MERRILL CORP, 10-K, 1994-05-02

MERRILL CORP
10-K, 1994-05-02
COMMERCIAL PRINTING

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
FORM 10-K

(MARK ONE)

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED JANUARY 31, 1994

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________

COMMISSION FILE NUMBER: 0-14082

MERRILL CORPORATION

(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C>
MINNESOTA 41-0946258
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE MERRILL CIRCLE
ST. PAUL, MINNESOTA 55108
(Address of principal executive offices) (Zip Code)
</TABLE>

Registrant's telephone number, including area code: (612) 646-4501

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, PAR VALUE $.01 PER SHARE
------------------------

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/

As of April 26, 1994, 7,533,208 shares of Common Stock of the Registrant
were outstanding, and the aggregate market value of the Common Stock of the
Registrant as of that date (based upon the last reported sale price of the
Common Stock at that date by the NASDAQ Stock Market) excluding outstanding
shares owned beneficially by officers and directors, was approximately
$115,934,000.

DOCUMENTS INCORPORATED BY REFERENCE

Parts I and II of this Annual Report on Form 10-K incorporate by reference
information (to the extent specific pages are referred to herein) from the
Registrant's Annual Report to Shareholders for the year ended January 31, 1994
(the "1994 Annual Report"). Part III of this Annual Report on Form 10-K
incorporates by reference information (to the extent specific sections are
referred to herein) from the Registrants' Proxy Statement for its Annual Meeting
to be held May 24, 1994 (the "1994 Proxy Statement").

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PART I

ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS

Merrill Corporation provides a full range of typesetting, printing, document
reproduction, distribution and marketing communication services to financial,
legal, insurance and corporate markets. The Company is headquartered in St.
Paul, Minnesota and has 16 full service offices in major financial centers
across the United States and in Canada, as well as 5 regional printing plants,
and printing and distribution operations in St. Cloud, Minnesota.

On June 1, 1993, the Company completed the acquisition of the common stock
of Torrie Enterprises, Ltd., operators of Atwell Fleming Printing Company, a
financial and corporate printing company, in Toronto and Montreal.

On December 31, 1993, the Company acquired the business of May Printing
Company for approximately $25 million. This business, which is conducted through
a wholly owned subsidiary, May Printing Company, Inc. ("May Printing"), provides
demand printing and distribution services designed to promote the corporate
identity of large, national clients with multiple franchisees, members,
divisions or affiliated organizations.

The Company, which is a Minnesota corporation, was organized in 1968 under
the name "K.F. Merrill Company." The Company's executive offices are located at
One Merrill Circle, Energy Park, St. Paul, Minnesota 55108. Its telephone number
is (612) 646-4501. Unless the context otherwise requires, the terms "Merrill
Corporation" or the "Company" include its subsidiaries, Merrill/New York
Company, Merrill Custom Communications, Inc., Merrill/Magnus Publishing
Corporation, Merrill Corporation, Canada, and May Printing Company, Inc.

(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

Since its inception, the Company's revenues, operating profits and assets
have been attributable to one business segment -- providing document
typesetting, printing, reproduction, distribution and marketing communication
services for the financial, legal, insurance and corporate markets. Financial
information about this segment is contained on pages 24 to 33 of the Company's
1994 Annual Report, which information is incorporated herein by reference.

The Company's services can be divided into three categories: financial,
corporate, and commercial and other services.

In its financial printing business, the Company applies advanced computer
and telecommunications technology to the production and distribution of
time-sensitive, transactional financial documents, such as registration
statements, prospectuses and other printed materials related to corporate
financings and acquisitions. The Company's corporate printing business involves
typesetting and printing of corporate documents which are prepared annually or
at regular intervals, such as annual and quarterly reports and proxy materials
for companies, and registration statements for unit investment trusts and mutual
funds. In its commercial printing business, the Company typesets price catalogs,
directories, insurance industry annual reports, sample ballots and technical
manuals from electronic information supplied by customers and provides printing
services for customers desiring time-sensitive or other high levels of service.
The Company's May Printing subsidiary provides demand printing and distribution
services designed to promote the corporate identity of large, national clients
with multiple franchisees, members, divisions or affiliated organizations. The
Company's document reproduction and imaging businesses provide photocopying and
imaging services to law firms and corporate customers. These services include
dedicated office photocopying or imaging services, for which the Company
provides on-site equipment, employees and management, and custom photocopying or
imaging of projects requiring time-sensitivity or other special services. The
Company also provides custom marketing communication services to corporate
customers.

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The following table sets forth the percentage of revenue attributable to
each of the Company's categories of service for each of the past three fiscal
years:

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
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CATEGORY OF SERVICE 1994 1993 1992
- --------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Financial................................................ 42% 34% 31%
Corporate................................................ 34% 38% 40%
Commercial and other..................................... 24% 28% 29%
--- --- ---
Total................................................ 100% 100% 100%
--- --- ---
--- --- ---
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FINANCIAL AND CORPORATE SERVICES

GENERAL

In its financial printing business, the Company typesets, prints and
distributes financial documents. These include documents which are used for
specific financing transactions, such as registration statements and
prospectuses filed with the Securities and Exchange Commission (the "SEC"),
tender offer materials and merger documents, official statements for municipal
securities, offering circulars, and other documents related to corporate
financings, acquisitions and mergers, restructurings and bankruptcy
reorganizations.

The Company's corporate printing business involves typesetting, printing and
distribution of corporate documents which are prepared annually or at regular
intervals. These include annual and interim reports to shareholders, proxy
materials, certificates for stocks, bonds and other securities, and periodic
reports filed with the SEC. The Company includes in this category registration
statements and other documents for unit investment trusts and mutual funds which
are regularly produced at periodic intervals.

The Company's financial and corporate document business is service oriented.
The production of financial and corporate documents requires rapid typesetting
and printing services, available 24 hours a day and tailored to the exacting
demands of the Company's customers. Financial and corporate documents are
usually prepared and edited by numerous parties involved in a transaction,
including corporate executives, investment bankers, attorneys and accountants.
Each document typically goes through numerous proof cycles, and at each cycle
the document is typeset, duplicated and distributed to the parties. Individual
participants are frequently located in different cities, often requiring proofs
to be delivered simultaneously to different parts of the country.

Just prior to the completion of a financial or corporate document, a
drafting group generally will meet at one of the Company's service facilities
where conference rooms and other amenities are maintained for customer use.
Accommodating the needs of its customers "in-house" is the most time-critical
service that the Company provides, and requires, among other things, the
accurate and rapid turnaround of the edited pages and expert knowledge of the
documents and filing requirements of the SEC. After final changes have been
made, the Company is usually required to quickly prepare copies of the document
(including any exhibits) for filing with the SEC. The document is then printed,
collated, bound and distributed in booklet form.

"HUB AND SPOKE" NETWORK

By using advanced computer and telecommunications technology, the Company
has created a "hub and spoke" network linking its central computerized
production facility in St. Paul, Minnesota with its 16 full-service facilities.

The Company's central computerized production facility (the "hub") is
located in St. Paul, Minnesota, and its 16 full service facilities (the
"spokes") are located in New York City, Boston, Newark, Washington, D.C.,
Atlanta, Chicago, Minneapolis/St. Paul, Dallas, Denver, Seattle, San Francisco,
Palo Alto, downtown Los Angeles, West Los Angeles, Montreal and Toronto, with
sales offices in Baltimore, Cleveland and Houston. The Company receives
information directly from its customers in various forms, including typed or
handwritten pages, magnetic recording media, such as word-

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processing disks or computer tapes, and by direct telecommunication with its
clients' word processing equipment. This information is transmitted by facsimile
or direct electronic connection to the Company's central production facility for
processing into a typeset document.

CENTRAL COMPUTERIZED PRODUCTION FACILITY. The Company has integrated
multiple systems with communications technology and proprietary software in its
central production facility. This facility consists of multiple computers,
communication controllers, text entry and editing stations, laser typesetting
equipment, as well as a number of special purpose computer subsystems for data
conversion and information management. Each critical piece of equipment in the
system has at least one secondary or back-up device to protect against
interruptions should any piece of equipment temporarily fail. This computer
equipment has been integrated by the Company to create a document production
environment which is designed to have a high level of performance, data
protection and system reliability.

The concentration of equipment and typesetting personnel in a central
facility has been a key Company strategy to reduce overhead and labor expense,
implement more effective training programs and more efficiently use its
management resources. The Company believes that this strategy has enabled it to
benefit more quickly from new technologies that have decreased costs and
improved the quality of its service, since new technologies and methods, when
implemented in the central facility, immediately benefit all service facilities.
The Company also believes that this concentration of personnel and equipment at
the hub, and the linking of service facilities to the hub, enables it to respond
quickly to fluctuating demand for typesetting services in each of its service
facilities across the country by efficiently allocating its typesetting
resources when and where they are needed.

NATIONAL COMMUNICATIONS NETWORK. The Company has established a dedicated
telecommunications network, connecting each of its service facilities with the
hub, which permits typeset documents and production control information to be
electronically transmitted to each of its service facilities. The network
consists of "tie" lines connecting each of the Company's service facilities with
the hub, data switching and multiplexing equipment, and the necessary software
to manage and control the communications. Designed to operate continuously, the
network is highly efficient and reliable, and contains secondary or back-up
service for each portion of the network to minimize the possibility of an
interruption in service.

SERVICE FACILITIES. Each service facility is staffed with sales,
administrative, customer service, production, duplication and distribution
personnel. The service facilities all have conference rooms with support staff,
office equipment and amenities to give the Company's customers a comfortable
work environment in which to meet, write and revise their documents. Each
service facility has the necessary photo imaging equipment to produce documents
with high image quality, using the electronic information received from the hub.
This enables the Company to transmit completed documents to one or more service
facilities for distribution within minutes of completion.

MERRILLLINK-TM-. The Company has developed the MerrillLink system that
connects the hub to locations outside of its service facilities through the use
of portable printing devices. These printing devices, usually placed in the
customer's office or at the Company's sales offices, allow the Company to edit
typeset pages and provide proof distribution to remote locations throughout the
world. MerrillLink lets the Company service transactional work in locations
where a smaller market does not justify the cost of a full service facility and
where rapid turnaround distribution is needed.

INTERNATIONAL SERVICE. The Company and Burrups, Ltd., a London based
financial printing company, jointly market worldwide their communications and
production facilities and services. The objective of this arrangement is to work
together to provide customers with integrated document typesetting, printing and
distribution services wherever the document originates or needs to be delivered.
Besides London, Burrups has full service facilities in Luxembourg, Paris, Seoul
and Tokyo. In addition, the Company has established relationships with financial
printing companies in the Czech Republic, Italy, Hong Kong, New Zealand,
Australia, Mexico, Argentina and Brazil which have agreed to work as service
facilities for the Company on an "as needed" basis. The Company has made

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software and hardware modifications in order to successfully establish
electronic communications between its production hub and the service facilities
overseas. With this electronic connection as well as the MerrillLink system, the
Company is able to transmit high-quality typeset documents for printing and
distribution in Europe, the Pacific Rim and South America without the time
delays and costs incurred by conventional air shipment. As a result of the
acquisition of Atwell Fleming Printing Company, the Company is able to offer its
financial and corporate services in Canada through its full service facilities
in Toronto and Montreal.

THE JOB CONTROL SYSTEM. The Company coordinates the activities of its
service facilities through a proprietary Job Control System ("JCS"). This system
tracks each document from the time it is initially received by the Company at a
service facility through completion of production and billing. The JCS is used
as a national production control system with each service facility being
"on-line" to the system through the Company's communications network.
Information can be sent to and retrieved from the JCS by any service facility,
and can be immediately read by the hub to aid in the rapid and accurate
completion of each document. Each service facility can also immediately send
instructions to another service facility using this system. During the
production phase of a document, the JCS assigns job numbers and keeps track of
specific information about the document, such as dates and the times at which
proofs are due, style and job specifications, messages regarding the job and
last-minute changes. Distribution of drafts is a critical task in the
preparation of financial documents, and the JCS simplifies this task by keeping
a current address list for each job and history of the distribution and method
of delivery for each proof of the document. The Company also uses the production
information collected in the JCS to assist in the pricing of its services.

EDGAR

The SEC has established a program for the electronic filing of documents
under the federal securities laws, entitled Electronic Data Gathering Analysis
and Retrieval ("EDGAR"). This program requires participants or their agents to
file disclosure information with the SEC in an electronic format rather than by
the traditional paper filing package. This electronic format, usually in ASCII,
includes additional submission information and coding "tags" within the document
for aid in the SEC's analysis of the document and retrieval by the public. This
electronic format is generally delivered by direct telecommunications, but may
be delivered on magnetic computer tape or by diskette. EDGAR allows registrants
to file and the public to retrieve disclosure information electronically.

The SEC began the development of EDGAR with a pilot program in 1984. Through
a phase-in schedule, the SEC has assigned one of ten dates by which all public
companies must start filing disclosure documents through the EDGAR operational
system, which began April 26, 1993. Through December 1993, there have been 3,380
companies required to file through EDGAR. All publicly-held companies are
expected to be required to file disclosure documents through EDGAR by May 1996,
according to the phase-in schedule.

The Company has been highly involved in all stages of development of EDGAR
since the start of the pilot program. The Company has written proprietary
software that enables it to quickly prepare and file the electronic version of
financial and corporate documents through a dedicated data line directly to the
SEC's computers. In addition, the Company has spent considerable time training
its staff to coordinate the preparation of these EDGAR filings. The Company also
keeps current and future participants informed of EDGAR developments by
publishing quarterly Merrill's EDGAR Advisor-TM-, a newsletter for distribution
to lawyers, corporate executives and other interested parties, and by conducting
seminars throughout the country to inform current and future participants about
EDGAR. The Company has a toll-free telephone information line for its customer's
questions regarding EDGAR and also distributes EDGAR rules, forms and reference
materials.

The Company has experienced an increased demand for EDGAR filing services
for financial as well as corporate categories of services. The Company converts
word processing and other computer formats to the EDGAR format for SEC form
types and exhibit documents, and assembles these

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documents for electronic filing with the SEC. The Company believes that the
operational EDGAR system will continue to increase the demand for the
time-sensitive services of the Company, since many filing companies will use
outside services to meet EDGAR filing requirements. With the experience and
expertise gained since the start of the pilot program, the Company believes it
has developed the procedures and skills necessary to handle the increased volume
of EDGAR filings as more companies are required to file electronically.

COMMERCIAL AND OTHER SERVICES

GENERAL

As part of its commercial and other services, the Company provides document
reproduction services for projects that are time-sensitive or otherwise require
special service, such as photocopying business records or other documents for
large litigation matters. The Company will produce the photocopies at its
service facilities or locate photocopying equipment and personnel at the
customer's office. Document reproduction services require rapid turnaround and
availability 24 hours a day. The Company's document reproduction customers
typically have several boxes of documents which may be in file folders, stapled
or on varying sizes of paper. The Company will take apart, photocopy and
reassemble the original documents and copies as instructed by the customer. The
Company also provides sequential numbering and binding services for these
documents, if requested. Photocopying projects range from single copies of short
documents to the more complicated copying jobs described above. The Company also
offers comprehensive office photocopying, typesetting and mailroom facility
management services to its customers. These services involve providing for all
of a customer's needs for that department, including on-site equipment,
employees and management of the operation. The Company uses its service
facilities in connection with its document reproduction services. Each service
facility is equipped with sophisticated photocopying equipment. The Company is
able to make more efficient use of this equipment by performing project
photocopying during times when the equipment would otherwise be idle.

The Company's Imaging Services Group captures data from its customers' paper
documents and creates a digital picture of each page. The customer may then
store large quantities of documents on CD-ROM (Compact disk -- read only
memory), rather than on paper in boxes or file cabinets. Retrieval of the
documents may be accessed simply by one user with a personal computer, or
simultaneously by multiple users at multiple sites. The Company disassembles the
customers' documents, captures the image, and reassembles the original
documents. The Company may also create for the customer text files using Optical
Character Recognition ("OCR") processing for full text retrieval systems. The
Company also performs document management services such as barcoding, document
coding, and services to assist with database development, programming, data
management and conversions. The Company also consults with the customer
regarding its hardware, software and network needs for development of an imaging
system. Imaging projects can take from one day to several months to complete.
The Company may provide imaging services at its service facilities, or provide
on-site equipment, employees and management at the customer's location.

The Company also typesets, prints and distributes commercial and other
documents, including price catalogs, directories, sample ballots, legal briefs,
business and college educational materials, annual reports for the insurance
industry and technical manuals, often produced using electronic information
supplied by its clients. Through its Merrill Custom Communications, Inc.
subsidiary, the Company provides custom marketing communications and publishing
services, primarily marketed to financial services companies, media
organizations, retailers and the health care industry. The types of custom
publications the Company produces include magazines, tabloids, newsletters,
booklets and catalogs used by its customers for their marketing purposes. The
Company, generally pursuant to an annual contract, works with customers in the
design and editorial content of these publications, typesets and prints the
publications, then assists the customer in locating a target mailing list and
mails the publications. The Company also has an insurance printing group which
typesets and prints annual reports submitted to various governmental regulatory
agencies by the insurance industry. The Company's commercial typesetting
business provides turnkey document services, including camera,

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pre-press and printing services for one-or multi-color publications. The Company
believes that offering high levels of service is a competitive advantage in
certain niches of the commercial printing business. These commercial printing
projects, like financial and corporate printing, require a high level of
attention to detail, quick turnaround times and responsive customer service.

MAY PRINTING

On December 31, 1993, the Company acquired the business of May Printing
Company. May Printing provides demand printing and distribution services
designed to support the corporate identity of large, national clients with
multiple franchisees, members, divisions or affiliated organizations ("member
organizations").

May Printing is authorized by its national clients to develop and produce
custom printed products such as business cards, stationary and collateral
support print materials with a uniform appearance for the client's member
organizations. Working with each national account client, May Printing prepares
a catalog to merchandise these custom printed products, along with other
promotional merchandise produced by third parties. May Printing distributes each
client-specific catalog to the national client's member organizations.

In marketing its national account printed products, May Printing develops
direct relationships with each of the individual member organizations, which are
independently owned and operated and make their own print purchasing decisions.
May Printing uses a sophisticated order entry system, supported by a large
inbound telemarketing staff, to receive and process orders. After reviewing a
catalog, a member organization can place an order by mail, fax or toll free May
Printing telephone number. A May Printing customer service representative
processing the order will have access to the customer's purchase history (if an
existing customer) and can suggest reordering certain items, cross-sell
complementary items or alert the customer to current specials. May Printing
accepts major credit cards and payment is typically made upon placing the order.

May Printing produces large quantities of printed materials for each
national client, which it warehouses pending receipt of an order for the
product. May Printing can produce multi-color, highly technical, commercial
quality printed materials. Products ordered from a catalog typically require
additional "personalizing" for the ordering member organization, after which
they are checked for quality, packaged and shipped. Promotional merchandise
(point of purchase, advertising specialty, premiums and incentives) included in
a catalog that are produced by third parties are generally shipped directly by
the manufacturer to the ordering member organization. May Printing uses a
sophisticated materials handling system with automated handling, order
consolidation and shipping. Most orders are filled within four days of receipt.

The demand printing and distribution services provided by May Printing
benefit both the national account client and the member organizations. The
national account client benefits from May Printing's centralized production and
fulfillment by controlling the use of its trademarks and facilitating the
economies of mass production for its membership while the ultimate consumer of
May Printing's services, the member organization, receives quality products,
fast delivery and prices that the Company believes are competitive with prices
charged by local print shops.

In addition to working with national accounts, May Printing provides general
commercial printing services. The commercial printing services that May provides
help keep it current with printing industry trends and enhance overall printing
quality. May Printing's customers are located in all 50 states and Canada, with
limited shipments to Mexico, Puerto Rico, Australia/New Zealand, France and
England.

PRINTING SERVICES

The demand for financial printing services, like that for typesetting,
fluctuates significantly. In order to adequately meet this fluctuating demand,
financial printing companies have typically invested in printing presses and
employed a complete printing workforce in or near each of the markets they
serve. The Company meets this fluctuating demand by owning presses only in those
markets

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where it has an adequate amount of recurring business and identifying in these
and the other markets it serves several printers capable of meeting a portion of
the Company's production needs on an "as required" basis.

The Company currently operates printing plants in Minneapolis/St. Paul, Los
Angeles, Chicago, Dallas, and New Jersey, markets in which the Company has found
it advantageous to acquire printing presses to service a portion of its
recurring corporate and commercial business. Corporate and commercial printing
is generally both more predictable in volume and less time-sensitive in nature
than financial printing. Because the Company only owns presses in those markets
in which its corporate and commercial printing business requires presses, the
Company is able to adequately utilize these printing presses for its recurring
corporate and commercial work while retaining the flexibility to use the presses
for financial printing. May Printing also operates a printing plant in St.
Cloud, Minnesota, for its specialized printing services. See "Business --
Commercial and Other Services -- May Printing" above.

The Company uses associated printers when it needs additional capacity in
markets where the Company does not own presses or where special printing
equipment is needed. The Company generally selects associated printers on a
job-by-job basis, based upon considerations of price, availability and
suitability of press equipment.

MARKETING AND CUSTOMERS

The Company markets its services nationwide through a direct sales
organization operating from full service facilities located in New York City,
Boston, Newark, Washington, D.C., Atlanta, Minneapolis/St. Paul, Chicago,
Dallas, Denver, San Francisco, Palo Alto, Los Angeles, Seattle, Toronto and
Montreal, sales offices in Baltimore, Cleveland and Houston, and its custom
communications facility located in Eden Prairie, Minnesota. The services
provided by May Printing are marketed through a direct sales organization
operating from May Printing's principal facility in St. Cloud, Minnesota, and
sales offices in Minneapolis/St. Paul, Los Angeles and San Francisco.

The Company markets its financial and corporate document production services
to executives or corporations whose securities are publicly traded, or are
planned to be publicly traded, corporate finance underwriters, municipal bond
underwriters, attorneys and others who require fast and accurate typesetting.
The Company markets its commercial printing services primarily to corporations,
associations, insurance companies and legal, institutional and governmental
publishers, and markets its document reproduction services primarily to lawyers,
paralegal and law office administrators, as well as to the legal departments of
corporations. The Company markets its custom publication services to financial
service companies (such as banks, credit unions and insurance companies),
television and radio stations and networks, trade associations, manufacturers
and the health care and vacation travel industries. May Printing markets its
demand printing and distribution services to large, national clients with
multiple franchisees, members, divisions or affiliated organizations. The
Company markets all of these services through personal contacts with customers,
corporate advertising, promotional programs and direct mail.

As of April 15, 1994, the Company employed 101 full-time salespeople to
market its typesetting, printing, publishing, imaging and document reproduction
services and 20 full-time employees to market the services provided by May
Printing. The Company's salespersons solicit business from existing and
prospective customers and, together with the customer service representatives,
act as coordinators between the customer and the Company's production personnel,
and provide advice and assistance to customers.

COMPETITION

The Company competes with a number of other companies in the financial
printing industry, including regional firms, two principal nationwide
competitors, Bowne & Co., Inc. and R.R. Donnelley & Sons Company, and
international printing firms. Both Bowne and Donnelley have been in business
longer, have greater financial resources and revenues than the Company, and are
major

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competitors in most of the Company's financial and corporate printing markets.
In its commercial printing business, the Company competes for complex computer
intensive and large-run typesetting work with a number of other computer
typesetting firms, and medium-run printing work with a number of commercial web
press printers. In its document reproduction and imaging services businesses,
the Company competes with two nationwide service companies, Xerox Corporation
and Pitney Bowes, litigation support services vendors, and a large number of
photocopying and imaging shops, including privately owned shops as well as
franchise operations. The Company competes in its custom communications business
with marketing service firms, including advertising agencies, custom publication
printers, direct mail firms, and television, radio, newspapers, magazine and
other media organizations. In the insurance printing business, the Company
competes with other national and regional printers, including Bowne. In the May
Printing business, the Company believes that its primary competitors are local
print shops. Competition in the Company's printing businesses is intense, and is
based principally on service, price, speed, accuracy, technological capability
and established relationships. The Company believes that it competes favorably
with its competitors.

EMPLOYEES

As of April 1, 1994, the Company had 1,577 full-time employees and 41
part-time employees. None of the Company's employees are covered by a collective
bargaining agreement. The Company considers its employee relations to be good.

The Company's senior management and certain technical personnel have
substantial experience and expertise in the financial printing industry. The
Company considers the retention of these employees to be important to its
continued success. The Company competes intensively with others in the industry
to attract and retain qualified sales personnel. However, the Company believes
that it is able to provide employment incentives sufficient to minimize the loss
of key sales producers and to attract new sales personnel capable of producing
significant amounts of business should the need or opportunity arise. Many sales
personnel are under employment contracts of varying terms with the Company.

(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES

Substantially all of the Company's revenue, operating profit and
identifiable assets are attributable to the United States.

ITEM 2. PROPERTIES

The Company leases all of its facilities, other than the principal facility
of May Printing, which it owns. The Company's principal production and
administrative office facility, located in St. Paul, includes 47,000 square feet
of space and is leased, together with the associated land, from the Port
Authority of the City of St. Paul. The terms of the Company's agreements with
the Port Authority are contained in a facilities lease and land lease, both
dated October 1, 1985, which require the Company to pay rents to the Port
Authority in the amounts of $24,069 per month and $3,431 per month,
respectively, for a term expiring on November 30, 2005. Each lease grants the
Company the option to purchase the property at the end of the term, or earlier.
Under the facilities lease, the Company may purchase the building for $254,500
at the end of the lease term or after ten years if the Company pays the
remaining principal and interest on the bonds outstanding at the time of
exercise of the options. The land may be purchased for $167,140 at the end of
the lease term or $334,280 at the end of ten years.

The Company owns May Printing's principal production, administrative and
warehousing facility. This facility, which is located in St. Cloud, Minnesota,
includes approximately 122,900 square feet of space.

The Company also leases other office and warehouse space in the
Minneapolis/St. Paul metropolitan area, service facilities in each of its other
fifteen cities and sales offices in three other cities, with

8
<PAGE>
space ranging from 120 square feet to 77,000 square feet. These leases have
expiration dates ranging from September 1994 to December 1998 under which the
Company makes monthly payments aggregating approximately $239,000, including
rental fees, real estate and taxes and operating expense.

The Company makes a continuing effort to keep all of its properties and
facilities modern, efficient and adequate for its operating needs, through the
acquisition, disposition, expansion and improvement of such properties and
facilities. As a result, the Company believes that its properties and facilities
are, on an aggregate basis, fully utilized and adequate for the conduct of its
business.

ITEM 3. LEGAL PROCEEDINGS

There are no material pending or threatened legal, governmental,
administrative or other proceedings to which the Company or its subsidiaries is
a party or of which any of their property is the subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company, their ages, the year first elected or
appointed as an executive officer and the offices held as of April 26, 1994 are
as follows:

<TABLE>
<CAPTION>
YEAR FIRST
ELECTED
OR APPOINTED AS
AN EXECUTIVE
NAME AGE OFFICER TITLE
- ------------------------ --- ---------------- ------------------------------------------
<S> <C> <C> <C>
John W. Castro 45 1980 President and Chief Executive Officer
Rick R. Atterbury 40 1981 Vice President -- Operations
John B. McCain 56 1984 Vice President -- Finance, Chief Financial
Officer, Treasurer
Roxanne E. Iserman 49 1986 Vice President -- Client Services
Development
Steven J. Machov 43 1987 Vice President, General Counsel and
Secretary
James G. Sippl 46 1990 Vice President
Kathleen A. Larkin 34 1993 Vice President -- Human Resources
Darlene M. Shay 32 1993 Vice President -- Training and Development
</TABLE>

Executive officers of the Company are elected by the Board of Directors and
serve for one-year terms, commencing with their election at the first meeting of
the Board of Directors immediately following the annual meeting of shareholders
and continuing until the next such meeting of the Board of Directors. Appointed
officers serve at the discretion of the President and Chief Executive Officer.
There are no family relationships between or among any of the executive officers
or directors of the Company. Except as indicated below, there has been no change
in position of any of the executive officers during the past five years.

Ms. Iserman was appointed Vice President -- Client Services Development in
June, 1993. She had served as Vice President -- Production since July 1986.

Mr. Machov has been General Counsel of the Company since January 1987. He
was elected to the office of Secretary in February 1990 and Vice President in
May 1993.

9
<PAGE>
Mr. Sippl joined the Company in November 1989 as Vice President. Prior to
joining the Company, Mr. Sippl was President of Chicago Cutlery Corporation, a
manufacturer of quality cutlery, from May 1986 to October 1989.

Ms. Larkin joined the Company in April 1993 as Manager of Human Resources
and was appointed Vice President -- Human Resources in December 1993. From
February 1987 to March 1993, Ms. Larkin was Employee Relations Manager for The
Gillette Company, a manufacturer of personal care products.

Ms. Shay served as Manager of Training and Development from March 1993 to
December 1993 when she was appointed Vice President -- Training and Development.
From July 1989 to March 1993, she was Manager of Customer Service for the
Company's St. Paul operations, and also served as a Customer Service Supervisor
from November 1988 to July 1989.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The information under the caption "Quarterly Stock Price Comparison" on page
23 of the Company's 1994 Annual Report is incorporated herein by reference.

ITEM 6. SELECTED FINANCIAL DATA

The financial information in the table on page 35 of the Company's 1994
Annual Report is incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 20 to 23 of the
Company's 1994 Annual Report is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company's Consolidated Financial Statements on pages 24 to 33 (including
the unaudited information set forth under the caption "Quarterly Financial Data"
on page 33) and the Report of its Independent Accountants on page 34 of the
Company's 1994 Annual Report are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

10
<PAGE>
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a) DIRECTORS OF THE REGISTRANT.

The information under the captions "Election of Directors -- Information
About Nominees" and "Other Information About Nominees" on page 5 of the
Company's 1994 Proxy Statement is incorporated herein by reference.

(b) EXECUTIVE OFFICERS OF THE REGISTRANT.

Information concerning Executive Officers of the Company is included in this
Report under Item 4A, "Executive Officers of the Registrant."

The information under the caption "Security Ownership of Certain Beneficial
Owners and Management" on pages 3 and 4 of the Company's 1994 Proxy Statement is
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information under the captions "Election of Directors -- Directors'
Compensation" on page 6 and "Executive Compensation" on pages 9 to 13,
(excluding the "Comparative Stock Performance" graph on page 11), of the
Company's 1994 Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information under the captions "Security Ownership of Certain Beneficial
Owners and Management" on pages 3 and 4, and "Election of Directors --
Information About Nominees" on page 5 of the Company's 1994 Proxy Statement is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1. Financial statements:

The following Financial Statements are incorporated herein by reference from
the pages indicated in the Company's 1994 Annual Report:

Consolidated Balance Sheets as of January 31, 1994 and 1993 -- page 24.

Consolidated Statements of Operations for the years ended January 31,
1994, 1993 and 1992 -- page 25.

Consolidated Statements of Cash Flows for the years ended January 31,
1994, 1993 and 1992 -- page 26.

Consolidated Statements of Changes in Shareholders' Equity for the years
ended January 31, 1994, 1993 and 1992 -- page 27.

Notes to Consolidated Financial Statements -- pages 28-33.

Report of Independent Accountants -- page 34.

11
<PAGE>
2. Financial statement schedules:

The following supplemental schedules and accountants' report thereon are
included herein and should be read in conjunction with the consolidated
financial statements referred to above (page numbers refer to pages in this
Report):

<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
Report of Independent Accountants.................................................................... 14
Supplemental Schedules:
II Amounts Receivable from Related Parties and Underwriters, Promoters and Employees Other
than Related Parties..................................................................... 15
V Property, Plant and Equipment............................................................. 16
VI Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment..... 17
VIII Valuation and Qualifying Accounts......................................................... 18
IX Short-Term Borrowings..................................................................... 19
X Supplementary Income Statement Information................................................ 20
</TABLE>

All other schedules are omitted as the required information is inapplicable
or the information is presented in the consolidated financial statements or
related notes.

3. Exhibits:

The exhibits to this Report are listed in the Exhibit Index on pages 22 and
23 herein.

A copy of any of these exhibits will be furnished at a reasonable cost to
any person who was a shareholder of the Company as of April 1, 1994, upon
receipt from any such person of a written request for any such exhibit. Such
request should be sent to Merrill Corporation, One Merrill Circle, St. Paul,
Minnesota 55108, Attention: Secretary.

The following is a list of each management contract or compensatory plan or
arrangement required to be filed as an exhibit to this Annual Report on Form
10-K:

A. Employment Agreement between John Castro and the Company (incorporated
by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended April 30, 1989 (File No. 0-14082)).

B. Amendment to Employment Agreement between John Castro and the Company
(filed herewith).

C. Employment Agreement between Rick R. Atterbury and the Company
(incorporated by reference to Exhibit 10.2 to the Company's Annual Report
on Form 10-K for the fiscal year ended January 31, 1991 (File No.
0-14082)).

D. Amendment to Employment Agreement between Rick R. Atterbury and the
Company (filed herewith).

E. 1987 Omnibus Stock Plan, as amended (incorporated by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1991 (File No. 0-14082)).

F. 1993 Incentive Stock Plan (incorporated by reference to Exhibit 10.8 to
the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1993 (File No. 0-14082)).

G. Option Agreement between Ronald N. Hoge and the Company (incorporated by
reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1993 (File No. 0-14082)).

12
<PAGE>
(b) REPORTS ON FORM 8-K:

A Form 8-K, dated December 31, 1993, was filed during the fourth quarter of
the fiscal year ended January 31, 1994 covering Items 2 and 7. Financial
statements of May Printing Company (consisting of balance sheets as of September
30, 1993 and December 31, 1992 and the related statements of operations,
stockholders' equity and cash flows for the nine month period ended September
30, 1993 and for the year ended December 31, 1992 respectively, including the
accountants' reports thereon), and unaudited condensed consolidated pro forma
financial statements (consisting of a balance sheet as of October 31, 1993 and
statements of operations for the nine month period ended October 31, 1993 and
for the year ended January 31, 1993) were included in the Form 8-K/A.

13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES

Our report on the consolidated financial statements of Merrill Corporation
has been incorporated by reference in this Form 10-K from page 34 of the 1994
Annual Report to Shareholders of Merrill Corporation. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedules listed in Item 14(a)2 of this Form 10-K.

In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.

COOPERS & LYBRAND

St. Paul, Minnesota
March 22, 1994

14
<PAGE>
SCHEDULE II
MERRILL CORPORATION

AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES

FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
(IN THOUSANDS)

<TABLE>
<CAPTION>
COLUMN D
-----------------------
COLUMN E
COLUMN B DEDUCTIONS ----------------------
---------- -----------------------
COLUMN A BALANCE AT COLUMN C AMOUNTS BALANCE AT END OF YEAR
- ------------------------------------------------- BEGINNING ------------- AMOUNTS WRITTEN ----------------------
NAME OF DEBTOR OF YEAR ADDITIONS COLLECTED OFF CURRENT NOT CURRENT
- ------------------------------------------------- ---------- ------------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Year Ended January 31, 1992
Virgil Jackson................................. $ 66 $ $ (66) $ $ $
Robert Nienhouse............................... 100 (100)
Kristian Cee................................... 100 100
S.J. Consultants, Inc.......................... 340 360 700
Joseph Ruane................................... 98 (3) 95
----- ----- ----------- -------- -------- -----------
Total...................................... $ 704 $ 360 $ (169) $ -- $ -- $ 895
----- ----- ----------- -------- -------- -----------
----- ----- ----------- -------- -------- -----------
Year Ended January 31, 1993
Kristian Cee................................... $ 100 $ $ $ $ $ 100
S.J. Consultants, Inc.......................... 700 700
Joseph Ruane................................... 95 (4) 91
----- ----- ----------- -------- -------- -----------
Total...................................... $ 895 $ -- $ (4) $ -- $ -- $ 891
----- ----- ----------- -------- -------- -----------
----- ----- ----------- -------- -------- -----------
Year Ended January 31, 1994
Kristian Cee (a)............................... $ 100 $ $ $ $ $ 100
S.J. Consultants, Inc. (b)..................... 700 154 (71) 783
Joseph Ruane (c)............................... 91 25 (4) 112
Eric M. Polans (d)............................. 200 200
B. Michael James (e)........................... 141 141
----- ----- ----------- -------- -------- -----------
Total...................................... $ 891 $ 520 $ (75) $ -- $ -- $ 1,336
----- ----- ----------- -------- -------- -----------
----- ----- ----------- -------- -------- -----------
</TABLE>

ADDITIONAL INFORMATION

<TABLE>
<CAPTION>
REPAYMENT
NAME OF PARTY DUE DATE INTEREST RATE TERMS COLLATERAL
- ---------------------------------- --------------- ------------- -------------- ----------------------------------------
<S> <C> <C> <C> <C>
(a) Kristian Cee, employee........ termination of 0 % In full at Common stock of the Company
employment maturity
(b) S.J. Consultants, Inc......... 4/1/94* Prime rate In full at Commissions owed or
maturity to be owed to S.J. Consultants, and
personal guaranty of Lawrence M.
Polans.
(c) Joseph Ruane,
employee (1)................... 6/15/05 8 % Monthly Real property in filed deed of trust
principal and
interest
payments
(2)................... 8/1/96 8 % 33% per year Unsecured
including
accrued
interest
(d) Eric M. Polans,
employee....................... 6/7/94 Prime rate In full at Unsecured
plus 1% maturity
(e) B. Michael James,
employee....................... 1/31/99 or 0 % 20% per year Unsecured
termination of
employment
</TABLE>

- --------------------------
* Currently under renegotiation with expectation of payment over approximately
5 years.

15
<PAGE>
SCHEDULE V
MERRILL CORPORATION

PROPERTY, PLANT AND EQUIPMENT

FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
(IN THOUSANDS)

<TABLE>
<CAPTION>
COLUMN B COLUMN F
------------ COLUMN C -----------
COLUMN A BALANCE AT ------------- COLUMN D COLUMN E
- ---------------------------------------- BEGINNING OF ADDITIONS AT ------------- -------------- BALANCE AT
CLASSIFICATION YEAR COST RETIREMENTS OTHER END OF YEAR
- ---------------------------------------- ------------ ------------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended January 31, 1992
Land.................................. $ 333 $ $ $ $ 333
Building.............................. 3,131 5 3,136
Production Equipment.................. 12,405 2,363(1) (469) 5 14,304
Furniture and Fixtures................ 3,198 177 (26) 3,349
Leasehold Improvements................ 4,551 43 (75) 4,519
Construction in Progress 99 55 154
------------ ------------- ------------- ------- -----------
Total............................... $ 23,717 $ 2,643 $ (570) $ 5 $ 25,795
------------ ------------- ------------- ------- -----------
------------ ------------- ------------- ------- -----------
Year Ended January 31, 1993
Land.................................. $ 333 $ $ $ $ 333
Building.............................. 3,136 22 277 3,435
Production Equipment.................. 14,304 5,048(1) (2,737) 5 16,620
Furniture and Fixtures................ 3,349 965 (5) 26 4,335
Leasehold Improvements................ 4,519 192 367 5,078
Construction in Progress.............. 154 1,220 (714)(2) 660
------------ ------------- ------------- ------- -----------
$ 25,795 $ 7,447 $ (2,742) $ (39) $ 30,461
------------ ------------- ------------- ------- -----------
------------ ------------- ------------- ------- -----------
Year Ended January 31, 1994
Land.................................. $ 333 $ $ $ 520(4) $ 853
Buildings............................. 3,435 3,339(4) 6,774
Production Equipment.................. 16,620 5,991(1) (521) 4,431(4) 26,521
Furniture and Fixtures................ 4,335 1,188 (37) 751(4) 6,237
Leasehold Improvements................ 5,078 364 43 5,485
Construction in Progress.............. 660 379 (557)(3) 482
------------ ------------- ------------- ------- -----------
Total............................... $ 30,461 $ 7,922 $ (558) $ 8,527 $ 46,352
------------ ------------- ------------- ------- -----------
------------ ------------- ------------- ------- -----------
<FN>
- ------------------------
(1) Represents computer systems and printing related equipment.
(2) Represents reclassifications of completed construction to primarily
leasehold improvements and building.
(3) Represents a reclassification of construction in progress to primarily
production equipment.
(4) Represents assets from May Printing Company acquisition.
</TABLE>

See page 28 of the Annual Report incorporated by reference in this Form 10K for
information regarding property, plant and equipment accounting policies.

16
<PAGE>
SCHEDULE VI
MERRILL CORPORATION

ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT

FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
(IN THOUSANDS)

<TABLE>
<CAPTION>
COLUMN F
COLUMN B ----------
------------ COLUMN C
COLUMN A BALANCE AT ---------- COLUMN D COLUMN E BALANCE AT
---------------------------------------- BEGINNING OF ADDITIONS ------------- --------- END OF
CLASSIFICATION YEAR AT COST RETIREMENTS OTHER YEAR
---------------------------------------- ------------ ---------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended January 31, 1992
Land.................................. $ $ $ $ $
Building.............................. 433 104 537
Production Equipment.................. 5,598 2,006 (334) 7,270
Furniture and Fixtures................ 2,048 436 (20) 2,464
Leasehold Improvements................ 2,359 582 (74) 2,867
------------ ---------- ------------- --- ----------
$ 10,438 $ 3,128 $ (428) $ $ 13,138
------------ ---------- ------------- --- ----------
------------ ---------- ------------- --- ----------
Year Ended January 31, 1993
Land.................................. $ $ $ $ $
Building.............................. 537 110 647
Production Equipment.................. 7,270 2,882 (2,621) (96) 7,435
Furniture and Fixtures................ 2,464 437 (5) 93 2,989
Leasehold Improvements................ 2,867 643 3,510
------------ ---------- ------------- --- ----------
$ 13,138 $ 4,072 $ (2,626) $ (3) $ 14,581
------------ ---------- ------------- --- ----------
------------ ---------- ------------- --- ----------
Year Ended January 31, 1994
Land.................................. $ $ $ $ $
Buildings............................. 647 130 777
Production Equipment.................. 7,435 4,104 (439) 41 11,141
Furniture and Fixtures................ 2,989 551 (30) 1 3,511
Leasehold Improvements................ 3,510 735 4,245
------------ ---------- ------------- --- ----------
$ 14,581 $ 5,520 $ (469) $ 42 $ 19,674
------------ ---------- ------------- --- ----------
------------ ---------- ------------- --- ----------
</TABLE>

See page 28 of the Annual Report incorporated by reference in this Form 10K for
information regarding property, plant and equipment accounting policies.

17
<PAGE>
SCHEDULE VIII

MERRILL CORPORATION

VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
(IN THOUSANDS)

<TABLE>
<CAPTION>
COLUMN C
----------------------------
COLUMN B ADDITIONS COLUMN D
------------ ---------------------------- ------------ COLUMN E
COLUMN A BALANCE AT CHARGED DEDUCTIONS ------------
- ---------------------------------------- BEGINNING OF CHARGED TO OTHER FROM BALANCE AT
DESCRIPTION YEAR TO INCOME ACCOUNTS RESERVES END OF YEAR
- ---------------------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Year Ended January 31, 1992
Valuation account deducted from assets
to which it applies --
Allowance for doubtful accounts...... $ 1,263 $ 1,167 $ 12 (A) $ 692 (B) $ 1,750
------------ ------------ --- ----- ------------
------------ ------------ --- ----- ------------
Year Ended January 31, 1993
Valuation account deducted from assets
to which it applies --
Allowance for doubtful accounts...... $ 1,750 $ 1,349 $ 45 (A) $ 689 (B) $ 2,455
------------ ------------ --- ----- ------------
------------ ------------ --- ----- ------------
Year Ended January 31, 1994
Valuation account deducted from assets
to which it applies --
Allowance for doubtful accounts...... $ 2,455 $ 579 $ 30 (A) $ 770 (B) $ 2,294
------------ ------------ --- ----- ------------
------------ ------------ --- ----- ------------
<FN>
- ------------------------
(A) Recoveries on accounts previously written off.
(B) Uncollectible accounts written off and adjustments to the allowance.
</TABLE>

18
<PAGE>
SCHEDULE IX

MERRILL CORPORATION

SHORT-TERM BORROWINGS

FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
(IN THOUSANDS)

<TABLE>
<CAPTION>
COLUMN C
------------
WEIGHTED COLUMN D COLUMN E COLUMN F
COLUMN A COLUMN B AVERAGE ---------------- -------------------- --------------------
- ----------------------------------- ------------ INTEREST MAXIMUM AMOUNT AVERAGE AMOUNT WEIGHTED AVERAGE
CATEGORY OF AGGREGATE BALANCE AT RATE AT END OUTSTANDING OUTSTANDING INTEREST RATE DURING
SHORT-TERM BORROWINGS (A) END OF YEAR OF YEAR DURING THE YEAR DURING THE YEAR (B) THE YEAR (C)
- ----------------------------------- ------------ ------------ ---------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
Year Ended January 31, 1992
Bank note payable................ -- -- $ 7,425 $ 2,907 8.80 %
Year Ended January 31, 1993
Bank note payable................ -- -- $ 1,650 $ 56 6.52 %
Year Ended January 31, 1994
Bank note payable................ $ 2,600 5.75 % $ 2,600 $ 93 5.75 %
<FN>
- ------------------------
(A) A bank line of credit is maintained for short-term borrowings. The Company
has a revolving credit agreement providing a $10 million unsecured bank
line of credit to the Company through May 31, 1994.
(B) Average amounts outstanding are weighted averages based upon actual days
outstanding.
(C) Annual weighted average interest rates are determined based on daily
outstanding principal amounts and exclude costs of maintaining lines of
credit.
</TABLE>

19
<PAGE>
SCHEDULE X

MERRILL CORPORATION

SUPPLEMENTARY INCOME STATEMENT INFORMATION

FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
(IN THOUSANDS)

<TABLE>
<CAPTION>
COLUMN B
-----------------------------------
COLUMN A CHARGED TO COSTS AND EXPENSES
- ---------------------------------------- -----------------------------------
ITEM 1994 1993 1992
- ---------------------------------------- --------- ---------- ----------
<S> <C> <C> <C>
1. Maintenance and repairs............. $ 2,598 $ 2,262 $ 1,996
</TABLE>

20
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

<TABLE>
<S> <C>
(REGISTRANT) MERRILL CORPORATION
BY (SIGNATURE)
(NAME AND TITLE) John W. Castro, President and Chief Executive Officer
(DATE) April 29, 1994
</TABLE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.

<TABLE>
<S> <C>
BY (SIGNATURE)
(NAME AND TITLE) John W. Castro, President and Chief Executive Officer (Principal
Executive Officer) and Director
(DATE) April 29, 1994
BY (SIGNATURE)
(NAME AND TITLE) John B. McCain, Vice President -- Finance, Chief Financial Officer
and Treasurer (Principal Financial and Accounting Officer)
(DATE) April 29, 1994
BY (SIGNATURE)
(NAME AND TITLE) Kenneth F. Merrill, Director
(DATE) April 29, 1994
BY (SIGNATURE)
(NAME AND TITLE) Robert F. Nienhouse, Director
(DATE) April 29, 1994
BY (SIGNATURE)
(NAME AND TITLE) Richard G. Lareau, Director
(DATE) April 29, 1994
BY (SIGNATURE)
(NAME AND TITLE) Paul G. Miller, Director
(DATE) April 29, 1994
BY (SIGNATURE)
(NAME AND TITLE) Rick R. Atterbury, Director
(DATE) April 29, 1994
BY (SIGNATURE)
(NAME AND TITLE) Ronald N. Hoge, Director
(DATE) April 29, 1994
</TABLE>

21
<PAGE>
MERRILL CORPORATION
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-K

FOR FISCAL YEAR ENDED JANUARY 31, 1993

<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION METHOD OF FILING
- ----------- -------------------------------------------------- --------------------------------------------------
<C> <S> <C>
3.1 Articles of Incorporation of the Company Incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1
(File No. 33-4062)
3.2 Amendments to Articles of Incorporation as of June Incorporated by reference to Exhibit 3.2 to the
20, 1986 and March 27, 1987 Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1987
3.3 Restated Bylaws of the Company Incorporated by reference to Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1990
10.1 1985 Incentive Stock Option Plan Incorporated by reference to Exhibit 10.2 to the
Company's Registration Statement on Form S-1
(File No. 33-4062)
10.2 Employment Agreement between Rick R. Atterbury and Incorporated by reference to Exhibit 10.2 to the
the Company, dated as of February 1, 1987, as Company's Annual Report on Form 10-K for the
amended fiscal year ended January 31, 1991
10.3 Amendment to Employment Agreement between Rick R. Filed herewith electronically
Atterbury and the Company, dated as of April 29,
1994.
10.4 Facilities Lease dated October 1, 1985 between the Incorporated by reference to Exhibit 10.17 to the
Port Authority of the City of Saint Paul as Company's Registration Statement on Form S-1
lessor and the Company as lessee (File No. 33-4062)
10.5 Land Lease dated October 1, 1985 between the Port Incorporated by reference to Exhibit 10.18 to the
Authority of the City of Saint Paul as lessor and Company's Registration Statement on Form S-1
the Company as lessee (File No. 33-4062)
10.6 Restated and Amended Revolving Credit Agreement Incorporated by reference to Exhibit 10.5 to the
dated as of September 10, 1992 between Marquette Company's Annual Report on Form 10-K for the
Bank Minneapolis, N.A. and the Company fiscal year ended January 31, 1993
10.7 1987 Omnibus Stock Plan, as amended Incorporated by reference to Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1991
10.8 Employment Agreement between John Castro and the Incorporated by reference to Exhibit 10 to the
Company dated as of February 1, 1989 Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended April 30, 1989
10.9 Amendment to Employment Agreement between John Filed herewith electronically
Castro and the Company dated as of April 29,
1994.
10.10 1993 Incentive Stock Plan Incorporated by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1993
</TABLE>

22
<PAGE>
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION METHOD OF FILING
- ----------- -------------------------------------------------- --------------------------------------------------
<C> <S> <C>
10.11 Option Agreement dated as of July 1, 1991 between Incorporated by reference to Exhibit 10.9 to the
Ronald N. Hoge and the Company Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1993
10.12 Asset Purchase Agreement, dated as of December 31, Incorporated by reference to Exhibit 2.1 to the
1993 among the Company, Merrill Acquisition Company's Current Report on Form 8-K dated
Corporation, May Printing Company and December 31, 1993.
Shareholders of May Printing Company.
10.13 Loan Agreement, dated as of July 1, 1990 between Filed herewith electronically
May Printing Company and Minnesota Agricultural
and Economic Development Board, amended as of
December 31, 1993.
10.14 Guaranty of Loan Obligations of May Printing Filed herewith electronically
Company by the Company in favor of Minnesota
Agricultural and Economic Development Board,
dated as of December 31, 1993.
10.15 Guaranty Agreement of the obligations of Merrill Filed herewith electronically
Acquisition Corporation by the Company in favor
of May Printing Company, and Thomas May and James
Scott May, dated as of December 31, 1993.
11.1 Computation of per share earnings Filed herewith electronically
13.1 Portions of Annual Report to Shareholders Filed herewith electronically
21.1 Subsidiaries of the Company Filed herewith electronically
23.1 Consent of Independent Accountants Filed herewith electronically
</TABLE>

<PAGE>

EXHIBIT 10.3

AMENDMENT TO
EMPLOYMENT AGREEMENT

This Amendment to Employment Agreement (the "AMENDMENT"), dated as of
April 29, 1994, is between Merrill Corporation, a Minnesota corporation (the
"COMPANY"), and Rick R. Atterbury (the "EXECUTIVE").

A. The Company and the Executive entered into an Employment Agreement
pursuant to which the Company employs the Executive, dated as of February 1,
1987 (the "EMPLOYMENT AGREEMENT").

B. The Company and the Executive desire to amend the Employment
Agreement.

Accordingly, the parties hereto, intending to be legally bound, agree as
follows:

1. SECTION 3.1(a), (b) AND (c). Paragraphs (a), (b) and (c) of
Section 3.1 of the Employment Agreement are amended in their entirety to read
as follows:

(a) ANNUAL SALARY: Effective beginning February 1, 1994, an annual
salary at the rate of $225,000.00 per annum, payable in
equal semi-monthly installments.

(b) ADDITIONAL COMPENSATION: Effective beginning February 1, 1994, an
annual bonus for each fiscal year equal to (i) $1,200.00 for each one
cent of the Company's net income per share for such year up to and
including the net income per share for the prior fiscal year, plus (ii)
$3,000.00 for each one cent of the Company's net income per share for
such year in excess of the net income per share for the prior fiscal
year; which annual bonus shall be payable on or before 75 days after
the close of each fiscal year.

(c) NET INCOME PER SHARE: The Company's net income per share shall be
determined by the Company's outside auditors using generally accepted
accounting principles consistently applied and as reported to
shareholders in the Company's annual report to shareholders.

2. SECTION 6. Section 6 of the Employment Agreement is amended in
its entirety to read as follows:

6. RESTRICTIVE COVENANT:

6.1 Executive will not, without the prior written approval of the
Board of Directors of the Company, during the term of employment hereunder
and for a period of 18 months after termination of employment hereunder,
become an employee, officer, agent, partner or director, or significant
owner of any business enterprise (ownership of not less than one percent
(1%) of the voting stock of a listed company shall be considered
"significant" for purposes of this Agreement) which is competitive with
the business of the Company or its

<PAGE>

subsidiaries or affiliates as conducted at the time of termination of this
Agreement.

6.2 During the 18-month period after the termination of the
Executive's employment hereunder, if the provisions of Section 6.1 hereof
prevent the Executive from obtaining employment in a position not
requiring relocation and having authority, responsibility and compensation
comparable to Executive's position with the Company, and so long as the
Executive complies fully with his obligations under Section 7 hereof,
then the Company will continue to pay him, at the same times and in the
same manner as prior to his termination, his annual salary in effect for
the 12-month period proceding of his termination, less the gross amount
of any income the Executive receives during such 18-month period. The
Company's obligations to make payments to the Executive under this
Section 6.2 will terminate upon the Executive's death, in the event the
Executive breaches Sections 6 or 7 hereof, in the event that the
Executive, pursuant to Section 8.5 hereof, is not bound by Section 6.1
hereof, or in the event the Company releases in writing the Executive
from his obligations under Section 6.1 hereof.

3. NO OTHER AMENDMENTS. Except as amended pursuant to this
Amendment, the Employment Agreement shall remain in full force and effect in
accordance with its original terms.

The Company and the Executive have caused this Amendment to be duly
executed as of the date first above written.

MERRILL CORPORATION

/s/ Rick R. Atterbury By /s/ John Castro
- ------------------------------ ----------------------------------
Rick R. Atterbury Its President
-------------------------------

<PAGE>

EXHIBIT 10.9

AMENDMENT TO
EMPLOYMENT AGREEMENT

This Amendment to Employment Agreement (the "AMENDMENT"), dated as of
April 29, 1994, is between Merrill Corporation, a Minnesota corporation (the
"COMPANY"), and John W. Castro (the "EXECUTIVE").

A. The Company and the Executive entered into an Employment Agreement
pursuant to which the Company employs the Executive, dated as of February 1,
1994 (the "EMPLOYMENT AGREEMENT").

B. The Company and the Executive desire to amend the Employment
Agreement.

Accordingly, the parties hereto, intending to be legally bound, agree as
follows:

1. SECTION 3.1(A), (B) AND (C). Paragraphs (a), (b) and (c) of Section
3.1 of the Employment Agreement are amended in their entirety to read as
follows:

(a) ANNUAL SALARY: Effective beginning February 1, 1994, an annual
salary at the rate of $300,000.00 per annum, payable in equal
semi-monthly installments.

(b) ADDITIONAL COMPENSATION: Effective beginning February 1, 1994, an
annual bonus for each fiscal year equal to (i) $2,000.00 for each one
cent of the Company's net income per share for such year up to and
including the net income per share for the prior fiscal year, plus (ii)
$5,000.00 for each one cent of the Company's net income per share for
such year in excess of the net income per share for the prior fiscal
year; which annual bonus shall be payable on or before 75 days after the
close of each fiscal year.

2. SECTION 6. Section 6 of the Employment Agreement is amended in
its entirety to read as follows:

6. RESTRICTIVE COVENANT:

6.1 Executive will not, without the prior written approval of the
Board of Directors of the Company, during the term of employment
hereunder and for a period of 18 months after termination of employment
hereunder, become an employee, officer, agent, partner or director, or
significant owner of any business enterprise (ownership of not less than
one percent (1%) of the voting stock of a listed company shall be
considered "significant" for purposes of this Agreement) which

<PAGE>

is competitive with the business of the Company or its subsidiaries or
affiliates as conducted at the time of termination of this Agreement.

6.2 During the 18-month period after the termination of the
Executive's employment hereunder, if the provisions of Section 6.1
hereof prevent the Executive from obtaining employment in a position
not requiring relocation and having authority, responsibility and
compensation comparable to Executive's position with the Company, and so
long as the Executive complies fully with his obligations under
Section 7 hereof, then the Company will continue to pay him, at the
same times and in the same manner as prior to his termination, his
annual salary in effect for the 12-month period preceding of his
termination, less the gross amount of any income the Executive receives
during such 18-month period. The Company's obligations to make payments
to the Executive under this Section 6.2 will terminate upon the
Executive's death, in the event the Executive breaches Sections 6 or 7
hereof, in the event that the Executive, pursuant to Section 8.5 hereof,
is not bound by Section 6.1 hereof, or in the event the Company releases
in writing the Executive from his obligations under Section 6.1 hereof.

3. NO OTHER AMENDMENTS. Except as amended pursuant to this
Amendment, the Employment Agreement shall remain in full force and effect in
accordance with its original terms.

The Company and the Executive have caused this Amendment to be duly
executed as of the date first above written.

MERRILL CORPORATION

/s/ John W. Castro By /s/ Rick Atterbury
- --------------------------------- ----------------------------------
John W. Castro Its Vice President-Operations
-------------------------------

<PAGE>

EXECUTION COPY
Document No. 34(1)
Series 1990B, Lot 1

MINNESOTA AGRICULTURAL AND ECONOMIC
DEVELOPMENT BOARD

AND

MAY PRINTING COMPANY

--------------------------------

LOAN AGREEMENT

--------------------------------

Relating to: Minnesota Energy and Economic Development
Authority's* Minnesota Small Business
Development Loan Program.

- -------------------------
*The Minnesota Agricultural and Economic Development Board is the statutory
successor to the Minnesota Energy and Economic Development Authority.

<PAGE>

TABLE OF CONTENTS

Page
----
ARTICLE I
DEFINITIONS

Section 1.1. Definitions. . . . . . . . . . . . . . . . . . . . . . . 4

ARTICLE II
REPRESENTATIONS AND COVENANTS

Section 2.1. Representations and Covenants of the Authority . . . . . 18
Section 2.2. Representations and Covenants of the Borrower. . . . . . 19
Section 2.3. Covenant with Bondholders. . . . . . . . . . . . . . . . 25
Section 2.4. General Guaranty Fund Right of Reimbursement . . . . . . 25
Section 2.5. Authority Right of Reimbursement . . . . . . . . . . . . 26

ARTICLE III
AGREEMENT TO ISSUE SINGLE LOT BONDS AND TO LOAN
PROCEEDS THEREOF; BORROWER'S CONTRIBUTION TO COSTS OF PROJECT

Section 3.1. Issuance of Single Lot Bonds; Deposit of
Bond Proceeds. . . . . . . . . . . . . . . . . . . . . . 27
Section 3.2. Agreement to Make-Loan . . . . . . . . . . . . . . . . . 27
Section 3.3. Need For Borrower's Contribution to Costs
of Project . . . . . . . . . . . . . . . . . . . . . . . 27

ARTICLE IV
DEVELOPMENT OF THE PROJECT;
APPLICATION OF MONEYS IN CONSTRUCTION ACCOUNT

Section 4.1. Prior Acquisition of Land. . . . . . . . . . . . . . . . 30
Section 4.2. Acquisition, Construction and Installation
of the Project . . . . . . . . . . . . . . . . . . . . . 30
Section 4.3. Application of Moneys in Construction Account. . . . . . 31
Section 4.4. Certificate of Completion. . . . . . . . . . . . . . . . 35
Section 4.5. Completion by Borrower . . . . . . . . . . . . . . . . . 36
Section 4.6. Title Insurance. . . . . . . . . . . . . . . . . . . . . 36
Section 4.7. Remedies to be Pursued Against Contractors
and Subcontractors and their Sureties. . . . . . . . . . 37
Section 4.8. Application of Net Proceeds. . . . . . . . . . . . . . . 37
Section 4.9. Application of Other Payments. . . . . . . . . . . . . . 37

ARTICLE V
REPAYMENT PROVISIONS; SECURITY CLAUSES

Section 5.1. Repayment of Loan. . . . . . . . . . . . . . . . . . . . 38
Section 5.2. Other Amounts Payable. . . . . . . . . . . . . . . . . . 39
Section 5.3. Obligations of Borrower Hereunder
Unconditional. . . . . . . . . . . . . . . . . . . . . . 41

<PAGE>

Section 5.4. Security Clauses . . . . . . . . . . . . . . . . . . . . 41
Section 5.5. Investment of Funds and Accounts; Consent
to Elections . . . . . . . . . . . . . . . . . . . . . . 42

ARTICLE IV
MAINTENANCE, MODIFICATIONS, TAXES AND INSURANCE

Section 6.1. Maintenance of Property by Borrower. . . . . . . . . . . 43
Section 6.2. Installation of Additional Equipment . . . . . . . . . . 43
Section 6.3. Taxes, Assessments and Utility Charges . . . . . . . . . 43
Section 6.4. Insurance Required . . . . . . . . . . . . . . . . . . . 44
Section 6.5. Additional Provisions Respecting Insurance . . . . . . . 45
Section 6.6. Application of Net Proceeds of Insurance . . . . . . . . 45
Section 6.7. Right of Authority to Pay Taxes, Insurance
Premiums and Other Charges . . . . . . . . . . . . . . . 46

ARTICLE VII
DAMAGE, DESTRUCTION AND CONDEMNATION

Section 7.1. Damage or Destruction. . . . . . . . . . . . . . . . . . 47
Section 7.2. Condemnation . . . . . . . . . . . . . . . . . . . . . . 49
Section 7.3. Condemnation of or Damage to Borrower-Owned
Property Other Than Security Property. . . . . . . . . . 51

ARTICLE VIII
SPECIAL COVENANTS

Section 8.1. Qualification in the State . . . . . . . . . . . . . . . 52
Section 8.2. Hold Harmless Provisions . . . . . . . . . . . . . . . . 52
Section 8.3. Borrower to Maintain its Existence;
Conditions Under Which Exceptions Permitted. . . . . . . 52
Section 8.4. Agreement to Provide Information . . . . . . . . . . . . 53
Section 8.5. Books of Record and Account; Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . 54
Section 8.6. Capital Expenditures Borrower to File
Statements With Internal Revenue Service . . . . . . . . 54
Section 8.7. Assurance as to Tax-Exemption. . . . . . . . . . . . . . 55
Section 8.8. Certificate of No Default. . . . . . . . . . . . . . . . 55
Section 8.9. Notice of Default. . . . . . . . . . . . . . . . . . . . 55
Section 8.10. Assignment and Leasing . . . . . . . . . . . . . . . . . 55
Section 8.11. Right to Inspect the Project and Security
Property . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 8.12. Compliance With Orders, Ordinances, etc. . . . . . . . . 57
Section 8.13. Liens and Encumbrances . . . . . . . . . . . . . . . . . 57
Section 8.14. Identification of Equipment. . . . . . . . . . . . . . . 58
Section 8.15. Relocation of the Equipment. . . . . . . . . . . . . . . 58
Section 8.16. Depreciation Deductions and Investment Tax
Credit . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 8.17. Mortgage Covenants . . . . . . . . . . . . . . . . . . . 58
Section 8.18. Covenant Against Discrimination. . . . . . . . . . . . . 59
Section 8.19. Employment Records . . . . . . . . . . . . . . . . . . . 59
Section 8.20. Certain Financial Covenants. . . . . . . . . . . . . . . 59

<PAGE>

Section 8.21. Covenant Against Loans, Dividends, etc.. . . . . . . . . 60
Section 8.22. Covenant Against Redemption of Stock . . . . . . . . . . 61
Section 8.23. Covenant Against Unreasonable Compensation . . . . . . . 61
Section 8.24. Amendment of Interim Loan Documents. . . . . . . . . . . 61
Section 8.25. Vacant Positions . . . . . . . . . . . . . . . . . . . . 61

ARTICLE IX
PLEDGE OF CERTAIN INTERESTS

Section 9.1. Pledge of Certain Interests to Bondholders . . . . . . . 62

ARTICLE X
EVENTS OF DEFAULT AND REMEDIES

Section 10.1. Events of Default Defined. . . . . . . . . . . . . . . . 63
Section 10.2. Remedies on Default. . . . . . . . . . . . . . . . . . . 65
Section 10.3. Remedies Cumulative. . . . . . . . . . . . . . . . . . . 66
Section 10.4. Agreement to Pay Attorneys' Fees and Expenses. . . . . . 66
Section 10.5. No Additional Waiver Implied by One Waiver . . . . . . . 67

ARTICLE XI
EARLY TERMINATION OF AGREEMENT;
PREPAYMENT OF LOAN

Section 11.1. Early Termination of Agreement . . . . . . . . . . . . . 68
Section 11.2. Conditions to Early Termination of Agreement . . . . . . 68
Section 11.3. Discharge of Lien. . . . . . . . . . . . . . . . . . . . 69
Section 11.4. Prepayment of Loan in Part . . . . . . . . . . . . . . . 69
Section 11.5. Refunding Consent. . . . . . . . . . . . . . . . . . . . 70

ARTICLE XII
MISCELLANEOUS

Section 12.1. Notices. . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 12.2. Binding Effect . . . . . . . . . . . . . . . . . . . . . 71
Section 12.3. Severability . . . . . . . . . . . . . . . . . . . . . . 71
Section 12.4. Amendments, Changes and Modifications. . . . . . . . . . 71
Section 12.5. Data Privacy Disclosure. . . . . . . . . . . . . . . . . 72
Section 12.6. Execution of Counterparts. . . . . . . . . . . . . . . . 72
Section 12.7. Applicable Law . . . . . . . . . . . . . . . . . . . . . 72
Section 12.8. Recording and Filing . . . . . . . . . . . . . . . . . . 72
Section 12.9. Survival of Obligations. . . . . . . . . . . . . . . . . 73
Section 12.10. Table of Contents and Section Headings
Not Controlling. . . . . . . . . . . . . . . . . . . . . 73
Section 12.11. Limited Liability. . . . . . . . . . . . . . . . . . . . 73

iii

<PAGE>

THIS LOAN AGREEMENT, dated as of July 1, 1990 (the "Agreement"), is by
and between the Minnesota Agricultural and Economic Development Board (as
statutory successor to the Minnesota Energy and Economic Development Authority),
constituted as an authority to act on behalf of the State of Minnesota and
created and existing by virtue of the laws of the State (together with any legal
successor thereto, herein referred to as the "Authority"), and MAY PRINTING
COMPANY a business corporation duly organized and existing under the laws of the
State of Minnesota having its principal corporate office at St. Cloud, Minnesota
and authorized to do business in the State of Minnesota (the "Borrower").

W I T N E S E T H :

WHEREAS, the Authority (as the legal successor of the Minnesota Small
Business Finance Agency) was created by the Laws of 1980, Chapter 547, as
amended and supplemented and MINNESOTA STATUTES, 1986 Chapter 116M and presently
set forth in MINNESOTA STATUTES, Chapter 41A (the "Act"), to act on behalf of
the State of Minnesota (the "State") within the scope of powers granted to it in
the Act to implement loan programs and to provide financial assistance under the
economic development fund created under MINNESOTA STATUTES 1986, Section 116M.06
of the Act (the "Economic Development Fund") by which the Authority, alone or in
cooperation with cities, towns, counties and private or public lenders, may
provide adequate funds or incentives to financing such as guarantees or
insurance with respect thereto on sufficiently favorable terms to assist and
encourage the establishment, maintenance and growth of businesses and eligible
small businesses and employment opportunities in the State and to reduce to a
manageable level the cost of the control of pollution and disposal of waste
resulting from the operation of businesses and eligible small businesses; and

WHEREAS, to provide financial assistance to businesses and eligible
small businesses to encourage their establishment, maintenance and growth and to
reduce the cost of the control of pollution and disposal of waste resulting from
the operation of businesses and eligible small businesses, the Authority has
established its Minnesota Small Business Development Loan Program (the
"Program"); and

WHEREAS, in accordance with the Program, the Authority on September 26,
1984 adopted its Minnesota Small Business Development Loan Program Revenue Bonds
General Bond Resolution, as supplemented and amended (the "General Bond
Resolution"), pursuant to which General Bond Resolution (and lot resolutions to
be adopted from time to time by the Authority as supplemented Resolutions
thereto), the Authority intends to issue revenue bonds (the "Bonds"), and to
loan the proceeds thereof to "businesses" or "eligible small businesses" within
the meaning of the Act to finance capital facilities, as described within

<PAGE>

MINNESOTA STATUTES 1986, Section 116M.03, Subd. 11 or Subd. 19 of the Act and
"pollution control facilities" as described within MINNESOTA STATUTES 1986,
Section 116M.03, Subd. 14 of the Act, for use by them in connection with their
business operations (such "businesses" and "eligible small businesses"
collectively referred to herein as "Businesses"); and

WHEREAS, such Bonds, as provided in the General Bond Resolution, shall
be special obligations of the Authority, the principal or redemption price, if
any, of and interest on which are payable solely from and secured solely by the
revenues, funds and other property or assets of the Authority described in the
General Bond Resolution (and the lot resolutions) and pledged therefor; and

WHEREAS, it is the further purpose of the Authority with respect to its
Program to provide additional financial assistance to the Businesses
participating therein by creating an account within the Economic Development
Fund to be known as the "General Guaranty Fund", transferring certain moneys
from the Economic Development Fund and from other sources to the General
Guaranty Fund and pledging and allocating the moneys on deposit in the General
Guaranty Fund to guarantee the payment of debt service payments and certain
mandatory prepayments payable on or with respect to the Bonds; and

WHEREAS, pursuant to a resolution adopted by the Authority on
September 26, 1984 (the "General Guaranty Fund Resolution"), the Authority
created and established the General Guaranty Fund as an account within and of
the Economic Development Fund and pursuant to a General Guaranty Fund Pledge and
Escrow Agreement, dated as of September 26, 1984 (the "General Guaranty Fund
Pledge and Escrow Agreement") by and between the Authority and First National
Bank of Minneapolis, as escrow holder (together with First Bank National
Association and its successors, the "Escrow Holder") the Authority provided for
the holding, investment, application, disposition of and use of moneys in the
General Guaranty Fund and various other matters related thereto with respect to
the governance of the General Guaranty Fund; and

WHEREAS, the Borrower has applied to the Authority for assistance under
the Program in connection with the financing of a project to consist of the
acquisition, construction, improvement and equipping of a new manufacturing
building located in the City of St. Cloud, Stearns County, Minnesota, for use in
the manufacture of printed products (the "Project"); and

WHEREAS, by a resolution adopted by the Authority on April 5, 1990, the
Authority has found that the Borrower is an "eligible small business" under the
Act and that the Project qualifies for financial assistance under the Act and
has

<PAGE>

determined to provide such financial assistance by the inclusion of the Project
in the Program; and

WHEREAS, to implement this determination the Authority proposes (i) to
issue a lot of bonds within a series issued under the General Bond Resolution
and its Single Lot Resolution and (ii) to loan the proceeds of the sale of the
said Bonds to the Borrower to finance a portion of the cost of the Project, upon
the terms and conditions hereinafter set forth in this Agreement;

NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto hereby formally covenant,
agree and bind themselves as follows, to-wit:

<PAGE>

ARTICLE I

DEFINITIONS

Section 1.1. DEFINITIONS. Capitalized terms used herein but not defined
herein shall have the meaning given thereto in the General Bond Resolution
unless the context or use indicates another or different meaning or intent. The
following words and terms as used in the Loan Agreement shall have the following
meanings unless the context or use indicates another or different meaning or
intent:

"ACCOUNTANT" means a firm of independent public accountants of recognized
standing, selected by the Borrower.

"ACT" means the act of the legislature of the State enacted as Chapter 547
of the Laws of Minnesota for 1980, as amended and supplemented from time to
time, known as the "Minnesota Energy and Economic Development Authority Act" and
set forth in MINNESOTA STATUTES 1986, Chapter 116M (notwithstanding the repeal
thereof and MINNESOTA STATUTES, Chapter 41A).

"AGREEMENT" means this Loan Agreement, dated as of July 1, 1990, by and
between the Authority and the Borrower, as the same may be amended from time to
time.

"APPRAISED VALUE" means the value established by an independent appraiser
acceptable to the Authority.

"AUTHORITY" means the Minnesota Agricultural and Economic Development
Board, constituted as an authority to act an behalf of the State within the
scope of the powers granted to it in the Act and created by the Act, or any
successor thereto, and constituting the legal successor of the Minnesota Energy
and Economic Development Authority and the Minnesota Small Business Finance
Agency.

"AUTHORITY RESOLUTION" means the General Bond Resolution and the Single Lot
Resolution.

"AUTHORIZED REPRESENTATIVE" means, in the case of the Authority, the Chair,
Administrator or Executive Director of the Authority; in the case of the
Borrower, its Chairman of the Board, President or any vice president or its
Chief Financial Officer or its Treasurer; and, in the case of both, such
additional persons as, at the time, are designated to act in behalf of the
Authority or Borrower, as the case may be, by written certificate furnished to
the Trustee and the Authority or Borrower, as the case may be, containing the
specimen signature of each such person and signed on behalf of (i) the Authority
by the Chair, Administrator or Executive Director of the Authority, and (ii) the
Borrower by the Chairman of the Board, President or

<PAGE>

any vice president or its Chief Financial Officer or the Treasurer of the
Borrower.

"BONDS" means any of the Authority's Minnesota Small Business Development
Loan Program Bonds issued from time to time under the General Bond Resolution
and then outstanding.

"BOND COUNSEL" means Lindquist & Vennum, Minneapolis, Minnesota, or any
attorney or firm of attorneys of recognized standing in the field of municipal
law, duly admitted to the practice of law before the highest court of any state
of the United States of America, appointed from time to time by the Attorney
General of the State with respect to the Authority.

"BOND PAYMENT DATE" means each date on which interest or both a Principal
Installment and interest shall be payable on the Single Lot Bonds in accordance
with its terms.

"BOND PROCEEDS" means the amount, including accrued interest, if any,
received by the Authority as the purchase price of the Single Lot Bonds, and
deposited by the Trustee in accordance with the provisions of the Authority
Resolution into certain funds and accounts created thereunder.

"BOND RATE" means, as of any date of calculation and with respect to any
period, the highest rate of interest payable on any of the Single Lot Bonds in
accordance with its terms, determined as of such date with respect to such
period (including any fluctuations of rate, if any).

"BOND YEAR" means, for the Single Lot Bonds, the 12-month period beginning
on August 1 of any year and ending on July 31 of the succeeding year; provided,
however, that the initial Bond Year shall begin on the date in which such Bonds
are delivered and ending on the next succeeding July 31.

"BONDHOLDER" or "HOLDER" or "HOLDERS OF BONDS" or similar term, when used
with respect to a Bond or Bonds, means any person who shall be the registered
owner of any outstanding Bond registered as to both principal and interest in
accordance with the provisions of the General Bond Resolution.

"BORROWER" means (i) May Printing Company, a corporation duly organized and
existing under the laws of the State of Minnesota, and its successors and
assigns and (ii) any surviving, resulting or transferee corporation as provided
in Section 8.3 hereof.

"BUILDINGS" means all those buildings, improvements, structures or
renovations to existing buildings, improvements or structures and other related
facilities (i) affixed or attached, or to be affixed or attached, to the Land,
(ii) financed with the

<PAGE>

proceeds of the Single Lot Bonds or of any payment by the Borrower pursuant to
Section 3.3 or Section 4.5 hereof, and (iii) not part of the Equipment, all as
they may exist from time to time.

"BUSINESS LOAN RESERVE ACCOUNT" means the Account so designated which is
created and established by Section 4.01 of the Single Lot Resolution pursuant to
the General Bond Resolution.

"BUSINESS LOAN RESERVE ACCOUNT REQUIREMENT" means, as of any date of
calculation, with respect to the Single Lot Bonds that sum which is equal to the
lesser of ten percent of the original aggregate principal amount of the Single
Lot Bonds or the maximum aggregate payments of principal and interest for any
Bond Year over the period from the date of calculation to (and including) the
final maturity date of such Single Lot Bonds.

"CAPITALIZED LEASE OBLIGATIONS" means all lease obligations which have been
or should be, in accordance with generally accepted accounting principles,
capitalized on the books of the lessee.

"CLOSING DATE" means the date of sale and delivery of the Single Lot Bonds.

"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, and the regulations, proposed, temporary or final, of the Department of
the Treasury promulgated under the Prior Code or under the Code from time to
time.

"COMPLETION DATE" means the date of completion of the acquisition,
construction and installation of the Project, as certified to pursuant to
Section 4.4 of this Agreement.

"CONDEMNATION" means the taking of title to, or the use of, Property under
the exercise of the power of eminent domain by any governmental entity or other
Person acting under governmental authority.

"CONSTRUCTION ACCOUNT" means the Account so designated which is created and
established by Section 4.01 of the Single Lot Resolution, pursuant to the
General Bond Resolution.

"CONSTRUCTION PERIOD" means, with respect to the Project, the period (a)
beginning on the earlier of (i) the date of commencement of acquisition or
construction of such Project, or (ii) the Closing Date with respect to the
Single Lot Bonds, and (b) ending on the Completion Date with respect to such
Project.

"COST OF ISSUANCE" means all items of expense payable or reimbursable
directly or indirectly by the Authority and related

<PAGE>

to the authorization, sale and issuance of Bonds, which items of expense shall
include but not be limited to printing costs, costs of reproducing documents,
filing and recording fees, initial fees and charges of any fiduciary appointed
under the General Bond Resolution, initial letter of credit fees, surety
obligation fees or other similar fees, municipal bond insurance premiums or the
cost of providing any other credit enhancement, legal fees and charges,
professional consultants' fees, costs of credit ratings, fees and charges for
execution, transportation and safekeeping of Bonds, underwriter discount or
placement fees, costs and expenses of refunding and other costs, charges and
fees in connection with the original issuance of Bonds.

"COST OF THE PROJECT" means all those items of cost and expenses enumerated
in Section 4.3(a) hereof.

"DEBT SERVICE PAYMENT" means, with respect to any Bond Payment Date,
(i) the interest payable on the Single Lot Bonds on such Bond Payment Date, plus
(ii) the principal, if any, payable on the Single Lot Bonds on such Bond Payment
Date, plus (iii) the premium, if any, payable on the Single Lot Bonds on such
Bond Payment Date.

"DETERMINATION OF TAXABILITY" means the final administrative determination
or judicial decision that the interest on any of the Single Lot Bonds is (or
was), for purposes of Federal income taxation includable, for any reason other
than a determination that interest received by a particular taxpayer constitutes
an item of tax preference for the purpose of calculating an alternative minimum
tax or some similar tax, in gross income of the holder thereof (other than a
Substantial User of the Project or a Related Person). Such an administrative
determination shall not be deemed to be final for the purposes hereof until the
expiration of all periods for judicial review or appeal, as the case may be.

"EQUIPMENT" means all machinery, equipment and other personal property
which (i) is used in connection with the Project or the Land and (ii) is (or
will be) acquired with the proceeds of the Series 1985 Bonds or the Single Lot
Bonds or of any payment by the Borrower pursuant to Section 3.3 or Section 4.5
hereof (which property is described generally in Exhibit B annexed to this
Agreement) with such replacements and substitutions therefor as may exist from
time to time in accordance with the provisions of this Agreement.

"EQUIPPING PORTION OF THE PROJECT" means that portion of the Project
involving the acquisition and installation of the new equipment described on
Exhibit B hereto.

"ESCROW HOLDER" means First Bank National Association (formerly First
National Bank of Minneapolis) appointed as the

<PAGE>

escrow holder under the General Guaranty Fund Pledge and Escrow Agreement, and
its successor and successors, and any other corporation or association which may
at any time be substituted in its place as Escrow Agent pursuant to the General
Guaranty Fund Pledge and Escrow Agreement.

"FACILITY" means all of the Buildings now or hereafter existing on the Land
and all Equipment used in connection therewith, including the Project and the
Series 1985 Project, with such additions thereto and substitutions therefor as
may exist from time to time in accordance with the provisions of this Agreement
and the Series 1985 Agreement.

"FUNDED INDEBTEDNESS" means, for any Person, all Indebtedness which matures
by its terms more than one year from the Closing Date or matures within one year
from such date but is unconditionally renewable or extendible, at the option of
the debtor, by its terms or by the terms of any instrument or agreement relating
thereto, to a date more than one year from such date or arises under a revolving
credit or similar agreement which obligates the lender or lenders to extend
credit over a period of more than one year from such date or, if created after
the Closing Date, matures by its terms more than one year from the date of
creation.

"GENERAL BOND RESOLUTION" means the Minnesota Small Business Development
Loan Program Revenue Bonds, General Bond Resolution adopted by the Authority on
September 26, 1984, as the same may be amended or supplemented from time to time
by any supplemental resolution thereunder.

"GENERAL GUARANTY FUND" means that account of the Economic Development Fund
that has been created by the Authority in accordance with the Act pursuant to
the General Guaranty Fund Resolution of the Authority and is governed by the
provisions of the General Guaranty Fund Pledge and Escrow Agreement.

"GENERAL GUARANTY FUND PAYMENTS" means any payments made by the Escrow
Holder to the Trustee for deposit in accordance with the provisions of the
General Bond Resolution to discharge the guaranty obligation of the General
Guaranty Fund with respect to the debt service payments on or the prepayment of
the Bonds that correspond to unpaid payments of principal and interest then due
on the loans to businesses or exempt small businesses financed by such Bonds,
whether due upon scheduled payment dates or upon acceleration prior to the
occurrence of such scheduled payment dates.

"GENERAL GUARANTY FUND PLEDGE AND ESCROW AGREEMENT" means that escrow
agreement dated as of September 26, 1984, by and between the Authority and the
Escrow Holder, pursuant to which the Authority has provided for the holding,
investment and

<PAGE>

application, disposition and use of the moneys transferred by the Authority into
the General Guaranty Fund from the Economic Development Fund and from other
sources, and pursuant to which the Authority has provided for such other matters
as may be provided for with respect to the General Guaranty Fund and the moneys
transferred thereto, all in accordance with the Act.

"GENERAL GUARANTY FUND REIMBURSEMENT AMOUNT" means, as of any date of
calculation, with respect to any Lot of Bonds, an amount equal to the aggregate
of all of the General Guaranty Fund Payments paid from the General Guaranty Fund
to discharge the guarantee obligation of the General Guaranty Fund with respect
to said Bonds less those sums that have been applied, or are then available
under the provisions of the General Bond Resolution to be applied, to reimburse
the General Guaranty Fund for the aggregate of all such General Guaranty Fund
Payments, plus, with respect to such unpaid General Guaranty Fund Payments, such
additional amounts equal to the sum of interest accruing on the amount of such
unpaid General Guaranty Fund Payments at the interest rate borne by said Bonds
for any period during which such General Guaranty Fund Payments are unpaid.

"GENERAL GUARANTY FUND RESOLUTION" means that certain Resolution No. 84-205
of the Authority adopted by the Authority on September 26, 1984, pursuant to
which the Authority created the General Guaranty Fund as an account of the
Economic Development Fund.

"GUARANTORS" mean, collectively, as of any specific date, the persons who
are then parties to the Guaranty, which persons, as of the date hereof are
J. Scott May, Mary Kay May, Thomas L. May and Susan Therese May and any
substitute guarantors accepted by the Authority pursuant to the provisions of
the Guaranty and their respective heirs, administrators, executors, successors
and assigns.

"GUARANTY" means the agreement by the Guarantors in favor of the Authority,
dated as of the date of this Agreement, by which the Guarantors jointly and
severally guarantee to the Authority the full and prompt payment, when due, of
all amounts payable by the Borrower under this Agreement and the Note when and
as the same become due, whether by any acceleration or otherwise and the
performance obligations of the Borrower thereunder.

"HOLDING ACCOUNT" means the Account so designated which is created and
established by Section 4.01 of the Single Lot Resolution, pursuant to the
General Bond Resolution.

"INDEBTEDNESS" means, for any Person, (i) all indebtedness or other
obligations of such Person for borrowed money or for the deferred purchase price
of property or services

<PAGE>

(but not including current accounts payable) (ii) all indebtedness or other
obligations of any other person for borrowed money or for the deferred purchase
price of property or services the payment or collection of which such Person has
guaranteed (except by reason of endorsement for collection in the ordinary
course of business) or in respect of which such Person is liable, contingently
or otherwise, including, without limitation, liable by way of agreement to
purchase, to provide funds for payment, to supply funds to or otherwise to
invest in such other persons, or otherwise to assure a creditor against loss,
(iii) all indebtedness or other obligations of any other person for borrowed
money or for the deferred purchase price of property or services secured by (or
for which the holder of such indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, deed of trust, pledge, lien, security
interest or other charge or encumbrance upon or in property (including, without
limitation, accounts and contract rights) owned by such Person, whether or not
such Person has assumed or become liable for the payment of such indebtedness or
obligations and (iv) Capitalized Lease Obligations of such Person.

"INDEMNIFIED PARTIES" means the Authority and its members, officers,
employees and agents and the Department of Trade and Economic Development and
its Commissioner, employees and agents.

"INDEPENDENT COUNSEL" means an attorney or attorneys or firm or firms of
attorneys duly admitted to practice law before the highest court of any state of
the United States of America or in the District of Columbia and not a full time
employee of the Authority, the Borrower or the Trustee.

"INTERIM LENDER" means First American National Bank of St. Cloud.

"INTERIM LOAN" means the loan made to the Borrower by the Interim Lender
in the amount not in excess of $2,750,000 to finance, on an interim basis, the
acquisition and construction of the Project.

"INTERIM LOAN DOCUMENTS" means the following documents executed by and
between the Borrower and the Interim Lender with respect to the Interim Loan:

a) Real Estate Construction Note dated July 16, 1990 in the original
principal amount of the Interim Loan;

b) Construction Loan Agreement dated July 16, 1990;

c) Security Agreement dated July 16, 1990; and

<PAGE>

d) Interim Mortgage.

"INTERIM MORTGAGE" means the Mortgage, Security Agreement, Fixture
Financing Statement and Assignment of Leases and Rents, dated July 16, 1990.

"LAND" means the real estate described in Exhibit A attached hereto on
which is located or is to be located the Buildings and the Equipment, with such
additions thereto and substitutions therefor as may exist from time to time in
accordance with the provisions of this Agreement.

"LIEN" means any interest in Property securing an obligation owed to a
Person, whether such interest is based on the common law, statute or contract,
and including but not limited to the security interest arising from a mortgage,
encumbrance, pledge, conditional sale or trust receipt or a Uniform Commercial
Code security interest, lease, consignment or bailment for security purposes.
The term "Lien" includes reservations, exceptions, encroachments, easements,
rights of way, covenants, conditions, restrictions, leases and other similar
title exceptions and encumbrances, including but not limited to mechanics',
materialmen's, warehousemen's, carriers' and other similar encumbrances,
affecting real property. For the purposes of this Agreement, a Person shall be
deemed to be the owner of any Property which it has acquired or holds subject to
a conditional sale agreement or other arrangement pursuant to which title to the
Property has been retained by or vested in some other Person for security
purposes.

"LOAN" means the loan made by the Authority to the Borrower pursuant to
Section 3.2 of this Agreement and as evidenced by the Note.

"LOAN TERM" means the period commencing with the Closing Date and
continuing until all the Single Lot Bonds and interest thereon have been paid in
full or provision for such payment has been made pursuant to Article XI of the
General Bond Resolution.

"LOT LOAN FIDUCIARY PAYMENTS" means, for any Bond Year (or any ratable
portion thereof), the reasonable fees and expenses of the Trustee (and
Depositaries and Paying Agents, as defined in the General Bond Resolution) for
the Bond Year in connection with duties performed by them with respect to the
Single Lot Resolution, this Agreement, the Mortgage, the Guaranty, the Project
and the Borrower and under the General Bond Resolution and the General Guaranty
Fund Pledge and Escrow Agreement with respect to the foregoing.

<PAGE>

"MORTGAGE" means that mortgage, dated as of the date of this Agreement,
from the Borrower, as mortgagor, to the Authority, as mortgagee, with respect to
the Land.

"NET PROCEEDS" means so much of the gross proceeds with respect to which
that term is used as remain after payment of all expenses, costs and taxes
(including attorneys' fees) incurred in obtaining such gross proceeds.

"NET WORTH" means, at any date, the Tangible Assets of a Person which would
be shown, in accordance with generally accepted accounting principles, on its
balance sheet, minus liabilities (other than capital stock and surplus or its
equivalent but including all reserves for contingencies and other potential
liabilities) which would be shown, in accordance with generally accepted
accounting principles, on such balance sheet.

"NOTE" means the promissory note of the Borrower dated as of the date of
the Single Lot Bonds, evidencing the Borrower's obligations pursuant to this
Agreement, substantially in the form of Appendix I hereto.

"OFFICIAL ACTION RESOLUTION" means that resolution adopted by the Authority
on April 5, 1990 with respect to the Borrower and entitled "RESOLUTION GIVING
PRELIMINARY APPROVAL TO A PROJECT WITH MAY PRINTING COMPANY, A MINNESOTA
CORPORATION, GIVING PRELIMINARY APPROVAL, WITH CONDITIONS, FOR THE ISSUANCE OF
SMALL BUSINESS DEVELOPMENT LOAN PROGRAM REVENUE BONDS TO FINANCE THE PROJECT AND
PROVIDING FOR OTHER MATTERS RELATED THERETO."

"OPTIONAL REDEMPTION ACCOUNT" means the Account so designated which is
created and established by Section 4.01 of the Single Lot Resolution, pursuant
to the General Bond Resolution.

"PERMITTED ENCUMBRANCES" means (i) Liens described in Exhibit A attached
hereto, (ii) this Agreement, the Mortgage, the Authority Resolution and any
security interest created thereunder, (iii) utility, access and other easements
and rights of way, restrictions and exceptions that, in the opinion of the
Authority and the Trustee, do not materially impair the utility or the value of
the Property affected thereby for the purposes for which it is intended,
(iv) mechanics, materialmen's, warehousemen's, carriers' and other similar Liens
and any other Liens to the extent permitted by Section 8.13 hereof, (v) Liens
for taxes at the time not delinquent, (vi) any lease, sublease, assignment or
reassignment entered into in conformity with Section 8.10 of this Agreement,
(vii) the Series 1985 Bond Documents, (viii) purchase money security interests
in Property which is not Security Property hereunder and (ix) the Interim Loan
Documents; provided, however, the Liens associated with the Interim Loan
Documents shall be permanently discharged prior to

<PAGE>

the advance of any moneys from the Construction Account pursuant to Section 4.3
of this Agreement and from and after the date of such advance the Liens
associated with the Interim Loan Documents shall no longer be "Permitted
Encumbrances."

"PERSON" means an individual, partnership, corporation, trust or
unincorporated organization or a government or any agency, instrumentality,
program, account, fund, political subdivision or corporation thereof.

"PLANS AND SPECIFICATIONS" means the plans and specifications for the
Project, including a schedule detailing the components of the Project and their
respective costs or proposed costs, filed by the Borrower with the Trustee, as
the same may be implemented and detailed from time to time and as the same may
be revised from time to time in accordance with Section 4.2(b) of this
Agreement. The Plans and Specifications shall include a list of all the
Equipment that the Borrower will acquire with respect to the Project.

"PLEDGE" means the pledge by the Authority of the rights and interests of
the Authority in and to this Agreement, the Mortgage and the Guaranty, including
all rights to receive payment thereunder, such pledge by the Authority being
made pursuant to Section 1.04 of the General Bond Resolution and Section 6.01 of
the Single Lot Resolution to the Bondholders for the payment of the principal or
redemption price of and interest on the Bonds in accordance with their terms.

"PRINCIPAL INSTALLMENT" means an installment of principal payable on the
Single Lot Bonds, whether as the maturity date of serial or term bond or as
sinking fund installments payable with respect to such Bonds.

"PRINCIPAL USER" means any Person constituting a "principal user" within
the meaning of Section 144(a) of the Code.

"PRIOR CODE" means the Internal Revenue Code of 1954, as amended and in
effect on the day prior to the enactment of the Internal Revenue Code of 1986.

"PROGRAM" means the Authority's program of acquiring business loans under
the General Bond Resolution with the proceeds of Bonds, the repayment of debt
service payments and certain mandatory redemptions which are guaranteed by the
General Guaranty Fund in accordance with the provisions of the General Guaranty
Fund Pledge and Escrow Agreement, which program has been designated by the
Authority as the "Minnesota Small Business Development Loan Program".

<PAGE>

"PROGRAM EXPENSE FUND" means the Fund so designated, which is created and
established by Section 5.01 of the General Bond Resolution.

"PROJECT" means the Buildings and the Equipment to be used in connection
with the Land, and to be acquired, constructed and installed by the Borrower
with the Bond Proceeds or any payment by the Borrower pursuant to Section 4.5
hereof, with such additions thereto and substitutions therefor as may exist from
time to time in accordance with the provisions of this Agreement.

"PROJECT MUNICIPALITY" means the City of St. Cloud, Stearns County,
Minnesota within the corporate borders of which the Project is, or is to be,
located.

"PROJECT SUPERVISOR" means any title insurance company licensed to operate
in the State and with offices located in the State or any architect or engineer
or firm of architects or engineers qualified to practice in the State and with
offices in the State, or any combination thereof, which is appointed by the
Authority and satisfactory to the Trustee. Steven King may act as Project
Supervisor.

"PROPERTY" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.

"REBATE ACCOUNT" means the Account so designated which is created and
established by Section 4.01 of the Single Lot Resolution, pursuant to the
General Bond Resolution.

"RECONSTRUCTION ACCOUNT" means the Account so designated which is created
and established by Section 4.01 of the Single Lot Resolution, pursuant to the
General Bond Resolution.

"REDEMPTION PRICE" means, when used with respect to the Single Lot Bonds,
the principal amount thereof plus the applicable premium, if any, payable upon
the prior redemption thereof pursuant to the Single Lot Resolution.

"REIMBURSEMENT ACCOUNT" means the Account so designated which is created
and established by Section 4.01 of the Single Lot Resolution, pursuant to the
General Bond Resolution.

"RELATED PERSON" means any Person constituting a "related person" within
the meaning of Section 144(a)(3) of the Code.

"RESTRICTED COSTS OF ISSUANCE" means all costs incurred in connection with
the authorization, issuance, sale and delivery of the Single Lot Bonds and the
authorization, issuance and making of the Loan (collectively, the "Borrowing"),
including in

<PAGE>

general, all costs that are treated as costs of issuance under the present
Treasury Department regulations and rulings for the prior code; examples of such
Restricted Costs of Issuance include (but are not limited to)--

(1) underwriters' spread (whether realized directly or derived
through purchase of the Single Lot Bonds at a discount below the price at
which they are expected to be sold to the public);

(2) counsel fees (including Bond Counsel, underwriter's counsel,
Authority's counsel, Borrower's counsel, counsel to any lessee, Guarantor's
counsel, Trustee's counsel, as well as any other specialized counsel fees
incurred in connection with the Borrowing);

(3) financial advisor fees incurred in connection with the Borrowing;

(4) rating agency fees;

(5) Trustee fees incurred in connection with the Borrowing;

(6) paying agent and certifying and authenticating agent fees
related to issuance of the Single Lot Bonds;

(7) accountant fees (e.g., account verifications in the case of
advance refundings) related to issuance of the Single Lot Bonds;

(8) printing costs (for the Single Lot Bonds and of preliminary and
final offering materials);

(9) costs incurred in connection with the required public approval
process (e.g., publication costs for public notices generally and costs of
the public hearing or voter referendum); and

(10) costs of title insurance, surveys, mortgage registration taxes,
and engineering and feasibility studies necessary to the issuance of the
Single Lot Bonds (as opposed to such studies related to completion of the
project, but not to the Borrowing).

"REVENUE ACCOUNT" means the Account so designated which is created and
established by Section 4.01 of the Single Lot Resolution, pursuant to the
General Bond Resolution.

"SECURITY PROPERTY" means all Property subject to any mortgage or security
interest described in Section 5.4 of this Agreement.

<PAGE>

"SERIES 1985 BONDS" means the Authority's Minnesota Small Business
Development Loan Program Revenue Bonds, Series 1985C, Lot 1, issued in the
initial aggregate principal amount of $1,000,000 and presently outstanding in
the principal amount of $730,000.

"SERIES 1985 BOND DOCUMENTS" means the Series 1985 Bonds, Series 1985
Guaranty, Series 1985 Note, Series 1985 Loan Agreement, and any and all other
documents, instruments and agreements executed or delivered in connection
therewith.

"SERIES 1985 GUARANTY" means the "Guaranty" as defined in the Series 1985
Loan Agreement.

"SERIES 1985 NOTE" means the "Note" as defined in the Series 1985 Loan
Agreement.

"SERIES 1985 LOAN AGREEMENT" means the Loan Agreement dated as of
November 1, 1985 between the Minnesota Energy and Economic Development Authority
and Borrower, as amended by the First Amendment to Loan Agreement dated as of
July 1, 1990, between the Board and the Borrower, as now or hereafter amended.

"SERIES 1990B BONDS" means the Bonds of the series designated by the
Authority as the "SERIES 1990B BONDS" in the Single Lot Resolution of the
Authority and consisting of the Single Lot Bonds plus the additional lots being
issued pursuant to separate lot resolutions.

"SINGLE LOT BONDS" means the Authority's Minnesota Small Business
Development Loan Program Revenue Bonds, Series 1990B, Lot 1 in the aggregate
principal amount of $4,205,000 authorized to be issued by the Authority
Resolution.

"SINGLE LOT RESOLUTION" means the Single Lot Bonds resolution of the
Authority authorizing the issuance of the Single Lot Bonds adopted by the
Authority on June 29, 1990 pursuant to the General Bond Resolution.

"SPECIAL REDEMPTION ACCOUNT" means the Account so designated which is
created and established by Section 4.01 of the Single Lot Resolution, pursuant
to the General Bond Resolution.

"STATE" means the State of Minnesota.

"SUBORDINATED INDEBTEDNESS" means, with respect to the Borrower, all
Indebtedness which by its terms states that payment of principal and interest
thereof is subordinate to the payment of principal and interest of the Loan. A
payment of principal or interest on Subordinated Indebtedness is subordinate to
payment of principal and interest on the Loan if by its terms such

<PAGE>

payment shall not be made by the Borrower or received by or on behalf of the
holder of the Subordinated Indebtedness if and for so long as the Borrower is
delinquent in the payment of principal, premium, if any, or interest on the Loan
as and when any such payment on the Loan is due, whether by reason of regularly
scheduled payments, maturity, mandatory, special or extraordinary redemption or
acceleration.

"SUBSTANTIAL USER" means any Person constituting a "substantial user"
within the meaning of Section 103 of the Code.

"TANGIBLE ASSETS" means total assets except: (i) that portion of deferred
assets and prepaid expenses (other than prepaid insurance, prepaid rent and
prepaid taxes) which do not mature or, in accordance with generally accepted
accounting principles, are not amortizable within one year from the date of
calculation, and (ii) trademarks, trade names, good will, and other similar
intangibles.

"TRUSTEE" means First Bank National Association (formerly known as First
National Bank of Minneapolis), appointed by the Authority as Trustee under the
Authority Resolution, and its successor or successors and any other corporation
or association at any time substituted in its place as trustee pursuant to the
General Bond Resolution.

<PAGE>

ARTICLE II

REPRESENTATIONS AND COVENANTS

Section 2.1. REPRESENTATIONS AND COVENANTS OF THE AUTHORITY. The
Authority makes the following representations and covenants as the basis for the
undertakings on its part herein contained:

(a) The Authority is duly established and existing and is constituted as
an authority to act an behalf of the State and created and existing by virtue of
the laws of the State and has the power to enter into the transactions
contemplated by this Agreement, the Guaranty and the Mortgage and to adopt the
Authority Resolution, and to carry out its obligations hereunder and thereunder.
The Project is of a nature that qualifies under the Act for the financial
assistance provided by the Program. By proper official action the Authority has
been duly authorized to execute and deliver or accept this Agreement, the
Guaranty and the Mortgage and has duly adopted the Authority Resolution.

(b) Neither the execution and delivery or acceptance of this Agreement,
the Guaranty or the Mortgage or the adoption of the Authority Resolution, the
consummation of the transactions contemplated hereby or thereby nor the
fulfillment of or compliance with the provisions of this Agreement, the Guaranty
or the Mortgage and the Authority Resolution will conflict with or result in a
breach of any of the terms, conditions or provisions of the Act, or any
restriction, agreement or instrument to which the Authority is a party or by
which it is bound, or will constitute a default under any of the foregoing, or
will result in the creation or imposition of any Lien upon any of the Property
of the Authority under the terms of any such instrument or agreement (other than
as contemplated by this Agreement, the Guaranty, the Mortgage and the Authority
Resolution).

(c) The Authority will lend to the Borrower the sum of $4,205,000 pursuant
to this Agreement to finance (i) a portion of the cost of the acquisition,
construction and installation of the Project, (ii) a deposit into the Business
Loan Reserve Account required under the provisions of the General Bond
Resolution and (iii) certain Costs of Issuance with respect to the issuance of
the Single Lot Bonds, all in furtherance of the purposes of the Act.

(d) To finance a portion of the Cost of the Project and the other costs
described in subsection (c) of this Section 2.1, the Authority will issue its
Single Lot Bonds which will mature, bear interest, be redeemable and have the
other terms and conditions as set forth in the Authority Resolution.

<PAGE>

Section 2.2. REPRESENTATIONS AND COVENANTS OF THE BORROWER. The Borrower
makes the following representations and covenants as the basis for the
undertakings on its part herein contained:

(a) The Borrower is a business corporation duly incorporated under the
laws of Minnesota, is in good standing under its certificate of incorporation
and the laws of the State, is duly authorized to do business in the State, has
the power to enter into this Agreement, the Note and the Mortgage and to borrow
money pursuant hereto and by proper corporate action has been duly authorized to
execute and deliver this Agreement, the Note and the Mortgage. The Borrower
constitutes an "eligible small business" and a "business" as defined in the Act.

(b) Neither the execution and delivery of this Agreement, the Note and the
Mortgage, the consummation of the transactions contemplated hereby nor the
fulfillment of or compliance with the provisions of this Agreement, the Note and
the Mortgage will conflict with or result in a breach of any of the terms,
conditions or provisions of any restriction or any agreement or instrument to
which the Borrower is a party or by which it is bound, or will constitute a
default under any of the foregoing, or result in the creation or imposition of
any Lien of any nature upon any of the Property of the Borrower under the terms
of any such instrument or agreement. No event has occurred and no condition
exists which, upon the passage of time or the giving of notice, would
constitute an event of default under any such agreement or instrument.

(c) So long as any of the Single Lot Bonds shall be outstanding, the
Borrower will not take any action, or fail to take any action, or cause, suffer
or permit others to take or fail to take action, which would (i) cause the
Project not to qualify under the Act for the financial assistance provided by
the Program (as such Act is in effect on the Closing Date) or (ii) adversely
affect the tax-exempt status of the interest payable on any of the Single Lot
Bonds or the Series 1985 Bonds then outstanding.

(d) The "construction", "reconstruction", "improvement" and "acquisition"
of the Project did not "commence" prior to April 5, 1990 (the date of adoption
of the Authority's Official Action Resolution) within the meanings ascribed to
such quoted terms under Section 144 of the Code.

(e) No other bonds, notes or other obligations the interest on which is,
or is claimed to be, exempt from Federal taxation by reason of Section 144 of
the Code are outstanding the proceeds of which have been used to finance
facilities located, in whole or in part, in the Project Municipality, the
Principal

<PAGE>

User of which is the Borrower or one or more Related Persons thereof, except as
set forth in Section 2.2(r).

(f) The Project consists of, and will at all times consist, entirely of
land and property which is of a character subject to the allowance for
depreciation provided in Section 167 of the Code.

(g) Substantially all (at least 98-1/2%) of the net proceeds of the Single
Lot Bonds will be expended on costs (other than Costs of Issuance), properly
capitalized or to be capitalized by the Borrower for Federal income tax purposes
(or which would be so capitalized but for (or with) a proper election by the
Borrower), incurred with respect to the acquisition and improvement of land and
acquisition and construction of facilities classified as depreciable property
pursuant to the applicable provisions of the Code. No part of the Bond Proceeds
will be used, directly or indirectly, (i) as working capital, (ii) to pay any
cost incurred prior to April 5, 1990, or (iii) to finance inventory or property
of any kind or character the first use of which will be by some person other
than the Borrower (i.e. all property acquired with Bond Proceeds will be "new"
rather than "used" property).

(h) No part of the Project was "placed in service" by the Borrower, any
other Principal User or a Related Person to the Borrower or any Principal User
(determined in accordance with the provisions of Section 103(b) of the Prior
Code) more than one year prior to the date of issue of the Single Lot Bonds.

(i) The Project is located entirely within the Project Municipality, which
is an "incorporated municipality" within the meaning of Section 144(a)(2)(A) of
the Code.

(j) The findings and determinations made by the Authority in the Official
Action Resolution concerning the Borrower and the Project are true and correct.
In particular, the financing of the acquisition of the Project will not have the
effect of a transfer of jobs from one area of the State to another.

(k) The availability of the financial assistance by the Authority as
provided in this Agreement, in the Authority Resolution and the General Guaranty
Fund Pledge and Escrow Agreement and by the Program has been a substantial
inducement to the Borrower to undertake the Project and to locate the Project in
the State.

(l) No officer or official of the Authority or the State Departments of
Finance or Trade and Economic Development has any interest (financial,
employment or other) in the Borrower or, to

<PAGE>

the Borrower's knowledge, the transactions contemplated by this Agreement.

(m) No expense for supervision by any director, officer or employee of the
Borrower and no expense for work done by any such director, officer or employee
in connection with the Project is or will be included in the Cost of the
Project, except to the extent any such director, officer or employee was
specially employed or designated by the Borrower for such particular purpose.

(n) The Borrower has not entered into any lease or assignment with respect
to the Project and no Person other than the Borrower has any right to the use or
possession thereof except for Permitted Encumbrances.

(o) The Borrower and any Related Persons thereof do not operate any
facility in any county or incorporated municipality which shares a common border
with the Project Municipality, which facility is contiguous with that part of
the Project described in Exhibit A hereto or which facility constitutes an
"integrated facility" (as defined in Section 103 of the Prior Code and the
Regulations promulgated thereunder) with the Project or any part thereof.

(p) The Project as designed will comply with all presently applicable
environmental, building, zoning and subdivision laws, ordinances, rules and
regulations.

(q) The Borrower reasonably estimates that the aggregate cost of the
Project will be at least $4,512,807 including (i) interest on the Single Lot
Bonds during the Construction Period of the Project, (ii) amounts derived from
Bond Proceeds and required to be deposited into the Business Loan Reserve
Account ($420,500) and (iii) amounts of Bond Proceeds required to pay Costs of
Issuance with respect to the issuance of the Single Lot Bonds ($84,100). In
addition, the aggregate value of the Project is no less than $4,817,934 because
the appraised value of the land exceeds the cost of the land by at least
$361,718 and, for purposes of establishing the value of the Project, $56,591 of
consulting fees have been disregarded. The value of the Project set forth in the
preceding sentence does not take into account the Business Loan Reserve Account
deposit.

(r) The Borrower and its Related Persons do not presently intend to enter
into any obligations which obligations would be used to or would tend to secure,
in whole or in part, any "tax-exempt facility-related bonds" within the meaning
of Section 144(a)(10) of the Code other than the Single Lot Bonds. In addition,
the Borrower and its Related Persons do not presently intend to occupy, in whole
or in part, any facilities which facilities would be financed, in whole or in
part, by "tax-

<PAGE>

exempt facility-related bonds" within the meaning of Section 144(a)(10) of the
Code other than the Single Lot Bonds and the obligations described below. The
Borrower has never before entered into a transaction pursuant to which were
issued on behalf of the Borrower "tax-exempt facility-related bonds" within the
meaning of Section 144(a)(10) of the Code except for the Series 1985 Bonds and
the Tax Increment Bonds issued by or on behalf of the City of St. Cloud,
Minnesota in the present outstanding principal amount of not more than $130,500.

(s) The Borrower consists of a business corporation, the interests in
voting shares thereof being as follows:

Owners Interest
------ --------
<S> <C>
J. Scott May 50%
Thomas L. May 50%

--------------------------------------

Total 100%
---
---

</TABLE>

(t) The "average maturity" of the Single Lot Bonds is not more than 13.01
years and 120% of the "average reasonably expected economic life" of the Project
is 33.5 years (as such quoted terms are derived pursuant to Section 147(b) of
the Code, calculating for the average reasonable expected economic life of the
facilities being financed with the net proceeds of the Single Lot Bonds from the
date on which the Single Lot Bonds are being issued). The "average reasonably
expected economic life" of the facilities financed with the net proceeds of the
Single Lot Bonds as used in the preceding sentence was established consistent
with Section 147(b)(2) of the Code. Accordingly, 120% of the average reasonably
expected economic life of the Project exceeds the average maturity of the Single
Lot Bonds.

(u) None of the proceeds of the Single Lot Bonds shall be used directly or
indirectly to provide residential real property for family units. In addition,
no more than 25% of the proceeds of the Single Lot Bonds shall be used to
provide a Project the primary purpose of which is one of the following: retail
food and beverage services, automobile sales or service, or the provision of
recreation or entertainment within the meaning of Section 144(a)(8) of the
Code. In addition, no portion of the proceeds of the Single Lot Bonds shall be
used to provide any of the following: any private or commercial golf course,
country club, massage parlor, tennis club, skating facility (including
rollerskating, skateboard and ice skating), racquet sports facility (including
any handball or racquetball court), hot tub facility, sun tan facility or
racetrack within the meaning of Section 144(a)(8) of the Code. In addition, no
portion of the proceeds of the Single Lot Bonds shall be used to provide any of
the following: any airplane, skybox, or other private luxury

<PAGE>

box, any health club facility, any facility primarily used for gambling, or any
store the principal business of which is the sale of alcoholic beverages for
consumption off premises within the meaning of Section 147(e) of the Code. In
addition, no more than 25% of the proceeds of the Single Lot Bonds will be used
for the acquisition of "land" or an interest therein within the meaning of
Section 147(c) of the Code and the issuance of the Single Lot Bonds will not
cause the aggregate principal amount of small issue exemption industrial
development revenue bonds, exempt pursuant to Section 103(a) and 144(a)(4) of
the Code, issued with respect to any building, an enclosed shopping mall, or a
strip of offices, stores or warehouses using substantial common facilities to
exceed $10,000,000 without regard to ownership or use of such building or other
facilities or any portion thereof.

(v) There has been no material adverse change in the condition of the
Borrower (financial or otherwise), since the last annual and interim financial
statements and reports furnished by the Borrower to the Authority in the
Borrower's application to the Authority for financial assistance and the
information contained in said statements fairly presents the financial condition
of the Borrower as of the dates of such financial statements and reports.

(w) There is no action or proceeding pending or, to the knowledge of the
Borrower threatened, against the Borrower, before any court, administrative
agency or arbitration board that may materially and adversely affect the
Properties, business, prospects, profits or condition (financial or otherwise)
of the Borrower or the ability of the Borrower to perform its obligations under
this Agreement or which, if determined adversely to the Borrower, would result
in a determination that the Borrower violated environmental laws, rules or
administrative orders. Notwithstanding the foregoing, the Borrower states as
follows:

The Borrower and two of the Guarantors (Thomas L. and J. Scott May)
have been threatened with a lawsuit by William Urseth, his company , U.S.
Graphics, Bob Pederson, and Bob Bosacker. The threatened lawsuit concerns
the purchase of stock of Roberts Litho, Inc. by Thomas L. May and J. Scott
May in November of 1987 from U.S. Graphics, Bob Bosacker and Bob Pederson
and the subsequent operation of the business of Roberts Litho, Inc. which
closed in December, 1988. Such threats originated on or about May, 1989. No
suit has been filed.

Prior to such threatened lawsuit, Thomas L. May and J. Scott May had
threatened litigation against Urseth and his company, Bosacker and Pederson
concerning certain

<PAGE>

representations, warranties and covenants made by them in the purchase
agreement for the stock.

To Borrower's knowledge, no specific basis for any claim by Urseth or
his company nor any amount of damages has been alleged. Bosacker and
Pederson are alleging breach of their employment agreements with Roberts
Litho, Inc. To Borrower's knowledge, no specific amount of damages has been
alleged.

To Borrower's knowledge, there is no reasonable basis in fact or law
for any meritorious claim against the Borrower or Thomas L. May and J.
Scott May and Borrower believes that Thomas L. May and J. Scott May have
claims against Urseth, his company, Bosacker and Pederson that exceed any
possible claims against Thomas L. May and J. Scott May.

(x) The Borrower has all requisite power and authority and all necessary
authorizations, licenses and permits, without unusual restrictions or
limitations, to own and operate its Properties and to carry on its business as
now conducted, and is duly qualified, is authorized to do business, and is in
good standing as a foreign corporation in each jurisdiction where the character
of its Properties or the nature of its activities makes such qualification
necessary or in which the failure to qualify will not have a material adverse
affect on the Properties, business, prospects, profits or condition (financial
or otherwise) of the Borrower or the ability of the Borrower to perform its
obligations under this Agreement.

(y) The Borrower has no contingent liabilities other than those disclosed
in the financial statements described in Section 2.2(v) hereof.

(z) No event of default has occurred and is continuing in any agreement as
to any outstanding indebtedness of the Borrower for money borrowed and no
condition, event or act exists which, with notice or lapse of time, or both,
would constitute such an event of default under any such agreement.

(aa) (i) None of the proceeds of the Single Lot Bonds shall be used
directly or indirectly for the acquisition of land (or an
interest therein) to be used for farming purposes within the
meaning of Section 147(c) of the Code.

(ii) The Project consists solely of new property the first user
of which is the Borrower within the meaning of Section
147(d) of the Code.

<PAGE>

(bb) No person is a "test-period beneficiary" with respect to the Project
within the meaning of Section 144(a)(10) of the Code, except the Borrower. As
of the date of issuance of the Single Lot Bonds, the Borrower and its Related
Persons do not have "allocated" to them the face amount of the Single Lot Bonds
and all other outstanding tax-exempt facility-related bonds "allocated" to such
"test-period beneficiary" and Related Persons in an amount in excess of
$40,000,000 (all as such quoted terms are defined in Section 144 (a) (10) of the
Code).

(cc) The only Principal User of the Project is the Borrower and there are
no Related Persons thereto;

(dd) The Guarantors are officers of the Borrower, shareholders of the
Borrower and/or members of its Board of Directors.

(ee) No more than two percent of the aggregate face amount of the Single
Lot Bonds will be used directly or indirectly to pay Restricted Costs of
Issuance.

(ff) At least 98-1/2% of the proceeds of the Bonds which remain after the
deposit to the Business Loan Reserve Account will be used to directly finance
manufacturing facilities within the meaning of Section 144(a)(12)(c) of the
Code, including 75% of such proceeds which shall be applied for costs for "core"
manufacturing activities directly constituting the manufacture or production of
tangible personal property so as to result in a change in condition of such
property, and such facilities will be used for such intended manufacturing
purposes for the entire period that the Single Lot Bonds are to remain
Outstanding.

Section 2.3. COVENANT WITH BONDHOLDERS. The Authority and the Borrower
agree that this Agreement is executed in part to induce the purchase by others
of the Single Lot Bonds. Accordingly, subject to the provisions of Section 2.4
and Section 2.5 of this Agreement, all covenants and agreements on the part of
the Authority and the Borrower set forth in this Agreement are hereby declared
to be for the benefit of the holders from time to time of such Single Lot Bonds.

Section 2.4. GENERAL GUARANTY FUND RIGHT OF REIMBURSEMENT. In the
event of the acceleration of the Loan hereunder, if any General Guaranty Fund
Payments are made from the General Guaranty Fund with respect to the Single Lot
Bonds, there shall arise hereunder a right of reimbursement against the Borrower
and accruing to the General Guaranty Fund equal to the sum of the unsatisfied
General Guaranty Fund Reimbursement Amount with respect to the Single Lot Bonds.
Such right of reimbursement in favor of the General Guaranty Fund shall require
payment of such sum by the Borrower to the Authority immediately upon the
creation of such right and shall be secured as provided in

<PAGE>

Section 5.4 of this Agreement and enforced and reduced as provided in Section
10.2 of this Agreement and, in each case, as may be provided in the General Bond
Resolution; provided, however, that such right of reimbursement shall be
subordinate to the rights of the Bondholders described in section 2.3 of this
Agreement and as further provided in the General Bond Resolution.

Section 2.5. AUTHORITY RIGHT OF REIMBURSEMENT. In the event of the
acceleration of the Loan hereunder, if the Authority elects to redeem the Single
Lot Bonds in whole or in part from any moneys available to the Authority for
such purpose from any source other than the General Guaranty Fund (and other
than those sources pledged to pay Bonds pursuant to Section 1.04 of the General
Bond Resolution), there shall arise hereunder a right of reimbursement against
the Borrower and accruing to the Authority equal to the amount so paid by the
Authority with respect to the Single Lot Bonds. Such right of reimbursement in
favor of the Authority requires payment of such sum by the Borrower to the
Authority immediately upon the creation of such right and shall be secured as
provided in Section 5.4 of this Agreement and enforced and reduced as provided
in Section 10.2 of this Agreement and, in each case, as provided in the General
Bond Resolution; provided, however, that such right of reimbursement shall be
subordinate to the rights of Bondholders described in Section 2.3 of this
Agreement and as further provided in the General Bond Resolution.

<PAGE>

ARTICLE III

AGREEMENT TO ISSUE SINGLE LOT BONDS AND TO LOAN
PROCEEDS THEREOF; BORROWER'S CONTRIBUTION TO COSTS OF PROJECT

Section 3.1. ISSUANCE OF SINGLE LOT BONDS; DEPOSIT OF BOND PROCEEDS. In
order to provide funds for (i) payment of certain of the Cost of the Project,
together with other payments and incidental expenses in connection therewith,
(ii) a deposit into the Business Loan Reserve Account required under the
provisions of the General Bond Resolution in an amount of $420,500 and (iii)
certain Costs of Issuance with respect to the issuance of the Single Lot Bonds,
the Authority agrees that it will issue and sell the Single Lot Bonds and cause
the Bond Proceeds to be delivered to the Trustee.

Section 3.2. AGREEMENT TO MAKE LOAN. The Authority agrees that, upon (i)
the sale and delivery of the Single Lot Bonds and (ii) satisfaction of the terms
and conditions set forth in this Agreement, it will and does hereby lend the
Borrower the sum of $4,205,000 in accordance with the provisions of this
Agreement, such loan to be evidenced by the Note. The obligation of the
Authority to make said loan shall be discharged and the obligation of the
Borrower hereunder and in the Note shall become effective, when the following
sums, totaling $4,205,000, are deposited in the following funds and accounts
established under the Authority Resolution in accordance with the provisions of
the Authority Resolution, or are otherwise directly applied for certain
purposes, in any case, in the following amounts:

(1) To the Business Loan Reserve Account, $420,500;

(2) To pay Costs of Issuance with respect to the Single Lot Bonds as
a discount from the par amount of the Single Lot of Bonds, the amount of
$84,100 (for a portion of the underwriters' discount); and

(3) To the Construction Account, $3,700,400 being the cash balance of
the Bond Proceeds (other than amounts representing accrued interest on the
Single Lot Bonds), to pay the Cost of the Project and certain Costs of
Issuance.

Section 3.3. NEED FOR BORROWER'S CONTRIBUTION TO COSTS OF PROJECT.

(a) The Borrower hereby represents that the amount of the Loan deposited
into the Construction Account ($3,700,400) to pay for the Cost of the Project is
less than the total Cost of the Project (other than interest payable on the
Single Lot Bonds during the Construction Period of the Project, the Business
Loan Reserve Account deposit of $420,500 out of Bond Proceeds and the
Underwriters' discount of $84,100 out of Bond Proceeds) by an

<PAGE>

amount equal to approximately $307,807 [Project cost of $4,512,807 (as described
and calculated in Section 2.2(q) hereof) less the sum of ($3,700,400 + $420,500
+ $84,100)]. Pursuant to the loan criteria for its Program, the Authority
hereby requires the Borrower to make an equity contribution to pay for such
deficiency in the Cost of the Project, such equity contribution to take the form
of a combination of (i) a $103,100 cash payment to the Trustee by the Borrower
for deposit into the Cost of Issuance Account to be used to pay Costs of the
Issuance pursuant to Section 4.3 of this Agreement and (ii) payment of $204,707
of other Costs of the Project from Borrower's funds derived from a source other
than the Single Lot Bonds. The Borrower shall make the $103,100 cash deposit
described in clause (i) above simultaneously with the execution and delivery by
the Borrower of this Agreement. Prior to any disbursements from the
Construction Account (for other than Cost of Issuance or debt service on the
Single Lot Bonds), the Borrower shall provide the Trustee with evidence of
payment of Costs of the Project (in addition to the deposit to the Cost of
Issuance Account out of Borrower's funds (and for which Borrower shall not be
reimbursed with advances from the Construction Account) in the amount of the
$204,707 described in clause (ii) above.

(b) If the Cost of Issuance Account is insufficient to pay any claim or
cost incurred in connection with the Single Lot Bonds for any reason, Borrower
shall deposit upon request of the Authority or Trustee an amount sufficient to
pay any remaining Costs of Issuance.

(c) No cost of Land, site improvements or other costs financed directly or
indirectly with the proceeds of the tax increment financial assistance from the
Housing and Redevelopment Authority in and for the City of St. Cloud or other
financial assistance described in document 7 under "Permitted Encumbrances" on
Exhibit A hereto may be financed, be paid for or be the subject of reimbursement
out of the proceeds of the Loan or the Single Lot Bonds.

(d) The Borrower represents and warrants that the Project Municipality has
provided Borrower Parcel 2 as described in Exhibit A at a cost of no more than
$1.00 and has agreed to provide other tax increment financing to Borrower for
the Project in an amount not less than $130,500. The Borrower shall be
permitted to reduce its cash equity contribution described in Section 3.3(a)(ii)
hereof by such $130,500 so long as all rights, title and interests of the City
of St. Cloud and its related agencies and authorities are subordinated in all
respects to the Lien of the Mortgage.

(e) Pursuant to the loan criteria, the Loan to Borrower (net the Business
Loan Reserve Account deposit) may not exceed the amount determined to be the sum
of (i) the amount determined

<PAGE>

by multiplying the cost of the personal property pledged to the Authority by
seventy-five percent (75%) plus (ii) the amount determined by multiplying the
value of the Land plus the cost of the real property improvements by eighty
percent, TO WIT.

(i) $1,392,103 Multiplied by 75% = 1,044,077

(ii) $3,425,831 Multiplied by 80% = 2,740,664
---------

TOTAL $3,784,741
---------
---------

The foregoing calculation is based on the Costs of the Project set forth in
Exhibit D to the Loan Agreement. The Borrower represents that the values set
forth in the third and fifth columns of Exhibit D are fair and true and, in
particular, the fair market value of the Land, without taking into account any
improvements described in Exhibit D, is no less than $510,218. In such regard,
the Board acknowledges receipt of the appraiser's letter to such effect dated
July 9, 1990 from St. Cloud Appraisal, Inc.

29
<PAGE>

ARTICLE IV

DEVELOPMENT OF THE PROJECT;
APPLICATION OF MONEYS IN CONSTRUCTION ACCOUNT

Section 4.1. PRIOR ACQUISITION OF LAND. As of the Closing Date,
Borrower will have acquired the Land and shall hold sufficient legal title
thereto so as to permit the continuation of its operations as presently
conducted.

Section 4.2. ACQUISITION, CONSTRUCTION AND INSTALLATION OF THE PROJECT.
(a) The Borrower agrees that it will acquire, construct and install the
Project or cause the Project to be acquired, constructed and installed on the
Land in accordance with the Plans and Specifications.

(b) The Borrower shall provide to the Trustee a copy of its Plans and
Specifications. With the consent of the Authority, the Borrower may revise the
Plans and Specifications from time to time; provided, however, that no material
change shall be made in the Plans and Specifications which would alter the
proposed use of the Project or materially reduce the cost of the Project, unless
the Trustee shall be furnished with an unqualified opinion of Bond Counsel that
construction of the Project in accordance with the revised Plans and
Specifications will not adversely affect the tax-exempt status of the interest
payable on the Single Lot Bonds.

(c) The cost of such acquisition, construction and installation of the
Project shall be paid from the Construction Account in the manner and to the
extent provided in Section 4.3 hereof and the General Bond Resolution.
The Borrower shall not be entitled to any moneys in the Construction Account,
nor shall it submit a requisition, for any item of property which constitutes
collateral under another security agreement, or is otherwise subject to any
other Lien or encumbrance whatsoever, except for Permitted Encumbrances.

(d) The Borrower hereby agrees that in order to effectuate the purposes of
this Agreement, it will make, execute, acknowledge and deliver any contracts,
orders, receipts, writings and instructions with any other persons, firms or
corporations and in general do all things which may be requisite or proper, all
for acquiring, constructing and installing the Project. The Borrower agrees to
acquire, construct and to install the Project with all reasonable dispatch, and
to use its reasonable efforts to cause such acquisition, construction and
installation to be completed by April 1, 1991, or as soon thereafter as may be
practicable; but if for any reason such acquisition, construction and completion
are not completed by said date, there shall be no resulting liability on the
part of the Authority and no

<PAGE>

diminution in or postponement of the payments required in Section 5.1 hereof to
be paid by the Borrower.

(e) The Borrower shall obtain all necessary approvals from any and all
governmental agencies requisite to the acquiring, constructing and installation
of the Project, and the Project shall be acquired, constructed and installed in
compliance with all federal, State and local laws, ordinances and regulations
applicable thereto. The Borrower agrees that the improvements to be made with
respect to the Project will not encroach upon or overhang any easement or right-
of-way nor upon the land of others and that all improvements when erected shall
be wholly within the building restriction lines however established and will not
violate applicable use or other restrictions contained in prior conveyances,
zoning ordinances or regulations. Upon completion of the Project, the Borrower
shall obtain all required occupancy permits and authorizations from appropriate
authorities, if any be required, authorizing the occupancy and uses of the
Project for the purpose contemplated hereby.

(f) THE AUTHORITY MAKES NO WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE
CONDITION, TITLE, DESIGN, OPERATION, MERCHANTABILITY OR FITNESS OF THE PROJECT
OR THAT IT IS OR WILL BE SUITABLE FOR THE BORROWER'S PURPOSES OR NEEDS.

Section 4.3. APPLICATION OF MONEYS IN CONSTRUCTION ACCOUNT. (a) Moneys in
the Construction Account shall be disbursed upon submission by the Borrower to
the Trustee and (except with respect to Costs of Issuance and capitalized
interest) the Project Supervisor of requisitions conforming to requirements of
said Section 5.02(b) of the General Bond Resolution and executed by an
Authorized Representative of the Borrower to pay the following items of costs
and expenses incurred by the Borrower on and after the date of adoption by the
Authority of the Official Action Resolution in connection with the Project, and
for no other purpose:

(i) the cost of preparing the Plans and Specifications for the
Project (including any preliminary study or planning of the Project or any
aspect thereof other than a financial feasibility study);

(ii) all costs of acquiring, constructing, equipping and
installing the Project (including architectural, engineering and
supervisory services with respect thereto);

(iii) any expenses of the Borrower in enforcing any remedy against
any contractor or subcontractor in accordance with Section 4.7 hereof;

<PAGE>

(iv) the cost of all premiums (A) for any title insurance on the
Land paid during the Construction Period and (B) for all insurance
maintained pursuant to Section 6.4 hereof during the Construction Period
for the Project;

(v) any taxes,assessments and other charges specified in Section
6.3 hereof during the Construction Period for the Project;

(vi) fees, taxes, charges and other expenses for recording or
filing, as the case may be, this Agreement, any other agreements
contemplated hereby, the Mortgage, the Guaranty, the Single Lot Resolution,
any financing statements and any other documents that the Authority or the
Trustee may deem desirable in order to perfect or protect any security
interest contemplated by this Agreement, the Mortgage, the Guaranty or the
Single Lot Resolution;

(vii) to pay capitalized interest owing on the Single Lot Bonds
during the Construction Period (pursuant to Section 5.1 of this Agreement);
and

(viii) reimbursement to the Borrower for any of the above
enumerated costs and expenses paid by it, whether paid from funds of the
Borrower or from the proceeds of interim construction borrowings.

Provided, however, no moneys in the Construction Account shall be used
directly or indirectly to pay Restricted Costs of Issuance except and only to
the extent that such moneys are directly derived from an equity contribution of
the Borrower (as provided in Section 4.3(d) herein).

All of the foregoing Costs of the Project are hereby approved by the Authority
as "Project Costs" (within the meaning of the General Bond Resolution) with
respect to the Project.

(b) As conditions precedent to the payment of funds from the Construction
Account, except with respect to Costs of issuance and capitalized interest, the
Borrower shall deliver to the Project supervisor, in connection with each of
the aforementioned requisitions, the following: (i) copies of invoices, bills
or other similar proof from vendors of services, materials, goods or property
that a payment is required from the Construction Account with respect to the
Project and (ii) (other than for the acquisition of Equipment) copies of lien
waivers with respect to all work done which was paid pursuant to all previous
draw requests, unless theretofore furnished to the Project Supervisor. The
Project Supervisor shall certify to the Trustee in writing the receipt of all of
such items, stating that they are in conformity with the requirements of this
Agreement.

<PAGE>

Such payments by the Trustee shall be limited to the total cost of the
portions of the work completed and Equipment acquired in accordance with the
Plans and Specifications, as certified to the Trustee by the Project Supervisor.

Notwithstanding anything contained herein to the contrary,

(i) The Trustee shall make no advances from the Construction
Account (other than for Cost of Issuance or debt service on the Single Lot
Bonds) while there is any lien or encumbrance upon the Land, other than
Permitted Encumbrances or such liens or encumbrances as the Authority or
Trustee will waive, nor will the Trustee make any advances from the
Construction Account while there is any charge, question or claim of any
kind whatsoever, whether of record or not, which, in the opinion of
Independent Counsel for the Trustee, may constitute a cloud on the title to
the Land, render the title to the Land unmarketable, or otherwise
invalidate or have priority over the Authority's or Trustee's interest in
the Land or in any way render the Authority's or Trustee's position
insecure;

(ii) The Trustee shall make no advances from the Construction
Account with respect to particular items of equipment to be acquired as
Equipment hereunder until the Trustee is satisfied that the specific
requisitions for disbursements from the Construction Account to pay for
specific items of equipment to be acquired as Equipment hereunder
correspond in fact to specific items of Equipment enumerated in the Plans
and Specifications not yet acquired by the Borrower pursuant to the terms
of this Section 4.3;

(iii) The Trustee shall make no advances from the Construction
Account with respect to particular items of equipment to be acquired as
Equipment hereunder and having a value of $50,000 or more, until the
Trustee is presented with reasonable proof satisfactory to the Trustee that
such particular item of equipment to be acquired as Equipment hereunder is
free and clear of all security interests, liens and encumbrances of any
kind whatsoever (other than Permitted Encumbrances);

(iv) Neither the Authority nor the Trustee shall be under any
obligation to see to the proper application of advances by the Borrower,
its contractor or subcontractor, and nothing shall prevent the Authority or
the Trustee from deducting from any advance, any sums due to the Authority
or the Trustee from the Borrower for sums paid

<PAGE>

and expended by the Authority or the Trustee for taxes or assessments, for
insurance premiums and like payments, pursuant to its or their rights under
the terms hereof;

(v) No advance shall be made out of the Construction Account by
the Trustee for other than Costs of Issuance or debt service on the Single
Lot Bonds until the Borrower presents to the Trustee a certificate of
completion as set forth in Section 4.4(a) and the completed Schedule D to
the Contract for Private Redevelopment with the Project Municipality in
satisfaction thereof, and Borrower provides evidence of the satisfaction of
Liens established by the Interim Loan Documents such satisfaction to be
delivered upon payment of the advance. Payment may be made to the Interim
Lender directly;

(vi) The Trustee shall make no advances from the Construction
Account to reimburse the Borrower (or the Interim Lender) for any Costs of
the Project paid from the cash deposits paid pursuant to Section 3.3(a) (i)
and (ii) hereof and the Borrower shall deposit with the Trustee and the
Project Supervisor (A) evidence of compliance with Section 3.3(a) hereof
and (B) reasonable proof satisfactory to the Trustee that the Costs of the
Project which have been paid directly by the Borrower as required by
Section 3.3(a)(ii) hereof have not been the subject of any requisition
submitted pursuant to Section 4.3(a) of this Agreement;

(vii) In addition to the foregoing, the Trustee shall make no
advance from the Construction Account (except to pay Costs of Issuance or
debt service on the Single Lot Bonds) until the title policy described in
Section 4.6 hereof has been supplemented, replaced or amended by
endorsement deleting any Liens of the Interim Loan Documents and any other
Liens which are not Permitted Encumbrances against the Security Property,
deleting any survey exception and providing title insurance coverage as
against mechanic's liens and similar claims;

(viii) The Trustee shall receive (A) a completed Exhibit C for each
requested advance and shall not disburse amounts from the Construction
Account which, at any time, causes the aggregate amounts disbursed for
manufacturing costs (within the meaning of Section 144 (a) (12) of the
Code) to be less than 75% of the total amounts advanced (as determined by
the total of all amounts described in the first sentence of paragraph 5 of
Exhibit C) and (B), if such advance is requested to pay for Costs of
Equipment, (i) a copy of a UCC-1 financing statement, stamped to indicate
filing with the Minnesota

<PAGE>

Secretary of State, describing the Equipment by reference to manufacturer,
model number, serial number and such other available details, (ii) an
opinion of Independent Counsel to the effect that, by such filing, the
Board has been granted a perfected first Lien in the property being
acquired (or for which reimbursement is being sought) by such advance, and
(iii) to the extent that such opinion states certain preconditions which
must be satisfied to acquire such perfected first Lien, evidence of
satisfaction thereof. The Trustee shall be entitled to rely on the
Borrower's certifications in any Exhibit C without the necessity of further
inquiry or any opinion of Counsel.

In connection with clauses (i), (ii), (iii), (iv), (v), (vi), (vii) and
(viii) above and the preconditions established therein, the Trustee may request
the Project Supervisor to certify to the Trustee the existence of such
preconditions in connection with making any advances from the Construction
Account and the Trustee shall be entitled to conclusively rely upon such
certification. In rendering such certification, the Project Supervisor may rely
on an opinion of Independent Counsel to the extent such certification covers
matters of law. In addition, in making any such payment from the Construction
Account the Trustee may rely on such requisitions and proof delivered to it and
the Trustee shall be relieved of all liability with respect to making such
payments if such payments are made in accordance with the foregoing. The
Borrower hereby agrees that it shall pay all reasonable costs of filing such
requisitions and proof delivered to the Trustee and the Project Supervisor.

The Trustee shall keep and maintain adequate records pertaining to the
Construction Account and all disbursements therefrom, and after the Project has
been completed and the Borrower has filed with the Authority a certificate of
completion of the Project as otherwise provided, the Trustee thereafter shall
file an accounting with respect to the Construction Account and all
disbursements therefrom with the Trustee and with the Borrower.
(c) upon the earlier of (i) completion of the Project as certified to
pursuant to Section 4.4(b) hereof; (ii) the acceleration of the Loan pursuant to
Section 10.2(a)(i) of this Agreement; or (iii) failure to satisfy the
requirements for disbursement of moneys from the Construction Account by April
1, 1991 (or such later date as the Authority, in its unilateral discretion, may
designate); any moneys remaining in the Construction Account, except for amounts
to be paid pursuant to the draw made upon completion or those retained therein
for the payment of incurred and unpaid items of the Cost of the Project, shall
be applied in accordance with Section 5.02(b) of the General Bond Resolution.

<PAGE>

(d) Moneys in the Construction Account which are derived from the
Borrower's equity contribution required by Section 3.3 (a) shall be paid by the
Trustee to or upon the order of the Authority upon written request by the
Authority to pay Restricted Costs of Issuance.

Section 4.4. CERTIFICATE OF COMPLETION. (a) Completion of the
construction of the Project shall be evidenced by a certificate signed by an
Authorized Representative of the Borrower and the Project Supervisor stating
that the construction of the Project has been completed in accordance with the
Plans and Specifications therefor.

(b) Completion of construction and equipping of the Project shall be
evidenced by a certificate signed by an Authorized Borrower and the Project
Supervisor in the form described in (a) together with a certification that
except for amounts to be retained in the Construction Account as provided in
Section 4.3(c) hereof, all costs and expenses of acquiring, constructing and
installing the Project have been paid or provided for and that there exists no
Liens or encumbrances with respect to the Project other than Permitted
Encumbrances or Liens and encumbrances which the Authority or the Trustee have
waived.

Section 4.5. COMPLETION BY BORROWER. To the extent that the Bond Proceeds
that are deposited into the Construction Account are not sufficient to pay in
full all costs of acquiring, constructing and installing the Project, the
Borrower agrees to pay all such sums as may be necessary to so complete the
Project. At the Trustee's request, the Borrower will provide the Trustee with
evidence satisfactory to the Trustee as to whether or not the remaining moneys
in the Construction Account available to pay the Costs of the Project shall be
sufficient to pay the remaining Costs of the Project. In the event that the
Trustee, or the Project Supervisor at the request of the Trustee, shall
determine at any time that the remaining moneys in the Construction Account
available for payment of the remaining Costs of the Project shall not be
sufficient to pay the costs thereof in full, the Trustee shall give written
notice thereof to the Borrower and the Borrower shall promptly pay to the
Trustee for deposit into the Construction Account moneys sufficient to pay the
Costs of the Project as may be in excess of the moneys available therefor in the
Construction Account. The Trustee shall be required to make such determination
at any time that the Plans and Specifications are revised in accordance with
Section 4.2(b) of this Agreement. No payment by the Borrower pursuant to this
Section 4.5 shall entitle the Borrower to any diminution or abatement of the
other amounts payable by the Borrower under this Agreement or the Note.

Section 4.6. TITLE INSURANCE. The Borrower at its own expense has
obtained or will obtain, and throughout the Loan Term will maintain in force,
title insurance written by a title

<PAGE>

insurance company satisfactory to the Authority in the face amount of the sum of
the original aggregate principal amount of the Series 1985 Note and the Note
insuring for the benefit of the Authority, as the holder of the Series 1985 Note
and the Note, the Liens of the Mortgage on the Land as a mortgage Liens subject
to no encumbrances other than Permitted Encumbrances. The Net Proceeds of such
insurance, if received prior to the Completion Date of the Project, shall be
delivered to the Trustee and deposited in the Construction Accounts for the 1985
Bonds and the Single Lot Bonds as provided in Section 4.8 hereof, and, if
received thereafter, shall be delivered to the Trustee and deposited in the
Special Redemption Account for the 1985 Bonds and the Single Lot Bonds as
provided in Section 4.8 hereof.

Section 4.7. REMEDIES TO BE PURSUED AGAINST CONTRACTORS AND
SUBCONTRACTORS AND THEIR SURETIES. In the event of default of any contractor or
subcontractor under any contract made by it in connection with the Project or in
the event of a breach of warranty with respect to any materials, workmanship,
or performance guaranty, the Borrower shall promptly proceed, either separately
or in conjunction with others, to exhaust the remedies of the Borrower against
the contractor or subcontractor so in default and against each surety for the
performance of such contract. The Borrower agrees to advise the Authority of the
steps it intends to take in connection with any such default. The Borrower may
prosecute or defend any action or proceeding or take any other action involving
any such contractor, subcontractor or surety which the Borrower deems reasonably
necessary. The Net Proceeds of any amounts recovered pursuant to this Section
4.7, if received prior to the Completion Date, shall be delivered to the Trustee
and deposited in the Construction Account and, if received thereafter, shall be
delivered to the Trustee and deposited in the Special Redemption Account.

Section 4.8. APPLICATION OF NET PROCEEDS TO SERIES 1985 BONDS AND THE
SINGLE LOT BONDS ON A PRO RATA BASIS. The security interest in the personal
property pledged under the Series 1985 Loan Agreement is a prior interest to the
Lien of the Mortgage with respect to such property and any Net Proceeds derived
from or under such Series 1985 Loan Agreement or the related Series 1985 Bond
Documents shall be applied pursuant to the terms of the Series 1985 Bond
Documents. Any Net Proceeds not subject to application pursuant to the Series
1985 Bond Documents shall be applied pursuant to the terms of the Mortgage and
this Agreement.

Section 4.9 APPLICATION OF OTHER PAYMENT. The Authority reserves the
right to apply any payments received from Borrower, other than Net Proceeds
governed by Section 4.8 hereof, in such manner as it may elect as to amounts
then due and owing under or in connection with this Agreement, the Note and
Mortgage and the Series 1985 Bond Documents.

<PAGE>

ARTICLE V

REPAYMENT PROVISIONS; SECURITY CLAUSES

Section 5.1. REPAYMENT OF LOAN. (a) Principal on the Loan shall be paid
by the Borrower on the dates and in the amounts provided in the Note. Interest
on the unpaid balance of the Loan shall be payable at the times stated in the
Note at the rate provided in the Note. All such amounts to be so paid shall be
paid by the Borrower to the Trustee an behalf of the Authority.

(b) The Note shall provide that interest thereon shall accrue from the
date thereof and shall be payable thereon on the first day of the following
month and thereafter on the first day of each month until the principal sum of
the Loan is discharged, each such payment to include interest payable in advance
due to and including the first day of the next succeeding month. The principal
amount of the Loan shall be payable thereon at the same times and manner as
interest. Principal and interest payments on the Loan shall be made in monthly
installments through the date of final maturity of the Note, applied first to
the payment of interest then due on the unpaid principal amount of the Loan, and
the remaining balance of each such installment applied to the payment and
reduction of the unpaid principal amount of the Loan. The monthly installments
to be paid on the Loan shall be an amount equal to (i) one-sixth of the interest
installment due on the Single Lot Bonds on the next succeeding Bond Payment Date
(taking into account such in-advance payments) and (ii) one-twelfth of the
Principal Installment due on the Single Lot Bonds on the next succeeding Bond
Payment Date on which a Principal Installment is due (taking into account such
in-advance payments), such installments to be reduced such that on or before the
Bond Payment Date on which a Principal Installment is due any amounts then on
deposit in the Holding Account plus the monthly installment then to be paid on
the Loan shall equal the Debt Service Payment on the Single Lot Bonds due on
such Bond Payment Date. Notwithstanding the foregoing, the number and amount of
proportional payments of the monthly installments to be paid on the Loan shall
be adjusted in accordance with the date of the Note and the dates of the initial
interest payment and initial payment of the Principal Installment due on the
Single Lot Bonds. All payments on the Note by the Borrower shall be made to the
Trustee at the address set forth in Section 12.1 of this Agreement.

(c) if on any Bond Payment Date of the Single Lot Bonds the amount then on
deposit in the Holding Account shall not be sufficient to pay the interest and
Principal Installment due on the Single Lot Bonds as of such Bond Payment Date,
the Borrower shall forthwith pay any such deficiency into the Revenue Account
for transfer into the Holding Account.

<PAGE>

(d) The Borrower shall have the option to make payments designated as and
representing advance loan payments on the Note under and pursuant to this
Agreement (or Section 5.2 of this Agreement) to the Trustee for deposit in the
Revenue Account. Such payments shall not in any way alter or suspend any obliga-
tions of the Borrower under the terms of this Agreement (i) except to the extent
that such payment shall be transferred by the Trustee under the provisions of
the Authority Resolution to the Holding Account and shall result in a credit
against payments on the Note as provided in Section 5.1(b) of this Agreement or
the retirement of principal amounts of the Single Lot Bonds, pursuant to these
provisions, or (ii) except to the extent that such payments shall otherwise be
transferred by the Trustee in accordance with the provisions of Section 5.06(a)
of the General Bond Resolution and shall result in a credit against payments as
provided in Section 5.2 of this Agreement; and the Borrower shall, in either
case, continue to perform and be responsible for the performance of all the
terms and provisions of this Agreement.

(e) If at any time the amount held by the Trustee in the Holding Account
and the Business Loan Reserve Account shall be sufficient to pay at the times
required the principal of, premium, if any, and interest on the Single Lot Bonds
then unpaid, the Borrower shall not be obligated to make any further payments
under the foregoing provisions.

(f) If the Borrower should fail to make the payments of an amount required
under this Section 5.1, the amount so in default shall continue as an obligation
of the Borrower until it shall have been fully paid, and the Borrower shall pay
the same with interest thereon at the Bond Rate until paid.

(g) The Borrower agrees to make the above-mentioned payments without any
further notice, in lawful money of the United States of America which, at the
time of payment, shall be legal tender for the payment of public and private
debts.

Section 5.2. OTHER AMOUNTS PAYABLE. (a) The Borrower shall pay to the
Trustee for deposit by the Trustee in the Revenue Account, the following amounts
(in addition to those amounts described in Section 5.1(b) of this Agreement) at
the times set forth below:

(i) On August 1 of each year during the Loan Term, the Lot Loan
Fiduciary Payments due with respect to the Bond Year then ended; provided,
however, that, to the extent that on any August 1 there are amounts in the
Revenue Account in excess of the amounts required to be deposited therein
pursuant to Section 5.1, Section 5.2 (a) (i), Section 5.2 (a) (ii) and
Section 5.2 (a) (iii) of

<PAGE>

this Agreement, the amount required to be paid by the Borrower pursuant to
this Section 5.2(a) (i) shall be reduced by the amount of such excess;

(ii) on each Bond Payment Date, a sum sufficient to satisfy any
outstanding General Guaranty Fund Reimbursement Amount with respect to the
Single Lot Bonds;

(iii) on each Bond Payment Date, a sum sufficient so that amounts
then on deposit in the Business Loan Reserve Account shall not be less than
the Business Loan Reserve Account Requirement with respect to the Single
Lot Bonds.

(b) Notwithstanding anything contained in this Agreement to the contrary,
any amount payable as and for an outstanding General Guaranty Fund Reimbursement
Amount under Section 5.2(a) (ii) of this Agreement shall not be payable as and
for unpaid amounts due under Section 5.1(b) and Section 5.1(f) of this
Agreement.

(c) Notwithstanding anything contained in this Agreement to the contrary,
any amount payable pursuant to Section 5.2 (a) (iii) of this Agreement shall not
be payable as and for unpaid amounts due under Section 5.1(b) and Section 5.1(f)
of this Agreement.

(d) In addition to the foregoing payments, the Borrower shall make such
reports and shall pay during the Loan Term the annual fees required to maintain
the secondary market trading of the Single Lot Bonds in the State. Such fees
shall be paid directly by the Borrower to Minnesota State Treasurer by the time
required by law each year, with the Borrower to provide evidence satisfactory to
the Authority to be provided to the Authority that each such payment has been
made.

(e) No later than the fifteenth day after the first day of any Bond Year,
or on the fifteenth day after such other times as may be required by Section
148(f)(3) of the Code, the Trustee shall determine (i) a sum equal to such
amounts as are described in Section 148(f)(2)(A) plus (B) of the Code with
respect to all funds and Related Lot Accounts pertaining to the Single Lot Bonds
and (ii) determine the amounts then actually on deposit in the Rebate Account
(or that were previously paid therefor to the United States of America as rebate
payments) and notify the Borrower in writing of the excess of amounts described
in clause (i) above over the amounts described in clause (ii) above. Upon
receipt of such notification, the Borrower shall within ten (10) days of such
receipt pay an amount equal to (A) such excess to the Trustee in immediately
available funds to be deposited by the Trustee into the Rebate Account and (B)
any expense related to

<PAGE>

the compliance with Section 148(f), including the fees and expenses of any and
all accountants, attorneys and other consultants retained by the Trustee or the
Authority in connection therewith. This covenant of the Borrower as set forth
in this Section 5.2(e) shall survive the Loan Term, notwithstanding anything
contained herein to the contrary.

Section 5.3. OBLIGATIONS OF BORROWER HEREUNDER UNCONDITIONAL. The
obligations of the Borrower to make the payments required by this Agreement and
the Note and to perform and observe any and all of the other covenants and
agreements on its part contained herein shall be a general obligation of the
Borrower and shall be absolute and unconditional irrespective of any defense or
any rights of setoff, recoupment or counterclaim it may otherwise have against
the Authority or the Trustee or any Holders of the Bonds. The Borrower agrees
it will not (i) suspend, discontinue or abate any payment required by this
Agreement and the Note or (ii) fail to observe any of its other covenants or
agreements in this Agreement and the Note or (iii) seek judicial or other relief
from the obligation to make any payment required by, or to perform any covenant
in, this Agreement and the Note or (iv) except as provided in Section 11.1
hereof, terminate this Agreement for any cause whatsoever including, without
limiting the generality of the foregoing, failure to complete the Project,
failure of the Borrower to use the Project as contemplated in this Agreement or
otherwise, any defect in the title, design, operation, merchantability, fitness
or condition of the Project or in the suitability of the Project for the
Borrower's purposes or needs, failure of consideration, destruction of or damage
to the Project, commercial frustration of purpose, or the taking by Condemnation
of title to or the use of all or any part of the Project, any change in the tax
or other laws of the United States of America or of the State or any political
subdivision of either, or any failure of the Authority to perform and observe
any agreement, whether expressed or implied, or any duty, liability or
obligation arising out of or in connection with this Agreement. Nothing
contained in this Section 5.3 shall be construed to release the Authority from
the performance of any of the agreements on its part contained in this
Agreement.

Section 5.4. SECURITY CLAUSES. In order to secure the payment of the
Note and the Bonds according to their tenor and effect, and to secure the right
of reimbursement of the General Guaranty Fund provided for in Section 2.4 of
this Agreement and the right of reimbursement of the Authority provided for in
Section 2.5 of this Agreement and to secure the performance by the Borrower of
all of its covenants expressed or implied in this Agreement, the Borrower shall
concurrently herewith grant and deliver a mortgage lien to the Authority in the
Land, all Buildings, structures and fixtures heretofore or hereafter placed
thereon and all personal property financed out of the Loan or any

<PAGE>

payment of the Borrower pursuant to Section 3.3 or 4.5 hereof pursuant to the
Mortgage, which Mortgage is to be pledged by the Authority to the Bondholders
pursuant to the Authority Resolution as security for the Bonds and the Single
Lot Bonds substantially in the form approved by the Single Lot Resolution with
such changes as therein provided or permitted. The Lien of the mortgage shall
be subject only to Permitted Encumbrances.

Section 5.5. INVESTMENT OF FUNDS AND ACCOUNTS; CONSENT TO ELECTIONS.
(a) Notwithstanding anything contained in this Agreement to the contrary, any
moneys at any time in the Business Loan Reserve Account, the Construction
Account, Holding Account, Optional Redemption Account, Rebate Account,
Reconstruction Account, the Reimbursement Account, the Revenue Account, the
Special Redemption Account or any other fund or account created under, or
authorized by, the General Bond Resolution or the Single Lot Resolution may be
invested and reinvested by the Authority as provided in Section 5.16 of the
General Bond Resolution and any letter of instruction issued by the Authority to
the Trustee thereunder, to which such investment and reinvestment, the Borrower
hereby consents. Neither the Authority nor its members, officers or employees
shall be liable for any rate of interest achieved or not achieved on such
investment or for any depreciation in the value of, or for any loss arising
from, any such investment. Investment income earned from money deposited in any
such funds and accounts shall be applied by the Trustee in the manner provided
for in the Authority Resolution.

(b) The Borrower hereby consents to the election made by the Authority in
Section 5.05 of the Single Lot Resolution with respect to the Series 1990B
Bonds.

<PAGE>

ARTICLE VI

MAINTENANCE, MODIFICATIONS, TAXES AND INSURANCE

Section 6.1. MAINTENANCE OF PROPERTY BY BORROWER. (a) The Borrower
agrees that during the Loan Term it will, at its own expense, (i) keep the
Security Property in as reasonably safe condition as its operations shall
permit; (ii) make all necessary repairs and replacements to the Security
Property (whether ordinary or extraordinary, structural or nonstructural,
foreseen or unforeseen) ; and (iii) operate the Security Property in a sound and
economic manner.

(b) The Borrower from time to time may, at its own expense, make any
structural additions, modifications or improvements to the Security Property or
any part thereof which it may deem desirable. All such structural additions,
modifications or improvements so made by the Borrower shall become a part of the
Security Property unless other-wise agreed to by the Authority. The Borrower
agrees to deliver to the Authority all documents which may be necessary or
appropriate to convey to the Authority a mortgage lien of the priority described
in Section 5.4 of this Agreement, or other satisfactory security interest in,
such Security Property.

Section 6.2. INSTALLATION OF ADDITIONAL EQUIPMENT. Subject to the
provisions of section 5.4 of this Agreement, the Borrower from time to time may,
at its own expense, install additional machinery, equipment or other personal
property in the Project (which may be attached or affixed to the Security
Property), and such machinery, equipment or other personal property shall not
become, or be deemed to become, a part of the Security Property. The Borrower
shall keep appropriate records of all of such machinery, equipment or other
personal property installed at the Security Property sufficient to identify the
same. The Borrower from time to time may remove or permit the removal of such
machinery, equipment and other personal property from the Security Property and
may create or permit to be created any Lien on such machinery, equipment or
other personal property; provided that any such removal of such machinery,
equipment or other personal property shall not adversely affect the structural
integrity of the Security Property or impair the overall operating efficiency of
the Security Property for the purposes for which it is intended and provided
further that if any damage is occasioned to the Security Property by such
removal, the Borrower agrees to promptly repair such damage at its own expense.

Section 6.3. TAXES ASSESSMENTS AND UTILITY CHARGES. (a) The Borrower
agrees to pay, as the same respectively become due, (i) all taxes and
governmental charges of any kind whatsoever which may at any time be lawfully
assessed or levied

<PAGE>

against or with respect to (1) the Security Property, (2) any machinery,
equipment or other proper#-y installed or brought by the Borrower therein or
thereon (including without limitation any sale or use taxes), (3) the employees
of the Borrower located at or assigned to the Project, and (4) the income or
revenues of the Borrower from the Project, (ii) all utility and other charges,
including "service charges", incurred or imposed for- the operation,
maintenance, use, occupancy, upkeep and improvement of the Security Property,
and (iii) all assessments and charges of any kind whatsoever lawfully made by
any governmental body for public improvements; provided that, with respect to
special assessments or other governmental charges that may lawfully be paid in
installments over a period of years, the Borrower shall be obligated under this
Agreement to pay only such installments as are required to be paid during the
Loan Term.

(b) The Borrower may in good faith contest any such taxes, assessments and
other charges. In the event of any such contest, the Borrower may permit the
taxes, assessments or other charges so contested to remain unpaid during the
period of such contest and any appeal therefrom, provided that adequate book
reserves in accordance with generally accepted accounting principles (in the
opinion of the Borrower's Accountant) have been established with respect
thereto. If the Authority or the Trustee shall notify the Borrower that by
nonpayment of any such items the Mortgage or security interest created pursuant
to Section 5.4(b) and (c) as to any part of the Security Property will be
materially endangered or the Security Property or any part thereof will be
subject to loss or forfeiture, however, such taxes, assessments or charges shall
be paid promptly or secured by posting a bond in form and substance satisfactory
to the Authority and the Trustee.

Section 6.4. INSURANCE REQUIRED. At all times throughout the Loan
Term, including without limitation during any period of construction of the
Project, the Borrower shall, at its own expense, maintain insurance against such
risks and for such amounts as are customarily insured against by businesses of
like size and type paying, as the same become due and payable, all premiums in
respect thereto, including, but not necessarily limited to:

(a) Insurance protecting the interests of the Borrower, the Trustee and
the Authority against loss or damage to the Security Property by fire, lightning
and other casualties, with a uniform standard extended coverage endorsement,
such insurance to be in an amount not less than the lesser of the full
replacement value of the Project or the outstanding principal amount of the
Note.

(As an alternative to the above requirements in this subsection (a), the
Borrower may insure such Property under a

<PAGE>

blanket insurance policy or policies covering not only the Security Property but
other Properties as well.)

(b) Workers' compensation insurance and each other form of insurance which
the Borrower is required by law to provide, covering loss resulting from injury,
sickness, disability or death of employees of the Borrower who are located at or
assigned to the Project.

(c) Insurance protecting the Borrower against loss or losses from
liabilities (including, without limitation, products liability) imposed by law
or assumed in any written contract and arising from bodily injury including
personal injury and death and damage to the Property of others, caused by any
accident or occurrence, with limits of not less than $1,000,000 per accident or
occurrence, excluding liability imposed upon the Borrower by any applicable
workmen's compensation law; and a blanket excess liability policy in the amount
not less than $2,000,000, protecting the Borrower against any loss or liability
or damage for bodily injury including personal injury and death and Property
damage.

Section 6.5. ADDITIONAL PROVISIONS RESPECTING INSURANCE. (a) All
insurance required by Section 6.4 hereof shall be procured and maintained in
financially sound and generally recognized responsible insurance companies
selected by the Borrower and authorized to write such insurance in the State.
Such insurance may be written with deductible amounts acceptable to the
Authority. All policies evidencing such insurance shall provide for (i) payment
of the losses to the Borrower, the Authority and the Trustee as their respective
interests may appear, and (ii) at least thirty (30) days written notice of the
proposed cancellation thereof to the Borrower and the Trustee. The policies
required by Section 6.4(a) hereof shall contain standard mortgagee clauses
requiring that all Net Proceeds of insurance resulting from any claim in excess
of $50,000 for loss or damage covered thereby be paid to the Trustee for
application pursuant to Section 4.8 hereof.

(b) All such policies of insurance, or a certificate or certificates of
the insurers that such insurance is in force and effect, shall be deposited with
the Trustee on or before the Closing Date. Prior to expiration of any such
policy, the Borrower shall within thirty (30) days of such expiration furnish
the Trustee evidence that the policy has been renewed or replaced or is no
longer required by this Agreement.

Section 6.6. APPLICATION OF NET PROCEEDS OF INSURANCE. The Net Proceeds
of the insurance carried pursuant to (i) subsection (a) of Section 6.4 hereof
shall be applied as provided in Section 4.8 and Section 7.1 hereof and (ii)
subsections (b) and (c) of Section 6.4 hereof shall be applied

<PAGE>

toward extinguishment or satisfaction of the liability with respect to which
such insurance proceeds may be paid.

Section 6.7. RIGHT OF AUTHORITY TO PAY TAXES, INSURANCE PREMIUMS AND
OTHER CHARGES. If the Borrower fails (i) to pay any tax, assessment or other
governmental charge required to be paid by Section 6.3 hereof or (ii) to
maintain any insurance required to be maintained by Section 6.4 hereof, the
Authority or the Trustee may pay such tax, assessment or other governmental
charge or the premium for such insurance. No such payment by the Authority or
the Trustee shall affect or impair any rights of the Authority under this
Agreement, the Note, the Guaranty, the Mortgage or the Series 1985 Bond
Documents or of the Authority or the Trustee under the Authority Resolution
arising as a consequence of such failure by the Borrower. The Borrower shall
reimburse the Authority or the Trustee, as the case may be, for any amount so
paid by the Authority or the Trustee, as the case may be, pursuant to this
Section 6.7, together with interest thereon from the date of payment by the
Authority at the Bond Rate.

<PAGE>

ARTICLE VII

DAMAGE, DESTRUCTION AND CONDEMNATION

Section 7.1. DAMAGE OR DESTRUCTION. (a) If the Security Property shall be
damaged or destroyed (in whole or in part) at any time during the Loan Term:

(i) the Authority shall have no obligation to replace,
repair, rebuild or restore the Security Property;

(ii) there shall be no abatement or reduction in the amounts
payable by the Borrower under this Agreement (whether or not the Security
Property is replaced, repaired, rebuilt or restored); and

(iii) except as otherwise provided in subsection (b) of this
Section 7.1, the Borrower shall promptly replace, repair, rebuild or
restore the Security Property to substantially the same condition and value
as an operating entity as existed prior to such damage or destruction, with
such changes, alterations and modifications as may be desired by the
Borrower, provided that such changes, alterations or modifications do not
(A) so change the nature of the Project that it does not qualify under the
Act for the financial assistance provided by the Program or (B) adversely
affect the tax-exempt status of the interest payable on the Bonds.

Except as otherwise provided in subsection (b) of this Section 7.1, the
Borrower shall apply to the replacement, repair, rebuilding or restoration of
the Project so much as may be necessary of any Net Proceeds of insurance
resulting from claims for such losses.

If the claim for loss resulting from such damage or destruction exceeds
$50,000, all Net Proceeds of insurance shall be paid pursuant to Section 4.8 and
the portion applicable to the Project shall be held by the Trustee in the
Reconstruction Account. All Net Proceeds so deposited shall be applied as
provided below.

If the Borrower determines that the Security Property shall be repaired,
replaced or restored in whole, the Authority hereby authorizes and directs the
Trustee, subject to the conditions set forth herein, to make payments from the
Reconstruction Account for such purposes or to reimburse the Borrower for costs
paid by it in connection therewith by disbursements through a title insurance
company with commercially reasonable procedures for payment of costs upon
incurrence thereof to the extent approved by an inspecting architect and

<PAGE>

subject to issuance of insurance of the absence of mechanics or materialman
liens affecting the Security Property (all at no cost to the Authority or the
Trustee). In addition, the final disbursement of moneys in such Reconstruction
Account shall be withheld until a final certificate of occupancy is delivered to
the Authority and the Trustee.

The Trustee may not make any payments from the Reconstruction Account to
repair, restore, replace, modify or improve the Security Property pursuant to
this Section 7.1 unless the Borrower has (i) first, obtained a fixed price
construction contract for the repair, restoration, replacement, modification or
improvement of the Security Property, specifying a completion date therefore,
and (ii) caused the deposit to the Reconstruction Account an amount which,
together with the Net Proceeds and all interest to be earned thereon through the
completion date established in clause (i) above, will be sufficient to pay all
costs of repair, restoration, modification and improvement of the Security
Property. Thereafter the Trustee, upon receipt of a certificate of an
Authorized Representative of the Borrower that payments are required for such
purpose, shall apply so much as may be necessary of the available Net Proceeds
of such insurance to the payment of the costs of such replacement, repair,
rebuilding or restoration, such moneys to be applied either on completion
thereof or as the work progresses, at the option of the Trustee.

In the event amounts in the Reconstruction Account are not sufficient to
pay in full the costs of such replacement, repair, rebuilding or restoration,
the Trustee shall request the Borrower to pay into the Reconstruction Account an
amount sufficient to pay all such costs, and, upon receipt of such request, the
Borrower shall forthwith pay such amount to the Trustee. In the event that the
Borrower fails to pay any such amounts into the Reconstruction Account, then the
Single Lot Bonds shall be prepaid in accordance with Section 7.1(b) of this
Agreement.

All such replacements, repairs, rebuilding or restoration made pursuant to
this Section 7.1, whether or not requiring the expenditure of the Borrower's
contribution, shall automatically become a part of the Security Property as if
the same were specifically described herein.

Any balance of such Net Proceeds remaining after payment of all the costs
of such replacement, repair, rebuilding or restoration shall be deposited in the
Special Redemption Account held by the Trustee and used only to prepay the
Single Lot Bonds as provided in Section 5.11(a) of the General Bond Resolution.

(b) In the event that the Borrower shall fail or elect not to replace,
repair or restore the Security Property, or if an

<PAGE>

Event of Default under Section 10.1 hereof shall have occurred and be
continuing, then the available Net Proceeds of the insurance shall be
transferred from the Reconstruction Account to the Special Redemption Account or
otherwise paid to the Trustee for deposit into the Special Redemption Account.
To the extent that such Net Proceeds so transferred into the Special Redemption
Account are not sufficient to pay the Single Lot Bonds in whole pursuant to
Section 2.08 of the Single Lot Resolution, the Borrower shall forthwith pay the
sum of such deficiency to the Trustee for deposit into the Special Redemption
Account.

(c) The Borrower shall not be obligated to replace, repair, rebuild or
restore the Project, and all such Net Proceeds shall be paid to the Borrower for
its corporate purposes, if the single Lot Bonds and interest thereon have been
paid in full.

(d) The Borrower may adjust all claims under any policies of insurance
required by Section 6.4(a) hereof; provided, however, that no such claim with
respect to an insured event as to which the Authority or the Trustee may be or
is alleged to be liable may be adjusted without the prior written consent of the
Authority or the Trustee, as the case may be.

Section 7.2. CONDEMNATION. (a) If at any time during the Loan Term the
whole or any part of title to, or the use of, the Security Property shall be
taken by Condemnation, the Authority shall have no obligation to restore or
replace the Security Property and there shall be no abatement or reduction in
the amounts payable by the Borrower under this Agreement (whether or not the
Security Property is restored or replaced).

Except as otherwise provided in subsection (b) of this Section 7.2, the
Borrower shall promptly:

(i) restore the Security Property (excluding any Land taken by
Condemnation) to substantially the same condition and value as an operating
entity as existed prior to such Condemnation; or

(ii) upon receipt by the Borrower of written approval of the
Trustee and the Authority as to the location thereof (which approval shall
not be unreasonably withheld), acquire, by construction or otherwise,
facilities of substantially the same nature and value as an operating
entity as the Security Property (hereinafter referred to in this
Section 7.2 as "Substitute Facilities"). Such Substitute Facilities
shall (A) be of such nature so as to qualify under the Act for the
financial assistance provided by the Program, (B) not adversely affect the
tax-exempt status of the interest payable on the Single Lot Bonds or any of
the Bonds, and (C) be subject to no Liens prior to the Mortgage or the

<PAGE>

security interest created by Section 5.4(b) and (c) of this Agreement other
than Permitted Encumbrances.

The Borrower shall cause all Net Proceeds of any award in any Condemnation
proceeding to be paid to the Trustee which shall hold such moneys in the
Reconstruction Account. All Net Proceeds so deposited shall be applied as
provided below:

If the Borrower determines that the Security Property shall be repaired,
replaced or restored in whole or Substitute Facilities are to be acquired, the
Authority hereby authorizes and directs the Trustee, subject to the conditions
set forth herein, to make payments from the Reconstruction Account for such
purposes or to reimburse the Borrower for costs paid by it in connection
therewith by disbursements through a title insurance company with commercially
reasonable procedures for payment of costs upon incurrence thereof to the extent
approved by an inspecting architect and subject to issuance of insurance of the
absence of mechanics or materialman liens affecting the Security Property or
Substitute Facilities, as applicable (all at no cost to the Authority or the
Trustee). In addition, the final disbursement of moneys in such Reconstruction
Account shall be withheld until a final certificate of occupancy is delivered to
the Authority and the Trustee.

The Trustee may not make any payments from the Reconstruction Account to
repair, restore, replace, modify or improve the Security Property or acquire the
Substitute Facilities, as applicable, pursuant to this Section 7.2 unless the
Borrower has (i) first, obtained a fixed price construction or improvement of
the Security Property or the acquisition of Substitute Facilities, as
applicable, specifying a completion date therefore, and (ii) caused the deposit
to the Reconstruction Account an amount which, together with the Net Proceeds
and all interest to be earned thereon through the completion date established in
clause (i) above, will be sufficient to pay all costs of repair, restoration,
modification and improvement of the Security Property or the acquisition of
Substitute Facilities, as applicable. Thereafter, the Trustee, upon receipt of
a certificate of an Authorized Representative of the Borrower that payments are
required for such purpose, shall apply so much as may be necessary of such Net
Proceeds to the payment of the costs of the restoration of the Security Property
or the acquisition of Substitute Facilities at the option of the Borrower, such
moneys to be applied either on completion thereof or as the restoration or
acquisition progresses, at the option of the Trustee.

In the event amounts in the Reconstruction Account are not sufficient to
pay in full the costs of such restoration of the Security Property or such
acquisition of Substitute Facilities, the Trustee shall request the Borrower to
pay into the Reconstruction Account an amount sufficient to pay all such

<PAGE>

costs, and, upon receipt of such request, the Borrower shall forthwith pay such
amount to the Trustee. In the event that the Borrower fails to pay any such
amounts into the Reconstruction Account, then the Single Lot Bonds shall be
prepaid in accordance with Section 7.2(b) of this Agreement.

Except as may be otherwise agreed to in writing by the Authority, the
Security Property, as so restored, or the Substitute Facilities, whether or not
requiring the expenditure of the Borrower's contribution, shall automatically
become part of the Security Property as if the same were specifically described
herein.

Any balance of such Net Proceeds of any Condemnation award remaining after
payment of all costs of such restoration or acquisition shall be deposited in
the Special Redemption Account held by the Trustee and used only to prepay the
Single Lot Bonds as provided in Section 5.11(a) of the General Bond Resolution.

(b) In the event that the Borrower shall fail or elect not to replace,
repair or restore the Security Property or to acquire Substitute Facilities, or
if an Event of Default under Section 10.1 hereof shall have occurred and be
continuing, then the Net Proceeds of the Condemnation Award shall be transferred
from the Reconstruction Account to the Special Redemption Account or otherwise
paid to the Trustee for deposit into the Special Redemption Account. To the
extent that such Net Proceeds so transferred into the Special Redemption Account
are not sufficient to pay the Single Lot Bonds in whole pursuant to Section 2.08
of the Single Lot Resolution, the Borrower shall forthwith pay the sum of such
deficiency to the Trustee for deposit into the Special Redemption Account.

(c) The Borrower shall not be obligated to restore the Project or to
acquire Substitute Facilities, and all such Net Proceeds shall be paid to the
Borrower for its corporate purposes, if the Single Lot Bonds and interest
thereon have been paid in full.

(d) The Authority shall cooperate fully with the Borrower in the handling
and conduct of any Condemnation proceeding with respect to the Security
Property.

Section 7.3. CONDEMNATION OF OR DAMAGE TO BORROWER-OWNED PROPERTY OTHER
THAN SECURITY PROPERTY. The Borrower shall be entitled to the proceeds of any
Condemnation award or insurance awards, or portion thereof, made for damage to
or taking of any Property which, at the time of such damage or taking, is not
part of the Security Property and which is owned by the Borrower.

<PAGE>

ARTICLE VIII

SPECIAL COVENANTS

Section 8.1. QUALIFICATION IN THE STATE. Throughout the Loan Term, the
Borrower shall continue to be duly authorized to do business in the State.

Section 8.2. HOLD HARMLESS PROVISIONS. (a) The Borrower during the
Loan Term hereby releases the Indemnified Parties from, agrees that the
Indemnified Parties shall not be liable for and agrees to indemnify and hold the
Indemnified Parties harmless from and against any and all liability arising from
or expense incurred by the Authority's making the loan to the Borrower pursuant
to this Agreement, including without limiting the generality of the foregoing,
all causes of action and attorneys' fees and any other expenses incurred in
defending any suits or actions which may arise as a result thereof, provided
that any such liabilities or expenses of the Indemnified Parties are not
incurred or do not result from the intentional or willful wrongdoing of the
Indemnified Parties or any of their members, agents or employees.

(b) Notwithstanding any provision of this Agreement or the Authority
Resolution to the contrary, the Borrower shall be liable for, and shall hold the
Indemnified Parties harmless against, any liability for any failure by any
Person to comply with the requirements of Section 148 of the Code, including,
without limitation, the failure to make rebate payments due to the United States
of America under Section 148 of the Code with respect to the Single Lot Bonds.
Further, the Borrower specifically agrees that Indemnified Parties shall not be
held liable, or in any way responsible, for any investment of any Fund or
Account or the General Guaranty Fund or other "gross proceeds" (as defined in
Section 148 of the Code) under the control or custody of the Authority or the
Trustee or the Escrow Holder or for any mistake or error in the filing of any
rebate payments required pursuant to Section 148 of the Code or the
determination of any amount due to the United States of America or for any
consequences resulting from any such mistake or error.

Section 8.3. BORROWER TO MAINTAIN ITS EXISTENCE; CONDITIONS UNDER WHICH
EXCEPTIONS PERMITTED. The Borrower agrees that during the Loan Term it will
maintain its corporate existence, will not dissolve or otherwise dispose of all
or substantially all of its assets, and will not consolidate with or merge into
another corporation or permit one or more corporations to consolidate with or
merge into it; provided, however, that any mortgages and security interests in
personal property entered into by the Borrower in the ordinary course of
business with respect to any of its Property shall not be deemed to constitute a
disposition of assets for purposes of this Section 8.3 and

<PAGE>

provided further that, if no Event of Default specified in Section 10.1 hereof
shall have occurred and be continuing, the Borrower may consolidate with or
merge into another domestic corporation organized and existing under the laws of
one of the states of the United States of America, or permit one or more such
domestic corporations to consolidate with or merge into it, or sell or otherwise
transfer to another such domestic corporation all or substantially all of its
assets as an entirety and thereafter dissolve, provided (a) that the surviving,
resulting, or transferee corporation, as the case may be, is incorporated under
the laws of the State or qualifies to do business in the State, (b) that the
surviving, resulting or transferee corporation, as the case may be, assumes in
writing all of the obligations of and restrictions on the Borrower under this
Agreement and the Note and any other agreement securing the Borrower's
performance of its obligations hereunder, (c) that the consummation of the
transaction will not adversely affect the tax-exempt status of the interest
payable on the Single Lot Bonds or any of the Bonds then outstanding, (d) that
immediately after the consummation of the transaction, and after giving effect
thereto, the surviving, resulting or transferee corporation, as the case may be,
has a Net Worth at least equal to the Net Worth of the Borrower immediately
prior to the transaction, and (e) that as of the date of such consolidation,
merger, sale or transfer, the Authority and Trustee shall be furnished with (i)
an opinion of Independent Counsel opining as to the compliance with items (a)
and (b) of this Section 8.3, (ii) an opinion of Bond Counsel opining as to the
compliance with item (c) of this Section 8.3, (iii) an opinion of an Accountant
opining as to the compliance with item (d) of this Section 8.3 and (iv) a
certificate, dated the effective date of such consolidation, merger, sale of
transfer, signed by the chief executive officer and the chief financial officer
of the Borrower and of the surviving, resulting of transferee corporation, as
the case may be, to the effect that immediately after the consummation of the
transaction, and after giving effect thereto, no Event of Default exists under
this Agreement (as set forth in Section 10.1(a) hereof) and no event exists
which, with notice or lapse of time or both, would become such an Event of
Default and that the provisions of Section 8.3(d) hereof are and will be
satisfied.

Section 8.4. AGREEMENT TO PROVIDE INFORMATION. The Borrower agrees,
whenever requested by the Trustee or the Authority, to provide and certify or
cause to be provided and certified such information concerning the Borrower, its
finances, and such other topics as the Trustee or the Authority from time to
time reasonably considers necessary or appropriate, including, but not limited
to such information as may be necessary to enable the Authority to make any
reports required by the Act, any other law or governmental regulation or to
enable the Authority to issue additional lots of Bonds under the General Bond
Resolution and publicly or privately market the same.

<PAGE>

Section 8.5. BOOKS OF RECORD AND ACCOUNT; FINANCIAL STATEMENTS. (a) The
Borrower agrees to maintain proper accounts, records and books in which full and
correct entries shall be made, in accordance with generally accepted accounting
principles, of business and affairs of the Borrower. The Authority, the
Legislative Auditor and the Trustee or their designated agents or
representatives shall have the right to inspect such accounts, records and books
during reasonable business hours.

(b) Within 120 days after the close of each fiscal year of the Borrower
during the Loan Term, the Borrower shall furnish to the Authority and the
Trustee a consolidated balance sheet, a consolidated statement of income and
retained earnings and a consolidated statement of cash flow of the Borrower for
the immediately preceding fiscal year, all in reasonable detail (including
footnotes to such financial statements), such financial statements
either (i) to be audited and accompanied by the opinion of an Accountant or (ii)
to be prepared by an Accountant and accompanied by a review letter of the
Accountant. If the Borrower has its financial statements audited as part of its
standard business practice, then the financial statements that the Borrower is
required to furnish pursuant to this Section 8.5(b) must be audited and
accompanied by the opinion of an Accountant.

(C) In addition to the foregoing, such financial statements shall be
accompanied by a report containing all of the calculations required by Section
8.20(a) and (b) of this Agreement to determine whether or not the Borrower is in
compliance with the requirements of Section 8.20(a) and (b) of this Agreement,
such calculations to be prepared by an Accountant from the then-current audited
financial statements of the Borrower or the financial statements of the Borrower
prepared by the Accountant, as the case may be.

Section 8.6. CAPITAL EXPENDITURES BORROWER TO FILE STATEMENTS WITH
INTERNAL REVENUE SERVICE. The Borrower agrees to file, and to cause all
Principal Users to file, with the Internal Revenue Service of the United States
Treasury Department or any other authorized governmental agency any and all
statements or other instruments which may be required by Section 103 and
Sections 140 to 150 of the Code to be filed by such Persons, at the times
required therein.

The Borrower also covenants that it will fulfill all conditions specified
in Section 144(a) of the Code to qualify the Bonds as a "small issue" thereunder
and that it will not make or permit to be made or incurred any capital
expenditures which under the provisions of Section 144(a) of the Code would
cause interest on the Single Lot Bonds to be subject to Federal income

<PAGE>

taxes in the hands of Bondholders other than a "substantial user, of the
Project or a "related person", as those terms are defined in the Code.

Section 8.7. ASSURANCE AS TO TAX-EXEMPTION. Notwithstanding any other
provision of this Agreement, so long as the Single Lot Bonds shall be unpaid,
neither the Authority nor the Borrower shall use, or direct or permit the use
of, the Bond Proceeds or any other moneys within their respective control
(including without limitation the proceeds of any insurance or any Condemnation
award with respect to the Project) which, if such use had been reasonably
expected on the date of issue of the Single Lot Bonds, would have caused the
Single Lot Bonds to be "arbitrage bonds" within the meaning of such quoted term
in Section 148 of the Code or which use has resulted or will result in violation
of any of the requirements of Section 148 of the Code.

Section 8.8. CERTIFICATE OF NO DEFAULT. The Borrower agrees to deliver
to the Trustee and to the Authority within 120 days after the close of each
fiscal year of the Borrower, a certificate of an Authorized Representative of
the Borrower (a) to the effect that each of them is not aware of any condition,
event or act which constitutes an Event of Default hereunder, and no condition,
event or act which, with notice of lapse of time, or both, would constitute such
an Event of Default, or if any such condition, event or acts exists, specifying
the same, and (b) to the effect that each of them is not aware of any failure in
the payment of any part of the principal of or interest on any outstanding
indebtedness of the Borrower for money borrowed and as the same shall become due
and payable, whether at the stated maturity of such indebtedness or at a date
fixed for redemption or otherwise, or the acceleration of the maturity of any
such indebtedness following a default under the terms of any agreement or
instrument relating to any such indebtedness.

Section 8.9. NOTICE OF DEFAULT. The Borrower will forthwith, upon the
occurrence of an Event of Default hereunder or upon the occurrence of a
condition, event or act which, with notice or lapse of time, or both, would
constitute such an Event of Default, notify in writing the Trustee and the
Authority of the occurrence of such Event of Default.

Section 8.10. ASSIGNMENT AND LEASING. (a) This Agreement may be assigned
in whole or in part and the Project may be leased as a whole or in part by the
Borrower, but only with the written consent of the Authority and the Trustee and
provided further that:

(i) No assignment (other than pursuant to Section 8.3 hereof) or
lease shall relieve the Borrower from primary liability for any of its
obligations hereunder;

<PAGE>

(ii) The assignee or lessee shall assume the obligations of the
Borrower hereunder to the extent of the interest assigned or leased;

(iii) The Borrower shall, within ten (10) days after the delivery
thereof, furnish or cause to be furnished to the Authority and to the
Trustee a true and complete copy of each such assignment or lease, as the
case may be, and the instrument of assumption;

(iv) The tax-exempt status of the interest on the Bonds then
outstanding shall not be adversely affected thereby;

(v) The assignment or lease shall be subject and subordinate to
the Lien of this Agreement, the Mortgage and the Pledge; and

(vi) Neither the validity nor the enforceability of this
Agreement, the Mortgage, the Guaranty or any security interest created
thereunder shall be adversely affected thereby.

(b) As of the purported effective date of any assignment or lease pursuant
to subsection (a) of this Section 8.10 and as an express condition precedent to
the effectiveness thereof, the Borrower shall furnish the Trustee with an
opinion, in form and substance satisfactory to the Trustee, (i) of Bond Counsel
opining that the tax-exempt status of the interest on the Bonds will not be
adversely affected thereby, (ii) of Independent Counsel that the assignment or
lease is subject and subordinate to the Lien of this Agreement, the Mortgage and
the Pledge, (iii) of Independent Counsel that neither the validity nor the
enforceability of this Agreement, the Note, the Mortgage and the Guaranty will
be adversely affected thereby and (iv) of Independent Counsel opining that the
assumption of obligations of the Borrower by any Person pursuant to
Section 8.10 (a) (ii) hereof will constitute a valid and legally enforceable
assumption by such Person.

(c) Any reassignment or sublease in turn of any assignment or lease
entered into pursuant to subsection (a) of this Section 8.10 shall comply with
and be subject to all the provisions of subsections (a) and (b) of this
Section 8.10. Any sublease in turn of a lease entered into pursuant to
subsection (a) of this Section 8.10 shall be subject and subordinate to such
original lease.

Section 8.11. RIGHT TO INSPECT THE PROJECT AND SECURITY PROPERTY. The
Authority, the Trustee and the duly authorized

<PAGE>

agents of either of them shall have the right at all reasonable times to inspect
the Project and the Security Property.

Section 8.12. COMPLIANCE WITH ORDERS, ORDINANCES, ETC. (a) The Borrower
agrees that it will, throughout the Loan Term, promptly comply with all
statutes, codes, laws, acts, ordinances, orders, judgments, decrees,
injunctions, rules, regulations, permits, licenses, authorizations, directions
and requirements of all federal, state, county, municipal and other governments,
departments, commissions, boards, companies or associations insuring the
premises, courts, authorities, officials and officers, foreseen or unforeseen,
ordinary or extraordinary, which now or at any time hereafter may be applicable
to the Security Property or any part thereof, or to any use, manner of use or
condition of the Security Property or any part thereof.

(b) Notwithstanding the provisions of subsection (a) of this Section 8.12,
the Borrower may in good faith contest the validity or the applicability of any
requirement of the nature referred to in such subsection (a). In such event,
the Borrower may fail to comply with the requirement or requirements so
contested during the period of such contest and any appeal therefrom, unless the
Authority or the Trustee shall notify the Borrower that by failure to comply
with such requirement or requirements the Lien of the Mortgage or the security
interest created by Section 5.4(a) and (b) of this Agreement as to any part of
the Security Property may be materially endangered or the Security Property or
any part thereof may be subject to loss or forfeiture, in which event the
Borrower shall promptly take such action with respect thereto as shall be
satisfactory to the Trustee.

Section 8.13. LIENS AND ENCUMBRANCES. (a) During the Loan Term and
subject to the provisions of Section 5.4 of this Agreement, the Borrower shall
not permit or create or suffer to be permitted or created any Lien, except for
Permitted Encumbrances, upon the Security Property or any part thereof, nor may
the Borrower assign, sell or otherwise dispose of the Security Property or any
part thereof, without the prior written consent of the Authority and the
Trustee. Any such Lien, if nonetheless created or permitted, shall be
discharged by the Borrower forthwith.

(b) Notwithstanding the provisions of subsection (a) of this Section 8.13,
the Borrower may in good faith contest any Lien upon the Security Property or
any part thereof by reason of any labor, services or materials rendered or
supplied or claimed to be rendered or supplied with respect to the Project or
any part thereof. In such event, the Borrower may permit the items so contested
to remain undischarged and unsatisfied during the period of such contest and any
appeal therefrom, unless the

<PAGE>

Authority or the Trustee shall notify the Borrower that by nonpayment of any
such item or items the Lien of the Mortgage or the security interest created by
Section 5.4(a) and (b) of this Agreement may be materially endangered or the
Security Property or any part thereof may be subject to loss or forfeiture, in
which event the Borrower shall promptly secure payment of all such unpaid items
by filing a bond, in form and substance and in such amount satisfactory to the
Trustee, thereby causing a Lien to be removed.

(c) Upon the request of the Authority or the Trustee, the Borrower shall
provide the Authority and the Trustee, within sixty (60) days of such request,
with proof satisfactory to the Trustee that all items of Security Property
continue to be free and clear of all Liens (other than Permitted Encumbrances).

(d) Notwithstanding the provisions of subsection (a) of this Section 8.13,
the Authority shall be required to release from the Lien of Mortgage any part of
the Security Property constituting real property, provided (i) an independent
architect satisfactory to the Authority certifies that the real property to be
released is not material to the continued business operations of the Borrower at
the site owned by the Borrower and (ii) the Appraised Value of the real property
to be released is not more than 5% of the overall Appraised Value of the
Security Property constituting real property. Pursuant to this Section 8.13(d),
the Authority shall execute such instruments as shall be necessary to effect
such release from the Mortgage as provided above as may be requested by the
Borrower.

Section 8.14. IDENTIFICATION OF EQUIPMENT. All Equipment shall be
properly identified by the Borrower by appropriate records, including
computerized records.

Section 8.15. RELOCATION OF THE EQUIPMENT. The Borrower covenants and
agrees that during the Loan Term it will not remove the Equipment (except in
accordance with the terms of Section 5.4(c) hereof) from the Land to a new
location either within or outside of the State, without first obtaining the
express written consent of the Authority with respect to such removal and
relocation.

Section 8.16. DEPRECIATION DEDUCTIONS AND INVESTMENT TAX CREDIT. The
parties agree that the Borrower shall be entitled to all depreciation deductions
with respect to any depreciable property in the Project pursuant to Section 167
of the Code and to any investment credit pursuant to Section 38 of the Code with
respect to any portion of the Project which constitutes "Section 38 Property".

Section 8.17. MORTGAGE COVENANTS. The Borrower covenants and agrees to
perform all of the obligations and covenants

<PAGE>

imposed upon it pursuant to the Series 1985 Bond Documents and the Mortgage and
agrees that any failure to perform any such covenants may constitute a default
for purposes of this Agreement.

Section 8.18. COVENANT AGAINST DISCRIMINATION. The Borrower covenants
and agrees that in the performance of this Agreement on the employment of
persons at the Project it will not discriminate or permit discrimination against
any person or group of persons on the grounds of race, color, religion, national
origin or sex in any manner prohibited by the laws of the United States of
America or of the State.

Section 8.19. EMPLOYMENT RECORDS. Within sixty (60) days after the close
of each calendar year, the Borrower shall furnish a written report to the
Authority of the total number of employees at the Project, and shall separately
indicate: (a) the number of permanent new jobs which was estimated to be created
by the Project on the Borrower's application to the Authority, with job
descriptions and annual salaries; (b) which of these permanent new jobs are
currently filled; and (c) the average number of full-time, part-time or seasonal
employees at the Project within the three (3) categories of (i) professional,
managerial, technical, (ii) skilled, and (iii) semi-skilled or unskilled for the
current reporting period. In addition, such report shall contain information
with respect to employment at the Project that is required to be contained in
the employment reports described in MINNESOTA STATUTES, Section 474.01, Subd.
11.

Section 8.20. CERTAIN FINANCIAL COVENANTS. (a) During the Loan Term and
as of any date of calculation, the Borrower shall maintain a Net Worth of not
less than $3,000,000.

(b) During the Loan Term and as of the date of any calculation, the
Borrower shall maintain a ratio of earnings before paying interest on all of its
Indebtedness, taxes and making allowances for depreciation and amortization (all
in accordance with generally accepted accounting principles) to regularly
scheduled payments of principal and interest on all Funded Indebtedness of the
Borrower averaged for the last three (3) full fiscal years of the Borrower of at
least 1.5 to 1.0.

(c) Notwithstanding anything contained herein to the contrary, the failure
by the Borrower to comply with the provisions of either Section 8.20(a) or
Section 8.20(b) of this Agreement shall not constitute an Event of Default
hereunder, but shall result in the following requirements of the Borrower during
the continuance of such failure:

<PAGE>

(i) That the Borrower shall not, without the prior written
consent of the Authority, incur any Funded Indebtedness other than
Subordinated Indebtedness and other than purchase money indebtedness for
real or personal property usable in the business of the Borrower.

(ii) That the Borrower shall not, without the prior written
consent of the Authority, declare or pay any dividends except as permitted
under Section 8.21 of this Agreement.

(iii) That the Borrower shall not, without the prior written
consent of the Authority, pay any annual increases in total compensation
(excluding insurance, health, dental and pension benefits) to the directors
and officers of the Borrower or any person who is related by blood or
marriage to any of such directors and officers in excess of 7%.

(d) Notwithstanding anything contained herein to the contrary, during the
Loan Term, the Borrower shall not make any payments of principal or interest on
any Subordinated Indebtedness to the extent that the making of such payments
would cause the Borrower to be in noncompliance with the provisions of Section
8.20(a) of this Agreement. Failure to comply with the provisions of this
Section 8.20(d) shall constitute an Event of Default hereunder.

(e) The calculations required by Section 8.20(a), Section 8.20(b) ,
Section 8.20(c) and Section 8.20(d) of this Agreement shall be prepared by an
Accountant and submitted to the Authority and the Trustee annually pursuant to
Section 8.5 of this Agreement.

Section 8.21. COVENANT AGAINST LOANS, DIVIDENDS, ETC. The Borrower
covenants and agrees that it will not, without the prior written consent of the
Authority, pay or declare any dividends on any class of its capital stock or
make any loans or transfer title to any of its assets to any officer or
stockholder of the Borrower, in an amount or at fair market value in the
aggregate in excess of $-O- in any single fiscal year of the Borrower.
Notwithstanding the foregoing sentence, the Borrower may declare and pay
dividends from time to time with respect to its capital stock in amounts
reasonably determined by an Accountant to pay when due (including estimated
payments) the actual (or estimated, as the case may be) aggregate and cumulative
federal and state income tax liabilities (including any penalties and interest)
of the shareholders of the Borrower that arise directly or indirectly by virtue
of the Borrower's making and having in effect an election under, and being
treated as an "S corporation" within the meaning of, Sections 1361 ET SEA. of
the Code.

<PAGE>

Section 8.22. COVENANT AGAINST REDEMPTION OF STOCK. The Borrower
covenants and agrees that it will not, without the prior written consent of the
Authority, redeem any capital stock of the Borrower or purchase any treasury
stock of the Borrower.

Section 8.23. COVENANT AGAINST UNREASONABLE COMPENSATION. The Borrower
covenants and agrees that it will not pay directors' and officers' salaries or
provide any form of compensation to its directors and officers in excess of that
reasonable for services rendered.
Section 8.24. AMENDMENT OF INTERIM LOAN DOCUMENTS. The Borrower
covenants and agrees not to amend any of the Interim Loan Documents, without
first obtaining the prior written consent of the Authority and the Trustee.

Section 8.25. VACANT POSITIONS. Borrower agrees to list any vacant or
new positions with the job services of the commissioner of jobs and training or
a local service unit as required by MINNESOTA STATUTES, Section 268.66.

<PAGE>

ARTICLE IX

PLEDGE OF CERTAIN INTERESTS

Section 9.1. PLEDGE OF CERTAIN INTERESTS TO BONDHOLDERS. (a) The
Authority under Section 1.04 of the General Bond Resolution and under Section
6.01 of the Single Lot Resolution has Pledged all of its rights and interest and
all provisions of this Agreement and the Note (except pursuant to Section 8.2
hereof), the Mortgage and the Guaranty as security for the payment of the
principal of, premium, if any, and interest on the Bonds and the Single Lot
Bonds. Such Pledge shall in no way impair or diminish any obligation of the
Borrower under this Agreement, the Note and the Mortgage or the Guarantors under
the Guaranty. The Borrower hereby consents to such Pledge by the Authority.

(b) Except as provided in this Section 9.1 and in Article X of this
Agreement and except as otherwise expressly provided in this Agreement, the
Note, the Mortgage and the Guaranty, the Authority shall not sell, assign,
transfer, convey or otherwise dispose of its interest in or its rights under
this Agreement, the Note, the Mortgage and the Guaranty, without the prior
written consent of the Borrower and the Guarantors.

<PAGE>

ARTICLE X

EVENTS OF DEFAULT AND REMEDIES

Section 10.1. EVENTS OF DEFAULT DEFINED. (a) The following shall be
"Events of Default" under this Agreement and the terms "Event of Default" or
"Default" shall mean, whenever they are used in this Agreement, any one or more
of the following events:

(i) The failure by the Borrower to pay or cause to be paid, when due,
the amounts specified to be paid pursuant to Section 5.1, Section 5.2(a) or
Section 11.1(a) hereof and the Note;

(ii) The failure by the Borrower to observe and perform any covenant
contained in Section 8.3 hereof;

(iii) The failure by the Borrower to observe and perform any covenant,
condition or agreement hereunder on its part to be observed or performed
(except obligations referred to in Sections 10.1(a)(i), (ii), (iv), (v),
(vi) or (vii) hereof) for a period of thirty (30) days after written
notice, specifying such failure and requesting that it be remedied, given
to the Borrower by the Authority or the Trustee however, if such failure
cannot be cured or corrected within such thirty (30) day period and with
the consent of the party giving such written notice, the thirty (30) day
period may be extended for up to one hundred fifty (150) additional days so
long as the Borrower proceeds diligently in good faith to cure or correct
such failure;

(iv) The dissolution or liquidation of the Borrower or the filing by
the Borrower of a voluntary petition in bankruptcy, or the failure by the
Borrower within sixty (60) days to lift any execution, garnishment or
attachment of such consequence as will impair its ability to carry on its
operations at the Facility, or the commission by the Borrower of any act of
bankruptcy, or the adjudication of the Borrower as a bankrupt, or the
assignment of assets by the Borrower for the benefit of its creditors, or
the entry by the Borrower into an agreement of composition with its
creditors, or the approval by a court of competent jurisdiction of a
petition applicable to the Borrower in any proceeding for its
reorganization instituted under the provisions of any state or Federal
bankruptcy or similar law, or appointment by final order, judgment or
decree of a court of competent jurisdiction of a receiver of the whole or a
substantial portion of the Properties of the Borrower (unless such receiver
is removed or discharged within sixty (60) days of the date

<PAGE>

of his qualification). The term "dissolution or liquidation of the
Borrower" as used in this subsection shall not be construed to include any
transaction permitted by Section 8.3 hereof;

(v) The failure in the payment of any part of the principal of or
interest on any Indebtedness of the Borrower for money borrowed having an
outstanding principal amount of $50,000, when and as the same shall become
due and payable, whether at the stated maturity of such Indebtedness or at
a date fixed for redemption or otherwise, which failure results in the
acceleration of the maturity of any such indebtedness following a default
under the terms of any agreement or instrument relating to any such
indebtedness;

(vi) The occurrence and continuance of an "event of default" under the
Series 1985 Loan Agreement, the Mortgage or the Guaranty; and

(vii) The occurrence and continuance of a default or an event of
default under any of the Interim Loan Documents resulting in the
acceleration of the maturity thereof or the demand of payment in full
thereof.

(b) Notwithstanding the provisions of Section 10.1(a), if by reason of
FORCE MAJEURE either party hereto shall be unable in whole or in part to carry
out its obligations under this Agreement and if such party shall give notice and
full particulars of such FORCE MAJEURE in writing to the other party and to the
Trustee within a reasonable time after the occurrence of the event or cause
relied upon, the obligations under this Agreement of the party giving such
notice, so far as they are affected by such FORCE MAJEURE, shall be suspended
during the continuance of the inability, which shall include a reasonable time
for the removal of the effect thereof. The suspension of such obligations for
such period pursuant to this subsection (b) shall not be deemed an Event of
Default under this Section 10.1. Notwithstanding anything to the contrary in
this subsection (b), an event of FORCE MAJEURE shall not excuse, delay or in any
way diminish the obligations of the Borrower to make the payments required by
Section 5.1. Section 5.2 and Section 11.1(a) hereof, to obtain and continue in
full force and effect the insurance required by Section 4.6 and Section 6.4
hereof, to provide the indemnity required by Section 8.2 hereof and to comply
with the provisions of Sections 2.2(c), 2.2(g), 2.2(m), 2.2(u), 2.2(aa),
2.2(bb), 2.2(ee), 2.2(ff), 4.3, 4.5, 5.2(e), 5.3, 6.1, 6.3, 6.5, 6.6, 6.7, 8.3,
8.4, 8.5, 8.6, 8.7, 8.8, 8.9, 8.10, 8.11, 8.12, 8.13, 8.15, 8.16, 8.17, 8.18,
8.19, 8.20, 8.21, 8.22, 8.23, 8.24, 8.25 and 8.26 hereof. The term "FORCE
MAJEURE" as used herein shall include, without limitation, acts of God, strikes,
lockouts or other industrial disturbances, acts of public enemies, orders

<PAGE>

of any kind of the government of the United States of America or of the State or
any of their departments, agencies, governmental subdivisions, or officials, or
any civil or military authority, insurrections, riots, epidemics, landslides,
lightning, earthquakes, fire, hurricanes, storms, floods, washouts, droughts,
arrests, restraint of government and people, civil disturbances, explosions,
breakage or accident to machinery, transmission pipes or canals, partial or
entire failure of utilities, or any other cause or event not reasonably within
the control of the party claiming such inability.

Section 10.2. REMEDIES ON DEFAULT. (a) Whenever any Event of Default shall
have occurred and be continuing, the Authority or the Trustee may take any one
or more of the following remedial steps:

(i) Declare, by written notice to the Borrower, to be immediately due
and payable, whereupon the same shall become immediately due and payable
and so accelerated: (i) all unpaid amounts payable pursuant to Section 5.1
hereof, and pursuant to the Note (constituting principal on the Loan and
accrued but unpaid interest thereon) and (ii) all other payments due under
the Series 1985 Bond Documents, this Agreement and pursuant to the Note
(whether or not constituting principal on the Loan and accrued but unpaid
interest thereon);

(ii) Terminate the disbursement of any moneys in the Construction
Account in accordance with Section 4.3 hereof and, upon acceleration of the
Loan pursuant to Section 10.2(a)(i) of this Agreement, transfer such moneys
to the Special Redemption Account;

(iii) Foreclose and otherwise enforce the Mortgage and/or the Series
1985 Bond Documents on, and any security interest in, the Facilities, the
Land, the Building and the Equipment;

(iv) Take possession of the Equipment and for that purpose the
Borrower agrees that (a) it will, when so requested by the Authority or the
Trustee assemble the Equipment and make it available to the Authority or
the Trustee on the premises on which it is located and (b) the Authority
and the Trustee, their employees, agents and representatives shall have the
right to peacefully enter upon any premises in the possession of the
Borrower wherein the Equipment or any part thereof may be located and take
possession of and remove such Equipment without interference or hindrance
from the Borrower, its officers, agents or employees or any person
associated therewith;

<PAGE>

(v) Upon ten (10) business days' notice to the Borrower (which the
Borrower hereby agrees is commercially reasonable) the Authority or Trustee
may proceed to sell or otherwise dispose of the Equipment or any part
thereof by public or private sale in any commercially reasonable manner
(and without intending to limit the generality of the foregoing, the
Borrower hereby agrees that the sale of such property at a public auction
conducted by a reputable auctioneer in the manner in which such auctions
are usually conducted is commercially reasonable);

(vi) Take any action authorized or permitted under the Series 1985
Bond Documents; and

(vii) Take any other action at law or in equity which may appear
necessary or desirable to collect the payments then due or thereafter to
become due and to enforce the obligations, agreements or covenants of the
Borrower under this Agreement, the Note and the Series 1985 Bond Documents
and by the Guarantors under the Guaranty.

(b) Any sums realized as a consequence of any action taken pursuant to
Section 10.2(a) shall be paid to the Trustee and shall be applied by the
Trustee, subject to the provisions of Section 4.8 hereof and Section 7.04 of the
General Bond Resolution, in accordance with the provisions of Section 6.06(d) of
the General Bond Resolution, to which such application the Borrower hereby
consents.

Section 10.3. REMEDIES CUMULATIVE. No remedy herein conferred upon or
reserved to the Authority is intended to be exclusive of any other available
remedy, but each and every such remedy shall be cumulative and in addition to
every other remedy given under this Agreement or now or hereafter existing at
law or in equity. No delay or omission to exercise any right or power accruing
upon any default shall impair any such right or power or shall be construed to
be a waiver thereof, but any such right and power may be exercised from time to
time and as often as may be deemed expedient. In order to entitle the Authority
to exercise any remedy reserved to it in this Article X, it shall not be
necessary to give any notice, other than such notice as may be herein expressly
required in this Agreement and the Note.

Section 10.4. AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES. In the event
the Authority or the Trustee should employ attorneys or incur other expenses in
response to any request of the Borrower or a Guarantor or for the collection of
amounts payable hereunder or the implementation or enforcement of performance or
observance of any obligations or agreements on the part of the Borrower herein
contained, including without

<PAGE>

limitation obligations and agreements under this Section 10.4, the Borrower
shall, on demand therefor, pay to the Authority or the Trustee the reasonable
fees of such attorneys and such other expenses so incurred. Commencement of a
lawsuit to recover any amount payable under this Agreement or the Note shall be
deemed a demand for payment of all expenses incurred in the course of such
lawsuit, including without limitation attorneys' fees.

Section 10.5. NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER. In the event any
agreement contained herein should be breached by either party and thereafter
waived by the other party, such waiver shall be limited to the particular breach
so waived and shall not be deemed to waive any other breach hereunder including
without limitation a subsequent breach or subsequent breaches of the same
provision of this Agreement.

<PAGE>

ARTICLE XI

EARLY TERMINATION OF AGREEMENT;
PREPAYMENT OF LOAN

Section 11.1. EARLY TERMINATION OF AGREEMENT. (a) The Borrower shall
terminate this Agreement and shall comply with the requirements set forth in
Section 11.2 hereof within 90 days after a Determination of Taxability. The
obligation of the Borrower to comply with the requirements of this Section
11.1(a) shall be absolute and unconditional to the same extent as provided in
Sections 5.1 and 5.3 of this Agreement.

(b) The Borrower shall have an option to terminate this Agreement upon
filing with the Authority and the Trustee a certificate signed by an Authorized
Representative of the Borrower stating the Borrower's intention to do so on the
next succeeding Bond Payment Date pursuant to this Section 11.1(b) and complying
with the requirements of Section 3.02(b) of the General Bond Resolution and upon
further compliance with the requirements set forth in Section 11.2 hereof.

Section 11.2. CONDITIONS TO EARLY TERMINATION OF AGREEMENT. In the event
the Borrower exercises its option, or is required, to terminate this Agreement
in accordance with any provision of Section 11.1 hereof, the Borrower shall
comply with the requirements set forth in the following three subsections:

(a) The following payments shall be made:

(i) TO THE TRUSTEE FOR THE ACCOUNT OF THE AUTHORITY: an amount
certified by the Trustee which, when added to the total amount on deposit
with the Trustee for the account of the Authority and the Borrower and
available for such purpose, will be sufficient (A) to pay, for deposit into
the Special Redemption Account, the amount required by Section 2.08(a) of
the Single Lot Resolution as the Redemption Price for the Single Lot Bonds
in connection with the redemption in whole of such Bonds, if such
termination is pursuant to Section 11.1(a) hereof, or (B) to pay, for
deposit into the Optional Redemption Account, the Redemption Price of the
Single Lot Bonds in connection with the redemption in whole of such Bonds,
in accordance with the terms of Section 2.07(a) of the Single Lot
Resolution, together with all interest on such Single Lot Bonds which will
accrue to the date of prepayment (which shall be the next succeeding Bond
Payment Date for which the Trustee may give notice pursuant to Section 3.03
and Section 3.04 of the General Bond Resolution), if such termination is
pursuant to Section 11.1(b) hereof;

<PAGE>
(ii) TO THE AUTHORITY: an amount certified by the Authority sufficient
to pay all unpaid fees and expenses of the Authority incurred under this
Agreement and the Authority Resolution; and

(iii) TO THE APPROPRIATE PERSON: an amount sufficient to pay all other
fees, expenses or charges, if any, due and payable or to become due and
payable under this Agreement and the Authority Resolution and not otherwise
paid or provided for.

(b) The certificate required to be filed pursuant to Section 11.1(b),
shall specify the date upon which the payments pursuant to subdivision (a) of
this Section 11.2 shall be made, which date shall not be less than ninety (90)
nor more than one hundred twenty (120) days from the date such certificate is
filed with the Authority and the Trustee.

Section 11.3. DISCHARGE OF LIEN. If the Borrower shall pay or cause to be
paid, or there shall otherwise be paid, to the Holders of all outstanding Series
1985 Bonds and the Single Lot Bonds or to the Trustee with respect thereto, the
principal or Redemption Price, if applicable, and interest due or to become due
at the times and in the manner stipulated therein, then the rights in the
Security Property hereby granted and all covenants, agreements and other
obligations of the Borrower hereunder to the Authority and the Trustee shall
thereupon cease, terminate and become void and be discharged and satisfied. In
such event, the Authority and the Trustee shall cancel and discharge the Lien of
the Mortgage and the security interest in the Equipment created in Section 5.4
of this Agreement and execute and deliver to the Borrower all such instruments
as may be appropriate to evidence such discharge and satisfaction of such liens.
After payment in full of the Series 1985 Bonds and the Single Lot Bonds and the
interest thereon and the payment of all fees, charges, expenses and other
amounts required to be paid under this Agreement, the Note, the Single Lot
Resolution and the Series 1985 Bond Documents, all amounts on deposit with the
Trustee for the account of the Authority and the Borrower under this Agreement,
the Note and the Single Lot Resolution, if any, shall be applied by the Trustee
in accordance with the provisions of Section 5.21 of the General Bond
Resolution.

Section 11.4. PREPAYMENT OF LOAN IN PART. (a) The Borrower shall have the
Option to prepay the Loan in part upon filing with the Authority and Trustee a
certificate signed by an Authorized Representative stating the Borrower's
intention to do so pursuant to this Section 11.4 and complying with the require-
ments of Section 2.07(a) of the Single Lot Resolution and Section 3.02(b) of the
General Bond Resolution. Such certificate shall specify the date (which shall be
a Bond Payment Date) and amount of the partial prepayment of the Loan, which
date shall not be

<PAGE>

less than one hundred twenty (120) days nor more than ninety (90) days.

(b) Upon the filing of such certificate, the Borrower shall pay to the
Trustee for the account of the Authority a sum sufficient to pay, for deposit
into the Optional Redemption Account, the Redemption Price of the amount of the
Single Lot Bonds to be redeemed (from the amounts to be prepaid on the Loan as
certified in Section 11.4(b) of this Agreement) in accordance with the terms of
Section 2.07(a) of the Single Lot Resolution, together with all interest on such
Single Lot Bonds which will accrue to the date of prepayment.

Section 11.5. REFUNDING CONSENT. If after August 1, 1990 the Authority
certifies to the Borrower that it wishes to refund the Single Lot Bonds in order
to permit the Authority to amend the provisions of the General Bond Resolution
or the General Guaranty Fund Pledge and Escrow Agreement without the necessity
of obtaining Bondholder consent, the Borrower hereby consents to the issuance of
a Lot of refunding Bonds to refund the Single Lot Bonds at the then prevailing
rates of interest (provided that the interest payable on such refunding Bonds
shall continue the tax-exempt status of the Single Lot Bonds, if any). In
connection with any such refunding, the Borrower hereby covenants to amend or
supplement this Agreement and the Mortgage (and shall cause the Guarantors to
amend the Guaranty) to such extent, or to provide substitute documents therefor,
as in the opinion of the Authority shall be necessary to effect such refunding,
including the payment of debt service on such refunding Bonds when and as due
and at the rate of interest set forth therein. The Borrower hereby consents, in
connection with such refunding, to any deposit by the Authority of all or part
of the proceeds of such refunding Bonds (i) into the Special Redemption Account
to prepay in whole the Single Lot Bonds or (ii) to be held by the Trustee to
defease the Single Lot Bonds in accordance with the provisions of Section 11.02
and Section 11.03 of the General Bond Resolution.

<PAGE>

ARTICLE XII

MISCELLANEOUS

Section 12.1. NOTICES. All notices, other than interest billing notices,
certificates or other communications hereunder shall be in writing and shall be
sufficiently given and shall be deemed given when delivered and, if delivered by
mail, shall be sent by certified or registered mail, postage prepaid, return
receipt requested, addressed as follows:

TO THE AUTHORITY: Minnesota Agricultural and
Economic Development Board
900 American Center Building
150 East Kellogg Boulevard
Saint Paul, Minnesota 55101
ATTENTION: Financial Management
Division (Department
of Trade and Economic
Development)

TO THE BORROWER: May Printing Company
221 Lincoln Avenue S.E.
St. Cloud, Minnesota 56301
ATTENTION: John Caye

TO THE TRUSTEE: First Bank National Association
First Bank Place East
Minneapolis, Minnesota 55402
ATTENTION: Corporate Trust
Division

A duplicate copy of each notice, certificate and other communication given
hereunder by either the Authority or the Borrower to the other shall also be
given to the Trustee. The Authority, the Borrower and the Trustee may, by notice
given hereunder, designate any further or different addresses to which
subsequent notices, certificates and other communications shall be sent.

Section 12.2. BINDING EFFECT. This Agreement shall inure to the
benefit of and shall be binding upon the Authority, the Borrower and their
respective successors and assigns and shall create no rights in any other
parties except as may be specifically set forth elsewhere in this Agreement.

Section 12.3. SEVERABILITY. In the event any provision of this Agreement
shall be held invalid or unenforceable by any court of competent jurisdiction,
such holding shall not invalidate or render unenforceable any other provision
hereof.

Section 12.4. AMENDMENTS, CHANGES AND MODIFICATIONS. This Agreement, the
Mortgage and the Note may not be amended,

<PAGE>

changed, modified, altered or terminated without the concurring written consent
of the Bondholders, except as provided in Section 6.08 of the General Bond
Resolution. Wherever the consent or approval of the Authority or the Trustee
is required or permitted under this Agreement, the Note, the Mortgage or the
Guaranty, such consent or approval shall not be unreasonably withheld (based
upon the standards set forth in the General Bond Resolution) and shall be
promptly given (but this provision shall not be deemed to require any special
meetings by the Authority's Board).

Section 12.5. DATA PRIVACY DISCLOSURE. Borrower understands that the data
which the Borrower provides pursuant to the Agreement, including, but not
limited to, information required under Section 8.4, Section 8.5, Section 8.6,
Section 8.8 and Section 8.19 will be used by the Authority to:

(a) Assess Borrower's financial status;

(b) Make any reports required by the Act, any other law or government
regulation;

(c) Provide such information to the public, including, but not limited to,
potential purchasers of its Bonds, Bondholders, Bond Counsel and the Authority's
underwriters and placement agents, as is needed in connection with the sale,
issuance and payments of Bonds;

(d) Enforce this agreement and any mortgage or other security instrument
between the Borrower and the Authority; and

(e) Operate and evaluate its Program.

Borrower further understands that there is a possibility that the data might
constitute a public record and may be examined by anyone. The Borrower hereby
consents to the use of such data as described above and to its public
disclosure. Failure to provide the required data may constitute an Event of
Default under Section 10.1.

Section 12.6. EXECUTION OF COUNTERPARTS. This Agreement may be executed
in several counterparts, each of which shall be an original and all of which
shall constitute but one and the same instrument.

Section 12.7. APPLICABLE LAW. This Agreement shall be governed
exclusively by the applicable laws of the State.

Section 12.8. RECORDING AND FILING. (a) The Mortgage financing
statements perfecting the security interest created

<PAGE>

therein or in this Agreement in all amounts payable hereunder shall be recorded
or filed, as the case may be, in such office or offices as may at the time be
provided by law as the proper place for the recordation or filing thereof. The
Borrower shall be responsible for such recording and filing and shall bear the
expense associated therewith.

(b) The Authority and the Borrower shall execute and deliver all
instruments and shall furnish all information necessary or appropriate to
perfect or protect any security interest created or contemplated by this
Agreement, the Mortgage or the Authority Resolution.

Section 12.9. SURVIVAL OF OBLIGATIONS. This Agreement and the Note shall
remain in full force and effect until the Single Lot Bonds and the Series 1985
Bonds, together with all interest thereon, and all amounts payable under this
Agreement, the Note, the Authority Resolution, the Series 1985 Note and the
Series 1985 Bond Documents shall have been paid in full. However, the
obligations of the Borrower to make the payments required by Section 5.1,
Section 5.2(a) and Section 5.2(f) hereof and to provide the indemnity required
by Section 8.2 hereof shall survive the termination of this Agreement and the
full payment of the Single Lot Bonds and the Series 1985 Bonds.

Section 12.10. TABLE OF CONTENTS AND SECTION HEADINGS NOT CONTROLLING.
The Table of Contents and the headings of the several Sections in this Agreement
have been prepared for convenience of reference only and shall not control,
affect the meaning of or be taken as an interpretation of any provision of this
Agreement.

Section 12.11. LIMITED LIABILITY. The Act prescribes and the parties
intend that by reason of making this Agreement, by reason of the issuance of the
Single Lot Bonds, by reason of the performance of any act required of the
Authority by this Agreement, or by reason of the performance of any act
requested of the Authority by the Borrower, no indebtedness or charge against
the general credit or taxing powers, if any, of the Authority within the meaning
of any constitutional or statutory limitation shall occur.

<PAGE>

IN WITNESS WHERE OF, the Authority and the Borrower have caused this Loan
Agreement to be executed in their respective names as of July 1, 1990.

MINNESOTA AGRICULTURAL AND
ECONOMIC DEVELOPMENT BOARD

BY
-------------------------------
Administrator
ATTEST:

/s/ Paul Moe
- ------------------------------------
Executive Director

MAY PRINTING COMPANY

By J. Scott May
--------------------------------
Its: Vice President

And By /s/ Thomas May
-----------------------------
Its: Chairman of the Board

<PAGE>

IN WITNESS WHEREOF, the Authority and the Borrower have caused this Loan
Agreement to be executed in their respective names as of July 1, 1990.

MINNESOTA AGRICULTURAL AND
ECONOMIC DEVELOPMENT BOARD

By /s/ David J. Speer
--------------------------------
Administrator

ATTEST:

/s/ Paul Moe
- ----------------------------------
Executive Director

MAY PRINTING COMPANY

By
--------------------------------
Its: Vice President

And By
----------------------------
Its: Chairman of the Board

<PAGE>

MAY PRINTING COMPANY

PROMISSORY NOTE

JULY 1, 1990

No. 1 $4,205,000

MAY PRINTING COMPANY (the "Borrower"), a corporation organized and existing
under the laws of the state of Minnesota and authorized to conduct business in
the State of Minnesota, acknowledges itself indebted and for value received
hereby promises to pay to the order of the Minnesota Agricultural and Economic
Development Board as the statutory successor to the Minnesota Energy and
Economic Development Authority (the "Authority") and its successors and assigns,
the principal sum of FOUR MILLION TWO HUNDRED FIVE THOUSAND ($4,205,000),
together with interest on the unpaid principal balance of this Note until the
Borrower's obligation with respect to the payment of such sum shall be
discharged at a rate of interest identical to the stated rate of interest on the
Series 1990B, Lot 1 Bonds referred to below (taking into account the different
rates for the different maturities and principal amounts of the Series 1990B,
Lot 1 Bonds), but payable not as provided in the Series 1990B, Lot 1 Bonds but
as provided below and in the Loan Agreement referred to below.

This Note is issued to evidence the obligation of the Borrower under and
pursuant to, and shall be governed by and construed in accordance with the terms
and conditions of, a loan agreement (the "Loan Agreement") between the Authority
and Borrower dated as of July 1, 1990, for the repayment of the loan made by the
Authority to the Borrower thereunder from the proceeds of the Authority's
$4,205,000 principal amount of Minnesota Small Business Development Loan Program
Revenue Bonds, Series 19908, Lot 1 (the "Series 1990B, Lot 1 Bonds") and the
payment of interest thereon, including provision for prepayment of said loan in
certain cases, and for the satisfaction of a certain right of reimbursement of
the General Guaranty Fund as provided in the Loan Agreement under certain
circumstances and for the satisfaction of a certain right of reimbursement of
the Authority as provided in the Loan Agreement under certain circumstances.
This Note is secured by a mortgage (the "Mortgage") made by the maker to the
payee of even date herewith, on the Land and certain other property, as provided
in the Loan Agreement, and is secured by a security interest in the Equipment,
as defined in the Loan Agreement, granted by the maker to the payee as provided
in the Loan Agreement. The Loan Agreement (together with this Note) and the
Mortgage have been pledged to the Holders of the Bonds from time to time issued
under the Minnesota Small Business Development Loan Program Revenue Bond General
Bond Resolution (the "General Bond

<PAGE>

Resolution") adopted by the Authority an September 26, 1984 and thereafter
amended and restated from time to time pursuant to its terms.

As provided in the Loan Agreement and subject to the provisions thereof,
payments hereon are to be made in lawful money of the United States of America
at the place and in the manner provided in the Loan Agreement, in monthly
installments of principal and interest, commencing August 1, 1990, and payable
thereafter on the first day of each month, such installments to be applied first
to the payment of interest then due an this Note, and the remaining balance
thereof to reduce the unpaid principal amount of this Note, with each
installment payable as interest to include interest payable in advance due to
and including the first day of the next succeeding month from the month in which
the installment is payable and with each installment payable as principal to be
similarly paid in advance. Commencing on August 1, 1990 and on the first day of
each month thereafter, the monthly installments to be paid on this Note shall be
an amount equal to (1) an installment of interest on each such date equal to
one-sixth of the interest on the Series 1990B, Lot 1 Bonds on the next
succeeding bond payment date (after receiving a credit on August 1, 1990 for any
accrued interest received from the original purchaser thereof); and (2) an
installment of principal on each such date equal to one-twelfth of the principal
installment due on the Series 1990B, Lot 1 Bonds on the next succeeding bond
payment date on which a principal installment thereon is due (taking into
account such in-advance payments), such installments to be reduced by that sum
or sums such that an or before August 1, 1991 and on or before the bond payment
date on which a principal installment is due thereon any amounts then on deposit
in the Holding Account created with respect to the Series 1990B, Lot 1 Bonds
pursuant to the provisions of the General Bond Resolution plus the monthly
installment then to be paid on this Note shall equal the debt service payment on
the Series 1990B, Lot 1 Bonds due on such bond payment date.

This Note may be prepaid in whole or in part in accordance with the
provisions of the Loan Agreement. In addition, upon the occurrence of a
"Determination of Taxability" (as defined in the Loan Agreement), this Note
shall be mandatorily prepaid at the price and time specified in the Loan
Agreement and the Loan Agreement shall be terminated in accordance with the
provisions of Article XI of the Loan Agreement (and in particular, Section
11.1(a) and Section 11.2(a)(i)(A) thereof).

The Borrower agrees to make the payments on this Note on the dates and in
the amounts specified herein and in the Loan Agreement and in addition agrees to
make such other payments at such times and upon such conditions as are required
pursuant to

<PAGE>

declared immediately due and payable as provided in the Loan Agreement. This
Note may be cancelled, amended or supplemented as provided in the Loan
Agreement.

Presentment for payment, notice of dishonor, protest and notice of protest
are hereby waived by the Borrower.

IN WITNESS WHEREOF, MAY PRINTING COMPANY has caused this Note to be
executed in its name and on its behalf by its Chairman of the Board and its Vice
President by manual signature of said officers, all as of July 1, 1990.

MAY PRINTING COMPANY

By:
-------------------------------
Its: Vice President

And By:
---------------------------
Its: Chairman of the Board

<PAGE>

EXHIBIT A

DESCRIPTION OF LAND

PARCEL 1

Lot One (1), Block Two (2), Corporate Woods, according to the plat thereof on
file or of record in the office of County Recorder, Stearns County, Minnesota.

PARCEL 2: ADDITIONAL REDEVELOPMENT PROPERTY

That part of Lot 2, Block 2, Corporate Woods, according to the plat thereof, on
file and of record in the Office of the County Recorder, Stearns County,
Minnesota, that lies westerly of the following described line: Commencing at the
northwest corner of said Lot 2: thence South 89 degrees 00 minutes 13 seconds
East, plat bearing, along the north line of said Lot 2, a distance of 51.51 feet
to the actual point of beginning of the line to be described; thence South 4
degrees 04 minutes 34 seconds West a distance of 100.00 feet; thence South 15
degrees 05 minutes 09 seconds East a distance of 197.72 feet; thence South 4
degrees 46 minutes 54 seconds East a distance of 108.09 feet; thence South 6
degrees 53 minutes 30 seconds East a distance of 285.04 feet; thence South 42
degrees 49 minutes 50 seconds East a distance of ?3.83 feet; thence South 28
degrees 31 minutes 57 seconds East a distance of 39.79 feet to the south line of
said Lot 2 and terminating thereat.

ADDITIONAL PERMITTED ENCUMBRANCES (AS DEFINED IN THE 1990 LOAN AGREEMENT):

1. Terms and Conditions of Mississippi River ordinance filed August 30, 1977,
in Book 136 of Misc., page 43, as Document Number 481538, which regulates
riverland development as to part of Government Lot 1, Section 1, Township
123, Range 28.

2. Reservation of 50% of all oil, gas, and other minerals in or under land
together with such easement for ingress, egress, and use of surface which
may be necessary to use of same by Burlington Northern, Inc., in abandoned
Railroad right of way is limited only with the 100 foot wide strip of the
abandoned right of way.

3. Easement for Sanitary Sewer Trunk in favor of the City of St. Cloud as
described in Document Number 620717, over the Westerly 30 feet thereof.

4. Easements for drainage dated September 20, 1988, filed

A-1

<PAGE>

September 29, 1988, as nd 646062, in favor of City of St. Cloud.

5. Real estate taxes payable but not yet delinquent.

6. Assessments (levied but not yet delinquent) for:

Improvement No. 8811, principal balance due, $7,406.77 Improvement No.
8821, principal balance due, $6,781.72 Improvement No. 8831, principal
balance due, $13,822.41 Improvement No. 8841, principal balance due,
$16,989-00 Amount certified to 1990 Taxes: $11,904.11.

7. Assessment Agreement by and among The Housing and Redevelopment Authority
in and for the City of St. Cloud, (HRA), May Printing Company and the City
Assessor of the City of St. Cloud as filed in the office of the County
Recorder, Stearns County,as Document Number_________________.

Restated Contract for Private Redevelopment dated June 26, 1990 by and
between the HRA and May Printing Company, as filed in the office of the
County Recorder, Stearns County as Document Number________________.

A-2

<PAGE>

EXHIBIT B

DESCRIPTION OF NEW EQUIPMENT FOR 1990 PROJECT,

DESCRIPTION

Geitz Model FSA 720 Foil Stamping, Embossing and Die Cutting Machine;

Sugand Model NFS-1050 Automatic Die Cutter/Eraser Complete with Shipping
Station;

A telephone system to be acquired with the proceeds of the 1990 Bonds

Such other personal property, machinery and equipment now or hereafter acquired
with the proceeds of the 1990 Bonds loaned to May Printing Company or acquired
out of the equity contribution required of May Printing Company pursuant to
Sections 3.3 and 4.3 of the 1990 Loan Agreement and 1985 Loan Agreement and
all additions improvements, accessions, replacements and substitutions, and
all proceeds thereof.

DESCRIPTION OF EXISTING EQUIPMENT (1985 Project)

DESCRIPTION

One six-color press - L640-111
Serial Number 141
Including: Komorimatic Dampening, Labor Saving Device, PQC Console, All
Standard Equipment, Preloader, Compressor, Installation, Warranty
and Instruction

Rayse Alsomiser, Oxy Dry Spray, AMJO IR Dryer, Pin Register Svstem, Curostat
Static Eliminator, Oxy Dry Ink Agitators, Inland Freight and Local Rigging,
Super Blue on Delivery Cylinder.

B-1

<PAGE>

EXHIBIT C

The undersigned, being a duly authorized officer of May Printing Company, a
Minnesota corporation (the "Borrower"), hereby certifies as follows:

1. This certificate accompanies the Borrower's request number
for _____________ advances under the Loan Agreement dated July 1, 1990 between
Borrower and the Minnesota Agricultural and Economic Development Board (the
"Board"). Previous to this request for advance the Borrower has received
advances of $ _______________________ of Bond Proceeds and
$______________________ of Borrower's equity contribution (which was deposited
in the Construction Account pursuant to Section 3.3 of the Loan Agreement).

2. The presently pending request for advance seeks
$____________________ in Bond Proceeds and $ __________________ in Borrower's
equity contribution.

3. As of this date, the Project acquired or to be acquired with Bond
Proceeds (including the Bond Proceeds requested hereby) have been and/or will be
applied as follows:

Total
Area Cost
---- ----

1. Corporate, Sales or Research Offices _____

2. Work-In-Process _____

3. Manufacturing Space _____

4. Manufacturing Equipment _____

5. Storage, Shipping & Receiving _____

6. Common, unallocable costs _____

4. The work-in-process space (#2), manufacturing space (#3) and the
manufacturing equipment (#4) are directly related to the day to day core
manufacturing operations conducted at the Project.

5. The total cost of manufacturing equipment and construction costs
of the manufacturing and work-in-process space as set forth in #2, #3 and #4
above (i.e. $_______), together with a pro rata share of common costs described
in 6 above (i.e. $_______) is $_______. Therefore, at least 75% of the net
proceeds of the Bonds (as advanced to and including the date of the presently
requested advance and, for such purpose, including

C-1

<PAGE>

the presently requested advance) (i.e. $_______) are properly allocable to the
cost of constructing a "manufacturing facility" as defined in Section
144(a)(12)(C) of the Code without taking into account the cost of property which
is ancillary to the manufacturing facility as described in clauses (i) and (ii)
of such Section 144(a)(12)(C) of the Code.

6. The activities conducted in the areas set forth in #5 and #6
above are subordinate and integral to the manufacturing facility. Therefore, no
more than 25% of the proceeds of the Bonds (as advanced to and including the
date of the presently requested advance) (i.e. $_______) will be used to finance
such ancillary property.

7. The Board and the Trustee may rely upon the foregoing
certifications in approving any advance requested by Borrower.

MAY PRINTING COMPANY

Date:_______________, 199__ By_________________________________
Its______________________________

C-2

<PAGE>

EXHIBIT D

MAY PRINTING COMPANY

- -----------------------------------------------------------------------------------------------------------------------------
ITEM COST LOAN-TO-VALUE BOND PROCEEDS VALUE TIF CASH
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>

Land $ 148,500.00 $ 510,218.28 $ 0 $510,218.28 $ 0 0

Equipment 1,037,315.00 1,037,315.00 1,037,315.00 0 0 0
Hook-Up 30,000.00 30,000.00 30,000.00 0 0 0
Moving 120,000.00 120,000.00 0 0 0 120,000.00

Phone System 130,500.00 130,500.00 130,500.00 0 0 0

Modular Panels 165,000.00 165,000.00 129,782.99 0 0 35,217.01

Consulting Services 56,591.00** 0 0 0 0 56,591.00

Appraisal 3,600.00* 3,600.00 0 0 0 3,600.00

Architect 18,267.75* 18,267.75 0 0 0 18,267.75

Landfill 10,000.00* 10,000,00 0 0 0 10,000.00

Survey 1,179.00* 1,179.00 0 0 0 1,179.00

Building Planning 2,395.00* 2,395.00 0 0 0 2,395.00

Mueller/Blueprints 295.24* 295.24 0 0 0 295.24

Environmental Study 2,000.00 2,000.00 0 0 0 2,000.00

St. Cloud Township 1,000.00* 1,000.00 0 0 0 1,000.00

Abstract 200.00 200.00 0 0 0 200.00

Title Insurance 4,676.00 4,676.00 0 0 0 4,676.00

Legal Fees 10,000.00 10,000.00 0 0 0 10,000.00

Construction Interest 128,700.00 128,700.00 128,700.00 0 0 0

Loan Points 27,500.00 27,500.00 27,500.00 0 0 0

Construction Closing 500.00 500.00 0 0 0 500.00

Mortgage Registration 6,000.00 6,000.00 0 0 0 6,000.00

Architect 16,732.25 16,732.25 16,732.25 0 0 0

Builders Risk 3,000.00 3,000.00 3,000.00 0 0 0

Building Permits 7,635.00 7,635.00 7,635.00 0 0 0

Surveyor 2,100.00 2,100.00 2,100.00 0 0 0

Blue Printing 300.00 300.00 300.00 0 0 0

Soil Boring/Testing 6,995.00 6,995.00 6,995.00 0 0 0

Temporary Water 1,000.00 1,000.00 1,000.00 0 0 0

Temporary Electricity 2,000.00 2,000.00 2,000.00 0 0 0

Barricades 1,500.00 1,500.00 1,500.00 0 0 0

Building Design 5,000.00 5,000.00 5,000.00 0 0 0

Plant Layout 10,000.00 10,000.00 10,000.00 0 0 0

Site Work 110,100.00 110,100.00 0 0 110,100.00 0

Sewer and Water 6,170.00 6,170.00 6,170.00 0 0 0

Landscaping 17,947.00 17,947.00 17,947.00 0 0 0

Blacktop/Stripe Parking Lots 42,700.00 42,700.00 42,700.00 0 0 0

Footing/Floors 180,859.60 180,859.60 171,909.60 0 8,950.00 0

Masonry Precast 698,649.00 698,649.00 698,649.00 0 0 0

</TABLE>

<PAGE>

Plumbing 86,300.00 86,300.00 86,300.00 0 0 0

Sprinkler (fire) 51,740.00 51,740.00 51,740.00 0 0 0

Electrical 212,201.00 212,201.00 200,751.00 0 11,450.00 0

Mechanical 164,450.00 164,450.00 164,450.00 0 0 0

Energy Management 17,290.00 17,290.00 17,290.00 0 0 0

Humidification 16,450.00 16,450.00 16,450.00 0 0 0

Roofing & Insulation 105,439.00 105,439.00 105,439.00 0 0 0

Interior Finishes 63,409.59 63,409.59 63,409.59 0 0 0

Overhead Doors 21,032.00 21,032.00 21,032.00 0 0 0

Loading Dock Equip. 25,556.00 25,556.00 25,556.00 0 0 0

Glass & Entry Doors 36,666.00 36,666.00 36,666.00 0 0 0

Misc. Interior 27,670.00 27,670.00 27,670.00 0 0 0

Misc. Building Items 79,540.00 79,540.00 79,540.00 0 0 0

Contractor Items/
Construction Management 326,671.00 326,671.00 326,671.00 0 0 0

Additional Equipment/
Other Items 74,286.31 74,286.31 0 0 0 74,286.31

Issuance Costs 187,200.00 187,200.00 84,100.00 0 0 103,100.00
------------ ------------ ------------ ---------- ---------- ----------

SUBTOTAL $4,512,807.20 $4,817,934.50 $3,784,500.00 $510,218.28 $130,500.00 $449,307.50

Escrow 420,500.00 420,500.00 420,500.00 0 0 0
------------ ------------ ------------ ---------- ---------- ----------

TOTAL $4,933,307.20 $5,238,434.50 $4,205,000.00 $510,218.28 $130,500.00 $449,307.50
------------ ------------ ------------ ---------- ---------- ----------
------------ ------------ ------------ ---------- ---------- ----------

<FN>
**$35,566 has been paid prior to inducement.
*Other prepaid items prior to inducement.

</TABLE>
<PAGE>

EXECUTION COPY

FIRST AMENDMENT TO LOAN AGREEMENT
(SERIES 1990 B, LOT 1)

THIS FIRST AMENDMENT TO LOAN AGREEMENT, dated as of this 31st day of
December, 1993, among the Minnesota Agricultural and Economic Development
Board, as the statutory successor to the Minnesota Energy and Economic
Development Authority ("Authority") (collectively herein, such Board and
Authority shall be referred to as the "Authority"), May Printing Company, a
Minnesota corporation ("May") and Merrill Acquisition Corp., a Minnesota
corporation (the "Borrower"), as successor to May is being entered into to
amend and modify certain provisions of the Loan Agreement dated as of July 1,
1990 (the "Loan Agreement"), by and between the Authority and May, under which
May was provided a loan in the original principal amount of $4,205,000; and

WHEREAS, the Borrower has entered into an agreement to purchase
substantially all of the operating assets and selected liabilities of May
pursuant to that certain Asset Purchase Agreement dated December 31, 1993 (the
"Asset Purchase Agreement"); and

WHEREAS, in connection with the Asset Purchase Agreement, the Borrower
has agreed, subject to the approval of the parties to the Loan Agreement, to
assume the obligations of May under the Loan Agreement; and

WHEREAS, May and the Borrower have requested that the Authority enter
into this Second Amendment to Loan Agreement to make certain changes and
modifications to the Loan Agreement so as to reflect the obligations under the
Loan Agreement by the Borrower and to incorporate such other changes as are
necessary to reflect the financial position of the Borrower, all of which are
not prejudicial to the rights or security of the holders of the various lots
of bonds issued under the Authority's Small Business Development Loan Program
revenue bonds, the general bond resolution adopted initially on September 26,
1984, and as thereafter amended (the "General Bond Resolution"); and

WHEREAS, the Authority approved Resolution 93-230 on December 30, 1993,
approving this First Amendment of the Loan Agreement;

NOW, THEREFORE, the parties hereby desire to amend the Loan Agreement,
and hereby covenant and agree as follows:

SECTION 1. For purposes of this First Amendment to Loan Agreement,
and the Loan Agreement, as amended hereby, the following terms shall have the
meanings set forth below:

AUTHORITY means the Minnesota Agricultural and Economic
Development Board, as the statutory successor to the Minnesota Energy
and Economic Development Authority, constituted as an authority to act
on behalf of the State within the scope of the powers granted to it in
the act and created by the act, or any successor thereto.

BORROWER means: (i) Merrill Acquisition Corp., a Minnesota
corporation duly organized and existing under the laws of the State of
Minnesota, and its successors and assigns; and (ii) any surviving,
resulting, or transferee corporation, as provided for in Section 8.3 of
the Loan Agreement.

<PAGE>

GUARANTOR means Merrill Corporation, a Minnesota corporation,
and any substitute Guarantors accepted by the Authority pursuant to the
provisions of the guaranty, and its successors and assigns.

GUARANTY means the agreement by and between the Guarantor and
the Authority, dated as of the date of this First Amendment to Loan
Agreement, by which the Guarantor unconditionally and absolutely
guarantees to the Authority the full and prompt payment, when due, of
all amounts payable by the Borrower under the Loan Agreement, as amended
hereby, and the Note, when and as the same may be due, whether by
acceleration or otherwise, and the performance obligations of the
Borrower thereunder.

Any term not defined herein shall have the meaning given thereto
in the Loan Agreement.

Section 2. The Borrower (as hereinbefore defined) hereby assumes all of
the obligations of and restrictions of the Borrower under the Loan Agreement,
as amended by this First Amendment to Loan Agreement, and the Note (as defined
in the Loan Agreement) and any other agreement securing the Borrower's
performance of its obligations under the Loan Agreement, as amended by this
First Amendment to Loan Agreement.

SECTION 3. In Section 8.3 of the Loan Agreement, entitled "Borrower
to Maintain its Existence; Conditions Under Which Exceptions Permitted,"
subsection (d) is replaced in its entirety, to read as follows:

that immediately after the consummation of the transaction, and after
giving effect thereto, the surviving, resulting, or transferee
corporation or if guaranteeing such entity's obligations hereunder, its
corporate parent (as the case may be) shall have a Net Worth at least
equal to the Net Worth of the Borrower (which term shall refer only to
the entity which was the Borrower immediately prior to such transaction)
immediately prior to the transaction, . . .

SECTION 4. In Section 8.5 of the Loan Agreement, entitled "Books of
Record and Account; Financial Statements," subsection (b) is hereby amended to
add the following clause at the beginning:

Unless the Guarantor's Net Worth exceed $25,000,000, . . .

SECTION 5. In Section 8.10 of the Loan Agreement, entitled
"Assignment and Leasing," subsection (a) and (a)(ii) are hereby replaced in
its entirety, to read as follows:

"(a) This Agreement may be assigned in whole or in part, and the
Project may be leased as a whole or in part by the Borrower, and the
Borrower may engage in a sale and lease back of the Project, but only
with the written consent of the Authority and the Trustee, and provided
further that:....

(ii) The assignee or lessee under any transaction other
than a sale and leaseback transaction shall assume the
obligations of the Borrower hereunder to the extent of the
interest assigned or leased."

- 2 -
<PAGE>

SECTION 6. In Section 8.13 of the Loan Agreement, entitled "Liens and
Encumbrances," subsection (a) is replaced in its entirety, to read as follows:

"Except during any period during which Guarantor has a Net Worth of at
least $25,000,000, during the Loan Term, and subject to the provisions
of Section 5.4 of this Agreement, the Borrower shall not permit, create,
or suffer to be permitted or created, any lien except for the Permitted
Encumbrances, upon the security property or any part thereof, nor may
the Borrower assign, sell, or otherwise dispose of the security property
or any part thereof, without the prior written consent of the Authority
and the Trustee. Any such lien, if nonetheless created or permitted,
shall be discharged by the Borrower forthwith."

SECTION 7. In Section 8.20 of the Loan Agreement, entitled "Certain
Financial Covenants," subsections (a) and (b) are hereby replaced in their
entirety with the following:

(a) Except during any period which the Guarantor has a Net Worth
of at least $25,000,000 during the Loan Term and as of the date of the
calculation, the Borrower shall maintain a net worth of not less than
$3,000,000.

(b) Except during any period which the Guarantor has a Net Worth
of at least $25,000,000, during the Loan Term and as of the date of any
calculation, the Borrower shall maintain a ratio of earnings before
paying interest on all of its Indebtedness, taxes, and making allowance
for depreciation and amortization (all in accordance with generally
accepted accounting principles) to regularly scheduled payments of
principal and interest on all Funded Indebtedness of the Borrower,
averaged for the last three full fiscal years of the Borrower of at
least 1.5 to 1.0.

SECTION 8. Section 8.21 of the Loan Agreement, entitled "Covenant
Against Loans, Dividends, etc.," is hereby replaced in its entirety to read as
follows:

The Borrower covenants and agrees that it will not, except during any
period during which the Guarantor has a Net Worth of at least
$25,000,000, without the prior written consent of the Authority, pay or
declare any dividends on any class of its capital stock or make any
loans or transfer title to any of its assets to any officer or
stockholder of the Borrower, in an amount or at fair market value in the
aggregate in excess of $0.00 in any single fiscal year of the Borrower.

SECTION 9. Section 8.22 of the Loan Agreement, entitled "Covenant
Against Redemption of Stock," is hereby replaced in its entirety to read as
follows:

Except during any period during which the Guarantor has a Net Worth of
at least $25,000,000, the Borrower covenants and agrees that it will
not, without the prior written consent of the Authority, which consent
shall not be unreasonably withheld, redeem any capital stock of the
Borrower or purchase any treasury stock of the Borrower.

SECTION 10. Section 8.23 of the Loan Agreement, entitled "Covenant
Against Unreasonable Compensation," is hereby replaced in its entirety to read
as follows:

- 3 -
<PAGE>

Except during any period during which the Guarantor has a Net Worth of
at least $25,000,000, the Borrower covenants and agrees that it will not
pay directors' or officers' salaries or provide any form of compensation
to its directors or officers in excess of that reasonable for the
services rendered. For purposes of this provision, base salary for each
of the senior managers of the Borrower not in excess of $300,000 per
fiscal year, plus additional compensation which would not be
nondeductible under Section 162(m) of the Code shall not be deemed to be
unreasonable.

Section 11. Section 8.25 of the Loan Agreement, "Vacant Positions" is
hereby replaced in its entirety to read as follows:

Borrower agrees to list any vacant or new positions at the Project with
the Job Services of the Commissioner of Jobs and Training or a local
service unit as required by MINNESOTA STATUTES, Section 268.66.

SECTION 12. AUTHORITY FOR FIRST AMENDMENT TO LOAN AGREEMENT. This
First Amendment to Loan Agreement is being entered into without need for the
consent of the holders of any Bond issued under the General Bond Resolution
being attained pursuant to Section 12.4 of the Loan Agreement and Section 6.08
of the General Bond Resolution. The Borrower hereby represents that the
amendments to the Loan Agreement set forth in this First Amendment to Loan
Agreement will not impair or materially adversely affect in any manner, the
rights or security of the bondholders of the Related Lot of Bonds.

SECTION 13. DELIVERY OF DOCUMENTATION. The Borrower agrees to
execute and deliver to the Authority any and all documents, amendments to
documents, filings, and notices as reasonably requested by the Authority to
memorialize this First Amendment and provide notice as required under law or
as deemed appropriate by the Authority.

SECTION 14. NO FURTHER MODIFICATIONS OR REVISIONS. Except as
amended hereby, the Loan Agreement and all bond documents issued thereunder,
as they relate thereto, shall remain in full force and effect.

SECTION 15. EFFECTIVENESS. This First Amendment shall become
effective upon the closing of the Asset Purchase Agreement.

- 4 -
<PAGE>

IN WITNESS WHEREOF, the Authority, the Borrower and May have caused this
First Amendment to Loan Agreement to be executed in their respective names as
of the date first above written.

MINNESOTA AGRICULTURAL AND ECONOMIC
DEVELOPMENT BOARD, as statutory successor
to the Minnesota Energy and Economic
Development Authority

By: /s/ Paul Moe
----------------------------------------
Its Executive Director

MERRILL ACQUISITION CORP.

By: /s/ John B. McCain
----------------------------------------
Its Chief Financial Officer

MAY PRINTING COMPANY

By: /s/ John E. Caye
----------------------------------------
Its President

Signature page of the First Amendment to Loan Agreement among the Minnesota
Agricultural and Economci Development Board, Merrill Acquisition Corp. and May
Printing Company dated as of December 31, 1993
- 5 -

<PAGE>

EXECUTION COPY

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

MERRILL CORPORATION
("Guarantor")

IN FAVOR OF

MINNESOTA AGRICULTURAL AND ECONOMIC DEVELOPMENT BOARD,
as successor to the Minnesota Energy
and Economic Development Authority
("Authority")

-------------------------------------

GUARANTY

-------------------------------------

Dated as of December 31, 1993

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE>

GUARANTY

THIS GUARANTY is made and entered into as of December 31, 1993 (the
"Guaranty") by and between Merrill Corporation, a Minnesota corporation,
together with such persons as may become Guarantors pursuant to Section 2.10
of this Guaranty (each a "Guarantor" and collectively the "Guarantors"), in
favor of the Minnesota Agricultural and Economic Development Board, as
successor to the Minnesota Energy and Economic Development Authority (the
"Authority"), a public body authorized to act on behalf of the State of
Minnesota within the scope of Minnesota Statutes 1986, Chapter 116M, as
amended, and Minnesota Statutes, Chapter 42A (the "Act").

WITNESSETH:

WHEREAS, the Authority entered into a Loan Agreement dated as of
November 1, 1985 with May Printing Company, a Minnesota corporation (the
"Borrower") (the "Original 1985 Loan Agreement") as amended by the First
Amendment to 1985 Loan Agreement dated as of July 1, 1990 (the "First
Amendment to 1985 Loan Agreement") between the Borrower and the Authority (the
Original 1985 Loan Agreement as amended by the First Amended to 1985 Loan
Agreement are ferred to herein as the "1985 Loan Agreement") under which was
issued an accompanying promissory note, in the principal amount of $1,000,000
(the "1985 Note") in order to finance the Project (as defined in the 1985 Loan
Agreement); and

WHEREAS, the Authority entered into a Loan Agreement dated as of July 1,
1990 (the "1990 Loan Agreement"), under which was issued an accompanying
promissory note, in the original principal amount of $4,205,000 (the "1990
Note") with the Borrower in order to finance the cost of the Project (as
defined in the 1990 Loan Agreement); and

WHEREAS, the Borrower has entered into an agreement under which the
Borrower will sell and transfer to Merrill Acquisition Corp. (the "Successor
Borrower") substantially all of its assets, and Successor Borrower will assume
selected liabilities of the Borrower, including without limitation the
obligations of the Borrower under the 1985 Loan Agreement and 1990 Loan
Agreement; and

WHEREAS, pursuant to the terms and conditions of the Loan Agreements,
the Borrower is seeking the consent of the Authority on behalf of the
bondholders, to the assumption by Successor Borrower, as the Successor
Borrower to the 1985 Loan Agreement and the 1990 Loan Agreement, of the
obligations of the Borrower under the 1985 Loan Agreement and the 1990 Loan
Agreement; and

- 1 -
<PAGE>

WHEREAS, in connection with such request, Successor Borrower has further
requested that the 1985 Loan Agreement and the 1990 Loan Agreement be amended
to incorporate and adopt the terms and conditions set forth in that certain
Second Amendment to Loan Agreement of even date, which amends the 1985 Loan
Agreement, and that certain First Amendment to Loan Agreement of even date,
which amends the 1990 Loan Agreement; and

WHEREAS, each amendment provides that the Successor Borrower's parent
company, Merrill Corporation (the "Guarantor"), will enter into this Guaranty
as a condition to the Authority's approval of the sale to, transfer to, and
assumption of the assets of the Borrower by, the Successor Borrower; and

WHEREAS, the Guarantor is desirous that the Authority grant its consent
to said transactions and is willing to enter into this Guaranty in order to
achieve the approval and consent of the Authority;

NOW, THEREFORE, in consideration of the premises, subject to the terms
hereof, the Guarantor does hereby unconditionally and irrevocably covenant and
agree with the Authority as follows:

ARTICLE 1
REPRESENTATION AND WARRANTIES OF THE GUARANTOR

The Guarantor hereby represents and warrants that:

Section 1.1. AUTHORITY.

(a) The Guarantor has all requisite power and capacity to own and
operate its Properties and to carry on its business as now conducted and as
presently proposed to be conducted.

(b) The Guarantor and each of its subsidiaries is validly organized
and existing in good standing under the laws of the state of its organization
and is the parent company owning and controlling 100% of the issued and
outstanding stock and other rights of ownership of the Successor Borrower.

Section 1.2. AUTHORIZATION OF GUARANTY. The Guarantor has full power,
authority and legal right to incur the obligations provided for in this
Guaranty, to execute and deliver this Guaranty, and to perform and observe the
terms and provisions of this Guaranty; and has duly executed and delivered
this Guaranty; and this Guaranty constitutes the legal, valid, binding,
absolute and unconditional obligation of the Guarantor, enforceable in
accordance with its terms, except as the enforceability hereof may be limited
by applicable bankruptcy, insolvency and other similar laws affecting the
enforcement of creditors' rights generally.

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<PAGE>

Section 1.3. DUE AUTHORIZATION. The execution, delivery, and
performance of this Guaranty has been duly authorized by all necessary
corporate action, does not require any approval or consent of, or any
registration, qualification, or filing with, any governmental agency
(including, without limitation, any stockholder) other than such consents,
registrations, and qualifications as have been obtained.

Section 1.4. NO VIOLATION OF RESTRICTIONS. The execution and delivery
of this Guaranty, the consummation of the transactions contemplated hereby,
and the fulfillment of or compliance with the provisions of this Guaranty will
not conflict with or result in a breach of any term, condition or provision of
any agreement or instrument to which the Guarantor is a party or by which it
is bound, or any court order or decree binding upon the Guarantor, nor will
they constitute a default under any of the foregoing, or result in the
creation or imposition of any lien of any nature whatsoever upon any of the
Properties of the Guarantor prohibited under the terms of any such instrument
or agreement.

Section 1.5. PENDING LITIGATION. There are no proceedings pending, or
(to the knowledge of Guarantor) threatened against or affecting Guarantor in
any court or before any governmental authority or arbitration board or
tribunal which involve a reasonable prospect of materially and adversely
affecting the Properties, business, prospects, profits or condition (financial
or otherwise) of the Guarantor or the ability of the Guarantor to execute,
deliver, or perform this Guaranty. The Guarantor is not in default with
respect to any order of any court, governmental authority or arbitration board
or tribunal.

Section 1.6. NO DEFAULTS. No event has occurred and no condition
exists which, upon the execution of this Guaranty, would constitute a Default
or an Event of Default. The Guarantor is not in violation, in any material
respect, of any term of any material agreement or other material instrument to
which it is a party or by which it may be bound.

Section 1.7. TAXES. All tax returns required to be filed by the
Guarantor in all jurisdictions have in fact been filed. All taxes,
assessments, fees and other governmental charges upon the Guarantor, or upon
any of its Properties, income or franchises which are due and payable, have
been paid, except for certain taxes, assessments, fees and other governmental
charges which the Guarantor may be contesting in good faith, the nonpayment of
which will not materially adversely affect the Properties, business,
prospects, profits or condition (financial or otherwise) of the Guarantor, or
the ability of the Guarantor to execute, deliver or perform this Guaranty.

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<PAGE>

Section 1.8. COMPLIANCE WITH LAW. The Guarantor:

(a) is not in material violation of any material law, ordinance, or
governmental rule and regulation to which it is subject; and

(b) has not failed to obtain any license, permit, franchise or other
governmental authorization necessary to the ownership of its Properties or to
the conduct of its business, which violation or failure to obtain might
materially adversely affect the business, prospects, profits, Properties or
condition (financial or otherwise) of the Guarantor.

ARTICLE 2
COVENANTS AND AGREEMENTS

Section 2.1. GUARANTEE OF PAYMENT.

(a) The Guarantor hereby irrevocably and unconditionally guarantees to
the Authority: (i) the full and prompt payment of the Loans and all other
amounts payable by the Successor Borrower, as successor to the Borrower under
the 1985 Loan Agreement as amended by the Second Amendment to Loan Agreement
dated as of December 31, 1993 and the 1990 Loan Agreement as amended by the
First Amendment to Loan Agreement dated as of December 31, 1993 among the
Borrower, the Successor Borrower and the Authority (collectively, the "Loan
Agreements") and the Notes issued thereunder (the "Loan Obligations") when and
as the same shall become due, whether at the stated time therein or by
acceleration or otherwise; (ii) the due and timely performance of obligations
and observance of all covenants of the Successor Borrower under the Loan
Obligations; (iii) the discharge of the Successor Borrower's obligations under
the Loan Agreements to satisfy any right of reimbursement which has accrued to
the benefit of the general guaranty fund thereunder; and (iv) the discharge of
the Successor Borrower's obligations under the Loan Agreements to satisfy the
right of reimbursement which has accrued to the benefit of the Authority
thereunder.

(b) All payments by the Guarantor shall be made in lawful money of the
United States of America.

(c) Each and every default in payment shall give rise to a separate
cause of action hereunder, and separate suits may be brought hereunder by the
Authority as each cause of action arises.

(d) The Guarantor shall pay to the Authority or to the Trustee, as the
case may be, all reasonable costs and expenses (including legal fees) incurred
in the protection of any rights or in the pursuance of any remedies in respect
of this Guaranty.

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<PAGE>

Section 2.2. OBLIGATIONS UNCONDITIONAL. The obligations of the
Guarantor under this Guaranty shall be absolute and unconditional, shall be
binding on its successors and assigns, and shall remain in full force and
effect until all amounts due and payable under or pursuant to the Loan
Agreements shall have been paid; provided, however, that this Guaranty shall
continue to be effective or be reinstated, as the case may be, if at any time
any payment guaranteed hereunder is rescinded or must be otherwise returned
upon the insolvency, bankruptcy or reorganization of the Successor Borrower.
The obligations of the Guarantor under this Guaranty shall not be affected,
modified or impaired by any state of facts or the happening from time to time
of any event, including, without limitation, any of the following, whether or
not with notice to or consent of the Guarantor:

(a) the invalidity, irregularity, illegality or unenforceability of,
or any defect in: (i) the Loan Agreements or any document issued in
connection therewith or related thereto (the "Financing Documents"); or (ii)
any collateral security therefor;

(b) any claim of immunity on behalf of the Successor Borrower or any
other obligor or with respect to any Property of the Successor Borrower, or of
any other obligor;

(c) any present or future law or order of any government (DE JURE
or DE FACTO) or of any agency thereof purporting to reduce, amend or
otherwise affect the Bonds or any other obligation of the Successor Borrower,
or any other obligor or to vary any terms of payment;

(d) the happening of any event described in Section 8.3 of the Loan
Agreements;

(e) the waiver, compromise, settlement, release or termination of any
or all of the obligations, covenants or agreements of (i) the Successor
Borrower under the Financing Documents or (ii) the Guarantor under this
Guaranty (except by payment in full of all obligations hereunder);

(f) the failure to give notice to the Guarantor of the occurrence of
an Event of Default under the Financing Documents or this Guaranty;

(g) the transfer, assignment or mortgaging, or the purported or
attempted transfer, assignment or mortgaging of all or any part of the
interest of the Successor Borrower with respect to the property financed in
connection with the Loan Agreements' proceeds or with respect to any other
Property pledged to secure obligations of the Successor Borrower under the
Financing Documents, or any failure of or defect in the title with respect to
the Successor Borrower's interest with respect to

- 5 -
<PAGE>

the Project, in the Project or with respect to any other Property pledged to
secure obligations of the Successor Borrower under the Financing Documents, or
the termination of any of the Financing Documents with respect to the Project
or with respect to any other Property pledged to secure obligations of the
Successor Borrower under the Financing Documents;

(h) the release, sale, exchange, surrender or other change in any
security for payment of the Loan Obligations;

(i) the extension of the time for payment of any or any part thereof
or under this Guaranty or of the time for performance of any other
obligations, covenants or agreements under or arising out of the Financing
Documents or this Guaranty or the extension or the renewal of any thereof;

(j) the modification or amendment (whether material or otherwise) of
any obligation, covenant or agreement set forth in the Financing Documents or
this Guaranty;

(k) the taking of, or the omission to take, any of the actions
referred to in any of the Financing Documents or this Guaranty;

(l) any failure, omission or delay on the part of the Successor
Borrower, or any other Person to enforce, assert or exercise any right, power
or remedy conferred on the Successor Borrower, or such other Person in the
Financing Documents or this Guaranty;

(m) the voluntary or involuntary liquidation, dissolution, sale, or
other disposition of all or substantially all the assets, marshalling of
assets and liabilities, receivership, insolvency, bankruptcy, assignment for
the benefit of creditors, reorganization, arrangement, composition with
creditors or readjustment of, or other similar proceedings affecting the
Guarantor, the Successor Borrower, or any of the assets of any of them, or any
allegation or contest of the validity of the Financing Documents or this
Guaranty, or the disaffirmance or attempted disaffirmance of the Financing
Documents or this Guaranty, in any such proceedings;

(n) to the extent permitted by law, any event or action that would, in
the absence of this paragraph, result in the release or discharge of the
Guarantor from the performance or observance of any obligation, covenant or
agreement contained in this Guaranty;

(o) the default or failure of the Guarantor to fully perform any of
its obligations set forth in any guaranty agreement; or

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<PAGE>

(p) to the extent permitted by law, any other circumstances which
might otherwise constitute a legal or equitable discharge or defense of a
surety or a guarantor.

Section 2.3. WAIVERS BY GUARANTOR. (a) To the extent permitted by
law, the Guarantor hereby waives, with respect to the Loan Agreements, the
indebtedness evidenced thereby and in this Guaranty: diligence; presentment;
demand of payment; filing of claims with a court in the event of bankruptcy of
the Successor Borrower or any of its partners or any other Person liable in
respect of the Loan Agreements; any right to require a proceeding first
against the Successor Borrower or any other such Person; protest; notice of
dishonor or nonpayment of any such liabilities and any other notice and all
demands whatsoever. To the extent permitted by law, the Guarantor hereby
waives notice from the Authority of acceptance, notice and proof of reliance
on the benefits of this Guaranty.

(b) The obligations of the Guarantor hereunder shall not be discharged
except by full payment of all amounts payable by the Successor Borrower under
the Loan Agreements.

Section 2.4. OTHER SECURITY. The Authority may pursue its rights and
remedies under this Guaranty notwithstanding (i) any other guaranty of or
security for the Agreements, or the obligations or liabilities of the
Successor Borrower or other Persons under such document, and (ii) any action
taken or omitted to be taken by the Bank or any other Person to enforce any of
the rights or remedies under such other guaranty or with respect to any other
security.

Section 2.5. NO SET-OFF BY GUARANTOR. No set-off, counterclaim,
reduction or diminution of an obligation, or any defense of any kind or nature
(other than performance by the Guarantor of its obligations hereunder) which
the Guarantor has or may have with respect to a claim under this Guaranty,
shall be available hereunder to the Guarantor against the Authority.

Section 2.6. NOTICE AND SERVICE OF PROCESS. (a) All process,
pleadings, notices or other papers which may be served upon the Guarantor as a
result of any of its obligations under this Guaranty may be served certified
mail to Guarantor at such address as is specified in or pursuant to Section
5.4 of this Guaranty.

The Guarantor agrees and consents that any such service of process upon such
agent and written notice of such service to the Guarantor by registered mail
pursuant to Section 5.4 hereof shall be taken and held to be valid personal
service upon the Guarantor and that any such service of process shall be of
the same force and validity as if service were made upon it according to the
laws governing the validity and requirements of such service in

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<PAGE>

the State of Minnesota, and waives all claim of error by reason of any such
service.

Section 2.7. NOTICE OF THE OCCURRENCE OF EVENTS OF DEFAULT. Upon the
occurrence of an Event of Default under this Guaranty, the Guarantor shall
give the Authority immediate written notice of such occurrence of an Event of
Default (by certified or registered mail) and shall specify in such notice the
particular Events of Default which have occurred.

Section 2.8. RELEASE AND SUBSTITUTION OF GUARANTOR. In the event
that the Guarantor should desire to sell its interest in or substantially all
the assets of the Successor Borrower to a Person who shall be or have the
power to designate an officer or director of such purchaser, such Guarantor
may request the Authority to release such Guarantor from its obligations under
this Guaranty. The Authority shall, in its sole discretion, release such
Guarantor from its obligations under this Guaranty; provided, however, that a
substitute guarantor acceptable to the Authority shall agree in writing to be
subject to the obligations of this or a replacement Guaranty as a Guarantor
hereunder, whereupon such substitute guarantor shall be so obligated as a
Guarantor hereunder.

Section 2.9. NET WORTH. The Guarantor agrees at all times to
maintain a Net Worth (as defined in the 1990 Loan Agreement) equal to or
greater than $25,000,000, as determined in accordance with generally accepted
accounting principles, consistently applied.

Section 2.10. EFFECTIVENESS. This Guaranty and the obligations of
the Guarantor hereunder shall become effective upon the closing of the Asset
Purchase Agreement.

Section 2.11. BOOKS OF RECORD AND ACCOUNT; FINANCIAL STATEMENTS. (a)
the Guarantor agrees to maintain proper accounts, records and books in which
full and correct entries shall be made, in accordance with generally accepted
accounting principles, of business and affairs of the Guarantor. The
Authority and the Trustee or their designated agents or representatives shall
have the right to inspect such accounts, records and books during reasonable
business hours.

(b) Within 120 days after the close of each fiscal year of the
Guarantor during the Loan Term, the Guarantor shall furnish to the Authority
and the Trustee a consolidated balance sheet, a consolidated statement of
income and retained earnings and a consolidated statement of changes in
financial position of the Guarantor for the immediately preceding fiscal year,
all in reasonable detail (including footnotes to such financial statements),
such financial statements to be audited and accompanied by the opinion of an
Accountant.

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<PAGE>

ARTICLE 3
EVENTS OF DEFAULT

Section 3.1. NATURE OF EVENTS. An "Event of Default" shall exist if
any of the following occurs and is continuing:

(a) PARTICULAR COVENANT DEFAULTS - the Guarantor fails to perform or
observe any covenant, agreement or guarantee contained in Article II hereof;

(b) OTHER DEFAULTS - the Guarantor fails to comply with any other
provision of this Guaranty, and such failure continues for more than 30 days
after written notice of such failure has been given to the Guarantor;

(c) WARRANTIES OR REPRESENTATIONS - any warranty, representation or
other statement by or on behalf of the Guarantor contained in this Guaranty is
false or misleading in any material respect;

(d) INVOLUNTARY BANKRUPTCY PROCEEDINGS - a receiver, liquidator or
trustee of the Guarantor or of any of its Properties is appointed by court
order and such order remains in effect for more than 60 days; or the Guarantor
is adjudicated bankrupt or insolvent or any of its Properties is sequestered
by court order and such order remains in effect for more than 60 days; or an
action is commenced against either of the Guarantor under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in effect, and
is not dismissed within 60 days after such filing;

(e) VOLUNTARY BANKRUPTCY PROCEEDINGS - the Guarantor commences an
action seeking relief under any provision of any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation law
of any jurisdiction, whether now or hereafter in effect, or consents to the
filing of any petition against it under such law;

(f) ASSIGNMENTS FOR BENEFIT OF CREDITORS, ETC. - the Guarantor makes
an assignment for the benefit of its creditors, or admits in writing its
inability to pay its debts generally as they become due, or consents to the
appointment of a receiver, trustee or liquidator of such Guarantor or of all
or any part of its Properties; or

(g) DEFAULT UNDER LOAN AGREEMENTS - an "Event of Default" occurs
under either of the Loan Agreements.

Section 3.2. DEFAULT REMEDIES. If an Event of Default exists, the
Authority may proceed to enforce the provisions hereof and to exercise any
other rights, powers and remedies

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<PAGE>

available to the Authority. The Authority shall have the right to proceed
first and directly against the Guarantor under this Guaranty without
proceeding against or exhausting any other remedies which it may have and
without resorting to any other guarantor or any security held by or available
to the Authority.

Section 3.3. REMEDIES; WAIVER AND NOTICE. (a) No remedy herein
conferred upon or reserved hereunder is intended to be exclusive of any other
available remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under this
Guaranty or now or hereafter existing at law or in equity or by statute.

(b) No delay or omission to exercise any right or power accruing upon
the occurrence of any Event of Default hereunder (including, without
limitation, enforcement of the Guaranty or any other Financing Documents)
shall impair any such right or power or shall be construed to be a waiver
thereof, but any such right or power may be exercised from time to time and as
often as may be deemed expedient.

(c) In order to entitle the Authority to exercise any remedy reserved
to it in this Guaranty, it shall not be necessary to give any notice, other
than such notice as may be expressly required in this Guaranty.

(d) In the event any provision contained in this Guaranty should be
breached by any party and thereafter duly waived by the other party so
empowered to act, such waiver shall be limited to the particular breach so
waived and shall not be deemed to waive any other breach hereunder.

(e) No waiver, amendment, release or modification of this Guaranty or
the Financing Documents shall be established by conduct, custom or course of
dealing.

ARTICLE 4
INTERPRETATION OF THIS GUARANTY

Section 4.1. TERMS DEFINED. As used in this Guaranty, the following
terms have the following respective meanings:

DEFAULT or EVENT OF DEFAULT - any occurrence described in Section
3.1 hereof.

LIEN - any interest in Property securing an obligation owed to a
Person whether such interest is based on the common law, statute or contract,
and including but not limited to the security interest arising from a
mortgage, deed of trust, encumbrance, pledge, conditional sale or trust
receipt or a lease, consignment or bailment for security purposes. The term

- 10 -
<PAGE>

"Lien" includes reservations, exceptions, encroachments, easements, rights of
way, covenants, conditions, restrictions, leases and other similar title
exceptions and encumbrances, including but not limited to mechanics',
materialmen's, warehousemen's, carriers' and other similar encumbrances,
affecting real property.

PERSON - an individual, partnership, corporation, trust or
unincorporated organization, and a government or agency or political
subdivision thereof.

PROPERTY - any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.

STATE - the State of Minnesota.

Any capitalized words appearing in this Guaranty which are not defined
herein shall have the same meanings as given thereto in the Loan Agreements.

Section 4.2. ACCOUNTING PRINCIPLES. Where the character or amount of
any asset or liability or item of income or expense is required to be
determined or any consolidation or other accounting computation is required to
be made for the purposes of this Guaranty, this shall be done in accordance
with generally accepted accounting principles at the time in effect, to the
extent applicable, except where such principles are inconsistent with the
requirements of this Guaranty.

Section 4.3. DIRECTLY OR INDIRECTLY. Where any provision in this
Guaranty refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether such action
is taken directly or indirectly by such Person.

Section 4.4. GOVERNING LAW. This Guaranty shall be governed by, and
construed in accordance with, the laws of the State.

ARTICLE 5
MISCELLANEOUS

Section 5.1. LOAN OBLIGATIONS ARISE ON SALE OF BONDS. The
obligations of the Guarantor hereunder shall arise absolutely and
unconditionally when the Credit shall have been issued and delivered by the
Authority.

Section 5.2. SURVIVAL. All warranties, representations, and
covenants made by the Guarantor herein shall be deemed to have been relied
upon by the Authority and shall survive the delivery to the Authority of this
Guaranty and the Bonds

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<PAGE>

regardless of any investigation made by the Authority; and shall survive the
payment in full of all amounts due under the Loan Agreements.

Section 5.3. SUCCESSORS AND ASSIGNS. This Guaranty shall inure to
the benefit of and be binding upon the successors and assigns of each of the
parties. The provisions of this Guaranty are intended to be for the benefit
of all holders from time to time of the Bonds.

Section 5.4. NOTICES. All communications under this Guaranty shall
be in writing and shall be deemed given when delivered and, if delivered by
mail, shall be mailed by registered or certified first class mail, postage
prepaid, and addressed as follows:

TO THE GUARANTOR: MERRILL CORPORATION
One Merrill Circle
St. Paul, Minnesota 55108

TO THE AUTHORITY: MINNESOTA AGRICULTURAL AND ECONOMIC
DEVELOPMENT BOARD
500 MetroSquare
121 7th Place East
St. Paul, Minnesota 55101-2146
Attention: Financial Management Division
(Department of Trade and Economic
Development)

Section 5.5. ENTIRE UNDERSTANDING; COUNTERPARTS. This Guaranty
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and may be executed simultaneously in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

Section 5.6. AMENDMENTS. No amendment, change, modification,
alteration or termination of this Guaranty shall be made except in writing
upon the written consent of the Guarantor and the Authority.

Section 5.7. PARTIAL INVALIDITY. The invalidity or unenforceability
of any one or more phrases, sentences, clauses or sections in this Guaranty
shall not affect the validity or enforceability of the remaining portions of
this Guaranty or any part thereof.

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<PAGE>

IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed as set forth below and delivered, all as of the date first above
written.

MERRILL CORPORATION

By: /s/ John B. McCain
---------------------------------------
Its Chief Financial Officer
------------------------------------

Signature page of the Guaranty from Merrill Corporation to the Minnesota
Agricultural and Economic Development Board dated as of December 31, 1993

-13-

<PAGE>

GUARANTY AGREEMENT

THIS AGREEMENT ("Agreement"), is made and entered into
effective as of December 31, 1993, by Merrill Corporation, a
Minnesota corporation (the "Guarantor"), for the benefit of May
Printing Company, a Minnesota corporation (the "Company") and
Thomas May and James Scott May (together, the "Shareholders").

A. The Guarantor, Merrill Acquisition Corp., a Minnesota
corporation and a wholly owned subsidiary of the Guarantor (the
"Purchaser"), the Company, and the Shareholders have entered into
an Asset Purchase Agreement, dated the date hereof (the "Purchase
Agreement"), pursuant to which Purchaser has agreed to purchase
substantially all of the assets of the Company.

B. The Guarantor has agreed to guaranty all of the Purchaser's
obligations under the Purchase Agreement and the other agreements
and documents executed in connection therewith and the transactions
contemplated thereby.

ACCORDINGLY, for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the Guarantor
hereby agrees as follows:

1. The Guarantor absolutely, irrevocably and unconditionally
guarantees to the Company and the Shareholders full and prompt
payment when due (whether on demand or at a stated maturity or
earlier by reason of acceleration or otherwise) of any and all
debts, liabilities and obligations of the Purchaser to the Company
or the Shareholders under the Purchase Agreement and all other
agreements and documents executed in connection therewith
including, but not limited to, the Purchaser's Promissory Note and
the Liability Undertaking (such debts, liabilities and obligations
being collectively referred to as the "Indebtedness").

2. This Guaranty is a primary obligation of the Guarantor and
neither the Company nor the Shareholders will be required to first
resort for payment of the Indebtedness to the Purchaser or any
other person, their properties, or any security or other rights or
remedies whatsoever.

3. The Guarantor waives presentment, demand for payment, notice
of dishonor, notice of nonpayment, and protest of any instrument
evidencing the Indebtedness, and all other demands and notices to
the Guarantor or any other person and all other actions to
establish the liability of Guarantor hereunder. No failure or
delay on the part of either the Company or the Shareholders in
exercising any right hereunder will operate as a waiver of, or
impair, any such right. No single or partial exercise of any such
right will preclude any other or further exercise thereof or the
exercise of any other right.

4. So long as any portion of the Indebtedness is outstanding,
the Guarantor, without the consent of the Company and the
Shareholders, will not collect (by subrogation or otherwise) from
the Purchaser any claim acquired by the Guarantor through payment

<PAGE>

of a part of the Indebtedness. The Guarantor hereby subordinates
in favor of the Company and the Shareholders its claim against the
Purchaser or in or to any property of the Purchaser, but only to
the extent that such claim arises hereafter by reason of payments
made by the Guarantor with respect to the Indebtedness.

5. Notwithstanding any modification, discharge or extension of
the indebtedness or any amendment, modification, stay or cure of
the Company's or the Shareholder's rights under the Indebtedness
which may occur in any case or proceeding under Title 11 of United
States Code concerning the Purchaser, whether permanent or
temporary, the Guarantor hereby agrees that it is obligated
hereunder to pay the Indebtedness in accordance with the terms
thereof and this Guaranty. The Guarantor understands and
acknowledges that by virtue of this Guaranty, it has specifically
assumed any and all risks of a bankruptcy, reorganization case or
related proceeding of the Purchaser. As an example but not by way
of limitation, a subsequent modification of the Indebtedness in any
reorganization case concerning the Purchaser shall not affect the
obligation of the Guarantor to pay the Indebtedness in accordance
with its original terms.

6. This Guaranty shall be binding upon the Guarantor and upon
its successors and assigns, and shall inure to the benefit of the
Company and the Shareholders and their permitted successors and
assigns.

7. The Guarantor represents that it has fully received a full,
fair and equivalent consideration for the execution of this
Guaranty.

8. All capitalized terms not otherwise defined herein shall have
the meanings given to them in the Purchase Agreement.

9. This Guaranty shall be construed according to the laws of the
State of Minnesota.

MERRILL CORPORATION

By /s/ John W. Castro
------------------------------------------
John W. Castro
President and Chief
Executive Officer

<PAGE>

EXhibit 11.1

MERRILL CORPORATION
SCHEDULE OF COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------------------
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Primary
Net income.............................................................. $ 13,348,330 $ 8,599,034 $ 6,518,162
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of common shares outstanding during the
period................................................................. 7,408,087 7,142,470 7,039,736
Add common equivalent shares relating to outstanding options to
purchase common stock using the treasury stock method.................. 563,768 552,643 567,288
------------- ------------- -------------
Total common and common equivalent shares outstanding............... 7,971,855 7,695,113 7,607,024
------------- ------------- -------------
------------- ------------- -------------
Primary income per common share........................................... $1.67 $1.12 $.86
------------- ------------- -------------
------------- ------------- -------------
Fully diluted
Net income.............................................................. $ 13,348,330 $ 8,599,034 $ 6,518,162
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of common shares outstanding during the
period................................................................. 7,408,087 7,142,470 7,039,736
Add common equivalent shares relating to outstanding options to
purchase common stock using the treasury stock method.................. 597,688 591,105 613,115
------------- ------------- -------------
Total common and common equivalent shares outstanding............... 8,005,775 7,733,575 7,652,851
------------- ------------- -------------
------------- ------------- -------------
Fully diluted income per common share.................................... $1.67 $1.11 $.86
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

<PAGE>

STOCK PRICE COMPARISON AND CATEGORIES OF SERVICE

QUARTERLY STOCK PRICE COMPARISON

Merrill Corporation shares are traded on The Nasdaq Stock Market under the
symbol MRLL. The table below sets forth the range of high and low sale prices
per share as reported by The Nasdaq Stock Market. These prices have been
adjusted to reflect the 2-for-1 stock split paid in the form of a stock dividend
on March 6, 1992. These prices do not include adjustments for retail mark-ups,
mark-downs or commissions. There were approximately 408 shareholders of record
of the Company's common stock at the close of trading on April 13, 1994. The
Company paid quarterly dividends in fiscal 1994 in the amount of
two-and-one-half cents per share totaling $741,381 for the entire fiscal year.
The Company on March 21, 1994, increased its quarterly cash dividend to three
cents per share payable April 15, 1994, to shareholders of record on April 1,
1994.

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
FISCAL YEAR QUARTER QUARTER QUARTER QUARTER
- ---------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1994
High.............................................. 20 1/4 24 1/4 28 31 1/4
Low............................................... 15 1/2 18 22 3/4 21
- --------------------------------------------------------------------------------------------------------
1993
High.............................................. 15 3/4 12 1/4 12 1/2 18 1/2
Low............................................... 9 3/4 8 1/4 9 1/8 12 1/2
- --------------------------------------------------------------------------------------------------------

</TABLE>

<PAGE>
SUMMARY OF OPERATING AND FINANCIAL DATA

<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- --------- ---------
(IN THOUSANDS, EXCEPT EMPLOYEE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Operating results
Revenue............................. $ 181,584 $ 147,716 $ 125,312 $ 100,951 $ 69,022 $ 63,394
Costs and expenses.................. 159,593 133,552 114,559 96,825 68,480 58,289
Income (loss) before provision for
income taxes....................... 21,991 14,164 10,753 4,126 (928) 5,172
Provision for income taxes.......... 8,820 5,565 4,308 1,570 222 2,100
Net income (loss)................... 13,348 8,599 6,518 2,671 (1,238) 2,970
- ----------------------------------------------------------------------------------------------------------------
Per common share
Net income (loss)................... $ 1.67 $ 1.12 $ .86 $ .37 $ (.17) $ .39
Book value.......................... 7.15 5.36 4.11 3.20 2.82 2.84
- ----------------------------------------------------------------------------------------------------------------
Financial data/other
Working capital..................... $ 22,528 $ 24,650 $ 17,550 $ 9,388 $ 7,929 $ 10,392
Current ratio....................... 1.6 2.1 1.9 1.4 1.5 1.9
Total assets........................ $ 100,123 $ 66,042 $ 52,954 $ 46,892 $ 40,596 $ 35,606
Shareholders' equity................ 53,597 39,330 29,116 22,486 20,491 20,752
Return on average shareholders'
equity............................. 28.7% 25.1% 25.3% 12.4% N/A 14.5%
Long-term obligations............... $ 8,656 $ 2,138 $ 2,230 $ 2,314 $ 2,390 $ 2,466
Long-term obligations to
capitalization..................... 13.9% 5.2% 7.1% 9.3% 10.4% 10.6%
Number of employees................. 1,601 1,041 831 784 562 454
- -----------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The following table sets forth for the years indicated the percentage
relationship to revenue of certain items in the Company's consolidated
statements of operations and the percentage changes in the dollar amounts of
such items in comparison to the prior year.

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------------------------------------------------
% INCREASE (DECREASE)
PERCENTAGE OF REVENUE -----------------------------------
------------------------------------- 1994 VS. 1993 VS. 1992 VS.
1994 1993 1992 1993 1992 1991
----------- ----------- ----------- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue........................................ 100.0% 100.0% 100.0% 23% 18% 24%
Cost of sales.................................. 64.1 66.4 66.6 19 17 19
Gross profit................................... 35.9 33.6 33.4 32 19 36
Selling, general and administrative expenses... 23.8 24.0 24.5 22 15 15
Operating income............................... 12.1 9.6 8.9 55 27 170
Interest expense............................... (0.2) (0.2) (0.4) 26 (52) (11)
Other income, primarily interest income........ 0.2 0.2 0.1 23 61 (70)
Income before taxes............................ 12.1 9.6 8.6 55 32 160
Provision for income taxes..................... 4.9 3.8 3.4 58 29 174
Net income before change in accounting for
income taxes.................................. 7.2 5.8 5.2 53 32 144
----- ----- ----- -- -- ---
</TABLE>

REVENUE

The revenue improvement in fiscal year 1994 was principally due to a 52
percent increase in revenue from the financial printing category reflecting a
high level of activity in the nation's financial markets throughout the year and
growth in market share, particularly in the Company's West Coast markets.
International revenue, which includes the results of Atwell Fleming Printing
Company in Canada, acquired in June 1993, and the Company's association with
England's Burrups Ltd., also grew significantly, though still representing less
than 5 percent of consolidated revenue. Corporate printing revenue increased 11
percent, due primarily to increased mutual fund documentation and corporate
proxy work. In the last half of the fiscal year, however, corporate revenue was
4 percent below the comparable period of the prior year reflecting a reduction
in demand from certain customers. Revenue in the commercial and other sector
increased 2 percent. The inclusion of one month's revenue from May Printing
Company, acquired December 31, 1993, offset a decline in election-related
printing due to 1993 not being a general election year. Revenue from
reprographics and facilities management increased modestly offsetting a
reduction in publications revenue. The Company's financial printing revenue
generally reflects the level of activity in the capital markets. Financial
printing encompasses many types of transactions, and some types of transactions
tend to increase when others are out of favor. However, a prolonged reduction in
the overall level of financial transactions could be expected to have a negative
impact on this revenue category. The corporate

<PAGE>

printing category encompasses required regulatory and mutual fund documentation
and other repetitive work and is typically not impacted to a signigicant degree
by capital market fluctuations. Commercial and other business tends to follow
general economic trends.

All of the Company's service categories grew in fiscal 1993, led by a 30
percent increase in financial printing revenue reflecting a second consecutive
year of strong capital market activity highlighted by record levels of corporate
equity offerings. The corporate printing sector grew 11 percent, principally
from gains in market share. Strong growth in reprographics and facilities
management resulted in 14 percent growth in the commercial and other sector.
Revenue from election-related printing offset a reduction in other commercial
printing, which reflected a higher proportion of capacity being directed to
financial and corporate work. Revenue growth in fiscal year 1992 reflected
a 59 percent gain in financial printing and an increase of 25 percent in
corporate printing. The significant increase in the financial sector was
primarily attributable to record levels of equity offerings resulting from
strong market conditions during the fiscal year.

GROSS PROFIT

The gross margin improvement in fiscal year 1994 can be attributed primarily
to operating efficiencies related to the significant increase in activity in the
financial printing category. Financial printing is typically more typesetting-
intensive, as opposed to printing-intensive, than business in other service
categories. As financial printing activity increases, the operating leverage
inherent in the Company's centralized typesetting facility can be expected to
generate lower unit costs and higher margins. Also positively impacting gross
margins in 1994 was a full year of operations from the Company's New Jersey
printing operations which opened in the second quarter of fiscal year 1993.

Gross margins increased slightly in fiscal year 1993 as volume-related
operating efficiencies were partially offset by costs relating to increased
employee training, conversion to new document imaging technology and start-up of
the Company's New Jersey printing operation. Gross margins in fiscal year 1992
increased, reflecting volume-related operating efficiencies in the Company's
central typesetting facility and printing facilities. Despite the high level of
financial printing activity, there was little improvement in industry price
competition.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

These expenses have increased in each of the last three years, although
decreasing as a percent of revenue due to the substantial increase in revenue
and the fixed nature of certain of these expenses. Fiscal year 1994 expenses
reflected administrative staff additions and a fourfold increase in costs for
employee training and development programs, partially offset by lower provisions
for doubtful accounts due to improved collection experience. Fiscal year 1993
expenses reflected expanded training of both sales and administrative personnel
and the opening of three new offices. Fiscal year 1992 expenses reflected a full
year of operations of Merrill's Dallas and expanded Chicago offices.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

INTEREST EXPENSE AND OTHER INCOME

Average short-term borrowings under the Company's bank line of credit were
$93,000, $56,000 and $2,907,000, respectively, in fiscal years 1994, 1993 and
1992. Other income is primarily interest income. Due to the cash expended and
debt assumed in connection with the acquisition of May Printing Company, as
discussed under "Liquidity and Capital Resources," interest expense is expected
to more than double in fiscal year 1995, and other income will be reduced due to
a decrease in investable funds.

PROVISION FOR INCOME TAXES

The effective income tax rates for 1994, 1993 and 1992 were 40 percent, 39
percent and 40 percent, respectively. The effective rates were higher than the
statutory federal rates of 35 percent in 1994 and 34 percent in 1993 and 1992,
primarily due to state income taxes.

IMPACT OF INFLATION

The Company does not believe that inflation has had a significant impact on
the results of its operations.

LIQUIDITY AND CAPITAL RESOURCES

In December 1993, the Company completed the acquisition of substantially all
of the operating assets of May Printing Company for approximately $16 million in
cash, $2.5 million in promissory notes and the assumption of approximately $5
million in long-term debt. This transaction depleted the Company's cash reserves
and increased the Company's total debt, thus decreasing liquidity. Working
capital at January 31, 1994, was $22.5 million, down from $24.7 million a year
earlier. Long-term debt, including current maturities, was $10.3 million at
January 31, 1994, compared to $2.2 million a year ago. Short-term borrowing at
January 31, 1994, was $2.6 million. There was no short-term borrowing at
January 31, 1993. Debt as a percent of total capitalization was 19.5 percent at
January 31, 1994, compared to 5.4 percent last year. The Company believes
that it remains relatively conservatively capitalized and has appropriate
reserve borrowing capacity. The Company expects capital expenditures in fiscal
year 1995 to be approximately $10 million to $13 million for production and
administrative systems, printing equipment and facility expansion and
remodeling. Approximately $1.5 million of this amount is committed at this
time.

Working capital increased to $24.7 million at January 31, 1993, compared to
$17.6 million a year earlier. Record earnings and operating cash flow supported
a large increase in trade receivables and a $3.3 million increase in cash and
cash equivalents at year end. Capital expenditures in fiscal year 1993 were a
record $7.3 million, primarily for production computer equipment, facility
expansion and remodeling and equipping the Company's new printing plant in New
Jersey.

The Company has historically been working-capital intensive, but in recent
years has increased its needs for fixed capital and expanded its internal
printing capacity as well. The Company has generally been able to generate
sufficient cash flow from operations to fund its capital needs.

At January 31, 1994, the Company's principal internal source of liquidity
was cash flow from operations. The Company also has available a $10 million
unsecured bank line of credit, which expires May 31, 1994, under which
borrowings of $2.6 million were outstanding as of January 31, 1994. The Company
expects the line of credit to be renewed under similar terms and conditions.
Management anticipates that these sources will satisfy its normal capital needs
for fiscal year 1995.

<PAGE>
MERRILL CORPORATION
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
AS OF JANUARY 31,
----------------------
1994 1993
----------- ---------
- -----------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS

Current assets
Cash and cash equivalents.............................................................. $ 2,558 $ 9,562
Trade receivables, less allowance for doubtful accounts of $2,294 and $2,455,
respectively.......................................................................... 38,777 30,191
Work in process inventories............................................................ 11,821 6,093
Other inventories...................................................................... 3,935 835
Other.................................................................................. 2,344 1,281
----------- ---------
Total current assets................................................................. 59,435 47,962
----------- ---------
Property, plant and equipment, net....................................................... 26,678 15,880
Goodwill, net............................................................................ 11,616 679
Other assets............................................................................. 2,394 1,521
----------- ---------
Total assets......................................................................... $ 100,123 $ 66,042
----------- ---------
----------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
Note payable to bank................................................................... $ 2,600
Current maturities of long-term debt................................................... 1,325
Current maturities of capital lease obligations........................................ 365 $ 102
Accounts payable....................................................................... 15,939 11,458
Accrued expenses....................................................................... 13,145 8,473
Income taxes payable................................................................... 115 2,311
Deferred income taxes.................................................................. 3,418 968
----------- ---------
Total current liabilities............................................................ 36,907 23,312
----------- ---------
Long-term debt, net of current maturities................................................ 6,040
Capital lease obligations, net of current maturities..................................... 2,616 2,138
Deferred income taxes.................................................................... 669 960
Other.................................................................................... 294 302
Shareholders' equity
Common stock, $.01 par value: 25,000,000 shares authorized; 7,492,922 shares and
7,335,195 shares, respectively, issued and outstanding................................ 75 73
Undesignated stock: 500,000 shares authorized; no shares issued........................
Additional paid-in capital............................................................. 12,996 11,338
Retained earnings...................................................................... 40,526 27,919
----------- ---------
Total shareholders' equity........................................................... 53,597 39,330
----------- ---------
Total liabilities and shareholders' equity........................................... $ 100,123 $ 66,042
----------- ---------
----------- ---------
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

<PAGE>
MERRILL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------------
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C> <C>
Revenue.................................................................... $ 181,584 $ 147,716 $ 125,312
Cost of sales.............................................................. 116,350 98,119 83,506
----------- ----------- -----------
Gross Profit............................................................. 65,234 49,597 41,806
Selling, general and administrative expenses............................... 43,286 35,474 30,701
----------- ----------- -----------
Operating income......................................................... 21,948 14,123 11,105
Interest expense........................................................... (321) (254) (535)
Other income, primarily interest income.................................... 364 295 183
----------- ----------- -----------
Income before provision for income taxes,
minority interest and cumulative effect
of change in accounting for income taxes................................ 21,991 14,164 10,753
Provision for income taxes................................................. 8,820 5,565 4,308
----------- ----------- -----------
Income before minority interest and
cumulative effect of change in
accounting for income taxes............................................. 13,171 8,599 6,445
Minority interest.......................................................... 73
----------- ----------- -----------
Income before cumulative effect of change
in accounting for income taxes............................................ 13,171 8,599 6,518
Cumulative effect of change in accounting
for income taxes.......................................................... 177
----------- ----------- -----------
Net income............................................................. $ 13,348 $ 8,599 $ 6,518
----------- ----------- -----------
----------- ----------- -----------
Income per common and common equivalent
share before cumulative effect of change
in accounting for income taxes............................................ $1.65 $1.12 $.86
Cumulative effect of change in accounting
for income taxes.......................................................... .02
Net income per common and common
equivalent share.......................................................... $1.67 $1.12 $.86
Weighted average number of common and
common equivalent shares outstanding...................................... 7,971,854 7,695,113 7,607,024
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

<PAGE>
MERRILL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
---------------------------------
1994 1993 1992
---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities
Net income................................................................. $ 13,348 $ 8,599 $ 6,518
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation............................................................. 5,520 4,073 3,129
Amortization............................................................. 362 491 727
Provision for losses on trade receivables................................ 579 1,349 1,167
Change in non-current portion of deferred income taxes................... (114) (246) 704
Tax benefit realized upon exercise of stock options...................... 1,103 1,160 345
Cumulative effect of change in accounting for income taxes............... (177)
Minority interest in loss of subsidiary.................................. (73)
Increase (decrease) from changes in operating assets and liabilities, net
of effects from business acquisitions
Trade receivables...................................................... (6,636) (7,725) (3,941)
Work in process inventories............................................ (5,728) (1,042) 358
Other inventories...................................................... (74) 433 631
Other current assets................................................... (437) (50) (212)
Accounts payable....................................................... 3,026 560 2,257
Accrued expenses....................................................... 3,710 2,167 1,848
Accrued and deferred income taxes...................................... 254 476 247
---------- --------- ----------
Net cash provided by operating activities............................ 14,736 10,245 13,705
---------- --------- ----------
Investing activities
Purchase of property, plant and equipment.................................. (7,620) (7,296) (2,507)
Business acquisitions, net of cash acquired................................ (16,069)
Purchase of minority interest.............................................. (302)
Other...................................................................... (48) (44) (364)
---------- --------- ----------
Net cash used in investing activities................................ (24,039) (7,340) (2,871)
---------- --------- ----------
Financing activities
Borrowings on note payable to bank......................................... 7,700 4,600 34,570
Repayments on note payable to bank......................................... (5,100) (4,600) (40,045)
Principal payments on long-term debt and capital lease obligations......... (117) (83) (76)
Dividends paid............................................................. (741)
Other equity transactions, net............................................. 557 455 (233)
---------- --------- ----------
Net cash provided by (used in) financing activities.................. 2,299 372 (5,784)
---------- --------- ----------
Increase (decrease) in cash and cash equivalents............................. (7,004) 3,277 5,050
Cash and cash equivalents, beginning of year................................. 9,562 6,285 1,235
---------- --------- ----------
Cash and cash equivalents, end of year....................................... $ 2,558 $ 9,562 $ 6,285
---------- --------- ----------
---------- --------- ----------
Supplemental cash flow disclosures
Income taxes paid.......................................................... $ 7,574 $ 4,200 $ 3,211
Interest paid.............................................................. 310 245 527
---------- --------- ----------
---------- --------- ----------
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

<PAGE>
MERRILL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 1994, 1993, 1992

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
----------- ----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, January 31, 1991........................................... $ 70 $ 9,614 $ 12,802 $ 22,486
Payment of note receivable.......................................... 100 100
Exercise of stock options, net of withholding paid.................. 1 (351) (350)
Tax benefit realized upon exercise of stock options................. 345 345
Other............................................................... 17 17
Net income.......................................................... 6,518 6,518
--- ----------- --------- ---------
Balance, January 31, 1992........................................... 71 9,725 19,320 29,116
--- ----------- --------- ---------
Exercise of stock options........................................... 2 439 441
Tax benefit realized upon exercise of stock options................. 1,160 1,160
Other............................................................... 14 14
Net income.......................................................... 8,599 8,599
--- ----------- --------- ---------
Balance, January 31, 1993........................................... 73 11,338 27,919 39,330
--- ----------- --------- ---------
Exercise of stock options........................................... 2 579 581
Tax benefit realized upon exercise of stock options................. 1,103 1,103
Other............................................................... (24) (24)
Cash dividends ($.10 per share)..................................... (741) (741)
Net income.......................................................... 13,348 13,348
--- ----------- --------- ---------
Balance, January 31, 1994........................................... $ 75 $ 12,996 $ 40,526 $ 53,597
--- ----------- --------- ---------
--- ----------- --------- ---------
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements

<PAGE>
MERRILL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

The Company provides document typesetting, printing, reproduction,
distribution and publishing services to financial, legal, corporate, insurance
and commercial markets nationwide.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include all majority-owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated.

CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

WORK IN PROCESS INVENTORIES

Work in process, which includes purchased services, materials, direct labor
and overhead, is valued at the lower of cost or net realizable value, with cost
determined on the specific job cost basis.

OTHER INVENTORIES

Other inventories consist primarily of paper and printed materials and are
valued at the lower of cost or market, with cost determined at specific cost,
which approximates market.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Significant additions or
improvements extending asset lives are capitalized; normal maintenance and
repair costs are expensed as incurred. Depreciation is recorded using the
straight-line method over the estimated useful lives of the assets. Amortization
of leasehold improvements is recorded on a straight-line basis over the
estimated useful lives of the assets or the lease term, whichever is shorter.
When assets are sold or retired, related gains or losses are included in the
results of operations.

GOODWILL

Goodwill recognized in business acquisitions accounted for as purchases is
being amortized on a straight-line method, principally over 15 years.

INCOME TAXES

Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable for the period and the change during the
period in deferred tax assets and liabilities.

REVENUE RECOGNITION

The Company recognizes revenue when service projects are completed or
products are shipped.

NET INCOME PER SHARE

Net income per common and common equivalent share is computed by dividing
net income by the weighted average number of shares of common stock and dilutive
common equivalent shares outstanding during each period. Common stock
equivalents result from dilutive stock options computed using the treasury stock
method. Fully diluted earnings per share did not differ from primary earnings
per share in the periods presented.

<PAGE>
MERRILL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2 -- SELECTED FINANCIAL STATEMENT DATA

<TABLE>
<CAPTION>
AS OF JANUARY 31,
----------------------
1994 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Property, plant and equipment
Land............................................................... $ 853 $ 333
Buildings.......................................................... 6,774 3,435
Equipment.......................................................... 26,521 16,620
Furniture and fixtures............................................. 6,237 4,335
Leasehold improvements............................................. 5,485 5,078
Construction in progress........................................... 482 660
---------- ----------
46,352 30,461
Less accumulated depreciation and amortization..................... (19,674) (14,581)
---------- ----------
$ 26,678 $ 15,880
---------- ----------
---------- ----------
Goodwill
Goodwill........................................................... $ 11,898 $ 838
Less accumulated amortization...................................... (282) (159)
---------- ----------
$ 11,616 $ 679
---------- ----------
---------- ----------
Accrued expenses
Commissions and compensation....................................... $ 8,936 $ 5,323
Pension............................................................ 2,553 2,005
Other.............................................................. 1,656 1,145
---------- ----------
$ 13,145 $ 8,473
---------- ----------
---------- ----------
</TABLE>

NOTE 3 -- BUSINESS ACQUISITIONS

On December 31, 1993, the Company purchased substantially all of the
operating assets and assumed certain liabilities of May Printing Company and
obtained related covenants not to compete for approximately $16 million in cash
and a promissory note payable for $2.5 million. The agreement also calls for an
additional contingent consideration, not to exceed $2 million, which is based on
pretax earnings for the 12 months ending January 31, 1995, generated from the
net assets acquired as defined in the purchase agreement. Such contingent
amounts, if any, will represent additional purchase price and will be recorded
as additional goodwill. The excess of the purchase price over the estimated fair
market value of the net assets acquired was approximately $11.5 million and is
being amortized using the straight-line method over 15 years. The acquisition
has been accounted for as a purchase. Results of operations since the purchase
date are included in the Consolidated Statements of Operations. Pro forma data
(unaudited) as though the acquisition had been effective February 1, 1992, is as
follows:

<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
------------------------
1994 1993
----------- -----------
(IN THOUSANDS,
EXCEPT PER SHARE)
<S> <C> <C>
Revenue............................................................. $ 208,797 $ 174,931
Net income.......................................................... 14,325 9,189
Net income per share................................................ 1.79 1.19
</TABLE>

On June 1, 1993, the Company acquired the outstanding stock of Torrie
Enterprises, LTD, doing business as Atwell Fleming Printing in Toronto, Ontario,
for approximately $873,000 cash. This acquisition is not significant to the
financial position or results of operations of the Company.

NOTE 4 -- FINANCIAL AGREEMENTS

BANK FINANCING:

The Company has a revolving credit agreement providing for a $10 million
unsecured bank line of credit through May 31, 1994. Borrowings under the line of
credit were $2.6 million at January 31, 1994. There were no borrowings
outstanding under the line of credit at January 31, 1993. Borrowings under the
line of credit bear interest at prime less 0.25%. Commitment fees on the unused
portion of the line are 0.25% annually. The prime rate was 6.0% at January 31,
1994. The revolving credit agreement includes various covenants, including the
maintenance of minimum tangible net worth and limitations on the amounts of
certain transactions without the approval of the bank.

<PAGE>

MERRILL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

LONG-TERM DEBT:

Long-term debt at January 31, 1994, consisted of the following:

<TABLE>
<CAPTION>
(IN
THOUSANDS)
-------------
<S> <C>
Industrial development bonds, due in semiannual installments including interest ranging from 7.0%
to 8.375% over the life of the bonds with the remaining unpaid balance due on August 1, 2010;
collateralized by land, building and equipment with a carrying value of $5,455 at January 31,
1994.............................................................................................. $ 3,900
Unsecured promissory note payable in five equal installments of $500 beginning on December 31,
1994. The note bears interest at prime and is payable annually. The prime interest rate at January
31, 1994, was 6.0%................................................................................ 2,500
Industrial development bonds, due in semiannual installments including interest ranging from 6.75%
to 10.0% over the life of the bonds with the remaining unpaid balance due on August 1, 1996;
collateralized by land, building and equipment with a carrying value of $5,455 at January 31,
1994.............................................................................................. 365
Other notes........................................................................................ 600
-------------
7,365
Less current maturities............................................................................ (1,325)
-------------
$ 6,040
-------------
-------------
</TABLE>

The aggregate maturities of long-tern debt are as follows:

<TABLE>
<CAPTION>
(IN
THOUSANDS)
-------------
<S> <C>
1995....................................................... $ 1,325
1996....................................................... 745
1997....................................................... 770
1998....................................................... 645
1999....................................................... 655
Thereafter................................................. 3,225
-------------
$ 7,365
-------------
-------------
</TABLE>

NOTE 5 -- LEASES

CAPITAL LEASES:

The Company leases an office and production facility and the associated
land, and equipment under capital leases that terminate at various dates through
November 30, 2005. Certain leases contain bargain purchase options. A summary of
the Company's property under capital leases, which is classified as property,
plant and equipment, is as follows:

<TABLE>
<CAPTION>
1994 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land............................................................... $ 333 $ 333
Building........................................................... 2,439 2,439
Equipment.......................................................... 1,124
Less accumulated amortization...................................... (601) (501)
--------- ---------
$ 3,295 $ 2,271
--------- ---------
--------- ---------
</TABLE>

<PAGE>

MERRILL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The company also leases office space and equipment under noncancelable
operating leases which expire at various dates through December of 1998.

Rental expense charged to operations on noncancelable leases was $3,303,000,
$2,531,000 and $2,352,000, for the years ended January 31, 1994, 1993 and 1992,
respectively.

Future minimum rental commitments under noncancelable leases at January 31,
1994, are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
1995................................................................... $ 677 $ 2,864
1996................................................................... 877 1,693
1997................................................................... 416 1,085
1998................................................................... 341 803
1999................................................................... 341 548
Thereafter............................................................. 2,186
--------- -----------
4,838 $ 6,993
-----------
-----------
Imputed interest (rates ranging from 9.5% to 12.3%).................... (1,857)
---------
Present value of minimum lease payments................................ 2,981
Less current maturities of obligations under capital leases............ (365)
---------
Long-term obligations under capital leases............................. $ 2,616
---------
---------
</TABLE>

NOTE 6 -- INCOME TAXES

The Company adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (FAS 109), effective February 1, 1993. The
cumulative effect of this change in accounting for income taxes as of February
1, 1993, increased net income by $177,000 ($.02 per share) and is reported
separately in the Consolidated Statement of Operations for the year ended
January 31, 1994. Prior years' financial statements have not been restated. The
federal and state components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Currently payable
Federal...................................................... $ 5,394 $ 4,760 $ 4,056
State........................................................ 1,090 977 687
--------- --------- ---------
6,484 5,737 4,743
Deferred....................................................... 2,336 (172) (435)
--------- --------- ---------
Provision for income taxes..................................... $ 8,820 $ 5,565 $ 4,308
--------- --------- ---------
--------- --------- ---------
</TABLE>

Temporary differences comprising the net deferred tax liability recognized
in the accompanying Consolidated Balance Sheet at January 31, 1994, are as
follows:

<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
Capital loss carryforward...................................................... $ 994
Allowance for doubtful accounts................................................ 929
Work in process inventories.................................................... (4,861)
Depreciation................................................................... (601)
Other.......................................................................... 446
Deferred tax valuation allowance............................................... (994)
-------------
Net deferred tax liability..................................................... $ (4,087)
-------------
-------------
</TABLE>

<PAGE>

MERRILL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The deferred income tax (benefit) for the years ended January 31, 1993 and
1992, results from timing differences in the recognition of expenses for tax and
financial reporting purposes. The principal sources of these differences and
related tax effects are as follows:

<TABLE>
<CAPTION>
1993 1992
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Work in process............................................................. $ 374 $ (143)
Depreciation................................................................ (195) (22)
Provision for losses on trade receivables................................... (273) (256)
Other....................................................................... (78) (58)
--------- ---------
$ (172) $ (435)
--------- ---------
--------- ---------
</TABLE>

Significant differences between income taxes on income for financial
reporting purposes and income taxes calculated using the federal statuary tax
rate are as follows:

<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for federal income taxes at statutory rate........... $ 7,697 $ 4,816 $ 3,656
State income taxes, net of federal benefit..................... 842 607 395
Other.......................................................... 281 142 257
--------- --------- ---------
$ 8,820 $ 5,565 $ 4,308
--------- --------- ---------
--------- --------- ---------
</TABLE>

NOTE 7 -- RETIREMENT PLAN
The Company has a defined contribution retirement plan covering
substantially all employees. Contributions to the plan are based on 7% of
eligible employee compensation. Costs charged to operations were $2,553,000
$2,005,000 and $1,608,000 for the years ended January 31, 1994, 1993 and 1992,
respectively.

NOTE 8 -- COMMON STOCK
On January 22, 1992, the Company's Board of Directors declared a 2-for-1
stock split of the Company's common stock in the form of a 100% stock dividend,
paid on March 6, 1992, to shareholders of record on February 14, 1992. The
Consolidated Statements of Changes in Shareholders' Equity and all per share
amounts have been retroactively restated to reflect the stock split. Also, all
information regarding weighted average shares outstanding, stock options and
stock grants has been retroactively adjusted to reflect the stock split.

The classes, series, rights and preferences of the undesignated stock may be
established by the Company's Board of Directors. No action with respect to such
shares has been taken.

NOTE 9 -- STOCK PLANS

1993 STOCK INCENTIVE PLAN:

Under the Company's 1993 Stock Incentive Plan, 500,000 shares of common
stock were reserved for granting of incentive awards to employees in the form of
incentive stock options, nonstatutory stock options and restricted stock awards.
As of January 31, 1994, nonstatutory options for 401,000 shares and restricted
stock awards for 9,600 shares had been granted under the plan, leaving 89,400
shares available for future grants.

1987 OMNIBUS STOCK PLANS:

Under the Company's 1987 Omnibus Stock Plan, 800,000 shares of common stock
were reserved for granting of incentive awards to employees in the form of
incentive stock options, nonstatutory stock options or restricted stock awards.
As of January 31, 1994, incentive stock options for 112,666 shares, nonstatutory
options for 634,800 shares and restricted stock awards for 5,700 shares had been
granted under the plan, leaving 46,834 shares available for future grants.

<PAGE>

MERRILL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NONQUALIFIED OPTIONS:

In addition to options granted under the plans, the Company has granted
nonqualified options to directors and consultants at prices equal to or
exceeding market value at date of grant.

A summary of selected information regarding all stock options for the
three years ended January 31, 1994, is as follows:

<TABLE>
<CAPTION>
SHARES PRICE PER SHARE
----------- -----------------
<S> <C> <C>
Balance, January 31, 1991.............................................. 1,049,858 $ 2.83 - 10.81
Granted................................................................ 34,000 7.37 - 8.75
Exercised.............................................................. (154,858) 2.83 - 7.50
Canceled............................................................... (23,000) 3.50 - 10.81
----------- -----------------
Balance, January 31, 1992.............................................. 906,000 3.37 - 8.75
Granted................................................................ 175,000 11.55 - 14.06
Exercised.............................................................. (310,400) 3.37 - 8.75
----------- -----------------
Balance, January 31, 1993.............................................. 770,600 3.37 - 14.06
Granted................................................................ 401,000 17.50 - 29.50
Exercised.............................................................. (139,466) 3.37 - 10.50
Canceled............................................................... (9,200) 3.37 - 3.87
----------- -----------------
Balance, January 31, 1994.............................................. 1,022,934 $3.37 - 29.50
----------- -----------------
----------- -----------------

Options for 305,400 shares were exercisable at January 31, 1994.

</TABLE>

NOTE 10 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly financial data for fiscal years 1994
and 1993:

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
--------- --------- --------- --------- -----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1994
Revenue................................... $ 41,244 $ 44,912 $ 42,541 $ 52,887 $ 181,584
--------- --------- --------- --------- -----------
Gross profit.............................. 15,807 15,795 15,183 18,449 65,234
--------- --------- --------- --------- -----------
Net income................................ 3,459 3,518 3,034 3,337 13,348
--------- --------- --------- --------- -----------
Net income per share...................... .44 .44 .38 .41 1.67
--------- --------- --------- --------- -----------
Dividends declared per share.............. .025 .025 .025 .025 .10
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
1993
Revenue................................... $ 34,562 $ 38,408 $ 37,362 $ 37,384 $ 147,716
--------- --------- --------- --------- -----------
Gross profit.............................. 12,253 13,196 12,395 11,753 49,597
--------- --------- --------- --------- -----------
Net income................................ 2,139 2,528 2,138 1,794 8,599
--------- --------- --------- --------- -----------
Net income per share...................... .28 .33 .28 .23 1.12
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
</TABLE>

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF MERRILL CORPORATION

We have audited the accompanying consolidated balance sheets of Merrill
Corporation as of January 31, 1994 and 1993, and the related consolidated
statements of operations, cash flows and changes in shareholders' equity for
each of the three years in the period ended January 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Merrill
Corporation as of January 31, 1994 and 1993, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
January 31, 1994, in conformity with generally accepted accounting principles.

As discussed in Note 6 to the Consolidated Financial Statements, the Company
changed its method of accounting for income taxes effective February 1, 1993.

COOPERS & LYBRAND

St Paul, Minnesota
March 22, 1994

<PAGE>

Exhibit 21.1

SUBSIDIARIES OF THE COMPANY

<TABLE>
<CAPTION>
JURISDICTION OF
NAME INCORPORATION PERCENT OWNED
- --------------------------------------------------------------------- --------------- -------------
<S> <C> <C>
Merrill/New York Company............................................. Minnesota 100%
Merrill Custom Communications, Inc. ................................. Minnesota 100%
Merrill/Magnus Publishing Corporation................................ Minnesota 100%
Merrill Corporation, Canada d/b/a Merrill Atwell Fleming............. Ontario 100%
May Printing Company, Inc. .......................................... Minnesota 100%
</TABLE>

<PAGE>
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the
Registration Statement on Forms S-8 of Merrill Corporation (File
No. 33-46275 and File No. 33-52623) of our report dated March 22,
1994, on our audits of the consolidated financial statements of
Merrill Corporation as of January 31, 1994 and 1993 and for each of
the three years in the period ended January 31, 1994 which report
is included on page 34 of the Annual Report to Shareholders and our
report on the related financial statement schedules included in
this Annual Report on Form 10-K.

COOPERS & LYBRAND

Minneapolis, Minnesota
April 29, 1994