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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, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
COMMISSION FILE NUMBER: 0-14082
MERRILL CORPORATION
(Exact name of Registrant as specified in its charter)
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<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)
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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
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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 21, 1995, 7,714,641 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
$86,433,000.
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, 1995
(the "1995 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 23, 1995 (the "1995 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 18 full service offices in major financial centers
across the United States and in Canada, as well as 5 regional printing plants,
and a printing and distribution operations in St. Cloud, Minnesota. The Company
also has established affiliations with financial printing companies
internationally.
On November 10, 1994, the Company acquired substantially all of the assets
of Fourtress Reprographic Services, Incorporated, a document reproduction
services business in Los Angeles.
On January 31, 1995, the Company merged its Merrill Custom Communications,
Inc. subsidiary into its May Printing Company, Inc. subsidiary and changed the
name of the merged companies to Merrill/May, Inc.
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/Magnus Publishing Corporation, Merrill Corporation, Canada,
Merrill/ May, Inc., and Merrill International, 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 26 to 36 of the Company's
1995 Annual Report to Shareholders,which information is incorporated herein by
reference.
(C) NARRATIVE DESCRIPTION OF BUSINESS
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 Merrill/May subsidiary provides custom marketing communication
services to corporate customers and 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 management services 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.
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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:
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YEAR ENDED JANUARY 31,
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CATEGORY OF SERVICE 1995 1994 1993
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Financial................................................ 34% 42% 34%
Corporate................................................ 33% 34% 38%
Commercial and other..................................... 33% 24% 28%
--- --- ---
Total................................................ 100% 100% 100%
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--- --- ---
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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 18 full-service facilities.
The Company's central computerized production facility (the "hub") is
located in St. Paul, Minnesota, and its 18 full service facilities (the
"spokes") are located in New York City, Boston, Newark, Washington, D.C.,
Atlanta, Chicago, Minneapolis/St. Paul, Dallas, Houston, Denver, Seattle, San
Francisco, Palo Alto, downtown Los Angeles, West Los Angeles, Irvine, Montreal
and Toronto, with sales offices in Baltimore, Philadelphia, Cleveland,
Cincinnati and Columbus. The Company receives information directly from its
customers in various forms, including typed or handwritten
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pages, magnetic recording media, such as word-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 that
do 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, Israel, Hong Kong, Taiwan, New
Zealand, Australia, Mexico, Argentina, Colombia,
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and Brazil which have agreed to work as service facilities for the Company on an
"as needed" basis. The Company has made 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, Asia, the Pacific Rim and
South America without the time delays and costs incurred by conventional air
shipment. The Company also 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 March 1995, there have been 7,480
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
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formats to the EDGAR format for SEC form types and exhibit documents, and
assembles these 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 and imaging services for projects that are time-sensitive or
otherwise require special service, such as photocopying or imaging 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 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. 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, 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.
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MERRILL/MAY
On December 31, 1993, the Company acquired the business of May Printing
Company and on January 31, 1995, the Company merged its custom communication
business into May Printing and changed the name of the subsidiary to
Merrill/May, Inc. Merrill/May 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").
Merrill/May 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, Merrill/May prepares a
catalog to merchandise these custom printed products, along with other
promotional merchandise produced by third parties. Merrill/May distributes each
client-specific catalog to the national client's member organizations.
In marketing its national account printed products, Merrill/May develops
direct relationships with each of the individual member organizations, which are
independently owned and operated and make their own print purchasing decisions.
Merrill/May 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
Merrill/May telephone number. A Merrill/May 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. Merrill/May
accepts major credit cards and payment is typically made upon placing the order.
Merrill/May produces large quantities of printed materials for each national
client, which it warehouses pending receipt of an order for the product.
Merrill/May 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. Merrill/May 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 Merrill/May
benefit both the national account client and the member organizations. The
national account client benefits from Merrill/May'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
Merrill/May'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, Merrill/May provides general
commercial printing services. The commercial printing services that Merrill/May
provides help keep it current with printing industry trends and enhance overall
printing quality. Merrill/May's customers are located in all 50 states and
Canada, with limited shipments to Mexico, Puerto Rico, Australia/New Zealand,
France and England.
Merrill/May also 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.
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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 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. Merrill/May also operates a printing plant in St. Cloud,
Minnesota, for its specialized printing services. See "Business -- Commercial
and Other Services -- Merrill/May" 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 and in Canada through a direct
sales organization operating from its full service facilities and sales offices.
The Company markets internationally with Burrups, Ltd. through both companies'
direct sales organizations. The services provided by Merrill/ May are marketed
through a direct sales organization operating from Merrill/May's principal
facility in St. Cloud, Minnesota, and sales offices in the Company's facilities
in Minneapolis/St. Paul, Irvine 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. Merrill/May markets its demand printing and distribution services
to large, national clients with multiple franchisees, members, divisions or
affiliated organizations and 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. The Company markets all of
these services through personal contacts with customers, corporate advertising,
promotional programs and direct mail.
As of April 15, 1995, the Company employed 131 full-time salespeople to
market its typesetting, printing, publishing, imaging and document reproduction
services and 29 full-time employees to market the services provided by
Merrill/May. 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.
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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 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. In the insurance printing business, the Company
competes with other national and regional printers, including Bowne. In the
Merrill/ May business, the Company believes that its primary competitors are
local print shops and 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. Competition in the Company's printing business 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, 1995, the Company had 1,693 full-time employees and 28
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.
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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
seventeen cities and sales offices in five other cities, with space ranging from
120 square feet to 77,000 square feet. These leases have expiration dates
ranging from March 1995 to December 2000 under which the Company makes monthly
payments aggregating approximately $311,000, 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 2, 1995 are
as follows:
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED
OR APPOINTED AS
AN EXECUTIVE
NAME AGE OFFICER TITLE
- ------------------------ --- ---------------- ------------------------------------------
<S> <C> <C> <C>
John W. Castro 46 1980 President and Chief Executive Officer
Rick R. Atterbury 41 1981 Vice President -- Operations
John B. McCain 57 1984 Vice President -- Finance, Chief Financial
Officer, Treasurer
Roxanne E. Iserman 50 1986 Vice President -- Client Services
Development
Steven J. Machov 44 1987 Vice President, General Counsel and
Secretary
James G. Sippl 47 1990 Vice President
Kathleen A. Larkin 35 1993 Vice President -- Human Resources
Darlene M. Shay 33 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.
9
<PAGE>
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.
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.
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
25 of the Company's 1995 Annual Report is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The financial information in the table on page 38 of the Company's 1995
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 21 to 25 of the
Company's 1995 Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements on pages 26 to 36 (including
the unaudited information set forth under the caption "Quarterly Financial Data"
on page 36) and the Report of its Independent Accountants on page 37 of the
Company's 1995 Annual Report are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) DIRECTORS OF THE REGISTRANT.
The information under the captions "Election of Directors -- Information
About Nominees" and "Other Information About Nominees" on pages 5 and 6 of the
Company's 1995 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."
(c) COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information under the caption "Security Ownership of Certain Beneficial
Owners and Management" on pages 3 and 4 of the Company's 1995 Proxy Statement is
incorporated herein by reference.
10
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information under the captions "Election of Directors -- Directors'
Compensation" on page 7 and "Executive Compensation" on pages 7 to 13,
(excluding the "Comparative Stock Performance" graph on page 11), of the
Company's 1995 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 1995 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 1995 Annual Report:
Consolidated Balance Sheets as of January 31, 1995 and 1994 -- page 26.
Consolidated Statements of Operations for the years ended January 31,
1995, 1994 and 1993 -- page 27.
Consolidated Statements of Cash Flows for the years ended January 31,
1995, 1994 and 1993 -- page 28.
Consolidated Statements of Changes in Shareholders' Equity for the years
ended January 31, 1995, 1994 and 1993 -- page 29.
Notes to Consolidated Financial Statements -- pages 30-36.
Report of Independent Accountants -- page 37.
11
<PAGE>
2. Financial statement schedules:
The following supplemental schedule 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.................................................................... 13
Supplemental Schedule:
II Valuation and Qualifying Accounts......................................................... 14
</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 16 and
17 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, 1995, 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
(incorporated by reference to Exhibit 10.9 to the Company's Annual Report
on Form 10-K for the fiscal year ended January 31, 1994 (File No.
0-14082)).
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 (incorporated by reference to Exhibit 10.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended January 31, 1994
(File No. 0-14082)).
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 Stock Incentive Plan, as amended (filed herewith).
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)).
H. Option Agreement between James R. Campbell and the Company (filed
herewith).
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the fourth quarter of the fiscal
year ended January 31, 1995.
12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
Our report on the consolidated financial statements of Merrill Corporation
has been incorporated by reference in this Form 10-K from page 37 of the 1995
Annual Report to Shareholders of Merrill Corporation. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule listed in Item 14(a)2 of this Form 10-K.
In our opinion, the financial statement schedule 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 L.L.P.
St. Paul, Minnesota
March 21, 1995
13
<PAGE>
SCHEDULE II
MERRILL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JANUARY 31, 1995, 1994 AND 1993
(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, 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
------------ ------------ ----- ------------ ------------
------------ ------------ ----- ------------ ------------
Year Ended January 31, 1995
Valuation account deducted from assets
to which it applies --
Allowance for doubtful accounts...... $ 2,294 $ 2,038 $ 177 (A) $ 1,679 (B) $ 2,830
------------ ------------ ----- ------------ ------------
------------ ------------ ----- ------------ ------------
<FN>
- ------------------------
(A) Recoveries on accounts previously written off.
(B) Uncollectible accounts written off and adjustments to the allowance.
</TABLE>
14
<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 26, 1995
</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 26, 1995
BY (SIGNATURE)
(NAME AND TITLE) John B. McCain, Vice President -- Finance, Chief Financial Officer
and Treasurer (Principal Financial and Accounting Officer)
(DATE) April 26, 1995
BY (SIGNATURE)
(NAME AND TITLE) Kenneth F. Merrill, Director
(DATE) April 26, 1995
BY
(NAME AND TITLE) Robert F. Nienhouse, Director
(DATE) April 26, 1995
BY (SIGNATURE)
(NAME AND TITLE) Richard G. Lareau, Director
(DATE) April 26, 1995
BY (SIGNATURE)
(NAME AND TITLE) Paul G. Miller, Director
(DATE) April 26, 1995
BY (SIGNATURE)
(NAME AND TITLE) Rick R. Atterbury, Director
(DATE) April 26, 1995
BY (SIGNATURE)
(NAME AND TITLE) Ronald N. Hoge, Director
(DATE) April 26, 1995
BY (SIGNATURE)
(NAME AND TITLE) James R. Campbell, Director
(DATE) April 26, 1995
</TABLE>
15
<PAGE>
MERRILL CORPORATION
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-K
FOR FISCAL YEAR ENDED JANUARY 31, 1995
<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. Incorporated by reference to Exhibit 10.3 to the
Atterbury and the Company, dated as of April 29, Company's Annual Report on Form 10-K for the
1994. fiscal year ended January 31, 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 Filed herewith electronically
dated as of June 20, 1994 between First Bank,
N.A. and the Company
10.7 Amendment to Restated and Amended Revolving Credit Filed herewith electronically
Agreement dated as of September 28, 1994 between
First Bank, N.A. and the Company.
10.8 Second Amendment to Restated and Amended Revolving Filed herewith electronically
Credit Agreement dated as of April 20, 1995
between First Bank, N.A. and the Company.
10.9 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
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION METHOD OF FILING
- ----------- -------------------------------------------------- --------------------------------------------------
<C> <S> <C>
10.10 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
10.11 Amendment to Employment Agreement between John Incorporated by reference to Exhibit 10.9 to the
Castro and the Company dated as of April 29, Company's Annual Report on Form 10-K for the
1994. fiscal year ended January 31, 1994
10.12 1993 Incentive Stock Plan, as amended Filed herewith electronically
10.13 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
10.14 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.
10.15 Loan Agreement, dated as of July 1, 1990 between Incorporated by reference to Exhibit 10.13 to the
May Printing Company and Minnesota Agricultural Company's Annual Report on Form 10-K for the
and Economic Development Board, amended as of fiscal year ended January 31, 1994
December 31, 1993.
10.16 Guaranty of Loan Obligations of May Printing Incorporated by reference to Exhibit 10.14 to the
Company by the Company in favor of Minnesota Company's Annual Report on Form 10-K for the
Agricultural and Economic Development Board, fiscal year ended January 31, 1994
dated as of December 31, 1993.
10.17 Guaranty Agreement of the obligations of Merrill Incorporated by reference to Exhibit 10.15 to the
Acquisition Corporation by the Company in favor Company's Annual Report on Form 10-K for the
of May Printing Company, and Thomas May and James fiscal year ended January 31, 1994
Scott May, dated as of December 31, 1993.
10.18 Option Agreement dated as of September 19, 1994 Filed herewith electronically
between James R. Campbell and the Company
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>
17
<PAGE>
RESTATED AND AMENDED REVOLVING CREDIT AGREEMENT
THIS AGREEMENT is made as of the 20th day of June, 1994, by and between
Merrill Corporation, a Minnesota corporation (the "Borrower"), and First Bank
National Association, a national banking association (the "Bank").
R E C I T A L S
The Borrower and Marquette Bank Minneapolis, National Association
("Marquette") executed and delivered a Revolving Credit Agreement dated as of
September 7, 1990 (the "Original Credit Agreement") which was restated and
amended pursuant to a Restated and Amended Revolving Credit Agreement dated as
of September 10, 1992 by and between the Borrower and Marquette (herein, as
amended, the "Credit Agreement").
On April 27, 1993, Marquette and the Bank entered into an Assignment and
Assumption Agreement pursuant to which the Bank acquired all of the rights and
assumed all of the obligations of Marquette under the Credit Agreement.
The Borrower and the Bank have agreed to amend and restate the terms of
the Credit Agreement pursuant to the terms of this Agreement.
NOW, THEREFORE, for One Dollar and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree to restate and amend the Credit Agreement as follows:
ARTICLE I
DEFINITIONS
Section 1.01 DEFINITIONS. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meaning assigned
to them in this Article, and include the plural as well as the singular;
and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles.
"Advance" means an advance by the Bank to the Borrower pursuant to
Article II.
<PAGE>
"Affiliate" means any officer, director, independent contractor or
employee of the Borrower or any other Person under the common control of the
Borrower or any other Affiliate.
"Business Day" means any day (other than a Saturday, Sunday or legal
holiday in the State of Minnesota) on which national banks are permitted to be
open in Minneapolis, Minnesota and, with respect to Eurodollar Advances, a day
on which dealings in Dollars may be carried on by the Bank in the interbank
eurodollar market.
"Cash Flow Leverage" means the ratio of (a) total interest bearing Debt,
including capital leases, of the Borrower and its Subsidiaries, to (b) net
income of the Borrower and its Subsidiaries before extraordinary gains and
losses, plus depreciation and amortization expense, minus capital expenditures,
minus dividends, all calculated over the four consecutive quarters ending as of
the date of the test.
"CD Assessment Rate" means the annual assessment rate (rounded upward, if
necessary, to the nearest 1/100th of 1%) actually incurred by the Bank during a
given Interest Period to the Federal Deposit Insurance Corporation (or any
successor) for such Corporation's insuring of time deposits at offices of the
Bank in the United States, as adjusted as hereinafter provided. If the annual
assessment rate for the Federal Deposit Insurance Corporation's (or any
successor's) insuring such time deposits is scheduled to change during such
Interest Period, the CD Assessment Rate for such Interest Period shall be the
weighted average (rounded upward, if necessary, to the nearest 1/100th of 1%) of
the annual assessment rates in effect at the beginning and as of such change.
"CD Rate" means the rate of interest determined by the Bank for the
relevant Interest Period to be the average (rounded upward, if necessary, to the
nearest 1/100th of 1%) of the rates quoted to the Bank at approximately 8:00
a.m., Minneapolis time (or as soon thereafter as practicable), or at the option
of the Bank at approximately the time of the request for a CD Rate Advance if
such request is made later than 8:00 a.m., Minneapolis time, in each case on the
first day of the applicable Interest Period by certificate of deposit dealers
selected by the Bank, in its sole discretion, for the purchase from the Bank, at
face value, of certificates of deposit issued by the Bank in an amount and
maturity comparable to the amount and maturity of the requested CD Rate Advance.
"CD Rate Advance" means an Advance designated as such in a notice of
borrowing under Section 2.03 or a notice of continuation or conversion under
Section 2.06.
"CD Rate (Reserve Adjusted)" means a rate per annum (rounded upward, if
necessary, to the nearest 1/100th of 1%) calculated for the Interest Period of a
CD Rate Advance in accordance with the following formula:
CDRA = CD Rate + CDAR
-----------
1.00 - CDRR
2
<PAGE>
In such formula, "CDAR" means "CD Assessment Rate", "CDRA" means "CD Rate
(Reserve Adjusted)" and "CDRR" means "CD Reserve Rate", in each instance
determined by the Bank for the applicable Interest Period. The Bank's
determination of all such rates for any Interest Period shall be conclusive in
the absence of manifest error.
"CD Reserve Rate" means a percentage equal to the daily average during
such Interest Period of the aggregate maximum reserve requirements (including
all basic, supplemental, marginal and other reserves), as specified under
Regulation D of the Federal Reserve Board, or any other applicable regulation
that prescribes reserve requirements applicable to non-personal time deposits
(as presently defined in Regulation D) with the Bank or applicable to extensions
of credit by the Bank the rate of interest on which is determined with regard to
rates applicable to non-personal time deposits. Without limiting the generality
of the foregoing, the CD Reserve Requirement shall reflect any reserves required
to be maintained by the Bank against (i) any category of liabilities that
includes deposits by reference to which the CD Rate is to be determined, or (ii)
any category of extensions of credit or other assets that includes CD Advances.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Commitment" means, from time to time, the difference between $10,000,000
and the then outstanding face amounts of Letters of Credit.
"Commitment Fees" means the commitment fees payable under Section 2.12
hereof.
"Consolidated" shall, when used with reference to any financial
information pertaining to (or when used as a part of any defined term or
statement pertaining to the financial condition of) any Person, mean the
accounts of such Person and its subsidiaries, determined on a consolidated
basis, all determined as to principles of consolidation and, except as otherwise
specifically required by the definition of such term or by such statement as to
such accounts, in accordance with generally accepted accounting principles.
"Consolidated Tangible Net Worth" of the Borrower means the sum of the
retained earnings, capital stock and surplus of the Borrower on a Consolidated
basis, less loans or accounts (other than accounts incurred in the ordinary
course of business) due from Affiliates, treasury stock and good will.
"Debt" means (i) all items of indebtedness or liability which, in
accordance with generally accepted accounting principles, would be included in
determining total liabilities as shown on the liabilities side of a balance
sheet as at the date as of which Debt is to be determined, including any
indebtedness owed to an Affiliate, and (ii) indebtedness secured by any
mortgage, pledge, lien or security interest existing on property owned by the
Person whose Debt is being determined, whether or not the indebtedness secured
thereby shall have been assumed, and (iii) guaranties, endorsements (other than
for purposes of collection in the ordinary course of business) and other
contingent obligations in respect of, or to purchase or otherwise acquire
indebtedness of others; provided, however, that for purposes of calculating that
Debt evidenced by Minnesota Agricultural and Economical Development Authority
Small Business Revenue Bonds, Series 1985C and Series 1990B, Debt shall be
calculated net of deposits and reserves maintained with the trustee to secure
these bonds.
3
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as the
same may from time to time be amended, and the rules and regulations promulgated
thereunder by any governmental agency or authority, as from time to time in
effect.
"Eurodollar Advance" means an Advance designated as such in a notice of
borrowing under Section 2.03 or a notice of continuation or conversion under
Section 2.06.
"Eurodollar Interbank Rate" means the offered rate for deposits in United
States Dollars (rounded upwards, if necessary, to the nearest 1/16 of 1%), for
delivery of such deposits on the first day of an Interest Period of a Eurodollar
Advance, for the number of days comprised therein, which appears on the Reuters
Screen LIBO Page as of 11:00 a.m., London time, on the day that is two Banking
Days preceding the first day of the Interest Period of such Eurodollar Advance.
If at least two rates appear on the Reuters Screen LIBO Page, the rate for such
Interest Period shall be the arithmetic mean of such rates (rounded as provided
above).
If fewer than two rates appear, the rate for such Interest Period shall be
determined by the Bank based on rates offered to the Bank for United States
Dollar deposits in the interbank eurodollar market. "Reuters Screen LIBO Page"
means the display designated as page "LIBO" on the Reuter Monitor Money Rates
Service (or such other page as may replace the LIBO Page on that service for the
purpose of displaying London interbank offered rates of major banks for United
States Dollar deposits).
"Eurodollar-Rate (Reserve Adjusted)" means a rate per annum (rounded
upward, if necessary, to the nearest 1/16th of 1%) calculated for the Interest
Period of a Eurodollar Advance in accordance with the following formula:
ERRA = Eurodollar Interbank Rate
-------------------------
1.00 - ERR
In such formula, "ERR" means "Eurodollar Reserve Rate" and "ERRA" means
"Eurodollar Rate (Reserve Adjusted)", in each instance determined by the Bank
for the applicable Interest Period. The Bank's determination of all such rates
for any Interest Period shall be conclusive in the absence of manifest error.
"Eurodollar Reserve Rate" means a percentage equal to the daily average
during such Interest Period of the aggregate maximum reserve requirements
(including all basic, supplemental, marginal and other reserves), as specified
under Regulation D of the Federal Reserve Board, or any other applicable
regulation that prescribes reserve requirements applicable to Eurocurrency
liabilities (as presently defined in Regulation D) or applicable to extensions
of credit by the Bank the rate of interest on which is determined with regard to
rates applicable to Eurocurrency liabilities. Without limiting the generality
of the foregoing, the Eurocurrency Reserve Requirement shall reflect any
reserves required to be maintained by the Bank against (i) any category of
liabilities that includes deposits by reference to which the Eurodollar Rate is
to be determined, or (ii) any category of extensions of credit or other assets
that includes Eurodollar Advances.
"Event of Default" has the meaning specified in Section 8.01.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System or an successor thereto.
4
<PAGE>
"Interest Period" means either (a) for any Eurodollar Advance, the period
commencing on the borrowing date of such Eurodollar Advance or the date a CD
Rate Advance or a Reference Rate Advance is converted into such Eurodollar
Advance, or the last day of the preceding Interest Period for such Eurodollar
Advance, as the case may be, and ending on the numerically corresponding day
one, two, three or six months thereafter, as selected by the Borrower pursuant
to Section 2.03 or Section 2.06; provided, that:
(i) any Interest Period which would
otherwise end on a day which is not a Business Day
shall end on the next succeeding Business Day unless
such next succeeding Business Day falls in another
calendar month, in which case such Interest Period
shall end on the next preceding Business Day;
(ii) any Interest Period which begins on the last
Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall end on the last
Business Day of the calendar month at the end of such
Interest Period; and
(iii) no Interest Period shall extend beyond the
Termination Date; and
(b) for any CD Rate Advance, the period commencing on the
borrowing date of such CD Rate Advance or the date a Eurodollar Advance or
a Reference Rate Advance is converted into such CD Rate Advance, or the
last day of the preceding Interest Period for such CD Rate Advance, as the
case may be, and ending one, two, three or six months thereafter, as
selected by the Borrower pursuant to Section 2.03 or Section 2.06;
provided, that:
(i) any Interest Period which would otherwise end
on a day which is not a Business Day shall end on the next
succeeding Business Day; and
(ii) no Interest Period shall extend beyond the
Termination Date.
"Letters of Credit" means the letters of credit issued by the Bank from
time to time for the account of the Borrower.
"Loan Document" means individually or collectively, as the case may be,
this Agreement, the Note, and any and all other documents executed, delivered or
referred to herein or therein, as originally executed and as amended, modified
or supplemented from time to time.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which Borrower or any Subsidiary is making or accruing an
obligation to make contributions, or has within any of the preceding three plan
years made or accrued an obligation to make contributions.
"Note" means the Revolving Note of the Borrower, substantially in the
form of Exhibit A hereto, any note which renews a Note or extends the maturity
date thereof and which specifically refers to this Agreement.
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"Payment Date" means the Termination Date, or date of any other
termination of the Commitment, plus (a) the last day of each Interest Period for
each CD Rate Advance and Eurodollar Advance and, if such Interest Period is in
excess of 90 days (in the case of a CD Rate Advance) or three months (in the
case of a Eurodollar Advance), the day 90 days or three months, as the case may
be, after the first day of such Interest Period, and thereafter each day 90 days
or three months, as the case may be, after each succeeding Payment Date; and (b)
the first day of each month for each Reference Rate Advance.
"Person" means any individual, corporation, partnership, joint venture,
association, jointstock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained for
employees of the Borrower or any Subsidiary and covered by ERISA.
"Reference Rate" means the rate of interest from time to time publicly
announced by the Bank as its "reference rate." The Bank may lend to its
customers at rates that are at, above or below the Reference Rate. For purposes
of determining any interest rate which is based on the Reference Rate, such
interest rate shall change on the effective date of any change in the Reference
Rate.
"Reference Rate Advance" means an Advance designated as such in a notice
of borrowing under Section 2.03 or a notice of continuation or conversion under
Section 2.06.
"Reportable Event" shall have the meaning assigned to that term in ERISA.
"Subsidiary" means any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under ordinary
circumstances to elect a majority of the board of directors of such corporation,
irrespective of whether or not at the time stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency, and which is at the time directly or indirectly owned by the
Borrower, by the Borrower and one or more other Subsidiaries, or by one or more
other Subsidiaries.
"Termination Date" means the earliest of (a) May 31, 1997, (b) the date on
which the Commitment is terminated pursuant to Section 8.02 hereof or (c) the
date on which the Commitment is reduced to zero pursuant to Section 2.13 hereof.
ARTICLE II
AMOUNT AND TERMS OF THE REVOLVING LOANS AND LETTERS OF CREDIT
Section 2.01 REVOLVING LOANS. The Bank agrees, on the terms and subject
to the conditions hereinafter set forth, to make Advances to the Borrower from
time to time during the period from the date hereof to and including the
maturity date of the Note as stated therein, or the earlier date of termination
in whole of the Commitment pursuant to Section 2.13 or Section 8.02, in an
aggregate amount not to exceed at any time outstanding the Commitment. Within
the limits of the Commitment, the Borrower may borrow, prepay pursuant to
Section 2.04 and reborrow under this Section 2.01.
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Section 2.02 THE REVOLVING NOTE. The Advances made by the Bank shall be
evidenced by the Note payable to the order of the Bank. The Note shall bear
interest on the unpaid principal amount thereof from the date thereof until paid
in accordance with the terms of Section 2.07 hereof.
Section 2.03 BORROWING PROCEDURES. Any request by the Borrower for an
Advance shall be in writing, or by telephone promptly confirmed by telecopy or
in writing, and must be given so as to be received by the Bank not later than:
(a) 12:01 p.m., Minneapolis time, on the date of the requested
Advance, if the Advance shall be comprised of CD Rate Advances or
Reference Rate Advances; or
(b) 12:01 p.m., Minneapolis time, two Business days prior to the
date of the requested Advance, if the Advance shall be, or shall include,
a Eurodollar Advance.
Each request for an Advance shall specify (i) the borrowing date (which shall be
a Business Day), (ii) the amount of such Advance and the type or types of
Advances, and (iii) if such Advance shall include CD Rate Advances or Eurodollar
Advances, the initial Interest Periods for such Advances. Unless the Bank
determines that any applicable condition specified in Article VI has not been
satisfied, the Bank will make the amount of the requested Advance available to
the Borrower at the Bank's principal office in Minneapolis, Minnesota, in
immediately available funds not later than 5:00 p.m., Minneapolis time, on the
date requested.
Section 2.04 OPTIONAL PREPAYMENTS. The Borrower may, upon at least One
Business Days' prior written or telephonic notice received by the Bank, prepay
the Loans, in whole or in part, at any time, subject to the provisions of
Section 2.08, without any other premium or penalty. Any such prepayment must be
accompanied by accrued and unpaid interest on the amount prepaid. Each partial
prepayment shall be in a minimum amount of $100,000.
Section 2.05 ADVANCE OPTIONS. Each Advance shall be constituted of CD
Rate Advances, Eurodollar Advances and Reference Rate Advances, as shall be
selected by the Borrower, except as otherwise provided herein. Any combination
of types of Advances may be outstanding at the same time, except that the number
of separate outstanding CD Rate Advances and Eurodollar Advances shall not
exceed four at any one time. Each CD Rate Advance or Eurodollar Advance shall
be in a minimum amount of $100,000 or in an integral multiple of $100,000 above
such amount. Each Reference Rate Advances shall be in an amount that is an
integral multiple of $10,000.
2.06 CONTINUATION - OR CONVERSION OF LOANS. The Borrower may elect to
(i) continue any outstanding CD Rate Advance or Eurodollar Advance from one
Interest Period into a subsequent Interest Period to begin on the last day of
the earlier Interest Period, or (ii) convert any outstanding Advance into
another type of Advance (on the last day of an Interest Period only, in the
instance of a CD Rate Advance or Eurodollar Advance), by giving the Bank notice
in writing, or by telephone promptly confirmed in writing, given so as to be
received by the Bank not later than:
(a) 12:01 p.m., Minneapolis time, on the date of the requested
continuation or conversion, if the continuing or converted Advance shall
be a CD Rate Advance or Reference Rate Advance; or
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(b) 12:01 p.m., Minneapolis time, two Business days prior to the
date of the requested continuation or conversion, if the continuing or
converted Advance shall be a Eurodollar Advance.
Each notice of continuation or conversion of an Advance shall specify (i)
the effective date of the continuation or conversion date (which shall be a
Business Day), (ii) the amount and the type or types of Advances following such
continuation or conversion (subject to the limitation on amount set forth in
Section 2.05), and (iii) for continuation as, or conversion into, CD Rate
Advances or Eurodollar Advances, the Interest Periods for such Advances. Absent
timely notice of continuation or conversion, each CD Rate Advance and Eurodollar
Advance shall automatically convert into a Reference Rate Advance on the last
day of an applicable Interest Period, unless paid in full on such last day. No
Advance shall be continued as, or converted into, a CD Rate Advance or a
Eurodollar Advance if the shortest Interest Period for such Advance may not
transpire prior to the Termination Date or if a Default or Event of Default
shall exist.
Section 2.07 INTEREST.
(a) CD RATE ADVANCES. The unpaid principal amount of each CD
Rate Advance shall bear interest prior to maturity at a rate per annum
equal to the CD Rate (Reserve Adjusted) in effect for each Interest Period
for such CD Rate Advance plus 1.50% per annum.
(b) EURODOLLAR ADVANCES. The unpaid principal amount of each
Eurodollar Advance shall bear interest prior to maturity at a rate per
annum equal to the Eurodollar Rate (Reserve Adjusted) in effect for each
Interest Period for such Eurodollar Advance plus 1.65% per annum.
(c) REFERENCE RATE ADVANCES. The unpaid principal amount of
each Reference Rate Advance shall bear interest prior to maturity at a
rate per annum equal to the Reference Rate.
(d) INTEREST AFTER MATURITY. Any amount of the Loans not paid
when due, whether at the date scheduled therefor or earlier upon
acceleration, shall bear interest until paid in full at a rate per annum
equal to the greater of (i) 1.75% in excess of the rate applicable to the
unpaid principal amount immediately before it became due, or (ii) 1.75% in
excess of the Reference Rate in effect from time to time.
(e) PAYMENT DATES. Accrued interest under Section 3.1(a), (b)
and (c) and Commitment Fees under Section 2.12 shall be payable on the
Payment Dates for the applicable types of Advances and for fees. Accrued
interest under Section 3.1(d) shall be payable on demand.
(f) COMPUTATION. Interest and Commitment Fees shall be computed
on the basis of actual days elapsed and a year of 360 days.
Section 2.08 FUNDING LOSSES. The Borrower will indemnify the Bank upon
demand against any loss or expense which the Bank may sustain or incur
(including, without limitation, any loss or expense sustained or incurred in
obtaining, liquidating or employing deposits or other funds acquired to effect,
fund, or maintain any Advance) as a consequence
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of (i) any failure of the Borrower to make any payment when due of any amount
due hereunder or under the Note, (ii) any failure of the Borrower to borrow,
continue or convert an Advance on a date specified therefor in a notice thereof,
or (iii) any payment (including, without limitation, any payment pursuant to
Section 2.13, 3.04 or 8.02), prepayment or conversion of any CD Rate Advance or
Eurodollar Advance on a date other than the last day of the Interest Period for
such Advance. Determinations by the Bank for purposes of this Section 2.08 of
the amount required to indemnify the Bank shall be conclusive in the absence of
manifest error. At the request of the Borrower, the Bank shall furnish the
Borrower with a written explanation, in reasonable detail, showing how the
amounts of the indemnity payment was calculated.
Section 2.09 PAYMENT. All payments of principal and interest under the
Note and of the fees hereunder shall be made to the Bank in immediately
available funds. The Borrower agrees that the amount shown on the books and
records of the Bank as being the aggregate amount of Advances outstanding shall
be prima facie evidence of the principal amount of the Note then outstanding.
The Borrower hereby authorizes the Bank, if and to the extent payment is not
promptly made pursuant hereto, to charge against the Borrower's account with the
Bank an amount equal to the accrued principal, interest and fees from time to
time due and payable to the Bank under the Note or hereunder.
Section 2.10 PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be
made hereunder or under the Note shall be stated to be due on a Saturday, Sunday
or holiday for banks under laws of the State of Minnesota, such payment may be
made on the next succeeding bank business day, and such extension of time shall
in such case be included in the computation of payment interest on the Note or
the fees hereunder, as the case may be.
Section 2.11 USE OF PROCEEDS. The proceeds of each Advance shall be used
by the Borrower for working capital, capital expenditures, and its general
corporate purposes.
Section 2.12 COMMITMENT FEES. The Borrower agrees to pay to the Bank a
Commitment Fee at the rate of one-quarter of one percent (0.25%) per annum on
the average daily unused amount of the Commitment from the date hereof to and
including the termination date of the Commitment, payable quarterly, in arrears,
on the first day of each September, December, March and June during the term of
the Commitment, commencing September 1, 1994 (for the period of time since June
20, 1994), provided that the commitment fee remaining unpaid shall be due and
payable on the termination date of the Commitment.
Section 2.13 OPTIONAL REDUCTION OR TERMINATION OF COMMITMENT. The
Borrower may, at any time, upon no less than three Business Days prior written
or telephonic notice received by the Bank, reduce the Commitment, with any such
reduction in a minimum amount of $1,000,000 or an integral multiple thereof.
Upon any reduction in the Commitment pursuant to this Section, the Borrower
shall pay to the Bank the amount, if any, by which the aggregate unpaid
principal amount of outstanding Advances exceeds the Commitment as so reduced.
Amounts so paid cannot be reborrowed. The Borrower may, at any time, upon not
less than three Business Days prior written notice to the Bank, terminate the
Commitment in its entirety. Upon termination of the Commitment pursuant to this
Section, the Borrower shall pay to the Bank the full amount of all outstanding
Advances, all accrued and unpaid interest thereon, all unpaid Commitment Fees
accrued to the date of such termination and all other unpaid obligations of the
Borrower to the Bank hereunder, including the face amount of all outstanding
Letters of Credit. All payment described in this Section is subject to the
provisions of Section 2.08.
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Section 2.14 THE LETTERS OF CREDIT.
(a) The Bank may, in its discretion, on the terms and subject to
the conditions hereinafter set forth, and subject to the terms and
conditions contained in the letter of credit applications executed by the
Borrower in the form of Exhibit F hereof, issue the Letters of Credit for
the account of the Borrower in an aggregate face amount not to exceed
$1,000,000. The Letters of Credit shall mature within one year or on or
before the Termination Date, whichever first occurs. The Borrower shall
pay the Bank an application fee of $250 for each Letter of Credit issued.
In addition, the Borrower shall pay the Bank a letter of credit fee of
1.25% per annum of the face amount of the Letter of Credit, payable in
advance. The Borrower agrees to reimburse the Bank on demand for the
amount of any draft drawn upon the Letters of Credit.
(b) If any change in any law or regulation or in the
interpretation thereof by any court or administrative or governmental
authority charged with the administration thereof shall either (i) impose,
modify or deem applicable any reserve, special deposit or similar
requirement against letters of credit issued by, or assets held by, or
deposits in or for the account of the Bank, or (ii) impose on the Bank any
other conditions regarding this Agreement or the Letters of Credit, and
the result of any event referred to in the preceding clause (i) or (ii)
shall be to increase the cost to the Bank of issuing or maintaining the
Letters of Credit (which increase in cost shall be determined by the
Bank's reasonable allocation of the aggregate of such cost increases
resulting from such events), then, upon demand, the Borrower shall pay to
the Bank, from time to time as specified by the Bank, additional amounts
which shall be sufficient to compensate the Bank for any increased cost,
together with interest on each such amount from the date demanded until
payment in full thereof at the Reference Rate.
(c) The obligations of the Borrower under this Section 2.14
shall be unconditional and irrevocable and shall be paid strictly in
accordance with the terms of this Agreement under all circumstances,
including, without limitation, the following circumstances:
i) any lack or validity or enforceability of any Letter
of Credit or any other agreement or instrument relating thereto
(collectively, the "Related Documents");
ii) any amendment or waiver of, or any consent to
departure from, all or any of the Related Documents;
iii) the existence of any claim, set-off, defense or
other right that the Borrower may have at any time against any
beneficiary, or any transferee, of any Letter of Credit (or any
persons for whom any such beneficiary or any such transferee may be
acting), the Bank or any other person, whether in connection with
any Related Document, the transactions contemplated therein, or any
unrelated transaction; or
iv) any statement or any other document presented under
any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue
or inaccurate in any respect, except in the case of payment by the
Bank under a Letter of Credit that shall
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have been proven by the Borrower to have resulted from the gross
negligence or willful misconduct of the Bank.
ARTICLE III
ADDITIONAL PROVISIONS RELATING TO LOANS
Section 3.01 INCREASED COSTS. If, as a result of any law, rule,
regulation, treaty or directive, or any change therein or in the interpretation
or administration thereof, or compliance by the Bank with any request or
directive (whether or not having the force of law) from any court, central bank,
governmental authority, agency or instrumentality, or comparable agency:
(a) any tax, duty or other charge with respect to any Loan, the
Note or the Commitment is imposed, modified or deemed applicable, or the
basis of taxation of payments to the Bank of interest or principal of the
Loans or of the Commitment Fees (other than taxes imposed on the overall
net income of the Bank by the jurisdiction in which the Bank has its
principal office) is changed;
(b) any reserve, special deposit, special assessment or similar
requirement against assets of, deposits with or for the account of, or
credit extended by, the Bank is imposed, modified or deemed applicable;
(c) any increase in the amount of capital required or expected
to be maintained by the Bank or any Person controlling the Bank is
imposed, modified or deemed applicable; or
(d) any other condition affecting this Agreement or the
Commitment is imposed on the Bank or the relevant funding markets;
and the Bank determines that, by reason thereof, the cost to the Bank of making
or maintaining the Loans or the Commitment is increased, or the amount of any
sum receivable by the Bank hereunder or under the Note in respect of any Loan is
reduced; then, the Borrower shall pay to the Bank upon demand such additional
amount or amounts as will compensate the Bank (or the controlling Person in the
instance of (c) above) for such additional costs or reduction (provided that the
Bank has not been compensated for such additional cost or reduction in the
calculation of the CD Reserve Rate, the Eurodollar Reserve Rate or the CD
Assessment Rate). Determinations by the Bank for purposes of this Section 3.01
of the additional amounts required to compensate the Bank shall be conclusive in
the absence of manifest error. In determining such amounts, the Bank may use
any reasonable averaging, attribution and allocation methods. At the request of
the Borrower, the Bank shall furnish the Borrower with a written explanation, in
reasonable detail, showing how the foregoing additional amount was calculated.
Section 3.02 DEPOSITS UNAVAILABLE OR INTEREST RATE UNASCERTAINABLE OR
INADEQUATE; IMPRACTICABILITY. If the Bank reasonably determines that:
(a) deposits of the necessary amount for the relevant Interest
Period for any CD Rate Advance or Eurodollar Advance are not available to
the Bank in the relevant markets or that, by reason of circumstances
affecting such market, adequate
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and reasonable means do not exist for ascertaining the CD Rate or
Eurodollar Rate, as the case may be, for such Interest Period;
(b) the CD Rate (Reserve Adjusted) or the Eurodollar Rate
(Reserve Adjusted), as the case may be, will not adequately and fairly
reflect the cost to the Bank of making or funding the CD Rate Advances or
Eurodollar Advances, as the case may be, for a relevant Interest Period;
or
(c) the making or funding of CD Rate Advances or Eurodollar
Advances, as the case may be, has become impracticable as a result of any
event occurring after the date of this Agreement which, in the reasoned
opinion of the Bank, materially and adversely affects such Advances or the
Bank's Commitment to make such Advances or the relevant market; the Bank
shall promptly give notice of such determination to the Borrower, and (i)
any notice of a new CD Rate Advance or Eurodollar Advance, as the case may
be, previously given by the Borrower and not yet borrowed or converted
shall be deemed to be a notice to make an Advance of another type, as
selected by the Borrower, and (ii) the Borrower shall be obligated to
either prepay in full any outstanding CD Rate Advances or Eurodollar
Advances, as the case may be, without premium or penalty on the last day
of the current Interest Period with respect thereto or convert any such
Advance to an Advance of another type, as selected by the Borrower, on
such last day.
Section 3.03 CHANGES IN LAW RENDERING CD RATE ADVANCES OR EURODOLLAR
ADVANCES UNLAWFUL. If at any time due to the adoption of any law, rule,
regulation, treaty or directive, or any change therein or in the interpretation
or administration thereof by any court, central bank, governmental authority,
agency or instrumentality, or comparable agency charged with the interpretation
or administration thereof, or for any other reason arising subsequent to the
date of this Agreement, it shall become unlawful or impossible for the Bank to
make or fund any CD Rate Advance or Eurodollar Advance, the obligation of the
Bank to provide such Advance shall, upon the happening of such event, forthwith
be suspended for the duration of such illegality or impossibility. If any such
event shall make it unlawful or impossible for the Bank to continue any CD Rate
Advance or Eurodollar Advance previously made by it hereunder, the Bank shall,
upon the happening of such event, notify the Borrower thereof in writing, and
the Borrower shall, at the time notified by the Bank, either convert each such
unlawful Advance to an Advance of another type or repay such Advance in full,
together with accrued interest thereon, subject to the provisions of Section
2.08.
Section 3.04 FUNDING.
(a) DISCRETION OF THE BANK AS TO MANNER OF FUNDING.
Notwithstanding any provision of this Agreement to the contrary, the Bank
shall be entitled to fund and maintain its funding of all or any part of
the Advances in any manner it elects; it being understood, however, that
for purposes of this Agreement, all determinations hereunder shall be made
as if the Bank had actually funded and maintained each CD Rate Advance and
each Eurodollar Advance during the Interest Period for such Advance
through the purchase of deposits having a term corresponding to such
Interest Period and bearing an interest rate equal, in the case of CD Rate
Advances, to the CD Rate for such Interest Period or, in the case of
Eurodollar Advances, to the Eurodollar Rate for such Interest Period
(whether or not the Bank shall have granted any participations in such
Advances).
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(b) FUNDING THROUGH THE SALE OF PARTICIPATIONS. Notwithstanding
any provision of this Agreement to the contrary, the Borrower acknowledges
that the Bank may fund all or any part of the Advances by sales of
participations to various participants and agrees that the Bank may, in
invoking its rights under this Section 3 or under Section 2.08, demand and
receive payment for costs and other amounts incurred by, or allocable to,
any such participant, or take other action arising from circumstances
applicable to any such participant, to the same extent that such
participant could demand and receive payments, or take other action, under
this Section 3 or under Section 2.08 if such participant were the Bank
under this Agreement.
(c) FUNDING THROUGH BRANCH OR AFFILIATE. At the Bank's sole
option, it may fulfill its commitment to make Eurodollar Advances by
causing a foreign branch or an affiliate to make or continue such
Eurodollar Advances; provided, that in such instance such Eurodollar
Advances shall be deemed for purposes of this Agreement to have been made
by the Bank and the obligation of the Borrower to repay such Eurodollar
Advances shall be to the Bank and shall be deemed held by the Bank for the
account of such branch or affiliate.
ARTICLE IV
CONDITIONS OF LENDING
Section 4.01 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE. The obligation
of the Bank to make its initial Advance hereunder is subject to the condition
precedent that the Bank shall have received on or before the day of such Advance
(unless waived in writing by the Bank) all of the following, each dated (unless
otherwise indicated) such day, in form and substance satisfactory to the Bank:
(a) The Note, properly executed on behalf of the Borrower.
(b) A certified copy of the resolutions of the Borrower
evidencing approval of this Agreement, the Note, and other matters
contemplated hereby.
(c) A certificate signed by the secretary or chief financial
officer of the Borrower which shall certify that the Articles of
Incorporation and Bylaws of the Borrower and its Subsidiaries which were
previously delivered to the Bank are true and correct copies thereof and
have not been amended or modified in any material manner since the date of
delivery.
(d) A signed copy of an opinion of counsel for the Borrower
addressed to the Bank.
(e) A signed copy of a certificate of the Secretary or an
Assistant Secretary of the Borrower which shall certify the names of the
officers of the Borrower authorized to sign this Agreement, the Note and
the other documents or certificates to be delivered pursuant to this
Agreement by the Borrower or any of its officers, together with the true
signatures of such officers. The Bank may conclusively rely on such
certificate until it shall receive a further certificate of the Secretary
or Assistant Secretary of the Borrower canceling or amending the prior
certificate and submitting the signatures of the officers named in such
further certificate.
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(f) A completed current Compliance Certificate in the form
attached as Exhibit B hereto, executed by the chief financial officer of
the Borrower.
(g) A lien search on the Borrower showing no outstanding liens
not previously disclosed.
(h) A completed Environmental Risk Assessment Questionnaire
showing no material environmental liabilities or contingencies.
Section 4.02 CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of the
Bank to make each Advance (including the initial Advance) shall be subject to
the further conditions precedent that on the date of such Advance:
(a) the representations and warranties contained in Article V
are correct on and as of the date of such Advance as though made on and as
of such date, except to the extent that such representations and
warranties relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result
from such Advance, which constitutes an Event of Default or would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Bank as follows:
Section 5.01 CORPORATE EXISTENCE AND POWER. The Borrower and each
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and is duly
licensed or qualified to transact business in all jurisdictions where the
character of the property owned or leased or the nature of the business
transacted by it makes such licensing or qualification necessary. The Borrower
and each Subsidiary has all requisite power and authority, corporate or
otherwise, to conduct its business, to own its properties and to execute and
deliver, and to perform all of its respective obligations under, this Agreement
and the Note.
Section 5.02 AUTHORIZATION OF BORROWING; NO CONFLICT AS TO LAW OR
AGREEMENTS. The execution, delivery and performance by the Borrower of this
Agreement and the Note and the borrowings from time to time hereunder have been
duly authorized by all necessary corporate action and do and will not (i)
require any consent or approval of the stockholders of the Borrower, or any
authorization, consent or approval by any governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any
provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Articles of Incorporation or Bylaws of the Borrower,
(iii) result in a breach of or constitute a default under any indenture or loan
or credit agreement or any other agreement, lease or instrument to which the
Borrower is a party or by which it or its properties may be bound or affected,
or (iv) result in or require the creation or imposition of any mortgage, deed of
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trust, pledge, lien, security interest or other charge or encumbrance of any
nature upon or with respect to any of the properties now owned or hereafter
acquired by the Borrower.
Section 5.03 LEGAL AGREEMENTS. This Agreement and the Note constitute
the legal, valid and binding obligations of the Borrower enforceable against the
Borrower in accordance with their respective terms, except as enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally from
time to time in effect and by general principles of equity.
Section 5.04 SUBSIDIARIES. Exhibit C hereto is a complete and correct
list of all present Subsidiaries and of the present ownership of each Subsidiary
in each case as of the date of this Agreement. Except as otherwise indicated on
Exhibit C, all shares of each Subsidiary owned by the Borrower or by any
Subsidiary are fully paid and non-assessable.
Section 5.05 FINANCIAL CONDITION. The Borrower has heretofore furnished
the following Consolidated financial statements to the Bank: audited statements
for the Borrower's fiscal year ending January 31, 1994 and unaudited interim
statements for the quarter ending April 30, 1994. Said Consolidated financial
statements fairly present the financial condition of the Borrower and its
Subsidiaries on the dates thereof and the results of their operations for the
periods then ended, and were prepared in accordance with generally accepted
accounting principles.
Section 5.06 ADVERSE CHANGE. There has been no material adverse change
in the business, properties or condition (financial or otherwise) of the
Borrower or any Subsidiary since the date of the latest financial statement
referred to in Section 5.05.
Section 5.07 LITIGATION. There are no actions, suits or proceedings
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower or any Subsidiary or the properties of the Borrower or any
Subsidiary before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which, if determined
adversely to the Borrower or any Subsidiary, would have a material adverse
effect on the financial condition, properties, or operations of the Borrower or
any Subsidiary.
Section 5.08 REGULATION U. Neither the Borrower nor any Subsidiary is
engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System), and no part of the proceeds of any
Advance will be used to purchase or carry any margin stock or to extend credit
to others for the purpose of purchasing or carrying any margin stock.
Section 5.09 TAXES. The Borrower and each Subsidiary has filed all
federal, state and local tax returns which to the knowledge of the officers of
the Borrower and each Subsidiary are required to be filed, and the Borrower has
paid or caused to be paid to the respective taxing authorities all taxes as
shown on said returns or on any assessment received by it to the extent such
taxes have become due.
Section 5.10 TITLES AND LIENS. The Borrower or one of its Subsidiaries
has good title to each of the properties and assets reflected in the latest
balance sheet (exclusive of capitalized leases) referred to in Section 5.05
(other than any sold, as permitted by Section 7.05), free and clear of all
mortgages, security interests, liens and encumbrances, except for
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mortgages, security interests and liens permitted by Section 7.01 and covenants,
restrictions, rights, easements and minor irregularities in title which do not
materially interfere with the business or operations of the Borrower or any
Subsidiary as presently conducted.
Section 5.11 ERISA COMPLIANCE. (a) Each Plan is in compliance in all
material respects with all applicable provisions of ERISA and the Code with
respect to which failure to comply could result in a material liability to the
Borrower or any Subsidiary; (b) as of the date of the most recent valuation of
each Plan subject to Title IV of ERISA (other than a Multiemployer Plan), the
aggregate present value of all accrued vested benefits under such Plans
(calculated on the basis of the actuarial assumptions specified in the most
recent actuarial valuation for such Plans) did not exceed by a material amount
(relative to the Borrower's Consolidated Tangible Net Worth) the fair market
value of the assets of such Plans allocable to such benefits; (c) the Borrower
is not aware of any information since the date of such valuations which would
materially affect the information contained therein: (d) no Plan which is
subject to Part 3 of Subtitle B of Title I of ERISA or Section 412 of the Code
has incurred an accumulated funding deficiency as that term is defined in
Section 302 of ERISA or Section 412 of the Code (whether or not waived); (e) no
liability to the Pension Benefit Guaranty Corporation (other than required
premiums which have become due and payable, all of which have been paid) has
been incurred with respect to any Plan, and there has not been any Reportable
Event which presents a material risk of termination of any Plan by the Pension
Benefit Guaranty Corporation; and (f) to the best of its knowledge, the Borrower
has not engaged in a transaction which would subject it to any material tax,
penalty or liability for prohibited transactions imposed by ERISA or the Code.
As of the effective date of this Agreement, neither the Borrower nor any
Subsidiary contributes to any Multiemployer Plan.
Section 5.12 ACCURACY OF INFORMATION. All factual information heretofore
or herewith furnished by the Borrower to the Bank for purposes of or in
connection with this Agreement or any of the transactions contemplated hereby
is, and all other such factual information hereafter furnished by the Borrower
to the Bank for purposes of or in connection with this Agreement or any of the
transactions will be, true and accurate in every material respect on the date as
of which such information is dated or certified and no such information contains
any material misstatement of fact or omits to state a material fact or any fact
necessary to make the statements contained therein not misleading.
Section 5.13 DEFAULTS. Neither the Borrower nor any Subsidiary is in
default in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any material contract or in any instrument
evidencing any Debt or under any agreement relating thereto.
Section 5.14 ENVIRONMENTAL REGULATIONS. To the best of the Borrower's
knowledge, the Borrower and each Subsidiary is in compliance with all
requirements of law relating to pollution control and environmental regulations
in the respective jurisdictions where it is presently doing business or
conducting operations.
Section 5.15 SURVIVAL OF REPRESENTATIONS. All representations and
warranties contained in this Article IV shall survive the delivery of the Note
and the making of the loan evidenced thereby and any investigation at any time
made by or on behalf of the Bank shall not diminish its rights to rely thereon.
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ARTICLE VI
AFFIRMATIVE COVENANTS OF THE BORROWER
So long as the Note shall remain unpaid or the Commitment shall be
outstanding, the Borrower will comply with the following requirements, unless
the Bank shall otherwise consent in writing:
Section 6.01 FINANCIAL STATEMENTS. The Borrower will deliver to the
Bank:
(a) as soon as available and in any event within 90 days after
the end of each fiscal year of the Borrower and its Subsidiaries, a copy
of the annual Consolidated audit report of the Borrower with the
unqualified opinion of Coopers & Lybrand or other independent certified
public accountants selected by the Borrower and acceptable to the Bank,
all in reasonable detail and all prepared in accordance with generally
accepted accounting principles; together with a Compliance Certificate of
the chief financial officer of the Borrower in the form of Exhibit B
hereto;
(b) as soon as available and in any event within 45 days after
the end of each interim fiscal quarter, Consolidated financial statements
of the Borrower and its Subsidiaries as at the end of each interim fiscal
quarter and for the year to date, in reasonable detail, all prepared in
accordance with generally accepted accounting principles, together with a
Compliance Certificate of the chief financial officer of the Borrower in
the form of Exhibit B hereto, subject, however, to year-end audit
adjustments;
(c) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have
sent to its stockholders;
(d) promptly after the sending or filing thereof, copies of all
regular and periodic financial reports which the Borrower shall file with
the Securities and Exchange Commission or any national securities
exchange, including the Borrower's quarterly 10-Q statements and annual
10-K statements;
(e) immediately after the commencement thereof, notice in
writing of all litigation and of all proceedings before any governmental
or regulatory agency affecting the Borrower or any Subsidiary of the type
described in Section 5.07 or which seek a monetary recovery against the
Borrower in excess of $250,000;
(f) as promptly as practicable (but in any event not later than
five business days) after an officer of the Borrower obtains knowledge of
the occurrence of any event which constitutes an Event of Default, notice
of such occurrence, together with a detailed statement by a responsible
officer of the Borrower of the steps being taken by the Borrower to cure
the effect of such event;
(g) as soon as possible and in any event within 30 days after the
Borrower knows that a Reportable Event with respect to any Plan has
occurred, the statement of the chief financial officer of the Borrower
setting forth details as to such Reportable Event and the action, if any,
which the Borrower proposes to take with respect thereto, together with a
copy of the notice of such Reportable Event to the Pension Benefit
Guaranty Corporation if such notice is required to be furnished to the
Pension Benefit Guaranty Corporation;
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(h) as soon as possible, any notice of any default received by
the Borrower or any Subsidiary in the repayment of any indebtedness for
borrowed money owed by any of them the outstanding principal amount of
which exceeds $50,000; and
(i) such other information respecting the financial condition
and results of operations of the Borrower and its Subsidiaries as the Bank
may from time to time reasonably request.
Section 6.02 BOOKS AND RECORDS; INSPECTION AND EXAMINATION. The Borrower
will, and will cause each Subsidiary to, keep accurate books of record and
account for itself in which true and complete entries will be made in accordance
with generally accepted accounting principles consistently applied and, upon
request of the Bank, will give any representative of the Bank access to, and
permit such representative to examine, copy or make extracts from, any and all
books, records and documents in its possession, to inspect any of their
properties and to discuss their affairs, finances and accounts with any of their
principal officers, all at such times during normal business hours and as often
as the Bank may reasonably request.
Section 6.03 COMPLIANCE WITH LAWS. The Borrower will, and will cause
each Subsidiary to, comply with the requirements of applicable laws and
regulations with which noncompliance would materially and adversely affect their
business or their financial condition.
Section 6.04 PAYMENT OF TAXES AND OTHER CLAIMS. The Borrower will, and
will cause each Subsidiary to, pay or discharge all taxes, assessments and
governmental charges levied or imposed upon them or upon their income or
profits, or upon any properties belonging to them, prior to the date on which
penalties attach thereto and all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a lien or charge upon any properties of
the Borrower or any Subsidiary; provided, that neither the Borrower nor any
Subsidiary shall be required to pay any such tax, assessment, charge or claim
whose amount, applicability or validity is being contested in good faith by
appropriate proceeding.
Section 6.05 MAINTENANCE OF PROPERTIES. The Borrower will, and will
cause each Subsidiary to, keep and maintain all of its properties necessary or
useful in their business in good condition, repair and working order.
Section 6.06 INSURANCE. The Borrower will, and will cause each
Subsidiary to, obtain and maintain insurance with insurers believed by the
Borrower to be responsible and reputable, in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower and the
Subsidiaries operate.
Section 6.07 PRESERVATION OF CORPORATE EXISTENCE. Subject to Section
7.06, the Borrower will preserve and maintain, and will cause each Subsidiary to
preserve and maintain, its corporate existence and all of its rights, privileges
and franchises.
Section 6.08 CONSOLIDATED TANGIBLE NET WORTH. The Borrower will
maintain, at all times during each fiscal year designated herein, its
Consolidated Tangible Net Worth at an amount not less than $37,500,000 for the
fiscal year ending January 31, 1995, and for each fiscal year following
January 31, 1995, an amount equal to 90% of the Consolidated Tangible Net Worth
at the end of the Borrower's immediately preceding fiscal year; provided,
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however, under no circumstances shall the minimum Consolidated Tangible Net
Worth ever decrease.
Section 6.09 MAXIMUM CASH FLOW LEVERAGE. The Borrower will ensure that
its Cash Flow Leverage does not exceed 5.0 to 1.0 at the end of each fiscal
quarter.
ARTICLE VII
NEGATIVE COVENANTS
So long as the Note shall remain unpaid or the Bank shall have any
Commitment hereunder, the Borrower agrees that, without the prior written
consent of the Bank:
Section 7.01 LIENS. The Borrower will not, and will not permit any
Subsidiary to, create, incur or suffer to exist any mortgage, deed of trust,
pledge, lien, security interest, assignment or transfer upon or of any of its
assets, now owned or hereafter acquired, to secure any indebtedness for borrowed
money; EXCLUDING, HOWEVER, from the operation of the foregoing:
(a) liens for taxes or assessments or other governmental charges
to the extent not required to be paid by Section 6.04;
(b) materialmen's, merchants', carriers', workmen's,
repairmen's, or other like liens arising in the ordinary course of
business to the extent not required to be paid by Section 6.04;
(c) pledges or deposits to secure obligations under workmen's
compensation laws, unemployment insurance and social security laws, or to
secure the performance of bids, tenders, contracts (other than for the
repayment of borrowed money) or leases or to secure statutory obligations
or surety or appeal bonds, or to secure indemnity, performance or other
similar bonds in the ordinary course of business;
(d) zoning restrictions, easements, licenses, restrictions on
the use of real property or minor irregularities in title thereto, which
do not materially impair the use of such property in the operation of the
business of the Borrower and any Subsidiary or the value of such property
for the purpose of such business;
(e) purchase money mortgages, liens, or security interests
(which term for purposes of this subsection shall include conditional sale
agreements or other title retention agreements and leases in the nature of
title retention agreements) upon or in property acquired after the date
hereof, or mortgages, liens or security interests existing in such
property at the time of acquisition thereof, or, in the case of any
corporation which thereafter becomes a Subsidiary, mortgages, liens or
security interests upon or in its property, existing at the time such
corporation becomes a Subsidiary, PROVIDED that:
(1) no such mortgage, lien or security interest extends
or shall extend to or cover any property of the Borrower or such
Subsidiary, as the case may be, other than the property then being
acquired and fixed improvements then or thereafter erected thereon;
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(2) the aggregate principal amount of all Debt of the
Borrower and all Subsidiaries secured by all mortgages, liens or
security interests described in this subsection plus the
outstanding indebtedness permitted by Section 7.02(e) hereof shall
not exceed $500,000 at any one time outstanding; and
(3) the aggregate principal amount of Debt secured by
mortgages, liens and security interests described in this
subsection (e) at the time of acquisition of the property subject
thereto shall not exceed the cost of such property or of the then
fair market value of such property as determined by the Board of
Directors of the Borrower, whichever shall be less, and the
aggregate amount of payments made thereunder will not result in a
violation of the restriction contained in Section 7.08;
(f) mortgages, liens, pledges and security interests on any
property of the Borrower or any Subsidiary (other than those described in
subsection (e)) securing any indebtedness for borrowed money in existence
on the date hereof and listed in Exhibit D to the Original Credit
Agreement or as disclosed to and approved by the Bank after the date
thereof and prior to the date hereof; and
(g) liens arising out of a judgment against the Borrower or any
Subsidiary for the payment of money not exceeding $250,000 with respect to
which an appeal is being prosecuted and a stay of execution pending such
appeal has been secured.
Section 7.02 INDEBTEDNESS. The Borrower will not, and will not permit
any Subsidiary to, incur, create, assume or permit to exist any indebtedness or
liability on account of deposits or advances or any indebtedness for borrowed
money, or any other indebtedness or liability evidenced by notes, bonds,
debentures or similar obligations, except:
(a) indebtedness evidenced by the Note;
(b) indebtedness of the Borrower or any Subsidiary in existence
on the date hereof and listed in Exhibit D to the Original Credit
Agreement or as disclosed to and approved by the Bank after the date
thereof and prior to the date hereof;
(c) indebtedness of a Subsidiary to the Borrower or another
Subsidiary on account of borrowings, or indebtedness of the Borrower to a
Subsidiary on account of borrowings from that Subsidiary; and
(d) indebtedness of the Borrower or any Subsidiary incurred
after the date hereof which in the aggregate cannot exceed $1,500,000 at
any time outstanding.
Section 7.03 GUARANTIES. The Borrower will not, and will not permit any
Subsidiary to, assume, guarantee, endorse or otherwise become directly or
contingently liable in connection with any obligations of any other Person,
except:
(a) the endorsement of negotiable instruments by the Borrower or
a Subsidiary for deposit or collection or similar transactions in the
ordinary course of business;
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons in
existence on the date hereof and
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reflected in the most recent audited consolidated financial statements of
the Borrower; and
(c) guaranties given after the date hereof in the ordinary
course of business of the Borrower or a Subsidiary.
Section 7.04 INVESTMENTS. The Borrower will not, and will not permit any
Subsidiary to, purchase or hold beneficially any stock or other securities or
evidences of indebtedness of, make or permit to exist any loans or advances to,
or make any investment or acquire any interest whatsoever in, any other Person,
except:
(a) investments in direct obligations of the United States of
America or any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of
America having a maturity of one year or less, commercial paper issued by
U.S. corporations rated "A1" or "A2" by Standard & Poor's Corporation or
"P1" or "P2" by Moody's Investors Service or certificates of deposit or
bankers' acceptances having a maturity of one year or less issued by
members of the Federal Reserve System having deposits in excess of
$10,000,000;
(b) advances and loans to officers, independent contractors and
employees of the Borrower or a Subsidiary;
(c) advances in the form of progress payments, prepaid rent or
security deposits;
(d) loans and advances by a Subsidiary to the Borrower or
another Subsidiary;
(e) loans and advances by the Borrower to any Subsidiary;
(f) subject to the limitation contained in Section 7.06 hereof,
stock in any Subsidiaries acquired after the date hereof; and
(g) investments in stock or debt instruments of other Persons
which in the aggregate do not exceed $2,500,000 at any time outstanding.
Section 7.05 SALE OF ASSETS. The Borrower will not, nor shall it permit
any Subsidiary to, sell, lease, assign, transfer or otherwise dispose of all or
a substantial part of its assets (whether in one transaction or in a series, of
transactions) to any other Person other than in the ordinary course of business;
provided, however, that the restrictions contained in this Section shall not
apply to or prevent:
(a) the conveyance, lease or transfer by a Subsidiary of all or
a part of its properties to the Borrower or to another wholly-owned
Subsidiary of the Borrower;
(b) sales or leases by the Borrower or a Subsidiary of its
properties in the ordinary course of business; and
(c) sales or lease by the Borrower or a Subsidiary of its
surplus, obsolete or worn-out properties.
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Section 7.06 CONSOLIDATION AND MERGER; ACQUISITION OF ASSETS AND STOCK.
The Borrower will not, nor shall it permit any Subsidiary to, consolidate with
or merge into any Person, or permit any other Person to merge into it unless (i)
the Borrower immediately notifies the Bank following the merger or
consolidation, (ii) the Borrower or the Subsidiary is the surviving entity, and
(iii) the Borrower reaffirms its liability under the Note and this Agreement
after the merger or consolidation and represents and warrants to the Bank that
there does not then exist any Event of Default hereunder nor any event which
with the giving of notice or the passage of time would become an Event of
Default; provided, however, that the restrictions contained in this Section
shall not apply to or prevent the consolidation or merger of a Subsidiary with
the Borrower (if Borrower shall be the continuing or surviving corporation) or
another then existing wholly-owned Subsidiary of the Borrower. The Borrower
agrees that in each consecutive 12 month period, the aggregate amount that is
expended (whether in cash or in stock) by the Borrower and its Subsidiaries to
acquire all or substantially all of the assets or any stock of another Person,
and to merge or consolidate with another Person, shall not exceed $2,500,000.
Section 7.07 SALE AND LEASEBACK. The Borrower will not, nor shall it
permit any Subsidiary to, enter into any arrangement, directly or indirectly,
with any other Person whereby the Borrower or any Subsidiary shall sell or
transfer any real or personal property, whether now owned or hereafter acquired,
and then or thereafter rent or lease as lessee such property or any part thereof
or any other property which the Borrower or any Subsidiary intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
Section 7.08 EXPENDITURES FOR FIXED ASSETS. The Borrower will not, nor
shall it permit any Subsidiary to, make any future expenditure of money for the
purchase or construction of fixed assets if, after giving effect to such
expenditure, the aggregate amount of such expenditures made by the Borrower and
its Subsidiaries in any fiscal year will exceed $15,000,000.
Section 7.09 LEASES. Enter into or permit to exist any arrangements for
the leasing by the Borrower or any of its Subsidiaries, as lessee, of any real
or personal property (or any interest therein) under leases (other than leases
that should be capitalized under generally accepted accounting principles) which
require the payment by the Borrower and its Subsidiaries on a consolidated basis
of rental amounts in the aggregate in excess of $4,000,000 in any one fiscal
year.
Section 7.10 RESTRICTIONS ON ISSUANCE AND SALE OF SUBSIDIARY STOCK. The
Borrower will not:
(a) permit any Subsidiary to issue or sell any shares of stock
of any class of such Subsidiary to any other Person (other than the
Borrower or a wholly-owned Subsidiary of the Borrower), except for the
purpose of qualifying directors or of satisfying preemptive rights of
paying a common stock dividend on, or splitting, common stock of such
Subsidiary; or
(b) sell, transfer or otherwise dispose of any shares of stock
of any class (except to a wholly-owned Subsidiary of the Borrower or to
qualify directors) of any Subsidiary or permit any Subsidiary to sell,
transfer or otherwise dispose of (except to the Borrower or a wholly-owned
Subsidiary of the Borrower or to qualify directors) any shares of stock of
any class of any other Subsidiary.
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Section 7.11 RESTRICTIONS ON NATURE OF BUSINESS. The Borrower will not,
nor will it permit any Subsidiary to, engage in any line of business materially
different from that presently engaged in by the Borrower or its Subsidiaries.
ARTICLE VIII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section 8.01 EVENTS OF DEFAULT. "Event of Default", wherever used
herein, means any one of the following events:
(a) Default in the payment of any principal or interest on the
Note when it becomes due and payable and continuance of such default for a
period of five days; or
(b) Any representation or warranty made by the Borrower in this
Agreement or by the Borrower (or any of its officers) in any certificate,
instrument, or statement contemplated by or made or delivered pursuant to
or in connection with this Agreement, shall prove to have been incorrect
in any material respect when made; or
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower in this Agreement (other than a covenant or
agreement a default in whose performance or whose breach is elsewhere in
this Section specifically dealt with), and the continuance of such default
or breach for a period of 30 days after there has been given, by certified
mail to the Borrower by the Bank, a written notice specifying such default
or breach and requiring it to be remedied; or
(d) Default in the performance, or breach, of any covenant or
agreement of the Borrower in any Loan Document and the expiration of any
applicable grace period, if any; or
(e) The Borrower or any Subsidiary shall be adjudicated a
bankrupt or insolvent, or admit in writing its inability to pay its debts
as they mature, or make an assignment for the benefit of creditors; or the
Borrower or any Subsidiary shall apply for or consent to the appointment
of any receiver, trustee, or similar officer for it or for all or any
substantial part of its property; or such receiver, trustee or similar
officer shall be appointed without the application or consent of the
Borrower or any Subsidiary and such appointment shall continue
undischarged for a period of 60 days; or the Borrower or any Subsidiary
shall institute (by petition, application, answer, consent or otherwise)
any bankruptcy, insolvency, reorganization, arrangement, readjustment of
debt, dissolution, liquidation or similar proceeding relating to it under
the laws of any jurisdiction; or any such proceeding shall be instituted
(by petition, application or otherwise) against the Borrower or any
Subsidiary and shall remain undismissed for a period of 60 days; or any
judgment, writ, warrant of attachment or execution or similar process
shall be issued or levied against a substantial part of the property of
the Borrower or any Subsidiary and such judgment, writ, or similar process
shall not be released, vacated or fully bonded within 60 days after its
issue or levy; or
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(f) Default in the performance, or breach, of any financial
covenant contained in Sections 6.08, 6.09, 7.08 and 7.09 hereof; or
(g) The rendering against the Borrower or any Subsidiary of a
final judgment, decree or order for the payment of money in excess of
$250,000 which shall not be released, vacated, fully bonded or settled
within 30 days after its issue or levy, provided, however, that any
settlement that provides for payments over time cannot be more than 30
days in default at any time; or
(h) A default under any bond, debenture, note or other evidence
of indebtedness of the Borrower or any Subsidiary, which exceeds $200,000,
or under any indenture or other instrument under which any evidence of
indebtedness exceeding $200,000 has been issued or by which it is governed
and the expiration of the applicable period of grace, if any, specified in
such evidence of indebtedness, indenture or other instrument; or
(i) To the extent that it could result in a material liability
to the Borrower or any Subsidiary (relative to the Borrower's Consolidated
Tangible Net Worth), (a) any Reportable Event, which the Bank determines
in good faith is likely to constitute grounds for the termination of any
Plan or for the appointment by the appropriate United States District
Court of a trustee to administer any such plan shall have occurred and be
continuing 30 days after written notice to such effect shall have been
given to the Borrower by the Bank; or (b) any Plan subject to Title IV of
ERISA shall have been terminated, or a trustee shall have been appointed
by an appropriate United States District Court to administer any Plan, or
the Pension Benefit Guaranty Corporation shall have instituted proceedings
to terminate any Plan or to appoint a trustee to administer any Plan; or
(j) Any governmental authority assesses the Borrower for
violating any environmental law, regulation, ordinance, or requirement
regarding hazardous waste that involves clean up costs which in the Bank's
reasoned opinion may exceed $500,000.
Section 8.02 RIGHTS AND REMEDIES. Upon the occurrence of an Event of
Default or at any time thereafter until such Event of Default is cured to the
written satisfaction of the Bank, the Bank may exercise any or all of the
following rights and remedies:
(a) The Bank may, by notice to the Borrower, declare the
Commitment to be terminated, whereupon the same shall forthwith terminate;
(b) The Bank may, by notice to the Borrower, declare the entire
unpaid principal amount of the Note then outstanding, all interest accrued
and unpaid thereon, and all other amounts payable under this Agreement to
be forthwith due and payable whereupon such Note, all such accrued
interest and all such amounts shall become and be forthwith due and
payable without presentment, demand, protest or further notice of any
kind, all of which are hereby expressly waived by the Borrower;
(c) The Bank may, without notice to the Borrower and without
further action, apply any and all money owing by the Bank to the Borrower
to the payment of the Note then outstanding, including interest accrued
thereon, and of all other sums then owing by the Borrower hereunder; and
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(d) The Bank may exercise and enforce its rights and remedies
provided in the Loan Documents or otherwise available at common law;
provided that if a petition is filed by or against the Borrower under the United
States Bankruptcy Code, the entire unpaid principal amount of the Note then
outstanding, all interest accrued and unpaid thereon, and all other amounts
payable under this Agreement shall be immediately due and payable without
presentment, demand, protest or notice of any kind.
ARTICLE IX
MISCELLANEOUS
Section 9.01 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the
part of the Bank in exercising any right, power or remedy hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
Section 9.02 AMENDMENTS, ETC. No amendment, modification, termination or
waiver of any provision of this Agreement or the Note or consent by the Borrower
to any departure therefrom shall be effective unless the same shall be in
writing and signed by the Bank, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. No notice to or demand on the Borrower in any case shall entitle the
Borrower to any other or further notice or demand in similar or other
circumstances.
Section 9.03 ADDRESSES FOR NOTICES, ETC. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for hereunder and under the Security Agreement shall be in writing and
mailed or delivered to the applicable party at its address indicated below:
If to the Borrower:
Merrill Corporation
One Merrill Circle
St. Paul, Minnesota 55108
Attn: Chief Financial Officer
If to the Bank:
First Bank National Association
First Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attn: Mr. Steven L. Flack
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section. All such
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notices, requests, demands and other communications shall, when mailed, be
effective when deposited in the mails, addressed as aforesaid, except that
notices or requests to the Bank pursuant to any of the provisions of Article II
shall not be effective until received by the Bank.
Section 9.04 CONSENT TO JURISDICTION. The Borrower hereby irrevocably
submits to the jurisdiction of any Minnesota state court or federal court over
any action or proceeding arising out of or relating to this Agreement, and the
Borrower hereby irrevocably agrees that all claims in respect of such action or
proceeding may be heard and determined in such Minnesota state or federal court.
Nothing in this Section shall affect the right of the Bank to serve legal
process in any other manner permitted by law or affect the right of the Bank to
bring any action or proceeding against the Borrower or its property in the
courts of any other jurisdiction.
Section 9.05 INDEMNIFICATION. Borrower hereby agrees to indemnify,
exonerate and hold the Bank and its officers, directors, employees and agents
(the "Indemnified Parties") free and harmless from and against any all actions,
causes of action, suits, losses, liabilities and damages, and expenses in
connection therewith including, without limitation, reasonable attorneys' fees
and disbursements (the "Indemnified Liabilities"), incurred by the Indemnified
Parties or any of them as a result of, or arising out of, or relating to:
(i) any transaction financed or to be financed in whole or in
part directly or indirectly with proceeds of any Advance, or
(ii) the execution, delivery, performance or enforcement of this
Agreement or any document executed pursuant hereto by any of the
Indemnified Parties, except for any such Indemnified Liabilities arising
on account of any Indemnified Party's gross negligence or willful
misconduct.
If and to the extent that the foregoing undertaking may be unenforceable for any
reason, the Borrower hereby agrees to make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. The provisions of this Section shall survive
termination of this Agreement.
Section 9.06 COSTS AND EXPENSES. The Borrower agrees to pay on demand
all costs and expenses of the Bank in connection with the preparation of this
Agreement, the Note, and the other instruments and documents to be delivered
hereunder and thereunder, including the reasonable fees and out-of-pocket
expenses of counsel for the Bank with respect thereto, as well as all out-of-
pocket expenses incurred by the Bank in connection with the enforcement of this
Agreement, the Note, and the other instruments and documents to be delivered
hereunder and thereunder, including the reasonable fees and out-of-pocket
expenses of legal counsel retained by the Bank with respect thereto.
Section 9.07 EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts, each of which when so executed and delivered
shall be deemed to be an original and all of which counterparts of this
Agreement, taken together, shall constitute but one and the same instrument.
Section 9.08 BINDING EFFECT, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Borrower and the Bank and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights hereunder or thereunder or any interest herein or therein
without the prior written consent the Bank.
26
<PAGE>
Section 9.09 GOVERNING LAW. This Agreement and the Note shall be
governed by, and construed in accordance with, the laws of the State of
Minnesota.
Section 9.10 SEVERABILITY OF PROVISIONS. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.11 HEADINGS. Article and Section headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
MERRILL CORPORATION
By /s/ John W. Castro
--------------------------------
Its: President
By /s/ John B. McCain
---------------------------------
Its: Vice President and
Chief Financial Officer
FIRST BANK NATIONAL ASSOCIATION
By /s/ Steven L. Flack
----------------------------------
Its: Asst. Vice President
27
<PAGE>
EXHIBIT LIST
EXHIBIT A Revolving Note
EXHIBIT B Compliance Certificate
EXHIBIT C Existing Subsidiaries
EXHIBIT D Permitted Indebtedness
EXHIBIT E Certificate of Authorized Borrower
Representatives
EXHIBIT F Letter of Credit Application
<PAGE>
EXHIBIT A
RESTATED REVOLVING NOTE
$10,000,000 Minneapolis, Minnesota
June 20, 1994
For value received, the undersigned, Merrill Corporation, a Minnesota
corporation, hereby promises to pay on May 31, 1997, to the order of First Bank
National Association, a national banking association (the "Bank"), at its main
office at Minneapolis, Minnesota, or at any other place designated at any time
by the holder hereof, in lawful money of the United States of America and in
immediately available funds, the principal sum of Ten Million Dollars
($10,000,000) or, if less, the aggregate unpaid principal amount of all advances
made by the Bank to the undersigned hereunder (the "Principal Balance").
Interest shall accrue on the Principal Balance remaining unpaid from time to
time in accordance with the provisions of Section 2.07 of the Restated and
Amended Revolving Credit Agreement of even date herewith by and between the
undersigned and the Bank.
This Note may be prepaid in whole at any time or from time to time in part
only as permitted under Section 2.04 of the Restated and Amended Revolving
Credit Agreement.
This Note is issued pursuant to, and subject to, the Restated and Amended
Revolving Credit Agreement, which, among other things, provides for acceleration
of the maturity hereof upon the occurrence of an Event of Default (as defined in
that Restated and Amended Revolving Credit Agreement).
This Note shall be immediately due and payable (including unpaid interest
accrued hereon) without demand or notice thereof upon filing of a petition by or
against the undersigned under the United States Bankruptcy Code.
The undersigned hereby agrees to pay all costs of collection, including
reasonable attorneys' fees and legal expenses, in the event this Note is not
paid when due, whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
MERRILL CORPORATION
By
----------------------------
Its:
By
----------------------------
Its:
<PAGE>
EXHIBIT B
COMPLIANCE CERTIFICATE
The undersigned officer of Merrill Corporation, a Minnesota corporation
(the "Borrower"), hereby certifies and represents and warrants to First Bank
Minneapolis, National Association (the "Bank"), pursuant to Section 6.01 of the
Revolving Credit Agreement, dated June 20, 1994 (the "Loan Agreement"), by and
between the Borrower and the Bank, as follows:
1. The Consolidated financial statements of the Borrower and its
Subsidiaries as at April 30, 1994 (the "Report Date") and for the year to date,
which have previously been provided to you, have been prepared in accordance
with generally accepted accounting practices.
2. The undersigned has no knowledge of the occurrence of any Event of
Default under the Loan Agreement or of any event not heretofore reported and
remedied, which with notice or lapse of time or both would constitute an Event
of Default, except as follows: None.
3. As of the Report Date, the Borrower is in compliance with the
following financial covenants contained in the following Sections of the Loan
Agreement except Section 7.06, violation of which has been waived:
<TABLE>
<S> <C>
Section 6.08 CONSOLIDATED TANGIBLE NET WORTH.
(not less than $37,500,000)
$ 46,396,000
------------
Section 6.09 CASH FLOW LEVERAGE.
(not to exceed 5.0 to 1.0)
(a) Total interest bearing debt $ 13,896,000
------------
(b) For 12 months ending 4-30-94
Net income $ 14,588,000
------------
Depreciation and
amortization 6,909,000
------------
Capital expenditures (8,966,000)
------------
Dividends (782,000)
------------
Total $ 11,749,000
------------
Ratio - (a) to (b) 1.18 to 1.0
------------
Section 7.01 LIENS.
(not to exceed $500,000)
liens on assets of Borrower or Subsidiaries incurred after June 20,
1994 in favor of party other than the Bank.
$ None
------------
<PAGE>
Section 7.02 INDEBTEDNESS.
(not to exceed $1,500,000)
aggregate outstanding indebtedness of the Borrower and Subsidiaries
incurred after June 20, 1994 and owed to a party other than the Bank.
$ None
------------
Section 7.06 CONSOLIDATION AND MERGER; ACQUISITION OF ASSETS.
(not to exceed $2,500,000 in any consecutive 12-month period)
(i) consolidation and merger $ None
------------
(ii) acquisition of assets $ None*
------------
(iii) acquisition of stock $ 872,000
------------
TOTAL $ 872,000
------------
* Excludes May Printing authorized by Bank letter dated 12/31/93.
Section 7.08 EXPENDITURES FOR FIXED ASSETS.
(not to exceed $15,000,000 in any 12 consecutive months)
$ 8,966,000
------------
</TABLE>
Section 7.09 LEASES.
(annual rentals under noncancellable operating leases not to exceed
$4,000,000 in any fiscal year)
rent on noncancellable operating leases entered into during quarter
ended April 30, 1994 will not cause aggregate rentals on such
leases for fiscal year 1995 to exceed $4,000,000.
4. Capitalized terms not otherwise defined herein shall have the
meanings given to them in the Loan Agreement. If there is any inconsistency
between the terms of this Compliance Certificate and the terms of the Loan
Agreement, the terms of the Loan Agreement shall control.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
20th day of June, 1994.
MERRILL CORPORATION
By: /s/ John B. McCain
-----------------------------------------
John B. McCain
Vice President & Chief Financial Officer
<PAGE>
EXHIBIT E
CERTIFICATE REGARDING AUTHORIZED COMPANY REPRESENTATIONS
This Certificate is being delivered by the undersigned in connection with
the Restated and Amended Revolving Credit Agreement dated June 20, 1994 (the
"Agreement") by and between Merrill Corporation ("Merrill"), and First Bank
National Association (the "Bank").
The undersigned, John W. Castro and John B. McCain, do hereby certify on
behalf of the Company that they are the President & Chief Executive Officer and
Vice President & Chief Financial Officer, respectively, of the Company and that
as such, they duly authorized to execute this Certificate on behalf of the
Company and do hereby certify on behalf of the Company as follows:
(a) the following named persons are authorized on behalf of the Borrower
to request Advances on behalf of the borrower received in writing or upon
telephonic request by the Bank officer to whom the account has been assigned
pursuant to Section 2.03 of the Agreement, and the signature appearing opposite
the name of such person is his or her genuine signature:
NAME SIGNATURE
John W. Castro /s/ John W. Castro
---------------------------------------------
Rick R. Atterbury /s/ Rick R. Atterbury
---------------------------------------------
John B. McCain /s/ John B. McCain
---------------------------------------------
Paul R. Wotta /s/ Paul R. Wotta
---------------------------------------------
Patti Kirchgasler
---------------------------------------------
James G. Sippl /s/ James G. Sippl
---------------------------------------------
Holly Frye /s/ Holly Frye
---------------------------------------------
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
20th day of June, 1994.
MERRILL CORPORATION
By /s/ John W. Castro
------------------------------------------
John W. Castro
President & Chief Executive Officer
By /s/ John B. McCain
------------------------------------------
John B. McCain
Vice President & Chief Financial Officer
<PAGE>
AMENDMENT TO RESTATED AND AMENDED
REVOLVING CREDIT AGREEMENT
This Amendment is made as of the 28th day of September, 1994, by and
between Merrill Corporation, a Minnesota corporation (the "Borrower"), and First
Bank National Association, a national banking association (the "Bank").
RECITALS
The Borrower and the Bank executed and delivered a Restated and Amended
Revolving Credit Agreement dated as of June 20, 1994 (the "Loan Agreement")
pursuant to which the Bank committed to extending certain financial
accommodations to the Borrower on the terms and subject to the conditions
therein contained.
The Bank has agreed to amend the provisions of the Loan Agreement on the
terms herein provided.
NOW, THEREFORE, for One Dollar and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree to amend the Loan Agreement as follows:
1. AMENDMENT TO LOAN AGREEMENT. The parties hereto hereby agree to amend
the Loan Agreement as follows:
(a) The "1.50%" contained in Section 2.07(a) is hereby deleted and "0.85%"
is substituted therefor;
(b) The "1.65%" contained in Section 2.07(b) is hereby deleted and "1.00%"
is substituted therefor;
(c) The "1.25%" contained in Section 2.14(a) is hereby deleted and "1.00%"
is substituted therefor; and
(d) The first sentence of Section 5.01 is hereby deleted and the following
sentences are substituted therefor:
"The Borrower and each Subsidiary is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. With the exception of Ohio, the Borrower or a Subsidiary is
duly licensed and qualified to transact business in all jurisdictions where
the character of the property owned or leased or the nature of the business
transacted by it makes such licensing or qualification necessary."
<PAGE>
2. REPRESENTATIONS AND WARRANTIES. The Borrower reaffirms that as of the
date hereof, the representations and warranties contained in Article V of the
Loan Agreement are true and correct as of the date hereof except for those
representations and warranties that are by their terms, specifically limited at
an earlier date.
3. MISCELLANEOUS. The Borrower acknowledges and agrees that the loans
and other amounts outstanding under the Loan Agreement or evidenced by the Note
are due without offset, counterclaim or defense. This Agreement shall be
governed by the laws of the State of Minnesota and may not be amended except in
a writing executed by the parties hereto. Except as expressly amended hereby,
all of the other terms and conditions of the Loan Agreement shall remain the
same. The Borrower agrees to pay the Bank for the costs and expenses of drafting
this Amendment including reasonable attorneys fees.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
Merrill Corporation
By: /s/ J.B. McCain
-------------------------------------
Its: Vice President & CFO
---------------------------------
First Bank National Association
By: /s/ Steven L. Flack
------------------------------------
Its: Asst. Vice Pres.
---------------------------------
2
<PAGE>
SECOND AMENDMENT TO RESTATED AND AMENDED
REVOLVING CREDIT AGREEMENT
THIS AMENDMENT is made as of the 20th day of April, 1995, by and between
MERRILL CORPORATION, a Minnesota corporation (the "Borrower") and FIRST BANK
NATIONAL ASSOCIATION, a national banking association (the "Bank").
RECITALS
FIRST: The Borrower and the Bank executed and delivered a Restated and
Amended Revolving Credit Agreement dated as of June 20, 1994 (the "Loan
Agreement") pursuant to which the Bank committed to extending certain financial
accommodations to the Borrower on the terms and subject to the conditions
therein contained.
SECOND: The Borrower and the Bank executed and delivered that certain
Amendment to Restated and Amended Revolving Credit Agreement dated as of
September 29, 1994 (the "First Amendment"). (The Loan Agreement, as amended by
the First Amendment, may be referred to hereafter as the "Loan Agreement".)
THIRD: Section 7.09 of the Loan Agreement provides that neither Borrower
nor any of its Subsidiaries shall enter into any arrangements for the leasing of
any real or personal property under leases which require payment by the Borrower
or its Subsidiaries on a consolidated basis of rental amounts in the aggregate
in excess of $4,000,000 in any one fiscal year. Borrower's expenditures for its
fiscal year ending January 31, 1995 were approximately $4,523,000. Borrower has
requested waiver of such default and certain amendments to the Loan Agreement.
FOURTH: The Bank has agreed to waive such default and to amend the
provisions of the Loan Agreement but only on the terms herein provided.
NOW, THEREFORE, for One Dollar and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. RECITALS. The parties hereto acknowledge the truth of the Recitals to
this Agreement, and the Recitals are hereby made an integral part hereof.
2. AMENDMENT TO LOAN AGREEMENT. The parties hereto hereby agree to amend
the Loan Agreement as follows:
(a) As of the date hereof, the definition of Cash Flow Leverage
contained in Section 1.01 of the Loan Agreement is hereby deleted and
substituted therefor is the following:
"Cash Flow Leverage" means the ratio of (a) total interest bearing
Debt, including capital leases, plus an amount equal to 2.5 times
operating lease expense, of the Borrower and its Subsidiaries, to (b)
net income of
<PAGE>
the Borrower and its Subsidiaries before extraordinary gains and
losses, plus depreciation expense, amortization expense, and operating
lease expense, minus capital expenditures, minus dividends, all
calculated over the four consecutive quarters ending as of the date of
the test.
(b) As of the date hereof, Section 7.09 is hereby deleted in its
entirety.
(c) As of the date hereof, Exhibit B is hereby deleted in its
entirety and substituted therefor is EXHIBIT B attached hereto and
made a part hereof.
3. REPRESENTATIONS AND WARRANTIES. The Borrower reaffirms that as of the
date hereof, the representations and warranties contained in Article V of the
Loan Agreement are true and correct as of the date hereof, except for those
representations and warranties that are by their terms, specifically limited at
an earlier date.
4. NO EVENT OF DEFAULT. As of the date hereof, except for the Event of
Default described in the Third Recital hereto, no event has occurred and is
continuing which constitutes an Event of Default or would constitute an Event of
Default but for the requirement that notice be given or time elapse or both.
5. MISCELLANEOUS. The Borrower acknowledges and agrees that the loans and
other amounts outstanding under the Loan Agreement or evidenced by the Note are
due without offset, counterclaim or defense. This Agreement shall be governed by
the laws of the State of Minnesota and may not be amended except in a writing
executed by the parties hereto. Except as expressly amended hereby, all of the
other terms and conditions of the Loan Agreement shall remain the same. The
Borrower agrees to pay the Bank for the costs and expenses of drafting this
Amendment including reasonable attorneys' fees. This Agreement may be executed
in counterparts, each of which shall constitute an integrated part hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
MERRILL CORPORATION
By /s/ John W. Castro
-----------------------------------------
Its President and Chief Executive Officer
And By /s/ John B. McCain
------------------------------------
Its Vice President and
Chief Financial Officer
FIRST BANK NATIONAL ASSOCIATION
By /s/ Steven L. Flack
-----------------------------------------
Its Vice President
--------------------------------------
2
<PAGE>
EXHIBIT B
COMPLIANCE CERTIFICATE
The undersigned officer of MERRILL CORPORATION, a Minnesota corporation
(the "Borrower"), hereby certifies and represents and warrants to FIRST BANK
MINNEAPOLIS, NATIONAL ASSOCIATION (the "Bank") pursuant to SECTION 6.01 of the
Revolving Credit Agreement dated June 20, 1994, as amended from time to time
(the "Loan Agreement") by and between the Borrower and the Bank, as follows:
1. The Consolidated financial statements of the Borrower and its
Subsidiaries as at _______________________________ (the "Report Date") and for
the year to date, which have previously been provided to you, have been
prepared in accordance with generally accepted accounting practices.
2. The undersigned has no knowledge of the occurrence of any Event of
Default under the Loan Agreement or of any event not heretofore reported and
remedied, which with notice or lapse of time or both would constitute an Event
of Default, except as follows:
3. As of the Report Date, the Borrower is in compliance with the
following financial covenants contained in the following Sections of the Loan
Agreement, except as specifically set forth herein:
Section 6.08 CONSOLIDATED TANGIBLE NET WORTH.
(not less than $37,500,000)
$_____________
Section 6.09 CASH FLOW LEVERAGE.
(not to exceed 5.0 to 1.0)
(a) Total interest bearing debt $_____________
(b) Operating lease expense $_____________
(c) Product of 2.5 x (b) $_____________
(d) Sum of (a) plus (b) $_____________
(e) For 12 months ending _______
Net income $_____________
Depreciation and amortization expense $_____________
Operating lease expense $_____________
Capital expenditures ($_____________)
Dividends ($_____________)
Total $_____________
Ratio - (d) to (e) _____________
<PAGE>
Section 7.01 LIENS.
(not to exceed $500,000)
liens on assets of Borrower or Subsidiaries incurred after June 20,
1994 in favor of party other than the Bank.
$_____________
Section 7.02 INDEBTEDNESS.
(not to exceed $1,500,000)
aggregate outstanding indebtedness of the Borrower and Subsidiaries
incurred after June 20, 1994 and owed to a party other than the Bank.
$_____________
Section 7.06 CONSOLIDATION AND MERGER; ACQUISITION OF ASSETS.
(not to exceed $2,500,000 in any consecutive 12-month period)
(i) consolidation and merger $_____________
(ii) acquisition of assets $_____________
(iii) acquisition of stock $_____________
TOTAL $_____________
Section 7.08 EXPENDITURES FOR FIXED ASSETS.
(not to exceed $15,000,000 in any 12 consecutive months)
$_____________
4. Capitalized terms not otherwise defined herein shall have the meanings
given to them in the Loan Agreement. If there is any inconsistency between the
terms of this Compliance Certificate and the terms of the Loan Agreement, the
terms of the Loan Agreement shall control.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this ____
day of ______________, 199__.
MERRILL CORPORATION
By
--------------------------------------
Its Chief Financial Officer
2
<PAGE>
MERRILL CORPORATION
1993 STOCK INCENTIVE PLAN
(AS AMENDED EFFECTIVE JANUARY 23, 1995)
1. PURPOSE OF PLAN.
The purpose of the Merrill Corporation 1993 Stock Incentive Plan (the
"Plan") is to advance the interests of Merrill Corporation (the "Company") and
its shareholders by enabling the Company and its Subsidiaries to attract and
retain persons of ability to perform services for the Company and its
Subsidiaries by providing an incentive to such individuals through equity
participation in the Company and by rewarding such individuals who contribute to
the achievement by the Company of its economic objectives.
2. DEFINITIONS.
The following terms will have the meanings set forth below, unless the
context clearly otherwise requires:
2.1 "ADVERSE ACTIONS" mean the actions described in Section 12.5 of the
Plan.
2.2 "BOARD" means the Board of Directors of the Company.
2.3 "BROKER EXERCISE NOTICE" means a written notice pursuant to which a
Participant, upon exercise of an Option, irrevocably instructs a broker or
dealer to sell a sufficient number of shares or loan a sufficient amount of
money to pay all or a portion of the exercise price of the Option and/or any
related withholding tax obligations and remit such sums to the Company and
directs the Company to deliver stock certificates to be issued upon such
exercise directly to such broker or dealer.
2.4 "CHANGE IN CONTROL" means an event described in Section 11.1 of the
Plan.
2.5 "CODE" means the Internal Revenue Code of 1986, as amended.
2.6 "COMMITTEE" means the group of individuals administering the Plan, as
provided in Section 3 of the Plan.
2.7 "COMMON STOCK" means the common stock of the Company, par value $.01
per share, or the number and kind of shares of stock or other securities into
which such Common Stock may be changed in accordance with Section 4.3 of the
Plan.
2.8 "DISABILITY" means the disability of the Participant such as would
entitle the Participant to receive disability income benefits pursuant to the
long-term disability plan of the Company or Subsidiary then covering the
Participant or, if no such plan exists or is applicable to the Participant, the
permanent and total disability of the Participant within the meaning of Section
22(e)(3) of the Code.
2.9 "ELIGIBLE RECIPIENTS" means all employees (including, without
limitation, officers and directors who are also employees) of the Company or any
Subsidiary and any non-employee consultants and independent contractors of the
Company or any Subsidiary.
2.10 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
2.11 "FAIR MARKET VALUE" means, with respect to the Common Stock, as of any
date (or, if no shares were traded or quoted on such date, as of the next
preceding date on which there was such a trade or quote), the mean between the
reported high and low sale prices of the Common Stock as reported on the NASDAQ
National Market System.
2.12 "INCENTIVE AWARD" means an Option, Restricted Stock Award or
Performance Unit granted to an Eligible Recipient pursuant to the Plan.
2.13 "INCENTIVE STOCK OPTION" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Section 6 of the Plan that
qualifies as an "incentive stock option" within the meaning of Section 422 of
the Code.
A-1
<PAGE>
2.14 "NON-STATUTORY STOCK OPTION" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Section 6 of the Plan that does not
qualify as an Incentive Stock Option.
2.15 "OPTION" means an Incentive Stock Option or a Non-Statutory Stock
Option.
2.16 "PARTICIPANT" means an Eligible Recipient who receives one or more
Incentive Awards under the Plan.
2.17 "PERFORMANCE UNIT" means a right granted to an Eligible Recipient
pursuant to Section 8 of the Plan to receive a payment from the Company, in the
form of stock, cash or a combination of both, upon the achievement of
established performance goals.
2.18 "PREVIOUSLY ACQUIRED SHARES" means shares of Common Stock that are
already owned by the Participant or, with respect to any Incentive Award, that
are to be issued upon the grant, exercise or vesting of such Incentive Award.
2.19 "RESTRICTED STOCK AWARD" means an award of Common Stock granted to an
Eligible Recipient pursuant to Section 7 of the Plan that is subject to the
restrictions on transferability and the risk of forfeiture imposed by the
provisions of such Section 7.
2.20 "RETIREMENT" means termination of employment or service pursuant to
and in accordance with the regular (or, if approved by the Board for purposes of
the Plan, early) retirement/pension plan or practice of the Company or
Subsidiary then covering the Participant, provided that if the Participant is
not covered by any such plan or practice, the Participant will be deemed to be
covered by the Company's plan or practice for purposes of this determination.
2.21 "SECURITIES ACT" means the Securities Act of 1933, as amended.
2.22 "SUBSIDIARY" means any entity that is directly or indirectly
controlled by the Company or any entity in which the Company has a significant
equity interest, as determined by the Committee.
2.23 "TAX DATE" means the date any withholding tax obligation arises under
the Code for a Participant with respect to an Incentive Award.
3. PLAN ADMINISTRATION.
3.1 THE COMMITTEE. So long as the Company has a class of its equity
securities registered under Section 12 of the Exchange Act, the Plan will be
administered by a committee (the "Committee") consisting solely of not less than
two members of the Board who are "disinterested persons" within the meaning of
Rule 16b-3 under the Exchange Act. To the extent consistent with corporate law,
the Committee may delegate to any officers of the Company the duties, power and
authority of the Committee under the Plan pursuant to such conditions or
limitations as the Committee may establish; provided, however, that only the
Committee may exercise such duties, power and authority with respect to Eligible
Recipients who are subject to Section 16 of the Exchange Act. Each
determination, interpretation or other action made or taken by the Committee
pursuant to the provisions of the Plan will be conclusive and binding for all
purposes and on all persons, and no member of the Committee will be liable for
any action or determination made in good faith with respect to the Plan or any
Incentive Award granted under the Plan.
3.2 AUTHORITY OF THE COMMITTEE.
(a) In accordance with and subject to the provisions of the Plan, the
Committee will have the authority to determine all provisions of Incentive
Awards as the Committee may deem necessary or desirable and as consistent
with the terms of the Plan, including, without limitation, the following:
(i) the Eligible Recipients to be selected as Participants; (ii) the nature
and extent of the Incentive Awards to be made to each Participant (including
the number of shares of Common Stock to be subject to each Incentive Award,
any exercise price, the manner in which Incentive Awards will vest or become
exercisable and whether Incentive Awards will be granted in tandem
A-2
<PAGE>
with other Incentive Awards) and the form of written agreement, if any,
evidencing such Incentive Award; (iii) the time or times when Incentive
Awards will be granted; (iv) the duration of each Incentive Award; and (v)
the restrictions and other conditions to which the payment or vesting of
Incentive Awards may be subject. In addition, the Committee will have the
authority under the Plan in its sole discretion to pay the economic value of
any Incentive Award in the form of cash, Common Stock or any combination of
both.
(b) The Committee will have the authority under the Plan to amend or
modify the terms of any outstanding Incentive Award in any manner,
including, without limitation, the authority to modify the number of shares
or other terms and conditions of an Incentive Award, extend the term of an
Incentive Award, accelerate the exercisability or vesting or otherwise
terminate any restrictions relating to an Incentive Award, accept the
surrender of any outstanding Incentive Award or, to the extent not
previously exercised or vested, authorize the grant of new Incentive Awards
in substitution for surrendered Incentive Awards; provided, however that the
amended or modified terms are permitted by the Plan as then in effect and
that any Participant adversely affected by such amended or modified terms
has consented to such amendment or modification. No amendment or
modification to an Incentive Award, however, whether pursuant to this
Section 3.2 or any other provisions of the Plan, will be deemed to be a
regrant of such Incentive Award for purposes of this Plan.
(c) In the event of (i) any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, stock
split, combination of shares, rights offering, extraordinary dividend or
divestiture (including a spin-off) or any other change in corporate
structure or shares, (ii) any purchase, acquisition, sale or disposition of
a significant amount of assets or a significant business, (iii) any change
in accounting principles or practices, or (iv) any other similar change, in
each case with respect to the Company or any other entity whose performance
is relevant to the grant or vesting of an Incentive Award, the Committee
(or, if the Company is not the surviving corporation in any such
transaction, the board of directors of the surviving corporation) may,
without the consent of any affected Participant, amend or modify the vesting
criteria of any outstanding Incentive Award that is based in whole or in
part on the financial performance of the Company (or any Subsidiary or
division thereof) or such other entity so as equitably to reflect such
event, with the desired result that the criteria for evaluating such
financial performance of the Company or such other entity will be
substantially the same (in the sole discretion of the Committee or the board
of directors of the surviving corporation) following such event as prior to
such event; provided, however, that the amended or modified terms are
permitted by the Plan as then in effect.
4. SHARES AVAILABLE FOR ISSUANCE.
4.1 MAXIMUM NUMBER OF SHARES AVAILABLE. Subject to adjustment as provided
in Section 4.3 of the Plan, the maximum number of shares of Common Stock that
will be available for issuance under the Plan will be 1,000,000 shares.
Notwithstanding any other provisions of the Plan to the contrary, no Participant
in the Plan may be granted any Options, or any other Incentive Awards with a
value based solely on an increase in the value of the Common Stock after the
date of grant, relating to more than 100,000 shares of Common Stock in the
aggregate in any fiscal year of the Company (subject to adjustment as provided
in Section 4.3 of the Plan); provided, however, that a Participant who is first
appointed or elected as an officer, hired as an employee or retained as a
consultant by the Company or who receives a promotion that results in an
increase in responsibilities or duties may be granted, during the fiscal year of
such appointment, election, hiring, retention or promotion, Options or such
other Incentive Awards relating to up to 200,000 shares of Common Stock (subject
to adjustment as provided in Section 4.3 of the Plan).
4.2 ACCOUNTING FOR INCENTIVE AWARDS. Shares of Common Stock that are issued
under the Plan or that are subject to outstanding Incentive Awards will be
applied to reduce the maximum number of shares of Common Stock remaining
available for issuance under the Plan. Any shares of Common
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Stock that are subject to an Incentive Award that lapses, expires, is forfeited
or for any reason is terminated unexercised or unvested and any shares of Common
Stock that are subject to an Incentive Award that is settled or paid in cash or
any form other than shares of Common Stock will automatically again become
available for issuance under the Plan. Any shares of Common Stock that
constitute the forfeited portion of a Restricted Stock Award, however, will not
become available for further issuance under the Plan.
4.3 ADJUSTMENTS TO SHARES AND INCENTIVE AWARDS. In the event of any
reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares, rights
offering, divestiture or extraordinary dividend (including a spin-off) or any
other change in the corporate structure or shares of the Company, the Committee
(or, if the Company is not the surviving corporation in any such transaction,
the board of directors of the surviving corporation) will make appropriate
adjustment (which determination will be conclusive) as to the number and kind of
securities available for issuance under the Plan and, in order to prevent
dilution or enlargement of the rights of Participants, the number, kind and,
where applicable, exercise price of securities subject to outstanding Incentive
Awards.
5. PARTICIPATION.
Participants in the Plan will be those Eligible Recipients who, in the
judgment of the Committee, have contributed, are contributing or are expected to
contribute to the achievement of economic objectives of the Company or its
Subsidiaries. Eligible Recipients may be granted from time to time one or more
Incentive Awards, singly or in combination or in tandem with other Incentive
Awards, as may be determined by the Committee in its sole discretion. Incentive
Awards will be deemed to be granted as of the date specified in the grant
resolution of the Committee, which date will be the date of any related
agreement with the Participant.
6. OPTIONS.
6.1 GRANT. An Eligible Recipient may be granted one or more Options under
the Plan, and such Options will be subject to such terms and conditions,
consistent with the other provisions of the Plan, as may be determined by the
Committee in its sole discretion. The Committee may designate whether an Option
is to be considered an Incentive Stock Option or a Non-Statutory Stock Option.
6.2 EXERCISE PRICE. The per share price to be paid by a Participant upon
exercise of an Option will be determined by the Committee in its discretion at
the time of the Option grant but will not be less than 100% of the Fair Market
Value of one share of Common Stock on the date of grant.
6.3 EXERCISABILITY AND DURATION. An Option will become exercisable at such
times and in such installments as may be determined by the Committee in its sole
discretion at the time of grant; provided, however, that no Option may be
exercisable after 10 years from its date of grant.
6.4 PAYMENT OF EXERCISE PRICE. The total purchase price of the shares to be
purchased upon exercise of an Option will be paid entirely in cash (including
check, bank draft or money order); provided, however, that the Committee, in its
sole discretion and upon terms and conditions established by the Committee, may
allow such payments to be made, in whole or in part, by tender of a Broker
Exercise Notice, Previously Acquired Shares or by a combination of such methods.
6.5 MANNER OF EXERCISE. An Option may be exercised by a Participant in
whole or in part from time to time, subject to the conditions contained in the
Plan and in the agreement evidencing such Option, by delivery in person, by
facsimile or electronic transmission or through the mail of written notice of
exercise to the Company (Attention: Secretary) at its principal executive office
in St. Paul, Minnesota and by paying in full the total exercise price for the
shares of Common Stock to be purchased in accordance with Section 6.4 of the
Plan.
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7. RESTRICTED STOCK AWARDS.
7.1 GRANT. An Eligible Recipient may be granted one or more Restricted
Stock Awards under the Plan, and such Restricted Stock Awards will be subject to
such terms and conditions, consistent with the other provisions of the Plan, as
may be determined by the Committee in its sole discretion. The Committee may
impose such restrictions or conditions, not inconsistent with the provisions of
the Plan, to the vesting of such Restricted Stock Awards as it deems
appropriate, including, without limitation, that the Participant remain in the
continuous employ or service of the Company or a Subsidiary for a certain period
or that the Participant or the Company (or any Subsidiary or division thereof)
satisfy certain performance goals or criteria.
7.2 RIGHTS AS A SHAREHOLDER; TRANSFERABILITY. Except as provided in
Sections 7.1, 7.3 and 12.3 of the Plan, a Participant will have all voting,
dividend, liquidation and other rights with respect to shares of Common Stock
issued to the Participant as a Restricted Stock Award under this Section 7 upon
the Participant becoming the holder of record of such shares as if such
Participant were a holder of record of shares of unrestricted Common Stock.
7.3 DIVIDENDS AND DISTRIBUTIONS. Unless the Committee determines otherwise
in its sole discretion (either in the agreement evidencing the Restricted Stock
Award at the time of grant or at any time after the grant of the Restricted
Stock Award), any dividends or distributions (including regular quarterly cash
dividends) paid with respect to shares of Common Stock subject to the unvested
portion of a Restricted Stock Award will be subject to the same restrictions as
the shares to which such dividends or distributions relate. In the event the
Committee determines not to pay such dividends or distributions currently, the
Committee will determine in its sole discretion whether any interest will be
paid on such dividends or distributions. In addition, the Committee in its sole
discretion may require such dividends and distributions to be reinvested (and in
such case the Participants consent to such reinvestment) in shares of Common
Stock that will be subject to the same restrictions as the shares to which such
dividends or distributions relate.
7.4 ENFORCEMENT OF RESTRICTIONS. To enforce the restrictions referred to in
this Section 7, the Committee may place a legend on the stock certificates
referring to such restrictions and may require the Participant, until the
restrictions have lapsed, to keep the stock certificates, together with duly
endorsed stock powers, in the custody of the Company or its transfer agent or to
maintain evidence of stock ownership, together with duly endorsed stock powers,
in a certificateless book-entry stock account with the Company's transfer agent.
8. PERFORMANCE UNITS.
An Eligible Recipient may be granted one or more Performance Units under the
Plan, and such Performance Units will be subject to such terms and conditions,
consistent with the other provisions of the Plan, as may be determined by the
Committee in its sole discretion. The Committee may impose such restrictions or
conditions, not inconsistent with the provisions of the Plan, to the vesting of
such Performance Units as it deems appropriate, including, without limitation,
that the Participant remain in the continuous employ or service of the Company
or any Subsidiary for a certain period or that the Participant or the Company
(or any Subsidiary or division thereof) satisfy certain performance goals or
criteria. The Committee will have the sole discretion either to determine the
form in which payment of the economic value of vested Performance Units will be
made to the Participant (i.e., cash, Common Stock or any combination thereof) or
to consent to or disapprove the election by the Participant of the form of such
payment.
9. EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE.
9.1 TERMINATION DUE TO DEATH, DISABILITY OR RETIREMENT. In the event a
Participant's employment or other service with the Company and all Subsidiaries
is terminated by reason of death, Disability or Retirement:
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(a) All outstanding Options then held by the Participant will become
immediately exercisable in full and will remain exercisable for a period of
one year (three months in the case of Retirement) after such termination
(but in no event after the expiration date of any such Option);
(b) All Restricted Stock Awards then held by the Participant will become
fully vested; and
(c) All Performance Units then held by the Participant will vest and/or
continue to vest in the manner determined by the Committee and set forth in
the agreement evidencing such Performance Units.
9.2 TERMINATION FOR REASONS OTHER THAN DEATH, DISABILITY OR RETIREMENT.
(a) In the event a Participant's employment or other service is
terminated with the Company and all Subsidiaries for any reason other than
death, Disability or Retirement, or a Participant is in the employ or
service of a Subsidiary and the Subsidiary ceases to be a Subsidiary of the
Company (unless the Participant continues in the employ or service of the
Company or another Subsidiary), all rights of the Participant under the Plan
and any agreements evidencing an Incentive Award will immediately terminate
without notice of any kind, and no Options then held by the Participant will
thereafter be exercisable, all Restricted Stock Awards then held by the
Participant that have not vested will be terminated and forfeited, and all
Performance Units then held by the Participant will vest and/or continue to
vest in the manner determined by the Committee and set forth in the
agreement evidencing such Performance Units; provided, however, that if such
termination is due to any reason other than termination by the Company or
any Subsidiary for "cause," all outstanding Options then held by such
Participant will remain exercisable to the extent exercisable as of such
termination for a period of three months after such termination (but in no
event after the expiration date of any such Option).
(b) For purposes of this Section 9.2, "cause" (as determined by the
Committee) will be as defined in any employment or other agreement or policy
applicable to the Participant or, if no such agreement or policy exists,
will mean (i) dishonesty, fraud, misrepresentation, embezzlement or
deliberate injury or attempted injury, in each case related to the Company
or any Subsidiary, (ii) any unlawful or criminal activity of a serious
nature, (iii) any intentional and deliberate breach of a duty or duties
that, individually or in the aggregate, are material in relation to the
Participant's overall duties, or (iv) any material breach of any employment,
service, confidentiality or noncompete agreement entered into with the
Company or any Subsidiary.
9.3 MODIFICATION OF RIGHTS UPON TERMINATION. Notwithstanding the other
provisions of this Section 9, upon a Participant's termination of employment or
other service with the Company and all Subsidiaries, the Committee may, in its
sole discretion (which may be exercised at any time on or after the date of
grant, including following such termination), cause Options (or any part
thereof) then held by such Participant to become or continue to become
exercisable and/or remain exercisable following such termination of employment
or service and Restricted Stock Awards and Performance Units then held by such
Participant to vest and/or continue to vest or become free of transfer
restrictions, as the case may be, following such termination of employment or
service, in each case in the manner determined by the Committee; provided,
however, that no Option may remain exercisable beyond its expiration date.
9.4 DATE OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE. Unless the
Committee otherwise determines in its sole discretion, a Participant's
employment or other service will, for purposes of the Plan, be deemed to have
terminated on the date recorded on the personnel or other records of the Company
or the Subsidiary for which the Participant provides employment or other
service, as determined by the Committee in its sole discretion based upon such
records.
10. PAYMENT OF WITHHOLDING TAXES.
10.1 GENERAL RULES. The Company is entitled to (a) withhold and deduct from
future wages of the Participant (or from other amounts that may be due and owing
to the Participant from the
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Company or a Subsidiary), or make other arrangements for the collection of, all
legally required amounts necessary to satisfy any and all federal, state and
local withholding and employment-related tax requirements attributable to an
Incentive Award, including, without limitation, the grant, exercise or vesting
of, or payment of dividends with respect to, an Incentive Award or a
disqualifying disposition of stock received upon exercise of an Incentive Stock
Option, or (b) require the Participant promptly to remit the amount of such
withholding to the Company before taking any action, including issuing any
shares of Common Stock, with respect to an Incentive Award.
10.2 SPECIAL RULES. The Committee may, in its sole discretion and upon
terms and conditions established by the Committee, permit or require a
Participant to satisfy, in whole or in part, any withholding or
employment-related tax obligation described in Section 10.1 of the Plan by
electing to tender Previously Acquired Shares or a Broker Exercise Notice, or by
a combination of such methods.
11. CHANGE IN CONTROL.
11.1 CHANGE IN CONTROL. For purposes of this Section 11.1, a "Change in
Control" of the Company will mean (a) the sale, lease, exchange or other
transfer of substantially all of the assets of the Company (in one transaction
or in a series of related transaction) to a person or entity that is not
controlled by the Company, (b) a merger or consolidation to which the Company is
a party if the shareholders of the Company immediately prior to effective date
of such merger or consolidation do not have "beneficial ownership" (as defined
in Rule 13d-3 under the Exchange Act) immediately following the effective date
of such merger or consolidation of more than 80% of the combined voting power of
the surviving corporation's outstanding securities ordinarily having the right
to vote at elections of directors, or (c) a change in control of the Company of
a nature that would be required to be reported pursuant to Section 13 or 15(d)
of the Exchange Act, whether or not the Company is then subject to such
reporting requirements, including, without limitation, such time as (i) any
person becomes after the effective date of the Plan the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 20% or
more of the combined voting power of the Company's outstanding securities
ordinarily having the right to vote at elections of directors, or (ii)
individuals who constitute the Board on the effective date of the Plan cease for
any reason to constitute at least a majority of the Board, provided that any
person becoming a director subsequent to the effective date of the Plan whose
election, or nomination for election by the Company's shareholders, was approved
by a vote of at least a majority of the directors comprising the Board on the
effective date of the Plan will, for purposes of this clause (ii), be considered
as though such persons were a member of the Board on the effective date of the
Plan.
11.2 ACCELERATION OF VESTING. Without limiting the authority of the
Committee under Section 3.2 of the Plan, if a Change in Control of the Company
occurs, then, if approved by the Committee in its sole discretion either in an
agreement evidencing an Incentive Award at the time of grant or at any time
after the grant of an Incentive Award, (a) all Options will become immediately
exercisable in full and will remain exercisable for the remainder of their
terms, regardless of whether the Participants to whom such Options have been
granted remain in the employ or service of the Company or any Subsidiary; (b)
all outstanding Restricted Stock Awards will become immediately fully vested;
and (c) all Performance Units then held by the Participant will vest and/or
continue to vest in the manner determined by the Committee and set forth in the
agreement evidencing such Performance Units.
11.3 CASH PAYMENT FOR OPTIONS. If a Change in Control of the Company
occurs, then the Committee, if approved by the Committee in its sole discretion
either in an agreement evidencing an Incentive Award at the time of grant or at
any time after the grant of an Incentive Award, and without the consent of any
Participant effected thereby, may determine that some or all Participants
holding outstanding Options will receive, with respect to some or all of the
shares of Common Stock subject to such Options, as of the effective date of any
such Change in Control of the Company, cash in an amount equal to the excess of
the Fair Market Value of such shares immediately prior to the effective date of
such Change in Control of the Company over the exercise price per share of such
Options.
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11.4 LIMITATION ON CHANGE IN CONTROL PAYMENTS. Notwithstanding anything in
Section 11.2 or 11.3 of the Plan to the contrary, if, with respect to a
Participant, the acceleration of the vesting of an Incentive Award as provided
in Section 11.2 or the payment of cash in exchange for all or part of an
Incentive Award as provided in Section 11.3 (which acceleration or payment could
be deemed a "payment" within the meaning of Section 280G(b)(2) of the Code),
together with any other payments which such Participant has the right to receive
from the Company or any corporation that is a member of an "affiliated group"
(as defined in Section 1504(a) of the Code without regard to Section 1504(b) of
the Code) of which the Company is a member, would constitute a "parachute
payment" (as defined in Section 280G(b)(2) of the Code), then the payments to
such Participant pursuant to Section 11.2 or 11.3 will be reduced to the largest
amount as will result in no portion of such payments being subject to the excise
tax imposed by Section 4999 of the Code; provided, however, that if such
Participant is subject to a separate agreement with the Company or a Subsidiary
which specifically provides that payments attributable to one or more forms of
employee stock incentives or to payments made in lieu of employee stock
incentives will not reduce any other payments under such agreement, even if it
would constitute an excess parachute payment, then the limitations of this
Section 11.4 will, to that extent, not apply.
12. RIGHTS OF ELIGIBLE RECIPIENTS AND PARTICIPANTS; TRANSFERABILITY.
12.1 EMPLOYMENT OR SERVICE. Nothing in the Plan will interfere with or
limit in any way the right of the Company or any Subsidiary to terminate the
employment or service of any Eligible Recipient or Participant at any time, nor
confer upon any Eligible Recipient or Participant any right to continue in the
employ or service of the Company or any Subsidiary.
12.2 RIGHTS AS A SHAREHOLDER. As a holder of Incentive Awards (other than
Restricted Stock Awards), a Participant will have no rights as a shareholder
unless and until such Incentive Awards are exercised for, or paid in the form
of, shares of Common Stock and the Participant becomes the holder of record of
such shares. Except as otherwise provided in the Plan, no adjustment will be
made for dividends or distributions with respect to such Incentive Awards as to
which there is a record date preceding the date the Participant becomes the
holder of record of such shares, except as the Committee may determine in its
discretion.
12.3 RESTRICTIONS ON TRANSFER. Except pursuant to testamentary will or the
laws of descent and distribution or as otherwise expressly permitted by the
Plan, no right or interest of any Participant in an Incentive Award prior to the
exercise or vesting of such Incentive Award will be assignable or transferable,
or subjected to any lien, during the lifetime of the Participant, either
voluntarily or involuntarily, directly or indirectly, by operation of law or
otherwise. A Participant will, however, be entitled to designate a beneficiary
to receive an Incentive Award upon such Participant's death, and in the event of
a Participant's death, payment of any amounts due under the Plan will be made
to, and exercise of any Options (to the extent permitted pursuant to Section 9
of the Plan) may be made by, the Participant's legal representatives, heirs and
legatees.
12.4 NON-EXCLUSIVITY OF THE PLAN. Nothing contained in the Plan is intended
to modify or rescind any previously approved compensation plans or programs of
the Company or create any limitations on the power or authority of the Board to
adopt such additional or other compensation arrangements as the Board may deem
necessary or desirable.
12.5 RESTRICTIONS REGARDING EMPLOYMENT OR SERVICE.
(a) Notwithstanding anything in the Plan to the contrary, in the event
that a Participant, prior to or following such Participant's voluntary
termination of employment or other service with the Company or any
Subsidiary, takes Adverse Actions with respect to the Company or any
Subsidiary, the Committee in its sole discretion will have the authority (by
so providing in the agreement evidencing the Incentive Award at the time of
grant) to terminate immediately all rights of the Participant under the Plan
and any agreement evidencing Incentive Awards than held by the Participant
without notice of any kind. In addition, to the extent that a Participant
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takes such Adverse Actions during the period beginning 12 months prior to,
and ending 12 months following, the date of such voluntary employment or
service termination, the Committee in its sole discretion will have the
authority (by so providing in the agreement evidencing the Incentive Award
at the time of grant) to rescind the exercise or vesting of any Incentive
Awards of the Participant that were exercised or became vested during such
period and to require the Participant to pay to the Company, within 10 days
of receipt from the Company of notice of such rescission, the amount of any
gain realized or payment received as a result of such rescinded exercise or
vesting. Such payment will be made in cash (including check, bank draft or
money order) or, with the Committee's consent, shares of Common Stock with a
Fair Market Value on the date of payment equal to the amount of such
payment. The Company will be entitled to withhold and deduct from future
wages of the Participant (or from other amounts that may be due and owing to
the Participant from the Company or a Subsidiary) or make other arrangements
for the collection of all amounts necessary to satisfy such payment
obligation.
(b) For purposes of this Section 12.5, an "Adverse Action" will mean any
action by a Participant that the Committee, in its sole discretion,
determines to be adverse to the interests of the Company or any Subsidiary,
including, without limitation, (i) disclosing confidential information of
the Company or any Subsidiary to any person not authorized by the Company to
receive it, (ii) engaging, directly or indirectly, in any commercial
activity that in the judgment of the Committee competes with the business of
the Company or any Subsidiary, or (iii) interfering with the relationships
of the Company or its Subsidiaries with their respective employees and
customers.
13. SECURITIES LAW AND OTHER RESTRICTIONS.
Notwithstanding any other provision of the Plan or any agreements entered
into pursuant to the Plan, the Company will not be required to issue any shares
of Common Stock under this Plan, and a Participant may not sell, assign,
transfer or otherwise dispose of shares of Common Stock issued pursuant to
Incentive Awards granted under the Plan, unless (a) there is in effect with
respect to such shares a registration statement under the Securities Act and any
applicable state securities laws or an exemption from such registration under
the Securities Act and applicable state securities laws, and (b) there has been
obtained any other consent, approval or permit from any other regulatory body
which the Committee, in its sole discretion, deems necessary or advisable. The
Company may condition such issuance, sale or transfer upon the receipt of any
representations or agreements from the parties involved, and the placement of
any legends on certificates representing shares of Common Stock, as may be
deemed necessary or advisable by the Company in order to comply with such
securities law or other restrictions.
14. PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may suspend or terminate the Plan or any portion thereof at any
time, and may amend the Plan from time to time in such respects as the Board may
deem advisable in order that Incentive Awards under the Plan will conform to any
change in applicable laws or regulations or in any other respect the Board may
deem to be in the best interests of the Company; provided, however, that no
amendments to the Plan will be effective without approval of the stockholders of
the Company if stockholder approval of the amendment is then required pursuant
to Rule 16b-3 under the Exchange Act, Section 422 of the Code or the rules of
the National Association of Securities Dealers, Inc. No termination, suspension
or amendment of the Plan may adversely affect any outstanding Incentive Award
without the consent of the affected Participant; provided, however, that this
sentence will not impair the right of the Committee to take whatever action it
deems appropriate under Sections 4.3 and 11 of the Plan.
15. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan is effective as of January 18, 1993, the date it was adopted by the
Board. The Plan will terminate at midnight on January 18, 2003, and may be
terminated prior to such time to by Board
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action, and no Incentive Award will be granted after such termination. Incentive
Awards outstanding upon termination of the Plan may continue to be exercised, or
become free of restrictions, in accordance with their terms.
16. MISCELLANEOUS
16.1 GOVERNING LAW. The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and actions
relating to the Plan will be governed by and construed exclusively in accordance
with the laws of the State of Minnesota.
16.2 SUCCESSORS AND ASSIGNS. The Plan will be binding upon and inure to the
benefit of the successors and permitted assigns of the Company and the
Participants.
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NON-STATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into and effective as of this 19th day of
September, 1994 (the "Date of Grant"), by and between Merrill Corporation (the
"Company") and JAMES R. CAMPBELL (the "Optionee").
A. The Company has adopted the Merrill Corporation 1993 Stock Incentive
Plan (the "Plan") authorizing the Board of Directors of the Company, or a
committee as provided for in the Plan (the Board or such a committee to be
referred to as the "Committee"), to grant non-statutory stock options to
employees and non-employee consultants and independent contractors of the
Company and its Subsidiaries (as defined in the Plan).
B. The Company desires to give the Optionee an inducement to acquire a
proprietary interest in the Company and an added incentive to advance the
interests of the Company by granting to the Optionee an option to purchase
shares of common stock of the Company pursuant to the Plan.
Accordingly, the parties agree as follows:
ARTICLE 1. GRANT OF OPTION.
The Company hereby grants to the Optionee the right, privilege, and option
(the "Option") to purchase Seven Thousand Five Hundred (7,500) shares (the
"Option Shares") of the Company's common stock, $.01 par value (the "Common
Stock"), according to the terms and subject to the conditions hereinafter set
forth and as set forth in the Plan. The Option is not intended to be an
"incentive stock option," as that term is used in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
ARTICLE 2. OPTION EXERCISE PRICE.
The per share price to be paid by Optionee in the event of an exercise of
the Option will be $20.75.
ARTICLE 3. DURATION OF OPTION AND TIME OF EXERCISE
3.1 INITIAL PERIOD OF EXERCISABILITY. The Option will become exercisable
with respect to the Option Shares in five installments. The following table
sets forth the initial dates of exercisability of each installment and the
number of Option Shares as to which this Option will become exercisable on such
dates:
<TABLE>
<CAPTION>
Initial Date of Number of Option Shares
Exercisability Available for Exercise
-------------- -----------------------
<S> <C>
September 19, 1995 1,500
September 19, 1996 1,500
September 19, 1997 1,500
September 19, 1998 1,500
March 19, 1999 1,500
</TABLE>
<PAGE>
The foregoing rights to exercise this Option will be cumulative with respect to
the Option Shares becoming exercisable on each such date but in no event will
this Option be exercisable after, and this Option will become void and expire as
to all unexercised Option Shares at, 5:00 p.m. (St. Paul, Minnesota time) on
September 19, 1999 (the "Time of Termination").
3.2 TERMINATION OF EMPLOYMENT OR OTHER SERVICE.
(a) In the event that the Optionee's employment or other service with the
Company and all Subsidiaries is terminated by reason of the Optionee's death,
Disability or Retirement (as such terms are defined in the Plan), this Option
will become immediately exercisable in full and will remain exercisable for a
period of one year after such termination (but in no event will this Option be
exercisable after the Time of Termination).
(b) In the event the Optionee's employment or other service with the
Company and all Subsidiaries is terminated for any reason other than death,
Disability or Retirement, all rights of the Optionee under the Plan and this
Agreement will immediately terminate without notice of any kind, and this Option
will no longer be exercisable; provided, however, that if such termination is
due to any reason other than termination by the Company or any Subsidiary for
"cause" (as defined in the Plan), this Option will remain exercisable to the
extent exercisable as of such termination for a period of three months after
such termination (but in no event will this Option be exercisable after the Time
of Termination).
3.3 CHANGE IN CONTROL.
(a) If any events constituting a Change in Control (as defined in
Section 11.1 of the Plan) of the Company occur, then this Option will become
immediately exercisable in full and will remain exercisable until the Time of
Termination, regardless of whether the Optionee remains in the employ or service
of the Company or any Subsidiary. In addition, if a Change in Control of the
Company occurs, the Committee, in its sole discretion and without the consent of
the Optionee, may determine that the Optionee will receive, with respect to some
or all of the Option Shares, as of the effective date of any such Change in
Control of the Company, cash in an amount equal to the excess of the Fair Market
Value (as defined in the Plan) of such Option Shares immediately prior to the
effective date of such Change in Control of the Company over the option exercise
price per share of this Option.
(b) Notwithstanding anything in this Section 3.3 to the contrary, if, with
respect to the Optionee, acceleration of the vesting of this Option or the
payment of cash in exchange for all or part of this Option as provided above
(which acceleration or payment could be deemed a "payment" within the meaning of
Section 280G(b)(2) of the Code), together with any other payments which the
Optionee has the right to receive from the Company or any corporation which is a
member of an "affiliated group" (as defined in Section 1504(a) of the Code
without regard to Section 1504(b) of the Code) of which the Company is a member,
would constitute a "parachute payment" (as defined in Section 280G(b)(2) of the
Code), the payments to the Optionee as set forth herein will be reduced to the
largest amount as will result in no portion of such payments being subject to
the excise tax imposed by Section 4999 of the Code; provided, however, that if
the Optionee is subject to a separate agreement with the Company or a Subsidiary
that specifically provides that payments attributable to one or more forms of
employee stock incentives or to payments made in lieu of employee stock
incentives will not reduce any other payments under such agreement, even if it
would constitute an excess parachute payment, then the limitations of this
Section 3.3(b) will, to that extent, not apply.
2
<PAGE>
3.4 RESTRICTIONS REGARDING EMPLOYMENT OR SERVICE. In the event that the
Optionee, prior to or following the Optionee's voluntary termination of
employment or other service with the Company or any Subsidiary, takes Adverse
Actions (as defined in Section 12.5 of the Plan) with respect to the Company or
any Subsidiary, the Committee, in its sole discretion, will be entitled to take
all actions described in Section 12.5 of the Plan, including termination of all
rights of the Optionee under the Plan and this Agreement and rescission of
certain exercises of this Option and payment to the Company of any gain realized
as a result of such exercises.
ARTICLE 4. MANNER OF OPTION EXERCISE.
4.1 NOTICE. This Option may be exercised by the Optionee in whole or in
part from time to time, subject to the conditions contained in the Plan and in
this Agreement, by delivery, in person, by facsimile or electronic transmission
or through the mail, to the Company at its principal executive office in St.
Paul, Minnesota (Attention: Secretary), of a written notice of exercise. Such
notice will be in a form satisfactory to the Committee, will identify the
Option, will specify the number of Option Shares with respect to which the
Option is being exercised, and will be signed by the person or persons so
exercising the Option. Such notice will be accompanied by payment in full of
the total purchase price of the Option Shares purchased. In the event that the
Option is being exercised, as provided by the Plan and Section 3.2 above, by any
person or persons other than the Optionee, the notice will be accompanied by
appropriate proof of right of such person or persons to exercise the Option. As
soon as practicable after the effective exercise of the Option, the Optionee
will be recorded on the stock transfer books of the Company as the owner of the
Option Shares purchased, and the Company will deliver to the Optionee one or
more duly issued stock certificates evidencing such ownership.
4.2 PAYMENT. At the time of exercise of this Option, the Optionee will
pay the total purchase price of the Option Shares to be purchased solely in cash
(including a check, bank draft or money order, payable to the order of the
Company); provided, however, that the Committee, in its sole discretion, may
allow such payment to be made, in whole or in part, by tender of a Broker
Exercise Notice, Previously Acquired Shares or by a combination of such methods.
For purposes of this Agreement, the terms "Broker Exercise Notice" and
"Previously Acquired Shares" will have the meanings set forth in the Plan. In
the event the Optionee is permitted to pay the total purchase price of this
Option in whole or in part with Previously Acquired Shares, the value of such
shares will be equal to their Fair Market Value on the date of exercise of this
Option.
ARTICLE 5. NONTRANSFERABILITY.
Neither this Option nor the Option Shares acquired upon exercise may be
transferred by the Optionee, either voluntarily or involuntarily, or subjected
to any lien, directly or indirectly, by operation of law or otherwise, except as
provided in the Plan. Any attempt to transfer or encumber this Option or the
Option Shares other than in accordance with this Agreement and the Plan will be
null and void and will void this Option.
3
<PAGE>
ARTICLE 6. LIMITATION OF LIABILITY.
Nothing in this Agreement will be construed to (a) limit in any way the
right of the Company to terminate the employment or service of the Optionee at
any time, or (b) be evidence of any agreement or understanding, express or
implied, that the Company will retain the Optionee in any particular position,
at any particular rate of compensation or for any particular period of time.
ARTICLE 7. WITHHOLDING TAXES.
The Company is entitled to (a) withhold and deduct from future wages of the
Optionee (or from other amounts which may be due and owing to the Optionee from
the Company), or make other arrangements for the collection of, all legally
required amounts necessary to satisfy any federal, state or local withholding
and employment-related tax requirements attributable to the grant or exercise of
this Option or otherwise incurred with respect to this Option, or (b) require
the Optionee promptly to remit the amount of such withholding to the Company
before acting on the Optionee's notice of exercise of this Option. In the event
that the Company is unable to withhold such amounts, for whatever reason, the
Optionee hereby agrees to pay to the Company an amount equal to the amount the
Company would otherwise be required to withhold under federal, state or local
law.
ARTICLE 8. ADJUSTMENTS.
In the event of any reorganization, merger, consolidation, recapitalization,
liquidation, reclassification, stock dividend, stock split, combination of
shares, rights offering, divestiture or extraordinary dividend (including a
spin-off), or any other change in the corporate structure or shares of the
Company, the Committee (or, if the Company is not the surviving corporation in
any such transaction, the board of directors of the surviving corporation), in
order to prevent dilution or enlargement of the rights of the Optionee, will
make appropriate adjustment (which determination will be conclusive) as to the
number, kind and exercise price of securities subject to this Option.
ARTICLE 9. SUBJECT TO PLAN.
The Option and the Option Shares granted and issued pursuant to this
Agreement have been granted and issued under, and are subject to the terms of,
the Plan. The terms of the Plan are incorporated by reference in this Agreement
in their entirety, and the Optionee, by execution of this Agreement,
acknowledges having received a copy of the Plan. The provisions of this
Agreement will be interpreted as to be consistent with the Plan, and any
ambiguities in this Agreement will be interpreted by reference to the Plan. In
the event that any provision of this Agreement is inconsistent with the terms of
the Plan, the terms of the Plan will prevail.
ARTICLE 10. MISCELLANEOUS.
10.1 BINDING EFFECT. This Agreement will be binding upon the heirs,
executors, administrators and successors of the parties to this Agreement.
4
<PAGE>
10.2 GOVERNING LAW. This Agreement and all rights and obligations under
this Agreement will be construed in accordance with the Plan and governed by the
laws of the State of Minnesota.
10.3 ENTIRE AGREEMENT. This Agreement and the Plan set forth the entire
agreement and understanding of the parties to this Agreement with respect to the
grant and exercise of this Option and the administration of the Plan and
supersede all prior agreements, arrangements, plans and understandings relating
to the grant and exercise of this Option and the administration of the Plan.
10.4 AMENDMENT AND WAIVER. Other than as provided in the Plan, this
Agreement may be amended, waived, modified or canceled only by a written
instrument executed by the parties hereto or, in the case of a waiver, by the
party waiving compliance.
The parties to this Agreement have executed this Agreement effective the
day and year first above written.
MERRILL CORPORATION
By /s/ John W. Castro
-------------------------------
JOHN W. CASTRO
Its President and CEO
-------------------------------
[By execution of this Agreement, OPTIONEE
the Optionee acknowledges having
received a copy of the Plan.] /s/ James R. Campbell
-----------------------------------
(Signature)
JAMES R. CAMPBELL
-----------------------------------
(Name and Address)
5521 Woodcrest Dr.
-----------------------------------
Edina, MN 55424
-----------------------------------
5
<PAGE>
EXhibit 11.1
MERRILL CORPORATION
SCHEDULE OF COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Primary
Net income.............................................................. $ 11,982,785 $ 13,348,330 $ 8,599,034
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of common shares outstanding during the
period................................................................. 7,568,380 7,408,087 7,142,470
Add common equivalent shares relating to outstanding options to
purchase common stock using the treasury stock method.................. 425,853 563,768 552,643
------------- ------------- -------------
Total common and common equivalent shares outstanding............... 7,994,233 7,971,855 7,695,113
------------- ------------- -------------
------------- ------------- -------------
Primary income per common share........................................... $1.50 $1.67 $1.12
------------- ------------- -------------
------------- ------------- -------------
Fully diluted
Net income.............................................................. $ 11,982,785 $ 13,348,330 $ 8,599,034
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of common shares outstanding during the
period................................................................. 7,568,380 7,408,087 7,142,470
Add common equivalent shares relating to outstanding options to
purchase common stock using the treasury stock method.................. 425,759 597,688 591,105
------------- ------------- -------------
Total common and common equivalent shares outstanding............... 7,994,139 8,005,775 7,733,575
------------- ------------- -------------
------------- ------------- -------------
Fully diluted income per common share.................................... $1.50 $1.67 $1.11
------------- ------------- -------------
------------- ------------- -------------
</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)
----------------------
1995 1994 1993
Percentage of Revenue
------------------------ VS. VS. VS.
1995 1994 1993 1994 1993 1992
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Financial 33.4% 42.4% 34.2% 3% 52% 30%
Corporate 33.4 34.4 38.0 26 11 11
Commercial and other 33.2 23.2 27.8 87 2 14
-------------------------
100.0 100.0 100.0 30 23 18
Cost of sales 67.3 64.1 66.4 37 19 17
Gross profit 32.7 35.9 33.6 19 32 19
Selling, general and
administrative expenses 23.5 23.8 24.0 29 22 15
Operating income 9.2 12.1 9.6 (1) 55 27
Interest expense (0.5) (0.2) (0.2) 249 26 (52)
Other income, primarily
interest income 0.2 0.2 0.2 48 23 61
Income before taxes 8.9 12.1 9.6 (4) 55 32
Provision for income taxes 3.9 4.9 3.8 4 58 29
Income before change in
accounting for income taxes 5.0 7.2 5.8 (9) 53 32
- -------------------------------------------------------------------------------------
</TABLE>
REVENUE
Merrill Corporation is engaged in one line of business--providing printed
and electronic document services. The Company divides its revenue into three
categories of service, financial printing, corporate printing and commercial and
other services. The percentage of revenue attributable to each of the categories
of service is set forth in the table above. Revenue in the financial printing
category 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 printing category
encompasses required regulatory and mutual fund documentation and other
repetitive work and is typically not impacted to a significant degree by capital
market fluctuations. Commercial and other business tends to follow general
economic trends.
21
<PAGE>
Revenue increased 30 percent in fiscal year 1995 to a record $237 million,
and was equally balanced across the three categories of service. Approximately
half of the revenue increase resulted from the inclusion of a full year of
operations of May Printing Company which was acquired in December 1993. May was
also primarily responsible for the 87 percent increase in revenue in our
commercial and other category. Also contributing to the growth in this category
were document management services, particularly a near-doubling in the number of
installations under management services contracts, and substantial growth in
election-related printing due to 1994 being a general election year. Corporate
revenue grew 26 percent in 1995, principally due to increased mutual fund
documentation services provided to both new and existing clients. Also impacting
corporate revenue was growth in the number of companies using electronic filing
services to comply with the Securities and Exchange Commission's EDGAR program.
Financial category revenue was virtually flat with year-ago levels as rising
interest rates and resulting uncertainty in the financial markets caused a
dramatic mid-year reduction in the volume of capital market transactions.
Management believes that the Company maintained its market share during the
year. However, domestic financial revenue was down 5 percent for the fiscal year
and down 30 percent in the last 6 months, compared to year-ago levels.
International financial printing continued its rapid growth, more than doubling
in fiscal year 1995, representing just over 5 percent of consolidated revenue
and nearly 15 percent of financial category 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.
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 high-
22
<PAGE>
lighted 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.
GROSS PROFIT
The reduction in gross margin in fiscal year 1995 primarily was due to the
sharp reduction in financial printing volume discussed above. Financial printing
is typically more typesetting-intensive, as opposed to printing-intensive, than
business in other service categories. When a significant decline in activity is
experienced, as was the case in fiscal year 1995, underutilization of skilled
personnel, equipment and facilities results in depressed margins. Also in times
of reduced activity, intense price competition for available work tends to
develop, further pressuring margins. Conversely, 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 reflected in the lower gross margins is the growth in the
Company's document service center, or facilities management, business. This
business has lower gross margins than the Company's more traditional businesses,
but also lower selling and administrative costs.
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. Also positively impacting gross
margins in 1994 was a full year of operations from the Company's New Jersey
printing operation 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.
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 1995 included a
full year of expenses from May Printing Company, together with the goodwill
amortization associated with that acquisition. Bad debt expense in fiscal year
1995 increased substantially from 1994 levels principally due to securities
offerings being aborted because of poor market conditions. 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.
23
<PAGE>
INTEREST EXPENSE AND OTHER INCOME
Average short-term borrowings under the Company's bank line of credit were
$710,000, $93,000 and $56,000, respectively, in fiscal years 1995, 1994 and
1993. Other income is primarily interest income. Due to the cash expended and
debt assumed in connection with the December 1993 acquisition of May Printing
Company, as discussed under "Liquidity and Capital Resources," interest expense
in fiscal year 1995 was approximately three times the level of the previous two
years.
PROVISION FOR INCOME TAXES
The effective income tax rates for 1995, 1994 and 1993 were 43 percent, 40
percent and 39 percent, respectively. The effective rates were higher than the
statutory federal rates of 35 percent in 1995 and 1994 and 34 percent in 1993,
primarily due to state income taxes. In addition, in 1995, the effective rate
increased because of a lower level of deductibility of business meeting and
entertainment expenses, together with a provision for additional taxes payable
for fiscal years 1992, 1993 and 1994 resulting from an Internal Revenue Service
audit of those years. The effective income tax rate in future years is expected
to approximate 42 percent.
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
Working capital at January 31, 1995, increased to $31.5 million from $22.5
million a year ago, reflecting good earnings and operating cash flow. Capital
expenditures in fiscal year 1995 were $10.1 million, primarily for production
equipment and facility remodeling, compared with $7.6 million in 1994. In
addition to funding capital expenditures, the strong cash flow resulted in a
$7.4 million increase in cash and equivalents and elimination of short-term debt
of which $2.6 million was outstanding at January 31, 1994. Long-term debt at
January 31, 1995, was 10.2 percent of total capitalization compared to 13.9
percent a year ago.
The Company believes that it remains relatively conservatively capitalized
and has appropriate reserve borrowing capacity. The Company expects capital
expenditures in fiscal year 1996 to be approximately $10 million to $13 million
for production and printing equipment and facility expansion and remodeling.
Approximately $1 million of this amount is committed at this time. In addition,
24
<PAGE>
the Company is negotiating for the purchase, for an estimated $5.5 million, of
office buildings adjacent to its St. Paul, Minnesota, headquarters facility
which are presently approximately 30 percent leased to the Company.
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 earlier.
Short-term borrowing at January 31, 1994, was $2.6 million.
The Company historically has 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 generally has been able to generate
sufficient cash flow from operations to fund its capital needs.
At January 31, 1995, the Company's principal internal sources of liquidity
were cash and cash equivalents and cash flow from operations. The Company also
has available a $10 million unsecured bank line of credit, which expires May 31,
1997, under which there were no borrowings as of January 31, 1995. Management
anticipates that these sources will satisfy its normal capital needs for fiscal
year 1996, although long-term financing may be sought for the building purchase
discussed above if consummated.
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 do not include
adjustments for retail markups, markdowns or commissions. There were
approximately 426 shareholders of record of the Company's common stock at the
close of trading on March 31, 1995. The Company paid quarterly dividends in
fiscal 1995 in the amount of three cents per share totaling $907,790 for the
entire fiscal year.
First Second Third Fourth
Fiscal Year Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
1995 High 32 1/2 28 1/4 24 19 1/2
Low 21 18 17 13 3/4
- ----------------------------------------------------------------------------
1994 High 20 1/4 24 1/4 28 31 1/4
Low 15 1/2 18 22 3/4 21
- ----------------------------------------------------------------------------
25
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF JANUARY 31,
- --------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA) 1995 1994
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 9,967 $ 2,558
Trade receivables, less allowance for doubtful accounts of $2,830
and $2,294, respectively 39,284 38,777
Work in process inventories 7,007 11,821
Other inventories 4,526 3,935
Refundable income taxes 265
Other 2,421 2,344
- --------------------------------------------------------------------------------------------------------------
Total current assets 63,470 59,435
- --------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 28,918 26,678
Goodwill, net 11,423 11,616
Other assets 2,659 2,394
- --------------------------------------------------------------------------------------------------------------
Total assets $106,470 $100,123
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable to bank $ 2,600
Current maturities of long-term debt $ 745 1,325
Current maturities of capital lease obligations 738 365
Accounts payable 16,004 15,939
Accrued expenses 12,809 13,145
Income taxes payable 115
Deferred income taxes 1,651 3,418
- --------------------------------------------------------------------------------------------------------------
Total current liabilities 31,947 36,907
- --------------------------------------------------------------------------------------------------------------
Long-term debt, net of current maturities 5,295 6,040
Capital lease obligations, net of current maturities 2,227 2,616
Deferred income taxes 46 669
Other 894 294
Shareholders' equity
Common stock, $.01 par value: 25,000,000 shares authorized; 7,605,076 shares
and 7,492,922 shares, respectively, issued and outstanding 76 75
Undesignated stock: 500,000 shares authorized; no shares issued
Additional paid-in capital 14,384 12,996
Retained earnings 51,601 40,526
- --------------------------------------------------------------------------------------------------------------
Total shareholders' equity 66,061 53,597
- --------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $106,470 $100,123
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
26
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
- --------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $236,878 $181,584 $147,716
Cost of sales 159,462 116,350 98,119
- --------------------------------------------------------------------------------------------------
Gross profit 77,416 65,234 49,597
Selling, general and administrative expenses 55,680 43,286 35,474
- --------------------------------------------------------------------------------------------------
Operating income 21,736 21,948 14,123
Interest expense (1,120) (321) (254)
Other income, primarily interest income 538 364 295
- --------------------------------------------------------------------------------------------------
Income before provision for income taxes and cumulative
effect of change in accounting for income taxes 21,154 21,991 14,164
Provision for income taxes 9,171 8,820 5,565
- --------------------------------------------------------------------------------------------------
Income before cumulative effect of change
in accounting for income taxes 11,983 13,171 8,599
Cumulative effect of change in accounting for income taxes 177
- --------------------------------------------------------------------------------------------------
Net income $ 11,983 $ 13,348 $ 8,599
- --------------------------------------------------------------------------------------------------
Income per common and common equivalent share before
cumulative effect of change in accounting for income taxes $ 1.50 $ 1.65 $ 1.12
Cumulative effect of change in accounting for income taxes .02
- --------------------------------------------------------------------------------------------------
Net income per common and common equivalent share $ 1.50 $ 1.67 $ 1.12
- --------------------------------------------------------------------------------------------------
Weighted average number of common and common equivalent
shares outstanding 7,994,233 7,971,854 7,695,113
- --------------------------------------------------------------------------------------------------
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
27
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 11,983 $ 13,348 $ 8,599
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization 8,651 5,520 4,073
Amortization of intangible assets 1,127 362 491
Provision for losses on trade receivables 2,038 579 1,349
Change in non-current portion of deferred income taxes (623) (114) (246)
Cumulative effect of change in accounting for income taxes (177)
Change in deferred compensation 600
Changes in operating assets and liabilities, net of effects
from business acquisitions
Trade receivables (1,946) (6,636) (7,725)
Work in process inventories 4,814 (5,728) (1,042)
Other inventories (540) (74) 433
Refundable income taxes (265)
Other current assets (31) (437) (50)
Accounts payable (126) 3,026 560
Accrued expenses (368) 3,710 2,167
Accrued and deferred income taxes (1,882) 254 476
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 23,432 13,633 9,085
- -------------------------------------------------------------------------------------------------------------------
Investing activities
Purchase of property, plant and equipment (10,085) (7,620) (7,296)
Business acquisitions, net of cash acquired (993) (16,069)
Purchase of minority interest (302)
Other (553) (48) (44)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (11,631) (24,039) (7,340)
- -------------------------------------------------------------------------------------------------------------------
Financing activities
Borrowings on note payable to bank 28,100 7,700 4,600
Repayments on note payable to bank (30,700) (5,100) (4,600)
Principal payments on long-term debt and capital lease obligations (2,273) (117) (83)
Dividends paid (908) (741)
Tax benefit realized upon exercise of stock options 863 1,103 1,160
Other equity transactions, net 526 557 455
- -------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (4,392) 3,402 1,532
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 7,409 (7,004) 3,277
Cash and cash equivalents, beginning of year 2,558 9,562 6,285
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 9,967 $ 2,558 $ 9,562
- -------------------------------------------------------------------------------------------------------------------
Supplemental cash flow disclosures
Income taxes paid $ 11,088 $ 7,574 $ 4,200
Interest paid 1,019 310 245
- -------------------------------------------------------------------------------------------------------------------
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
28
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31, 1995, 1994, 1993
- -----------------------------------------------------------------------------------------------------------
Additional
Common Paid-in Retained
(IN THOUSANDS, EXCEPT PER SHARE DATA) Stock Capital Earnings Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
- -----------------------------------------------------------------------------------------------------------
Exercise of stock options 1 496 497
Tax benefit realized upon exercise of stock options 863 863
Other 29 29
Cash dividends ($.12 per share) (908) (908)
Net income 11,983 11,983
- -----------------------------------------------------------------------------------------------------------
Balance, January 31, 1995 $76 $14,384 $51,601 $66,061
- -----------------------------------------------------------------------------------------------------------
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
29
<PAGE>
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 esrvices to financial, legal, corporate,
insurance and commercial markets worldwide.
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 the 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
30
<PAGE>
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.
NOTE 2 - SELECTED FINANCIAL STATEMENT DATA
<TABLE>
<CAPTION>
AS OF JANUARY 31,
- -------------------------------------------------------------------------
(IN THOUSANDS) 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C>
Property, plant and equipment
Land $ 853 $ 853
Buildings 6,911 6,774
Equipment 32,450 26,521
Furniture and fixtures 7,530 6,237
Leasehold improvements 6,563 5,485
Construction in progress 1,577 482
- -------------------------------------------------------------------------
55,884 46,352
Less accumulated depreciation and amortization (26,966) (19,674)
- -------------------------------------------------------------------------
$ 28,918 $ 26,678
- -------------------------------------------------------------------------
Goodwill
Goodwill $ 12,597 $ 11,898
Less accumulated amortization (1,174) (282)
- -------------------------------------------------------------------------
$ 11,423 $ 11,616
- -------------------------------------------------------------------------
Accrued expenses
Commissions and compensation $ 7,898 $ 8,936
Pension 3,403 2,553
Other 1,508 1,656
- -------------------------------------------------------------------------
$ 12,809 $ 13,145
- -------------------------------------------------------------------------
</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 called for
an additional contingent consideration, not to exceed $2 million, which was
based on pretax earnings for the 12 months ended January 31, 1995, generated
from the net assets acquired as defined in the purchase agreement. Management
anticipates there will be no contingent consideration paid. 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,
- -------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C>
Revenue $ 208,797 $ 174,931
Net income 14,325 9,189
Net income per share 1.79 1.19
- -------------------------------------------------------------------------
</TABLE>
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On November 10, 1994, the Company purchased substantially all of the
operating assets and assumed certain liabilities of Fourtress Reprographic
Services, Inc., for approximately $647,000 cash. 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.
These acquisitions were not significant to the financial position or results
of operations of the Company.
NOTE 4 - FINANCIAL AGREEMENTS
BANK FINANCING:
In June of 1994, the Company amended its revolving credit agreement which
provides for a $10 million unsecured bank line of credit through May 31,
1997. There were no borrowings outstanding under this line of credit at
January 31, 1995. Borrowings under the line of credit were $2.6 million at
January 31, 1994 and bore interest at prime less .25%. Under the amended
agreement, the Company has the option to borrow at the bank's reference rate,
at 1.0% above the London Interbank Offered Rate or at 0.85% above a
certificate of deposit-based rate and is required to pay a commitment fee of
0.25% on the unused portion of the line annually. The weighted average
interest rate on the note payable was 7.18% for 1995 and 5.75% for 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.
LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
AS OF JANUARY 31,
- ---------------------------------------------------------------------------------
(IN THOUSANDS) 1995 1994
- ---------------------------------------------------------------------------------
<S> <C> <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 $4,780 at
January 31, 1995. $3,785 $3,900
Unsecured promissory note payable in equal
installments of $500 on December 31 thru 1999.
The note bears interest at prime and is payable
annually. The prime interest rate at January 31,
1995, was 8.5% (6.0% at January 31, 1994). 2,000 2,500
Other notes 255 965
- ---------------------------------------------------------------------------------
6,040 7,365
Less current maturities (745) (1,325)
- ---------------------------------------------------------------------------------
$5,295 $6,040
- ---------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
The aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- ------------------------------------------------------------------------------
<S> <C>
1996 $ 745
1997 770
1998 645
1999 655
2000 170
Thereafter 3,055
- ------------------------------------------------------------------------------
$6,040
- ------------------------------------------------------------------------------
</TABLE>
NOTE 5 - 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 Companys property under capital leases, which is classified as
property, plant and equipment, is as follows:
<TABLE>
<CAPTION>
AS OF JANUARY 31,
- -----------------------------------------------------------------------------
(IN THOUSANDS) 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
Land $ 333 $ 333
Building 2,439 2,439
Equipment 1,552 1,124
Less accumulated amortization (872) (601)
- -----------------------------------------------------------------------------
$3,452 $3,295
- -----------------------------------------------------------------------------
</TABLE>
The Company also leases office space and equipment under noncancelable
operating leases which expire at various dates through December of 2000.
Rental expense charged to operations on noncancelable operating leases was
$4,523,000, $3,303,000 and $2,531,000, for the years ended January 31, 1995,
1994 and 1993, respectively.
Future minimum rental commitments under noncancelable leases at January 31,
1995, are as follows:
<TABLE>
<CAPTION>
Capital Operating
(IN THOUSANDS) Leases Leases
- ------------------------------------------------------------------------------
<S> <C> <C>
1996 $1,029 $3,578
1997 555 2,360
1998 445 1,766
1999 368 1,094
2000 341 362
Thereafter 1,845
- ------------------------------------------------------------------------------
$4,583 $9,160
------
Imputed interest (1,618)
- -------------------------------------------------------------------
Present value of minimum lease payments 2,965
Less current maturities of obligations under capital leases (738)
- -------------------------------------------------------------------
Long-term obligations under capital leases $2,227
- -------------------------------------------------------------------
</TABLE>
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
AS OF JANUARY 31,
- ------------------------------------------------------------------------------------------
(IN THOUSANDS) 1995 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable
Federal $9,879 $5,394 $4,760
State 1,682 1,090 977
- ------------------------------------------------------------------------------------------
11,561 6,484 5,737
Deferred (2,390) 2,336 (172)
- ------------------------------------------------------------------------------------------
Provision for income taxes $9,171 $8,820 $5,565
- ------------------------------------------------------------------------------------------
</TABLE>
Temporary differences comprising the net deferred tax liability recognized in
the accompanying Consolidated Balance Sheet are as follows:
<TABLE>
<CAPTION>
AS OF JANUARY 31,
- ------------------------------------------------------------------------------------------
(IN THOUSANDS) 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Capital loss carryforward $ 994 $ 994
Allowance for doubtful accounts 1,089 929
Deferred compensation 344 113
Work in process inventories (3,386) (4,861)
Depreciation (272) (601)
Other 528 333
Deferred tax valuation allowance (994) (994)
- ------------------------------------------------------------------------------------------
Net deferred tax liability $(1,697) $(4,087)
- ------------------------------------------------------------------------------------------
</TABLE>
Significant differences between income taxes on income for financial
reporting purposes and income taxes calculated using the federal statutory
tax rate are as follows:
<TABLE>
<CAPTION>
AS OF JANUARY 31,
- ------------------------------------------------------------------------------------------
(IN THOUSANDS) 1995 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for federal income taxes at statutory rate $7,404 $7,697 $4,816
State income taxes, net of federal benefit 1,039 842 607
Nondeductible business meeting and entertainment expense 565 172 138
Other 163 109 4
- ------------------------------------------------------------------------------------------
$9,171 $8,820 $5,565
- ------------------------------------------------------------------------------------------
</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 $3,403,000, $2,553,000 and
$2,005,000 for the years ended January 31, 1995, 1994 and 1993, respectively.
34
<PAGE>
NOTE 8 - SHAREHOLDERS' EQUITY
COMMON STOCK:
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.
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, 1995, nonstatutory
options for 463,000 shares had been granted under the plan, leaving 37,000
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, 1995, incentive stock options
for 108,666 shares, nonstatutory options for 648,800 shares and restricted
stock awards for 20,100 shares had been granted under the plan, leaving
22,434 shares available for future grants.
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, 1995, is as follows:
<TABLE>
<CAPTION>
Shares Price Per Share
- ------------------------------------------------------------------
<S> <C> <C>
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
Granted 110,664 14.56 - 29.75
Exercised (113,134) 3.37 - 17.50
Canceled (34,500) 3.87 - 17.37
- ------------------------------------------------------------------
Balance, January 31, 1995 985,964 $ 3.37 - 29.75
- ------------------------------------------------------------------
</TABLE>
Options for 459,564 shares were exercisable at January 31, 1995.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly financial data for fiscal years 1995
and 1994:
<TABLE>
<CAPTION>
First Second Third Fourth
(IN THOUSANDS EXCEPT PER SHARE DATA) Quarter Quarter Quarter Quarter Total
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 Revenue $61,463 $63,679 $57,474 $54,262 $236,878
- --------------------------------------------------------------------------------------
Gross profit 23,016 21,762 16,921 15,717 77,416
- --------------------------------------------------------------------------------------
Net income 4,699 4,396 2,205 683 11,983
- --------------------------------------------------------------------------------------
Net income per share .58 .55 .28 .09 1.50
- --------------------------------------------------------------------------------------
Dividends declared per share .03 .03 .03 .03 .12
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------
</TABLE>
36
<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, 1995 and 1994, 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, 1995. These financial
statements are the responsibility of the Companys 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, 1995 and 1994, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended January 31, 1995, 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 L.L.P.
St. Paul, Minnesota
March 21, 1995
37
<PAGE>
SUMMARY OF OPERATING AND FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT EMPLOYEE
AND PER SHARE DATA) 1995 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating results
Revenue $236,878 $181,584 $147,716 $125,312 $100,951 $69,022
Costs and expenses 215,724 159,593 133,552 114,559 96,825 68,480
Income (loss) before provision
for income taxes 21,154 21,991 14,164 10,753 4,126 (928)
Provision for income taxes 9,171 8,820 5,565 4,308 1,570 222
Net income (loss) 11,983 13,348 8,599 6,518 2,671 (1,238)
- -------------------------------------------------------------------------------------------------------
Per common share
Net income (loss) $ 1.50 $ 1.67 $ 1.12 $ .86 $ .37 $ (.17)
Book value 8.69 7.15 5.36 4.11 3.20 2.82
- -------------------------------------------------------------------------------------------------------
Financial data/other
Working capital $ 31,523 $ 22,528 $ 24,650 $ 17,550 $ 9,388 $ 7,929
Current ratio 2.0 1.6 2.1 1.9 1.4 1.5
Total assets $106,470 $100,123 $ 66,042 $ 52,954 $ 46,892 $ 40,596
Shareholders' equity 66,061 53,597 39,330 29,116 22,486 20,491
Return on average
shareholders' equity 20.0% 28.7% 25.1% 25.3% 12.4% N/A
Long-term obligations $ 7,522 $ 8,656 $ 2,138 $ 2,230 $ 2,314 $ 2,390
Long-term obligations to
capitalization 10.2% 13.9% 5.2% 7.1% 9.3% 10.4%
Number of employees 1,739 1,601 1,041 831 784 562
- -------------------------------------------------------------------------------------------------------
</TABLE>
38
<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/Magnus Publishing Corporation................................ Minnesota 100%
Merrill Corporation, Canada d/b/a Merrill Atwell Fleming............. Ontario 100%
Merrill/May, Inc..................................................... Minnesota 100%
Merrill International 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, 1995 and 1994 and for each of
the three years in the period ended January 31, 1995 which report
is included on page 37 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 L.L.P.
Minneapolis, Minnesota
April 26, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> FEB-01-1994
<PERIOD-END> JAN-31-1995
<CASH> 9,967
<SECURITIES> 0
<RECEIVABLES> 42,114
<ALLOWANCES> 2,830
<INVENTORY> 11,533
<CURRENT-ASSETS> 63,470
<PP&E> 55,884
<DEPRECIATION> 26,966
<TOTAL-ASSETS> 106,470
<CURRENT-LIABILITIES> 31,947
<BONDS> 9,005
<COMMON> 76
0
0
<OTHER-SE> 65,512
<TOTAL-LIABILITY-AND-EQUITY> 106,470
<SALES> 236,878
<TOTAL-REVENUES> 236,878
<CGS> 159,462
<TOTAL-COSTS> 159,462
<OTHER-EXPENSES> 55,680
<LOSS-PROVISION> 2,038
<INTEREST-EXPENSE> 1,120
<INCOME-PRETAX> 21,154
<INCOME-TAX> 9,171
<INCOME-CONTINUING> 11,983
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,983
<EPS-PRIMARY> 1.50
<EPS-DILUTED> 1.50
</TABLE>
