<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
MERRILL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
One Merrill Circle
St. Paul, Minnesota 55108
May 7, 1998
Dear Shareholder:
You are cordially invited to attend the 1998 Annual Meeting of Shareholders of
Merrill Corporation. This year, the meeting will be held on Thursday, May 28,
1998, at 10:00 a.m. local time, at the Minneapolis Marriott City Center Hotel,
30 South 7th St., Minneapolis, Minnesota. We suggest that you read carefully the
enclosed Notice of Annual Meeting and Proxy Statement.
We hope you will be able to attend the Annual Meeting. Whether or not you plan
to attend, we urge you to complete, sign, date and return the enclosed proxy
card in the enclosed envelope in order to make certain that your shares will be
represented at the Annual Meeting.
Very truly yours,
PAUL G. MILLER JOHN W. CASTRO
Chairman of the Board President and Chief Executive Officer
<PAGE>
MERRILL CORPORATION [LOGO]
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 28, 1998
To Our Shareholders:
Our Annual Meeting of Shareholders will be held on Thursday, May 28, 1998,
at 10:00 a.m. local time, at the Minneapolis Marriott City Center Hotel, 30
South 7th St., Minneapolis, Minnesota, for the following purposes:
1. To elect nine directors to serve for the next year and until their
successors are elected and qualified; and
2. To transact any other business that may come before the Annual Meeting
or any adjournment thereof.
Only shareholders of record at the close of business on April 1, 1998 will
be entitled to this notice and may vote at the meeting or at any adjournment
thereof.
By Order of the Board of Directors,
Steven J. Machov
SECRETARY
<PAGE>
MERRILL CORPORATION [LOGO]
ONE MERRILL CIRCLE
ENERGY PARK
ST. PAUL, MINNESOTA 55108
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS,
MAY 28, 1998
------------------------
INTRODUCTION
Our Annual Meeting of Shareholders will be held on May 28, 1998 at 10:00
a.m. local time, at the Minneapolis Marriott City Center Hotel, 30 South 7th
St., Minneapolis, Minnesota, or at any adjournment thereof, for the purposes set
forth in the Notice of Meeting.
A proxy card is enclosed for your use. You are solicited on behalf of the
Board of Directors to MARK, SIGN AND RETURN THE PROXY CARD IN THE ACCOMPANYING
ENVELOPE. No postage is required if mailed within the United States. The cost of
soliciting proxies, including the preparation, assembly and mailing of the
proxies and soliciting material, as well as the cost of forwarding such material
to the beneficial owners of Common Stock, will be borne by the Company.
Directors, officers and regular employees of the Company may, without
compensation other than their regular compensation, solicit proxies by
telephone, telegraph or personal conversation. The Company may reimburse
brokerage firms and others for expenses in forwarding proxy material to the
beneficial owners of Common Stock.
Any proxy given to this solicitation and received in time for the Annual
Meeting will be voted in accordance with the instructions given in such proxy.
Any shareholder giving a proxy may revoke it any time prior to its use at the
Annual Meeting by giving written notice of such revocation to the Secretary of
the Company, by filing a revoking instrument or a duly executed proxy bearing a
later date with the Secretary of the Company or by attending the Annual Meeting
and voting in person. Proxies that are signed by shareholders but that lack any
such specification will be voted in favor of the proposals set forth in the
Notice of Meeting and in favor of the election as directors of the nominees
listed in this Proxy Statement.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE
PROPOSALS SET FORTH IN THE NOTICE OF MEETING.
The Company expects that this Proxy Statement, the Proxy and Notice of
Meeting will first be mailed to shareholders on or about May 7, 1998.
1
<PAGE>
VOTING OF SHARES
The close of business on April 1, 1998 has been fixed by the Board of
Directors of the Company as the record date for the determination of
shareholders entitled to notice of and to vote at the Annual Meeting. On April
1, 1998, the Company had outstanding 16,326,236 shares of Common Stock, $.01 par
value (the "Common Stock"), each such share entitling the holder thereof to one
vote in person or by proxy on each matter to be voted on at the Annual Meeting,
voting together as a single class. Holders of shares of Common Stock are not
entitled to cumulative voting rights.
The presence at the Annual Meeting, in person or by proxy, of the holders of
a majority of the outstanding shares of Common Stock entitled to vote at the
meeting (8,163,119 shares as of April 1, 1998) is required for a quorum for the
transaction of business. In general, shares of Common Stock represented by a
properly signed and returned proxy card will be counted as shares present and
entitled to vote at the meeting for purposes of determining a quorum, without
regard to whether the card reflects abstentions (or is left blank) or reflects a
"broker non-vote" on a matter (i.e., a card returned by a broker on behalf of
its beneficial owner customer that is not voted on a particular matter because
voting instructions have not been received and the broker has no discretionary
authority to vote).
The election of a nominee for director and the approval of each of the other
proposals described in this Proxy Statement require the approval of a majority
of the shares present and entitled to vote in person or by proxy on that matter
(and at least a majority of the minimum number of votes necessary for a quorum
to transact business at the meeting). Shares represented by a proxy card voted
as abstaining on any of the proposals will be treated as shares present and
entitled to vote that were not cast in favor of a particular matter, and thus
will be counted as votes against that matter. Shares represented by a proxy card
including any broker non-vote on a matter will be treated as shares not entitled
to vote on that matter, and thus will not be counted either for or against that
matter.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 23, 1998, certain information
with respect to all shareholders known to the Company to have been beneficial
owners of more than five percent of its Common Stock, and information with
respect to the Company's Common Stock beneficially owned by directors and
nominees for directors of the Company, the executive officers of the Company
included in the Summary Compensation Table set forth under the caption
"Executive Compensation" below and all directors, nominees for directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS NUMBER OF OF
OF BENEFICIAL OWNER SHARES (1) CLASS (1)(2)
------------------------------ ------------- ------------
<S> <C> <C>
John W. Castro 1,949,040(3) 11.9%
One Merrill Circle
St. Paul, MN 55108
Rick R. Atterbury 368,490(4) 2.2%
Richard G. Lareau 297,102(5) 1.8%
Robert F. Nienhouse 292,068(6) 1.8%
Paul G. Miller 94,310(7) *
Ronald N. Hoge 43,102(8) *
James R. Campbell 25,102(9) *
Frederick W. Kanner 25,042(10) *
Michael S. Scott Morton -0- *
Steven J. Machov 61,867(11) *
Kay A. Barber 20,760(12) *
Kathleen A. Larkin 14,260(13) *
All directors and executive
officers as a group (12
persons) 3,191,143(14) 19.2%
</TABLE>
- ------------------------
* less than 1%
(1) Unless otherwise noted, each person or group identified possesses sole
voting and investment power with respect to the shares shown opposite the
name of such person or group. Shares not outstanding but deemed beneficially
owned by virtue of the right of a person or member of a group to acquire
them within 60 days are treated as outstanding only when determining the
amount and percent owned by such person or group.
(2) Based on 16,392,386 shares of Common Stock outstanding as of April 23,
1998.
(3) Includes 11,824 shares owned beneficially by Mr. Castro's wife and 2,700
shares owned by Mr. Castro's minor aged children, all to which he may be
deemed to share voting and investment power, but as to which he disclaims
beneficial ownership. Also includes 13,800 shares Mr. Castro has the right
to acquire within 60 days upon the exercise of stock options.
(4) Includes 58,800 shares Mr. Atterbury has the right to acquire within 60
days upon the exercise of stock options.
3
<PAGE>
(5) Includes 6,000 shares Mr. Lareau has the right to acquire within 60 days
upon the exercise of stock options. Also includes 156,800 shares held in
trust for the benefit of individuals not related to Mr. Lareau. He is the
trustee for several trusts, but disclaims beneficial ownership of all such
shares. Also includes 20,000 shares owned beneficially by Mr. Lareau's wife,
as to which he may be deemed to share voting and investment power, but as to
which shares he disclaims beneficial ownership.
(6) Includes 12,000 shares Mr. Nienhouse has the right to acquire within 60
days upon exercise of stock options.
(7) Includes 12,000 shares Mr. Miller has the right to acquire within 60 days
upon the exercise of stock options.
(8) Includes 32,000 shares Mr. Hoge has the right to acquire within 60 days
upon the exercise of stock options.
(9) Includes 15,000 shares Mr. Campbell has the right to acquire within 60 days
upon the exercise of stock options.
(10) Includes 21,000 shares Mr. Kanner has the right to acquire within 60 days
upon the exercise of stock options.
(11) Includes 32,547 shares owned beneficially by Mr. Machov's wife and 1,800
shares Mr. Machov's wife has the right to acquire within 60 days upon
exercise of options, all as to which he may be deemed to share voting and
investment power, but as to which he disclaims beneficial ownership. Also
includes 11,520 shares Mr. Machov has the right to acquire within 60 days
upon exercise of options.
(12) These shares are not outstanding but deemed beneficially owned by virtue of
the right of Ms. Barber to acquire them within 60 days pursuant to
exerciseable stock options.
(13) These shares are not outstanding but deemed beneficially owned by virtue of
the right of Ms. Larkin to acquire them within 60 days pursuant to
exerciseable stock options.
(14) Includes: 156,800 shares held in trusts for which Richard G. Lareau, a
director of the Company, is the trustee for all these trusts, but disclaims
beneficial ownership of all such shares; (ii) 67,071 shares owned
beneficially by the spouses or children of members of the group as to which
they may be deemed to share voting and investment power; and (iii) 218,940
shares not outstanding but deemed beneficially owned by virtue of the right
of members of the group or their spouses to acquire them within 60 days
pursuant to exercisable stock options.
4
<PAGE>
ELECTION OF DIRECTORS
PROPOSAL 1
NOMINATION
The Bylaws of the Company provide that the Board shall consist of at least
three members, or such other number as may be determined from time to time by
the Board of Directors. The Board of Directors has determined that there will be
nine directors of the Company for the ensuing year.
In the absence of other instructions, the proxies will be voted FOR each of
the following individuals, each of whom the Company's Board of Directors
proposes for election as a director of the Company. If elected, such individuals
will serve until the next Annual Meeting of Shareholders or until their
successors are duly elected and qualified. All of the nominees are members of
the present Board of Directors, and all, with the exception of Mr. Scott Morton
were elected at last year's Annual Meeting of Shareholders. Mr. Scott Morton was
appointed to the Board of Directors in August 1997.
The election of each nominee requires the affirmative vote of a majority of
the shares of Common Stock represented in person or by proxy at the Annual
Meeting. The Board recommends a vote FOR the election of each of the nominees
listed below. If prior to the Annual Meeting the Board should learn that any
nominee will be unable to serve by reason of death, incapacity or other
unexpected occurrence, the proxies that would have otherwise been voted for such
nominee will be voted for a substitute nominee as selected by the Board.
Alternatively, the proxies may, at the Board's discretion, be voted for such
fewer number of nominees as results from such death, incapacity or other
unexpected occurrence. The Board has no reason to believe that any of the
nominees will be unable to serve.
INFORMATION ABOUT NOMINEES
The following information has been furnished to the Company by the
respective nominees for director.
<TABLE>
<CAPTION>
DIRECTOR
NAMES OF NOMINEES PRINCIPAL OCCUPATION AGE SINCE
- --------------------- ------------------------------------------------------------- --- --------
<S> <C> <C> <C>
John W. Castro President and Chief Executive Officer of Merrill Corporation 49 1981
Richard G. Lareau Partner, Oppenheimer Wolff & Donnelly LLP (law firm) 69 1981(1)
Paul G. Miller Chairman, Executive Committee, LSC, Incorporated (proprietary 75 1985
software and systems consulting firm)
Robert F. Nienhouse Private Investor 50 1986
Rick R. Atterbury Executive Vice President of Merrill Corporation 44 1989
Ronald N. Hoge President and Chief Executive Officer, MagneTek, Inc. 52 1991
(electrical equipment manufacturer)
James R. Campbell Executive Vice President, Norwest Corporation (bank holding 55 1994
company)
Frederick W. Kanner Partner, Dewey Ballantine (law firm) 55 1996
Michael S. Scott Professor of Management, Massachusetts Institute of 60 1997
Morton Technology (university)
</TABLE>
- ------------------------
(1) Mr. Lareau was also the incorporator of the Company and served as its first
director before his resignation in October 1968.
5
<PAGE>
OTHER INFORMATION ABOUT NOMINEES
Except as indicated below, there has been no change in principal occupations
or employment during the past five years for the nominees for election as
directors.
Mr. Castro also serves as a Director of BMC Industries, Inc.
Mr. Lareau has been a member of the law firm of Oppenheimer Wolff & Donnelly
LLP for over 38 years. Oppenheimer Wolff & Donnelly LLP has provided and is
expected to continue to provide legal services to the Company. Mr. Lareau also
serves as a Director of Ceridian Corporation, Northern Technologies
International Corporation and Nash Finch Company, and as a Trustee of Mesabi
Trust.
Mr. Miller was also Chairman, Secretary and Treasurer of LSC, Incorporated
from January 1992 to December 1996. He was also Chairman from 1987 to 1995, and
President and Chief Executive Officer from 1993 to 1995 of Supercomputer
Systems, Inc.
Mr. Hoge was President of Aerospace Equipment Systems division of
AlliedSignal, Inc. from August 1993 to July 1996, and President and Chief
Executive Officer of Onan Corporation from June 1986 until August 1993. He also
serves as a Director of MagneTek, Inc.
Mr. Campbell has also served as President, Chief Executive Officer and a
director of Norwest Bank Minnesota, N.A. since October 1984. He serves as a
Director of Allianz Life Insurance Company of North America.
Mr. Kanner has been a partner in the law firm of Dewey Ballantine since
1976. He also serves as a Director of National Benefit Life Insurance Company.
Mr. Scott Morton has held various positions at the Massachusetts Institute
of Technology (MIT) since 1966. Since 1989, he has served as the Jay W.
Forrester Professor of Management at MIT. He also serves as a Director of
Sequent Computer Systems, MetLife Insurance Company Series Funds, and privately
held Wilder Corp., and as a Trustee of State Street Research and Management.
INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
Standing committees of the Board of Directors include the Audit Committee,
the Compensation Committee, the Nominating Committee and the Executive
Committee.
The Audit Committee provides assistance to the Board in satisfying its
responsibilities relating to the accounting, auditing, operating and reporting
practices of the Company. The Audit Committee recommends to the Board the
retention of independent accountants, reviews the performance of such
accountants and considers recommendations concerning improvements in internal
accounting controls. The Audit Committee also approves the membership of, and
provides counsel to, a management committee responsible for the design,
administration and selection of investment options for the Company's Retirement
Plan. The members of the Audit Committee are Messrs. Hoge (Chairman), Miller and
Nienhouse. The Audit Committee met on three occasions during fiscal 1998.
The Compensation Committee reviews general programs of compensation and
benefits for all employees of the Company and sets the compensation to be paid
to the Company's officers. The Compensation Committee also serves as the
disinterested committee administering the Company's 1987 Omnibus Stock Plan,
1993 Stock Incentive Plan, and the 1996 Non-Statutory Stock Option Plan.
6
<PAGE>
The members of the Compensation Committee are Messrs. Lareau, (Chairman),
Campbell and Kanner. The Compensation Committee met or took action by written
consent on five occasions during fiscal 1998.
The Nominating Committee reviews and makes recommendations from time to time
to the Board with respect to candidates for directors of the Company and
compensation of Board members, and assignment of directors to committees of the
Board. The Nominating Committee also reviews, at least annually, the composition
of the Board regarding experience, expertise and special knowledge required for
effective discharge of responsibilities; Board procedures, its size, and
membership; and the structure, membership and charters of the Board's standing
and ad hoc committees. The members of the Nominating Committee are Messrs.
Campbell (Chairman), Nienhouse and Hoge. The Nominating Committee met on two
occasions during fiscal 1998. The Nominating Committee will consider for
nomination nominees submitted by other directors and shareholders. Shareholders
who wish to recommend persons for election as directors at the 1999 Annual
Meeting of Shareholders may do so by submitting to the Secretary of the Company
in writing on or before January 15, 1999: (i) the name and address of the person
or persons to be nominated; (ii) the name and address of the shareholder who
intends to make the nomination and a representation that the shareholder is a
holder of record of stock of the Corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons; (iii) a description of all arrangements or understandings
between the shareholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations are to
be made by the shareholder; (iv) such other information regarding each nominee
proposed by such shareholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission as then in effect; and (v) the signed consent of each nominee to
serve as a director of the Company if so elected.
The Executive Committee may exercise all the powers of the Board of
Directors which may by law be exercised by an executive committee during the
intervals between Board meetings. These powers include the power to authorize
the issuance of capital stock, and approve transactions of the Company involving
consideration of no more than $5 million, unless in the Committee's discretion,
it determines immediate action is required. This Committee is specifically
authorized to declare and pay regular quarterly dividends on the Company's
Common Stock. The members of the Executive Committee include the Chief Executive
Officer of the Company, who serves as the Committee's Chairman, and two
non-management members of the Board. Current members of the Executive Committee
are Messrs. Castro (Chairman), Miller and Lareau. The Executive Committee met or
took action by written consent on five occasions during fiscal 1998.
The Company's Board of Directors held six meetings during fiscal 1998. All
of the directors attended at least 75% of all of the meetings of the Board of
Directors and all committees on which they served during fiscal 1998.
DIRECTORS' COMPENSATION
Directors who are employees of the Company receive no separate compensation
for their services as directors. Non-employee directors received a retainer of
$12,000 per year ($15,000 for the Chairman of the Board), and fees for
attendance at Board and committee meetings of $1,000 per meeting, provided that
attendance fees are not paid for participation in meetings the chair of such
committee determines are brief meetings. The Company is in the process of
evaluating it's compensation to
7
<PAGE>
directors and expects to revise the compensation in the near term. The Company's
1996 Non-Employee Director Plan (the "Director Plan") provides for automatic
non-qualified option grants to the Company's non-employee directors (the
"Options") and payment of one-half of the non-employee directors' annual cash
retainer in the form of Common Stock (the "Retainer Stock"). In accordance with
the terms of the Director Plan, new non-employee directors of the Company who
are first elected or appointed to the Board to fill new directorships or
vacancies are automatically granted, on a one-time basis, on the date of their
election or appointment, non-qualified options to purchase 20,000 shares of
Common Stock at an exercise price equal to the fair market value of the Common
Stock on the date of grant (the "Initial Election Grant"). In addition to the
Initial Election Grant, commencing with the annual meeting of shareholders of
the Company that first occurs following the date that the non-employee director
is first elected or appointed to the Board, each non-employee director who is
re-elected to the Board at an annual meeting of the Company's shareholders will
be granted Options to purchase 6,000 shares of Common Stock at such time, at an
exercise price equal to the fair market value on the date of grant. The Options
become exercisable, in the case of the Initial Election Grant, on a cumulative
basis with respect to 20% of the shares on each anniversary of the date of
grant, and, in the case of Options granted in connection with an annual meeting,
in full six months following the date of grant. Each Option expires and is no
longer exercisable ten (10) years from its date of grant. In addition to the
Option grants under the Director Plan, the non-employee directors receive
payment for one-half of their annual cash retainer in the form of Common Stock.
Each non-employee director, receives such number of shares of Common Stock as
equals $6,000 divided by the average of the fair market value of one share of
Common Stock for the 10 trading days immediately preceding the date of such
annual meeting, and $6,000 in cash. Currently, of the 400,000 shares of Common
Stock reserved for issuance under the Director Plan, 6,694 shares have been
issued, and options to purchase 92,000 shares have been granted.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors administers the
Company's executive compensation program. The Compensation Committee consists of
three non-employee directors and meets two to four times a year. A more complete
description of the functions of the Compensation Committee is set forth above
under the caption "Information About the Board and its Committees."
COMPENSATION PHILOSOPHY AND OBJECTIVES. The Company's executive
compensation philosophy is to pay for performance. The executive compensation
program is intended to provide an overall level of compensation opportunity that
the Committee believes, based on its own judgment and experience, and on
periodic studies by executive compensation consultants, is competitive with
other companies within its industry group. The objectives of the Company's
executive compensation program are:
- To establish annual base salaries and incentives that will attract and
retain key executives.
- To reward executives for achievement of annual performance and financial
goals.
- To encourage executive stock ownership and appreciation of long-term
shareholder returns.
Actual compensation levels are based on annual and long-term Company and
individual performance and may be greater or less than compensation levels at
other companies.
8
<PAGE>
EXECUTIVE COMPENSATION PROGRAM COMPONENTS. The Company's executive
compensation program consists of base salary, annual cash bonus incentives and
long-term ownership incentives in the form of stock options.
BASE SALARY. Base pay levels of executives are determined generally by
considering the potential impact of the individual on the Company and its
performance, the skills and experiences required by the position, the
performance of divisions or departments under the executive's control, the
achievement of defined business objectives and personal and corporate
development goals, and finally, the overall performance of the Company. Base
salaries for executives are maintained at levels that the Compensation Committee
believes, based upon its own judgment and experience, are lower than the median
for other companies of comparable size and complexity (which are not necessarily
the companies included in the performance graph included on page 14 in this
proxy statement), and the annual cash bonus incentives are designed to offer
greater potential compensation than the median in other companies.
John W. Castro, the Company's Chief Executive Officer, and Rick R.
Atterbury, the Company's Executive Vice President, have employment agreements
with the Company entered into in 1989 and 1987, respectively. These agreements
provide for automatic renewal from year to year for consecutive one-year terms
unless either the employee or the Company gives either party 60 days advance
written notice of termination. For the fiscal year ended January 31, 1998 Mr.
Castro's base salary was $300,000 per year and Mr. Atterbury's was $225,000 per
year. Effective April 15, 1998, the base salaries for Messrs. Castro and
Atterbury were increased to $375,000 and $275,000, respectively. The base
salaries for Messrs. Castro and Atterbury have not been adjusted since February
1994. The base salaries of certain other executives were increased during the
last fiscal year. Base salary increases were given to executives based on
performance and to ensure market competitiveness. Consistent with the Company's
executive compensation strategy, executive base salaries continue to be below
the median as compared to similar companies.
ANNUAL CASH BONUS INCENTIVES. For all other executives other than Messrs.
Castro and Atterbury, annual incentive opportunity is based upon performance
against goals established in the Executive Incentive Plan. A predetermined
overall Company goal (as measured by earnings per share) must be met before any
such executive is eligible for annual cash bonuses. In addition, for business
unit executives, business unit financial thresholds must also be met before such
executive will be eligible for an annual cash bonus. Assuming these goals are
met, awards paid out under this plan are based upon performance against
quantitative goals such as overall company goals and pre-determined business
unit financial goals as well as individual contribution. The Company's Chief
Executive Officer makes a recommendation to the Committee as to the amount of
each cash incentive bonus. The Committee makes a final bonus award, taking into
account the recommendation of the Chief Executive Officer as well as using its
own judgment and experience. The Committee places greater emphasis on annual
Company performance for determining cash incentive bonuses than for determining
individual base salaries. In Fiscal 1998, the targeted earnings per share goal
was significantly exceeded.
Pursuant to their employment agreements, Mr. Castro and Mr. Atterbury
receive cash bonuses based on the Company's net income per share. Thus, their
overall compensation is directly related to the Company's profit performance for
each fiscal year. For each one cent of net income per share up to the prior
fiscal year's net income per share, Mr. Castro and Mr. Atterbury receive cash
bonuses of $4,000 and $2,400, respectively, and for each additional one cent of
net income per share above the
9
<PAGE>
prior fiscal year's net income per share, they receive additional cash bonuses
of $10,000 and $6,000, respectively. The bonus amounts have been adjusted due to
the September 1997 two-for-one stock split; however, the bonus plans for Messrs.
Castro and Atterbury remain unchanged. For the fiscal year ended January 31,
1998, Messrs. Castro and Atterbury received cash bonuses, based on primary
earnings per share of $1.50, of $700,000 and $504,000, respectively. In
addition, Mr. Castro earned, but deferred, receipt of an additional $140,000 in
bonus. Due to the adoption of Statement of Financial Accounting Standard (SFAS)
No. 128 "Earnings Per Share", the diluted net income per share for fiscal 1998
was $1.54. Diluted net income per share will be used as the base for calculating
fiscal year 1999 bonuses for Messrs. Castro and Atterbury.
LONG-TERM OWNERSHIP INCENTIVE. Long-term incentives are provided in the
form of stock options that are granted from time to time at or above market
value at date of grant and generally become exercisable proportionately over a
period of five years. Grants of stock options are made by the Compensation
Committee in its discretion based upon the recommendation of the Company's Chief
Executive Officer and the Vice President -- Human Resources, as well as the
Committee's judgment as to the executive's contribution toward Company
performance and expected contribution toward meeting the Company's long-term
strategic goals and increases in shareholder returns. The value received by the
executives from option grants depends completely on increases in the market
price of the Company's Common Stock over the option exercise price. Thus, this
component of compensation is aligned directly with increases in shareholder
value.
Richard G. Lareau, Chair
James R. Campbell
Frederick W. Kanner
MEMBERS OF THE COMPENSATION
COMMITTEE
10
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation for each of
the last three fiscal years awarded to or earned by the Chief Executive Officer
of the Company and the four other most highly compensated executive officers of
the Company whose salary and bonus exceeded $100,000 in fiscal 1998.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------
------------------- SECURITIES
BONUS UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY (1) OPTIONS (2) COMPENSATION (3)
- ------------------------------------------------- ---- -------- -------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
John W. Castro 1998 $300,000 $840,000(4) 69,000 $ 44,824
President and Chief Executive 1997 $300,000 $693,000 -0- $ 28,583
Officer 1996 $300,000 $250,000 -0- $32,162
Rick R. Atterbury 1998 $225,000 $504,000 69,000 $ 35,890
Executive Vice President -- Operations 1997 $225,000 $415,800 60,000 $ 22,477
1996 $225,000 $150,000 -0- $22,625
Kay A. Barber 1998 $162,500 $135,300 13,800 $ 16,800
Vice President, Chief Financial Officer and 1997(5) $144,790 $124,500 40,000 $ 11,740
Treasurer 1996 $ 53,820 $ 15,000 20,000 -0-
Steven J. Machov 1998 $140,834 $120,700 27,600 $ 15,169
Vice President, General 1997 $132,915 $113,550 20,000 $ 10,645
Counsel and Secretary 1996 $125,000 $ 9,167 -0- $10,500
Kathleen A. Larkin 1998 $107,500 $103,550 13,800 $ 12,225
Vice President -- Human Resources 1997 $ 98,963 $ 95,000 20,000 $ 8,467
1996 $ 90,827 -0- 30,000 $ 9,158
</TABLE>
- ------------------------
(1) Cash bonuses for services rendered have been included as compensation for
the year earned, even though all or part of such bonuses were actually
calculated and paid in the following year.
(2) Amounts have been adjusted for a two-for-one stock split effected in October
1997.
(3) "All Other Compensation" for fiscal 1998 includes: (i) amount of $11,200
each for Mr. Castro, Mr. Atterbury, Ms. Barber, Mr. Machov, and Ms. Larkin
contributed by the Company to its defined contribution retirement plan; and
(ii) premium payments under life insurance policies on the lives of the
executives at the following incremental costs to the Company: Mr. Castro
$909, and Mr. Atterbury $607; and (iii) contributions by the Company to its
Supplemental Retirement Plan: Mr. Castro $32,715, Mr. Atterbury $24,083, Ms.
Barber $5,600, Mr. Machov $3,969, and Ms. Larkin $1,025.
(4) Mr. Castro deferred receipt of $140,000 of this amount.
(5) Ms. Barber joined the Company on August 28, 1995.
OPTIONS
The following tables summarize option grants and exercises during fiscal
1998 to or by the executive officers named in the Summary Compensation Table
above, and the potential realizable value of the options held by such persons at
the end of fiscal 1998.
11
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT
SECURITIES ASSUMED ANNUAL RATES OF
UNDERLYING PERCENT OF TOTAL STOCK PRICE APPRECIATION
OPTIONS OPTIONS GRANTED EXERCISE OR FOR OPTION TERM (3)
GRANTED (#) TO EMPLOYEES IN BASE EXPIRATION ------------------------
NAME (1)(2) FISCAL YEAR PRICE ($/SH) DATE 5% ($) 10% ($)
- ---------------------------- ----------- ------------------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
John W. Castro 69,000 6.1% $ 12.625 5/20/02 $ 240,675 $ 531,830
Rick R. Atterbury 69,000 6.1% $ 12.625 5/20/02 $ 240,675 $ 531,830
Kay A. Barber 13,800 1.2% $ 12.625 5/20/02 $ 48,135 $ 106,366
Steven J. Machov 27,600 2.4% $ 12.625 5/20/02 $ 96,270 $ 212,732
Kathleen A. Larkin 13,800 1.2% $ 12.625 5/20/02 $ 48,135 $ 106,366
</TABLE>
- ------------------------
(1) These options were granted under the Company's 1993 Stock Incentive Plan
(the "1993 Plan") and have been adjusted to reflect a two-for-one stock
split effected in October 1997. Options become exercisable under the plan so
long as the executive remains in the employ of the Company or one of its
subsidiaries. To the extent not already exercisable, options under the 1993
Plan become immediately exercisable in full upon certain changes in control
of the Company and will remain exercisable during the remaining term
thereof, whether or not the executive to whom the options have been granted
remains an employee of the Company or a subsidiary. See "Change in Control
Arrangements" below for the definition of "Change in Control" under this
plan.
(2) These options were granted with an exercise price equal to the market price
on the date of grant. The options are exercisable in installments. The
options become exercisable as to 20% one year after the date of grant and as
to an additional 20% each year thereafter, with the final installment
exercisable on or after November 20, 2001.
(3) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent upon the future
performance of the Company's Common Stock and the executive's continued
employment with the Company. The amounts are not intended to forecast
possible future appreciation, if any, in the price of the Company's Common
Stock.
12
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE FISCAL YEAR END (#) (2) AT FISCAL YEAR END ($) (4)
EXERCISE REALIZED -------------------------- --------------------------
NAME (#) (1)(2) ($) (3) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John W. Castro 120,000 $ 619,500 -0- 69,000 $ -0- $ 474,375
Rick R. Atterbury 69,000 $ 481,875 36,000 144,000 $ 171,000 $ 1,168,500
Kay A. Barber -0- $ -0- 12,000 61,800 $ 129,750 $ 625,125
Steven J. Machov 12,000 $ 112,195 -0- 55,600 $ -0- $ 434,000
Kathleen A. Larkin 8,000 $ 87,000 4,000 51,800 $ 45,500 $ 527,125
</TABLE>
- ------------------------
(1) Under both the 1987 Omnibus Stock Plan and 1993 Plan, the exercise price may
be paid in cash or, in the Compensation Committee's discretion, by delivery
of a promissory note or previously acquired shares of the Company's common
stock valued at fair market value on the date of exercise or pursuant to a
cashless exercise procedure under which the executive provides irrevocable
instructions to a brokerage firm to sell the purchased shares and to remit
to the Company, out of the sale proceeds, an amount equal to the exercise
price plus all applicable withholding taxes.
(2) Adjusted to reflect a two-for-one stock split effected in October 1997.
(3) Value calculated as the market value on the date of exercise less the option
exercise price.
(4) Value calculated as the market value on January 31, 1998 ($19.50), the
average of the bid and asked price as reported on the Nasdaq National
Market, less the option exercise price. Options are in-the-money if the
market price of the shares exceeds the option exercise price.
13
<PAGE>
COMPARATIVE STOCK PERFORMANCE
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG MERRILL CORPORATION,
THE S&P SMALLCAP 600 INDEX
AND THE DOW JONES OTHER INDUSTRIAL & COMMERICAL SERVICES INDEX
The following graph compares the cumulative total shareholder return of the
Company's Common Stock with a cumulative total return, assuming reinvestment of
dividends, of the Standard & Poor's Smallcap 600 Index and the Dow Jones Other
Industrial & Commercial Services Index.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOW JONES OTHER INDUSTRIAL
MERRILL CORPORATION S & P SMALLCAP 600 & COMMERCIAL SERVICES
<S> <C> <C> <C>
1/93 $100 $100 $100
1/94 180 118 109
1/95 89 109 102
1/96 93 143 127
1/97 145 177 143
1/98 232 214 173
</TABLE>
* $100 invested on 1/31/93 in stock or index -- including reinvestment of
dividends. Fiscal year ending January 31.
Source: Research Data Group
EMPLOYMENT AGREEMENTS
Effective February 1, 1989, Mr. Castro entered into a one-year employment
agreement with the Company under which he serves as its President and Chief
Executive Officer, and effective February 1, 1987, Mr. Atterbury entered into a
three-year employment agreement with the Company under which
14
<PAGE>
he serves as its Executive Vice President. Mr. Atterbury's employment agreement
was amended effective February 1, 1990, February 1, 1994 and April 8, 1998, and
Mr. Castro's agreement was also amended effective February 1, 1994 and April 8,
1998. Each employment agreement provides for an automatic renewal from year to
year for consecutive one year terms unless either the employee or the Company
gives the other party 60 days advance written notice of termination. For
services performed under their respective agreements, Mr. Castro receives an
annual base salary of $300,000 and Mr. Atterbury receives an annual base salary
of $225,000. Cash bonuses for Mr. Castro and Mr. Atterbury are based on the
Company's net income per share. For each one cent of net income per share up to
the prior fiscal year's net income per share, Mr. Castro and Mr. Atterbury
receive cash bonuses of $2,000 and $1,200, respectively, and for each additional
one cent of net income per share they receive additional cash bonuses of $5,000
and $3,000, respectively. Mr. Castro and Mr. Atterbury also receive an annual
transportation allowance of $12,000 and $7,200, respectively. For a discussion
of the "change in control" provisions in these agreements, see "Change in
Control Arrangements" below. Upon termination of employment under their amended
agreements, each has agreed not to compete with the Company for 18 months if the
Company elects to continue paying his base salary during the restrictive period.
CHANGE IN CONTROL ARRANGEMENTS
Pursuant to two stock-based benefit plans of the Company and employment
agreements with two executive officers of the Company named in the Summary
Compensation Table above, benefits would be paid or existing non-vested awards
would be accelerated in connection with a change in control of the Company.
Under the Company's 1993 Plan, in the event a "change in control" of the
Company occurs, if approved by the committee administering the plan, (a) all
outstanding options will become immediately exercisable in full and will remain
exercisable for the remainder of their terms, regardless of whether the
participant remains in the employ or service of the Company or any subsidiary,
(b) all outstanding restricted stock awards will become immediately fully vested
and nonforfeitable, and (c) all outstanding performance units, if any, will vest
and/or continue to vest in the manner determined by the committee. In addition,
the committee, without the consent of any affected participant, may determine
that some or all participants holding outstanding options will receive cash in
an amount equal to the excess of the fair market value immediately before the
effective date of such change in control over the exercise price per share of
the options.
For purposes of the 1993 Plan, a "change in control" means (i) the sale or
other transfer of substantially all of the Company's assets, (ii) a merger or
consolidation involving the Company if less than 80% of the voting stock of the
surviving company is held by persons who were shareholders of the Company
immediately before the merger or consolidation, (iii) ownership by any person or
group of 20% or more of the Company's voting stock, (iv) a change in the
composition of the Board such that individuals who constitute the Board on the
effective date of the 1993 Plan cease for any reason to constitute at least a
majority of the Board (with exceptions for individuals who are nominated or
otherwise approved by the current Board), or (v) any change of control that is
required to be reported under Section 13 or 15(d) of the Securities Exchange Act
of 1934.
Under the Company's 1987 Omnibus Stock Plan (the "1987 Plan"), upon the
occurrence of a "change in control" of the Company, all outstanding options will
become immediately exercisable in full and will remain exercisable during the
remaining term thereof, whether or not the participants to whom the options were
granted remain employees of the Company or a subsidiary, and all restrictions
15
<PAGE>
with respect to outstanding restricted stock awards will immediately lapse. The
acceleration of the exercisability of options or the vesting of restricted stock
awards under this plan may be limited, however, if the acceleration is subject
to an excise tax imposed upon "excess parachute payments." Under this plan, a
"change in control" means, absent the approval of the continuity directors of
the Company (directors as of the effective date of the 1987 Plan and additional
directors nominated by other "continuity directors"), (a) the sale or other
transfer of substantially all of the Company's assets, (b) the approval by the
Company's shareholders of a plan of liquidation, (c) a change in control that
would be required to be reported in a Current Report on Form 8-K, (d) ownership
by any person or group of 20% or more of the Company's outstanding voting stock,
or (e) the continuity directors ceasing to constitute a majority of the Board of
Directors.
Under their respective employment agreements with the Company, Messrs.
Castro and Atterbury are entitled to receive certain benefits if, following a
"change in control" of the Company, either terminates their employment
relationship for specified reasons (including by reason of a change in duties,
relocation of the Company, certain changes in benefits, failure by any successor
of the Company to assume the agreement, purported termination by the Company not
expressly authorized by the agreement or any breach of the agreement by the
Company). In such a case, the Company will make a lump sum cash payment to the
executive in an amount equal to 2.99 times the average annual compensation
received by the executive from the Company and includable in the executive's
gross income during the five most recent taxable years ending before the change
in control (less any amounts received under other plans considered to be
"parachute payments" under Section 280G of the Internal Revenue Code) and any
legal fees incurred in enforcing the agreement.
A "change in control" for purposes of these employment agreements means,
unless approved by two-thirds of the continuity directors of the Company
(directors as of the date of the employment agreement and additional directors
nominated by other "continuity directors"), (a) a merger or consolidation
involving the Company if less than 50% of the voting stock of the surviving
company is held by persons who were shareholders of the Company immediately
before the merger, (b) a change in control that would be required to be reported
in response to Schedule 14A under the Securities Exchange Act of 1934, (c)
ownership by any person or group of more than 20% of the Company's voting stock,
or (d) any person or group becoming, through or pursuant to a "tender offer" as
defined in the Securities Exchange Act of 1934, the owner of more than 10% of
the Company's voting stock.
If a "change in control" of the Company had occurred as of February 1, 1998,
Mr. Castro would have been entitled to receive a lump sum payment of
approximately $2,706,000 under his employment agreement and Mr. Atterbury would
have been entitled to receive a lump sum payment of approximately $2,162,000
under his employment agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Company's Board of
Directors are Messrs. Lareau, Campbell and Kanner, all of whom are non-employee
directors. Mr. Lareau was formerly a non-employee officer of the Company as
Assistant Secretary from 1981 to 1985 and Secretary from 1985 to 1989. Mr.
Lareau is a partner in the law firm of Oppenheimer Wolff & Donnelly LLP, which
provided legal services to the Company.
16
<PAGE>
CERTAIN TRANSACTIONS
On November 25, 1996, the Company entered into a $40 million revolving
Credit Agreement (the "Credit Agreement") with First Bank, N.A., as agent and
Norwest Bank Minnesota, N.A., as bank ("Norwest Bank"). James R. Campbell, a
director of the Company, is an Executive Vice President of Norwest Corporation,
the parent company of Norwest Bank. As of April 29, 1998, $3,900,000 was
outstanding under the Credit Agreement.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than 10% of the Company's Common Stock, to file with the Securities and
Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Executive officers, directors and greater than 10% shareholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) reports
they file. To the Company's knowledge, based on review of the copies of such
reports furnished to the Company during the period ended January 31, 1998, and
based on representations by such persons, all Section 16(a) filing requirements
applicable to its executive officers, directors, and greater than 10%
shareholders were complied with, except Mr Atterbury filed one Form 4 late
involving a transaction mistakenly believed to be reportable on a deferred basis
on either a subsequent Form 4 or year-end Form 5.
PROPOSALS FOR THE NEXT ANNUAL MEETING
Shareholder proposals intended to be presented in the proxy material
relating to the next Annual Meeting of Shareholders must be received by the
Company on or before January 7, 1999.
OTHER BUSINESS
The Company knows of no business that will be presented for consideration at
the Annual Meeting other than that described in this Proxy Statement. As to
other business, if any, that may properly come before the Annual Meeting, it is
intended that proxies solicited by the Board will be voted in accordance with
the judgment of the person or persons voting the proxies.
ANNUAL REPORT
A copy of the Company's Annual Report to Shareholders for the fiscal year
ended January 31, 1998 accompanies this Notice of Annual Meeting and Proxy
Statement. The Annual Report describes the financial condition of the Company as
of January 31, 1998.
17
<PAGE>
THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON FORM
10-K (EXCLUSIVE OF EXHIBITS) FOR THE FISCAL YEAR ENDED JANUARY 31, 1998 TO EACH
PERSON WHO IS A SHAREHOLDER OF THE COMPANY AS OF APRIL 1, 1998, UPON RECEIPT
FROM ANY SUCH PERSON OF A WRITTEN REQUEST FOR SUCH AN ANNUAL REPORT ON FORM
10-K. SUCH REQUESTS SHOULD BE SENT TO: MERRILL CORPORATION, ONE MERRILL CIRCLE,
ST. PAUL, MINNESOTA 55108, ATTENTION: SECRETARY.
BY ORDER OF THE BOARD OF DIRECTORS
Steven J. Machov
SECRETARY
May 7, 1998
St. Paul, Minnesota
18
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS
The undersigned hereby appoints John W.
Castro and Richard G. Lareau, and each of
them, as Proxies, each with the power to
appoint his substitute, and hereby authorizes
each of them to represent and to vote, as
designated below, all the shares of common
MERRILL CORPORATION stock of Merrill Corporation held of record
One Merrill Circle Proxy by the undersigned on April 1, 1998, at the
Saint Paul, MN Annual Meeting of Shareholders to be held on
55108 May 28, 1998, or any adjournment thereof.
- ------------------------------
1. ELECTION OF / / FOR all nominees / / AGAINST all nominees
DIRECTORS listed below listed below
(except as marked to
the contrary below)
(INSTRUCTION: TO VOTE AGAINST ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE
NOMINEE'S NAME.)
<TABLE>
<S> <C> <C>
RICK R. ATTERBURY RONALD N. HOGE PAUL G. MILLER
JAMES R. CAMPBELL FREDERICK W. KANNER MICHAEL S. SCOTT MORTON
JOHN W. CASTRO RICHARD G. LAREAU ROBERT F. NIENHOUSE
</TABLE>
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
PLEASE SIGN ON REVERSE SIDE
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL NOMINEES NAMED IN ITEM 1 ON THE REVERSE.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by the President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
- --------------------------------------------------------------------------------
Dated: ______________, 1998.
____________________________
Signature
____________________________
Signature if held jointly
PLEASE MARK, SIGN, DATE AND
RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE
UNITED STATES.
