<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:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(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):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / 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:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
<TABLE>
<S> <C> <C>
To: Our Shareholders May 17, 1999
From: John W. Castro, President and Chief Executive Officer
Subject: Invitation to 1999 Annual Shareholder Meeting
</TABLE>
- --------------------------------------------------------------------------------
I cordially invite you to attend our 1999 Annual Meeting of Shareholders to be
held on June 2, 1999, to find out how our company has been performing over the
last year and to discuss our prospects and plans for the future. You will have
the opportunity to ask questions and raise any comments or concerns you might
have about our company. Enclosed with this Proxy Statement are your proxy card
and our 1999 Annual Report. We expect that this Proxy Statement, the Proxy and
Notice of Meeting will be mailed to shareholders on or about May 17, 1999.
As part of our ongoing efforts to provide more concise and clearer
communication, you will notice that we have written our Proxy Statement and 1999
Annual Report in "Plain English." We hope you like the new format and welcome
any comments you have on the design and content.
We are also taking two other new initiatives this year. First, we are offering
telephonic voting for all of our shareholders. Now, you can vote via telephone
or, through traditional methods, by proxy card through the U.S. mail or in
person at the Annual Meeting. I encourage you to vote as soon as possible.
Second, we are making our 1999 Annual Report and Proxy Statement available
electronically in addition to the traditional paper method. Please contact our
Investor Relations department at 651.917.1414 if you wish to receive future SEC
reports electronically.
I look forward to seeing you at the Annual Meeting.
<PAGE>
[LOGO]
- -------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------------------------------------------------------------------
<TABLE>
<S> <C>
Time.................... 10:30 a.m. on Wednesday, June 2, 1999
Place................... Bandana Banquet & Conference Centre
Bandana Square
1021 Bandana Boulevard West
Suite 220, Energy Park
St. Paul, Minnesota 55108
Items of Business....... 1. To elect nine members to the Board of Directors.
2. To transact such other business as may properly come before
the Annual Meeting or any adjournment or postponement.
Record Date............. You can vote if you were a shareholder of record on April 15,
1999.
Annual Report........... Our 1999 Annual Report (which is not part of these proxy
soliciting materials) is enclosed. If you were a shareholder on
April 15, 1999, we will furnish, without charge, a copy of our
annual report on Form 10-K (exclusive of exhibits) for the fiscal
year ended January 31, 1999. To receive a copy, please send a
written request to: Merrill Corporation, One Merrill Circle, St.
Paul, MN 55108, Attention: Secretary.
Proxy Voting............ It is important that your shares be represented and voted at the
Annual Meeting. Please vote in one of the following two ways:
/ / By using the toll-free telephone number shown on your proxy
card; or
/ / By marking, signing, dating and promptly returning the
enclosed proxy card in the postage-paid envelope provided.
Any proxy card may be revoked at any time prior to its use at the
Annual Meeting.
</TABLE>
1
<PAGE>
QUESTIONS AND ANSWERS
- ----------------------------------------------------------------------
Q: WHAT AM I VOTING ON?
A: Re-election of nine directors (John W. Castro, Richard G. Lareau, Robert F.
Nienhouse, Paul G. Miller, Rick R. Atterbury, Ronald N. Hoge, James R. Campbell,
Frederick W. Kanner and Michael S. Scott Morton); and to transact such other
business as may properly come before the Annual Meeting or any adjournment or
postponement.
Q: WHO IS ENTITLED TO VOTE AT THE ANNUAL MEETING?
A: Persons who held shares of our Common Stock as of the close of business on
April 15, 1999. Each share of Common Stock is entitled to one vote.
Q: HOW DO I VOTE?
A: You can vote by telephone or sign and mail your proxy card. See your proxy
card for specific instructions for telephone voting. You may also vote in person
at the Annual Meeting.
Q: HOW DOES DISCRETIONARY AUTHORITY APPLY?
A: If you sign your proxy card but do not make any selections, you give
authority to John W. Castro and Richard G. Lareau to vote on the proposals and
any other matter that may arise at the Annual Meeting.
Q: WHO WILL COUNT THE VOTES?
A: Norwest Bank Minnesota, N.A. will tabulate the votes and act as inspector of
election.
Q: WHICH SHARES ARE INCLUDED IN THE PROXY CARD?
A: Common shares held as of April 15, 1999, are included.
Q: WHAT CONSTITUTES A QUORUM?
A: As of April 15, 1999, there were 15,934,800 shares of our Common Stock issued
and outstanding. A majority of the shares entitled to vote (7,967,401), present
either in person or by proxy, constitutes a quorum. If you vote by proxy card or
telephone, you will be considered part of the quorum. See "How to Vote --
Required Vote" for more details.
Q: WHEN ARE SHAREHOLDER PROPOSALS DUE FOR THE 2000 ANNUAL MEETING?
A: To be included in next year's proxy statement, shareholder proposals must be
submitted in writing by January 18, 2000, to:
Steven J. Machov, Esq.,
Vice President, General Counsel and Secretary
Merrill Corporation
One Merrill Circle
St. Paul, MN 55108
Between January 19, 2000 and April 1, 2000, any shareholder may make a proposal
at the next Annual Meeting, however, we are not required to include the proposal
in our Proxy Statement. If any shareholder proposal is submitted after April 1,
2000, our Board of Directors will be allowed to use its discretionary voting
authority when the proposal is raised at
2
<PAGE>
the Annual Meeting, without any discussion of the matter in the Proxy Statement.
Q: WHO BEARS THE COST OF SOLICITING PROXIES?
A: We bear the cost of soliciting proxies. These costs include the preparation,
assembly and mailing of the proxies and soliciting material, as well as the cost
of forwarding such material to the owners of our Common Stock. Our directors,
officers and regular employees may, without compensation other than their
regular compensation, solicit proxies by telephone, facsimile or personal
conversation. We may also reimburse brokerage firms and others for expenses in
forwarding proxy material to the beneficial owners of Common Stock.
Q: HOW DO I REVOKE A PROXY ONCE IT IS SUBMITTED?
A: You may revoke it any time prior to the Annual Meeting by:
/ / giving written notice of such revocation to our Secretary;
/ / by filing a revoking instrument or a duly executed proxy bearing a later
date with the Secretary; or
/ / by attending the Annual Meeting and voting in person.
3
<PAGE>
HOW TO VOTE
- ----------------------------------------------------------------------
VOTE BY TELEPHONE
You can vote your shares by telephone by calling the toll-free telephone number
(at no cost to you) on your proxy card. Telephone voting is available 24 hours a
day. Easy-to-follow voice prompts allow you to vote your shares and confirm that
your instructions have been properly recorded. Our telephone voting procedures
are designed to authenticate shareholders by using individual control numbers.
IF YOU VOTE BY TELEPHONE, YOU DO NOT NEED TO RETURN YOUR PROXY CARD.
VOTE BY MAIL
If you choose to vote by mail, simply mark your proxy card, date and sign it,
and return it to Shareowner Services in the postage-paid envelope provided.
VOTING AT THE ANNUAL MEETING
The method by which you vote now will not limit your right to vote at the Annual
Meeting if you decide to attend in person. If your shares are held in the name
of a bank, broker or other holder of record, you must obtain a proxy, executed
in your favor, from the holder of record to be able to vote at the Annual
Meeting.
HOW SHARES ARE VOTED
All shares that have been properly voted, whether by telephone or mail, will be
voted at the Annual Meeting. If you sign and return your proxy card but do not
give voting instructions, the shares represented by that proxy will be voted as
recommended by the Board of Directors.
VOTING ON OTHER MATTERS
If any other matters are properly presented at the Annual Meeting for
consideration, the persons named in the proxy will have the discretion to vote
on those matters for you. At the date this Proxy Statement went to press, we did
not know of any other matter to be raised at the Annual Meeting.
REQUIRED VOTE
The presence, in person or by proxy, of the holders of a majority of the votes
entitled to vote at the Annual Meeting is necessary to constitute a quorum.
Abstentions and broker "non-votes" are counted as present and entitled to vote
for purposes of determining a quorum. A broker "non-vote" occurs when a nominee
holding shares for a beneficial owner does not vote on a particular proposal
because the nominee does not have discretionary voting power for that particular
item and has not received instructions from the beneficial owner.
To elect the directors, each director needs to receive "FOR" votes equal to:
/ / at least a majority of the shares present and entitled to vote in person
or by proxy; and
/ / at least 3,983,701 votes, a majority of the minimum number of votes
necessary for a quorum.
Abstentions will be counted as votes against the election of the director.
Broker non-votes will not be counted either for or against the election of that
director. The Board of Directors recommends that you vote in favor of all
nominees for director.
4
<PAGE>
ELECTRONIC ACCESS TO
PROXY MATERIALS AND ANNUAL REPORT
- ----------------------------------------------------------------------
The Notice of Annual Meeting and Proxy Statement and the 1999 Annual Report are
available on our Internet site at http://www.eproxyview.com/mrll. Most
shareholders can elect to view future proxy statements, annual reports and other
SEC-related documents over the Internet instead of receiving paper copies in the
mail.
If you are a shareholder of record, you can choose this option and save us the
cost of producing and mailing these documents by calling our Investor Relations
department at 651.917.1414.
If your shares are held through a bank, broker or other holder of record, check
the information provided by that entity for instructions on how to elect to view
future proxy statements, annual reports and other SEC-related documents over the
Internet.
5
<PAGE>
GOVERNANCE OF OUR COMPANY
- ----------------------------------------------------------------------
ROLE AND COMPOSITION OF THE BOARD OF DIRECTORS
The Board of Directors, which is elected by the shareholders, is the ultimate
decision-making body of our company except with respect to those matters
reserved to the shareholders. The Board of Directors selects the senior
management team, which is charged with the conduct of our business. Having
selected the senior management team, the Board acts as an advisor and counselor
to senior management and ultimately monitors its performance. Members of our
Board are kept informed of our business through discussions with our President
and Chief Executive Officer and other officers, by reviewing materials provided
to them, by visiting our offices and plants, and by participating in meetings of
the Board and its committees.
Except for authority delegated to our Executive Committee, our general policy is
that all major decisions be considered by the Board as a whole. As a
consequence, the committee structure of the Board is limited to those committees
considered to be basic to or required for the operation of a publicly owned
company. Currently these committees are the Executive Committee, Audit
Committee, Compensation Committee and Nominating Committee. The Audit Committee,
Compensation Committee, and Nominating Committee are made up of only outside
Directors.
Our Board of Directors held four meetings during fiscal 1999. Every director
attended at least 75% of all of the meetings of the Board of Directors and all
committees on which they served during fiscal 1999.
6
<PAGE>
COMMITTEE MEMBERSHIP
The table below provides membership information for each of the Board
committees.
<TABLE>
<CAPTION>
AUDIT COMPENSATION NOMINATING EXECUTIVE
BOARD MEMBER COMMITTEE COMMITTEE COMMITTEE COMMITTEE
<S> <C> <C> <C> <C>
John W. Castro X (Chairman)
Richard G. Lareau X X
Robert F. Nienhouse X X (Chairman)
Rick R. Atterbury
Ronald N. Hoge X (Chairman) X
James R. Campbell X (Chairman)
Frederick W. Kanner X
Michael S. Scott Morton X X
Paul G. Miller X X
</TABLE>
AUDIT COMMITTEE
The Audit Committee is responsible for assisting the Board in satisfying our
responsibilities relating to the accounting, auditing, operating and reporting
practices. Specifically, the Audit Committee:
/ / recommends to the Board the retention of independent accountants;
/ / reviews the performance of such accountants;
/ / considers recommendations concerning improvements in internal accounting
controls; and
/ / approves the membership of, and provides counsel to, a management
committee responsible for the design, administration and selection of
investment options for our Retirement Plan.
The Audit Committee met on three occasions during fiscal 1999.
COMPENSATION COMMITTEE
The Compensation Committee reviews general programs of compensation and benefits
for all of our employees and sets the compensation to be paid to our officers.
The Compensation Committee also administers our 1987 Omnibus Stock Plan, 1993
Stock Incentive Plan, and the 1996 Non-Statutory Stock Option Plan. The
Compensation Committee met or took action by written consent on four occasions
during fiscal 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Messrs. Lareau, Campbell
7
<PAGE>
and Kanner, all of whom are non-employee directors. Mr. Lareau was formerly our
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 certain legal services for us during fiscal 1999.
NOMINATING COMMITTEE
The Nominating Committee reviews and makes recommendations from time to time to
the Board for director candidates, director compensation, and committee
assignments. 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 Nominating Committee met on one occasion during fiscal 1999.
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 2000 Annual Meeting may do so by submitting to the
Secretary in writing on or before January 18, 2000:
/ / the name and address of the person or persons to be nominated;
/ / the name and address of the shareholder who intends to make the
nomination;
/ / a representation that the shareholder is a holder of record of stock
entitled to vote at such meeting;
/ / a representation that the shareholder intends to appear in person or by
proxy at the meeting to nominate the person or persons;
/ / a description of all arrangements or understandings between the
shareholder and each nominee;
/ / other information regarding the nominee that would be required to be
included in a proxy statement filed under the SEC's proxy rules; and
/ / the signed consent of each nominee to serve as a director if so elected.
EXECUTIVE COMMITTEE
The Executive Committee may exercise all the powers of the Board of Directors
that 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 involving consideration of no more than $5 million, unless in
the Committee's discretion, it determines immediate action is required;
and
/ / to declare and pay regular quarterly dividends on our Common Stock.
The Executive Committee met or took action by written consent on one occasion
during fiscal 1999.
DIRECTORS' COMPENSATION
EMPLOYEE DIRECTORS
Our employee directors receive no separate compensation for their services as
directors.
8
<PAGE>
NON-EMPLOYEE DIRECTORS
Non-employee directors receive a retainer of $25,000 per year ($30,000 for the
Chairman of the Board), and $1,500 per year for each Committee Chairperson.
In addition to an annual retainer, our directors receive stock compensation in
the form of options. Our 1996 Non-Employee Director Plan provides for:
/ / automatic non-qualified option grants to our non-employee directors; and
/ / payment of one-half of the non-employee directors' annual cash retainer
(other than the Committee Chairperson's retainer) in the form of Common
Stock.
Upon first election or appointment to the Board, our new, non-employee directors
are automatically granted non-qualified options to purchase 20,000 shares of
Common Stock ("initial grant"). These options are at an exercise price equal to
the fair market value of the Common Stock on the date of grant. In addition to
the initial grant, beginning with the annual meeting of shareholders immediately
following the date the director is first elected or appointed to the Board, each
non-employee director who is re-elected to the Board at an annual meeting is
granted options to purchase 4,000 shares of Common Stock at such time. These
options are 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 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 years from its date of
grant.
In addition to the option grants under our 1996 Non-Employee 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:
/ / shares of common stock equal to $12,500 divided by the average of the fair
market value of one share for the 10 trading days immediately preceding
the date of the annual meeting; and
/ / $12,500 in cash.
Currently, of the 400,000 shares of Common Stock reserved for issuance under the
plan, 10,863 shares have been issued, and options to purchase 120,000 shares
have been granted.
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ELECTION OF DIRECTORS
- ----------------------------------------------------------------------
NOMINATION
Our Bylaws provide that the Board must consist of at least three members, or
such other number as the Board may decide from time to time. The Board of
Directors has determined that there will be nine directors for the ensuing year.
All of the nominees are members of the present Board of Directors. If elected,
these individuals will serve until the next Annual Meeting of Shareholders or
until their successors are duly elected and qualified.
If, prior to the Annual Meeting, the Board learns 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 that 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 a fewer number of nominees. The
Board has no reason to believe that any of the nominees will be unable to serve.
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INFORMATION ABOUT NOMINEES
The following information has been furnished to us 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 50 1981
Corporation
Richard G. Lareau Partner, Oppenheimer Wolff & Donnelly LLP (law 70 1981(1)
firm)
Paul G. Miller Chairman, Executive Committee, LSC, Incorporated 76 1985
(proprietary software and systems consulting
firm)
Robert F. Nienhouse Private Investor 51 1986
Rick R. Atterbury Executive Vice President-Chief Technology Officer 45 1989
of Merrill Corporation
Ronald N. Hoge President and Chief Executive Officer, MagneTek, 53 1991
Inc. (electrical equipment manufacturer)
James R. Campbell Chairman and Chief Executive Officer of Norwest 56 1994
Bank Minnesota, N.A. (bank) and Group Executive
Vice President of Wells Fargo & Company (bank
holding company)
Frederick W. Kanner Partner, Dewey Ballantine LLP (law firm) 56 1996
Michael S. Scott Morton Professor of Management, Massachusetts Institute 61 1997
of 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.
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.
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 39 years. Oppenheimer Wolff & Donnelly LLP has provided and is expected
to continue to provide legal services for us. 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 Secretary and Treasurer of LSC, Incorporated from January
1992 to December 1996. He was also Chairman
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<PAGE>
from 1987 to 1995, and President and Chief Executive Officer from 1993 to 1995,
of Supercomputer Systems, Inc.
MR. ATTERBURY was elected our Executive Vice President-Chief Technology Officer
on February 1, 1999. Prior to that time and since 1996, Mr. Atterbury was our
Executive Vice President. Prior to 1996, Mr. Atterbury was the Vice
President-Operations.
MR. HOGE was President of the Aerospace Equipment Systems division of Allied
Signal, 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 served as Chairman and Chief Executive Officer of Norwest Bank
Minnesota, N.A. and Group Executive Vice President of Wells Fargo & Company
since November 1998. From October 1984 to November 1998, Mr. Campbell served as
President, Chief Executive Officer and director of Norwest Bank Minnesota, N.A.
Mr. Campbell also 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 LLP 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.
12
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
- ----------------------------------------------------------------------
The following table sets forth, as of April 15, 1999, certain information with
respect to all shareholders known to us to have been beneficial owners of more
than five percent of our Common Stock, and information with respect to our
Common Stock beneficially owned by (i) our directors and nominees for directors,
(ii) our executive officers included in the Summary Compensation Table and (iii)
all of our directors, nominees for directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES (1) CLASS (1)(2)
- --------------------------------------------------------------- ---------- ---------------
<S> <C> <C>
John W. Castro................................................. 1,956,640(3) 12.3%
First Pacific Advisors, Inc.................................... 1,074,700(4) 6.7%
Mairs and Power Growth Fund, Inc. ............................. 965,000(5) 6.1%
Rick R. Atterbury.............................................. 373,290(6) 2.3%
Richard G. Lareau.............................................. 137,581(7) *
Robert F. Nienhouse............................................ 271,647(8) 1.7%
Paul G. Miller................................................. 78,505(9) *
Ronald N. Hoge................................................. 37,681(10) *
James R. Campbell.............................................. 32,681(11) *
Frederick W. Kanner............................................ 32,621(12) *
Michael S. Scott Morton........................................ 9,579(13) *
Steven J. Machov............................................... 76,537(14) *
Kay A. Barber.................................................. 34,520(15) *
Kathleen A. Larkin............................................. 28,620(16) *
All directors and executive officers as a group (17 persons)... 3,238,802(17) 19.9%
</TABLE>
- -------------
* less than 1%
13
<PAGE>
(1) Unless otherwise noted, each person possesses sole voting and investment
power with respect to the shares indicated. Shares not outstanding but
deemed beneficially owned because of the right to acquire them within 60
days are considered outstanding only when determining the amount and
percent owned by such person.
(2) Based on 15,934,800 shares of our Common Stock outstanding as of April 15,
1999.
(3) Includes 11,824 shares owned beneficially by Mr. Castro's wife and 4,700
shares owned by Mr. Castro's minor aged children, as to which he may be
deemed to share voting and investment power, but as to which he disclaims
beneficial ownership. Also includes 34,600 shares Mr. Castro has the right
to acquire within 60 days upon the exercise of stock options. Mr. Castro's
address is One Merrill Circle, St. Paul, Minnesota 55108.
(4) In its Schedule 13G filed on February 12, 1999, First Pacific Advisors,
Inc. represents that it shares voting power for 414,700 shares and shares
dispositive power for 1,074,700 shares. First Pacific Advisors, Inc.'s
address is 11400 West Olympic Boulevard, Suite 1200, Los Angeles, CA 90064.
(5) In its Schedule 13G filed on February 11, 1999, Mairs and Power Growth
Fund, Inc. represents that it has sole voting and dispositive power over
all of the shares. Mairs and Power Growth Fund, Inc.'s address is 332
Minnesota Street, W-1420 First National Bank Building, St. Paul, MN 55101.
(6) Includes 95,600 shares Mr. Atterbury has the right to acquire within 60
days upon the exercise of stock options.
(7) Includes 10,000 shares Mr. Lareau has the right to acquire within 60 days
upon the exercise of stock options. Also includes 22,000 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.
(8) Includes 16,000 shares Mr. Nienhouse has the right to acquire within 60
days upon exercise of stock options.
(9) Includes 16,000 shares Mr. Miller has the right to acquire within 60 days
upon the exercise of stock options.
(10) Includes 26,000 shares Mr. Hoge has the right to acquire within 60 days
upon the exercise of stock options.
(11) Includes 22,000 shares Mr. Campbell has the right to acquire within 60
days upon the exercise of stock options.
(12) Includes 28,000 shares Mr. Kanner has the right to acquire within 60 days
upon the exercise of stock options.
(13) Includes 8,000 shares that Mr. Scott Morton has the right to acquire
within 60 days upon the exercise of stock options.
(14) Includes 35,497 shares owned beneficially by Mr. Machov's wife, as to
which he may be deemed to share voting and investment power, but as to
which he disclaims beneficial
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<PAGE>
ownership. Also includes 13,520 shares Mr. Machov has the right to acquire
within 60 days upon exercise of options.
(15) Includes 34,520 shares Ms. Barber has the right to acquire within 60 days
upon the exercise of stock options.
(16) Includes 9,260 shares Ms. Larkin has the right to acquire within 60 days
upon the exercise of stock options.
(17) Includes 74,021 shares owned beneficially by the spouses or children of
our directors and executive officers; and 365,100 shares that our
directors, executive officers and their spouses have the right to acquire
within 60 days upon the exercise of stock options.
15
<PAGE>
PERFORMANCE GRAPH
- ----------------------------------------------------------------------
The following graph compares the cumulative total shareholder return of our
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>
STANDARD & POOR'S DOW JONES OTHER INDUSTRIAL
MERRILL CORPORATION SMALLCAP 600 & COMMERCIAL SERVICES
<S> <C> <C> <C>
1/94 100 100 100
1/95 49 92 93
1/96 52 121 117
1/97 80 149 131
1/98 129 181 159
1/99 107 187 182
</TABLE>
16
<PAGE>
EXECUTIVE COMPENSATION
- ----------------------------------------------------------------------
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors administers our 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
"Governance of Our Company -- Committee Memberships."
COMPENSATION PHILOSOPHY AND OBJECTIVES
Our 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
our 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; and
/ / to encourage executive stock ownership and appreciation of long-term
shareholder returns.
Actual compensation levels are based on our annual and long-term performance and
individual performance, and may be greater or less than compensation levels at
other companies.
EXECUTIVE COMPENSATION PROGRAM COMPONENTS
Our 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 us and our 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, our
performance. Base salaries for executives are generally maintained at levels
that the Compensation Committee believes, based upon its own judgment and
experience, are at or lower than the median for other companies of comparable
size and complexity (which are not necessarily the companies included in the
performance graph included in this Proxy Statement), and the annual cash bonus
incentives are designed to offer greater potential compensation than the median
in other companies.
We have employment agreements with John W. Castro, our President and Chief
Executive Officer, and Rick R. Atterbury, our Executive Vice President-Chief
Technology Officer. These agreements were entered into in 1989 and 1987,
respectively,
17
<PAGE>
and have been amended several times over the course of their service with us.
These agreements remain in force for consecutive one-year terms unless we or the
executive terminate the agreement with 60 days' advance written notice.
Beginning on April 15, 1998, Mr. Castro's base salary was increased to $375,000
per year and Mr. Atterbury's was increased to $275,000 per year.
ANNUAL CASH BONUS LNCENTIVES
For all executives other than Messrs. Castro and Atterbury, annual incentive
opportunity is based upon performance against goals established in the Executive
Incentive Plan. A pre-determined 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. Our President and Chief Executive Officer makes a recommendation
to the Compensation Committee as to the amount of each cash incentive bonus. The
Committee makes a final bonus award, taking into account the recommendation of
the President and 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 1999, the company and business unit thresholds were met,
however, the quantitative company goals were not met. Accordingly, annual cash
bonuses paid for fiscal year 1999 were below those paid for fiscal year 1998.
Pursuant to their employment agreements, Mr. Castro and Mr. Atterbury receive
cash bonuses based on our net income per share. Thus, their overall compensation
is directly related to our 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
prior fiscal year's net income per share, they receive additional cash bonuses
of $10,000 and $6,000, respectively. For the fiscal year ended January 31, 1999,
Messrs. Castro and Atterbury received cash bonuses of $626,000 and $375,600,
respectively.
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 the 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 our President and Chief Executive Officer and the Vice
President-Human Resources, as well as the Committee's judgment as to the
executive's contribution toward our performance and expected contribution toward
meeting our 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 our Common Stock over the option exercise
price. Thus, this component of compensation is aligned directly with increases
in shareholder value.
18
<PAGE>
During the past fiscal year, stock ownership guidelines were implemented for the
President and Chief Executive Officer, direct reports of the President and Chief
Executive Officer and directors. The ownership guidelines require that in order
to be eligible for stock option grants, the President and Chief Executive
Officer must attain stock ownership equal to five times his base salary. The
requirement for direct reports of the President and Chief Executive Officer is
two to three times base salary, depending on the position. Directors must attain
ownership equal to five times their annual cash retainer. Such level of
ownership must be attained by June 15, 2003. For those hired/promoted into an
executive position after June 15, 1998, required ownership must be attained
within five years of the hire date or promotion.
SECTION 162(M) POLICY
For the fiscal year ended January 31, 1999, annual compensation provided to any
of the executive officers named in the Summary Compensation Table did not exceed
$1.0 million within the meaning of Section 162(m) of the Internal Revenue Code
of 1986, as amended (Code). Section 162(m) of the Code limits the deductibility
of compensation paid to each of our five senior executive officers to $1.0
million, unless the compensation satisfies one of the exceptions set forth in
the Code, which includes an exception for "performance-based compensation."
Annual cash bonus incentive awards fail to qualify as "performance-based
compensation" exempt from the limitation on deductions that is imposed by
Section 162(m) because the Committee exercises discretion in making these
awards. The Committee believes that the discretionary component of this plan
permits the Committee to make decisions in our best interests and those of our
shareholders, and we intend, therefore, to continue the process by which we
determine annual cash bonuses. With respect to long-term incentive awards, our
1993 Stock Incentive Plan has been approved by shareholders and is in compliance
with the provisions of Section 162(m).
James R. Campbell, Chair
Richard G. Lareau
Frederick W. Kanner
MEMBERS OF THE COMPENSATION COMMITTEE
19
<PAGE>
CASH AND NON-CASH COMPENSATION
The following table sets forth the cash and non-cash compensation for each of
the last three fiscal years awarded to or earned by our President and Chief
Executive Officer and our four other most highly compensated executive officers
whose salary and bonus exceeded $100,000 in fiscal 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------
ANNUAL COMPENSATION SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(2) COMPENSATION(3)
- ----------------------------- --------- --------- ----------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
John W. Castro 1999 $ 359,375 $ 626,000 35,000 $ 47,504
President and Chief Executive 1998 $ 300,000 $ 840,000(4) 69,000 $ 44,824
Officer 1997 $ 300,000 $ 693,000 -0- $ 28,583
Rick R. Atterbury 1999 $ 264,583 $ 375,600 25,000 $ 37,700
Executive Vice President- 1998 $ 225,000 $ 504,000 69,000 $ 35,890
Chief Technology Officer 1997 $ 225,000 $ 415,800 60,000 $ 22,477
Kay A. Barber 1999 $ 176,875 $ 32,400 10,000 $ 17,456
Vice President, Chief 1998 $ 162,500 $ 135,300 13,800 $ 16,800
Financial Officer and 1997 $ 144,790 $ 124,500 40,000 $ 11,740
Treasurer
Steven J. Machov 1999 $ 152,291 $ 27,900 10,000 $ 15,688
Vice President, General 1998 $ 140,834 $ 120,700 27,600 $ 15,169
Counsel and Secretary 1997 $ 132,915 $ 113,550 20,000 $ 10,645
Kathleen A. Larkin 1999 $ 117,708 $ 21,600 10,000 $ 12,690
Vice President-Human 1998 $ 107,500 $ 103,550 13,800 $ 12,225
Resources 1997 $ 98,963 $ 95,000 20,000 $ 8,467
</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 1999 includes: (i) $11,200 each for Mr.
Castro, Mr. Atterbury, Ms. Barber, Mr. Machov, and Ms. Larkin contributed by
us for our 401(k) and defined contribution retirement plans; (ii) premium
payments under life insurance policies on the lives of the executives at the
following incremental costs: Mr. Castro $998 and Mr. Atterbury $689; and
(iii) our contributions to the Supplemental Retirement Plan: Mr. Castro
$35,306, Mr. Atterbury $25,811, Ms. Barber $6,256, Mr. Machov $4,488, and
Ms. Larkin $1,490.
(4) Mr. Castro deferred receipt of $140,000 of this amount.
20
<PAGE>
OPTIONS
The following tables summarize option grants during fiscal 1999 to the executive
officers named in the Summary Compensation Table, and the potential realizable
value of the options held by such persons at the end of fiscal 1999. There were
no option exercises by the executive officers named in the Summary Compensation
Table during fiscal 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
-------------------------------------------------------------------- STOCK PRICE
PERCENT OF TOTAL APPRECIATION FOR
NUMBER OF SECURITIES OPTIONS GRANTED TO EXERCISE OR OPTION TERM(3)
UNDERLYING OPTIONS EMPLOYEES IN FISCAL BASE PRICE EXPIRATION --------------------
NAME GRANTED (#) (1)(2) YEAR ($/SH) DATE 5% ($) 10% ($)
- --------------------- --------------------- ------------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
John W. Castro....... 35,000 6.0% $ 21.375 5/28/03 $ 206,693 $ 456,738
Rick R. Atterbury.... 25,000 4.3% $ 21.375 5/28/03 $ 147,638 $ 326,241
Kay A. Barber........ 10,000 1.7% $ 21.375 5/28/03 $ 59,055 $ 130,497
Steven J. Machov..... 10,000 1.7% $ 21.375 5/28/03 $ 59,055 $ 130,497
Kathleen A. Larkin... 10,000 1.7% $ 21.375 5/28/03 $ 59,055 $ 130,497
</TABLE>
- -------------
(1) These options were granted under the Company's 1993 Stock Incentive Plan
(1993 Plan). Options become exercisable under the plan so long as the
executive remains employed by us or with one of our subsidiaries. To the
extent not already exercisable, options under the 1993 Plan become
immediately exercisable in full upon certain changes in control and will
remain exercisable during the remaining term. See "Change in Control
Arrangements" below for the definition of "change in control" under this
plan.
(2) These options were granted at 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 28, 2002.
(3) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent upon our future
performance and the executive's continued employment with us. The amounts
are not intended to forecast possible future appreciation, if any, in the
price of our Common Stock.
21
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END(#) FISCAL YEAR END($)(1)
---------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John W. Castro.................... 13,800 104,000 $ 45,713 $ 228,563
Rick R. Atterbury................. 67,800 205,000 $ 169,463 $ 698,250
Kay A. Barber..................... 23,760 83,800 $ 163,080 $ 491,963
Steven J. Machov.................. 11,520 65,600 $ 44,910 $ 235,925
Kathleen A. Larkin................ 14,260 65,800 $ 98,986 $ 373,838
</TABLE>
- -------------
(1) Value calculated as the market value on January 31, 1999 ($15.9375), the
average of the bid and asked price as reported on the Nasdaq National
Market, less the option exercise price multiplied by the number of
in-the-money option shares. Options are in-the-money if the market price of
the shares exceeds the option exercise price.
EMPLOYMENT AGREEMENTS
We have employment agreements with John W. Castro, our President and Chief
Executive Officer, and Rick R. Atterbury, our Executive Vice President-Chief
Technology Officer. These agreements were entered into in 1989 and 1987,
respectively and have been amended several times over the course of their
service with us. These agreements remain in force for consecutive one-year terms
unless we or the executive terminates the agreement with 60 days' advance
written notice. Beginning on April 15, 1998, Mr. Castro's base salary was
increased to $375,000 per year and Mr. Atterbury's was increased to $275,000 per
year.
Cash bonuses for Mr. Castro and Mr. Atterbury are based on our 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
$4,000 and $2,400, respectively, and for each additional one cent of net income
per share they receive additional cash bonuses of $10,000 and $6,000,
respectively.
Mr. Castro and Mr. Atterbury also receive an annual transportation allowance of
$12,000 and $7,200, respectively. Upon termination of employment under their
amended agreements, each has agreed not to compete with us for 18 months if we
elect to continue paying his base salary during the restrictive period.
EXECUTIVE LOAN PROGRAM
In fiscal 1999, we adopted the Stock Purchase Loan Program, which enables
22
<PAGE>
employees who report to our President and Chief Executive Officer to borrow
money to exercise stock options and to pay any related income and employment
taxes due. We hold the shares obtained upon exercise of the underlying stock
options as collateral for the loan.
PURPOSE
The purpose of the Stock Purchase Loan Program is to:
/ / facilitate the exercise of stock options;
/ / encourage ownership by employees;
/ / to reduce tax consequences for employees; and
/ / minimize the need to sell shares in the open market to pay the income and
employment taxes due upon exercise of options.
Approval of the loans are subject to the sole and absolute discretion of the
Compensation Committee.
BORROWINGS AND TERMS
Each borrowing arrangement is evidenced by a written demand promissory note
executed by the executive at the time of borrowing. The total amount that any
executive may borrow under the Stock Purchase Loan Program is determined by the
Compensation Committee but may not exceed:
/ / for the first loan request, either
100% of the exercise price of the option plus 100% of the resulting income
and employment taxes actually paid within 15 months of the exercise; or
60% of the cost to purchase stock on the open market at the fair market value
at the time of purchase.
/ / for any subsequent loan, the lesser of
100% of the exercise price of the option plus 100% of the resulting income
and employment taxes actually paid within 15 months of the exercise;
60% of the cost to purchase stock on the open market at the fair market value
at the time of purchase;
the amount that, when added to the principal amount of all outstanding loans
under the Stock Purchase Loan Program, will not exceed 60% of the market
value of all stock pledged as collateral by the executive immediately
following the loan; and
eight times the executive's then current base salary.
No loan may be made that would cause the aggregate amount outstanding under all
loans to an executive to exceed 100% of the market value of all stock pledged as
collateral by that executive under the Stock Purchase Loan Program. If the
market value of all shares held as collateral falls below an executive's loan
balance, the executive must make arrangements to repay that portion of the loan,
or pledge additional shares, equal to the difference between the market value
and the loan balance. The loans made to executives under the Stock Purchase Loan
Program are made on an interest-free basis.
REPAYMENT TERMS
Loans under the program must be repaid within five years of the grant of the
loan. The term of the loan, however, may be extended at the discretion of the
Compensation Committee. The note
23
<PAGE>
provides that thirty percent (30%) of the employee's bonus compensation received
under our bonus plan, net of applicable estimated taxes and other withholdings,
will be applied to repay the principal under the note. In addition, 50% of the
proceeds from any sale of stock pledged under the Stock Purchase Loan Program
must be applied to the repayment of amounts outstanding under the Stock Purchase
Loan Program. All dividends received by an executive are also applied to the
loan.
Upon termination of the executive's employment, the loan must be repaid within
45 days or a longer period of time if approved by the Compensation Committee.
Upon the death or long-term disability of the executive, the Compensation
Committee may extend the term of the repayment of the loan up to six months. The
Compensation Committee may demand repayment of the loans at any time.
CURRENT BORROWINGS
For current borrowings under the Stock Purchase Loan Program, please see "Other
Matters -- Certain Transactions."
CHANGE IN CONTROL ARRANGEMENTS
Pursuant to three stock-based benefit plans and change in control agreements
with certain executive officers, benefits would be paid or existing non-vested
awards would be accelerated in connection with a change in control.
STOCK-BASED BENEFIT PLANS
Under our 1993 Stock Incentive Plan, in the event we have a "change in control,"
if approved by the Compensation Committee:
/ / all outstanding options will become immediately exercisable in full and
will remain exercisable for the remainder of their terms;
/ / all outstanding restricted stock awards will become immediately fully
vested; and
/ / all performance units will vest and/or continue to vest in the manner
determined by the Committee.
A "change in control" under our 1993 Stock Incentive Plan means any of the
following:
(1) the sale, lease, exchange or other transfer of substantially all of our
assets to a person or entity that is not controlled by us. We control an
entity if we own more than 50% of such entity's outstanding voting
securities. This change in control can occur in one or a series of related
transactions;
(2) a merger or consolidation, if our shareholders do not own more than 80% of
the "combined voting power" of the surviving corporation's outstanding
securities. "Combined voting power" is measured by shares of the surviving
corporation that ordinarily have the right to vote at the election of
directors;
(3) a change in control that would be required to be reported on a Form 8-K,
10-K or 10-Q, whether or not we are subject to those reporting requirements;
24
<PAGE>
(4) after January 18, 1993, when any person becomes, directly or indirectly, the
"beneficial owner" of 20% or more of the "combined voting power" of our
outstanding securities; and
(5) when individuals who constituted our Board on January 18, 1993, cease to
constitute at least a majority of the Board. For purposes of determining
these individuals, directors whose election or nomination is approved by a
majority of the directors serving on January 18, 1993, are considered to be
members of the Board as of January 18, 1993.
Under our 1996 Non-Statutory Stock Option Plan, if we have a "change in
control," all outstanding stock options will become immediately exercisable in
full and will remain exercisable for the remainder of their terms, if the
acceleration of the vesting is approved by the Compensation Committee.
A "change in control" under the 1996 Non-Statutory Stock Option Plan means any
of the following:
/ / the occurrence of an event set forth in numbers (1) through (3) above;
/ / after March 25, 1996, when any person becomes, directly or indirectly, the
"beneficial owner" of 20% or more of the "combined voting power" of our
outstanding securities; and
/ / when individuals who constituted our Board on March 25, 1996, cease, for
any reason, to constitute at least a majority of the Board. For purposes
of determining these individuals, directors whose election or nomination
is approved by a majority of the directors serving on March 25, 1996, are
considered to be members of the Board as of March 25, 1996.
Under our 1987 Omnibus Stock Plan, upon the occurrence of a "change in control,"
all outstanding options will become immediately exercisable in full and will
remain exercisable during the remaining term, whether or not the participants
remain our employees, and all restrictions with respect to outstanding
restricted stock awards will immediately lapse.
Under this plan, a "change in control" means, absent the approval of the
"continuity directors" (directors as of the effective date of the 1987 Plan and
additional directors nominated by other "continuity directors"):
/ / the sale or other transfer of substantially all of our assets;
/ / the approval by our shareholders of a plan of liquidation;
/ / a change in control that would be required to be reported in a Form 8-K;
/ / ownership by any person or group of 20% or more of our outstanding voting
stock; or
/ / the continuity directors ceasing to constitute a majority of the Board of
Directors.
EXECUTIVE OFFICERS CHANGE IN CONTROL AGREEMENTS
Under change in control agreements entered into in May 1998, John W. Castro,
Rick R. Atterbury, Steven J. Machov, Kay A. Barber and Kathleen A. Larkin are
entitled to receive certain benefits if they are terminated either:
/ / within 24 months of a "change in control;" or
/ / prior to a "change in control" if the termination was either a condition
to the "change in control" or was at the
25
<PAGE>
request or insistence of a person related to the "change in control."
The executives are not considered "terminated" for purposes of these agreements
if they die or are terminated for "cause" (defined as the executive's (i) gross
misconduct; (ii) willful and continued failure to substantially perform his or
her duties after demand is given by the Chairman of the Board; or (iii)
conviction of a felony or gross misdemeanor that is materially and demonstrably
injurious to us or that impairs the executive's ability to substantially perform
his or her duties). The executive is, however, considered "terminated" if the
executive voluntarily leaves our employ for "good reason." "Good reason" means:
/ / an adverse and material change in title, status, position, authority,
duties or responsibilities as an executive;
/ / reduction in base salary or an adverse change in the form or timing of the
pay;
/ / failure to cover the executive under similar benefit plans at a
substantially similar total cost to the executive (including equity based
plans);
/ / relocation to more than 30 miles from the executive's existing office;
/ / failure to obtain a successor's consent to the change in control
agreement;
/ / any termination of employment not properly noticed; or
/ / our refusal to allow the executive to continue to attend to matters or
engage in activities not directly related to our business.
The executive is entitled to receive the following payments and benefits upon
the triggering of these agreements:
/ / cash payment equal to two times (three times in the case of Messrs. Castro
and Atterbury) the sum of the executive's (i) base salary plus (ii) target
cash bonus for the year during which the change in control occurs or the
average of the cash bonus for the three fiscal years ending immediately
prior to the change in control, whichever is greater;
/ / medical, dental and vision benefits to the executive, his or her family
members and dependents for two years (three years for Messrs. Castro and
Atterbury) after the "date of termination" of employment, at a
substantially similar total cost to the executive;
/ / full vesting and non-forfeitability of the executive's account balance
under our Supplemental Executive Retirement Plan. In addition, we will
cause all distributions under this plan to be made regardless of the
provisions of the plan that permit such distributions to be deferred; and
/ / cash payment, if any, sufficient to cover all tax obligations arising from
excise taxes.
These change in control agreements have a term ending January 1, 2000; provided,
the agreements will automatically renew for additional 12-month periods unless
we give the executive 90 days' advance notice of our intent to terminate the
agreements. In addition, if a "change in control" occurs during the term of the
agreements, the agreements will continue for an additional 24 months.
26
<PAGE>
A "change in control" for purposes of these agreements means:
/ / the sale, lease, exchange or other transfer of substantially all of our
assets;
/ / when, after May 28, 1998, any person becomes, directly or indirectly, the
"beneficial owner" of 20% or more of the "combined voting power" of our
outstanding securities;
/ / a merger or consolidation, if our shareholders do not own more than 80% of
the "combined voting power" of the surviving corporation's outstanding
securities. "Combined voting power" is measured by shares of the surviving
corporation that ordinarily have the right to vote at the election of
directors;
/ / when individuals who constitute our Board on May 28, 1998, cease to
constitute at least a majority of the Board. For purposes of determining
these individuals, directors whose election or nomination is approved by a
majority of the directors serving on May 28, 1998, are considered to be
members of the Board as of May 28, 1998; or
/ / a change in control that would be required to be reported on a Form 8-K,
10-K or 10-Q, whether or not we are subject to those reporting
requirements.
The following table illustrates the amount of the lump sum payments that the
executives would be entitled to receive if a "change in control" had occurred as
of April 16, 1999:
<TABLE>
<CAPTION>
- ------------------------------------------
AMOUNT OF
EXECUTIVE PAYMENT
- ------------------------------------------
<S> <C>
John W. Castro................. $3,284,100
Rick R. Atterbury.............. $2,120,400
Kay A. Barber.................. $ 606,000
Steven J. Machov............... $ 536,800
Kathleen A. Larkin............. $ 416,800
- ------------------------------------------
</TABLE>
The above amounts exclude:
/ / costs associated with medical, dental and vision benefits;
/ / cash payments for tax obligations arising from excise taxes, if any; and
/ / the amount of the executive's vested benefits under the Supplemental
Executive Retirement Plan.
27
<PAGE>
OTHER MATTERS
- ----------------------------------------------------------------------
SECTION 16 BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires our directors
and executive officers, and persons who own more than 10% of our Common Stock,
to file with the SEC initial reports of ownership and reports of changes in
ownership of our Common Stock and other equity securities. Executive officers,
directors and greater than 10% shareholders are required by SEC regulations to
furnish us with copies of all Section 16(a) reports they file. To our knowledge,
based on review of the copies of such reports furnished to us during the period
ended January 31, 1999, and based on representations by such persons, all
Section 16(a) filing requirements applicable to our executive officers,
directors, and greater than 10% shareholders were complied with, except Steven
J. Machov did not file, on his Form 5 for fiscal 1996, a restricted stock award
received by his wife and Kathleen A. Larkin did not file a Form 5 for fiscal
1997, reporting an option grant. Mr. Machov amended his Form 5 and Ms. Larkin
filed her Form 5 in May 1999 to reflect these transactions.
CERTAIN TRANSACTIONS
On November 25, 1996, we entered into a revolving Credit Agreement with U.S.
Bank, N.A. and Norwest Bank Minnesota, N.A. This Credit Agreement was amended
several times over the last few years. James R. Campbell, one of our directors,
is the Chairman and Chief Executive Officer of Norwest Bank Minnesota, N.A. and
is Group Executive Vice President of its parent corporation, Wells Fargo &
Company. As of April 18, 1999, approximately $60.0 million was outstanding under
the Credit Agreement.
As of April 23, 1999, the following executive officers had loans outstanding
under our Stock Purchase Loan Program:
<TABLE>
<CAPTION>
- ------------------------------------------
AMOUNT
EXECUTIVE OUTSTANDING
- ------------------------------------------
<S> <C>
Kay A. Barber, Vice
President, Chief Financial
Officer and Treasurer........ $ 321,212
Steven J. Machov, Vice
President, General Counsel
and Secretary................ $ 132,065
Kathleen A. Larkin, Vice
President-Human Resources.... $ 182,757
Allen J. McNee,
President-Document Management
Services..................... $ 76,165
B. Michael James,
President-Financial Document
Services..................... $ 493,238
Mark A. Rossi,
President-Investment Company
Services..................... $ 441,992
Raymond J. Goodwin,
President-Merrill Print
Group........................ $ 75,142
</TABLE>
See "Executive Compensation -- Executive Loan Program" for further information.
There were no loan amounts outstanding during fiscal 1999.
BY ORDER OF THE BOARD OF DIRECTORS
Steven J. Machov
SECRETARY
May 17, 1999
28
<PAGE>
MERRILL CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, JUNE 2, 1999
10:30 A.M.
[MAP]
BANDANA BANQUET & CONFERENCE CENTRE
BANDANA SQUARE
1021 BANDANA BOULEVARD WEST
SUITE 220, ENERGY PARK
ST. PAUL, MN 55108
MERRILL CORPORATION
[LOGO] ONE MERRILL CIRCLE
SAINT PAUL, MN 55108 PROXY
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL
MEETING ON JUNE 2, 1999.
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 on the reverse side of this proxy. 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.
SEE REVERSE FOR VOTING INSTRUCTIONS.
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COMPANY #
CONTROL #
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THERE ARE TWO WAYS TO VOTE YOUR PROXY
YOUR TELEPHONE VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR
SHARES IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY
CARD.
VOTE BY PHONE -- TOLL FREE -- 1-800-240-6326 -- QUICK *** EASY *** IMMEDIATE
- - Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week.
- - You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which is located above.
- - Follow the automated instructions provided.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid
envelope provided or return it to:
MERRILL CORPORATION
c/o Shareowner Services
P.O. Box 64873
St. Paul, MN 55164-9397
IF YOU VOTE BY PHONE, PLEASE DO NOT MAIL YOUR PROXY CARD
- PLEASE DETACH HERE -
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
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 stock of Merrill Corporation held of record by the
undersigned on April 15, 1999, at the Annual Meeting of Shareholders to be
held on June 2, 1999, or any adjournment thereof.
1. ELECTION OF DIRECTORS:
<TABLE>
<S> <C> <C> <C> <C>
01 Rick R. Atterbury 02 James R. Campbell 03 John W. Castro / / Vote FOR / / Vote WITHHELD
04 Ronald N. Hoge 05 Frederick W. Kanner 06 Richard G. Lareau all nominees from all nominees
07 Paul G. Miller 08 Robert F. Nienhouse 09 Michael S. Scott Morton
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, __________________________
WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.) |__________________________|
</TABLE>
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Address Change? Mark Box / /
Indicate changes below: Date ______________________, 1999
______________________________________
| |
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Signature(s) in Box
Please sign exactly as your name(s)
appear on Proxy. If held in joint
tenancy, all persons must sign. Trustees,
administrators, etc., should include
title and authority. Corporations should
provide full name or corporation and title
of authorized officer signing the proxy.
