<PAGE>
FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
__________________
Date of Report (Date of earliest event reported): December 31, 1993
__________________
MERRILL CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 0-14082 41-0946258
--------- ------- ----------
(State of Incorporation) (Commission (I.R.S. Employer
File Number) Identification No.)
One Merrill Circle, St. Paul, Minnesota 55108
----------------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (612) 646-4501
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On December 31, 1993, Merrill Acquisition Corp., a Minnesota
corporation (the "Purchaser") and wholly owned subsidiary of
Merrill Corporation (the "Registrant") acquired substantially all
of the assets of May Printing Company, a Minnesota corporation
(the "Company") (the "Purchase") pursuant to an Asset Purchase
Agreement dated as of December 31, 1993 by and among the
Purchaser, the Registrant, the Company and the Shareholders of
the Company (the "Asset Purchase Agreement"). In the acquisition,
the Purchaser acquired substantially all of the business, assets,
properties, goodwill and rights of the Company (the "Purchased
Assets"), including real and personal property owned or leased by
Company; the Company's corporate name; the goodwill of Company's
business; leaseholds and other interests in land, inventory
(materials, work in process, finished goods), equipment,
machinery, furniture, fixtures, motor vehicles and supplies;
cash; accounts receivables; contracts, purchase orders,
customers, lists of customers and suppliers, sales representative
agreements, and all favorable business relationships, causes of
action; employment contracts; and substantially all other assets
reflected on the balance sheet of the Company.
The purchase price for the Purchased Assets was approximately
$24.9 million consisting of $15.4 million cash, $7.0 million in
assumed current and long-term liabilities and Purchaser's
non-negotiable promissory note in the principal amount of $2.5
million. The purchase price for the Purchased Assets is subject to
adjustment based on a closing balance sheet as of December 31, 1993,
to be prepared within 90 days of the closing (with any adjustments to
be paid with interest at the prime rate). In addition to the amounts
payable at closing, the Purchaser has agreed to pay the Company an
additional sum, not to exceed $2.0 million (an "earn-out") based on
the level of pre-tax earnings generated by the Purchased Assets during
the 12-month period ending January 31, 1995. The above-described
consideration was arrived at through arm's-length negotiations with
the Company, but was primarily based on the value and future earnings
potential of the assets purchased.
There were no prior material relationships between Purchaser,
Registrant, or any of Registrant's affiliates, any director or
officer of Registrant, or any associate of any such director or
officer, on the one hand, and the Company or its Shareholders, on
2
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the other hand. Approximately $1.7 million of the funds for the
acquisition were provided through the Registrant's revolving
credit agreement with First Bank National Association and the
balance of the purchase price was paid using funds available in
the Registrant's operating account. The Registrant anticipates
that the payments under the assumed liabilities, promissory note
and earn-out will be paid out of Registrant's operations and the
revolving credit agreement.
The Purchased Assets purchased were previously used by the
Company to provide demand printing and distribution services
relating to corporate identity and direct marketing programs for
nationwide companies. The Registrant intends to continue such
use.
Additional information concerning the Purchase is also
contained in the Asset Purchase Agreement, which document is an
exhibit hereto and is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
A. FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The registrant has determined that it is impracticable to provide
the required financial statements of May Printing Company at this
time. The registrant will file the required financial statements under
an amendment on Form 8-K/A as soon as practicable but in any event
within 60 days after the date hereof.
B. PRO FORMA FINANCIAL INFORMATION.
The registrant has determined that it is impracticable to
provide the required pro forma financial information regarding
the acquisition of May Printing Company at this time. The
registrant will file the required pro forma financial information
under an amendment on Form 8-K/A as soon as practicable, but in any
event within 60 days after the date hereof.
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C. EXHIBITS.
2.1 Asset Purchase Agreement, dated as of December 31,
1993, by and among the Purchaser, Registrant, the
Company and the Shareholders of the Company.
99.1 Press Release of Registrant, dated January 3, 1993.
4
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: January 18, 1994 MERRILL CORPORATION
(Registrant)
By /s/ Steven J. Machov
---------------------------------
Steven J. Machov
Vice President and General Counsel
5
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Method
No. Description of Filing
- ------ ----------- ---------
<S> <C> <C>
2.1 Asset Purchase Agreement, dated as of December 31,
1993, by and among the Purchaser, Registrant, the
Company and the Shareholders of the Company. . . . Filed Electronically
with this Direct
Transmission
99.1 Press Release of Registrant, dated January 3,
1993 . . . . . . . . . . . . . . . . . . . . . . . Filed Electronically
with this Direct
Transmission
</TABLE>
<PAGE>
ASSET PURCHASE AGREEMENT
DATED AS OF DECEMBER 31, 1993
AMONG
MERRILL CORPORATION,
MERRILL ACQUISITION CORP.,
MAY PRINTING COMPANY
AND
SHAREHOLDERS OF MAY PRINTING COMPANY
<PAGE>
TABLE OF CONTENTS
PAGE
1. PURCHASE OF ASSETS.................................................... 1
(a) Assets to be Purchased......................................... 1
(b) Liabilities Assumed............................................ 2
(c) Purchase Price................................................. 4
(d) Contingent Purchase Price...................................... 7
(e) Closing........................................................ 11
(f) Instruments of Transfer to Purchaser........................... 12
(g) Adjustment for Periodic Items.................................. 12
2. REPRESENTATIONS AND WARRANTIES OF COMPANY AND SHAREHOLDERS............ 13
(a) Disclosure Schedule............................................ 13
(b) Corporate Organization......................................... 13
(c) Capitalization................................................. 13
(d) Authorization.................................................. 14
(e) Non-Contravention.............................................. 14
(f) Consents and Approvals......................................... 15
(g) Financial Statements........................................... 15
(h) Absence of Undisclosed Liabilities............................. 16
(i) Absence of Certain Changes..................................... 16
(j) The Assets..................................................... 18
(k) Schedules; No Contract Defaults................................ 20
(l) Inventories.................................................... 22
(m) Receivables and Payables....................................... 23
(n) Intellectual Property Rights................................... 23
(o) Litigation..................................................... 24
(p) Tax Matters.................................................... 24
(q) Benefit Plans.................................................. 26
(r) Orders, Commitments and Returns................................ 30
(s) Labor Matters.................................................. 31
(t) Compliance with Law; Permits and Other Operating Rights........ 31
(u) Business Generally............................................. 32
(v) Environmental Matters.......................................... 32
(w) Transactions with Certain Persons.............................. 34
(x) Brokers........................................................ 35
(y) Absence of Certain Business Practices.......................... 35
(z) Disclosure..................................................... 35
3. REPRESENTATIONS AND WARRANTIES OF MERRILL AND PURCHASER............... 36
(a) Corporate Organization......................................... 36
(b) Authorization.................................................. 36
(c) Non-Contravention.............................................. 36
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(d) Consents and Approvals......................................... 37
(e) Financial Statements........................................... 37
(f) Absence of Undisclosed Liabilities............................. 37
(g) Absence of Certain Changes..................................... 37
(h) Litigation..................................................... 38
(i) Brokers........................................................ 38
(j) Disclosure..................................................... 39
4. COVENANTS............................................................. 39
(a) Company's Agreements as to Specified Matters................... 39
(b) Conduct of Company Business.................................... 42
(c) No Company Solicitation of Alternate Transaction............... 42
(d) Full Access to Merrill......................................... 43
(e) Confidentiality................................................ 43
(f) Filings; Consents; Removal of Objections....................... 44
(g) Further Assurances; Cooperation; Notification.................. 44
(h) Supplements to Disclosure Schedule............................. 45
(i) Public Announcements........................................... 45
(j) Tax Matters.................................................... 46
(k) Bulk Transfers................................................. 47
(l) Stock Options.................................................. 48
(m) Non-Competition Agreements..................................... 49
(n) Employment Agreements.......................................... 49
(o) Non-Competition of Merrill and Purchaser....................... 49
(p) Employee Benefits............................................... 49
(q) Directors and Shareholders Authorization; Change of Corporate
Name........................................................... 53
(r) Additional Post-Closing Obligations of Company and the
Shareholders................................................... 53
5. CONDITIONS TO OBLIGATIONS OF MERRILL AND PURCHASER.................... 54
(a) Representations and Warranties True............................ 54
(b) Performance.................................................... 55
(c) Required Approvals and Consents................................ 55
(d) Adverse Changes................................................ 55
(e) No Proceeding or Litigation.................................... 55
(f) Opinion of Company Counsel..................................... 55
(g) Legislation.................................................... 55
(h) Acceptance by Counsel to Merrill and Purchaser................. 56
(i) Certificates................................................... 56
(j) Noncompetition Agreements...................................... 56
(k) Employment Agreements.......................................... 56
(l) MEEDA Bonds.................................................... 56
(m) Documentation for Conveyance of the Assets..................... 56
(n) Allocation of Purchase Price................................... 56
6. CONDITIONS TO OBLIGATIONS OF COMPANY AND SHAREHOLDERS................. 56
(a) Representations and Warranties True............................ 56
(b) Performance.................................................... 57
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(c) Adverse Changes................................................ 57
(d) Corporate Approvals............................................ 57
(e) No Proceeding or Litigation.................................... 57
(f) Certificates................................................... 57
(g) Opinion of Purchaser Counsel................................... 57
(h) Payment of Consideration....................................... 57
(i) Acceptance by Counsel.......................................... 58
(j) Stock Option Agreements........................................ 58
(k) Release of Guarantees.......................................... 58
(l) Merrill Guaranty............................................... 58
7. TERMINATION AND ABANDONMENT........................................... 58
(a) Methods of Termination......................................... 58
(b) Procedure Upon Termination..................................... 59
8. SURVIVAL AND INDEMNIFICATION.......................................... 59
(a) Survival....................................................... 59
(b) Indemnification by Merrill and Purchaser....................... 59
(c) Indemnification by Company and the Shareholders................ 60
(d) Basket Amount.................................................. 61
(e) Right of Set-Off............................................... 61
(f) Claims for Indemnification..................................... 61
(g) Limit on Claims................................................ 63
(h) Limit on Damages............................................... 63
9. MISCELLANEOUS PROVISIONS.............................................. 64
(a) Expenses....................................................... 64
(b) Topping Fees................................................... 64
(c) Amendment and Modification..................................... 64
(d) Waiver of Compliance; Consents................................. 65
(e) No Third Party Beneficiaries................................... 65
(f) Notices........................................................ 65
(g) Assignment..................................................... 66
(h) Governing Law.................................................. 67
(i) Counterparts................................................... 67
(j) Headings....................................................... 67
(k) Entire Agreement............................................... 67
(l) Remedies....................................................... 67
(m) Certain Definitions............................................ 68
(n) Arbitration.................................................... 69
(o) Preservation of Records After Closing.......................... 69
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LIST OF EXHIBITS
Name of Exhibit Number of Exhibit
- -------------- -----------------
Trade and Other Names to be Purchased................... Exhibit 1(a)(1)
Excluded Assets......................................... Exhibit 1(a)(2)
Liabilities Undertaking................................. Exhibit 1(b)
Purchaser's Promissory Note............................. Exhibit 1(c)(2)
Allocation of Purchase Price Among
the Assets.......................................... Exhibit 1(c)(3)
Bill of Sale............................................ Exhibit 1(f)
Disclosure Schedule..................................... Exhibit 2
Form of Stock Option.................................... Exhibit 4(l)
Non-Competition Agreement............................... Exhibit 4(m)
Employment Agreement.................................... Exhibit 4(n)
Opinion of Company Counsel.............................. Exhibit 5(f)
Opinion of Purchaser Counsel............................ Exhibit 6(g)
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LIST OF DEFINED TERMS
Term Page
- ---- ----
Acquisition Proposals...................................................... 43
Affiliate.................................................................. 18
Affiliated Organization.................................................... 27
Agreement.................................................................. 67
Assets..................................................................... 2
Associate.................................................................. 18
Assumed Contracts.......................................................... 4
Assumed Liabilities........................................................ 2
Auditor.................................................................... 6
Authority.................................................................. 15
Basic Purchase Price....................................................... 4
Best Knowledge............................................................. 68
Capitalized Leases......................................................... 5
Closing.................................................................... 11
Closing Balance Sheet...................................................... 5
Closing Date............................................................... 11
Company.................................................................... 1
Compensation Plans......................................................... 28
Consent.................................................................... 15
Contingent Purchase Price.................................................. 7
Contingent Purchase Price Statement........................................ 11
Disclose................................................................... 43
Disclosure Schedule........................................................ 13
Employment Agreements...................................................... 49
Environmental and Occupational Safety and Health Law....................... 33
Environmental Claim........................................................ 33
Environmentally Regulated Materials........................................ 34
ERISA...................................................................... 27
Final Basic Purchase Price................................................. 5
Indemnified Party.......................................................... 61
Indemnifying Party......................................................... 61
Information................................................................ 43
Initial Basic Purchase Price............................................... 5
Intellectual Property Rights............................................... 23
Key Employees.............................................................. 21
Key Executives............................................................. 4
Knowledge.................................................................. 68
Latest Audited Balance Sheet............................................... 16
Latest Unaudited Balance Sheet............................................. 16
Law........................................................................ 15
Letter of Intent........................................................... 49
Liabilities Undertaking.................................................... 3
Lien....................................................................... 18
Material Adverse Effect.................................................... 68
MEEDA Bonds................................................................ 5
Merrill.................................................................... 1
Net Worth.................................................................. 5
-v-
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Non-Competition Agreement.................................................. 49
PBGC....................................................................... 27
Pension Plan............................................................... 27
Permitted Liens............................................................ 18
Pre-Tax Earnings........................................................... 8
Proceeding................................................................. 62
Property................................................................... 32
Purchase Price............................................................. 4
Purchaser.................................................................. 1
Purchaser's Promissory Note................................................ 5
Retained Liabilities....................................................... 3
Shareholders............................................................... 1
Survival Periods........................................................... 59
Tax........................................................................ 24
Tax Return................................................................. 24
Termination Date........................................................... 12
Transferred Employee....................................................... 50
Welfare Plan............................................................... 27
-vi-
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of December 31, 1993, is by and
among Merrill Corporation, a Minnesota corporation ("MERRILL"), Merrill
Acquisition Corp., a Minnesota corporation ("PURCHASER"), May Printing
Company, a Minnesota corporation ("COMPANY"), and Thomas May and James Scott
May (individually, a "SHAREHOLDER" and collectively, the "SHAREHOLDERS").
A. The parties hereto wish to provide for the terms and conditions
upon which the Purchaser will acquire substantially all assets of Company.
B. The parties hereto wish to make certain representations,
warranties, covenants and agreements in connection with the purchase of
assets and also to prescribe various conditions to such transaction.
Accordingly, and in consideration of the representations, warranties,
covenants, agreements and conditions herein contained, the parties hereto
agree as follows:
SECTION 1
1. PURCHASE OF ASSETS.
(a) ASSETS TO BE PURCHASED. Upon satisfaction of all conditions to
the obligations of the parties contained herein (other than such conditions as
shall have been waived in accordance with the terms hereof), Company shall
sell, transfer, convey, assign and deliver to Purchaser and Purchaser shall
purchase (and Merrill shall cause Purchaser to so purchase) from Company, at
the Closing hereunder, all of the business, assets, properties, goodwill and
rights of Company, as a going concern, of every nature, kind and description,
tangible and intangible, real, personal or mixed, wheresoever located and
whether or not carried or reflected on the books and records of Company
including, without limitation, real and personal property that is now owned or
leased by Company or in which it has any right or interest; franchises; all
right, title and interest in and to the use of Company's corporate names and
any derivatives or combinations thereof, including, without limitation, those
listed in Exhibit 1(a)(1) hereto; logos, trademarks, trademark registrations
and trademark applications or registrations thereof, including the goodwill
associated therewith; the goodwill of Company's business; copyrights,
copyright applications and copyright registrations, patents and patent
applications; rights under or pursuant to licenses by or to Company;
development and prototype hardware, software, processes, formula, trade
secrets, inventories and royalties, including all rights to sue for past
infringements;
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leaseholds and other interests in land, inventory (materials, work in process,
finished goods), equipment, machinery, furniture, fixtures, motor vehicles and
supplies; cash, money and deposits with financial institutions and others,
certificates of deposit, commercial paper, notes, evidences of indebtedness,
stocks, bonds and other investments; accounts receivables; prepaid expenses;
insurance policies, contracts, purchase orders, customers, lists of customers
and suppliers, sales representative agreements, and all favorable business
relationships, causes of action, judgments, claims and demands of whatever
nature; all credit balances of or inuring to Company under any state
unemployment compensation plan or fund; employment contracts; except as
provided in (v) below, obligations of the present and former officers and
employees and of individuals and corporations; rights under joint venture
agreements or arrangements; files, papers and records relating to Company's
business and assets; and the assets as reflected on the Latest Audited Balance
Sheet (as hereinafter defined), with only such dispositions of such assets
reflected on the Latest Audited Balance Sheet as shall have occurred in the
ordinary course of Company's business between the date thereof and the Closing
and which are permitted by the terms hereof (the foregoing are sometimes
collectively called the "ASSETS"), except:
(i) the consideration delivered to Company pursuant to this
Agreement for the Assets;
(ii) the minute books (and any documents related to Company's
organization or foreign qualification contained in such minute books),
corporate seal and stock records of Company;
(iii) shares of the capital stock of Company, including shares
held by Company as treasury shares;
(iv) the annual reports filed by Company since January 1, 1990
pursuant to Minn. Stat. Section 302A.821;
(v) amounts owing by the Shareholders or May Development Company
to Company, as shown on the Closing Balance Sheet (as hereinafter
defined);
(vi) all documentation pertaining to any liability of Company not
assumed by Purchaser; and
(vii) the assets specifically described on Exhibit 1(a)(2)
hereto.
(b) LIABILITIES ASSUMED. Upon satisfaction of all conditions to the
obligations of the parties contained herein (other than such conditions as
shall have been waived in accordance with the terms hereof), Purchaser shall
assume the liabilities of Company (the "ASSUMED LIABILITIES") as set forth
2
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on Exhibit 1(b) (the "LIABILITIES UNDERTAKING"). Company and the Shareholders
expressly understand and agree that except for the Assumed Liabilities,
Purchaser and Merrill have not agreed to pay, shall not be required to assume
and shall have no liability or obligation, direct or indirect, absolute or
contingent, of Company, any of the Shareholders or any of their Affiliates or
Associates, which liabilities shall, as between Company and the Shareholder, on
the one hand, and Purchaser and Merrill, on the other hand, remain the sole
responsibility of, and shall be satisfied by, Company or the Shareholders (the
"RETAINED LIABILITIES"), including without limitation:
(i) any debt, liability or obligation, direct or indirect, known
or unknown, fixed, contingent or otherwise, that (A) is unrelated to the
Assets; or (B) relates to the Assets and is based upon or arises from
any act, omission, transaction, circumstance, sale of goods or services,
state of facts or other condition occurring or existing on or before the
Closing Date, whether or not then known, due or payable, except to the
extent that the same was expressly assumed by Merrill or Purchaser
pursuant to the terms of the Liabilities Undertaking; or (C) arises out
of or results from failure to obtain the Consents of (I) Eastman Kodak
Corporation under equipment leases included in the Assumed Contracts
(Nos. 20 and 21 in the Liability Undertaking), (II) Airport Industrial
Complex under a lease included in the Assumed Contracts (No. 56 in the
Liability Undertaking), (III) Wynstar, Incorporated under a contract
included in the Assumed Contracts (No. 61 in the Liability Undertaking)
related to the lease of equipment or other assets included in the
Assets, or (iv) Xpoint under a contract included in the Assumed
Contracts (No. 63 in the Liability Undertaking);
(ii) any obligation for Taxes (as hereinafter defined) related to
any of the Assets for any Tax period or portion thereof ending on or
before the Closing Date and any obligation for other Taxes of Company or
any of the Shareholders (other than any obligation for any sales or use
tax, other transfer tax or recording fee which arise as a result of the
sale or transfer of the Assets pursuant to this Agreement);
(iii)(A) any liability arising out of or related to the events,
circumstances or conditions described in Section 2(v) to the Disclosure
Schedule; or (B) any liability arising out of or related to any
pollution or threat to human health or the environment or violation of
any Environmental and Occupational Safety and Health Law (as hereinafter
defined) that is related in any way to Company's or any previous owner's
or operator's management, use, control, ownership or operation of the
Assets, any Property (as hereinafter defined) or the business of Company
prior to the Closing Date,
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including without limitation the St. Augusta Sanitary Landfill/Engen
Dump Site and the Seaboard Chemical Corporate Site and all other on-site
and off-site activities involving Environmentally Regulated Materials
(as hereinafter defined), whether or not the pollution or threat to
human health or the environment or violation of any Environmental and
Occupational Safety and Health Law is described in the Disclosure
Schedule; and any Environmental Claim (as hereinafter defined) against
any person or entity whose liability for such Environmental Claim
Company or any Shareholder has or may have assumed or retained either
contractually or by operation of law; and
(iv) any liability of Company to any of the Shareholders or to
John Caye or Fred Thomas (the "KEY EXECUTIVES"), whether pursuant to
the employment agreements between the Key Executives and Company or
otherwise.
At the Closing, Company shall convey, transfer and assign, and Purchaser shall
accept and assume, those contracts, agreements and commitments listed on the
Liabilities Undertaking to be assumed by Purchaser (the "ASSUMED CONTRACTS").
(c) PURCHASE PRICE.
(i) The total consideration to be paid by Purchaser to Company
for the Assets (the "PURCHASE PRICE") shall be an amount equal to:
(A) $22,126,140 LESS, on a dollar-for-dollar basis, (x) the
amount of long-term notes payable (including Capitalized Leases (as
defined below)) and current portion of long term debt as of the Closing,
as shown on the Closing Balance Sheet (determined as set forth in
subsection (c)(iii) below), and (y) the amount by which the Net Worth of
Company (as defined below) as of the Closing, as shown on the Closing
Balance Sheet, is less than $6,650,000 (provided that no such adjustment
shall be made to the extent any shortfall in Net Worth does not exceed
the vacation pay accrual made in 1993 in preparing the Closing Balance
Sheet), PLUS (aa) the amount of the Restricted Cash as of the Closing
on the MEEDA Bonds (as defined below) and the Long-Term Deposit
Receivable as of the Closing, in each case as shown on the Closing
Balance Sheet, and (bb) the amount of accrued profit sharing, accrued
401(k) incentive and withholding liability for hospital and group
insurance as of the Closing, as shown non the Closing Balance Sheet (the
"BASIC PURCHASE PRICE"); plus
(B) any Contingent Purchase Price, as defined in Section 1(d)
hereof; plus
(C) the assumption by Purchaser of the Assumed Liabilities
pursuant to Section 1(b) hereof.
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For the purposes of determining the amount of the Basic Purchase Price
to pay at the Closing, the amounts used in the adjustments above shall
be based on the amounts shown on the Latest Unaudited Balance Sheet of
Company (as hereinafter defined) (the "INITIAL BASIC PURCHASE PRICE").
For the purposes of the foregoing and this Agreement, the term
"CAPITALIZED LEASES" shall mean (x) for the leases that are listed on
the Liability Undertaking as Assumed Contracts, those leases reflected
on the Latest Audited Balanced Sheet as capitalized leases, and (y) for
any other lease, those leases which, consistent with generally accepted
accounting principles consistently applied, should appear on the Closing
Balance Sheet as capitalized leases, other than leases disclosed in the
Liability Undertaking, "MEEDA BONDS" shall mean the Minnesota Energy
and Economic Development Authority Bonds Series 1985C, Lot 1 and Series
1990B, Lot 1, and "NET WORTH" shall mean the difference between the
assets and liabilities of Company, determined in accordance with
generally accepted accounting principles consistently applied or
otherwise as provided pursuant to Section 1(c)(iii) of this Agreement.
(ii) At the Closing, Purchaser will:
(A) Pay Company, by wire transfer, immediately available
funds of $15,274,400 to a bank account of Company pursuant to
written instructions of Company given to Purchaser at least 72
hours prior to the Closing;
(B) Execute and deliver to Company Purchaser's
non-negotiable promissory note in the principal amount of
$2,500,000 in the form of Exhibit 1(c)(2) hereto ("PURCHASER'S
PROMISSORY NOTE"); and
(C) Execute and deliver to Company the Liabilities
Undertaking.
(iii) The Initial Basic Purchase Price set forth in Section
1(c)(i) hereof shall be subject to adjustment after the Closing Date (as
hereinafter defined) as follows:
(A) Purchaser will prepare and deliver to Company within
90 days following the Closing Date (or as soon thereafter as
practicable) a balance sheet for Company as of the close of
business (but not reflecting the completion of the sale of Assets
pursuant to this Agreement) on December 30, 1993 (the "CLOSING
BALANCE SHEET"). The Closing Balance Sheet shall be used to
determine the amounts of the adjustments set forth in subsection
1(c)(i), for purposes of determining the final Basic Purchase
Price (the "FINAL BASIC PURCHASE PRICE").
(B) The Closing Balance Sheet shall be prepared from the
books and records of Company in accordance with
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generally accepted accounting principles and applied consistently
with the principles, practices and procedures used in the
preparation of the Latest Audited Balance Sheet (as hereinafter
defined). The Closing Balance Sheet shall not include any assets
not included (pursuant to section 1(a)) within the Assets (other
than the obligations of Shareholders and May Development Company
to the Company net of any amounts owed by Company to Shareholders
or May Development Company, which shall be included) or any
Retained Liabilities (other than accrued profit sharing, accrued
401(k) incentive and withholding liability for hospital and group
insurance, which shall be included). All inventory and supplies
reflected on the Closing Balance Sheet shall be so reflected on
the basis of a complete physical count taken beginning December
31, 1993 and shall be valued at the lower of cost or market in
accordance with Company's prior practices as reflected in the
Latest Audited Balance Sheet. Representatives of both Company and
Merrill shall have the right to participate in the taking of such
physical inventory and the valuation thereof. Coopers & Lybrand
("AUDITOR") will apply certain agreed upon procedures to
specific accounts and/or items on the Closing Balance Sheet.
Company, Purchaser and the Shareholders shall provide each other
with full cooperation in connection with the preparation of the
Closing Balance Sheet (provided that normal operations of business
of Purchaser and Merrill are not interfered with), and each shall
have the right to review Auditor's work papers in connection with
the agreed upon procedures performed on the Closing Balance Sheet.
(C) The Closing Balance Sheet shall not include (1)
deferred compensation in excess of $289,560, or (2) up to $75,000
of attorneys' fees incurred by Company related to the transactions
contemplated by this Agreement or in connection with corporate
"clean up" matters necessary in connection therewith.
(D) Within 30 days after receipt of the Closing Balance
Sheet, Company shall notify Purchaser if it disagrees with any of
the amounts included in the Closing Balance Sheet. If such notice
is not given, the Closing Balance Sheet will be final and
conclusive for all purposes. If the parties are unable to resolve
the differences within 60 days of the receipt of the Closing
Balance Sheet, Company and Purchaser agree to retain the
accounting firm of Ernst & Young to arbitrate the dispute and
render a decision within 30 days of such retention, which decision
shall be final and binding for all purposes. Any award pursuant
to this Section 1(c)(iii) may be entered in and enforced by any
court having
6
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jurisdiction over the matter and the parties hereby consent and
commit themselves to the jurisdiction of the courts of Minnesota
for the purposes of the enforcement of any such award. Purchaser
and the Shareholders will each pay one-half of the costs of
services rendered by said accounting firm.
(E) Within five days after the expiration of the 30-day
period for giving notice of disagreement with the accountants'
finding, if no such notice is given, or within five days after the
resolution of disputes, if any, pursuant to subsection (iii)(cc)
above, the Final Basic Purchase Price shall be determined (using
the formula set forth in Section 1(c)(i)) based on the amounts
shown in the Closing Balance Sheet. Purchaser or Company, as
appropriate, will by wire transfer in immediately available funds
make payment to the other of any appropriate amounts, such that
after such payment, and taking into account amounts previously
received by Company pursuant to Section 1(c)(ii) hereof, Purchaser
shall have paid Company the Final Basic Purchase Price. Either
party making a payment pursuant to this paragraph, whether
Purchaser or Company, shall, in addition to such payment, pay the
other party interest on the amount of such payment, for the time
period between the Closing Date and the date of such payment, at
an annual rate equal to the Reference Rate as publicly announced
from time to time by First Bank National Association.
(iv) The Purchase Price shall be allocated among the Assets in
the manner required by Section 1060 of the Code. In making such
allocation, the allocations set forth in Exhibit 1(c)(3) attached hereto
shall apply, which exhibit shall be completed based on the amounts shown
on the Closing Balance Sheet. In preparing Exhibit 1(c)(3), Purchaser
and the Shareholders shall negotiate in good faith the values of the
Assets and the resulting allocation of the Purchase Price among the
various Assets; it being understood that such determination shall be
binding on Purchaser and the Shareholders only for the purposes of U.S.
Federal, state and local taxation. The Shareholders and Purchaser shall
file all Tax Returns and tax reports (including IRS Form 8594) in
accordance with and based upon such allocation and shall take no
position in any Tax Return, tax proceeding or tax audit which is
inconsistent with such allocation.
(d) CONTINGENT PURCHASE PRICE. If the Assets earn Pre-Tax Earnings
of at least $3,750,000 for the 12 months beginning February 1, 1994 and ending
January 31, 1995, the Purchaser will pay an additional amount (the
"CONTINGENT PURCHASE PRICE") equal to a percentage of Purchaser's Pre-Tax
Earnings generated from the
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<PAGE>
Assets according to the following schedule (but in no event will the
Contingent Purchase Price exceed $2,000,000):
<TABLE>
<CAPTION>
Amount of Applicable
Pre-Tax Earnings Percentage
------------------------ -----------
<S> <C>
Less than $3,750,000 0%
$3,750,000 to $3,819,999 25%
$3,820,000 to $3,889,999 30%
$3,890,000 to $3,959,999 35%
$3,960,000 to $4,029,999 40%
$4,030,000 to $4,099,999 45%
$4,100,000 48.78%
</TABLE>
Any such Contingent Purchase Price shall be paid in cash and shall be deemed
to consist of interest compounded semiannually at the applicable federal
short-term interest rate, as determined in accordance with the provisions of
section 1274(d) of the Internal Revenue Code of 1986, as amended (the "CODE").
(i) For purposes of this Section 1(d), the "PRE-TAX EARNINGS"
generated by the Assets shall mean Purchaser's net income (or loss),
before taxes, determined in accordance with generally accepted
accounting principles consistently applied (and consistent with the
accounting principles used by Company in preparation of the September
30, 1993 audited balance sheet and the Closing Balance Sheet), except
that the following provisions shall govern the computation of the
Pre-Tax Earnings for the purposes of this Section 1(d):
(A) The term "Purchaser" shall mean the operations of
Purchaser or any transferee of the Assets or any Affiliate of
either the Purchaser or such transferee conducting business of the
type conducted by Company immediately before the Closing that
represent a succession to and a continuation of the business or
businesses conducted by Company related to the Assets prior to the
Closing;
(B) Any loss, charge or expense paid, incurred or charged
in connection with expansion of the business comprising the Assets
as a result of acquiring other assets or entities or opening and
staffing of new offices over and above levels contemplated in
projections furnished to Merrill dated September 8, 1993, or any
8
<PAGE>
income or revenues directly derived therefrom, shall be excluded
from such computation;
(C) Any start-up costs, expenses or charges in excess of
$25,000 per program (or for programs with costs between $10,000
and $25,000, any such costs in excess of an aggregate of $100,000)
incurred in connection with development of programs for new
customers of Purchaser shall be capitalized and amortized over the
first twelve months of revenue generated from such program;
(D) The Assets shall be depreciated as though their basis
had not changed as a result of their purchase by Purchaser
pursuant to this Agreement;
(E) There shall be excluded from such computation any
non-specific payments, charges or expenses for allocation of home
office, executive, general and administrative expenses or other
payments, charges or expenses of Purchaser; there shall be
included for the purposes of such computation charges or amounts
paid to third-party vendors and charges for specific services
provided by Merrill personnel which directly relate to the
operation of the business related to the Assets, provided they are
itemized in reasonable detail and approved by John Caye;
(F) No dividends shall be paid to Merrill by Purchaser
prior to February 1, 1995; interest on operating funds advanced to
Purchaser by Merrill shall be charged at the Reference Rate as
then publicly announced by First Bank National Association;
interest on operating funds advanced to Merrill by Purchaser shall
be earned at rates then available on short-term investments
equivalent to those used by Company during the year ended December
31, 1993;
(G) The wage rates, commission structures, bonus
structures and salaries used in calculating the Pre-Tax Earnings
shall be in conformance with compensation programs of the Company
in effect as of the Closing, without regard to any deferred
compensation arrangements;
(H) No bonuses paid to Key Executives shall be deducted in
determining the Pre-Tax Earnings;
(I) No deduction will be made for any payments under
Purchaser's Promissory Note or the Non-Competition Agreements;
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<PAGE>
(J) No deduction shall be made for any expenses associated
with any deferred compensation plan;
(K) Deduction shall be made for only fringe benefits or
fringe benefit programs equivalent to those provided by Company at
the time of Closing; charges for 401(k) expenses shall be
calculated using a methodology consistent with that used in
Company's 1992 financial statements; no deduction shall be made
for pension expenses;
(L) Nonrecurring or other extraordinary expenses and
nonrecurring or other extraordinary items of income shall be
excluded from Pre-Tax Earnings;
(M) All jobs, excluding intercompany jobs, shall be priced
in a manner consistent with past practices prior to the Closing;
(N) Any intercompany transfer of goods, products, services
or assets between Merrill and Purchaser, transferee or Affiliate,
including but not limited to such items as paper and equipment,
shall be taken into account at the amount which would have been
paid or received by Purchaser, transferee or Affiliate for such
goods in an arms'-length transaction;
(O) The net balance of intercompany accounts between
Purchaser and Merrill, exclusive of such accounts representing
advances of operating funds as provided in (F) above, at the end
of each month shall be settled on the 20th day of the following
month;
(P) No deduction shall be made for any expense incurred in
connection with the employment of any personnel in excess of the
number of employees on the Closing Date multiplied by a fraction
the numerator of which is the amount of revenues from the business
during the period of February 1, 1994 through and including
January 31, 1995 and the denominator of which is the total
revenues of the Company for the year ending December 31, 1993; and
(Q) Any and all expenses paid or incurred by Purchaser
(other than those expressly permitted by the above provisions)
which would not have been so paid or incurred if not for the sale
of the Assets (including the payment of the Contingent Purchase
Price) and the other transactions contemplated hereby shall be
excluded from such computation.
10
<PAGE>
(ii) As soon as may be practicable after January 31, 1995, but
not later than May 1, 1995, Purchaser will deliver to Company and the
Shareholders a statement, prepared by Merrill's independent public
accountants, setting forth in reasonable detail Purchaser's calculation
of Pre-Tax Earnings for the 12 months ending January 31, 1995 and the
amount of the Contingent Purchase Price, if any, to be paid to Company
pursuant to this Section 1(d) (the "CONTINGENT PURCHASE PRICE
STATEMENT").
(iii) Within 30 days after receipt of the Contingent
Purchase Price Statement, Company shall notify Purchaser if it disagrees
with the calculation of the Contingent Purchase Price. If such notice
is not given (or at such time as Company provides written notice to
Purchaser that it has no objection to such calculation), the Contingent
Purchase Price Statement provided by Purchaser will be final and
conclusive for all purposes and Purchaser shall thereafter have no
further liability to Company pursuant to this Section 1(d). If the
parties are unable to resolve their differences within 60 days of the
receipt of the Contingent Purchase Price Statement, Company and
Purchaser agree to retain the accounting firm of Ernst & Young to
arbitrate the dispute and render a decision within 30 days of such
retention, which decision shall be final and binding for all purposes.
Any award pursuant to this Section 1(d)(iii) may be entered in and
enforced by any court having jurisdiction over the matter and the
parties hereby consent and commit themselves to the jurisdiction of the
courts of Minnesota for the purposes of the enforcement of any such
award. Purchaser and the Shareholders will each pay one-half of the
costs of services rendered by said accounting firms.
(iv) Within five days after the earlier of (A) the receipt by
Purchaser of written notice from Company that it has no objection to the
calculation of the Contingent Purchase Price pursuant to subsection
1(d)(ii) hereof, (B) the expiration of the 30-day period for giving
notice of disagreement with such calculation, if no such notice is
given, or (C) the resolution of any dispute pursuant to Section
1(d)(iii), Purchaser will by wire transfer in immediately available
funds make payment to Company of the Contingent Purchase Price, if any.
(e) CLOSING. Unless this Agreement shall have been terminated and
the transactions contemplated herein shall have been abandoned pursuant to
Section 7 hereof, a closing (the "CLOSING") will be held on December 31,
1993 (the "CLOSING DATE"); provided, however, that if any of the conditions
provided for in Sections 5 and 6 hereof shall not have been satisfied or
waived by such date, then the party to this Agreement which is unable to
satisfy such condition or conditions, despite the best efforts of such party,
11
<PAGE>
shall be entitled to postpone the Closing by notice to the other parties until
such condition or conditions shall have been satisfied (which such notifying
party will seek to cause to happen at the earliest practicable date) or
waived, but in no event shall the Closing occur later than the "TERMINATION
DATE" which shall be on January 31, 1994, unless the parties hereto shall
agree in writing to extend the date of such Closing. The parties shall use
their best efforts to complete the Closing by December 31, 1993. The Closing
shall be held at the offices of Oppenheimer Wolff & Donnelly, Suite 3400, 45
South Seventh Street, Minneapolis, Minnesota or such other place as the
parties may agree, at 9:00 a.m., local Minneapolis, Minnesota time or such
other time as the parties may agree, at which time and place the documents and
instruments necessary or appropriate to effect the transactions contemplated
herein will be exchanged by the parties.
(f) INSTRUMENTS OF TRANSFER TO PURCHASER. At the Closing, Company
will deliver to Purchaser: (a) such bills of sale, endorsements, assignments,
deeds and other good and sufficient instruments of conveyance and transfer, in
form and substance reasonably satisfactory to Purchaser and its counsel, as
shall be reasonably required to vest in Purchaser title to the Assets,
including without limitation: (i) a cashier's or certified check drawn by
Company to the order of Purchaser (or wire transfer in immediately available
funds) in the aggregate amount of all of Company's cash on hand and in banks
less an amount equal to all uncleared checks which have been drawn by Company
prior to the Closing in the ordinary course of business and as otherwise
permitted by this Agreement (Company agrees to retain in such banks an amount
equal to such uncleared checks until such checks are cleared), (ii) general
bills of sale vesting in Purchaser good and marketable title to all of the
Assets in the form attached as Exhibit 1(f) hereof, (iii) appropriate
endorsements and assignments of the contracts, licenses, agreements, permits,
plans, commitments and other binding arrangements included in the Assets, (iv)
specific bills of sale, endorsements and assignments transferring to Purchaser
the Intellectual Property Rights, and (v) such written consents, agreements
and other instruments as Purchaser shall reasonably request to enable it to
use the name "May Printing Company" and all other trade names of Company used
in its business, and all other variations or combinations thereof; and (b) all
data relating to the assets, property, goodwill and business included in
Company's business. Simultaneously with such delivery, Company will take all
actions reasonably necessary to put Purchaser in actual possession and
operating control of the Assets.
(g) ADJUSTMENT FOR PERIODIC ITEMS. At the Closing Date or as
promptly thereafter as practicable, the parties shall adjust the annualized or
periodic items as of the Closing Date, with Company being responsible therefor
up to the Closing Date and Purchaser being responsible therefor from and after
the Closing Date. Such adjustable items shall include electric, gas,
telephone and utility
12
<PAGE>
charges of the operations of Company related to the Assets and payroll
expenses and any payroll taxes in respect of employees of Company, either paid
or accrued, amounts paid under leases and loans; provided, however, that
nothing in this Section 1(g) shall increase the liabilities and obligations of
Company assumed by Purchaser pursuant to the Liabilities Undertaking referred
to in Section 1(b) hereof.
SECTION 2
2. REPRESENTATIONS AND WARRANTIES OF COMPANY AND SHAREHOLDERS.
Company and the Shareholders, jointly and severally, hereby represent
and warrant to Purchaser and Merrill as of the date hereof as follows:
(a) DISCLOSURE SCHEDULE. The disclosure schedule attached as
Exhibit 2 hereto (the "DISCLOSURE SCHEDULE") is divided into sections which
correspond to the subsections of this Section 2. The Disclosure Schedule is
accurate and complete. Disclosures in any subsection thereof shall not
constitute disclosure for purposes of any other subsection and any other
section or subsection of this Agreement or any exhibit to or other writing
which is designated herein as being part of this Agreement.
(b) CORPORATE ORGANIZATION. Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Minnesota, has full corporate power and authority to carry on its business
as it is now being conducted and to own, lease and operate its properties and
assets, is duly qualified or licensed to do business as a foreign corporation
in good standing in California and in every other jurisdiction in which the
character or location of the properties and assets owned, leased or operated
by it or the conduct of its business requires such qualification or licensing,
except in such jurisdictions in which the failure to be so qualified or
licensed and in good standing would not, individually or in the aggregate,
have a Material Adverse Effect on Company; and has heretofore delivered to
Purchaser complete and correct copies of its articles of incorporation and
bylaws, as presently in effect. The Disclosure Schedule contains a list of
all states in which Company is qualified or licensed to do business. Company
does not own (and has not at any time during the preceding five (5) years
owned) of record or beneficially more than five percent (5%) of the
outstanding equity securities having ordinary voting rights or power of any
corporation or partnership or other legal entity or any securities that would
disqualify Company from its status as an S Corporation under the Code.
(c) CAPITALIZATION. The authorized capital stock of Company is set
forth on the Disclosure Schedule. The number of shares of
13
<PAGE>
capital stock of Company outstanding as of the date of this Agreement are set
forth on the Disclosure Schedule. All issued and outstanding shares of
capital stock of Company are duly authorized, validly issued, fully paid,
nonassessable and are without, and were not issued in violation of, preemptive
rights. Except as set forth on the Disclosure Schedule: (i) there are no
shares of capital stock or other equity securities of Company outstanding or
any securities convertible into or exchangeable for such shares, securities or
rights; (ii) there are no outstanding options, warrants, conversion privileges
or other rights to purchase or acquire any capital stock or other equity
securities of Company or any securities convertible into or exchangeable for
such shares, securities or rights; and (iii) there are no contracts,
commitments, understandings, arrangements or restrictions by which Company is
bound to issue or to acquire any additional shares of its capital stock or
other equity securities or any options, warrants, conversion privileges or
other rights to purchase or acquire any capital stock or other equity
securities of Company or any securities convertible into or exchangeable for
such shares, securities or rights.
(d) AUTHORIZATION. Company has full corporate power and authority
to enter into this Agreement and to carry out the transactions contemplated
herein. The Shareholders, and each of them, have the legal capacity to enter
into this Agreement and to carry out the transactions contemplated herein,
including without limitation the legal capacity to execute, deliver and
perform the agreements or contracts, if any, required by Section 5 to be
executed and delivered by any of them as a condition to the Closing. The
Board of Directors of Company and the Shareholders have taken all action
required by law, Company's articles of incorporation and bylaws and otherwise
to authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein. This Agreement has been
duly and validly executed and delivered by Company and no other corporate
action is necessary. This Agreement has been duly and validly executed by the
Shareholders. This Agreement is the valid and binding legal obligation of
Company and of the Shareholders, enforceable against Company and the
Shareholders in accordance with its terms.
(e) NON-CONTRAVENTION. Except as set forth in the Disclosure
Schedule, neither the execution, delivery and performance of this Agreement
nor the consummation of the transactions contemplated herein will: (i)
violate or be in conflict with any provision of the articles of incorporation
or bylaws of Company; or (ii) except for such violations, conflicts, defaults,
accelerations, terminations, cancellations, impositions of fees or penalties,
mortgages, pledges, liens, security interests, encumbrances, restrictions and
charges which would not, individually or in the aggregate, have a Material
Adverse Effect on Company, (A) be in conflict with, or constitute a default,
however defined (or an
14
<PAGE>
event which, with the giving of due notice or lapse of time, or both, would
constitute such a default), under, or cause or permit the acceleration of the
maturity of, or give rise to any right of termination, cancellation,
imposition of fees or penalties under, any Assumed Contract or any debt, note,
bond, lease, mortgage, indenture, license, obligation, contract, commitment,
franchise, permit, instrument or other agreement or obligation to which
Company or any Shareholder is a party or by which Company or any Shareholder
or any of the Assets is or may be bound (unless with respect to which defaults
or other rights, requisite waivers or consents shall have been obtained at or
prior to the Closing) or (B) result in the creation or imposition of any
mortgage, pledge, lien, security interest, encumbrance, restriction, adverse
claim or charge of any kind, upon the Assets under any Assumed Contract or any
debt, obligation, contract, agreement or commitment to which Company or any
Shareholder is a party or by which Company or any Shareholder or any of the
Assets is or may be bound; or (iii) violate any statute, treaty, law,
judgment, writ, injunction, decision, decree, order, regulation, ordinance or
other similar authoritative matters of any foreign, federal, state or local
governmental or quasi-governmental, administrative, regulatory or judicial
court, department, commission, agency, board, bureau, instrumentality or other
authority (hereinafter sometimes separately referred to as an "AUTHORITY"
and sometimes collectively as "AUTHORITIES") (sometimes hereinafter
separately referred to as a "LAW" and sometimes collectively as "LAWS")
where such violation would have a Material Adverse Effect on Company. Neither
the execution, delivery and performance of the Non-Competition Agreements to
be executed and delivered by the Shareholders pursuant to Section 4 hereof, or
the consummation of the transactions contemplated thereby, will conflict with,
or, with or without the giving of notice or passage of time, result in any
breach of the terms, conditions or provisions of, or constitute a default
under any contract or other instrument which any of the Shareholders is a
party.
(f) CONSENTS AND APPROVALS. Except for filings under the HSR Act or
otherwise as set forth in the Disclosure Schedule, with respect to Company and
each Shareholder, no consent, approval, order or authorization of or from, or
registration, notification, declaration or filing with (hereinafter sometimes
separately referred to as a "CONSENT" and sometimes collectively as
"CONSENTS") any individual or entity, including without limitation any
Authority, is required in connection with the execution, delivery or
performance of this Agreement by Company or any Shareholder or the
consummation by Company or any Shareholder of the transactions contemplated
herein, other than any consent which, if not made or obtained, will not,
individually or in the aggregate, have a Material Adverse Effect on Company.
(g) FINANCIAL STATEMENTS. The Disclosure Schedule contains true and
complete copies of (i) (A) audited balance sheets of
15
<PAGE>
Company as of September 30, 1993 and December 31, 1992 and 1991 and as of June
30, 1990 (partial year) and 1989, and the related statements of operations (or
income or loss), changes in shareholders' equity and changes in cash flow (or
financial position) for each of the respective fiscal years (or, in the case
of the September 30, 1993 financial statements, nine months) then ended, (B)
the reports of Kern, DeWenter & Viere, independent certified public
accountants, on the financial statements at and as of the year ended December
31, 1992 and 1991 and as of June 30, 1990 and 1989, and (C) for the financial
statements at and as of the nine months ended September 30, 1993, the report
thereon of Coopers & Lybrand, independent certified public accountants; and
(ii) unaudited balance sheets of Company as of March 31, June 30, September 30
and November 30, 1993. The audited balance sheet as of September 30, 1993 is
referred to herein as the "LATEST AUDITED BALANCE SHEET." The unaudited
balance sheet as of November 30, 1993 is referred to herein as the "LATEST
UNAUDITED BALANCE SHEET." Except as disclosed therein or in the Disclosure
Schedule, the foregoing financial statements (i) are in accordance with the
books and records of Company and have been prepared in conformity with
generally accepted accounting principles consistently applied for all periods,
and (ii) fairly present the financial position of Company as of the respective
dates thereof, and the results of operations (or income or loss), changes in
shareholders' equity and changes in cash flow (or financial position) for the
periods then ended.
(h) ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
(i) reflected and reserved against in the Latest Audited Balance Sheet, (ii)
set forth on the Disclosure Schedule or (iii) incurred in the ordinary course
of business after the date of the Latest Audited Balance Sheet and not
material in amount, either individually or in the aggregate, Company to its
Knowledge does not have any debt, liability or obligation, secured or
unsecured, whether accrued, absolute, contingent, unasserted or otherwise, of
any nature whatsoever, including without limitation any foreign or domestic
tax liabilities or deferred tax liabilities incurred in respect of or measured
by Company's income, or any other debts, liabilities or obligations relating
to or arising out of any act, omission, transaction, circumstance, sale of
goods or services, state of facts or other condition which occurred or existed
on or before the date hereof, whether or not known, due or payable. For
purposes of this Subsection (h), "material" means any amount in excess of
$50,000. Company is not subject to any obligation or requirement to provide
funds to or make any investment (in the form of a loan, capital contribution
or otherwise) in any person or entity.
(i) ABSENCE OF CERTAIN CHANGES. Except as set forth in the
Disclosure Schedule, since the date of the Latest Audited Balance Sheet,
Company has owned and operated its assets, properties and businesses in the
ordinary course of business and consistent with
16
<PAGE>
past practice; without limiting the generality of the foregoing, Company has
not, subject to the foregoing exceptions:
(i) suffered any Material Adverse Effect or experienced any event
or failed to take any action which reasonably could be expected to
result in such a Material Adverse Effect;
(ii) suffered any loss, damage, destruction or other casualty
(whether or not covered by insurance) or suffered any loss of officers,
employees, dealers, distributors, independent contractors, customers, or
suppliers which had or may reasonably be expected to result in a
Material Adverse Effect on Company;
(iii) declared, set aside, made or paid any dividend or other
distribution in respect of its capital stock; or purchased or redeemed
any shares of its capital stock (except as specifically provided in
Section 4(j)(vi) hereof);
(iv) issued or sold any shares of its capital stock, or any
options, warrants, conversion, exchange or other rights to purchase or
acquire any such shares or any securities convertible into or
exchangeable for such shares;
(v) incurred any indebtedness for borrowed money except in the
ordinary course of business pursuant to existing loan agreements;
(vi) mortgaged, pledged, or subjected to any lien, lease,
security interest or other charge or encumbrance any of the Assets;
(vii) acquired or disposed of any assets or properties or entered
into any commitment for capital expenditures for additions to plant,
property or equipment individually in excess of $25,000, except (A) for
inventory sold and raw materials and supplies purchased in the ordinary
course of business, and (B) as necessary to complete the plant expansion
as currently contemplated, as reflected in the financial projections of
the Company dated September 8, 1993 previously delivered to Merrill;
(viii) forgiven or cancelled any debts or claims, or waived any
rights, other than in the ordinary course of business;
(ix) entered into any other transaction which could reasonably be
expected to have a Material Adverse Effect on Company;
17
<PAGE>
(x) granted to any officer or salaried employee or any other
employee any increase in compensation in any form or paid any severance
or termination pay;
(xi) purchased, leased or otherwise acquired any property or
obtained any services from, or sold, leased or otherwise disposed of any
property or furnished any services to, or otherwise dealt with, in the
ordinary course of business or otherwise, (i) any shareholder of Company
or (ii) any "AFFILIATE" or "ASSOCIATE" (as defined in Rule 405 under
the Securities Act of 1933) of Company or any shareholder of Company
(except with respect to compensation in the ordinary course of business
for services rendered as a director, officer or employee of Company); or
(xii) agreed, whether in writing or otherwise, to take any action
described in this subsection.
Except as set forth in the Disclosure Schedule, since the July 31, 1993
date of the balance sheet included in the financial projections of
Company dated September 8, 1993 previously provided to Merrill, Company
has not purchased, leased, or otherwise acquired any property or
obtained any services from, or sold, leased or otherwise disposed of any
property or furnished any services to, or otherwise dealt with, in the
ordinary course of business or otherwise, (aa) any shareholder of
Company, (bb) any Affiliate or Associate of Company or any shareholder
of Company, or any (cc) employee of Company; except with respect to
compensation in the ordinary course of business for services consistent
with past practice rendered as a director, officer or employee of
Company.
(j) THE ASSETS.
(i) Except as set forth in the Disclosure Schedule, Company has
marketable title to all of the Assets (including fee simple record title
to all real property included in the Assets), free and clear of any
mortgage, pledge, lien, security interest, conditional or installment
sales agreement, encumbrance, claim, easement, right-of-way, tenancy,
covenant, encroachment, restriction or charge of any kind or nature
(whether or not of record) (herein called a "LIEN"), except the
following (herein called "PERMITTED LIENS"): (A) liens securing
specified liabilities or obligations shown on the Latest Audited Balance
Sheet with respect to which no breach, violation or default exists; (B)
mechanics', carriers', workers' and other similar liens arising in the
ordinary course of business; and (C) liens for current Taxes not yet due
and payable or being contested in good faith by appropriate proceedings.
Except as set forth in the Disclosure Schedule, Company has full right
and power to, and at the Closing will, deliver to Purchaser marketable
title to
18
<PAGE>
all of the Assets, free and clear of any Lien (except as set forth in
the Disclosure Schedule and for Permitted Liens).
(ii) Except as set forth in the Disclosure Schedule, all real
properties included in the Assets are free from structural defects and
are in good operating condition and repair for their age with no
material maintenance, repair or replacement having been deferred or
neglected, are suitable for current use and are free from other material
defects. Except as set forth in the Disclosure Schedule, each such real
property and its present use conform in all respects to all
occupational, safety or health, zoning, planning, subdivision, platting
and similar Laws, except for such failures to conform therewith which do
not materially affect the Company's use of the real properties as they
are currently being used, and there is, to the knowledge of Company, no
such Law contemplated that would affect adversely the right of Company
to own or lease and operate and use such real properties. Except as set
forth in the Disclosure Schedule, all public utilities necessary for the
use and operation of any facilities on the aforesaid real properties are
available for use or access at such properties for their current uses
and there is no legal or physical impairment to free ingress or egress
from any of such facilities or real properties as currently used.
Company is not a foreign person and is not controlled by a foreign
person, as the term foreign person is defined in Section 1445(f)(3) of
the Code.
(iii) Except as set forth in the Disclosure Schedule, to the
best of the Company's Knowledge, the machinery, equipment, vehicles and
other personal property of Company included in the Assets are in good
operating condition and repair (normal wear and tear excluded) and fit
for their current use, and no material maintenance, replacement or
repair has been deferred or neglected. Except for the express
representations and warranties set forth in this Agreement with respect
to such machinery, equipment, vehicles and other personal property of
Company included in the Assets, neither Company nor the Shareholders
make any representation or warranty, either express or implied, with
respect to such items, including but not limited to any implied warranty
of merchantability or fitness for a particular purpose.
(iv) Except for the Excluded Assets set forth on Exhibit 1(a)(2),
the Assets constitute all of the property and assets, real, personal and
mixed, tangible and intangible, presently used to carry on the business
of Company. The Assets are adequate to carry on the business of Company
as presently conducted.
(v) Upon the Closing of the transactions contemplated by this
Agreement, the Shareholders shall have no claim against
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any of the Assets, Purchaser or Merrill as a result of any buy-sell, tax
sharing or other similar agreement among the Shareholders.
(k) SCHEDULES; NO CONTRACT DEFAULTS. The Disclosure Schedule
contains an accurate and complete list and description of:
(i) All real property owned by Company included in the Assets or
in which Company has a leasehold or other interest and which is included
in the Assets or which is used by Company in connection with the
operation of its business. Company has provided Purchaser with either a
copy of or a description of each lease, sublease, license, or any other
instrument under which Company claims or holds such leasehold or other
interest or right to the use thereof or pursuant to which Company has
assigned, sublet or granted any rights therein, identifying the parties
thereto, the rental or other payment terms, expiration date and
cancellation and renewal terms thereof.
(ii) All machinery, tools, equipment, motor vehicles, rolling
stock and other tangible personal property (other than inventory and
supplies), owned, leased or used by Company and included in the Assets,
except for items having a cost of less than $1,000. Company has
provided Purchaser with either a copy of or a summary description of all
leases, liens, claims, encumbrances, charges, restrictions, covenants
and conditions relating thereto, identifying the parties thereto, the
rental or other payment terms, expiration date and cancellation and
renewal terms thereof.
(iii) All patents, patent applications, patent licenses,
trademarks, trademark registrations, and applications therefor, service
marks, service names, trade names, copyrights and copyright
registrations, and applications therefor, and any other documents
embodying Intellectual Property Rights (as hereinafter defined), wholly
or partially owned or held by Company or used in the operation of
Company's business.
(iv) All contracts, agreements, commitments or licenses relating
to Intellectual Property Rights to which Company is a party or by which
it is bound.
(v) As of a date no earlier than September 30, 1993, all of
Company's receivables included in the Assets (which shall include
accounts receivable, loans receivable and any advances), together with
detailed information as to each such listed receivable which has been
outstanding for more than 30 days.
(vi) All Assumed Contracts.
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(vii) All policies of fire and other casualty, general liability,
theft, life, workers' compensation, health, directors and officers,
business interruption and other forms of insurance owned or held by
Company, specifying the insurer, the policy number, the risk insured
against, the term of the coverage, the limits of coverage, the
deductible amount (if any), the premium rate, the date through which
coverage will continue by virtue of premiums already paid and, in the
case of any "claims made" coverage, the same information as to
predecessor policies for the previous two years. All present policies
are in full force and effect and all premiums with respect thereto have
been paid. Company has not been denied any form of insurance and no
policy of insurance has been revoked or rescinded during the past two
years, except as described on the Disclosure Schedule.
(viii) All contracts, agreements and commitments, whether or not
fully performed, in respect of the issuance, sale or transfer of the
capital stock, bonds or other securities of Company or pursuant to which
Company has acquired in any one transaction more than 20% portion of its
business or assets.
(ix) All collective bargaining agreements, employment and
consulting agreements, executive compensation plans, bonus plans,
deferred compensation agreements, employee pension plans or retirement
plans, employee stock options or stock purchase plans and group life,
health and accident insurance other employee benefit plans, agreements,
arrangements or commitments, whether or not legally binding, including,
without limitation, holiday, vacation, Christmas and other bonus
practices, to which Company is a party or is bound or which relate to
the operation of Company's business.
(x) All contracts, commitments, agreements and arrangements with
any "disqualified individual" (as defined in Section 280G(c) of the
Code) which contains any severance or termination pay liabilities which
would result in a disallowance of the deduction for any "excess
parachute payment" (as defined in Section 280G(b)(1) of the Code) under
Section 280G of the Code.
(xi) The names and current annual salary rates of Scott May, John
Caye, Fred Thomas, Jeff Manthe, Lisa Pope, Deb Basil, Arlo Schultz,
Darrel Raines, Linda Herst, Steve Bellows and MaryAnn Stauffenecker (the
"KEY EMPLOYEES") showing separately for each such person the amounts
paid or payable as salary, bonus payments and any indirect compensation
for the year ended December 31, 1992.
(xii) The names of all of Company's directors and officers; the
names of all financial institutions, investment
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banking and brokerage houses, and other similar institutions at which
the Company maintain accounts, deposits, safe deposit boxes of any
nature, and the names of all persons authorized to draw thereon or make
withdrawals therefrom; and the names of all persons, if any, holding tax
or other powers of attorney from Company and a summary of the terms
thereof.
The Assumed Contracts and all other contracts, agreements, leases, licenses
and commitments required to be listed on the Disclosure Schedule (other than
those which have been fully performed), assuming due execution and authority
on the part of the other party to the Assumed Contracts, are valid and
binding, enforceable in accordance with their respective terms in all material
respects, except as enforcement might be limited by bankruptcy and other laws
related to creditors' rights, and are in full force and effect in all material
respects. Except as otherwise specified in the Disclosure Schedule, the
Assumed Contracts are validly assignable to Purchaser without the consent of
any other party so that, after the assignment thereof to Purchaser pursuant
hereto, Purchaser will be entitled to the full benefits thereof. Except as
disclosed in the Disclosure Schedule, none of the payments required to be made
under any Assumed Contract has been prepaid more than 30 days prior to the due
date of such payment thereunder. Company is not in material breach, violation
or default, however defined, in the performance of any of its obligations
under any Assumed Contract or any other contract, agreement, lease, license or
commitment required to be listed on the Disclosure Schedule, and no facts and
circumstances exist which, whether with the giving of due notice, lapse of
time, or both, would constitute such a material breach, violation or default
thereunder or thereof; and, to Company's Knowledge, no other parties thereto
are in material breach, violation or default, however defined, thereunder or
thereof, and no facts or circumstances exist which, whether with the giving of
due notice, lapse of time, or both, would constitute such a material breach,
violation or default thereunder or thereof. Based upon facts and
circumstances known as of the date hereof, the Assumed Contracts in the
aggregate are not unduly burdensome, onerous or materially adverse to
Company's business, properties, assets, earnings or prospects or, in the
opinion of Company, are likely, either before or after the Closing, to result
in the aggregate in any material loss assuming continued operations of the
Company in accordance with past practices. None of the Assumed Contracts is
subject to renegotiation with any government body. True and complete copies
of all of the Assumed Contracts (together with any and all amendments thereto)
have been delivered to Purchaser and identified with a reference to the due
diligence request of Purchaser.
(l) INVENTORIES. Except as set forth in the Disclosure Schedule,
all inventory of Company, whether reflected in the Latest Audited Balance
Sheet or otherwise, consists of a quality and quantity usable and salable in
the ordinary course of business, and
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the present quantities of all inventory of Company are reasonable in the
present circumstances of the businesses as currently conducted or as proposed
to be conducted.
(m) RECEIVABLES AND PAYABLES.
(i) Except as set forth on the Disclosure Schedule, (A) Company
has good right, title and interest in and to all its accounts and notes
receivable and trade notes and trade accounts constituting Assets; (B)
none of such accounts and notes receivable and trade notes and trade
accounts is subject to any mortgage, pledge, lien or security interest
of any kind or nature (whether or not of record); (C) except to the
extent of applicable reserves shown in the Latest Unaudited Balance
Sheet, all of the accounts and notes receivable, trade notes and trade
accounts owing to Company constitute valid and enforceable claims
(except as enforcement might be limited by bankruptcy and other laws
pertaining to creditors' rights) arising from bona fide transactions in
the ordinary course of business, and there are no Known claims, refusals
to pay or other rights of set-off against any thereof; (D) no account or
note debtor whose account or note balance exceeds the amount set forth
in the Disclosure Schedule at the date set forth therein was delinquent
in payment by more than ninety (90) days; (E) the aging schedule of the
accounts and notes receivable and trade notes and trade accounts of
Company previously furnished to Purchaser is complete and accurate in
all material respects; and (F) there is no Known reason why any account
or note receivable or trade note or trade account will not be collected
in accordance with its terms, other than for such accounts and notes
which are not in excess of the reserves established therefor and
reflected in the Latest Unaudited Balance Sheet.
(ii) All accounts payable and notes payable by Company to be
assumed by the Purchaser pursuant to Section 1(b) arose in bona fide
transactions in the ordinary course of business and no such account
payable or note payable is delinquent by more than ninety days in its
payment.
(n) INTELLECTUAL PROPERTY RIGHTS. Except as set forth on the
Disclosure Schedule and except as set forth in any agreement or license
pertaining to the following, Company owns or has the unrestricted right to use
all intellectual property rights, including without limitation the patents,
patent applications, patent rights, registered and unregistered trademarks,
trademark applications, trade names, service marks, service mark applications,
copyrights, computer programs and other computer software, inventions,
know-how, trade secrets, technology, proprietary processes and formulae
(collectively, "INTELLECTUAL PROPERTY RIGHTS") necessary or required for the
conduct of the businesses of Company as presently conducted and as proposed to
be
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conducted, free and clear of all liens, security interests, charges,
encumbrances, equities and other adverse claims. Except as set forth on the
Disclosure Schedule, and based solely upon the representations, if any, of its
customers and vendors, the use of all Intellectual Property Rights necessary
or required for the conduct of the businesses of Company as presently
conducted does not and, to the best of Company's Knowledge, will not infringe
or violate or allegedly infringe or violate the intellectual property rights
of any person or entity, provided such Intellectual Property Rights are used
in accordance with the terms and conditions of any agreement or license
pertaining thereto and in accordance with applicable laws pertaining to
Intellectual Property. Except as described on the Disclosure Schedule,
Company does not own or use any Intellectual Property Rights pursuant to any
written license agreement or has granted any person or entity any rights,
pursuant to written license agreement or otherwise, to use the Intellectual
Property Rights.
(o) LITIGATION. Except as set forth in the Disclosure Schedule, to
the Knowledge of Company, there is no legal, administrative, arbitration, or
other proceeding, suit, claim or action of any nature or investigation, review
or audit of any kind (including without limitation a proceeding, suit, claim
or action, or an investigation, review or audit, involving any environmental
Law or matter), judgment, decree, decision, injunction, writ or order pending,
noticed, scheduled, threatened or contemplated by or against or involving
Company, its assets, properties or businesses or its directors, officers,
agents or employees (but only in their capacity as such), whether at law or in
equity, before or by any person or entity or Authority, or which questions or
challenges the validity of this Agreement or any action taken or to be taken
by the parties hereto pursuant to this Agreement or in connection with the
transactions contemplated herein.
(p) TAX MATTERS. For all purposes of this Agreement, the term
"TAXES" means all federal, state, local, foreign and other net income, gross
income, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, lease, service, service use, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, real or personal property,
windfall profits, customs, duties or other taxes, fees, assessments, charges
or levies or any kind whatever, together with any interest and any penalties,
additions to tax or additional amounts with respect thereto, and the term
"TAX" means any one of the foregoing Taxes. In addition, the term "TAX
RETURNS" means all returns, declarations, reports, statements and other
documents required to be filed with any Authority in respect of Taxes, and the
term "TAX RETURN" means any one of the foregoing Tax Returns. Except as set
forth in the Disclosure Schedule, Company and the Shareholders hereby
represent and warrant the following with respect to the Company:
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<PAGE>
(i) LIABILITY FOR TAXES. Company and Shareholders shall be
responsible for and shall pay all Taxes attributable to or arising from
the business and operations of Company conducted on or before the
Closing Date and shall be responsible for their own income and franchise
Taxes, if any, arising from the transactions contemplated by this
Agreement not assumed by Purchaser pursuant to this Agreement. Company
hereby acknowledges that, in preparing the Closing Balance Sheet, all
real property Taxes, personal property Taxes and similar AD VALOREM
obligations levied with respect to any of the Assets for assessment
periods which include the Closing Date will be appropriately apportioned
and accrued by Company with a reserve established therefor on the
Closing Balance Sheet.
(ii) FILING OF TAX RETURNS. There have been properly completed
and duly filed on a timely basis and in correct form all Tax Returns
required to be filed on or prior to the date hereof by Company or the
Shareholders with respect to Taxes of Company. As of the time of
filing, the foregoing Tax Returns correctly reflected the facts
regarding the income, business, assets, operations, activities, status
or other matters of Company or any other information required to be
shown thereon, which omission or failure to file would have a Material
Adverse Effect on Company. There is no omission, deficiency, error,
misstatement or misrepresentation, whether innocent, intentional or
fraudulent, in any Tax Return filed by Company for any period. Any Tax
Returns filed after the date hereof, but on or before the Closing Date,
will conform with the provisions of this subsection 2(p)(ii).
(iii) PAYMENT OF TAXES. With respect to all amounts in
respect of Taxes imposed upon Company or the Shareholders, or for which
Company or the Shareholders are or could be liable, whether to taxing
Authorities (as, for example, under Law) or to other persons or entities
(as, for example, under tax allocation agreements), with respect to all
taxable periods or portions of periods ending on or before the Closing
Date, all applicable Tax Laws and agreements have been or will be fully
complied with, and all such amounts of Taxes required to be paid by
Company or the Shareholders to taxing Authorities or others on or before
the date hereof have been duly paid or will be paid on or before the
Closing Date or adequate provision has been made or will have been made
therefor in the Closing Balance Sheet; the reserves for all such Taxes
reflected in the Latest Unaudited Balance Sheet are adequate and there
are no liens for such Taxes upon any property or assets of Company.
Company has withheld and remitted all amounts required to be withheld
and remitted by it in respect of Taxes.
(iv) AUDITS AND EXTENSIONS. The federal income Tax Returns of
Company (and of the Shareholders to the extent the
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<PAGE>
operations of the Company are reflected in the Shareholders' Tax
Returns) have been examined by the Internal Revenue Service for all
periods to and including those expressly set forth in the Disclosure
Schedule, and, except to the extent shown therein, all deficiencies
asserted as a result of such examinations have been paid or finally
settled and no issue has been raised by the Internal Revenue Service in
any such examination which, by application of similar principles,
reasonably could be expected to result in a proposed deficiency for any
other period not so examined. Except as set forth in the Disclosure
Schedule, all deficiencies and assessments of Taxes of Company (or any
of the Shareholders to the extent attributable to the business or
operations of Company) resulting from an examination of any Tax Returns
by any Authority have been paid and there are no pending examinations
currently being made by any Authority nor has there been any written or
oral notification to Company or any Shareholder of any intention to make
an examination of any Taxes by any Authority. Except as set forth in
the Disclosure Schedule, there are no outstanding agreements or waivers
extending the statutory period of limitations applicable to any Tax
Return for any period.
(v) INDEPENDENT CONTRACTORS AND EMPLOYEES. For purposes of
computing Taxes and the filing of Tax Returns, Company has not failed to
treat as "employees" any individual providing services to Company who
would be classified as an "employee" under the applicable rules or
regulations of any Authority with respect to such classification.
(vi) S CORPORATION ELECTION. Company has had in effect a valid
election under Code Section 1362 to be treated as an "S corporation" for
each of its taxable years ended after the date set forth in the
Disclosure Schedule. Neither Company nor any of the Shareholders have
taken any action to revoke that election. Neither Company nor any of
the Shareholders are aware of any basis or the existence of any facts
that would permit the Internal Revenue Service to revoke that election
for any period prior to the Closing Date. Except as described on the
Disclosure Schedule, since the effective date of its election as an S
corporation to and including the Closing Date, Company will not have
incurred or become liable for the payment of any corporate-level income
tax, or any related penalties or interest.
(q) BENEFIT PLANS. Except as set forth in the Disclosure Schedule:
(i) Neither the Company nor any other "person" within the
meaning of Section 7701(a)(1) of the Code, that together with the
Company is considered a single employer pursuant to Sections 414(b),
(c), (m) or (o) of the Code or Sections 3(5)
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or 4001(b)(1) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") (an "AFFILIATED ORGANIZATION") sponsors,
maintains, contributes to, is required to contribute to or has or could
have any liability of any nature, whether known or unknown, fixed or
contingent, with respect to, any "employee pension benefit plan"
("PENSION PLAN") as such term is defined in Section 3(2) of ERISA,
including without limitation, any such plan that is excluded from
coverage by Section 4(b)(5) of ERISA or is a "Multiemployer Plan" within
the meaning of Section 3(37) or 4001(a)(3) of ERISA. Each such Pension
Plan has been operated in accordance with its terms and in compliance
with the applicable provisions of ERISA, the Code and all other
applicable Law, other than where the failure to so operate or comply
would not have a Material Adverse Effect on Company. All Pension Plans
which the Company operates as plans that are qualified under the
provisions of Section 401(a) of the Code satisfy in form and operation
the requirements of Section 401(a) and all other sections of the Code
incorporated therein, including without limitation Sections 401(k) and
401(m) of the Code.
(ii) Neither the Company nor any Affiliated Organization has or
could have any liability of any nature, whether known or unknown or
fixed or contingent, to any Pension Plan, the Pension Benefit Guaranty
Corporation ("PBGC") or any other person, arising directly or
indirectly under Title IV of ERISA. No "reportable event," within the
meaning of Section 4043(b) of ERISA, has occurred with respect to any
Pension Plan. Neither the Company nor any Affiliated Organization has
been a party to a sale of assets to which Section 4204 of ERISA applied
with respect to which it could incur any withdrawal liability (including
any contingent or secondary withdrawal liability) to any Multiemployer
Plan. Neither the Company nor any Affiliated Organization has incurred
any withdrawal liability within the meaning of Section 4201 of ERISA or
suffered or otherwise caused a "complete withdrawal" or "partial
withdrawal," as such terms are defined respectively in Sections 4203 and
4205 of ERISA, with respect to a Multiemployer Plan, and nothing has
occurred that is reasonably likely to result in such a complete or
partial withdrawal.
(iii) Neither the Company nor any Affiliated Organization
sponsors, maintains, contributes to, is required to contribute to or has
or could have any liability of any nature, whether known or unknown,
fixed or contingent, with respect to, any "employee welfare benefit
plan" ("WELFARE PLAN") as such term is defined in Section 3(1) of
ERISA, whether insured or otherwise. Each Welfare Plan has been
operated in accordance with its terms and in compliance with the
applicable provisions of ERISA, the Code and all other applicable Law,
other than where the failure to so operate or
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<PAGE>
comply would not have a Material Adverse Effect on Company. Neither the
Company nor any Affiliated Organization has established or contributed
to, is required to contribute to or has or could have any liability of
any nature, whether known or unknown, fixed or contingent, with respect
to any "voluntary employees' beneficiary association" within the meaning
of Section 501(c)(9) of the Code, "welfare benefit fund" within the
meaning of Section 419 of the Code, "qualified asset account" within the
meaning of Section 419 of the Code, "qualified asset account" within the
meaning of Section 419A of the Code or "multiple employer welfare
arrangement" within the meaning of Section 3(40) or ERISA. Neither the
Company nor any Affiliated Organization maintains, contributes to or has
or could have any liability of any nature, whether known or unknown, or
fixed or contingent, with respect to medical, health, life or other
welfare benefits for present or future terminated employees or their
spouses or dependents other than as required by Part 6 of Subtitle B of
Title I of ERISA or any comparable state law.
(iv) Neither the Company nor any Affiliated Organization is a
party to, maintains, contributes to, is required to contribute to or has
or could have any liability of any nature, whether known or unknown,
fixed or contingent, with respect to, any bonus plan, incentive plan,
stock plan or any other current or deferred compensation, separation,
retention, severance or similar agreement, arrangement or policy, or any
individual employment agreement ("COMPENSATION PLANS"). Each
Compensation Plan has been operated in accordance with its terms and in
compliance with the applicable provisions of all applicable Law, other
than where the failure to so operate or comply would not have a Material
Adverse Effect.
(v) There are no facts or circumstances which could, directly or
indirectly, subject the Company or any Affiliated Organization to any
(1) excise tax or other liability under Chapters 43, 46 or 47 of
Subtitle D of the Code, (2) penalty tax or other liability under Chapter
68 of Subtitle F of the Code or (3) civil penalty arising under Section
502 of ERISA in excess of $10,000.
(vi) Full payment has been made of all amounts which the Company
or any Affiliated Organization is required, under applicable Law, the
terms of any Pension Plan, Welfare Plan or Compensation Plan, or any
agreement relating to any Pension Plan or Welfare Plan or Compensation
Plan, to have paid as a contribution, premium or other remittance
thereto or benefit thereunder. No Pension Plan is subject to Part 3 of
Subtitle B of Title I of ERISA or Section 412 of the Code. The Company
and each Affiliated Organization has made adequate provisions for
reserves or accruals in accordance with generally accepted accounting
principles to meet contribution benefit or funding
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obligations arising under applicable Law or the terms of any Pension
Plan or Welfare Plan or Compensation Plan or related agreement. There
will be no change on or before Closing in the operation of any Pension
Plan, Welfare Plan or Compensation Plan or any documents with respect
thereto which will result in an increase in the benefit liabilities
under such plans, except as may be required by law.
(vii) The Company and each Affiliated Organization has
timely complied with all reporting and disclosure obligations with
respect to the Pension Plans, Welfare Plans and Compensation Plans
imposed by Title I of ERISA or other applicable Law, other than where
the failure to comply would not have a Material Adverse Effect on
Company.
(viii) There are no pending or, to the Company's knowledge,
threatened audits, investigations, claims, suits, grievances or other
proceedings, and there are no facts that could give rise thereto,
involving, directly or indirectly, any Pension Plan, Welfare Plan, or
Compensation Plan, or any rights or benefits thereunder, other than the
ordinary and usual claims for benefits by participants, dependents or
beneficiaries.
(ix) The transactions contemplated herein do not result in the
acceleration of accrual, vesting, funding or payment of any contribution
or benefit under any Pension Plan, Welfare Plan or Compensation Plan.
(x) The Disclosure Schedule lists and the Company has delivered
to Merrill or Purchaser true and complete copies of (i) all Pension,
Welfare and Compensation Plans and any related trust agreements or other
agreements or contracts evidencing any funding vehicle with respect
thereto, (ii) the three most recent annual reports on Treasury Form
5500, including all schedules and attachments thereto, with respect to
any Plan for which such a report is required, (iii) the three most
recent actuarial reports with respect to any Pension Plan that is a
"defined benefit plan" within the meaning of Section 414(j) of the Code,
(iv) the form of summary plan description, including any summary of
material modifications thereto or other modifications communicated to
participants, currently in effect with respect to each Pension Plan,
Welfare Plan or Compensation Plan and (v) the most recent determination
letter with respect to each Pension Plan intended to qualify under
Section 401(a) of the Code and the full and complete application
therefor submitted to the Internal Revenue Service.
(xi) In connection with the termination of any Pension Plan and
without limiting the applicability of the foregoing representations to
such Pension Plan: (i) nothing done or
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<PAGE>
omitted to be done has or could subject the Company or any Affiliated
Organization to any liability, loss, cost, charge, expense or
expenditure of any nature or result in the imposition of any Lien in
favor of the PBGC or any other person; (ii) the Company has received a
determination letter from the Internal Revenue Service, based on
complete and accurate disclosure by the Company, that such termination
did not adversely affect the qualified status of such Pension Plan under
Section 401(a) of the Code or the tax exempt status of its related trust
under Section 501(a) of the Code; (iii) all notices and other filings
required to be submitted to the PBGC were submitted in a timely manner
and were complete and accurate in all material respects and no
distributions were made until receipt of PBGC approval in the form of a
notice of sufficiency or by lapse of any applicable time period without
notice of PBGC objection, as the case may be; (iv) all participants,
beneficiaries of deceased participants, alternate payees and other
interested parties received all notices and disclosures required by
applicable Law in a timely manner and all such notices and disclosures
were complete and accurate in all material respects and satisfied the
requirements imposed by all applicable Laws, other than where the
failure to satisfy such requirements would not result in a Material
Adverse Effect on Company; (v) no portion of the assets of the Plan
reverted to the Company or any Affiliated Organization; (vi) the
selection of annuity contracts and the process employed in connection
therewith satisfied all applicable Laws, including without limitation
ERISA, and to the Knowledge of the Company each and all of the issuers
of such contracts have fully satisfied all of its or their obligations
thereunder and (vii) the termination in all respects satisfied all
applicable Laws, other than where the failure to satisfy such Laws would
not result in a Material Adverse Effect.
(r) ORDERS, COMMITMENTS AND RETURNS. Except as set forth in the
Disclosure Schedule, all accepted and unfulfilled orders for the sale of
products and the performance of services entered into by Company and all
outstanding contracts or commitments for the purchase of supplies, materials
and services were made in bona fide transactions in the ordinary course of
business. Except as set forth in the Disclosure Schedule, Company is not
subject to any outstanding sales or purchase contracts, commitments or
proposals which it currently anticipates will result in any material loss upon
completion or performance thereof. Except as set forth in the Disclosure
Schedule or as reserved in the Latest Audited Balance Sheet, there are no
material claims against Company to return products by reason of alleged
over-shipments, defective products or otherwise, or of products in the hands
of customers, retailers or distributors under an understanding that such
products would be returnable.
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(s) LABOR MATTERS. Except as set forth in the Disclosure Schedule:
(i) Company is and has been in material compliance with all applicable Laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, including without limitation any such Laws
respecting employment discrimination and occupational safety and health
requirements, and has not and is not engaged in any unfair labor practice;
(ii) there is no unfair labor practice complaint against the Company pending
or, to the best of Company's Knowledge, threatened before the National Labor
Relations Board or any other comparable Authority; (iii) there is no labor
strike, dispute, slowdown or stoppage actually pending or, to the best of
Company's Knowledge, threatened against or directly affecting Company; (iv) no
labor representation question exists respecting the employees of Company and
there is not pending or, to the best of Company's Knowledge, threatened any
activity intended or likely to result in a labor representation vote
respecting the employees of the Company; (v) no grievance or any arbitration
proceeding arising out of or under collective bargaining agreements is pending
and no claims therefor exist or, to the best of Company's Knowledge, have been
threatened; (vi) no collective bargaining agreement is binding and in force
against Company or currently being negotiated by Company; (vii) Company has
not experienced any significant work stoppage or other significant labor
difficulty; (viii) Company is not delinquent in payments to any persons for
any wages, salaries, commissions, bonuses or other direct or indirect
compensation for any services performed by them or amounts required to be
reimbursed to such persons, including without limitation any amounts due under
any Pension Plan, Welfare Plan or Compensation Plan; (ix) upon termination of
the employment of any person, neither Company, Merrill, Purchaser nor any
subsidiary of Merrill will, by reason of anything done at or prior to or as of
the Closing Date, be liable to any of such persons for so-called "severance
pay" or any other payments; and (x) within the 12-month period prior to the
date hereof there has not been any expression of intention to Company by any
officer or key employee to terminate such employment.
(t) COMPLIANCE WITH LAW; PERMITS AND OTHER OPERATING RIGHTS. Except
as set forth in the Disclosure Schedule, and without limiting the scope of any
other representations or warranties contained in this Agreement, but without
intending to duplicate the scope of such other representations and warranties,
the assets, properties, businesses and operations of Company are and have been
in compliance with all Laws applicable to the ownership and conduct of their
assets, properties, businesses and operations, other than where the failure to
comply would not have a Material Adverse Effect on Company. There are no
outstanding and unsatisfied deficiency reports, plans of correction, notices
of noncompliance or work orders relating to any such Authorities, and no such
discussions with any such Authorities are scheduled or pending. Except as set
forth in the Disclosure Schedule, Company does not require the Consent of any
Authority to permit it to operate in the
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manner in which it presently is being operated, and possesses all permits and
other authorizations from all Authorities presently required necessary to
permit it to operate it businesses in the manner in which they presently are
conducted, except where the failure to possess such permits or authorizations
would not have a Material Adverse Effect on Company. Except as set forth in
the Disclosure Schedule, Company is not restricted by agreement from carrying
on its businesses or any part thereof anywhere in the world or from competing
in any line of business with any person or entity.
(u) BUSINESS GENERALLY. Except as set forth in the Disclosure
Schedule, there has been no event, transaction or information of which Company
has Knowledge which, as it relates directly to the businesses of Company,
would, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Company. Without limiting the generality of the
foregoing, except as set forth in the Disclosure Schedule, there has not been
in the 12 month period prior to the date hereof any change in the business
relationship of Company with any dealer or supplier to Company which had or
may reasonably be expected to have a Material Adverse Effect on Company,
except for such changes in the ordinary course of business consistent with
past practices.
(v) ENVIRONMENTAL MATTERS. Except as set forth in the Disclosure
Schedule:
(i) Neither Company, any former subsidiary of Company, nor, to
the Knowledge of Company or the Shareholders, any previous owner,
tenant, occupant or user of any property owned or leased by or to
Company or by or to any former subsidiary as of the date hereof or at
any time in the past (sometimes hereinafter separately referred to as a
"PROPERTY" and sometimes collectively as "PROPERTIES") engaged in or
permitted, direct or indirect operations or activities upon, or any use
or occupancy of the Properties, or any portion thereof, for the purpose
of or in any way involving the handling, manufacture, treatment,
storage, use, generation, emission, release, discharge, refining,
dumping or disposal of any Environmentally Regulated Materials (as
hereinafter defined) (whether legal or illegal, accidental or
intentional, direct or indirect) on, under, in or about the Properties,
or transported any Environmentally Regulated Materials to, from or
across the Properties, nor are any Environmentally Regulated Materials
presently constructed, deposited, stored, placed or otherwise located
on, under, in or about the Properties, nor, to the Knowledge of Company
or the Shareholders, have any Environmentally Regulated Materials
migrated from the Properties upon or beneath other properties, nor, to
the Knowledge of Company or the Shareholders, have any Environmentally
Regulated Materials migrated or threatened to migrate from other
properties upon, about or beneath the
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Properties. To the Knowledge of Company or the Shareholders, no
aboveground or underground treatment or storage tanks, sumps, water, gas
or oil wells, or related piping, conduits or other structures are or
have ever been located on or under the Properties. The Company
represents and warrants that no "hazardous wastes" as defined in the
Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901 ET. SEQ.
and any amendments thereof, as well as its state or local counterpart,
generated by Company were shipped to and disposed of at the St. Augusta
Sanitary Landfill/Engen Dump Site located in St. Augusta Township,
Stearns County, Minnesota.
(ii)(A) No violation or noncompliance with Environmental and
Occupational Safety and Health Laws has occurred with respect to the
Properties (or with respect to past Properties and Properties of former
subsidiaries) or operations conducted thereon with respect to the period
of time any Property was owned, leased or used by Company, any former
subsidiary of Company, or any previous owner or operator of the business
currently conducted by Company (including any Shareholder), other than
where such violation would not have a Material Adverse Effect on
Company; (B) no enforcement, investigation, cleanup, removal,
remediation or response or other governmental or regulatory actions have
been, or could have been at any time in the past, asserted or threatened
with respect to operations conducted on the Properties or the Properties
itself or against Company and any former subsidiary with respect to or
in any way regarding the Properties (or with respect to past Properties
and Properties of former subsidiaries) pursuant to any Environmental and
Occupational Safety and Health Laws with respect to the period of time
any Property was owned, leased or used by Company, any former subsidiary
of Company, or any previous owner or operator of the business currently
conducted by Company (including any Shareholder); and (C) to the best of
Company's Knowledge, no claims or settlements with respect to the
Properties (or with respect to past Properties and Properties of former
subsidiaries) or the operations thereon, or against Company and its
former subsidiaries with respect to the Properties or operations
conducted thereon, relating to or arising out of Environmental and
Occupational Safety and Health Laws or Environmentally Regulated
Materials, have been made or been threatened by any third party,
including any governmental entity, agency or representative, nor to
Company's Knowledge does there exist any basis for any such claim (any
such enforcement, investigation, cleanup, removal, remediation or
response, other governmental or regulatory action, claim or settlement
is herein referred to as an "ENVIRONMENTAL CLAIM").
(iii) The term "ENVIRONMENTAL AND OCCUPATIONAL SAFETY AND HEALTH
LAW" as used in (i) and (ii) above and throughout this Agreement means
any past, present or future statute,
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rule, regulation, law, ordinance, program or code, whether local, state,
federal, international or otherwise, that (A) regulates, creates
standards for or imposes liability or standards of conduct concerning
any element, compound, pollutant, contaminant, or toxic or hazardous
substance, material or waste, or any mixture thereof, or relates in any
way to emissions or releases into the environment or ambient
environmental conditions, or conduct affecting such matters, or (B) is
designed to provide safe and healthful working conditions or reduce
occupational safety and health hazards. Such laws shall include, but
not be limited to, the National Environmental Policy Act, 42 U.S.C.
Sections 4321 ET SEQ., the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Sections 9601 ET SEQ., the
Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901 ET SEQ.,
the Federal Water Pollution Control Act, 33 U.S.C. Sections 1251 ET SEQ.,
the Federal Clean Air Act, 42 U.S.C. Sections 7401 ET SEQ., the Toxic
Substances Control Act, 15 U.S.C. Sections 2601 ET SEQ., the Emergency
Planning and Community Right to Know Act (SARA Title III), 42 U.S.C.
Section 11011, the Occupational Safety and Health Act, 29 U.S.C.
Sections 651 ET SEQ., the Federal Insecticide, Fungicide and Rodenticide
Act, 7 U.S.C. Section 136, and any amendments thereof, or similar
enactments thereto, as is now or at any time hereafter may be in effect,
as well as their international, state and local counterparts.
(iv) The term "ENVIRONMENTALLY REGULATED MATERIALS" as used in
(i) and (ii) above and throughout this Agreement means any element,
compound, pollutant, contaminant, substance, material or waste, or any
mixture thereof, designated, listed, referenced, regulated or identified
pursuant to any Environmental and Occupational Safety and Health Law.
(w) TRANSACTIONS WITH CERTAIN PERSONS. Except as set forth in the
Disclosure Schedule, during the past three years Company has not, directly or
indirectly, purchased, leased or otherwise acquired any property or obtained
any services from, or sold, leased or otherwise disposed of any property or
furnished any services to, or otherwise dealt with, in the ordinary course of
business or otherwise, (i) any shareholder of Company or (ii) any Affiliate or
Associate of Company or any shareholder of Company (except with respect to
compensation in the ordinary course of business for services rendered as a
director, officer or employee of Company). Except as set forth in the
Disclosure Schedule, as of the date hereof, Company does not owe any amount
to, or have any agreement or contract with or commitment to, any of its
shareholders, directors, officers, employees or consultants or any Affiliate
or Associate thereof (other than compensation for current services not yet due
and payable and reimbursement of expenses arising in the ordinary course of
business), and none of such persons owes any amount to Company. No part of
the property or
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assets of any Shareholder or any direct or indirect subsidiary or Affiliate or
Associate of any Shareholder is used by Company.
(x) BROKERS. Except as set forth in the Disclosure Schedule,
neither Company nor any of its directors, officers or employees has employed
any broker, finder, or financial advisor or incurred any liability for any
brokerage fee or commission, finder's fee or financial advisory fee, in
connection with the transactions contemplated hereby, nor is there any basis
known to Company for any such fee or commission to be claimed by any person or
entity.
(y) ABSENCE OF CERTAIN BUSINESS PRACTICES. Other than discounts in
accordance with usual and customary business practices, meals, courtesy
business cards, and except as set forth in the Disclosure Schedule, neither
Company nor, to the best of its Knowledge, any officer, employee or agent of
Company, nor, to the best of its Knowledge, any other person acting on its
behalf, has, directly or indirectly, within the past five years given or
agreed to give any gift or similar benefit to any customer, supplier,
governmental employee or other person who is or may be in a position to help
or hinder the business of Company (or assist Company in connection with any
actual or proposed transaction) which (i) might subject Company (or Purchaser
or Merrill pursuant to the terms of this Agreement) to any damage or penalty
in any civil, criminal or governmental litigation proceeding in excess of
$10,000, (ii) if not given in the past, might have had a material adverse
affect on the assets, business or operations of Company as reflected in the
financial statements described in Section 2(g), or (iii) if not continued in
the future, might materially adversely affect Company's assets, business,
operations or prospects or which might subject Company (or Purchaser or
Merrill pursuant to the terms of this Agreement) to suit or penalty in any
private or governmental litigation or proceeding.
(z) DISCLOSURE. No representations or warranties by Company or any
of the Shareholders in this Agreement and no statement contained in any
document (including, without limitation, the financial statements referred to
in Section 2(g) hereof and the Disclosure Schedule), certificate or other
writing furnished or to be furnished by Company or any of the Shareholders to
Purchaser or Merrill pursuant to the provisions of this Agreement, contain or
will contain any untrue statement of material fact or omit or will omit to
state any material fact necessary in order to make the statements herein, in
light of the circumstances under which they were made, not misleading, and all
of the foregoing completely and correctly present the information required or
purported to be set forth herein or therein. There is no material fact as of
the date hereof which has not been disclosed in writing to Merrill to which
Company or the Shareholders has Knowledge related to Company, the Assets or
Company's operations, properties, financial condition or prospects which has a
Material Adverse Effect or, to the Knowledge of Company or any of the
Shareholders, in the future may have a
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Material Adverse Effect on Company or the Assets. The representations and
warranties contained in this Section 2 or elsewhere in this Agreement or any
document delivered pursuant hereto shall not be affected or deemed waived by
reason of the fact that Purchaser, Merrill or their respective representatives
knew or should have known that any such representation or warranty is or might
be inaccurate in any respect.
SECTION 3
3. REPRESENTATIONS AND WARRANTIES OF MERRILL AND PURCHASER.
Merrill and Purchaser, jointly and severally, represent and warrant to
Company and the Shareholders as of the date hereof as follows:
(a) CORPORATE ORGANIZATION. Each of Merrill and Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Minnesota.
(b) AUTHORIZATION. Each of Merrill and Purchaser has full corporate
power and authority to enter into this Agreement and to carry out the
transactions contemplated herein. The Boards of Directors of Merrill and
Purchaser have taken all action required by law, their respective articles of
incorporation and bylaws or otherwise to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein and no action of the stockholders of Merrill is required.
This Agreement is the valid and binding legal obligation of Merrill and
Purchaser enforceable against them in accordance with its terms.
(c) NON-CONTRAVENTION. Neither the execution, delivery and
performance of this Agreement nor the consummation of the transactions
contemplated herein will: (i) violate any provision of the articles of
incorporation or bylaws of Merrill or Purchaser; or (ii) except for such
violations, conflicts, defaults, accelerations, terminations, cancellations,
impositions of fees or penalties, mortgages, pledges, liens, security
interests, encumbrances, restrictions and charges which would not,
individually or in the aggregate, have a Material Adverse Effect on Merrill or
Purchaser, (A) violate, be in conflict with, or constitute a default, however
defined (or an event which, with the giving of due notice or lapse of time, or
both, would constitute such a default), under, or cause or permit the
acceleration of the maturity of, or give rise to, any right of termination,
cancellation, imposition of fees or penalties under, any debt, note, bond,
lease, mortgage, indenture, license, obligation, contract, commitment,
franchise, permit, instrument or other agreement or obligation to which
Merrill or Purchaser is a party or by which they or any of their properties or
assets is or may be
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bound (unless with respect to which defaults or other rights, requisite
waivers or consents shall have been obtained at or prior to the Closing) or
(B) result in the creation or imposition of any mortgage, pledge, lien,
security interest, encumbrance, restriction, adverse claim or charge of any
kind, upon any property or assets of Merrill or Purchaser under any debt,
obligation, contract, agreement or commitment to which Merrill or Purchaser is
a party or by which Merrill or Purchaser or any of their assets or properties
is or may be bound; or (iii) violate any Law.
(d) CONSENTS AND APPROVALS. Except for filings under the HSR Act,
no Consent is required by any person or entity, including without limitation
any Authority, in connection with the execution, delivery and performance by
Merrill and Purchaser of this Agreement, or the consummation of the
transactions contemplated herein, other than any Consent which, if not made or
obtained, will not, individually or in the aggregate, have a Material Adverse
Effect on Merrill.
(e) FINANCIAL STATEMENTS. Except as disclosed therein, the audited
financial statements of Merrill as of and for the years ended January 31,
1993, 1992 and 1991 included in its 1993 Annual Report to Shareholders and the
unaudited financial statements of Merrill as of and for the nine months ended
October 31, 1993 included in its Quarterly Report on Form 10-Q for its third
quarter. (i) are in accordance with the books and records of Merrill and have
been prepared in conformity with generally accepted accounting principles
consistently applied for all periods, and (ii) fairly present the consolidated
financial position of Merrill as of the respective dates thereof, and the
results of operations (or income or loss), changes in shareholders' equity and
changes in cash flow (or financial position) for the periods then ended, all
in accordance with generally accepted accounting principles consistently
applied for all periods (except, with respect to the unaudited financial
statements, for the absence of notes which, if presented, would not differ
materially from those included in the balance sheet as of January 31, 1993).
(f) ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
(i) reflected and reserved against in Merrill's January 31, 1993 balance
sheet, (ii) reflected in Merrill's October 31, 1993 balance sheet, Merrill's
Annual Report on Form 10-K for the year ended January 31, 1993 or Quarterly
Report on Form 10-Q for the nine months ended October 31, 1993, or otherwise
disclosed in writing to Company as of or prior to the date hereof, or (iii)
incurred in the ordinary course of business after January 31, 1993, either
individually or in the aggregate, Merrill does not have any debt, liability or
obligation, known or unknown, secured or unsecured, whether accrued, absolute,
contingent, unasserted or otherwise, of any nature whatsoever, which could
reasonably be expected to have a Material Adverse Effect on Merrill.
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(g) ABSENCE OF CERTAIN CHANGES. Except as reflected in Merrill's
October 31, 1993 balance sheet, Merrill's Annual Report on Form 10-K for the
year ended January 31, 1993 or Quarterly Report on Form 10-Q for the nine
months ended October 31, 1993, or otherwise disclosed in writing to Company as
of or prior to the date hereof, since January 31, 1993 Merrill has not,
subject to the foregoing exceptions:
(i) suffered any Material Adverse Effect or experienced any event
or failed to take any action which reasonably could be expected to
result in such a Material Adverse Effect;
(ii) suffered any loss, damage, destruction or other casualty
(whether or not covered by insurance) or suffered any loss of officers,
employees, dealers, distributors, independent contractors, customers, or
suppliers which had or may reasonably be expected to result in a
Material Adverse Effect on Merrill;
(iii) entered into any material transaction which
transaction reasonably could be expected to result in a Material Adverse
Effect on Merrill;
(iv) agreed, whether in writing or otherwise, to take any action
described in this subsection.
(h) LITIGATION. Except as set forth in the audited or unaudited
financial statements of Merrill referred to in Section 3(e) hereof, Merrill's
Annual Report on Form 10-K for the year ended January 31, 1993 or its
Quarterly Report on Form 10-Q for the nine months ended October 31, 1993 or
otherwise as disclosed in writing to Company as of or prior to the date
hereof, to the best of Knowledge of Merrill or Purchaser, there is no legal,
administrative, arbitration, or other proceeding, suit, claim or action of any
nature or investigation, review or audit of any kind (including without
limitation a proceeding, suit, claim or action, or an investigation, review or
audit, involving any environmental Law or matter), judgment, decree, decision,
injunction, writ or order pending, noticed, scheduled or, to the knowledge of
Merrill, threatened or contemplated by or against or involving Merrill, its
assets, properties or businesses or its directors, officers, agents or
employees (but only in their capacity as such), whether at law or in equity,
before or by any person or entity or Authority, which may have a Material
Adverse Effect on Merrill or which questions or challenges the validity of
this Agreement or any action taken or to be taken by the parties hereto
pursuant to this Agreement or in connection with the transactions contemplated
herein.
(i) BROKERS. Except as disclosed in writing to Company as of or
prior to the date hereof, neither Merrill nor any of its directors, officers
or employees has employed any broker, finder, or financial advisor, whose
compensation or fee Company or either
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Shareholder shall be liable for, or incurred any liability of Company or
either of the Shareholders for any brokerage fee or commission, finder's fee
or financial advisory fee, in connection with the transactions contemplated
hereby, nor is there any basis known to Merrill for any such fee or commission
to be claimed from Company or other Shareholder by any person or entity.
(j) DISCLOSURE. No representations or warranties by Merrill in this
Agreement and no statement contained in any document (including, without
limitation, the financial statements referred to in Section 3(e) hereof),
certificate or other writing furnished or to be furnished by Merrill to
Company pursuant to the provisions of this Agreement, contain or will contain
any untrue statement of material fact or omit or will omit to state any
material fact necessary in order to make the statements herein, in light of
the circumstances under which they were made, not misleading. For the
purposes of this paragraph, a "material fact" is a fact concerning a matter
which would have a Material Adverse Effect on Merrill. There is no material
fact as of the date hereof which has not been disclosed in writing to Company
to which Merrill has Knowledge related to Merrill, which has a Material
Adverse Effect or, to the Knowledge of Merrill, in the future may have a
Material Adverse Effect on Merrill. The representations and warranties
contained in this Section 3 or elsewhere in this Agreement or any document
delivered pursuant hereto shall not be affected or deemed waived by reason of
the fact that Company, any Shareholder or their respective representatives
knew or should have known that any such representation or warranty is or might
be inaccurate in any respect.
SECTION 4
4. COVENANTS.
(a) COMPANY'S AGREEMENTS AS TO SPECIFIED MATTERS. Except as may be
otherwise agreed in writing by Merrill (which agreement shall not be
unreasonably withheld) and except as contemplated by this Agreement, from the
date hereof until the Closing, Company shall not:
(i) Amend its articles of incorporation or bylaws;
(ii) Borrow or agree to borrow any funds, except in the ordinary
course of business pursuant to existing loan agreements;
(iii) Incur, assume, suffer or become subject to, whether
directly or by way of guarantee or otherwise, any claims, obligations,
liabilities or loss contingencies which, individually or in the
aggregate, are material to the conduct
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of the businesses of Company or have or would have a Material Adverse
Effect on Company;
(iv) Pay, discharge or satisfy any claims, liabilities or
obligations, except in the ordinary course of business and consistent
with past practice;
(v) Permit or allow any of the Assets to be subjected to any
mortgage, pledge, lien, security interest, encumbrance, restriction or
charge of any kind, except Permitted Liens;
(vi) Write down the value of any inventory or write off as
uncollectible any notes or accounts receivable or any trade accounts or
trade notes, except in the ordinary course of business and consistent
with past practice;
(vii) Cancel or amend any debts, waive any claims or rights or
sell, transfer or otherwise dispose of any properties or assets, other
than (A) inventory in the ordinary course of business or (B) for such
debts, claims, rights, properties or assets which, individually or in
the aggregate, are not material to the conduct of its businesses;
(viii) License, sell, transfer, pledge, modify, disclose, dispose
of or permit to lapse any right to the use of any Intellectual Property
Rights;
(ix) (A) Terminate, enter into, adopt, institute or otherwise
become subject to or amend in any material respect any collective
bargaining agreement or employment or similar agreement or arrangement
with any of its shareholders, directors, officers or employees; (B)
terminate, enter into, adopt, institute or otherwise become subject to
or amend in any material respect any Compensation Plan; (C) contribute,
set aside for contribution or authorize the contribution of any amounts
for any such Compensation Plan, except as required (and not
discretionary) by the terms of such Compensation Plan or as reflected in
the financial projections of Company dated September 8, 1993 previously
delivered to Merrill; or (D) provide any severance or termination pay
for any employee or grant or become obligated to grant any general
increase in the compensation of any directors, officers or employees
(including without limitation any such increase pursuant to any
Compensation Plan), except pursuant to the terms of existing agreements
and no earlier than two business days after written notice of same is
received by Merrill; or (E) increase in any manner the compensation or
fringe benefits of any employee or pay any benefit or compensation not
required by any existing agreement, plan or arrangement;
(x) Make or enter into any commitment for capital expenditures
for additions to property, plant or equipment
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individually in excess of $25,000, except as necessary to complete the
plant expansion as currently contemplated, as reflected in the financial
projections of the Company dated September 8, 1993 previously delivered
to Merrill;
(xi) (A) Except as permitted pursuant to (xii) below, declare,
pay or set aside for payment any dividend or other distribution in
respect of its capital stock or other securities (including without
limitation distributions in redemption or liquidation) or redeem,
purchase or otherwise acquire any shares of its capital stock or other
securities (except as specifically provided in Section 4(j)(vi) hereof);
(B) issue, grant or sell any shares of its capital stock or equity
securities of any class, or any options, warrants, conversion or other
rights to purchase or acquire any such shares or equity securities or
any securities convertible into or exchangeable for such shares or
equity securities; (C) become a party to any merger, exchange,
reorganization, recapitalization, liquidation, dissolution or other
similar corporate transaction; or (D) organize any new subsidiary,
acquire any capital stock or other equity securities or other ownership
interest in, or assets of, any person or entity or otherwise make any
investment by purchase of stock or securities, contributions to capital,
property transfer or purchase of any properties or assets of any person
or entity;
(xii) Pay, lend or advance any amounts to, or sell, transfer or
lease any properties or assets to, or enter into any agreement or
arrangement with, any director, officer, employee or shareholder or any
Affiliate or Associate thereof (except (A) with respect to compensation
in the ordinary course of business for services rendered as a director,
officer or employee of Company or (B) any release given to Company in
connection with the termination of any existing employment agreement);
(xiii) Terminate, enter into or amend in any material respect any
contract, agreement, lease, license or commitment identified in Section
2(l) of the Disclosure Schedule, or take any action or omit to take any
action which will cause a breach, violation or default (however defined)
under any such items, except in the ordinary course of business and
consistent with past practice;
(xiv) Take any action that can be reasonably anticipated to have
a Material Adverse Effect on Company or that could cause any
representation or warranty set forth in Section 2 hereof to be untrue or
any condition to the Closing not to be satisfied in any material
respect;
(xv) Accelerate billings, shipments to customers, payments from
customers, orders from suppliers or payment of
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accounts payable or adjust the level of inventory, except in the
ordinary course of business consistent with past practices;
(xvi) Acquire any of the business or assets of any other person,
firm, association or corporation;
(xvii) Do any act or omit to do any act, or permit any act or
omission to act, which could cause a breach or default by Company under
any of Company's contracts, agreements, commitments or obligations;
(xviii) Enter into or amend any other agreements, commitments or
contracts which, individually or in the aggregate, are material to
Company, except agreements for the purchase and sale of goods or
services in the ordinary course of business, consistent with past
practice and not in excess of current requirements; or
(xix) Agree, whether in writing or otherwise, to take any action
described in this subsection.
(b) CONDUCT OF COMPANY BUSINESS. Except as may be otherwise agreed
in writing by Merrill, from the date hereof until the Closing, Company shall
use reasonable commercial efforts to maintain its assets and properties and
carry on its businesses and operations only in ordinary course in
substantially the same manner as planned and previously operated, and shall
use reasonable commercial efforts to preserve intact its business
organizations, existing business relationships (including without limitation
its relationships with officers, employees, dealers, distributors, independent
contractors, customers and suppliers), good will and going concern value.
Without limiting the generality of the foregoing, from the date hereof until
the Closing, Company shall, unless it has received the prior written consent
of Merrill, which consent shall not be unreasonably withheld: (i) refrain
from changing, in any material respect, any of its business policies relating
to its business; (ii) maintain and keep its assets in good repair, working
order and condition (except for obsolescence and ordinary wear and tear and
damage due to casualty); and (iii) perform all of its obligations under all
contracts, leases and any and all other agreements relating to or affecting
the Assets or its business where the failure to so perform would have a
Material Adverse Effect on Company.
(c) NO COMPANY SOLICITATION OF ALTERNATE TRANSACTION. Company and
the Shareholders shall not, and shall ensure that, Company's directors,
officers and employees, independent contractors, consultants, counsel,
accountants, investment advisors and other representatives and agents shall
not, directly or indirectly, solicit or entertain offers from, negotiate with,
provide any nonpublic information to, enter into any agreement
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with, or in any manner encourage, discuss, accept or consider any proposal of,
any third party relating to the acquisition of Company, its assets or
business, in whole or in part, whether through a tender offer (including a
self tender offer), exchange offer, merger, consolidation, sale of substantial
assets or of a significant amount of assets, sale of securities, acquisition
of Company's securities, liquidation, dissolution or similar transactions
involving Company or any division of Company (such proposals, announcements or
transactions being called herein "ACQUISITION PROPOSALS"). Company shall
promptly inform Merrill of any inquiry (including the terms thereof and the
identity of the third party making such inquiry) which it may receive in
respect of an Acquisition Proposal and furnish to Merrill a copy of any such
written inquiry. Merrill and Purchaser acknowledge that Company has
previously actively marketed the sale of its business and that the receipt and
response to an Acquisition Proposal shall not constitute a breach of this
Agreement as long as such response does no more than indicate that (i) the
Acquisition Proposal has been received, (ii) Company has entered into an
agreement with respect to an acquisition of Company and (iii) Company will not
negotiate with parties offering the Acquisition Proposal, unless this
Agreement has been terminated in accordance with its terms.
(d) FULL ACCESS TO MERRILL. Throughout the period prior to Closing,
Company shall afford to Merrill and its directors, officers, employees,
counsel, accountants, investment advisors and other authorized representatives
and agents, reasonable access to the facilities, properties, books and records
of Company in order that Merrill may have full opportunity to make such
investigations as it shall desire to make of the affairs of Company. Company
shall furnish such additional financial and operating data and other
information as Merrill shall, from time to time, reasonably request, including
without limitation access to the working papers of its independent certified
public accountants; PROVIDED, HOWEVER, that any such investigation shall
not affect or otherwise diminish or obviate in any respect any of the
representations and warranties of Company or the Shareholders herein.
(e) CONFIDENTIALITY. Each of the parties hereto agrees that it will
not use, or permit the use of, any of the information relating to any other
party hereto furnished to it in connection with the transactions contemplated
herein ("INFORMATION") in a manner or for a purpose detrimental to such
other party or otherwise than in connection with the transaction, and that
they will not disclose, divulge, provide or make accessible (collectively,
"DISCLOSE"), or permit the Disclosure of, any of the Information to any
person or entity, other than their respective directors, officers, employees,
investment advisors, accountants, counsel and other authorized representatives
and agents, except as may be required by judicial or administrative process
or, in the opinion of such party's counsel, by other requirements of Law;
PROVIDED, HOWEVER, that prior to any Disclosure of any Information
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permitted hereunder, the disclosing party shall first obtain the recipients'
undertaking to comply with the provisions of this subsection with respect to
such information. The term "INFORMATION" as used herein shall not include
any information relating to a party which the party disclosing such
information can show: (i) to have been in its possession prior to its receipt
from another party hereto; (ii) to be now or to later become generally
available to the public through no fault of the disclosing party; (iii) to
have been available to the public at the time of its receipt by the disclosing
party; or (iv) to have been received separately by the disclosing party in an
unrestricted manner from a person entitled to disclose such information. Each
party hereto also agrees to promptly return to the party from whom it
originally received such information all original and duplicate copies of
written materials containing Information should the transactions contemplated
herein not occur. A party hereto shall be deemed to have satisfied its
obligations to hold the Information confidential if it exercises the same care
as it takes with respect to its own similar information. The obligations of
Purchaser and Merrill under this paragraph shall terminate at Closing except
for obligations with respect to Tax Returns as provided in section 4(j)(v).
(f) FILINGS; CONSENTS; REMOVAL OF OBJECTIONS. Subject to the terms
and conditions herein provided, the parties hereto shall use their best
efforts to take or cause to be taken all actions and do or cause to be done
all things necessary, proper or advisable under applicable Laws to consummate
and make effective, as soon as reasonably practicable, the transactions
contemplated hereby, including without limitation obtaining all Consents of
any person or entity, whether private or governmental, required in connection
with the consummation of the transactions contemplated herein. In
furtherance, and not in limitation of the foregoing, it is the intent of the
parties to consummate the transactions contemplated herein at the earliest
practicable time, and they respectively agree to exert their best efforts to
that end, including without limitation: (i) the removal or satisfaction, if
possible, of any objections to the validity or legality of the transactions
contemplated herein; and (ii) the satisfaction of the conditions to
consummation of the transactions contemplated hereby.
(g) FURTHER ASSURANCES; COOPERATION; NOTIFICATION.
(i) Each party hereto shall, before, at and after Closing,
execute and deliver such instruments and take such other actions as the
other party or parties, as the case may be, may reasonably require in
order to carry out the intent of this Agreement. Without limiting the
generality of the foregoing, at any time after the Closing, at the
request of Purchaser or Merrill and without further consideration,
Company and the Shareholders will execute and deliver such instruments
of sale, transfer, conveyance, assignment and
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confirmation and take such action as Purchaser or Merrill may reasonably
deem necessary or desirable in order to more effectively transfer,
convey and assign to Purchaser, and to confirm Purchaser's title to, all
of the Assets, to put Purchaser in actual possession and operating
control thereof and to assist Purchaser in exercising all rights with
respect thereto.
(ii) Company shall reasonably cooperate with Merrill and
Purchaser in the development of plans for the management of the business
related to the Assets after the Closing, including without limitation
plans relating to productivity, marketing, operations and improvements.
Subject to applicable Law, Company shall confer on a regular and
reasonable basis with one or more representatives of Merrill or
Purchaser to report on material operational matters and the general
status of ongoing operations.
(iii) At all times from the date hereof until the Closing,
each party shall promptly notify the other in writing of the occurrence
of any event which it reasonably believes will or may result in a
failure by such party to satisfy the conditions specified in Section 5
and Section 6 hereof.
(h) SUPPLEMENTS TO DISCLOSURE SCHEDULE. Prior to the Closing,
Company and Shareholders will supplement or amend the Disclosure Schedule with
respect to any event or development which, if existing or occurring at or
prior to the date of this Agreement, would have been required to be set forth
or described in the Disclosure Schedule or which is necessary to correct any
information in the Disclosure Schedule or in any representation and warranty
of Company or the Shareholders which has been rendered inaccurate by reason of
such event or development. For purposes of determining the accuracy as of the
date hereof of the representations and warranties of Company and Shareholders
contained in Section 2 hereof in order to determine the fulfillment of the
conditions set forth in subsection 5(a), the Disclosure Schedule shall be
deemed to exclude any information contained in any supplement or amendment
hereto delivered after the delivery of the Disclosure Schedule.
(i) PUBLIC ANNOUNCEMENTS. None of the parties hereto shall make any
public announcement with respect to the transactions contemplated herein
without the prior written consent of the other parties, which consent shall
not be unreasonably withheld or delayed; PROVIDED, HOWEVER, that any of
the parties hereto may at any time make any announcements which are required
by applicable Law so long as the party so required to make an announcement
promptly upon learning of such requirement notifies the other parties of such
requirement and discusses with the other parties in good faith the exact
proposed wording of any such announcement.
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(j) TAX MATTERS.
(i) TAX ELECTIONS. No new elections by Company or any
Shareholder with respect to Taxes, or any changes in current elections
with respect to Taxes, affecting the Assets shall be made after the date
of this Agreement without the prior written consent of Merrill or
Purchaser.
(ii) CLEARANCE CERTIFICATE. As a condition precedent to the
consummation of the transactions contemplated by this Agreement, Company
or the Shareholders shall provide Purchaser with any clearance
certificate or similar document(s) which may be required by any state
taxing authority in order to relieve Purchaser of any obligation to
withhold any portion of the Purchase Price.
(iii) TRANSACTIONAL AND TRANSFER TAXES. In the event that
any sales or use Tax, or any Tax in the nature of a sales or use tax, or
any transactional Tax, or any recording fee or other similar cost
(including interest and penalties, if any) is payable or assessed
relative to the sale or transfer of any of the Assets or the other
transactions contemplated herein, Purchaser shall pay all such Taxes and
Purchaser shall provide proof reasonably satisfactory to Company (upon
Company's written request) that such Taxes or recording fees have been
paid in full. The parties hereto shall cooperate to make any necessary
filings with state and local taxing Authorities and to furnish any
required supplemental information with respect to any state and local
Tax liabilities resulting from the consummation of the transactions
contemplated herein.
(iv) TAX LIABILITY; POST-CLOSING TAX RETURN FILINGS; NO
DISTRIBUTIONS. In addition to and without limiting those
representations and warranties set forth in Section 2(p) of this
Agreement, except as provided in paragraph (iii) above Shareholders
shall pay all Taxes arising from or relating to the transactions
contemplated by this Agreement, including without limitation Taxes on
any income or gains of Company or the Shareholders arising from the sale
of the Assets. The Shareholders shall cause to be prepared and filed
all Federal and state income Tax Returns for Company and the
Shareholders reflecting all activities of Company through and including
the Closing Date.
(v) COOPERATION AND RECORDS RETENTION. The Shareholders and
Purchaser shall (a) each provide the other, and Company and Purchaser
shall provide the Shareholders, with such assistance as may reasonably
be requested by any of them in connection with the preparation of any
Tax Return, audit or other examination by any taxing Authority or
judicial or administrative proceedings relating to liability for Taxes,
(b) each retain and provide the other, and Company and
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Purchaser shall retain and provide the Shareholders, with any records or
other information which may be relevant to such Tax Return, audit or
examination, proceeding or determination, and (c) each provide the other
with any final determination of such audit or examination, proceeding or
determination that affects any amount required to be shown on any Tax
Return of the other for any period. Without limiting the generality of
the foregoing, Company, Purchaser and the Shareholders shall, until the
applicable statutes of limitations (including all extensions) have
expired, (x) retain copies of all Tax Returns, supporting work schedules
and other records or information which may be relevant to such Tax
Returns for all Tax periods or portions thereof ending on or before the
Closing Date, shall not destroy or otherwise dispose of any such records
without first providing the other party with a reasonable opportunity to
review and copy the same, and (y) cause such Tax Returns, supporting
work schedules and other records or other information to be subject to
the confidentiality provisions of Section 4(e) hereof.
(vi) DIVIDENDS BY COMPANY TO SHAREHOLDERS. Notwithstanding
anything to the contrary in Section 4(a)(xi) hereof, Company may declare
and pay a cash dividend to the Shareholders in an amount equal to their
liability for unpaid federal and state income taxes for the portion of
the 1993 taxable year up to and including the Closing Date for which the
Shareholders are liable (assuming the use of all deductions and credits
available to the Shareholders) by virtue of Company's status as an S
corporation under Section 1362 of the Code and for which the
Shareholders and Company are responsible pursuant to Section 2(p)(i)
hereof (the "PRIOR PERIOD S TAXES"); provided, however, that (A) the
amount of such dividend shall (1) be pro rated as to each of the
Shareholders, (2) be reduced by any prior dividends or distributions
paid by Company to the Shareholders in respect of such Prior Period S
Taxes, and (3) be reflected as a reduction in the Net Worth of Company
on the Closing Balance Sheet, (B) at least ten days prior to declaring
or paying such dividend the Shareholders shall have provided Merrill
with a certificate from the Shareholders and their accountants
certifying the accuracy and method of determining the amount of such tax
liability (which in no event shall be based on a combined federal and
state tax rate in excess of 45%) and Merrill shall be satisfied that
such certified amount is reasonably accurate, and (C) in no event shall
Company prior to Closing be entitled to declare and pay a dividend of
any amount attributable to Taxes, if any, that arise as a result of the
transactions contemplated by this Agreement.
(k) BULK TRANSFERS. Company has requested that Purchaser waive, and
Purchaser hereby agrees to waive, the requirements of the Uniform Commercial
Code concerning bulk transfers, as in effect
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in the various states in which Company has assets, including without
limitation the requirement of notice to creditors. Company and the
Shareholders shall jointly indemnify Merrill and Purchaser in connection
herewith pursuant to Section 8(c)(i) hereof.
(l) STOCK OPTIONS.
(i) At Closing, Merrill will grant seven-year options to purchase
an aggregate of 28,000 shares of the Common Stock of Merrill (at an
exercise price equal to the fair market value of such shares as of the
business day prior to the date of grant) to the Key Executives. Such
options will be fully exercisable for their term and shall be evidenced
by an option agreement in substantially the form of Exhibit 4(l).
Merrill will use its best efforts to register under the Securities Act
of 1933 on a registration statement on Form S-8 the shares to be issued
under such options.
(ii) On January 31, 1994, Merrill will grant to the Shareholders
seven-year options to purchase a number of shares of the Common Stock of
Merrill equal to the amount of Company's pre-tax earnings for the fiscal
year ending December 31, 1993 (determined in accordance with generally
accepted accounting principles applied consistently with the principles,
practices and procedures used in the preparation of Company's audited
financial statements at and for the nine months ended September 30,
1993) which exceeds $2,638,000 divided by $8.00 (rounded to the next
lowest share), such number of shares not to exceed 85,000. In
determining Company's pre-tax earnings for the fiscal year ending
December 31, 1993 for the purposes of this paragraph, (A) profit-sharing
expense shall be calculated using a methodology consistent with that
used in Company's 1992 financial statements, (B) the accrual for
vacation pay shall be equal to the difference between such amount as of
the Closing Date and $105,380, (C) no charge for deferred compensation
for 1993 shall be made, (D) no interest income on notes receivable (or
charge for interest on notes payable) between Company and the
Shareholders or May Development Company shall be included, and (E) no
charge shall be made for up to $75,000 of attorneys' fees incurred by
Company related to the transactions contemplated by this Agreement or in
connection with corporate "clean up" matters necessary in connection
therewith. The exercise price for such options will be equal to the
fair market value of the Common Stock of Merrill on the Closing Date.
Any options granted to the Shareholders (or any options that, as of the
Closing, do not qualify for registration on Form S-8) shall contain a
one-time "demand" registration right (at the expense of Merrill and only
during the term of the option) relating to the resale of the shares
underlying such options. Such options shall be evidenced by an option
agreement in substantially the form of Exhibit 4(l).
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(iii) Within 30 days after the Closing, Merrill will grant
seven-year options to purchase an aggregate of 42,000 shares of the
Common Stock of Merrill (at an exercise price equal to the fair market
value of such shares as of the business day prior to the date of grant)
to individuals who are employees of Company as of such date, in amounts
and to such employees as Merrill shall determine in its sole discretion.
Such options shall be granted pursuant to Merrill's 1993 Stock Incentive
Plan.
(m) NON-COMPETITION AGREEMENTS. At the Closing, Company, each of
the Shareholders and each of the Key Executives will enter into a
non-competition agreement with Merrill and Purchaser in substantially the form
of Exhibit 4(m) (the "NON-COMPETITION AGREEMENT"), pursuant to which
Company, each Shareholder and each Key Executive will agree that it and its
Affiliates and Associates will not compete with Merrill, Purchaser or Company
for five years (three years in the case of the Key Executives) after the
Closing. Merrill or Purchaser shall pay each Shareholder $237,000 at Closing
under their respective Non-Competition Agreements.
(n) EMPLOYMENT AGREEMENTS. At the Closing, Merrill or Purchaser
and the Key Executives and such other employees as the Merrill or Purchaser
deems to be key-employees of Company will enter into employment agreements in
substantially the form of Exhibit 4(n) (the "EMPLOYMENT AGREEMENTS").
(o) NON-COMPETITION OF MERRILL AND PURCHASER. From the date hereof
through October 4, 1995, neither Merrill nor Purchaser will provide telephone
or catalog order fulfillment services and related printing services as a
single source to the franchisees of (or to parties with a similar relationship
to) any of the entities listed in Exhibit B to the letter of intent, dated
October 4, 1993, among Merrill, Company and the Shareholders (the "LETTER OF
INTENT"). The foregoing provision shall terminate upon the Closing or if
this Agreement is terminated pursuant to Section 7(a)(iv) hereof and the
Closing shall not have occurred.
(p) EMPLOYEE BENEFITS.
(i) OFFERS OF EMPLOYMENT. On the Closing Date, Company shall
make available for employment and Purchaser shall offer to employ all
employees of Company who, on the Closing Date, are (A) at work or (B)
absent from work solely because of (1) holiday, (2) vacation, (3)
illness or disability which has prevented, or is expected to prevent,
the employee from working at his or her assigned job for no longer than
30 days in total duration (including time before and after the Closing
Date) or (4) leave of absence which has lasted or is expected to last no
longer than 60 days in total duration (including time before and after
the Closing Date) or which is for military duty; provided, that
Purchaser is not required to
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offer to employ any employee of Company with respect to whom Company has
given, prior to the Closing Date, notice of termination of employment.
Any employee of Company who accepts an offer of employment pursuant to
this subsection (i) and reports for work with the Purchaser on the first
date requested by the Purchaser is referred to in this Section 4(p) as a
"TRANSFERRED EMPLOYEE."
(ii) TERMS OF OFFERS OF EMPLOYMENT. Purchaser will, in its
discretion, determine the terms of all offers of employment made
pursuant to subsection (i), subject to the following:
(A) Purchaser will adopt the Merrill Corporation 401(k)
Incentive Savings Plan (the "Merrill 401(k) Plan") effective as of
February 1, 1994 and Merrill will consent to such adoption.
(1) Each Transferred Employee who was eligible to
participate in Company's Profit Sharing and Incentive
Savings Plan immediately prior to the Closing Date shall be
eligible to participate in the Merrill 401(k) Plan on the
first regular entry date following the Closing Date if he or
she remains employed as an employee who is eligible to
participate in the Merrill 401(k) Plan on such entry date.
(2) Each Transferred Employee who was not eligible
to participate in Company's Profit Sharing and Incentive
Savings Plan immediately prior to the Closing Date due
solely to minimum age or service requirements thereunder
will become eligible to participate in the Merrill 401(k)
Plan on the first regular entry date that falls on or first
follows his or her satisfaction of the minimum service
requirement of the Merrill 401(k) Plan if he or she remains
employed as an employee who is eligible to participate in
the Merrill 401(k) Plan on such entry date.
(3) Each Transferred Employee who becomes eligible
to participate in the Merrill 401(k) Plan will be permitted
to roll over any eligible rollover distributions from
Company's Profit Sharing and Incentive Savings Plan by way
of direct transfer pursuant to Section 401(a)(31) of the
Code if he or she remains employed as an employee who is
eligible to participate in the Merrill 401(k) Plan at the
time of the transfer.
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(B) Purchaser will adopt the Merrill Corporation
Retirement Plan effective as of February 1, 1994 and Merrill will
consent to such adoption. Each Transferred Employee will become
eligible to participate in the Merrill Corporation Retirement Plan
on the first regular entry date that falls on or first follows his
or her satisfaction of the Plan's minimum service requirement if
he or she remains employed as an employee who is eligible to
participate in such Plan on such entry date.
(C) Purchaser will provide each Transferred Employee with
an opportunity to elect to be covered under medical and dental
plans which provide benefits substantially similar to those
offered by Company's medical and dental benefit plans as in effect
immediately prior to the Closing Date in which such Transferred
Employee will be immediately eligible to participate subject to
any exclusions or limitations that were applicable to the
Transferred Employee (or any member of his or her family) under
Company's medical and dental benefit plans immediately prior to
the Closing Date.
(D) Effective as of the first business day after the
Closing Date, Purchaser will establish the following benefit plans
for Transferred Employees with terms, conditions, exclusions and
limitations substantially similar to those in effect under the
corresponding benefit plans of the Company immediately prior to
the Closing Date: cancer insurance; cafeteria plan (with premium
conversion and dependent care assistance features); group-term
life insurance; short-term disability; and employee assistance.
(E) Purchaser will recognize and assume liability for
accrued vacation of each Transferred Employee as of the Closing
Date to the extent (and only to the extent) such liability is both
properly accrued in accordance with the vacation policies and
practices of Company disclosed to Merrill and reflected on the
Closing Balance Sheet.
(F) Purchaser and Merrill will credit Transferred
Employees with all years of service with Company and its
Affiliates as a common law employee thereof for all purposes other
than benefit accrual in connection with any benefit plan
maintained by Purchaser or Merrill which is generally available to
its employees and in which the Transferred Employees are otherwise
eligible to participate.
(iii) COBRA. Purchaser will provide for continued coverage
under the medical and dental plans referenced in
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subsection (ii)(C) or any other medical and dental plans maintained by
Merrill to each "qualified beneficiary" who is or becomes entitled to
"continuation coverage" under Company's medical or dental benefit plan
by reason of the occurrence of a "qualifying event" occurring before, on
or after the Closing Date for the maximum period required by Section
4980B(f)(2)(B) of the Code. For purposes of the foregoing sentence,
"group health plan," "qualified beneficiary," "continuation coverage"
and "qualifying event" have the meanings ascribed to them in Section
4980B of the Code.
(iv) RESERVATION OF RIGHTS. Except as otherwise provided in
any Employment Agreement or other Assumed Contract, it is the intention
of the parties that the employment relationship between Purchaser and
any Transferred Employee is at will and, consequently, nothing contained
in this Agreement shall prevent Purchaser or Merrill or any of their
Affiliates at any time after the Closing Date from terminating,
reassigning, promoting or demoting any such Transferred Employee or
changing adversely or favorably his or her titles, powers, duties,
responsibilities, functions, location, compensation or terms and
conditions of employment. Except as otherwise provided in any
Employment Agreement or other Assumed Contract, nothing contained in
this Agreement shall restrict in any way the right of Purchaser or
Merrill or any of their Affiliates to establish, amend or terminate any
employee benefit plan, policy or practice.
(v) NO ASSUMPTION. Except as provided in subsection (ii)(D)
with respect to accrued vacation, Purchaser has not agreed to assume any
obligation or liability under or arising, directly or indirectly, in
connection with any Pension Plan, Welfare Plan or Compensation Plan of
Company or any Affiliated Organization of Company which is not an
Assumed Contract and Company shall remain solely responsible for and
Company and the Shareholders shall indemnify and hold harmless Merrill
and Purchaser from and against any liability of any nature whatsoever
arising in connection with such Plans which are not Assumed Contracts.
To the extent liabilities assumed by Purchaser pursuant to Section 1(a)
of the Liability Undertaking relate to participation by Transferred
Employees on or before the Closing Date in any Pension, Welfare or
Compensation Plan of the Company or of any Affiliated Organization of
the Company, the Purchaser's satisfaction of such liabilities after the
Closing Date is not intended by the parties, and shall not be construed,
to constitute an assumption by the Purchaser of such Plan under which
such liabilities arose, but rather is an accommodation provided to the
Company by the Purchaser and, other than in the case of such liabilities
arising pursuant to an Assumed Contract, the Purchaser will provide
Company with written remittal or payment directions, which Purchaser
will follow.
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(q) DIRECTORS AND SHAREHOLDERS AUTHORIZATION; CHANGE OF CORPORATE
NAME.
(i) At or prior to the Closing, Company will deliver to Purchaser
a copy of the resolutions of the Board of Directors and all required
resolutions or consents of the shareholders of Company, approving the
execution and delivery of this Agreement and the consummation of all of
the transactions contemplated hereby, duly certified by an officer of
Company.
(ii) On or before the Closing, Company will deliver to Purchaser
a duly executed and acknowledged certificate of amendment to Company's
articles of organization or other appropriate document which is required
to change Company's corporate name so as to make Company's present name
available to Purchaser. Purchaser is hereby authorized to file such
certificate or other document in order to effectuate such change of name
at or after the Closing as Purchaser shall elect.
(r) ADDITIONAL POST-CLOSING OBLIGATIONS OF COMPANY AND THE
SHAREHOLDERS.
(i) Company and the Shareholders acknowledge that Company has
been identified as a potentially responsible party with respect to the
St. Augusta Sanitary Landfill/Engen Dump Site located in Stearns County,
Minnesota and the Seaboard Chemical Corporation Site in Jamestown, North
Carolina. Company, the Shareholders or any Affiliate or Associate of
Company or any Shareholder (a "COMPANY RELATED PARTY") identified as a
potentially responsible party shall provide copies to Merrill of any
written claims, complaints, notices and correspondence relating to the
site where such Company Related Party has been contacted as a
potentially responsible party. Should such Company Related Party fail
to perform or observe any of its obligations or agreements pertaining to
the above sites, or any other sites where such Company Related Party is
identified as a potentially responsible party, then Merrill or Purchaser
shall have the right, but not the duty, without limitation upon any of
the rights of Merrill or Purchaser pursuant to this Agreement, to
perform those obligations or agreements. In that event, Merrill or
Purchaser shall be deemed to be acting as the agent of such Company
Related Party, and nothing in the exercise of its rights under this
provision should be interpreted as rendering Merrill or Purchaser as a
responsible party. Nothing in the foregoing shall diminish or in any
way affect the obligation of Company and the Shareholders to indemnify
Merrill and Purchase pursuant to Section 8 hereof.
(ii) Effective as of the Closing, Company appoints
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Purchaser its successors and assigns, the true and lawful attorney or
attorneys of Company, with full power of substitution, in the name of
Company but on behalf and for the benefit of and at the expense of
Purchaser: (A) to collect in the name of Company for the account of
Purchaser all receivables and other items to be sold and transferred to
Purchaser as provided herein; (B) to institute and prosecute, in the
name of Company or otherwise, all proceedings which Purchaser may deem
necessary or desirable in order to collect, assert or enforce any claim,
right or title of any kind in or to the Assets; (C) to defend and
compromise any and all actions, suits or proceedings in respect of the
Assets to the extent liability therefor has been assumed by Purchaser
hereunder; and (D) to do all such acts and things in relation to the
foregoing as is reasonably necessary to exercise such powers, as
Purchaser may deem advisable. The foregoing power is coupled with an
interest and shall be irrevocable by Company or by its dissolution in
any manner or for any reason. Purchaser shall retain for its own
account any amounts collected pursuant to the foregoing power, including
any sums payable as interest in respect thereof, and Company shall pay
to Purchaser, when received, any amounts which shall be received by
Company in respect of any receivables or other assets or properties
related to the Assets. Purchaser shall pay to Company, when received,
any amounts which shall be received by Purchaser in respect of any
receivables or other assets or properties of Company (other than those
related to the Assets).
SECTION 5
5. CONDITIONS TO OBLIGATIONS OF MERRILL AND PURCHASER.
Notwithstanding any other provision of this Agreement to the contrary,
the obligation of Merrill and Purchaser to effect the transactions
contemplated herein shall be subject to the satisfaction at or prior to the
Closing of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of Company and the Shareholders contained in this Agreement,
including without limitation in the Disclosure Schedule initially delivered to
Purchaser as Exhibit 2 (and not including any changes or additions delivered
to Purchaser pursuant to subsection 4(h)), shall be in all material respects
true, complete and accurate as of the date when made and at and as of the
Closing as though such representations and warranties were made at and as of
such time, except for changes specifically permitted or contemplated by this
Agreement, and except insofar as the representations and warranties relate
expressly and solely to a particular date or period, in which case they shall
be true and
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correct in all material respects at the Closing with respect to such date or
period.
(b) PERFORMANCE. Company and the Shareholders shall have performed
and complied in all material respects with all agreements, covenants,
obligations and conditions required by this Agreement to be performed or
complied with by Company and Shareholders on or prior to the Closing.
(c) REQUIRED APPROVALS AND CONSENTS.
(i) All action required by law and otherwise to be taken by the
Board of Directors of Company and the Shareholders to authorize the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby shall have been
duly and validly taken.
(ii) All Consents of or from all Authorities required hereunder
to consummate the transactions contemplated herein, shall have been
delivered, made or obtained, and Purchaser shall have received copies
thereof.
(d) ADVERSE CHANGES. No material adverse change shall have occurred
(i) in the businesses, financial condition, prospects, assets or operations of
Company since September 30, 1993, (ii) from projected operating results and
cash, working capital and total asset levels of Company as of and for the year
ending December 31, 1993 included in the projections of Company dated
September 8, 1993, previously delivered to Merrill, or (iii) in Company from
its status described in the Confidential Memorandum previously delivered to
Merrill by Company.
(e) NO PROCEEDING OR LITIGATION. No suit, action, investigation,
inquiry or other proceeding by any Authority or other person or entity shall
have been instituted or threatened which delays or questions the validity or
legality of the transactions contemplated hereby or which, if successfully
asserted, would individually or in the aggregate, otherwise have a Material
Adverse Effect on Company's business, financial condition, prospects, assets
or operations.
(f) OPINION OF COMPANY COUNSEL. Merrill and Purchaser shall have
received an opinion from Maslon, Edelman, Borman & Brand, counsel to Company
and Shareholders, dated the Closing Date, substantially in the form and
substance set forth as Exhibit 5(f) hereto.
(g) LEGISLATION. No Law shall have been enacted which prohibits,
restricts or delays the consummation of the transactions contemplated hereby
or any of the conditions to the consummation of such transaction.
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(h) ACCEPTANCE BY COUNSEL TO MERRILL AND PURCHASER. The form and
substance of all legal matters contemplated hereby and of all papers delivered
hereunder shall be reasonably acceptable to Oppenheimer Wolff & Donnelly,
counsel to Merrill and Purchaser.
(i) CERTIFICATES. Merrill and Purchaser shall have received such
certificates of Company's officers and of Shareholders, in a form and
substance reasonably satisfactory to Merrill and Purchaser, dated the Closing
Date, to evidence compliance with the conditions set forth in this Section 5
and such other matters as may be reasonably requested by Merrill and
Purchaser.
(j) NONCOMPETITION AGREEMENTS. Merrill, Company, each Shareholder
and each Key Employee shall have executed and delivered to Purchaser a
Non-Competition Agreement pursuant to Section 4(m).
(k) EMPLOYMENT AGREEMENTS. The Employment Agreements required by
Section 4(n) shall have been executed and delivered by the parties thereto.
(l) MEEDA BONDS. Purchaser shall have assumed Company's obligations
pursuant to the two loan agreements between Company and the Minnesota Energy
and Economic Development Board, dated as of November 1, 1985 and July 1, 1990,
respectively, pursuant to the terms set forth in the Liabilities Undertaking.
(m) DOCUMENTATION FOR CONVEYANCE OF THE ASSETS. Purchaser shall
have received, in a form and substance reasonably satisfactory to Merrill and
Purchaser, dated the Closing Date, all of the Bills of Sale, deeds,
assignments and other conveyance and transfer documentation necessary to vest
marketable title in the Assets in Purchaser.
(n) ALLOCATION OF PURCHASE PRICE. Company and Purchaser shall have
completed Exhibit 1(c)(3) concerning allocation of the Purchase Price among
the Assets.
SECTION 6
6. CONDITIONS TO OBLIGATIONS OF COMPANY AND SHAREHOLDERS.
Notwithstanding anything in this Agreement to the contrary, the
obligation of Company and Shareholders to effect the transactions contemplated
herein shall be subject to the satisfaction at or prior to the Closing of each
of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of Merrill and Purchaser contained in this Agreement shall be in
all material respects true, complete and accurate as of the date when made and
at and as of the Closing, as though such
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representations and warranties were made at and as of such time, except for
changes permitted or contemplated in this Agreement, and except insofar as the
representations and warranties relate expressly and solely to a particular
date or period, in which case they shall be true and correct in all material
respects at the Closing with respect to such date or period.
(b) PERFORMANCE. Merrill and Purchaser shall have performed and
complied in all material respects with all agreements, covenants, obligations
and conditions required by this Agreement to be performed or complied with by
Purchaser at or prior to the Closing.
(c) ADVERSE CHANGES. No change having a Material Adverse Effect on
Merrill shall have occurred since October 31, 1993.
(d) CORPORATE APPROVALS. All Consents listed in Item 2(e) to the
Disclosure Schedule, including all necessary consents under the HSR Act shall
have been delivered, made or obtained. All action required to be taken by the
Boards of Directors of Merrill and Purchaser to authorize the execution,
delivery and performance of this Agreement by Merrill and Purchaser and the
consummation of the transactions contemplated hereby shall have been duly and
validly taken.
(e) NO PROCEEDING OR LITIGATION. No suit, action, investigation,
inquiry or other proceeding by any Authority or other person or entity shall
have been instituted or threatened which delays or questions the validity or
legality of the transactions contemplated hereby or which, if successfully
asserted, would individually or in the aggregate, otherwise have a Material
Adverse Effect on Merrill's business, financial condition, prospects, assets
or operations.
(f) CERTIFICATES. Merrill and Purchaser shall have furnished
Company and Shareholders with such certificates of Merrill and Purchaser
officers, in a form and substance reasonably acceptable to Company and
Shareholders, dated the Closing Date, to evidence compliance with the
conditions set forth in this Section 6 and such other matters as may be
reasonably requested by Company.
(g) OPINION OF PURCHASER COUNSEL. Merrill and Purchaser shall have
delivered to Company an opinion from Oppenheimer Wolff & Donnelly, counsel to
Merrill and Purchaser, dated the Closing Date, substantially in the form and
substance set forth as Exhibit 6(g) herein.
(h) PAYMENT OF CONSIDERATION. Company and the Shareholders shall
have received satisfactory evidence that the actions to be taken and documents
to be delivered pursuant to subsection 1(c)(ii) have been taken or delivered,
as the case may be.
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(i) ACCEPTANCE BY COUNSEL. The form and substance of all legal
matters contemplated hereby and of all papers delivered hereunder shall be
reasonably acceptable to Maslon, Edelman, Borman & Brand, counsel to Company
and the Shareholders.
(j) STOCK OPTION AGREEMENTS. Merrill shall have delivered the Stock
Option Agreements required by Section 4(l) of this Agreement.
(k) RELEASE OF GUARANTEES. A release of all guarantees made by the
Shareholders for debts of the Company shall have been delivered or obtained.
(l) MERRILL GUARANTY. Merrill shall have executed and delivered a
Guaranty of its obligations under this Agreement.
SECTION 7
7. TERMINATION AND ABANDONMENT.
(a) METHODS OF TERMINATION. This Agreement may be terminated and
the transactions contemplated herein may be abandoned at any time
notwithstanding approval thereof by Shareholders, but not later than the
Closing:
(i) By mutual written consent of Merrill, Purchaser, Company and
the Shareholders; or
(ii) By Merrill and Purchaser on or after the Termination Date or
such later date as may be established pursuant to Section 1 hereof, if
any of the conditions provided for in Section 5 of this Agreement shall
not have been satisfied or waived in writing by Purchaser prior to such
date; or
(iii) By Company and the Shareholders on or after the Termination
Date or such later date as may be established pursuant to Section 1
hereof, if any of the conditions provided for in Section 6 of this
Agreement shall not have been satisfied or waived in writing by Company
prior to such date; or
(iv) By Merrill or Purchaser if there has been a material breach
of any representation, warranty, covenant or agreement on the part of
Company or the Shareholders set forth in this Agreement of which notice
has been given to Company and the Shareholders in writing by Merrill or
Purchaser and which has not been fully cured or cannot be fully cured
within the earlier of (A) 30 days of the receipt of such notice or (B)
five days prior to the Closing Date; or
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(v) By Company or the Shareholders if there has been a material
breach of any representation, warranty, covenant or agreement on the
part of Merrill or Purchaser set forth in this Agreement of which notice
has been given to Merrill and Purchaser in writing by Company or the
Shareholders and which has not been fully cured or cannot be fully cured
within the earlier of (A) 30 days of the receipt of such notice or (B)
five days prior to the Closing Date; or
(vi) By any party if the Closing shall not have occurred on or
before January 31, 1994.
(b) PROCEDURE UPON TERMINATION. In the event of termination and
abandonment pursuant to subsection (a), written notice thereof shall forthwith
be given to the other party or parties, and the provisions of this Agreement
(except to the extent provided in subsections 9(a) and 9(b)) shall terminate,
and the transactions contemplated herein shall be abandoned, without further
action by any party hereto. If this Agreement is terminated as provided
herein: (i) each party will, upon request, redeliver all documents, work
papers and other material of any other party (and all copies thereof) relating
to the transactions contemplated herein, whether so obtained before or after
the execution hereof, to the party furnishing the same; (ii) the
confidentiality obligations of subsection 4(e) shall continue to be
applicable; and (iii) except as provided in this subsection, no party shall
have any liability for a breach of any representation, warranty, agreement,
covenant or other provision of this Agreement, unless such breach was due to a
willful or bad faith action or omission of such party or any representative,
agent, employee or independent contractor thereof.
SECTION 8
8. SURVIVAL AND INDEMNIFICATION.
(a) SURVIVAL. The representations and warranties of each of the
parties hereto (other than the representations and warranties set forth in
Sections 2(j)(i), (p) and (v)) shall survive until two (2) years after the
Closing Date. The representations and warranties set forth in Section 2(p)
shall survive for the applicable statute of limitations plus six months and
the representations and warranties set forth in Sections 2(j)(i) and (v) shall
survive indefinitely. The foregoing periods are herein referred to as the
respective "SURVIVAL PERIODS."
(b) INDEMNIFICATION BY MERRILL AND PURCHASER. Merrill and
Purchaser, jointly and severally, agree to save, defend, indemnify and hold
harmless Company and the Shareholders from and against (i) any and all loss,
liability or damage suffered or incurred by it arising out of or resulting
from (A) any untrue representation of,
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or breach of warranty by, Merrill or Purchaser in any part of this Agreement;
(B) any nonfulfillment of any covenant, agreement or undertaking of Merrill or
Purchaser in any part of this Agreement, including without limitation
Purchaser's Promissory Note and the Guaranty; (C) any failure to pay and
perform Assumed Liabilities; or (D) operation of the Assets or the business
associated with the Assets after the Closing Date; and (ii) any and all
actions, suits, proceedings, claims, demands, assessments, judgments, costs
and expenses, including, without limitation, legal fees and expenses, incident
to any of the foregoing or incurred in investigating or attempting to avoid
the same or to oppose the imposition thereof, or in enforcing the
indemnification rights of Company pursuant to this subsection (b).
(c) INDEMNIFICATION BY COMPANY AND THE SHAREHOLDERS. Company and
each Shareholder, jointly and severally, agree to save, defend, indemnify and
hold harmless Purchaser, Merrill and their respective agents, representatives,
employees, officers, directors, shareholders, controlling persons and
affiliates from and against:
(i) any and all loss, liability or damage suffered or incurred
by Merrill or Purchaser, arising out of or resulting from (A) any untrue
representation of, or breach of warranty by, Company or any Shareholder
in any part of this Agreement or any Non-Competition Agreement with
Company or the Shareholders; (B) any nonfulfillment of any covenant,
agreement or undertaking of Company or any Shareholder in any part of
this Agreement or any Non-Competition Agreement with Company or the
Shareholders; or (C) the failure of Company to comply with the
requirements of the Uniform Commercial Code concerning bulk transfers,
as in effect in the various states in which the Company has assets,
including, without limitation, the requirement of notice to creditors,
except that any liability arising out of Purchaser's failure to pay and
perform the Assumed Liabilities shall not give rise to any liability of
Company or any Shareholder pursuant hereto; or (D) any Retained
Liabilities; and
(ii) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including, without
limitation, legal fees and expenses, incident to any of the foregoing or
incurred in investigating or attempting to avoid the same or to oppose
the imposition thereof, or in enforcing the indemnification rights of
Merrill or Purchaser pursuant to this subsection 8(c).
Notwithstanding the foregoing, Company and Shareholders shall not be
liable to Purchaser or Merrill for any claim under this section related to
environmental contamination of a site after the completion of clean up and a
remediation plan as to that site, both of which have been approved by the
applicable regulatory authorities.
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(d) BASKET AMOUNT. Notwithstanding anything in subsection 8(c) to
the contrary, neither Merrill nor Purchaser shall be entitled to any
indemnification under subsection 8(c) if the aggregate amount of all claims
thereunder (other than those related to the Retained Liabilities related to
environmental matters described in subsection 1(b)(iii) ("ENVIRONMENTAL
INDEMNITY CLAIMS") is less than $100,000 or, in the case of Environmental
Indemnity Claims, the aggregate amount of all claims thereunder is less than
$50,000; provided, however, (i) no such limitation shall apply to any claim
for indemnification related to a breach of any of the representations and
warranties in Section 2(e)(ii) to the extent that the aggregate of all
previous claims by Merrill or Purchaser for indemnification under subsection
8(c) (other than Environmental Indemnity Claims) exceeds $50,000, and (ii)if
the aggregate amount of all claims equals or exceeds such amounts, then
Merrill and Purchaser shall be entitled to full indemnification of all claims
under subsection 8(c) in excess of such amounts. The foregoing provisions of
Section 8(d) (other than the basket related to Environmental Indemnity claims)
shall not apply to any misrepresentation, breach of warranty or Retained
Liability of which either Company or any Shareholder had Knowledge, or any
intentional failure to perform or comply with any agreement, and Company and
the Shareholder shall be liable for all claims with respect thereto. The
parties hereto do not intend that such exception amounts be deemed to be a
definition of what is "material" for any purpose in this Agreement.
(e) RIGHT OF SET-OFF. Upon notice to Company specifying in
reasonable detail the basis therefor, Purchaser may set off any amount to
which it may be entitled under this Section 8 against amounts otherwise
payable under the Purchaser's Promissory Note. The exercise of such right of
set-off by Purchaser shall not constitute an event of default under the
Purchaser's Promissory Note or any Non-Competition Agreement. Neither the
exercise of, nor the failure to exercise, such right of set-off shall
constitute an election of remedies nor limit Purchaser in any manner in the
enforcement of any other remedies that may be available to it. In addition to
the foregoing, Purchaser shall be entitled to withhold payment of the last
installment under the Purchaser's Promissory Note and the last payment under
each Non-Competition Agreement if, on the date that such payment would
otherwise be due, any liability of Company and/or the Shareholders in
connection with the St. Augusta Sanitary Landfill/Engen Dump Site located in
Stearns County, Minnesota is not completely and finally resolved with no
liability on the part of Purchaser or Merrill, or Merrill and Purchaser
receive adequate assurances (in their sole discretion) that they are
completely and definitively released from any liability in connection with
such site. In the event of any permitted assignment of Purchaser's Promissory
Note, any set-off pursuant hereto shall be applied proportionately among all
assignees.
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(f) CLAIMS FOR INDEMNIFICATION. Whenever any claim shall arise for
indemnification hereunder, the party seeking indemnification (the
"INDEMNIFIED PARTY") shall promptly provide written notice to the party from
whom indemnification is sought (the "INDEMNIFYING PARTY") of the claim and,
when known, all of the facts constituting the basis for such claim and the
amount or an estimate of the amount of the liability arising therefrom.
Except as otherwise provided in Section 8(g), the failure so to notify the
Indemnifying Party shall not relieve the Indemnifying Party of any liability
that it may have to the Indemnified Party except to the extent the
Indemnifying Party demonstrates that the defense of such action is prejudiced
thereby. In the case of any such claim for indemnification hereunder
resulting from or in connection with any claim or legal proceedings of a third
party (a "PROCEEDING"), the Indemnifying Party shall be entitled to
participate in the defense of such legal proceedings by counsel of its own
choice and at its own expense. If the Indemnifying Party acknowledges in
writing its obligation to indemnify the Indemnified Party hereunder against
all losses that may result from such Proceeding, then the Indemnifying Party
shall (unless (i) the Indemnifying Party is also a party to such Proceeding
and the Indemnified Party determines in good faith that joint representation
would be inappropriate, or (ii) the Indemnifying Party fails to provide
reasonable assurance to the Indemnified Party of its financial capacity to
defend such Proceeding and provide indemnification with respect thereto, or
(iii) the claim involves Taxes), be entitled to assume and control the defense
thereof with counsel reasonably satisfactory to the Indemnified Party and,
after notice from Indemnifying Party to the Indemnified Party of its election
so to control the defense thereof, the Indemnifying Party shall not be liable
to such the Indemnified Party under this Section for any fees of other counsel
or any other expenses with respect to the defense of such Proceeding, in each
case subsequently incurred by the Indemnified Party in connection with the
defense thereof, other than reasonable costs of investigation. If an
Indemnifying Party controls the defense of such a Proceeding, (a) no
compromise or settlement thereof may be effected by the Indemnifying Party
without the Indemnified Party's consent unless (i) there is no finding or
admission of any violation of Law or any violation of the rights of any person
and no effect on any other claims that may be made against the Indemnified
Party and (ii) the sole relief provided is monetary damages that are paid in
full by the Indemnifying Party and (b) the Indemnifying Party shall have no
liability with respect to any compromise or settlement thereof effected
without its consent. Notwithstanding the foregoing, if an Indemnified Party
determines in good faith that there is a reasonable probability that a
Proceeding may adversely effect it or its affiliates other than as a result of
monetary damages, or the Proceeding involves Taxes, such Indemnified Party
may, by notice to the Indemnifying Party, assume the exclusive right to
defend, compromise or settle such Proceeding, but the Indemnifying Party shall
not be bound by any determination of a Proceeding so defended or any
compromise or
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settlement thereof effected without its consent (which shall not be
unreasonably withheld). The Indemnified Party shall not settle or compromise
any claim by a third party for which it is entitled to indemnification
hereunder unless the Indemnifying Party has not, within ten (10) days after
notice is given of the commencement of a Proceeding, given notice to the
Indemnified Party of its election to assume the defense thereof. If the
Indemnifying Party does not so assume the defense of such Proceeding, the
Indemnifying Party shall be bound by any determination made in such action or
any compromise or settlement thereof effected by the Indemnifying Party. If
the Indemnifying Party is of the opinion that the Indemnified Party is not
entitled to indemnification, or is not entitled to indemnification in the
amount claimed in such notice, it shall deliver, within ten (10) days after
the receipt of such notice, a written objection to such claim and written
specifications in reasonable detail of the aspects or details objected to, and
the grounds for such objection. If the Indemnifying Party shall file timely
written notice of objection to any claim for indemnification, the validity and
amount of such claim shall be determined by arbitration pursuant to Section
9(n) hereof.
(g) LIMIT ON CLAIMS. Any claim under this Agreement, including but
not limited to any claim for damages, indemnification or right of set off,
shall not be enforceable unless the party against whom the claim is made
receives written notice of such claim in the manner set forth in Section 8(f)
hereof not later than (i) for claims made by Purchaser or Merrill pursuant to
Section 8(c)(i)(A) or Company or the Shareholders pursuant to Section
8(b)(i)(A), the last day of the applicable Survival Period; (ii) for claims
made by Purchaser or Merrill pursuant to Section 8(c)(i)(B) or Company or the
Shareholders pursuant to Section 8(b)(i)(B), one year after the date of such
breach; (iii) for claims made by Purchaser or Merrill pursuant to Section
8(c)(i)(C), the earlier of the date payment is made to a creditor or the date
which is two (2) years after the Closing Date; (iv) for claims made by
Purchaser or Merrill pursuant to Section 8(c)(i)(D) or Company or the
Shareholders pursuant to Section 8(b)(i)(C) or (D), the earlier of (A) the
expiration of the applicable underlying statute of limitations plus six months
or (B) the date which is four (4) years after the Closing Date, except for
claims made by Purchaser or Merrill related to the Retained Liabilities (I)
described in Section 1(b)(iii) hereto or (II) arising from the debt assumed by
Purchaser or Merrill pursuant to this Agreement and the Liabilities
Undertaking and the transactions contemplated thereby, as to which there shall
be no time limit.
(h) LIMIT ON DAMAGES. The aggregate amount payable by Company or
the Shareholders to Purchaser or Merrill hereunder shall not exceed the
Purchase Price (other than with respect to claims made pursuant to Section
8(c)(i)(D) related to the Retained
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Liabilities described in Section 1(b)(iii) hereto, as to which there shall be
no limit).
SECTION 9
9. MISCELLANEOUS PROVISIONS.
(a) EXPENSES. Except as otherwise provided herein, Merrill,
Purchaser and the Shareholders (in the case of the Company) shall each bear
their own costs and expenses relating to the transactions contemplated hereby,
including without limitation, fees and expenses of legal counsel, accountants,
investment bankers, brokers or finders, printers, copiers, consultants or
other representatives for the services used, hired or connected with the
transactions contemplated hereby, except that Company shall be permitted to
pay the reasonable expenses of legal counsel (not to exceed $75,000) incurred
by the Shareholders related to the transactions contemplated hereby or on
behalf of the Company in connection with corporate "clean-up" matters
necessary in connection with the transactions contemplated hereby. Merrill,
Purchaser and the Shareholders (in the case of the Company) shall each pay any
commission or finder's fee or similar amount incurred by them by agreement or
otherwise for retaining or consulting any broker, finder or investment banker
in connection with the transactions contemplated by this Agreement.
(b) TOPPING FEES. In the event that the Closing does not occur
prior to January 31, 1994 or this Agreement is terminated other than pursuant
to Section 7(a)(i) or (a)(v) hereof and within 12 months after the later of
January 31, 1994 or the date of such termination Company or any of the
Shareholders close a transaction relating to the acquisition of a material
portion of Company, its assets or business, in whole or in part, whether
through direct purchase, merger, consolidation, or other business combination
(other than sales of inventory in the ordinary course), or more than 25% of
the outstanding voting securities of Company, for a consideration in excess of
the Purchase Price (pro rated to the extent that less than all of Company is
acquired), and Section 4(c) hereof or the first paragraph of Section 12 of the
Letter of Intent has been breached, then immediately upon such closing, the
Shareholders shall pay, or cause Company to pay, to Merrill or Purchaser the
sum of $1.0 million plus all of Merrill's and Purchaser's costs and expenses
relating to the transactions contemplated hereby, including without
limitation, fees and expenses of legal counsel, accountants, investment
bankers, brokers or finders, printers, copiers, consultants or other
representatives for the services used, hired or connected with the
transactions contemplated hereby.
(c) AMENDMENT AND MODIFICATION. Subject to applicable Law, this
Agreement may be amended or modified by the parties hereto at
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any time prior to the Closing with respect to any of the terms contained
herein; PROVIDED, HOWEVER, that all such amendments and modifications must
be in writing duly executed by all of the parties hereto.
(d) WAIVER OF COMPLIANCE; CONSENTS. Any failure of a party to
comply with any obligation, covenant, agreement or condition herein may be
expressly waived in writing by the party entitled hereby to such compliance,
but such waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure. No single or
partial exercise of a right or remedy shall preclude any other or further
exercise thereof or of any other right or remedy hereunder. Whenever this
Agreement requires or permits the consent by or on behalf of a party, such
consent shall be given in writing in the same manner as for waivers of
compliance.
(e) NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement shall
entitle any person or entity (other than a party hereto and his, her or its
respective successors and assigns permitted hereby) to any claim, cause of
action, remedy or right of any kind.
(f) NOTICES. All notices, requests, demands and other
communications required or permitted hereunder shall be made in writing and
shall be deemed to have been duly given and effective: (i) on the date of
delivery, if delivered personally; (ii) on the earlier of the fourth (4th) day
after mailing or the date of the return receipt acknowledgement, if mailed,
postage prepaid, by certified or registered mail, return receipt requested; or
(iii) on the date of transmission, if sent by facsimile, telecopy, telegraph,
telex or other similar telegraphic communications equipment:
If to Company:
To: May Printing Company
4110 Clearwater Road
St. Cloud, MN 56301
With a copy to:
Maslon, Edelman, Borman & Brand
3300 Norwest Center
Minneapolis, MN 55402
Attn: Michael L. Snow
or to such other person or address as Company shall furnish to the other
parties hereto in writing in accordance with this subsection.
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If to the Shareholders:
To: Thomas May
James Scott May
c/o James Scott May
2004 South 13th Street
St. Cloud, MN 56301
With a copy to:
Maslon, Edelman, Borman & Brand
3300 Norwest Center
Minneapolis, MN 55402
Attn: Michael L. Snow
or to such other person or address as either Shareholder shall furnish to the
other parties hereto in writing in accordance with this subsection.
If to Merrill or Purchaser:
To: Merrill Corporation
One Merrill Circle
St. Paul, MN 55108
Attn: Steven J. Machov
With a copy to:
Oppenheimer Wolff & Donnelly
45 South Seventh Street
Suite 3400
Minneapolis, MN 55402
Attn: Bruce A. Machmeier, Esq.
Fax: (612) 344-9376
or to such other person or address as Purchaser shall furnish to the other
parties hereto in writing in accordance with this subsection.
(g) ASSIGNMENT. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned
(whether voluntarily, involuntarily, by operation of law or otherwise) by any
of the parties hereto without the prior written consent of the other parties,
PROVIDED, HOWEVER, that Merrill may assign its rights (but not its
obligations) under this Agreement, in whole or in any part, and from time to
time, to a wholly owned, direct or indirect, subsidiary of Merrill and Company
may assign its right to receive payments (but not its obligations) under the
Purchaser's Promissory Note to the Shareholders subject to the terms thereof
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and the Shareholders may assign such rights to a revocable trust of which they
are the sole settlor, beneficiary and trustee. Purchaser shall pay the
amounts due and payable under the Purchaser's Promissory Note to such persons
or entities and in such amounts as holders of the Promissory Note shall direct
in writing provided to Purchaser at least 5 business days prior to the due
date of such payment (which payment shall be considered to be made pursuant to
the Purchaser's Promissory Note).
(h) GOVERNING LAW. This Agreement and the legal relations among the
parties hereto shall be governed by and construed in accordance with the
internal substantive laws of the State of Minnesota (without regard to the
laws of conflict that might otherwise apply) as to all matters, including
without limitation matters of validity, construction, effect, performance and
remedies, except to the extent that the provisions of the Minnesota
Corporation Code may apply to the internal affairs of Company.
(i) COUNTERPARTS. This Agreement may be executed simultaneously in
one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
(j) HEADINGS. The table of contents and the headings of the
sections and subsections of this Agreement are inserted for convenience only
and shall not constitute a part hereof.
(k) ENTIRE AGREEMENT. This Agreement, the Disclosure Schedule and
the exhibits and other writings referred to in this Agreement or in the
Disclosure Schedule or any such exhibit or other writing are part of this
Agreement, together they embody the entire agreement and understanding of the
parties hereto in respect of the transactions contemplated by this Agreement
and together they are referred to as "this AGREEMENT" or the "AGREEMENT".
There are no restrictions, promises, warranties, agreements, covenants or
undertakings, other than those expressly set forth or referred to in this
Agreement. This Agreement supersedes all prior agreements and understandings
between the parties with respect to the transaction or transactions
contemplated by this Agreement, including, but not limited to, the Letter of
Intent. Provisions of this Agreement shall be interpreted to be valid and
enforceable under applicable Law to the extent that such interpretation does
not materially alter this Agreement; PROVIDED, HOWEVER, that if any such
provision shall become invalid or unenforceable under applicable Law such
provision shall be stricken to the extent necessary and the remainder of such
provisions and the remainder of this Agreement shall continue in full force
and effect.
(l) REMEDIES. It is expressly agreed among the parties hereto that
monetary damages would be inadequate to compensate a party hereto for any
breach by any other party of its covenants and agreements in subsections 4(c)
and 4(e) hereof. Accordingly, the
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parties agree and acknowledge that any such violation or threatened violation
will cause irreparable injury to the other and that, in addition to any other
remedies which may be available, such party shall be entitled to injunctive
relief against the threatened breach of subsections 4(c) and 4(e) hereof or
the continuation of any such breach without the necessity or proving actual
damages and may seek to specifically enforce the terms thereof.
Notwithstanding anything contained in this Agreement to the contrary,
Company and the Shareholders, on the one hand, and Merrill and Purchaser, on
the other hand, shall only have the right to make a claim against the other
for damages (other than a claim for sums owing pursuant to Sections 9(a) or
9(b) hereof, a claim by Merrill or Purchaser against Company or the
Shareholders for any breach by Company or the Shareholders of the Section 4(c)
hereof, or an indemnification claim pursuant to Section 8 hereof) if the
non-claiming party has willfully and materially breached any of its
representations, covenants or agreements set forth in this Agreement. For
purposes of this provision, a party shall be deemed to have willfully breached
any of its representations, covenants or agreements set forth in this
Agreement if such party has intentionally and knowingly taken, or
intentionally and knowingly failed to take, any action which causes a breach
of any of its covenants or agreements set forth in this Agreement. The
remedies and rights of the parties hereto shall be cumulative. No party
hereto shall be entitled to rescind this Agreement after the Closing.
(m) CERTAIN DEFINITIONS. For purposes of this Agreement, the term:
(i) "KNOWLEDGE" or "BEST KNOWLEDGE" of an entity means
knowledge actually possessed by any director or officer of the entity
(and, in the case of Company, any Shareholder) and such knowledge as
would have or should have come to the attention of any such person in
the course of due inquiry and the preparation and negotiation of this
Agreement and related Disclosure Schedule and in the course of
discharging such individual's duties as a director or officer (or, in
the case of Company, a Shareholder) of the entity in a reasonable and
prudent manner consistent with sound business practices.
(ii) "MATERIAL ADVERSE EFFECT," in the case of Company or the
Shareholders, means any event, change or occurrence which has or could
reasonably be expected (in light of known circumstances) to have a
material negative impact on the condition (financial or otherwise),
business, results of operations, prospects or going concern value of
Company, or the ability of Company to consummate the transactions
contemplated hereby. For purposes hereof, a Material Adverse Effect on
Company shall be deemed to have taken place in the event that (A) after
consultation with any customer of Company
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which, including its franchises, accounted for sales greater than $1
million of sales in the fiscal year ended December 31, 1992, such
customer informs Company, Purchaser or Merrill that it and/or its
franchises will reduce the aggregate annual dollar amount of its
purchases from Company for calendar 1994 by more than 10% from the
totals for the first nine months of 1993 (on an annualized basis) or (B)
Purchaser will not be granted "preferred vendor" status with any such
customer and its franchisees who require such status in order for
Purchaser to do business with such customer or (C) such customer or its
franchisees will otherwise change in any way its relationship with
Company prior to the Closing or with Purchaser after the closing which
could reasonably be anticipated to result in a reduction of revenues
from such customer and its franchises for calendar 1994 by more than 10%
from the totals for the first nine months of 1993 (on an annualized
basis).
"MATERIAL ADVERSE EFFECT," in the case of Purchaser or Merrill,
means any event, change or occurrence which has or could reasonably be
expected (in light of known circumstances) to have a material negative
impact on the ability of Purchaser or Merrill to consummate the
transactions hereby, including without limitation, Purchaser's ability
to fulfill its obligations under Purchaser's Promissory Note.
(n) ARBITRATION. With the sole exception of the injunctive relief
contemplated by Section 9(l) hereof, any controversy or claim arising out of
or relating to this Agreement, or the making, performance or interpretation
thereof, including without limitation alleged fraudulent inducement thereof,
shall be settled by binding arbitration in Minneapolis, Minnesota by a panel
of three arbitrators in accordance with the Commercial Arbitration Rules of
the American Arbitration Association. Judgment upon any arbitration award may
be entered in any court having jurisdiction thereof and the parties consent to
the jurisdiction of the courts of the State of Minnesota for this purpose.
(o) PRESERVATION OF RECORDS AFTER CLOSING. After Closing Purchaser
shall preserve and maintain all books and records relating to the business
conducted with the Assets and the Assets sold hereunder for a period of not
less than the period that Merrill preserves similar records and grant Company
or the Shareholders (at their sole cost and expense) reasonable access at
reasonable times to the same for any reasonable purpose.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
MERRILL CORPORATION MAY PRINTING COMPANY
By: /s/ John Castro By: /s/ John E. Caye
-------------------- ------------------------
Its: President Its: President
---------------- --------------------
MERRILL ACQUISITION SHAREHOLDERS:
By: /s/ John Castro /s/Thomas May
-------------------- ------------------------
Thomas May
Its: President /s/James Scott May
---------------- --------------------
James Scott May
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NOTE:
The following documents are exhibits to the Asset Purchase Agreement and
have been omitted pursuant to Item 601(b)(2) of Regulation S-K. These
exhibits will be furnished supplementally to the Commission upon request.
Name of Exhibit Number of Exhibit
- -------------- -----------------
Trade and Other Names to be Purchased................... Exhibit 1(a)(1)
Excluded Assets......................................... Exhibit 1(a)(2)
Liabilities Undertaking................................. Exhibit 1(b)
Purchaser's Promissory Note............................. Exhibit 1(c)(2)
Allocation of Purchase Price Among
the Assets.......................................... Exhibit 1(c)(3)
Bill of Sale............................................ Exhibit 1(f)
Disclosure Schedule..................................... Exhibit 2
Form of Stock Option.................................... Exhibit 4(l)
Non-Competition Agreement............................... Exhibit 4(m)
Employment Agreement.................................... Exhibit 4(n)
Opinion of Company Counsel.............................. Exhibit 5(f)
Opinion of Purchaser Counsel............................ Exhibit 6(g)
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DATE: January 3, 1994
FROM: FOR:
Padilla Speer Beardsley Merrill Corporation
224 Franklin Avenue West One Merrill Circle
Minneapolis, MN 55404 St. Paul, MN 55108
John Mackay (612)871-8877 John McCain (612)649-1262
FOR IMMEDIATE RELEASE
MERRILL CORPORATION ANNOUNCES COMPLETION OF MAY PRINTING ACQUISITION
ST. PAUL, Minn, January 3, 1994 -- Merrill Corporation (NASDAQ:MRLL)
today announced that it has completed its acquisition of May Printing in St.
Cloud, Minnesota. May's primary business is providing demand printing and
distribution services relating to corporate identity and direct marketing
programs for nationwide companies such as realty networks and other national
franchise operations. May, with annual revenue of approximately $28 million
was acquired by Merrill for approximately $25 million including certain
assumed liabilities. Sellers of the seventy-eight year old May Printing are
Scott May and Thomas L. May. Scott May will remain with the company while Tom
May is leaving to pursue other interests.
John Castro, president and CEO of Merrill said of the acquisition, "Our
due diligence proceeded very smoothly and quickly. As we've learned more about
May, their outstanding service and strong client relationships, we've become
even more enthused about adding them to the Merrill organization."
John Caye, president of May Printing said, "Many of our employees were
involved during the due diligence process and had an opportunity to meet a
number of Merrill people. Our employees are very pleased about the
opportunities that this acquisition represents."
Merrill Corporation is a leading provider of on-demand, 24-hour-per-day
typesetting, printing, document reproduction, imaging and distribution
services to financial, legal, corporate, commercial and insurance markets,
worldwide.
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