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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, 1996
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./ /
As of April 22, 1996, 7,863,883 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 National Market) excluding outstanding
shares owned beneficially by officers and directors, was approximately
$116,791,000.
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, 1996
(the "1996 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 21, 1996 (the "1996 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 19 full service offices in major financial centers
across the United States and in Canada, as well as 5 regional printing plants,
and printing and distribution operations in St. Cloud, Minnesota and Monroe,
Washington. The Company also has established affiliations with financial
printing companies internationally.
Since February 1, 1995, the Company has completed two acquisitions. On March
29, 1996, the Company acquired all the issued and outstanding capital stock of
FMC Resource Management Corporation ("FMC"), a Washington corporation located
near Seattle. FMC is engaged in the manufacture, distribution and inventory
management business. On April 15, 1996, the Company acquired certain of the
assets of The Corporate Printing Company, Inc. ("CPC"), a New York corporation
along with certain of the assets of its affiliates. CPC was a regional financial
and corporate printing company with offices in New York, Washington, D.C. and
Maryland.
In connection with these acquisitions, the Company has increased its
revolving bank line of credit from $15 million to $60 million.
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., Merrill International, Inc, Merrill Real Estate Company and
FMC Resource Management Corporation.
(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 15 to 28 of the Company's
1996 Annual Report to Shareholders,which information is incorporated herein by
reference.
(C) NARRATIVE DESCRIPTION OF BUSINESS
Merrill is a document services company that utilizes advanced computer and
telecommunications technology to provide a full range of services to its
customers. These services include typesetting, printing, electronic document
formation, distribution and marketing communications services. Operationally,
the Company's services can be divided into four categories: financial,
corporate, commercial and other services, and document management services. 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 1996 1995 1994
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Financial.......................................... 36.1% 33.4% 42.4%
Corporate.......................................... 29.5% 33.4% 34.4%
Commercial and other............................... 21.5% 23.3% 13.8%
Document management services....................... 12.9% 9.9% 9.4%
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Total.......................................... 100.0% 100.0% 100.0%
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FINANCIAL AND CORPORATE SERVICES
GENERAL
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. Operationally, the Company utilizes the same technology and personnel in
providing its financial and corporate printing services.
The Company's financial and corporate document business is service oriented.
The production of financial and corporate documents requires rapid typesetting,
printing and electronic conversion services, available 24 hours a day and
tailored to the exacting demands of the Company's customers. The Company
receives information directly from its customers in various forms, including
typed or handwritten pages, magnetic recording media, and by direct
telecommunication with its clients' computer equipment. This information is
transmitted by facsimile or direct electronic connection to the Company's
central production facility for processing into a typeset or electronic
document. Each document typically goes through numerous proof cycles, and at
each cycle the document is typeset, duplicated and distributed to the parties,
including corporate executives, investment bankers, attorneys and accountants.
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 paper copies of the
document (including any exhibits) for filing with the SEC or an electronic
submission for filing through the SEC's Electronic Data Gathering, Analysis, and
Retrieval system ("EDGAR"). The document is then printed, collated, bound and
distributed in booklet form, and can also be produced electronically for
distribution via the Internet.
"HUB AND SPOKE" NETWORK
By using advanced computer and telecommunications technology, the Company
has created a "hub and spoke" network for its financial and corporate services
linking its central computerized production facility in St. Paul, Minnesota (a
"hub") with its 19 full-service facilities located throughout the United States
and in Canada (the "Spokes"). In addition, the Company has technology that also
links the St. Paul hub directly to its customers and international service
affiliates. In connection with the acquisition of CPC, the Company recently
acquired a second typesetting hub in Maryland which it plans to integrate with
the Company's existing systems during fiscal 1997.
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
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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 digital lines connecting each of the Company's service facilities
with the hub, automated data switching and routing 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 their communications and production
facilities and services on a worldwide basis. 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 Frankfurt,
Luxembourg, Paris, Seoul and Tokyo. In addition, the Company has established
relationships with financial printing companies in 36 countries 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 Middle East,
Africa, 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
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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 requires participants or their agents to file most disclosure
information in an electronic format through EDGAR 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
Company converts SEC forms and exhibit documents in standard word processing and
other computer formats to the EDGAR format and assembles these documents for
electronic filing with the SEC.
The Company has been involved in all stages of development of EDGAR. 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 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 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 and believes that the
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.
COMMERCIAL AND OTHER SERVICES
GENERAL
In its commercial and other printing business, the Company typesets, prints
and distributes commercial and other documents, including price catalogs,
directories, insurance industry annual reports, sample ballots and technical
manuals from electronic information supplied by customers. Included in this
category are the Company's Merrill/May, Inc. ("Merrill/May") and FMC
subsidiaries. Merrill/May 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. FMC provides
manufacture, distribution, and inventory management services of marketing items
for large, geographically diverse companies with a need for sophisticated
logistics management.
The Company's commercial typesetting business provides turnkey document
services, including camera, pre-press and printing services for one- or
multi-color publications. These commercial printing projects, like financial and
corporate printing, require a high level of attention to detail, quick
turnaround times and responsive customer service. The Company believes that
offering high levels of service is a competitive advantage in certain niches of
the commercial printing business.
MANAGED MARKETING COMMUNICATIONS
As part of its commercial and other services category, the Company is
engaged in the managed marketing communications business through its Merrill/May
subsidiary and its recently acquired FMC subsidiary. Merrill/May provides demand
printing and distribution services designed to support
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the corporate identity of large, national clients with multiple franchisees,
members, divisions or affiliated organizations ("member organizations"). FMC is
also engaged in the manufacture, distribution, and inventory management business
for large, national clients.
Merrill/May is authorized by its national clients to develop and produce
custom printed products such as business cards, stationery 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.
On March 29, 1996, the Company acquired all the issued and outstanding
capital stock of Seattle area based FMC. Similar to Merrill/May, FMC provides
manufacturing, distribution, and inventory
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management services of non-revenue producing items, such as commercial printing,
business forms, digital printing, display items, collateral materials, and
uniforms, for large multi-locational, multi-departmental companies.
DOCUMENT MANAGEMENT SERVICES
The Company provides comprehensive document management services for its
customers both on a transactional basis, which includes photocopying and
electronic imaging services and on an on-going basis, which can include
management of the customer's entire photocopying, typesetting, imaging and/or
mailroom facilities. The transactional business includes document reproduction
and imaging services for projects that are time-sensitive or otherwise require
special service, such as photocopying or imaging 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 operates a document reproduction
facility in Century City (Los Angeles area) and uses its financial and corporate
printing service facilities and its printing plant facility in Union, New Jersey
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 portion of the transactional business 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, perform document management services such as barcoding, document
coding, and perform 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 offers comprehensive office photocopying, typesetting and
mailroom facility management services to its customers. These services involve
providing for a customer's document management needs, including on-site
equipment, employees and management of the operation.
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 printing business. Corporate and commercial
printing is generally both more predictable in volume and less time-sensitive in
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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. The Company also operates a printing
plant in St. Cloud, Minnesota, for its specialized printing services. See
"Business -- Commercial and Other Services -- Managed Marketing Communications"
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 22, 1996, the Company employed 205 full-time salespeople to
market its typesetting, printing, publishing, distribution, imaging and document
reproduction services. The Company's salespersons solicit business from existing
and prospective customers and, together with the customer service
representatives, act as coordinators between the customer and the Company's
production personnel, and provide advice and assistance to customers.
COMPETITION
The Company competes with a number of other companies in the financial and
corporate 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, may 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 and other 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 the insurance printing business, the Company
competes with other national and regional printers, including Bowne. In the
managed marketing communications business, the Company believes that its primary
competitors are local print shops and marketing service firms, including
advertising agencies, custom publication printers, direct mail firms, and
television, radio, newspapers, magazine and other media organizations. In its
document management services businesses, the Company competes with two
nationwide service companies, Xerox Corporation and Pitney Bowes, litigation
support services vendors, and a large
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number of photocopying and imaging shops, including privately owned shops as
well as franchise operations. Competition in the Company's 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 22, 1996, the Company had 2,202 full-time employees and 51
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 document services 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, except the principal facility of
Merrill/May and the Energy Park Business Center that houses certain corporate
and administrative departments. The Company's principal production and
administrative office facility, located in St. Paul, includes 47,000 square feet
of space and is leased, together with the associated land, from the Port
Authority of the City of St. Paul. The terms of the Company's agreements with
the Port Authority are contained in a facilities lease and land lease, both
dated October 1, 1985, which require the Company to pay rents to the Port
Authority in the amounts of $24,069 per month and $3,431 per month,
respectively, for a term expiring on November 30, 2005. Each lease grants the
Company the option to purchase the property at the end of the term, or earlier.
Under the facilities lease, the Company may purchase the building for $254,500
at the end of the lease term or after ten years if the Company pays the
remaining principal and interest on the bonds outstanding at the time of
exercise of the options. The land may be purchased for $167,140 at the end of
the lease term or $334,280 at the end of ten years.
The Company owns Merrill/May's principal production, administrative and
warehousing facility. This facility, which is located in St. Cloud, Minnesota,
includes approximately 122,900 square feet of space. In July 1995, the Company
purchased the Energy Park Business Center consisting of approximately 150,000
square feet in two buildings adjacent to the Company's principal production and
administrative office facility. The Company maintains several of its corporate
and administration departments in these buildings along with an imaging center,
prepress and reprographics departments. The Company believes the purchase of
these buildings will allow the Company to better plan its expansion as needed.
Of the approximately 97,000 square feet of space available for lease,
approximately 93% is currently leased to third parties.
The Company also leases other office and warehouse space in the
Minneapolis/St. Paul metropolitan area, service facilities in each of its other
eighteen cities and sales offices in four other cities, with space ranging from
200 square feet to 77,000 square feet. These leases have expiration dates
ranging from July 1996 to October 2014 under which the Company makes monthly
payments aggregating approximately $458,000, 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 of the acquisition of CPC, the Company has
8
<PAGE>
assumed certain leases for production and service facilities in New York,
Maryland and Washington, D.C. The Company anticipates consolidating these new
facilities with its existing facilities in New York and Washington, D.C. As a
result the Company believes that it may have some excess capacity in these
areas, however the Company believes that its properties and facilities at the
other locations 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 22, 1996 are
as follows:
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED
OR APPOINTED AS
AN EXECUTIVE
NAME AGE OFFICER TITLE
- ------------------------ --- ---------------- ------------------------------------------
<S> <C> <C> <C>
John W. Castro 47 1980 President and Chief Executive Officer
Rick R. Atterbury 42 1981 Executive Vice President
Steven J. Machov 45 1987 Vice President, General Counsel and
Secretary
Kathleen A. Larkin 36 1993 Vice President -- Human Resources
Kay A. Barber 45 1995 Vice President -- Finance, Chief Financial
Officer, Treasurer
</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.
Mr. Atterbury was elected Executive Vice President in 1996. Prior to the
date, he served as Vice President -- Operations.
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. Barber joined the Company in September 1995 as Vice President --
Finance, Chief Financial Officer and Treasurer. From January 1993 to August
1995, Ms. Barber was Vice President, Finance and Controller for Growing Healthy,
Inc., a marketer of frozen baby food products. From March 1991 to August 1992,
she served as Director, Planning and Financial Analysis for NeXT Computer, Inc.,
a manufacturer of computer hardware and software.
9
<PAGE>
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
14 of the Company's 1996 Annual Report is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The financial information in the table on page 28 of the Company's 1996
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 9 to 14 of the Company's
1996 Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements on pages 15 to 28 (including
the unaudited information set forth under the caption "Quarterly Financial Data"
on page 27) and the Report of its Independent Accountants on page 29 of the
Company's 1996 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 1996 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 1996 Proxy Statement is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the captions "Election of Directors -- Directors'
Compensation" on page 7 and "Executive Compensation" on pages 8 to 15,
(excluding the "Comparative Stock Performance" graph on page 11), of the
Company's 1996 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 1996 Proxy Statement is
incorporated herein by reference.
10
<PAGE>
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 1996 Annual Report:
Consolidated Balance Sheets as of January 31, 1996 and 1995 -- page 15.
Consolidated Statements of Operations for the years ended January 31,
1996, 1995 and 1994 -- page 16.
Consolidated Statements of Cash Flows for the years ended January 31,
1996, 1995 and 1994 -- page 17.
Consolidated Statements of Changes in Shareholders' Equity for the years
ended January 31, 1996, 1995 and 1994 -- page 18.
Notes to Consolidated Financial Statements -- pages 19-28.
Report of Independent Accountants -- page 29.
2. Financial statement schedules:
The following supplemental schedule and report of independent accountants
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 to
18 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, 1996, 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)).
11
<PAGE>
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 (incorporated by reference to
Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1995 (File No. 0-14082).
G. Option Agreement between Ronald N. Hoge and the Company (incorporated by
reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1993 (File No. 0-14082)).
(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, 1996.
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 29 of the 1996
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,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
St. Paul, Minnesota
March 19, 1996
13
<PAGE>
SCHEDULE II
MERRILL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
(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, 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
------------ ------------ ----- ------------ ------------
------------ ------------ ----- ------------ ------------
Year Ended January 31, 1996
Valuation account deducted from assets
to which it applies --
Allowance for doubtful accounts...... $ 2,830 $ 1,486 $ 26 (A) $ 797 (B) $ 3,545
------------ ------------ ----- ------------ ------------
------------ ------------ ----- ------------ ------------
<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) /s/ JOHN W. CASTRO
(NAME AND TITLE) John W. Castro, President and Chief Executive Officer
(DATE) April 29, 1996
</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) /s/ JOHN W. CASTRO
(NAME AND TITLE) John W. Castro, President and Chief Executive Officer (Principal
Executive Officer) and Director
(DATE) April 29, 1996
BY (SIGNATURE) /s/ KAY A. BARBER
(NAME AND TITLE) Kay A. Barber, Vice President -- Finance, Chief Financial Officer
and Treasurer (Principal Financial and Accounting Officer)
(DATE) April 29, 1996
BY (SIGNATURE) /s/ KENNETH F. MERRILL
(NAME AND TITLE) Kenneth F. Merrill, Director
(DATE) April 29, 1996
BY (SIGNATURE) /s/ ROBERT F. NIENHOUSE
(NAME AND TITLE) Robert F. Nienhouse, Director
(DATE) April 29, 1996
BY (SIGNATURE) /s/ RICHARD G. LAREAU
(NAME AND TITLE) Richard G. Lareau, Director
(DATE) April 29, 1996
BY (SIGNATURE) /s/ PAUL G. MILLER
(NAME AND TITLE) Paul G. Miller, Director
(DATE) April 29, 1996
BY (SIGNATURE) /s/ RICK R. ATTERBURY
(NAME AND TITLE) Rick R. Atterbury, Director
(DATE) April 29, 1996
BY (SIGNATURE)
(NAME AND TITLE) Ronald N. Hoge, Director
(DATE) April 29, 1996
BY (SIGNATURE) /s/ JAMES R. CAMPBELL
(NAME AND TITLE) James R. Campbell, Director
(DATE) April 29, 1996
BY (SIGNATURE) /s/ FREDERICK W. KANNER
(NAME AND TITLE) Frederick W. Kanner, Director
(DATE) April 29, 1996
</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 Incorporated by reference to Exhibit 10.6 to the
dated as of June 20, 1994 between First Bank, Company's Annual Report on Form 10-K for the
N.A. and the Company fiscal year ended January 31, 1995
10.7 First Amendment to Restated and Amended Revolving Incorporated by reference to Exhibit 10.7 to the
Credit Agreement dated as of September 28, 1994 Company's Annual Report on Form 10-K for the
between First Bank, N.A. and the Company. fiscal year ended January 31, 1995
10.8 Second Amendment to Restated and Amended Revolving Incorporated by reference to Exhibit 10.8 to the
Credit Agreement dated as of April 20, 1995 Company's Annual Report on Form 10-K for the
between First Bank, N.A. and the Company. fiscal year ended January 31, 1995
10.9 Third Amendment to Restated and Amended Revolving Filed herewith electronically
Credit Agreement dated as of August 29, 1995
between First Bank, N.A. and the Company
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION METHOD OF FILING
- ----------- -------------------------------------------------- --------------------------------------------------
<C> <S> <C>
10.10 Fourth Amendment to Restated and Amended Revolving Filed herewith electronically
Credit Agreement dated as of February 29, 1996
between First Bank, N.A. and the Company
10.11 Fifth Amendment to Restated and Amended Revolving Filed herewith electronically
Credit Agreement dated as of April 12, 1996
between First Bank, N.A. and the Company
10.12 1987 Omnibus Stock Plan, as amended Incorporated by reference to Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1991
10.13 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
10.14 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
10.15 1993 Incentive Stock Plan, as amended Incorporated by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1995
10.16 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
10.17 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.
10.18 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.
10.19 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.
10.20 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.
10.21 Stock Purchase Agreement, dated March 28, 1996, by Incorporated by reference to Exhibit 2.1 to the
and among the Company and the Shareholders of FMC Company's Current Report on Form 8-K dated April
Resource Management Corporation 15, 1996
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION METHOD OF FILING
- ----------- -------------------------------------------------- --------------------------------------------------
<C> <S> <C>
10.22 Asset Purchase Agreement, dated April 15, 1996, by Filed herewith electronically
and among the Company, Merrill/New York Company
and The Corporate Printing Company, Inc., CPC
Communications, Inc., CPC Reprographics, Inc.,
The Corporate Printing Company International,
Ltd., CP International Holdings, Inc., CPC
Management Services, Inc., The Corporate Printing
Company International SNC, The Corporate Printing
Company International PTE Ltd., Oakland
Composition Limited Partnership, and the
Shareholders of the above Affiliated Companies.
(Omitted from this Agreement, as filed, are the
exhibits listed in the "List of Exhibits"
included at the beginning of the Agreement. The
Company will furnish supplementally a copy of any
such omitted exhibits to the Commission upon
request.)
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
27.1 Financial Data Schedule Filed herewith electronically
</TABLE>
18
<PAGE>
THIRD AMENDMENT TO RESTATED AND AMENDED
REVOLVING CREDIT AGREEMENT
THIS AMENDMENT is made as of the 29th day of August, 1995, 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, which was amended
pursuant to an Amendment to Restated and Amended Revolving Credit Agreement,
dated as of September 29, 1994, and a Second Amendment to Restated and Amended
Revolving Credit Agreement, dated as of April 20, 1995 (herein, as amended, 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.
At the request of the Borrower, the Bank has agreed to further amend the
terms and conditions 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 definition of "Commitment" is hereby deleted from Section 1.01 and
the following definition is substituted therefor:
"'Commitment' means, from time to time, the difference
between $15,000,000 and the outstanding face amount of the
Letters of Credit."
(b) The Revolving Note attached to the Loan Agreement as Exhibit A is
hereby deleted and the Revolving Note attached to this Amendment as Exhibit A is
substituted therefor.
(c) Section 2.07 is hereby amended by (i) deleting the "0.85%" in
paragraph (a) thereof and substituting "three-quarters of one percent (0.75%)"
therefor, (ii) deleting the "1.00%" in paragraph (b) thereof and substituting
"three-quarters of one percent (0.75%)" therefor, and (iii) deleting the period
at the end of paragraph (c) thereof and substituting therefor "minus one-quarter
of one percent (0.25%)."
<PAGE>
(d) Section 2.14(a) is hereby amended by deleting the "1.00%" located
therein and substituting "three-quarters of one percent (0.75%)" therefor.
(e) Section 7.06 of the Loan Agreement is hereby amended by deleting the
period at the end thereof and substituting therefor the following provision:
"; provided, however, that the amount, not to exceed
$3,200,000, expended to acquire up to thirty percent (30%)
of the stock of Roman Financial Press, Ltd., a British
corporation, conducting a financial printing business in
Hong Kong, China, shall not be subject to the foregoing
limitation."
(f) Section 7.08 of the Loan Agreement is hereby amended by deleting the
period at the end thereof and substituting therefor the following provision:
"plus for the fiscal year ending January 31, 1996, and for
each fiscal year thereafter, the amount, not to exceed
$5,500,000 in the aggregate for all fiscal years, expended
during said fiscal year to enable Merrill Real Estate
Company to purchase the corporate office and warehouse real
estate located at 1419 through 1513 Energy Park Drive, in
St. Paul, Minnesota."
(g) Exhibit C to the Loan Agreement is hereby amended by inserting the
following information at the end thereof:
EXHIBIT C
EXISTING SUBSIDIARIES
- --------------------------------------------------------------------------------
NAME STATE OF PERCENT OWNED BY NAME OF MINORITY
INCORPORATION MERRILL OWNER
CORPORATION
- --------------------------------------------------------------------------------
Merrill Real Estate Minnesota 100% ------
Company
- --------------------------------------------------------------------------------
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the day and year first above written.
Merrill Corporation
By:/s/John Castro
--------------------------------
Its: President & CEO
By:/s/Kay Barber
--------------------------------
Its: VP & C.F.O.
First Bank National Association
By:/s/Steven L. Flack
--------------------------------
Its: Vice President
3
<PAGE>
EXHIBIT A
RESTATED REVOLVING NOTE
$15,000,000 Minneapolis, Minnesota
August 29, 1995
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 Fifteen Million Dollars
($15,000,000) 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, as amended.
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 represents the restatement of and an increase in the Restated Revolving
Note dated June 20, 1994 payable by the undersigned, to the order of the Bank,
and not the repayment thereof.
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.
<PAGE>
Presentment or other demand for payment, notice of dishonor and
protest are expressly waived.
MERRILL CORPORATION
By:_____________________________________
Its:__________________________________
By:_____________________________________
Its:__________________________________
2
<PAGE>
FOURTH AMENDMENT TO RESTATED AND AMENDED
REVOLVING CREDIT AGREEMENT
THIS AMENDMENT is made as of the 29th day of February, 1996, 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, which was amended
pursuant to an Amendment to Restated and Amended Revolving Credit Agreement,
dated as of September 29, 1994, a Second Amendment to Restated and Amended
Revolving Credit Agreement, dated as of April 20, 1995, and a Third Amendment to
Restated and Amended Revolving Credit Agreement dated as of August 29, 1995
(herein, as amended, 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.
At the request of the Borrower, the Bank has agreed to further amend the
terms and conditions 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) Section 7.06 of the Loan Agreement is hereby amended by deleting the
period at the end thereof and substituting therefor the following
provision:
"; provided, however, that the amount, not to exceed $9.5
million, expended or assumed to acquire all of the stock of
FMC Resource Management Corp., a Washington corporation,
shall not be subject to the foregoing limitation."
(b) Exhibit C to the Loan Agreement is hereby amended by substituting
Attachment I to this Amendment in lieu therefor.
2. SUBSIDIARY GUARANTIES. To induce the Bank to amend the Loan Agreement
as herein provided, the Borrower agrees to deliver by June 20, 1996:
(a) Guaranties executed by each Subsidiary, in the form of Attachment II
to this Fourth Amendment;
<PAGE>
(b) Resolutions from the Board of Directors of each Subsidiary authorizing
the execution and delivery of the Guaranty;
(c) The Articles of Incorporation and Bylaws of each Subsidiary certified
as true and correct by the corporate secretary or assistant secretary; and
(d) An opinion of counsel for each Subsidiary in form and substance
satisfactory to the Bank which may be rendered by the Subsidiary's in-house
counsel.
To induce the Bank to accept the Guaranties, and to amend the Loan Agreement as
herein provided, the Borrower represents and warrants to the Bank that (i) each
Subsidiary has or will receive adequate consideration to support the Guaranty,
(ii) none of the Subsidiaries is, or as a result of the Guaranty will be
rendered, insolvent, (iii) none of the Subsidiaries will retain unreasonably
small capital following the execution of the Guaranty, and (iv) none of the
Subsidiaries intends to incur, or believes that it will incur, debts beyond its
ability to pay as they matured. The Borrower agrees that if the foregoing
documents are not delivered to the Bank by June 20, 1996, the Bank can declare a
default or an Event of Default under the Loan Agreement.
3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby reaffirms that
the representations and warranties contained in the Loan Agreement are true and
correct as of the date hereof as though made on that date, except for those
representations and warranties which specifically refer to an earlier date. The
Borrower further represents and warrants that (i) the execution, delivery and
performance of the Loan Agreement and this Fourth Amendment by the Borrower have
been duly authorized by all necessary corporate action, (ii) the Loan Agreement,
as amended hereby, constitutes the legal valid and binding obligation of the
Borrower, enforceable in accordance with its respective terms, (iii) there does
not now exist an Event of Default (as defined in the Loan Agreement) or any
event, which with the giving of notice, or the passage of time, or both, could
become an Event of Default, and (iv) all loans evidenced by the Revolving Note
are due without offset, counterclaim or defense.
4. CONDITIONS PRECEDENT. This Fourth Amendment shall not become
effective until the Borrower shall deliver the following documents to the Bank:
(i) This Fourth Amendment executed on behalf of the Borrower;
(ii) An opinion of counsel for the Borrower, in form and substance
satisfactory to the Bank which may be rendered by the Borrower's
in-house counsel.
5. EXPENSES. The Borrower hereby agrees to reimburse the Bank for its
expenses incurred in the preparation of this Fourth Amendment and the other
writings executed by the parties in connection herewith, including reasonable
attorneys' fees.
6. MISCELLANEOUS. Except as amended hereby, all of the other terms of
the Loan Agreement shall remain the same. This Fourth Amendment shall be
governed by the laws
2
<PAGE>
of the State of Minnesota and may not be waived, amended or modified except in
writing signed by all the parties hereto. The Borrower represents, warrants
and agrees that as of the date hereof, the Borrower has no offsets,
counterclaims or defenses against its obligations under the Loan Agreement,
as amended hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
Merrill Corporation
By:/s/John Castro
------------------------------------------
Its: President and CEO
By:/s/Kay Barber
------------------------------------------
Its: Vice President-Finace, CFO and
Treasurer
First Bank National Association
By:/s/Steven L. Flack
------------------------------------------
Its: Vice President
3
<PAGE>
ATTACHMENT I
EXHIBIT C
Subsidiaries of the Company Jurisdiction of Percent Owned
Incorporation
Merrill/New York Company Minnesota 100%
Merrill/Magnus Publishing
Corporation Minnesota 100%
Merrill/May, Inc. Minnesota 100%
Merrill Corporation, Canada
d/b/a Merrill Atwell Fleming Ontario 100%
Merrill Real Estate Company Minnesota 100%
*FMC Resource Management
Corporation Washington 100%
* Subject to completion of acquisition
<PAGE>
ATTACHMENT II
GUARANTY
Minneapolis, Minnesota
_________ 1996
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and to induce FIRST BANK NATIONAL ASSOCIATION, its
participants, successors and assigns (the "Bank"), at its option, at any time or
from time to time to make loans or extend other accommodations to or for the
account of MERRILL CORPORATION, a Minnesota corporation ("Borrower"), or to
engage in any other transactions with Borrower, the undersigned hereby
absolutely and unconditionally guarantee(s) to the Bank the full and prompt
payment and performance of each and every debt, liability and obligation of
every type or description which the Borrower may owe to the Bank, whatever such
debt, liability or obligation now exists or is hereafter created or incurred
(herein collectively the "Indebtedness").
The undersigned further acknowledge(s) and agree(s) with the Bank that:
1. No act or thing need occur to establish the liability of the
undersigned hereunder, and no act or thing, except full payment and discharge of
all Indebtedness, shall in any way exonerate the undersigned or modify, reduce,
limit or release the liability of the undersigned hereunder.
2. If the undersigned shall be dissolved, or shall be or become insolvent
(however defined) then the Bank shall have the right to declare immediately due
and payable, and the undersigned will forthwith pay to the Bank, the full amount
of all Indebtedness, whether due and payable or unmatured. If the undersigned
voluntarily commences or there is commenced involuntarily against the
undersigned a case under the United States Bankruptcy Code, the full amount of
all Indebtedness, whether due and payable or unmatured, shall be immediately due
and payable without demand or notice thereof.
3. Indebtedness may be created and continued in any amount, whether or not
in excess of such principal amount, without affecting or impairing the liability
of the undersigned hereunder. The Bank may apply any sums received by or
available to the Bank on account of the Indebtedness from Borrower or any other
person (except the undersigned), from their properties, out of any collateral
security or from any other source to payment of the excess. Such application of
receipts shall not reduce, affect or impair the liability of the undersigned
hereunder.
4. The undersigned will not exercise or enforce any right of contribution,
reimbursement, recourse or subrogation available to the undersigned against any
person liable for payment of the Indebtedness, or as to any collateral security
therefor, unless and until all of the Indebtedness shall have been fully paid
and discharged.
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<PAGE>
5. The undersigned will pay or reimburse the Bank for all costs and
expenses (including reasonable attorneys' fees and legal expenses) incurred by
the Bank in connection with the protection, defense or enforcement of this
guaranty in any litigation or bankruptcy or insolvency proceedings.
6. Whether or not any existing relationship between the undersigned and
Borrower has been changed or ended and whether or not this guaranty has been
revoked, the Bank may, but shall not be obligated to, enter into transactions
resulting in the creation or continuance of Indebtedness, without any consent or
approval by the undersigned and without any notice to the undersigned. The
liability of the undersigned shall not be affected or impaired by any of the
following acts or things (which the Bank is expressly authorized to do, omit or
suffer from time to time, both before and after revocation of this guaranty,
without notice to or approval by the undersigned): (i) any acceptance of
collateral security, guarantors, accommodation parties or sureties for any or
all Indebtedness; (ii) any one or more extensions or renewals of Indebtedness
(whether or not for longer than the original period) or any modification of the
interest rates, maturities or other contractual terms applicable to any
Indebtedness; (iii) any waiver or indulgence granted to Borrower, any delay or
lack of diligence in the enforcement of Indebtedness, or any failure to
institute proceedings, file a claim, give any required notices or otherwise
protect any Indebtedness; (iv) any full or partial release of, settlement with,
or agreement not to sue, Borrower or any other guarantor or other person liable
in respect of any Indebtedness; (v) any discharge of any evidence of
Indebtedness or the acceptance of any instrument in renewal thereof of
substitution therefor; (vi) any failure to obtain collateral security (including
rights of setoff), protect, insure, or enforce any collateral security or
perfect any security interest in collateral; or any modification, substitution,
discharge, impairment, or loss of any collateral security; (vii) any foreclosure
or enforcement of any collateral security; (viii) any transfer of any
indebtedness or any evidence thereof; (ix) any order of application of any
payments or credits upon Indebtedness; (x) any election by the Bank under
Section 1111(b)(2) of the United States Bankruptcy Code.
7. The undersigned waive(s) any and all defenses, claims and discharges of
Borrower, or any other obligor, pertaining to Indebtedness, except the defense
of discharge by payment in full. Without limiting the generality of the
foregoing, the undersigned will not assert, plead or enforce against the Bank
any defense of waiver, release, discharge in bankruptcy, statute of limitations,
res judicata, statute of frauds, anti-deficiency statute, fraud, incapacity,
minority, usury, illegality or unenforceability which may be available to
Borrower or any other person liable in respect of any Indebtedness, or any
setoff available against the Bank to Borrower or any such other person, whether
or not on account of a related transaction. The undersigned expressly agree(s)
that the undersigned shall be and remain liable for any deficiency remaining
after foreclosure of any mortgage or security interest securing Indebtedness,
whether or not the liability of Borrower or any other obligor for such
deficiency is discharged pursuant to statute or judicial decision.
2
<PAGE>
8. The undersigned waive(s) presentment, demand for payment, notice of
dishonor or nonpayment, and protest of any instrument evidencing Indebtedness.
The Bank shall not be required first to resort for payment of the Indebtedness
to Borrower or other persons or their properties, or first to enforce, realize
upon or exhaust any collateral security for Indebtedness, before enforcing this
guaranty.
9. If any payment applied by the Bank to Indebtedness is thereafter set
aside, recovered, rescinded or required to be returned for any reason
(including, without limitation, the bankruptcy, insolvency or reorganization of
Borrower or any other obligor), the Indebtedness to which such payment was
applied shall for the purposes of this guaranty be deemed to have continued in
existence, notwithstanding such application, and this guaranty shall be
enforceable as to such Indebtedness as fully as if such application had never
been made.
10. The liability of the undersigned under this guaranty is in addition to
and shall be cumulative with all other liabilities of the undersigned to the
Bank as guarantor or otherwise, without any limitation as to amount, unless the
instrument or agreement evidencing or creating such other lability specifically
provides to the contrary.
11. This guaranty shall be enforceable against each person signing this
guaranty, even if only one person signs and regardless of any failure of other
persons to sign this guaranty. If there be more than one signer, all agreements
and promises herein shall be construed to be, and are hereby declared to be,
joint and several in each and every particular and shall be fully binding upon
and enforceable against either, any or all the undersigned. This guaranty shall
be effective upon delivery to the Bank, without further act, condition or
acceptance by the Bank, shall be binding upon the undersigned and the heirs,
representatives, successors and assigns of the undersigned and shall inure to
the benefit of the Bank and its participants, successors and assigns. Any
invalidity or unenforceability of any provision or application of this guaranty
shall not affect other lawful provisions and application hereof, and to this end
the provisions of this guaranty are declared to be severable. This guaranty may
not be waived, modified, amended, terminated, released or otherwise changed
except by a writing signed by the undersigned and the Bank. This guaranty shall
be governed by the laws of the State of Minnesota. The undersigned waive(s)
notice of the Bank's acceptance hereof and waive(s) the right to a trial by jury
in any action based on or pertaining to this guaranty.
3
<PAGE>
IN WITNESS WHEREOF, this guaranty has been duly executed by the undersigned
the day and year first above written.
Merrill/New York Company
By:_____________________________________
Its:________________________________
By:_____________________________________
Its:________________________________
Merrill/May, Inc.
By:_____________________________________
Its:________________________________
By:_____________________________________
Its:________________________________
FMC Resource Management Corporation
By:_____________________________________
Its:________________________________
By:_____________________________________
Its:________________________________
4
<PAGE>
FIFTH AMENDMENT TO RESTATED AND AMENDED
REVOLVING CREDIT AGREEMENT
THIS AMENDMENT is made as of the 12th day of April, 1996, 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, which was amended
pursuant to an Amendment to Restated and Amended Revolving Credit Agreement,
dated as of September 29, 1994, a Second Amendment to Restated and Amended
Revolving Credit Agreement, dated as of April 20, 1995, a Third Amendment to
Restated and Amended Revolving Credit Agreement dated as of August 29, 1995, and
a Fourth Amendment to Restated and Amended Revolving Credit Agreement, dated as
of February 29, 1996 (herein, as amended, 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.
At the request of the Borrower, the Bank has agreed to further amend the
terms and conditions of the Loan Agreement on the terms herein provided.
Capitalized terms not otherwise defined herein shall have the meanings given to
them in the Loan 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 as follows:
1. THE CORPORATE PRINTING COMPANY, INC. AND FMC RESOURCE MANAGEMENT
CORPORATION. The Borrower and Merrill/New York Corporation have executed and
delivered the CPC Purchase Agreement pursuant to which Merrill/New York
Corporation has agreed to purchase certain assets of The Corporate Printing
Company, Inc. and the other Affiliated Companies (as defined therein) and the
Borrower has absolutely, unconditionally and irrevocably guaranteed the
obligations of Merrill/New York Corporation thereunder. The Borrower has also
executed and delivered the FMC Purchase Agreement pursuant to which the Borrower
has purchased all the issued and outstanding stock of FMC Resource Management
Corporation. To fund the purchase price under the CPC Purchase Agreement, the
Borrower has requested the Bank to increase the Commitment on the terms herein
contained.
<PAGE>
2. REPRESENTATIONS AND WARRANTIES. To induce the Bank to increase the
Commitment, the Borrower hereby represents and warrants to the Bank that:
(a) Copies of the fully executed CPC Purchase Agreement and the FMC
Purchase Agreement have been delivered to the Bank concurrently therewith.
(b) When the Borrower requests an Advance to fund the purchase of the
assets pursuant to the CPC Purchase Agreement, the Borrower shall provide
the Bank with a Draw Request in the form of Attachment I, which represents
and warrants that the representations and warranties of the respective
seller contained in the CPC Purchase Agreement are true and correct to the
best of the Borrower's knowledge and that the acquisition will close
pursuant to the terms of the CPC Purchase Agreement without material
variance or waiver. The Borrower shall not be required to submit the Draw
Request in connection with any Advance under the Loan Agreement which will
be used for any other purpose.
(c) The Borrower has delivered to the Bank combined pro forma
financial projections, which incorporate the results of the Borrower's
consolidated financial operations following the acquisition of the assets
and stock pursuant to the CPC Purchase Agreement and FMC Purchase
Agreement, and which represent the Borrower's best good faith estimates of
the financial performance of the Borrower and its Subsidiaries for the
periods provided.
(d) Within 30 days of each Advance to fund the closing under the CPC
Purchase Agreement, the Borrower, at its expense, will provide the Bank
with copies of the transcripts containing the closing documents evidencing
such closing, which shall be certified by the general counsel or the chief
financial officer of the Borrower as true and complete.
(e) The Borrower will deliver to the Bank, by June 20, 1996, the
Guarantees executed by each Subsidiary other than the Subsidiaries
described in Section 3(f) hereof, and the other documents and opinions,
required by with the provisions of paragraph 2 of the Fourth Amendment to
Restated and Amended Revolving Credit Agreement.
3. CONDITIONS PRECEDENT OR CONCURRENT. This Amendment shall not take
effect until the Borrower shall have delivered to the Bank the following
documents, each of which must be in the form and content acceptable to the Bank:
(a) Copies of the executed CPC Purchase Agreement and FMC Purchase
Agreement, certified by the general counsel or chief financial officer of
the Borrower as true and complete.
(b) The Revolving Note in the form attached hereto as Attachment II.
2
<PAGE>
(c) Resolutions of the Borrower's Board of Directors approving the
execution and delivery of the CPC Purchase Agreement and the loans to the
Borrower on the terms contained in the Loan Agreement.
(d) A current good standing certificate for the Borrower from the
Minnesota Secretary of State.
(e) An origination fee of $150,000 which shall be payable by the
Borrower and fully earned by the Bank upon the execution of this Amendment
regardless of whether the full amount of the Commitment is advanced by the
Bank.
(f) Guaranties and the other documents and opinions required by
paragraph 2 of the Fourth Amendment to Restated and Amended Revolving
Credit Agreement of Merrill/New York Corporation, and FMC Resource
Management Corporation, and Merrill/May, Inc.; provided that the Guaranties
and the other documents and opinions for the other Subsidiaries shall be
delivered to the Bank by June 20, 1996 in accordance with the provisions of
paragraph 2 of the Fourth Amendment to Restated and Amended Revolving
Credit Agreement.
(g) Audited financial statements for The Corporate Printing Company,
Inc. and its affiliates for the fiscal years ended December 31, 1993, and
December 31, 1994, and unaudited financial statements for the fiscal year
ended December 31, 1995, and the month ended January 31, 1996.
(h) Reviewed financial statements for FMC Resource Management
Corporation for the three most recently ended fiscal years.
(i) A copy of the escrow agreement pursuant to which the purchase
price under the CPC Purchase Agreement will be funded.
(j) A letter from Fleet Bank addressed to the Borrower containing the
loan payoff amounts and agreeing to release any liens on the assets of CPC
in due ordinary course.
(k) Incumbency certificates from the Borrower and each Guarantor,
containing the specimen signatures of each officer executing the Fifth
Amendment, Note and Guaranty, respectively.
(l) An opinion from Oppenheimer Wolff & Donnelly, counsel to the
Borrower, addressed to the Bank, in the form delivered to the sellers
pursuant to the terms of the CPC Purchase Agreement.
(m) An opinion from Steven J. Machov, general counsel of the Borrower
and the Subsidiaries, in the form of Attachment III hereto.
3
<PAGE>
4. AMENDMENT TO LOAN AGREEMENT. The parties hereto hereby agree to amend
the Loan Agreement as follows:
(a) Section 1.01 DEFINITIONS of the Loan Agreement is hereby amended by
adding or amending the following definitions:
"`Cash Flow Leverage' means the ratio of (a) total Debt, including
capital leases, at the end of each fiscal quarter, to (b) net income of the
Borrower before extraordinary gains, plus depreciation and amortization
expense, minus capital expenditures, calculated over the four consecutive
quarters ending on the date of the test; provided, however, that (i) for
the fiscal quarter ended July 31, 1996, adjusted net income shall be
annualized by multiplying the quarterly result by four; (ii) for the fiscal
quarter ended October 31, 1996, adjust net income shall be annualized by
multiplying the result for the two consecutive quarters ending on the date
of the test by two; and (iii) for the fiscal quarter ended January 31,
1997, adjusted net income shall be annualized by multiplying the result for
the three consecutive quarters ending on the date of the test by four-
thirds.
`Commitment' means, from time to time, the difference between
$60,000,000 and the outstanding face amounts of all Standby Letters of
Credit; provided, however, that the Commitment shall reduce by the amount
of any privately placed senior notes referred to in Section 7.02(f) hereof,
but in no event shall the reduction(s) exceed $40,000,000 in the aggregate.
`CPC Purchase Agreement' means the Asset Purchase Agreement dated as
of April 12, 1996, by and among the Borrower, Merrill Acquisition Corp.,
the Affiliated Companies (including The Corporate Printing Company) and
Shareholders (as defined therein).
`Documentary Letters of Credit' means the documentary letters of
credit issued for the account of the Borrower pursuant to the provisions of
Section 2.14(b) hereof.
`FMC Purchase Agreement' means the Stock Purchase Agreement dated as
of March 29, 1996, by and among the Borrower and the shareholders of FMC
Resource Management Corporation.
`Standby Letters of Credit' means the standby letters of credit issued
for the account of the Borrower pursuant to the provisions of Section
2.14(a) hereof.
`Termination Date' means the earliest of (a) April 12, 1999, (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."
4
<PAGE>
(b) REVOLVING NOTE. Exhibit A to the Loan Agreement is hereby amended by
substituting Attachment II to this Amendment in lieu thereof. Any reference in
the Loan Agreement to Note shall refer to the Revolving Note attached hereto as
Attachment II.
(c) Section 2.07 INTEREST is hereby amended by (i) deleting the "three-
quarters of one percent (0.75%)" in paragraphs (a) and (b) and substituting "one
percent (1.00%)" therefore, and (ii) deleting the "minus one-quarter of one
percent (0.25%)" contained in paragraph (c) thereof.
(d) Section 2.12 COMMITMENT FEES is hereby amended by deleting "COMMITMENT
FEES" and substituting "COMMITMENT AND OTHER FEES" therefor and by inserting the
following sentence at the end thereof:
"In addition, if by April 12, 1997, the Borrower has not received at least
$15,000,000 from a private placement of senior notes, on terms acceptable
to the Bank, the Borrower shall pay the Bank on that date, the sum of
$75,000 as an additional commitment fee, to compensate the Bank for the
continued commitment hereunder, which fee shall be considered earned when
due, regardless of whether the Borrower thereafter raises additional
permitted indebtedness."
(e) Section 2.14 THE LETTERS OF CREDIT is hereby amended by deleting
subparagraph (a) and substituting the following subparagraph therefor:
"(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 Standby Letters of
Credit for the account of the Borrower in an aggregate face amount not to
exceed $1,000,000. The Standby 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 Standby
Letter of Credit issued. In addition, the Borrower shall pay the Bank a
letter of credit fee of 0.75% per annum of the face amount of the Standby
Letter of Credit, payable in advance. The Borrower agrees to reimburse the
Bank on demand for the amount of any draft drawn upon the Standby Letters
of Credit."
The "(b)" and "(c)" before each of the other subparagraphs of Section 2.14
are hereby deleted and "(c)" and "(d)" are substituted therefor, respectively.
The following subparagraph (b) is hereby added to Section 2.14:
"(b) The Bank may, in its discretion, issue Documentary Letters of
Credit for the account of the Borrower, on the terms and subject to the
conditions contained in the applications executed at the time of issuance."
(f) Section 6.09 MAXIMUM CASH FLOW LEVERAGE is hereby amended by deleting
the "5.0 to 1.0" contained therein and substituting "4.50 to 1.0" therefor.
5
<PAGE>
(g) The following provision is hereby added as Section 6.10 of the Loan
Agreement:
"Section 6.10 MINIMUM INTEREST, LEASE AND DIVIDEND COVERAGE. The
Borrower will maintain at the end of each fiscal quarter, the ratio of (a)
its net income before extraordinary gains, interest expense, income tax
expense, amortization expense and operating lease expense, to (b) the sum
of (i) total interest on interest bearing Debt, including the interest
component of capitalized bases, (ii) the total payments on all operating
leases, and (iii) the total dividends declared and paid (which ratio shall
be calculated over the periods of one, two, and three consecutive fiscal
quarters beginning, in each on May 1, 1996, and ending on July 31, 1996,
October 31, 1996, and January 31, 1997, and over the period of four
consecutive fiscal quarters ending on April 30, 1997, and the last day of
each fiscal quarter thereafter) at not less than 2.00 to 1.0.
(h) Section 7.02 INDEBTEDNESS is hereby amended by (i) deleting the period
at the end thereof and substituting ";" therefor, (ii) deleting the "$1,500,000"
contained in subsection (d) thereof and substituting "$5,000,000" therefor, and
(iii) and inserting the following subparagraphs:
"(e) unsecured notes issued by the Borrower pursuant to the FMC
Purchase Agreement in an aggregate amount not to exceed $2,000,000; and
(f) privately placed senior notes issued on terms and subject to
conditions approved in writing by the Bank."
(i) Section 7.06 CONSOLIDATION AND MERGER; ACQUISITION OF ASSETS AND STOCK
is hereby amended by adding the following sentence at the end thereof:
"Anything herein to the contrary notwithstanding, the Borrower may expend
up to $35,000,000 to acquire certain assets pursuant to the CPC Purchase
Agreement and may expend up to $9,400,000 in cash, plus an additional
$2,600,000 cash outlay for earnout, to acquire the stock pursuant to the
FMC Purchase Agreement."
(j) The following provision is hereby added as Section 9.12 of the Loan
Agreement:
"Section 9.12 PERMITTED ASSIGNMENTS. The Bank may, in the ordinary
course of its business and in accordance with applicable law, at any time
assign to one or more banks or other entities ("Purchasers") all or any
part of its rights and obligations under the Loan Agreement. The
Borrower's consent to the assignment shall be required, which may not be
unreasonably withheld or delayed, unless an Event of Default, or any event
with the giving of notice or passage of time or both, shall have occurred
hereunder, in which case the Borrower's consent to assignment shall not be
required. Such Assignment shall be substantially in a form as may be
agreed to by
6
<PAGE>
the Bank and the Purchasers. On and after the effective date
of such assignment, such Purchaser shall for all purposes be a lender to
the Loan Agreement and shall have all the rights and obligations of a
lender under the Loan Agreement, to the same extent as if it were an
original party hereto, and no further consent or action by the Borrower
shall be required to release the Bank with respect to the percentage of the
Commitment assigned to such Purchaser. Upon the consummation of any
assignment to a Purchaser pursuant to this Section 9.12, the Bank and the
Borrower shall make appropriate arrangements so that replacement Notes are
issued to such transferor lender and new Notes or, as appropriate,
replacement Notes, are issued to such Purchaser, in each case in principal
amounts reflecting their Commitment, as adjusted pursuant to such
assignment." The Bank shall be the agent for the Purchasers and shall
collect an agency fee from them for acting in that capacity unless it
otherwise elects.
5. EXPENSES. The Borrower hereby agrees to reimburse the Bank for its
expenses incurred in the preparation of this Fifth Amendment and the other
writings executed by the parties in connection herewith, including reasonable
attorneys' fees.
6. MISCELLANEOUS. Except as amended hereby, all of the other terms of
the Loan Agreement shall remain the same. This Fifth Amendment shall be
governed by the laws of the State of Minnesota and may not be waived, amended or
modified except in writing signed by all the parties hereto. The Borrower
represents, warrants and agrees that as of the date hereof, the Borrower has no
offsets, counterclaims or defenses against its obligations under the Loan
Agreement, as amended hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
Merrill Corporation
By:/s/Rick Atterbury
------------------------------------------
Its: Executive Vice President
By:/s/Kay A. Barber
------------------------------------------
Its: CFO
First Bank National Association
By:/s/Steven L. Flack
------------------------------------------
Its: Vice President
7
<PAGE>
ATTACHMENT I
DRAW REQUEST
Merrill Corporation, a Minnesota corporation (the "Borrower"), hereby
submits this Draw Request to First Bank National Association, a national
association, and its permitted successors, participants and assigns (the "Bank")
pursuant to the provisions of paragraph 1 of the Fifth Amendment to Restated and
Amended Revolving Credit Agreement, dated as of April 12, 1996 (the "Fifth
Amendment to Credit Agreement"). Capitalized terms not otherwise defined herein
shall have the meanings given to them in the Fifth Amendment to Credit
Agreement.
1. The Borrower hereby requests an Advance of $ which will be
used by the Borrower to fund the acquisition pursuant to the terms of the CPC
Purchase Agreement (the "Purchase Agreement").
2. The Advance should be made on April 12, 1996, by the Bank, pursuant to
the following [wiring] instructions:
________________________________________________________________________________
_______________________________________________________________________________.
3. The Borrower represents and warrants to the Bank that the
representations and warranties of the seller(s) contained in the Purchase
Agreement are true and correct to the best of the Borrower's knowledge and that
the acquisition will close pursuant to the terms of the Purchase Agreement
without material variance or waiver.
IN WITNESS WHEREOF, the undersigned has executed this Draw Request on
behalf of the Borrower, on this 12th day of April, 1996.
MERRILL CORPORATION
By:__________________________________________
Its:_____________________________________
<PAGE>
ATTACHMENT II
EXHIBIT A
RESTATED REVOLVING NOTE
$60,000,000 Minneapolis, Minnesota
April 12, 1996
For value received, the undersigned, Merrill Corporation, a
Minnesota corporation, hereby promises to pay on April 12, 1999, 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 Sixty Million Dollars
($60,000,000) 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 dated as of June 20, 1994, by and between the
undersigned and the Bank, as amended.
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 represents the restatement of and an increase in the Restated Revolving
Note dated August 29, 1995 payable by the undersigned, to the order of the Bank,
and not the repayment thereof.
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.
1
<PAGE>
Presentment or other demand for payment, notice of dishonor and
protest are expressly waived.
MERRILL CORPORATION
By:_____________________________________
Its:__________________________________
By:____________________________________
Its:________________________________
<PAGE>
ATTACHMENT III
OPINION OF BORROWER'S GENERAL COUNSEL
<PAGE>
[MERRILL CORPORATION]
April 12, 1996
First Bank National Association
First Bank Place
601 Second Avenue South
8th Floor
Minneapolis, MN 55402
Attention: Mr. Steven L. Flack
Gentlemen:
I am General Counsel to Merrill Corporation, a Minnesota
corporation (the "Borrower"), and have represented the Borrower in connection
with the execution and delivery of the $60,000,000 Restated Revolving Note
payable to First Bank National Association, and the Fifth Amendment to Restated
and Amended Revolving Credit Agreement, each of even date herewith. In my
capacity as counsel to the Borrower, I have examined the following documents:
a. The $60,000,000 Restated Revolving Note payable by the
Borrower to the order of the Bank; and
b. The Fifth Amendment to Restated and Amended Revolving
Credit Agreement (the "Fifth Amendment"), which amends the
Restated and Amended Revolving Credit Agreement, dated as
of June 20, 1994, as amended as of September 29, 1994,
April 20, 1995, August 29, 1995, and February 29, 1996
(herein, as amended, the "Credit Agreement"); and
c. The Articles of Incorporation and the Bylaws of the
Borrower; and
d. A Good Standing Certificate of the Borrower; and
e. Certified Resolutions of the Board of Directors of the
Borrower authorizing and approving the loan transaction.
I am also General Counsel to Merrill/New York Corporation, FMC Resource
Management Corporation, and Merrill/May, Inc. (collectively, the "Guarantors"),
and have represented them in connection with the execution and delivery of a
Corporate Guaranty of even date herewith (the "Guaranty") of the indebtedness
and other obligations owed to the Bank by the Borrower. In my capacity as
counsel to the Guarantors, I have examined the following documents:
<PAGE>
First Bank National Association
April 12, 1996
Page 2
a. The Guaranty; and
b. The Articles of Incorporation and the Bylaws of each
Guarantor; and
c. A Good Standing Certificate of each Guarantor; and
d. Certified Resolutions of the board of Directors of each
Guarantor authorizing and approving the execution and
delivery of the Guaranty.
I have also examined such other documents, official records and
other instruments and such laws and regulations as I have deemed necessary in
order to render this opinion. In such examination, I have assumed the
genuineness of all signatures other than those of the officers of the Borrower
and the Guarantors, the authenticity of all documents submitted to me as
originals and the conformity with the originals of all documents submitted to me
as copies. As used herein, "Loan Documents" shall mean the Restated Revolving
Note, the Loan Agreement and the other documents delivered in connection
therewith. Any undefined capitalized terms used in this opinion shall have the
meanings assigned to them in the Loan Agreement.
Based upon the foregoing, it is our opinion that:
1. The Borrower is a corporation duly organized and validly
existing and in good standing under the laws of the State of Minnesota, is duly
qualified and in good standing in each state where the nature of its business
requires such qualification, and has full corporate power and authority to
execute and deliver the Loan Documents to which it is a party. Each Subsidiary
is a corporation duly organized and validly existing and in good standing under
the laws of its state of incorporation. The Borrower and each Guarantor have
all requisite power and authority to execute and deliver the Loan Documents and
Guaranty, respectively, to perform its obligations under the Loan Documents and
Guaranty, respectively, and to engage in the transactions contemplated thereby.
2. The Loan Documents and Guaranty each constitute the legal,
valid and binding obligations of the Borrower and each Guarantor, respectively,
enforceable in accordance with its respective terms, except as enforceability
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium, or
other similar laws affecting creditors' rights generally and by general
principles of equity.
<PAGE>
First Bank National Association
April 12, 1996
Page 3
3. The execution, delivery and performance by the Borrower of
the Loan Documents, and by each Guarantor of the Guaranty, do not and will not
(i) require any consent or approval of the stockholders of the Borrower or any
Guarantor 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 any Guarantor, 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 or any Guarantor 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 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 or any Guarantor.
4. There is no litigation pending or, to the best of my
knowledge (after due inquiry), threatened in any way questioning the execution
or validity of any of the instruments and documents executed by the Borrower or
any Guarantor in connection with the transaction contemplated by the Loan
Documents; and there are no other legal or governmental proceedings pending, or
to the best of our knowledge, threatened or contemplated by governmental
authorities or others, by which the Borrower or any Guarantor is or may be
bound, or to which any property of the Borrower or any Guarantor is or may be
subject, which, if determined adversely to the Borrower or any Guarantor, would
individually or in the aggregate have material, adverse effect on the financial
position or results of operations of the Borrower or the Guarantor.
Yours very truly,
Stephen J. Machov
General Counsel
Merrill Corporation
<PAGE>
----------------------------------------------------------
ASSET PURCHASE AGREEMENT
----------------------------------------------------------
BY AND AMONG
MERRILL CORPORATION,
MERRILL/NEW YORK COMPANY
AND
THE CORPORATE PRINTING COMPANY, INC.,
CPC COMMUNICATIONS, INC.,
CPC REPROGRAPHICS, INC.
THE CORPORATE PRINTING COMPANY INTERNATIONAL, LTD.,
CP INTERNATIONAL HOLDINGS, INC.,
CPC MANAGEMENT SERVICES, INC.
THE CORPORATE PRINTING COMPANY INTERNATIONAL SNC,
THE CORPORATE PRINTING COMPANY INTERNATIONAL PTE LTD.
OAKLAND COMPOSITION LIMITED PARTNERSHIP
AND
SHAREHOLDERS OF THE ABOVE AFFILIATED COMPANIES
DATED AS OF APRIL 15, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1 PURCHASE OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Assets to be Purchased . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Liabilities Assumed. . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.4 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.5 Instruments of Transfer to Purchaser . . . . . . . . . . . . . . . 11
ARTICLE 2 REPRESENTATIONS AND WARRANTIES
OF THE AFFILIATED COMPANIES AND SHAREHOLDERS . . . . . . . . . . . 12
2.1 Disclosure Schedule. . . . . . . . . . . . . . . . . . . . . . . . 12
2.2 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . 13
2.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.4 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.5 Non-Contravention. . . . . . . . . . . . . . . . . . . . . . . . . 14
2.6 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . 15
2.7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 15
2.8 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . 15
2.9 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . 16
2.10 The Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.11 Schedules; No Contract Defaults. . . . . . . . . . . . . . . . . . 17
2.12 Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.13 Receivables and Payables . . . . . . . . . . . . . . . . . . . . . 19
2.14 Intellectual Property Rights . . . . . . . . . . . . . . . . . . . 20
2.15 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.16 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.17 Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.18 Orders, Commitments and Returns. . . . . . . . . . . . . . . . . . 23
2.19 Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.20 Business Generally . . . . . . . . . . . . . . . . . . . . . . . . 24
2.21 Compliance with Law; Permits and Other Operating Rights. . . . . . 24
2.22 Environmental and Safety Matters . . . . . . . . . . . . . . . . . 24
2.23 Transactions with Certain Persons. . . . . . . . . . . . . . . . . 26
2.24 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.25 Absence of Certain Business Practices. . . . . . . . . . . . . . . 27
2.26 Information Concerning Merrill; Knowledge and Experience of
Affiliated Companies and the Shareholders. . . . . . . . . . . . . 27
2.27 Customers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.28 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 3 REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER AND MERRILL . . . . . . . . . . . . . . . . . . . 28
3.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . 28
3.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
-i-
<PAGE>
3.3 Non-Contravention. . . . . . . . . . . . . . . . . . . . . . . . . 28
3.4 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . 29
3.5 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.6 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.7 Litigation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.8 Absence of Certain Business Practices. . . . . . . . . . . . . . . 29
3.9 Disclosure.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.10 Certain Actions. . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 4 COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.1 Conduct of Business of the Affiliated Companies. . . . . . . . . . 30
4.2 No Solicitation of Alternate Transaction . . . . . . . . . . . . . 32
4.3 Full Access to Purchaser . . . . . . . . . . . . . . . . . . . . . 33
4.4 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.5 Filings; Removal of Objections; Consents . . . . . . . . . . . . . 34
4.6 Further Assurances; Cooperation; Notification. . . . . . . . . . . 34
4.7 Supplements to Disclosure Schedule . . . . . . . . . . . . . . . . 35
4.8 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . 35
4.9 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.10 Bulk Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.11 Non-Competition Agreement; Employment Agreement. . . . . . . . . . 36
4.12 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . 37
4.13 Directors and Shareholders Authorization; Change of Corporate Name 40
4.14 Additional Post-Closing Obligations of Affiliated Companies and
the Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.15 Guarantee by Merrill . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE 8 SURVIVAL AND INDEMNIFICATION . . . . . . . . . . . . . . . . . . . 41
8.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.2 Indemnification by Merrill and the Purchaser . . . . . . . . . . . 42
8.3 Indemnification by Affiliated Companies and the Shareholders . . . 42
8.4 Basket Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.5 Right of Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.6 Claims for Indemnification . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 9 MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . 44
9.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.3 Amendment and Modification . . . . . . . . . . . . . . . . . . . . 44
9.4 Waiver of Compliance; Consents . . . . . . . . . . . . . . . . . . 44
9.5 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . 45
9.6 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
-ii-
<PAGE>
9.8 Governing Law; Jurisdiction. . . . . . . . . . . . . . . . . . . . 46
9.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.10 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.11 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.12 Injunctive Relief. . . . . . . . . . . . . . . . . . . . . . . . . 47
9.13 Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . . 48
9.14 Shareholder's Representative.. . . . . . . . . . . . . . . . . . . 48
-iii-
<PAGE>
LIST OF EXHIBITS
NAME OF EXHIBIT NUMBER OF EXHIBIT
- --------------- -----------------
Trade and Other Names to be Purchased. . . . . . . . . Exhibit 1.1(a)
Excluded Assets. . . . . . . . . . . . . . . . . . . . Exhibit 1.1(b)
Liabilities Undertaking. . . . . . . . . . . . . . . . Exhibit 1.2
Escrow Agreement . . . . . . . . . . . . . . . . . . . Exhibit 1.3(b)(ii)
Allocation of Participation Payment
Among Shareholders . . . . . . . . . . . . . . . . Exhibit 1.3(c)
Allocation of Purchase Price Among
the Assets . . . . . . . . . . . . . . . . . . . . Exhibit 1.3(f)
Bill of Sale . . . . . . . . . . . . . . . . . . . . . Exhibit 1.5
Indemnification Percentages for Shareholders . . . . . Exhibit 2
Disclosure Schedule. . . . . . . . . . . . . . . . . . Exhibit 2.1
Information Required to be Kept Confidential
By Merrill . . . . . . . . . . . . . . . . . . . . Exhibit 4.4
Non-Competition Agreement. . . . . . . . . . . . . . . Exhibit 4.11(a)
Employment Agreement . . . . . . . . . . . . . . . . . Exhibit 4.11(b)
Opinion of Affiliated Companies Counsel. . . . . . . . Exhibit 5.7
Opinion of Purchaser Counsel . . . . . . . . . . . . . Exhibit 6.6
-iv-
(Omitted from this Agreement, as filed, are the above-referenced exhibits. The
Registrant will furnish supplementally a copy of any such omitted exhibits to
the Commission upon request.)
<PAGE>
LIST OF DEFINED TERMS
TERM PAGE
- ---- ----
Acquisition Proposals. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Affiliated Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Affiliated Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
American Arbitration Rules . . . . . . . . . . . . . . . . . . . . . . . . . 47
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Assumed Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Assumed Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Average Stock Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Bad Debt Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Best Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Closing Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Closing Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Consent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Cooney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Corporate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Corporate Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
CP Holdings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
CPC International SNC. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
CPC International. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
CPC Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
CPC Press Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
CPC Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
CPC Shipping Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Disclose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Disclosure Schedule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Dispute. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Doherty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Environmental and Occupational Safety and Health Law . . . . . . . . . . . . 26
Environmental Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Environmentally Regulated Materials. . . . . . . . . . . . . . . . . . . . . 26
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Glick. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Guaranteed Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Indemnification Percentages. . . . . . . . . . . . . . . . . . . . . . . . . 12
Indemnified Party. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Indemnifying Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
-v-
<PAGE>
Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . 20
Knowledge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Latest Unaudited Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . 15
Latest Audited Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . 15
Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Liabilities Undertaking. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Mediation Deadline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Merrill Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Merrill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Multiemployer Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Non-Competition Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 36
Notice Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Oakland. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Participation Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Partnership Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Permitted Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Purchaser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Reprographics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Retained Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Shifrin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Tax Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Transaction Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Transferred Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
WARN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
-vi-
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of April 15, 1996, is by and among
Merrill Corporation, a Minnesota corporation ("MERRILL"), Merrill/New York
Company, a Minnesota corporation and wholly owned subsidiary of Merrill (the
"PURCHASER"), The Corporate Printing Company, Inc., a New York corporation
("CORPORATE"), CPC Communications, Inc., a New York corporation ("CPC
COMMUNICATIONS"), CPC Reprographics, Inc., a New York corporation
("REPROGRAPHICS"), The Corporate Printing Company International, Ltd., a New
York corporation ("CPC INTERNATIONAL"), CP International Holdings, Inc., a
Delaware corporation ("CP HOLDINGS") CPC Management Services, Inc., a New York
corporation ("CPC MANAGEMENT"), The Corporate Printing Company International
SNC, a partnership organized under the laws of the Republic of France ("CPC
INTERNATIONAL SNC"), The Corporate Printing Company International PTE Ltd., a
Singapore corporation ("CPC INTERNATIONAL PTE"), Oakland Composition Limited
Partnership, a limited partnership organized under the laws of the State of
Maryland ("OAKLAND"), (Corporate, CPC Communications, Reprographics, CPC
International, CP Holdings, CPC Management, CPC International SNC, CPC
International PTE, and Oakland are collectively referred to in this Agreement as
the "AFFILIATED COMPANIES"), George Shifrin ("SHIFRIN"), John Doherty
("DOHERTY"), Joel E. Glick ("GLICK") and Harold A. Cooney ("COONEY")(Shifrin,
Doherty, Glick and Cooney are collectively referred to as the "SHAREHOLDERS").
A. The parties hereto wish to provide for the terms and conditions upon
which the Purchaser will acquire substantially all of the assets of the
Affiliated Companies.
B. The parties hereto wish to make certain representations, warranties,
covenants and agreements in connection with the purchase of the assets and also
to prescribe various conditions to such transaction.
Accordingly, and in consideration of the representations, warranties,
covenants, agreements and conditions herein contained, the parties hereto agree
as follows:
ARTICLE 1
PURCHASE OF ASSETS
1.1 ASSETS TO BE PURCHASED.
(a) Upon the terms and subject to the conditions of this Agreement
and except for those assets described in Section 1.1(b), the Affiliated
Companies will sell, transfer, convey, assign and deliver to the Purchaser
and the Purchaser will purchase (and Merrill will cause the Purchaser to so
purchase), as a going concern, from the Affiliated Companies, at the
Closing hereunder, all of the business, assets, properties, goodwill and
rights of the Affiliated Companies, of every nature, kind and description,
tangible and intangible, real, personal or mixed, wheresoever located and
whether or not carried or reflected on the books and records of the
Affiliated Companies including, without limitation, cash and cash
equivalents, real and personal property that is now owned or leased by any
of the Affiliated Companies or in which any of the Affiliated Companies has
any right or interest; franchises; all right, title and interest in and to
the use of any and all of the Affiliated Companies' corporate names and any
derivatives or combinations thereof, including, without limitation, those
listed in Exhibit 1.1(a) hereto; logos, trademarks, trademark registrations
and trademark applications or registrations thereof, including the goodwill
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associated therewith; the goodwill of the Affiliated Companies' business;
copyrights, copyright applications and copyright registrations, patents and
patent applications; rights under or pursuant to licenses by or to any of
the Affiliated Companies; development and prototype hardware, software,
processes, formula, trade secrets, inventories and royalties, including all
rights to sue for past infringements; leaseholds and other interests in
land, inventory (accumulated costs of jobs and supplies), equipment,
machinery, furniture, fixtures, motor vehicles and supplies; cash, money
and deposits with financial institutions and others, certificates of
deposit, commercial paper, notes, evidences of indebtedness, stocks, bonds
and other investments; accounts receivables; prepaid expenses; insurance
policies, contracts, purchase orders, customers, lists of customers and
suppliers, sales representative agreements, and all favorable business
relationships, causes of action, judgments, claims and demands of whatever
nature; all credit balances of or inuring to any of the Affiliated
Companies under any state unemployment compensation plan or fund;
employment contracts; obligations of the present and former officers and
employees and of individuals and corporations; rights under joint venture
agreements or arrangements; files, papers and records relating to the
Affiliated Companies' business and assets; and the assets as reflected on
the Latest Unaudited Balance Sheet (as hereinafter defined) and other
assets acquired by the Affiliated Companies since the date of the Latest
Unaudited Balance Sheet, with only such dispositions of such assets
reflected on the Latest Unaudited Balance Sheet (as hereinafter defined) as
will have occurred in the ordinary course of the Affiliated Companies'
business between the date thereof and the Closing and which are permitted
by the terms hereof (the foregoing are sometimes collectively called the
"ASSETS").
(b) Notwithstanding the foregoing, Affiliated Companies will not
sell, transfer, convey, assign or deliver to the Purchaser, and the
Purchaser will not purchase from the Affiliated Companies, the following
assets:
(i) the consideration delivered to the Affiliated Companies
pursuant to this Agreement for the Assets;
(ii) the minute books, corporate seal and stock records of the
Affiliated Companies;
(iii) shares of the capital stock or other interests representing
the ownership of the Affiliated Companies, including shares or other
interests held by any of the Affiliated Companies as treasury shares
or otherwise;
(iv) any assets of any of the Affiliated Companies located in
(A) its press room at 225 Varick Street, New York, New York, and used
therein by employees of the Affiliated Companies represented by
Graphic Communications Union Local 51, G.C.I.U.-A.F.L.-C.I.O.-C.L.C.
and other employees (the "CPC PRESS BUSINESS") and (B) its shipping
department at 225 Varick Street, New York, New York, and used therein
by employees of the Affiliated Companies represented by Graphic
Communications International Union, Local 119B-Local 43B and other
employees (the "CPC SHIPPING BUSINESS"), all of which assets are
specifically described on Exhibit 1.1(b) hereto; and
(v) the assets specifically described on Exhibit 1.1(b) hereto.
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1.2 LIABILITIES ASSUMED. At the Closing, the Purchaser will assume the
liabilities of the Affiliated Companies (the "ASSUMED LIABILITIES") set forth
on Exhibit 1.2 (the "LIABILITIES UNDERTAKING") by executing and delivering to
the Affiliated Companies and the Shareholders the Liabilities Undertaking. The
Affiliated Companies and the Shareholders expressly understand and agree that
except for the Assumed Liabilities, the Purchaser and Merrill have not agreed to
pay, will not be required to assume and will have no liability or obligation,
direct or indirect, absolute or contingent, of any of the Affiliated Companies,
any of the Shareholders or any of their respective Affiliates or Associates (as
defined herein), which liabilities will, as between the Affiliated Companies and
the Shareholders, on the one hand, and the Purchaser and Merrill, on the other
hand, remain the sole responsibility of, and will be satisfied by, the
Affiliated Companies or the Shareholders (the "RETAINED LIABILITIES"), including
without limitation:
(a) any debt, liability or obligation arising out of or relating to
(i) the Union Contracts (as hereinafter defined); (ii) the employment
relationships with any of the individuals covered by the Union Contracts,
including without limitation, wages or benefits; (iii) the employment
relationships with respect to four employees not members of the collective
bargaining units who will be employed by the CPC Press Business or the CPC
Shipping Business, namely, R. Carpenter, M. Giannavola, I. Isaac and A.
Mercato; and (iv) leases on equipment used in the CPC Press Business or the
CPC Shipping Business;
(b) any obligation for Taxes (as hereinafter defined) related to any
of the Assets for any Tax period or portion thereof ending on or before the
Closing Date (including any tax liability relating to or arising from the
transfer of Assets) and any obligation for other Taxes of the Affiliated
Companies or any of the Shareholders, except to the extent that the same
was expressly assumed by Merrill or the Purchaser pursuant to the terms of
the Liabilities Undertaking;
(c) any debt, liability or obligation, direct or indirect, known or
unknown, fixed, contingent or otherwise, based upon or arising from any
act, omission, transaction, circumstance, state of facts or other condition
occurring or existing on or before the Closing Date and relating to any
collective bargaining agreement or any employee benefit plan, policy,
practice or agreement to which any of the Affiliated Companies is a party
or under which any of the Affiliated Companies' employees or former
employees is covered, including without limitation any obligation to
contribute to, or any obligation or liability for any withdrawal liability
arising in connection with, any Multiemployer Plan (as hereinafter defined)
attributable to participation therein by current or former employees of the
Affiliated Companies as a result of this Agreement and the transactions
contemplated hereby or otherwise or any of the matters described in
Sections 2.17 or 2.19 of the Disclosure Schedule; and
(d) (i) any liability arising out of or related to the events,
circumstances or conditions described in Section 2.22 of the Disclosure
Schedule; (ii) any liability arising out of or related to the management of
wastes, byproducts or spent materials generated by the Affiliated Companies
or any subsidiary or former subsidiaries; or (iii) any liability arising
out of or related to any pollution or threat to human health or the
environment or violation of any Environmental and Occupational Safety and
Health Law (as hereinafter defined) that is related in any way to any of
the Affiliated Companies' or, to the Knowledge of any of the Shareholders,
any previous owner's or operator's management, use, control, ownership or
operation of the Assets, any Property (as hereinafter defined) or the
business of any of the Affiliated Companies, including without limitation
any on-site or off-site activities involving Environmentally Regulated
Materials
3
<PAGE>
(as hereinafter defined), and that occurred, existed, arises out of
conditions or circumstances that occurred or existed, or was caused, in
whole or in part, on or before the Closing Date, whether or not the
pollution or threat to human health or the environment or violation of any
Environmental and Occupational Safety and Health Law is described in the
Disclosure Schedule; and any Environmental Claim (as hereinafter defined)
against any person or entity whose liability for such Environmental Claim
any of the Affiliated Companies or any Shareholder has or may have assumed
or retained either contractually or by operation of law.
At the Closing, the Affiliated Companies will convey, transfer and assign, and
the Purchaser will accept and assume, those contracts, agreements and
commitments listed on the Liabilities Undertaking to be assumed by Purchaser
(the "ASSUMED CONTRACTS").
1.3 PURCHASE PRICE.
(a) The total consideration to be paid by the Purchaser to the
Affiliated Companies for the Assets (the "PURCHASE PRICE") will be an
amount equal to:
(i) Twenty-Two Million Six Hundred Thousand Four Hundred Dollars
($22,600,400) LESS, on a dollar-for-dollar basis, (x) the amount, if
any, (A) of the aggregate of liabilities of the Affiliated Companies
as of January 31, 1996 to (aa) Fleet Bank pursuant to the Second
Amended and Restated Credit Agreement dated as of January 31, 1994
between certain of the Affiliated Companies and Fleet Bank, (bb) New
York Typographical Union No. 6 (the "Typographical Union") pursuant to
the Subordinated Note Agreement dated as of December 29, 1994 by and
among certain of the Affiliated Companies and the Typographical Union
and the related Junior Secured Subordinated Note payable to the
Typographical Union dated December 29, 1994, in the original principal
amount of $5,000,000, and (cc) Deferred Income Taxes payable as
reflected on the Latest Unaudited Balance Sheet (as hereinafter
defined), in excess of (B) Ten Million Dollars ($10,000,000), and (y)
the amount, if any, by which (A) the book value of the Assets on the
Latest Unaudited Balance Sheet (as hereinafter defined), excluding the
book value on such balance sheet of any assets specifically described
in Exhibit 1.1(b) hereto, less (B) the Assumed Liabilities shown on
the Latest Unaudited Balance Sheet, is less than Thirteen Million Two
Hundred Thousand Dollars ($13,200,000);
LESS (ii) any adjustment in connection with the collection
of Guaranteed Receivables pursuant to Section 1.3(e) hereof;
LESS (iii) an amount equal to any net loss of the Affiliated
Companies between January 1, 1996 and the Closing Date, as reflected
in the Closing Balance Sheet;
PLUS (iv) any Participation Payment, as defined in Section
1.3(c) hereof;
PLUS (v) an amount equal to 11% of the net income of the
Affiliated Companies which are S corporations from February 1, 1996 to
the Closing Date, payable to the Shareholders (85% to Shifrin; 5% to
Glick; and 10% to Doherty) five business days after the parties agree
on the completed Closing Balance Sheet pursuant to Section 1.3(e)
hereto; and
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<PAGE>
LESS (vi) closing expenses for the Affiliated Companies' Paris,
France and Hong Kong offices.
In addition, the Purchaser will assume the Assumed Liabilities as of the
Closing Date pursuant to the Liabilities Undertaking referred to in Section
1.2 hereof. The Shareholders hereby acknowledge and agree that the amounts
paid to each Affiliated Company are adequate consideration for the purchase
of the Assets of each of the Affiliated Companies and represent the fair
market value of the Assets of each such entity. Immediately prior to the
Closing, Shifrin, Doherty and Glick were the sole direct and indirect
shareholders of the Affiliated Companies. Although Cooney is not a direct
or indirect shareholder of the Affiliated Companies, pursuant to Section
4.11 below Cooney has agreed to be a party to, and a "Shareholder" as
defined in, this Agreement. Effective as of the Closing, the Affiliated
Companies will redeem all of the shares of the Affiliated Companies then
owned by Doherty or Glick. Payment of the Purchase Price to the Affiliated
Companies will be made to the Shareholders in the manner set forth in this
Agreement on behalf of the Affiliated Companies in connection with the
redemption of their shares or the liquidation of the Affiliated Companies.
(b) At the Closing, the Purchaser will:
(i) Pay the Affiliated Companies, by wire transfer,
immediately available funds of Nineteen Million Six Hundred Thousand
Four Hundred Dollars ($19,600,400) (the "CLOSING PAYMENT") to a bank
account of the Affiliated Companies pursuant to written instructions
of the Affiliated Companies given to the Purchaser at least 48 hours
prior to the Closing, in the amounts and to the Affiliated Companies
as indicated on Exhibit 1.3(b)(i);
(ii) Deliver Three Million Dollars ($3,000,000) to First
Trust National Association (the "Escrow Agent") pursuant to the terms
and conditions of the Escrow Agreement attached hereto as Exhibit
1.3(b)(ii) (the "Escrow Agreement"). The parties hereto intend that
the funds held by the Escrow Agent (together with the interest or
other income earned thereon) may be used as a nonexclusive means to
satisfy the Purchaser's claims under this Agreement, pursuant to and
in accordance with Section 8.5. The term of the Escrow Agreement
shall be for a period of six months; and
(iii) Execute and deliver to the Affiliated Companies the
Liabilities Undertaking.
(c) As additional consideration for the acquisition of the Assets by
the Purchaser, the Affiliated Companies may be entitled to receive an
additional payment from the Purchaser, pursuant to the terms and conditions
of this Section 1.3(c).
(i) At any time during the five-year period beginning on
the Closing Date, the Affiliated Companies, acting through the
Representative (as hereinafter defined), have the right (the "PUT
RIGHT"), in the event of certain increases in the Average Stock Price
(as defined below) of the common stock, $.01 par value, of Merrill
("MERRILL COMMON STOCK") referred to in this Section, to cause the
Purchaser to make to the Affiliated Companies a cash payment (the "PUT
PARTICIPATION PAYMENT"), as set forth on Exhibit 1.3(c) hereto. The
amount of any Put Participation Payment to be made pursuant to the
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<PAGE>
exercise of a Put Right will be equal to 800,000 (the "MULTIPLIER")
multiplied by the increase after the Closing Date in the Average Stock
Price (as hereinafter defined) of Merrill Common Stock from the Base
Stock Price (as hereinafter defined) (such an increase is herein
defined as a "MERRILL STOCK PRICE INCREASE"); provided, however, that
notwithstanding anything in this Agreement to the contrary, in no
event will the Put Participation Payment exceed $8,000,000 during the
period commencing on the Closing and ending on the third anniversary
of the Closing Date; $10,000,000 during the period commencing on the
day after the third anniversary of the Closing Date and ending on the
fourth anniversary of the Closing Date; and $12,000,000 during the
period commencing on the day after the fourth anniversary of the
Closing Date and ending on the fifth anniversary of the Closing Date.
In case Merrill at any time after the date of this Agreement
subdivides the outstanding Merrill Common Stock into a greater number
of shares or declares a dividend payable in Merrill Common Stock, the
amount of the Multiplier will be proportionately increased and the
amount of the Base Price will be proportionately decreased, and
conversely, in case the outstanding Merrill Common Stock is combined
into a smaller number of shares, the amount of the Multiplier will be
proportionately decreased and the amount of the Base Price will be
proportionately increased. The Put Right will not be exercisable from
and after the date the Purchaser exercises its Call Right pursuant to
paragraph (ii) below. In no event will the Representative be
permitted to exercise the Put Right after the fifth anniversary of the
Closing Date. Notwithstanding the foregoing, in accordance with and
subject to the provisions of Sections 8.5, 9.12(c) and 9.12(d) hereof,
the Purchaser may set off any amount to which it or Merrill may be
entitled under Article 8 (including without limitation the time limits
expressed therein) against the Participation Payment.
(ii) At any time during the five-year period beginning on
the Closing Date, the Purchaser has the right (the "CALL RIGHT") to
make to the Affiliated Companies a cash payment (the "CALL
PARTICIPATION PAYMENT"), in the percentages set forth on Exhibit
1.3(c) hereto, in lieu of making a Put Participation Payment. The
amount of any Call Participation Payment to be made pursuant to the
exercise of a Call Right will be equal to the amount determined from
the table below. From and after the time that the Purchaser exercises
its Call Right, the Put Right will cease being exercisable; provided
that if the Purchaser fails to make the Call Participation Payment as
provided in this Section 1.3(c) (except for any failure to pay
pursuant to Section 8.5) the Affiliated Companies' Put Right will be
reinstated. The Put Participation Payment and the Call Participation
Payment are sometimes referred to herein as the "PARTICIPATION
PAYMENTS").
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Call
Time Period Participation Payment
----------- ---------------------
From Closing Date to third anniversary
of Closing Date $8,000,000
From the day after the third anniversary
to fourth anniversary of Closing Date $10,000,000
From the day after the fourth anniversary
to fifth anniversary of Closing Date $12,000,000
(iii) The Representative of the Affiliated Companies will exercise
their Put Right, and the Purchaser will exercise its Call Right, by
providing written notice of such exercise to the other party. Within sixty
(60) days from the dispatch by the Representative of the Put Notice or
within sixty (60) days from the dispatch by the Purchaser of the Call
Notice, as the case may be, the Purchaser will pay the Affiliated
Companies, as set forth on Exhibit 1.3(c) hereof, by wire transfer, either
the Put Participation Payment or the Call Participation Payment, as the
case may be, in immediately available funds to bank accounts designated by
the Representative to the Purchaser pursuant to written instructions
received by the Purchaser at least 48 hours prior to such date of payment.
(iv) In case of any consolidation or merger to which Merrill is a
party (other than a merger or consolidation in which Merrill is the
continuing corporation and in which Merrill Common Stock outstanding
immediately prior to the merger or consolidation is not exchanged for cash,
or the securities or other property of another corporation), or in case of
any sale or conveyance to another corporation of the property of Merrill as
an entirety or substantially as an entirety, or in the case of any
statutory exchange of securities with another corporation (other than in
connection with a merger or consolidation) (collectively, a "MERRILL
ACQUISITION"), the corporation formed by such consolidation or the
corporation whose securities, cash or other property will immediately after
the merger or consolidation be owned, by virtue of the merger or
consolidation, by the holders of Merrill Common Stock immediately prior to
the merger or the corporation which shall have acquired such assets or
securities of Merrill, as the case may be, shall execute and deliver to the
Representative an agreement pursuant to which such corporation will assume
all of the rights and obligations of Merrill and the Purchaser pursuant to
this Section 1.3(c), except that the Multiplier, the Average Stock Price,
the Base Stock Price and the Merrill Stock Price shall be appropriately
adjusted to provide for a potential economic benefit to the Affiliated
Companies essentially equivalent to that which would be available pursuant
to this Section 1.3(c) had such consolidation, merger, sale or conveyance
not taken place; provided, however, that if in connection with such a
Merrill Acquisition, substantially all shares of Merrill Common Stock
outstanding immediately prior to the effectiveness of the Merrill
Acquisition are not changed into or exchanged for equity securities of the
surviving corporation or the ultimate parent of the surviving corporation
("ACQUISITION SECURITIES"), which Acquisition Securities, immediately
following the effectiveness thereof, are listed for trading on the New York
Stock Exchange or the American Stock Exchange or are traded on the Nasdaq
National
7
<PAGE>
Market, then prior to the closing of the Merrill Acquisition, the Purchaser
will be required to make a Call Participation Payment to the Affiliated
Companies in an amount set forth in paragraph (ii) above. Merrill agrees
to provide twenty (20) days' advance written notice to the Representative
prior to the closing of any Merrill Acquisition.
(v) Neither the Affiliated Companies nor any Shareholder has taken
nor will they take, directly or indirectly, any action designed to or which
has constituted, or which might reasonably be expected to cause or result
in, manipulation of the price of Merrill Common Stock.
(vi) For purposes of this Section 1.3(c), the following terms have the
following meaning:
(1) "AVERAGE STOCK PRICE" means (i) the average of the
average between the high and low reported sales prices of one
share of Merrill Common Stock on the national over-the-counter
market, as reported by the Nasdaq National Market on each of the
thirty (30) trading days ending on the third trading day
immediately preceding the Notice Date (hereinafter defined) if
Merrill Common Stock is listed, admitted to unlisted trading
privileges, or reported on any national securities exchange or on
the Nasdaq National Market System; or (ii) if Merrill Common
Stock is not so listed, admitted to unlisted trading privileges,
or reported on any national exchange or on the Nasdaq National
Market System, the average reported closing bid price of one
share of Merrill Common Stock during the thirty (30) trading days
ending on the third trading day immediately preceding the Notice
Date, as reported by the Nasdaq System or the National Quotation
Bureau, Inc., or a comparable service; or (iii) if Merrill Common
Stock is not listed, admitted to unlisted trading privileges, or
reported on any national exchange, listed on the Nasdaq National
Market System or reported by the Nasdaq System, the National
Quotation Bureau, Inc. or a comparable service, such price as the
Board of Directors of Merrill determines in good faith in the
exercise of its reasonable discretion.
(2) "BASE STOCK PRICE" means the average of the high and
low reported sales prices of one share of Merrill Common Stock on
the national over-the-counter market on April 12, 1996, as
reported by the Nasdaq National Market.
(3) "NOTICE DATE" means the date of dispatch by the
Purchaser of notice of the exercise of the Put Right by the
Affiliated Companies, or, in the case of the exercise of the Call
Right, on the date of dispatch by the Purchaser of the notice
exercising the Purchaser's Call Right.
(d) For a period of 180 days after the Closing Date, the Purchaser
will use its commercially reasonable efforts (which efforts will include
consultation with the Representative) to collect the accounts receivable
included in the Assets reflected on the Latest Unaudited Balance Sheet (as
hereinafter defined) (the "GUARANTEED RECEIVABLES") in accordance with the
Affiliated Companies' prior reasonable commercial practices, which efforts
will be in addition to the efforts engaged in by the Purchaser to collect
any accounts receivable included in the Assets reflected
8
<PAGE>
on the Closing Balance Sheet that arose after the date of the Latest
Unaudited Balance Sheet. The Purchaser may in its discretion, reasonably
exercised, resort to litigation or the use of collection agencies or
similar efforts to collect the Guaranteed Receivables; provided, however,
that (i) all costs and expenses (including without limitation legal fees
and fees charged by collection agencies) in excess of an aggregate of
$20,000 incurred by Purchaser in connection with such efforts will be
deemed for purposes of this Section 1.3(d) to reduce the amount of any
Guaranteed Receivable collected pursuant to such efforts and (ii) the
Representative must consent to any legal fees incurred in connection with
the collection of any specific Guaranteed Receivables included in the
Assets that had been written off prior to the date of the latest Unaudited
Balance Sheet and which were not included in the Bad Debt Reserve (as
hereinafter defined) (the "WRITTEN-OFF RECEIVABLES"). Any payment made to
the Purchaser or any affiliate of the Purchaser by an account debtor with
more than one outstanding account receivable will be applied to particular
accounts receivable as specified by the account debtor; provided, however,
that if such account debtor does not specify to which account receivable
the payment is to be applied, the Purchaser will apply such payments to the
oldest account receivable of such account debtor and then to the next
oldest account receivable of such account debtor until such payment has
been fully reflected. The Purchase Price will be reduced by the amount, if
any, by which the net amount of the Guaranteed Receivables not collected on
or before the 180th day after the Closing Date exceeds the Bad Debt Reserve
(as hereinafter defined) (such excess is hereinafter referred to as the
"GUARANTEED RECEIVABLES SHORTFALL"); provided, however, that
notwithstanding the existence of a Guaranteed Receivables Shortfall, the
Purchase Price will not be reduced pursuant to this Section 1.3(e) to the
extent that such Guaranteed Receivables Shortfall is less than an amount
equal to: (i) the amount, if any, by which (A) the book value of the Assets
on the Latest Unaudited Balance Sheet (as hereinafter defined), excluding
the book value on such balance sheet of any assets specifically described
on Exhibit 1.1(b) hereto, less (B) the Assumed Liabilities shown on the
Latest Unaudited Balance Sheet, exceeds Thirteen Million Two Hundred
Thousand Dollars ($13,200,000); plus (ii) the net amount of any Written-Off
Receivable collected by the Purchaser on or before the 180th day after the
Closing Date. For purposes of this Agreement, the term "BAD DEBT RESERVE"
means the Affiliated Companies' reserve for bad debts and reserve for
allowances as of the date of the Latest Unaudited Balance Sheet, determined
in a manner consistent with the prior practices of the Affiliated Companies
reflected in the Latest Audited Balance Sheet. The Purchaser will have the
right to obtain an amount equal to the reduction in the Purchase Price as
calculated pursuant to this Section 1.3(d) from the funds held by the
Escrow Agent in accordance with the terms of the Escrow Agreement and
Section 8.5 hereof, to the extent that at the time any such reduction is
determined the amount of such reduction is less than or equal to the amount
then held by the Escrow Agent under the Escrow Agreement as to which there
are not then outstanding claims made by Merrill or the Purchaser. In any
other event, the Purchaser will have the right to obtain the amount of such
reduction from either the funds held by the Escrow Agent or directly from
the Affiliated Companies, in either case in accordance with the terms of
Section 8.5 hereof.
(e) The Affiliated Companies will prepare and deliver to the
Purchaser a balance sheet for each of the Affiliated Companies as of the
beginning of business (and reflecting the completion of the transactions
pursuant to this Agreement) on April 15, 1996 (the "CLOSING BALANCE
SHEET"), which Closing Balance Sheet will be delivered in preliminary form
to the Purchaser on or before May 7, 1996 and in completed form to the
Purchaser on or before June 17, 1996. The Closing Balance Sheet will be
unaudited and will be prepared from the books and records of the Affiliated
Companies in accordance with generally accepted accounting principles
9
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and applied consistently with the principles, practices and procedures used
in the preparation of the Latest Audited Balance Sheet. All inventory and
supplies reflected on the Closing Balance Sheet shall be so reflected on
the basis of a complete physical count taken beginning April 13, 1996 and
shall be valued at the lower of cost or market in accordance with prior
practices of the Affiliated Companies as reflected in the Latest Audited
Balance Sheet. Representatives of both the Affiliated Companies and the
Purchaser shall have the right to participate in the taking of such
physical inventory and the valuation thereof. The Affiliated Companies,
the Shareholders and the Purchaser will provide each other with full
cooperation in connection with the preparation of the Closing Balance Sheet
(provided that normal operations of business of the Purchaser and Merrill
are not interfered with). Within 10 days after receipt of the Closing
Balance Sheet, the Purchaser will notify the Representative if it disagrees
with any of the amounts included in the Closing Balance Sheet. If such
notice is not given, the Closing Balance Sheet will be final and conclusive
for all purposes. If the parties are unable between themselves to resolve
the differences within 10 days of the receipt of the Closing Balance Sheet,
they will resolve their differences pursuant to Sections 9.12(c) and (d)
below.
(f) The Purchase Price will be allocated among the Assets in the
manner required by Section 1060 of the Internal Revenue Code of 1986, as
amended (the "CODE"). In making such allocation, the allocations set forth
in Exhibit 1.3(f) attached hereto will apply, which exhibit will be
completed based on the amounts shown in the Closing Balance Sheet. In
preparing Exhibit 1.3(f), the Purchaser and the Shareholders will negotiate
in good faith the values of the Assets and the resulting allocation of the
Purchase Price among the various Assets; it being understood that such
determination will be binding on the Purchaser and the Shareholders only
for the purposes of U.S. Federal, state and local taxation. The
Shareholders and the Purchaser will file all Tax Returns and tax reports
(including IRS Form 8594) in accordance with and based upon such allocation
and will take no position in any Tax Return, tax proceeding or tax audit
which is inconsistent with such allocation.
1.4 CLOSING. Unless this Agreement has been terminated and the
transactions contemplated have been abandoned pursuant to Article 7 hereof, a
closing (the "CLOSING") will be held on April 15, 1996 at 7:00 a.m.,
Minneapolis, Minnesota local time or at such other time as the parties may agree
upon (the "CLOSING DATE"); provided, however, that if any of the conditions
provided for in Articles 5 and 6 hereof have not been satisfied or waived by
such date, then the party to this Agreement which is unable to satisfy such
condition or conditions, despite the best efforts of such party, will be
entitled to postpone the Closing by notice to the other parties until such
condition or conditions will have been satisfied (which such notifying party
will seek to cause to happen at the earliest practicable date) or waived, but in
no event will the Closing occur later than June 1, 1996 (the "TERMINATION
DATE"). The parties will use their best efforts to complete the Closing by
April 15, 1996. The Closing will be held at such place as the parties may
agree, at such time as the parties may agree, at which time and place the
documents and instruments necessary or appropriate to effect the transactions
contemplated herein will be exchanged by the parties.
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1.5 INSTRUMENTS OF TRANSFER TO PURCHASER.
(a) At the Closing, the Affiliated Companies will deliver to the
Purchaser:
(i) such bills of sale, endorsements, assignments, deeds and
other good and sufficient instruments of conveyance and transfer, in
form and substance reasonably satisfactory to the Purchaser and its
counsel, as will be required to vest in the Purchaser title to the
Assets, including without limitation:
(A) an assignment of all of the Affiliated Companies' bank
accounts in form and substance satisfactory to the Purchaser;
(B) general bills of sale executed by each of the
Affiliated Companies vesting in the Purchaser good and marketable
title to all of the Assets in the form attached as Exhibit 1.5
hereof;
(C) appropriate endorsements and assignments of the
contracts, licenses, agreements, permits, plans, commitments and
other binding arrangements included in the Assets; and
(D) specific bills of sale, endorsements and assignments
transferring to Purchaser the Intellectual Property Rights (as
hereinafter defined).
(ii) all data relating to the assets, property, goodwill and
business included in any of the Affiliated Companies' business.
(b) The Affiliated Companies will deliver to the Purchaser, as
promptly as practicable after the Closing, but in any event within 10 days
for Affiliated Companies organized in the United States and 30 days for
Affiliated Companies organized outside of the United States, written
evidence reasonably satisfactory to the Purchaser that the Affiliated
Companies' names, other than Oakland, have been changed.
Simultaneously with such delivery, the Affiliated Companies will take all
actions necessary to put the Purchaser in actual possession and operating
control of the Assets.
1.6 CERTAIN LIABILITIES. Notwithstanding anything in this Agreement to
the contrary, the Affiliated Companies and the Shareholders will not be required
to indemnify Merrill or the Purchaser, or otherwise have liability to Merrill or
the Purchaser under this Agreement, with respect to:
(a) any claim by any current or former employee of the Affiliated
Companies, or the bargaining representative of any such current or former
employee, that (i) Merrill or the Purchaser is a "successor" to the
Affiliated Companies under the provisions of the Labor Management Relations
Act, 29 U.S.C. Section 141, et seq., or (ii) any claim that the Closing of
the transactions contemplated by this Agreement in and of itself
constitutes a breach of, or default, under (A) the Shop Rules and Wage
Scales Contract between C.P.C. Reprographics Financial Print Division and
Graphic Communications Union Local 51 G.C.I.U.-A.F.L.-C.I.O.-C.L.C.,
effective on March 3, 1995, (B) the Shop Rules and Wage Scales Contract for
Book and Job Offices between Graphic Communications International Union
Local 119B-43B, New York and
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Corporate Printing Co., Inc. and CPC Reprographics, Inc.-Financial Printing
Division, effective on March 3, 1995, (C) the Shop Rules and Wage Scales
Contract for Offset Lithography, Xerography and Binding between C.P.C.
Reprographics, Inc. and Graphic Communications Union Local 51 G.C.I.U.-
A.F.L.-C.I.O.-C.L.C., dated as of March 15, 1995, or (D) the Master
Agreement between The Corporate Printing Co., Inc. and Paper Products and
Miscellaneous Drivers, Warehousemen, Helpers and Messengers Local 27,
affiliated with International Brotherhood of Teamsters, AFL-CIO, effective
on October 1, 1994 (the "UNION CONTRACTS");
(b) any claim that Merrill or the Purchaser has assumed sponsorship
of or maintains The Corporate Printing Company, Inc. 401(K) Plan as a
result of the transactions contemplated by this Agreement; or
(c) any liability related to or arising from any asbestos found in
the pipe insulation on the eleventh floor located at the corporate
headquarters at 225 Varick Street, New York, NY;
provided, however, that nothing contained in this Section 1.6 relieves the
Affiliated Companies, the Shareholders or any other person of any obligations or
duties it may have arising under or in connection with the Union Contracts or
Benefit Plans or limits the right of Merrill and the Purchaser to be indemnified
as provided in this Agreement. By agreeing to the foregoing neither Merrill nor
the Purchaser makes any admission of any liability, or waives any defenses, in
connection with any claim brought by any third party relating to any of the
foregoing matters.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE AFFILIATED COMPANIES AND SHAREHOLDERS
The Affiliated Companies, jointly and severally, and the Shareholders, on a
several basis in accordance with the percentage shares identified on Exhibit 2
hereto (the "INDEMNIFICATION PERCENTAGES"), hereby represent and warrant to the
Purchaser and Merrill as of the date hereof as follows:
2.1 DISCLOSURE SCHEDULE. The disclosure schedule attached as Exhibit 2.1
hereto, which will be delivered to Merrill and the Purchaser at least 48 hours
prior to execution of this Agreement (the "DISCLOSURE SCHEDULE"), is divided
into sections which correspond to the sections of this Article 2. The Disclosure
Schedule is true, accurate and complete in all material respects. Nothing in
the Disclosure Schedule will be deemed adequate to disclose an exception to a
representation or warranty made herein, unless the Disclosure Schedule
identifies the exception with reasonable particularity and describes the facts
in reasonable detail in the context of the representation or warranty to which
such exception relates. Disclosures in any subsection of the Disclosure
Schedule will not constitute disclosure for purposes of any other subsection and
other section of this Agreement or any exhibit to or other writing which is
designated herein as being part of this Agreement, unless expressly so stated.
2.2 CORPORATE ORGANIZATION.
(a) Each of Corporate, CPC Communications, Reprographics, CPC
International, CP Holdings, CPC International, PTE and CPC Management
(collectively the "CORPORATE ENTITIES") is a corporation duly organized,
validly existing and in good standing under the laws of its respective
state of incorporation, has the full corporate power and authority to carry
on its business as it is now being conducted and to own, lease and operate
their properties and assets;
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except as set forth in the Disclosure Schedule, is duly qualified or
licensed to do business as foreign corporations in good standing in every
other jurisdiction in which the character or location of the properties and
assets owned, leased or operated by it or the conduct of the business
requires such qualification or licensing; and has heretofore delivered to
the Purchaser and Merrill complete and correct copies of its articles of
incorporation and bylaws, as presently in effect. The Disclosure Schedule
contains a list of all jurisdictions in which the Corporate Entities are
qualified or licensed to do business. Except as provided in the Disclosure
Schedule, none of the Affiliated Companies owns (and has not at any time
during the preceding five (5) years owned) of record or beneficially more
than five percent (5%) of the outstanding equity securities having ordinary
voting rights or power of any corporation or partnership or other legal
entity.
(b) CPC International SNC (the "PARTNERSHIP ENTITY") is a partnership
in good standing and organized under the laws of its jurisdiction of
organization and has the full power and authority to carry on its
businesses as it is now being conducted and to own, lease and operate its
properties and assets; except as set forth in the Disclosure Schedule, is
duly qualified or licensed to do business in every other jurisdiction in
which the character or location of the properties and assets owned, leased
or operated by it or the conduct of its business requires such
qualification or licensing; and has heretofore delivered to the Purchaser
and Merrill complete and correct copies of its partnership agreement and
other charter documents, as presently in effect.
(c) Oakland is a limited partnership, in good standing and organized
under the laws of the State of Maryland and has the full power and
authority to carry on its businesses as it is now being conducted and to
own, lease and operate its properties and assets; except as set forth in
the Disclosure Schedule, is duly qualified or licensed to do business as a
foreign limited partnership in good standing in every jurisdiction in which
the character or location of the properties and assets owned, leased or
operated by it or the conduct of its business requires such qualification
or licensing, and has heretofore delivered to the Purchaser and Merrill
complete and correct copies of its partnership agreement and its
certificate of limited partnership, as presently in effect.
2.3 CAPITALIZATION. The authorized capital stock of the Corporate
Entities are set forth on the Disclosure Schedule. The number of shares of
capital stock of the Corporate Entities outstanding as of the date of this
Agreement are set forth on the Disclosure Schedule. All issued and outstanding
shares of capital stock of the Corporate Entities are duly authorized, validly
issued, fully paid and non-assessable. All equity interests of the Partnership
Entity and Oakland are set forth on the Disclosure Schedule. Except as set
forth on the Disclosure Schedule, all shares of capital stock of the Corporate
Entities and all equity interests in the Partnership Entity and Oakland are
owned by the Shareholders free and clear of any lien, security interest, pledge,
charge, claim, option, right to acquire, restriction on transfer or encumbrance
of any nature whatsoever.
2.4 AUTHORIZATION. The Affiliated Companies have full power and authority
to enter into this Agreement and to carry out the transactions contemplated
herein. The Shareholders, and each of them, have the legal capacity to enter
into this Agreement and to carry out the transactions contemplated herein,
including without limitation the legal capacity to execute, deliver and perform
the agreements or contracts, if any, required by Article 5 to be executed and
delivered by any of them as a condition to the Closing. The Board of Directors
of the Corporate Entities and the Shareholders have taken all action
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required by law, the Corporate Entities' articles of incorporation and bylaws,
the Partnership Entity and Oakland's partnership agreements and otherwise to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein. This Agreement has been
duly and validly executed and delivered by the Affiliated Companies and no other
action is necessary. This Agreement has been duly and validly executed by the
Shareholders. This Agreement is the valid and binding legal obligation of the
Affiliated Companies and of the Shareholders, enforceable against the Affiliated
Companies and the Shareholders in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
applicability relating to or affecting creditors' rights and general principles
of equity.
2.5 NON-CONTRAVENTION. Except as set forth in the Disclosure Schedule,
neither the execution, delivery and performance of this Agreement nor the
consummation of the transactions contemplated herein will: (i) violate or be
in conflict with any provision of the articles of incorporation or bylaws of the
Corporate Entities or the partnership agreements or other charter documents of
the Partnership Entity and Oakland; or (ii)(1) be in conflict with, or
constitute a default, however defined (or an event which, with the giving of due
notice or lapse of time, or both, would constitute such a default), under, or
cause or permit the acceleration of the maturity of, or give rise to any right
of termination, cancellation, imposition of fees or penalties under, any Assumed
Contract or any debt, note, bond, lease, mortgage, indenture, license,
obligation, contract, commitment, franchise, permit, instrument or other
agreement or obligation to which any Affiliated Company is a party or by which
the Affiliated Companies or any of the Assets is or may be bound (unless with
respect to which defaults or other rights, requisite waivers or consents will
have been obtained at or prior to the Closing) or (2) result in the creation or
imposition of any mortgage, pledge, lien, security interest, encumbrance,
restriction, adverse claim or charge of any kind, upon the Assets, under any
Assumed Contract or any debt, obligation, contract, agreement or commitment to
which any of the Affiliated Companies is a party or by which the Affiliated
Companies or any of the Assets is or may be bound; or (iii) violate any statute,
treaty, law, judgment, writ, injunction, decision, decree, order, regulation,
ordinance or other similar authoritative matters (sometimes hereinafter
separately referred to as a "LAW" and sometimes collectively as "LAWS") of any
foreign, federal, state or local governmental or quasi-governmental,
administrative, regulatory or judicial court, department, commission, agency,
board, bureau, instrumentality or other authority (hereinafter sometimes
separately referred to as an "AUTHORITY" and sometimes collectively as
"AUTHORITIES"). Except as set forth on the Disclosure Schedule, neither the
execution, delivery and performance of the Non-Competition Agreement or
Employment Agreement to be executed and delivered pursuant to Section 4.11
hereof, or the consummation of the transactions contemplated thereby, will
conflict with, or, with or without the giving of notice or passage of time,
result in any breach of the terms, conditions or provisions of, or constitute a
default under any contract or other instrument which the Shareholders executing
such agreements are a party.
2.6 CONSENTS AND APPROVALS. Except for filings under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereunder (the "HSR Act") or otherwise as set forth in
the Disclosure Schedule, with respect to the Affiliated Companies and each
Shareholder, no consent, approval, order or authorization of or from, or
registration, notification, declaration or filing with (hereinafter sometimes
separately referred to as a "CONSENT" and sometimes collectively as "CONSENTS")
any individual or entity, including without limitation any Authority, is
required in connection with the execution, delivery or performance of this
Agreement by the Affiliated Companies or any Shareholder or the consummation by
the Affiliated Companies or any Shareholder of the transactions contemplated
herein.
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2.7 FINANCIAL STATEMENTS. The Disclosure Schedule contains true and
complete copies of (a) the combined and consolidated audited balance sheets of
the Affiliated Companies as of December 31, 1995, 1994 and 1993, and the related
statements of operations (or income or loss), changes in shareholders' equity
and changes in cash flow for each of the respective fiscal years then ended, and
the report thereon of Mirsky, Furst & Peretz, P.A., independent certified public
accountants; and (b) combined and consolidated unaudited balance sheets of the
Affiliated Companies as of January 31, 1996 and October 31, 1995. The audited
balance sheet as of December 31, 1995, including the notes thereto, is referred
to herein as the "LATEST AUDITED BALANCE SHEET." The unaudited balance sheet as
of January 31, 1996 is referred to herein as the "LATEST UNAUDITED BALANCE
SHEET." Except as disclosed in Section 2.7 in the Disclosure Schedule and in
the foregoing financial statements, the foregoing financial statements (x) are
in accordance with the books and records of the Affiliated Companies and have
been prepared in conformity with generally accepted accounting principles
("GAAP") consistently applied for all periods, and (y) fairly present the
financial position of the Affiliated Companies as of the respective dates
thereof, and the results of operations (or income or loss), changes in
shareholders' equity and changes in cash flow for the periods then ended, all in
accordance with GAAP consistently applied for all periods (except, with respect
to the unaudited financial statements, for the absence of notes which, if
presented, would not be inconsistent with those included in the Latest Audited
Balance Sheet). Neither the Latest Audited Balance Sheet, the Latest Unaudited
Balance Sheet nor the Closing Balance Sheet reflect any capitalized leases.
2.8 ABSENCE OF UNDISCLOSED LIABILITIES. The Affiliated Companies do not
have any liabilities, obligations or claims of any kind whatsoever, which are
required to be set forth in financial statements prepared in accordance with
GAAP whether secured or unsecured, accrued or unaccrued, fixed or contingent,
matured or unmatured, direct or indirect, contingent or otherwise and whether
due or to become due (referred to herein individually as a "LIABILITY" and
collectively as "LIABILITIES"), other than: (a) Assumed Liabilities; (b)
Liabilities that are reserved for or disclosed in the Latest Unaudited Balance
Sheet; (c) Liabilities that are set forth on the Disclosure Schedule; (d)
Liabilities incurred by the Affiliated Companies in the ordinary course of
business after the date of the Latest Unaudited Balance Sheet (none of which
results from, arises out of, relates to, is in the nature of, or was caused by
any breach of contract, breach of warranty, tort, infringement or violation of
Law); or (e) Liabilities for express executory obligations to be performed after
the Closing under the contracts described in Exhibit 1.2 hereto (other than any
express executory obligations that might arise due to any default or other
failure of performance by the Affiliated Companies prior to the Closing Date).
For purposes of this Section 2.8, Liabilities shall not include Taxes.
2.9 ABSENCE OF CERTAIN CHANGES. Except as set forth in the Disclosure
Schedule, since December 31, 1995, the Affiliated Companies have owned and
operated their assets, properties and business in the ordinary course of
business and consistent with past practice. Without limiting the generality of
the foregoing, subject to the aforesaid exceptions: (a) the Affiliated
Companies have not experienced any change which has had a Material Adverse
Effect on the Affiliated Companies or experienced any event or failed to take
any action which reasonably could be expected to result in a Material Adverse
Effect on the Affiliated Companies; (b) the Affiliated Companies have not
suffered (i) any material loss, damage, destruction of properties or Assets or
other casualty to properties or Assets (whether or not covered by insurance) or
(ii) any loss of officers or employees or, to the Knowledge of the Shareholders,
dealers, distributors, independent contractors, customers or suppliers, which
had or may reasonably be expected to result in a Material Adverse Effect on the
Affiliated Companies; and (c) no event has taken place which if consummated
following the date hereof would constitute a violation of Section 4.1 hereof.
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2.10 THE ASSETS.
(a) Except as set forth in the Disclosure Schedule, the Affiliated
Companies have good title to, or in the case of leased Assets or any
licensed Intellectual Property Rights (as hereinafter defined), other right
to use, all of the Assets, free and clear of any mortgage, pledge, lien,
security interest, conditional or installment sales agreement, encumbrance,
claim, easement, right-of-way, tenancy, covenant, encroachment, restriction
or charge of any kind or nature (whether or not of record) (herein called a
"LIEN"), except the following (herein called "PERMITTED LIENS"): (i) liens
securing specified liabilities or obligations of the Affiliated Companies
shown on the Latest Audited Balance Sheet with respect to which no breach,
violation or default exists; (ii) mechanics', carriers', workers' and other
similar liens arising in the ordinary course of business of the Affiliated
Companies; and (iii) liens for current Taxes of the Affiliated Companies
not yet due and payable or being contested in good faith by appropriate
proceedings.
(b) The Affiliated Companies have full right and power to, and at the
Closing will, deliver to Purchaser good title to, or in the case of leased
Assets or any licensed Intellectual Property Rights, other right to use,
all of the Assets, free and clear of any Lien (except as set forth in the
Disclosure Schedule and for Permitted Liens).
(c) Except as set forth in the Disclosure Schedule, the machinery,
equipment, vehicles and other personal property of the Affiliated Companies
included in the Assets are in good operating condition and repair, ordinary
wear and tear excepted, and fit for the intended purposes thereof.
(d) The Assets constitute substantially all of the property and
assets, real, personal and mixed, tangible and intangible, presently used
to carry on the business of the Affiliated Companies, and the Assets are
adequate to carry on the business of the Affiliated Companies as presently
conducted.
(e) Except as set forth in the Disclosure Schedule, upon the Closing
of the transactions contemplated by this Agreement, no Shareholder will
have any claim against any of the Assets, the Purchaser or Merrill as a
result of any buy-sell, tax sharing or other similar agreement among the
Shareholders.
(f) The Affiliated Companies own no real properties. The Affiliated
Companies (other than the Partnership Entity and CPC International PTE) are
not foreign persons and are not controlled by a foreign person, as the term
foreign person is defined in Section 1445(f)(3) of the Code. Neither the
Partnership Entity nor CPC International PTE hold any "United States real
property interests" as such phrase is defined in Section 897(c) of the
Code.
2.11 SCHEDULES; NO CONTRACT DEFAULTS. The Disclosure Schedule contains an
accurate and complete list and brief description of:
(a) All real property owned by the Affiliated Companies included in
the Assets or in which any of the Affiliated Companies has a leasehold or
other interest and which is included in the Assets. The Affiliated
Companies have provided the Purchaser with either a copy of or a
description of each lease, sublease, license, or any other instrument under
which the Affiliated Companies claim or hold such leasehold or other
interest or right to the use thereof or pursuant
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to which the Affiliated Companies have assigned, sublet or granted any
rights therein, identifying the parties thereto, the rental or other
payment terms, expiration date and cancellation and renewal terms thereof.
(b) All machinery, tools, equipment, motor vehicles, rolling stock
and other tangible personal property (other than inventory and supplies),
owned, leased or used by any of the Affiliated Companies and included in
the Assets, except for items having a cost of less than $5,000. The
Affiliated Companies have provided the Purchaser with either a copy of or a
summary description of all leases, liens, claims, encumbrances, charges,
restrictions, covenants and conditions relating thereto, identifying the
parties thereto, the rental or other payment terms, expiration date and
cancellation and renewal terms thereof.
(c) All patents, patent applications, patent licenses, trademarks,
trademark registrations, and applications therefor, service marks, service
names, trade names, copyrights and copyright registrations, and
applications therefor, and any other documents embodying Intellectual
Property Rights (as hereinafter defined), wholly or partially owned or held
by any of the Affiliated Companies.
(d) All contracts, agreements, commitments or licenses relating to
Intellectual Property Rights to which any of the Affiliated Companies is a
party or by which it is bound.
(e) As of January 31, 1996, all of the receivables of the Affiliated
Companies included in the Assets (which will include accounts receivable,
loans receivable and any advances).
(f) All Assumed Contracts.
(g) All policies of fire and other casualty, general liability,
theft, life, workers' compensation, health, directors and officers,
business interruption, life insurance and other forms of insurance owned or
held by any of the Affiliated Companies (including any self-insurance
arrangements), specifying the insurer, the policy number, the risk insured
against, the term of the coverage, the limits of coverage, the deductible
amount (if any), the premium rate, a description of any retroactive premium
adjustments or other material loss-sharing arrangements, the date through
which coverage will continue by virtue of premiums already paid and, in the
case of any "claims made" coverage, the same information as to predecessor
policies for the previous five years. All present policies are in full
force and effect and all premiums with respect thereto have been paid. No
event has occurred which, with notice or lapse of time, would constitute a
breach or default, or permit termination, modification or acceleration,
under any policy. None of the Affiliated Companies has been denied any
form of insurance and no policy of insurance has been revoked or rescinded
during the past five years, except as described on the Disclosure Schedule.
(h) All contracts, agreements and commitments, whether or not fully
performed, in respect of the issuance, sale or transfer of the capital
stock, bonds or other securities of the Affiliated Companies or pursuant to
which any of the Affiliated Companies has acquired any substantial portion
of its business or assets during the past three years.
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(i) All collective bargaining agreements, employment and consulting
agreements, executive compensation plans, bonus plans, deferred
compensation agreements, employee pension plans or retirement plans,
employee stock options or stock purchase plans and group life, health and
accident insurance other employee benefit plans, agreements, arrangements
or commitments, whether or not legally binding, including, without
limitation, holiday, vacation, Christmas and other bonus practices, to
which any of the Affiliated Companies is a party or is bound or which
relate to the operation of the Affiliated Companies' business.
(j) All contracts, commitments, agreements and arrangements with any
"disqualified individual" (as defined in Section 280G(c) of the Code) which
contains any severance or termination pay liabilities which would result in
a disallowance of the deduction for any "excess parachute payment" (as
defined in Section 280G(b)(1) of the Code) under Section 280G of the Code.
(k) The names and current annual salary rates of all employees of and
consultants to the Affiliated Companies, showing separately for each such
person the amounts paid or payable as salary, bonus payments and any
indirect compensation for the year ended December 31, 1995.
(l) The names of all of the directors and officers of each Corporate
Entity and the partners of each of the Partnership Entity and Oakland; the
names of all financial institutions, investment banking and brokerage
houses, and other similar institutions at which any of the Affiliated
Companies maintain accounts, deposits, safe deposit boxes of any nature.
The Assumed Contracts and all other contracts, agreements, leases, licenses
and commitments required to be listed on the Disclosure Schedule (other than
those which have been fully performed), are valid and binding, enforceable in
accordance with their respective terms in all material respects, except as
enforcement might be limited by bankruptcy and other laws related to creditors'
rights and principles of equity, and are in full force and effect. Except as
otherwise specified in the Disclosure Schedule, the Assumed Contracts are
validly assignable to the Purchaser without the consent of any other party so
that, after the assignment thereof to the Purchaser pursuant hereto, the
Purchaser will be entitled to the full benefits thereof. Except as disclosed in
the Disclosure Schedule, none of the payments required to be made under any
Assumed Contract has been prepaid more than 30 days prior to the due date of
such payment thereunder. Except as set forth in the Disclosure Schedule, none
of the Affiliated Companies is in material breach, violation or default, however
defined, in the performance of any of its obligations under any Assumed Contract
or any other contract, agreement, lease, license or commitment required to be
listed on the Disclosure Schedule, and no facts and circumstances exist which,
whether with the giving of due notice, lapse of time, or both, would constitute
such a material breach, violation or default thereunder or thereof; and to the
Knowledge of the Shareholders no other parties thereto are in material breach,
violation or default, however defined, thereunder or thereof. To the Knowledge
of the Shareholders, none of the Assumed Contracts is, either when considered
singly or in the aggregate with others, materially adverse, unduly burdensome,
or onerous to the Affiliated Companies' business, properties, assets, earnings
or prospects or likely, either before or after the Closing, to result in any
material loss or liability. Except as set forth in the Disclosure Schedule,
none of the Assumed Contracts is subject to renegotiation with any government
body. True and complete copies of all of the Assumed Contracts (together with
any and all amendments thereto) have been delivered to the Purchaser and
identified with a reference to this Section of this Agreement. The only
equipment covered by the Master Equipment Lease Agreement No. 30888 between
Fleet Credit Corporation and Corporate, Reprographics
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and CPC Management are two printing presses retained by the Affiliated Companies
as part of the CPC Press Business.
2.12 INVENTORIES. Except as set forth in the Disclosure Schedule, all
accumulated costs on jobs in progress as of the date of the Latest Unaudited
Balance Sheet are, and as of the Closing Date will be, valued at the lower of
cost or market. Except as set forth on the Disclosure Schedule, all supplies of
the Affiliated Companies (including without limitation paper, ink and
chemicals): (i) are of a quality and quantity usable in the ordinary course of
business, and the present quantities of supplies of the Affiliated Companies are
reasonable in the present circumstances of the businesses as currently conducted
by the Affiliated Companies; and (ii) meet in the aggregate the stricter of
industry or Affiliated Companies' specifications applicable to such supplies.
2.13 RECEIVABLES AND PAYABLES.
(a) Except as set forth on the Disclosure Schedule, (i) the
Affiliated Companies have good right, title and interest in and to all
their accounts and notes receivable and trade notes and trade accounts
constituting the Assets; (ii) none of the accounts and notes receivable and
trade notes and trade accounts is subject to any Lien; (iii) all of the
accounts and notes receivable and trade notes and trade accounts owing to
the Affiliated Companies constitute valid and enforceable claims arising
from bona fide transactions in the ordinary course of business, and, other
than routine negotiations concerning receivables invoiced after the Latest
Unaudited Balance Sheet, there are no claims, refusals to pay or other
rights of set-off against any thereof Known to the Shareholders; and (iv)
the aging schedule of the accounts and notes receivable and trade notes and
trade accounts of the Affiliated Companies previously furnished to
Purchaser is complete and accurate to the date thereof in all material
respects; and
(b) All accounts payable and notes payable by the Affiliated
Companies arose in bona fide transactions in the ordinary course of
business.
2.14 INTELLECTUAL PROPERTY RIGHTS. The Affiliated Companies own or have
the unrestricted right to use, and the Disclosure Schedule contains a detailed
listing of, all patents, patent applications, patent rights, registered and
unregistered trademarks, trademark applications, trade names, service marks,
service mark applications, copyrights, computer programs and other computer
software, inventions, know-how, trade secrets, technology, proprietary
processes, trade dress and formulae (collectively, "INTELLECTUAL PROPERTY
RIGHTS") used in connection with the Assets and business being purchased
hereunder. Except as set forth on the Disclosure Schedule, the use of all
Intellectual Property Rights necessary or required for the conduct of the
business of the Affiliated Companies as presently conducted and as proposed to
be conducted does not and will not infringe or violate in any material respect
the Intellectual Property Rights of any person or entity. Except as described
on the Disclosure Schedule: (i) the Affiliated Companies do not own or use any
Intellectual Property Rights pursuant to any written license agreement; (ii) the
Affiliated Companies have not granted any person or entity any rights, pursuant
to a written license agreement or otherwise, to use the Intellectual Property
Rights; and (iii) all of said Intellectual Property Rights of the Affiliated
Companies are free and clear of all Liens.
2.15 LITIGATION. Except as set forth in the Disclosure Schedule, there is
no legal, administrative, arbitration, or other proceeding, suit, claim or
action of any nature or investigation, review or audit of any kind (including
without limitation a proceeding, suit, claim or action, or an
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investigation, review or audit, involving any environmental Law or matter),
judgment, decree, decision, injunction, writ or order pending, noticed,
scheduled or, to the Best Knowledge of the Affiliated Companies threatened or
contemplated by or against or involving the Affiliated Companies, their assets,
properties or businesses or their directors, officers, agents or employees (but
only in their capacity as such), whether at law or in equity, before or by any
person or entity or Authority, or which questions or challenges the validity of
this Agreement or any action taken or to be taken by the parties hereto pursuant
to this Agreement or in connection with the transactions contemplated herein
which is reasonably likely to have a Material Adverse Effect.
2.16 TAX MATTERS. For purposes of this Agreement, the term "TAXES" means
all federal, state, local, foreign and other net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease,
service, service use, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, real or personal property, windfall profits,
customs, duties or other taxes, fees, assessments, charges or levies of any kind
whatever, together with any interest and any penalties, additions to tax or
additional amounts with respect thereto, and the term "TAX" means any one of the
foregoing Taxes. In addition, the term "TAX RETURNS" means all returns,
declarations, reports, statements and other documents required to be filed with
any Authority in respect of Taxes, and the term "TAX RETURN" means any one of
the foregoing Tax Returns. Except as set forth in the Disclosure Schedule, the
Affiliated Companies and the Shareholders hereby represent and warrant the
following with respect to the Affiliated Companies:
(a) LIABILITY FOR TAXES. Except to the extent set forth in the
Liabilities Undertaking, the Affiliated Companies and the Shareholders will
be responsible for and will pay all Taxes attributable to or arising from
the business and operations of the Affiliated Companies conducted on or
before the Closing Date and will be responsible for their own income and
franchise Taxes, if any, arising from the transactions contemplated by this
Agreement.
(b) FILING OF TAX RETURNS. All Tax Returns required to be filed on
or prior to the date hereof by the Affiliated Companies or the Shareholders
with respect to Taxes of the Affiliated Companies have been properly
completed and duly filed on a timely basis and in correct form. As of the
time of filing, the foregoing Tax Returns correctly reflected the facts
regarding the income, business, assets, operations, activities, status or
other matters of the Affiliated Companies or any other information required
to be shown thereon. There is no material omission, deficiency, error,
misstatement or misrepresentation, whether innocent, intentional or
fraudulent, in any such Tax Return for any period. Any Tax Returns filed
after the date hereof, but on or before the Closing Date by the Affiliated
Companies or the Shareholders with respect to Taxes of the Affiliated
Companies, will conform with the provisions of this subsection 2.16(b).
(c) PAYMENT OF TAXES. With respect to all amounts of Taxes imposed
upon the Affiliated Companies, or for which the Affiliated Companies are or
could be liable, whether to taxing Authorities (as, for example, under Law)
or to other persons or entities (as, for example, under tax allocation
agreements), with respect to all taxable periods or portions of periods
ending on or before the Closing Date, all applicable Tax Laws and
agreements have been or will be fully complied with, and all such amounts
of Taxes required to be paid by the Affiliated Companies to taxing
Authorities or others on or before the date hereof have been duly paid or
will be paid on or before the Closing Date; the reserves for all such Taxes
reflected in the Latest Audited Balance Sheet are adequate and there are no
liens for such Taxes upon any property or assets of
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the Affiliated Companies. The Affiliated Companies have withheld and
remitted all amounts required to be withheld and remitted by them in
respect of Taxes. No Shareholder of any of the Affiliated Companies which
is an S Corporation under the Code has since October 31, 1995 received any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of any such Affiliated Companies' capital
stock or equity interest to pay Taxes.
(d) AUDITS AND EXTENSIONS. Except as set forth in the Disclosure
Schedule, neither the federal Tax Returns of the Affiliated Companies (and
of the Shareholders to the extent the operations of the Affiliated
Companies are reflected in the Shareholders' Tax Returns) nor any state or
local or foreign Tax Return of the Affiliated Companies have been examined
by the Internal Revenue Service or any similar state or local or foreign
Authority, and, except to the extent shown therein, all deficiencies
asserted as a result of such examinations have been paid or finally settled
and no issue has been raised by the Internal Revenue Service or any similar
state or local or foreign Authority in any such examination which, by
application of similar principles, reasonably could be expected to result
in a proposed deficiency for any other period not so examined. Except as
set forth in the Disclosure Schedule, all deficiencies and assessments of
Taxes of the Affiliated Companies (or any of the Shareholders' to the
extent attributable to the business or operations of the Affiliated
Companies) resulting from an examination of any Tax Returns by any
Authority have been paid and there are no pending examinations currently
being made by any Authority nor has there been any written or oral
notification to the Affiliated Companies or the Shareholders of any
intention to make an examination of any Taxes attributable to the business
or operations of the Affiliated Companies by any Authority. Except as set
forth in the Disclosure Schedule, there are no outstanding agreements or
waivers extending the statutory period of limitations applicable to any Tax
Return of the Affiliated Companies for any period.
(e) S CORPORATION ELECTIONS. Except as set forth in the Disclosure
Schedule, Corporate, CPC International and CPC Communications each have had
in effect a valid election under Code Section 1362 to be treated as an "S
corporation" for each of their taxable years since inception. Neither the
Corporate Entities nor any of the Shareholders have taken any action to
revoke that election. Neither the Corporate Entities nor the Shareholders
are aware of any basis or the existence of any facts that would permit the
Internal Revenue Service to revoke that election for any period prior to
the Closing Date. Except as described on the Disclosure Schedule, since
the effective date of the Corporate Entities' election as an S corporation
to and including the Closing Date, the Corporate Entities will not have
incurred or become liable for the payment of any corporate-level income
tax, or any related penalties or interest.
2.17 BENEFIT PLANS. Except as set forth in the Disclosure Schedule:
(a) Neither the Affiliated Companies nor any other "person" within
the meaning of Section 7701(a)(1) of the Code, that together with the
Affiliated Companies are considered a single employer pursuant to Sections
414(b), (c), (m) or (o) of the Code or Sections 3(5) or 4001(b)(1) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") (an
"AFFILIATED ORGANIZATION") maintains, contributes to, has participated in
or agreed to participate in any "multiemployer plan" within the meaning of
Section 4001(a)(3) of ERISA subject to Title IV of ERISA (a "MULTIEMPLOYER
PLAN"). Neither any of the Affiliated Companies nor any Affiliated
Organization currently has any obligation, direct or indirect, absolute or
contingent,
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to make any withdrawal liability payment to any Multiemployer Plan.
Neither the Affiliated Companies nor any Affiliated Organization has been a
party to a sale of assets to which Section 4204 of ERISA applied with
respect to which it could incur any withdrawal liability (including any
contingent or secondary withdrawal liability) to any Multiemployer Plan.
Neither the Affiliated Companies nor any Affiliated Organization has
incurred (or has experienced an event that will, within the ensuing 12
months, result in) a "complete withdrawal" or "partial withdrawal," as such
terms are defined respectively in Sections 4203 and 4205 of ERISA, with
respect to a Multiemployer Plan, and to the Shareholders' Knowledge,
nothing has occurred that could reasonably be expected to result in such a
complete or partial withdrawal.
(b) To the Shareholders' Knowledge, none of the Affiliated Companies
has or could reasonably be expected to have any liability of any nature,
whether direct or indirect, absolute or contingent, with respect to, any
"employee welfare benefit plan," as such term is defined in Section 3(1) of
ERISA, which is a multiemployer plan within the meaning of Section 3(37) of
ERISA. Each of the Affiliated Companies and Affiliated Organizations has
complied in all material respects with all applicable requirements of
Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA.
(c) When an employment agreement that is an Assumed Contract provides
for life or long-term disability insurance in a stated amount, the
insurance policy has been issued, the policy is owned by the employee or by
the Affiliated Companies and the policy is in full force and effect. If
such an insurance policy is owned by the Affiliated Companies, to the
Shareholders' Knowledge it is assignable; or, if not assignable, the
Affiliated Companies will continue to pay premiums (for which they will be
reimbursed by the Purchaser) until the policy is assigned to the Purchaser
or the Purchaser has obtained replacement insurance. Any proceeds from any
of these policies received by the Affiliated Companies will be held in
trust for and paid over to the Purchaser. Any payment under an Assumed
Contract which might otherwise be considered a "parachute payment" within
the meaning of Code Section 280G is not a parachute payment by operation of
Code Section 280G(b)(5).
(d) There are no pending or, to the Affiliated Companies' Knowledge,
threatened audits, investigations, claims, suits, grievances or other
proceedings, and to the Shareholders' knowledge, there are no facts that
could reasonably be expected to give rise thereto, involving, directly or
indirectly, any "employee benefit plan" as defined in Section 3(3) of
ERISA, maintained or contributed to by one or more of the Affiliated
Companies, or any rights or benefits thereunder, other than the ordinary
and usual claims for benefits by participants, dependents or beneficiaries.
2.18 ORDERS, COMMITMENTS AND RETURNS. Except as set forth in the
Disclosure Schedule, all accepted and unfulfilled orders for the sale of
products and the performance of services entered into by the Affiliated
Companies and all outstanding contracts or commitments for the purchase of
supplies, materials and services were made in bona fide transactions in the
ordinary course of business. With respect to the Assumed Contracts, the
Affiliated Companies are not subject to any outstanding sales or purchase
contracts, commitments or proposals which is anticipated to result in any
material loss upon completion or performance thereof. Except as set forth in
the Disclosure Schedule or as reserved in the Latest Audited Balance Sheet,
there are no claims against Affiliated Companies to return products by reason of
alleged over-shipments, defective products or otherwise, or of products in the
hands of customers, retailers or distributors under an understanding that such
products would be returnable.
2.19 LABOR MATTERS. Except as set forth in the Disclosure Schedule, to the
Knowledge of the Shareholders as of the Closing Date: (i) the Affiliated
Companies are and have been in compliance in all material respects with all
applicable Laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, including without limitation any
such Laws respecting employment discrimination and occupational safety and
health requirements and are not
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engaged in any unfair labor practice and have not in the past engaged in any
such practice that could reasonably be expected to have a Material Adverse
Effect; (ii) there are no unfair labor practice complaints against any of the
Affiliated Companies pending or threatened before the National Labor Relations
Board or any other comparable Authority; (iii) there are no labor strikes,
disputes, slowdowns or stoppages actually pending or threatened against or
directly affecting the Affiliated Companies; (iv) no labor representation
question exists respecting the employees of the Affiliated Companies and there
are no pending or any threatened activity intended or likely to result in a
labor representation vote respecting the employees of the Affiliated Companies;
(v) no grievance or any arbitration proceeding arising out of or under
collective bargaining agreements is pending and no claims that could reasonably
be expected to result in any such proceeding exist or have been threatened,
(vi) no collective bargaining agreement is binding and in force against the
Affiliated Companies or currently being negotiated by the Affiliated Companies;
(vii) in the 12-month period prior to the Closing Date the Affiliated Companies
did not experience any significant work stoppage or other significant labor
difficulty; (viii) the Affiliated Companies are not delinquent in payments to
any person listed on Schedule 4.12 as employees to
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whom Merrill and the Purchaser shall extend offers of employment for any wages,
salaries, commissions, bonuses or other direct or indirect compensation for any
services performed by them or amounts required to be reimbursed to such persons;
(ix) upon termination of the employment of any person by the Affiliated
Companies as of the Closing Date, neither the Purchaser, Merrill nor any
subsidiary of Merrill or the Purchaser will, by reason of anything done at or
prior to or as of the Closing Date by the Shareholders or, the Affiliated
Companies, be liable to any of such persons for so-called "severance pay" or any
other like payments made under or pursuant to any benefit plan maintained by the
Affiliated Companies; and (x) within the 12-month period prior to the date
hereof there has not been any written expression of intention to the Affiliated
Companies by any officer or key employee to terminate such employment; and the
Affiliated Companies have not, since October 31, 1995, terminated, entered into,
adopted, instituted or otherwise become subject to or amended in any material
respect any collective bargaining agreement. The representations and warranties
in this Section 2.19 are as of the Closing Date.
2.20 BUSINESS GENERALLY. Except as set forth in the Disclosure Schedule,
since October 31, 1995 there has been no event, transaction or information which
has come to the attention of the Shareholders which, as it relates directly to
the businesses of the Affiliated Companies, would, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Affiliated Companies. Without limiting the generality of the foregoing, except
as set forth in the Disclosure Schedule, to the Knowledge of the Shareholders
there has not been in the 12-month period prior to the date hereof any material
adverse change in the business relationship of the Affiliated Companies with any
material dealer or supplier to the Affiliated Companies, except for such changes
in the ordinary course of business consistent with past practices where such
change is not reasonably likely to have a Material Adverse Effect.
2.21 COMPLIANCE WITH LAW; PERMITS AND OTHER OPERATING RIGHTS. Except as
set forth in the Disclosure Schedule, and without limiting the scope of any
other representations or warranties contained in this Agreement, but without
intending to duplicate the scope of such other representations and warranties,
the assets, properties, business and operations of the Affiliated Companies are
in compliance in all material respects with all Laws applicable to the
Affiliated Companies' assets, properties, business and operations. Except as
set forth in the Disclosure Schedule, the Affiliated Companies do not require
the Consent of any Authority to permit them to operate in the manner in which
its business is presently being operated. The Affiliated Companies possess all
permits, licenses and other authorizations from all Authorities necessary to
permit them to operate their business in the manner in which they are presently
conducted and the consummation of the transactions contemplated by this
Agreement will not prevent the Affiliated Companies from being able to continue
to use such permits and operating rights. Except as set forth in the Disclosure
Schedule, the Affiliated Companies are not restricted by agreement from carrying
on their business or any part thereof anywhere in the world or from competing in
any line of business with any person or entity.
2.22 ENVIRONMENTAL AND SAFETY MATTERS. Except as set forth in the
Disclosure Schedule:
(a) Neither any of the Affiliated Companies, any subsidiary or former
subsidiaries of any of the Affiliated Companies, nor, to the Knowledge of
the Shareholders, any previous owner, tenant, occupant or user of any real
property owned or leased by or to any of the Affiliated Companies or by or
to any subsidiary or former subsidiary of any of the Affiliated Companies
(the "PROPERTIES"), engaged in or permitted, direct or indirect operations
or activities upon, or any use or occupancy of the Properties, or any
portion thereof, for the purpose of or in any way involving the handling,
manufacture, treatment, storage, use, generation, emission
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release, discharge, refining, dumping or disposal of any Environmentally
Regulated Materials (as hereinafter defined) (whether legal or illegal at
such time, accidental or intentional, direct or indirect) on, under, in or
about the Properties, or transported any Environmentally Regulated
Materials to, from or across the Properties, nor are any Environmentally
Regulated Materials presently constructed, deposited, stored, placed or
otherwise located on, under, in or about the Properties, nor, to the
Knowledge of the Shareholders, have any Environmentally Regulated Materials
migrated from the Properties upon or beneath other properties, nor, to the
Knowledge of the Shareholders, have any Environmentally Regulated Materials
migrated or threatened to migrate from other properties upon, about or
beneath the Properties. To the Knowledge of the Shareholders, the
Properties do not contain any: (i) underground or aboveground storage
tanks; (ii) asbestos; (iii) equipment using PCBs; (iv) underground
injection wells; or (v) septic tanks in which process waste water or any
Environmentally Regulated Materials have been disposed, which are not
disclosed in this Agreement or the Disclosure Schedule.
(b) (i) No violation or noncompliance with Environmental and
Occupational Safety and Health Laws has occurred with respect to
operations conducted on the Properties by the Affiliated Companies or
any subsidiaries or former subsidiaries of any of the Affiliated
Companies or, to the Knowledge of the Shareholders, by any previous
owner, tenant, occupant or user of the Properties or otherwise with
respect to the Properties themselves or the Affiliated Companies have
obtained all permits, licenses and authorizations required by, and the
Affiliated Companies and the Properties are in compliance with, all
Environmental and Occupational Safety and Health Laws;
(ii) no enforcement, investigation, cleanup, removal,
remediation or response or other governmental or regulatory actions
have been at any time in the past asserted or threatened with respect
to operations conducted on the Properties by any of the Affiliated
Companies or any subsidiary or former subsidiaries of any of the
Affiliated Companies or, to the Knowledge of the Shareholders, by any
previous owner, tenant, occupant or user of the Properties or
otherwise with respect to the Properties themselves, or against any of
the Affiliated Companies or any subsidiary or former subsidiary of any
of the Affiliated Companies with respect to or in any way regarding
the Properties pursuant to any Environmental and Occupational Safety
and Health Laws; and
(iii) no claims or settlements with respect to operations
conducted on the Properties by any of the Affiliated Companies or any
subsidiaries or former subsidiaries of any of the Affiliated Companies
or, to the Knowledge of the Shareholders, by any previous owner,
tenant, occupant or user of the Properties or otherwise with respect
to the Properties themselves, or against any of the Affiliated
Companies or any subsidiary or former subsidiary of any of the
Affiliated Companies with respect to the Properties or operations
conducted thereon, relating to or arising out of Environmental and
Occupational Safety and Health Laws or Environmentally Regulated
Materials have been made or been threatened by any third party,
including any governmental entity, agency or representative, nor does
there exist any basis for any such claim (any such enforcement,
investigation, cleanup, removal, remediation or response other
governmental or regulatory action, claim or settlement is herein
referred to as an "ENVIRONMENTAL CLAIM."
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(c) All drums either containing or formerly containing chemicals and
other materials which were stored by the Affiliated Companies within the
basement of the Manhattan property as of March 1, 1996 have been removed
from the basement and have been properly disposed of by the Affiliated
Companies prior to the date hereof in compliance with all applicable laws.
The Affiliated Companies have completed all necessary forms in the name of
Affiliated Companies required to properly dispose of the drums. The
Affiliated Companies have notified the landlord of the Manhattan property
that potentially asbestos containing materials which comprise the thermal
system insulation in the basement are damaged.
(d) The term "ENVIRONMENTAL AND OCCUPATIONAL SAFETY AND HEALTH LAW"
as used in this Agreement means any common law or duty, case law or ruling,
statue, rule, regulation, law, ordinance or code, whether local, state,
federal, international or otherwise in effect, that (i) regulates, creates
standards for or imposes liability or standards or conduct concerning any
element, compound, pollutant, contaminant, or toxic or hazardous substance,
material or waste, or any mixture thereof, or relates in any way to
emissions or releases into the environment or ambient environmental
conditions, or conduct affecting such matters or (ii) is designed to
provide safe and healthful working conditions or reduce occupational safety
and health hazards. Such laws include, but are not limited to, the
National Environmental Policy Act, 42 U.S.C. Sections 4321 ET SEQ., the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Sections 9601 ET SEQ., the Resource Conservation and Recovery Act,
42 U.S.C. Sections 6901 ET SEQ., the Federal Water Pollution Control Act,
33 U.S.C. Sections 1251 ET SEQ., the Federal Clean Air Act, 42 U.S.C.
Sections 7401 ET SEQ., the Toxic Substances Control act), 15 U.S.C.
Sections 2601 ET SEQ., the Emergency Planning and Community Right to Know
Act, 42 U.S.C. PARA 11001, the Hazard Communication Act 29 U.S.C. Sections
651 ET SEQ., the Occupational Safety and Health Act, 29 U.S.C. Sections 651
ET SEQ., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C.
Section 136, and any case law interpretations, amendments or restatements
thereof or similar enactment thereof, as is now or at any time hereafter
may be in effect, as well as their international, state and local
counterparts.
(e) The term "ENVIRONMENTALLY REGULATED MATERIALS" as used in this
Agreement means any element, compound, pollutant, contaminant, substance,
material or waste, or any mixture thereof, designated, listed, referenced,
regulated or identified pursuant to any Environmental and Occupational
Safety and Health Law.
2.23 TRANSACTIONS WITH CERTAIN PERSONS. Except as set forth in the
Disclosure Schedule, during the past three years the Affiliated Companies have
not, directly or indirectly, purchased, leased or otherwise acquired any
property or obtained any services from, or sold, leased or otherwise disposed of
any property or furnished any services to, or otherwise dealt with, in the
ordinary course of business or otherwise, (i) any Shareholder or partner of the
Affiliated Companies or (ii) any affiliate or associate of the Affiliated
Companies or any shareholder or partner of any affiliate or associate of the
Affiliated Companies (except with respect to compensation in the ordinary course
of business for services rendered as a director, officer or employee of the
Affiliated Companies). Except as set forth in the Disclosure Schedule, as of
the date hereof, the Affiliated Companies do not owe any amount to, or have any
agreement or contract with or commitment to, any of its partners, shareholders,
directors, officers, employees or consultants or any affiliate or associate
thereof (other than compensation for current services not yet due and payable
and reimbursement of expenses arising in the ordinary course of business), and
none of such persons owes any amount to Affiliated Companies. Except as set
forth in the Disclosure
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Schedule, no part of the property or assets of any Shareholder or any direct or
indirect subsidiary or affiliate or associate of any Shareholder is used by the
Affiliated Companies.
2.24 BROKERS. Except as set forth in the Disclosure Schedule,
neither the Affiliated Companies nor any of their directors, officers,
partners, agents or employees have employed any broker, finder, or financial
advisor or incurred any liability for any brokerage fee or commission,
finder's fee or financial advisory fee, in connection with the transactions
contemplated hereby, nor is there any basis known to the Affiliated Companies
for any such fee or commission to be claimed by any person or entity.
2.25 ABSENCE OF CERTAIN BUSINESS PRACTICES. Except as set forth in
the Disclosure Schedule, to the Knowledge of the Shareholders, neither the
Affiliated Companies nor any officer, employee, partner or agent of the
Affiliated Companies, nor any other person acting on its behalf, has,
directly or indirectly, within the past five years given or agreed to give
any gift or similar benefit to any customer, supplier, governmental employee
or other person who is or may be in a position to help or hinder the business
of the Affiliated Companies (or assist the Affiliated Companies in connection
with any actual or proposed transaction) which (i) could reasonably be
expected to subject the Purchaser or Merrill to any damage or penalty in any
civil, criminal or governmental litigation proceeding, (ii) if not given in
the past, could reasonably be expected to have had an adverse affect on the
assets, business or operations of the Affiliated Companies as reflected in
the financial statements described in Section 2.7, or (iii) if not continued
in the future, could reasonably be expected to adversely affect the
Affiliated Companies' assets, business, operations or prospects or which
might subject the Affiliated Companies, the Purchaser or Merrill to suit or
penalty in any private or governmental litigation or proceeding.
2.26 INFORMATION CONCERNING MERRILL; KNOWLEDGE AND EXPERIENCE OF
AFFILIATED COMPANIES AND THE SHAREHOLDERS. The Affiliated Companies and the
Shareholders agree that each of them is an "accredited investor" within the
meaning of Rule 501 of the Securities Act of 1933 and that they have such
knowledge and experience in financial and business matters that they are
capable of evaluating the merits and risks of the Participation Payments to
be made pursuant to the terms of Section 1.3 hereof. The Affiliated
Companies and the Shareholders acknowledge that they have (a) reviewed the
following reports filed by Merrill with the Securities and Exchange
Commission during the past 12 months pursuant to Section 13(a) of the
Securities Exchange Act of 1934: Annual Report on Form 10-K for the year
ended January 31, 1995, Quarterly Reports Form 10-Q for the quarters ending
April 30, July 31 and October 31, 1995, and Proxy Statement for the 1995
Annual Meeting of Shareholders; and (b) had full access to Merrill's
executive officers, such that the Affiliated Companies and the Shareholders
have had adequate opportunities to discuss the business, management and
affairs of Merrill. The Affiliated Companies and the Shareholders
acknowledge that the Put Right and the Call Right are personal to the
Affiliated Companies and the Shareholders and, pursuant to (and except as
provided in) Section 9.7 hereof, may not be transferred or assigned.
2.27 CUSTOMERS. Except as set forth on the Disclosure Schedule, to the
Knowledge of the Shareholders, there has not been in the 12-month period prior
to the date hereof any dispute with any material customer of the Affiliated
Companies nor any set of circumstances which is reasonably anticipated to have a
material effect on the relationship between the Affiliated Companies and such
customer.
2.28 DISCLOSURE. To the Knowledge of the Shareholders, there is no
material fact as of the date hereof which has not been disclosed in writing to
the Purchaser related to Affiliated Companies, the
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Assets or the Affiliated Companies' operations, properties, financial condition
or prospects which has a Material Adverse Effect or, to the Knowledge of any of
the Shareholders, in the future may have a Material Adverse Effect on the
Affiliated Companies or the Assets in the context of this transaction taken as a
whole. The representations and warranties contained in this Article 2 or
elsewhere in this Agreement or any document delivered pursuant hereto will not
be affected or deemed waived by reason of the fact that Purchaser or their
respective representatives knew (other than as a result of the Disclosure
Schedule or other writing delivered to the Purchasers on the Closing Date) or
should have known that any such representation or warranty is or might be
inaccurate in any respect.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER AND MERRILL
The Purchaser and Merrill, jointly and severally represent and warrant to
the Affiliated Companies and the Shareholders as of the date hereof as follows:
3.1 CORPORATE ORGANIZATION. Each of Merrill and the Purchaser are
corporations duly organized, validly existing and in good standing under the
laws of the State of Minnesota.
3.2 AUTHORIZATION. Each of Merrill and the Purchaser have full corporate
power and authority to enter into this Agreement and to carry out the
transactions contemplated herein. The Board of Directors of Merrill and the
Purchaser have taken all action required by law, their articles of incorporation
and bylaws or otherwise to authorize the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein and
no action of the stockholders of Merrill or the Purchaser is required. This
Agreement is the valid and binding legal obligation of Merrill and the Purchaser
enforceable against them in accordance with its terms subject to bankruptcy,
insolvency, reorganization, moratorium and other similar laws of applicability
relating to or affecting creditors' rights and general principles of equity.
3.3 NON-CONTRAVENTION. Neither the execution, delivery and performance of
this Agreement nor the consummation of the transactions contemplated herein
will: (i) violate or be in conflict with any provision of the articles of
incorporation or bylaws of Merrill or the Purchaser; or (ii) except for such
violations, conflicts, defaults, accelerations, terminations, cancellations,
impositions of fees or penalties, mortgages, pledges, liens, security interests,
encumbrances, restrictions and charges which would not, individually or in the
aggregate, have a material adverse effect on the purchaser or Merrill, (1)
violate, be in conflict with, or constitute a default, however defined (or an
event which, with the giving of due notice or lapse of time, or both, would
constitute such a default), under, or cause or permit the acceleration of the
maturity of, or give rise to, any right of termination, cancellation, imposition
of fees or penalties under, any debt, note, bond, lease, mortgage, indenture,
license, obligation, contract, commitment, franchise, permit, instrument or
other agreement or obligation to which Merrill or the Purchaser is a party or by
which it or any of their properties or assets are or may be bound (unless with
respect to which defaults or other rights, requisite waivers or consents will
have been obtained at or prior to the Closing) or (2) result in the creation or
imposition of any mortgage, pledge, lien, security interest, encumbrance,
restriction, adverse claim or charge of any kind, upon any property or assets of
Merrill or the Purchaser under any debt, obligation, contract, agreement or
commitment to which Merrill or the Purchaser are a party or by which Merrill or
the Purchaser or any of their assets or properties is or may be bound; or (iii)
violate any Law.
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3.4 CONSENTS AND APPROVALS. Except for filings under the HSR Act, no
Consent is required by any person or entity, including without limitation any
Authority, in connection with the execution, delivery and performance by Merrill
and the Purchaser of this Agreement, or the consummation of the transactions
contemplated herein, other than any Consent which, if not made or obtained, will
not, individually or in the aggregate, have a material adverse effect on the
business of Merrill or the Purchaser.
3.5 NO DEFAULT. Merrill is not in default under or with respect to any
contractual obligation in any respect which could materially adversely affect
the financial condition of Merrill or the ability of Merrill to perform its
obligations under this Agreement. Merrill is not in default under any order,
award or decree of any arbitrator or court or any other governmental authority
binding upon or affecting it or by which any of its properties or other assets
may be bound or affected, which could materially adversely affect the ability of
Merrill to perform its obligations hereunder.
3.6 BROKERS. Neither Merrill or Purchaser nor any of their respective
directors, officers, partners, agents or employees have employed any broker,
finder, or financial advisor in connection with the transactions contemplated
hereby for which any Shareholders, any of the Affiliated Companies or any
officer, director, employee, partner or agent of the Affiliated Companies could
incur liability for any brokerage fee or commission, finder's fee or financial
advisory fee in connection with the transactions contemplated hereby.
3.7 LITIGATION. There is no legal, administrative, arbitration, or other
proceeding, suit, claim or action of any nature or investigation, review or
audit of any kind, judgment, decree, decision, injunction, writ or order
pending, noticed scheduled or to Best Knowledge of Merrill and Purchaser
threatened or contemplated by or against or involving Merrill or Purchaser,
their assets, properties or business, whether at law or in equity, before or by
any Authority which questions or challenges the validity of this Agreement or
any action taken or to be taken by Merrill or Purchaser pursuant to this
Agreement or in connection with the transactions contemplated herein.
3.8 ABSENCE OF CERTAIN BUSINESS PRACTICES. To the Knowledge of the
President and Chief Executive Officer, Vice President-Operations or Vice
President-Finance, Chief Financial Officer, Treasurer of Merrill, neither
Merrill nor any officer, employee, partner or agent of Merrill, nor any other
person acting on its behalf, has, directly or indirectly, within the past five
years given or agreed to give any gift or similar benefit to any customer,
supplier, governmental employee or other person who is or may be in a position
to help or hinder the business of Merrill (or assist Merrill in connection with
any actual or proposed transaction) which (i) might subject Merrill to any
damage or penalty in any civil, criminal or governmental litigation proceeding,
(ii) if not given in the past, might have had an adverse affect on the assets,
business or operations of Merrill as reflected in the financial statements in
its Form 10-K referred to in Section 2.26, or (iii) if not continued in the
future, might adversely affect Merrill's assets, business, operations or
prospects or which might subject Merrill to suit or penalty in any private or
governmental litigation or proceeding.
3.9 DISCLOSURE. To the Knowledge of the President and Chief Executive
Officer, Vice President-Operations or Vice President-Finance, Chief Financial
Officer, Treasurer of Merrill, there is no material fact as of the date hereof
which has not been disclosed in writing to the Affiliated Companies related to
Merrill or its operations, properties, financial condition or prospects which
has a Material
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Adverse Effect or, to the Knowledge of the Purchaser, in the future may have a
Material Adverse Effect on the Affiliated Companies or the Assets in the context
of this transaction taken as a whole.
3.10 CERTAIN ACTIONS. Neither Merrill nor the Purchaser has taken nor
will they take, directly or indirectly, any action designed to or which has
constituted, or which might be reasonably be expected to cause or result in,
manipulation of the price of Merrill Common Stock.
ARTICLE 4
COVENANTS
4.1 CONDUCT OF BUSINESS OF THE AFFILIATED COMPANIES. Except as
contemplated by this Agreement, during the period from the date of this
Agreement to the Closing Date, the Shareholders will cause the Affiliated
Companies to conduct their business and operations according to its ordinary and
usual course of business, to preserve substantially intact its business
organizations and to preserve its current relationships with customers,
employees, suppliers and other persons with which they have significant business
relations. Without limiting the generality of the foregoing, and, except as
otherwise expressly provided in this Agreement, prior to the Closing Date,
without the prior written consent of Purchaser, the Shareholders agree that the
Affiliated Companies will not:
(a) amend the Corporate Entities' articles of incorporation or bylaws
or the Partnership Entity or Oakland's partnership agreement or other
charter documents;
(b) issue, reissue, sell, deliver or pledge or authorize or propose
the issuance, reissuance, sale, delivery or pledge of shares of capital
stock of any class, or securities convertible into capital stock of any
class, or any rights, warrants or options to acquire any convertible
securities or capital stock of the Corporate Entities; provided, however,
it is understood that Purchaser may not for purposes of this Section 4.1(b)
unreasonably withhold or delay its consent;
(c) adjust, split, combine, subdivide, reclassify or redeem, purchase
or otherwise acquire, or propose to redeem or purchase or otherwise
acquire, any shares of the Corporate Entities' capital stock, or any of the
Corporate Entities' other securities; provided, however, it is understood
that Purchaser may not for purposes of this Section 4.1(c) unreasonably
withhold or delay its consent;
(d) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of the Affiliated Companies's capital stock or equity interests, redeem or
otherwise acquire any shares of the Affiliated Companies' capital stock or
equity interests;
(e) (i) increase in any manner the compensation of any of the
Affiliated Companies' directors, officers or other employees; (ii) pay or
agree to pay any pension, retirement allowance or other employee benefit
not required or permitted by any existing plan, agreement or arrangement to
any such director, officer or employee, whether past or present of the
Affiliated Companies; or (iii) except in connection with any written
arrangement approved by the Purchaser, commit the Affiliated Companies to
any additional pension, profit-sharing, bonus, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right, group
insurance, severance pay, retirement or other employee benefit plan,
agreement or arrangement,
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or to any employment agreement or consulting agreement (arising out of
prior employment) with or for the benefit of any person, or, except to the
extent required to comply with applicable law, amend any of such plans or
any of such agreements in existence on the date of this Agreement;
(f) except in the ordinary course of business, incur, assume, suffer
or become subject to, whether directly or by way of guarantee or otherwise,
any Liabilities which, individually or in the aggregate, are material to
the conduct of the businesses of the Affiliated Companies or hereof would
have a Material Adverse Effect on the Affiliated Companies;
(g) pay, discharge or satisfy any Liabilities of the Affiliated
Companies other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice;
(h) sell, transfer, or otherwise dispose of any of the Affiliated
Companies' properties or assets (real, personal or mixed, tangible or
intangible), other than inventory in the ordinary course of business and
consistent with past practice;
(i) permit or allow any of its property or assets (real, personal or
mixed, tangible or intangible) to be subjected to any Lien, except for
liens for current taxes not yet due;
(j) write down the value of any Affiliated Companies inventory
(including write-downs by reason of shrinkage or mark-down) or write off as
uncollectible any of the Affiliated Companies' notes or accounts
receivable, except for immaterial write-downs and write-offs in the
ordinary course of business and consistent with past practice;
(k) cancel any of the Affiliated Companies' debts or waive any of its
claims or rights, in each case, of substantial value;
(l) dispose of or permit to lapse any rights to the use of any of the
Affiliated Companies' patent, trademark, trade name or copyright, or
disposed of or disclosed (except as necessary in the conduct of its
business) to any individual, corporation, partnership, joint venture,
association, trust, unincorporated organization or, as applicable, any
other entity other than representatives of the Purchaser, any trade
secrets, formula, process or know-how not theretofore a matter of public
knowledge;
(m) make or enter into any commitment of the Affiliated Companies for
capital expenditures for additions to property, plant, equipment or
intangible capital assets;
(n) pay, lend or advance any amount to, or sell, transfer or lease
any Affiliated Companies' properties or assets (real, personal or mixed,
tangible or intangible) to, or enter into any agreement or arrangement
with, any of its officers or directors or any affiliate or associate of any
of its officers or directors;
(o) terminate, enter into or amend in any material respect any
contract, agreement, lease, license or commitment identified in Section
2.11 of the Disclosure Schedule, or take any action or omit to take any
action which will cause a breach, violation or default (however defined)
under any such items, except in the ordinary course of business and
consistent with past practice;
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(p) acquire any of the business or assets of any other person or
entity;
(q) permit any of the Affiliated Companies' current insurance (or
reinsurance) policies to be cancelled or terminated or any of the coverage
thereunder to lapse, unless simultaneously with such termination,
cancellation or lapse, replacement policies providing coverage equal to or
greater than coverage remaining under those cancelled, terminated or lapsed
are in full force and effect;
(r) suffer any adverse change in the Affiliated Companies'
relationship with a material customer, including the loss of any such
customer;
(s) enter into other agreements, commitments or contracts not in the
ordinary course of business or in excess of current requirements;
(t) modify, amend or terminate any Assumed Contract, or waive,
release, relinquish or assign any Assumed Contract or other right or claim;
(u) settle or compromise any material suit, claim or dispute or
threatened material suit, claim or dispute;
(v) make any change in the Affiliated Companies' accounting methods,
principles or practices except as required by GAAP; or
(w) agree in writing or otherwise to take any of the foregoing
actions or any action which would make any representation or warranty in
this Agreement untrue or incorrect in any material respect.
4.2 NO SOLICITATION OF ALTERNATE TRANSACTION. The Affiliated Companies
and the Shareholders will not, and will ensure that, the Affiliated Companies'
[directors, officers, partners and employees, independent contractors,
consultants, counsel, accountants, investment advisors and other representatives
and agents] will not, directly or indirectly, solicit or entertain offers from,
negotiate with, provide any nonpublic information to, enter into any agreement
with, or in any manner encourage, discuss, accept or consider any proposal of,
any third party relating to the acquisition of the Affiliated Companies, their
assets or business, in whole or in part, whether through a tender offer
(including a self tender offer), exchange offer, merger, consolidation, sale of
substantial assets or of a significant amount of assets, sale of securities,
acquisition of the Affiliated Companies' securities, liquidation, dissolution or
similar transactions involving the Affiliated Companies or any division of the
Affiliated Companies (such proposals, announcements or transactions being called
herein "ACQUISITION PROPOSALS"). The Affiliated Companies and the Shareholders
will promptly inform the Purchaser of any inquiry (including the terms thereof
and the identity of the third party making such inquiry) which it may receive in
respect of an Acquisition Proposal and furnish to the Purchaser a copy of any
such written inquiry.
4.3 FULL ACCESS TO PURCHASER. Throughout the period prior to Closing,
the Affiliated Companies will afford to the Purchaser and its directors,
officers, employees, counsel, accountants, investment advisors and other
authorized representatives and agents, access to the facilities, properties,
books and records of the Affiliated Companies in order that Purchaser may
have full opportunity to make such investigations as it will desire to make
of the affairs of the Affiliated Companies. The Affiliated Companies will
furnish such additional financial and operating data and other information as
Purchaser
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will, from time to time, reasonably request, including without limitation access
to the working papers of its independent certified public accountants; PROVIDED,
HOWEVER, that any such investigation will not affect or otherwise diminish or
obviate in any respect any of the representations and warranties of the
Affiliated Companies or the Shareholders herein.
4.4 CONFIDENTIALITY. Each of the parties hereto agrees that it will not
use, or permit the use of, any of the information relating to any other party
hereto furnished to it in connection with the transactions contemplated herein
("INFORMATION") in a manner or for a purpose detrimental to such other party or
otherwise than in connection with the transaction, and that they will not
disclose, divulge, provide or make accessible (collectively, "DISCLOSE"), or
permit the Disclosure of, any of the Information to any person or entity, other
than their respective directors, officers, employees, investment advisors,
accountants, counsel and other authorized representatives and agents, except as
may be required by judicial or administrative process or, in the opinion of such
party's counsel, by other requirements of Law; PROVIDED, HOWEVER, that prior to
any Disclosure of any Information permitted hereunder, the disclosing party will
first obtain the recipients' undertaking to comply with the provisions of this
subsection with respect to such information. The term "INFORMATION" as used
herein will not include any information relating to a party which the party
disclosing such information can show: (i) to have been in its possession prior
to its receipt from another party hereto; (ii) to be now or at the time of the
disclosure by the recipient become generally available to the public through no
fault of the disclosing party; (iii) to have been available to the public at the
time of its receipt by the disclosing party; (iv) to have been received
separately by the disclosing party in an unrestricted manner from a person
entitled to disclose such information; or (v) to have been developed
independently by the disclosing party without regard to any information received
in connection with this transaction. Each party hereto also agrees to promptly
return to the party from whom it originally received such information all
original and duplicate copies of written materials containing Information should
the transactions contemplated herein not occur. A party hereto will be deemed
to have satisfied its obligations to hold the Information confidential if it
exercises the same care as it takes with respect to its own similar information.
Except for those items of Information set forth on Exhibit 4.4, which items
shall be kept confidential for a period of five years from the Closing Date by
Merrill or Purchaser unless Merrill or Purchaser is required to disclose such
Information by Law (including the rules of the Nasdaq National Market System),
the obligations of the Purchaser and Merrill under this paragraph will terminate
at Closing. In the event that the Closing does not occur prior to the Closing
Date, Merrill and Purchaser shall return any and all Information provided by the
Affiliated Companies and Shareholders to Merrill or Purchaser.
4.5 FILINGS; REMOVAL OF OBJECTIONS; CONSENTS. Subject to the terms and
conditions herein provided, the parties hereto will use their best efforts to
take or cause to be taken all actions and do or cause to be done all things
necessary, proper or advisable under applicable Laws to consummate and make
effective, as soon as reasonably practicable, the transactions contemplated
hereby, including without limitation obtaining all Consents of any Authority
required in connection with the consummation of the transactions contemplated
herein. In furtherance, and not in limitation of the foregoing, it is the
intent of the parties to consummate the transactions contemplated herein at the
earliest practicable time, and they respectively agree to exert their best
efforts to that end, including without limitation: (i) to respond as promptly
as practicable to all inquiries from the Federal Trade Commission ("FTC") or the
Antitrust Division of the Department of Justice (the "ANTITRUST DIVISION") in
connection with the filings made by Merrill and Shifrin with the FTC and
Antitrust Division on February 29, 1996 pursuant to the HSR Act; (ii) the
removal or satisfaction, if possible, of any objections to the validity or
legality of the transactions contemplated herein; and (iii) the satisfaction of
the conditions to consummation of the transactions contemplated hereby.
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4.6 FURTHER ASSURANCES; COOPERATION; NOTIFICATION.
(a) Each party hereto will, before, at and after Closing, execute and
deliver such instruments and take such other actions as the other party or
parties, as the case may be, may reasonably require in order to carry out
the intent of this Agreement. Without limiting the generality of the
foregoing, at any time after the Closing, at the request of the Purchaser
and without further consideration, the Affiliated Companies and the
Shareholders will execute and deliver such instruments of sale, transfer,
conveyance, assignment and confirmation and take such action as the
Purchaser may reasonably deem necessary or desirable in order to more
effectively transfer, convey and assign to the Purchaser, and to confirm
the Purchaser's title to, all of the Assets, to put the Purchaser in actual
possession and operating control thereof and to assist the Purchaser in
exercising all rights with respect thereto.
(b) The Shareholders will cooperate with the Purchaser to promptly
develop plans for the management of the businesses after the Closing,
including without limitation plans relating to productivity, marketing,
operations and improvements, and the Shareholders will further cooperate
with Purchaser to provide for the implementation of such plans as soon as
practicable after the Closing. Subject to applicable Law, the Shareholders
will confer on a regular and reasonable basis with one or more
representatives of the Purchaser to report on material operational matters
and the general status of ongoing operations.
(c) At all times from the date hereof until the Closing, each party
will promptly notify the other in writing of the occurrence of any event
which it reasonably believes will or may result in a failure by such party
to satisfy the conditions specified in Article 5 and Article 6 hereof.
4.7 SUPPLEMENTS TO DISCLOSURE SCHEDULE. At least 48 hours prior to the
Closing, the Affiliated Companies and the Shareholders will supplement or amend
the Disclosure Schedule with respect to any event or development which, if
existing or occurring at or prior to the date of this Agreement, would have been
required to be set forth or described in the Disclosure Schedule or which is
necessary to correct any information in the Disclosure Schedule or in any
representation and warranty of the Affiliated Companies or the Shareholders
which has been rendered inaccurate by reason of such event or development. For
purposes of determining the accuracy as of the date hereof of the
representations and warranties of the Affiliated Companies and Shareholders
contained in Article 2 hereof in order to determine the fulfillment of the
conditions set forth in Section 5.1 and to determine whether a material breach
has occurred pursuant to Section 7.1(d), the Disclosure Schedule will be deemed
to exclude any information contained in any supplement or amendment hereto
delivered after the delivery of the Disclosure Schedule.
4.8 PUBLIC ANNOUNCEMENTS. None of the parties hereto will make any
public announcement with respect to the transactions contemplated herein
without the prior written consent of the other parties, which consent will
not be unreasonably withheld or delayed; PROVIDED, HOWEVER, that any of the
parties hereto may at any time make any announcements which are required by
applicable Law so long as the party so required to make an announcement
promptly upon learning of such requirement notifies the other parties of such
requirement and discusses with the other parties in good faith the exact
proposed wording of any such announcement.
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4.9 TAX MATTERS.
(a) TAX ELECTIONS. No new elections by any of the Affiliated
Companies or any Shareholder with respect to Taxes, or any changes in
current elections with respect to Taxes, affecting the Assets will be made
after the date of this Agreement without the prior written consent of
Merrill or the Purchaser.
(b) TRANSACTIONAL AND TRANSFER TAXES. In addition to and without
limiting those representations and warranties set forth in Section 2.16 of
this Agreement, in the event that any sales or use Tax, or any Tax in the
nature of a sales or use tax, or any transactional Tax is payable or
assessed relative to the transactions contemplated herein, the Affiliated
Companies or the Shareholders will pay all such Taxes and will not collect
any part thereof from the Purchaser. The parties hereto will cooperate to
make any necessary filings with state and local or foreign taxing
Authorities and to furnish any required supplemental information with
respect to any state and local or foreign Tax liabilities resulting from
the consummation of the transactions contemplated herein.
(c) TAX LIABILITIES; POST-CLOSING TAX RETURN FILINGS; NO
DISTRIBUTIONS. In addition to and without limiting those representations
and warranties set forth in Section 2.16 of this Agreement, the
Shareholders or the Affiliated Companies, as appropriate, will pay all
Taxes arising from or relating to the transactions contemplated by this
Agreement, including without limitation Tax on any income or gains arising
from the sale of the Assets. The Shareholders will cause to be prepared
and filed all Federal, foreign and state income Tax Returns for the
Affiliated Companies and the Shareholders reflecting all activities of the
Affiliated Companies through and including the Closing Date. Irrespective
of any prior practice, no dividend or other distribution of cash or
property will be made by the Affiliated Companies on or before the Closing
Date without the express written consent of the Purchaser.
(d) COOPERATION AND RECORDS RETENTION. The Shareholders and the
Purchaser will (i) each provide the other, and the Affiliated Companies and
the Purchaser will provide the Shareholders, with such assistance as may
reasonably be requested by any of them in connection with the preparation
of any Tax Return, audit or other examination by any taxing Authority or
judicial or administrative proceedings relating to liability for Taxes,
(ii) each retain and provide the other, and the Affiliated Companies and
the Purchaser will retain and provide the Shareholders, with any records or
other information which may be relevant to such Tax Return, audit or
examination, proceeding or determination, and (iii) each provide the other
with any final determination of such audit or examination, proceeding or
determination that affects any amount required to be shown on any Tax
Return of the other for any period. Without limiting the generality of the
foregoing, the Affiliated Companies, the Purchaser and the Shareholders
will retain, until the applicable statutes of limitations (including all
extensions) have expired, copies of all Tax Returns, supporting work
schedules and other records or information which may be relevant to such
Tax Returns for all Tax periods or portions thereof ending on or before the
Closing Date and will not destroy or otherwise dispose of any such records
without first providing the other party with a reasonable opportunity to
review and copy the same.
4.10 BULK TRANSFERS. The Affiliated Companies have requested that the
Purchaser and Merrill waive, and Purchaser hereby agrees to waive, the
requirements of the Uniform Commercial Code
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concerning bulk transfers, as in effect in the various states in which the
Affiliated Companies have assets, including without limitation the requirement
of notice to creditors. The Affiliated Companies and the Shareholders will
jointly indemnify the Purchaser in connection herewith pursuant to Section
8.3(a) hereof.
4.11 NON-COMPETITION AGREEMENT; EMPLOYMENT AGREEMENT. At the Closing, the
Purchaser and Shifrin will enter into a non-competition agreement in
substantially the form of Exhibit 4.11(a) hereto (the "NON-COMPETITION
AGREEMENT"). Also at the Closing, the Purchaser will assume the obligations of
Corporate pursuant to an employment agreement between Corporate and Cooney in
substantially the form of Exhibit 4.11(b) hereto (the "Employment Agreement").
Pursuant to the Employment Agreement, the Purchaser will agree to pay certain
amounts to Cooney pursuant to the provisions of such Employment Agreement. In
consideration for the assumption by Purchaser of the Employment Agreement,
Cooney has agreed to be a party to and a Shareholder pursuant to this Agreement
and, among other things, to be subject to the obligations of this Agreement,
including without limitation the indemnification provisions of Article 8 below.
4.12 EMPLOYEE BENEFITS.
(a) On or as soon as administratively practicable after the Closing
Date, the Purchaser will extend offers of immediate employment to employees
of the Affiliated Companies listed on Schedule 4.12 hereto. Except as
otherwise expressly provided in this Agreement, the terms and conditions of
each such offer and of any continuing employment will be determined by the
Purchaser in its sole discretion and any resulting employment relationship
will be at will. Any employee of the Affiliated Companies who accepts such
an employment offer and reports for work on the date directed by the
Purchaser shall be sometimes hereinafter referred to as a "TRANSFERRED
EMPLOYEE." The Affiliated Companies hereby authorize Merrill and the
Purchaser to enter into discussions with any of such employees listed on
Schedule 4.12 concerning the future employment of such individual by the
Purchaser; provided, however, that (i) such discussions will not be
commenced prior to the giving of notice by the Affiliated Companies to the
employees of the Affiliated Companies of the transactions contemplated by
this Agreement; and (ii) all such discussions will be conducted in such a
manner as not to interfere unreasonably with the business operations of the
Affiliated Companies.
(b) Each Transferred Employee will be permitted to participate in the
Purchaser's benefit plans, policies and practices in accordance with the
terms thereof applicable to newly hired employees and without regard to
service with the Affiliated Companies or any aspect of participation in any
benefit plans, practices or policies of the Affiliated Companies, except
(i) subject to clause (v), a Transferred Employee will be eligible to
participate in the Purchaser's medical and dental plans effective as of the
date on which he or she becomes a Transferred Employee in accordance with
the otherwise applicable terms of such plans (including, for example, the
$2,500 limitation on coverage with respect to preexisting conditions), (ii)
a Transferred Employee who would be eligible to participate in Merrill's
401(k) plan effective on February 1, 1997 if the Transferred Employee's
service with the Affiliated Companies were counted as eligibility service
for purposes of the Plan will be permitted to enter Merrill's 401(k) Plan
on February 1, 1997, (iii) the Purchaser will recognize one-half of a
Transferred Employee's service with the Affiliated Companies for purposes
of the Purchaser's vacation policy, (iv) a Transferred Employee will not
fail to earn a floating holiday for the calendar quarter ending on June 30,
1996 solely because the Transferred Employee's hire date with the Purchaser
is after
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April 1, 1996. The Affiliated Companies will provide the Purchaser with
any information regarding Transferred Employees' service with the
Affiliated Companies that the Purchaser may reasonably request to effect
the foregoing and (v) notwithstanding clause (i) if, immediately prior to
the Closing Date, a Transferred Employee was employed by the Affiliated
Companies in Washington, D.C. or Maryland and was eligible for coverage
under a group medical or group dental plan pursuant to an insurance or
other contract that is an Assumed Contract, the Transferred Employee will,
on and after the Closing Date, continue to be eligible for coverage under a
group medical or group dental plan established by the Purchaser which is
substantially similar to the Affiliated Companies' plan; provided, first,
that the assumption by the Purchaser of any such insurance or other
contract is not an assumption of any benefit plan, policy or practice of
the Affiliated Companies; and, second, that nothing contained in this
clause (v) in any manner limits, or prevents the Purchaser from changing
the terms of any plan or changing the underlying insurance company or other
provider at any time after the Closing Date.
(c) The Affiliated Companies will be responsible for making any
required payment of severance compensation including any notice pay and
severance pay in order to comply with the requirements of the Worker
Adjustment and Retraining Act ("WARN") to any employee of the Affiliated
Companies who is not a Transferred Employee. The Purchaser will reimburse
the Affiliated Companies for 50 percent of the amount of any payments in
excess of $145,002 made by the Affiliated Companies (i) to those
individuals (A) who, immediately prior to the Closing date, were employed
by the Affiliated Companies in New York, (B) whose employment with the
Affiliated Companies is terminated on or as soon as administratively
practicable after the Closing Date and (C) who are not Transferred
Employees (ii) to comply with the requirements of WARN arising in
connection with such termination of employment. Such reimbursement will be
made promptly following the Purchaser's receipt of a written request
therefor from the Affiliated Companies which sets forth to the Purchaser's
reasonable satisfaction the Affiliated Companies' entitlement thereto. In
addition, the Affiliated Companies will pay to each employee whose
employment is terminated in connection with the transactions contemplated
by this Agreement, including each Transferred Employee, an amount equal to
the value of such employee's accrued and unused vacation as reflected on
the Closing Balance Sheet. Such payment shall be made as soon as
administratively practicable after the employee's termination of
employment.
(d) Neither the Affiliated Companies nor any of the Shareholders
will, for a period of three (3) years after the Closing Date, take any
action, other than with the written consent of the Purchaser, to induce any
Transferred Employee, while still employed by Merrill, the Purchaser or any
subsidiary of Merrill, the Purchaser, to enter into the employ of the
Affiliated Companies or any affiliate of the Affiliated Companies or the
Shareholders.
(e) Merrill and the Purchaser hereby specifically disclaim any
assumption of, or liability with respect to, any collective bargaining
agreement or employee benefit plan, policy, practice or agreement to which
the Affiliated Companies are a party or under which any of the Affiliated
Companies' employees or former employees are covered. Without limiting the
generality of the foregoing, (i) neither the Purchaser nor Merrill is
assuming any obligation to contribute to, or has any obligation or
liability for any withdrawal liability arising in connection with, any
Multiemployer Plan attributable to participation therein by current or
former employees of the Affiliated Companies as a result of this Agreement
and the transactions contemplated hereby or otherwise, and (ii) except as
provided in Section 4.12(f), with respect to each current or former
employee of the Affiliated Companies, including a Transferred Employee, and
each
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other individual who is a "qualified beneficiary" with respect to such
current or former employee in connection with any "group health plan" (as
such terms are defined in Section 4980B of the Code) maintained by any of
the Affiliated Companies or any Affiliated Organization, as between the
Purchaser and Merrill, on the one hand, and the Affiliated Companies, on
the other hand, the Affiliated Companies are responsible for providing
group health plan continuation coverage in accordance with Section 4980B of
the Code and Part 6 of Subtitle B of Title I of ERISA (without regard to
whether the Purchaser or Merrill is ultimately determined to be responsible
to provide such coverage to any such current or former employee) and will
indemnify, defend and hold harmless the Purchaser, Merrill, and their
affiliates from and against any liability, expense, cost, tax or obligation
of any nature with respect to such current or former employee or other
individual arising in connection with group health plan coverage required
under Section 4980B of the Code or Part 6 of Subtitle B of Title I of
ERISA. The Shareholders will, or will cause the Affiliated Companies to,
promptly provide the Purchaser with any communications to and from any
qualified beneficiary or to or from any insurance company or third-party
administrator or other person as the Purchaser, in its sole discretion,
determines to be reasonably necessary to determine the Affiliated
Companies' compliance with clause (ii) of the preceding sentence but the
Purchaser has no duty to make such determination and its failure to do so
will in no way diminish, alter or impair the Affiliated Companies'
obligations pursuant to such clause (ii).
(f) The Purchaser is responsible for providing group health plan
continuation coverage in accordance with Section 4980B of the Code and Part
6 of Subtitle B of Title I of ERISA to each individual who immediately
prior to the Closing Date, was either (i) eligible for such coverage
through a group medical or dental plan of the Affiliated Companies with
respect to which benefits were implemented pursuant to an Assumed Contract
referenced in Section 4.12(b)(v) or (ii) employed by the Affiliated
Companies in Washington, D.C. or Maryland and who becomes eligible for such
continuation coverage as a result of a termination of employment in
connection with the transactions contemplated by this Agreement. The
Purchaser will indemnify, defend and hold harmless the Affiliated Companies
from and against any liability, expense, cost, tax or obligation of any
nature resulting from the Purchaser's breach of its obligation pursuant to
this Section 4.12(f). The Purchaser will promptly provide Corporate with
any communications to and from any qualified beneficiary or to or from any
insurance company or third-party administrator or other person as
Corporate, in its sole discretion, determines to be reasonably necessary to
determine the Purchaser's compliance with this Section 4.12(f) but
Corporate has no duty to make such determination and its failure to do so
will in no way diminish, alter or impair the Purchaser's obligation
pursuant to this Section 4.12(f).
(g) Promptly after the Closing Date, the Affiliated Companies will
take or cause to be taken all actions necessary or advisable to effect the
termination of any qualified cash or deferred arrangement maintained by the
Affiliated Companies pursuant to Section 401(k) of the Code so as to permit
distributions therefrom to participants, including Transferred Employees,
in accordance with Section 401(k)(10)(A)(i) of the Code and regulations
thereunder. Merrill will permit distributions from any such terminated
arrangement to a Transferred Employee to be rolled over into Merrill's
401(k) plan if the Affiliated Companies provide Merrill with a
determination letter from the Internal Revenue Service or an opinion of
counsel for the Affiliated Companies in form satisfactory to Merrill,
obtained in either case at the Affiliated Companies' expense, indicating
that the termination did not adversely affect the qualified status of the
arrangement.
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(h) If the party with whom any of the Affiliated Companies has
contracted in the case of any of the Assumed Contracts referenced in
Section 4.12(f) does not consent to the assignment of the contract to the
Purchaser by way of a written instrument, in form acceptable to the
Purchaser and binding on such party, delivered to the Purchaser not later
than 60 days after the Closing Date, notwithstanding any other provision of
this Agreement or the Liabilities Undertaking to the contrary, the
attempted assignment of such contract is void, such contract will not be an
Assumed Contract and the provisions of this Section 4.12 will be applied to
any individual covered under such contract immediately prior to the Closing
Date without regard to the first clause of Section 4.12(b)(i) (I.E.,
"subject to
clause (v),"), any of Section 4.12(b)(v), the first clause of Section
4.12(e)(ii) (I.E., "except as provided in Section 4.12(f),") and any of
Section 4.12(f).
4.13 DIRECTORS AND SHAREHOLDERS AUTHORIZATION; CHANGE OF CORPORATE NAME.
(a) On or prior to the Closing, the Affiliated Companies will deliver
to the Purchaser a copy of the resolutions of the Board of Directors and
all required resolutions or consents of the shareholders of the Affiliated
Companies, approving the execution and delivery of this Agreement and the
consummation of all of the transactions contemplated hereby, duly certified
by an officer of Affiliated Companies.
(b) On or before the Closing, the Affiliated Companies will deliver
to the Purchaser a duly executed and acknowledged certificates of amendment
to the Affiliated Companies' (located in the United States) articles of
organization or other appropriate document which is required to change such
Affiliated Companies' corporate name so as to make such Affiliated
Companies' present names available to the Purchaser. The Purchaser is
hereby authorized to file such certificates or other document in order to
effectuate such change of name at or reasonably promptly after the Closing
as the Purchaser will elect, and to promptly notify the Representative
thereof in writing.
4.14 ADDITIONAL POST-CLOSING OBLIGATIONS OF AFFILIATED COMPANIES AND THE
SHAREHOLDERS. Effective as of the Closing, the Affiliated Companies appoints the
Purchaser its successor and assigns, the true and lawful attorney or attorneys
of the Affiliated Companies, with full power of substitution, in the name of the
Affiliated Companies but on behalf and for the benefit of and at the expense of
the Purchaser: (i) as provided in Section 1.3(d), to collect in the name of the
Affiliated Companies for the account of the Purchaser all receivables and other
items to be sold and transferred to the Purchaser as provided herein; (ii) as
provided in Section 1.3(d), to institute and prosecute, in the name of the
Affiliated Companies or otherwise, all proceedings which the Purchaser may deem
necessary or desirable in order to collect, assert or enforce any claim, right
or title of any kind in or to the Affiliated Companies' Assets; (iii) to defend
and compromise any and all actions, suits or proceedings in respect of the
Affiliated Companies' Assets to the extent liability therefor has been assumed
by the Purchaser hereunder; and (iv) to do all such acts and things in relation
to the foregoing as is reasonably necessary to exercise such powers, as the
Purchaser may deem advisable. The foregoing power is coupled with an interest
and will be irrevocable by the Affiliated Companies or by its dissolution in any
manner or for any reason. Subject to Section 1.3(d), the Purchaser will retain
for its own account any amounts collected pursuant to the foregoing power,
including any sums payable as interest in respect thereof, and the Affiliated
Companies will pay to the Purchaser, when received, any amounts which will be
received by the Affiliated Companies in respect of any receivables or other
assets or properties related to the Affiliated Companies' Assets. The Purchaser
will pay to the Affiliated Companies, when received, any amounts which will be
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received by the Purchaser in respect of any receivables or other assets or
properties of the Affiliated Companies (other than those related to the Assets).
4.15 GUARANTEE BY MERRILL. Merrill hereby absolutely, unconditionally
and irrevocably guarantees to the Affiliated Companies and Shareholders the
prompt and full payment and other performance of all of the obligations of
the Purchaser under this Agreement, the Liabilities Undertaking, the Escrow
Agreement, the Non-Competition Agreement and the Employment Agreement (the
"TRANSACTION DOCUMENTS") when each of such obligations is due or to be
performed. The agreements and other obligations of Merrill guaranteed
hereunder (i) shall be absolute, unconditional and irrevocable, irrespective
(by way of example only) of the validity, legality or enforceability of this
Agreement or any other Transaction Document, and (ii) shall be continuing and
remain in full force and effect until the indefeasible payment in full and
other full performance of all of the obligations of the Purchaser and the
full payment and other performance of Merrill's other obligations contained
in this Agreement or any other Transaction Document.
ARTICLE 5
[INTENTIONALLY OMITTED]
ARTICLE 6
[INTENTIONALLY OMITTED]
ARTICLE 7
[INTENTIONALLY OMITTED]
ARTICLE 8
SURVIVAL AND INDEMNIFICATION
8.1 SURVIVAL. All representations and warranties of the parties
contained in this Agreement will survive the Closing Date for a period of 18
months, except that: (i) the representations and warranties set forth in
Sections 2.4, 2.10(a) and (b) and 3.2 shall survive without limitation as to
time; (ii) the representations and warranties set forth in Section 2.16 and,
to the extent the representations and warranties in Section 2.7 relate to
liabilities for Taxes, shall survive until the expiration of the applicable
statute of limitations plus two months, but in no event longer than ten years
after the Closing Date; and (iii) the representations and warranties
contained in Section 2.22 shall survive until the expiration of the
applicable statute of limitations plus two months. The covenants and
agreements contained herein and in the exhibits hereto will survive the
Closing without limitation as to time unless the covenant or agreement
specifies the term, in which case such covenant or agreement will survive
until the expiration of such specified term and will thereupon expire. The
respective expiration dates for the survival of the representations and
warranties and the covenants shall be referred to herein as the relevant
"Expiration Date." The right to indemnification or any other remedy based on
representations, warranties, covenants and obligations in this Agreement will
not be affected by any investigation conducted with respect to, or any
Knowledge acquired (or capable of being acquired) at any time, whether before
or after the execution and delivery of this Agreement or the Closing Date,
with respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant or obligation. The waiver of any condition
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based on the accuracy of any representation or warranty, or on the performance
of or compliance with any covenant or obligation, will not affect the right to
indemnification or any other remedy based on such representations, warranties,
covenants and obligations.
8.2 INDEMNIFICATION BY MERRILL AND THE PURCHASER. Merrill and the
Purchaser, jointly and severally, agree to indemnify, defend and hold the
Affiliated Companies and the Shareholders harmless from and against:
(a) any and all loss, liability or damage suffered or incurred by it
arising out of or resulting from (i) any untrue representation of, or
breach of warranty by, Merrill or the Purchaser in any part of this
Agreement or any exhibit hereto, notice of which is given to Merrill prior
to the relevant Expiration Date; (ii) any nonfulfillment of any covenant,
agreement or undertaking of Merrill or the Purchaser in any part of this
Agreement, notice of which is given to Merrill prior to the relevant
Expiration Date; (iii) any failure to pay and perform Assumed Liabilities;
or (iv) operation of the Assets or the business associated with the Assets
after the Closing Date (which expressly does not include any such loss,
liability or damage relating to or arising out of the CPC Press Business or
the CPC Shipping Business); and
(b) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including, without limitation,
legal fees and expenses, incident to any of the foregoing or incurred in
investigating or attempting to avoid the same or to oppose the imposition
thereof, or in enforcing the indemnification rights of Affiliated Companies
or the Shareholders pursuant to this Section 8.2.
8.3 INDEMNIFICATION BY AFFILIATED COMPANIES AND THE SHAREHOLDERS. The
Affiliated Companies, jointly and severally, and each Shareholder, on a several
basis in accordance with the Indemnification Percentages, agree to indemnify,
defend and hold the Purchaser and Merrill and their respective agents,
representatives, employees, officers, directors, shareholders, controlling
persons and affiliates harmless from and against:
(a) any and all loss, liability or damage suffered or incurred by the
Purchaser or Merrill, whether or not involving a third-party claim, arising
out of or resulting from (i) any untrue representation of, or breach of
warranty by the Affiliated Companies or any Shareholder in any part of this
Agreement or any exhibit hereto, notice of which is given to the
Representative (as hereinafter defined) prior to the relevant Expiration
Date; (ii) any nonfulfillment of any covenant, agreement or undertaking of
the Affiliated Companies or any Shareholder in any part of this Agreement
or the Non-Competition Agreement (as to which this indemnification shall be
borne entirely by Shifrin), notice of which is given to the Representative
(as hereinafter defined) prior to the relevant Expiration Date; or (iii)
the failure of the Affiliated Companies to (A) comply with the requirements
of the Uniform Commercial Code concerning bulk transfers, as in effect in
the various states in which the Affiliated Companies has assets, including,
without limitation, the requirement of notice to creditors, except that any
liability arising out of the Purchaser's failure to pay and perform the
Assumed Liabilities will not give rise to any liability of the Affiliated
Companies or any Shareholder pursuant hereto or (B) obtain any clearance
certificate or similar document required by any taxing Authority in order
to relieve the Purchaser of any obligation to withhold any portion of the
Purchase Price or in order to avoid any successor liability for Taxes; or
(iv) any Retained Liabilities.
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(b) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including, without limitation,
legal fees and expenses, incident to any of the foregoing or incurred in
investigating or attempting to avoid the same or to oppose the imposition
thereof, or in enforcing the indemnification rights of the Purchaser and
Merrill pursuant to this Section 8.3.
8.4 BASKET AMOUNT. Notwithstanding anything in Section 8.3 to the
contrary, neither Merrill nor the Purchaser shall be entitled to any
indemnification under Section 8.3 if the aggregate amount of all claims
thereunder is less than $200,000; provided, however, if the aggregate amount of
all claims equals or exceeds such amount, then Merrill and the Purchaser shall
be entitled to full indemnification of all claims under Section 8.3 in excess of
$100,000. The parties hereto do not intend that such exception amount be deemed
to be a definition of what is "material" for any purpose in this Agreement.
8.5 RIGHT OF SET-OFF. Upon notice to the Affiliated Companies and the
Shareholders specifying in reasonable detail the basis therefor, the Purchaser
may set off any amount to which it may be entitled under this Article 8 against
amounts otherwise payable as a Participation Payment. The exercise of such
right of set-off by Purchaser will not constitute a breach under the Purchaser's
obligations pursuant to Section 1.3(c) hereof. In the event that the Affiliated
Companies or the Shareholders do not agree with the appropriateness of such set-
off, they may attempt to resolve the dispute pursuant to Section 9.12(c) and (d)
below. Neither the exercise of, nor the failure to exercise, such right of set-
off will constitute an election of remedies nor limit Merrill or the Purchaser
in any manner in the enforcement of any other remedies that may be available to
it. Any set-off pursuant hereto will be applied proportionately among the
Shareholders to which any Participation Payment might otherwise be payable. In
the event that Merrill or the Purchaser chooses to exercise its right of set-off
to satisfy a claim, and the amount of such claim at the time it is made is less
than or equal to the amount then held by the Escrow Agent under the Escrow
Agreement as to which there are not then outstanding claims made by Merrill or
the Purchaser, the Purchaser or Merrill will make such claim against the funds
held by the Escrow Agent in accordance with the terms of the Escrow Agreement.
8.6 CLAIMS FOR INDEMNIFICATION. Whenever any claim arises for
indemnification under this Agreement, the party seeking indemnification (the
"INDEMNIFIED PARTY") will promptly notify the party from whom indemnification is
sought (the "INDEMNIFYING PARTY") of the claim and, when known, all of the facts
constituting the basis for such claim. The failure so to notify the
Indemnifying Party will not relieve the Indemnifying Party of any liability that
it may have to the Indemnified Party except to the extent the Indemnifying Party
demonstrates that the defense of such action is prejudiced thereby. In the case
of any such claim for indemnification hereunder resulting from or in connection
with any claim or legal proceedings of a third party (a "PROCEEDING"), the
Indemnifying Party will be entitled to participate in such legal proceedings
and, to the extent that it will wish (unless (i) the Indemnifying Party is also
a party to such Proceeding and the Indemnified Party determines in good faith
that joint representation would be inappropriate or (ii) the Indemnifying Party
fails to provide reasonable assurance to the Indemnified Party of its financial
capacity to defend such Proceeding and provide indemnification with respect
thereto), to control the defense thereof with counsel reasonably satisfactory to
the Indemnified Party and, after notice from Indemnifying Party to the
Indemnified Party of its election so to control the defense thereof, the
Indemnifying Party will not be liable to such the Indemnified Party under this
Article for any fees of other counsel or any other expenses with respect to the
defense of such Proceeding, in each case subsequently incurred by the
Indemnified Party in connection with the defense thereof, other than reasonable
costs of investigation. If an Indemnifying Party controls the defense of such a
Proceeding, (i) no compromise or settlement thereof may be effected by the
Indemnifying Party without
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the Indemnified Party's consent unless (1) there is no finding or admission of
any violation of Law or any violation of the rights of any person and no effect
on any other claims that may be made against the Indemnified Party and (2) the
sole relief provided is monetary damages that are paid in full by the
Indemnifying Party and (ii) the Indemnifying Party will have no liability with
respect to any compromise or settlement thereof effected without its consent.
If notice is given to an Indemnifying Party of the commencement of any
Proceeding and it does not, within ten (10) days after the Indemnified Party's
notice is given, give notice to the Indemnified Party of its election to assume
the defense thereof, the Indemnifying Party will be bound by any determination
made in such action or any compromise or settlement thereof effected by the
Indemnified Party. Notwithstanding the foregoing, if an Indemnified Party
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its affiliates other than as a result of
monetary damages, such Indemnified Party may, by notice to the Indemnifying
Party, assume the exclusive right to defend, compromise or settle such
Proceeding, but the Indemnifying Party will not be bound by any determination of
a Proceeding so defended or any compromise or settlement thereof effected
without its consent (which will not be unreasonably withheld).
ARTICLE 9
MISCELLANEOUS PROVISIONS
9.1 EXPENSES. Except as otherwise provided herein, the Purchaser and the
Shareholders (in the case of the Affiliated Companies) will each bear their own
costs and expenses relating to the transactions contemplated hereby, including
without limitation, fees and expenses of legal counsel, accountants, investment
bankers, brokers or finders, printers, copiers, consultants or other
representatives for the services used, hired or connected with the transactions
contemplated hereby, except that the Affiliated Companies will be permitted to
pay the reasonable fees of legal counsel and accountants (not to exceed $150,000
incurred by the Affiliated Companies related to the transactions contemplated by
this Agreement. The Purchaser and the Shareholders (in the case of the
Affiliated Companies) will each pay any commission or finder's fee or similar
amount incurred by them by agreement or otherwise for retaining or consulting
any broker, finder or investment banker in connection with the transactions
contemplated by this Agreement.
9.2 [INTENTIONALLY OMITTED]
9.3 AMENDMENT AND MODIFICATION. Subject to applicable Law, this
Agreemen may be amended or modified by the parties hereto at any time prior to
the Closing with respect to any of the terms contained herein; PROVIDED,
HOWEVER, that all such amendments and modifications must be in writing duly
executed by all of the parties hereto.
9.4 WAIVER OF COMPLIANCE; CONSENTS. Any failure of a party to comply
with any obligation, covenant, agreement or condition herein may be expressly
waived in writing by the party entitled hereby to such compliance, but such
waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition will not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure. No single or partial
exercise of a right or remedy will preclude any other or further exercise
thereof or of any other right or remedy hereunder. Whenever this Agreement
requires or permits the consent by or on behalf of a party, such consent will
be given in writing in the same manner as for waivers of compliance.
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9.5 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement will entitle
any person or entity (other than a party hereto and his, her or its respective
successors and assigns permitted hereby) to any claim, cause of action, remedy
or right of any kind; provided however, that First Trust National Association,
as the Escrow Agent pursuant to the Escrow Agreement to be entered into pursuant
to Section 1.3(b)(ii) of this Agreement, shall be entitled to rely upon Section
9.14 solely for purposes of the Escrow Agreement.
9.6 NOTICES. All notices, requests, demands and other communications
required or permitted hereunder will be made in writing and will be deemed to
have been duly given and effective: (i) on the date of delivery, if delivered
personally; (ii) on the earlier of the fourth (4th) day after mailing or the
date of the return receipt acknowledgement, if mailed, postage prepaid, by
certified or registered mail, return receipt requested; or (iii) on the date of
transmission, if sent by facsimile, telecopy, telegraph, telex or other similar
telegraphic communications equipment:
If to the Affiliated Companies or the Shareholders:
To: George Shifrin, Representative
c/o Printcom, Inc.
225 Varick Street, 8th Floor
New York, NY 10014
With copies to:
Kramer, Levin, Naftalis, Nessen,
Kamin & Frankel
919 Third Avenue
New York, NY 10022
Attn: Richard Marlin, Esq.
Fax: (212) 715-8000
and
George Shifrin
0450 Owl Creek Ranch Road
Aspen, CO 81612
(970) 923-5527
or to such other person or address as the Representative will furnish to the
other parties hereto in writing in accordance with this subsection.
If to Merrill or the Purchaser:
To: Merrill Corporation
One Merrill Circle
St. Paul, MN 55108
Attn: Steven J. Machov
Fax: (612) 649-1348
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With a copy to:
Oppenheimer Wolff & Donnelly
45 South Seventh Street
Plaza VI, Suite 3400
Minneapolis, MN 55402
Attn: Bruce A. Machmeier, Esq.
Fax: (612) 344-9376
or to such other person or address as Purchaser will furnish to the other
parties hereto in writing in accordance with this subsection.
9.7 ASSIGNMENT. This Agreement and all of the provisions hereof will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder will be assigned (whether
voluntarily, involuntarily, by operation of law or otherwise) by any of the
parties hereto without the prior written consent of the other parties, PROVIDED,
HOWEVER, that (a) the Purchaser may assign its rights (but not its obligations)
under this Agreement, in whole or in any part, and from time to time, to a
wholly owned, direct or indirect, subsidiary of the Purchaser and such
assignment shall not discharge or otherwise affect Merrill's guaranty pursuant
to Section 4.15 hereof; and (b) in connection with the redemption of stock in or
liquidation of the Affiliated Companies, the Affiliated Companies may assign to
the Shareholders their respective distributive shares of (i) rights to receive
Participation Payments, and (ii) other rights arising under this Agreement.
9.8 GOVERNING LAW; JURISDICTION. This Agreement and the legal relations
among the parties hereto will be governed by and construed in accordance with
the internal substantive laws of the State of New York (without regard to the
laws of conflict that might otherwise apply) as to all matters, including
without limitation matters of validity, construction, effect, performance and
remedies.
9.9 COUNTERPARTS. This Agreement may be executed simultaneously in
one or more counterparts, each of which will be deemed an original, but all
of which together will constitute one and the same instrument.
9.10 HEADINGS. The table of contents and the headings of the sections
and subsections of this Agreement are inserted for convenience only and will
not constitute a part hereof.
9.11 ENTIRE AGREEMENT. This Agreement, the Disclosure Schedule and the
exhibits and other writings referred to in this Agreement or in the Disclosure
Schedule or any such exhibit or other writing are part of this Agreement,
together they embody the entire agreement and understanding of the parties
hereto in respect of the transactions contemplated by this Agreement and
together they are referred to as "this AGREEMENT" or the "AGREEMENT". There are
no restrictions, promises, warranties, agreements, covenants or undertakings,
other than those expressly set forth or referred to in this Agreement. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to the transaction or transactions contemplated by this Agreement.
Provisions of this Agreement will be interpreted to be valid and enforceable
under applicable Law to the extent that such interpretation does not materially
alter this Agreement; PROVIDED, HOWEVER, that if any such provision will become
invalid
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or unenforceable under applicable Law such provision will be stricken to the
extent necessary and the remainder of such provisions and the remainder of this
Agreement will continue in full force and effect.
9.12 INJUNCTIVE RELIEF.
(a) It is expressly agreed among the parties hereto that (i) monetary
damages would be inadequate to compensate Merrill or the Purchaser for any
breach by the Affiliated Companies or the Shareholders of the covenants and
agreements in Sections 4.2 and 4.4 hereof; and (ii) that monetary damages
would be inadequate to compensate Affiliated Companies or the Shareholders
for any breach by Merrill or the Purchaser of the covenants and agreements
of Merrill and Purchaser in Section 4.4 hereof. Accordingly, the parties
agree and acknowledge that any such violation or threatened violation will
cause irreparable injury to Merrill and the Purchaser or the Affiliated
Companies and Shareholders, as the case may be, and that, in addition to
any other remedies which may be available, Merrill and the Purchaser or the
Affiliated Companies and Shareholders, as the case may be, will be entitled
to injunctive relief against the threatened breach of Sections 4.2 and 4.4
hereof or the continuation of any such breach, as the case may be, without
the necessity or proving actual damages and may seek to specifically
enforce the terms thereof.
(b) Notwithstanding anything contained in this Agreement to the
contrary, the Affiliated Companies and the Shareholders, on the one hand,
and Merrill and the Purchaser, on the other hand, will only have the right
to make a claim against the other for damages (other than a claim for sums
owing pursuant to Sections 9.1 or 9.2 hereof, a claim by Merrill or the
Purchaser against the Affiliated Companies or the Shareholders for any
breach by the Affiliated Companies or the Shareholders of Section 4.2
hereof, or an indemnification claim pursuant to Article 8 hereof) if the
non-claiming party has willfully and materially breached any of its
representations, covenants or agreements set forth in this Agreement. For
purposes of this provision, a party will be deemed to have willfully
breached any of its representations, covenants or agreements set forth in
this Agreement if such party has intentionally and knowingly taken, or
intentionally and knowingly failed to take, any action which causes a
breach of any of its covenants or agreements set forth in this Agreement.
The remedies and rights of the parties hereto will be cumulative. No party
hereto will be entitled to rescind this Agreement after the Closing.
(c) The parties agree that any dispute arising out of or relating to
this Agreement or the formation, breach, termination or validity thereof,
except for injunctive relief contemplated by paragraph (a) of this Section
9.12 (a "DISPUTE") will be resolved as follows. If the Dispute cannot be
settled through direct discussions, the parties will first try to settle
the Dispute in an amicable manner by mediation under the Commercial
Mediation Rules of the American Arbitration Association, before resorting
to arbitration. Any Dispute that has not been resolved within 60 days of
the initiation of the mediation procedure (the "MEDIATION DEADLINE") will
be settled by binding arbitration by a panel of three (3) arbitrators,
selected in accordance with subsection (d) below, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (the
"AMERICAN ARBITRATION RULES"). In the event that the Purchaser or Merrill
seek mediation or arbitration of a Dispute, the proceeding will be located
in New York, New York. In the event that any of the Affiliated Companies
or any of the Shareholders seek mediation or arbitration of a Dispute, the
proceeding will be located in Minneapolis, Minnesota. The arbitrators are
not empowered to award damages in excess of compensatory damages and
46
<PAGE>
each party hereby irrevocably waives any damages in excess of compensatory
damages. Judgment upon any arbitration award may be entered in any court
having jurisdiction thereof and the parties consent to the jurisdiction of
the courts of the State in which the arbitration occurred for this purpose.
The parties agree that service of process and of any notices required in
connection with any arbitration hereunder or any related court proceedings
may be given in the manner provided for the giving of notices under this
Agreement as set forth in Section 9.6.
(d) Within twenty (20) days of the Mediation Deadline, Merrill and
the Purchaser will collectively nominate one arbitrator and the
Representative will nominate one arbitrator. Within thirty (30) days of
the nomination and appointment of the two arbitrators, the two arbitrators
shall select a third arbitrator, and if they fail to do so, a neutral
arbitrator shall be chosen in accordance with the American Arbitration
Rules.
9.13 CERTAIN DEFINITIONS. For purposes of this Agreement, the term:
(a) "KNOWLEDGE" or "BEST KNOWLEDGE" of (i) an entity means knowledge
actually possessed by any director or officer of the entity; and (ii) an
individual means knowledge actually possessed by such individual; and
(b) "MATERIAL ADVERSE EFFECT" means any event, change or occurrence
which has or could reasonably be expected to have a material negative
impact on the condition (financial or otherwise), businesses, results of
operations, prospects of the Affiliated Companies taken as a whole or
Merrill and its subsidiaries, taken as a whole, as the case may be, or the
ability of the Affiliated Companies or Merrill, as the case may be, to
consummate the transactions contemplated hereby.
9.14 SHAREHOLDER'S REPRESENTATIVE.
(a) In order to efficiently administer (i) the waiver of any
condition to the obligations of the Affiliated Companies and the
Shareholders to consummate the transactions contemplated hereby, (ii) the
defense and/or settlement of any claims for which the Affiliated Companies
or the Shareholders may be required to indemnify the Purchaser or Merrill
pursuant to Article 8 hereof, (iii) all of the Affiliated Companies and
Shareholders' rights and obligations under the Escrow Agreement, and (iv)
the exercise by the Affiliated Companies of their right to receive a
Participation Payment pursuant to Section 1.3(c) hereof, each of the
Affiliated Companies and each Shareholder hereby irrevocably appoints and
designates Shifrin as his or its representative and attorney-in-fact (the
"Representative").
(b) The Affiliated Companies and the Shareholders hereby authorize
the Representative (i) to take all action necessary in connection with (aa)
the waiver of any condition to the obligations of any Affiliated Company or
any Shareholder to consummate the transactions contemplated hereby, (bb)
the defense and/or settlement of any claims for which any Affiliated
Company or Shareholder may be required to indemnify the Purchaser or
Merrill pursuant to Article 8 hereof, (cc) the exercise and performance of
the Affiliated Companies and Shareholders' rights and obligations under the
Escrow Agreement, or (dd) the exercise by the Affiliated Companies of their
right to receive a Participation Payment pursuant to Section 1.3(c) hereof,
(ii) to give and receive all notices required or permitted under this
Agreement, and (iii) to take any
47
<PAGE>
and all additional action as is contemplated to be taken by or on behalf of
the Shareholders by the terms of this Agreement.
(c) In the event that the Representative dies, becomes unable to
perform his responsibilities hereunder or resigns from such position, a
majority of the Shareholders will select another representative to fill
each such vacancy and such substituted representative will be irrevocably
appointed and designated the Representative for all purposes of this
Agreement.
(d) All decisions and actions by the Representative, including,
without limitation, (i) any agreement between the Representative and the
Purchaser or Merrill relating to the waiver of any condition to the
obligations of any Affiliated Company or Shareholder to consummate the
transaction contemplated hereby, (ii) the defense or settlement of any
claims for which the Affiliated Companies or the Shareholders may be
required to indemnify the Purchaser or Merrill pursuant to Article 8
hereof, (iii) the exercise and performance of the Affiliated Companies and
Shareholders' rights and obligations under the Escrow Agreement, or (iv)
the exercise by the Affiliated Companies of their right to receive a
Participation Payment pursuant to Section 1.3(c) hereof, will be binding
upon all of the Affiliated Companies and all of the Shareholders, and no
Affiliated Company or Shareholder will have the right to object, dissent,
protest or otherwise contest the same.
(e) By their execution of this Agreement, each of the Affiliated
Companies and Shareholders agree that:
(i) the Purchaser or Merrill will be able to rely
conclusively on the instructions and decisions of the Representative
as to (aa) the exercise by the Affiliated Companies of their right to
receive a Participation Payment pursuant to Section 1.3(c) hereof,
(bb) the settlement of Merrill pursuant to Article 8 hereof, (cc) the
exercise and performance of the Affiliated Companies and Shareholders'
rights and obligations under the Escrow Agreement or (dd) any other
actions required to be taken by the Representative hereunder, and no
party hereunder will have any cause of action against any the
Purchaser or Merrill for any action taken by the Purchaser or Merrill
in reliance upon the instructions or decisions of the Representative;
(ii) all actions, decisions and instructions of the
Representative will be conclusive and binding upon all of the
Affiliated Companies and all of the Shareholders, and no party hereto
will have any cause of action against the Representative, in his
capacity as a Representative, for any action taken, decision made or
instruction given by the Representative under this Agreement, except
for fraud or willful misconduct by the Representative;
(iii) the provisions of this Section 9.14 are independent and
severable, are irrevocable and coupled with an interest and will be
enforceable notwithstanding any rights or remedies that any Affiliated
Company or any Shareholder may have in connection with the
transactions contemplated by this Agreement; and
(iv) the provisions of this Section 9.14 will be binding
upon the executors, heirs, legal representatives and successors of
each Affiliated Company and each Shareholder, and any references in
this Agreement to an Affiliated Company or
48
<PAGE>
Shareholder will mean and include the successors to the rights of the
Affiliated Companies and Shareholders hereunder, whether pursuant to
testamentary disposition, the laws of descent and distribution or
otherwise.
49
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
MERRILL AFFILIATED COMPANIES
MERRILL CORPORATION THE CORPORATE PRINTING
COMPANY, INC.
CPC COMMUNICATIONS, INC.
By: /s/ Kay Barber
-------------------------
Its: Vice President, CPC REPROGRAPHICS, INC.
Chief Financial Officer
and Treasurer
--------------------
THE CORPORATE PRINTING COMPANY
INTERNATIONAL, LTD.
PURCHASER
MERRILL/NEW YORK COMPANY CPC MANAGEMENT SERVICES, INC.
CP INTERNATIONAL HOLDINGS, INC.
By: /s/ Kay Barber
-------------------------
Its: Treasurer THE CORPORATE PRINTING COMPANY
-------------------- INTERNATIONAL PTE LTD.
SHAREHOLDERS By: /s/ Harold A. Cooney
------------------------------------
An authorized officer
/s/ George Shifrin
- ------------------------------
George Shifrin THE CORPORATE PRINTING COMPANY
INTERNATIONAL SNC
By The Corporate Printing Company
International, Ltd., a general partner
/s/ John Doherty
- ------------------------------
John Doherty By: /s/ Harold A. Cooney
----------------------------------
Its: President
-----------------------------
By The Corporate Printing Company, Inc.,
/s/ Joel E. Glick a general partner
- ------------------------------
Joel E. Glick
By: /s/ Harold A. Cooney
----------------------------------
Its: President
-----------------------------
50
<PAGE>
/s/ Harold A. Cooney
- ------------------------------
Harold A. Cooney
OAKLAND COMPOSITION LIMITED
PARTNERSHIP
By The Corporate Printing Company, Inc.,
its general partner
By: /s/ Harold A. Cooney
-----------------------------------
Its: President
------------------------------
51
<PAGE>
EXhibit 11.1
MERRILL CORPORATION
SCHEDULE OF COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Primary
Net income.............................................................. $ 10,662,199 $ 11,982,785 $ 13,348,330
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of common shares outstanding during the
period................................................................. 7,752,532 7,568,380 7,408,087
Add common equivalent shares relating to outstanding options to
purchase common stock using the treasury stock method.................. 192,614 425,853 563,768
------------- ------------- -------------
Total common and common equivalent shares outstanding............... 7,945,146 7,994,233 7,971,855
------------- ------------- -------------
------------- ------------- -------------
Primary income per common share........................................... $1.34 $1.50 $1.67
------------- ------------- -------------
------------- ------------- -------------
Fully diluted
Net income.............................................................. $ 10,662,199 $ 11,982,785 $ 13,348,330
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of common shares outstanding during the
period................................................................. 7,752,532 7,568,380 7,408,087
Add common equivalent shares relating to outstanding options to
purchase common stock using the treasury stock method.................. 196,731 425,759 597,688
------------- ------------- -------------
Total common and common equivalent shares outstanding............... 7,949,263 7,994,139 8,005,775
------------- ------------- -------------
------------- ------------- -------------
Fully diluted income per common share.................................... $1.34 $1.50 $1.67
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The following table sets forth for the years indicated the percentage
relationship to revenue of certain items in the Company's consolidated
statements of operations and the percentage changes in the dollar amounts of
such items in comparison to the prior year.
<TABLE>
<CAPTION>
Year ended January 31,
------------------------------------------------------
% Increase (Decrease)
------------------------
Percentage of Revenues 1996 1995 1994
------------------------ vs. vs. vs.
1996 1995 1994 1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Financial 36.1% 33.4% 42.4% 12% 3% 52%
Corporate 29.5 33.4 34.4 (9) 26 11
Commercial and other 21.5 23.3 13.8 (5) 120 2
Document management services 12.9 9.9 9.4 35 38 3
- -----------------------------------------------------------------
100.0 100.0 100.0 4 30 23
Cost of sales 67.6 67.3 64.1 4 37 19
Gross profit 32.4 32.7 35.9 3 19 32
Selling, general and
administrative expenses 24.5 23.5 23.8 8 29 22
Operating income 7.9 9.2 12.1 (10) (1) 55
Interest expense (0.4) (0.5) (0.2) (2) 249 26
Other income, primarily
interest income 0.1 0.2 0.2 (36) 48 23
Income before provision for taxes 7.6 8.9 12.1 (12) (4) 55
Provision for income taxes 3.3 3.9 4.9 (12) 4 58
Income before change in
accounting for income taxes 4.3 5.0 7.2 (11) (9) 53
- -----------------------------------------------------------------------------------------------
</TABLE>
REVENUE Merrill Corporation is engaged in one line of business -- providing
printed and electronic document services. The Company divides its revenue into
four categories of service: financial printing, corporate printing, document
management services, 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.
Document management services and commercial and other services tend to follow
general economic trends.
Management's Discussion and Analysis of Financial Condition and Results of
Operations [9]
<PAGE>
Revenue for fiscal year 1996 increased 4 percent over the previous year. The
financial revenue category showed a 12 percent increase over last year resulting
from the substantial increase in the level of financial market activity. The
financial market over the last six months of the fiscal year showed a
substantial increase in the number of new transactions, including mergers,
acquisitions and initial public offerings, that improved the growth in the
financial revenue category. This financial market activity continues to be
strong and should add additional growth to the financial revenue category in the
first quarter of fiscal 1997. International revenues, which are comprised of
financial revenues, accounted for approximately 6% of consolidated
revenues and increased by 26% from 1995. Management does not anticipate
significant changes in the relative percentage of international revenues during
1997. However, actual results could vary materially from the foregoing forward-
looking statement. Corporate revenue is down 9 percent from fiscal 1995. This
shortfall was caused primarily by the absence this year of a few significant,
one-time mutual fund projects that occurred during the last half of fiscal 1995.
These large corporate projects were not bid on in the current year because of
low margins.
Document management services revenue grew at a 35 percent rate
in fiscal 1996, with the addition of 18 new document service centers.
These additions bring the total number of these service centers to 50
as of the end of fiscal 1996. General commercial revenue was down slightly as
the absence of election-related printing in 1996 was nearly offset by
the increase in revenue at Merrill/May. Merrill/May continues to add more
national clients, including 15 new clients during fiscal 1996, which should
generate increased revenues over the next 12-month period. However, actual
results could vary materially from the foregoing forward-looking statement.
Revenue increased 30 percent in fiscal year 1995 to $237 million.
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 primarily responsible for the 120 percent increase in revenue in
our commercial and other category. Also contributing to the revenue growth was
the near doubling in the number of installations under management services
contracts in the document management services category. Corporate revenue grew
26 percent in 1995, principally from 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 compared to 1994 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.
[10] Management's Discussion and Analysis of Financial Condition and Results of
Operations
<PAGE>
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. 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 because 1993 was not a
general election year. Revenue from reprographics and facilities management
increased modestly, offsetting a reduction in publications revenue.
GROSS PROFIT Fiscal year 1996 gross margins decreased slightly compared
to the previous year. Financial revenue margins over the last half of fiscal
1996 improved from the increased volume of financial work, which typically has
realized higher margins. However, 1996 margins on financial work are lower than
in prior years from continued competitive pricing pressure. Gross margins over
the last six months improved because of volume-related operating efficiencies in
the Company's central typesetting facility and printing facilities. Also
contributing to the lower overall gross margins is the increase in the number of
document services centers. This business typically has lower margins than the
Company's more traditional business. The reduction in gross margin in fiscal
year 1995 versus 1994 was caused primarily by the sharp reduction in financial
printing volume during the second half of the fiscal year. This reduced activity
led to intense price competition for available work, further pressuring margins.
Also reflected in the lower gross margins is the growth in the Company's
document services center business, which has realized lower gross margins than
the Company's more traditional businesses.
The gross margin improvement in fiscal year 1994 versus 1993 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 in the Company's
New Jersey printing operation, which opened in the second quarter of fiscal year
1993.
Management's Discussion and Analysis of Financial Condition and Results of
Operations [11]
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative expenses have increased in each of the last three fiscal years.
The increase in these expenses in fiscal year 1996 was attributed to the
continued expansion of the Company's sales and marketing organization, increased
market penetration in existing offices and the marketing of new services.
Merrill/May continues to incur higher selling expenses to add more national
clients and increase marketing efforts to promote its services. Fiscal year 1995
included a full year of expenses from Merrill/May, together with the goodwill
amortization associated with that acquisition.
Bad debt expense in fiscal year 1995 increased substantially from 1994
levels principally from securities offerings being aborted because of poor
market conditions. Fiscal year 1994 expenses reflect administrative staff
additions and a fourfold increase in costs for employee training and
development programs, partially offset by lower provisions for doubtful
accounts, which was the result of improved collection experience.
INTEREST EXPENSE AND OTHER INCOME Average short-term borrowings under the
Company's bank line of credit were $2,221,000, $710,000 and $93,000,
respectively, in fiscal years 1996, 1995 and 1994. Other income is primarily
interest income. In fiscal 1996, interest expense remained consistent with last
year from increased short-term borrowings reflecting expenditures associated
with the build-up of accounts receivable and work-in-process inventories offset
by lower long-term debt interest. Interest expense in fiscal 1995 was up over
the previous year from cash expended and debt assumed in connection with the
December 1993 acquisition of May Printing Company and interest expense
associated with the IRS audits discussed below.
PROVISION FOR INCOME TAXES The effective income tax rates for 1996 and 1995
were 43 percent, compared to 40 percent for 1994. The effective rates were
higher than the statutory federal rates of 35 percent in these years primarily
due to state income taxes. In addition, in 1996 and 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
of approximately $650,000 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 43 percent.
IMPACT OF INFLATION The Company does not believe that inflation has had
a significant impact on the results of its operations.
[12] Management's Discussion and Analysis of Financial Condition and Results of
Operations
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Working capital at January 31, 1996, increased to $39.4 million from
$31.5 million a year ago, reflecting an increase in sales activity during
the fourth quarter, as compared to sales activity during the fiscal 1995 fourth
quarter. The increase in sales activity resulted in a corresponding increase in
trade receivables. In addition, the number of work-in-process jobs at January
31, 1996 increased compared to January 31, 1995, reflecting the higher level of
financial market activity. Capital expenditures for the period were $12.5
million, of which $5.5 million represented the purchase
of two administration buildings in St. Paul which were previously partially
leased. Other capital expenditures were principally for production equipment and
office remodeling and furnishings. Cash and cash equivalents increased $2.1
million for the twelve month period and borrowings under the Company's bank line
of credit were $6.0 million at January 31, 1996. Long-term debt
at January 31, 1996, was 7.7 percent of total capitalization compared to
10.2 percent a year ago.
The Company expects capital expenditures in fiscal year 1997 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.
Working capital at January 31, 1995, increased to $31.5 million from $22.5
million in 1994, reflecting positive 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 in 1994.
The Company historically has been working-capital intensive, but in recent
years has increased its needs for technology and production equipment. The
Company generally has been able to generate sufficient cash flow from operations
to fund its capital needs.
At January 31, 1996, the Company's principal internal sources of liquidity
were cash and cash equivalents and cash flow from operations. The Company also
has available a $15 million unsecured bank line of credit, which expires May 31,
1997, under which there were $6 million of borrowings as of
January 31, 1996. Subsequent to year end the line of credit has been increased
to $60 million to provide for the purchases described in Note 10. Management
anticipates that these sources will satisfy its capital needs for fiscal year
1997.
Management's Discussion and Analysis of Financial Condition and Results of
Operations [13]
<PAGE>
NEW ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation." This statement establishes
financial accounting and reporting standards for stock-based employee
compensation plans. The Company intends to follow the option that permits
companies to apply current accounting standards for stock-based employee
compensation. Effective with fiscal year-end 1997 reporting, the Company will
disclose proforma net income and net income per share amounts as if Statement
No. 123 were applied.
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 402 shareholders of record of the Company's common stock at the
close of trading on March 29, 1996. The Company paid quarterly dividends in
fiscal 1996 and 1995 in the amount of three cents per share, totaling $930,909
and $907,790, respectively.
<TABLE>
<CAPTION>
First Second Third Fourth
Fiscal Year Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 High 20 21 1/4 19 1/2 20 3/4
Low 14 3/4 15 3/4 15 3/4 14 1/4
- ----------------------------------------------------------------------------------------------------
1995 High 32 1/2 28 1/4 24 19 1/2
Low 21 18 17 13 3/4
- ----------------------------------------------------------------------------------------------------
</TABLE>
[14] Management's Discussion and Analysis of Financial Condition and Results of
Operations
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of January 31,
-----------------------
(In thousands, except share data) 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 12,074 $ 9,967
Trade receivables, less allowance for doubtful
accounts of $3,545 and $2,830, respectively 48,566 39,284
Work in process inventories 10,898 7,007
Other inventories 5,235 4,526
Other current assets 2,463 2,686
- -------------------------------------------------------------------------------------
Total current assets 79,236 63,470
- -------------------------------------------------------------------------------------
Property, plant and equipment, net 31,681 28,918
Goodwill, net 10,528 11,423
Other assets 4,076 2,659
- -------------------------------------------------------------------------------------
Total assets $125,521 $106,470
- -------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable to bank $ 6,000
Current maturities of long-term debt 770 $ 745
Current maturities of capital lease obligations 538 738
Accounts payable 17,598 16,004
Accrued expenses 14,951 12,809
Deferred income taxes 1,651
- -------------------------------------------------------------------------------------
Total current liabilities 39,857 31,947
- -------------------------------------------------------------------------------------
Long-term debt, net of current maturities 4,525 5,295
Capital lease obligations, net of current maturities 1,929 2,227
Other liabilities 1,476 940
Commitments and contingencies (Notes 3, 5 and 10)
Shareholders' equity
Common stock, $.01 par value: 25,000,000 shares
authorized; 7,855,783 shares and 7,605,076 shares,
respectively, issued and outstanding 78 76
Undesignated stock: 500,000 shares authorized;
no shares issued
Additional paid-in capital 16,324 14,384
Retained earnings 61,332 51,601
- -------------------------------------------------------------------------------------
Total shareholders' equity 77,734 66,061
- -------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $125,521 $106,470
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
[15]
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended January 31,
----------------------------------------
(In thousands, except share and per share data) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 245,306 $ 236,878 $ 181,584
Cost of sales 165,765 159,462 116,350
- ----------------------------------------------------------------------------------------------------
Gross profit 79,541 77,416 65,234
Selling, general and administrative expenses 60,079 55,680 43,286
- ----------------------------------------------------------------------------------------------------
Operating income 19,462 21,736 21,948
Interest expense (1,099) (1,120) (321)
Other income, primarily interest income 343 538 364
- ----------------------------------------------------------------------------------------------------
Income before provision for income
taxes and cumulative effect of
change in accounting for income taxes 18,706 21,154 21,991
Provision for income taxes 8,044 9,171 8,820
- ----------------------------------------------------------------------------------------------------
Income before cumulative effect of change
in accounting for income taxes 10,662 11,983 13,171
Cumulative effect of change in
accounting for income taxes 177
- ----------------------------------------------------------------------------------------------------
Net income $ 10,662 $ 11,983 $ 13,348
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Income per common and common equivalent
share before cumulative effect of change
in accounting for income taxes $ 1.34 $ 1.50 $ 1.65
Cumulative effect of change in
accounting for income taxes .02
- ----------------------------------------------------------------------------------------------------
Net income per common and
common equivalent share $ 1.34 $ 1.50 $ 1.67
- ----------------------------------------------------------------------------------------------------
Weighted average number of common
and common equivalent shares outstanding 7,945,146 7,994,233 7,971,854
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
[16]
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended January 31,
--------------------------------------
(In thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 10,662 $ 11,983 $ 13,348
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 9,724 8,651 5,520
Amortization of intangible assets 1,088 1,127 362
Provision for losses on trade receivables 1,486 2,038 579
Deferred income taxes (2,583) (2,390) 2,336
Change in deferred compensation 582 600
Cumulative effect of change in accounting for income taxes (177)
Changes in operating assets and liabilities,
net of effects from business acquisitions
Trade receivables (10,768) (1,946) (6,636)
Work in process inventories (3,891) 4,814 (5,728)
Other inventories (709) (540) (74)
Other current assets 315 (31) (437)
Accounts payable 1,594 (126) 3,026
Accrued expenses 2,142 (368) 3,710
Income taxes (89) (380) (2,196)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 9,553 23,432 13,633
- --------------------------------------------------------------------------------------------------------------------
Investing activities
Purchase of property, plant and equipment (12,487) (10,085) (7,620)
Business acquisitions, net of cash acquired (993) (16,069)
Other (727) (553) (350)
- --------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (13,214) (11,631) (24,039)
- --------------------------------------------------------------------------------------------------------------------
Financing activities
Borrowings on note payable to bank 51,700 28,100 7,700
Repayments on note payable to bank (45,700) (30,700) (5,100)
Principal payments on long-term debt and capital lease obligations (1,243) (2,273) (117)
Dividends paid (931) (908) (741)
Tax benefit realized upon exercise of stock options 1,451 863 1,103
Other equity transactions, net 491 526 557
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 5,768 (4,392) 3,402
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 2,107 7,409 (7,004)
Cash and cash equivalents, beginning of year 9,967 2,558 9,562
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 12,074 $ 9,967 $ 2,558
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Supplemental cash flow disclosures
Income taxes paid $ 9,268 $ 11,088 $ 7,574
Interest paid 880 1,019 310
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
[17]
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the Years Ended January 31, 1996, 1995, 1994
---------------------------------------------------
Additional
Common Paid-in Retained
(In thousands, except per share data) Stock Capital Earnings Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 $66,061
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Exercise of stock options 2 374 376
Tax benefit realized upon exercise of stock options 1,451 1,451
Other 115 115
Cash dividends ($.12 per share) (931) (931)
Net income 10,662 10,662
- -------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1996 $78 $16,324 $61,332 $77,734
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
[18]
<PAGE>
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS The Company provides document typesetting, printing,
reproduction, distribution and publishing services to financial, legal,
corporate, insurance and commercial markets worldwide.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The most
significant areas which require the use of management's estimates relate to the
determination of the allowances for uncollectible accounts receivable, sales
credits and obsolete inventory.
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
determined using the straight-line method over the estimated useful lives of the
assets which range from three to thirty years. 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. The Company periodically evaluates the recoverability of unamortized
goodwill through measurement of future estimated undiscounted operating unit
cashflows.
Notes to Consolidated Financial Statements [19]
<PAGE>
INCOME TAXES Deferred income taxes are recognized for the tax consequences in
future years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
REVENUE RECOGNITION The Company recognizes revenue when service projects are
completed or products are shipped.
NET INCOME PER SHARE Net income per common and common equivalent share is
computed by dividing net income by the weighted average number of shares of
common stock and dilutive common equivalent shares outstanding during each
period. Common stock equivalents result from dilutive stock options computed
using the treasury stock method. Fully diluted earnings per share did not differ
from primary earnings per share in the periods presented.
NOTE 2 - SELECTED FINANCIAL STATEMENT DATA
<TABLE>
<CAPTION>
As of January 31,
-----------------------
(In thousands) 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
Land $ 1,951 $ 853
Buildings 11,389 6,911
Equipment 37,907 32,450
Furniture and fixtures 8,228 7,530
Leasehold improvements 6,831 6,563
Construction in progress 404 1,577
- -------------------------------------------------------------------------------------
66,710 55,884
Less accumulated depreciation and amortization (35,029) (26,966)
- -------------------------------------------------------------------------------------
$ 31,681 $ 28,918
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
GOODWILL
Goodwill $ 12,597 $ 12,597
Less accumulated amortization (2,069) (1,174)
- -------------------------------------------------------------------------------------
$ 10,528 $ 11,423
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
ACCRUED EXPENSES
Commissions and compensation $ 7,906 $ 7,898
Pension retirement plan 3,620 3,403
Other 3,425 1,508
- -------------------------------------------------------------------------------------
$ 14,951 $ 12,809
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
[20] Notes to Consolidated Financial Statements
<PAGE>
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 that there
will be no contingent consideration paid. The excess of the purchase price over
the estimated fair market value of the net identifiable 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, 1993, is as follows:
(In thousands, except per share data) Year Ended January 31, 1994
- --------------------------------------------------------------------------------
Revenue $208,797
Net income 14,325
Net income per share 1.79
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 in cash. These
acquisitions, accounted for as purchases, were not significant to the
consolidated financial position or results of operations of the Company.
Notes to Consolidated Financial Statements [21]
<PAGE>
NOTE 4 - FINANCIAL AGREEMENTS
BANK FINANCING In August 1995, the Company amended its revolving credit
agreement, which provides for a $15 million unsecured bank line of credit
through May 31, 1997. Borrowings under the line of credit were $6.0 million at
January 31, 1996, and bear interest at the bank's reference rate (8.5% at
January 31, 1996 and 1995). There were no borrowings outstanding under this line
of credit at January 31, 1995. 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 8.83%,
7.18% and 5.75% for the years ended 1996, 1995 and 1994, respectively. 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) 1996 1995
- ----------------------------------------------------------------------------------------------------
<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 $4,884 at January 31, 1996. $ 3,660 $ 3,785
Unsecured promissory note payable in equal installments
of $500 on December 31 through 1999. The note bears interest
at the prime rate and is payable annually. The prime interest
rate at January 31, 1996 and 1995, was 8.5%. 1,500 2,000
Other notes 135 255
- ----------------------------------------------------------------------------------------------------
5,295 6,040
Less current maturities (770) (745)
- ----------------------------------------------------------------------------------------------------
$ 4,525 $ 5,295
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
The aggregate maturities of long-term debt are as follows:
(In thousands)
- ----------------------------------------------------------------------------------------------------
1997 $ 770
1998 645
1999 655
2000 170
2001 180
Thereafter 2,875
- ----------------------------------------------------------------------------------------------------
$ 5,295
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
[22] Notes to Consolidated Financial Statements
<PAGE>
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
Company's property under capital leases, which is classified as property, plant
and equipment, is as follows:
<TABLE>
<CAPTION>
As of January 31,
---------------------
(In thousands) 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
Land $ 333 $ 333
Building 2,439 2,439
Equipment 542 1,552
Less accumulated amortization (856) (872)
- ----------------------------------------------------------------------
$2,458 $3,452
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
</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 $4,664,000,
$4,523,000 and $3,303,000, for the years ended January 31, 1996, 1995 and 1994,
respectively.
Future minimum rental commitments under noncancelable leases at January 31,
1996, are as follows:
<TABLE>
<CAPTION>
Capital Operating
(In thousands) Leases Leases
- -------------------------------------------------------------------------------------
<S> <C> <C>
1997 $ 544 $2,954
1998 445 2,148
1999 368 1,388
2000 341 713
2001 341
Thereafter 1,505
- -------------------------------------------------------------------------------------
$3,544 $7,203
------
------
Imputed interest (1,077)
- ----------------------------------------------------------------------
Present value of minimum lease payments 2,467
Less current maturities of obligations under capital leases (538)
- ----------------------------------------------------------------------
Long-term obligations under capital leases $1,929
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
</TABLE>
Notes to Consolidated Financial Statements [23]
<PAGE>
NOTE 6 - INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, effective February 1, 1993. The cumulative effect
of this change in accounting for income taxes as of February 1, 1993, was to
increase 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.
The federal and state components of the provision for income taxes are as
follows:
<TABLE>
<CAPTION>
As of January 31,
-------------------------------------
(In thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable
Federal $ 9,203 $ 9,879 $ 5,394
State 1,424 1,682 1,090
- -------------------------------------------------------------------------------------
10,627 11,561 6,484
Deferred (2,583) (2,390) 2,336
- -------------------------------------------------------------------------------------
Provision for income taxes $ 8,044 $ 9,171 $ 8,820
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
Temporary differences comprising the net deferred tax asset (liability)
recognized in the accompanying Consolidated Balance Sheet are as follows:
<TABLE>
<CAPTION>
As of January 31,
----------------------
(In thousands) 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
Capital loss carryforward $ 994
Allowance for doubtful accounts $ 1,383 1,089
Deferred compensation 576 344
Work in process inventories (2,068) (3,386)
Depreciation 351 (272)
Other 644 528
Deferred tax valuation allowance (994)
- ----------------------------------------------------------------------
Net deferred tax asset (liability) $ 886 $(1,697)
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
</TABLE>
Management expects that the Company will fully realize the benefits attributable
to the net deferred tax asset at January 31, 1996. Accordingly, no valuation
allowance has been recorded at January 31, 1996. The capital loss carryforward
expired unused in 1996.
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) 1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for federal income taxes
at statutory rate $6,547 $7,404 $7,697
State income taxes, net of federal benefit 695 1,039 842
Nondeductible business meeting
and entertainment expenses 778 565 172
Other 24 163 109
- -------------------------------------------------------------------------------------
$8,044 $9,171 $8,820
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
[24] Notes to Consolidated Financial Statements
<PAGE>
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 $3,620,000, $3,403,000 and
$2,553,000 for the years ended January 31, 1996, 1995 and 1994, respectively.
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, at exercise prices not less than 100% of the fair
market value of the Company's common stock on the date of the grant. During 1996
the Company increased the number of common shares reserved for issuance to
1,000,000 shares. As of January 31, 1996, nonstatutory options for 677,850
shares had been granted under the plan, leaving 322,150 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, at exercise prices not less than 100% of the fair
market value of the Company's common stock on the date of the grant. As of
January 31, 1996, incentive stock options for 108,666 shares, nonstatutory
options for 668,800 shares and restricted stock awards for 19,300 shares had
been granted under the plan, leaving 3,234 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.
Notes to Consolidated Financial Statements [25]
<PAGE>
A summary of selected information regarding all stock options for the three
years ended January 31, 1996, is as follows:
<TABLE>
<CAPTION>
Shares Price Per Share
- -------------------------------------------------------------------------------------
<S> <C> <C>
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
Granted 304,500 16.25 - 18.50
Exercised (278,300) 3.37 - 17.37
Canceled (84,850) 17.37 - 29.75
- -------------------------------------------------------------------------------------
Balance, January 31, 1996 927,314 $ 4.00 - 29.75
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
Options for 307,564 shares were exercisable at January 31, 1996.
ACCOUNTING FOR STOCK BASED COMPENSATION In October 1995, the Financial
Accounting Standards Board issued Statement No. 123, "Accounting for Stock Based
Compensation." This statement establishes financial accounting and reporting
standards for stock-based employee compensation plans. The Company intends to
follow the option that permits companies to apply current accounting standards
for stock-based employee compensation. Effective with fiscal year-end 1997
reporting, the Company will disclose proforma net income and net income per
share amounts as if Statement No. 123 were applied.
[26] Notes to Consolidated Financial Statements
<PAGE>
NOTE 9 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly financial data for fiscal
years 1996 and 1995:
<TABLE>
<CAPTION>
First Second Third Fourth
(In thousands except per share data) Quarter Quarter Quarter Quarter Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 Revenues $57,432 $62,703 $62,475 $62,696 $245,306
- -------------------------------------------------------------------------------------------------------------------
Gross profit 18,616 18,888 20,986 21,051 79,541
- -------------------------------------------------------------------------------------------------------------------
Net income 2,076 2,714 3,035 2,837 10,662
- -------------------------------------------------------------------------------------------------------------------
Net income per share .26 .34 .38 .36 1.34
- -------------------------------------------------------------------------------------------------------------------
Dividends declared per share .03 .03 .03 .03 .12
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
1995 Revenues $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
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 10 - SUBSEQUENT EVENTS
On March 28, 1996, the Company purchased all of the issued and outstanding
shares of FMC Resource Management Corporation (FMC), a managed communication
business based in the Pacific Northwest, for $5.4 million cash and a $2 million
promissory note, plus contingent cash consideration of up to $4 million,
dependent on FMC's future performance, as defined by the purchase agreement.
On April 15, 1996, the Company purchased certain assets and assumed certain
liabilities of the Corporate Printing Company, a financial printer with offices
on the east coast, for approximately $23.6 million cash and a $3 million
payable, plus contingent cash consideration of up to $14.5 million, as defined
by the purchase agreement.
During the first quarter of fiscal 1997, the Company's Board of Directors
approved the repurchase of up to 750,000 shares of the Company's common stock.
Notes to Consolidated Financial Statements [27]
<PAGE>
SUMMARY OF OPERATING AND FINANCIAL DATA
<TABLE>
<CAPTION>
For the Years Ended January 31,
(In thousands, except employee, -----------------------------------------------------------------------------------
per share data and ratios) 1996 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating results
Revenues $245,306 $236,878 $181,584 $147,716 $125,312 $100,951
Costs and expenses 226,600 215,724 159,593 133,552 114,559 96,825
Income before provision
for income taxes 18,706 21,154 21,991 14,164 10,753 4,126
Provision for income taxes 8,044 9,171 8,820 5,565 4,308 1,570
Net income 10,662 11,983 13,348 8,599 6,518 2,671
- ----------------------------------------------------------------------------------------------------------------------------------
Per common share
Net income $ 1.34 $ 1.50 $ 1.67 $ 1.12 $ .86 $ .37
Book value 9.90 8.69 7.15 5.36 4.11 3.20
- ----------------------------------------------------------------------------------------------------------------------------------
Financial data/other
Working capital $ 39,379 $ 31,523 $ 22,528 $ 24,650 $ 17,550 $ 9,388
Current ratio 2.0 2.0 1.6 2.1 1.9 1.4
Total assets $125,521 $106,470 $100,123 $ 66,042 $ 52,954 $ 46,892
Shareholders' equity 77,734 66,061 53,597 39,330 29,116 22,486
Return on average
shareholders' equity 14.8% 20.0% 28.7% 25.1% 25.3% 12.4%
Long-term obligations $ 6,454 $ 7,522 $ 8,656 $ 2,138 $ 2,230 $ 2,314
Long-term obligations
to capitalization 7.7% 10.2% 13.9% 5.2% 7.1% 9.3%
Number of employees 1,932 1,739 1,601 1,041 831 784
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[28]
<PAGE>
REPORT OF INDEPENDENT AUDITORS
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, 1996 and 1995, 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, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Merrill
Corporation as of January 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
January 31, 1996, 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.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
St. Paul, Minnesota
March 19, 1996, except as to Note 10, for which the date is April 15, 1996.
[29]
<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%
Merrill Real Estate Company.......................................... Minnesota 100%
FMC Resource Management Corporation.................................. Washington 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 19, 1996, except as to Note 10, for which the date is
April 15, 1996, on our audits of the consolidated financial statements of
Merrill Corporation as of January 31, 1996 and 1995, and for each of the
three years in the period ended January 31, 1996, which report is
incorporated by reference in this Annual Report on Form 10-K, and our report
dated March 19, 1996, on the related financial statement schedule included in
this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
April 29, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> JAN-31-1996
<CASH> 12,074
<SECURITIES> 0
<RECEIVABLES> 52,111
<ALLOWANCES> 3,545
<INVENTORY> 16,133
<CURRENT-ASSETS> 79,236
<PP&E> 66,710
<DEPRECIATION> 35,029
<TOTAL-ASSETS> 125,521
<CURRENT-LIABILITIES> 39,857
<BONDS> 7,762
0
0
<COMMON> 78
<OTHER-SE> 77,656
<TOTAL-LIABILITY-AND-EQUITY> 125,521
<SALES> 245,306
<TOTAL-REVENUES> 245,306
<CGS> 165,765
<TOTAL-COSTS> 165,765
<OTHER-EXPENSES> 60,079
<LOSS-PROVISION> 1,486
<INTEREST-EXPENSE> 1,099
<INCOME-PRETAX> 18,706
<INCOME-TAX> 8,044
<INCOME-CONTINUING> 10,662
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,662
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.34
</TABLE>
