. The cost of providing the benefits set forth in this Section 6.1(B) shall be in addition to (and shall not reduce) the Severance Payments. Benefits otherwise receivable by the Executive pursuant to this Section 6.1(B) shall be reduced to the extent the Executive becomes eligible to receive comparable benefits from a new employer or pursuant to a government-sponsored health insurance or health care program. (C) Anything contained in this Agreement to the contrary notwithstanding, if the Executive's employment with the Company or any subsidiary of the Company is governed by a separate written employment agreement that provides payments and/or other benefits upon a termination of employment, then the aggregate of any payments or benefits payable under such employment agreement shall offset and reduce the aggregate of payments and benefits under this Agreement. 3 (D) Anything contained in this Agreement to the contrary notwithstanding, a termination of the Executive's employment by the Executive for any reason during the forty-five (45) day period immediately following the 45th day after the occurrence of the first event constituting a Change in Control shall be deemed to be a termination for Good Reason for purposes of this Agreement. 6.2 Gross Up. -------- (A) Whether or not the Executive becomes entitled to the Severance Payments, if any of the payments or benefits received or to be received by the Executive (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (all such payments and benefits, excluding the Gross-Up Payment, being hereinafter referred to as the "Total Payments") will be subject to the Excise Tax, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments. (B) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section 6.2), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. If there has not been a Date of Termination with respect to the Executive, the Company shall cause the Gross-Up Payment to be calculated within 30 days of a written request to that effect from the Executive. (C) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up 4 Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive, to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, state and local income and employment taxes), plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. 6.3 The payments provided in subsection (A) of Section 6.1 and in Section 6.2 shall be made not later than the fifth day following the Date of Termination (or, in the case of Section 6.2, if there is no Date of Termination, then the fifth day following date on which the Gross-Up Payment is calculated for purposes of Section 6.2), provided, however, that if the amounts of such -------- ------- payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Company or, in the case of payments under Section 6.2, in accordance with Section 6.2, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest on the unpaid remainder (or on all such payments to the extent the Company fails to make such payments when due) at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the occurrence of a Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code). At the time that payments are made under this Agreement, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from Tax Counsel, the Auditor or other advisors or consultants (and any such opinions or advice which are in writing shall be attached to the statement). 6.4 The Company shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive's employment, in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 5 7. Termination Procedures and Compensation During Dispute. ------------------------------------------------------ 7.1 Notice of Termination. After a Change in Control, any purported --------------------- termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail any facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than two- thirds (2/3) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i), (ii) or (iii) of the definition of Cause herein, and specifying the particulars thereof in detail. 7.2 Date of Termination. "Date of Termination," with respect to any ------------------- purported termination of the Executive's employment after a Change in Control, shall mean (i) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such thirty (30) day period), and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than ninety (90) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). 7.3 Dispute Concerning Termination. If within ten (10) days after ------------------------------ any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section 7.3), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be extended until the earlier of (i) the date on which the Term ends or (ii) the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of an arbitrator or a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided, however, that the Date of Termination shall be extended by a notice of - -------- ------- dispute given by the Executive only if such notice is given in good faith and the Executive pursues the resolution of such dispute with reasonable diligence. 7.4 Compensation During Dispute. If the Date of Termination is --------------------------- extended in accordance with Section 7.3, the Company shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, the Base Salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the Date of Termination, as determined in accordance with Section 7.3. Amounts paid under this Section 7.4 are in addition to all other amounts due under 6 this Agreement (other than those due under Section 5.2) and shall not be offset against or reduce any other amounts due under this Agreement. 8. No Mitigation. If the Executive's employment with the Company ------------- terminates following a Change in Control, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 or Section 7.4. Except as set forth in Section 6.1(B), the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise. 9. Successors; Binding Agreement. ----------------------------- 9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control and during the Term, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 9.2 This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 10. Notices. For the purpose of this Agreement, notices and all other ------- communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the last known residence address of the Executive or in the case of the Company, to its principal office to the attention of the Chief Executive Officer of the Company with a copy to its Secretary, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 11. Miscellaneous. No provision of this Agreement may be modified, waived ------------- or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at 7 any prior or subsequent time. This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by either party; provided, however, -------- ------- that this Agreement shall not supersede any agreement setting forth the terms and conditions of the Executive's employment with the Company or any subsidiary of the Company, except as expressly agreed to by the Executive and the Company in writing. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the Commonwealth of Massachusetts. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company under this Agreement which by their nature may require either partial or total performance after the expiration of the Term (including, without limitation, those under Sections 6 and 7) shall survive such expiration. 12. Validity. The invalidity or unenforceability of any provision of this -------- Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 13. Counterparts. This Agreement may be executed in several counterparts, ------------ each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 14. Settlement of Disputes; Arbitration. ----------------------------------- 14.1 All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive's claim has been denied. 14.2 Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts in accordance with the rules of the American Arbitration Association then in effect; provided, however, that the evidentiary standards -------- ------- set forth in this Agreement shall apply. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Notwithstanding any provision of this Agreement to the contrary, the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 15. Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated below: 15.1 "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act. 8 15.2 "Auditor" shall have the meaning set forth in Section 6.2. 15.3 "Base Amount" shall have the meaning set forth in section 280G(b)(3) of the Code. 15.4 "Base Salary" shall mean the annual base salary in effect for the Executive immediately prior to a Change in Control, as such salary may be increased from time to time during the Term (in which case such increased amount shall be the Base Salary for purposes hereof), but without giving effect to any reduction thereto. 15.5 "Beneficial Owner" shall have the meaning set forth in Rule 13d- 3 under the Exchange Act. 15.6 "Board" shall mean the Board of Directors of the Company. 15.7 "Cause" for termination by the Company of the Executive's employment shall mean (i) the willful and continued failure by the Executive (other than any such failure resulting from (A) the Executive's incapacity due to physical or mental illness, (B) any such actual or anticipated failure after the issuance of a Notice of Termination by the Executive for Good Reason or (C) the Company's active or passive obstruction of the performance of the Executive's duties and responsibilities) to perform substantially the duties and responsibilities of the Executive's position with the Company after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed such duties or responsibilities; (ii) the conviction of the Executive by a court of competent jurisdiction for felony criminal conduct; or (iii) the willful engaging by the Executive in fraud or dishonesty which is demonstrably and materially injurious to the Company or its reputation, monetarily or otherwise. No act, or failure to act, on the Executive's part shall be deemed "willful" unless committed, or omitted by the Executive in bad faith and without reasonable belief that the Executive's act or failure to act was in, or not opposed to, the best interest of the Company. It is also expressly understood that the Executive's attention to matters not directly related to the business of the Company shall not provide a basis for termination for Cause so long as the Board has approved the Executive's engagement in such activities. 15.8 A "Change in Control" shall be deemed to have occurred if any of the events set forth in any one of the following paragraphs shall have occurred: (A) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 35% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in Section 15.8(C)(i); (B) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or 9 recommended by a vote of at least two-thirds (2/3) of the directors then in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; (C) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company or its Affiliates) representing 35% or more of the combined voting power of the Company's then outstanding securities; or (D) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. Anything contained in this Agreement to the contrary notwithstanding, no Change in Control shall be deemed to have occurred for purposes of this Agreement by virtue of any transaction which results in the Executive, or a "group" (as such term is used in Section 13(d)(3) of the Exchange Act) which includes the Executive, becoming the Beneficial Owner, directly or indirectly, of securities of the Company representing 35% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding securities. 15.9 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. 15.10 "Company" shall mean New England Business Service, Inc. and, except in determining under Section 15.8 whether or not any Change in Control of the Company has occurred, shall include any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise. 15.11 "Date of Termination" shall have the meaning set forth in Section 7.2. 15.12 "Disability" shall be deemed the reason for the termination by the Company of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the Company for a period of one hundred twenty (120), the Company shall have given the Executive a Notice of Termination for Disability, and, within 10 thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties. Any question as to the existence of the Executive's Disability upon which the Executive and the Company cannot agree shall be determined by a qualified independent physician selected by the Executive (or, if the Executive is unable to make such selection, it shall be made by any adult member of the Executive's immediate family), and approved by the Company. The determination of such physician made in writing to the Company and to the Executive shall be final and conclusive for all purposes of this Agreement, absent fraud. 15.13 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. 15.14 "Excise Tax" shall mean any excise tax imposed under section 4999 of the Code. 15.15 "Executive" shall mean the individual named in the first paragraph of this Agreement. 15.16 "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence (without the Executive's express written consent) after any Change in Control, or prior to a Change in Control under the circumstances described in the second sentence of Section 6.1 (treating all references in subsections (A) through (G) below to a "Change in Control" as references to a "Potential Change in Control"), of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in subsection (A), (B), (C), (D), (E) or (F) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: (A) an adverse change in the Executive's status or position(s) as an officer of the Company as in effect immediately prior to the Change in Control, including, without limitation, any adverse change in the Executive's status or position as a result of a diminution of the Executive's duties or responsibilities (other than, if applicable, any such change directly and solely attributable to the fact that the Company is no longer publicly owned) or the assignment to the Executive of any duties or responsibilities which are inconsistent with such status or position(s), or any removal of the Executive from, or any failure to reappoint or reelect the Executive to, such position(s); (B) a reduction in the Executive's Base Salary; or (C) the failure by the Company or any subsidiary of the Company to continue in effect any Plan in which the Executive is participating at the time of the Change in Control (or Plans providing the Executive with at least substantially similar benefits) other than as a result of the normal expiration of any such Plan in accordance with its terms as in effect at the time of the Change in Control, or the taking of any action, or the failure to act, by the Company which would adversely affect the Executive's continued participation in any of such Plans on at least as favorable a basis to the Executive as is the case on the date of the Change in Control or which would materially reduce the Executive's benefits in the future under any of such Plans or deprive the Executive of any material benefit enjoyed by the Executive at the time of the Change in Control; 11 (D) the failure of the Company to provide and credit the Executive with the number of paid vacation days to which the Executive is then entitled in accordance with the Company's normal vacation policy as in effect immediately prior to the Change in Control; (E) the Company requiring the Executive to be based at an office that is greater than 50 miles from where the Executive's office is located immediately prior to the Change in Control except for required travel on the Company's business to an extent substantially consistent with the business travel obligations which the Executive undertook on behalf of the Company prior to the Change in Control; (F) any refusal by the Company to continue to allow the Executive to attend to matters or engage in activities not directly related to the business of the Company which, prior to the Change in Control, the Executive was permitted by the Board to attend to or engage in; or (G) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. For purposes of any determination regarding the existence of Good Reason, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that Good Reason does not exist. 15.17 "Gross-Up Payment" shall have the meaning set forth in Section 6.2. 15.18 "Notice of Termination" shall have the meaning set forth in Section 7.1. 15.19 "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities and (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. 15.20 "Plan" shall mean any compensation plan such as an incentive plan, or any employee benefit plan such as a thrift, pension, profit sharing, medical, disability, accident, life insurance plan or a relocation plan or policy or any other plan, program or policy of the Company or its subsidiaries intended to benefit employees, but excluding following a Change in Control (but not during a Potential Change in Control Period) any stock option, restricted stock or other stock-based plan or benefit except with respect to any awards outstanding under any such plan as of the date of the Change in Control. 12 15.21 "Potential Change in Control" shall be deemed to have occurred if the event set forth in any one of the following subsections shall have occurred: (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (B) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; (C) any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 15% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding securities; or (D) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. 15.22 "Potential Change in Control Period" shall commence upon the occurrence of a Potential Change in Control and shall lapse upon the occurrence of a Change in Control or, if earlier (i) with respect to a Potential Change in Control occurring pursuant to Section 15.21(A), immediately upon the abandonment or termination of the applicable agreement, (ii) with respect to a Potential Change in Control occurring pursuant to Section 15.21(B), immediately upon a public announcement by the applicable party that such party has abandoned its intention to take or consider taking actions which if consummated would result in a Change in Control or (iii) with respect to a Potential Change in Control occurring pursuant to Section 15.21(C) or (D), upon the one year anniversary of the occurrence of a Potential Change in Control (or such earlier date as may be determined by the Board). 15.23 "Retirement" shall be deemed the reason for the termination by the Executive of the Executive's employment if such employment is terminated in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees. 15.24 "Severance Payments" shall have the meaning set forth in Section 6.1. 15.25 "Tax Counsel" shall have the meaning set forth in Section 6.2. 15.26 "Term" shall mean the period of time described in Section 2 (including any extension, continuation or termination described therein). 15.27 "Total Payments" shall mean those payments so described in Section 6.2. [Signature Page Follows] 13 IN WITNESS WHEREOF, the undersigned officer, on behalf of New England Business Service, Inc., and the Executive have hereunto set their hands as an agreement under seal, all as of the date first above written. NEW ENGLAND BUSINESS SERVICE, INC. By: /s/ Robert H. Glaudel ------------------------ Name: Robert H. Glaudel Title: Senior Vice President, Human Resources EXECUTIVE: /s/ Robert J. Murray --------------------------- Name: Robert J. Murray 14 EX-10.15.1 11 dex10151.txt FORM OF CHANGE IN CONTROL SEVERANCE AGREEMENT EXHIBIT 10.15.1 CHANGE IN CONTROL SEVERANCE AGREEMENT ------------------------------------- THIS AGREEMENT, dated [insert date], is made by and between New England Business Service, Inc., a Delaware corporation with its principal offices at 500 Main Street, Groton, Massachusetts 01471 (the "Company"), and [insert name] (the "Executive") residing in [city, state, zip]. WHEREAS, the Company considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of the Company and its stockholders; and WHEREAS, the Executive has made and is expected to make, due to the Executive's intimate knowledge of the business and affairs of the Company, its policies, methods, personnel, and problems, a significant contribution to the profitability, growth, and financial strength of the Company; and WHEREAS, the Company, as a publicly-held corporation, recognizes that the possibility of a Change in Control may exist, and that such possibility and the uncertainty and questions which it may raise among management may result in the departure or distraction of the Executive in the performance of the Executive's duties, to the detriment of the Company and its stockholders; and WHEREAS, it is in the best interests of the Company and its stockholders to reinforce and encourage the continued attention and dedication of management personnel, including the Executive, to their assigned duties without distraction and to ensure the continued availability to the Company of the Executive in the event of a Change in Control; NOW, THEREFORE, in consideration of the foregoing and other respective covenants and agreements of the parties herein contained, the parties hereto agree as follows: 1. Defined Terms. The definitions of capitalized terms used in this ------------- Agreement are provided in Section 15. 2. Term of Agreement. The term of this Agreement (the "Term") shall ----------------- commence on the date hereof and shall continue in effect through June 30, 2004; provided, however, that commencing on July 1, 2004 and each July 1 thereafter, - -------- ------- the Term shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company or the Executive shall have given notice not to extend the Term; and further provided, however, ------- -------- ------- that if a Change in Control shall have occurred during the Term, the Term shall expire on the last day of the twenty-fourth (24/th/) month following the month in which such Change in Control occurred. 3. Company's Covenants Summarized. In order to induce the Executive to ------------------------------ remain in the employ of the Company and in consideration of the Executive's covenants in Section 4, the Company, under the conditions described herein, shall pay the Executive the Severance Payments and the other payments and benefits described herein. Except as provided in Section 9.1, no Severance Payments shall be payable under this Agreement unless there shall have been 1 (or, pursuant to the second sentence of Section 6.1, there shall be deemed to have been) a termination of the Executive's employment with the Company following a Change in Control and during the Term. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company. 4. The Executive's Covenants. Subject to the terms and conditions of ------------------------- this Agreement, in the event of a Potential Change in Control, the Executive shall remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the date of the first occurrence of a Potential Change in Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive's employment for Good Reason or by reason of death, Disability or Retirement, or (iv) the termination by the Company of the Executive's employment for any reason. 5. Compensation Other Than Severance Payments. ------------------------------------------ 5.1 If the Executive fails to perform the Executive's full-time duties with the Company following a Change in Control as a result of incapacity due to physical or mental illness, during any period when the Executive so fails to perform the Company shall pay the Base Salary to the Executive, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement (other than the Company's short- or long-term disability plan, as applicable, but including any bonus or incentive plan) maintained by the Company during such period, until the Executive resumes the full time performance of such duties or the Executive's employment is terminated by the Company for Disability. 5.2 If the Executive's employment shall be terminated for any reason following a Change in Control, the Company shall pay the Base Salary to the Executive through the Date of Termination, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of the Company's compensation and benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason. 5.3 Except as expressly provided herein, if the Executive's employment shall be terminated for any reason following a Change in Control, the Company shall pay to the Executive the Executive's normal post-termination compensation and benefits as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company's retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the occurrence of the first event or circumstance constituting Good Reason. 6. Severance Payments. ------------------ 6.1 If the Executive's employment is terminated within twenty-four (24) months following a Change in Control, other than (a) by the Company for Cause, (b) by reason 2 of death or Disability, or (c) by the Executive without Good Reason, then the Company shall pay the Executive the amounts, and provide the Executive the benefits, described in this Section 6.1 ("Severance Payments") and Section 6.2, in addition to any payments and benefits to which the Executive is entitled under Section 5. For purposes of this Agreement, the Executive's employment shall be deemed to have been terminated within twenty-four (24) months following a Change in Control and during the Term by the Company without Cause or by the Executive with Good Reason, if (i) the Executive's employment is terminated by the Company without Cause during a Potential Change in Control Period, or (ii) the Executive terminates his employment for Good Reason during a Potential Change in Control Period. Except as described above or in Section 9.1, the Executive shall not be entitled to benefits pursuant to this Section 6.1 unless a Change in Control shall have occurred during the Term. (A) The Company shall pay to the Executive a lump sum severance payment, in cash, equal to two times the sum of (i) the Base Salary, and (ii) the target annual bonus available to the Executive pursuant to the Company's annual executive bonus plan or any successor plan (but excluding any special performance or incentive plan) in respect of the fiscal year in which the Date of Termination occurs (without giving effect to any event or circumstance constituting Good Reason), assuming for this purpose attainment of 100% of any applicable target; provided, however, that if the applicable target bonus would have been pro-rated for a partial fiscal year, such target bonus shall be recalculated for purposes of this Section 6.1(A) to equal the amount that for which the Executive would have been eligible for the entire fiscal year. (B) For the thirty (30) month period immediately following the Date of Termination, the Company shall arrange to provide the Executive and his dependents life, disability, accident and health insurance benefits substantially similar to those provided to the Executive and his dependents immediately prior to the Date of Termination or, if more favorable to the Executive, those provided to the Executive and his dependents immediately prior to the first occurrence of an event or circumstance constituting Good Reason, at no greater after-tax cost to the Executive than the cost to the Executive immediately prior to such date or occurrence. If, at the end of the 30-month period following the Date of Termination, the Executive has not previously become eligible to receive comparable benefits from a new employer or pursuant to a government-sponsored health insurance or health care program, then the Company shall arrange, at its sole cost and expense, to enable the Executive to convert coverage for the Executive and the Executive's dependents being provided hereunder to individual policies or program, if applicable, upon the same terms as other former employees of the Company may apply for such conversion. The cost of providing the benefits set forth in this Section 6.1(B) shall be in addition to (and shall not reduce) the Severance Payments. Benefits otherwise receivable by the Executive pursuant to this Section 6.1(B) shall be reduced to the extent the Executive becomes eligible to receive comparable benefits from a new employer or pursuant to a government-sponsored health insurance or health care program. (C) Anything contained in this Agreement to the contrary notwithstanding, if the Executive's employment with the Company or any subsidiary of the Company is governed by a separate written employment agreement that provides payments and/or other benefits upon a termination of employment, then the aggregate of any payments or benefits payable under such employment agreement shall offset and reduce the aggregate of payments and benefits under this Agreement. 3 6.2 Gross Up. -------- (A) Whether or not the Executive becomes entitled to the Severance Payments, if any of the payments or benefits received or to be received by the Executive (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (all such payments and benefits, excluding the Gross-Up Payment, being hereinafter referred to as the "Total Payments") will be subject to the Excise Tax, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments. (B) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section 6.2), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. If there has not been a Date of Termination with respect to the Executive, the Company shall cause the Gross-Up Payment to be calculated within 30 days of a written request to that effect from the Executive. (C) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive, to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, state and local income and employment taxes), plus interest 4 on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. 6.3 The payments provided in subsection (A) of Section 6.1 and in Section 6.2 shall be made not later than the fifth day following the Date of Termination (or, in the case of Section 6.2, if there is no Date of Termination, then the fifth day following date on which the Gross-Up Payment is calculated for purposes of Section 6.2), provided, however, that if the amounts of such -------- ------- payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Company or, in the case of payments under Section 6.2, in accordance with Section 6.2, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest on the unpaid remainder (or on all such payments to the extent the Company fails to make such payments when due) at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the occurrence of a Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code). At the time that payments are made under this Agreement, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from Tax Counsel, the Auditor or other advisors or consultants (and any such opinions or advice which are in writing shall be attached to the statement). 6.4 The Company shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive's employment, in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 7. Termination Procedures and Compensation During Dispute. ------------------------------------------------------ 7.1 Notice of Termination. After a Change in Control, any purported --------------------- termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10. For purposes of this Agreement, a "Notice of Termination" shall 5 mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail any facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds (2/3) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i), (ii) or (iii) of the definition of Cause herein, and specifying the particulars thereof in detail. 7.2 Date of Termination. "Date of Termination," with respect to any ------------------- purported termination of the Executive's employment after a Change in Control, shall mean (i) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such thirty (30) day period), and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than ninety (90) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). 7.3 Dispute Concerning Termination. If within ten (10) days after ------------------------------ any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section 7.3), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be extended until the earlier of (i) the date on which the Term ends or (ii) the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of an arbitrator or a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided, however, that the Date of Termination shall be extended by a notice of - -------- ------- dispute given by the Executive only if such notice is given in good faith and the Executive pursues the resolution of such dispute with reasonable diligence. 7.4 Compensation During Dispute. If the Date of Termination is --------------------------- extended in accordance with Section 7.3, the Company shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, the Base Salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the Date of Termination, as determined in accordance with Section 7.3. Amounts paid under this Section 7.4 are in addition to all other amounts due under this Agreement (other than those due under Section 5.2) and shall not be offset against or reduce any other amounts due under this Agreement. 8. No Mitigation. If the Executive's employment with the Company ------------- terminates following a Change in Control, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 or Section 7.4. Except as set forth in Section 6.1(B), the amount of any payment or 6 benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise. 9. Successors; Binding Agreement. ----------------------------- 9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control and during the Term, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 9.2 This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 10. Notices. For the purpose of this Agreement, notices and all other ------- communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the last known residence address of the Executive or in the case of the Company, to its principal office to the attention of the Chief Executive Officer of the Company with a copy to its Secretary, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 11. Miscellaneous. No provision of this Agreement may be modified, waived ------------- or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by either party; provided, however, that this Agreement shall not supersede any agreement setting - -------- ------- forth the terms and conditions of the Executive's employment with the Company or any subsidiary of the Company, except as expressly agreed to by the Executive and the Company in writing. The validity, interpretation, construction and 7 performance of this Agreement shall be governed by the laws of the Commonwealth of Massachusetts. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company under this Agreement which by their nature may require either partial or total performance after the expiration of the Term (including, without limitation, those under Sections 6 and 7) shall survive such expiration. 12. Validity. The invalidity or unenforceability of any provision of this -------- Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 13. Counterparts. This Agreement may be executed in several counterparts, ------------ each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 14. Settlement of Disputes; Arbitration. ----------------------------------- 14.1 All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive's claim has been denied. 14.2 Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts in accordance with the rules of the American Arbitration Association then in effect; provided, however, that the evidentiary standards -------- ------- set forth in this Agreement shall apply. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Notwithstanding any provision of this Agreement to the contrary, the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 15. Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated below: 15.1 "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act. 15.2 "Auditor" shall have the meaning set forth in Section 6.2. 15.3 "Base Amount" shall have the meaning set forth in section 280G(b)(3) of the Code. 8 15.4 "Base Salary" shall mean the annual base salary in effect for the Executive immediately prior to a Change in Control, as such salary may be increased from time to time during the Term (in which case such increased amount shall be the Base Salary for purposes hereof), but without giving effect to any reduction thereto. 15.5 "Beneficial Owner" shall have the meaning set forth in Rule 13d- 3 under the Exchange Act. 15.6 "Board" shall mean the Board of Directors of the Company. 15.7 "Cause" for termination by the Company of the Executive's employment shall mean (i) the willful and continued failure by the Executive (other than any such failure resulting from (A) the Executive's incapacity due to physical or mental illness, (B) any such actual or anticipated failure after the issuance of a Notice of Termination by the Executive for Good Reason or (C) the Company's active or passive obstruction of the performance of the Executive's duties and responsibilities) to perform substantially the duties and responsibilities of the Executive's position with the Company after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed such duties or responsibilities; (ii) the conviction of the Executive by a court of competent jurisdiction for felony criminal conduct; or (iii) the willful engaging by the Executive in fraud or dishonesty which is demonstrably and materially injurious to the Company or its reputation, monetarily or otherwise. No act, or failure to act, on the Executive's part shall be deemed "willful" unless committed, or omitted by the Executive in bad faith and without reasonable belief that the Executive's act or failure to act was in, or not opposed to, the best interest of the Company. It is also expressly understood that the Executive's attention to matters not directly related to the business of the Company shall not provide a basis for termination for Cause so long as the Board has approved the Executive's engagement in such activities. 15.8 A "Change in Control" shall be deemed to have occurred if any of the events set forth in any one of the following paragraphs shall have occurred: (A) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 35% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in Section 15.8(C)(i); (B) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; 9 (C) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company or its Affiliates) representing 35% or more of the combined voting power of the Company's then outstanding securities; or (D) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. Anything contained in this Agreement to the contrary notwithstanding, no Change in Control shall be deemed to have occurred for purposes of this Agreement by virtue of any transaction which results in the Executive, or a "group" (as such term is used in Section 13(d)(3) of the Exchange Act) which includes the Executive, becoming the Beneficial Owner, directly or indirectly, of securities of the Company representing 35% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding securities. 15.9 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. 15.10 "Company" shall mean New England Business Service, Inc. and, except in determining under Section 15.8 whether or not any Change in Control of the Company has occurred, shall include any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise. 15.11 "Date of Termination" shall have the meaning set forth in Section 7.2. 15.12 "Disability" shall be deemed the reason for the termination by the Company of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the Company for a period of one hundred twenty (120), the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties. Any question as to the existence of the Executive's Disability upon which the Executive and the Company cannot agree shall be 10 determined by a qualified independent physician selected by the Executive (or, if the Executive is unable to make such selection, it shall be made by any adult member of the Executive's immediate family), and approved by the Company. The determination of such physician made in writing to the Company and to the Executive shall be final and conclusive for all purposes of this Agreement, absent fraud. 15.13 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. 15.14 "Excise Tax" shall mean any excise tax imposed under section 4999 of the Code. 15.15 "Executive" shall mean the individual named in the first paragraph of this Agreement. 15.16 "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence (without the Executive's express written consent) after any Change in Control, or prior to a Change in Control under the circumstances described in the second sentence of Section 6.1 (treating all references in subsections (A) through (G) below to a "Change in Control" as references to a "Potential Change in Control"), of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in subsection (A), (B), (C), (D), (E) or (F) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: (A) an adverse change in the Executive's status or position(s) as an officer of the Company as in effect immediately prior to the Change in Control, including, without limitation, any adverse change in the Executive's status or position as a result of a diminution of the Executive's duties or responsibilities (other than, if applicable, any such change directly and solely attributable to the fact that the Company is no longer publicly owned) or the assignment to the Executive of any duties or responsibilities which are inconsistent with such status or position(s), or any removal of the Executive from, or any failure to reappoint or reelect the Executive to, such position(s); (B) a reduction in the Executive's Base Salary; or (C) the failure by the Company or any subsidiary of the Company to continue in effect any Plan in which the Executive is participating at the time of the Change in Control (or Plans providing the Executive with at least substantially similar benefits) other than as a result of the normal expiration of any such Plan in accordance with its terms as in effect at the time of the Change in Control, or the taking of any action, or the failure to act, by the Company which would adversely affect the Executive's continued participation in any of such Plans on at least as favorable a basis to the Executive as is the case on the date of the Change in Control or which would materially reduce the Executive's benefits in the future under any of such Plans or deprive the Executive of any material benefit enjoyed by the Executive at the time of the Change in Control; 11 (D) the failure of the Company to provide and credit the Executive with the number of paid vacation days to which the Executive is then entitled in accordance with the Company's normal vacation policy as in effect immediately prior to the Change in Control; (E) the Company requiring the Executive to be based at an office that is greater than 50 miles from where the Executive's office is located immediately prior to the Change in Control except for required travel on the Company's business to an extent substantially consistent with the business travel obligations which the Executive undertook on behalf of the Company prior to the Change in Control; (F) any refusal by the Company to continue to allow the Executive to attend to matters or engage in activities not directly related to the business of the Company which, prior to the Change in Control, the Executive was permitted by the Board to attend to or engage in; or (G) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. For purposes of any determination regarding the existence of Good Reason, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that Good Reason does not exist. 15.17 "Gross-Up Payment" shall have the meaning set forth in Section 6.2. 15.18 "Notice of Termination" shall have the meaning set forth in Section 7.1. 15.19 "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities and (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. 15.20 "Plan" shall mean any compensation plan such as an incentive plan, or any employee benefit plan such as a thrift, pension, profit sharing, medical, disability, accident, life insurance plan or a relocation plan or policy or any other plan, program or policy of the Company or its subsidiaries intended to benefit employees, but excluding following a Change in Control (but not during a Potential Change in Control Period) any stock option, restricted stock or other stock-based plan or benefit except with respect to any awards outstanding under any such plan as of the date of the Change in Control. 12 15.21 "Potential Change in Control" shall be deemed to have occurred if the event set forth in any one of the following subsections shall have occurred: (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (B) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; (C) any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 15% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding securities; or (D) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. 15.22 "Potential Change in Control Period" shall commence upon the occurrence of a Potential Change in Control and shall lapse upon the occurrence of a Change in Control or, if earlier (i) with respect to a Potential Change in Control occurring pursuant to Section 15.21(A), immediately upon the abandonment or termination of the applicable agreement, (ii) with respect to a Potential Change in Control occurring pursuant to Section 15.21(B), immediately upon a public announcement by the applicable party that such party has abandoned its intention to take or consider taking actions which if consummated would result in a Change in Control or (iii) with respect to a Potential Change in Control occurring pursuant to Section 15.21(C) or (D), upon the one year anniversary of the occurrence of a Potential Change in Control (or such earlier date as may be determined by the Board). 15.23 "Retirement" shall be deemed the reason for the termination by the Executive of the Executive's employment if such employment is terminated in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees. 15.24 "Severance Payments" shall have the meaning set forth in Section 6.1. 15.25 "Tax Counsel" shall have the meaning set forth in Section 6.2. 15.26 "Term" shall mean the period of time described in Section 2 (including any extension, continuation or termination described therein). 15.27 "Total Payments" shall mean those payments so described in Section 6.2. [Signature Page Follows] 13 IN WITNESS WHEREOF, the undersigned officer, on behalf of New England Business Service, Inc., and the Executive have hereunto set their hands as an agreement under seal, all as of the date first above written. NEW ENGLAND BUSINESS SERVICE, INC. By:____________________________ Name: Robert J. Murray Title: Chairman & Chief Executive Officer EXECUTIVE: _______________________________ Name: 14 EX-10.15.2 12 dex10152.txt LIST OF EXECUTIVE OFFICERS OF THE COMPANY Exhibit 10.15.2 List of Executive Officers of New England Business Service, Inc. (the "Company") who have entered into the Change in Control Severance Agreement filed as Exhibit 10.15.1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2001, and dates thereof: Name Title Date of Agreement - ---- ----- ----------------- George P. Allman Senior Vice President and August 2, 2001 President - Diversified Operations John F. Fairbanks Senior Vice President and August 2, 2001 President - Chiswick Daniel M. Junius Senior Vice President, Chief August 2, 2001 Financial Officer & Treasurer Richard T. Riley Senior Vice President and August 2, 2001 President - NEBS Direct Marketing Steven G. Schlerf Senior Vice President, Manufacturing August 2, 2001 and Technical Operations Robert D. Warren Senior Vice President and August 2, 2001 President - International EX-10.18 13 dex1018.txt EMPLOYMENT AGREEMENT DTD JUNE 29, 2001 EXHIBIT 10.18 June 29, 2001 Richard T. Riley 132 Wildwood Road Andover, MA 01810 Re: Employment Agreement -------------------- Dear Rich: We are all pleased that you have accepted your new assignment with NEBS. Although we have discussed many of the details of your new assignment, this letter will outline some of the terms of your employment with New England Business Service, Inc. ("NEBS" or the "Company") following the assumption of your new duties and responsibilities. This letter agreement is effective as of July 1, 2001 and will continue in effect through June 30, 2003. Except as expressly provided herein, this agreement neither imposes nor confers any further rights or obligations on you or the Company from and after the end of the term of this agreement; provided that the expiration of the term of this agreement of itself and without subsequent action by you or the Company will not end the employment relationship between the Company and you. As of July 1, 2001, you will assume the position of Senior Vice President and President, NEBS Direct Marketing. Effective July 1, 2001 and throughout the term of your employment hereunder, your annual base salary will be $275,000, payable in conformity with the Company's policies relating to salaried employees. Your base salary will be subject to annual review and may be increased, but not decreased, by the Company's Board of Directors (or a committee thereof). You will also continue to participate in NEBS' annual executive bonus plan; provided that 50% of your bonus target for fiscal 2002 will be guaranteed. If, during the term of this agreement, your position as a senior executive of the Company is terminated (a) by the Company for any reason other than cause (as defined below) or your death or disability, or (b) by you for good reason (as defined below), then (i) the Company will continue to pay you as a full-time employee on inactive status at your base salary in effect immediately prior to your termination date (or, if higher, immediately prior to the first occurrence of an event constituting good reason) for the remaining term of this agreement (plus any guaranteed bonus, as set forth above, to the extent not already paid), and (ii) thereafter, you will be entitled to receive the standard NEBS separation package available to senior executives of the Company. Richard T. Riley June 29, 2001 Page 2 of 3 During your separation pay period, you may elect to continue coverage for yourself and your family under the Company's group medical and dental plans, provided you are not otherwise eligible to receive comparable coverage pursuant to another employer's plans; and the Company will pay the same portion of the premium cost of such coverage, if any, as is paid by the Company for members of senior management who are employed on active status. All stock options and restricted stock awarded to you will continue to vest during the separation pay period. You will not be entitled to the separation pay and benefits described in this letter if your employment with the Company is terminated by reason of your death or disability, or by the Company for cause, or if you voluntarily terminate your employment other than for good reason. For purposes of this Agreement, (a) "termination for good reason" means termination of your employment by you during the term of this Agreement following (i) a reduction in your base salary or a significant diminution of your position or responsibilities, or (ii) your ceasing to report directly to Robert J. Murray (by reason of Mr. Murray's retirement or otherwise), and (b) "termination for cause" means termination of your employment by the Company by reason of (i) any significant, deliberate misuse or misappropriation by you of money or property of the Company, (ii) any flagrant act of dishonesty or disloyalty by you that is injurious to the Company or its reputation, monetarily or otherwise, (iii) any wrongful or negligent act of yours, which materially adversely affects the business of the Company, (iv) any material violation of the Company's written policies, standards and guidelines and, if such violation is susceptible to cure, you have failed to substantially cure such violation within twenty (20) days after written notice thereof is delivered to you, or (v) your willful and continued failure (other than any such failure attributable to your incapacity due to physical or mental illness, or death), to perform substantially your duties and responsibilities after written demand for substantial performance is delivered to you. The Company's obligation to provide the separation pay and benefits described in this letter is conditioned upon your execution of a customary general release in favor of the Company, its affiliates, and their respective directors, officers, employees, agents and representatives. This letter is neither intended to provide a comprehensive list of the fringe benefits that will continue to be available to you as a senior executive of the Company, nor is it intended to address all of your obligations to NEBS. This letter was designed to note those areas in which the terms of your employment will differ from standard provisions that may be applicable from time to time to other senior executives of the Company. If you agree with the terms as stated in this letter agreement, please countersign both originals below and return one to me. You may keep the other for your files. Richard T. Riley June 29, 2001 Page 3 of 3 If you have any questions or concerns, please feel free to speak with me or with Bob Glaudel. Sincerely, /s/ Robert J. Murray Robert J. Murray Chairman & Chief Executive Officer Agreed to and accepted as of the date written above: /s/ Richard T. Riley - -------------------- Richard T. Riley cc: Robert H. Glaudel Senior Vice President, Human Resources EX-21 14 dex21.txt LIST OF SUBSIDIARIES EXHIBIT 21 LIST OF SUBSIDIARIES Name of Subsidiary Jurisdiction of Incorporation - --------------------------- ----------------------------- NEBS Business Products Limited (Canada) Shirlite, Ltd. (United Kingdom) Standard Forms, Ltd. (United Kingdom) McBee Systems, Inc. (Colorado) Rapidforms, Inc. (New Jersey) Russell & Miller, Inc. (Delaware) PremiumWear, Inc. (Delaware) Chiswick, Inc. (Massachusetts) VeriPack.com, Inc. (Delaware) EX-23 15 dex23.txt INDEPENDENT AUDITORS CONSENT DELOITTE & TOUCHE INDEPENDENT AUDITORS' CONSENT Exhibit 23 We consent to the incorporation by reference in Registration Statement Nos. 33- 38925, 33-56227, 333-44825, 333-44819, 333-43028 and 333-43804 of New England Business Service, Inc. on Form S-8 of our report dated July 31, 2001, appearing in this Annual Report on Form 10-K of New England Business Service, Inc. for the year ended June 30, 2001. /s/ Deloitte & Touche LLP Boston, Massachusetts September 4, 2001 -----END PRIVACY-ENHANCED MESSAGE-----