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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________.
COMMISSION FILE NUMBER: 0-14082
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MERRILL CORPORATION
(Exact name of Registrant as specified in its charter)
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<S> <C>
MINNESOTA 41-0946258
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE MERRILL CIRCLE
ST. PAUL, MINNESOTA 55108
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (651) 646-4501
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes ____ No _X_
As of April 15, 1999, 15,919,680 shares of Common Stock of the Registrant
were outstanding, and the aggregate market value of the Common Stock of the
Registrant as of that date (based upon the last reported sale price of the
Common Stock on that date by the Nasdaq National Market) excluding outstanding
shares owned beneficially by officers and directors, was approximately
$190,391,201.
DOCUMENTS INCORPORATED BY REFERENCE
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Portions of the Annual Report to Shareholders for the Fiscal Year ending Parts I, II and
January 31, 1999............................................................. IV
Portions of the Proxy Statement for the 1999 Annual Meeting of Shareholders.... Part III
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Merrill Corporation provides a full range of typesetting, printing, document
management and reproduction, distribution and marketing communication services
to financial, legal, investment companies and corporate markets. Our
headquarters are in St. Paul, Minnesota and we have 35 other locations in major
cities across the United States, including seven regional printing plants and
two distribution centers. We also service financial and corporate printing
clients internationally with strategic relationships in Canada, Europe, Asia and
Australia, and through arrangements with printing companies in many cities
around the world.
In June 1998, we acquired substantially all of the assets of Executech, Inc.
and World Wide Scan Services, LLC through our wholly-owned subsidiary
Merrill/Executech, Inc. Merrill/ Executech, Inc. provides an electronic document
imaging, coding and retrieval system for law firms and corporate law
departments. In April 1999, we acquired substantially all of the assets of
Daniels Printing, Limited Partnership, through our wholly-owned subsidiary
Merrill Daniels, Inc. Merrill Daniels, Inc. provides financial, corporate and
commercial printing services.
Merrill Corporation is a Minnesota corporation that was organized in 1968
under the name "K.F. Merrill Company." Our main offices are at One Merrill
Circle, Energy Park, St. Paul, Minnesota 55108, telephone (651) 646-4501.
NOTE THAT THROUGHOUT THIS FORM 10-K, WE "INCORPORATE BY REFERENCE" CERTAIN
INFORMATION IN PARTS OF OTHER DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION (SEC). THE SEC ALLOWS US TO DISCLOSE IMPORTANT INFORMATION BY
REFERRING TO IT IN THAT MATTER. PLEASE REFER TO SUCH INFORMATION.
BUSINESS SEGMENTS
We have two reportable segments: Specialty Communication Services and
Document Services. Under specialty communication services, we include three
business units: Financial Document Services, Investment Company Services and
Managed Communications Programs. Revenue generated by these three business units
is categorized as financial, corporate and commercial and other. Document
Management Services is the sole business unit reported in the document services
segment. Revenue generated by this business unit is categorized as Document
Management Services. For additional information, please see pages 16, 17 and 34
of our 1999 Annual Report to Shareholders, which is incorporated by reference
into this Form 10-K.
On February 1, 1999, we created a fifth line of business called the Merrill
Print Group. This business unit manages all of our printing operations. The
Merrill Print Group will be included within our reportable segment--specialty
communication services.
DESCRIPTION OF BUSINESS
We are a document management and services company using advanced computer
and telecommunications technology to provide a full range of services to our
customers. Specifically, we provide typesetting, printing, electronic document
formation and distribution, electronic imaging, coding and scanning,
reproduction, facilities management, distribution and marketing communication
services.
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REVENUE CATEGORIES OF SERVICE
The following table shows the percentage of revenue we have produced in each
reportable segment for our past three fiscal years:
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PERCENTAGE OF REVENUE
YEAR ENDING JANUARY 31,
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1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Specialty Communications
Services:
Financial................. 36.5% 38.2% 40.6%
Corporate................. 31.4% 31.6% 27.6%
Commercial & Other........ 19.7% 18.5% 20.6%
----- ----- -----
87.6% 88.3% 88.8%
Document Services........... 12.4% 11.7% 11.2%
----- ----- -----
Total................... 100.0% 100.0% 100.0%
----- ----- -----
----- ----- -----
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SPECIALTY COMMUNICATION SERVICES
FINANCIAL AND CORPORATE REVENUE
OVERVIEW OF PRODUCTS AND SERVICES. The financial revenue category includes
the production and distribution (electronic and paper) of time-sensitive,
transactional financial documents, such as registration statements, prospectuses
and other printed materials that are part of business financings and
acquisitions. These documents are marketed through our Financial Document
Services business unit. Our corporate revenue category includes the production
and distribution (electronic and paper) of regulatory compliance and marketing
documents that are prepared at regular intervals and includes documents marketed
through both our Financial Document Services and Investment Company Services
business units. Examples of these documents are:
- - annual and quarterly reports for public companies;
- - proxy materials for public companies and investment companies;
- - registration statements for unit investment trusts, mutual funds and variable
annuities; and
- - financial reports and marketing materials for unit investment trusts, mutual
funds and variable annuities.
ELECTRONIC DISTRIBUTION OF PRODUCTS AND SERVICES. Our financial and
corporate revenue categories also include revenue from the electronic
distribution of transactional and regulatory compliance and marketing documents.
Both the SEC and the Canadian Securities Administrators (CSA) require public
companies or their agents to file most disclosure information in an electronic
format. The SEC currently requires these filings to be made in ASCII text format
(American Standard Code for Information Interchange), with optional HTML format
(Hypertext Mark-up Language) filings beginning in May 1999. In May 1999, the SEC
will also permit courtesy copy filings in PDF formats (Portable Document
Format). The CSA requires their regulatory filings to be made in PDF, Microsoft
Word or WordPerfect formats. We offer electronic filing with both the SEC,
through the EDGAR system, and CSA, through the SEDAR system.
In addition to our EDGAR and SEDAR services, we also electronically
distribute transactional, regulatory compliance and marketing documents through
the Internet (through a dedicated web-site or through a client's web-site) and
e-mail. We use the following products for document creation, preparation and
electronic distribution to our clients:
- - MERRILL E-COLLABORATE-TM- is a web-based document management tool that is
designed to streamline the creation of time sensitive documents. It provides
a secure electronic work space where working group members can offer comments
and review our proofs instantly, without having to wait for couriers or
standard e-mail messages. MERRILL E-COLLABORATE-TM- also has a built in
address book with e-mail capabilities, a group discussion area and links to
various securities law publications.
- - MERRILL E:PROOF-TM- is an electronic distribution method of typeset and EDGAR
documents through Internet e-mail or a secure point-to-point connection.
Documents distributed through MERRILL E:PROOF-TM- can be viewed on-screen,
distributed by e-mail or printed as hard copy from any computer with access
to e-mail and a printer. MERRILL E:PROOF-TM- eliminates the need for
time-consuming and
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costly couriers, faxes and mail services. All documents distributed via
MERRILL E:PROOF-TM- are password protected and encrypted to ensure a secure
document.
- - MERRILL< >LINK-TM- permits a client to receive sharp, clear page proofs right
in a client's office without the necessity of couriers, e-mail or faxes
through the use of a remote printer. MERRILL< >LINK-TM- has multiport
capabilities permitting printers in multiple locations to receive proof pages
simultaneously. All proofs distributed through MERRILL< >LINK-TM- exactly
mirror the printed document.
- - MBD< >LINK-TM- offers clients the ability to print a blueline directly in
their office, eliminating the need for courier and overnight delivery of
bluelines. MBD< >LINK-TM- generates a full-size booklet-form blueline with
color breaks represented.
INVESTMENT COMPANY SERVICES' SOFTWARE TOOLS. A growing and increasingly
important portion of our corporate revenue category includes license,
maintenance and other fees for several software products used by our clients in
managing, creating, disseminating and otherwise distributing corporate
documents. We offer the following software tools to our investment companies:
- - MERRILL TEXTMANAGER-TM- is a Microsoft Word-based tool that allows a mutual
fund client to create, manage and share text among multiple users,
facilitating collaboration within and among teams. MERRILL TEXTMANAGER-TM-
creates an electronic library of text that can be accessed and retrieved. It
also tracks changes within individual documents and changes among groups of
documents.
- - MERRILLREPORTS-TM- is a software program that assists investment companies in
preparing its shareholder reports by automating the process of creating,
typesetting and transmitting financial reports. MERRILLREPORTS-TM- is
customized to fit a fund's accounting system and is customized to the
specific requirements of each fund's financial mapping and style.
MERRILLREPORTS-TM- allows a mutual fund to create and distribute its own
proofs internally and to its filing agent.
- - MERRILLCONNECT-TM- is an integrated software system that completely manages
the sales and marketing process for investment companies including: (i) order
entry; (ii) database management; and (iii) fulfillment. The system combines
sales tracking and marketing activity information with actual cash flows
through an interface with a fund's transfer agent. MERRILLCONNECT-TM- also
gives investment companies the ability to accept orders directly through the
Internet (either through an investment company's own web-site or on a site
hosted by us).
- - ELECTRONIC DISTRIBUTION SERVICES (EDS) is a client consent database system
designed to comply with SEC regulations requiring fund companies to obtain
consent from an investor before sending them electronic information. EDS
manages the process by keeping a database of client consent replies, as well
as client preferences for diskette, CD-ROM or Internet distribution.
MARKETING OF FINANCIAL AND CORPORATE REVENUE PRODUCTS. Our Financial
Document Services business unit is responsible for marketing our financial and
corporate revenue products to executives of corporations whose securities are or
are about to be publicly traded and to their advisers (corporate finance
underwriters, municipal bond underwriters, and attorneys). We sell these
products and services nationwide through a direct sales organization operating
from our service facilities and sales offices. We market in Canada through
employees of our joint venture, Quebecor Merrill Canada Inc. Internationally, we
sell with Burrups, Ltd. through direct sales by employees of each company.
Our Investment Company Services business unit is responsible for marketing
our financial and corporate revenue products to mutual fund, variable annuity
and unit investment trust managers. We sell these products nationwide through a
direct sales organization operating from our service facilities and sales
offices.
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MARKET FLUCTUATIONS AND SEASONALITY. Our financial revenue category is
affected by conditions in the United States' capital markets. Our revenue and
operating results in this revenue category depends upon the volume of public
financings and mergers and acquisition activities, which are influenced by
corporate funding needs, stock market fluctuations, prevailing interest rates,
and general economic and political conditions. A portion of our corporate
revenue is seasonal as the greatest number of proxy statements, 10-Ks and annual
reports are required to be printed during our first fiscal quarter.
COMMERCIAL AND OTHER REVENUE
OVERVIEW OF PRODUCTS AND SERVICES. The commercial and other revenue
category includes the following document services:
- - custom marketing communication services to corporate customers;
- - creation, production, management and distribution services for branded
marketing, corporate and compliance materials for large, geographically
dispersed national customers with large employee, sales or agent bases;
multiple franchisees, locations, divisions or affiliates; or large customer
bases. These include real estate companies, financial service companies,
healthcare organizations, travel and hospitality companies, retailers and the
general business market.
In addition to the above services, the commercial and other revenue category
includes revenue from the production of other commercial documents including:
- - health care provider directories,
- - price catalogs,
- - insurance industry annual reports,
- - sample ballots,
- - directories, and
- - technical manuals.
In 1999, we introduced several new products to assist our clients sell more
real estate. One is called MERRILL NET:PROSPECT PLUS-TM-, a turnkey, on-line
management and direct mail fulfillment system, customizable to individual real
estate broker specifications. We also launched MERRILL PREFERRED PAGES-TM-, a
professional agent and broker web-site design and hosting service. MERRILL
PREFERRED PAGES-TM- provides valuable consumer content, including personal
information, property listings, open house listings, school data, mortgage
calculators and home buying articles.
MARKETING OF COMMERCIAL AND OTHER REVENUE. Our Managed Communications
Programs business unit is responsible for marketing our commercial and other
revenue products to large, geographically dispersed national customers with
large employee, sales or agent bases; multiple franchisees, locations, divisions
or affiliates; or large customer bases. We sell our services primarily to real
estate companies, financial service companies, healthcare organizations, travel
and hospitality companies, retailers and the general business market. We sell
our Managed Communications Programs services nationwide through the Internet,
direct mail and telemarketing, operating from our service facilities and sales
offices located primarily in St. Cloud, Minnesota and Monroe, Washington and
through a newly established, regionally based direct sales force. Since our
program typically changes the way our clients run their businesses, our sales
cycle for our Managed Communications Programs products is typically 12 to 18
months, with an additional 12 to 18 months to implement the new program for the
customer.
DOCUMENT SERVICES
DOCUMENT MANAGEMENT SERVICES REVENUE
OVERVIEW OF PRODUCTS AND SERVICES. We provide comprehensive document
management services for our customers. We work both on an ongoing basis, which
can include management of the client's entire photocopying, desktop publishing,
imaging and/or mailroom facilities, and on a transactional basis, which includes
photocopying, electronic imaging and scanning services as needed. We also
provide a software product that allows a customer to electronically image, code
and retrieve documents for litigation management. We license this software
product separately to clients or as a part of our overall document management
and imaging programs.
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We offer comprehensive office photocopying, desktop publishing and mailroom
facility management services to our customers in Document Service Centers (DSCs)
within their offices. Our services include providing a client's total document
management needs, including on-site employees, equipment and management of the
operation. We typically enter into three-year agreements with our clients to
provide a range of services at their location. We help our customers determine
their needs, and provide the equipment, staff, and management to meet those
needs. Since most of our DSCs are located in cities where we have our own
service facilities, we can provide back-up capacity and personnel to our DSC
customers as needed.
The transactional portion of our document management services revenue
includes document reproduction for projects that are time-sensitive or otherwise
require special services, such as photocopying or imaging documents for large
litigation matters. We produce the photocopies and images at our own service
facilities or we place photocopying or imaging equipment and personnel at the
client's office. Document reproduction services require rapid turnaround and
availability twenty-four hours per day. Our document reproduction customers
typically have several boxes of documents that may be in file folders, stapled
or on varying sizes of paper. We take apart, photocopy or image and reassemble
the original documents as instructed by the client. We also provide sequential
numbering, binding and indexing services for these documents, if requested.
These services are provided manually, if we are photocopying documents and
electronically, through E-TECH-TM-, if we are imaging documents. Photocopying
and imaging projects range from single copies of short documents to very
complicated tasks.
Our service facilities include document management equipment and personnel.
Each service facility is equipped with high-performance photocopying equipment.
We also operate document reproduction facilities in Los Angeles (3 centers) and
San Francisco, California; Denver, Colorado; St. Paul, Minnesota; Chicago,
Illinois; Dallas and Houston, Texas; Boston, Massachusetts; Union, New Jersey;
and Washington, D.C.
With our acquisition of Executech, Inc. and World Wide Scan Services, LLC in
fiscal 1999, we now offer our clients another tool for litigation
management--E-TECH-TM-. Our E-TECH-TM- software is a document imaging, coding
and retrieval system that enables our customers to analyze, sort, folder,
annotate, edit and print litigation documents. As part of the total solution to
litigation management, using E-TECH-TM-, we also offer:
- - scanning--performed at our customer's site or at a local Merrill facility;
- - coding--completed from images and performed by us or our customer's staff;
- - systems integration/technical support-- including installation and customized
programming services if requested; and
- - central site repositories-- providing customers the flexibility to store
documents at our central locations.
Our E-TECH-TM- software also electronically captures email files and their
attached documents. This module, EFD, automatically extracts bibliographic
information, such as dates, sender and all recipients including carbon and blind
copies, preserves all attachment relationships and automatically extracts
textual content on a page basis for full text searches.
MARKETING OF DOCUMENT MANAGEMENT SERVICES REVENUE. Our Document Management
Services business unit is responsible for marketing our Document Management
Services products to lawyers, paralegals, law office administrators, and legal
departments of corporations. We sell our Document Management Services nationwide
through a direct sales organization operating from our service facilities and
sales offices.
PRINTING OPERATIONS AND PRODUCTION OF DOCUMENTS
MANUFACTURING CAPABILITIES
We operate financial and corporate printing plants in St. Paul, Minnesota;
Los Angeles, California; Chicago, Illinois; Dallas, Texas; Union, New Jersey;
and Everett, Massachusetts. We have found it advantageous to operate printing
presses at these locations to service primarily our
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Financial Document Services and Investment Company Services business unit
customers. We also service a portion of our recurring corporate and commercial
printing business through these facilities. Corporate and commercial printing is
generally more predictable in volume and less time-sensitive in nature than
financial printing. Because we use the presses for both types of printing, we
retain the flexibility to meet the immediate demands of financial printing. With
our acquisition of Daniels Printing, Limited Partnership and the addition of our
plant in Everett, Massachusetts, we have expanded our financial and corporate
printing capabilities by adding high-quality, eight-color sheet-fed presses;
high-speed cold-set web presses and improved prepress capabilities.
In addition to our financial and corporate printing plants, we also operate
a printing plant in St. Cloud, Minnesota for our specialized color printing
services, primarily for our Managed Communications Programs business unit. Our
centralized production and fulfillment center benefits both the national account
client and its member organizations. The national account client can control the
use of its trademarks and enjoy the economies of mass production. The members,
the ultimate consumers of our services, receive quality products, fast delivery
and prices that we believe are competitive with prices charged by local print
shops.
In all markets, we have identified several printers capable of meeting our
production needs on an "as required" basis in the event customer demand exceeds
our capacity. We use associated printers when we need additional capacity in
markets where we do not own presses, when special printing equipment is needed,
or when we have overflow work. We generally select associated printers on a
job-by-job basis, based upon considerations of price, availability and
suitability of press equipment.
PRODUCTION OF FINANCIAL AND CORPORATE DOCUMENTS
The production of financial and corporate documents requires rapid
typesetting, printing and electronic conversion services that are available
twenty-four hours per day and tailored to the exacting demands of our customers.
We receive information directly from our customers in various forms, including
typed or handwritten pages, e-mails, faxes, disks, secure uploads via the
Internet, and direct links from customers' computers. The information may come
into any one of our offices, which will transmit it by facsimile or direct
electronic connection (modem) to our centralized production facilities for
processing into a typeset or electronic document. Each document typically goes
through many cycles of proofreading and editing.
Each version of a document is typeset or converted to an electronic format
required by the SEC or the CSA, and distributed to the people drafting it,
including corporate executives, investment bankers, attorneys and accountants.
Since the drafters are often at various locations, the proofs must be delivered
simultaneously to different cities, worldwide. Proofs are delivered to our
customers on paper or electronically, using Merrill E-COLLABORATE-TM-, MERRILL
E-PROOF-TM- or MERRILL< >LINK-TM-. In addition, we distribute digital bluelines
through MBD< >LINK-TM-.
Just before the final version of a financial or corporate document is
completed, the drafting group usually meets in one of our conference rooms in
our offices. We have over 200 conference rooms in the United States. Additional
conference facilities are available through our joint venture arrangements
worldwide. These "in-houses" are one of the most time-critical services that we
provide. In-house sessions require the accurate and rapid turnaround of the
edited pages and expert knowledge of the documents and filing requirements of
the SEC and CSA. We also need to provide a comfortable and pleasant environment
for the many hours of drafting. After the customers have made their final
changes, we quickly prepare an electronic submission for filing through EDGAR or
SEDAR. We also may create paper copies of the document and exhibits for filing
with other regulatory authorities. The document is then printed, collated, bound
and distributed in booklet form, or, at the client's request, electronically.
Our electronic distribution is frequently performed through the Internet via
secure e-mail in either PDF or HTML formats.
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"HUB AND SPOKE" NETWORK
We use computers and telecommunication technology to create a "hub and
spoke" network for our financial and corporate document services, linking our
composition centers in St. Paul, Minnesota and suburban Baltimore, Maryland (the
hubs) with our 23 service facilities in the United States (the spokes). We also
have the technology to link the hubs directly to our customers and to our
international partners and affiliates.
- - CENTRALIZED PRODUCTION. We have computer systems in our central production
facility located in St. Paul, Minnesota that work with communication
technology and software we operate. We use computers, communication
controllers, text entry and editing stations, digital-imaging equipment, and
a number of special purpose computer subsystems that we have developed, for
data conversion and information management. Each critical piece of equipment
in the system has at least one back-up device. We designed the computer
systems to be high-performance, reliable, and secure.
- - NATIONAL COMMUNICATIONS NETWORK. We have a private telecommunication network
connecting our service facilities with the hubs. We transmit documents and
production control information electronically among our offices. The network
consists of digital lines connecting each of our service facilities with the
hubs, routers and the software that controls the communications. Designed to
operate continuously, the network is highly efficient and reliable. In the
event any section of our network fails, we have a back-up service for each
section.
- - SERVICE FACILITIES. We staff service facilities with sales, administrative,
customer service, typesetting, production, duplication and distribution
personnel. The service facilities have conference rooms with support staff,
office equipment and amenities to give our customers a comfortable work
environment to meet, write and revise their documents. The service facilities
have photo-imaging equipment to produce high quality images using the
electronic information received from the hubs. Within minutes of completion,
we can transmit documents to one or more service facilities for distribution.
- - INTERNATIONAL SERVICE. We, together with Burrups, Ltd., a London-based
financial printing company, market international financial transaction
business worldwide as Merrill Burrups. Both companies work together to give
customers integrated document typesetting, printing and distribution services
wherever the document originates or needs to be delivered. Merrill Burrups
has full service facilities in Paris, France; Frankfurt, Germany; Luxembourg;
and Tokyo, Japan. Merrill Burrups has additional facilities in Melbourne,
Australia; Hong Kong, China; Singapore; and Tel Aviv, Israel for use in our
joint international service. In Canada, we market financial transactions
through our joint venture with Quebecor Merrill Canada. Quebecor Merrill
Canada operates in four Canadian cities.
We have also established relationships with financial printing companies in
47 countries who provide services to us on an "as needed" basis. We have the
software and hardware for electronic communications between our production hubs
and the international service facilities. With this electronic connection, we
can transmit high-quality typeset documents for printing and distribution
throughout the world without the time delays and costs of air shipment.
PRODUCTION OF MANAGED COMMUNICATIONS PROGRAMS DOCUMENTS
Through our facility in St. Cloud, Minnesota, we produce multi-color,
commercial quality printed materials, such as business cards and stationery,
marketing materials, training materials, compliance documents and health care
provider directories. We use a sophisticated order entry system, including a
large inbound telemarketing staff, to receive and process orders. A member
organization or an individual can place an order by the Internet, e-mail, bulk
transmission of data, mail, facsimile or toll free number. Our customer service
representative processing the order will have access to the client's purchase
history (if an existing client) and can suggest
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the reordering of certain items, cross-sell complementary items or alert the
client to current specials.
We produce printed materials both on-demand and in larger quantities, which
we warehouse pending receipt of an order. Products ordered from a catalog
typically require additional "personalizing" for the ordering member
organization. They are checked for quality, packaged and shipped. Promotional
merchandise (point of purchase, advertising specialty, premiums and incentives)
included in a catalog that are produced by third parties are generally shipped
directly by the manufacturer to the ordering member organization. We use a
"materials handling system" with automated handling, order consolidation and
shipping. Most orders are filled within four days of receipt.
COMPETITION
In our Financial Document Services and Investment Company Services business
units, we compete with many domestic and international companies, including two
principal U.S.-based competitors, Bowne & Co., Inc. and R.R. Donnelley & Sons
Company. Both Bowne and Donnelley are major competitors in most of our financial
and compliance printing markets. We also compete for complex, large-run
typesetting work with a number of other computer typesetting firms, and we
compete for medium-run printing work with a number of commercial web press
printers.
In the Managed Communications Programs business unit, we believe our primary
competitors are large, national integrated print and information service
providers such as Standard Register, Wallace, Moore, Reynolds & Reynolds, Taylor
Corporation and Banta, as well as a number of smaller regional and local
companies.
In our Document Management Services business unit, we compete with
nationwide service companies, Xerox Corporation, Pitney Bowes and IKON, and a
number of smaller local companies. We also compete with litigation support
services vendors and a large number of photocopying and imaging shops, including
privately-owned shops as well as franchise operations. Competition in this part
of our business is intense and is based principally on service, price, speed,
accuracy, technological capability and established relationships. For our
E-TECH-TM- software, we compete with various software products licensed by Trion
Systems, IKON, Steelpoint and Bowne & Co., Inc.
We believe we compete favorably with our competitors.
EMPLOYEES
As of April 16, 1999, we had 3,797 full-time employees and 136 temporary
employees. None of our employees are covered by a collective bargaining
agreement. We consider our employee relations to be good.
Our senior management and certain technical personnel have substantial
experience and expertise in the document services industry. We consider the
retention of these employees to be important to our continued success.
We compete intensely with others in the industry to attract and retain
qualified salespeople. However, we believe that we are able to provide
incentives sufficient to minimize the loss of key salespeople and to attract
productive new salespeople for both replacement and expansion of our sales team.
Many salespeople are under employment contracts of varying terms with us.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Substantially all of our revenue, operating profit and identifiable assets
are based in the United States.
IMPORTANT FACTORS TO CONSIDER
Our disclosure and analysis in this report and in our 1999 Annual Report to
Shareholders contain some forward-looking statements. Forward-looking statements
give our current expectations or forecasts of future events. You can identify
these statements by the fact that they do not relate strictly to historical or
current facts. They use words such as "anticipate," "estimate," "expect,"
"project," "intend," "plan," "believe," and other words and terms of similar
meaning
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in connection with any discussion of future operating or financial performance.
In particular, these include statements relating to future actions, prospective
products, future performance or results of current and anticipated products,
sales efforts, expenses, the outcome of contingencies such as legal proceedings,
and financial results. From time to time, we also may provide oral or written
forward-looking statements in other materials we release to the public.
Any or all of our forward-looking statements in this report, in the 1999
Annual Report and in any other public statements we make may turn out to be
incorrect. They can be affected by inaccurate assumptions we might make or by
known or unknown risks and uncertainties. Many factors mentioned in the
discussion above--for example, competition--will be important in determining
future results. Consequently, no forward-looking statement can be guaranteed.
Actual future results may vary materially.
We undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any further disclosures we make on related
subjects in our 10-Q, 8-K and 10-K reports to the SEC.
Also note that we provide the following cautionary discussion of risks,
uncertainties and possibly inaccurate assumptions relevant to our businesses.
These are factors that we think could cause our actual results to differ
materially from expected and historical results. Other factors besides those
listed here could also adversely affect our operations or financial condition.
This discussion is provided as permitted by the Private Securities Litigation
Reform Act of 1995.
- - RISKS ASSOCIATED WITH GROWTH AND DIVERSIFICATION THROUGH ACQUISITIONS. As
part of our growth and diversification strategy, we intend to pursue
acquisitions of businesses, technologies and product lines that are
complementary to our core businesses. Our ability to grow through such
acquisitions will be dependent upon the availability of suitable acquisition
candidates at an acceptable cost, our ability to compete effectively for
these acquisition candidates and the availability of capital to complete such
acquisitions.
- - DEMAND FOR PRINTED FINANCIAL DOCUMENTS. The market for a substantial portion
of our products currently depends on the demand for printed financial
documents, driven largely by the SEC and other regulatory bodies. There can
be no assurance that competition from alternative methods of financial
document delivery (e.g., electronic commerce, on-line services and other
electronic media) or relaxed SEC regulatory requirements will not erode the
demand for printed financial documents.
- - COMPETITION. The financial printing industry is highly competitive. Our
primary competitors are R.R. Donnelley & Sons Company and Bowne & Co., Inc.
To remain competitive, we must continue to compete favorably on the basis of
value by providing technologically advanced financial printing solutions that
satisfy the demands of customers and by offering superior customer service,
enhanced quality and reliability levels.
- - NEW COMPETITION FROM ELECTRONIC PRINTERS. Recently, we have seen the
emergence of new competitors that print documents solely through electronic
means (e.g. Internet, CD ROM and diskettes). While these competitors are
currently not significant either in number or size, we anticipate that they
may increase in number and size as the demand for printed documents
decreases.
- - YEAR 2000 COMPLIANCE. As described in our "MANAGEMENT'S DISCUSSION AND
ANALYSIS," we are working to address "Year 2000" problems. If we should fail
to identify or fix all such problems in our own operations, or if we are
affected by the inability of a supplier or a major customer to continue
operations due to such a problem, our operations and/or cash flows could be
affected.
9
<PAGE>
ITEM 2. PROPERTIES
We have leases or own the following facilities:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
LEASED OR APPROXIMATE SQUARE
LOCATION REPORTABLE SEGMENT OWNED FOOTAGE TERMS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
St. Cloud, Specialty Owned 123,000 sq.ft. N/A
Minnesota Communication
Services
- ------------------------------------------------------------------------------------------------------
St. Paul, Specialty Owned 150,000 sq. ft. in N/A
Minnesota Communication two buildings,
Services and approximately 85,000
Document Services sq. ft. is leased to
other businesses
- ------------------------------------------------------------------------------------------------------
Everett, Specialty Owned 135,745 sq. ft. in N/A
Massachusetts Communication two buildings
Services
- ------------------------------------------------------------------------------------------------------
St. Paul, Specialty Building and 47,000 sq. ft. $24,069 per month and
Minnesota Communication Land leased $3,431 per month, for the
Services from Port building and the land
Authority of respectively, for terms
the City of expiring on November 30,
St. Paul under 2005. Each lease grants us
leases dated the option to purchase the
October 1, property at the end of the
1985 term. Under the facilities
lease, we may purchase the
building for $254,500 and
the land for $167,140 at
the end of the lease terms.
- ------------------------------------------------------------------------------------------------------
New York, New Specialty Leased for a 13,830 sq. ft. $33,444 per month.
York Communication term expiring
Services November 25,
2005
- ------------------------------------------------------------------------------------------------------
Boston, Specialty Leased for a 13,500 sq. ft. $45,020 per month.
Massachusetts Communication term expiring
Services November 30,
2003
- ------------------------------------------------------------------------------------------------------
New York, New Specialty Leased for a 102,000 sq. ft. $61,500 per month.
York Communication term expiring
Services October 31,
2014.
- ------------------------------------------------------------------------------------------------------
Other cities Specialty Leased with 150 to 77,000 sq. Aggregate of $460,000 per
Communication expirations ft. month, including rental
Services and ranging from fees, real estate taxes and
Document Services June 30, 1999 operating expenses
to October 31,
2014
- ------------------------------------------------------------------------------------------------------
</TABLE>
We make a continuing effort to keep all of our properties and facilities
modern, efficient and adequate for our operating needs.
10
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
We do not know of any pending legal, governmental, administrative or other
matters that would materially affect our business or property.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We did not ask our shareholders to vote on anything during the fourth
quarter of fiscal year 1999.
11
<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers, their ages, the year they became executive officers
and the offices held as of April 28, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE YEAR OFFICE HELD
- ------------------------ ----------- --------- ------------------------------------------------------------------
<S> <C> <C> <C>
John W. Castro 50 1980 President and Chief Executive Officer
Rick R. Atterbury 45 1981 Executive Vice President--Chief Technology Officer
Steven J. Machov 48 1987 Vice President, General Counsel and Secretary
Kathleen A. Larkin 39 1993 Vice President--Human Resources
Kay A. Barber 48 1995 Vice President--Finance, Chief Financial Officer, Treasurer
Allen J. McNee 40 1999 President--Document Management Services
B. Michael James 42 1999 President--Financial Document Services
Mark A. Rossi 41 1999 President--Investment Company Services
Joseph P. Pettirossi 34 1999 President--Managed Communications Programs
Raymond J. Goodwin 35 1999 President--Merrill Print Group
</TABLE>
Our executive officers are elected by the Board of Directors and serve
one-year terms beginning with their election at the first meeting of the Board
of Directors after the annual meeting of shareholders. Their terms end at the
same meeting the following year. The President and Chief Executive Officer
appoints all other officers who serve at his discretion. There are no family
relationships between any of the executive officers or directors. There has been
no change in position of any of the executive officers during the past five
years, except as we explain below:
- - MR. ATTERBURY was elected Executive Vice President--Chief Technology Officer
in February 1999. From 1996 to January 1999, Mr. Atterbury was the Executive
Vice President. Prior to that time, he served as Vice President--Operations.
- - MS. BARBER joined our organization in August 1995 as Vice President--Finance,
Chief Financial Officer and Treasurer. From January 1993 to August 1995, Ms.
Barber was Vice President, Finance and Controller for Growing Healthy, Inc.,
a frozen baby food company.
- - MR. MCNEE was elected President--Document Management Services in February
1999. From February 1996 through January 1999, Mr. McNee was the Vice
President, Document Management Services. Prior to that time, Mr. McNee served
as the Director of Facilities Management/Document Reproduction Group, from
February 1992 through January 1996.
- - MR. JAMES was elected President--Financial Document Services in February 1999
and since January 1994, has been the President, Merrill/New York Company.
From January 1996 to February 1999, Mr. James was our Vice President of the
East Region and International Operations. Prior to that time, Mr. James was
the Vice President of Human Resources (from June 1989, when Mr. James joined
our company, to January 1994).
- - MR. ROSSI was elected President--Investment Company Services in February
1999. From February 1997 to February 1999, Mr. Rossi was our Vice President
of the Central Region. Prior to that time, Mr. Rossi served as our President
of Southern California, from February 1993 to January 1997.
- - MR. PETTIROSSI was elected President--Managed Communications Programs in
February 1999. From July 1996 to February 1999, Mr. Pettirossi was the
President of one of our subsidiaries, Merrill/May, Inc. Prior to joining us
in 1996, Mr. Pettirossi was the
12
<PAGE>
Chief Operating Officer and Chief Financial Officer of Northwest Racquet Swim
& Health Clubs, Inc. (from November 1994 to June 1996) and the Vice President
and Chief Financial Officer of the Minnesota Professional Basketball Limited
Partnership and the Minnesota Arena Limited Partnership (from September 1992
to March 1995).
- - MR. GOODWIN was elected President--Merrill Print Group in February 1999. From
March 1997 to February 1999, Mr. Goodwin was our Central Region Sales
Manager. Prior to that time, Mr. Goodwin served as President of our Denver
and Houston operations, from January 1993 to March 1997.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information required by this item is incorporated by reference from the
"QUARTERLY STOCK PRICE INFORMATION" in our 1999 Annual Report. We did not sell
any unregistered equity securities from February 1, 1998 through January 31,
1999.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is incorporated by referenced from the
table entitled "SUMMARY OF OPERATING AND FINANCIAL DATA" in our 1999 Annual
Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information required by this item is incorporated by reference from the
"MANAGEMENT'S DISCUSSION AND ANALYSIS" in our 1999 Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We regularly invest excess operating cash in overnight repurchase agreements
that are subject to changes in short-term interest rates. Accordingly, we
believe that the market risk arising from its holding of these financial
instruments is minimal.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is incorporated by reference from our
"CONSOLIDATED FINANCIAL STATEMENTS" (including the unaudited information in the
"SUMMARY OF OPERATING AND FINANCIAL DATA") and the "REPORT OF INDEPENDENT
ACCOUNTANTS" in our 1999 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were none.
14
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is incorporated by reference from the
discussion under the headings "ELECTION OF DIRECTORS--INFORMATION ABOUT
NOMINEES," "OTHER INFORMATION ABOUT NOMINEES" and "OTHER MATTERS--SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" in our 1999 Proxy Statement.
Information concerning our executive officers is included in this Report under
Item 4A, "EXECUTIVE OFFICERS OF THE REGISTRANT."
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference from the
discussion under the headings "GOVERNANCE--DIRECTORS' COMPENSATION" and
"EXECUTIVE COMPENSATION" (excluding the "COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION") in our 1999 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference from the
discussion under the headings "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT" and "EXECUTIVE COMPENSATION--CHANGE IN CONTROL ARRANGEMENTS" in
our 1999 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference from the
discussion under the heading "OTHER MATTERS--CERTAIN TRANSACTIONS" in our 1999
Proxy Statement.
15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
1. FINANCIAL STATEMENTS:
The following financial statements are part of our disclosure in this Report
and are found on the following pages in our 1999 Annual Report:
<TABLE>
<CAPTION>
- --------------------------------------------------
FINANCIAL STATEMENT PAGE NO.
- --------------------------------------------------
<S> <C>
Consolidated Balance Sheets as of
January 31, 1999 and 1998............ 21
Consolidated Statements of Operations
for the years ended January 31, 1999,
1998 and 1997........................ 22
Consolidated Statements of Cash Flows
for the years ended January 31, 1999,
1998 and 1997........................ 23
Consolidated Statements of Changes in
Shareholders' Equity for the years
ended January 31, 1999, 1998 and
1997................................. 24
Notes to Consolidated Financial
Statements........................... 25-35
Report of Independent Accountants...... 37
- --------------------------------------------------
</TABLE>
2. FINANCIAL STATEMENT SCHEDULE:
The following supplemental schedule and report of independent accountants
are part of our disclosure in this Report and should be read together with the
consolidated financial statements in the 1999 Annual Report we refer to above
(page numbers refer to pages in this Report):
<TABLE>
<CAPTION>
- --------------------------------------------------
SCHEDULE PAGE NO.
- --------------------------------------------------
<S> <C>
Report of Independent Accountants...... 18
Valuation and Qualifying Accounts...... 19
- --------------------------------------------------
</TABLE>
We are omitting all other schedules either because the information does not
apply or the information is in the consolidated financial statements or related
notes.
3. EXHIBITS:
The exhibits to this Report are listed in the Exhibit Index of this Report.
If you were a shareholder on April 15, 1999, you may request copies of any
of these exhibits by writing to: Investor Relations, Merrill Corporation, One
Merrill Circle, St. Paul, Minnesota 55108. We may charge a small handling fee
for the copies.
The following is a list of each management contract or compensatory plan or
arrangement we need to file as an exhibit to this Report:
- - Employment Agreement with John W. Castro (incorporated by reference to our
Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 1989).
- - First Amendment to Employment Agreement with John W. Castro (incorporated by
reference to our Annual Report on Form 10-K for the fiscal year ended January
31, 1994).
- - Second Amendment to Employment Agreement with John W. Castro (incorporated by
reference to our Annual Report on Form 10-K for the fiscal year ended January
31, 1998).
- - Deferred Compensation Agreement with John W. Castro (incorporated by
reference to our Annual Report on Form 10-K for the fiscal year ended January
31, 1998).
- - Employment Agreement with Rick R. Atterbury (incorporated by reference to our
Annual Report on Form 10-K for the fiscal year ended January 31, 1991).
- - First Amendment to Employment Agreement with Rick R. Atterbury (incorporated
by reference to our Annual Report on Form 10-K for the fiscal year ended
January 31, 1994).
- - Second Amendment to Employment Agreement with Rick R. Atterbury (incorporated
by reference to our Annual Report on Form 10-K for the fiscal year ended
January 31, 1998).
- - 1987 Omnibus Stock Plan, as amended (incorporated by reference to our Annual
Report on Form 10-K for the fiscal year ended January 31, 1991).
16
<PAGE>
- - 1993 Stock Incentive Plan, as amended (incorporated by reference to our
Annual Report on Form 10-K for the fiscal year ended January 31, 1997).
- - Option Agreement with Ronald N. Hoge (incorporated by reference to our Annual
Report on Form 10-K for the fiscal year ended January 31, 1993).
- - 1996 Non-Employee Director Plan (incorporated by reference to our Annual
Report on Form 10-K for the fiscal year ended January 31, 1997).
- - 1996 Non-Statutory Stock Option Plan (included with this filing)
- - Stock Purchase Loan Program (included with this filing)
- - Stock Option Deferral Program (included with this filing).
- - Form of Letter Agreement effective May 28, 1998 with John W. Castro and Rick
R. Atterbury (included with this filing).
- - Form of Letter Agreement effective May 28, 1998 with Kay A. Barber, Steven J.
Machov and Kathleen A. Larkin (included with this filing).
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the fourth quarter of the fiscal
year ended January 31, 1999.
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
Our report on the consolidated financial statements of Merrill Corporation
and Subsidiaries has been incorporated by reference in this Form 10-K from page
37 of the 1999 Annual Report to Shareholders of Merrill Corporation. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed in Item 14(a)2 of this Form
10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
PricewaterhouseCoopers LLP
St. Paul, Minnesota
March 29, 1999
18
<PAGE>
SCHEDULE II
MERRILL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------ ----------- -------------------------- ----------- -----------
ADDITIONS
--------------------------
BALANCE AT CHARGED TO DEDUCTIONS
BEGINNING CHARGED TO OTHER FROM BALANCE AT
DESCRIPTION OF YEAR INCOME ACCOUNTS RESERVES END OF YEAR
- ------------------------------------------ ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended January 31, 1997
Valuation account deducted from assets
to which it applies--
Allowance for doubtful accounts........... $ 3,545 $ 2,861 $ 61(A) $ 440(B) $ 6,027
----------- ----------- --- ----------- -----------
----------- ----------- --- ----------- -----------
Allowance for unbillable
inventories......................... $ 562 $ 2,678 $ 3,240
----------- ----------- -----------
----------- ----------- -----------
Year Ended January 31, 1998
Valuation account deducted from assets
to which it applies--
Allowance for doubtful accounts........... $ 6,027 $ 2,064 $ 55(A) $ 1,154(B) $ 6,992
----------- ----------- --- ----------- -----------
----------- ----------- --- ----------- -----------
Allowance for unbillable
inventories......................... $ 3,240 $ 1,063(C) $ 2,177
----------- ----------- -----------
----------- ----------- -----------
Year Ended January 31, 1999
Valuation account deducted from assets
to which it applies--
Allowance for doubtful accounts........... $ 6,992 $ 3,273 $ 2,139(B) $ 8,126
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Allowance for unbillable
inventories......................... $ 2,177 $ 67 $ 2,244
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ------------------------
(A) Recoveries on accounts previously written off.
(B) Uncollectible accounts written off and adjustments to the allowance.
(C) Adjustments to the allowance account to reflect estimated net realizable
value at year-end.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized on April 29, 1999.
<TABLE>
<S> <C> <C>
MERRILL CORPORATION
By: /s/ JOHN W. CASTRO
-----------------------------------------
John W. Castro
Its: President and Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------------
<C> <S>
/s/ JOHN W. CASTRO President and Chief Executive
- ------------------------------ Officer (Principal Executive
John W. Castro Officer) and Director
Vice President--Finance, Chief
/s/ KAY A. BARBER Financial Officer and
- ------------------------------ Treasurer (Principal Financial
Kay A. Barber and Accounting Officer)
/s/ ROBERT F. NIENHOUSE
- ------------------------------ Director
Robert F. Nienhouse
/s/ RICHARD G. LAREAU
- ------------------------------ Director
Richard G. Lareau
/s/ PAUL G. MILLER
- ------------------------------ Director
Paul G. Miller
/s/ RICK R. ATTERBURY
- ------------------------------ Director
Rick R. Atterbury
/s/ RONALD N. HOGE
- ------------------------------ Director
Ronald N. Hoge
/s/ JAMES R. CAMPBELL
- ------------------------------ Director
James R. Campbell
/s/ FREDERICK W. KANNER
- ------------------------------ Director
Frederick W. Kanner
/s/ MICHAEL S. SCOTT MORTON
- ------------------------------ Director
Michael S. Scott Morton
</TABLE>
20
<PAGE>
MERRILL CORPORATION
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-K
FOR FISCAL YEAR ENDED JANUARY 31, 1999
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION METHOD OF FILING
- ----------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
3.1 Articles of Incorporation Incorporated by reference to our Registration
Statement on Form S-1 (File No. 33-4062).
3.2 Amendments to Articles of Incorporation as of June Incorporated by reference to our Annual Report on
20, 1986 and March 27, 1987 Form 10-K for the fiscal year ended January 31,
1987.
3.3 Restated Bylaws Incorporated by reference to our Annual Report on
Form 10-K for the fiscal year ended January 31,
1990.
10.1 Credit Agreement dated as of November 25, 1996 Incorporated by reference to our Quarterly Report
among First Bank, N.A., as Agent and as a Bank, on Form 10-Q for the fiscal quarter ended October
Norwest Bank Minnesota, N.A., and Merrill 31, 1996.
Corporation
10.2 First Amendment to Credit Agreement dated May 23, Included with this filing electronically.
1997 between First Bank National Association,
Norwest Bank Minnesota, National Association and
Merrill Corporation
10.3 Second Amendment to Credit Agreement dated August Included with this filing electronically.
17, 1998 between First Bank National Association,
Norwest Bank Minnesota, National Association and
Merrill Corporation
10.4 Third Amendment to Credit Agreement dated March 24, Included with this filing electronically.
1999 between First Bank National Association,
Norwest Bank Minnesota, National Association and
Merrill Corporation
10.5 Note Purchase Agreement, dated as of October 25, Incorporated by reference to our Quarterly Report
1996 on Form 10-Q for the fiscal quarter ended October
31, 1996.
10.6 Loan Agreement, dated as of July 1, 1990 between Incorporated by reference to our Annual Report on
May Printing Company and Minnesota Agricultural and Form 10-K for the fiscal year ended January 31,
Economic Development Board, amended as of December 1994.
31, 1993
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION METHOD OF FILING
- ----------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
10.7 First Amendment to Loan Agreement dated as of Incorporated by reference to our Annual Report on
December 31, 1993 between Merrill/ May, Inc. and Form 10-K for the fiscal year ended January 31,
Minnesota Agricultural and Economic Development 1994 (included with the Loan Agreement, dated as of
Board July 1, 1990 between May Printing Company and
Minnesota Agricultural and Economic Development
Board, amended as of December 31, 1993).
10.8 Second Amendment to Loan Agreement dated as of July Included with this filing electronically.
1, 1998 between Merrill/ May, Inc. and Minnesota
Agricultural and Economic Development Board
10.9 Bond Purchase Agreement dated June 26, 1998 between Included with this filing electronically.
Dougherty Summit Securities LLC and Piper Jaffray
Inc.
10.10 Guaranty of Loan Obligations of May Printing Incorporated by reference to our Annual Report on
Company by Merrill Corporation in favor of Form 10-K for the fiscal year ended January 31,
Minnesota Agricultural and Economic Development 1994.
Board, dated as of December 31, 1993
10.11 Employment Agreement between Rick R. Atterbury and Incorporated by reference to our Annual Report on
Merrill Corporation, dated as of February 1, 1987, Form 10-K for the fiscal year ended January 31,
as amended 1991.
10.12 First Amendment to Employment Agreement between Incorporated by reference to our Annual Report on
Rick R. Atterbury and Merrill Corporation, dated as Form 10-K for the fiscal year ended January 31,
of April 29, 1994 1994.
10.13 Second Amendment to Employment Agreement between Incorporated by reference to our Annual Report on
Rick R. Atterbury and Merrill Corporation, dated as Form 10-K for the fiscal year ended January 31,
of April 8, 1998 1998.
10.14 Employment Agreement between John W. Castro and Incorporated by reference to our Quarterly Report
Merrill Corporation dated as of February 1, 1989 on Form 10-Q for the fiscal quarter ended April 30,
1989.
10.15 Amendment to Employment Agreement between John W. Incorporated by reference to our Annual Report on
Castro and Merrill Corporation dated as of April Form 10-K for the fiscal year ended January 31,
29, 1994 1994.
10.16 Second Amendment to Employment Agreement between Incorporated by reference to our Annual Report on
John W. Castro and Merrill Corporation, dated as of Form 10-K for the fiscal year ended January 31,
April 8, 1998 1998.
10.17 Deferred Compensation Plan for John W. Castro, Incorporated by reference to our Annual Report on
dated as of March 30, 1998 Form 10-K for the fiscal year ended January 31,
1998.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION METHOD OF FILING
- ----------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
10.18 1987 Omnibus Stock Plan, as amended Incorporated by reference to our Annual Report on
Form 10-K for the fiscal year ended January 31,
1991.
10.19 1993 Incentive Stock Plan, as amended Incorporated by reference to our Annual Report on
Form 10-K for the fiscal year ended January 31,
1997.
10.20 1996 Non-Employee Director Plan Incorporated by reference to our Annual Report on
Form 10-K for the fiscal year ended January 31,
1997.
10.21 1996 Non-Statutory Stock Option Plan Included with this filing electronically.
10.22 Option Agreement dated as of July 1, 1991 between Incorporated by reference to our Annual Report on
Ronald N. Hoge and Merrill Corporation Form 10-K for the fiscal year ended January 31,
1993.
10.23 Stock Purchase Loan Program Included with this filing electronically.
10.24 Stock Option Deferral Program Included with this filing electronically.
10.25 Form of Letter Agreement effective May 28, 1998 Included with this filing electronically.
with John W. Castro and Rick R. Atterbury
10.26 Form of Letter Agreement effective May 28, 1998 Included with this filing electronically.
with Kay A. Barber, Steven J. Machov and Kathleen
A. Larkin
10.27 Stock Purchase Agreement, dated March 28, 1996, by Incorporated by reference to our Current Report on
and among Merrill Corporation and the Shareholders Form 8-K dated April 15, 1996.
of FMC Resource Management Corporation
10.28 Asset Purchase Agreement dated as of June 11, 1998 Included with this filing electronically.
among Merrill Acquisition Corporation and
Executech, Inc., World Wide Scan Services, LLC, the
Shareholders of Executech, Inc. and the Members of
World Wide Scan Services LLC
10.29 First Amendment to Asset Purchase Agreement dated Included with this filing electronically.
December 18, 1998 among Merrill/Executech, Inc. and
Executech, Inc., World Wide Scan Services, LLC, the
Shareholders of Executech, Inc. and the Members of
World Wide Scan Services LLC
10.30 Second Amendment to Asset Purchase Agreement dated Included with this filing electronically.
effective as of June 11, 1998 among
Merrill/Executech, Inc. and Executech, Inc., World
Wide Scan Services, LLC, the Shareholders of
Executech, Inc. and the Members of World Wide Scan
Services LLC
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION METHOD OF FILING
- ----------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
10.31 Asset Purchase Agreement dated March 11, 1999 among Incorporated by reference to our Current Report on
Merrill Daniels, Inc., Daniels Printing, Limited Form 8-K filed on April 29, 1999.
Partnership and all of the partners of Daniels
Printing Limited Partnership
10.32 Facilities Lease dated October 1, 1985 between the Incorporated by reference to our Registration
Port Authority of the City of Saint Paul as lessor Statement on Form S-1 (File No. 33-4062).
and Merrill Corporation as lessee
10.33 Land Lease dated October 1, 1985 between the Port Incorporated by reference to our Registration
Authority of the City of Saint Paul as lessor and Statement on Form S-1 (File No. 33-4062).
Merrill Corporation as lessee
10.34 Lease dated as of May 1, 1994 between The Rector, Incorporated by reference to our Annual Report on
Church-Wardens, and Vestrymen of Trinity Church in Form 10-K for the fiscal year ended January 31,
the City of New York, as landlord and The Corporate 1997.
Printing Company, Inc, as lessee, assignor to
Merrill/ New York Company
10.35 Office Lease Agreement dated July 30, 1998 between Included with this filing electronically.
Beametfed Inc. and Merrill Corporation
10.36 Agreement of Lease dated January 25, 1995 between Included with this filing electronically.
East 55th Street Limited Partnership (assignee of
The Overton-La Cholla Joint Venture) and Merrill
Daniels, Inc. (assignee to Daniels Printing,
Limited Partnership)
13.1 Portions of Annual Report to Shareholders Included with this filing electronically
21.1 Subsidiaries Included with this filing electronically
23.1 Consent of Independent Accountants Included with this filing electronically
27.1 Financial Data Schedule for the year ended January Included with this filing electronically
31, 1999
</TABLE>
24
<PAGE>
Exhibit 10.2
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS First AMENDMENT, dated as of May 23, 1997, amends and modifies a
certain Credit Agreement, dated as of November 25, 1996 (the "Credit
Agreement"), among MERRILL CORPORATION (the "Borrower"), FIRST BANK NATIONAL
ASSOCIATION, as Agent (the "Agent"), and the banks or financial institutions
party thereto, which currently consist of FIRST BANK NATIONAL ASSOCIATION and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION (the "Banks"). Terms not
otherwise expressly defined herein shall have the meanings set forth in the
Credit Agreement.
FOR VALUE RECEIVED, the Borrower, the Agent and the Banks agree that the
Credit Agreement is amended as follows.
ARTICLE I - AMENDMENTS TO THE CREDIT AGREEMENT
1.1 NEW SUBSIDIARY. Schedule 7.15 is amended by adding Merrill/Superstar
Computing Company to the list of Subsidiaries of the Borrower.
1.2 GUARANTORS. Section 8.14 is amended by deleting "April 30, 1997" and
inserting "June 30, 1997" in place thereof.
1.3 INDEBTEDNESS. The final paragraph of Schedule 9.2 is amended to read
as follows:
"Obligations of Merrill Corporation under a Guaranty of Indebtedness of an
Incorporated Company dated August 30, 1996 (as amended) wherein Merrill
Corporation has guaranteed 49% of the outstanding obligations under a
revolving credit agreement between Bank of Montreal as Lender and Quebecor
Merrill Canada, in the maximum principal amount of $3,000,000."
1.4 GUARANTIES. Section 9.3(b) is amended to read as follows:
"(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons in
existence on the date hereof and listed in SCHEDULE 9.3, PROVIDED, that the
Borrower may increase its guaranty of the obligation of Quebecor Merrill
Canada from 49% of the outstanding obligations under a revolving credit
agreement in the maximum principal amount of $1,600,000 to 49% of the
outstanding obligations under an agreement or agreements providing for a
loan or loans in the aggregate principal amount of up to $3,000,000;"
1.5 INVESTMENTS. Section 9.4(g) is amended to read as follows:
"(g) investments in readily-marketable stock or debt instruments of other
Persons which in the aggregate do not exceed $5,000,000 at any time
outstanding."
1
<PAGE>
1.6 CONSOLIDATION AND MERGER; ACQUISITION OF ASSETS AND STOCK. The final
sentence of Section 9.6 is amended to read as follows:
"The Borrower agrees that in each consecutive 12 month period, the
amount that is expended (whether in cash or in stock) by the
Borrower and its Subsidiaries to acquire all or substantially all
of the assets or any stock of another Person, and to merge or
consolidate with another Person, shall not exceed $10,000,000 in
the aggregate for all such transactions and shall not exceed
$5,000,000 for any single transaction or series of related
transactions."
1.7 CONSTRUCTION. All references in the Credit Agreement to "this
Agreement", "herein" and similar references shall be deemed to refer to the
Credit Agreement as amended by this Amendment.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Banks to enter into this Amendment and to make
and maintain the Loans under the Credit Agreement as amended hereby, the
Borrower hereby warrants and represents to the Agent and the Banks that it is
duly authorized to execute and deliver this Amendment, and to perform its
obligations under the Credit Agreement as amended hereby, and that this
Amendment constitutes the legal, valid and binding obligation of the Borrower,
enforceable in accordance with its terms.
ARTICLE III - CONDITIONS PRECEDENT
This Amendment shall become effective on the date first set forth above,
provided, however, that the effectiveness of this Amendment is subject to the
satisfaction of each of the following conditions precedent:
3.1 WARRANTIES. Before and after giving effect to this Amendment, the
representations and warranties in ARTICLE VII of the Credit Agreement shall be
true and correct as though made on the date hereof, except for changes that are
permitted by the terms of the Credit Agreement. The execution by the Borrower of
this Amendment shall be deemed a representation that the Borrower has complied
with the foregoing condition.
3.2 DEFAULTS. Before and after giving effect to this Amendment, no Default
and no Event of Default shall have occurred and be continuing under the Credit
Agreement. The execution by the Borrower of this Amendment shall be deemed a
representation that the Borrower has complied with the foregoing condition.
3.3 NEW GUARANTOR. The Borrower has acquired or formed an additional
Subsidiary, Merrill/Superstar Computing Company, which shall become a
Guarantor as provided in Section 8.14 of the Credit Agreement. The Borrower
shall cause such new Subsidiary to deliver the following documents (the "New
Guarantor Documents"):
2
<PAGE>
(a) A Guaranty in the form of Exhibit AA to this Amendment;
(b) A certified copy of the approval resolutions for such Guaranty,
together with an incumbency certificate and certified copies of the
Articles of Incorporation and By-laws of such new Subsidiary;
(c) A certificate of good standing of such new Subsidiary; and
(d) An opinion of counsel for such new Subsidiary covering matters similar
to those covered by the opinion of the existing Guarantors.
3.4 DOCUMENTS. The Borrower, the Agent and the Banks shall have executed
and delivered this Amendment, the Guarantors shall have executed and delivered
the Guarantors' Acknowledgment in the form attached hereto, and the New
Guarantor Documents shall have been executed and delivered.
ARTICLE IV - GENERAL
4.1 EXPENSES. The Borrower agrees to reimburse the Agent upon demand
for all reasonable expenses (including reasonable attorneys' fees and legal
expenses) incurred by this Agent in the preparation, negotiation and
execution of this Amendment and any other document required to be furnished
herewith, and in enforcing the obligations of the Borrower hereunder, and to
pay and save the Agent and the Banks harmless from all liability for, any
stamp or other taxes which may be payable with respect to the execution or
delivery of this Amendment, which obligations of the Borrower shall survive
any termination of the Credit Agreement.
4.2 COUNTERPARTS. This Amendment may be executed in as many
counterparts as may be deemed necessary or convenient, and by the different
parties hereto on separate counterparts, each of which, when so executed,
shall be deemed an original but all such counterparts shall constitute but
one and the same instrument.
4.3 SEVERABILITY. Any provision of this Amendment which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
4.4 LAW. This Amendment shall be a contract made under the laws of the
State of Minnesota, which laws shall govern all the rights and duties
hereunder.
4.5 SUCCESSORS; ENFORCEABILITY. This Amendment shall be binding upon
the Borrower, the Agent and the Banks and their respective successors and
assigns, and shall inure to the benefit of the Borrower, the Agent and the
Banks and the successors and assigns of the Agent and the Banks. Except as
hereby amended, the Credit Agreement shall remain in full force and effect
and is hereby ratified and confirmed in all respects.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed at Minneapolis, Minnesota by their respective officers thereunto duly
authorized as of the date first written above.
MERRILL CORPORATION
By: /s/ Kay A. Barber
-----------------------------------------
Kay A. Barber
Vice President - Finance, Chief Financial
Officer and Treasurer
By: /s/ Steven J. Machov
-----------------------------------------
Steven J. Machov
Vice President, General Counsel
and Secretary
FIRST BANK NATIONAL ASSOCIATION,
as Agent and as a Bank
By: /s/ Kathleen A. Skow
-----------------------------------------
Kathleen A. Skow
Senior Vice President
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By: /s/ Lynn S. Hultstrand
-----------------------------------------
Lynn S. Hultstrand
Vice President
4
<PAGE>
Exhibit 10.3
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT, dated as of August 17, 1998, amends and modifies
a certain Credit Agreement, dated as of November 25, 1996, as amended by an
Amendment dated as of May 23, 1997 (as so amended, the "Credit Agreement"),
among MERRILL CORPORATION (the "Borrower"), U.S. BANK NATIONAL ASSOCIATION,
formerly known as First Bank National Association, as Agent (the "Agent"),
and the banks or financial institutions party thereto, which currently
consist of U.S. BANK NATIONAL ASSOCIATION and NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION (the "Banks"). Terms not otherwise expressly defined
herein shall have the meanings set forth in the Credit Agreement.
FOR VALUE RECEIVED, the Borrower, the Agent and the Banks agree that the
Credit Agreement is amended as follows.
ARTICLE I - AMENDMENTS TO THE CREDIT AGREEMENT
1.1 CONSOLIDATION AND MERGER; ACQUISITION OF ASSETS AND STOCK. The final
sentence of Section 9.6 is amended to read as follows:
"The Borrower agrees that in each consecutive 12 month period, the
aggregate amount that is expended (whether in cash or in stock) by the
Borrower and its Subsidiaries to acquire all or substantially all of the
assets or any stock of another Person, and to merge or consolidate with
another Person, shall not exceed $15,000,000 in the aggregate."
1.2 EXPENDITURES FOR FIXED ASSETS. Section 9.8 is amended by deleting
"$20,000,000" and inserting "$30,000,000" in place thereof.
1.3 SCHEDULE OF CONTINGENT LIABILITIES. SCHEDULE 7.6 is amended by
including the text on Exhibit A attached hereto respecting contingent purchase
payments in connection with the acquisition of Executech, Inc. and World Wide
Scan Services LLC.
1.4 CONSTRUCTION. All references in the Credit Agreement to "this
Agreement", "herein" and similar references shall be deemed to refer to the
Credit Agreement as amended by this Amendment.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Banks to enter into this Amendment and to
make and maintain the Loans under the Credit Agreement as amended hereby, the
Borrower hereby warrants and represents to the Agent and the Banks that it is
duly authorized to execute and deliver this Amendment, and to perform its
obligations under the Credit Agreement as amended hereby, and that this
Amendment constitutes the legal, valid and binding obligation of the
Borrower, enforceable in accordance with its terms.
<PAGE>
ARTICLE III - CONDITIONS PRECEDENT
This Amendment shall become effective on the date first set forth above,
provided, however, that the effectiveness of this Amendment is subject to the
satisfaction of each of the following conditions precedent:
3.1 WARRANTIES. Before and after giving effect to this Amendment, the
representations and warranties in ARTICLE VII of the Credit Agreement shall
be true and correct as though made on the date hereof, except for changes
that are permitted by the terms of the Credit Agreement. The execution by the
Borrower of this Amendment shall be deemed a representation that the Borrower
has complied with the foregoing condition.
3.2 DEFAULTS. Before and after giving effect to this Amendment, no
Default and no Event of Default shall have occurred and be continuing under
the Credit Agreement. The execution by the Borrower of this Amendment shall
be deemed a representation that the Borrower has complied with the foregoing
condition.
3.3 DOCUMENTS. The Borrower, the Agent and the Banks shall have executed
and delivered this Amendment, and Guarantors shall have executed Guarantors'
Acknowledgments in the form of those attached hereto.
3.4 NEW SUBSIDIARY. The Borrower's new Subsidiary, Merrill/Executech,
Inc., shall issue a Guaranty as provided in SECTION 8.14, and shall deliver
certified copies of its approval resolution for such guaranty and its
incumbency certificate.
ARTICLE IV - GENERAL
4.1 EXPENSES. The Borrower agrees to reimburse the Agent upon demand for
all reasonable expenses (including reasonable attorneys' fees and legal
expenses) incurred by this Agent in the preparation, negotiation and
execution of this Amendment and any other document required to be furnished
herewith, and in enforcing the obligations of the Borrower hereunder, and to
pay and save the Agent and the Banks harmless from all liability for, any
stamp or other taxes which may be payable with respect to the execution or
delivery of this Amendment, which obligations of the Borrower shall survive
any termination of the Credit Agreement.
4.2 COUNTERPARTS. This Amendment may be executed in as many counterparts
as may be deemed necessary or convenient, and by the different parties hereto
on separate counterparts, each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
instrument.
4.3 SEVERABILITY. Any provision of this Amendment which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
2
<PAGE>
4.4 LAW. This Amendment shall be a contract made under the laws of the
State of Minnesota, which laws shall govern all the rights and duties
hereunder.
4.5 SUCCESSORS; ENFORCEABILITY. This Amendment shall be binding upon the
Borrower, the Agent and the Banks and their respective successors and
assigns, and shall accrue to the benefit of the Borrower, the Agent and the
Banks and the successors and assigns of the Agent and the Banks. Except as
hereby amended, the Credit Agreement shall remain in full force and effect
and is hereby ratified and confirmed in all respects.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed at Minneapolis, Minnesota by their respective officers thereunto
duly authorized as of the date first written above.
MERRILL CORPORATION
By /s/ Kay A. Barber
_________________________________________
Kay A. Barber
Vice President - Finance, Chief Financial
Officer and Treasurer
By /s/ Steven J. Machov
_________________________________________
Steven J. Machov
Vice President, General Counsel
and Secretary
U.S. BANK NATIONAL ASSOCIATION,
as Agent and as a Bank
By /s/ William J. Umscheid
_________________________________________
William J. Umscheid
Vice President
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By /s/ Lynn S. Hultstrand
_________________________________________
Lynn S. Hultstrand
Vice President
3
<PAGE>
Exhibit A
Executech Contingent Purchase Price Rider:
Contingent purchase price consideration in connection with the acquisition of
substantially all of the assets of Executech, Inc. and World Wide Scan
Services, LLC pursuant to the Asset Purchase Agreement (the "Executech
Purchase Agreement"), dated as of June 11, 1998, is by and between Merrill
Corporation, Merrill Acquisition Corporation, Executech, Inc., World Wide Scan
Services, LLC, Theodore M. Davis and Michael Z. Sperling. The contingent
purchase price is payable annually through January 31, 2002 and is equal to
the following:
<TABLE>
<CAPTION>
FISCAL YEAR CONTINGENT PURCHASE PRICE PAYMENT
----------- ---------------------------------
<S> <C>
January 1, 1998 through January 31, 1999 450% of the After-Tax Earnings for the First
("FIRST FISCAL YEAR") Fiscal Year (the "BASE YEAR EARNINGS");
provided however, the Base Year Earnings
equal or exceed Four Hundred Thousand
Dollars ($400,000)
February 1, 1999 through January 31, 2000 50% of the After-Tax Earnings for the Second
("SECOND FISCAL YEAR") Fiscal Year in excess of the greater of (x)
120% of Base Year Earnings; and (y) Seven
Hundred Twenty Thousand Dollars ($720,000)
February 1, 2000 through January 31, 2001 50% of the After-Tax Earnings for the Third
("THIRD FISCAL YEAR") Fiscal Year in excess of the greater of (x)
144% of the Base Year Earnings; and (y) Eight
Hundred Sixty Four Thousand ($864,000)
February 1, 2001 through January 31, 2002 50% of the After-Tax Earnings for the Fourth
("FOURTH FISCAL YEAR") Fiscal Year in excess of the greater of (x)
172.8% of the Base Year Earnings; and (y)
One Million Thirty-Six Thousand Eight
Hundred Dollars ($1,036,800)
</TABLE>
<PAGE>
GUARANTORS' ACKNOWLEDGMENT
The undersigned have executed and delivered a Guaranty, dated as of
November 25, 1996 (the "Guaranty"), whereby the undersigned have jointly and
severally guaranteed payment and performance of obligations of MERRILL
CORPORATION (the "Borrower") to U.S. Bank National Association, formerly
known as First Bank National Association, as Agent (the "Agent"), and each of
the other Banks (the "Banks") under a Credit Agreement, dated as of
November 25, 1996 (as thereafter amended, modified, extended, renewed and
replaced from time to time called the "Credit Agreement"), each Note issued
thereunder and each further Loan Document, as defined in the Credit
Agreement, and all further obligations defined as the "Liabilities" in the
Guaranty. Each of the undersigned acknowledges that it has received a copy of
the proposed Second Amendment to the Credit Agreement, to be dated on or
about August 17, 1998 (the "Amendment"). Each of the undersigned agrees and
acknowledges that the Amendment shall in no way impair or limit the right of
the Bank under the Guaranty, and confirms that by the Guaranty, it continues
to guaranty payment and performance of the Liabilities, including without
limitation obligations under the Credit Agreement as amended pursuant to the
Amendment. Each of the undersigned hereby confirms that the Guaranty remains
in full force and effect, enforceable against the undersigned in accordance
with its terms.
MERRILL/NEW YORK COMPANY
By /s/ Kay A. Barber
_________________________________________
Kay A. Barber
Treasurer
By /s/ Steven J. Machov
_________________________________________
Steven J. Machov
Secretary
MERRILL/MAY, INC.
By /s/ Kay A. Barber
_________________________________________
Kay A. Barber
Treasurer
By /s/ Steven J. Machov
_________________________________________
Steven J. Machov
Secretary
(Additional Signature Pages Follow)
<PAGE>
FMC RESOURCE MANAGEMENT CORPORATION
By /s/ Kay A. Barber
_________________________________________
Kay A. Barber
Treasurer
By /s/ Steven J. Machov
_________________________________________
Steven J. Machov
Secretary
MERRILL/MAGNUS PUBLISHING CORPORATION
By /s/ Kay A. Barber
_________________________________________
Kay A. Barber
Treasurer
By /s/ Steven J. Machov
_________________________________________
Steven J. Machov
Secretary
MERRILL CORPORATION CANADA
By /s/ Richard Atterbury
_________________________________________
Richard Atterbury
Vice President
By /s/ Steven J. Machov
_________________________________________
Steven J. Machov
Secretary
(Additional Signature Page Follows)
<PAGE>
MERRILL INTERNATIONAL INC.
By /s/ Kay A. Barber
_________________________________________
Kay A. Barber
Treasurer
By /s/ Steven J. Machov
_________________________________________
Steven J. Machov
Secretary
MERRILL REAL ESTATE COMPANY
By /s/ Kay A. Barber
_________________________________________
Kay A. Barber
Treasurer
By /s/ Steven J. Machov
_________________________________________
Steven J. Machov
Secretary
<PAGE>
GUARANTORS' ACKNOWLEDGMENT
The undersigned has executed and delivered a Guaranty, dated as of
April 23, 1997 (the "Guaranty"), whereby the undersigned has guaranteed
payment and performance of obligations of MERRILL CORPORATION (the
"Borrower") to U.S. Bank National Association, formerly known as First Bank
National Association, as Agent (the "Agent"), and each of the other Banks
(the "Banks") under a Credit Agreement, dated as of November 25, 1996 (as
thereafter amended, modified, extended, renewed and replaced from time to
time called the "Credit Agreement"), each Note issued thereunder and each
further Loan Document, as defined in the Credit Agreement, and all further
obligations defined as the "Liabilities" in the Guaranty. The undersigned
acknowledges that it has received a copy of the proposed Second Amendment to
the Credit Agreement, to be dated on or about August 17, 1998 (the
"Amendment"). The undersigned agrees and acknowledges that the Amendment
shall in no way impair or limit the right of the Bank under the Guaranty, and
confirms that by the Guaranty, it continues to guaranty payment and
performance of the Liabilities, including without limitation obligations
under the Credit Agreement as amended pursuant to the Amendment. The
undersigned hereby confirms that the Guaranty remains in full force and
effect, enforceable against the undersigned in accordance with its terms.
MERRILL TRAINING & TECHNOLOGY, INC. (formerly
known as Merrill/Superstar Computing Company)
By /s/ Kay A. Barber
_________________________________________
Kay A. Barber
Treasurer
By /s/ Steven J. Machov
_________________________________________
Steven J. Machov
Secretary
<PAGE>
Exhibit 10.4
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT, dated as of March 24, 1999, amends and modifies a
certain Credit Agreement, dated as of November 25, 1996, as amended by
Amendments dated as of May 23, 1997 and August 17, 1998 (as so amended, the
"Credit Agreement"), among MERRILL CORPORATION (the "Borrower"), U.S. BANK
NATIONAL ASSOCIATION, formerly known as First Bank National Association, as
Agent (the "Agent"), and the banks or financial institutions party thereto,
which currently consist of U.S. BANK NATIONAL ASSOCIATION and NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION (the "Banks"). Terms not otherwise expressly
defined herein shall have the meanings set forth in the Credit Agreement.
For VALUE RECEIVED, the Borrower, the Agent and the Banks agree that the
Credit Agreement is amended as follows.
ARTICLE I - AMENDMENTS TO THE CREDIT AGREEMENT
1.1 DEFINITIONS.
(a) The definition of "Commitment" in Section 1.1 is amended to read as
follows:
"COMMITMENT": (i) The maximum unpaid principal amount of the Loans of
all Banks which may from time to time be outstanding hereunder, being
$70,000,000 from and after the effectiveness of the Third Amendment
hereof, as the same may be reduced from time to time pursuant to SECTION
4.3, or (ii) if so indicated for an individual Bank, the maximum unpaid
principal amount of the Loans of such Bank which may from time to time be
outstanding hereunder, being initially the amounts set forth on the
signature pages of the Third Amendment hereof or in the relevant
Assignment and Assumption Agreement for such Bank, as the same may be
reduced from time to time pursuant to SECTION 4.3, or (iii) as the context
may require, the agreement of each Bank to make Loans to the Borrower
subject to the terms and conditions of this Agreement up to its
Commitment.
(b) The definition of "Interest Period" in Section 1.1 is amended by
adding the following sentence at the end of such definition:
"The Borrower shall not select any Interest Period in an amount and
duration that would require early termination of such Interest Period
in order to make payments of the Loans required under SECTION 4.1,
including without limitation payments due on mandatory reduction of
the Commitments."
(c) The following new definition is added to Section 1.1 in alphabetical
order:
"DANIELS ACQUISITION": The acquisition by the Borrower or a
Subsidiary of greater than 50% of the voting stock of Daniels Printing
Limited Partnership or of a substantial portion of the assets of Daniels
Printing Company. Total consideration, including cash, assumed
indebtedness, and contingent obligations, paid in connection with the
Daniels Acquisition shall not exceed $58,000,000.
<PAGE>
1.2 PURPOSE OF LOANS. New Section 2.8 is added after Section 2.7, and
shall read as follows:
"Section 2.8 PURPOSE OF THE LOANS. Amounts of the Loans in excess of
$40,000,000 shall be used by the Borrower solely to fund the Daniels
Acquisition."
1.3 REPAYMENT. Section 4.1 is amended to read as follows:
Section 4.1 REPAYMENT. Principal of the Loans in excess of the
Commitments at any time, giving effect to all reductions of the
Commitment under SECTION 4.3, shall be immediately due and payable. All
principal of the Loans, together with all accrued and unpaid interest
thereon, shall be due and payable on the Termination Date."
1.4 REDUCTION OF COMMITMENTS. The title of Section 4.3 is changed to
"REDUCTION OR TERMINATION OF COMMITMENT", the first paragraph is lettered and
titled "(a) OPTIONAL REDUCTION OR TERMINATION OF COMMITMENT", and a second
paragraph is added and shall read as follows:
"(b) MANDATORY REDUCTION OF COMMITMENT. The Commitments shall be reduced
to an amount equal to the remainder of (i) $40,000,000 less (ii) the
amount of any prior voluntary reductions of the Commitments under Section
4.3(a), upon the first to occur of: (A) September 1, 1999, or (B) the
date of receipt by the Borrower of proceeds of issuance of Indebtedness or
equities intended to finance the Daniels Acquisition."
1.5 INVESTMENTS. Section 9.4 is amended by adding a new subsection (h)
to read as follows:
"(h) the Daniels Acquisition, provided that it complies with the terms
of the definition thereof."
1.6 CONSOLIDATED AND MERGER; ACQUISITION OF ASSETS AND STOCK. Section
9.6 is amended by adding the following sentences at the end of such Section:
"Notwithstanding the foregoing, the Borrower may make the Daniels
Acquisition in accordance with the terms of the definition thereof,
PROVIDED, that the New Guarantor shall hold the assets acquired in the
Daniels Acquisition. Consideration paid in connection with the Daniels
Acquisition shall not be counted for purposes of ascertaining compliance
with the $15,000,000 test set forth in this Section."
1.7 CONSOLIDATED TANGIBLE NET WORTH. Section 8.11 is amended by adding
the following sentence at the end of such Section:
"Notwithstanding the foregoing, if the Daniels Acquisition shall be
consummated: (a) the Borrower will maintain, at the end of each fiscal
quarter, its Consolidated Tangible Net Worth at an amount not less than
$67,000,000 in lieu of the amount calculated as provided above, and (b)
Consolidated Tangible Net Worth of the Borrower will be adjusted for
purposes of this Section by adding (to the extent subtracted in
calculating Consolidated Tangible Net Worth) goodwill associated with
the contingent earn-out
2
<PAGE>
provisions related to acquisition of FMC Resource Management Corporation
and Merrill/Executech, Inc."
1.18 NOTES. The Notes shall be replaced by Notes in the form of Exhibit
AA hereto, which shall constitute the "Notes" for purposes of all references
in the Credit Agreement.
1.19 CONSTRUCTION. All references in the Credit Agreement to "this
Agreement", "herein" and similar references shall be deemed to refer to the
Credit Agreement as amended by this Amendment.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Banks to enter into this Amendment and to
make and maintain the Loans under the Credit Agreement as amended hereby, the
Borrower hereby warrants and represents to the Agent and the Banks that it is
duly authorized to execute and deliver this Amendment, and to perform its
obligations under the Credit Agreement as amended hereby, and that this
Amendment constitutes the legal, valid and binding obligation of the
Borrower, enforceable in accordance with its terms.
ARTICLE III - CONDITIONS PRECEDENT
This Amendment shall become effective on the date first set forth above,
provided, however, that the effectiveness of this Amendment is subject to the
satisfaction of each of the following conditions precedent:
3.1 WARRANTIES. Before and after giving effect to this Amendment, the
representations and warranties in ARTICLE VII of the Credit Agreement shall
be true and correct as though made on the date hereof, except for changes
that are permitted by the terms of the Credit Agreement. The execution by the
Borrower of this Agreement shall be deemed a representation that the Borrower
has complied with the foregoing condition.
3.2 DEFAULTS. Before and after giving effect to this Amendment, no
Default and no Event of Default shall have occurred and be continuing under
the Credit Agreement. The execution by the Borrower of this Amendment shall
be deemed a representation that the Borrower has complied with the foregoing
condition.
3.3 DOCUMENTS. The Borrower, the Agent and the Banks shall have executed
and delivered this Amendment, and the Borrower and Guarantors, as applicable,
shall have executed and delivered the following:
(a) NOTES. The Notes in the form of Exhibit AA hereto, payable to the
respective Banks.
(b) RESOLUTIONS; INCUMBENCY. Certified copies of resolutions of the
Board of Directors of the Borrower authorizing or ratifying the
execution, delivery and performance, respectively, of this Amendment and
the Notes, and a certificate of the Secretary or an Assistant Secretary
of the Borrower certifying the names of the officer or officers of the
Borrower authorized to sign this Amendment and the Note and other
3
<PAGE>
documents provided for in this Amendment, together with a sample of the
true signature of each such officer.
(c) CERTIFICATE OF INCORPORATION AND BY-LAWS. A certified copy of any
amendment or restatement of the Certificate or Articles of Incorporation
or the By-laws of the Borrower made or entered following date of the
most recent certified copies furnished to the Bank (or a certificate
stating that no changes have been made).
(d) GUARANTORS' ACKNOWLEDGMENTS. Guarantors' Acknowledgments in the form
of those attached hereto.
(e) AMENDMENT FEES. The Borrower shall pay an amendment fee in the
amount of $40,000 to the Agent for the account of the Banks, to be paid
by the Agent in the amount of $20,000 to each of the Banks.
(f) NEW SUBSIDIARY. The Borrower's new Subsidiary, Merrill Acquisition
Corp., a Minnesota corporation, or such other new Subsidiary as will
hold substantially all of the assets acquired in the Daniels
Acquisition, shall issue a Guaranty as provided in SECTION 8.14, and
shall deliver certified copies of its approval resolution for such
guaranty and its incumbency certificate.
(g) OPINION OF COUNSEL TO THE BORROWER. An opinion of counsel to the
Borrower and Guarantors, addressed to the Banks, in substantially the
form of EXHIBIT BB to this Amendment.
ARTICLE IV - GENERAL
4.1 EXPENSES. The Borrower agrees to reimburse the Agent upon demand for
all reasonable expenses (including reasonable attorneys' fees and legal
expenses) incurred by this Agent in the preparation, negotiation and
execution of this Amendment and any other document required to be furnished
herewith, and in enforcing the obligations of the Borrower hereunder, and to
pay and save the Agent and the Banks harmless from all liability for, any
stamp or other taxes which may be payable with respect to the execution or
delivery of this Amendment and the Notes, which obligations of the Borrower
shall survive any termination of the Credit Agreement.
4.2 COUNTERPARTS. This Amendment may be executed in as many counterparts
as may be deemed necessary or convenient, and by the different parties hereto
on separate counterparts, each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
instrument.
4.3 SEVERABILITY. Any provision of this Amendment which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
4
<PAGE>
4.4 LAW. This Amendment shall be a contract made under the laws of the
State of Minnesota, which laws shall govern all the rights and duties
hereunder.
4.5 SUCCESSORS; ENFORCEABILITY. This Amendment shall be binding upon the
Borrower, the Agent and the Banks and their respective successors and
assigns, and shall accrue to the benefit of the Borrower, the Agent and the
Banks and the successors and assigns of the Agent and the Banks. Except as
hereby amended, the Credit Agreement shall remain in full force and effect
and is hereby ratified and confirmed in all respects.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed at Minneapolis, Minnesota by their respective officers thereunto
duly authorized as of the date first written above.
MERRILL CORPORATION
By /s/ Kay A. Barber
-----------------------------------
Kay A. Barber
Vice President - Finance, Chief
Financial Officer and Treasurer
By /s/ Steven J. Machov
-----------------------------------
Steven J. Machov
Vice President, General Counsel
and Secretary
U.S. BANK NATIONAL ASSOCIATION,
as Agent and as a Bank
By /s/ William J. Umscheid
-----------------------------------
William J. Umscheid
Vice President
Commitment: $35,000,000
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By /s/ Lynn S. Hultstrand
-----------------------------------
Lynn S. Hultstrand
Vice President
Commitment: $35,000,000
5
<PAGE>
Exhibit 10.8
Execution Copy
SECOND AMENDMENT TO LOAN AGREEMENT
(Series 1990B, Lot 1)
THIS SECOND AMENDMENT TO LOAN AGREEMENT, dated as of this 1st day of
July, 1998, among the Minnesota Agricultural and Economic Development Board,
as the statutory successor to the Minnesota Energy and Economic Development
Authority (the "Authority") (collectively herein, such Board and
Authority shall be referred to as the "Board") and Merrill/May, Inc. (the
"Borrower") is being entered into to amend and modify certain provisions of
the Loan Agreement dated as of July 1, 1990 (the "1990 Loan Agreement") by
and between the Board and May Printing Company (the "1990 Borrower") as
amended by the First Amendment to Loan Agreement dated as of December 31,
1993 (the "First Amendment to Loan Agreement") by and between the Board and
the Borrower; and
WHEREAS, pursuant to the 1990 Loan Agreement, the 1990 Borrower was
provided a loan in the original principal amount of $4,205,000; and
WHEREAS, the 1990 Borrower entered into an agreement under which the
1990 Borrower sold and transferred to Merrill/May, Inc. (the "Borrower")
substantially all of the operating assets and selected liabilities of the
1990 Borrower pursuant to that certain Asset Purchase Agreement dated
December 31, 1993 (the "Asset Purchase Agreement"); and
WHEREAS, in connection with the Asset Purchase Agreement, the Borrower
agreed to assume the obligations of the 1990 Borrower under the 1990 Loan
Agreement by entering into a First Amendment to Loan Agreement dated as of
December 31, 1993 (the "First Amendment to Loan Agreement") (the 1990 Loan
Agreement as amended by the First Amendment to Loan Agreement is referred to
herein as the "Original Loan Agreement") so as to reflect the obligations
under the Original Loan Agreement by the Borrower; and
WHEREAS, the Borrower has requested that the Board issue, pursuant to
MINNESOTA STATUTES, Chapter 41A (and including certain provisions of
MINNESOTA STATUTES 1986, Chapter 116M notwithstanding the repeal thereof)
(collectively the "Act"), its Minnesota Agricultural and Economic
Development Board Minnesota Small Business Development Loan Program Refunding
Revenue Bonds, Series 1998B, Lot 2 (the "Series 1998B Lot 2 Bonds") in the
principal amount not to exceed $3,320,000 to fund a loan to the Borrower to
redeem and prepay on August 1, 1998 the outstanding principal amount of the
Minnesota Agricultural and Economic Development Board Minnesota Small
Business Development Loan Program Revenue Bonds, Series 1990B, Lot 1 (the
"Series 1990B Lot 1 Bonds") previously issued by the Board to finance the
Project (as defined in the Original Loan Agreement);
WHEREAS, the Borrower has requested that the Board enter into this
Second Amendment to Loan Agreement to refund the Series 1990B Lot 1 Bonds; and
WHEREAS, Section 6.08 of the Minnesota Small Business Development Loan
Program Revenue Bonds General Bond Resolution adopted by the Board on
September 26, 1984 (the "General Bond Resolution") provides that the Board
may consent to any amendment or modification of a loan agreement, security
instrument or any other security arrangement that would not impair or
materially adversely affect in any manner the rights or security of holders
of the Bonds (as defined in the General Bond Resolution); and
<PAGE>
WHEREAS, the Board approved Resolution 98-317 on June 29, 1998,
approving this Second Amendment to Loan Agreement; and
NOW, THEREFORE, the parties hereby desire to amend the Original Loan
Agreement and hereby covenant and agree as follows:
Section 1. DEFINITIONS. The following definitions in Section 1.1. are
deleted in their entirety and new definitions as follows are substituted in
lieu thereof:
"Agreement" means the Loan Agreement dated as of July 1, 1990
between the 1990 Borrower and the Board as amended and supplemented by
the First Amendment to Loan Agreement dated as of December 31, 1993
between the Borrower and the Board and as further amended and
supplemented by this Second Amendment to Loan Agreement dated as of
July 1, 1998 between the Borrower and the Board.
"Business Loan Reserve Account Requirement" means, as of any date
of calculation, with respect to any Lot of Bonds, that sum which is equal
to (i) the maximum Aggregate Debt Service for any Bond Year over the
period from the date of calculation to (and including) the final
maturity date of such Lot of Bonds or (ii) such lesser amount as shall
be required pursuant to Section 103(c) of the Code to preserve the
tax-exempt status of such Lot of Bonds.
"Note" means the promissory note of the Borrower dated as of the
date of the Series 1998B Lot 2 Bonds, evidencing the Borrower's
obligations pursuant to this Agreement, substantially in the form of
Appendix I hereto.
"Single Lot Bonds" means the Minnesota Agricultural and Economic
Development Board Minnesota Small Business Development Loan Program
Refunding Revenue Bonds, Series 1998B Lot 2 in the aggregate principal
amount of $3,320,000 authorized by the Single Lot Resolution.
"Single Lot Resolution" means the Single Lot Bond Resolution of the
Authority authorizing the issuance of the 1990B Lot 1 Bonds adopted by
the Authority on June 29, 1990 as amended by the resolution by the
Authority on June 29, 1998 authorizing the issuance of the Series
1998B Lot 2 Bonds.
Section 2. APPENDIX I. Appendix I to the Original Loan Agreement is
deleted in its entirety and a new Appendix I is substituted therefore in the
form of Appendix I hereto.
Section 3. AUTHORITY FOR SECOND AMENDMENT TO LOAN AGREEMENT. This
Second Amendment to Loan Agreement is being entered into without need for the
consent of the holders of any Bond (as defined in the General Bond
Resolution) issued under the General Bond Resolution being obtained pursuant
to Section 12.4 of the Loan Agreement and Section 6.08 of the General Bond
Resolution. The Borrower hereby represents that the amendments to the
Original Loan Agreement set forth in this Second Amendment to Loan Agreement
will not impair or materially adversely affect in any manner, the rights or
security of the bondholders of the Related Lot of Bonds (as defined in the
Original Loan Agreement).
Section 4. DELIVERY OF DOCUMENTATION. The Borrower agrees to execute
and deliver to the Board any and all documents, amendments to documents,
filings, and notices as reasonably requested by the
-2-
<PAGE>
Board to memorialize this Second Amendment to Loan Agreement and provide
notice as required under law or as deemed appropriate by the Board.
Section 5. NO FURTHER MODIFICATIONS OR REVISIONS. Except as amended
hereby, the Original Loan Agreement and all bond documents issued thereunder,
as they relate thereto, shall remain in full force and effect.
Section 6. EFFECTIVENESS. This Second Amendment to Loan Agreement shall
become effective as of the date first written above.
-3-
<PAGE>
IN WITNESS WHEREOF, the Board and the Borrower have caused this Second
Amendment to Loan Agreement to be executed in their respective names as of
the date first above written.
MINNESOTA AGRICULTURAL AND ECONOMIC
DEVELOPMENT BOARD, as statutory
successor to the Minnesota Energy and
Economic Development Authority
By /s/ Paul Moe
-----------------------------------
Its Executive Director
MERRILL/MAY, INC.
By /s/ John Castro
-----------------------------------
Its President
Signature page of the Second Amendment to Loan Agreement between the
Minnesota Agricultural and Economic Development Board and Merrill/May, Inc.
dated as of July 1, 1998.
-4-
<PAGE>
- -------------------------------------------------------------------------------
$3,320,000
MINNESOTA AGRICULTURAL AND ECONOMIC DEVELOPMENT BOARD
MINNESOTA SMALL BUSINESS DEVELOPMENT LOAN PROGRAM
REFUNDING REVENUE BONDS
SERIES 1998B, LOT 2
BOND PURCHASE AGREEMENT
June 26, 1998
- -------------------------------------------------------------------------------
<PAGE>
$3,320,000
MINNESOTA SMALL BUSINESS DEVELOPMENT LOAN
PROGRAM REFUNDING REVENUE BONDS
SERIES 1998B, LOT 2
BOND PURCHASE AGREEMENT
Minnesota Agricultural and June 26, 1998
Economic Development Board
St. Paul, Minnesota 55101
Merrill/May Inc.
One Merrill Circle, Energy Park
St. Paul, MN 55108
Ladies and Gentlemen:
We, Dougherty Summit Securities LLC and Piper Jaffray Inc. (sometimes
herein referred to as the "Underwriters") hereby offer to purchase upon the
terms and conditions hereinafter specified, $3,320,000 principal amount of
Minnesota Small Business Development Loan Program Refunding Revenue Bonds,
Series 1998B, Lot 2, dated as of July 1, 1998 (the "Bonds") to be issued by the
Minnesota Agricultural and Economic Development Board, St. Paul, Minnesota (the
"Issuer"). The Bonds are described in and will be offered for sale by the
Underwriters pursuant to an Official Statement dated July 7, 1998 prepared in
connection with the issuance of the Bonds (together with the Appendices thereto,
the "Official Statement"). The Underwriters have approved a form of a
Preliminary Official Statement relating to the Bonds (the "Preliminary Official
Statement"). If and when accepted by all of you, this document shall constitute
our Bond Purchase Agreement.
1. BACKGROUND. The Bonds are to be issued by the Issuer pursuant
to, and will be secured as provided in, the Minnesota Small Business
Development Loan Program Revenue Bonds General Bond Resolution, as amended
(the "General Bond Resolution") and the Series 1998B, Lot 2 Bond Resolution
(the "Lot Bond Resolution") adopted June 29, 1998. The net proceeds of the
Bonds will be used to refund the Issuer's Series 1990B, Lot 1 Bonds, finance
the costs of constructing a manufacturing building (the "Project") which is
owned by Merrill/May Inc., a Minnesota corporation (the "Borrower"). Prior
to the issuance of the Bonds, the Issuer and the Borrower will amend an
existing Loan Agreement (as amended, the "Loan Agreement") under which the
Borrower will agree, among other things, to borrow the proceeds of the Bonds
from the Issuer and to pay loan repayments in amounts sufficient to pay the
principal of, premium, if any, and interest on the Bonds when due. The
proceeds of the Bonds will be disbursed by U.S. Bank Trust National
Association, as agent for U.S. Bank National Association (formerly First
National Bank of Minneapolis) (the "Trustee"), pursuant to the General Bond
Resolution. The Bonds and redemption premium, if any, and interest thereon
do not constitute a debt of the Issuer or the State of Minnesota within the
meaning of any
<PAGE>
constitutional or statutory limitation or provision and shall not constitute or
give rise to any pecuniary liability of the Issuer or charge against the
Issuer's general credit or taxing powers, if any, and shall not constitute a
charge or encumbrance, legal or equitable, upon the property of the Issuer
except as may be provided in the General Bond Resolution, the Lot Bond
Resolution, the General Guaranty Fund Resolution (described below) or the Loan
Agreement.
The Bonds are secured by the Lot Bond Resolution, the General Bond
Resolution, the General Guaranty Fund Resolution adopted September 26, 1984,
as amended, (the "General Guaranty Fund Resolution") and the General Guaranty
Fund Pledge and Escrow Agreement dated as of September 26, 1984, as amended,
(the "General Guaranty Fund Pledge and Escrow Agreement") between U.S. Bank
National Association (formerly First National Bank of Minneapolis), as Escrow
Holder and the Issuer. The Loan Agreement is secured by a mortgage and
certain other instruments (the "Security Instruments"). Merrill Corporation
(the "Guarantor") will confirm its guaranty of the Loan Agreement pursuant to
a Confirmation of Guaranty (the "Confirmation"). The Issuer and the Trustee
will enter into a Continuing Disclosure Agreement dated as of July 1, 1998
for the benefit of the holders of the Bonds.
The Bonds will mature and bear interest and contain certain other
terms as set forth in the Lot Bond Resolution.
The Bonds will be sold by us pursuant to the Preliminary Official
Statement and the Official Statement.
2. REPRESENTATIONS OF THE ISSUER. The Issuer makes the following
representations:
(a) The Issuer is an agency duly organized and existing under
the laws of the State of Minnesota, with full power and authority to
act on behalf of the State of Minnesota (within the meaning of Rev.
Rul. 63-20) to adopt the General Bond Resolution, the Lot Bond
Resolution and the General Guaranty Fund Resolution, to issue the
Bonds, to pledge the loan repayments and other sums to be received
pursuant to the Loan Agreement and to conduct its corporate purposes
as described in the Official Statement. The Issuer has full power and
authority to execute and deliver the Loan Agreement, the General
Guaranty Fund Pledge and Escrow Agreement and this Bond Purchase
Agreement and to carry out the terms thereof and hereof.
(b) This Bond Purchase Agreement has been duly and validly
authorized. This Bond Purchase Agreement, when executed and
delivered, will be in full force and effect and is a legal, valid,
binding and enforceable obligation of the Issuer in accordance with
its terms. The General Guaranty Fund Pledge and Escrow Agreement, the
Loan Agreement, and the Bonds, when executed and delivered, shall have
been duly and validly authorized, executed and delivered, shall be in
full force and effect and shall be legal, valid, binding and
enforceable obligations of the Issuer in accordance with their terms,
respectively, except to the extent limited by any future proceedings
under
2
<PAGE>
bankruptcy, reorganization, or other laws of general application relating to or
affecting the enforcement of creditors' rights.
(c) The consummation of the transactions contemplated by the
Loan Agreement, the Official Statement and this Bond Purchase
Agreement and the carrying out of the terms thereof and hereof shall
not result in the violation of any provision of or restriction
contained in any agreement to which the Issuer is a party or by which
it is bound; provided, however, that the representations in this
paragraph shall not apply to the qualification of the Bonds under
state or federal securities or Blue Sky laws or the law of any
jurisdiction outside the United States.
(d) To the best knowledge of the Issuer there is no action,
suit, proceeding or investigation, at law or in equity, before or by
any court, public board or body, pending or threatened against or
affecting the Issuer wherein an unfavorable decision, ruling or
finding would materially adversely affect the transactions
contemplated by the Loan Agreement, the Official Statement and this
Bond Purchase Agreement.
(c) Any certificate signed by any official of the Issuer and
delivered to the Underwriters on or prior to the Closing Date shall be
deemed a representation by the Issuer to the Underwriters as to the
truth of the statements therein contained.
3. THE BORROWER'S AND GUARANTOR'S REPRESENTATIONS. The Borrower and
the Guarantor make the following warranties and representations:
(a) The Borrower is a corporation duly organized and validly
existing under the laws of the State of Minnesota with full power and
authority to own the Project and otherwise conduct its business as
described in Appendix B to the Official Statement. To the best of its
knowledge, the Borrower is conducting its business in substantial
compliance with all applicable and valid laws, rules and regulations
of each jurisdiction where it owns or leases substantial property or
where it transacts material intrastate business.
(b) The Guarantor is a corporation duly organized and validly
existing under the laws of the State of Minnesota with full power and
authority to operate the Project and otherwise conduct its business as
described in Appendix B to the Official Statement. To the best of its
knowledge, the Guarantor is conducting its business in substantial
compliance with all applicable and valid laws, rules and regulations
of each jurisdiction where it owns or leases substantial property or
where it transacts material intrastate business.
(c) The Borrower has full power and authority to execute and
deliver the Loan Agreement and this Agreement and to carry out the
terms thereof. The Guarantor has full power and authority to deliver
the Confirmation and this Agreement. This Agreement and the Loan
Agreement, when executed and delivered by the Borrower, will have been
duly and validly authorized, executed and delivered by the Borrower,
will be in full force
3
<PAGE>
and effect and will be valid and binding instruments of the Borrower,
enforceable in accordance with their terms, except as limited by
bankruptcy, insolvency or other laws affecting creditors' rights generally.
This Agreement and the Confirmation, when executed and delivered by the
Guarantor, will have been duly and validly authorized, executed and
delivered by the Guarantor, will be in full force and effect and will be
valid and binding instruments of the Guarantor, enforceable in accordance
with their terms, except as limited by bankruptcy, insolvency or other laws
affecting creditors' rights generally.
(d) The consummation of the transactions herein contemplated and
carrying out of the terms hereof will not result in a material
violation of any provision of, or a default under the Articles of
Incorporation or Bylaws of the Borrower or the Guarantor or any
indenture, mortgage, deed of trust, indebtedness, agreement, judgment,
decree, order, statute, rule or regulation to which the Borrower or
Guarantor is a party or by which the property of either is bound;
provided, however, that the representations and warranties in this
paragraph shall not apply to the qualification of the Bonds under
state or federal securities or Blue Sky Laws or the law of any
jurisdiction outside the United States.
(e) Except as described in the Official Statement, to the best
of their knowledge, no approval, authorization, consent or other order
of any public board or body (other than the authorization of the
Issuer and registration under and compliance with the federal or
securities or Blue Sky laws of various states) is legally required for
the transactions contemplated hereby.
(f) Neither the Guarantor nor the Borrower is in violation of
any material provision of its Articles of Incorporation or Bylaws.
Neither the Borrower nor the Guarantor is in violation of any
provision of, or in material default under, any indenture, mortgage,
deed of trust, indebtedness agreement, instrument, judgment, decree,
order, statute, rule or regulation to which it is a party or by which
it or its property is bound.
(g) There are no legal or governmental proceedings pending or,
to the best of its knowledge, threatened or contemplated by
governmental authorities or threatened by others to which the Borrower
or Guarantor is or may become a party or of which any property of the
Borrower or Guarantor is or may become subject, other than as is set
forth in the Official Statement, which, if determined adversely to the
Borrower or Guarantor, would have a material and adverse effect on the
financial condition of the Borrower or Guarantor.
(h) The information contained in the Official Statement under
the heading "THE SERIES 1998B BONDS - Lot 2 Estimated Sources and Uses
of Funds", and the information concerning the Borrower and Guarantor
in Appendix B thereto is accurate in all material respects.
(i) Subsequent to the respective dates as of which information
is given in the Official Statement and prior to the Closing Date
hereinafter mentioned, except as
4
<PAGE>
described to the Underwriters and Issuer or set forth in or contemplated by
the Official Statement, (1) neither the Borrower nor the Guarantor shall
have incurred any material liabilities or obligations, direct or
contingent, except in the ordinary course of business, or shall have
entered into any material transaction not in the ordinary course of
business, (2) there has not been any material adverse change in the
business of the Borrower or Guarantor or the financial position or results
of operations of the Borrower or Guarantor, (3) no loss or damage (whether
or not insured) to the property of the Borrower or Guarantor has been
sustained which materially and adversely affects the operations of the
Borrower or Guarantor, and (4) no legal or governmental proceedings
affecting the transactions contemplated by this Agreement have been
instituted or threatened which are material.
4. PURCHASE, SALE AND DELIVERY OF THE BONDS. On the basis of the
representations and warranties and subject to the terms and conditions set forth
herein, we agree to purchase, and the Issuer agrees to sell to us, the total
principal amount of the Bonds at a purchase price of $3,320,000 plus interest
accrued from the date of the Bonds to the Closing Date. From other available
funds, the Borrower shall pay us an underwriting fee of $83,000. Payment for
the Bonds shall be made to the Issuer or its order by wire transfer or by
certified or official bank check or checks payable in immediately available
funds at the office of Lindquist & Vennum P.L.L.P., Bond Counsel, in
Minneapolis, Minnesota, at 10 a.m. Central Time, on July 15, 1998, or at such
later date as may be agreed upon by an appropriate officer of the Issuer, the
Borrower and us against delivery of the Bonds to us. The date and time of such
payment and delivery are herein called the "Closing Date". The Bonds will be
delivered to us on the Closing Date in the office of the bond counsel in
Minneapolis, Minnesota, in fully registered form, as requested by us before the
Closing Date, and the Bonds shall be made available to us for inspection at
least one day prior to the Closing Date. The Bonds shall bear CUSIP numbers,
provided that neither the printing of a wrong number on any Bond nor the failure
to print a number thereon shall constitute cause to refuse delivery of a Bond.
5. COVENANTS OF THE BORROWER. The Borrower:
(a) except in connection with the issuance of additional obligations
under the General Bond Resolution or changes in the Guaranty Fund Amount,
if at any time for a period of six months after the date of the Official
Statement an event shall have occurred as a result of which it is necessary
to amend or supplement the Official Statement in order to make the
statements therein with respect to the Borrower and Guarantor not untrue or
misleading, notify us promptly thereof and furnish to us an appropriate
amendment or a supplement that will correct the statements in the Official
Statement in order to make the statements therein with respect to the
Borrower and Guarantor not untrue or misleading; and
(b) advise the Underwriters promptly upon obtaining knowledge thereof
of the institution of any proceedings by any governmental agency or
otherwise affecting the use of the Official Statement or in connection with
the sale and distribution of the Bonds.
5
<PAGE>
The Issuer, the Borrower and the Guarantor shall cooperate with the
Underwriters to maintain the eligibility of the Bonds for secondary market
trading in the State of Minnesota, provided, however, in no event shall the
Issuer be required to expend any moneys or funds to maintain such eligibility
and if moneys or funds need be expended therefor such expenditures shall be the
sole obligation of the Borrower. For this purpose the Borrower and the
Guarantor shall provide the information necessary for the Issuer to furnish the
Underwriters with an annual report in the form required and the Issuer shall
furnish such annual report to the Underwriters and the Borrower and the
Guarantor shall pay any annual fee of the State of Minnesota required in this
connection.
6. CONDITIONS OF OBLIGATIONS OF UNDERWRITERS AND ISSUERS. Our
obligation to purchase and pay for the Bonds, and the obligation of the
Issuer to issue the Bonds is subject to the following conditions:
(a) The representations and warranties of the Borrower and Guarantor
shall be true and correct as of the date hereof and the Closing Date.
(b) At the Closing Date, the Borrower and the Guarantor shall have
performed all of its obligations hereunder theretofore to be performed.
(c) At the Closing Date, there shall be delivered to us and dated as
of the Closing Date:
(i) opinions of Lindquist & Vennum P.L.L.P., Minneapolis,
Minnesota, as Bond Counsel, addressed to the Issuer substantially in
the form set forth as Exhibit A and a separate opinion of Bond
Counsel, addressed to us, substantially in the form set forth as
Exhibit B.
(ii) one or more opinions of counsel to the Borrower and
Guarantor, addressed to us and the Issuer, substantially in the form
set forth as Exhibit C.
(iii) certificate of an authorized representative of the Issuer,
substantially in the form of Exhibit D.
(iv) opinion of the Office of the Attorney General of the State
of Minnesota, as counsel to the Issuer, addressed to us and the
Issuer, substantially in the form set forth as Exhibit E.
In rendering the above opinions, counsel may rely upon customary
certificates.
(d) The General Guaranty Fund Pledge and Escrow Agreement, the Loan
Agreement, the Continuing Disclosure Agreement and the Confirmation, in
substantially the forms existing on the date hereof, with such changes
therein as may be mutually agreed upon by the parties thereto and us, and
all instruments contemplated thereby, shall
6
<PAGE>
have been duly authorized, executed and delivered by the respective parties
thereto and shall be in full force and effect on the Closing Date.
(e) All proceedings and related matters in connection with the
authorization, issue, sale and delivery of the Bonds shall have been
satisfactory to Bond Counsel, and such counsel shall have been furnished
with such papers and information as they may have reasonably requested to
enable them to pass upon the matters referred to in this Section 6.
(f) The Borrower shall have furnished or caused to be furnished to us
on the Closing Date certificates satisfactory to us as to the accuracy of
all representations and warranties contained herein as of the date hereof
and as of the Closing Date and as to the performance by the Borrower of all
of their obligations hereunder to be performed at or prior to the Closing
Date.
(g) The offer and sale of the Bonds shall be exempt from registration
under the Securities Act of 1933, as amended.
(h) The Bonds shall be registered under the Blue Sky laws of the
State of Minnesota and registered or exempt from registration for sale in
such states as the Underwriters and the Issuer shall have mutually agreed
upon and the Underwriters shall have been furnished one or more memoranda
to such effect by Faegre & Benson.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are in all material respects
satisfactory to us.
If any condition of our obligation hereunder to be satisfied prior to
the Closing Date is not so satisfied, this Agreement may be terminated by us by
notice in writing or by telegram to the Borrower and the Issuer.
We may waive in writing compliance by the Borrower and Guarantor or
the Issuer with any one or more of the foregoing conditions or extend the time
for their performance.
7. INDEMNIFICATION. The Borrower will indemnify and hold harmless
the Underwriters and the Issuer and each person, if any, who controls the
Underwriters and the Issuer (in this paragraph separately and collectively
referred to as the "defendants") within the meaning of the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, as amended, from and
against any and all losses, claims, damages, expenses or liabilities, joint or
several, to which they or any of them may become subject under the Securities
Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, or
under any other statute or at common law or otherwise, and, except as
hereinafter provided, will reimburse the Underwriters, the Issuer and each such
controlling person, if any, for any legal or other expenses reasonably incurred
by them or any of them in connection with investigation or defending any actions
whether or not resulting in any liability, insofar as such losses, claims,
damages, expenses, liabilities or actions arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact
7
<PAGE>
or failure to state a material fact contained in the Official Statement (or the
Official Statement as from time to time amended or supplemented) under, and only
under, the heading "THE SERIES 1998 BONDS - Lot 2 Estimated Sources and Uses of
Funds" or that portion of Appendix B relating to the Borrower and Guarantor.
Promptly after receipt by the Underwriters, the Issuer or any such controlling
person of notice of the commencement of any action in respect of which indemnity
may be sought against the Borrower and Guarantor under this Section, such person
will notify the Borrower and Guarantor in writing of the commencement of any
action in respect of which indemnity may be sought against the Borrower and
Guarantor under this Section, such person will notify the Borrower and Guarantor
in writing of the commencement thereof, and, subject to the provisions
hereinafter stated, the Borrower and Guarantor shall assume the defense of such
action (including the employment of counsel, who shall be counsel satisfactory
to the Underwriters, the Issuer or such controlling person, as the case may be,
and the payment of expenses) insofar as such action shall relate to any alleged
liability in respect of which indemnity may be sought against the Borrower and
Guarantor. The issuer or any such controlling person shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, and the fees and expenses of such counsel shall be at the expense of
the Borrower and Guarantor. The Borrower and Guarantor shall not be liable to
indemnify any person for any settlement of any such action effected without its
consent.
To the same extent as the foregoing indemnity contained in this
Section from the Borrower and Guarantor to the Underwriters and the Issuer and
each person, if any, who controls the Underwriter and the Issuer, the
Underwriters agree to indemnify and hold harmless the Borrower and Guarantor and
the Issuer and each person, if any, who controls the Borrower and Guarantor and
the Issuer within the meaning of the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended (hereinafter in this paragraph
separately and collectively referred to as the "defendants"), but only with
reference to information furnished by us specifically for use in the preparation
of the Official Statement and Preliminary Official Statement. In case any such
claim shall be presented in writing or any action shall be brought against any
of the defendants based on the Official Statement or Preliminary Official
Statement, in respect of which indemnity may be sought from the Underwriters on
account of its agreement contained in this Section, the Underwriters shall have
the rights and duties given to the Borrower and Guarantor in the above paragraph
and the defendants shall have the rights and duties given by the above paragraph
to the persons therein referred to as "defendants".
8. OFFERING BY UNDERWRITERS. We propose to offer the Bonds for sale
to the public under the applicable securities laws in the states in which the
Bonds will be reoffered as set forth in the Official Statement. Concessions
from the offering price may be allowed to selected dealers and special
purchasers. The offering price and concessions vary after the initial offering
and the Bonds may be offered at prices other than the par value thereof. The
Borrower and Guarantor hereby confirm and the Issuer hereby consents to the
authority and use by the Underwriters of the Preliminary Official Statement and
the Official Statement.
9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
The representations, warranties, indemnities, agreements and other statements of
the Borrower, the Guarantor, the Issuer and the Underwriters or their officers
and authorized representatives set forth in or made pursuant to this Agreement
will remain operative and in full force and effect regardless of any
investigation or statement as to the results thereof made by or on behalf of the
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Borrower, the Guarantor, the Issuer or the Underwriters or any controlling
person and will survive delivery of and payment for the Bonds.
10. PAYMENT OF COSTS AND EXPENSES. There shall be paid by the
Borrower and Guarantor the following: the fees and disbursements of
Underwriters' counsel, the costs of registration or filing fees with the various
states; fees and disbursements of bond counsel and staff for the State of
Minnesota or Issuer, costs of preparation and any printing of the General Bond
Resolution, and any similar documents, if any; costs of printing the Preliminary
Official Statement and the final Official Statement; the initial fees of the
Trustee, the Escrow Holder and paying agents. The Borrower shall, in addition,
pay the underwriting fee of $83,000 referred to in Section 4 on the Closing
Date.
11. TERMINATION OF AGREEMENT. This Agreement may be terminated at
any time prior to the Closing Date by us by written notice to the Issuer and
the Borrower if in our judgment it is impracticable to offer for sale or to
enforce contracts made by the Underwriters for the resale of the Bonds agreed
to be purchased hereunder by reason of (i) trading in securities on the New
York Stock Exchange, Inc. or the American Stock Exchange having been
suspended or limited or minimum prices having been established on either such
Exchange, (ii) a banking moratorium having been declared by either Federal or
applicable state authorities, (iii) an outbreak of major hostilities or other
national or international calamity having occurred, (iv) any action having
been taken by any government in respect of its monetary affairs which, in our
opinion, has a material adverse effect on the United States securities
markets, (v) legislation is introduced in Congress, or a decision rendered by
any court, or any order, ruling, regulation or statement issued by any agency
of the United States which, in our opinion, would result in the interest
payable on the Bonds being subject to United States income taxes or the
Bonds, Loan Agreement, Lot Bond Resolution, General Bond Resolution, General
Guaranty Fund Resolution being subject to registration or qualification with
the Securities and Exchange Commission, (vi) by reason of a default with
respect to any security issued by a state or any subdivision or
instrumentality of a state having a population of more than one million,
which, in our opinion, has a material adverse effect on the United States
securities markets or (vii) the occurrence of any event, or knowledge to that
effect, which makes untrue, incorrect or misleading in any material respect
any statement or information contained in the Official Statement, or has the
effect that the Official Statement contains an untrue, incorrect or
misleading statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. If this Agreement shall be terminated pursuant to Section 6 or
this Section 11, or if the purchase provided for herein is not consummated
because any condition to our obligation hereunder is not satisfied or because
of any refusal, inability or failure on the part of the Borrower, the
Guarantor or the Issuer to comply with any of the terms or to fulfill any of
the conditions of this Agreement, or if for any reason the Borrower, the
Guarantor or the Issuer shall be unable to perform all of their respective
obligations under this Agreement, neither the Borrower, Guarantor nor the
Issuer shall be liable to us for damages on account of loss of anticipated
profits arising out of the transactions covered by this Agreement, but the
Borrower and Guarantor shall remain liable to the extent provided in Section
10 hereof, and the Borrower and Guarantor shall pay all reasonable
out-of-pocket expenses incurred by us, Bond Counsel, Issuer's Counsel and
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Underwriters' Counsel hereunder, including the fees and disbursements of such
Counsel in contemplation of the purchase and sale of the Bonds.
12. NOTICES AND GOVERNING LAW. All communications hereunder shall
be in writing and, except as otherwise provided, shall be delivered at, or
mailed or telegraphed to, the following addresses: if to the Underwriters, to
Dougherty Summit Securities, LLC, 90 South Seventh Street, 4300 Norwest
Center, Minneapolis, Minnesota 55402 Attention: Mark Landreville; if to the
Borrower and Guarantor, addressed to them at One Merrill Circle, St. Paul, MN
55108 Attention: Dale Kopel; if to the Issuer, addressed to it at 500 Metro
Square, 121 7th Place East, St. Paul, Minnesota 55101, Attention: Chair.
This Agreement shall be governed by and construed in accordance with the laws
of the State of Minnesota.
13. PARTIES IN INTEREST. This Agreement shall be binding upon and
shall inure to the benefit of the Underwriters, the Borrowers and the Issuer,
and, to the extent expressed, any person controlling the Issuer, the
Underwriters, the Borrower, the Guarantor and their respective executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser, as such purchaser, from the
Underwriters of the Bonds.
14. TIME. Time shall be of the essence of this Agreement.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts.
16. SURVIVABILITY. The covenants, representations, and warranties
contained in this Bond Purchase Agreement shall survive the purchase, sale, and
delivery of the Bonds.
[This page intentionally left blank.]
10
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If the foregoing is in accordance with your understanding of the
Agreement, kindly sign and return to us the enclosed duplicate copies hereof,
whereupon it will become a binding agreement among the Issuer, the Borrower and
the Underwriters in accordance with its terms.
Very truly yours,
DOUGHERTY SUMMIT SECURITIES LLC
For and On behalf of the Underwriters and Itself
By /s/ Mark Landreville
--------------------------------------
Its Executive Vice President
Confirmed and accepted as of the date first
above written.
MINNESOTA AGRICULTURAL AND
ECONOMIC DEVELOPMENT BOARD
By /s/ [Illegible]
----------------------------------------
Executive Director
MERRILL/MAY INC.
By /s/ John Castro
-----------------------------------------
Its
--------------------------------------
MERRILL CORPORATION
By /s/ John Castro
----------------------------------------
Its
--------------------------------------
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<PAGE>
EXHIBIT A
[Lindquist & Vennum Letterhead]
[CLOSING DATE], 1998
Minnesota Agricultural and Economic
Development Board
500 Metro Square
121 7th Place East
St. Paul, Minnesota 55101
Dougherty Summit Securities, LLC
90 South Seventh Street
4300 Norwest Center
Minneapolis, Minnesota 55402
Piper Jaffray Inc.
222 South Ninth Street
Minneapolis, Minnesota 55440
RE: $________Minnesota Agricultural and Economic Development Board
Minnesota Small Business Development Loan Program Revenue Bonds,
Series 1998B, Lot 2
[Bond Counsel's opinion substantially similar to the form
attached as Appendix D to Preliminary Official Statement dated
_______, 1998]
Very truly yours,
12
<PAGE>
EXHIBIT B
[Lindquist & Vennum Letterhead]
[CLOSING DATE], 1998
Minnesota Agricultural and Economic
Development Board
500 Metro Square
121 7th Place East
St. Paul, Minnesota 55101
Dougherty Summit Securities, LLC
90 South Seventh Street
4300 Norwest Center
Minneapolis, Minnesota 55402
Piper Jaffray Inc.
222 South Ninth Street
Minneapolis, Minnesota 55440
RE: $________Minnesota Agricultural and Economic Development Board
Minnesota Small Business Development Loan Program Revenue Bonds,
Series 1998B, Lot 2
[Form of opinion to be substantially as follows:]
1. The Bonds, the General Bond Resolution and other documents
securing the Bonds, except the Loan Agreement, are exempt from registration
pursuant to the Securities Act of 1933, as amended; the Bonds constitute
"municipal securities" within the meaning of the Securities and Exchange Act of
1934, as amended; and the General Bond Resolution is exempt from qualification
under the Trust Indenture Act of 1939, as amended.
2. The statements in the Official Statement relating to the Bonds
under the headings "THE SERIES 1998B BONDS", "SECURITY FOR THE BONDS", "SUMMARY
OF CERTAIN PROVISIONS OF GENERAL BOND RESOLUTION", "SUMMARY OF CERTAIN
PROVISIONS OF GENERAL GUARANTY FUND PLEDGE AND ESCROW AGREEMENT", "SUMMARY OF
CERTAIN PROVISIONS OF LOAN AGREEMENTS, COLLATERAL AND SECURITY INSTRUMENTS" and
"TAX EXEMPTION", are true and accurate and do not omit a material fact necessary
to be included therein for the purpose for
13
<PAGE>
which they were intended. In preparation of the remaining portions of the
Official Statement, the Underwriters have been represented by their counsel and
we have not examined or verified such other provisions in the Official
Statement, or appendices thereto, and accordingly express no opinion thereon.
We further express no opinion with respect to the adequacy of disclosure in the
Official Statement with respect to any Borrowers described therein or any
documents to which they are a party or any collateral which they have provided.
We hereby consent to the use of our firm name on the cover page and
under the headings "TAX EXEMPTION" and "APPROVAL OF LEGAL MATTERS" in the
Official Statement.
Very truly yours,
14
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EXHIBIT C
15
<PAGE>
EXHIBIT D
CERTIFICATE OF ISSUER
Dougherty Summit Securities, LLC
Minneapolis, Minnesota
Piper Jaffray Inc.
Minneapolis, Minnesota
RE: $_________ Minnesota Agricultural and Economic Development Board
Minnesota Small Business Development Loan Program, Series 1998B, Lot 2
The Minnesota Agricultural and Economic Development Board (the
"Board") does hereby certify in connection with the issuance of the
above-captioned Bonds which were purchased by you pursuant to a Bond Purchase
Agreement dated ___________, 1998 among you, the Board, and Merrill/May Inc.
(the "Borrower") that to the best of its knowledge as of this date the
Official Statement, except as noted below, does not contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances in which they were
made, not misleading. The Board has relied on the information furnished by
the Borrower in preparing the sections under the heading "THE SERIES 1998B
BONDS -- Lot 2 Estimated Sources and Uses of Funds" and in Appendix B.
Date:__________ MINNESOTA AGRICULTURAL AND ECONOMIC
DEVELOPMENT BOARD
By___________________________
Its________________________
16
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EXHIBIT E
[Letterhead of the Office of the Attorney General]
[CLOSING DATE], 1998
Minnesota Agricultural and Economic
Development Board
500 Metro Square
121 7th Place East
St. Paul, Minnesota 55101
Dougherty Summit Securities, LLC
90 South Seventh Street
4300 Norwest Center
Minneapolis, Minnesota 55402
Piper Jaffray Inc.
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55440
RE: $_________ Minnesota Agricultural and Economic Development Board
Minnesota Small Business Development Loan Program Revenue Bonds,
Series 1998B, Lot 2
[Form of opinion to be substantially as follows:]
1. The Board was duly created and is validly existing under the
provisions of the Act as a Board authorized to act on behalf of the State
(within the meaning of Rev. Rul. 63-20) with full power and authority to adopt
the General Resolution, the Lot Resolution and the General Guaranty Fund
Resolution; to issue, execute, sell and deliver the Bonds; and to execute,
deliver and perform the Bond Purchase Agreement, the Escrow Agreement and the
Loan Agreement.
2. The General Resolution, the Lot Resolution and the General
Guaranty Fund Resolution have been duly adopted by, and the Bond Purchase
Agreement, the Escrow Fund Resolution and the Loan Agreement have been duly
authorized, executed and delivered by the Board, and constitute valid, binding
and legal obligations of the Board enforceable in accordance with their
respective terms except to the extent that the enforceability thereof may be
limited by
17
<PAGE>
bankruptcy, insolvency or other laws affecting creditors' rights generally or
because the obligations are held to be contrary to public policy.
3. The indebtedness of the Board, including that represented by the
Bonds, is within every limit, constitutional, statutory or other, prescribed by
any regulations or statute or law.
All capitalized terms used in this opinion and not otherwise defined
shall have the same meanings as in the General Resolution.
Very truly yours,
---------------------
Special Assistant
Attorney General
18
<PAGE>
**$210,000**
UNITED STATES OF AMERICA
STATE OF MINNESOTA
MINNESOTA AGRICULTURAL AND ECONOMIC DEVELOPMENT BOARD
MINNESOTA SMALL BUSINESS DEVELOPMENT
LOAN PROGRAM REFUNDING REVENUE BOND
SERIES 1998B LOT 2
No. SR98B2-1 Cusip No. 604920VJ4
INTEREST RATE MATURITY DATE DATED DATE
------------- ------------- ----------
4.20% August 1, 1999 July 1, 1998
Minnesota Agricultural and Economic Development Board (the "Board"),
constituted as an authority to act on behalf of the State of Minnesota (the
"State") created and existing by virtue of the laws of the State, acknowledges
itself indebted and for value received hereby promises to pay, solely from the
sources and as hereinafter provided, to
CEDE & CO
or registered assigns,
the principal sum of **TWO HUNDRED TEN THOUSAND*****************DOLLARS
on the maturity date set forth above, unless redeemed prior thereto as
hereinafter provided, upon presentation and surrender of this bond at the
corporate trust office of U.S. Bank National Association, Minneapolis, Minnesota
(the "Trustee" or the "Paying Agent"), and to pay interest (calculated on the
basis of a 360-day year of twelve 30-day months) on such principal sum from the
date hereof at the interest rate set forth above per annum until such principal
sum is paid, payable on the first days of February and August of each year
commencing February 1, 1999. Interest hereon shall be payable by check or draft
mailed from said office of the Trustee to the person in whose name this bond is
registered at the close of business on the 15th day of the calendar month next
preceding each semiannual interest payment date. In case an event of default,
as defined in the General Resolution (hereinbelow described), shall occur, the
principal of this bond may be declared due and payable in the manner and with
the effect provided in the Resolutions (defined below). Amounts paid on this
bond after such declaration shall be paid by the Trustee to the person in whose
name this bond is registered as of a special record date to be fixed by the
Trustee, notice of which is to be mailed to the registered owners of all Bonds
then outstanding. The principal or redemption price, if any, of and interest on
this bond are payable in any coin or currency of the United States of America
which at the time of payment is legal tender for the payment of public and
private debts; provided, however, that interest on this fully registered bond
shall be paid by check or draft as set forth above.
<PAGE>
This bond is one of a duly authorized lot of bonds of the board designated
"Minnesota Agricultural and Economic Development Board Minnesota Small Business
Development Loan Program Refunding Revenue Bonds, Series 1998B, Lot 2 (the
"Single Lot Bonds") issued by the Board in the aggregate principal amount of
$3,320,000 under and pursuant to (i) that act of the legislature of the State,
enacted as Chapter 547 of the Laws of Minnesota for 1980, as amended and
supplemented (and set forth in MINNESOTA STATUTES 1986, Chapter 116M
notwithstanding the subsequent repeal thereof by Minnesota Laws of 1987, Chapter
386) and MINNESOTA STATUTES, Chapter 41A (collectively, the "Act"), (ii) the
Minnesota Small Business Development Loan Program Revenue Bonds General Bond
Resolution duly adopted by the Minnesota Energy and Economic Development
Authority (the "Authority"), as amended and supplemented (the "General
Resolution") and (iii) the Single Lot Resolution, as amended, authorizing the
issuance of the Single Lot Bonds (the "Single Lot Resolution") duly adopted by
the Board (the General Resolution and the Single Lot Resolution are herein
collectively called the "Resolutions"). The Board is the statutory successor to
the Authority with respect to General Resolution and the Program (as therein
defined). The Board and the Authority are collectively referred to herein as
the "Board". The Single Lot Bonds are all of the like date and tenor except as
to number, dates, denominations, interest rate and maturity, and are issued for
the purposes of acquiring a Business Loan to provide financing for the costs of
a project to be used by a Business in its business operations (as such
capitalized terms are defined in the Resolutions) and for other proper purpose
of the Authority as provided by the Resolutions. Reference is hereby made to
the Resolutions, as the same may be amended and supplemented from time to time,
for a description of the rights, limitations of rights, obligations, duties and
immunities of the Board, the Trustee, the Paying Agent and the holders of the
bonds. (All bonds issued under the General Resolution, including the Single Lot
Bonds, are herein collectively called the "Bonds"). Certified copies of the
Resolutions are on file in the corporate trust office of the Trustee in St.
Paul, Minnesota nd in the principal office of the Authority in Saint Paul,
Minnesota.
As provided in the General Resolution, Bonds issued thereunder shall be
special obligations of the Board, the principal or redemption price, if any, of
and interest on the Bonds which are payable solely from and secured solely by
the revenues, funds and other property or assets of the Board described in the
Resolutions and pledged therefor.
It is provided, however, that Bonds issued under the General Resolution
shall be secured by the General Guaranty Fund, created as an account of the
Economic Development Fund under MINNESOTA STATUTES 1986, Section 116M.06, Subd.
2 and Subd. 4 (now repealed) as transferred to the Agricultural and Economic
Development Fund and renamed the Agricultural and Economic Development Account
of the Special Revenues Fund in the State Treasury (herein, such account to the
extent it has received such transferred moneys is referred to as the "General
Guaranty Fund"). The General Guaranty Fund is held under and in accordance with
the terms and provisions of the General Guaranty Pledge and Escrow Agreement
dated as of September 26, 1984, as amended and supplemented, by and between the
Board and U.S. Bank National Association, Minneapolis, Minnesota, as escrow
holder (the "Escrow Holder") thereunder. Amounts from time to time on deposit
in the General Guaranty Fund are pledged and allocated to
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<PAGE>
guarantee the payment of debt service payments and prepayments due on such bonds
that correspond to unpaid payments of principal and interest then due on the
related Business Loan with respect to such Bonds, whether due upon scheduled
payment dates or upon acceleration prior to the occurrence of such scheduled
payment dates. Reference is hereby made to the General Resolution and the
General Guaranty Fund Pledge and Escrow Agreement, as the same may be amended
and supplemented from time to time, for a description of the rights, limitations
of rights, obligations, duties and immunities of the Board, the Trustee, the
Escrow Holder and the holders of the Bonds, all with respect to the General
Guaranty Fund.
THIS BOND DOES NOT CONSTITUTE A DEBT OR LOAN OF CREDIT OF THE STATE OF
MINNESOTA OR ANY AGENCY OR ANY POLITICAL SUBDIVISION THEREOF (OTHER THAN THE
BOARD) OR THE UNITED STATES OF AMERICA OR ANY AGENCY OR DEPARTMENT THEREOF AND
NEITHER THE STATE OF MINNESOTA OR ANY AGENCY OR ANY POLITICAL SUBDIVISION
THEREOF (OTHER THAN THE BOARD) NOR THE UNITED STATES OF AMERICA OR ANY AGENCY OR
DEPARTMENT THEREOF SHALL BE LIABLE ON THIS BOND. NEITHER THE FAITH AND CREDIT
NOR THE TAXING POWER OF THE STATE OF MINNESOTA OR ANY AGENCY OR ANY POLITICAL
SUBDIVISION THEREOF OR OF THE UNITED STATES OF AMERICA OR ANY AGENCY OR
DEPARTMENT THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR THE INTEREST
ON THIS BOND.
With respect to the creation of the General Guaranty Fund and the pledge
and allocation and guarantee obligation undertaken in connection therewith, the
Board includes and recites in this bond the following covenant of the State as
set forth in Section 116M.06, Subd. 2 of the Act.
The State covenants with all holders of the Board's bonds interested in the
disposition of money in the Economic Development Fund or its accounts
(including the General Guaranty Fund) which money the Board has irrevocably
pledged and allocated for any authorized purpose described in Section
116M.06, Subd. 2 of the Act, that the State will not take any action to
limit the effect of the pledge and allocation and will not take any action
to limit the effect of contracts entered into as authorized in section
116M.06, Subd. 2 of the Act with respect to the pledge and allocation and
will not limit or alter the rights vested in the Board or the State to
administer the application of money pursuant to the pledge and allocation
and to perform its obligations under the contracts.
As provided in the General Resolution, additional Bonds have been issued
and may be issued from time to time, all pursuant to additional lot resolutions,
in one or more series or lots and in various principal amounts, which may mature
at different times, may bear interest at different rates and otherwise may vary
as provided in the General Resolution or any resolution amendatory thereof or
supplemental thereto. The aggregate principal amount of Bonds that may be
issued under the General Resolution is not limited except as provided therein
and in the Act and all Bonds issued and to be issued thereunder are and will be
equally secured by the pledge and
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<PAGE>
covenants made therein, except as otherwise expressly provided or permitted in
the General Resolution.
To the extent and in the manner permitted by the terms thereof, the
Resolution and any resolution amendatory thereof or supplemental thereto may be
modified or amended, provided, however, that no such modification or amendment
shall permit a change in the terms of redemption or maturity of the principal of
any outstanding Bond or of any installment of interest thereon or a reduction in
the principal amount of redemption price thereof or in the rate of interest
thereon without the consent of the holder of such Bond, or shall reduce the
percentage of Bonds, the consent of the registered owners of which is required
to effect any such modification or amendment without the consent of the
registered owners of all Bonds then outstanding.
The Single Lot Bonds maturing in any particular year are issuable in the
form of fully registered bonds, without coupons, in denominations of $5,000 or
of any integral multiple thereof, not exceeding the aggregate principal amount
of Single Lot Bonds maturing in such year.
This Bond is transferable, as provided in the General Resolution, only upon
the books of the Board kept for that purpose at the corporate trust office of
the Trustee by the registered holder thereof in person or by his duly authorized
attorney, (i) upon surrender of this Bond together with a written instrument of
transfer satisfactory to the Trustee duly executed by the registered holder or
his duly authorized attorney and (ii) upon payment of the charges prescribed in
the General Resolution. Thereupon a new Bond of the same aggregate principal
amount, series or Lot and maturity shall be issued in the name of the transferee
in exchange therefor as provided in the General Resolution. The Board, the
Trustee and any other paying agent may deem and treat the person in whose name
this Bond is registered as the absolute owner hereof for the purpose of
receiving payment of or on account of the principal or redemption price hereof
and interest due hereon and for all other purposes.
The Single Lot Bonds are subject to redemption prior to maturity as
hereinafter set forth in each instance at the respective redemption prices set
forth (expressed as percentages of the principal amount of any Single Lot Bonds
or portions thereof to be so redeemed) together with accrued interest to the
redemption date.
(a) The Bonds maturing on and after August 1, 2005, are redeemable on
August 1, 2004 and on any date thereafter, at the option of the Board, at a
redemption price of par plus accrued interest to the date of redemption, all in
the manner provided by the General Bond Resolution.
(b) All Single Lot Bonds are subject to redemption prior to maturity, in
whole or in part on any bond payment date at 100% of the principal amount of
such Single Lot Bonds to be so redeemed on such bond payment date in an amount
equal to (i) the net proceeds received by the Board on account of an involuntary
acceleration or prepayment of the Related Business Loan that are deposited in or
transferred to the Special Redemption Account created with respect
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<PAGE>
thereto or (ii) Bond proceeds and certain other moneys that are transferred from
time to time to said Special Redemption Account, provided such redemptions must
equal or exceed $5,000, all as more fully described in the Resolutions.
(c) On and after August 1, 1998, the Board may issue Bonds to refund the
Single Lot Bonds and to effect such refunding, deposit the proceeds thereof into
the Special Redemption Account, such proceeds to be applied as otherwise
provided in clause (b) above. This special redemption may be made at the
discretion of the Board notwithstanding the fact that the Single Lot Bonds may
not be optionally redeemed pursuant to Section 2.7 of the Single Lot Resolution.
(d) The Single Lot Bonds are subject to mandatory redemption, in whole and
not in part at a redemption price of 103% of their principal amount plus accrued
interest to the date of redemption, in the event that the Business, after the
occurrence of a Determination of Taxability (as defined in the Loan Agreement),
deposits sufficient funds in the Related Lot Special Redemption Account to
effect such redemption pursuant to its obligation under the Loan Agreement.
Such redemption will occur on the first interest payment date following such
deposit for which notice of redemption may be timely given.
If less than all of the Single Lot Bonds are to be redeemed, bonds shall be
redeemed from each maturity of the Single Lot Bonds in the proportion which the
amount of bonds then outstanding of such maturity bears to the total of all
bonds of such Lot then outstanding if less than all of the Single Lot Bonds of
like maturity are to be redeemed, the particular bonds to be redeemed shall be
selected by the Trustee at random in such manner as the Trustee in its
discretion may deem fair and appropriate. Fully registered Single Lot Bonds in
a denomination of more than $5,000 may be redeemed in part from time to time in
one or more units of $5,000 in the manner provided in the General Resolution.
In addition to the foregoing, the Single Lot Bonds due August 1, 2010 are
subject to redemption prior to maturity by payment of Sinking Fund Installments
as provided in the Single Lot Resolution, at 100% of the principal amount of
such Single Lot Bonds or portions thereof to be so redeemed, together with
accrued interest to the redemption date.
In the event that any Single Lot Bond is to be called for redemption as
aforesaid, notice of such redemption setting forth in the place or places of
payment, shall be given to the registered holder of each Single Lot Bond to be
redeemed in whole or in part at the address shown on the registration books by
mailing a copy of the redemption notice by first class mail not less than 30
days (unless a shorter notice period is required to maintain the exemption of
interest on the Single Lot Bonds from Federal income taxation) nor more than 60
days prior to the redemption date.
On the specified redemption date, all Single Lot Bonds or portions thereof
so called for redemption shall cease to bear or accrue interest and shall not
longer be secured by the Resolution provided moneys for their redemption are on
deposit at the place of payment at that time.
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<PAGE>
The holder of this Single Lot Bond shall have no right to enforce the
provisions of the Resolutions, or to institute any action to enforce the
covenants therein, or to take any action with respect to any event of default
under the Resolution, or to institute, appear in or defend any suit or other
proceedings with respect thereto, except as otherwise expressly provided in the
Resolutions. In addition, the right of the holder of this Bond to institute or
prosecute a suit for the enforcement of payment hereof or to enter a judgment in
any such suit is limited to the extent that such action would result in the
surrender, impairment, waiver or loss of the security provided under the
Resolutions for the equal and ratable benefit of all holders of Bonds.
The Act provides that neither the members of the Board nor any authorized
person executing bonds issued pursuant to the Act shall be liable personally on
the Bonds or subject to any personal liability or accountability by reason of
the issuance thereof.
It is hereby certified and recited by the Board that all acts, conditions
and things necessary to be done precedent to and in the issuance of the Single
Lot Bonds in order to make the Single Lot Bonds the legal, valid and binding
special obligations of the Board in accordance with their terms, have been done,
have happened and have been performed in regular and due form as required by
law, and that the issuance of the Single Lot Bonds does not exceed or violate
any constitutional, statutory or other limitation upon the amount of
indebtedness prescribed bylaw of by the Resolutions.
This Bond shall not be valid or obligatory for any purpose and shall not be
subject to the benefits of the guaranty provided by the General Guaranty Fund
until the certificate of authentication hereon shall have been signed by the
Trustee.
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<PAGE>
IN WITNESS WHEREOF, Minnesota Agricultural and Economic Development Board
has caused this bond to be executed in its name and on its behalf by the manual
or facsimile signature of the Chair and attested to by the manual or facsimile
signature of its Executive Director, all as of the date of original issue, being
the 1st day of July, 1998.
MINNESOTA AGRICULTURAL AND
ECONOMIC DEVELOPMENT BOARD
(Seal)
By /s/ Wayne [Illegible]
---------------------------------
Its Chair
Attest:
By /s/ [Illegible]
----------------------------
Its Executive Director
Authentication Date: 7/15/98
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This Bond is one of the bonds described in the within mentioned
Resolutions. The undersigned has received from the Escrow Holder a certificate
that the amounts in the General Guaranty Fund are pledged to guarantee the
payment of debt service payments and certain mandatory prepayments due on this
bond in the manner and to the extent set forth in said General Guaranty Fund
Pledge and Escrow Agreement and this Bond is subject to the benefits of the
guaranty provided by the General Guaranty Fund.
U.S. BANK NATIONAL ASSOCIATION, as
Trustee
By /s/ [Illegible]
----------------------------
Authorized Signature
(END OF FORM OF CERTIFICATE OF AUTHENTICATION)
-7-
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ______________________ the within Bond and all rights and title thereunder,
and hereby irrevocably constitutes and appoints _______________________________
attorney to transfer the within Bond on the books kept for registration thereof,
with full power of substitution in the premises.
Dated:
Medallion Signature Guarantee:
Address of transferee
Social security or other tax
identification number of
transferee:
------------------------------------------------
NOTICE: The signature of this assignment must
correspond with the name as it appears on the face
of the within bond in every particular without
alteration or enlargement or any change whatever.
The following abbreviations, when used in the inscription on the face of
this Bond, shall be construed as though they were written out in full according
to the applicable laws or regulations:
TEN COM - as tenants UTMA
in common ......Custodian.......
(Cust) (Minor)
TEN ENT - as tenants
by the entireties
under Uniform Transfer
JT TEN - as joint tenants Gifts to Minors Act...
with right of (State)
survivorship and
not as tenants in
common
Additional abbreviations may also be used,
though not in the above list.
---------------
-8-
<PAGE>
DOCUMENT NO. 27
$3,320,000
MINNESOTA AGRICULTURAL AND ECONOMIC DEVELOPMENT BOARD
MINNESOTA SMALL BUSINESS DEVELOPMENT
LOAN PROGRAM REFUNDING REVENUE BONDS
SERIES 1998B, LOT 2
NON-ARBITRAGE CERTIFICATE OF THE BORROWER
I, the undersigned, President, on behalf of Merrill/May, Inc. (the
"Borrower") do hereby certify and declare with respect to the $3,320,000
Minnesota Agricultural and Economic Development Board Minnesota Small Business
Development Loan Program Refunding Revenue Bonds, Series 1998B, Lot 2 (the
"1998B Lot 2 Bonds") as follows:
1. This Certificate is given to certify certain facts regarding the
expenditure of the proceeds of the 1998B Lot 2 Bonds, pursuant to Section 148 of
the Internal Revenue Code of 1986, as amended.
2. The 1998B Lot 2 Bonds are initially dated as of July 1, 1998, and are
issued pursuant to the General Resolution of the Minnesota Agricultural Economic
Development Authority (now the Minnesota Agricultural and Economic Development
Board (the "Board"), as adopted on December 22, 1986, as amended (the "General
Bond Resolution"), and the Single Lot Resolution with the respect to the
Minnesota Small Business Loan Development Program Revenue Bonds, Series 1990B,
Lot 1 (the "1990B Lot 1 Bonds"), dated June 29, 1990 as amended by the Amendment
to Single Lot Resolution dated June 29, 1998 with respect to the 1998B Lot 2
Bonds (the "Single Lot Resolution") (the General Bond Resolution and the Single
Lot Resolution are herein collectively referred to as the "Resolutions"),
pursuant to which the U.S. Bank National Association is serving as Trustee (the
"Trustee").
3. The Board will receive $3,326,706.39 from the purchaser of the 1998B
Lot 2 Bonds. That amount represents a payment of 100% of the principal of the
1998B Lot 2 Bonds less $-0- original issue discount, plus $6,706.39 representing
accrued interest on the 1998B Lot 2 Bonds from their date to the date of
delivery. All of the money received by the Board from the purchase of the 1998B
Lot 2 Bonds will be made available to the Borrower for refunding the 1990B Lot 1
Bonds and will be so used, provided that the accrued interest will be deposited
in the Holding Account and to be used to pay interest on the 1998B Lot 2 Bonds
due on August 1, 1998 if certain conditions are met in the Loan Agreement dated
July 1, 1990 as amended and supplemented by the First Amendment to Loan
Agreement dated December 31, 1993 and as further amended and supplemented by the
Second Amendment to Loan Agreement dated July 1, 1998 (collectively, the "Loan
Agreement") and provided further that $332,000 in the Business Loan Reserve
Account established for the 1990B Lot 1 Bonds will be deposited into the related
Business Loan Reserve Account established with respect to the 1998B Lot 2 Bonds.
<PAGE>
4. The amounts to be received by the Board from the proceeds of the 1998B
Lot 2 Bonds, less the costs of issuance of the 1998B Lot 2 Bonds, do not exceed
the amounts to be spent by the Borrower to refund the 1990B Lot 2 Bonds.
5. The Project (as defined in the Loan Agreement) has not been and is not
expected to be sold or otherwise disposed of by the Borrower during the term of
the Bonds.
6. The principal of and interest on the 1998B Lot 2 Bonds is to be paid
from the Holding Account established under the Resolutions. All moneys
deposited in the Holding Account, including investment income are expected to be
used to pay principal of or interest on the 1998B Lot 2 Bonds on August 1, 1998.
All amounts are transferred out of the related Revenue Accounts and Holding
Accounts within twelve months of the date such moneys were so deposited
principally to pay fiduciary expenses and debt service through the Holding
Account, except for an amount not to exceed the greater of (A) 1 year's earnings
on the portions of such Funds and Accounts used to pay debt service or (B)
1/12th of the annual debt service on the 1998B Lot 2 Bonds. It is not
reasonably expected that any amounts ever will be on deposit in the Special
Redemption Account, the Optional Redemption Account, the Reimbursement Account
or the Reconstruction Account for the 1998B Lot 2 Bonds.
7. On the basis of the foregoing, it is not expected that the proceeds of
the 1998B Lot 2 Bonds will be used in a manner that would cause the Bonds to be
arbitrage bonds under Section 148 of the Internal Revenue Code of 1986, as
amended, and the Regulations prescribed under that Section.
8. To the best of the Borrower's knowledge and belief, the expectations
of the Borrower, as set forth above, are reasonable and there are no facts,
estimates or circumstances other than those mentioned above that would
materially change the foregoing conclusions.
9. To the extent they are within the knowledge, belief or control of the
Borrower, the facts, circumstances, and expectations set forth in the arbitrage
certificate of the Board may be relied upon by the Board and its bond counsel
with respect to the 1998B Lot 2 Bonds, and the expectations set forth in such
arbitrage certificate are the expectations of the Borrower.
-2-
<PAGE>
IN WITNESS WHEREOF, I have signed this certificate this 15th day of July,
1998.
MERRILL/MAY, INC.
By /s/ John Castro
------------------------------
Its President
--------------------------
Signature page of Document No. 27, Non-Arbitrage Certificate of the Borrower
-3-
<PAGE>
MERRILL CORPORATION
1996 NON-STATUTORY STOCK OPTION PLAN
(May 1998, as amended)
1. PURPOSE OF PLAN.
The purpose of the Merrill Corporation 1996 Non-Statutory Stock Option
Plan (the "Plan") is to advance the interests of Merrill Corporation (the
"Company") and its shareholders by enabling the Company and its Subsidiaries
to attract and retain persons of ability to perform services for the Company
and its Subsidiaries by providing an incentive to such individuals through
equity participation in the Company and by rewarding such individuals who
contribute to the achievement by the Company of its economic objectives.
2. DEFINITIONS.
The following terms will have the meanings set forth below, unless the
context clearly otherwise requires:
2.1 "ADVERSE ACTIONS" mean the actions described in Section 10.5 of
the Plan.
2.2 "BOARD" means the Board of Directors of the Company.
2.3 "BROKER EXERCISE NOTICE" means a written notice pursuant to which
a Participant, upon exercise of an Option, irrevocably instructs a broker or
dealer to sell a sufficient number of shares or loan a sufficient amount of
money to pay all or a portion of the exercise price of the Option and/or any
related withholding tax obligations and remit such sums to the Company and
directs the Company to deliver stock certificates to be issued upon such
exercise directly to such broker or dealer.
2.4 "CHANGE IN CONTROL" means an event described in Section 9.1 of the
Plan.
2.5 "CODE" means the Internal Revenue Code of 1986, as amended.
2.6 "COMMITTEE" means the group of individuals administering the Plan,
as provided in Section 3 of the Plan.
2.7 "COMMON STOCK" means the common stock of the Company, par value
$.01 per share, or the number and kind of shares of stock or other securities
into which such Common Stock may be changed in accordance with Section 4.3 of
the Plan.
2.8 "DISABILITY" means the disability of the Participant such as would
entitle the Participant to receive disability income benefits pursuant to the
long-term disability plan of the Company or Subsidiary then covering the
Participant or, if no such plan exists or is applicable to the Participant,
the permanent and total disability of the Participant within the meaning of
Section 22(e)(3) of the Code.
2.9 "ELIGIBLE RECIPIENTS" means all employees of the Company or any
Subsidiary and any non-employee consultants and independent contractors of
the Company or any Subsidiary; provided, however, that officers and directors
of the Company will not be Eligible Recipients for purposes of the Plan.
2.10 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
<PAGE>
2.11 "FAIR MARKET VALUE" means, with respect to the Common Stock, as of
any date, the closing sale price of the Common Stock as reported on the
Nasdaq National Market on the day immediately preceding such date (or, if no
shares were traded on such preceding day, as of the next preceding day on
which there was such a trade).
2.12 "OPTION" means a right to purchase Common Stock granted to an
Eligible Recipient pursuant to Section 6 of the Plan, which Option will not
qualify as an "incentive stock option" within the meaning of Section 422 of
the Code.
2.13 "PARTICIPANT" means an Eligible Recipient who receives one or more
Options under the Plan.
2.14 "PREVIOUSLY ACQUIRED SHARES" means shares of Common Stock that are
already owned by the Participant or, with respect to any Option, that are to
be issued upon the exercise of such Option.
2.15 "RETIREMENT" means termination of employment or service pursuant
to and in accordance with the regular (or, if approved by the Board for
purposes of the Plan, early) retirement/pension plan or practice of the
Company or Subsidiary then covering the Participant, provided that if the
Participant is not covered by any such plan or practice, the Participant will
be deemed to be covered by the Company's plan or practice for purposes of
this determination.
2.16 "SECURITIES ACT" means the Securities Act of 1933, as amended.
2.17 "SUBSIDIARY" means any entity that is directly or indirectly
controlled by the Company or any entity in which the Company has a
significant equity interest, as determined by the Committee.
2.18 "TAX DATE" means the date any withholding tax obligation arises
under the Code for a Participant with respect to an Option.
3. PLAN ADMINISTRATION.
3.1 THE COMMITTEE. The Plan will be administered by the Board or by a
committee consisting of at least two members, and the Board or such a
committee, if established, will be referred to as the "Committee." To the
extent consistent with corporate law, the Committee may delegate to any
officers of the Company the duties, power and authority of the Committee
under the Plan pursuant to such conditions or limitations as the Committee
may establish. Each determination, interpretation or other action made or
taken by the Committee pursuant to the provisions of the Plan will be
conclusive and binding for all purposes and on all persons, and no member of
the Committee will be liable for any action or determination made in good
faith with respect to the Plan or any Option granted under the Plan.
3.2 AUTHORITY OF THE COMMITTEE.
(a) In accordance with and subject to the provisions of the Plan,
the Committee will have the authority to determine all provisions of
Options as the Committee may deem necessary or desirable and as consistent
with the terms of the Plan, including, without limitation, the following:
(i) the Eligible Recipients to be selected as Participants; (ii) the nature
and extent of the Options to be granted to each Participant (including the
number of shares of Common Stock to be subject to each Option, the exercise
price and the manner in which Options will become exercisable) and the form
of written agreement, if any, evidencing such Option; (iii) the time or
times when Options
2
<PAGE>
will be granted; (iv) the duration of each Option; and (v) the
restrictions and other conditions to which Options may be subject. In
addition, the Committee will have the authority under the Plan in its
sole discretion to pay the economic value of any Option in the form of
cash, Common Stock or any combination of both.
(b) The Committee will have the authority under the Plan to amend
or modify the terms of any outstanding Option in any manner, including,
without limitation, the authority to modify the number of shares or other
terms and conditions of an Option, extend the term of an Option, accelerate
the exercisability or otherwise terminate any restrictions relating to an
Option, accept the surrender of any outstanding Option or, to the extent
not previously exercised, authorize the grant of new Options in
substitution for surrendered Options; provided, however, that the amended
or modified terms are permitted by the Plan as then in effect and that any
Participant adversely affected by such amended or modified terms has
consented to such amendment or modification. No amendment or modification
to an Option, however, whether pursuant to this Section 3.2 or any other
provisions of the Plan, will be deemed to be a regrant of such Option for
purposes of this Plan.
(c) In the event of (i) any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, stock
split, combination of shares, rights offering, extraordinary dividend or
divestiture (including a spin-off) or any other change in corporate
structure or shares, (ii) any purchase, acquisition, sale or disposition of
a significant amount of assets or a significant business, (iii) any change
in accounting principles or practices, or (iv) any other similar change, in
each case with respect to the Company or any other entity whose performance
is relevant to the grant or exercisability of an Option, the Committee (or,
if the Company is not the surviving corporation in any such transaction,
the board of directors of the surviving corporation) may, without the
consent of any affected Participant, amend or modify the criteria for the
grant or exercisability of any Option that is based in whole or in part on
the financial performance of the Company (or any Subsidiary or division
thereof) or such other entity so as equitably to reflect such event, with
the desired result that the criteria for evaluating such financial
performance of the Company or such other entity will be substantially the
same (in the sole discretion of the Committee or the board of directors of
the surviving corporation) following such event as prior to such event;
provided, however, that the amended or modified terms are permitted by the
Plan as then in effect.
4. SHARES AVAILABLE FOR ISSUANCE.
4.1 MAXIMUM NUMBER OF SHARES AVAILABLE. Subject to adjustment as
provided in Section 4.3 of the Plan, the maximum number of shares of
Common Stock that will be available for issuance under the Plan will be
1,906,000 shares, including share amounts adjusted to reflect a
two-for-one stock split effective October 15, 1997.
4.2 ACCOUNTING FOR OPTIONS. Shares of Common Stock that are
issued under the Plan or that are subject to outstanding Options will be
applied to reduce the maximum number of shares of Common Stock remaining
available for issuance under the Plan. Any shares of Common Stock that
are subject to an Option that lapses, expires, is forfeited or for any
reason is terminated unexercised or unvested and any shares of Common
Stock that are subject to an Option that is settled or paid in cash or
any form other than shares of Common Stock will automatically again
become available for issuance under the Plan.
3
<PAGE>
4.3 ADJUSTMENTS TO SHARES AND OPTIONS. In the event of any
reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares,
rights offering, divestiture or extraordinary dividend (including a
spin-off) or any other change in the corporate structure or shares of
the Company, the Committee (or, if the Company is not the surviving
corporation in any such transaction, the board of directors of the
surviving corporation) will make appropriate adjustment (which
determination will be conclusive) as to the number and kind of
securities available for issuance under the Plan and, in order to
prevent dilution or enlargement of the rights of Participants, the
number, kind and exercise price of securities subject to outstanding
Options.
5. PARTICIPATION.
Participants in the Plan will be those Eligible Recipients who, in
the judgment of the Committee, have contributed, are contributing or are
expected to contribute to the achievement of economic objectives of the
Company or its Subsidiaries. Eligible Recipients may be granted from
time to time one or more Options, singly or in combination or in tandem
with other Options, as may be determined by the Committee in its sole
discretion. Options will be deemed to be granted as of the date
specified in the grant resolution of the Committee, which date will be
the date of any related agreement with the Participant.
6. OPTIONS.
6.1 GRANT. An Eligible Recipient may be granted one or more
Options under the Plan, and such Options will be subject to such terms
and conditions, consistent with the other provisions of the Plan, as may
be determined by the Committee in its sole discretion.
6.2 EXERCISE PRICE. The per share price to be paid by a
Participant upon exercise of an Option will be determined by the
Committee in its discretion at the time of the Option grant but will not
be less than 85% of the Fair Market Value of one share of Common Stock
on the date of grant.
6.3 EXERCISABILITY AND DURATION. An Option will become
exercisable at such times and in such installments as may be determined
by the Committee in its sole discretion at the time of grant; provided,
however, that no Option may be exercisable after 10 years from its date
of grant.
6.4 PAYMENT OF EXERCISE PRICE. The total purchase price of the
shares to be purchased upon exercise of an Option will be paid entirely
in cash (including check, bank draft or money order); provided, however,
that the Committee, in its sole discretion and upon terms and conditions
established by the Committee, may allow such payments to be made, in
whole or in part, by tender of a Broker Exercise Notice, Previously
Acquired Shares, a promissory note or by a combination of such methods.
6.5 MANNER OF EXERCISE. An Option may be exercised by a
Participant in whole or in part from time to time, subject to the
conditions contained in the Plan and in the agreement evidencing such
Option, by delivery in person, by facsimile (with written confirmation)
or through the mail of written notice of exercise to the Company
(Attention: Secretary) at its principal executive office in St. Paul,
Minnesota and by paying in full the total exercise price for the shares
of Common Stock to be purchased in accordance with Section 6.4 of the
Plan.
7. EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE.
7.1 TERMINATION DUE TO DEATH, DISABILITY OR RETIREMENT. In the
event a Participant's employment or other service with the Company and
all Subsidiaries is terminated by reason of death,
4
<PAGE>
Disability or Retirement, all outstanding Options then held by the
Participant will become immediately exercisable in full and will remain
exercisable for a period of one year (three months in the case of
Retirement) after such termination (but in no event after the expiration
date of any such Option).
7.2 TERMINATION FOR REASONS OTHER THAN DEATH, DISABILITY OR RETIREMENT.
(a) In the event a Participant's employment or other service is
terminated with the Company and all Subsidiaries for any reason other than
death, Disability or Retirement, or a Participant is in the employ or
service of a Subsidiary and the Subsidiary ceases to be a Subsidiary of the
Company (unless the Participant continues in the employ or service of the
Company or another Subsidiary), all rights of the Participant under the
Plan and any agreements evidencing an Option will immediately terminate
without notice of any kind, and no Options then held by the Participant
will thereafter be exercisable; provided, however, that if such termination
is due to any reason other than termination by the Company or any
Subsidiary for "cause," all outstanding Options then held by such
Participant will remain exercisable to the extent exercisable as of such
termination for a period of three months after such termination (but in no
event after the expiration date of any such Option).
(b) For purposes of this Section 7.2, "cause" (as determined by
the Committee) will be as defined in any employment or other agreement or
policy applicable to the Participant or, if no such agreement or policy
exists, will mean (i) dishonesty, fraud, misrepresentation, embezzlement or
deliberate injury or attempted injury, in each case related to the Company
or any Subsidiary, (ii) any unlawful or criminal activity of a serious
nature, (iii) any intentional and deliberate breach of a duty or duties
that, individually or in the aggregate, are material in relation to the
Participant's overall duties, or (iv) any material breach of any
employment, service, confidentiality or noncompete agreement entered into
with the Company or any Subsidiary.
7.3 MODIFICATION OF RIGHTS UPON TERMINATION. Notwithstanding the
other provisions of this Section 7, upon a Participant's termination of
employment or other service with the Company and all Subsidiaries, the
Committee may, in its sole discretion (which may be exercised at any
time on or after the date of grant, including following such
termination), cause Options (or any part thereof) then held by such
Participant to become or continue to become exercisable and/or remain
exercisable following such termination of employment or service in the
manner determined by the Committee; provided, however, that no Option
may remain exercisable beyond its expiration date.
7.4 DATE OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE. Unless
the Committee otherwise determines in its sole discretion, a
Participant's employment or other service will, for purposes of the
Plan, be deemed to have terminated on the date recorded on the personnel
or other records of the Company or the Subsidiary for which the
Participant provides employment or other service, as determined by the
Committee in its sole discretion based upon such records.
8. PAYMENT OF WITHHOLDING TAXES.
8.1 GENERAL RULES. The Company is entitled to (a) withhold and
deduct from future wages of the Participant (or from other amounts that
may be due and owing to the Participant from the Company or a
Subsidiary), or make other arrangements for the collection of, all
legally required amounts necessary to satisfy any and all federal, state
and local withholding and employment-related tax requirements
attributable to an Option, including, without limitation, the grant or
exercise of an Option, or (b) require the Participant promptly to remit
the amount of such withholding to the Company before taking any
5
<PAGE>
action, including issuing any shares of Common Stock, with respect to an
Option.
8.2 SPECIAL RULES. The Committee may, in its sole discretion and
upon terms and conditions established by the Committee, permit or
require a Participant to satisfy, in whole or in part, any withholding
or employment-related tax obligation described in Section 8.1 of the
Plan by electing to tender Previously Acquired Shares or a Broker
Exercise Notice, or by a combination of such methods.
9. CHANGE IN CONTROL.
9.1 CHANGE IN CONTROL. For purposes of this Section 9.1, a
"Change in Control" of the Company will mean (a) the sale, lease,
exchange or other transfer of substantially all of the assets of the
Company (in one transaction or in a series of related transaction) to a
person or entity that is not controlled by the Company, (b) a merger or
consolidation to which the Company is a party if the shareholders of the
Company immediately prior to effective date of such merger or
consolidation do not have "beneficial ownership" (as defined in Rule
13d-3 under the Exchange Act) immediately following the effective date
of such merger or consolidation of more than 80% of the combined voting
power of the surviving corporation's outstanding securities ordinarily
having the right to vote at elections of directors, or (c) a change in
control of the Company of a nature that would be required to be reported
pursuant to Section 13 or 15(d) of the Exchange Act, whether or not the
Company is then subject to such reporting requirements, including,
without limitation, such time as (i) any person becomes after the
effective date of the Plan the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of 20% or more of
the combined voting power of the Company's outstanding securities
ordinarily having the right to vote at elections of directors, or (ii)
individuals who constitute the Board on the effective date of the Plan
cease for any reason to constitute at least a majority of the Board,
provided that any person becoming a director subsequent to the effective
date of the Plan whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of
the directors comprising the Board on the effective date of the Plan
will, for purposes of this clause (ii), be considered as though such
persons were a member of the Board on the effective date of the Plan.
9.2 ACCELERATION OF VESTING. Without limiting the authority of
the Committee under Section 3.2 of the Plan, if a Change in Control of
the Company occurs, then, if approved by the Committee in its sole
discretion either in an agreement evidencing an Option at the time of
grant or at any time after the grant of an Option, all Options will
become immediately exercisable in full and will remain exercisable for
the remainder of their terms, regardless of whether the Participants to
whom such Options have been granted remain in the employ or service of
the Company or any Subsidiary.
9.3 CASH PAYMENT. If a Change in Control of the Company occurs,
then the Committee, if approved by the Committee in its sole discretion
either in an agreement evidencing an Option at the time of grant or at
any time after the grant of an Option, and without the consent of any
Participant effected thereby, may determine that some or all
Participants holding outstanding Options will receive, with respect to
some or all of the shares of Common Stock subject to such Options (and
in lieu of exercising such Options), as of the effective date of any
such Change in Control of the Company, cash in an amount equal to the
excess of the Fair Market Value of such shares immediately prior to the
effective date of such Change in Control of the Company over the
exercise price per share of such Options.
9.4 LIMITATION ON CHANGE IN CONTROL PAYMENTS. Notwithstanding
anything in Section 9.2 or 9.3 of the Plan to the contrary, if, with
respect to a Participant, the acceleration of the exercisability of an
Option as provided in Section 9.2 or the payment of cash in exchange for
all or part of an Option as provided in Section 9.3 (which acceleration
or payment could be deemed a "payment" within the meaning
6
<PAGE>
of Section 280G(b)(2) of the Code), together with any other payments
which such Participant has the right to receive from the Company or any
corporation that is a member of an "affiliated group" (as defined in
Section 1504(a) of the Code without regard to Section 1504(b) of the
Code) of which the Company is a member, would constitute a "parachute
payment" (as defined in Section 280G(b)(2) of the Code), then the
payments to such Participant pursuant to Section 9.2 or 9.3 will be
reduced to the largest amount as will result in no portion of such
payments being subject to the excise tax imposed by Section 4999 of the
Code; provided, however, that if such Participant is subject to a
separate agreement with the Company or a Subsidiary which specifically
provides that payments attributable to one or more forms of employee
stock incentives or to payments made in lieu of employee stock
incentives will not reduce any other payments under such agreement, even
if it would constitute an excess parachute payment, then the limitations
of this Section 9.4 will, to that extent, not apply.
10. RIGHTS OF ELIGIBLE RECIPIENTS AND PARTICIPANTS; TRANSFERABILITY.
10.1 EMPLOYMENT OR SERVICE. Nothing in the Plan will interfere
with or limit in any way the right of the Company or any Subsidiary to
terminate the employment or service of any Eligible Recipient or
Participant at any time, nor confer upon any Eligible Recipient or
Participant any right to continue in the employ or service of the
Company or any Subsidiary.
10.2 RIGHTS AS A SHAREHOLDER. As a holder of Options, a
Participant will have no rights as a shareholder unless and until such
Options are exercised for shares of Common Stock and the Participant
becomes the holder of record of such shares. Except as otherwise
provided in the Plan, no adjustment will be made for dividends or
distributions with respect to such Options as to which there is a record
date preceding the date the Participant becomes the holder of record of
such shares, except as the Committee may determine in its discretion.
10.3 RESTRICTIONS ON TRANSFER. Except pursuant to testamentary
will or the laws of descent and distribution or as otherwise expressly
permitted by the Plan, no right or interest of any Participant in an
Option prior to the exercise of such Option will be assignable or
transferable, or subjected to any lien, during the lifetime of the
Participant, either voluntarily or involuntarily, directly or
indirectly, by operation of law or otherwise. A Participant will,
however, be entitled to designate a beneficiary to receive an Option
upon such Participant's death, and in the event of a Participant's
death, payment of any amounts due under the Plan will be made to, and
exercise of any Options (to the extent permitted pursuant to Section 7
of the Plan) may be made by, the Participant's legal representatives,
heirs and legatees.
10.4 NON-EXCLUSIVITY OF THE PLAN. Nothing contained in the Plan
is intended to modify or rescind any previously approved compensation
plans or programs of the Company or create any limitations on the power
or authority of the Board to adopt such additional or other compensation
arrangements as the Board may deem necessary or desirable.
10.5 RESTRICTIONS REGARDING EMPLOYMENT OR SERVICE.
(a) Notwithstanding anything in the Plan to the contrary, in the
event that a Participant, prior to or following such Participant's
voluntary termination of employment or other service with the Company or
any Subsidiary, takes Adverse Actions with respect to the Company or any
Subsidiary, the Committee in its sole discretion will have the authority
(by so providing in the agreement evidencing the Option at the time of
grant) to terminate immediately all rights of the Participant under the
Plan and any agreement evidencing Options than held by the Participant
without notice of any kind. In addition, to the extent that a Participant
takes such Adverse Actions during the period beginning 12 months prior to,
and ending 12 months following, the date of such
7
<PAGE>
voluntary employment or service termination, the Committee in its sole
discretion will have the authority (by so providing in the agreement
evidencing the Option at the time of grant) to rescind the exercise of
any Options of the Participant that were exercised during such period
and to require the Participant to pay to the Company, within 10 days of
receipt from the Company of notice of such rescission, the amount of any
gain realized as a result of such rescinded exercise. Such payment will
be made in cash (including check, bank draft or money order) or, with
the Committee's consent, shares of Common Stock with a Fair Market Value
on the date of payment equal to the amount of such payment. The Company
will be entitled to withhold and deduct from future wages of the
Participant (or from other amounts that may be due and owing to the
Participant from the Company or a Subsidiary) or make other arrangements
for the collection of all amounts necessary to satisfy such payment
obligation.
(b) For purposes of this Section 10.5, an "Adverse Action" will
mean any action by a Participant that the Committee, in its sole
discretion, determines to be adverse to the interests of the Company or any
Subsidiary, including, without limitation, (i) disclosing confidential
information of the Company or any Subsidiary to any person not authorized
by the Company to receive it, (ii) engaging, directly or indirectly, in any
commercial activity that in the judgment of the Committee competes with the
business of the Company or any Subsidiary, or (iii) interfering with the
relationships of the Company or its Subsidiaries with their respective
employees and customers.
11. SECURITIES LAW AND OTHER RESTRICTIONS.
Notwithstanding any other provision of the Plan or any agreements
entered into pursuant to the Plan, the Company will not be required to issue
any shares of Common Stock under this Plan, and a Participant may not sell,
assign, transfer or otherwise dispose of shares of Common Stock issued
pursuant to Options granted under the Plan, unless (a) there is in effect
with respect to such shares a registration statement under the Securities Act
and any applicable state securities laws or an exemption from such
registration under the Securities Act and applicable state securities laws,
and (b) there has been obtained any other consent, approval or permit from
any other regulatory body which the Committee, in its sole discretion, deems
necessary or advisable. The Company may condition such issuance, sale or
transfer upon the receipt of any representations or agreements from the
parties involved, and the placement of any legends on certificates
representing shares of Common Stock, as may be deemed necessary or advisable
by the Company in order to comply with such securities law or other
restrictions.
12. PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may suspend or terminate the Plan or any portion thereof at
any time, and may amend the Plan from time to time in such respects as the
Board may deem advisable in order that Options under the Plan will conform to
any change in applicable laws or regulations or in any other respect the
Board may deem to be in the best interests of the Company. No termination,
suspension or amendment of the Plan may adversely affect any outstanding
Option without the consent of the affected Participant; provided, however,
that this sentence will not impair the right of the Committee to take
whatever action it deems appropriate under Sections 4.3 and 9 of the Plan.
13. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan is effective as of March 25, 1996, the date it was adopted by
the Board. The Plan will terminate at midnight on March 24, 2006, and may be
terminated prior to such time to by Board action,
8
<PAGE>
and no Option will be granted after such termination. Options outstanding
upon termination of the Plan may continue to be exercised, or become free of
restrictions, in accordance with their terms.
14. MISCELLANEOUS
14.1 GOVERNING LAW. The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and actions
relating to the Plan will be governed by and construed exclusively in
accordance with the laws of the State of Minnesota, notwithstanding any
conflicts of laws principles.
14.2 SUCCESSORS AND ASSIGNS. The Plan will be binding upon and inure
to the benefit of the successors and permitted assigns of the Company and the
Participants.
9
<PAGE>
STOCK PURCHASE LOAN PROGRAM
The purpose of the Merrill Loan Program is to facilitate the exercise of stock
options, to encourage ownership by executives, to reduce tax consequences for
those individuals, and to minimize the need to sell shares in the open market to
pay income taxes due upon the exercise of options. Approval of the loans is
subject to the sole and absolute discretion of the Compensation Committee (the
"Committee").
The following is an overview of the program:
LOAN PARAMETERS
FOR THE FIRST LOAN REQUEST THE EMPLOYEE MAY BORROW UP TO:
(a) 100% of the option price of the option, plus 100% of the state and federal
income taxes actually paid within 15 months of such exercise on any income
recognized by reason of such exercise, or
(b) 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 REQUESTS, THE EMPLOYEE MAY BORROW THE LESSER OF:
(a) 100% of the option price of the option, plus 100% of the state and federal
income taxes actually paid within 15 months of such exercise on any income
recognized by reason of such exercise, or
(b) 60% of the cost to purchase stock on the open market at the fair market
value at the time of purchase, or
(c) the amount that, when added to the principal amount of all outstanding
loans under Merrill Loan Program, will not exceed 60% of the market value
of all of the Company's stock pledged as collateral by the employee
immediately following the loan, or
(d) eight times the employee's then current base salary.
Notwithstanding the foregoing criteria, no loan may be made which would cause
the aggregate amount of principal and accrued interest outstanding under all
loans to an employee to exceed 100% of the market value of all the Company's
stock pledged as collateral by that employee under the Merrill Loan Program.
TERMS OF LOANS
- -- Loans under the program must be repaid within five years of the grant of
the loan. At the discretion of the Compensation Committee the term of the
loan may be extended.
- -- Upon termination of the employment (voluntary or involuntary), the loan
must be repaid within 45 days or such longer period as the Committee may
determine.
- -- Upon death or long term disability of the employee, the Committee may
extend the repayment of the loan up to six months.
- -- The Committee may demand repayment of the note(s) at any time.
- -- The loan is a full recourse loan. If the value of the Merrill stock
pledged as collateral for repayment of the loan is insufficient to repay
the outstanding principal, Merrill may proceed to collect any remaining
balance due.
<PAGE>
INTEREST
The loans made under the Merrill Loan Program are made on an interest-free basis
with respect to all amounts advanced to pay the options exercise price and the
amounts advanced to pay taxes or to purchase shares on the open market.
For tax purposes, the executive must recognize income in an amount equal to the
interest-free discount received on the loan proceeds. The interest rate that
will be used for imputed income purposes will be set at the time of the
origination of the loan and will remain unchanged for the life of the loan.
LOAN REPAYMENT
- -- Each individual borrowing agreement is evidenced by a written demand
promissory note executed by the executive at the time the loan is granted.
The note provides that thirty percent (30%) of the executive's bonus
compensation received under the Bonus Plan (net of applicable taxes and
other withholdings) will be applied to repay the principal under the note.
The repayment will begin with the bonus payout connected to the year that
the loan was originated (e.g., if a loan were originated in November 1999,
the repayment would begin with any bonus payable in April 2000).
- -- In addition, 50% of the after tax proceeds from any sale of the Company's
stock pledged under the Merrill Loan Program must be applied to the
outstanding principal balance under the Merrill Loan Program.
- -- All dividends received by an executive for Merrill stock pledged for a
loan, net of applicable estimated tax withholdings on such dividends, are
also applied to the outstanding principal balance.
- -- All outstanding principal shall be due and payable on the fifth
anniversary of the origination of the loan.
PROCESS
- -- A copy of a promissory note is included with these materials. To begin the
process the executive must execute promissory note and return it to legal.
- -- Once shares are acquired, executive must deliver certificates to Legal to
be held as collateral until loan is repaid.
<PAGE>
DEMAND
PROMISSORY NOTE
$__________________________ St. Paul, Minnesota
_____________, 199__
FOR VALUE RECEIVED, the undersigned ________________________________________
(the "Maker") promises to pay to the order of MERRILL CORPORATION, a Minnesota
corporation ("Merrill"), its successors and assigns, at its office at One
Merrill Circle, St. Paul, Minnesota 55108, or such other place as the holder
hereof may designate in writing from time to time, the principal sum of
_______________________ ($______________) in lawful money of the United States.
Except as provided below in the case of an Event of Default, no interest shall
accrue or become payable pursuant to this Note.
The principal amount of this Note shall be payable on the earliest of the
following dates and in the following manner:
(i) All outstanding principal shall be due and payable on the
forty-fifth (45th) day after Maker's employment with Merrill is
terminated for any reason, whether voluntary or involuntary,
provided, however, that Merrill, in its sole discretion, may
extend the due date for a period of up to six months in the event
that such termination of employment is caused by the death or long
term disability of the Maker;
(ii) On an annual basis, Merrill shall apply thirty percent (30%) (the
"Applicable Percentage") of the Maker's bonus, if any, paid
pursuant to the Merrill Corporation Executive Incentive Plan (the
"Bonus Plan") to the outstanding principal balance hereunder. The
amount to be applied hereunder shall be calculated by multiplying
the Applicable Percentage times the payment under the Bonus Plan
after subtracting all withholding taxes required to be deducted
from such bonus amount;
(iii) Maker shall apply fifty percent (50%) of the after-tax proceeds of
the sale of all Merrill Stock (as defined below) to the
outstanding principal balance hereunder;
(iv) Maker shall apply all dividends paid with respect to Merrill Stock
(net of any tax withholdings) to the outstanding principal balance
hereunder;
(v) All outstanding principal shall be due and payable immediately
upon demand by Merrill; and
(vi) All outstanding principal shall be due and payable on the fifth
anniversary of the date of this Note.
The principal of this Note may be prepaid in full or in part at any time,
without premium or penalty.
Maker represents and warrants that the proceeds of the loan evidenced by this
Note will be used solely for the purpose of (i) exercising certain stock options
available to the Maker under either the Merrill Corporation 1993 Non-Statutory
Stock Option Plan or the Merrill Corporation 1996 Non-Statutory Stock
<PAGE>
Option Plan (the "Stock Options"); (ii) paying the federal or state income
taxes associated with the exercise of such stock options; or (iii) purchasing
Merrill Stock in the open market.
As security for the timely payment of all amounts due or to become due under
this Note, Maker pledges and grants to Merrill a security interest in (a) the
shares of Merrill stock to be acquired by Maker pursuant to the exercising of
the Stock Options or otherwise (the "Merrill Stock"), (b) all securities,
instruments and other property, rights or interests of any kind at any time
issued or issuable as an addition to, in substitution or exchange for, or with
respect to, the Merrill Stock, and (c) all cash, dividends, proceeds or other
income or property accrued and hereafter accruing, received, receivable or
otherwise distributed in respect of, in exchange for, or upon the sale or other
disposition of any of the foregoing. Maker shall deliver to Merrill the
certificates evidencing the Merrill Stock, together with stock powers therefor
executed in blank. Maker agrees and acknowledges that the pledge and security
interest granted hereby is a continuing security interest and shall continue in
full force and effect until this Note is paid in full. Maker further
acknowledges that this Note is fully recourse against the Maker and that if the
value of the Merrill Stock pledged as security for repayment of this Note is
insufficient to repay the outstanding principal hereunder, Merrill may proceed
against the Maker to collect any remaining amount due.
If an Event of Default, as defined below, shall occur, Merrill or other holder
may, without notice, demand, presentment for payment and notice of nonpayment,
all of which Maker hereby expressly waives, declare the indebtedness evidenced
hereby and all other indebtedness and obligations of Maker to Merrill or holder
hereof immediately due and payable and Merrill or other holder hereof may,
without notice, immediately exercise any and all rights and remedies available
at law or in equity for the collection of this Note, including, without
limitation, enforcement of the security interest granted herein. Upon an Event
of Default, the unpaid principal balance hereunder shall begin to accrue
interest from the date of the Event of Default until fully paid, at an annual
interest rate of one percent (1%) per annum plus the prevailing Reference Rate
of interest established and announced by US Bancorp (the "Bank") as the same may
change from time to time. The "Reference Rate" means the rate of interest
established and publicly announced by the Bank from time to time as its
reference rate. In the event that the Bank ceases to establish and announce a
reference rate at any time during the term of this Note, Merrill shall be
entitled to designate a reasonably comparable substitute index for the
calculation of the interest rate hereon so long as any amount remains
outstanding hereunder. All changes in the rate of interest applicable hereto
shall become effective on the same day that the change in said Reference Rate is
announced. The term "Event of Default" shall mean any of the following events:
(i) the Maker shall default in the payment when due of any principal
on this Note; or
(ii) the insolvency, bankruptcy, receivership, or occurrence of any
other adverse change in the financial condition of the Maker.
If this Note is placed with any attorney(s) for collection upon any default,
Maker agrees to pay to Merrill or other holder its reasonable attorneys' fees
and all lawful costs and expenses of collection, whether or not a suit is
commenced.
Time is of the essence. No delay or omission on the part of Merrill or other
holder hereof in exercising any right or remedy hereunder shall operate as a
waiver of such right or of any other right or remedy under this Note or any
other document or agreement executed in connection herewith. All waivers by
Merrill must be in writing to be effective and a waiver on any occasion shall
not be construed as a bar to or a waiver of any similar right or remedy on a
future occasion.
2
<PAGE>
Maker hereby consents to any extension or alteration of the time or terms of
payment hereon, any renewal, any release of all or any part of any security
given for the payment hereof, any acceptance of additional security of any kind,
and any release of, or resort to any party liable for payment hereof.
No provision of this Note shall require the payment or permit the collection of
interest in excess of the rate permitted by applicable law.
Any payment due on any non-business day of Merrill shall be due upon the next
business day.
This Note represents a loan negotiated, executed and to be performed in the
State of Minnesota and shall be construed, interpreted and governed by the laws
of said state.
The Maker hereby consents to the personal jurisdiction of the state and federal
courts located in the State of Minnesota in connection with any controversy
related to this Note, and waives any argument that venue in such forums is not
convenient.
IN WITNESS WHEREOF, the Maker has executed and delivered this Note to Merrill as
of the day and year first above written.
MAKER:
-----------------------------------
3
<PAGE>
STOCK OPTION DEFERRAL PROGRAM
The Merrill Corporation Stock Option Deferral Program ("Deferral Program")
allows participants to defer compensation from stock option. This means that you
can defer, pre-tax, the difference between the option price and the fair market
value of the stock on the date of exercise, times the number of shares exercised
(the "Deferred Stock Option Compensation").
It works like this:
1. You elect to defer compensation from a specific stock option grant by
completing a Stock Option Deferral Election Form for that grant. You must
file a separate election form for each grant with respect to which you
want to defer compensation. YOUR ELECTION IS IRREVOCABLE.
2. You agree not to exercise any portion on the option grant during a
specified waiting period, which is 6 months from the time the election is
filed.
3. To exercise your option, you file a Deferred Stock Option Compensation
Exercise Notice with the Stock Option Plan Administrator. You cannot
exercise any portion of your option grant during the waiting period (e.g.,
six months from the time the election is filed). You must still exercise
the option before it expires.
4. You must use the stock-for-stock method of exercise. On the date of
exercise, you must have enough "mature" Merrill common stock to cover the
purchase price. "Mature" stock is stock that you have owned for more than
six months and that has not been used in another stock-for-stock swap
during that period. If you do not have enough "mature" Merrill common
stock to pay the purchase price, you may not exercise the option, even if
the option will expire.
5. The amount of you Deferred Stock Option Compensation is determined at the
time of exercise. You must pay FICA taxes on the compensation in cash and
at the time of exercise. NO TAXES ARE DEDUCTED FROM THE COMPENSATION AT
THE TIME OF EXERCISE. The Deferred Stock Option Compensation is credited
to your Stock Option Deferral Account under the terms of the Deferral
Program.
6. Your Stock Option Deferral Account is allocated to the Merrill common
stock earnings option. No other earnings options are available. The value
of your Deferred Stock Option Compensation will increase or decrease based
on the value of Merrill common stock.
7. You receive the value of your account, LESS ALL APPLICABLE INCOME
WITHHOLDING TAXES, in cash on the date(s) you specify in the election and
in accordance with the terms of the Deferral Program.
<PAGE>
THE FOLLOWING IS AN EXAMPLE OF THE MECHANICS OF THE PROGRAM:
ASSUMPTIONS:
Options: 5,000
Strike price: $10.50
Current price: $22.00
STEPS:
a. Eligible participant makes election to defer gain at least six months
prior to exercise. The deferral is irrevocable. At the time of election,
the Participant will designate a distribution period and beneficiary(ies).
The participant cannot exercise any portion of the option grant for at
least six months.
b. At the time of exercise, the exercise occurs in a stock for stock manner.
The participant surrenders enough mature stock (mature shares that have
been owned by the employee for at least six months) to purchase the
shares. The employee must have enough mature shares to cover the purchase
or the exercise cannot be completed.
In this example, the Participant would need to surrender 2386 shares
to exercise the option:
c. The participant receives 2386 shares back
d. The participant's deferral account will be credited with "share units" to
reflect gain at the time of exercise. Share units are calculated as
follows: Options x exercise price/current price.
In this example, the Participant will be credited with 2614 share
units into his/her account to defer the gain.
The participant cannot vote these deferral units.
e. As of the date on which dividends are paid on shares, a participant will
be paid such dividends on shares in his/her deferral account in cash.
f. Per the employee's deferral instructions, at some date in the future the
employee receives the value in his/her account less applicable taxes, in
cash. At the time of distribution, the entire value of the distribution
(including all appreciation) will be taxed as ordinary income.
THINGS TO CONSIDER:
- -- Except for FICA taxes, Deferred Stock Option Compensation is not taxable
on the date of exercise. However, upon distribution of your Stock Option
Deferral Account, the entire value of the distribution (including all
appreciation) is taxed as ordinary income. By contrast, compensation from
exercises of non-statutory stock option that is not deferred is taxed as
ordinary income on the date or exercise, but any subsequent appreciation
in the shares acquired may be taxed at capital gain rates when the shares
are sold.
- -- A stock option that vests incrementally is considered as one stock option
grant. If you make a deferral election for that grant, all Deferred Stock
Option Compensation received from that grant will be deferred.
A Stock Option Deferral Election Form is enclosed. Please read it carefully. I
suggest you consult your tax advisor and/or financial planner before making a
decision. The concept of deferring stock option
<PAGE>
compensation is relatively new and therefore has not been considered in
developing many individual tax strategies and financial plans. THE ELECTION IS
IRREVOCABLE. IT CANNOT BE CHANGED EVEN IN THE EVENT OF MISTAKES,
MISUNDERSTANDINGS OR ERRONEOUS ADVICE.
THE PERIOD TO FILE A STOCK OPTION DEFERRAL ELECTION ENDS MARCH 31, 1999.
ELECTIONS FILED BY THIS DATE WILL BE EFFECTIVE OCTOBER 1, 1999. IF YOU FILE AN
ELECTION FOR THIS PERIOD YOU WILL NOT BE ALLOWED TO EXERCISE THE OPTION COVERED
BY THE ELECTION BEFORE OCTOBER 1, 1999.
<PAGE>
[Form of Change in Control Agreement
with John Castro and Rick Atterbury]
Effective May 28, 1998
[Name and Address of Executive]
Dear [Executive]:
The Board considers the establishment and maintenance of a sound and vital
management to be essential to protecting and enhancing the best interests of the
Company and its stockholders. In this connection, the Board recognizes that the
possibility of a Change in Control may raise uncertainty and questions among
management which may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders.
Accordingly, the Board has determined that appropriate steps should be
taken to minimize the risk that Company executive management will depart prior
to a Change in Control, thereby leaving the Company without adequate executive
management personnel during such a critical period, and to reinforce and
encourage the continued attention and dedication of members of the Company's
executive management to their assigned duties without distraction in
circumstances arising from the possibility of a Change in Control.
The Board recognizes that continuance of your position with the Company
involves a substantial commitment to the Company in terms of your personal life
and professional career and the possibility of foregoing present and future
career opportunities, for which the Company receives substantial benefits.
Therefore, to induce you to remain in the employ of the Company, this Agreement,
which has been approved by the Board, sets forth the benefits that the Company
agrees will be provided to you in the event your employment with the Company is
terminated in connection with a Change in Control under the circumstances
described below.
1. DEFINITIONS. The following terms have the meaning set forth below
unless the context clearly requires otherwise. Terms defined elsewhere in this
Agreement have the same meaning throughout this Agreement.
(a) "AFFILIATE" means (i) any corporation at least a majority of
whose outstanding securities ordinarily having the right to vote at
elections of directors is owned directly or indirectly by the Parent
Corporation or (ii) any other form of business entity in which the
Parent Corporation, by virtue of a direct or indirect ownership
interest, has the right to elect a majority of the members of such
entity's governing body.
(b) "AGREEMENT" means this letter agreement as amended, extended
or renewed from time to time in accordance with its terms.
<PAGE>
(c) "BASE PAY" means your annual base salary from the Company at
the rate in effect immediately prior to a Change in Control or at the
time Notice of Termination is given, whichever is greater. Base Pay
includes only regular cash salary and is determined before any
reduction for deferrals pursuant to any nonqualified deferred
compensation plan or arrangement, qualified cash or deferred
arrangement or cafeteria plan.
(d) "BENEFIT PLAN" means any
(i) employee benefit plan as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended;
(ii) cafeteria plan described in Code Section 125;
(iii) plan, policy or practice providing for paid vacation,
other paid time off or short-or long-term profit sharing, bonus
or incentive payments; or
(iv) stock option, stock purchase, restricted stock,
phantom stock, stock appreciation right or other equity-based
compensation plan with respect to the securities of any Affiliate
made available to employees of the Company generally or any group of
employees or you in particular.
(e) "BOARD" means the board of directors of the Parent
Corporation duly qualified and acting at the time in question. On and
after the date of a Change in Control, any duty of the Board in
connection with this Agreement is nondelegable and any attempt by the
Board to delegate any such duty is ineffective.
(f) "CAUSE" means:
(i) your gross misconduct;
(ii) your willful and continued failure to perform
substantially your duties with the Company (other than any such
failure (1) resulting from your incapacity due to bodily injury
or physical or mental illness or (2) relating to changes in your
duties after a Change in Control which constitute Good Reason)
after a demand for substantial performance is delivered to you by
the chair of the Board which specifically identifies the manner
in which you have not substantially performed your duties and
provides for a reasonable period of time within which you may
take corrective actions; or
(iii) your conviction (including a plea of nolo contendere)
of willfully engaging in illegal conduct constituting a felony or
gross misdemeanor under federal or state law which is materially
and demonstrably injurious to the Company or which impairs your
ability to perform substantially your duties for the Company.
An act or failure to act will be considered "gross or willful" for
this purpose only if done, or omitted to be done, by you in bad faith
and without reasonable belief that it was in, or not opposed to, the
best interests of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board (or
a committee thereof) or based upon the advice of counsel for the
Company will be conclusively presumed to be done, or omitted to
<PAGE>
be done, by you in good faith and in the best interests of the
Company. It is also expressly understood that your attention to
matters not directly related to the business of the Company will
not provide a basis for termination for Cause so long as the Board
did not expressly disapprove in writing of your engagement in such
activities either before or within a reasonable period of time
after the Board knew or could reasonably have known that you
engaged in those activities. Notwithstanding the foregoing, you may
not be terminated for Cause unless and until there has been
delivered to you a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire
membership of the Board at a meeting of the Board called and held
for the purpose (after reasonable notice to you and an opportunity
for you, together with your counsel, to be heard before the Board),
finding that in the good faith opinion of the Board you were guilty
of the conduct set forth above in clauses (i), (ii) or (iii) of
this definition and specifying the particulars thereof in detail.
(g) "CHANGE IN CONTROL" means any of the following:
(i) the sale, lease, exchange or other transfer, directly
or indirectly, of substantially all of the assets of the Parent
Corporation, in one transaction or in a series of related
transactions, to any Person;
(ii) any Person, other than a "bona fide underwriter,"
becomes, after the date of this Agreement, the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of 20 percent or more of the combined voting power of the Parent
Corporation's outstanding securities ordinarily having the right to
vote at elections of directors;
(iii) a merger or consolidation to which the Parent
Corporation is a party if the stockholders of the Parent Corporation
immediately prior to the effective date of such merger or
consolidation have, solely on account of ownership of securities of
the Parent Corporation at such time, "beneficial ownership" (as
defined in Rule 13d-3 under the Exchange Act) immediately following
the effective date of such merger or consolidation of securities of
the surviving corporation representing less than 80 percent of the
combined voting power of the surviving corporation's then outstanding
securities ordinarily having the right to vote at elections of
directors;
(iv) the continuity directors cease for any reason to
constitute at least a majority of the Board; or
(v) a change in control of a nature that is determined by
outside legal counsel to the Parent Corporation, in a written opinion
specifically referencing this provision of the Agreement, to be
required to be reported (assuming such event has not been "previously
reported") pursuant to Section 13 or 15(d) of the Exchange Act,
whether or not the Parent Corporation is then subject to such
reporting requirement.
For purposes of this Section 1(g), a "continuity director" means any
individual who is a member of the Board on May 28, 1998, while he or she is
a member of the Board, and any individual who subsequently becomes a member
of the Board whose election or nomination for election by the Parent
Corporation's stockholders was approved by a vote of at least a majority of
the directors who are continuity directors (either by a specific vote or by
approval of the proxy statement of the Parent Corporation in which such
individual is named as a nominee for director without objection to such
nomination). For example, if a majority of the 10 individuals
<PAGE>
constituting the Board on May 28, 1998 approved a proxy statement in
which six different individuals were nominated to replace six of the
individuals who were members of the Board on May 28, 1998, upon their
election by the Parent Corporation's stockholders, the six newly elected
directors would join the four directors who were members of the Board on
May 28, 1998 as continuity directors. Similarly, if a majority of those
10 directors approved a proxy statement in which four different
individuals were nominated to replace the four remaining directors who
were members of the Board on May 28, 1998, upon their election by the
Parent Corporation's stockholders, the four newly elected directors
would also become, along with the other six directors, continuity
directors. Individuals subsequently joining the Board could become
continuity directors under the principles reflected in this example.
For purposes of this Section 1(g), a "bona fide underwriter" means a
Person engaged in business as an underwriter of securities that acquires
securities of the Parent Corporation through such Person's participation in
good faith in a firm commitment underwriting until the expiration of 40
days after the date of such acquisition.
(h) "CODE" means the Internal Revenue Code of 1986, as amended.
Any reference to a specific provision of the Code includes a reference to
such provision as it may be amended from time to time and to any successor
provision.
(i) "COMPANY" means the Parent Corporation, any Successor and
any Affiliate.
(j) "DATE OF TERMINATION" following a Change in Control (or
prior to a Change in Control if your termination was either a condition of
the Change in Control or was at the request or insistence of any Person
related to the Change in Control) means:
(i) if your employment is to be terminated by you for Good
Reason, the date specified in the Notice of Termination which in no
event may be a date more than 15 days after the date on which Notice
of Termination is given unless the Company agrees in writing to a
later date;
(ii) if your employment is to be terminated by the Company
for Cause, the date specified in the Notice of Termination;
(iii) if your employment is terminated by reason of your
death, the date of your death; or
(iv) if your employment is to be terminated by the Company
for any reason other than Cause or your death, the date specified in
the Notice of Termination, which in no event may be a date earlier
than 15 days after the date on which a Notice of Termination is given,
unless you expressly agree in writing to an earlier date.
In the case of termination by the Company of your employment for
Cause, if you have not previously expressly agreed in writing to the
termination, then within the 30-day period after your receipt of the Notice
of Termination, you may notify the Company that a dispute exists concerning
the termination, in which event the Date of Termination will be the date
set either by mutual written agreement of the parties or by the judge or
arbitrators in a proceeding as provided in Section 11 of this Agreement.
During the pendency of any such dispute, you will continue to make yourself
available to provide services to the Company and the Company will continue
to pay you your full compensation and benefits in effect immediately prior
to the date on which the
<PAGE>
Notice of Termination is given (without regard to any changes to such
compensation or benefits that constitute Good Reason) and until the
dispute is resolved in accordance with Section 11 of this Agreement.
You will be entitled to retain the full amount of any such compensation
and benefits without regard to the resolution of the dispute unless the
judge or arbitrators decide(s) that your claim of a dispute was
frivolous or advanced by you in bad faith.
(k) "EMPLOYMENT AGREEMENT" means that certain Employment
Agreement, dated as of [date of employment agreement], between the Parent
Corporation and you, as amended.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended. Any reference to a specific provision of the Exchange Act or to
any rule or regulation thereunder includes a reference to such provision as
it may be amended from time to time and to any successor
(m) "GOOD REASON" means:
(i) a change in your title(s), status, position(s),
authority, duties or responsibilities as an executive of the Company
as in effect immediately prior to the Change in Control which, in your
reasonable judgment, is material and adverse (other than, if
applicable, any such change directly attributable to the fact that the
Parent Corporation is no longer publicly owned); provided, however,
that Good Reason does not include such a change that is remedied by
the Company promptly after receipt of notice of such change is given
by you;
(ii) a reduction by the Company in your Base Pay, or an
adverse change in the form or timing of the payment thereof, as in
effect immediately prior to the Change in Control or as thereafter
increased;
(iii) the failure by the Company to cover you under Benefit
Plans that, in the aggregate, provide substantially similar benefits
to you and/or your family and dependents at a substantially similar
total cost to you (e.g., premiums, deductibles, co-pays, out of pocket
maximums, required contributions and the like) relative to the
benefits and total costs under the Benefit Plans in which you (and/or
your family or dependents) were participating at any time during the
90-day period immediately preceding the Change in Control;
(iv) the Company's requiring you to be based more than 30
miles from where your office is located immediately prior to the
Change in Control, except for required travel on the Company's
business, and then only to the extent substantially consistent with
the business travel obligations which you undertook on behalf of the
Company during the 90-day period immediately preceding the Change in
Control (without regard to travel related to or in anticipation of the
Change in Control);
(v) the failure by the Company to obtain from any
Successor the assent to this Agreement contemplated by Section 5 of
this Agreement;
(vi) any purported termination by the Company of your
employment that is not properly effected pursuant to a Notice of
Termination and pursuant to any other requirements of this Agreement,
and, for purposes of this Agreement, no such purported termination
will be effective; or
<PAGE>
(vii) any refusal by the Company to continue to allow you to
attend to matters or engage in activities not directly related to the
business of the Company which, at any time prior to the Change in
Control, you were not expressly prohibited in writing by the Board
from attending to or engaging in.
Your continued employment does not constitute consent to, or waiver of
any rights arising in connection with, any circumstances constituting Good
Reason. Your termination of employment for Good Reason as defined in this
Section 1(m) will constitute Good Reason for all purposes of this Agreement
notwithstanding that you may also thereby be deemed to have retired under
any applicable benefit plan, policy or practice of the Company.
(n) "NOTICE OF TERMINATION" means a written notice given on or
after the date of a Change in Control (unless your termination before the
date of the Change in Control was either a condition of the Change in
Control or was at the request or insistence of any Person related to the
Change in Control) which indicates the specific termination provision in
this Agreement pursuant to which the notice is given. Any purported
termination by the Company or by you for Good Reason on or after the date
of a Change in Control (or before the date of a Change in Control if your
termination was either a condition of the Change in Control or was at the
request or insistence of any Person related to the Change in Control) must
be communicated by written Notice of Termination to be effective; provided,
that your failure to provide Notice of Termination will not limit any of
your rights under this Agreement except to the extent the Company
demonstrates that it suffered material actual damages by reason of such
failure.
(o) "PARENT CORPORATION" means Merrill Corporation and any
Successor.
(p) "PERSON" means any individual, corporation partnership,
group, association or other "person," as such term is used in Section 13(d)
or Section 14(d) of the Exchange Act, other than the Parent Corporation,
any Affiliate or any benefit plan(s) sponsored by the Parent Corporation or
an Affiliate.
(q) "SUCCESSOR" means any Person that succeeds to, or has the
practical ability to control (either immediately or solely with the passage
of time), the Parent Corporation's business directly, by merger,
consolidation or other form of business combination, or indirectly, by
purchase of the Parent Corporation's outstanding securities ordinarily
having the right to vote at the election of directors or all or
substantially all of its assets or otherwise.
2. TERM OF AGREEMENT. This Agreement is effective immediately and
will continue in effect until January 1, 2000; provided, however, that
commencing on January 1, 2000 and each January 1 thereafter, the term of this
Agreement will automatically be extended for 12 additional months beyond the
expiration date otherwise then in effect, unless at least 90 calendar days prior
to any such January 1, the Company or you has given notice that this Agreement
will not be extended; and, provided, further, that if a Change in Control has
occurred during the term of this Agreement, this Agreement will continue in
effect beyond the termination date then in effect for a period of 24 months
following the month during which the Change in Control occurs or, if later,
until the date on which the Company's obligations to you arising under or in
connection with this Agreement have been satisfied in full.
3. BENEFITS UPON A CHANGE IN CONTROL TERMINATION. You will become
entitled to the benefits described in this Section 3 if and only if (i) the
Company terminates your employment for any reason other than your death or
Cause, or you terminate your employment with the Company for Good Reason and
(ii) the termination occurs either within the period beginning on the date of a
Change in Control and
<PAGE>
ending on the last day of the twenty-fourth month that begins after the month
during which the Change in Control occurs or prior to a Change in Control if
your termination was either a condition of the Change in Control or was at
the request or insistence of a Person related to the Change in Control.
(a) CASH PAYMENT. Not more than five business days following
the Date of Termination, or, if later, not more than five business days
following the date of the Change in Control, the Company will make a
lump-sum cash payment to you in an amount equal to three times the sum
of (i) your Base Pay plus (ii) your target cash bonus for the year
during which the Change in Control occurs or the average of your cash
bonus for the three fiscal years ending immediately prior to the Change
in Control, whichever is greater. This payment is in lieu of any other
cash bonus payment to which you may otherwise be entitled under any
bonus plan for any period ending after your Date of Termination. Cash
bonus payments relating to any period ending on or before your Date of
Termination will be paid to you in accordance with the terms of the
bonus plan.
(b) HEALTH BENEFITS. During the period beginning on your Date
of Termination and ending on the last day of the thirty-sixth month that
begins after your Date of Termination, the Company will provide, or arrange
to provide, medical, dental and vision benefits (excluding premium
conversion or flexible spending accounts under any cafeteria plan) to you
(and your family members and dependents who were eligible to be covered at
any time during the 90-day period immediately prior to the date of a Change
in Control for the period after the Change in Control in which such family
members and dependents would otherwise continue to be covered under the
terms of the applicable Benefit Plan in effect immediately prior to the
Change in Control) under the same terms and at the same cost to you and
your family members and dependents as similarly situated individuals who
continue to be employed by the Company (without regard to any reduction in
such benefits that constitutes Good Reason). To the extent you incur a tax
liability (including federal, state and local taxes and any interest and
penalties with respect thereto) in connection with a benefit provided
pursuant to this Section 3(b) which you would not have incurred had you
been an active employee of the Company participating in the Company's group
health plan, the Company will make a payment to you in an amount equal to
such tax liability plus an additional amount sufficient to permit you to
retain a net amount after all taxes (including penalties and interest)
equal to the initial tax liability in connection with the benefit. For
purposes of applying the foregoing, your tax rate will be deemed to be the
highest statutory marginal state and federal tax rate (on a combined basis)
then in effect. The payment pursuant to this Section 3(b) will be made
within 10 days after your remittal of a written request for payment
accompanied by a statement indicating the basis for and amount of the
liability.
(c) SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Company will
cause your account balance under the Merrill Corporation Supplemental
Executive Retirement Plan to become fully vested and nonforfeitable
effective as of the Date of Termination and at all times thereafter. In
addition, the Company will cause any distribution to which you are entitled
under the Merrill Corporation Supplemental Executive Retirement Plan to be
made without regard to any provision of the Plan that permits your
distribution to be deferred to the extent necessary to ensure that no part
of the distribution is nondeductible pursuant to Code Section 162(m).
(d) GROSS-UP PAYMENTS. Following a Change in Control, the
Company will cause its independent auditors promptly to review, at the
Company's sole expense, the applicability of Code Section 4999 to any
payment or distribution of any type by the Company to or for your benefit,
whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement, any Benefit Plan or otherwise (the "Total
Payments"). If the auditor determines that
<PAGE>
the Total Payments result in an excise tax imposed by Code Section 4999
or any comparable state or local law or any interest or penalties with
respect to such excise tax (such excise tax, together with any such
interest and penalties, are collectively referred to as the "Excise
Tax"), the Company will make an additional cash payment (a "Gross-Up
Payment") to you within 10 days after such determination equal to an
amount such that after payment by you of all taxes (including any
interest or penalties imposed with respect to such taxes), including any
Excise Tax, imposed upon the Gross-Up Payment, you would retain an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Total Payments. For purposes of the foregoing determination, your tax
rate will be deemed to be the highest statutory marginal state and
federal tax rate (on a combined basis) then in effect. If no
determination by the Company's auditors is made prior to the time you
are required to file a tax return reflecting the Total Payments, you
will be entitled to receive from the Company a Gross-Up Payment
calculated on the basis of the Excise Tax you reported in such tax
return, within 10 days after the later of the date on which you file
such tax return or the date on which you provide a copy thereof to the
Company. In all events, if any tax authority determines that a greater
Excise Tax should be imposed upon the Total Payments than is determined
by the Company's independent auditors or reflected in your tax return
pursuant to this Section 3(d), you will be entitled to receive from the
Company the full Gross-Up Payment calculated on the basis of the amount
of Excise Tax determined to be payable by such tax authority within 10
days after you notify the Company of such determination. If any other
Benefit Plan or other plan, policy or practice of the Company or any
other agreement between you and the Company (an "Other Arrangement")
specifically provides that benefits thereunder will be reduced or
limited so that such benefits or the Total Payments will not result in
the imposition of an excise tax pursuant to Code Section 4999, the
reduction or limitation will apply, to the extent provided in the Other
Arrangement, solely to the benefits provided pursuant to the Other
Arrangement as if the benefits under the Other Arrangement constituted
the entire Total Payments, and such reduction or limitation will not
otherwise reduce or limit the actual Total Payments.
If any benefits are provided pursuant to this section, such benefits will
be in lieu of the benefits described in Section 8 of the Employment Agreement.
If, on or after the date of a Change in Control, an Affiliate is sold,
merged, transferred or in any other manner or for any other reason ceases to be
an Affiliate or all or any portion of the business or assets of an Affiliate are
sold, transferred or otherwise disposed of and the acquiror is not the Parent
Corporation or an Affiliate (a "Disposition"), and you remain or become employed
by the acquiror or an affiliate of the acquiror (as defined in this Agreement
but substituting "acquiror" for "Parent Corporation") in connection with the
Disposition, you will be deemed to have terminated employment on the effective
date of the Disposition for purposes of this Section 3 unless (x) the acquiror
and its affiliates jointly and severally expressly assume and agree, in a manner
that is enforceable by you, to perform the obligations of this Agreement to the
same extent that the Company would be required to perform if the Disposition had
not occurred and (y) the Successor guarantees, in a manner that is enforceable
by you, payment and performance by the acquiror.
4. INDEMNIFICATION. Following a Change in Control, the Company will
indemnify and advance expenses to you for damages, costs and expenses
(including, without limitation, judgments, fines, penalties, settlements and
reasonable fees and expenses of your counsel) incurred in connection with all
matters, events and transactions relating to your service to or status with the
Company or any other corporation, employee benefit plan or other entity with
whom you served at the request of the Company to the extent that the Company
would have been required to do so under applicable law, corporate articles,
bylaws or agreements or instruments of any nature with or covering you, as in
effect
<PAGE>
immediately prior to the Change in Control and to any further extent as may
be determined or agreed upon following the Change in Control.
5. SUCCESSORS. The Parent Corporation will seek to have any
Successor, by agreement in form and substance satisfactory to you, assent to the
fulfillment by the Company of the Company's obligations under this Agreement.
Failure of the Parent Corporation to obtain such assent at least three business
days prior to the time a Person becomes a Successor (or where the Parent
Corporation does not have at least three business days' advance notice that a
Person may become a Successor, within one business day after having notice that
such Person may become or has become a Successor) will constitute Good Reason
for termination by you of your employment. The date on which any such
succession becomes effective will be deemed the Date of Termination, and Notice
of Termination will be deemed to have been given on that date. A Successor has
no rights, authority or power with respect to this Agreement prior to a Change
in Control.
6. BINDING AGREEMENT. This Agreement inures to the benefit of, and
is enforceable by, you, your personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
die while any amount would still be payable to you under this Agreement if you
had continued to live, all such amounts, unless otherwise provided in this
Agreement, will be paid in accordance with the terms of this Agreement to your
devisee, legatee or other designee or, if there be no such designee, to your
estate.
7. NO MITIGATION. You will not be required to mitigate the amount
of any benefits the Company becomes obligated to provide to you in connection
with this Agreement by seeking other employment or otherwise. The benefits to
be provided to you in connection with this Agreement may not be reduced, offset
or subject to recovery by the Company by any benefits you may receive from other
employment or otherwise.
8. NO SETOFF. The Company has no right to setoff benefits owed to
you under this Agreement against amounts owed or claimed to be owed by you to
the Company under this Agreement or otherwise.
9. TAXES. All benefits to be provided to you in connection with
this Agreement will be subject to required withholding of federal, state and
local income, excise and employment-related taxes. The Company's good faith
determination with respect to its obligation to withhold such taxes relieves it
of any obligation that such amounts should have been paid to you.
10. NOTICES. For the purposes of this Agreement, notices and all
other communications provided for in, or required under, this Agreement must be
in writing and will be deemed to have been duly given when personally delivered
or when mailed by United States registered or certified mail, return receipt
requested, postage prepaid and addressed to each party's respective address set
forth on the first page of this Agreement (provided that all notices to the
Company must be directed to the attention of the chair of the Board), or to such
other address as either party may have furnished to the other in writing in
accordance with these provisions, except that notice of change of address will
be effective only upon receipt.
11. DISPUTES. If you so elect, any dispute, controversy or claim
arising under or in connection with this Agreement will be settled exclusively
by binding arbitration administered by the American Arbitration Association in
Minneapolis, Minnesota in accordance with the Commercial Arbitration Rules of
the American Arbitration Association then in effect; provided that you may seek
specific performance of your right to receive benefits until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement. Judgment may be entered on the
<PAGE>
arbitrator's award in any court having jurisdiction. If any dispute,
controversy or claim for damages arising under or in connection with this
Agreement is settled by arbitration, the Company will pay, or if elected by
you, reimburse, all fees, costs and expenses incurred by you related to such
arbitration unless the arbitrators decide that your claim was frivolous or
advanced by you in bad faith. If you do not elect arbitration, you may
pursue all available legal remedies. The Company will pay, or if elected by
you, reimburse you for, all fees, costs and expenses incurred by you in
connection with any actual, threatened or contemplated litigation relating to
this Agreement to which you are or reasonably expect to become a party,
whether or not initiated by you, if you are successful in recovering any
benefit under this Agreement as a result of such action. The parties agree
that any litigation arising under or in connection with this Agreement must
be brought in a court of competent jurisdiction in the State of Minnesota,
and hereby consent to the exclusive jurisdiction of said courts for this
purpose and agree not to assert that such courts are an inconvenient forum.
The Company will not assert in any dispute or controversy with you arising
under or in connection with this Agreement your failure to exhaust
administrative remedies.
12. RELATED AGREEMENTS.
(a) EMPLOYMENT AGREEMENT. The provisions of this Agreement
supersede the provisions of Section 8 of the Employment Agreement except
for the provisions of Section 8.5 of the Employment Agreement. This
Agreement will not otherwise control or supersede the Employment Agreement.
(b) OTHER ARRANGEMENTS. To the extent that any provision of any
Benefit Plan or other benefit plan, policy, practice or agreement between
the Company or any Affiliate and you other than the Employment Agreement
(an "Other Arrangement") limits, qualifies or is inconsistent with any
provision of this Agreement, then for purposes of this Agreement, while
such Other Arrangement remains in force, the provision of this Agreement
will control and such provision of such Other Arrangement will be deemed to
have been superseded, and to be of no force or effect, as if such Other
Arrangement had been formally amended to the extent necessary to accomplish
such purpose. Nothing in this Agreement prevents or limits your continuing
or future participation in any Other Arrangement for which you may qualify,
and nothing in this Agreement limits or otherwise affects the rights you
may have under any Other Arrangement. Amounts that are vested benefits or
which you are otherwise entitled to receive under any Other Arrangement at
or subsequent to the Date of Termination will be payable in accordance with
such Other Arrangement.
13. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement is
intended to provide you with any right to continue in the employ of the Company
for any period of specific duration or interfere with or otherwise restrict in
any way your rights or the rights of the Company, which rights are governed by
the Employment Agreement.
14. PAYMENT; ASSIGNMENT. Benefits payable under this Agreement will
be paid only from the general assets of the Company. No person has any right to
or interest in any specific assets of the Company by reason of this Agreement.
To the extent benefits under this Agreement are not paid when due to any
individual, he or she is a general unsecured creditor of the Company with
respect to any amounts due. Benefits payable pursuant to this Agreement and the
right to receive future benefits may not be anticipated, alienated, sold,
transferred, assigned, pledged, encumbered or subject to any charge.
15. SURVIVAL. The respective obligations of, and benefits afforded
to, the Company and you which by their express terms or clear intent survive
termination of your employment with the Company or termination of this
Agreement, as the case may be, will survive termination of your employment with
<PAGE>
the Company or termination of this Agreement, as the case may be, and will
remain in full force and effect according to their terms.
16. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed to
in a writing signed by you and a duly authorized officer of the Parent
Corporation. No waiver by any party to this Agreement at any time of any breach
by another party to this Agreement of, or of compliance with any condition or
provision of this Agreement to be performed by such party will be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter to this Agreement have
been made by any party which are not expressly set forth in this Agreement.
This Agreement and the legal relations among the parties as to all matters,
including, without limitation, matters of validity, interpretation,
construction, performance and remedies, will be governed by and construed
exclusively in accordance with the internal laws of the State of Minnesota
(without regard to the conflict of laws principles of any jurisdiction).
Headings are for purposes of convenience only and do not constitute a part of
this Agreement. The parties to this Agreement agree to perform, or cause to be
performed, such further acts and deeds and to execute and deliver or cause to be
executed and delivered, such additional or supplemental documents or instruments
as may be reasonably required by the other party to carry into effect the intent
and purpose of this Agreement. The invalidity or unenforceability of all or any
part of any provision of this Agreement will not affect the validity or
enforceability of the remainder of such provision or of any other provision of
this Agreement, which will remain in full force and effect. This Agreement may
be executed in several counterparts, each of which will be deemed to be an
original, but all of which together will constitute one and the same instrument.
If this letter correctly sets forth our agreement on the subject matter
discussed above, kindly sign and return to the Company the enclosed copy of this
letter which will then constitute our agreement on this subject.
MERRILL CORPORATION
By:
----------------------------
-------------------------------
[Executive]
<PAGE>
FORM OF CHANGE IN CONTROL AGREEMENT
WITH STEVEN J. MACHOV, KAY BARBER AND
KATHLEEN LARKIN
Effective May 28, 1998
[Name and address of Executive]
Dear [executive]:
The Board considers the establishment and maintenance of a sound and vital
management to be essential to protecting and enhancing the best interests of the
Company and its stockholders. In this connection, the Board recognizes that the
possibility of a Change in Control may raise uncertainty and questions among
management which may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders.
Accordingly, the Board has determined that appropriate steps should be
taken to minimize the risk that Company executive management will depart prior
to a Change in Control, thereby leaving the Company without adequate executive
management personnel during such a critical period, and to reinforce and
encourage the continued attention and dedication of members of the Company's
executive management to their assigned duties without distraction in
circumstances arising from the possibility of a Change in Control.
The Board recognizes that continuance of your position with the Company
involves a substantial commitment to the Company in terms of your personal life
and professional career and the possibility of foregoing present and future
career opportunities, for which the Company receives substantial benefits.
Therefore, to induce you to remain in the employ of the Company, this Agreement,
which has been approved by the Board, sets forth the benefits that the Company
agrees will be provided to you in the event your employment with the Company is
terminated in connection with a Change in Control under the circumstances
described below.
1. DEFINITIONS. The following terms have the meaning set forth below
unless the context clearly requires otherwise. Terms defined elsewhere in this
Agreement have the same meaning throughout this Agreement.
(a) "AFFILIATE" means (i) any corporation at least a majority of
whose outstanding securities ordinarily having the right to vote at
elections of directors is owned directly or indirectly by the Parent
Corporation or (ii) any other form of business entity in which the Parent
Corporation, by virtue of a direct or indirect ownership interest, has the
right to elect a majority of the members of such entity's governing body.
(b) "AGREEMENT" means this letter agreement as amended, extended
or renewed from time to time in accordance with its terms.
<PAGE>
(c) "BASE PAY" means your annual base salary from the Company at
the rate in effect immediately prior to a Change in Control or at the time
Notice of Termination is given, whichever is greater. Base Pay includes
only regular cash salary and is determined before any reduction for
deferrals pursuant to any nonqualified deferred compensation plan or
arrangement, qualified cash or deferred arrangement or cafeteria plan.
(d) "BENEFIT PLAN" means any
(i) employee benefit plan as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended;
(ii) cafeteria plan described in Code Section 125;
(iii) plan, policy or practice providing for paid vacation,
other paid time off or short-or long-term profit sharing, bonus or
incentive payments; or
(iv) stock option, stock purchase, restricted stock,
phantom stock, stock appreciation right or other equity-based
compensation plan with respect to the securities of any Affiliate
made available to employees of the Company generally or any group of
employees or you in particular.
(e) "BOARD" means the board of directors of the Parent
Corporation duly qualified and acting at the time in question. On and
after the date of a Change in Control, any duty of the Board in connection
with this Agreement is nondelegable and any attempt by the Board to
delegate any such duty is ineffective.
(f) "CAUSE" means:
(i) your gross misconduct;
(ii) your willful and continued failure to perform
substantially your duties with the Company (other than any such
failure (1) resulting from your incapacity due to bodily injury or
physical or mental illness or (2) relating to changes in your duties
after a Change in Control which constitute Good Reason) after a demand
for substantial performance is delivered to you by the chair of the
Board which specifically identifies the manner in which you have not
substantially performed your duties and provides for a reasonable
period of time within which you may take corrective actions; or
(iii) your conviction (including a plea of nolo contendere)
of willfully engaging in illegal conduct constituting a felony or
gross misdemeanor under federal or state law which is materially and
demonstrably injurious to the Company or which impairs your ability to
perform substantially your duties for the Company.
An act or failure to act will be considered "gross or willful" for this
purpose only if done, or omitted to be done, by you in bad faith and
without reasonable belief that it was in, or not opposed to, the best
interests of the Company. Any act, or failure to act, based upon authority
given pursuant to a resolution duly adopted by the Board (or a committee
thereof) or based upon the advice of counsel for the Company will be
conclusively presumed to be done, or omitted to
<PAGE>
be done, by you in good faith and in the best interests of the Company.
It is also expressly understood that your attention to matters not
directly related to the business of the Company will not provide a basis
for termination for Cause so long as the Board did not expressly
disapprove in writing of your engagement in such activities either
before or within a reasonable period of time after the Board knew or
could reasonably have known that you engaged in those activities.
Notwithstanding the foregoing, you may not be terminated for Cause
unless and until there has been delivered to you a copy of a resolution
duly adopted by the affirmative vote of not less than a majority of the
entire membership of the Board at a meeting of the Board called and held
for the purpose (after reasonable notice to you and an opportunity for
you, together with your counsel, to be heard before the Board), finding
that in the good faith opinion of the Board you were guilty of the
conduct set forth above in clauses (i), (ii) or (iii) of this definition
and specifying the particulars thereof in detail.
(g) "CHANGE IN CONTROL" means any of the following:
(i) the sale, lease, exchange or other transfer, directly
or indirectly, of substantially all of the assets of the Parent
Corporation, in one transaction or in a series of related
transactions, to any Person;
(ii) any Person, other than a "bona fide underwriter,"
becomes, after the date of this Agreement, the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of 20 percent or more of the combined voting power of the Parent
Corporation's outstanding securities ordinarily having the right to
vote at elections of directors;
(iii) a merger or consolidation to which the Parent
Corporation is a party if the stockholders of the Parent Corporation
immediately prior to the effective date of such merger or
consolidation have, solely on account of ownership of securities of
the Parent Corporation at such time, "beneficial ownership" (as
defined in Rule 13d-3 under the Exchange Act) immediately following
the effective date of such merger or consolidation of securities of
the surviving corporation representing less than 80 percent of the
combined voting power of the surviving corporation's then outstanding
securities ordinarily having the right to vote at elections of
directors;
(iv) the continuity directors cease for any reason to
constitute at least a majority of the Board; or
(v) a change in control of a nature that is determined by
outside legal counsel to the Parent Corporation, in a written opinion
specifically referencing this provision of the Agreement, to be
required to be reported (assuming such event has not been "previously
reported") pursuant to Section 13 or 15(d) of the Exchange Act,
whether or not the Parent Corporation is then subject to such
reporting requirement.
For purposes of this Section 1(g), a "continuity director" means any
individual who is a member of the Board on May 28, 1998, while he or she is
a member of the Board, and any individual who subsequently becomes a member
of the Board whose election or nomination for election by the Parent
Corporation's stockholders was approved by a vote of at least a majority of
the directors who are continuity directors (either by a specific vote or by
approval of the proxy statement of the Parent Corporation in which such
individual is named as a nominee for director without objection to such
nomination). For example, if a majority of the 10 individuals
<PAGE>
constituting the Board on May 28, 1998 approved a proxy statement in
which six different individuals were nominated to replace six of the
individuals who were members of the Board on May 28, 1998, upon their
election by the Parent Corporation's stockholders, the six newly elected
directors would join the four directors who were members of the Board on
May 28, 1998 as continuity directors. Similarly, if a majority of those
10 directors approved a proxy statement in which four different
individuals were nominated to replace the four remaining directors who
were members of the Board on May 28, 1998, upon their election by the
Parent Corporation's stockholders, the four newly elected directors
would also become, along with the other six directors, continuity
directors. Individuals subsequently joining the Board could become
continuity directors under the principles reflected in this example.
For purposes of this Section 1(g), a "bona fide underwriter" means a
Person engaged in business as an underwriter of securities that acquires
securities of the Parent Corporation through such Person's participation in
good faith in a firm commitment underwriting until the expiration of 40
days after the date of such acquisition.
(h) "CODE" means the Internal Revenue Code of 1986, as amended.
Any reference to a specific provision of the Code includes a reference to
such provision as it may be amended from time to time and to any successor
provision.
(i) "COMPANY" means the Parent Corporation, any Successor and
any Affiliate.
(j) "DATE OF TERMINATION" following a Change in Control (or
prior to a Change in Control if your termination was either a condition of
the Change in Control or was at the request or insistence of any Person
related to the Change in Control) means:
(i) if your employment is to be terminated by you for
Good Reason, the date specified in the Notice of Termination which in
no event may be a date more than 15 days after the date on which
Notice of Termination is given unless the Company agrees in writing to
a later date;
(ii) if your employment is to be terminated by the Company
for Cause, the date specified in the Notice of Termination;
(iii) if your employment is terminated by reason of your
death, the date of your death; or
(iv) if your employment is to be terminated by the Company
for any reason other than Cause or your death, the date specified in
the Notice of Termination, which in no event may be a date earlier
than 15 days after the date on which a Notice of Termination is given,
unless you expressly agree in writing to an earlier date.
In the case of termination by the Company of your employment for
Cause, if you have not previously expressly agreed in writing to the
termination, then within the 30-day period after your receipt of the Notice
of Termination, you may notify the Company that a dispute exists concerning
the termination, in which event the Date of Termination will be the date
set either by mutual written agreement of the parties or by the judge or
arbitrators in a proceeding as provided in Section 11 of this Agreement.
During the pendency of any such dispute, you will continue to make yourself
available to provide services to the Company and the Company will continue
to pay you your full compensation and benefits in effect immediately prior
to the date on which the
<PAGE>
Notice of Termination is given (without regard to any changes to such
compensation or benefits that constitute Good Reason) and until the
dispute is resolved in accordance with Section 11 of this Agreement.
You will be entitled to retain the full amount of any such compensation
and benefits without regard to the resolution of the dispute unless the
judge or arbitrators decide(s) that your claim of a dispute was
frivolous or advanced by you in bad faith.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended. Any reference to a specific provision of the Exchange Act or to
any rule or regulation thereunder includes a reference to such provision as
it may be amended from time to time and to any successor
(l) "GOOD REASON" means:
(i) a change in your title(s), status, position(s),
authority, duties or responsibilities as an executive of the Company
as in effect immediately prior to the Change in Control which, in your
reasonable judgment, is material and adverse (other than, if
applicable, any such change directly attributable to the fact that the
Parent Corporation is no longer publicly owned); provided, however,
that Good Reason does not include such a change that is remedied by
the Company promptly after receipt of notice of such change is given
by you;
(ii) a reduction by the Company in your Base Pay, or an
adverse change in the form or timing of the payment thereof, as in
effect immediately prior to the Change in Control or as thereafter
increased;
(iii) the failure by the Company to cover you under Benefit
Plans that, in the aggregate, provide substantially similar benefits
to you and/or your family and dependents at a substantially similar
total cost to you (e.g., premiums, deductibles, co-pays, out of pocket
maximums, required contributions and the like) relative to the
benefits and total costs under the Benefit Plans in which you (and/or
your family or dependents) were participating at any time during the
90-day period immediately preceding the Change in Control;
(iv) the Company's requiring you to be based more than 30
miles from where your office is located immediately prior to the
Change in Control, except for required travel on the Company's
business, and then only to the extent substantially consistent with
the business travel obligations which you undertook on behalf of the
Company during the 90-day period immediately preceding the Change in
Control (without regard to travel related to or in anticipation of the
Change in Control);
(v) the failure by the Company to obtain from any
Successor the assent to this Agreement contemplated by Section 5 of
this Agreement;
(vi) any purported termination by the Company of your
employment that is not properly effected pursuant to a Notice of
Termination and pursuant to any other requirements of this Agreement,
and, for purposes of this Agreement, no such purported termination
will be effective; or
(vii) any refusal by the Company to continue to allow you
to attend to matters or engage in activities not directly related to
the business of the Company which, at any
<PAGE>
time prior to the Change in Control, you were not expressly prohibited
in writing by the Board from attending to or engaging in.
Your continued employment does not constitute consent to, or waiver of
any rights arising in connection with, any circumstances constituting Good
Reason. Your termination of employment for Good Reason as defined in this
Section 1(l) will constitute Good Reason for all purposes of this Agreement
notwithstanding that you may also thereby be deemed to have retired under
any applicable benefit plan, policy or practice of the Company.
(m) "NOTICE OF TERMINATION" means a written notice given on or
after the date of a Change in Control (unless your termination before the
date of the Change in Control was either a condition of the Change in
Control or was at the request or insistence of any Person related to the
Change in Control) which indicates the specific termination provision in
this Agreement pursuant to which the notice is given. Any purported
termination by the Company or by you for Good Reason on or after the date
of a Change in Control (or before the date of a Change in Control if your
termination was either a condition of the Change in Control or was at the
request or insistence of any Person related to the Change in Control) must
be communicated by written Notice of Termination to be effective; provided,
that your failure to provide Notice of Termination will not limit any of
your rights under this Agreement except to the extent the Company
demonstrates that it suffered material actual damages by reason of such
failure.
(n) "PARENT CORPORATION" means Merrill Corporation and any
Successor.
(o) "PERSON" means any individual, corporation partnership,
group, association or other "person," as such term is used in Section 13(d)
or Section 14(d) of the Exchange Act, other than the Parent Corporation,
any Affiliate or any benefit plan(s) sponsored by the Parent Corporation or
an Affiliate.
(p) "SUCCESSOR" means any Person that succeeds to, or has the
practical ability to control (either immediately or solely with the passage
of time), the Parent Corporation's business directly, by merger,
consolidation or other form of business combination, or indirectly, by
purchase of the Parent Corporation's outstanding securities ordinarily
having the right to vote at the election of directors or all or
substantially all of its assets or otherwise.
2. TERM OF AGREEMENT. This Agreement is effective immediately and
will continue in effect until January 1, 2000; provided, however, that
commencing on January 1, 2000 and each January 1 thereafter, the term of this
Agreement will automatically be extended for 12 additional months beyond the
expiration date otherwise then in effect, unless at least 90 calendar days prior
to any such January 1, the Company or you has given notice that this Agreement
will not be extended; and, provided, further, that if a Change in Control has
occurred during the term of this Agreement, this Agreement will continue in
effect beyond the termination date then in effect for a period of 24 months
following the month during which the Change in Control occurs or, if later,
until the date on which the Company's obligations to you arising under or in
connection with this Agreement have been satisfied in full.
3. BENEFITS UPON A CHANGE IN CONTROL TERMINATION. You will become
entitled to the benefits described in this Section 3 if and only if (i) the
Company terminates your employment for any reason other than your death or
Cause, or you terminate your employment with the Company for Good Reason and
(ii) the termination occurs either within the period beginning on the date of a
Change in Control and ending on the last day of the twenty-fourth month that
begins after the month during which the Change in
<PAGE>
Control occurs or prior to a Change in Control if your termination was either
a condition of the Change in Control or was at the request or insistence of a
Person related to the Change in Control.
(a) CASH PAYMENT. Not more than five business days following
the Date of Termination, or, if later, not more than five business days
following the date of the Change in Control, the Company will make a
lump-sum cash payment to you in an amount equal to two times the sum of
(i) your Base Pay plus (ii) your target cash bonus for the year during
which the Change in Control occurs or the average of your cash bonus for
the three fiscal years ending immediately prior to the Change in
Control, whichever is greater. This payment is in lieu of any other
cash bonus payment to which you may otherwise be entitled under any
bonus plan for any period ending after your Date of Termination. Cash
bonus payments relating to any period ending on or before your Date of
Termination will be paid to you in accordance with the terms of the
bonus plan.
(b) HEALTH BENEFITS. During the period beginning on your Date
of Termination and ending on the last day of the twenty-fourth month that
begins after your Date of Termination, the Company will provide, or arrange
to provide, medical, dental and vision benefits (excluding premium
conversion or flexible spending accounts under any cafeteria plan) to you
(and your family members and dependents who were eligible to be covered at
any time during the 90-day period immediately prior to the date of a Change
in Control for the period after the Change in Control in which such family
members and dependents would otherwise continue to be covered under the
terms of the applicable Benefit Plan in effect immediately prior to the
Change in Control) under the same terms and at the same cost to you and
your family members and dependents as similarly situated individuals who
continue to be employed by the Company (without regard to any reduction in
such benefits that constitutes Good Reason). To the extent you incur a tax
liability (including federal, state and local taxes and any interest and
penalties with respect thereto) in connection with a benefit provided
pursuant to this Section 3(b) which you would not have incurred had you
been an active employee of the Company participating in the Company's group
health plan, the Company will make a payment to you in an amount equal to
such tax liability plus an additional amount sufficient to permit you to
retain a net amount after all taxes (including penalties and interest)
equal to the initial tax liability in connection with the benefit. For
purposes of applying the foregoing, your tax rate will be deemed to be the
highest statutory marginal state and federal tax rate (on a combined basis)
then in effect. The payment pursuant to this Section 3(b) will be made
within 10 days after your remittal of a written request for payment
accompanied by a statement indicating the basis for and amount of the
liability.
(c) SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Company will
cause your account balance under the Merrill Corporation Supplemental
Executive Retirement Plan to become fully vested and nonforfeitable
effective as of the Date of Termination and at all times thereafter. In
addition, the Company will cause any distribution to which you are entitled
under the Merrill Corporation Supplemental Executive Retirement Plan to be
made without regard to any provision of the Plan that permits your
distribution to be deferred to the extent necessary to ensure that no part
of the distribution is nondeductible pursuant to Code Section 162(m).
(d) GROSS-UP PAYMENTS. Following a Change in Control, the
Company will cause its independent auditors promptly to review, at the
Company's sole expense, the applicability of Code Section 4999 to any
payment or distribution of any type by the Company to or for your benefit,
whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement, any Benefit Plan or otherwise (the "Total
Payments"). If the auditor determines that the Total Payments result in an
excise tax imposed by Code Section 4999 or any comparable
<PAGE>
state or local law or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest and
penalties, are collectively referred to as the "Excise Tax"), the
Company will make an additional cash payment (a "Gross-Up Payment") to
you within 10 days after such determination equal to an amount such that
after payment by you of all taxes (including any interest or penalties
imposed with respect to such taxes), including any Excise Tax, imposed
upon the Gross-Up Payment, you would retain an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Total Payments. For
purposes of the foregoing determination, your tax rate will be deemed to
be the highest statutory marginal state and federal tax rate (on a
combined basis) then in effect. If no determination by the Company's
auditors is made prior to the time you are required to file a tax return
reflecting the Total Payments, you will be entitled to receive from the
Company a Gross-Up Payment calculated on the basis of the Excise Tax you
reported in such tax return, within 10 days after the later of the date
on which you file such tax return or the date on which you provide a
copy thereof to the Company. In all events, if any tax authority
determines that a greater Excise Tax should be imposed upon the Total
Payments than is determined by the Company's independent auditors or
reflected in your tax return pursuant to this Section 3(d), you will be
entitled to receive from the Company the full Gross-Up Payment
calculated on the basis of the amount of Excise Tax determined to be
payable by such tax authority within 10 days after you notify the
Company of such determination. If any other Benefit Plan or other plan,
policy or practice of the Company or any other agreement between you and
the Company (an "Other Arrangement") specifically provides that benefits
thereunder will be reduced or limited so that such benefits or the Total
Payments will not result in the imposition of an excise tax pursuant to
Code Section 4999, the reduction or limitation will apply, to the extent
provided in the Other Arrangement, solely to the benefits provided
pursuant to the Other Arrangement as if the benefits under the Other
Arrangement constituted the entire Total Payments, and such reduction or
limitation will not otherwise reduce or limit the actual Total Payments.
If, on or after the date of a Change in Control, an Affiliate is sold,
merged, transferred or in any other manner or for any other reason ceases to be
an Affiliate or all or any portion of the business or assets of an Affiliate are
sold, transferred or otherwise disposed of and the acquiror is not the Parent
Corporation or an Affiliate (a "Disposition"), and you remain or become employed
by the acquiror or an affiliate of the acquiror (as defined in this Agreement
but substituting "acquiror" for "Parent Corporation") in connection with the
Disposition, you will be deemed to have terminated employment on the effective
date of the Disposition for purposes of this Section 3 unless (x) the acquiror
and its affiliates jointly and severally expressly assume and agree, in a manner
that is enforceable by you, to perform the obligations of this Agreement to the
same extent that the Company would be required to perform if the Disposition had
not occurred and (y) the Successor guarantees, in a manner that is enforceable
by you, payment and performance by the acquiror.
4. INDEMNIFICATION. Following a Change in Control, the Company will
indemnify and advance expenses to you for damages, costs and expenses
(including, without limitation, judgments, fines, penalties, settlements and
reasonable fees and expenses of your counsel) incurred in connection with all
matters, events and transactions relating to your service to or status with the
Company or any other corporation, employee benefit plan or other entity with
whom you served at the request of the Company to the extent that the Company
would have been required to do so under applicable law, corporate articles,
bylaws or agreements or instruments of any nature with or covering you, as in
effect immediately prior to the Change in Control and to any further extent as
may be determined or agreed upon following the Change in Control.
<PAGE>
5. SUCCESSORS. The Parent Corporation will seek to have any
Successor, by agreement in form and substance satisfactory to you, assent to the
fulfillment by the Company of the Company's obligations under this Agreement.
Failure of the Parent Corporation to obtain such assent at least three business
days prior to the time a Person becomes a Successor (or where the Parent
Corporation does not have at least three business days' advance notice that a
Person may become a Successor, within one business day after having notice that
such Person may become or has become a Successor) will constitute Good Reason
for termination by you of your employment. The date on which any such
succession becomes effective will be deemed the Date of Termination, and Notice
of Termination will be deemed to have been given on that date. A Successor has
no rights, authority or power with respect to this Agreement prior to a Change
in Control.
6. BINDING AGREEMENT. This Agreement inures to the benefit of, and
is enforceable by, you, your personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
die while any amount would still be payable to you under this Agreement if you
had continued to live, all such amounts, unless otherwise provided in this
Agreement, will be paid in accordance with the terms of this Agreement to your
devisee, legatee or other designee or, if there be no such designee, to your
estate.
7. NO MITIGATION. You will not be required to mitigate the amount
of any benefits the Company becomes obligated to provide to you in connection
with this Agreement by seeking other employment or otherwise. The benefits to
be provided to you in connection with this Agreement may not be reduced, offset
or subject to recovery by the Company by any benefits you may receive from other
employment or otherwise.
8. NO SETOFF. The Company has no right to setoff benefits owed to
you under this Agreement against amounts owed or claimed to be owed by you to
the Company under this Agreement or otherwise.
9. TAXES. All benefits to be provided to you in connection with
this Agreement will be subject to required withholding of federal, state and
local income, excise and employment-related taxes. The Company's good faith
determination with respect to its obligation to withhold such taxes relieves it
of any obligation that such amounts should have been paid to you.
10. NOTICES. For the purposes of this Agreement, notices and all
other communications provided for in, or required under, this Agreement must be
in writing and will be deemed to have been duly given when personally delivered
or when mailed by United States registered or certified mail, return receipt
requested, postage prepaid and addressed to each party's respective address set
forth on the first page of this Agreement (provided that all notices to the
Company must be directed to the attention of the chair of the Board), or to such
other address as either party may have furnished to the other in writing in
accordance with these provisions, except that notice of change of address will
be effective only upon receipt.
11. DISPUTES. If you so elect, any dispute, controversy or claim
arising under or in connection with this Agreement will be settled exclusively
by binding arbitration administered by the American Arbitration Association in
Minneapolis, Minnesota in accordance with the Commercial Arbitration Rules of
the American Arbitration Association then in effect; provided that you may seek
specific performance of your right to receive benefits until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement. Judgment may be entered on the arbitrator's
award in any court having jurisdiction. If any dispute, controversy or claim
for damages arising under or in connection with this Agreement is settled by
arbitration, the Company will pay, or if elected by you, reimburse, all fees,
costs and expenses incurred by you related to such arbitration unless
<PAGE>
the arbitrators decide that your claim was frivolous or advanced by you in
bad faith. If you do not elect arbitration, you may pursue all available
legal remedies. The Company will pay, or if elected by you, reimburse you
for, all fees, costs and expenses incurred by you in connection with any
actual, threatened or contemplated litigation relating to this Agreement to
which you are or reasonably expect to become a party, whether or not
initiated by you, if you are successful in recovering any benefit under this
Agreement as a result of such action. The parties agree that any litigation
arising under or in connection with this Agreement must be brought in a court
of competent jurisdiction in the State of Minnesota, and hereby consent to
the exclusive jurisdiction of said courts for this purpose and agree not to
assert that such courts are an inconvenient forum. The Company will not
assert in any dispute or controversy with you arising under or in connection
with this Agreement your failure to exhaust administrative remedies.
12. RELATED AGREEMENTS. To the extent that any provision of any
Benefit Plan or other benefit plan, policy, practice or agreement between the
Company or any Affiliate and you (an "Other Arrangement") limits, qualifies or
is inconsistent with any provision of this Agreement, then for purposes of this
Agreement, while such Other Arrangement remains in force, the provision of this
Agreement will control and such provision of such Other Arrangement will be
deemed to have been superseded, and to be of no force or effect, as if such
Other Arrangement had been formally amended to the extent necessary to
accomplish such purpose. Nothing in this Agreement prevents or limits your
continuing or future participation in any Other Arrangement for which you may
qualify, and nothing in this Agreement limits or otherwise affects the rights
you may have under any Other Arrangement. Amounts that are vested benefits or
which you are otherwise entitled to receive under any Other Arrangement at or
subsequent to the Date of Termination will be payable in accordance with such
Other Arrangement.
13. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement is
intended to provide you with any right to continue in the employ of the Company
for any period of specific duration or interfere with or otherwise restrict in
any way your rights or the rights of the Company, which rights are hereby
expressly reserved to each, to terminate your employment at any time for any
reason or no reason whatsoever, with or without cause.
14. PAYMENT; ASSIGNMENT. Benefits payable under this Agreement will
be paid only from the general assets of the Company. No person has any right to
or interest in any specific assets of the Company by reason of this Agreement.
To the extent benefits under this Agreement are not paid when due to any
individual, he or she is a general unsecured creditor of the Company with
respect to any amounts due. Benefits payable pursuant to this Agreement and the
right to receive future benefits may not be anticipated, alienated, sold,
transferred, assigned, pledged, encumbered or subject to any charge.
15. SURVIVAL. The respective obligations of, and benefits afforded
to, the Company and you which by their express terms or clear intent survive
termination of your employment with the Company or termination of this
Agreement, as the case may be, will survive termination of your employment with
the Company or termination of this Agreement, as the case may be, and will
remain in full force and effect according to their terms.
16. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed to
in a writing signed by you and a duly authorized officer of the Parent
Corporation. No waiver by any party to this Agreement at any time of any breach
by another party to this Agreement of, or of compliance with any condition or
provision of this Agreement to be performed by such party will be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter to this Agreement have
been made by any party which are not expressly set forth in this Agreement.
This Agreement and the legal relations
<PAGE>
among the parties as to all matters, including, without limitation, matters
of validity, interpretation, construction, performance and remedies, will be
governed by and construed exclusively in accordance with the internal laws of
the State of Minnesota (without regard to the conflict of laws principles of
any jurisdiction). Headings are for purposes of convenience only and do not
constitute a part of this Agreement. The parties to this Agreement agree to
perform, or cause to be performed, such further acts and deeds and to execute
and deliver or cause to be executed and delivered, such additional or
supplemental documents or instruments as may be reasonably required by the
other party to carry into effect the intent and purpose of this Agreement.
The invalidity or unenforceability of all or any part of any provision of
this Agreement will not affect the validity or enforceability of the
remainder of such provision or of any other provision of this Agreement,
which will remain in full force and effect. This Agreement may be executed
in several counterparts, each of which will be deemed to be an original, but
all of which together will constitute one and the same instrument.
If this letter correctly sets forth our agreement on the subject matter
discussed above, kindly sign and return to the Company the enclosed copy of this
letter which will then constitute our agreement on this subject.
MERRILL CORPORATION
By:
------------------------------------
---------------------------------------
[Executive]
<PAGE>
ASSET PURCHASE AGREEMENT
Dated as of June 11, 1998
Among
Merrill Corporation,
Merrill Acquisition Corporation,
and
Executech, Inc.,
World Wide Scan Services, LLC
the Shareholders of Executech, Inc.
and the Members of
World Wide Scan Services, LLC
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of June 11, 1998, is by and
between Merrill Corporation, a Minnesota corporation ("MERRILL"), Merrill
Acquisition Corporation a Minnesota Corporation (the "PURCHASER") and Executech,
Inc., a New York corporation ("EXECUTECH"), World Wide Scan Services, LLC, a
Connecticut limited liability company ("WORLD WIDE", which together with
Executech is hereinafter referred to as the "SELLERS"), Theodore M. Davis
("DAVIS") and Michael Z. Sperling ("SPERLING", who together with Davis are
collectively referred to as the "SHAREHOLDERS")(Davis and Sperling are also
collectively referred to as the "MEMBERS") (the Members and the Shareholders are
collectively referred to as the "OWNERS").
A. The parties hereto wish to provide for the terms and conditions upon
which the Purchaser will purchase substantially all of the Sellers' business
(the "BUSINESS").
B. The parties hereto wish to make certain representations, warranties,
covenants and agreements in connection with the purchase of the assets and the
Business and also to prescribe various conditions to such transaction.
Accordingly, and in consideration of the representations, warranties,
covenants, agreements and conditions herein contained, the parties hereto agree
as follows:
1. PURCHASE OF ASSETS
1.1 ASSETS TO BE PURCHASED.
(a) Upon the terms and subject to the conditions of this Agreement,
the Sellers will sell, transfer, convey, assign and deliver to the
Purchaser, and the Purchaser will purchase, as a going concern, from the
Sellers, at the Closing, all of the businesses, assets, properties,
goodwill and rights of the Sellers, of every nature, kind and description,
tangible and intangible, real, personal or mixed, wheresoever located and
whether or not carried or reflected on the books and records of the
Sellers, including, without limitation, real and personal property that is
now owned or leased by the Sellers or in which the Sellers have any right
or interest; franchises; all right, title and interest in and to the use
of Sellers' corporate names and any derivatives or combinations thereof,
including, without limitation, those listed in Exhibit 1.1(a) hereto;
logos, trademarks, trademark registrations and trademark applications or
registrations thereof, including the goodwill associated therewith; the
goodwill of the Sellers' businesses; copyrights, copyright applications
and copyright registrations, patents and patent applications; rights under
or pursuant to licenses by or to the Sellers; development and prototype
hardware, software, processes, formula, trade secrets, inventories and
royalties, including all rights to sue for past infringements; leaseholds
and other interests in land, inventory (accumulated costs of jobs and
supplies), equipment, machinery, furniture, fixtures, motor vehicles and
supplies; cash, money and deposits with financial institutions and others,
certificates of deposit, commercial paper, notes, evidences of
indebtedness, stocks, bonds and other investments;
<PAGE>
accounts receivables; prepaid expenses; insurance policies, contracts,
purchase orders, customers, lists of customers and suppliers, sales
representative agreements, and all favorable business relationships,
causes of action, judgments, claims and demands of whatever nature;
telephone, telefax and telex numbers; all listings in all telephone books
and directories; all credit balances of or inuring to the Sellers under
any state unemployment compensation plan or fund; employment contracts;
obligations of the present and former officers and employees and of
individuals and corporations; rights under joint venture agreements or
arrangements; files, papers and records relating to the Sellers'
businesses and assets; and the assets as reflected on the Latest Balance
Sheet, with only such dispositions of such assets reflected on the Latest
Balance Sheet as shall have occurred in the ordinary course of Sellers'
businesses between the date thereof and the Closing and which are
permitted by the terms hereof (the foregoing are sometimes collectively
called the "ASSETS").
(b) Notwithstanding the foregoing, the Sellers will not sell,
transfer, convey, assign or deliver to the Purchaser, and the Purchaser
will not purchase from the Sellers, the following assets:
(i) the consideration delivered to the Sellers pursuant to
this Agreement for the Assets;
(ii) the minute books (and any documents related to the
Sellers' organization or foreign qualification contained in such
minute books), corporate seal, stock records of Executech and member
records of World Wide;
(iii) shares of capital stock of Executech, including shares
held by Executech as treasury shares;
(iv) membership interests or other interests representing the
ownership of World Wide;
(v) amounts owing to either of the Sellers by: (A) the Owners;
(B) officers and directors of Executech; and (C) managers of World
Wide;
(vi) all documentation pertaining to any liability of the
Sellers not assumed by Purchaser;
(vii) the Plans and Welfare Plans, except to the extent set
forth on the Liabilities Undertaking; and
(viii) the assets specifically described on Exhibit 1.1(b)
hereto.
1.2 LIABILITIES ASSUMED.
Upon satisfaction of all conditions to the obligations of the parties
contained herein (other than such conditions as have been made in accordance
with the terms hereof), the Purchaser will assume the liabilities of the Sellers
(the "ASSUMED LIABILITIES") set forth on Exhibit 1.2 (the
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"LIABILITIES UNDERTAKING"). The Sellers expressly understand and agree that,
except for the Assumed Liabilities, the Purchaser has not agreed to pay, will
not be required to assume and will have no liability or obligation, direct or
indirect, absolute or contingent, for the liabilities of the Sellers or any
respective affiliates or associates, which liabilities will, as between the
Sellers and the Owners, on the one hand, and the Purchaser, on the other hand,
remain the sole responsibility of, and will be satisfied by, the Sellers (the
"RETAINED LIABILITIES"), including without limitation:
(a) any debt, liability or obligation of the Sellers or any
affiliates or associates, direct or indirect, known or unknown, fixed,
contingent or otherwise, that (i) is unrelated to the Assets or the
Business; or (ii) relates to the Assets and is based upon or arises from
any act, omission, transaction, circumstance, sale of goods or services,
state of facts or other condition occurring or existing on or before the
Closing Date, whether or not then known, due or payable, except to the
extent that the same was expressly assumed by the Purchaser pursuant to
the terms of the Liabilities Undertaking;
(b) any obligation for Taxes related to any of the Assets for any
Tax period or portion thereof ending on or before the Closing Date
(including any tax liability (other than sales and use taxes) relating to
or arising from the transfer of Assets) and any obligation for other Taxes
of the Sellers or the Owners, except to the extent that the same was
expressly assumed by the Purchaser pursuant to the terms of the
Liabilities Undertaking;
(c) any debt, liability or obligation, direct or indirect, known or
unknown, fixed, contingent or otherwise, based upon or arising from any
act, omission, transaction, circumstance, state of facts or other
condition occurring or existing on or before the Closing Date and relating
to any collective bargaining agreement or any employee benefit plan,
policy, practice or agreement to which either of the Sellers are a party
or under which either of the Sellers' employees or former employees is
covered, including without limitation any obligation to contribute to, or
any obligation or liability for any withdrawal liability arising in
connection with, any Multiemployer Plan attributable to participation
therein by current or former employees of the Sellers as a result of this
Agreement and the transactions contemplated hereby or otherwise or any of
the matters described in Sections 2.16 or 2.19 of the Disclosure Schedule;
(d) (i) (A) any liability arising out of or related to the events,
circumstances or conditions described in Section 2.21 of the Disclosure
Schedule; (B) any liability arising out of or related to the management of
wastes, byproducts or spent materials generated by either of the Sellers,
any subsidiaries, former subsidiaries or affiliates; or (C) any liability
arising out of or related to any pollution or threat to human health or
the environment or violation of any Environmental and Occupational Safety
and Health Law that is related in any way to any of the Sellers', or any
previous owner's or operator's management, use, control, ownership or
operation of the Assets, any Property or the business of the Sellers, any
subsidiary, former subsidiaries or affiliates, including without
limitation any on-site or off-site activities involving Environmentally
Regulated Materials, and that occurred, existed, arises out of conditions
or circumstances that occurred or existed, or was caused, in whole or in
part, on or before the Closing Date, whether or not the pollution or
threat to
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human health or the environment or violation of any Environmental and
Occupational Safety and Health Law is described in the Disclosure
Schedule; and (ii) any Environmental Claim against any person or entity
whose liability for such Environmental Claim of the Sellers have or may
have assumed or retained either contractually or by operation of law;
(e) any debt, liability or obligation, direct or indirect, known or
unknown, fixed, contingent or otherwise owing by either of the Sellers to
(i) any of the Owners; (ii) officers or directors of Executech; or (iii)
managers of World Wide;
(f) any debt, liability or obligation, direct or indirect, known or
unknown, fixed, contingent or otherwise arising out of or under Executech,
Inc.'s Performance Share Plan which was adopted by Executech's Board of
Directors effective as of December 31, 1997 (the "EXECUTECH PERFORMANCE
SHARE PLAN") or its termination; and
(g) any liability arising out of or related to the events,
circumstances or conditions described in Sections 2.14 and 2.15 of the
Disclosure Schedule, to the extent such events, circumstances or
conditions occurred prior to the Closing Date.
At the Closing, the Sellers will convey, transfer, assign and delegate, and the
Purchaser will accept and assume, those contracts, agreements and commitments
listed on the Liabilities Undertaking to be assumed by the Purchaser (the
"ASSUMED CONTRACTS").
1.3 PURCHASE PRICE.
(a) The total consideration to be paid by the Purchaser to the
Sellers, or their designees, for the Assets (the "PURCHASE PRICE") will be
an amount equal to:
(i) Three Million Two Hundred Thousand Dollars ($3,200,000);
plus
(ii) the assumption by the Purchaser of the Assumed
Liabilities as of the Closing Date pursuant to the Liabilities
Undertaking referred to in Section 1.2 hereof; plus
(iii) any Contingent Purchase Price.
(b) PAYMENTS. At the Closing, the Purchaser will: (A) pay the
Sellers, by wire transfer, immediately available funds of Three Million
Two Hundred Thousand Dollars ($3,200,000) to a bank account of the Sellers
pursuant to written instructions of the Sellers given to the Purchaser at
least 48 hours prior to the Closing; and (B) execute and deliver to the
Sellers the Liabilities Undertaking.
(c) The Owners hereby acknowledge and agree that that amounts paid
to each Seller are adequate consideration for the purchase of the Assets
of each Seller and represent the fair market value of the Assets of each
Seller. Immediately prior to the Closing, the Shareholders were the sole
direct and indirect shareholders of Executech and the Members were the
sole direct and indirect members of World Wide. Executech will
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use reasonable efforts to redeem or otherwise terminate all award shares
outstanding under the Executech Performance Share Plan.
1.4 CONTINGENT PURCHASE PRICE.
(a) During the period from the Closing through the period ending
January 31, 2002 (the "CONTINGENT PURCHASE PRICE PERIOD"), the Purchaser
will pay additional amounts equal to a percentage of the After-Tax
Earnings, in excess of certain thresholds, generated by the "business," as
defined below, being acquired by the Purchaser. The threshold amounts of
After-Tax Earnings and the percentage payable for each fiscal year of the
Contingent Purchase Price Period are set forth according to the following
schedule (the "Contingent Purchase Price"):
- --------------------------------------------------------------------------------
FISCAL YEAR CONTINGENT PURCHASE PRICE PAYMENT
- --------------------------------------------------------------------------------
January 1, 1998 through January 31, 450% of the After-Tax Earnings for the
1999 ("FIRST FISCAL YEAR") First Fiscal Year (the "BASE YEAR
EARNINGS"); provided however, the Base
Year Earnings equal or exceed Four
Hundred Thousand Dollars ($400,000)
- --------------------------------------------------------------------------------
February 1, 1999 through January 31, 50% of the After-Tax Earnings for the
2000 ("SECOND FISCAL YEAR") Second Fiscal Year in excess of the
greater of (x) 120% of Base Year
Earnings; and (y) Seven Hundred Twenty
Thousand Dollars ($720,000)
- --------------------------------------------------------------------------------
February 1, 2000 through January 31, 50% of the After-Tax Earnings for the
2001 ("THIRD FISCAL YEAR") Third Fiscal Year in excess of the
greater of (x) 144% of the Base Year
Earnings; and (y) Eight Hundred Sixty
Four Thousand ($864,000)
- --------------------------------------------------------------------------------
February 1, 2001 through January 31, 50% of the After-Tax Earnings for the
2002 ("FOURTH FISCAL YEAR") Fourth Fiscal Year in excess of the
greater of (x) 172.8% of the Base Year
Earnings; and (y) One Million
Thirty-Six Thousand Eight Hundred
Dollars ($1,036,800)
- --------------------------------------------------------------------------------
For clarity purposes and not intending to create additional rights or
obligations, no Contingent Purchase Price will be paid to the Sellers for the
Second Fiscal Year, Third Fiscal Year and/or Fourth Fiscal Year in the event
that After-Tax Earnings for such year does not exceed both of the thresholds set
forth in clause (x) and (y) in the above table.
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(b) To the extent required by the Internal Revenue Code of 1986, as
amended (the "CODE"), any such Contingent Purchase Price will consist of
interest compounded semiannually at the applicable federal mid-term
interest rate.
(c) For purposes of this Section 1.4, the "AFTER-TAX EARNINGS"
generated by the "business" (as hereinafter defined in Section 1.4(c)(i))
for each period contained in the Contingent Purchase Price Period means
Purchaser's net income (or loss), after Taxes, determined in accordance
with generally accepted accounting principles consistently applied
("GAAP"). Assuming the accuracy of the representations and warranties of
the Sellers and the Owners contained in Section 2.7 hereof and except as
otherwise set forth in this Section 1.4(c), the Purchaser acknowledges and
agrees with the Sellers' application of GAAP for the Sellers' After-Tax
Earnings for the period from January 1, 1998 through June 5, 1998, as set
forth in Exhibit 1.4 attached hereto, and further agrees that the net
income shown therein will be used to calculate the After-Tax Net Earnings
for that portion of the First Fiscal Year provided that the underlying
numbers, as represented by the Sellers in Section 2.7 hereof, are correct.
Except as otherwise set forth in this Section 1.4(c), the Purchaser
further agrees that such methodology will be substantially the same
methodology used by the Purchaser in calculating the Contingent Purchase
Price, subject to future changes in and additions to GAAP. Notwithstanding
the foregoing, the Purchaser is, in no way, certifying or agreeing that
the numbers set forth in Exhibit 1.4 attached hereto, are accurate or
complete or otherwise fairly present the financial position of the Sellers
for such period. Notwithstanding the foregoing, the following provisions
will govern the computation of the After-Tax Earnings for purposes of this
Section 1.4.
(i) For purposes of this Section 1.4, the term "business" or
"businesses" means the operations of the Purchaser that represent a
succession to and a continuation of the Business conducted by the
Sellers prior to the Closing, as such "business" may be
reconstituted, expanded or developed. Specifically, the "business"
means the collection, organization, management and dissemination of
data via what is currently known as the E-TECH system and its
derivatives, successors, ancillary products and comparable tools
(the "E-TECH SYSTEM") and all scanning and imaging services provided
therewith, together with the installation and management of the
hardware associated with the E-TECH System and all training,
maintenance, support and consulting associated with the E-TECH
System. Notwithstanding the foregoing, the term "business" or
"businesses" does not include any software products, training,
maintenance, support or consulting services that are currently being
offered by the Purchaser or Merrill, and, to the extent that they
are not competitive with the E-TECH System, that are contemplated to
be offered by the Purchaser or Merrill. Notwithstanding the
foregoing, the term "business" does not include any products or
services that are acquired or purchased by Merrill, the Purchaser or
any of their respective affiliates as part of the acquisition of
substantially all of the business or assets of an entity, except to
the extent provided in Section 1.4(c)(vii);
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(ii) The Assets will be depreciated as though their basis had
not changed as a result of their purchase by Purchaser pursuant to
this Agreement. All Assets will be depreciated based on their
current depreciation schedules and no amortization related to the
purchase of the Assets will be included in the calculation of
After-Tax Net Earnings;
(iii) It is anticipated that Merrill will provide certain
services for the benefit of the "business" related to sales and
general and administrative expenses for which the "business" will be
charged (the "SG&A COSTS"). The SG&A Costs will be five percent (5%)
of Gross Revenues for the First Fiscal Year and ten percent (10%) of
Gross Revenues for the Second Fiscal Year, Third Fiscal Year and
Fourth Fiscal Year. For purposes of this Section 1.4, the term
"GROSS REVENUES" means the Purchaser's gross revenues, determined in
accordance with GAAP, net of allowances, discounts and returns,
generated from the "business." The SG&A Costs include costs incurred
from the following services to be provided by Merrill: accounting,
tax, legal, human resources, finance/cash management, cost of
capital, general corporate and equipment insurance, executive
management of Merrill, MIS support provided by Merrill,
telecommunications, purchasing, sales and marketing related expenses
(e.g., marketing, public relations, market research, brochures,
advertising, trade shows, web presence, promotions, sales force and
sales force support costs including, but not limited to, costs of
salaries, commissions, bonuses, benefits, facilities, equipment,
travel and entertainment and training for the E-Tech system and
services of the "business") and use of Merrill's existing help
desk/customer support infrastructure (excluding incremental
personnel costs required solely for the purpose of supporting the
"business");
(iv) The benefit plans used in calculating the After-Tax
Earnings will be in conformance with the fringe benefit programs (A)
of the Sellers in effect as of the Closing Date for the First Fiscal
Year and (B) of Merrill in effect for the Second Fiscal Year, Third
Fiscal Year and Fourth Fiscal Year;
(v) An estimated combined federal, state, local and foreign
income tax rate of 38% will be applied to pre-tax income to
calculate After-Tax Net Earnings;
(vi) Except as otherwise provided for in this Section 1.4, the
After-Tax Earnings will be computed as if the "business" were not
directly or indirectly an affiliate of the Purchaser or any of its
affiliates. All other intercompany transactions will be calculated
as if they were being done as independent, arms-length transactions.
It is anticipated that use of Merrill's facilities or personnel for
providing services related to the "business" will be allocated at
prices reflective of reasonable market rates. Sales of the E-TECH
System and related services associated with the "business" to
Merrill and its wholly-owned subsidiaries will be treated as a sale
at a discount of 20% to the then prevailing market rates, unless
otherwise mutually agreed. Technology-related consulting services
performed by the Sellers on behalf of Merrill, but not related the
"business" will be priced at
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market consulting rates and be included in the computation of
After-Tax Earnings;
(vii) Any reasonable expenses paid, incurred or charged in
connection with the expansion of the "business" as a result of
opening and staffing of new offices, and any income or revenues
directly derived therefrom, will be included in the computation of
After-Tax Earnings of the "business." In the event that Merrill
contemplates acquiring another entity, business or assets similar to
the "business," Merrill will present such opportunity to the Sellers
and Merrill and the Sellers will agree to work in good faith to
reach mutually agreeable terms on the treatment of such acquisition
and its effect on this Section 1.4. In the event the parties fail to
agree on the treatment of such acquisition and its effect on this
Section 1.4, neither the revenue nor the expense of such acquisition
will be included in the computation of After-Tax Earnings.
Notwithstanding the foregoing, nothing in this Section 1.4 (vii)
will prevent or otherwise prohibit Merrill from acquiring any
entity, assets or business whether or not similar to the "business."
It is anticipated that there will be circumstances when expenses
related to growth will be in the longer term strategic interest of
Merrill, but may be detrimental to the short-term interests of the
Sellers. The Purchaser and the Sellers agree to work in good faith
to equitably allocate these expenses. Expenses incurred in expanding
Merrill's scanning and imaging operations in Merrill's corporate
offices located in Saint Paul, Minnesota and Merrill's document
service center located in Dallas, Texas will not be included in the
computation of After-Tax Earnings during the First Fiscal Year.
(viii) All costs and expenses associated with the development,
modification, enhancement or improvement of software products will
be treated consistently with Merrill's accounting policies for such
costs and expenses, which such policy is currently to expense such
costs and expenses as incurred;
(ix) All revenue, including, without limitation, all license
and maintenance fees, will be recognized in accordance with GAAP,
which generally requires that revenue be recognized over the life of
the applicable contract; and
(x) No costs or expenses will be recognized for payments made
under the Executech Performance Share Plan.
(xi) In the event that any of the Employment Agreements with
Davis, Sperling or Jeffrey DuBowe are terminated, for whatever
reason, After-Tax Earnings will include, in addition to other
charges contemplated by this Section 1.4, all reasonable expenses
paid, incurred or charged in connection with recruiting, replacing,
training and compensating (including benefits) replacement
personnel.
(d) The Purchaser agrees to provide Davis and Sperling monthly
financial reports consistent with those provided to Merrill's regional
managers.
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(e) As soon as may be practicable after the end of each fiscal year
in the Contingent Purchase Price Period, but not later than March 25,
Purchaser will deliver to the Representative, a statement, prepared by the
Purchaser, setting forth in reasonable detail, Purchaser's calculation of
After-Tax Earnings for each fiscal year of the Contingent Purchase Price
Period and the amount of the Contingent Purchase Price, if any, to be paid
to the Sellers pursuant to this Section 1.4 (the "CONTINGENT PURCHASE
PRICE STATEMENT").
(f) Within 15 business days after receipt of the Contingent Purchase
Price Statement, the Representative will notify (the "REPRESENTATIVE
NOTICE") Purchaser if the Representative disagrees with the calculation of
the Contingent Purchase Price. If such notice is not given (or at such
time as the Representative provides written notice to Purchaser that the
Representative has no objection to such calculation), the Contingent
Purchase Price Statement provided by Purchaser will be final and
conclusive for all purposes and, upon payment in full of the Contingent
Purchase Price, the Purchaser will thereafter have no further liability to
the Sellers or the Owners pursuant to this Section 1.4. If the parties are
unable to resolve their differences within 60 days of the receipt of the
Representative Notice, the Sellers, the Owners and the Purchaser agree to
retain the accounting firm of Arthur Anderson LLP, or, if Arthur Anderson
LLP is not independent with respect to the Sellers, the Owners, the
Purchaser and Merrill, a mutually agreeable independent, Big-Six
accounting firm, (the "AUDITOR") to arbitrate the dispute and render a
decision within 30 days of such retention, which decision shall be final
and binding for all purposes. Any award pursuant to this Section 1.4(e)
may be entered in and enforced by any court having jurisdiction over the
matter and the parties hereby consent and commit themselves to the
jurisdiction of the courts of Delaware for the purposes of the enforcement
of any such award. If the amount of the Contingent Purchase Price, as
determined by the Auditor, is (A) less than five percent (5%) higher than
the amount set forth in the Contingent Purchase Price Statement, or (B)
lower than, or (C) equal to the amount set forth in the Contingent
Purchase Price Statement, the Purchaser and the Owners will each pay
one-half of the costs of services rendered by the Auditor. If the amount
of the Contingent Purchase Price, as determined by the Auditor, is higher
than the amount set forth in the Contingent Purchase Price Statement by
five percent or more, the Purchaser will pay such costs.
(g) Within five days after the earlier of (i) the receipt by the
Purchaser of written notice from the Representative that the
Representative has no objection to the calculation of the Contingent
Purchase Price pursuant to Section 1.4 hereof, (ii) the expiration of the
15-day period for giving notice of disagreement with such calculation, if
no such notice is given, or (iii) the resolution of any dispute pursuant
to Section 1.4(e), the Purchaser will by wire transfer in immediately
available funds make payment to the Representative of the Contingent
Purchase Price, if any. In the event that payment is not made within such
5-day period, the Purchaser will pay to the Sellers', in addition to the
amount due as Contingent Purchase Price, a late payment charge equal to
one percent (1%) per month of the Contingent Purchase Price due together
with interest at the Late Payment Rate. If the amount of the Contingent
Purchase Price is disputed and is being arbitrated in accordance with
Section 1.4(e), during the course of such arbitration and
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until a final, non-appealable arbitration award is issued, no late payment
charge shall accrue, but, interest will be payable by the Purchaser on the
balance of the Contingent Purchase Price due but unpaid, at the Late
Payment Rate. For purposes of this Agreement, the term "LATE PAYMENT RATE"
means the prime rate, as published by Chase Manhattan Bank as its prime
lending rate from time to time, plus three percent (3%).
1.5 ALLOCATION OF PURCHASE PRICE.
The Purchase Price will be allocated among the Assets in the manner
required by Section 1060 of the Code. In making such allocation, the allocations
set forth in Exhibit 1.5 attached hereto will apply. In preparing Exhibit 1.5,
the Purchaser and the Sellers will negotiate in good faith the values of the
Assets and the resulting allocation of the Purchase Price among the various
Assets; it being understood that such determination will be binding on the
Purchaser only for the purposes of U.S. Federal, state and local taxation. The
Purchaser, the Sellers and the Owners will file all Tax Returns and tax reports
(including IRS Form 8594) in accordance with and based upon such allocation and
will take no position in any Tax Return, tax proceeding or tax audit which is
inconsistent with such allocation.
1.6 COLLECTION OF ACCOUNTS RECEIVABLE.
For a period of 180 days after the Closing Date, the Purchaser will use
its commercially reasonable efforts to collect the accounts receivable included
in the Assets reflected on the Latest Balance Sheet, other than accounts
receivable owing by World Wide to Executech (the "GUARANTEED RECEIVABLES") in
accordance with the Sellers' prior reasonable commercial practices, which
efforts will be in addition to the efforts engaged in by the Purchaser to
collect any accounts receivable included in the Assets reflected on the Closing
Balance Sheet that arose after the date of the Latest Balance Sheet. The
Purchaser may in its discretion, reasonably exercised, resort to litigation or
the use of collection agencies or similar efforts to collect the Guaranteed
Receivables. Any payment made to the Purchaser or any affiliate of the Purchaser
by an account debtor with more than one outstanding account receivable will be
applied to particular accounts receivable as specified by the account debtor;
provided, however, that if such account debtor does not specify to which account
receivable the payment is to be applied, the Purchaser will apply such payments
to the oldest account receivable of such account debtor and then to the next
oldest account receivable of such account debtor until such payment has been
fully reflected. The Contingent Purchase Price will be reduced by the amount, if
any, by which the net amount of the Guaranteed Receivables not collected on or
before the 180th day after the Closing Date exceeds the Bad Debt Reserve (as
hereinafter defined) (such excess is hereinafter referred to as the "GUARANTEED
RECEIVABLES SHORTFALL"). Any Guaranteed Receivables not collected within 180
days will be returned to the Sellers. For purposes of this Agreement, the term
"BAD DEBT RESERVE" means the Sellers' reserve for bad debts and reserve for
allowances as of the date of the Latest Balance Sheet, determined in a manner
consistent with the prior practices of the Sellers reflected in the Latest
Balance Sheet. The Purchaser will have the right to set-off any amount owing to
the Sellers as a Contingent Purchase Price payment for any reduction arising
from this Section 1.6.
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1.7 CLOSING.
Unless this Agreement has been terminated and the transactions
contemplated have been abandoned pursuant to Article 7 hereof, a closing (the
"CLOSING") will be held on June 9, 1998 at 9:00 a.m., New York, New York local
time or at such other time as the parties may agree upon (the "CLOSING DATE");
provided, however, that if any of the conditions provided for in Articles 5 and
6 hereof have not been satisfied or waived by such date, then the party to this
Agreement which is unable to satisfy such condition or conditions, despite the
best efforts of such party, will be entitled to postpone the Closing by notice
to the other parties until such condition or conditions will have been satisfied
(which such notifying party will seek to cause to happen at the earliest
practicable date) or waived, but in no event will the Closing occur later than
June 15, 1998 (the "TERMINATION DATE"). The parties will use their best efforts
to complete the Closing by June 9, 1998. The Closing will be held at such place
as the parties may agree, at such time as the parties may agree, at which time
and place the documents and instruments necessary or appropriate to effect the
transactions contemplated herein will be exchanged by the parties.
1.8 INSTRUMENTS OF TRANSFER TO PURCHASER.
(a) At the Closing, the Sellers will deliver to the Purchaser such
bills of sale, endorsements, assignments, deeds and other good and
sufficient instruments of conveyance and transfer, in form and substance
reasonably satisfactory to the Purchaser and its counsel, as will be
required to vest in the Purchaser title to the Assets, including without
limitation:
(i) a cashier's or certified check drawn by each of the
Sellers to the order of the Purchaser in the aggregate amount of all
of the Sellers' cash on hand and in banks less an amount equal to
the sum of (A) all uncleared checks which have been drawn by the
Sellers prior to the Closing and (B) such other amounts as the
parties may otherwise agree,
(ii) bills of sale executed by the Sellers vesting in the
Purchaser good and marketable title to all of the Assets in the form
attached as Exhibit 1.8 hereof;
(iii) appropriate endorsements and assignments of the
contracts, licenses, agreements, permits, plans, commitments and
other binding arrangements included in the Assets;
(iv) all data relating to the Assets, property, goodwill and
business included in the Sellers' business; and
(v) all copies of the source code and object code and all
documentation relating thereto for all computer software programs
included in the Assets.
(b) The Sellers will take all other actions necessary to put the
Purchaser in actual possession and operating control of the Assets.
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2. REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE OWNERS
The Sellers and Owners, jointly and severally, hereby represent and
warrant to the Purchaser as of the date hereof as follows:
2.1 DISCLOSURE SCHEDULE.
The disclosure schedule attached as Exhibit 2 hereto (the "DISCLOSURE
SCHEDULE") is divided into sections which correspond to the sections of this
Article 2. The Disclosure Schedule is accurate and complete. Nothing in the
Disclosure Schedule will be deemed adequate to disclose an exception to a
representation or warranty made herein, unless the Disclosure Schedule
identifies the exception with reasonable particularity and describes the
relevant facts in reasonable detail. Without limiting the generality of the
foregoing, the mere listing (or inclusion of a copy) of a document or other item
will not be deemed adequate to disclose an exception to a representation or
warranty made herein (unless the representation or warranty has to do with the
existence of the document or other item itself).
2.2 CORPORATE ORGANIZATION.
(a) Executech is a corporation duly organized, validly existing and
in good standing under the laws of the State of New York, has the full
corporate power and authority to carry on its business as it is now being
conducted and to own, lease and operate its properties and assets.
Executech is duly qualified or licensed to do business as a foreign
corporation in good standing in every other jurisdiction in which the
character or location of the properties and assets owned, leased or
operated by it or the conduct of the business requires such qualification
or licensing, except where the failure to so qualify would not have a
Material Adverse Effect. The Disclosure Schedule contains a list of all
jurisdictions in which Executech is qualified or licensed to do business.
(b) World Wide is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of
Connecticut with requisite power and authority to carry on its business as
it is now being conducted and to own, operate and lease its properties and
assets. World Wide is duly qualified or licensed to do business as a
foreign limited liability company in good standing in every other
jurisdiction in which the character or location of the properties and
assets owned, leased or operated by it or the conduct of its business
requires such qualification or licensing, except where the failure to so
qualify would not have a Material Adverse Effect. The Disclosure Schedule
contains a list of all jurisdictions in which World Wide is qualified or
licensed to do business.
2.3 CAPITALIZATION.
(a) The authorized capital stock of Executech is set forth on the
Disclosure Schedule. The number of shares of capital stock of Executech
outstanding as of the date of this Agreement is set forth on the
Disclosure Schedule. All issued and outstanding shares of capital stock of
Executech are duly authorized, validly issued, fully paid and
non-assessable. The Shareholders are the sole direct and indirect
shareholders of Executech.
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(b) The amount and type of membership interests of World Wide
outstanding as of the date of this Agreement are set forth on the
Disclosure Schedule. All issued and outstanding membership interests of
World Wide are duly authorized, validly issued, and are without, and were
not issued in violation of, preemptive rights. The Members are the sole
direct and indirect members of World Wide.
2.4 AUTHORIZATION.
The Sellers have full power and authority to enter into this Agreement and
to carry out the transactions contemplated herein. The Owners, and each of them,
have the legal capacity to enter into this Agreement and to carry out the
transactions contemplated herein, including without limitation, the legal
capacity to execute, deliver and perform the agreements or contracts, if any,
required by Article 5 to be executed and delivered by any of them as a condition
to the Closing. The Board of Directors of Executech and the Manager of World
Wide and the Owners have taken all action required by law, Executech's articles
of incorporation and bylaws, World Wide's articles of organization and operating
agreement and otherwise to authorize the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein.
This Agreement has been duly and validly executed and delivered by the Sellers
and no other corporate or limited liability company action, as the case may be,
is necessary. This Agreement has been duly and validly executed by the Owners.
This Agreement is the valid and binding legal obligation of the Sellers and the
Owners, enforceable against them in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
applicability relating to or affecting creditors' rights and general principles
of equity.
2.5 NON-CONTRAVENTION.
Except as set forth in the Disclosure Schedule, neither the execution,
delivery and performance of this Agreement nor the consummation of the
transactions contemplated herein will: (i) violate or be in conflict with any
provision of the articles of incorporation or bylaws of Executech; (ii) violate
or be in conflict with any provision of the articles of organization or
operating agreement of World Wide; (iii) except for violations, conflicts,
defaults, accelerations, terminations, cancellations, impositions of fees or
penalties which would not, individually or in the aggregate, have a Material
Adverse Effect on the Business, be in conflict with, or constitute a default,
however defined (or an event which, with the giving of due notice or lapse of
time, or both, would constitute such a default), under, or cause or permit the
acceleration of the maturity of, or give rise to any right of termination,
cancellation, imposition of fees or penalties under any debt, note, bond, lease,
mortgage, indenture, license, obligation, contract, commitment, franchise,
permit, instrument or other agreement or obligation to which either of the
Sellers are a party or by which either of the Sellers or any of the Sellers'
properties or assets is or may be bound; (iv) result in the creation or
imposition of any mortgage, pledge, lien, security interest, conditional or
installment sales agreement, encumbrance, claim, easement, right of way,
tenancy, covenant, encroachment, restriction or charge of any kind of nature
(whether or not of record) (a "LIEN"), other than (A) mechanics', carriers',
workers' or other like liens arising in the ordinary course of business; (B)
minor imperfections of title which do not individually or in the aggregate,
impair the continued use and operation of the assets and fixtures to which they
relate in the operation of
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the Business as currently conducted; (C) liens for current taxes not yet due and
payable; and (D) Liens created by this Agreement (clauses (A), (B), (C) and (D)
collectively "PERMITTED LIENS"), upon the Assets, under any Assumed Contract or
any debt, obligation, contract, agreement or commitment to which either of the
Sellers are a party or by which either of the Sellers or any of the Assets is or
may be bound; or (v) to Sellers' knowledge, violate any statute, treaty, law,
judgment, writ, injunction, decision, decree, order, regulation, ordinance or
other similar authoritative matters (referred to herein individually as a "LAW"
and collectively as "LAWS") of any foreign, federal, state or local governmental
or quasi-governmental, administrative, regulatory or judicial court, department,
commission, agency, board, bureau, instrumentality or other authority (referred
to herein individually as an "AUTHORITY" and collectively as "AUTHORITIES").
2.6 CONSENTS AND APPROVALS.
Except as set forth in the Disclosure Schedule, with respect to each of
the Sellers and the Owners, no consent, approval, order or authorization of or
from, or registration, notification, declaration or filing with ("CONSENT") any
individual or entity, including without limitation any Authority, is required
(that has not been obtained or waived) in connection with the execution,
delivery or performance of this Agreement by the Sellers or the Owners or the
consummation by the Sellers and the Owners of the transactions contemplated
herein, other than any Consent which, if not obtained, will not have a Material
Adverse Effect on the Business.
2.7 FINANCIAL STATEMENTS.
The Disclosure Schedule contains true and complete copies of unaudited
balance sheets of each of the Sellers as of December 31, 1997 and June 5, 1998,
and the related statement of operations (or income or loss) for the five (5)
months ended June 5, 1998. The balance sheet as of June 5, 1998 is referred to
herein as the "LATEST BALANCE SHEET." Except as disclosed therein, the June 5,
1998 financial statements (i) are in accordance with the books and records of
the Sellers; and (ii) fairly present the financial position of the Sellers as of
the respective dates thereof, and the results of operations (or income or loss)
for the periods then ended.
2.8 ABSENCE OF UNDISCLOSED LIABILITIES.
Except as and to the extent (i) reflected and reserved against in the
Latest Balance Sheet, (ii) set forth on the Disclosure Schedule or (iii)
incurred in the ordinary course of business after the date of the Latest Balance
Sheet and not material in amount, either individually or in the aggregate, the
Sellers do not have any debt, liability or obligation, known or unknown, secured
or unsecured, whether accrued, absolute, contingent, unasserted or otherwise, of
any nature whatsoever, including without limitation any foreign or domestic tax
liabilities or deferred tax liabilities incurred in respect of or measured by
the Sellers' income, or any other debts, liabilities or obligations relating to
or arising out of any act, omission, transaction, circumstance, sale of goods or
services, state of facts or other condition which occurred or existed on or
before the date hereof, whether or not known, due or payable (collectively
"LIABILITY"). Sellers are not subject to any obligation or requirement to
provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any person or entity.
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2.9 ABSENCE OF CERTAIN CHANGES.
Except as set forth in the Disclosure Schedule, since the date of the
Latest Balance Sheet, the Sellers have owned and operated the Assets in the
ordinary course of business and consistent with past practice. Without limiting
the generality of the foregoing, subject to the foregoing exceptions:
(a) the Sellers have not experienced any change which has had a
Material Adverse Effect on either of the Sellers or experienced any event
or failed to take any action which reasonably could be expected to result
in a Material Adverse Effect on either of the Sellers;
(b) the Sellers have not suffered any material loss, damage,
destruction of property or Assets or other casualty to property or Assets
(whether or not covered by insurance);
(c) the Sellers have not suffered any loss of officers, directors,
managers, employees, dealers, distributors, independent contractors,
customers or suppliers which had or may reasonably be expected to result
in a Material Adverse Effect on either of the Sellers; and
(d) no event has taken place which if consummated following the date
hereof would constitute a violation of Section 4.1 hereof.
2.10 ASSETS.
(a) Except as set forth in the Disclosure Schedule, the Sellers have
good and marketable title to all of the Assets, free and clear of any
Lien, other than Permitted Liens.
(b) The Sellers have full right and power to, and at the Closing
will, deliver to the Purchaser good title to all of the Assets, free and
clear of any Lien, other than Permitted Liens.
(c) The machinery, equipment, vehicles and other personal property
used by the Sellers in the Business are in good operating condition and
repair, normal wear and tear excepted, and fit for the intended purposes
thereof, and no material maintenance, replacement or repair has been
deferred or neglected.
(d) The Assets constitute all of the property and assets, real,
personal and mixed, tangible and intangible, presently used to carry on
the Business of the Sellers, and the Assets are adequate to carry on the
Business of the Sellers as presently conducted.
(e) The Sellers do not own any real properties. Neither of the
Sellers are foreign persons and are not controlled by a foreign person, as
the term foreign person is defined in Section 1445(f)(3) of the Code.
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2.11 INVENTORIES.
The Sellers do not maintain any inventory.
2.12 RECEIVABLES AND PAYABLES.
(a) The Disclosure Schedule contains a listing of all of the
receivables, if any, of the Sellers included in the Assets. Except as set
forth on the Disclosure Schedule, (i) the Sellers have good right, title
and interest in and to the trade accounts receivable and notes receivable
constituting the Assets; (ii) none of such trade accounts receivable and
notes receivable is subject to any Lien, other than Permitted Liens; (iii)
all of the trade accounts receivable and notes receivable owing to either
of the Sellers constitute valid and enforceable claims arising from bona
fide transactions in the ordinary course of business, and there are no
known claims, refusals to pay or other rights of set-off against any
thereof; (iv) the aging schedule of the trade accounts receivable and
notes receivable accounts of the Sellers attached to the Disclosure
Schedule is complete and accurate; and (vi) the reserve established by the
Sellers on the Latest Balance Sheet is adequate to cover any doubtful
accounts.
(b) The Disclosure Schedule contains a listing of all trade accounts
payable and notes payable of the Sellers. All such trade accounts payable
and notes payable arose from bona fide transactions in the ordinary course
of the Sellers' Business and, except as set forth on the Disclosure
Schedule, no such account payable or note payable is delinquent by more
than 30 days in its payment.
2.13 INTELLECTUAL PROPERTY RIGHTS.
(a) The Disclosure Schedule contains a listing of all (i) patents,
patent applications (collectively the "PATENTS"), (ii) copyright
registration applications and copyright registration certificates (the
"COPYRIGHTS"), (iii) tradenames, registered and common law trademarks,
trademark applications (collectively, the "TRADEMARKS"), (iv) service
marks, service mark applications (collectively, the "SERVICE MARKS"), and
(v) computer programs and proprietary specifications, inventions and
technology (the "TRADE SECRETS") used as of the Closing Date in connection
with the Assets and for the conduct of the Business of the Sellers (the
Patents, Copyrights, Trademarks, Service Marks and Trade Secrets are
collectively referred to as "INTELLECTUAL PROPERTY RIGHTS"). All issued
Patents and registered Copyrights, Trademarks and Service Marks are
collectively referred to as the "REGISTERED INTELLECTUAL PROPERTY RIGHTS."
The Intellectual Property Rights are reasonably sufficient to conduct the
Business as conducted as of the Closing Date.
(b) The Sellers own, have the unrestricted right to use and have
sole and exclusive possession of and have good and valid title to, or
sufficient license or other rights to, all of the Intellectual Property
Rights, free and clear of all Liens other than Permitted Liens.
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(c) All Registered Intellectual Property Rights are in compliance
with formal legal requirements (including the payment of filing,
examination and maintenance fees and proofs of working or use), are valid
and enforceable and are not subject to any maintenance fees or taxes or
U.S. Patent and Trademark office actions falling due within 90 days after
the Closing Date. The Sellers do not own any Patents. Except as set forth
on the Disclosure Schedule, no Trademarks have been or are involved in any
opposition, invalidation or cancellation proceeding and, there is no basis
for the commencement of any such proceeding. To the Sellers' and the
Owners' knowledge, the Trademarks are valid and enforceable and no person
holds any infringing or potentially infringing trademark and no
application for any infringing or potentially infringing trademark has
been made.
(d) A copy of all available documentation relating to the Trade
Secrets has been furnished to the Purchaser. To the knowledge of the
Sellers and the Owners, the Trade Secrets are not part of the public
domain or literature nor have they been used, divulged or appropriated for
the benefit of any person or entity other than the Sellers or to the
detriment of either of the Sellers. The Sellers have taken reasonable
measures and precautions to protect the secrecy, confidentiality and value
of the Trade Secrets.
(e) Except as set forth on the Disclosure Schedule, the use of all
Intellectual Property Rights necessary or required for the conduct of the
Business of the Sellers as presently conducted as of the Closing Date does
not infringe or violate any trade secrets, plans and specifications,
patents, copyrights, tradenames, registered and common law trademarks,
trademark applications, service marks, service mark applications, computer
programs and other computer software, inventions, know-how, technology,
proprietary processes and formulae or other intellectual property rights
of any other person or entity (the "THIRD PARTY INTELLECTUAL PROPERTY
RIGHTS"). To the Sellers' and the Owners' knowledge, the Sellers are not
using any confidential information or trade secrets of others in an
unauthorized manner.
(f) All agreements relating to licenses of Intellectual Property
Rights granted by or to the Sellers or any of their respective Owners are
set forth on the Disclosure Schedule. All such licenses set forth on the
Disclosure Schedule are in good standing, valid and effective in
accordance with their respective terms and there is not, under any of such
licenses, any existing default or event of default (or event which with
notice or lapse of time, or both, would constitute a default, or would
constitute a basis for a claim of force majeure or other claim of
excusable delay or non-performance), in each case by either of the Sellers
or, to the knowledge of the Sellers and the Owners, by any other party
thereto. Except as set forth on the Disclosure Schedule, there are no
outstanding and, to the knowledge of the Sellers and the Owners, no
threatened disputes or disagreements with respect to any such agreement.
(g) Except as set forth on the Disclosure Schedule, the Sellers are
not obligated or under any Liability whatsoever to make any payments by
way of royalties, fees or otherwise to any owner of, licensor of, or other
claimant to, any Intellectual Property Rights or Third Party Intellectual
Property Rights.
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2.14 LITIGATION.
Except as set forth in the Disclosure Schedule, there is no legal,
administrative, arbitration, or other proceeding, suit, claim or action of any
nature or investigation, review or audit of any kind (including without
limitation a proceeding, suit, claim or action, or an investigation, review or
audit, involving any environmental Law or matter), judgment, decree, decision,
injunction, writ or order pending, noticed, scheduled, or, to the knowledge of
the Sellers, threatened or contemplated by or against or involving the Sellers,
their respective assets, properties or business or their officers, directors,
governors, managers, agents or employees (but only in their capacity as such),
whether at law or in equity, before or by any person or entity or Authority, or
which questions or challenges the validity of this Agreement or any action taken
or to be taken by the parties hereto pursuant to this Agreement or in connection
with the transactions contemplated herein.
2.15 TAX MATTERS.
(a) The Owners or the Sellers, as the case may be, will be
responsible for and will pay all Taxes attributable to or arising from the
business and operations of Sellers and will be responsible for their own
income and franchise Taxes, if any, arising from the transactions
contemplated by this Agreement. The Purchaser will be responsible for and
will pay all Taxes in the nature of sales and use Taxes attributable to or
arising from the transactions contemplated by this Agreement.
(b) There have been properly completed and duly filed on a timely
basis (subject to any valid extensions filed by the Sellers or the Owners,
as the case may be) and in form that is, in all material respects,
correct, all Tax Returns required to be filed on or prior to the date
hereof by the Sellers and the Owners, as the case may be, with respect to
Taxes of the Sellers (or relating to the business and operation of the
Sellers). As of the time of filing, the foregoing Tax Returns correctly
reflected, in all material respects, the facts regarding the income,
business, assets, operations, activities, status or other matters of the
Sellers or any other information required to be shown thereon. There is no
material omission, deficiency, error, misstatement or misrepresentation,
whether innocent, intentional or fraudulent, in any Tax Return filed by
the Sellers or the Owners for any period. Any Tax Returns filed after the
date hereof, but including periods through the Closing Date, will conform
with the provisions of this subsection 2.15(b).
(c) With respect to all amounts of Taxes imposed upon or reported by
the Sellers, with respect to all taxable periods or portions of periods
ending on or before or including the Closing Date, all applicable Tax Laws
and agreements have been or will be complied with, in all material
respects and all such amounts of Taxes required to be paid by the Sellers
to taxing Authorities or others on or before the date hereof have been
duly paid or will be paid on or before the Closing Date. Except for
Permitted Liens, there are no Liens for such Taxes upon any property or
assets of the Sellers. The Sellers have withheld and remitted all amounts
required to be withheld and remitted by them in respect of Taxes.
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(d) Except as set forth in the Disclosure Schedule, neither the
federal Tax Returns of the Sellers nor any state, local or foreign Tax
Return of the Sellers have been examined by the Internal Revenue Service
or any similar state, local or foreign Authority, and, except to the
extent shown therein, all deficiencies asserted as a result of such
examinations have been paid or finally settled and no issue has been
raised by the Internal Revenue Service or any similar state, local or
foreign Authority in any such examination which, by application of similar
principles, reasonably could be expected to result in a proposed
deficiency for any other period not so examined. Except as set forth in
the Disclosure Schedule, all deficiencies and assessments of Taxes of the
Sellers resulting from an examination of any Tax Returns by any Authority
have been paid and there are no pending examinations currently being made
by any Authority nor has there been any written or oral notification to
the Sellers or the Owners of any intention to make an examination of any
Taxes by any Authority. Except as set forth in the Disclosure Schedule,
there are no outstanding agreements or waivers extending the statutory
period of limitations applicable to any Tax Return of the Sellers for any
period.
(e) For purposes of computing Taxes and the filing of Tax Returns,
the Sellers have only hired independent contractors through recognized
consulting firms. Such firms have been responsible for payment of all
necessary employment related Taxes.
2.16 BENEFIT PLANS
(a) PENSION BENEFIT PLANS
The Disclosure Schedule lists and the Sellers have delivered to the
Purchaser true and complete copies of all plans, programs, agreements,
commitments and arrangements maintained by or on behalf of Sellers that provide
benefits to, or for the benefit of, any employee or former employee of Sellers
(or their spouses, dependents or beneficiaries) that is an "employee pension
benefit plan" as such term is defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") (the "PLANS"), including
without limitation any such plan that is excluded from coverage by Section 4 of
ERISA or is a "MULTIEMPLOYER PLAN" within the meaning of Section 3(37) of ERISA.
Each Plan that is not a Multiemployer Plan has been operated in all material
respects in accordance with its terms and in compliance in all material respects
with the applicable provisions of ERISA, the Code and all other applicable law.
All Plans that are not Multiemployer Plans which the Sellers operate as plans
that are qualified under Section 401(a) of the Code satisfy in all material
respects in form and operation all applicable qualification requirements.
Neither the Sellers nor any other "person" within the meaning of Section
7701(a)(1) of the Code, that together with the Sellers are considered a single
employer pursuant to Sections 414(b), (c), (m) or (o) of the Code or Sections
3(5) or 4401(b)(1) of ERISA (an "AFFILIATED ORGANIZATION"), sponsors, maintains,
contributes to or is required to contribute to, or has sponsored, maintained,
contributed to or been required to contribute to, a plan which is subject to the
requirements of Section 412 of the Code or Section 302 of ERISA or which is
covered by Title IV of ERISA. Neither the Sellers nor any Affiliated
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Organization is contributing to, is or has been required to contribute to, or
could have any liability of any nature, whether known or unknown, direct or
indirect, fixed or contingent, arising under or in connection with, any Plan
which is a Multiemployer Plan. Neither the Sellers nor any Affiliated
Organization has, with respect to any Plan, engaged in any prohibited
transaction as defined in Sections 406 and 407 of ERISA or Section 4975 of the
Code which is not exempt from both the penalty in Section 502(i) of ERISA and
the excise tax in Section 4975 of the Code.
(b) WELFARE BENEFIT PLANS
Except as set forth in the Disclosure Schedule:
Neither the Sellers nor any Affiliated Organization sponsors,
maintains, contributes to, is required to contribute to or has or could have any
liability of any nature, whether known or unknown, direct or indirect, fixed or
contingent, with respect to, any "employee welfare benefit plan" ("WELFARE
PLAN") as such term is defined in Section 3(1) of ERISA, whether insured or
otherwise, including without limitation any such plan that is excluded from
coverage by Section 4 of ERISA or is a Multiemployer Plan within the meaning of
Section 3(37) of ERISA. Each Welfare Plan that is not a Multiemployer Plan has
been operated in all material respects in accordance with its terms and in
compliance in all material respects with the applicable provisions of ERISA, the
Code and all other applicable Law. Benefits under each Welfare Plan other than a
Multiemployer Plan are fully insured by an insurance company unrelated to the
Sellers or any Affiliated Organization. No insurance contract or policy requires
or permits any retroactive increase in premiums or payments due thereunder. Each
insurance contract may be transferred to or assumed by the Purchaser without the
consent of any other person and without any change in any material term of such
contract. Neither the Sellers nor any Affiliated Organization has established or
contributed to, or is required to contribute to or has or could have any
liability of any nature, whether known or unknown, direct or indirect, fixed or
contingent, with respect to any "voluntary employees' beneficiary association"
within the meaning of Section 501(c)(9) of the Code, "welfare benefit fund"
within the meaning of Section 419 of the Code, "qualified asset account" within
the meaning of Section 419A of the Code or "multiple employer welfare
arrangement" within the meaning of Section 3(40) of ERISA. Neither the Sellers
nor any Affiliated Organization is contributing to, is or has been required to
contribute to any Welfare Plan which is a Multiemployer Plan. Neither the
Sellers nor any Affiliated Organization maintains, contributes to or has or
could have any liability of any nature, whether known or unknown, direct or
indirect, fixed or contingent, with respect to medical, health, life or other
welfare benefits for present or future terminated employees or their spouses or
dependents other than as required by Part 6 of Subtitle B of Title I of ERISA,
Section 4980B of the Code or any comparable state law.
Exhibit 4.11(d) includes a complete list of each current or former
employee of the Sellers or any Affiliated Organization and each other individual
who is a "qualified beneficiary" with respect to such current or former employee
in connection with a "group health plan" maintained by the Sellers or any
Affiliated Organization (as such terms are defined in Section 4980B of the Code)
currently receiving, or eligible to receive, group health plan continuation
coverage in accordance with Section 4980B of the Code and Part 6 of Subtitle B
of Title I of ERISA under the Sellers group health plans.
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There are no facts or circumstances which could, directly or
indirectly, subject the Sellers or any Affiliated Organization to any (1) excise
tax or other liability under Chapter 47 of Subtitle D of the Code, (2) penalty
tax or other liability under Chapter 68 of Subtitle F of the Code or (3) civil
penalty, damages or other liability arising under Section 502 of ERISA with
respect to any Welfare Plan.
Full payment has been made of all amounts which the Sellers or any
Affiliated Organization is required, under applicable Law, the terms of any
Welfare Plan, or any agreement relating to any Welfare Plan, to have paid as a
contribution, premium or other remittance thereto or benefit thereunder. The
Sellers and each Affiliated Organization has made adequate provisions for
reserves or accruals in accordance with GAAP to meet contribution, benefit or
funding obligations arising under applicable Law or the terms of any Welfare
Plan or related agreement and Sellers could not reasonably be expected to incur
any liability, whether known or unknown, direct or indirect, fixed or
contingent, with respect to any Welfare Plan that is not reflected on the Latest
Balance Sheet. There will be no change on or before Closing in the operation of
any Welfare Plan or any documents with respect thereto which will result in an
increase in the benefit liabilities under such plans, except as may be required
by Law.
The Sellers and each Affiliated Organization have timely complied in
all material respects with all reporting and disclosure obligations with respect
to the Welfare Plans imposed by the Code, ERISA or other applicable Law.
There are no pending or, to the Sellers' and the Owners' knowledge,
threatened audits, investigations, claims, suits, grievances or other
proceedings, and there are no facts known to the Sellers that could give rise
thereto, involving, directly or indirectly, any Welfare Plan, or any rights or
benefits thereunder, other than the ordinary and usual claims for benefits by
participants, dependents or beneficiaries.
The transactions contemplated herein do not result in the
acceleration of accrual, vesting, funding or payment of any contribution or
benefit under any Welfare Plan.
No action or omission of the Sellers or any officer, director,
governor, manager, employee, or agent thereof in any way restricts, impairs or
prohibits the Purchaser or the Sellers or any successor from amending, merging,
or terminating any Welfare Plan in accordance with the express terms of any such
plan and applicable Law.
The Disclosure Schedule lists and the Sellers have delivered to the
Purchaser true and complete copies of: (i) all Welfare Plans and related trust
agreements or other agreements or contracts evidencing any funding vehicle with
respect thereto; (ii) the three most recent annual reports on Treasury Form
5500, including all schedules and attachments thereto, with respect to any
Welfare Plan for which such a report is required; (iii) the form of summary plan
description, including any summary of material modifications thereto or other
modifications communicated to participants, currently in effect with respect to
each Welfare Plan; and (iv) all professional opinions, material internal
memoranda, material correspondence with regulatory authorities and
administrative policies, manuals, interpretations and the like with respect to
each Welfare Plan.
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2.17 CONTRACTS AND COMMITMENTS; NO DEFAULT.
(a) The Disclosure Schedule contains an accurate and complete list
and brief description of:
(i) All real property owned by the Sellers included in the
Assets or in which the Sellers have a leasehold or other interest
and which is included in the Assets or which is used by the Sellers
in connection with the operation of their business, together with a
description of each lease, sublease, license, or any other
instrument under which the Sellers claim or hold such leasehold or
other interest or right to the use thereof or pursuant to which the
Sellers have assigned, sublet or granted any rights therein,
identifying the parties thereto, the rental or other payment terms,
expiration date and cancellation and renewal terms thereof.
(ii) All machinery, tools, equipment, motor vehicles and other
tangible personal property (other than inventory and supplies),
owned, leased or used by the Sellers and included in the Assets,
except for items having a cost of less than $5,000. The Sellers have
provided the Purchaser with either a copy of or a summary
description of all leases and Liens relating thereto, identifying
the parties thereto, the rental or other payment terms, expiration
date and cancellation and renewal terms thereof.
(iii) All contracts, agreements and commitments, whether or
not fully performed, in respect of the issuance, sale or transfer of
capital stock bonds, membership interests or other securities of the
Sellers or pursuant to which the Sellers have acquired any
substantial portion of their business or assets.
(iv) All contracts, agreements, commitments or understandings
that restrict the Sellers from carrying on their businesses or any
part thereof anywhere in the world or from competing in any line of
business with any person or entity.
(v) All purchase or sale contracts or agreements that call for
aggregate purchases or sales in excess over the course of such
contract or agreement of $5,000 or which continues for a period of
more than twelve months (including without limitation periods
covered by any option to renew or extend by either party) which is
not terminable on 60 days' or less notice without cost or other
Liability at or any time after the Closing.
(vi) Any contract, commitment, agreement or arrangement with
any "disqualified individual" (as defined in Section 280G(c) of the
Code) which contains any severance or termination pay liabilities
which would result in a disallowance of the deduction for any
"excess parachute payment" (as defined in Section 280G(b)(1) of the
Code) under Section 280G of the Code.
(vii) All Assumed Contracts.
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(viii) The names and current annual salary rates of all
employees of and consultants to the Sellers, showing separately for
each such person the amounts paid or payable as salary, bonus
payments and any indirect compensation for the year ended December
31, 1997.
(ix) The names of all of the officers and directors of
Executech and managers of World Wide.
(x) All collective bargaining agreements, employment and
consulting agreements, executive compensation plans, bonus plans,
deferred compensation agreements, employee option or purchase plans,
other employee arrangements or commitments, whether or not legally
binding, including without limitation, holiday, vacation, Christmas
and other bonus practices, to which either of the Sellers are a
party or is bound or which relates to the operation of the Business.
(b) The Assumed Contracts and all other contracts, agreements,
leases, licenses and commitments required to be listed on the Disclosure
Schedule (other than those which have been fully performed), are valid and
binding upon and enforceable in accordance with their respective terms in
all material respects, except as enforcement might be limited by
bankruptcy and other laws related to creditors' rights and principles of
equity, against the Sellers and are in full force and effect. Except as
otherwise specified in the Disclosure Schedule, the Assumed Contracts are
validly assignable to the Purchaser without the consent of any other party
so that, after the assignment thereof to the Purchaser pursuant hereto,
the Purchaser will be entitled to the full benefits thereof. Except as
disclosed in the Disclosure Schedule, none of the payments required to be
made under any Assumed Contract has been prepaid more than 90 days prior
to the due date of such payment thereunder. Except as set forth in the
Disclosure Schedule, the Sellers are not in material breach, violation or
default, however defined, in the performance of any of their obligations
under any Assumed Contract or any other contract, agreement, lease,
license or commitment required to be listed on the Disclosure Schedule,
and no facts and circumstances exist which, whether with the giving of due
notice, lapse of time, or both, would constitute such a material breach,
violation or default thereunder or thereof. Except as set forth in the
Disclosure Schedule, none of the Assumed Contracts is subject to
renegotiation with any government body. True and complete copies of all of
the Assumed Contracts (together with any and all amendments thereto) have
been delivered to the Purchaser and identified with a reference to this
Section of this Agreement.
2.18 ORDERS, COMMITMENTS AND RETURNS.
Except as set forth in the Disclosure Schedule, all accepted and
unfulfilled orders for the sale of products and the performance of services
entered into by the Sellers and all outstanding material contracts or material
commitments for the purchase of supplies, materials and services were made in
bona fide transactions in the ordinary course of business. To the best of the
Sellers' and the Owners' knowledge, neither of the Sellers are subject to any
outstanding sales or purchase contracts, commitments or proposals which is
anticipated to result in an overall loss upon completion or performance thereof.
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2.19 LABOR MATTERS.
The Disclosure Schedule attached hereto includes a true and complete list
of all employees of Sellers, together with each person's job title and
compensation level. The Disclosure Schedule also identifies all employees of
Sellers on leave of absence and employees of Sellers and former employees of
Sellers and their dependents receiving health benefits, or eligible to receive
health benefits, as required by COBRA. Notice of the availability of healthcare
continuation coverage for employees and former employees of Sellers and their
respective dependents, in accordance with the requirements of COBRA, will have
been provided to all persons entitled thereto, and all persons electing such
coverage are being (or have been, if applicable) provided such coverage. Except
as set forth in the Disclosure Schedule:
(a) the Sellers are and have been in compliance in all material
respects with all applicable Laws respecting employment and employment
practices, terms and conditions of employment and wages and hours,
including without limitation any such Laws respecting employment
discrimination and occupational safety and health requirements, and have
not and are not engaged in any unfair labor practice;
(b) there is no unfair labor practice complaint against either of
the Sellers pending or threatened before the National Labor Relations
Board or any other comparable Authority;
(c) there is no labor strike, dispute, slowdown or stoppage actually
pending or threatened against or directly affecting the Sellers;
(d) no labor representation question exists respecting the employees
of either of the Sellers and there is not pending or threatened any
activity intended or likely to result in a labor representation vote
respecting the employees of either of the Sellers;
(e) no grievance or any arbitration proceeding arising out of or
under collective bargaining agreements is pending and no claims therefor
exist or have been threatened;
(f) no collective bargaining agreement is binding and in force
against the Sellers or currently being negotiated by the Sellers;
(g) the Sellers have not experienced any significant work stoppage
or other significant labor difficulty;
(h) the Sellers are not delinquent in payments to any persons for
any wages, salaries, commissions, bonuses or other direct or indirect
compensation for any services performed by them or amounts required to be
reimbursed to such persons, including without limitation any amounts due
under any Pension Plan, Welfare Plan or Compensation Plan; and
(i) upon termination of the employment of any person, neither the
Sellers, the Purchaser, Merrill or any subsidiary of Merrill will, by
reason of anything done at or prior
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to or as of the Closing Date, be liable to any of such persons for
so-called "severance pay" or any other payments.
2.20 COMPLIANCE WITH LAW; PERMITS AND OTHER OPERATING RIGHTS.
Except as set forth in the Disclosure Schedule, and without limiting the
scope of any other representations or warranties contained in this Agreement,
but without intending to duplicate the scope of such other representations and
warranties, the assets, properties, business and operations of the Sellers, are
and have been in compliance in all material respects with all Laws applicable to
the Sellers' assets, properties, business and operations. Except as set forth in
the Disclosure Schedule, the Sellers do not require the Consent of any Authority
to permit them to operate in the manner in which they are presently being
operated. The Sellers possess all permits, licenses and other authorizations
from all Authorities necessary to permit them to operate the Business in the
manner in which it presently is conducted and the consummation of the
transactions contemplated by this Agreement will not prevent the Sellers from
being able to continue to use such permits and operating rights.
2.21 ENVIRONMENTAL AND SAFETY MATTERS.
Except as set forth on the Disclosure Schedule:
(a) Neither the Sellers, any subsidiary or former subsidiary of the
Sellers, nor, to the best of the Sellers' knowledge, any previous owner,
tenant, occupant or user of any property owned or leased by or to the
Sellers, or by or to any subsidiary or former subsidiary (the
"PROPERTIES") engaged in or permitted, direct or indirect operations or
activities upon, or any use or occupancy of the Properties, or any portion
thereof, for the purpose of or in any way involving the handling,
manufacture, treatment, storage, use, generation, emission, release,
discharge, refining, dumping or disposal of any Environmentally Regulated
Materials (whether legal or illegal, accidental or intentional, direct or
indirect) on, under, in or about the Properties, or transported any
Environmentally Regulated Materials to, from or across the Properties, nor
are any Environmentally Regulated Materials presently constructed,
deposited, stored, placed or otherwise located on, under, in or about the
Properties, nor have any Environmentally Regulated Materials migrated from
the Properties upon or beneath other properties, nor have any
Environmentally Regulated Materials migrated or threatened to migrate from
other properties upon, about or beneath the Properties. The Properties do
not contain any: (i) underground or aboveground storage tanks; (ii)
asbestos; (iii) equipment using PCBs; (iv) underground injection wells; or
(v) septic tanks in which process waste water or any Environmentally
Regulated Materials have been disposed.
(b) (i) No violation or noncompliance with Environmental and
Occupational Safety and Health Laws has occurred with respect to the
Properties or operations conducted thereon during the period in which the
Sellers operated such Properties and conducted such operations and prior
to such time as the Sellers operated such Properties and conducted such
operations; the Sellers have obtained all permits, licenses and
authorizations required by, and the Sellers and the Properties are in
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compliance with, all Environmental and Occupational Safety and Health Laws
including, without limitation, all applicable restrictions, conditions,
standards, limitations, prohibitions, requirements, obligations, schedules
and timetables contained in the Environmental and Occupational Safety and
Health Laws or contained in any regulation, code, plan, order, decree,
judgment, injection, notice or demand letter issued, entered, promulgated
or approved thereunder;
(ii) no enforcement, investigation, cleanup, removal,
remediation or response or other governmental or regulatory actions
have been, or could have been at any time in the past, asserted or
threatened (A) with respect to operations conducted by the Sellers
on the Properties or, (B) with respect to the Properties themselves
or (C) against the Sellers or any subsidiary or former subsidiary
with respect to or in any way regarding the Properties pursuant to
any Environmental and Occupational Safety and Health Laws; and
(iii) no claims or settlements relating to or arising out of
Environmental and Occupational Safety and Health Laws or
Environmentally Regulated Materials, have been made or, to the
knowledge of the Sellers, been threatened by any third party,
including any Authority, nor, to the knowledge of the Sellers, does
there exist any basis for any such claim (any such enforcement,
investigation, cleanup, removal, remediation or response, other
governmental or regulatory action, claim or settlement is herein
referred to as an "Environmental Claim") against the Sellers or any
subsidiary or former subsidiaries with respect to the Properties or
operations conducted thereon, or with respect to the Properties or
the operations thereon.
(c) With regard to the Sellers, there are no past or present events,
conditions, circumstances, activities, practices, incidents, actions or
plans which may interfere with or prevent compliance or continued
compliance with Environmental and Occupational Health and Safety Laws, as
in effect on the Closing Date.
2.22 INSURANCE.
The Disclosure Schedule contains a listing of all policies of fire and
other casualty, general liability, theft, life, workers' compensation, health,
directors and officers, business interruption and other forms of insurance owned
or held by the Sellers, specifying the insurer, the policy number, the risk
insured against, the term of the coverage, the limits of coverage, the
deductible amount (if any), the premium rate, the date through which coverage
will continue by virtue of premiums already paid and, in the case of any "claims
made" coverage, the same information as to predecessor policies for the previous
five years. All present policies are in full force and effect and all premiums
with respect thereto have been paid. The Sellers have not been denied any form
of insurance and no policy of insurance has been revoked or rescinded during the
past five years, except as described on the Disclosure Schedule.
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2.23 BANK ACCOUNTS.
The Disclosure Schedule contains a list of the names of all financial
institutions, investment banking and brokerage houses, and other similar
institutions at which the Sellers maintain accounts, deposits, safe deposit
boxes of any nature, and the names of all persons authorized to draw thereon or
make withdrawals therefrom; and the names of all persons, if any, holding tax or
other powers of attorney from the Sellers and a summary of the terms thereof.
2.24 BROKERS.
Except as set forth in the Disclosure Schedule and except for amounts
owing to Southport Partners, which such amounts will be paid at Closing, neither
the Sellers, the Owners nor any of the Sellers' respective directors, officers,
shareholders, managers, members or employees have employed any broker, finder,
or financial advisor or incurred any liability for any brokerage fee or
commission, finder's fee or financial advisory fee, in connection with the
transactions contemplated hereby, nor is there any basis known to the Sellers or
the Owners for any such fee or commission to be claimed by any person or entity.
2.25 ABSENCE OF CERTAIN BUSINESS PRACTICES.
Neither the Sellers, nor any director, officer, manager, employee or agent
of the Sellers, nor any other person acting on their behalf, have, directly or
indirectly, within the past five years given or agreed to give any gift or
similar benefit to any customer, supplier, governmental employee or other person
who is or may be in a position to help or hinder the Sellers (or assist the
Sellers in connection with any actual or proposed transaction) which: (i) might
subject the Sellers, the Purchaser, Merrill or the Purchaser's or Merrill's
affiliates to any damage or penalty in any civil, criminal or governmental
litigation proceeding; (ii) if not given in the past, might have had a Material
Adverse Effect on the Business; or (iii) if not continued in the future, might
materially adversely effect the Business or which might subject the Sellers, the
Purchaser, Merrill or the Purchaser's or Merrill's affiliates to suit or penalty
in any private or governmental litigation or proceeding.
2.26 BUSINESS GENERALLY.
Except as set forth in the Disclosure Schedule, there has been no event,
transaction or information which has come to the attention of the Sellers which
would, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the Sellers. Without limiting the generality of the
foregoing, except as set forth in the Disclosure Schedule, there has not been in
the 12-month period prior to the date hereof any material adverse change in the
business relationship of the Sellers with any customer, dealer or supplier to
the Sellers, except for such changes in the ordinary course of business
consistent with past practices.
2.27 TRANSACTIONS WITH CERTAIN PERSONS.
Except as set forth in the Disclosure Schedule and excluding transactions
between Executech and World Wide, during the past three years, the Sellers have
not, directly or indirectly, purchased, leased or otherwise acquired any
property or obtained any services from, or
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sold, leased or otherwise disposed of any property or furnished any services to,
or otherwise dealt with, in the ordinary course of business or otherwise, any
affiliate or associate of the Sellers or any member, shareholder, or partner of
any affiliate or associate of the Sellers (except with respect to compensation
in the ordinary course of business for services rendered as a director, officer,
manager or employee of the Sellers). The Sellers do not owe any amount to, or
have any agreement or contract with or commitment to, any of its shareholders,
directors, officers, members, governors, managers, employees or consultants or
any affiliate or associate thereof (other than compensation for current services
not yet due and payable and reimbursement of expenses arising in the ordinary
course of business), and none of such persons owes any amount to either of the
Sellers.
2.28 CUSTOMERS.
Except as set forth on the Disclosure Schedule, there has not been in the
12-month period prior to the date hereof, any dispute with any customer of the
Sellers, nor any other set of circumstances, which is reasonably anticipated to
have a Material Adverse Effect on the relationship between either of the Sellers
and any of such customers. Except as set forth on the Disclosure Schedule, the
Sellers are not aware of any circumstances that could materially affect the
ability of any customer of either of the Sellers, to continue doing business
with either of the Sellers in the manner in which such business has been
conducted in the past.
2.29 ACCURACY OF INFORMATION.
No representation or warranty made by the Sellers or the Owners in this
Agreement, the Disclosure Schedule, or in any written agreement, instrument,
document, certificate, statement or letter furnished or to be furnished to the
Purchaser at the Closing by or on behalf of the Sellers or the Owners in
connection with any of the transactions contemplated by this Agreement contains
or will contain any untrue statement of material fact or omit or will omit to
state any material fact necessary in order to make the statements herein or
therein not misleading in light of the circumstances in which they are made, and
all of the foregoing completely and correctly present the information required
or purported to be set forth herein or therein. There is no material fact as of
the date hereof which has not been disclosed in writing to the Purchaser to
which the Sellers have knowledge related to either of the Sellers, its
operations, properties, financial condition or prospects which has a Material
Adverse Effect or, to the knowledge of the Sellers and the Owners, in the future
may have a Material Adverse Effect on either of the Sellers. The representations
and warranties contained in this Article 2 or elsewhere in this Agreement or any
document delivered pursuant hereto will not be affected or deemed waived by
reason of the fact that the Purchaser or its representatives should have known
that any such representation or warranty is or might be inaccurate in any
respect.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
The Purchaser represents and warrants to the Sellers as of the date hereof
as follows:
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3.1 CORPORATE ORGANIZATION.
The Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Minnesota and has the full
corporate power and authority to carry on its business as it is now being
conducted and to own, lease and operate its properties and assets.
3.2 AUTHORIZATION.
The Purchaser has all the requisite corporate power and authority to enter
into this Agreement and to carry out the transactions contemplated herein. The
Board of Directors of the Purchaser has taken all action required by law, its
articles of incorporation and bylaws or otherwise to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated herein and no action of the stockholders of the
Purchaser is required. This Agreement is a valid and binding legal obligation of
the Purchaser enforceable against it in accordance with its terms subject to
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
applicability relating to or affecting creditors' rights and general principals
of equity.
3.3 NON-CONTRAVENTION.
Neither the execution, delivery and performance of this Agreement nor the
consummation of the transactions contemplated herein will: (i) violate any
provision of the articles of incorporation or bylaws of the Purchaser; or (ii)
except for such violations, conflicts, defaults, accelerations, terminations,
cancellations, impositions of fees or penalties, mortgages, pledges, liens,
security interests, encumbrances, restrictions and charges which would not,
individually or in the aggregate, have a Material Adverse Effect on the
Purchaser, violate, be in conflict with, or constitute a default, however
defined (or an event which, with the giving of due notice or lapse of time, or
both, would constitute such a default), under, or cause or permit the
acceleration of the maturity of, or give rise to, any right of termination,
cancellation, imposition of fees or penalties under, any debt, note, bond,
lease, mortgage, indenture, license, obligation, contract, commitment,
franchise, permit, instrument or other agreement or obligation to which the
Purchaser is a party or by which the Purchaser or any of its properties or
assets is or may be bound (unless with respect to which defaults or other
rights, requisite waivers or consents shall have been obtained at or prior to
the Closing) or (iii) result in the creation or imposition of any Lien, upon any
property or assets of the Purchaser under any debt, obligation, contract,
agreement or commitment to which the Purchaser is a party or by which the
Purchaser or any of its assets or properties is or may be bound; or (iv) violate
any Law of any Authority.
3.4 CONSENTS AND APPROVALS.
No Consent is required by any person or entity, including without
limitation any Authority, in connection with the execution, delivery and
performance by the Purchaser of this Agreement, or the consummation of the
transactions contemplated herein, other than any Consent which, if not made or
obtained, will not, individually or in the aggregate, have a Material Adverse
Effect on the business of the Purchaser or the transactions contemplated herein.
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3.5 BROKERS.
Except as set forth in the Disclosure Schedule, neither the Purchaser, nor
any of its officers, directors or employees have employed any broker, finder, or
financial advisor or incurred any liability for any brokerage fee or commission,
finder's fee or financial advisory fee, in connection with the transactions
contemplated hereby, nor is there any basis known to the Purchaser for any such
fee or commission to be claimed by any person or entity.
3.6 FINANCIAL STATEMENTS.
Except as disclosed therein, the audited financial statements of Merrill
as of and for the year ended January 31, 1998, included in its 1998 Annual
Report to Shareholders (i) are in accordance with the books and records of
Merrill and have been prepared in conformity with GAAP, and (ii) fairly present
the consolidated financial position of Merrill as of the date thereof, and the
results of operations (or income or loss), changes in shareholders' equity and
changes in cash flow for the period then ended, all in accordance with GAAP.
3.7 TAXES.
Merrill has properly completed and duly filed on a timely basis (subject
to any valid extensions filed by Merrill) and in a form that is correct, in all
materials respects, all Tax Returns required to be filed on or prior to the date
hereof by Merrill. As of the time of filing, the foregoing Tax Returns correctly
reflected, in all material respects, the facts regarding the income, business,
assets, operations, activities, status or other matters of Merrill.
4. COVENANTS OF THE PARTIES
4.1 INTENTIONALLY OMITTED.
4.2 INTENTIONALLY OMITTED.
4.3 INTENTIONALLY OMITTED.
4.4 CONFIDENTIALITY.
Each of the parties hereto agrees that it will not use, or permit the use
of, any of the information relating to any other party hereto furnished to it in
connection with the transactions contemplated herein ("INFORMATION") in a manner
or for a purpose detrimental to such other party or otherwise than in connection
with the transaction, and that they will not disclose, divulge, provide or make
accessible (collectively, "DISCLOSE"), or permit the Disclosure of, any of the
Information to any person or entity, other than their respective directors,
officers, governors, managers, employees, investment advisors, accountants,
counsel and other authorized representatives and agents, except as may be
required by judicial or administrative process or, in the opinion of such
party's counsel, by other requirements of Law; PROVIDED, HOWEVER, that prior to
any Disclosure of any Information permitted hereunder, the disclosing party
shall first obtain the recipients' undertaking to comply with the provisions of
this subsection with respect to such Information. The term "Information" as used
herein shall not include any information relating to
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a party which the party disclosing such information can show: (i) to have been
in its possession prior to its receipt from another party hereto; (ii) to be now
or to later become generally available to the public through no fault of the
disclosing party; (iii) to have been available to the public at the time of its
receipt by the disclosing party; (iv) to have been received separately by the
disclosing party in an unrestricted manner from a person entitled to disclose
such information; or (v) to have been developed independently by the disclosing
party without regard to any information received in connection with this
transaction. Each party hereto also agrees to promptly return to the party from
whom it originally received such Information all original and duplicate copies
of materials in any media containing Information should the transactions
contemplated herein not occur. A party hereto shall be deemed to have satisfied
its obligations to hold the Information confidential if it exercises the highest
care as it takes with respect to its own similar information.
4.5 INTENTIONALLY OMITTED.
4.6 FURTHER ASSURANCES; COOPERATION; NOTIFICATION.
Each party hereto will, before, at and after Closing, execute and deliver
such instruments and take such other actions as the other party or parties, as
the case may be, may reasonably require in order to carry out the intent of this
Agreement. Without limiting the generality of the foregoing, at any time after
the Closing, at the request of the Purchaser and without further consideration,
the Sellers will execute and deliver such instruments of sale, transfer,
conveyance, assignment and confirmation and take such action as the Purchaser
may reasonably deem necessary or desirable in order to more effectively
consummate the transactions contemplated hereby and to vest in the Purchaser
good and marketable title to, all of the Assets, to put the Purchaser in actual
possession and operating control thereof and to assist the Purchaser in
exercising all rights with respect thereto, without further cost or expense to
the Purchaser.
4.7 INTENTIONALLY OMITTED.
4.8 INTENTIONALLY OMITTED.
4.9 TAX MATTERS.
(a) Intentionally Omitted.
(b) In addition to and without limiting those representations and
warranties set forth in Section 2.15 of this Agreement, in the event that
any sales or use Tax, or any Tax in the nature of a sales or use tax, or
any transactional Tax is payable or assessed relative to the transactions
contemplated herein, the Purchaser will pay all such Taxes and will not
collect any part thereof from the Sellers. The parties hereto will
cooperate to make any necessary filings with state and local or foreign
taxing Authorities and to furnish any required supplemental information
with respect to any state and local or foreign Tax liabilities resulting
from the consummation of the transactions contemplated herein.
(c) In addition to and without limiting those representations and
warranties set forth in Section 2.15 of this Agreement and except as
otherwise set forth in Section 4.9(b)
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herein, the Sellers will pay all Taxes arising from or relating to the
transactions contemplated by this Agreement, including without limitation
Tax on any income or gains arising from the sale of the Assets. The
Sellers will file all federal, foreign and state income Tax Returns for
the Sellers reflecting all activities of the Sellers through and including
the Closing Date. Except as otherwise agreed to by the parties and
regardless of any prior practice, no distribution of cash or property will
be made by the Sellers on or before the Closing Date without the express
written consent of the Purchaser.
(d) The Sellers, the Owners and the Purchaser will:
(i) each provide the other with such assistance as may
reasonably be requested by any of them in connection with the
preparation of any Tax Return, audit or other examination by any
taxing Authority or judicial or administrative proceedings relating
to liability for Taxes,
(ii) each retain and provide the other with any records or
other information which may be relevant to such Tax Return, audit or
examination, proceeding or determination, and
(iii) each provide the other with any final determination of
such audit or examination, proceeding or determination that affects
any amount required to be shown on any Tax Return of the other for
any period.
(e) Without limiting the generality of the foregoing, the Sellers,
the Owners and the Purchaser will retain, until the applicable statutes of
limitations (including all extensions) have expired, copies of all Tax
Returns, supporting work schedules and other records or information which
may be relevant to such Tax Returns for all Tax periods or portions
thereof ending on or before the Closing Date and will not destroy or
otherwise dispose of any such records without first providing the other
party with a reasonable opportunity to review and copy the same.
4.10 BULK TRANSFERS.
The Sellers, the Owners and the Purchaser hereby waive the requirements of
the Uniform Commercial Code concerning bulk transfers, as in effect in the
various states in which the Sellers have assets, including without limitation
the requirement of notice to creditors.
4.11 EMPLOYEE BENEFITS.
(a) The Purchaser will not have any liability or obligation to
employ or offer employment to any employee of the Sellers in connection
with the transactions contemplated hereby other than those listed on
Exhibit 4.11 hereto. The Sellers hereby authorize the Purchaser to enter
into discussions with any of such employees listed on Exhibit 4.11
concerning the future employment of such individual by the Purchaser;
provided, however, that (i) such discussions will not be commenced prior
to the giving of notice by the Sellers to the employees of the Sellers of
the transactions contemplated by this Agreement; and (ii) all such
discussions will be conducted in such a manner as not to
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interfere unreasonably with the business operations of the Sellers. The
terms and conditions of such employment will be established by the
Purchaser in its sole discretion.
(b) Except as expressly provided in this subsection (b), the Sellers
will be responsible for making any required payment of severance
compensation including any notice pay and severance pay in order to comply
with the requirements of the Worker Adjustment and Retraining Act ("WARN")
to any employee of the Sellers who is not offered employment by the
Purchaser or who refuses to accept any such offer of employment by the
Purchaser.
(c) The Sellers and the Owners will not, commencing with the Closing
Date and ending on January 31, 2002, take any action, other than with the
written consent of the Purchaser, to induce any employee who accepts an
offer pursuant to subsection(a) above, while still employed by the
Purchaser or any affiliate of the Purchaser, to enter into the employ of
the Sellers, the Owners or any affiliate of the Sellers or the Owners.
(d) The Purchaser will not be obligated under, and hereby
specifically disclaims any assumption or liability with respect to, any
collective bargaining agreement to which the Sellers are a party or under
which the Sellers' employees or former employees are covered or any
Pension Plan, Compensation Plan or except as provided in this subsection
(d), any Welfare Plan. Without limiting the generality of the foregoing,
the Purchaser is not assuming any obligation to contribute to, or any
obligation or liability for any withdrawal liability arising in connection
with, any Multiemployer Plan attributable to participation therein by
current or former employees of the Sellers as a result of this Agreement
or the transactions contemplated hereby. The Purchaser will be obligated
under, and hereby specifically agrees to assume, all group health plans
maintained by the Sellers as of the Closing Date that are listed on the
Disclosure Schedule (the "Assumed Group Health Plans"). Exhibit 4.11(d)
includes a complete list of each "qualified beneficiary" currently
receiving or eligible to receive group health plan continuation coverage
in accordance with Section 4980B of the Code and Part 6 of Subtitle B of
Title I of ERISA under the Assumed Group Health Plans in connection with
any "qualifying event" that has occurred on or before the Closing Date.
With respect to the "qualified beneficiaries" listed on Exhibit 4.11 who
have received proper notification of their continuation coverage rights
pursuant to Section 4980B of the Code and Part 6 of Subtitle B of Title I
of ERISA, in connection with any "qualifying event" that has occurred on
or before the Closing Date or with respect to whom the deadline for
providing such notice in connection with such qualifying event has not yet
passed, as between the
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Purchaser, on the one hand, and the Sellers, on the other hand, the
Purchaser is responsible for providing group health plan continuation
coverage in accordance with Section 4980B of the Code and Part 6 of
Subtitle B of Title I of ERISA to such "qualified beneficiaries." With
respect to any other individual who is not listed on Exhibit 4.11 or who
has not received proper notification of their continuation coverage rights
pursuant to Section 4980B of the Code and Part 6 of Subtitle B of Title I
of ERISA, but who is a "qualified beneficiary" currently receiving or
eligible to receive group health plan continuation coverage under any of
the Assumed Group Health Plans or any other "group health plan" maintained
by the Sellers or any Affiliated Organization, as between the Purchaser,
on the one hand, and the Sellers, on the other hand, the Sellers are
responsible for providing group health plan continuation coverage in
accordance with Section 4980B of the Code and Part 6 of Subtitle B of
Title I of ERISA (without regard to whether the Purchaser is ultimately
determined to be responsible to provide such coverage to any such
individual) and the Sellers will indemnify, defend and hold harmless the
Purchaser and its affiliates from and against any liability, expense,
cost, tax or obligation of any nature with respect to such individual
arising in connection with group health plan coverage required under
Section 4980B of the Code or Part 6 of Subtitle B of Title I of ERISA.
4.12 AUTHORIZATION.
(a) On or prior to the Closing, the Sellers will deliver to the
Purchaser a copy of the resolutions of the Board of Directors and
Shareholders of Executech and Members of World Wide, approving the
execution and delivery of this Agreement and the consummation of all of
the transactions contemplated hereby, duly certified by an officer of
Executech and a manager of World Wide.
(b) On or prior to the Closing, the Purchaser will deliver to the
Sellers a copy of the resolutions of the Board of Directors approving the
execution and delivery of this Agreement and the consummation of all of
the transactions contemplated hereby, duly certified by an officer of the
Purchaser.
4.13 ADDITIONAL POST-CLOSING OBLIGATIONS OF THE SELLERS.
Effective as of the Closing, the Sellers appoint the Purchaser their
successor and assigns, the true and lawful attorney or attorneys of the Sellers,
with full power of substitution, in the name of the Sellers but on behalf and
for the benefit of and at the expense of the Purchaser:
(a) to collect in the name of the Sellers for the account of the
Purchaser all receivables and other items included in the Assets, if any,
to be sold and transferred to the Purchaser as provided herein;
(b) to institute and prosecute, in the name of the Sellers or
otherwise, all proceedings which the Purchaser may reasonably deem
necessary or desirable in order to collect, assert or enforce any claim,
right or title of any kind arising with respect to the Assets, unless the
Sellers are controlling the claim as provided herein;
(c) to defend and compromise any and all actions, suits or
proceedings in respect of the Assets to the extent liability therefor has
been assumed by the Purchaser hereunder, unless the Sellers are
controlling the claim as provided herein; and
(d) to do all such acts and things in relation to the foregoing as
is reasonably necessary to exercise such powers, as the Purchaser may
reasonably deem advisable.
The foregoing power is coupled with an interest and will be irrevocable by the
Sellers or by their dissolution in any manner or for any reason. Except to the
extent indemnified by the Sellers or the Owners hereunder, the Purchaser will
retain for its own account any amounts collected
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pursuant to the foregoing power, including any sums payable as interest in
respect thereof, and the Sellers will pay to the Purchaser, when received, any
amounts which will be received by the Sellers in respect of any receivables or
other assets or properties related to the Assets. The Purchaser will pay to the
Sellers, when received, any amounts which will be received by the Purchaser in
respect of any receivables or other assets or properties of the Sellers (other
than those related to the Assets), including any Guaranteed Receivables returned
to the Sellers Pursuant to Section 1.6.
4.14 GUARANTEE BY MERRILL.
Merrill hereby absolutely, unconditionally and irrevocably guarantees to
the Sellers and the Owners the prompt and full payment and other performance of
all of the obligations of the Purchaser under this Agreement and the Liabilities
Undertaking (the "Transaction Documents") when each of such obligations is due
or to be performed.
4.15 CAPITAL REQUIREMENTS.
The Purchaser will provide any capital requirements of the "business"
arising after the Closing Date on a basis consistent with Merrill's policies and
procedures applicable to its document management service business unit in effect
at the time of such capital requirement.
4.16 TERMINATION OF PENSION PLANS.
Sellers will adopt resolutions and take all other necessary actions to
terminate all Plans, effective as of a date prior to the Closing Date. After the
Closing Date, and at the Sellers and the Owners expense, the Sellers will submit
requests to the Internal Revenue Service for determination letters stating that
the termination of the Plans does not adversely affect their qualification for
federal tax purposes.
5. INTENTIONALLY OMITTED.
6. INTENTIONALLY OMITTED.
7. INTENTIONALLY OMITTED.
8. SURVIVAL AND INDEMNIFICATION.
8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS; INVESTIGATION.
All representations and warranties of the parties contained in this
Agreement will survive the Closing Date for a period of three (3) years (other
than the representations and warranties set forth in Section 2.10(a) and
2.13(b), which survive indefinitely, the representations and warranties set
forth in Sections 2.15, 2.16 and 2.21 which survive for the applicable statute
of limitations and the representations and warranties set forth in Sections 3.6
and 3.7 which do not survive the Closing Date). The covenants and agreements
contained herein and in the exhibits hereto will survive the Closing without
limitation as to time unless the covenant or agreement specifies the term, in
which case such covenant or agreement will survive until the expiration of
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such specified term and will thereupon expire. The right to indemnification or
any other remedy based on representations, warranties, covenants and obligations
in this Agreement will not be affected by any investigation conducted with
respect to, or any knowledge capable of being acquired at any time, whether
before or after the execution and delivery of this Agreement or the Closing
Date, with respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant or obligation. The waiver of the performance
of or compliance with any covenant or obligation, will not affect the right to
indemnification or any other remedy based on such covenants and obligations.
8.2 INDEMNIFICATION BY THE PURCHASER.
The Purchaser and Merrill, jointly and severally agree to indemnify,
defend and hold the Sellers and the Owners and their respective officers,
directors and employees ("SELLER INDEMNIFIED PARTIES") harmless from and against
any and all losses, liabilities, obligations, demands, judgments, settlements,
damages (but excluding consequential damages, lost profits or punitive damages
suffered directly by Seller Indemnified Parties as opposed to consequential
damages, lost profits or punitive damages paid by any Seller Indemnified Parties
to a third party), Taxes, or expense (including but not limited to interest,
penalties, fees and reasonable professional fees and expenses) and against all
claims in respect thereof (including, without limitation, amounts paid in
settlement and costs of investigation) or diminution in value, whether or not
involving a third-party claim (herein referred to collectively as "SELLERS'
LOSS" or "SELLERS' LOSSES") to which the Seller Indemnified Parties may suffer
or incur, directly or indirectly, as a result from or in connection with:
(a) any untrue representation, or breach of warranty by, the
Purchaser contained in Sections 3.1 through 3.5 of this Agreement; and
(b) the breach of or nonfulfillment of any covenant, agreement or
undertaking of the Purchaser in this Agreement;
(c) the operation of the Business and ownership of the Assets after
the Closing Date unless such Sellers' Losses or Sellers' Loss is subject
to indemnification by the Sellers and the Owners pursuant to Section 8.3
hereof;
(d) any Assumed Liabilities; and
(e) any Taxes arising out of the Purchaser's ownership of the Assets
or operation of the Business after the Closing Date.
8.3 INDEMNIFICATION BY THE SELLERS AND THE OWNERS.
The Sellers and the Owners, jointly and severally, agree to indemnify the
Purchaser and Merrill, their respective subsidiaries and affiliates and each of
their respective shareholders, officers, directors and employees (the "PURCHASER
INDEMNIFIED PARTIES") against all losses, liabilities, obligations, demands,
judgments, settlements, damages (but excluding any claims for consequential
damages, lost profits or punitive damages suffered directly by the Purchaser
Indemnified Parties as opposed to consequential damages, lost profits or
punitive damages
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actually paid by the Purchaser Indemnified Parties to a third party), Taxes, or
expenses (including, but not limited to, interest, penalties, fees, and
reasonable professional fees and expenses) and against all claims in respect
thereof (including, without limitation, amounts paid in settlement and costs of
investigation) or diminution in value, whether or not involving a third-party
claim (herein referred to collectively as "PURCHASER'S LOSSES" or individually
as a "PURCHASER'S LOSS") to which the Purchaser Indemnified Parties, may become
subject to or which they may suffer or incur, directly or indirectly, as a
result from or in connection with:
(a) any untrue representation of or breach of express warranty, by
the Sellers or the Owners in any part of this Agreement;
(b) the breach of or nonfulfillment of any covenant, agreement or
undertaking of the Sellers or the Owners in this Agreement;
(c) any debt, liability or obligation, direct or indirect, known or
unknown, fixed contingent or otherwise not included in the Assumed
Liabilities, that relates to the Sellers or the Owners and is based upon
or arises from any act or omission, transaction, circumstance, state of
facts or other condition occurring or existing on or before the Closing
Date, whether or not then known, due or payable;
(d) any obligation for Taxes of the Sellers or the Owners for any
period (or portion thereof) prior to the Closing Date;
(e) any Retained Liabilities;
(f) the failure of the Sellers or the Owners to comply with the
requirements of the Uniform Commercial Code concerning bulk transfers, as
in effect in the various states in which the Sellers have assets,
including, without limitation, the requirement of notice to creditors,
unless such Purchaser's Loss or Purchaser's Losses is subject to
indemnification by the Purchaser and Merrill pursuant to Section 8.2(d);
(g) the failure of the Sellers or the Owners to obtain any clearance
certificate or similar document required by any taxing Authority in order
to relieve the Purchaser of any obligation to withhold any portion of the
Purchase Price or in order to avoid any successor liability for Taxes; and
(h) except as otherwise provided in Section 4.11, any liability,
expense, cost, tax or obligation of any nature with respect to such
current or former employee or other individual arising in connection with
group health plan coverage required under Section 4980B of the Code or
Part 6 of Subtitle B of Title I of ERISA.
8.4 BASKET AMOUNT.
Notwithstanding anything in Section 8.3 to the contrary, none of the
Purchaser Indemnified Parties will be entitled to any indemnification under
Section 8.3 if the aggregate amount of all claims thereunder is less than
$25,000; provided, however, if the aggregate amount of all claims equals or
exceeds such amount, then the Purchaser Indemnified Parties will be
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entitled to full indemnification of all claims under Section 8.3 in excess of
$25,000. The parties hereto do not intend that such exception amount be deemed
to be a definition of what is "material" for any purpose in this Agreement.
8.5 RIGHT OF SET-OFF.
Following good faith discussions among the Sellers, the Owners and the
Purchaser, upon notice to the Sellers and the Owners, specifying in reasonable
detail the basis therefor, the Purchaser may set off the amount of any
Purchaser's Losses to which it may be entitled under this Article 8, that is
fixed or determinable, against amounts otherwise payable under Section 1.4. In
the event of Purchaser's Losses arising from third party claims that are not yet
fixed or determinable, the Purchaser may set off amounts to which it may be
entitled upon the earlier of the entry of a judgment, whether in a court of law
or arbitration proceeding, or upon settlement of such matter. In addition, the
Sellers and the Owners acknowledge that the Purchaser may set-off an amount
equal to its fees and expenses (including reasonable attorneys fees) as incurred
in resolving the contest of any claims made under this Article 8, against
amounts otherwise payable under Section 1.4. The exercise of such right of
set-off by the Purchaser will not constitute an event of default or a breach
under this Agreement if made in accordance with this Section 8.5. In the event
that the Sellers and the Owners do not agree with the appropriateness of such
set-off, the parties will resolve the dispute pursuant to Section 9.8 below. In
the event that the Purchaser improperly sets off amounts under this Section 8.5,
as determined by the arbitration panel appointed pursuant to Section 9.8 below,
the Sellers will be entitled to interest on the amounts improperly set off at an
interest rate equal to the Late Payment Rate from the date of such set-off to
the date of payment in full of the amount due together with such interest.
Neither the exercise of, nor the failure to exercise, such right of set-off will
constitute an election of remedies nor limit the Purchaser in any manner in the
enforcement of any other remedies that may be available to it.
8.6 CLAIMS FOR INDEMNIFICATION.
(a) GENERAL. The parties intend that all indemnification claims be
made as promptly as practicable by the party seeking indemnification (the
"INDEMNIFIED PARTY"). Whenever any claim will arise for indemnification
hereunder the Indemnified Party will promptly notify the party from whom
indemnification is sought (the "INDEMNIFYING PARTY") of the claim and,
when known, the facts constituting the basis for such claim. The failure
so to notify the Indemnifying Party will not relieve the Indemnifying
Party of any liability that it may have to the Indemnified Party except to
the extent the Indemnifying Party demonstrates that the defense of such
action is materially prejudiced thereby.
(b) CLAIMS BY THIRD PARTIES. With respect to claims made by third
parties, the Indemnifying Party will be entitled to assume control of the
defense of such action or claim with counsel reasonably satisfactory to
the Indemnified Party; provided, however, that:
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(i) the Indemnified Party will be entitled to participate in
the defense of such claim and to employ counsel at its own expense
to assist in the handling of such claim;
(ii) no Indemnifying Party will consent to (A) the entry of
any judgment or enter into any settlement that does not include as
an unconditional term thereof the giving by each claimant or
plaintiff to each Indemnified Party of a release from all liability
in respect of such claim or (B) if, pursuant to or as a result of
such consent or settlement, injunctive or other equitable relief
would be imposed against the Indemnified Party or such judgment or
settlement could materially interfere with the business, operations
or assets of the Indemnified Party; and,
(iii) if the Indemnifying Party does not assume control of the
defense of such claim in accordance with the foregoing provisions
within five (5) business days after receipt of notice of the claim,
the Indemnified Party will have the right to defend such claim in
such manner as it may deem appropriate at the cost and expense of
the Indemnifying Party, and the Indemnifying Party will promptly
reimburse the Indemnified Party therefore in accordance with this
Article 8; provided that the Indemnified Party will not be entitled
to consent to the entry of any judgment or enter into any settlement
of such claim that does not include as an unconditional term thereof
the giving by each claimant or plaintiff to each Indemnifying Party
of a release from all liability in respect of such claim without the
prior written consent of the Indemnifying Party if, pursuant to or
as a result of such consent or settlement, injunctive or other
equitable relief would be imposed against the Indemnifying Party or
such judgment or settlement could materially interfere with the
business, operations or assets of the Indemnifying Party.
(c) REMEDIES CUMULATIVE. The remedies provided herein will be
cumulative and will not preclude assertion by any party of any rights or
the seeking of any other remedies against any other party.
8.7 LIMIT ON DAMAGES.
The aggregate amount payable by the Sellers and the Owners to the
Purchaser Indemnified Parties hereunder will not exceed the Purchase Price
(other than with respect to claims made pursuant to Section 8.3(e) related to
the Retained Liabilities described in Section 1.2 hereto, as to which there
shall be no limit). EXCEPT AS SPECIFICALLY PROVIDED HEREIN, THE SELLERS AND THE
OWNERS MAKE NO WARRANTY OF MERCHANTIBILITY OR FITNESS FOR A PARTICULAR PURPOSE.
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9. MISCELLANEOUS PROVISIONS.
9.1 EXPENSES.
The Purchaser, Merrill, the Sellers and the Owners will each bear their
own costs and expenses relating to the transactions contemplated hereby,
including without limitation, fees and expenses of legal counsel, accountants,
investment bankers, brokers or finders, printers, copiers, consultants or other
representatives for the services used, hired or connected with the transactions
contemplated hereby.
9.2 AMENDMENT AND MODIFICATION.
This Agreement may not be amended or modified by the parties hereto except
by means of a writing duly executed by each of the parties hereto.
9.3 WAIVER OF COMPLIANCE; CONSENTS.
Any failure of a party to comply with any obligation, covenant, agreement
or condition herein may be expressly waived in writing by the party entitled
hereby to such compliance, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition will not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. No single or partial exercise of a right or remedy will preclude any
other or further exercise thereof or of any other right or remedy hereunder.
Whenever this Agreement requires or permits the consent by or on behalf of a
party, such consent will be given in writing in the same manner as for waivers
of compliance.
9.4 NO THIRD PARTY BENEFICIARIES.
Nothing in this Agreement will entitle any person or entity (other than a
party hereto and his, her or its respective successors and assigns permitted
hereby) to any claim, cause of action, remedy or right of any kind.
9.5 NOTICES.
All notices, requests, demands and other communications required or
permitted hereunder will be made in writing by personal delivery, certified or
registered mail or recognized overnight courier and will be deemed to have been
duly given and effective: (i) on the date of delivery, if delivered personally;
(ii) on the date of the return receipt acknowledgment, if mailed, postage
prepaid, by certified or registered mail, return receipt requested; or (iii) on
the date of confirmed delivery, if sent by recognized overnight courier:
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If to the Sellers and the Owners:
To: Theodore M. Davis, Representative
Executech, Inc.
444 Westport Avenue
Norwalk, CT 06851
With copies to:
Brown, Raysman, Millstein, Felder & Steiner LLP
120 West 45th Street
New York, NY 10036
Attn.: Gerard R. Boyce, Esq.
or to such other person or address as the Representative will furnish to the
other parties hereto in writing in accordance with this subsection.
If to Purchaser:
To: Merrill Acquisition Corporation
One Merrill Circle
St. Paul, MN 55108
Attn.: Steven J. Machov, Esq.
With a copy to:
Oppenheimer Wolff & Donnelly LLP
45 South Seventh Street
Suite 3400, Plaza VII
Minneapolis, MN 55402
Attn.: Kristine L. Gabel, Esq.
or to such other person or address as the Purchaser will furnish to the other
parties hereto in writing in accordance with this subsection.
9.6 ASSIGNMENT.
This Agreement and all of the provisions hereof will be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns, but neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned (whether voluntarily, involuntarily,
by operation of law or otherwise) by any of the parties hereto without the prior
written consent of the other parties, PROVIDED, HOWEVER, that the Purchaser may
assign its rights (but not its obligations) under this Agreement, in whole or in
any part, and from time to time, to a wholly owned, direct or indirect,
subsidiary of Merrill.
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9.7 GOVERNING LAW.
This Agreement and the legal relations among the parties hereto shall be
governed by and construed in accordance with the internal substantive laws of
the State of New York (without regard to the laws of conflict that might
otherwise apply) as to all matters, including without limitation matters of
validity, construction, effect, performance and remedies.
9.8 ARBITRATION.
(a) The parties agree that any dispute arising out of or relating to
this Agreement or the formation, breach, termination or validity thereof,
except for injunctive relief contemplated by Section 9.12 (a "DISPUTE")
will be resolved as follows. If the Dispute cannot be settled through
direct discussions, the parties will first try to settle the Dispute in an
amicable manner by mediation under the Commercial Mediation Rules of the
American Arbitration Association, before resorting to arbitration. Any
Dispute that has not been resolved within 60 days of the initiation of the
mediation procedure (the "MEDIATION DEADLINE") will be settled by binding
arbitration in Delaware by a panel of three (3) arbitrators, selected in
accordance with subsection (b) below, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the "AMERICAN
ARBITRATION RULES"). The arbitrators in any such arbitration will have the
discretion to order a pre-hearing exchange of information by the parties,
including, without limitation, production of requested documents, exchange
of summaries of testimony and proposed witnesses, and examination by
deposition of parties. The arbitrators are not empowered to award damages
in excess of compensatory damages, as limited by this Agreement, and each
party hereby irrevocably waives any damages in excess of compensatory
damages. Judgment upon any arbitration award may be entered in any court
having jurisdiction thereof and the parties consent to the jurisdiction of
the courts of the State of Delaware for this purpose. The parties agree
that service of process and of any notices required in connection with any
arbitration hereunder or any related court proceedings may be given in the
manner provided for the giving of notices under this Agreement as set
forth in Section 9.5.
(b) Within twenty (20) days of the Mediation Deadline, the Purchaser
will nominate one arbitrator and the Sellers and the Owners, together,
will nominate one arbitrator. Within thirty (30) days of the nomination
and appointment of the two arbitrators, the two arbitrators shall select a
third arbitrator, and if they fail to do so, a neutral arbitrator shall be
chosen in accordance with the American Arbitration Rules.
(c) The prevailing party in any Dispute will be entitled to recover
all of its reasonable fees and expenses (including reasonable attorneys
fees) in connection with mediating and arbitrating such Dispute. It is the
intent of the parties that the arbitrators are entitled to determine which
party actually prevails in the Dispute and to award fees and expenses to
such party in accordance with this Section 9.8(c)
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9.9 COUNTERPARTS.
This Agreement may be executed simultaneously in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
9.10 HEADINGS.
The table of contents and the headings of the sections and subsections of
this Agreement are inserted for convenience only and shall not constitute a part
hereof.
9.11 ENTIRE AGREEMENT.
This Agreement, the Disclosure Schedule and the exhibits and other
writings referred to in this Agreement or in the Disclosure Schedule or any such
exhibit or other writing are part of this Agreement, together they embody the
entire agreement and understanding of the parties hereto in respect of the
transactions contemplated by this Agreement and together they are referred to as
this "AGREEMENT" or the "AGREEMENT". There are no restrictions, promises,
warranties, agreements, covenants or undertakings, other than those expressly
set forth or referred to in this Agreement. This Agreement supersedes all prior
agreements and understandings between the parties with respect to the
transaction or transactions contemplated by this Agreement, including, but not
limited to, the letter of intent dated April 30, 1998. Any provision of this
Agreement that becomes invalid or unenforceable under applicable Law will be
stricken to the extent necessary and the remainder of such provisions and the
remainder of this Agreement will continue in full force and effect.
9.12 INJUNCTIVE RELIEF.
It is expressly agreed among the parties hereto that monetary damages
would be inadequate to compensate a party hereto for any breach by any other
party of its agreements and covenants in this Agreement. Accordingly, the
parties agree and acknowledge that any such violation or threatened violation
will cause irreparable injury to the other and that, in addition to any other
remedies which may be available, such party will be entitled to injunctive
relief against the threatened breach of this Agreement hereof or the
continuation of any such breach without the necessity or proving actual damages
and may seek to specifically enforce the terms thereof.
9.13 SHAREHOLDER'S REPRESENTATIVE.
(a) In order to efficiently administer (i) the waiver of any
condition to the obligations of the Sellers and the Owners to consummate
the transactions contemplated hereby, and (ii) the defense and/or
settlement of any claims for which the Sellers or the Owners may be
required to indemnify the Purchaser Indemnified Parties pursuant to
Article 8 hereof, each of the Sellers and each Owner hereby irrevocably
appoints and designates Theodore Davis as his, her or its representative
and attorney-in-fact (the "REPRESENTATIVE").
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(b) The Sellers and the Owners hereby authorize the Representative
(i) to take all action necessary in connection with (aa) the waiver of any
condition to the obligations of any Seller or any Owner to consummate the
transactions contemplated hereby, or (bb) the defense and/or settlement of
any claims for which any Seller or Owner may be required to indemnify the
Purchaser Indemnified Parties pursuant to Article 8 hereof, and (iii) to
take any and all additional action as is contemplated to be taken by or on
behalf of the Sellers and the Owners by the terms of this Agreement.
(c) In the event that the Representative dies, becomes unable to
perform his responsibilities hereunder or resigns from such position, a
majority of the Owners will select another representative to fill each
such vacancy and such substituted representative will be irrevocably
appointed and designated the Representative for all purposes of this
Agreement.
(d) All decisions and actions by the Representative, including,
without limitation, (i) any agreement between the Representative and the
Purchaser or Merrill relating to the waiver of any condition to the
obligations of any Seller or Owner to consummate the transaction
contemplated hereby, or (ii) the defense or settlement of any claims for
which the Sellers or the Owners may be required to indemnify the Purchaser
Indemnified Parties pursuant to Article 8 hereof, will be binding upon
each of the Sellers and all of the Owners, and no Seller or Owner will
have the right to object, dissent, protest or otherwise contest the same.
(e) By their execution of this Agreement, each of the Sellers and
the Owners agree that:
(i) the Purchaser or Merrill will be able to rely conclusively
on the instructions and decisions of the Representative as to (aa)
the settlement of any claims arising out of Article 8 hereof, or
(bb) any other actions required to be taken by the Representative
hereunder, and no party hereunder will have any cause of action
against the Purchaser or Merrill for any action taken by the
Purchaser or Merrill in reliance upon the instructions or decisions
of the Representative;
(ii) all actions, decisions and instructions of the
Representative will be conclusive and binding upon each of the
Sellers and all of the Owners, and no party hereto will have any
cause of action against the Representative, in his capacity as a
Representative, for any action taken, decision made or instruction
given by the Representative under this Agreement, except for fraud
or willful misconduct by the Representative;
(iii) the provisions of this Section 9.13 are independent and
severable, are irrevocable and coupled with an interest and will be
enforceable notwithstanding any rights or remedies that either
Seller or any Owner may have in connection with the transactions
contemplated by this Agreement; and
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(iv) the provisions of this Section 9.13 will be binding upon
the executors, heirs, legal representatives and successors of each
Seller and each Owner, and any references in this Agreement to a
Seller or an Owner will mean and include the successors to the
rights of the Sellers and the Owners hereunder, whether pursuant to
testamentary disposition, the laws of descent and distribution or
otherwise.
9.14 CERTAIN DEFINITIONS.
For purposes of this Agreement, the terms:
(a) "ENVIRONMENTAL AND OCCUPATIONAL SAFETY AND HEALTH LAW" means
any common law or duty, caselaw or other Law, that (i) regulates,
creates standards for or imposes liability or standards of conduct
concerning any element, compound, pollutant, contaminant, or toxic or
hazardous substance, material or waste, or any mixture thereof, or
relates in any way to emissions or releases into the environment or
ambient environmental conditions, or conduct affecting such matters, or
(ii) is designed to provide safe and healthful working conditions or
reduce occupational safety and health hazards. Such laws shall include,
but not be limited to, the National Environmental Policy Act, 42 U.S.C.
Sections 4321 et seq., the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Sections 9601 et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901 et
seq., the Federal Water Pollution Control Act, 33 U.S.C. Sections 1251
et seq., the Federal Clean Air Act, 42 U.S.C. Sections 7401 et seq.,
the Toxic Substances Control Act, 15 U.S.C. Sections 2601 et seq., the
Emergency Planning and Community Right to Know Act, 42 U.S.C. Section
11011, the Hazard Communication Act, 29 U.S.C. Sections 651 et seq.,
the Occupational Safety and Health Act, 29 U.S.C. Sections 651 et seq.,
the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C.
Section 136, and any caselaw interpretations, amendments or
restatements thereof, or similar enactments thereto, as is now or at
any time hereafter may be in effect, as well as their international,
state and local counterparts.
(b) "ENVIRONMENTALLY REGULATED MATERIALS" means any element,
compound, pollutant, contaminant, substance, material or waste, or any
mixture thereof, designated, listed, referenced, regulated or identified
pursuant to any Environmental and Occupational Safety and Health Law.
(c) "MATERIAL ADVERSE EFFECT" means an individual or cumulative
material adverse change in or material adverse effect on the business,
customers, customer relations, operations, properties, working capital
condition (financial or otherwise), assets, properties or liabilities of
the Sellers, taken as a whole, or the Purchaser, Merrill and their
subsidiaries, taken as a whole, as the case may be or that would prevent
the Sellers and the Owners, on the one hand, or the Purchaser, on the
other hand, from consummating the transactions contemplated hereby.
(d) "TAXES" means all federal, state, local, foreign and other net
income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, lease,
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service, service use, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, real or personal property, windfall profits,
customs, duties or other taxes, fees, assessments, charges or levies of
any kind whatever, together with any interest and any penalties, additions
to tax or additional amounts with respect thereto, and the term "TAX"
means any one of the foregoing Taxes.
(e) "TAX RETURNS" means all returns, declarations, reports,
statements and other documents required to be filed with any Authority in
respect of Taxes, and the term "TAX RETURN" means any one of the foregoing
Tax Returns.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
MERRILL CORPORATION EXECUTECH, INC.
By: /s/ Steven J. Machov By: /s/ Theodore M. Davis
Its: /s/ Vice President, Its: President
General Counsel & Secretary
MERRILL ACQUISITION CORPORATION WORLD WIDE SCAN SERVICES, LLC
By: /s/ Steven J. Machov By: Theodore M. Davis
Its: /s/ Secretary Its: Manager
/s/ Theodore M. Davis
---------------------
Theodore M. Davis
/s/ Michael Z. Sperling
-----------------------
Michael Z. Sperling
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TABLE OF CONTENTS
<TABLE>
<S> <C>
1. PURCHASE OF ASSETS........................................................1
1.1 Assets to be Purchased..............................................1
1.2 Liabilities Assumed.................................................3
1.3 Purchase Price......................................................4
1.4 Contingent Purchase Price...........................................5
1.5 Allocation of Purchase Price.......................................10
1.6 Collection of Accounts Receivable..................................10
1.7 Closing............................................................11
1.8 Instruments of Transfer to Purchaser...............................11
2. REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE OWNERS.............12
2.1 Disclosure Schedule................................................12
2.2 Corporate Organization.............................................12
2.3 Capitalization.....................................................13
2.4 Authorization......................................................13
2.5 Non-Contravention..................................................13
2.6 Consents and Approvals.............................................14
2.7 Financial Statements...............................................14
2.8 Absence of Undisclosed Liabilities.................................15
2.9 Absence of Certain Changes.........................................15
2.10 Assets............................................................15
2.11 Inventories.......................................................16
2.12 Receivables and Payables..........................................16
2.13 Intellectual Property Rights......................................16
2.14 Litigation........................................................18
2.15 Tax Matters.......................................................18
2.16 Benefit Plans.....................................................19
2.17 Contracts and Commitments; No Default.............................22
2.18 Orders, Commitments and Returns...................................24
2.19 Labor Matters.....................................................24
2.20 Compliance with Law; Permits and Other Operating Rights...........25
2.21 Environmental and Safety Matters..................................25
2.22 Insurance.........................................................27
2.23 Bank Accounts.....................................................27
2.24 Brokers...........................................................27
2.25 Absence of Certain Business Practices.............................27
2.26 Business Generally................................................27
2.27 Transactions with Certain Persons.................................27
2.28 Customers.........................................................28
2.29 Accuracy of Information...........................................28
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER..............................28
3.1 Corporate Organization.............................................29
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
3.2 Authorization......................................................29
3.3 Non-Contravention..................................................29
3.4 Consents and Approvals.............................................29
3.5 Brokers............................................................30
3.6 Financial Statements...............................................30
3.7 Taxes..............................................................30
4. COVENANTS OF THE PARTIES.................................................30
4.1 Intentionally Omitted..............................................30
4.2 Intentionally Omitted..............................................30
4.3 Intentionally Omitted..............................................30
4.4 Confidentiality....................................................30
4.5 Intentionally Omitted..............................................31
4.6 Further Assurances; Cooperation; Notification......................31
4.7 Intentionally Omitted..............................................31
4.8 Intentionally Omitted..............................................31
4.9 Tax Matters........................................................31
4.10 Bulk Transfers....................................................32
4.11 Employee Benefits.................................................32
4.12 Authorization.....................................................34
4.13 Additional Post-Closing Obligations of the Sellers................34
4.14 Guarantee by Merrill..............................................35
4.15 Capital Requirements..............................................35
4.16 Termination of Pension Plans......................................35
5. INTENTIONALLY OMITTED....................................................35
6. INTENTIONALLY OMITTED....................................................35
7. INTENTIONALLY OMITTED....................................................35
8. SURVIVAL AND INDEMNIFICATION.............................................35
8.1 Survival of Representations, Warranties and Covenants;
Investigation.....................................................35
8.2 Indemnification by the Purchaser...................................36
8.3 Indemnification by the Sellers and the Owners......................36
8.4 Basket Amount......................................................37
8.5 Right of Set-Off...................................................38
8.6 Claims for Indemnification.........................................38
8.7 Limit on Damages...................................................39
9. MISCELLANEOUS PROVISIONS.................................................40
9.1 Expenses...........................................................40
9.2 Amendment and Modification.........................................40
9.3 Waiver of Compliance; Consents.....................................40
9.4 No Third Party Beneficiaries.......................................40
9.5 Notices............................................................40
9.6 Assignment.........................................................41
9.7 Governing Law......................................................42
9.8 Arbitration........................................................42
9.9 Counterparts.......................................................43
9.10 Headings..........................................................43
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
9.11 Entire Agreement..................................................43
9.12 Injunctive Relief.................................................43
9.13 Shareholder's Representative......................................43
9.14 Certain Definitions...............................................45
</TABLE>
iii
<PAGE>
The following documents are exhibits to the Asset Purchase Agreement and have
been omitted pursuant to Item 601(b)(2) of Regulation S-K. These exhibits will
be furnished supplementally to the Commission upon request.
LIST OF EXHIBITS
NAME OF EXHIBIT NUMBER OF EXHIBIT
- --------------- -----------------
List of Trade Names to be Purchased.............................Exhibit 1.1(a)
Excluded Assets.................................................Exhibit 1.1(b)
Liabilities Undertaking...........................................Exhibit 1.2
Application of GAAP to June 5, 1998 Income Statement...............Exhibit 1.4
Allocation of Purchase Price Among the Assets......................Exhibit 1.5
Bill of Sale.......................................................Exhibit 1.8
Disclosure Schedule..................................................Exhibit 2
Employees to be Hired.............................................Exhibit 4.11
COBRA Participants.............................................Exhibit 4.11(d)
iv
<PAGE>
LIST OF DEFINED TERMS
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Affiliated Organization.....................................................20
After-Tax Earnings...........................................................6
Agreement...................................................................44
American Arbitration Rules..................................................43
Assets.......................................................................2
Assumed Contracts............................................................4
Assumed Liabilities..........................................................3
Auditor......................................................................9
Authorities.................................................................14
Authority...................................................................14
Bad Debt Reserve............................................................11
Base Year Earnings...........................................................5
Business.....................................................................1
Closing.....................................................................11
Closing Date................................................................11
Code.........................................................................6
Consent.....................................................................14
Contingent Purchase Price Statement..........................................9
Copyrights..................................................................17
Davis........................................................................1
Disclose....................................................................31
Disclosure Schedule.........................................................12
Dispute.....................................................................43
Environmental and Occupational Safety and Health Law........................46
Environmental Claim.........................................................27
Environmentally Regulated Materials.........................................46
ERISA.......................................................................20
E-TECH System................................................................6
Executech....................................................................1
Executech Performance Share Plan.............................................4
First Fiscal Year............................................................5
Fourth Fiscal Year...........................................................5
GAAP.........................................................................6
Gross Revenues...............................................................7
Guaranteed Receivables......................................................10
Guaranteed Receivables Shortfall............................................11
Indemnified Party...........................................................39
Indemnifying Party..........................................................39
Information.................................................................31
Intellectual Property Rights................................................17
Late Payment Rate...........................................................10
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Latest Balance Sheet........................................................15
Law.........................................................................14
Laws........................................................................14
Liabilities Undertaking......................................................3
Liability...................................................................15
Lien........................................................................14
Material Adverse Effect.....................................................46
Mediation Deadline..........................................................43
Members......................................................................1
Merrill......................................................................1
Multiemployer Plan..........................................................20
Owners.......................................................................1
Patents.....................................................................17
Permitted Liens.............................................................14
Plans.......................................................................20
Properties..................................................................26
Purchase Price...............................................................4
Purchaser....................................................................1
Purchaser's Loss............................................................38
Purchaser's Losses..........................................................38
Purchaser Indemnified Parties...............................................38
Registered Intellectual Property Rights.....................................17
Representative..............................................................45
Representative Notice........................................................9
Retained Liabilities.........................................................3
Second Fiscal Year...........................................................5
Seller Indemnified Parties..................................................37
Sellers......................................................................1
Sellers' Loss...............................................................37
Sellers' Losses.............................................................37
Service Marks...............................................................17
SG&A Costs...................................................................7
Shareholders.................................................................1
Sperling.....................................................................1
Tax.........................................................................47
Tax Return..................................................................47
Tax Returns.................................................................47
Taxes.......................................................................47
Termination Date............................................................11
Third Fiscal Year............................................................5
Third Party Intellectual Property Rights....................................18
Trade Secrets...............................................................17
Trademarks..................................................................17
Transaction Documents.......................................................36
WARN........................................................................34
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Welfare Plan................................................................21
World Wide...................................................................1
</TABLE>
<PAGE>
================================================================================
FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT
Dated as of December 18, 1998
Among
MERRILL CORPORATION,
MERRILL/EXECUTECH, INC. (f/k/a MERRILL ACQUISITION CORPORATION),
And
EXECUTECH, INC.,
WORLD WIDE SCAN SERVICES, LLC,
The SHAREHOLDERS OF EXECUTECH, INC.,
And
The MEMBERS of WORLD WIDE SCAN SERVICES, LLC
================================================================================
<PAGE>
FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT (this "AGREEMENT") is
made this 18th day of December, 1998 by and among MERRILL CORPORATION, a
Minnesota corporation, MERRILL/EXECUTECH, INC. (f/k/a MERRILL ACQUISITION
CORPORATION), a Minnesota corporation ("PURCHASER") and EXECUTECH, INC., a New
York corporation ("EXECUTECH"), WORLD WIDE SCAN SERVICES, LLC, a Connecticut
limited liability company ("WORLD WIDE"), THEODORE M. DAVIS and MICHAEL Z.
SPERLING (all such entities and individuals are collectively referred to herein
as the "PARTIES").
RECITALS
A. The Parties entered into that certain Asset Purchase Agreement dated as
of June 11, 1998 (the "ASSET PURCHASE AGREEMENT"; all capitalized terms used
herein and not otherwise defined shall have the meanings ascribed to such terms
in the Asset Purchase Agreement, and all references herein to a particular
"Section" shall be deemed to refer to a Section of the Asset Purchase Agreement
unless stated otherwise to the contrary herein), pursuant to which Purchaser
purchased substantially all of Executech's and World Wide's assets.
B. The Parties desire to modify certain terms of the Asset Purchase
Agreement as more particularly set forth herein.
C. The Parties are willing to make such modifications to the Asset
Purchase Agreement, provided each shall execute and deliver this Agreement.
NOW, THEREFORE, in consideration of the above premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereby agree as follows:
SECTION 1. SUBSTITUTION OF SECTION. Section 1.4 (a) of the Asset Purchase
Agreement shall be deemed deleted in its entirety and replaced with the
following paragraph:
"(a) During the period from the Closing through the period ending
January 31, 2003 (the "CONTINGENT PURCHASE PRICE PERIOD"), the
Purchaser will pay additional amounts equal to: (1) for the First
Fiscal Year (as defined below), the greater of (i) Two Million Eight
Hundred Thousand Dollars ($2,800,000) or (ii) a percentage of the
After-Tax Earnings, generated by the "business" (as defined below)
being acquired by the Purchaser; and (2) for all other fiscal years
of the Contingent Purchase Price Period, the guaranteed dollar
amounts specified in the table below. The percentage payable for the
First Fiscal Year and the fixed dollar amounts for each additional
fiscal year of the Contingent Purchase Price Period are set forth
according to the following schedule (the "CONTINGENT PURCHASE
PRICE"):
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR CONTINGENT PURCHASE PRICE PAYMENT
- -----------------------------------------------------------------------------------------------
<S> <C>
January 1, 1998 through January 31, 1999 The greater of (i) Two Million Eight Hundred
("FIRST FISCAL YEAR") Thousand Dollars ($2,800,000) or (ii) 450% of the
After-Tax Earnings for the First Fiscal Year (the
"Base Year Earnings")
- -----------------------------------------------------------------------------------------------
February 1, 1999 through January 31, 2000 The sum of Four Hundred Thousand Dollars
("SECOND FISCAL YEAR") ($400,000)
- -----------------------------------------------------------------------------------------------
February 1, 2000 through January 31, 2001 The sum of Five Hundred Thousand Dollars
("THIRD FISCAL YEAR") ($500,000)
- -----------------------------------------------------------------------------------------------
February 1, 2001 through January 31, 2002 The sum of Six Hundred Fifty Thousand Dollars
("FOURTH FISCAL YEAR") ($650,000)
- -----------------------------------------------------------------------------------------------
February 1, 2002 through January 31, 2003 The sum of Eight Hundred Fifty Thousand
("FIFTH FISCAL YEAR") Dollars ($850,000)
- -----------------------------------------------------------------------------------------------
</TABLE>
SECTION 2. MODIFICATION OF SECTION. The first sentence of Section 1.4 (c)
of the Asset Purchase Agreement shall be deemed deleted in its entirety and
replaced with the following sentence:
"For purposes of this Section 1.4, the "After-Tax Earnings"
generated by the "business" (as hereinafter defined in Section
1.4(c)(i)) for the First Fiscal Year means Purchaser's net income
(or loss), after Taxes, determined in accordance with generally
accepted accounting principles consistently applied ("GAAP")."
SECTION 3. MODIFICATION OF SECTION. The second sentence of Section 1.4 (c)
(iii) of the Asset Purchase Agreement shall be deemed deleted in its entirety
and replaced with the following sentence:
"The SG&A Costs will be five percent (5%) of Gross Revenues for the
First Fiscal Year."
SECTION 4. SUBSTITUTION OF SECTION. Section 1.4 (c)(iv) of the Asset
Purchase Agreement shall be deemed deleted in its entirety and replaced with the
following paragraph:
"(iv) The benefit plans used in calculating the After-Tax Earnings
will be in conformance with the fringe benefit programs of the
Sellers in effect as of the Closing Date for the First Fiscal Year."
SECTION 5. SUBSTITUTION OF SECTION. Section 1.4 (d) of the Asset Purchase
Agreement shall be deemed deleted in its entirety and replaced with the
following paragraph:
"(d) During the First Fiscal Year, the Purchaser agrees to provide
Davis and Sperling monthly financial reports consistent with those
provided to Merrill's regional managers."
2
<PAGE>
SECTION 6. SUBSTITUTION OF SECTION. Section 1.4 (e) of the Asset Purchase
Agreement shall be deemed deleted in its entirety and replaced with the
following paragraph:
"(e) As soon as may be practicable after the end of the First Fiscal
Year, but not later than March 25, 1999, Purchaser will deliver to
the Representative a statement prepared by the Purchaser setting
forth in reasonable detail Purchaser's calculation of After-Tax
Earnings for the First Fiscal Year and the amount of the Contingent
Purchase Price, if any, to be paid to the Sellers for the First
Fiscal Year pursuant to this Section 1.4 (the "CONTINGENT PURCHASE
PRICE STATEMENT").
SECTION 7. SUBSTITUTION OF SECTION. Section 1.4 (g) of the Asset Purchase
Agreement shall be deemed deleted in its entirety and replaced with the
following paragraph:
"(g) The Contingent Purchase Price for the First Fiscal Year, if
any, shall be paid by the Purchaser to the Representative by wire
transfer in immediately available funds within five (5) days after
the earlier of (i) the receipt by the Purchaser of written notice
from the Representative that the Representative has no objection to
the calculation of the Contingent Purchase Price pursuant to Section
1.4 hereof, (ii) the expiration of the 15-day period for giving
notice of disagreement with such calculation, if no such notice is
given, or (iii) the resolution of any dispute pursuant to Section
1.4(e). The Contingent Purchase Price for the Second Fiscal Year,
Third Fiscal Year, Fourth Fiscal Year, and Fifth Fiscal Year shall
be paid by the Purchaser to the Representative by wire transfer in
immediately available funds within five (5) days of the last day of
each such fiscal year. In the event that payment is not made within
such 5-day period, the Purchaser will pay to the Sellers, in
addition to the amount due as the Contingent Purchase Price, a late
payment charge equal to one percent (1%) per month of the Contingent
Purchase Price due together with interest at the Late Payment Rate.
If the amount of the Contingent Purchase Price for the First Fiscal
Year is disputed and is being arbitrated in accordance with Section
1.4(e), during the course of such arbitration and until a final,
non-appealable arbitration award is issued, no late payment charge
shall accrue, but, interest will be payable by the Purchaser on the
balance of the Contingent Purchase Price due but unpaid at the Late
Payment Rate. For purposes of this Agreement, the term "Late Payment
Rate" means the prime rate, as published by Chase Manhattan Bank as
its prime lending rate from time to time, plus three percent (3%).
SECTION 8. FULL FORCE AND EFFECT; RATIFICATION; REFERENCES. Except as
amended hereby, the Asset Purchase Agreement remains unamended and in full force
and effect. The Parties hereby ratify all of the terms and provisions of the
Asset Purchase Agreement except as modified
3
<PAGE>
hereby. All references in the Asset Purchase Agreement to "this Agreement" or
words of like import, shall be deemed to refer to the Asset Purchase Agreement
as amended hereby. All references in any of the Transaction Documents or any of
the Employment Agreements between Davis, Sperling or DuBowe effective as of June
11, 1998 to the "Purchase Agreement" or words of like import, shall be deemed to
refer to the Asset Purchase Agreement as amended hereby.
SECTION 9. MISCELLANEOUS PROVISIONS.
9.1. GOVERNING LAW. The place of negotiation, execution and delivery
of this Agreement is the State of New York. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of New York.
9.2. COUNTERPARTS; HEADINGS. This Agreement may be executed in
counterparts, each of which shall constitute an original, and all of which, when
taken together, shall constitute but one instrument. The captions and headings
of the various sections of this Agreement are for purposes of reference only and
are not to be construed as confining or limiting in any way the scope or intent
of the provisions hereof. Whenever the context requires or permits, the singular
shall include the plural, the plural shall include the singular, and the
masculine, feminine and neuter shall be freely interchangeable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
MERRILL CORPORATION EXECUTECH, INC.
By: /s/ Steven J. Machov By: /s/ Theodore M. Davis
--------------------------------- -----------------------------------
Its: Vice President General Counsel Its: President
-------------------------------- ----------------------------------
MERRILL/EXECUTECH, INC. WORLD WIDE SCAN SERVICES, LLC
By: /s/ Steven J. Machov By: /s/ Theodore M. Davis
--------------------------------- -----------------------------------
Its: Secretary Its: Manager
-------------------------------- ----------------------------------
/s/ Theodore M. Davis
-----------------------------------
Theodore M. Davis
/s/ Michael Z. Sperling
-----------------------------------
Michael Z. Sperling
4
<PAGE>
================================================================================
SECOND AMENDMENT TO ASSET PURCHASE AGREEMENT
Dated as of June 11, 1998
Among
MERRILL CORPORATION,
MERRILL/EXECUTECH, INC.
(F/K/A MERRILL ACQUISITION CORPORATION),
And
EXECUTECH, INC.,
WORLD WIDE SCAN SERVICES, LLC,
THE SHAREHOLDERS OF EXECUTECH, INC.,
And
THE MEMBERS OF WORLD WIDE SCAN SERVICES, LLC
================================================================================
<PAGE>
SECOND AMENDMENT TO ASSET PURCHASE AGREEMENT
THIS SECOND AMENDMENT TO ASSET PURCHASE AGREEMENT (this "AGREEMENT") dated
as of June 11, 1998 by and among MERRILL CORPORATION, a Minnesota corporation,
MERRILL/EXECUTECH, INC. (f/k/a MERRILL ACQUISITION CORPORATION), a Minnesota
corporation ("PURCHASE") and EXECUTECH, INC., a New York corporation
("EXECUTECH"), WORLD WIDE SCAN SERVICES, LLC, a Connecticut limited liability
company ("WORLD WIDE"), THEODORE M. DAVIS and MICHAEL Z. SPERLING (all such
entities and individuals are collectively referred to herein as the "PARTIES").
RECITALS
WHEREAS, the Parties entered into that certain Asset Purchase Agreement
dated as of June 11, 1998 (the "ASSET PURCHASE AGREEMENT"; all capitalized terms
used herein and not otherwise defined shall have the meanings ascribed to such
terms in the Asset Purchase Agreement, and all references herein to a particular
"Section" shall be deemed to refer to a Section of the Asset Purchase Agreement
unless stated otherwise to the contrary herein), pursuant to which Purchaser
purchased substantially all of Executech's and World Wide's assets;
WHEREAS, the Parties desire to delete in its entirety Exhibit 1.5 of said
Asset Purchase Agreement and to replace same with a new Exhibit 1.5 in order to
properly reflect certain modifications and corrections to the Allocation of
Purchase Price, said allocation which is more fully described in Section 1.5 of
the Asset Purchase Agreement;
WHEREAS, the Parties are willing to make such modifications and
corrections to the Exhibit 1.5 of the Asset Purchase Agreement, provided each
shall execute and deliver this Agreement.
NOW, THEREFORE, in consideration of the above premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereby agree as follows:
SECTION 1.5 SUBSTITUTION OF EXHIBIT 1.5 Exhibit 1.5 in accordance with
Section 1.5 of the Asset Purchase Agreement--entitled Merrill Corporation
Purchase Price Allocation/Opening Balance Sheet, Executech, Inc. and World Wide
Scan dated 6/11/98--2:27PM CST, shall be deemed deleted in its entirety and
replaced with a new Exhibit 1.5 in lieu thereof, a copy of which is annexed
hereto and made a part hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
MERRILL CORPORATION EXECUTECH, INC.
By: By:
--------------------------------- ------------------------------------
Its: Its:
-------------------------------- -----------------------------------
MERRILL EXECUTECH, INC. WORLD WIDE SCAN SERVICES, LLC
By: By:
--------------------------------- ------------------------------------
Its: Its:
-------------------------------- -----------------------------------
---------------------------------------
Theodore M. Davis
---------------------------------------
Michael Z. Sperling
2
<PAGE>
Sheet 1
Merrill Corporation
Purchase Price Allocation/Opening Balance Sheet
Executech, Inc. & World Wide Scan
3/16/99 10:12 AM CST
FINAL DETERMINATION
E-Tech WWS Total
----------------------------------
ASSETS PURCHASED:
- ----------------------------
Cash 79,583 10,852 90,435 CLASS I
Accounts Receivable 529,620 217,430 747,050 CLASS III
Fixed Assets 290,129 166,848 456,977 CLASS III
Value of Intangible Software 100,000 100,000 (1) CLASS III
Deposits 17,845 10,000 27,845 CLASS III
Leasehold Improvements 4,976 15,000 19,976 CLASS III
----------------------------------
Total Assets Purchased 1,022,153 420,130 1,442,283
==================================
LIABILITIES ASSUMED:
- --------------------
Accounts Payable 418,996 419,282 838,278
Accrued Expenses 5,930 5,930
Accrued Interest 2,672 2,672
Sales Tax Payable 33,581 22,798 56,379
Retainer 20,883 20,883
----------------------------------
Total Liabilities Assumed 461,179 462,963 924,142
==================================
TOTAL CONSIDERATION:
- --------------------
Cash 2,675,000 525,000 3,200,000
Liabilities Assumed 461,179 462,963 924,142
----------------------------------
3,136,179 987,963 4,124,142
==================================
SECTION 197 ASSETS:
- -------------------
Total 2,114,026 567,833 2,681,859 CLASS IV
Covenant Not To Compete 15,000 10,000 25,000 (2)
==================================
Goodwill 2,099,026 557,833 2,656,859 (1)
Total CLASS I 79,583 10,852 90,435
Total CLASS II -- -- --
Total CLASS III 942,570 409,278 1,351,848
Total CLASS IV 2,114,026 567,833 2,681,859
==================================
3,136,179 987,963 4,124,142
Page 1
<PAGE>
101 FEDERAL STREET
BOSTON, MASSACHUSETTS
OFFICE LEASE
BETWEEN
BEAMETFED, INC., a Maryland corporation ("LANDLORD"),
AND
MERRILL CORPORATION, a Minnesota corporation ("TENANT")
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
I. Basic Lease Information; Definitions .................................. 1
II. Lease Grant .......................................................... 4
III. Adjustment of Commencement Date/Possession .......................... 4
IV. Rent ................................................................. 4
V. Use ................................................................... 10
VI. Security Deposit ..................................................... 11
VII. Services to be Furnished by Landlord ................................ 11
VIII. Leasehold Improvements ............................................. 12
IX. Graphics ............................................................. 13
X. Repairs and Alterations ............................................... 13
XI. Use of Electrical Services by Tenant ................................. 14
XII. Entry by Landlord ................................................... 16
XIII. Assignment and Subletting .......................................... 16
XIV. Liens ............................................................... 18
XV. Indemnity and Waiver of Claims ....................................... 18
XVI. Tenant's Insurance .................................................. 20
XVII. Subrogation ........................................................ 21
XVIII. Landlord's Insurance .............................................. 22
XIX. Casualty Damage ..................................................... 22
XX. Demolition ........................................................... 23
XXI. Condemnation ........................................................ 24
XXII. Events of Default .................................................. 24
XXIII. Remedies .......................................................... 25
XXIV. LIMITATION OF LIABILITY ............................................ 27
XXV. No Waiver ........................................................... 28
XXVI. Event of Bankruptcy ................................................ 28
XXVII. Waiver of Jury Trial .............................................. 29
XXVIII. Relocation ....................................................... 30
XXIX. Holding Over ....................................................... 30
XXX. Subordination to Mortgages; Estoppel Certificate .................... 30
XXXI. Attorneys' Fees .................................................... 31
XXXII. Notice ............................................................ 31
XXXIII. Landlord's Lien .................................................. 31
XXXIV. Excepted Rights ................................................... 31
XXXV. Surrender of Premises .............................................. 32
XXXVI. Miscellaneous ..................................................... 32
XXXVII. Entire Agreement ................................................. 35
</TABLE>
i
<PAGE>
OFFICE LEASE AGREEMENT
This Office Lease Agreement (the "Lease") is made and entered into as of
the 30th day of July, 1998, by and between BEAMETFED, INC., a Maryland
corporation ("Landlord") and MERRILL CORPORATION, a Minnesota corporation
("Tenant").
I. Basic Lease Information; Definitions.
A. The following are some of the basic lease information and defined
terms used in this Lease.
1. "Additional Base Rental" shall mean Tenant's Pro Rata Share of
Basic Costs and any other sums (exclusive of Base Rental) that
are required to be paid by Tenant to Landlord hereunder, which
sums are deemed to be additional rent under this Lease.
Additional Base Rental and Base Rental are sometimes
collectively referred to herein as "Rent".
2. "Base Rental" shall mean the sum of Two Million Seven Hundred
One Thousand Two Hundred and 00/100 Dollars ($2,701,200.00),
payable by Tenant to Landlord in sixty (60) monthly
installments as follows:
Sixty (60) equal installments of Forty-Five Thousand
Twenty and 00/100 Dollars ($45,020.00), each payable on
or before the first day of each month during the period
beginning November 15 1998, and ending November 30,
2003, provided that the installment of Base Rental for
the first full calendar month of the Lease Term shall be
payable upon the execution of this Lease by Tenant.
3. "Building" shall mean the office building located at 101
Federal Street, County of Suffolk, Commonwealth of
Massachusetts, commonly known as 101 Federal Street.
4. The "Commencement Date," "Lease Term" and "Termination Date"
shall have the meanings set forth in subsection I.A.4.b.
below:
a. The "Lease Term" shall mean a period of sixty (60)
months, commencing on November 15, 1998 (the
"Commencement Date") and, unless sooner terminated as
provided herein, ending on November 30, 2003.;
b. Intentionally Omitted.
5. "Premises" shall mean the area located on the twenty-first
(21st) floor of the Building, as outlined on Exhibit A
attached hereto and incorporated herein. Landlord and Tenant
hereby stipulate and agree that the "Rentable Area of the
Premises" shall mean 13,506 square feet, the useable area of
the Premises shall mean 10,786 square feet and the "Rentable
Area of the Building" shall mean 553,000 square feet. If the
Premises being leased to Tenant hereunder include one or more
floors within the Building in their entirety, the definition
of Premises with respect to such full floor(s) shall include
all corridors and restroom facilities located on such
floor(s). Notwithstanding the forgoing, unless specifically
-1-
<PAGE>
provided herein to the contrary, the Premises shall not
include any telephone closets, electrical closets, janitorial
closets, equipment rooms or similar areas on any full or
partial floor that are used by Landlord for the operation of
the Building.
6. "Permitted Use" shall mean general office use.
7. "Security Deposit" shall mean $-0-.
8. "Tenant's Pro Rata Share" shall mean two and forty-four
hundredths percent (2.44%), which is the quotient (expressed
as a percentage), derived by dividing the Rentable Area of the
Premises by the Rentable Area of the Building.
9. "Guarantor(s)" shall mean None.
10. "Notice Addresses" shall mean the following addresses for
Tenant and Landlord, respectively:
Tenant:
Steve Machov, Esq.
General Counsel
Merrill Corporation
One Merrill Circle
St. Paul, Minnesota 55108
With a copy to:
Merrill Corporation
Attn: Facilities Manager
One Merrill Circle
St. Paul, Minnesota 55108
and to:
Robert Smith, Esq.
701 Fourth Avenue South
Suite 500
Minneapolis, Minnesota 55415
Landlord:
BeaMetFed, Inc.
c/o Equity Office Properties Trust
75 Federal Street
Boston, Massachusetts 02210
Attention: Building Manager
With a copy to:
Equity Office Properties Trust
Two North Riverside Plaza
Suite 2200
Chicago, Illinois 60606
Attention: General Counsel of Property Operations
Payments of Rent only shall be made payable to the order of:
Equity Office Properties
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at the following address:
EOP Operating Limited Partnership,
as Agent for BeaMetFed, Inc.
P.0. Box 30019
Hartford, Connecticut 06150-0019
B. The following are additional definitions of some of the defined
terms used in the Lease.
1. "Expenses Base Year" shall mean the 1998 calendar year for
purposes of determining Tenant's Pro Rata Share of increases
in Expenses (as hereinafter defined) and "Tax Base Year" shall
mean the fiscal year July 1, 1998 through June 30, 1999 for
purposes of determining Tenant's Pro Rata Share of increases
in Taxes (as hereinafter defined). For purposes hereof, the
term "Fiscal Year" shall mean the Tax Base Year and each
period of July 1st to June 30th thereafter.
2. "Basic Costs" shall mean all costs and expenses paid or
incurred in connection with operating, maintaining, repairing,
managing and owning the Building and the Property, as further
described in Article IV hereof.
3. "Broker" means CB Richard Ellis, Inc.
4. "Building Standard" shall mean the type, grade, brand, quality
and/or quantity of materials Landlord designates from time to
time to be the minimum quality and/or quantity to be used in
the Building.
5. "Business Day(s)" shall mean Mondays through Fridays exclusive
of the normal business holidays ("Holidays") of New Year's
Day, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. Landlord, from time to time during the
Lease Term, shall have the right to designate additional
Holidays, provided that such additional Holidays are commonly
recognized by other office buildings in the area where the
Building is located.
6. "Common Areas" shall mean those areas provided for the common
use or benefit of all tenants generally and/or the public,
such as corridors, elevator foyers, common mail rooms,
restrooms, vending areas, lobby areas (whether at ground level
or otherwise) and other similar facilities.
7. "Landlord Work" shall mean the work, if any, that Landlord is
obligated to perform in the Premises pursuant to the Work
Letter Agreement, if any, attached hereto as Exhibit D.
8. "Maximum Rate" shall mean the greatest per annum rate of
interest permitted from time to time under applicable law.
9. "Normal Business Hours" for the Building shall mean 8:00 A.M.
to 6:00 P.M. Mondays through Fridays, exclusive of Holidays.
10. "Prime Rate" shall mean the per annum interest rate publicly
announced by The First National Bank of Chicago or any
successor thereof from time to time (whether or not charged in
each instance) as its prime or base rate in Chicago, Illinois.
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11. "Property" shall mean the Building and the parcel(s) of land
on which it is located and, at Landlord's discretion, the
Building garage, if any, and all other improvements owned by
Landlord and serving the Building and the tenants thereof and
the parcel(s) of land on which they are located.
II. Lease Grant.
Subject to and upon the terms herein set forth, Landlord leases to Tenant
and Tenant leases from Landlord the Premises, together with the right, in common
with others, to use the Common Areas.
III. Adjustment of Commencement Date/Possession.
A. Intentionally Omitted.
B. Tenant shall lease the Premises "as-is", in the condition in which
the Premises are in as of the date of this Lease, without any
obligation on the part of Landlord to prepare or construct the
Premises for Tenant's occupancy, except as expressly set forth in
Exhibit D herein. By taking possession of the Premises, Tenant is
deemed to have accepted the Premises and agreed that the Premises is
in good order and satisfactory condition, with no representation or
warranty by Landlord as to the condition of the Premises or the
Building or suitability thereof for Tenant's use.
C. Intentionally Omitted.
D. If Tenant takes possession of the Premises prior to the Commencement
Date, such possession shall be subject to all the terms and
conditions of the Lease and Tenant shall pay Base Rental and
Additional Base Rental to Landlord for each day of occupancy prior
to the Commencement Date. Notwithstanding the foregoing, if Tenant,
with Landlord's prior approval, takes possession of the Premises
prior to the Commencement Date for the sole purpose of performing
any Landlord-approved improvements therein or installing furniture,
equipment or other personal property of Tenant, such possession
shall be subject to all of the terms and conditions of the Lease,
except that Tenant shall not be required to pay Base Rental or
Additional Base Rental with respect to the period of time prior to
the Commencement Date during which Tenant performs such work. Tenant
shall, however, be liable for the cost of any services (e.g.
electricity, HVAC, freight elevators) that are provided to Tenant or
the Premises during the period of Tenant's possession prior to the
Commencement Date. Nothing herein shall be construed as granting
Tenant the right to take possession of the Premises prior to the
Commencement Date, whether for construction, fixturing or any other
purpose, without the prior consent of Landlord.
IV. Rent.
A. During each calendar year, or portion thereof, falling within the
Lease Term, Tenant shall pay to Landlord as Additional Base Rental
hereunder the sum of: (1) Tenant's Pro Rata Share of the amount, if
any, by which Taxes (hereinafter defined) for the applicable Fiscal
Year exceed Taxes for the Tax Base Year plus; (2) Tenant's Pro Rata
Share of the amount, if any, by which Expenses (hereinafter defined)
for the applicable calendar year exceed Expenses for the Expenses
Base Year. For purposes hereof, "Expenses" shall mean all Basic
Costs with the exception of Taxes.
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Tenant's Pro Rata Share of increases in Taxes and Tenant's Pro Rata
Share of increases in Expenses shall be computed separate and
independent of each other prior to being added together to determine
the "Excess". In the event that Taxes in any Fiscal Year decrease
below the amount of Taxes for the Tax Base Year, Tenant's Pro Rata
Share of Taxes for such Fiscal Year shall be deemed to be $0, it
being understood that Tenant shall not be entitled to any credit or
offset if Taxes decrease below the corresponding amount for the Tax
Base Year. In the event that Expenses in any calendar year decrease
below the amount of Expenses for the Expenses Base Year, Tenant's
Pro Rata Share of Expenses for such calendar year shall be deemed to
be $0, it being understood that Tenant shall not be entitled to any
credit or offset if Expenses decrease below the corresponding amount
for the Expenses Base Year. Notwithstanding the fact that Tenant's
Pro Rata Share of increases in Taxes over the Tax Base Year is
calculated on a Fiscal Year basis, Landlord shall be entitled to
bill Tenant for such amounts following the end of each calendar year
at the same time that Tenant will be billed for its Pro Rata Share
of increases in Expenses over the Expenses Base Year. For example,
during the calendar year 2000, Tenant, on a monthly basis as
provided below, shall pay Landlord an amount equal to one-twelfth
(1/12) of the estimated amount by which Taxes for the Fiscal Year
1999 (7/1/98 - 6/30/99) will exceed Taxes for the Tax Base Year.
Following the date on which Landlord receives the quarterly tax bill
with respect to the actual amount of Taxes for Fiscal Year 2000,
Landlord, as provided below, shall provide Tenant with a
reconciliation of Tenant's actual Pro Rata Share of the amount by
which Taxes for the Fiscal Year 2000 exceed Taxes for the Tax Base
Year. Such reconciliation statement may be sent by Landlord
separately or together with Landlord's reconciliation of Tenant's
actual Pro Rata Share of the amount by which Expenses for the
calendar year 1999 exceed Expenses for the Expenses Base Year. If
the Tax Base Year is more than or less than twelve (12) months, the
Tax Base Year shall be adjusted pro-rata so that the Tax Base Year
is determined on a twelve (12) month basis. If any Fiscal Year after
the Tax Base Year is more than or less than twelve (12) months, then
such Fiscal Year shall be adjusted pro-rata so that such Fiscal Year
is determined on a twelve (12) month basis for the purposes of
calculating the Excess for such Fiscal Year.
As soon as is practical following the end of each calendar year
during the Lease Term, Landlord shall furnish to Tenant a statement
of Landlord's actual Basic Costs and the actual Excess for the
previous calendar year. Landlord shall use reasonable efforts to
furnish the statement of actual Basic Costs on or before June 1 of
the calendar year immediately following the calendar year to which
the statement applies. If the estimated Excess actually paid by
Tenant for the prior year is in excess of Tenant's actual Pro Rata
Share of the Excess for such prior year, then Landlord shall apply
such overpayment against Additional Base Rental due or to become due
hereunder, provided if the Lease Term expires prior to the
determination of such overpayment, Landlord shall refund such
overpayment to Tenant after first deducting the amount of any Rent
due hereunder. Likewise, Tenant shall pay to Landlord, within thirty
(30) days after demand, any underpayment with respect to the prior
year, whether or not the Lease has terminated prior to receipt by
Tenant of a statement for such underpayment, it being understood
that this clause shall survive the expiration of the Lease.
B. Basic Costs shall mean all costs and expenses paid or incurred in
each calendar year in connection with operating, maintaining,
repairing, managing and owning the Building and the Property,
including, but not limited to, the following:
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1. All labor costs for all persons performing services required
or utilized in connection with the operation, repair,
replacement and maintenance of and control of access to the
Building and the Property, including but not limited to
amounts incurred for wages, salaries and other compensation
for services, payroll, social security, unemployment and other
similar taxes, workers' compensation insurance, uniforms,
training, disability benefits, pensions, hospitalization,
retirement plans, group insurance or any other similar or like
expenses or benefits.
2. All management fees, the cost of equipping and maintaining a
management office at the Building, accounting services, legal
fees not attributable to leasing and collection activity, and
all other administrative costs relating to the Building and
the Property. If management services are not provided by a
third party, Landlord shall be entitled to a management fee
comparable to that due and payable to third parties provided
Landlord or management companies owned by, or management
divisions of, Landlord perform actual management services of a
comparable nature and type as normally would be performed by
third parties.
3. All rental and/or purchase costs of materials, supplies, tools
and equipment used in the operation, repair, replacement and
maintenance and the control of access to the Building and the
Property.
4. All amounts charged to Landlord by contractors and/or
suppliers for services, replacement parts, components,
materials, equipment and supplies furnished in connection with
the operation, repair, maintenance, replacement of and control
of access to any part of the Building, or the Property
generally, including the heating, air conditioning,
ventilating, plumbing, electrical, elevator and other systems
and equipment. At Landlord's option, major repair items may be
amortized over a period of up to five (5) years.
5. All premiums and deductibles paid by Landlord for fire and
extended coverage insurance, earthquake and extended coverage
insurance, liability and extended coverage insurance, rental
loss insurance, elevator insurance, boiler insurance and other
insurance customarily carried from time to time by landlords
of comparable office buildings or required to be carried by
Landlord's Mortgagee.
6. Charges for water, gas, steam and sewer, but excluding those
charges for which Landlord is otherwise reimbursed by tenants,
and charges for Electrical Costs. For purposes hereof, the
term "Electrical Costs" shall mean: (i) all charges paid by
Landlord for electricity supplied to the Building, Property
and Premises, regardless of whether such charges are
characterized as distribution charges, transmission charges,
generation charges, public good charges, disconnection
charges, competitive transaction charges, stranded cost
recoveries or otherwise; (ii) except to the extent otherwise
included in Basic Costs, any costs incurred in connection with
the energy management program for the Building, Property and
Premises, including any costs incurred for the replacement of
lights and ballasts and the purchase and installation of
sensors and other energy saving equipment; and (iii) if and to
the extent permitted by law, a reasonable fee for the services
provided by Landlord in connection with the selection of
utility companies and
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the negotiation and administration of contracts for the
generation of electricity. Notwithstanding the foregoing,
Electrical Costs shall be adjusted as follows: (a) any amounts
received by Landlord as reimbursement for above standard
electrical consumption shall be deducted from Electrical
Costs, (b) the cost of electricity incurred in providing
overtime HVAC to specific tenants shall be deducted from
Electrical Costs, it being agreed that the electrical
component of overtime HVAC Costs shall be calculated as a
reasonable percentage of the total HVAC costs charged to such
tenants, and (c) if Tenant is billed directly for the cost of
electricity to the Premises as a separate charge in addition
to Base Rental and Basic Costs, the cost of electricity to
individual tenant spaces in the Building shall be deducted
from Electrical Costs.
7. "Taxes", which for purposes hereof, shall mean: (a) all real
estate taxes and assessments on the Property, the Building or
the Premises, and taxes and assessments levied in substitution
or supplementation in whole or in part of such taxes, (b) all
personal property taxes for the Building's personal property,
including license expenses, (c) all taxes imposed on services
of Landlord's agents and employees, (d) all other taxes, fees
or assessments now or hereafter levied by any governmental
authority on the Property, the Building or its contents or on
the operation and use thereof (except as relate to specific
tenants), and (e) all costs and fees incurred in connection
with seeking reductions in or refunds in Taxes including,
without limitation, any costs incurred by Landlord to
challenge the tax valuation of the Building, but excluding
income taxes. For the purpose of determining real estate taxes
and assessments for any given Fiscal Year, the amount to be
included in Taxes for such year shall be as follows: (1) with
respect to any special assessment that is payable in
installments, Taxes for such year shall include the amount of
the installment (and any interest) due and payable during such
Fiscal Year; and (2) with respect to all other real estate
taxes, Taxes for such Fiscal Year shall include the amount due
and payable for such Fiscal Year. If a reduction in Taxes is
obtained for any Fiscal Year of the Lease Term during which
Tenant paid its Pro Rata Share of Basic Costs, then Basic
Costs for such year will be retroactively adjusted and
Landlord shall provide Tenant with a credit, if any, based on
such adjustment. Likewise, if d reduction is subsequently
obtained for Taxes for the Tax Base Year, Basic Costs for the
Tax Base Year shall be restated and the Excess for all
subsequent years recomputed. Tenant shall pay to Landlord
Tenant's Pro Rata Share of any such increase in the Excess
within thirty (30) days after Tenant's receipt of a statement
therefor from Landlord.
8. All landscape expenses and costs of maintaining, repairing,
resurfacing and striping of the parking areas and garages of
the Property, if any.
9. Cost of all maintenance service agreements, including those
for equipment, alarm service, window cleaning, drapery or
venetian blind cleaning, janitorial services, pest control,
uniform supply, plant maintenance, landscaping, and any
parking equipment.
10. Cost of all other repairs, replacements and general
maintenance of the Property and Building neither specified
above nor directly billed to tenants.
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11. The amortized cost of capital improvements made to the
Building or the Property which are: (a) primarily for the
purpose of reducing operating expense costs or otherwise
improving the operating efficiency of the Property or
Building; or (b) required to comply with any laws, rules or
regulations of any governmental authority or a requirement of
Landlord's insurance carrier. The cost of such capital
improvements shall be amortized over a period of five (5)
years and shall, at Landlord's option, include interest at a
rate that is reasonably equivalent to the interest rate that
Landlord would be required to pay to finance the cost of the
capital improvement in question as of the date such capital
improvement is performed, provided if the payback period for
any capital improvement is less than five (5) years, Landlord
may amortize the cost of such capital improvement over the
payback period.
12. Any other expense or charge of any nature whatsoever which, in
accordance with general industry practice with respect to the
operation of a first-class office building, would be construed
as an operating expense.
Basic Costs shall not include the cost of capital improvements
(except as set forth above and as distinguished from replacement
parts or components purchased and installed in the ordinary course),
depreciation, interest (except as provided above with respect to the
amortization of capital improvements), lease commissions, and
principal payments on mortgage and other non-operating debts of
Landlord. In addition, if Landlord incurs any common Expenses in
connection with the Building and one or more other buildings, the
cost of such Expenses shall be equitably prorated between the
Building and such other buildings. If the Building is not at least
ninety-five percent (95%) occupied during any calendar year of the
Lease Term or if Landlord is not supplying services to at least
ninety-five percent (95%) of the total Rentable Area of the Building
at any time during any calendar year of the Lease Term, actual Basic
Costs for purposes hereof shall, at Landlord's option, be determined
as if the Building had been ninety-five percent (95%) occupied and
Landlord had been supplying services to ninety-five percent (95%) of
the Rentable Area of the Building during such year. If Tenant pays
for its Pro Rata Share of Basic Costs based on increases over a
"Base Year" and Basic Costs for any calendar year during the Lease
Term are determined as provided in the foregoing sentence, Basic
Costs for such Base Year shall also be determined as if the Building
had been ninety-five percent (95%) occupied and Landlord had been
supplying services to ninety-five percent (95%) of the Rentable Area
of the Building. Any necessary extrapolation of Basic Costs under
this Article shall be performed by adjusting the cost of those
components of Basic Costs that are impacted by changes in the
occupancy of the Building (including, at Landlord's option, Taxes)
to the cost that would have been incurred if the Building had been
ninety-five percent (95%) occupied and Landlord had been supplying
services to ninety-five percent (95%) of the Rentable Area of the
Building. In addition, if Tenant's Pro Rata Share of Basic Costs is
determined based upon increases over a Base Year and Basic Costs for
the Base Year include exit and disconnection fees, stranded cost
charges and/or competitive transaction charges, such fees and
charges may, at Landlord's option, be imputed as a Basic Cost for
subsequent years in which such fees and charges are not incurred. In
no event, however, shall the amount of such imputed fees and charges
exceed the actual amount of exit and disconnection fees, stranded
cost charges and/or competitive transaction charges that were
actually included in Basic Costs for the Base Year.
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C. If Basic Costs for any calendar year increase by more than five
percent (5%) over Basic Costs for the immediately preceding calendar
year, Tenant, within ninety (90) days after receiving Landlord's
statement of actual Basic Costs for a particular calendar year,
shall have the right to provide Landlord with written notice (the
"Review Notice") of its intent to review Landlord's books and
records relating to the Basic Costs for such calendar year. Within a
reasonable time after receipt of a timely Review Notice, Landlord
shall make such books and records available to Tenant or Tenant's
agent for its review at either Landlord's home office or at the
office of the Building, provided that if Tenant retains an agent to
review Landlord's books and records for any calendar year, such
agent must be a CPA firm licensed to do business in the state in
which the Building is located and must not be paid on a contingent
fee basis. Tenant shall be solely responsible for any and all costs,
expenses and fees incurred by Tenant or Tenant's agent in connection
with such review. If Tenant elects to review Landlord's books and
records, within thirty (30) days after such books and records are
made available to Tenant, Tenant shall have the right to give
Landlord written notice stating in reasonable detail any objection
to Landlord's statement of actual Basic Costs for such calendar
year. If Tenant fails to give Landlord written notice of objection
within such thirty (30) day period or fails to provide Landlord with
a Review Notice within the ninety (90) day period provided above,
Tenant shall be deemed to have approved Landlord's statement of
Basic Costs in all respects and shall thereafter be barred from
raising any claims with respect thereto. Upon Landlord's receipt of
a timely objection notice from Tenant, Landlord and Tenant shall
work together in good faith to resolve the discrepancy between
Landlord's statement and Tenant's review. If Landlord and Tenant
determine that Basic Costs for the calendar year in question are
less than reported, Landlord shall provide Tenant with a credit
against future Additional Base Rental in the amount of any
overpayment by Tenant. Likewise, if Landlord and Tenant determine
that Basic Costs for the calendar year in question are greater than
reported, Tenant shall forthwith pay to Landlord the amount of
underpayment by Tenant. Any information obtained by Tenant pursuant
to the provisions of this Section shall be treated as confidential.
Notwithstanding anything herein to the contrary, Tenant shall not be
permitted to examine Landlord's books and records or to dispute any
statement of Basic Costs unless Tenant has paid to Landlord the
amount due as shown on Landlord's statement of actual Basic Costs,
said payment being a condition precedent to Tenant's right to
examine Landlord's books and records.
D. Tenant covenants and agrees to pay to Landlord during the Lease
Term, without any setoff or deduction whatsoever, except as
expressly set forth in Exhibit D, the full amount of all Base
Rental, as additional rent, and Additional Base Rental due
hereunder. In addition, Tenant shall pay and be liable for, as
additional rent, all rental, sales and use taxes or other similar
taxes, if any, levied or imposed by any city, state, county or other
governmental body having authority, such payments to be in addition
to all other payments required to be paid to Landlord by Tenant
under the terms and conditions of this Lease. Any such payments
shall be paid concurrently with the payments of the Rent on which
the tax is based. The Base Rental, Tenant's Pro Rata Share of Basic
Costs and any recurring monthly charges due hereunder shall be due
and payable in advance on the first day of each calendar month
during the Lease Term without demand, provided that the installment
of Base Rental for the first full calendar month of the Lease Term
shall be payable upon the execution of this Lease by Tenant. All
other items of Rent shall be due and payable by Tenant on or before
ten (10) days after billing by Landlord. Notwithstanding the
foregoing, any charges which are not fixed amounts and for which
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Landlord must bill Tenant, such as year-end adjustment of Tenant's
Pro Rata Share of Basic Costs (as opposed to estimated payments due
monthly), shall be paid by Tenant within twenty (20) days after the
date Tenant receives the bill for such charges. If the Lease Term
commences on a day other than the first day of a calendar month or
terminates on a day other than the last day of a calendar month,
then the monthly Base Rental and Tenant's Pro Rata Share of Basic
Costs for such month shall be prorated for the number of days in
such month occurring within the Lease Term based on a fraction, the
numerator of which is the number of days of the Lease Term that fell
within such calendar month and the denominator of which is thirty
(30). All such payments shall be by a good and sufficient check. No
payment by Tenant or receipt or acceptance by Landlord of a lesser
amount than the correct amount of Rent due under this Lease shall be
deemed to be other than a payment on account of the earliest Rent
due hereunder, nor shall any endorsement or statement on any check
or any letter accompanying any check or payment be deemed an accord
and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance or
pursue any other available remedy. The acceptance by Landlord of any
Rent on a date after the due date of such payment shall not be
construed to be a waiver of Landlord's right to declare a default
for any other late payment. Tenant's covenant to pay Rent shall be
independent of every other covenant set forth in this Lease.
E. All Rent not paid when due and payable shall bear interest from the
date due until paid at the lesser of: (1) eighteen percent (18%) per
annum; or (2) the Maximum Rate, provided Tenant shall be entitled to
a grace period of five (5) days with respect to the first two (2)
late payments in any calendar year. In addition, if Tenant fails to
pay any installment of Rent when due and payable hereunder, a
service fee equal to five percent (5%) of such unpaid amount will be
due and payable immediately by Tenant to Landlord, provided Tenant
shall be entitled to a grace period of five (5) days with respect to
the first two (2) late payments in any calendar year.
F. Intentionally Omitted.
V. Use.
The Premises shall be used for the Permitted Use and for no other purpose.
Tenant agrees not to use or permit the use of the Premises for any purpose which
is illegal, dangerous to life, limb or property or which, in Landlord's
reasonable opinion, creates a nuisance or which would increase the cost of
insurance coverage with respect to the Building. Tenant shall conduct its
business and control its agents, servants, contractors, employees, customers,
licensees, and invitees in such a manner as not to interfere with, annoy or
disturb other tenants, or in any way interfere with Landlord in the management
and operation of the Building. Tenant will maintain the Premises in a clean and
healthful condition, and comply with all laws, ordinances, orders, rules and
regulations of any governmental entity with reference to the operation of
Tenant's business and to the use, condition, configuration or occupancy of the
Premises, including without limitation, the Americans with Disabilities Act
(collectively referred to as "Laws"). Tenant, within ten (10) days after receipt
thereof, shall provide Landlord with copies of any notices it receives with
respect to a violation or alleged violation of any Laws. Tenant shall reimburse
and compensate Landlord for all expenditures made by, or damages or fines
sustained or incurred by, Landlord due to any violations of Laws by Tenant or
any Tenant Related Parties with respect to the Premises. Tenant will comply with
the rules and regulations of the Building attached hereto as Exhibit B and such
other rules and regulations adopted and altered by Landlord from time to time
and will cause all of its agents, servants, contractors, employees, customers,
licensees and invitees to do so. All changes to such rules and regulations will
be reasonable and shall be sent by
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Landlord to Tenant in writing.
VI. Security Deposit.
Intentionally Omitted.
VII. Services to be Furnished by Landlord.
A. Landlord, as part of Basic Costs (except as otherwise provided),
agrees to furnish Tenant the following services:
1. Water for use in the lavatories on the floor(s) on which the
Premises is located. If Tenant desires water in the Premises
for any approved reason, including a private lavatory or
kitchen, cold water shall be supplied, at Tenant's sole cost
and expense, from the Building water main through a line and
fixtures installed at Tenant's sole cost and expense with the
prior reasonable consent of Landlord. If Tenant desires hot
water in the Premises, Tenant, at its sole cost and expense
and subject to the prior reasonable consent of Landlord, may
install a hot water heater in the Premises. Tenant shall be
solely responsible for maintenance and repair of any such hot
water heater.
2. Central heat and air conditioning in season during Normal
Business Hours, at such temperatures and in such amounts as
are considered by Landlord, in its reasonable judgment, to be
standard for buildings of similar class, size, age and
location, or as required by governmental authority. In the
event that Tenant requires central heat, ventilation or air
conditioning at hours other than Normal Business Hours, such
central heat, ventilation or air conditioning shall be
furnished only upon the written request of Tenant delivered to
Landlord at the office of the Building prior to 3:00 P.M. at
least one Business Day in advance of the date for which such
usage is requested. Tenant shall pay Landlord, as Additional
Base Rental, the entire cost of additional service as such
costs are determined by Landlord from time to time, Landlord
acknowledges that Tenant will operate its business and use the
Premises 24 hours per day up to seven (7) days per week.
Provided that Landlord first approves Tenant's plans and
specifications therefor pursuant to and in accordance with
Article X.B hereof, Tenant shall have the right to install, at
Tenant's sole cost and expense, a supplemental HVAC system
which Tenant intends to use after Normal Business Hours.
Tenant shall, at Tenant's sole cost and expense, be
responsible for the repair, maintenance and operating expenses
of the supplemental HVAC system.
3. Maintenance and repair of all Common Areas in the manner and
to the extent reasonably deemed by Landlord to be standard for
buildings of similar class, size, age and location.
4. Janitor service on Business Days; provided, however, if
Tenant's use, floor covering or other improvements require
special services, Tenant shall pay the additional cost
reasonably attributable thereto as Additional Base Rental.
5. Passenger elevator service in common with other tenants of the
Building.
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6. Electricity to the Premises for general office use, in
accordance with and subject to the terms and conditions set
forth in Article XI of this Lease.
B. The failure by Landlord to any extent to furnish, or the
interruption or termination of, any services in whole or in part,
resulting from adherence to laws, regulations and administrative
orders, wear, use, repairs, improvements, alterations or any causes
beyond the reasonable control of Landlord shall not render Landlord
liable in any respect nor be construed as a constructive eviction of
Tenant, nor give rise to an abatement of Rent, nor relieve Tenant
from the obligation to fulfill any covenant or agreement hereof.
Should any of the equipment or machinery used in the provision of
such services for any cause cease to function properly, Landlord
shall use reasonable diligence to repair such equipment or
machinery. Notwithstanding anything to the contrary contained in
this Section VII.B. if: (i) Landlord ceases to furnish any service
in the Building for a period in excess of five (5) consecutive days
after Tenant notifies Landlord of such cessation (the "Interruption
Notice"); (ii) such cessation does not arise as a result of an act
or omission of Tenant; (iii) such cessation is not caused by a fire
or other casualty (in which case Article XIX shall control); (iv)
the restoration of such service is reasonably within the control of
Landlord; and (v) as a result of such cessation, the Premises or a
material portion thereof, is rendered untenantable (meaning that
Tenant is unable to use the Premises in the normal course of its
business) and Tenant in fact ceases to use the Premises, or material
portion thereof, then Tenant, as its sole remedy, shall be entitled
to receive an abatement of Base Rental payable hereunder during the
period beginning on the sixth (6th) consecutive day of such
cessation and ending on the day when the service in question has
been restored. In the event the entire Premises has not been
rendered untenantable by the cessation in service, the amount of
abatement that Tenant is entitled to receive shall be prorated based
upon the percentage of the Premises so rendered untenantable and not
used by Tenant.
C. Tenant expressly acknowledges that if Landlord, from time to time,
elects to provide security services, Landlord shall not be deemed to
have warranted the efficiency of any security personnel, service,
procedures or equipment and Landlord shall not be liable in any
manner for the failure of any such security personnel, services,
procedures or equipment to prevent or control, or apprehend anyone
suspected of personal injury, property damage or any criminal
conduct in, on or around the Property.
VIII. Leasehold Improvements.
Any trade fixtures, unattached and movable equipment or furniture, or
other personalty brought into the Premises by Tenant ("Tenant's Property")
shall be owned and insured by Tenant. Tenant shall remove all such Tenant's
Property from the Premises in accordance with the terms of Article XXXV hereof.
Any and all alterations, additions and improvements to the Premises, including
any built-in furniture (collectively, "Leasehold Improvements") shall be owned
and insured by Landlord and shall remain upon the Premises, all without
compensation, allowance or credit to Tenant. Landlord may, nonetheless, at any
time prior to, or within six (6) months after, the expiration or earlier
termination of this Lease or Tenant's right to possession, require Tenant to
remove any Leasehold Improvements performed by or for the benefit of Tenant and
all electronic, phone and data cabling as are designated by Landlord (the
"Required Removables") at Tenant's sole cost. In the event that Landlord so
elects, Tenant shall remove such Required Removables within fifteen (15) days
after notice from Landlord, provided that in no event shall Tenant be required
to remove such Required Removables prior to the expiration or earlier
termination of this Lease or Tenant's right to possession. In addition to
Tenant's obligation to remove the Required Removables, Tenant shall repair any
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damage caused by such removal and perform such other work as is reasonably
necessary to restore the Premises to a "move in" condition. If Tenant fails to
remove any specified Required Removables or to perform any required repairs and
restoration within the time period specified above, Landlord, at Tenant's sole
cost and expense, may remove, store, sell and/or dispose of the Required
Removables and perform such required repairs and restoration work. Tenant,
within five (5) days after demand from Landlord, shall reimburse Landlord for
any and all reasonable costs incurred by Landlord in connection with the
Required Removables. Notwithstanding the foregoing, Tenant may request in
writing at the time it submits its plans and specifications for an alteration,
addition or improvement, that Landlord advise Tenant whether Landlord will
require Tenant to remove, at the termination of this Lease or Tenant's right to
possession hereunder, such alteration, addition or improvement, or any
particular portion thereof and Landlord shall advise Tenant within twenty (20)
days after receipt of Tenant's request as to whether Landlord will require
removal; provided, however, Landlord shall have the right to require Tenant to
remove any vault, stairway, raised floor or structural alterations installed in
the Premises, regardless of whether Landlord timely notified Tenant that it
would require such removal.
IX. Graphics.
Landlord shall provide and install, at Tenant's cost, any suite numbers
and Tenant identification on the exterior of the Premises using the standard
graphics for the Building. Tenant shall not be permitted to install any signs or
other identification without Landlord's prior written consent.
X. Repairs and Alterations.
A. Except to the extent such obligations are imposed upon Landlord
hereunder, Tenant, at its sole cost and expense, shall perform all
maintenance and repairs to the Premises as are necessary to keep the
same in good condition and repair throughout the entire Lease Term,
reasonable wear and tear excepted. Tenant's repair and maintenance
obligations with respect to the Premises shall include, without
limitation, any necessary repairs with respect to: (1) any carpet or
other floor covering, (2) any interior partitions, (3) any doors,
(4) the interior side of any demising walls, (5) any telephone and
computer cabling that serves Tenant's equipment exclusively, (6) any
supplemental air conditioning units, private showers and kitchens,
including any plumbing in connection therewith, and similar
facilities serving Tenant exclusively, and (7) any alterations,
additions or improvements performed by contractors retained by
Tenant. All such work shall be performed in accordance with section
X.B. below and the rules, policies and procedures reasonably enacted
by Landlord from time to time for the performance of work in the
Building. If Tenant fails to make any necessary repairs to the
Premises, Landlord may, at its option, make such repairs, and Tenant
shall pay the cost thereof to the Landlord on demand as Additional
Base Rental, together with an administrative charge in an amount
equal to ten percent (10%) of the cost of such repairs. Landlord
shall, at its expense (except as included in Basic Costs), keep and
maintain in good repair and working order and make all repairs to
and perform necessary maintenance upon: (a) all structural elements
of the Building; and (b) all mechanical, electrical and plumbing
systems that serve the Building in general; and (c) the Building
facilities common to all tenants including, but not limited to, the
ceilings, walls and floors in the Common Areas. In addition,
Landlord may elect, at the expense of Tenant, to repair any damage
or injury to the Building caused by moving property of Tenant in or
out of the Building, or by installation or removal of furniture or
other property, or by misuse by, or neglect, or
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improper conduct of, Tenant or any Tenant Related Parties
(hereinafter defined).
B. Tenant shall not make or allow to be made any alterations, additions
or improvements to the Premises without first obtaining the written
consent of Landlord in each such instance, which consent shall not
be unreasonably withheld or delayed except that, with respect to
matters of aesthetics, Landlord may withhold its consent in
Landlord's sole discretion. Prior to commencing any such work and as
a condition to obtaining Landlord's consent, Tenant must furnish
Landlord with plans and specifications reasonably acceptable to
Landlord; names and addresses of contractors reasonably acceptable
to Landlord; copies of contracts; necessary permits and approvals;
evidence of contractor's and subcontractor's insurance in accordance
with Article XVI section B hereof; and payment bond or other
security, all in form and amount satisfactory to Landlord. All such
improvements, alterations or additions shall be constructed in a
good and workmanlike manner using Building Standard materials or
other new materials of equal or greater quality. Landlord, to the
extent reasonably necessary to avoid any disruption to the tenants
and occupants of the Building, shall have the right to designate the
time when any such alterations, additions and improvements may be
performed and to otherwise designate reasonable rules, regulations
and procedures for the performance of work in the Building. Upon
completion, Tenant shall furnish "as-built" plans, contractor's
affidavits and full and final waivers of lien and receipted bills
covering all labor and materials. All improvements, alterations and
additions shall comply with all insurance requirements, codes,
ordinances, laws and regulations, including without limitation, the
Americans with Disabilities Act. Tenant shall reimburse Landlord
upon demand as Additional Base Rental for all sums, if any, expended
by Landlord for third party examination of the architectural,
mechanical, electric and plumbing plans for any alterations,
additions or improvements. In addition, if Landlord so requests,
Landlord shall be entitled to oversee the construction of any
alterations, additions or improvements that may affect the structure
of the Building or any of the mechanical, electrical, plumbing or
life safety systems of the Building. In the event Landlord elects to
oversee such work, Landlord shall be entitled to receive a fee for
such oversight in an amount equal to five percent (5%) of the cost
of such alterations, additions or improvements. Landlord's approval
of Tenant's plans and specifications for any work performed for or
on behalf of Tenant shall not be deemed to be a representation by
Landlord that such plans and specifications comply with applicable
insurance requirements, building codes, ordinances, laws or
regulations or that the alterations, additions and improvements
constructed in accordance with such plans and specifications will be
adequate for Tenant's use. Tenant shall pay, as an additional
charge, the entire increase in real estate taxes on the Building
which shall, at any time prior to or after the Commencement Date,
result from or be attributable to any alteration, addition or
improvement to the Premises made by or for the account of Tenant in
excess of the Building Standard improvements for the Building.
XI. Use of Electrical Services by Tenant.
A. The parties acknowledge that the consumption of electricity in the
Premises (other than electricity consumed for the purposes of
providing the services which Landlord is required to provide
hereunder) will be measured by a separate sub-meter installed in the
Premises. Tenant shall reimburse Landlord for the entire cost of
such electric current as follows:
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1. Commencing as of the Commencement Date and continuing until
the procedures set forth in Subparagraph 2 of this Paragraph A
are effected, Tenant shall pay to Landlord at the same time
and in the same manner that it pays its monthly payments of
Base Rental hereunder, estimated monthly payments on account
of Tenant's obligation to reimburse Landlord for electricity
consumed in the Premises.
2. Periodically after the Commencement Date, Landlord shall
determine the actual cost of electricity consumed by Tenant in
the premises (i.e. by reading Tenant's sub-meter and by
applying the actual monthly electric rate(s) applicable to the
preceding period). If the total of Tenant's estimated monthly
payments on account of such period is less than the actual
cost of electricity consumed in the premises during such
period, Tenant shall pay the difference to Landlord when
billed therefor. If the total of Tenant's estimated monthly
payments on account of such period is greater than the actual
cost of electricity consumed in the premises during such
period, Tenant may credit the difference against its next
installment of rental or other charges due hereunder.
3. After each adjustment, as set forth in Paragraph 2 above, the
amount of estimated monthly payments on account of Tenant's
obligation to reimburse Landlord for electricity in the
premises shall be adjusted based upon the actual cost of
electricity consumed during the immediately preceding period.
It is understood that electrical service to the Premises may be
furnished by one or more companies providing electrical generation,
transmission and/or distribution services and that the cost of
electricity may be billed as a single charge or divided into and
billed in a variety of categories such as distribution charges,
transmission charges, generation charges, public good charges or
other similar categories. Landlord shall have the exclusive right to
select the company(ies) providing electrical service to the
Building, Premises and Property, to aggregate the electrical service
for the Building, Premises and Property with other buildings, to
purchase electricity for the Building, Premises and Property through
a broker and/or buyers group and to change the providers and/or
manner of purchasing electricity from time to time. Landlord shall
be entitled to receive a reasonable fee (if permitted by law) for
the services provided by Landlord in connection with the selection
of utility companies and the negotiation and administration of
contracts for the generation of electricity. In addition, if
Landlord bills Tenant directly for the cost of electricity as
Additional Base Rental, the cost of electricity may include (if
permitted by law) an administrative fee to reimburse Landlord for
the cost of reading meters, preparing invoices and related costs.
B. Tenant's use of electrical service in the Premises shall not exceed,
either in voltage, rated capacity, use beyond Normal Business Hours
or overall load, that which Landlord deems to be standard for the
Building. In the event Tenant shall consume (or request that it be
allowed to consume) electrical service in excess of that deemed by
Landlord to be standard for the Building, Landlord may refuse to
consent to such excess usage or may condition its consent to such
excess usage upon such conditions as Landlord reasonably elects
(including the installation of utility service upgrades, submeters,
air handlers or cooling units), and all such additional usage (to
the extent permitted by law), installation and maintenance thereof
shall be paid for by Tenant as Additional Base Rental. Landlord, at
any time during the Lease Term, shall have the right to separately
meter
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electrical usage for the Premises or to measure electrical usage by
survey or any other method that Landlord, in its reasonable
judgment, deems to be appropriate. Landlord acknowledges that Tenant
will operate its business and use the Premises 24 hours per day up
to seven (7) days per week. As a result, Tenant will use electrical
service beyond Normal Business Hours and Landlord hereby consents to
such use, provided that such use does not adversely affect any of
the Building systems.
C. Notwithstanding Section A. above to the contrary, if Landlord
permits Tenant to purchase electrical power for the Premises from a
provider other than Landlord's designated company(ies), such
provider shall be considered to be a contractor of Tenant and Tenant
shall indemnify and hold Landlord harmless from such provider's acts
and omissions while in, or in connection with their services to, the
Building or Premises in accordance with the terms and conditions of
Article XV. In addition, at the request of Landlord, Tenant shall
allow Landlord to purchase electricity from Tenant's provider at
Tenant's rate or at such lower rate as can be negotiated by the
aggregation of Landlord's and Tenant's requirements for electricity
power.
XII. Entry by Landlord.
Landlord and its agents or representatives shall have the right to enter
the Premises to inspect the same, or to show the Premises to prospective
purchasers, mortgagees, tenants (during the last twelve months of the Lease Term
or earlier in connection with a potential relocation) or insurers, or to clean
or make repairs, alterations or additions thereto, including any work that
Landlord deems necessary for the safety, protection or preservation of the
Building or any occupants thereof, or to facilitate repairs, alterations or
additions to the Building or any other tenants' premises. Except for any entry
by Landlord in an emergency situation or to provide normal cleaning and
janitorial service, Landlord shall provide Tenant with reasonable prior notice
of any entry into the Premises, which notice may be given verbally. If
reasonably necessary for the protection and safety of Tenant and its employees,
Landlord shall have the right to temporarily close the Premises to perform
repairs, alterations or additions in the Premises, provided that Landlord shall
use reasonable efforts to perform all such work on weekends and after Normal
Business Hours. Entry by Landlord hereunder shall not constitute a constructive
eviction or entitle Tenant to any abatement or reduction of Rent by reason
thereof. Notwithstanding the foregoing, except in emergency situations as
determined by Landlord, Landlord shall exercise reasonable efforts to perform
any entry into the Premises in a manner that is reasonably designed to minimize
interference with the operation of Tenant's business in the Premises.
XIII. Assignment and Subletting.
A. Tenant shall not assign, sublease, transfer or encumber this Lease
or any interest therein or grant any license, concession or other
right of occupancy of the Premises or any portion thereof or
otherwise permit the use of the Premises or any portion thereof by
any party other than Tenant (any of which events is hereinafter
called a "Transfer") without the prior written consent of Landlord,
which consent shall not be unreasonably withheld with respect to any
proposed assignment or subletting. Landlord's consent shall not be
considered unreasonably withheld if: (1) the proposed transferee's
financial responsibility does not meet the same criteria Landlord
uses to select Building tenants; (2) the proposed transferee's
business is not suitable for the Building considering the business
of the other tenants and the Building's prestige or would result in
a violation of an exclusive right granted to another tenant in the
Building; (3) the proposed use is different than the Permitted Use;
(4) the proposed
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transferee is a government agency or occupant of the Building; (5)
Tenant is in default; (6) any portion of the Building or Premises
would become subject to additional or different governmental laws or
regulations as a consequence of the proposed Transfer and/or the
proposed transferee's use and occupancy of the Premises; or (7)
Landlord has commenced negotiations with the proposed transferee for
other space in the Building. Tenant acknowledges that the foregoing
is not intended to be an exclusive list of the reasons for which
Landlord may reasonably withhold its consent to a proposed Transfer.
Tenant covenants and agrees that it will not advertise the Premises,
or any portion thereof, for sublet or assignment for a rental rate
which is lower than the rental rate then being offered by Landlord
for comparable space in the Building. Any attempted Transfer in
violation of the terms of this Article shall, at Landlord's option,
be void. Consent by Landlord to one or more Transfers shall not
operate as a waiver of Landlord's rights as to any subsequent
Transfers. In addition, Tenant shall not, without Landlord's
consent, publicly advertise the proposed rental rate for any
Transfer.
B. If Tenant requests Landlord's consent to a Transfer, Tenant,
together with such request for consent, shall provide Landlord with
the name of the proposed transferee and the nature of the business
of the proposed transferee, the term, use, rental rate and all other
material terms and conditions of the proposed Transfer, including,
without limitation, a copy of the proposed assignment, sublease or
other contractual documents and evidence satisfactory to Landlord
that the proposed transferee is financially responsible.
Notwithstanding Landlord's agreement to act reasonably under Section
XIII.A. above, Landlord may, within thirty (30) days after its
receipt of all information and documentation required herein,
either, (1) consent to or reasonably refuse to consent to such
Transfer in writing; or (2) negotiate directly with the proposed
transferee and in the event Landlord is able to reach an agreement
with such proposed transferee, terminate this Lease (in part or in
whole, as appropriate) upon thirty (30) days' notice; or (3) cancel
and terminate this Lease, in whole or in part as appropriate, upon
thirty (30) days' notice. In the event Landlord consents to any such
Transfer, the Transfer and consent thereto shall be in a form
approved by Landlord, and Tenant shall bear all reasonable costs and
expenses incurred by Landlord in connection with the review and
approval of such documentation ("Review and Approval Costs"), which
Review and Approval Costs shall be deemed to be at least Seven
Hundred Fifty Dollars ($750.00). Notwithstanding the foregoing,
provided that Tenant does not request any changes to this Lease or
Landlord's standard form of consent in connection with the proposed
transfer, such Review and Approval Costs shall not exceed Seven
Hundred Fifty Dollars ($750.00).
C. Fifty percent (50%) of all cash or other proceeds (the "Transfer
Consideration") of any Transfer of Tenant's interest in this Lease
and/or the Premises, whether consented to by Landlord or not, shall
be paid to Landlord and Tenant hereby assigns all rights it might
have or ever acquire in any such proceeds to Landlord. In addition
to the Rent hereunder, Tenant hereby covenants and agrees to pay to
Landlord fifty percent (50%) of all rent and other consideration
which it receives which is in excess of the Rent payable hereunder
within ten (10) days following receipt thereof by Tenant. In
determining excess rent in connection with an assignment or
subletting, Tenant may, on an amortized basis over the term of the
sublease or assignment, deduct the following expenditures resulting
from such subletting or assignment: (1) brokerage and marketing
fees; (2) legal fees (including the Review and Approval Costs); and
(3) construction costs. In addition to any other rights Landlord may
have, Landlord shall have the right to contact any transferee and
require that all payments made
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pursuant to the Transfer shall be made directly to Landlord, except
that Landlord shall have no right to collect rent from subtenants
and other occupants of the Premises other than an assignee, except
during such times as Tenant is in default of its obligations under
the Lease, beyond the expiration of applicable notice and grace
periods.
D. If Tenant is a corporation, limited liability company or similar
entity, and if at any time during the Lease Term the entity or
entities who own the voting shares at the time of the execution of
this Lease cease for any reason (including but not limited to
merger, consolidation or other reorganization involving another
corporation) to own a majority of such shares, or if Tenant is a
partnership and if at any time during the Lease Term the general
partner or partners who own the general partnership interests in the
partnership at the time of the execution of this Lease, cease for
any reason to own a majority of such interests (except as the result
of transfers by gift, bequest or inheritance to or for the benefit
of members of the immediate family of such original shareholder[s]
or partner[s]), such an event shall be deemed to be a Transfer. The
preceding sentence shall not apply whenever Tenant is a corporation,
the outstanding stock of which is listed on a recognized security
exchange, or if at least eighty percent (80%) of its voting stock is
owned by another corporation, the voting stock of which is so
listed.
E. Any Transfer consented to by Landlord in accordance with this
Article XIII shall be only for the Permitted Use and for no other
purpose. In no event shall any Transfer release or relieve Tenant or
any Guarantors from any obligations under this Lease.
XIV. Liens.
Tenant will not permit any mechanic's liens or other liens to be placed
upon the Premises or Tenant's leasehold interest therein, the Building, or the
Property. Landlord's title to the Building and Property is and always shall be
paramount to the interest of Tenant, and nothing herein contained shall empower
Tenant to do any act that can, shall or may encumber Landlord's title. In the
event any such lien does attach, Tenant shall, within five (5) days of notice of
the filing of said lien, either discharge or bond over such lien to the
satisfaction of Landlord and Landlord's Mortgagee (as hereinafter defined), and
in such a manner as to remove the lien as an encumbrance against the Building
and Property. If Tenant shall fail to so discharge or bond over such lien, then,
in addition to any other right or remedy of Landlord, Landlord may, but shall
not be obligated to bond over or discharge the same. Any amount paid by Landlord
for any of the aforesaid purposes, including reasonable attorneys' fees (if and
to the extent permitted by law) shall be paid by Tenant to Landlord on demand as
Additional Base Rental. Landlord shall have the right to post and keep posted on
the Premises any notices that may be provided by law or which Landlord may deem
to be proper for the protection of Landlord, the Premises and the Building from
such liens.
XV. Indemnity and Waiver of Claims.
A. Tenant shall indemnify, defend and hold Landlord, its members,
principals, beneficiaries, partners, officers, directors, employees,
Mortgagee(s) and agents, and the respective principals and members
of any such agents (collectively the "Landlord Related Parties")
harmless against and from all liabilities, obligations, damages,
penalties, claims, costs, charges and expenses, including, without
limitation, reasonable attorneys' fees and other professional fees
(if and to the extent permitted by law), which may be imposed upon,
incurred by, or asserted against Landlord or any of the Landlord
Related Parties and arising, directly or indirectly, out of or in
connection with the use, occupancy or maintenance
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of the Premises by, through or under Tenant including, without
limitation, any of the following: (1) any work or thing done in, on
or about the Premises or any part thereof by Tenant or any of its
transferees, agents, servants, contractors, employees, customers,
licensees or invitees; (2) any use, non-use, possession, occupation,
condition, operation or maintenance of the Premises or any part
thereof; (3) any act or omission of Tenant or any of its
transferees, agents, servants, contractors, employees, customers,
licensees or invitees, regardless of whether such act or omission
occurred within the Premises; (4) any injury or damage to any person
or property occurring in, on or about the Premises or any part
thereof; or (5) any failure on the part of Tenant to perform or
comply with any of the covenants, agreements, terms or conditions
contained in this Lease with which Tenant must comply or perform. In
case any action or proceeding is brought against Landlord or any of
the Landlord Related Parties by reason of any of the foregoing,
Tenant shall, at Tenant's sole cost and expense, resist and defend
such action or proceeding with counsel approved by Landlord or, at
Landlord's option, reimburse Landlord for the cost of any counsel
retained directly by Landlord to defend and resist such action or
proceeding.
B. Landlord and the Landlord Related Parties shall not be liable for,
and Tenant hereby waives, all claims for loss or damage to Tenant's
business or damage to person or property sustained by Tenant or any
person claiming by, through or under Tenant [including Tenant's
principals, agents and employees (collectively, the "Tenant Related
Parties")] resulting from any accident or occurrence in, on or about
the Premises, the Building or the Property, including, without
limitation, claims for loss, theft or damage resulting from: (1) the
Premises, Building, or Property, or any equipment or appurtenances
becoming out of repair; (2) wind or weather; (3) any defect in or
failure to operate, for whatever reason, any sprinkler, heating or
air-conditioning equipment, electric wiring, gas, water or steam
pipes; (4) broken glass; (5) the backing up of any sewer pipe or
downspout; (6) the bursting, leaking or running of any tank, water
closet, drain or other pipe; (7) the escape of steam or water; (8)
water, snow or ice being upon or coming through the roof, skylight,
stairs, doorways, windows, walks or any other place upon or near the
Building; (9) the falling of any fixture, plaster, tile or other
material; (10) any act, omission or negligence of other tenants,
licensees or any other persons or occupants of the Building or of
adjoining or contiguous buildings, or owners of adjacent or
contiguous property or the public, or by construction of any
private, public or quasi-public work; or (11) any other cause of any
nature except, as to items 1-9, where such loss or damage is due to
Landlord's willful or negligent failure to make repairs required to
be made pursuant to other provisions of this Lease, after the
expiration of a reasonable time after written notice to Landlord of
the need for such repairs. Notwithstanding the foregoing, except as
provided in Article XVII to the contrary, Tenant shall not be
required to waive any claims against Landlord (other than for loss
or damage to Tenant's business) where such loss or damage is due to
Landlord's negligence. Nothing herein shall be construed as to
diminish the repair and maintenance obligations of Landlord
contained elsewhere in this Lease. To the maximum extent permitted
by law, Tenant agrees to use and occupy the Premises, and to use
such other portions of the Building as Tenant is herein given the
right to use, at Tenant's own risk.
C. Except to the extent such losses, liabilities, obligations, damages,
penalties, claims, costs, charges and expenses result from the
negligence of Tenant or any Tenant Related Parties, Landlord shall
indemnify and hold Tenant harmless from and against all liabilities,
obligations, damages
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(other than consequential damages), penalties, claims, costs,
charges and expenses, including, without limitation, reasonable
attorneys' fees, which may be imposed upon, incurred by, or asserted
against Tenant by any third parties and arising, directly or
indirectly, out of or in connection with any of the following: (i)
any work or thing done in, on or about the Common Areas or any part
thereof by Landlord or any of its agents, contractors or employees;
(ii) any use, non-use, possession, occupation, condition, operation,
maintenance or management of the Common Areas or any part thereof by
Landlord or any of its agents, contractors or employees; (iii) any
act or omission of Landlord or any of its agents, contractors or
employees; and (iv) any injury or damage to any person or property
occurring in, on or about the Common Areas or any part thereof;
provided, however, that in each case such liability, obligation,
damage, penalty, claim, cost, charge or expense results from the
negligence of Landlord and/or its agents, employees or contractors.
In case any action or proceeding is brought against Tenant or any of
the Tenant Related Parties by a third party by reason of any of the
foregoing, Landlord shall, at Landlord's sole cost and expense,
resist and defend such action or proceeding with counsel reasonably
approved by Tenant.
XVI. Tenant's Insurance.
A. At all times commencing on and after the earlier of the Commencement
Date and the date Tenant or its agents, employees or contractors
enters the Premises for any purpose, Tenant shall carry and
maintain, at its sole cost and expense:
1. Commercial General Liability Insurance applicable to the
Premises and its appurtenances providing, on an occurrence
basis, a minimum combined single limit of Two Million Dollars
($2,000,000.00), with a contractual liability endorsement
covering Tenant's indemnity obligations under this Lease.
2. All Risks of Physical Loss Insurance written at replacement
cost value and with a replacement cost endorsement covering
all of Tenant's Property in the Premises.
3. Workers' Compensation Insurance as required by the state in
which the Premises is located and in amounts as may be
required by applicable statute, and Employers' Liability
Coverage of One Million Dollars ($1,000,000.00) per
occurrence.
4. Whenever good business practice, in Landlord's reasonable
judgment, indicates the need of additional insurance coverage
or different types of insurance in connection with the
Premises or Tenant's use and occupancy thereof, Tenant shall,
upon request, obtain such insurance at Tenant's expense and
provide Landlord with evidence thereof.
B. Except for items for which Landlord is responsible under the Work
Letter Agreement, before any repairs, alterations, additions,
improvements, or construction are undertaken by or on behalf of
Tenant, Tenant shall carry and maintain, at its expense, or Tenant
shall require any contractor performing work on the Premises to
carry and maintain, at no expense to Landlord, in addition to
Workers' Compensation Insurance as required by the jurisdiction in
which the Building is located, All Risk Builder's Risk Insurance in
the amount of the replacement cost of any alterations, additions or
improvements (or such other amount reasonably required by Landlord)
and Commercial General Liability Insurance (including,
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without limitation, Contractor's Liability coverage, Contractual
Liability coverage and Completed Operations coverage,) written on an
occurrence basis with a minimum combined single limit of Two Million
Dollars ($2,000,000.00) and adding "the named Landlord hereunder (or
any successor thereto), Equity Office Properties Trust, a Maryland
real estate investment trust, EOP Operating Limited Partnership, a
Delaware limited partnership, and their respective members,
principals, beneficiaries. partners, officers, directors,
employees, agents and any Mortgagee(s)", and other designees of
Landlord as the interest of such designees shall appear, as
additional insureds (collectively referred to as the "Additional
Insureds").
C. Any company writing any insurance which Tenant is required to
maintain or cause to be maintained pursuant to the terms of this
Lease (all such insurance as well as any other insurance pertaining
to the Premises or the operation of Tenant's business therein being
referred to as "Tenant's Insurance"), as well as the form of such
insurance, shall at all times be subject to Landlord's reasonable
approval, and each such insurance company shall have an A.M. Best
rating of "A-" or better and shall be licensed and qualified to do
business in the state in which the Premises is located. All policies
evidencing Tenant's Insurance (except for Workers' Compensation
Insurance) shall specify Tenant as named insured and the Additional
Insureds as additional insureds. Provided that the coverage afforded
Landlord and any designees of Landlord shall not be reduced or
otherwise adversely affected, all of Tenant's Insurance may be
carried under a blanket policy covering the Premises and any other
of Tenant's locations. All policies of Tenant's Insurance shall
contain endorsements that the insurer(s) will give to Landlord and
its designees at least thirty (30) days' advance written notice of
any change, cancellation, termination or lapse of said insurance.
Tenant shall be solely responsible for payment of premiums for all
of Tenant's Insurance. Tenant shall deliver to Landlord at least
fifteen (15) days prior to the time Tenant's Insurance is first
required to be carried by Tenant, and upon renewals at least fifteen
(15) days prior to the expiration of any such insurance coverage, a
certificate of insurance of all policies procured by Tenant in
compliance with its obligations under this Lease. The limits of
Tenant's Insurance shall in no event limit Tenant's liability under
this Lease.
D. Tenant shall not do or fail to do anything in, upon or about the
Premises which will: (1) violate the terms of any of Landlord's
insurance policies; (2) prevent Landlord from obtaining policies of
insurance acceptable to Landlord or any Mortgagees; or (3) result in
an increase in the rate of any insurance on the Premises, the
Building, any other property of Landlord or of others within the
Building. In the event of the occurrence of any of the events set
forth in this Section, Tenant shall pay Landlord upon demand, as
Additional Base Rental, the cost of the amount of any increase in
any such insurance premium, provided that the acceptance by Landlord
of such payment shall not be construed to be a waiver of any rights
by Landlord in connection with a default by Tenant under the Lease.
If Tenant fails to obtain the insurance coverage required by this
Lease, Landlord may, at its option, obtain such insurance for
Tenant, and Tenant shall pay, as Additional Base Rental, the cost of
all premiums thereon and all of Landlord's costs associated
therewith.
XVII. Subrogation.
Notwithstanding anything set forth in this Lease to the contrary, Landlord
and Tenant do hereby waive any and all right of recovery, claim, action or cause
of action against the other, their respective principals, beneficiaries,
partners, officers, directors,
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agents, and employees, and, with respect to Landlord, its Mortgagee(s), for any
loss or damage that may occur to Landlord or Tenant or any party claiming by,
through or under Landlord or Tenant, as the case may be, with respect to their
respective property, the Building, the Property or the Premises or any addition
or improvements thereto, or any contents therein, by reason of fire, the
elements or any other cause, regardless of cause or origin, including the
negligence of Landlord or Tenant, or their respective principals, beneficiaries,
partners, officers, directors, agents and employees and, with respect to
Landlord, its Mortgagee(s), which loss or damage is (or would have been, had the
insurance required by this Lease been carried) covered by insurance. Since this
mutual waiver will preclude the assignment of any such claim by subrogation (or
otherwise) to an insurance company (or any other person), Landlord and Tenant
each agree to give each insurance company which has issued, or in the future may
issue, policies of insurance, with respect to the items covered by this waiver,
written notice of the terms of this mutual waiver, and to have such insurance
policies properly endorsed, if necessary, to prevent the invalidation of any of
the coverage provided by such insurance policies by reason of such mutual
waiver. For the purpose of the foregoing waiver, the amount of any deductible
applicable to any loss or damage shall be deemed covered by, and recoverable by
the insured under the insurance policy to which such deductible relates. In the
event that Tenant is permitted to and self-insures any risk which would have
been covered by the insurance required to be carried by Tenant pursuant to
Article XVI of the Lease, or if Tenant fails to carry any insurance required to
be carried by Tenant pursuant to Article XVI of this Lease, then all loss or
damage to Tenant, its leasehold interest, its business, its property, the
Premises or any additions or improvements thereto or contents thereof shall be
deemed covered by and recoverable by Tenant under valid and collectible policies
of insurance.
XVIII. Landlord's Insurance.
Landlord shall maintain property insurance on the Building in such amounts
as Landlord reasonably elects. The cost of such insurance shall be included as a
part of the Basic Costs, and payments for losses and recoveries thereunder shall
be made solely to Landlord or the Mortgagees of Landlord as their interests
shall appear.
XIX. Casualty Damage.
If the Premises or any part thereof shall be damaged by fire or other
casualty, Tenant shall give prompt written notice thereof to Landlord. In case
the Building shall be so damaged that in Landlord's reasonable judgment,
substantial alteration or reconstruction of the Building shall be required
(whether or not the Premises has been damaged by such casualty) or in the event
Landlord will not be permitted by applicable law to rebuild the Building in
substantially the same form as existed prior to the fire or casualty or in the
event the Premises has been materially damaged and there is less than two (2)
years of the Lease Term remaining on the date of such casualty or in the event
any Mortgagee should require that the insurance proceeds payable as a result of
a casualty be applied to the payment of the mortgage debt or in the event of any
material uninsured loss to the Building, Landlord may, at its option, terminate
this Lease by notifying Tenant in writing of such termination within ninety (90)
days after the date of such casualty. Such termination shall be effective as of
the date of fire or casualty, with respect to any portion of the Premises that
was rendered untenantable, and the effective date of termination specified in
Landlord's notice, with respect to any portion of the Premises that remained
tenantable. If Landlord does not elect to terminate this Lease, Landlord shall
commence and proceed with reasonable diligence to restore the Building (provided
that Landlord shall not be required to restore any unleased premises in the
Building) and the Leasehold Improvements (but excluding any improvements,
alterations or additions made by Tenant in violation of this Lease) located
within the Premises, if any, which Landlord has insured to substantially the
same condition they were in immediately prior to the happening of the casualty.
Notwithstanding the foregoing, Landlord's obligation to restore the Building,
and the Leasehold Improvements, if any, shall not require Landlord to expend for
such repair and restoration work more than the insurance proceeds actually
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received by the Landlord as a result of the casualty. When repairs to the
Premises have been completed by Landlord, Tenant shall complete the restoration
or replacement of all Tenant's Property necessary to permit Tenant's reoccupancy
of the Premises, and Tenant shall present Landlord with evidence satisfactory to
Landlord of Tenant's ability to pay such costs prior to Landlord's commencement
of repair and restoration of the Premises. Landlord shall not be liable for any
inconvenience or annoyance to Tenant or injury to the business of Tenant
resulting in any way from such damage or the repair thereof, except that,
subject to the provisions of the next sentence, Landlord shall allow Tenant a
fair diminution of Rent on a per diem basis during the time and to the extent
any damage to the Premises causes the Premises to be rendered untenantable and
not used by Tenant. If the Premises or any other portion of the Building is
damaged by fire or other casualty resulting from the negligence of Tenant or any
Tenant Related Parties, the Rent hereunder shall not be diminished during any
period during which the Premises, or any portion thereof, is untenantable
(except to the extent Landlord is entitled to be reimbursed by the proceeds of
any rental interruption insurance), and Tenant shall be liable to Landlord for
the cost of the repair and restoration of the Building caused thereby to the
extent such cost and expense is not covered by insurance proceeds. Landlord and
Tenant hereby waive the provisions of any law from time to time in effect during
the Lease Term relating to the effect upon leases of partial or total
destruction of leased property. Landlord and Tenant agree that their respective
rights in the event of any damage to or destruction of the Premises shall be
those specifically set forth herein.
Notwithstanding anything in this Article XIX to the contrary, if all or
any portion of the Premises shall be made untenantable by a fire or other
casualty, Landlord shall with reasonable promptness, cause an architect or
general contractor selected by Landlord to estimate the amount of time required
to substantially complete repair and restoration of the Premises and make the
Premises tenantable again, using standard working methods (the "Completion
Estimate"). If the Completion Estimate indicates that the Premises cannot be
made tenantable within twelve (12) months from the date the repair and
restoration is started, either party shall have the right to terminate this
Lease by giving written notice to the other of such election within ten (10)
days after its receipt of the Completion Estimate. Tenant, however, shall not
have the right to terminate this Lease in the event that the fire or casualty in
question was caused by the negligence or intention misconduct of Tenant or any
Tenant Related Parties. If the Completion Estimate indicates that the Premises
can be made tenantable within twelve (12) months from the date the repair and
restoration is started and Landlord has not otherwise exercised its right to
terminate the Lease pursuant to the terms hereof, or if the Completion Estimate
indicates that the Premises cannot be made tenantable within twelve (12) months
but neither party terminates this Lease pursuant to this Article XIX, Landlord
shall proceed with reasonable promptness to repair and restore the Premises.
Notwithstanding the foregoing, if Tenant was entitled to but elected not
to exercise its right to terminate the Lease and Landlord does not substantially
complete the repair and restoration the Premises within two (2) months after the
expiration of the estimated period of time set forth in the Completion Estimate,
which period shall be extended to the extent of any Reconstruction Delays, then
Tenant may terminate this Lease by written notice to Landlord within fifteen
(15) days after the expiration of such period, as the same may be extended. For
purposes of this Lease, the term "Reconstruction Delays" shall mean: (i) any
delays caused by the insurance adjustment process; (ii) any delays caused by
Tenant; and (iii) any delays caused by events of Force Majeure.
XX. Demolition.
Landlord shall have the right to terminate this Lease if Landlord proposes
or is required, for any reason, to remodel, remove, or demolish the Building or
any substantial portion thereof. Such cancellation shall be exercised by
Landlord by the service of not less than ninety (90) days' written notice of
such termination. Such notice shall set forth the date upon which the
termination will be effective. No money or other consideration
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shall be payable by Landlord to Tenant for Landlord's exercise of this right,
and the right is hereby reserved to Landlord and all purchasers, successors,
assigns, transferees, and ground tenants of Landlord, as the case may be, and is
in addition to all other rights of Landlord. Tenant has read the foregoing and
understands that Landlord has a right to terminate this Lease as provided above.
XXI. Condemnation.
If (a) the whole or any substantial part of the Premises or (b) any
portion of the Building or Property which would leave the remainder of the
Building unsuitable for use as an office building comparable to its use on the
Commencement Date, shall be taken or condemned for any public or quasi-public
use under governmental law, ordinance or regulation, or by right of eminent
domain, or by private purchase in lieu thereof, then Landlord may, at its
option, terminate this Lease effective as of the date the physical taking of
said Premises or said portion of the Building or Property shall occur. In the
event this Lease is not terminated, the Rentable Area of the Building, the
Rentable Area of the Premises and Tenant's Pro Rata Share shall be appropriately
adjusted. In addition, Rent for any portion of the Premises so taken or
condemned shall be abated during the unexpired term of this Lease effective when
the physical taking of said portion of the Premises shall occur. All
compensation awarded for any such taking or condemnation, or sale proceeds in
lieu thereof, shall be the property of Landlord, and Tenant shall have no claim
thereto, the same being hereby expressly waived by Tenant, except for any
portions of such award or proceeds which are specifically allocated by the
condemning or purchasing party for the taking of or damage to trade fixtures of
Tenant, which Tenant specifically reserves to itself. In addition, Tenant may
file a claim at its sole cost and expense and receive an award for the Tenant's
Property and Tenant's reasonable relocation expenses, provided the filing of any
claim for relocation expenses does not adversely affect or diminish the award
which would otherwise have been received by Landlord had Tenant not filed such a
claim and received such award.
XXII. Events of Default.
The following events shall be deemed to be events of default under this
Lease:
A. Tenant shall fail to pay when due any Base Rental, Additional Base
Rental or other Rent under this Lease and such failure shall
continue for five (5) days after written notice from Landlord
(hereinafter sometimes referred to as a "Monetary Default").
B. Any failure by Tenant (other than a Monetary Default) to comply with
any term, provision or covenant of this Lease, including, without
limitation, the rules and regulations, which failure is not cured
within ten (10) days after delivery to Tenant of notice of the
occurrence of such failure, (or such longer period of time as may be
reasonably necessary to cure (not to exceed 60 days), provided that
Tenant commences to cure such default within ten (10) days after
notice from Landlord and, from time to time upon request of
Landlord, furnishes Landlord with evidence that demonstrates, in
Landlord's reasonable judgment, that Tenant is diligently pursuing a
course that will remedy such failure) provided that if any such
failure creates a hazardous condition, such failure must be cured
immediately. Notwithstanding the foregoing, if Tenant fails to
comply with any particular provision or covenant of this Lease,
including, without limitation, Tenant's obligation to pay Rent when
due, on three (3) occasions during any twelve (12) month period, any
subsequent violation of such provision or covenant shall be
considered to be an incurable default by Tenant.
C. Tenant or any Guarantor shall become insolvent, or shall make a
transfer in fraud of creditors, or shall commit an act of bankruptcy
or shall make an
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assignment for the benefit of creditors, or Tenant or any Guarantor
shall admit in writing its inability to pay its debts as they become
due.
D. Tenant or any Guarantor shall file a petition under any section or
chapter of the United States Bankruptcy Code, as amended, pertaining
to bankruptcy, or under any similar law or statute of the United
States or any State thereof, or Tenant or any Guarantor shall be
adjudged bankrupt or insolvent in proceedings filed against Tenant
or any Guarantor thereunder; or a petition or answer proposing the
adjudication of Tenant or any Guarantor as a debtor or its
reorganization under any present or future federal or state
bankruptcy or similar law shall be filed in any court and such
petition or answer shall not be discharged or denied within sixty
(60) days after the filing thereof.
E. A receiver or trustee shall be appointed for all or substantially
all of the assets of Tenant or any Guarantor or of the Premises or
of any of Tenant's Property located thereon in any proceeding
brought by Tenant or any Guarantor, or any such receiver or trustee
shall be appointed in any proceeding brought against Tenant or any
Guarantor and shall not be discharged within sixty (60) days after
such appointment or Tenant or such Guarantor shall consent to or
acquiesce in such appointment.
F. The leasehold estate hereunder shall be taken on execution or other
process of law or equity in any action against Tenant.
G. Intentionally Omitted.
H. Intentionally Omitted.
I. The liquidation, termination, dissolution, forfeiture of right to do
business, or death of Tenant or any Guarantor.
J. Tenant is in default beyond any notice and cure period under any
other lease with Landlord.
XXIII. Remedies.
A. Upon the occurrence of any event or events of default under this
Lease, Landlord shall have the option to pursue any one or more of
the following remedies upon notice, but without any demand
whatsoever (and without limiting the generality of the foregoing,
Tenant hereby specifically waives demand for payment of Rent or
other obligations due [except as expressly prescribed in Article
XXII above] and waives any and all other notices or demand
requirements imposed by applicable law):
1. Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord. If Tenant fails to
surrender the Premises upon termination of the Lease
hereunder, Landlord may without prejudice to any other remedy
which it may have, enter upon and take possession of the
Premises and expel or remove Tenant and any other person who
may be occupying said Premises, or any part thereof, and
Tenant hereby agrees to pay to Landlord on demand the amount
of all loss and damage, including consequential damage, which
Landlord may suffer by reason of such termination, whether
through inability to relet the Premises on satisfactory terms
or otherwise, specifically including but not limited to all
Costs of Reletting (hereinafter defined) and any deficiency
that may arise by reason of any reletting or failure to relet.
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2. Enter upon and take possession of the Premises and expel or
remove Tenant or any other person who may be occupying said
Premises, or any part thereof, without having any civil or
criminal liability therefor and without terminating this
Lease. Landlord may (but shall be under no obligation to)
relet the Premises or any part thereof for the account of
Tenant, in the name of Tenant or Landlord or otherwise,
without notice to Tenant for such term or terms which may be
greater or less than the period which would otherwise have
constituted the balance of the Lease Term and on such
conditions (which may include concessions, free rent and
alterations of the Premises) and for such uses as Landlord in
its absolute discretion may determine, and Landlord may
collect and receive any rents payable by reason of such
reletting. Tenant agrees to pay Landlord on demand all Costs
of Reletting and any deficiency that may arise by reason of
such reletting or failure to relet. Landlord shall not be
responsible or liable for any failure to relet the Premises or
any part thereof or for any failure to collect any Rent due
upon any such reletting. No such re-entry or taking of
possession of the Premises by Landlord shall be construed as
an election on Landlord's part to terminate this Lease unless
a written notice of such termination is given to Tenant.
3. Enter upon the Premises without having any civil or criminal
liability therefor, and do whatever Tenant is obligated to do
under the terms of this Lease, and Tenant agrees to reimburse
Landlord on demand for any expense which Landlord may incur in
thus affecting compliance with Tenant's obligations under this
Lease together with interest at the lesser of a per annum rate
equal to: (a) the Maximum Rate, or (b) the Prime Rate plus
five percent (5%).
4. In order to regain possession of the Premises and to deny
Tenant access thereto in any instance in which Landlord has
terminated this Lease or Tenant's right to possession, or to
limit access to the Premises in accordance with local law in
the event of a default by Tenant, Landlord or its agent may,
at the expense and liability of the Tenant, alter or change
any or all locks or other security devices controlling access
to the Premises without posting or giving notice of any kind
to Tenant. Landlord shall have no obligation to provide Tenant
a key or grant Tenant access to the Premises so long as Tenant
is in default under this Lease. Tenant shall not be entitled
to recover possession of the Premises, terminate this Lease,
or recover any actual, incidental, consequential, punitive,
statutory or other damages or award of attorneys' fees, by
reason of Landlord's alteration or change of any lock or other
security device. Landlord may, without notice, remove and
either dispose of or store, at Tenant's expense, any property
belonging to Tenant that remains in the Premises after
Landlord has regained possession thereof, provided however,
that Landlord shall not have any lien upon Tenant's furniture,
fixtures or equipment remaining in the Premises.
Notwithstanding anything herein to the contrary, if Landlord
has not previously obtained a court order terminating this
Lease or Tenant's right to possession, Landlord's right to
limit or deny Tenant's access to the Premises shall be
exercised only during the continuance of an uncured event of
default and only for the limited purpose of prohibiting Tenant
from removing any furniture, equipment, trade fixtures or
other property with respect to which Landlord could reasonably
be expected to have a statutory lien interest. In addition, in
the event
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that any of the rights and remedies granted to Landlord under
this Section XXIII.A.4. are specifically prohibited by
applicable law, the limitations and prohibitions imposed upon
Landlord under such law shall prevail for the purpose of
determining Landlord's rights and remedies under this Lease.
5. Terminate this Lease, in which event, Tenant shall immediately
surrender the Premises to Landlord and pay to Landlord the sum
of: (a) all Rent accrued hereunder through the date of
termination, and, upon Landlord's determination thereof, (b)
an amount equal to: the total Rent that Tenant would have been
required to pay for the remainder of the Lease Term discounted
to present value at the Prime Rate then in effect, minus the
then present fair rental value of the Premises for the
remainder of the Lease Term, similarly discounted, after
deducting all anticipated Costs of Reletting (as defined
below).
B. For purposes of this Lease, the term "Costs of Reletting" shall mean
all costs and expenses incurred by Landlord in connection with the
reletting of the Premises, including without limitation, the cost of
cleaning, renovation, repairs, decoration and alteration of the
Premises for a new tenant or tenants, advertisement, marketing,
brokerage and legal fees (if and to the extent permitted by law),
the cost of protecting or caring for the Premises while vacant, the
cost of removing and storing any property located on the Premises,
any increase in insurance premiums caused by the vacancy of the
Premises and any other out-of-pocket expenses incurred by Landlord
including tenant incentives, allowances and inducements.
C. Except as otherwise herein provided, no repossession or re-entering
of the Premises or any part thereof pursuant to Article XXIII hereof
or otherwise shall relieve Tenant or any Guarantor of its
liabilities and obligations hereunder, all of which shall survive
such repossession or re-entering. Notwithstanding any such
repossession or re-entering by reason of the occurrence of an event
of default, Tenant will pay to Landlord the Rent required to be paid
by Tenant pursuant to this Lease.
D. No right or remedy herein conferred upon or reserved to Landlord is
intended to be exclusive of any other right or remedy, and each and
every right and remedy shall be cumulative and in addition to any
other right or remedy given hereunder or now or hereafter existing
by agreement, applicable law or in equity. In addition to other
remedies provided in this Lease, Landlord shall be entitled, to the
extent permitted by applicable law, to injunctive relief, or to a
decree compelling performance of any of the covenants, agreements,
conditions or provisions of this Lease, or to any other remedy
allowed to Landlord at law or in equity. Forbearance by Landlord to
enforce one or more of the remedies herein provided upon an event of
default shall not be deemed or construed to constitute a waiver of
such default.
E. Intentionally Omitted.
F. This Article XXIII shall be enforceable to the maximum extent such
enforcement is not prohibited by applicable law, and the
unenforceability of any portion thereof shall not thereby render
unenforceable any other portion.
XXIV. LIMITATION OF LIABILITY.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN
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THIS LEASE, THE LIABILITY OF LANDLORD (AND OF ANY SUCCESSOR LANDLORD HEREUNDER)
TO TENANT SHALL BE LIMITED TO THE INTEREST OF LANDLORD IN THE BUILDING, AND
TENANT AGREES TO LOOK SOLELY TO LANDLORD'S INTEREST IN THE BUILDING AND IN THE
UNCOLLECTED RENTS, ISSUES AND PROFITS THEREOF, FOR THE RECOVERY OF ANY JUDGMENT
OR AWARD AGAINST THE LANDLORD, IT BEING INTENDED THAT NEITHER LANDLORD NOR ANY
MEMBER, PRINCIPAL, PARTNER, SHAREHOLDER, OFFICER, DIRECTOR OR BENEFICIARY OF
LANDLORD SHALL BE PERSONALLY LIABLE FOR ANY JUDGMENT OR DEFICIENCY. TENANT
HEREBY COVENANTS THAT, PRIOR TO THE FILING OF ANY SUIT FOR AN ALLEGED DEFAULT BY
LANDLORD HEREUNDER, IT SHALL GIVE LANDLORD AND ALL MORTGAGEES WHOM TENANT HAS
BEEN NOTIFIED HOLD MORTGAGES OR DEED OF TRUST LIENS ON THE PROPERTY, BUILDING OR
PREMISES NOTICE AND REASONABLE TIME TO CURE SUCH ALLEGED DEFAULT BY LANDLORD.
WITHOUT LIMITING THE FOREGOING, IN NO EVENT SHALL LANDLORD OR ANY MORTGAGEES OR
LANDLORD RELATED PARTIES EVER BE LIABLE FOR ANY CONSEQUENTIAL OR INCIDENTAL
DAMAGES OR ANY LOST PROFITS OF TENANT.
XXV. No Waiver.
Failure of Landlord to declare any default immediately upon its
occurrence, or delay in taking any action in connection with an event of default
shall not constitute a waiver of such default, nor shall it constitute an
estoppel against Landlord, but Landlord shall have the right to declare the
default at any time and take such action as is lawful or authorized under this
Lease. Failure by Landlord to enforce its rights with respect to any one default
shall not constitute a waiver of its rights with respect to any subsequent
default. Receipt by Landlord of Tenant's keys to the Premises shall not
constitute an acceptance or surrender of the Premises.
XXVI. Event of Bankruptcy.
In addition to, and in no way limiting the other remedies set forth
herein, Landlord and Tenant agree that if Tenant ever becomes the subject of a
voluntary or involuntary bankruptcy, reorganization, composition, or other
similar type proceeding under the federal bankruptcy laws, as now enacted or
hereinafter amended, then:
A. "Adequate protection" of Landlord's interest in the Premises
pursuant to the provisions of Section 361 and 363 (or their
successor sections) of the Bankruptcy Code, 11 U.S.C. Section 101 et
seq., (such Bankruptcy Code as amended from time to time being
herein referred to as the "Bankruptcy Code"), prior to assumption
and/or assignment of the Lease by Tenant shall include, but not be
limited to all (or any part) of the following:
1. the continued payment by Tenant of the Base Rental and all
other Rent due and owing hereunder and the performance of all
other covenants and obligations hereunder by Tenant;
2. the furnishing of an additional/new security deposit by Tenant
in the amount of three (3) times the then current monthly Base
Rental.
B. "Adequate assurance of future performance" by Tenant and/or any
assignee of Tenant pursuant to Bankruptcy Code Section 365 will
include (but not be limited to) payment of an additional/new
Security Deposit in the amount of three (3) times the then current
monthly Base Rental payable hereunder.
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C. Any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code, shall be deemed without further
act or deed to have assumed all of the obligations of Tenant arising
under this Lease on and after the effective date of such assignment.
Any such assignee shall, upon demand by Landlord, execute and
deliver to Landlord an instrument confirming such assumption of
liability.
D. Notwithstanding anything in this Lease to the contrary, all amounts
payable by Tenant to or on behalf of the Landlord under this Lease,
whether or not expressly denominated as "Rent," shall constitute
"rent" for the purposes of Section 502(b) (6) of the Bankruptcy
Code.
E. If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, any and all monies or other
considerations payable or otherwise to be delivered to Landlord
(including Base Rentals and other Rent hereunder), shall be and
remain the exclusive property of Landlord and shall not constitute
property of Tenant or of the bankruptcy estate of Tenant. Any and
all monies or other considerations constituting Landlord's property
under the preceding sentence not paid or delivered to Landlord shall
be held in trust by Tenant or Tenant's bankruptcy estate for the
benefit of Landlord and shall be promptly paid to or turned over to
Landlord.
F. If Tenant assumes this Lease and proposes to assign the same
pursuant to the provisions of the Bankruptcy Code to any person or
entity who shall have made a bona fide offer to accept an assignment
of this Lease on terms acceptable to the Tenant, then notice of such
proposed offer/assignment, setting forth: (1) the name and address
of such person or entity, (2) all of the terms and conditions of
such offer, and (3) the adequate assurance to be provided Landlord
to assure such person's or entity's future performance under the
Lease, shall be given to Landlord by Tenant no later than twenty
(20) days after receipt by Tenant, but in any event no later than
ten (10) days prior to the date that Tenant shall make application
to a court of competent jurisdiction for authority and approval to
enter into such assumption and assignment, and Landlord shall
thereupon have the prior right and option, to be exercised by notice
to Tenant given at any time prior to the effective date of such
proposed assignment, to accept an assignment of this Lease upon the
same terms and conditions and for the same consideration, if any, as
the bona fide offer made by such persons or entity, less any
brokerage commission which may be payable out of the consideration
to be paid by such person for the assignment of this Lease.
G. To the extent permitted by law, Landlord and Tenant agree that this
Lease is a contract under which applicable law excuses Landlord from
accepting performance from (or rendering performance to) any person
or entity other than Tenant within the meaning of Sections 365(c)
and 365(e) (2) of the Bankruptcy Code.
XXVII. Waiver of Jury Trial.
Landlord and Tenant hereby waive any right to a trial by jury in any
action or proceeding based upon, or related to, the subject matter of this
Lease. This waiver is knowingly, intentionally, and voluntarily made by Tenant,
and Tenant acknowledges that neither Landlord nor any person acting on behalf of
Landlord has made any representations of fact to induce this waiver of trial by
jury or in any way to modify or nullify its effect. Tenant further acknowledges
that it has been represented (or has had the opportunity to be represented) in
the signing of this Lease and in the making of this waiver by independent legal
counsel, selected of its own free will, and that it has had the opportunity to
discuss this waiver with counsel.
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XXVIII. Relocation.
Intentionally Omitted.
XXIX. Holding Over.
In the event of holding over by Tenant after Expiration or other
termination of this Lease or in the event Tenant continues to occupy the
Premises after the termination of Tenant's right of possession pursuant to
Articles XXII and XXIII hereof, occupancy of the Premises subsequent to such
termination or expiration shall be that of a tenancy at sufferance and in no
event for month-to-month or year-to-year. Tenant shall, throughout the entire
holdover period, be subject to all the terms and provisions of this Lease and
shall pay for its use and occupancy an amount (on a per month basis without
reduction for any partial months during any such holdover) equal to twice the
sum of the greater of (x) the Base Rental and Additional Base Rental due for the
period immediately preceding such holding over, or (y) the fair market rental
for the Premises during such period. No holding over by Tenant or payments of
money by Tenant to Landlord after the expiration of the term of this Lease shall
be construed to extend the Lease Term or prevent Landlord from recovery of
immediate possession of the Premises by summary proceedings or otherwise. In
addition to the obligation to pay the amounts set forth above during any such
holdover period, Tenant also shall be liable to Landlord for all damage,
including any consequential damage, which Landlord may suffer by reason of any
holding over by Tenant, and Tenant shall indemnify Landlord against any and all
claims made by any other tenant or prospective tenant against Landlord for delay
by Landlord in delivering possession of the Premises to such other tenant or
prospective tenant.
Notwithstanding anything to the contrary herein contained, the payment of
rent by Tenant (i) to the address set forth in Section I.A.10, or (ii) pursuant
to the automatic debit provisions of Section IV.F, in either case after the
expiration or earlier termination of the Term of this Lease, whether or not
Landlord cashes such rent check or credits such automatic payment to its bank
account, shall not act to create a tenancy at will. Tenant acknowledges that a
tenancy at will after the expiration or earlier termination of the Term of this
Lease can only be created by a writing signed by the Landlord.
XXX. Subordination to Mortgages; Estoppel Certificate.
Tenant accepts this Lease subject and subordinate to any mortgage, deed of
trust, ground lease or other lien presently existing or hereafter arising upon
the Premises, or upon the Building and/or the Property and to any renewals,
modifications, refinancings and extensions thereof (any such mortgage, deed of
trust, lease or other lien being hereinafter referred to as a "Mortgage", and
the person or entity having the benefit of same being referred to hereinafter as
a "Mortgagee"), but Tenant agrees that any such Mortgagee shall have the right
at any time to subordinate such Mortgage to this Lease on such terms and subject
to such conditions as such Mortgagee may deem appropriate in its discretion.
This clause shall be self-operative and no further instrument of subordination
shall be required. However, Landlord is hereby irrevocably vested with full
power and authority to subordinate this Lease to any Mortgage, and Tenant agrees
upon demand to execute such further instruments subordinating this Lease,
acknowledging the subordination of this Lease or attorning to the holder of any
such Mortgage as Landlord may reasonably request. The terms of this Lease are
subject to approval by the Landlord's existing lender(s) and any lender(s) who,
at the time of the execution of this Lease, have committed or are considering
committing to Landlord to make a loan secured by all or any portion of the
Property, and such approval is a condition precedent to Landlord's obligations
hereunder, in the event that Tenant shall fail to execute any subordination or
other agreement required by this Article within ten (10) days after request by
Landlord, such failure shall be considered to be an event of default by Tenant
entitling Landlord to exercise its rights and remedies under Article XXIII of
this Lease. If any person shall succeed to all or part of Landlord's interests
in the Premises whether
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by purchase, foreclosure, deed in lieu of foreclosure, power of sale,
termination of lease or otherwise, and if and as so requested or required by
such successor-in-interest, Tenant shall, without charge, attorn to such
successor-in-interest. Tenant agrees that it will from time to time upon request
by Landlord and, within fifteen (15) days of the date of such request, execute
and deliver to such persons as Landlord shall request an estoppel certificate or
other similar statement in recordable form certifying that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as so modified), stating the dates to
which Rent and other charges payable under this Lease have been paid, stating
that Landlord is not in default hereunder (or if Tenant alleges a default
stating the nature of such alleged default) and further stating such other
matters as Landlord shall reasonably require. Notwithstanding the foregoing,
upon written request by Tenant, Landlord will use reasonable efforts to obtain a
non-disturbance, subordination and attornment agreement from Landlord's then
current mortgagee on such mortgagee's then current standard form of agreement.
"Reasonable efforts" of Landlord shall not require Landlord to incur any cost,
expense or liability to obtain such agreement, it being agreed that Tenant shall
be responsible for any fee or review costs charged by the mortgagee. Upon
request of Landlord, Tenant will execute the mortgagees form of non-disturbance,
subordination and attornment agreement and return the same to Landlord for
execution by the mortgagee. Landlord's failure to obtain a non-disturbance,
subordination and attornment agreement for Tenant shall have no effect on the
rights, obligations and liabilities of Landlord and Tenant or be considered to
be a default by Landlord hereunder.
XXXI. Attorneys' Fees.
In the event that Landlord should institute any suit against Tenant for
violation of or to enforce any of the covenants or conditions of this Lease, or
should Tenant institute any suit against Landlord for violation of any of the
covenants or conditions of this Lease, or should either party intervene in any
suit in which the other is a party to enforce or protect its interest or rights
hereunder, the prevailing party in any such suit shall be entitled to all of its
costs, expenses and reasonable fees of its attorney(s) (if and to the extent
permitted by law) in connection therewith.
XXXII. Notice.
Whenever any demand, request, approval, consent or notice ("Notice") shall
or may be given to either of the parties by the other, each such Notice shall be
in writing and shall be sent by registered or certified mail with return receipt
requested, or sent by overnight courier service (such as Federal Express) at the
respective addresses of the parties for notices as set forth in Section I.A.10.
of this Lease, provided that if Tenant has vacated the Premises or is in default
of this Lease Landlord may serve Notice by any manner permitted by law. Any
Notice under this Lease delivered by registered or certified mail shall be
deemed to have been given, delivered, received and effective on the earlier of
(a) the third day following the day on which the same shall have been mailed
with sufficient postage prepaid or (b) the delivery date indicated on the
return receipt. Notice sent by overnight courier service shall be deemed given,
delivered, received and effective upon the day after such notice is delivered to
or picked up by the overnight courier service. Either party may, at any time,
change its Notice Address by giving the other party Notice stating the change
and setting forth the new address.
XXXIII. Landlord's Lien.
Intentionally Omitted.
XXXIV. Excepted Rights.
This Lease does not grant any rights to light or air over or about the
Building. Landlord specifically excepts and reserves to itself the use of any
roofs, the exterior portions of the Premises, all rights to the land and
improvements below the improved
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floor level of the Premises, the improvements and air rights above the Premises
and the improvements and air rights located outside the demising walls of the
Premises, and such areas within the Premises as are required for installation of
utility lines and other installations required to serve any occupants of the
Building and the right to maintain and repair the same, and no rights with
respect thereto are conferred upon Tenant unless otherwise specifically provided
herein. Landlord further reserves to itself the right from time to time: (a) to
change the Building's name or street address; (b) to install, fix and maintain
signs on the exterior and interior of the Building; (c) to designate and approve
window coverings; (d) to make any decorations, alterations, additions,
improvements to the Building, or any part thereof (including the Premises) which
Landlord shall desire, or deem necessary for the safety, protection,
preservation or improvement of the Building, or as Landlord may be required to
do by law; (e) to have access to the Premises to perform its duties and
obligations and to exercise its rights under this Lease; (f) to retain at all
times and to use pass-keys to all locks within and into the Premises; (g) to
approve the weight, size, or location of heavy equipment, or articles in and
about the Premises; (h) to close or restrict access to the Building at all times
other than Normal Business Hours subject to Tenant's right to admittance at all
times under such regulations as Landlord may prescribe from time to time, or to
close (temporarily or permanently) any of the entrances to the Building; (i) to
change the arrangement and/or location of entrances of passageways, doors and
doorways, corridors, elevators, stairs, toilets and public parts of the
Building; (j) if Tenant has vacated the Premises during the last month of the
Lease Term, to perform additions, alterations and improvements to the Premises
in connection with a reletting or anticipated reletting thereof without being
responsible or liable for the value or preservation of any then existing
improvements to the Premises; and (k) to grant to anyone the exclusive right to
conduct any business or undertaking in the Building. Landlord, in accordance
with Article XII hereof, shall have the right to enter the Premises in
connection with the exercise of any of the rights set forth herein and such
entry into the Premises and the performance of any work therein shall not
constitute a constructive eviction or entitle Tenant to any abatement or
reduction of Rent by reason thereof.
XXXV. Surrender of Premises.
At the expiration or earlier termination of this Lease or Tenant's right
of possession hereunder, Tenant shall remove all Tenant's Property from the
Premises, remove all Required Removables designated by Landlord and quit and
surrender the Premises to Landlord, broom clean, and in good order, condition
and repair, ordinary wear and tear excepted. If Tenant fails to remove any of
Tenant's Property within one (1) week after the termination of this Lease or
Tenant's right to possession hereunder, Landlord, at Tenant's sole cost and
expense, shall be entitled to remove and/or store such Tenant's Property and
Landlord shall in no event be responsible for the value, preservation or
safekeeping thereof. Tenant shall pay Landlord, upon demand, any and all
expenses caused by such removal and all storage charges against such property so
long as the same shall be in the possession of Landlord or under the control of
Landlord. In addition, if Tenant fails to remove any Tenant's Property from the
Premises or storage, as the case may be, within ten (10) days after written
notice from Landlord, Landlord, at its option, may deem all or any part of such
Tenant's Property to have been abandoned by Tenant and title thereof shall
immediately pass to Landlord.
XXXVI. Miscellaneous.
A. If any term or provision of this Lease, or the application thereof
to any person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those
as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Lease shall be
valid and enforced to the fullest extent permitted by law. This
Lease represents the result of negotiations between Landlord and
Tenant, each of which has been (or has had opportunity to be)
represented by counsel of its own selection, and neither of which
has acted
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under duress or compulsion, whether legal, economic or otherwise.
Consequently, Landlord and Tenant agree that the language in all
parts of the Lease shall in all cases be construed as a whole
according to its fair meaning and neither strictly for nor against
Landlord or Tenant.
B. Tenant agrees not to record this Lease or any memorandum or notice
hereof without Landlord's prior written consent; provided, however,
Landlord agrees to consent to the recordation or registration of a
memorandum or notice of this Lease, at Tenant's cost and expense
(and in form reasonably satisfactory to Landlord), if the initial
term of this Lease or the initial term plus any renewal terms
granted herein exceed, in the aggregate, seven (7) years. If this
Lease is terminated before the term expires, then upon Landlord's
request the parties shall execute, deliver and record an instrument
acknowledging such fact and the date of termination of this Lease.
C. This Lease and the rights and obligations of the parties hereto
shall be interpreted, construed, and enforced in accordance with the
laws of the state in which the Building is located.
D. Events of "Force Majeure" shall include strikes, riots, acts of God,
shortages of labor or materials and war. Whenever a period of time
is herein prescribed for the taking of any action by Landlord or
Tenant, as the case may be, other than the payment of rent or any
other sums due hereunder, such party shall not be liable or
responsible for, and there shall be excluded from the computation of
such a period of time, any delays due to events of Force Majeure.
E. Landlord shall have the right to transfer and assign, in whole or in
part, all of its rights and obligations hereunder and in the
Building and Property referred to herein, and in such event and upon
such transfer Landlord shall be released from any further
obligations hereunder, and Tenant agrees to look solely to such
successor in interest of Landlord for the performance of such
obligations, provided that Landlord and its successors, as the case
may be, shall remain liable after their respective periods of
ownership with respect to any sums due in connection with a breach
or default that arose during such period of ownership.
F. Tenant hereby represents to Landlord that it has dealt directly with
and only with the Broker as a broker in connection with this Lease.
Tenant agrees to indemnify and hold Landlord and the Landlord
Related Parties harmless from all claims of any brokers claiming to
have represented Tenant in connection with this Lease. Landlord
hereby represents to Tenant that it has dealt directly with and only
with the Broker as a broker in connection with this Lease. Landlord
agrees to indemnify and hold Tenant and the Tenant Related Parties
harmless from all claims of any brokers claiming to have represented
Landlord in connection with this Lease.
G. If there is more than one Tenant, or if the Tenant is comprised of
more than one person or entity, the obligations hereunder imposed
upon Tenant shall be joint and several obligations of all such
parties. If Tenant is a partnership, then each present and future
partner shall be personally bound by and upon all of the covenants,
agreements, terms, provisions and conditions set forth in this Lease
on the part of Tenant to be performed. In confirmation of the
foregoing, Landlord may (but without being required to do so)
request (and Tenant shall duly comply) that Tenant, at the time that
Tenant admits any new partner to its partnership, shall require each
such new partner to execute an agreement in form and substance
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satisfactory to Landlord whereby such new partner shall agree to be
personally bound by and upon all of the covenants, agreements,
terms, provisions and conditions of this Lease on the part of Tenant
to be performed, without regard to the time when such new partner is
admitted to partnership or when any obligations under any such
covenants, etc., accrue. All notices, payments, and agreements given
or made by, with or to any one of such persons or entities shall be
deemed to have been given or made by, with or to all of them.
H. In the event Tenant is a corporation (including any form of
professional association), partnership (general or limited), or
other form of organization other than an individual (each such
entity is individually referred to herein as an "Organizational
Entity"), then Tenant hereby covenants, warrants and represents: (1)
that such individual is duly authorized to execute or attest and
deliver this Lease on behalf of Tenant in accordance with the
organizational documents of Tenant; (2) that this Lease is binding
upon Tenant; (3) that Tenant is duly organized and legally existing
in the state of its organization, and is qualified to do business in
the state in which the Premises is located; and (4) that the
execution and delivery of this Lease by Tenant will not result in
any breach of, or constitute a default under any mortgage, deed of
trust, lease, loan, credit agreement, partnership agreement or other
contract or instrument to which Tenant is a party or by which Tenant
may be bound. If Tenant is an Organizational Entity, upon request,
Tenant will, prior to the Commencement Date, deliver to Landlord
true and correct copies of all organizational documents of Tenant,
including, without limitation, copies of an appropriate resolution
or consent of Tenant's board of directors or other appropriate
governing body of Tenant authorizing or ratifying the execution and
delivery of this Lease, which resolution or consent will be duly
certified to Landlord's satisfaction by an appropriate individual
with authority to certify such documents, such as the secretary or
assistant secretary or the managing general partner of Tenant.
I. Tenant acknowledges that the financial capability of Tenant to
perform its obligations hereunder is material to Landlord and that
Landlord would not enter into this Lease but for its belief, based
on its review of Tenant's financial statements, that Tenant is
capable of performing such financial obligations. Tenant hereby
represents, warrants and certifies to Landlord that its financial
statements previously furnished to Landlord were at the time given
true and correct in all material respects and that there have been
no material subsequent changes thereto as of the date of this Lease.
At any time during the Lease Term, Tenant shall provide Landlord,
upon ten (10) days' prior written notice from Landlord, with a
current financial statement and financial statements of the two (2)
years prior to the current financial statement year and such other
information as Landlord or its Mortgagee may reasonably request in
order to create a "business profile" of Tenant and determine
Tenant's ability to fulfill its obligations under this Lease. Such
statement shall be prepared in accordance with generally accepted
accounting principles and, if such is the normal practice of Tenant,
shall be audited by an independent certified public accountant.
J. Except as expressly otherwise herein provided, with respect to all
required acts of Tenant, time is of the essence of this Lease. This
Lease shall create the relationship of Landlord and Tenant between
the parties hereto.
K. This Lease and the covenants and conditions herein contained shall
inure to the benefit of and be binding upon Landlord and Tenant and
their respective permitted successors and assigns.
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L. Notwithstanding anything to the contrary contained in this Lease,
the expiration of the Lease Term, whether by lapse of time or
otherwise, shall not relieve Tenant from Tenant's obligations
accruing prior to the expiration of the Lease Term, and such
obligations shall survive any such expiration or other termination
of the Lease Term.
M. The headings and titles to the paragraphs of this Lease are for
convenience only and shall have no affect upon the construction or
interpretation of any part hereof.
N. Landlord has delivered a copy of this Lease to Tenant for Tenant's
review only, and the delivery hereof does not constitute an offer to
Tenant or option. This Lease shall not be effective until an
original of this Lease executed by both Landlord and Tenant and an
original Guaranty, if any, executed by each Guarantor is delivered
to and accepted by Landlord, and this Lease has been approved by
Landlord's Mortgagees, if required.
0. QUIET ENJOYMENT. Tenant shall, and may peacefully have, hold, and
enjoy the Premises, subject to the other terms of this Lease
(including, without limitation, Article XXX hereof), provided that
Tenant pays the Rent herein recited to be paid by Tenant and
performs all of Tenant's covenants and agreements herein contained.
This covenant and any and all other covenants of Landlord shall be
binding upon Landlord and its successors only during its or their
respective periods of ownership of the Landlord's interest
hereunder.
XXXVII. Entire Agreement.
This Lease Agreement, including the following Exhibits:
EXHIBIT A - Outline and Location of Premises
EXHIBIT B - Rules and Regulations
EXHIBIT C - Intentionally Omitted
EXHIBIT D - Work Letter Agreement
EXBIBIT E - Commencement Date Agreement (for recording) (if applicable)
EXHIBIT F - Additional Provisions
constitutes the entire agreement between the parties hereto with respect
to the subject matter of this Lease and supersedes all prior agreements
and understandings between the parties related to the Premises, including
all lease proposals, letters of intent and similar documents. TENANT
EXPRESSLY ACKNOWLEDGES AND AGREES THAT LANDLORD HAS NOT MADE AND IS NOT
MAKING, AND TENANT, IN EXECUTING AND DELIVERING THIS LEASE, IS NOT RELYING
UPON, ANY WARRANTIES, REPRESENTATIONS, PROMISES OR STATEMENTS, EXCEPT TO
THE EXTENT THAT THE SAME ARE EXPRESSLY SET FORTH IN THIS LEASE. ALL
UNDERSTANDINGS AND AGREEMENTS HERETOFORE MADE BETWEEN THE PARTIES ARE
MERGED IN THIS LEASE WHICH ALONE FULLY AND COMPLETELY EXPRESSES THE
AGREEMENT OF THE PARTIES, NEITHER PARTY RELYING UPON ANY STATEMENT OR
REPRESENTATION NOT EMBODIED IN THIS LEASE. THIS LEASE MAY BE MODIFIED ONLY
BY A WRITTEN AGREEMENT SIGNED BY LANDLORD AND TENANT. LANDLORD AND TENANT
EXPRESSLY AGREE THAT THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF
MERCHANTABILITY, HABITABILITY, SUITABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE, ALL OF WHICH ARE
HEREBY WAIVED BY TENANT, AND THAT THERE ARE NO WARRANTIES WHICH EXTEND
BEYOND THOSE EXPRESSLY SET FORTH IN THIS LEASE.
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
day and year first above written.
WITNESS/ATTEST: LANDLORD:
Sarah L. Wills BEAMETFED, INC., a Maryland corporation
SARAH L. WILLS By: /s/ Christopher P. Mundy
- ----------------------------------- -------------------------------------
Name (print): Name: CHRISTOPHER P. MUNDY
Title: SENIOR VICE PRESIDENT
WITNESS/ATTEST: TENANT:
MERRILL CORPORATION, a Minnesota
Steven J. Machov, Sec. corporation
RICK ATTERBURY By: /s/ Rick Atterbury V.P.
- ----------------------------------- -------------------------------------
Name (print): (Name) (Title)
Hereunto Duly Authorized
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EXHIBIT A
PREMISES
This Exhibit is attached to and made a part of the Lease dated July 30,
1998, by and between BEAMETFED, INC., a Maryland corporation ("Landlord") and
MERRILL CORPORATION, a Minnesota corporation ("Tenant") for space in the
Building located at 101 Federal Street, Boston, Massachusetts.
[GRAPHIC OMITTED]
101 FEDERAL STREET
BOSTON MASSACHUSETTS FLOOR 21
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EXHIBIT B
BUILDING RULES AND REGULATIONS
The following rules and regulations shall apply, where applicable, to the
Premises, the Building, the parking garage associated therewith (if any), the
Property and the appurtenances thereto:
1. Sidewalks, doorways, vestibules, halls, stairways and other similar areas
shall not be obstructed by Tenant or used by Tenant for any purpose other
than ingress and egress to and from the Premises. No rubbish, liter,
trash, or material of any nature shall be placed, emptied, or thrown in
those areas. At no time shall Tenant permit Tenant's employees to loiter
in common areas or elsewhere in or about the Building or Property.
2. Plumbing fixtures and appliances shall be used only for the purposes for
which designed, and no sweepings, rubbish, rags or other unsuitable
material shall be thrown or placed therein. Damage resulting to any such
fixtures or appliances from misuse by Tenant or its agents, employees or
invitees, shall be paid for by Tenant, and Landlord shall not in any case
be responsible therefor.
3. No signs, advertisements or notices shall be painted or affixed on or to
any windows, doors or other parts of the Building, except those of such
color, size, style and in such places as shall be first approved in
writing by Landlord. No nails, hooks or screws shall be driven or inserted
into any part of the Premises or Building except by the Building
maintenance personnel, nor shall any part of the Building be defaced by
Tenant.
4. Landlord may provide and maintain in the first floor (main lobby) of the
Building an alphabetical directory board listing all Tenants, and no other
directory shall be permitted unless previously consented to by Landlord in
writing.
5. Tenant shall not place any additional lock or locks on any door in the
Premises or Building without Landlord's prior written consent. A
reasonable number of keys to the locks on the doors in the Premises shall
be furnished by Landlord to Tenant at the cost of Tenant, and Tenant shall
not have any duplicate keys made. All keys shall be returned to Landlord
at the expiration or earlier termination of this Lease.
6. All contractors, contractor's representatives, and installation
technicians performing work in the Building shall be subject to Landlord's
prior approval and shall be required to comply with Landlord's standard
rules, regulations, policies and procedures, as the same may be revised
from time to time. Tenant shall be solely responsible for complying with
all applicable laws, codes and ordinances pursuant to which said work
shall be performed. Notwithstanding anything to the contrary herein or in
the Lease contained, Landlord has no obligation to allow any particular
telecommunication service provider to have access to the Building or to
Tenant's premises. If Landlord permits such access, Landlord may condition
such access upon the payment to Landlord by the service provider of fees
assessed by Landlord in its sole discretion.
7. Movement in or out of the Building of furniture or office equipment, or
dispatch or receipt by Tenant of any merchandise or materials which
require the use of elevators, stairways, lobby areas, or loading dock
areas, shall be restricted to hours designated by Landlord. Tenant must
seek Landlord's prior approval by providing in writing a detailed listing
of any such activity. If approved by Landlord, such activity shall be
under the supervision of Landlord and performed in the manner stated by
Landlord. Landlord may prohibit any article, equipment or any other item
from being brought into the Building. Tenant is to assume all
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risk for damage to articles moved and injury to any persons resulting from
such activity. If any equipment, property, and/or personnel of Landlord or
of any other tenant is damaged or injured as a result of or in connection
with such activity, Tenant shall be solely liable for any and all damage
or loss resulting therefrom.
8. Landlord shall have the power to prescribe the weight and position of
safes and other heavy equipment or items, which in all cases shall not in
the opinion of Landlord exceed acceptable floor loading and weight
distribution requirements. All damage done to the Building by the
installation, maintenance, operation, existence or removal of any property
of Tenant shall be repaired at the expense of Tenant.
9. Corridor doors, when not in use, shall be kept closed.
10. Tenant shall not: (1) make or permit any improper, objectionable or
unpleasant noises or odors in the Building, or otherwise interfere in any
way with other tenants or persons having business with them; (2) solicit
business or distribute, or cause to be distributed, in any portion of the
Building any handbills, promotional materials or other advertising; or (3)
conduct or permit any other activities in the Building that might
constitute a nuisance.
11. No animals, except seeing eye dogs, shall be brought into or kept in, on
or about the Premises.
12. No inflammable, explosive or dangerous fluid or substance shall be used or
kept by Tenant in the Premises or Building. Tenant shall not, without
Landlord's prior written consent, use, store, install, spill, remove,
release or dispose of within or about the Premises or any other portion of
the Property, any asbestos-containing materials or any solid, liquid or
gaseous material now or hereafter considered toxic or hazardous under the
provisions of 42 U.S.C. Section 9601 et seq., M.G.L. c. 21C, M.G.L.c.21E,
or any other applicable environmental law which may now or hereafter be in
effect. If Landlord does give written consent to Tenant pursuant to the
foregoing sentence, Tenant shall comply with all applicable laws, rules
and regulations pertaining to and governing such use by Tenant, and shall
remain liable for all costs of cleanup or removal in connection therewith.
13. Tenant shall not use or occupy the Premises in any manner or for any
purpose which would injure the reputation or impair the present or future
value of the Premises or the Building; without limiting the foregoing,
Tenant shall not use or permit the Premises or any portion thereof to be
used for lodging, sleeping or for any illegal purpose.
14. Tenant shall not take any action which would violate Landlord's labor
contracts affecting the Building or which would cause any work stoppage,
picketing, labor disruption or dispute, or any interference with the
business of Landlord or any other tenant or occupant of the Building or
with the rights and privileges of any person lawfully in the Building.
Tenant shall take any actions necessary to resolve any such work stoppage,
picketing, labor disruption, dispute or interference and shall have
pickets removed and, at the request of Landlord, immediately terminate at
any time any construction work being performed in the Premises giving rise
to such labor problems, until such time as Landlord shall have given its
written consent for such work to resume. Tenant shall have no claim for
damages of any nature against Landlord or any of the Landlord Related
Parties in connection therewith, nor shall the date of the commencement of
the Term be extended as a result thereof.
15. Tenant shall utilize the termite and pest extermination service designated
by Landlord to control termites and pests in the Premises. Except as
included in
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Basic Costs, Tenant shall bear the cost and expense of such extermination
services.
16. Tenant shall not install, operate or maintain in the Premises or in any
other area of the Building, any electrical equipment which does not bear
the U/L (Underwriters Laboratories) seal of approval, or which would
overload the electrical system or any part thereof beyond its capacity for
proper, efficient and safe operation as determined by Landlord, taking
into consideration the overall electrical system and the present and
future requirements therefor in the Building. Tenant shall not furnish any
cooling or heating to the Premises, including, without limitation, the use
of any electronic or gas heating devices, without Landlord's prior written
consent. Tenant shall not use more than its proportionate share of
telephone lines available to service the Building.
17. Tenant shall not operate or permit to be operated on the Premises any coin
or token operated vending machine or similar device (including, without
limitation, telephones, lockers, toilets, scales, amusement devices and
machines for sale of beverages, foods, candy, cigarettes or other goods),
except for those vending machines or similar devices which are for the
sole and exclusive use of Tenant's employees, and then only if such
operation does not violate the lease of any other tenant of the Building.
18. Bicycles and other vehicles are not permitted inside or on the walkways
outside the Building, except in those areas specifically designated by
Landlord for such purposes.
19. Landlord may from time to time adopt appropriate systems and procedures
for the security or safety of the Building, its occupants, entry and use,
or its contents. Tenant, Tenant's agents, employees, contractors, guests
and invitees shall comply with Landlord's reasonable requirements relative
thereto.
20. Landlord shall have the right to prohibit the use of the name of the
Building or any other publicity by Tenant that in Landlord's opinion may
tend to impair the reputation of the Building or its desirability for
Landlord or other tenants. Upon written notice from Landlord, Tenant will
refrain from and/or discontinue such publicity immediately.
21. Tenant shall carry out Tenant's permitted repair, maintenance,
alterations, and improvements in the Premises only during times agreed to
in advance by Landlord and in a manner which will not interfere with the
rights of other tenants in the Building.
22. Canvassing, soliciting, and peddling in or about the Building is
prohibited. Tenant shall cooperate and use its best efforts to prevent the
same.
23. At no time shall Tenant permit or shall Tenant's agents, employees,
contractors, guests, or invitees smoke in any common area of the Building,
unless such common area has been declared a designated smoking area by
Landlord, or to allow any smoke from the Premises to emanate into the
common areas or any other tenant's premises. Landlord shall have the right
at any time to designate the Building as a non-smoking building.
24. Tenant shall observe Landlord's rules with respect to maintaining standard
window coverings at all windows in the Premises so that the Building
presents a uniform exterior appearance. Tenant shall ensure that to the
extent reasonably practicable, window coverings are closed on all windows
in the Premises while they are exposed to the direct rays of the sun.
25. All deliveries to or from the Premises shall be made only at such times,
in the areas and through the entrances and exits designated for such
purposes by Landlord. Tenant shall not permit the process of receiving
deliveries to or from
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the Premises outside of said areas or in a manner which may interfere with
the use by any other tenant of its premises or of any common areas, any
pedestrian use of such area, or any use which is inconsistent with good
business practice.
26. The work of cleaning personnel shall not be hindered by Tenant after 5:30
P.M., and such cleaning work may be done at any time when the offices are
vacant. Windows, doors and fixtures may be cleaned at any time. Tenant
shall provide adequate waste and rubbish receptacles necessary to prevent
unreasonable hardship to Landlord regarding cleaning service.
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EXHIBIT C
INTENTIONALLY OMITTED
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EXHIBIT D
WORK LETTER
This Exhibit is attached to and made a part of the Lease dated July 30,
1998, by and between BEAMETFED, INC., a Maryland corporation by ("Landlord") and
MERRILL CORPORATION, a Minnesota corporation ("Tenant") for space in the
Building located at 101 Federal Street, Boston, Massachusetts.
1. This Work Letter shall set forth the obligations of Landlord and Tenant
with respect to the preparation of the Premises for Tenant's occupancy.
All improvements described in this Work Letter to be constructed in and
upon the Premises by Landlord are hereinafter referred to as the "Landlord
Work." It is agreed that construction of the Landlord Work will be
completed at Tenant's sole cost and expense, subject to the Allowance (as
defined below). Landlord shall enter into a direct contract for the
Landlord Work with a general contractor selected by Landlord. In addition,
Landlord shall have the right to select and/or approve of any
subcontractors used in connection with the Landlord Work.
2. Tenant shall be solely responsible for the preparation and submission to
Landlord of the final architectural, electrical and mechanical
construction drawings, plans and specifications (called "Plans") necessary
to construct the Landlord Work, which plans shall be subject to approval
by Landlord and Landlord's architect and engineers and shall comply with
their requirements to avoid aesthetic or other conflicts with the design
and function of the balance of the Building. Tenant shall be responsible
for all elements of the design of Tenant's plans (including, without
limitation, compliance with law, functionality of design, the structural
integrity of the design, the configuration of the premises and the
placement of Tenant's furniture, appliances and equipment), and Landlord's
approval of Tenant's plans shall in no event relieve Tenant of the
responsibility for such design. If requested by Tenant, Landlord's
architect will prepare the Plans necessary for such construction at
Tenant's cost. Whether or not the layout and Plans are prepared with the
help (in whole or in part) of Landlord's architect, Tenant agrees to
remain solely responsible for the preparation and submission of the Plans
and for all elements of the design of such Plans and for all costs related
thereto. (The word "architect" as used in this Article 4 shall include an
interior designer or space planner.)
3. Landlord shall use reasonable efforts to have the Landlord substantially
completed on or before the date ("Target Completion Date") ninety (90)
days after the date that Tenant delivers final approved Plans to Landlord
for the Landlord Work. For the purposes hereof, the "Completion Date"
shall be the date on which the Landlord Work in the Premises has been
substantially completed; provided, however, that if Landlord shall be
delayed in substantially completing the Landlord Work as a result of the
occurrence of any of the following (a "Delay"):
1. Tenant's failure to furnish information in accordance with the
Work Letter Agreement or to respond to any request by Landlord
for any approval or information within any time period
prescribed, or if no time period is prescribed, then within
two (2) Business Days of such request; or
2. Tenant's insistence on materials, finishes or installations
that have long lead times after having first been informed by
Landlord that such materials, finishes or installations will
cause a Delay; or
3. Changes in any plans and specifications requested by Tenant;
or
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4. The performance or nonperformance by a person or entity
employed by Tenant in the completion of any work in the
Premises (all such work and such persons or entities being
subject to the prior approval of Landlord); or
5. Any request by Tenant that Landlord delay the completion of
any of the Landlord Work; or
6. Any breach or default by Tenant in the performance of Tenant's
obligations under this Lease; or
7. Any delay resulting from Tenant's having taken possession of
the Premises for any reason prior to substantial completion of
the Landlord Work; or
8. Any other delay chargeable to Tenant, its agents, employees or
independent contractors;
then, for purposes of determining the Completion Date, the date of
substantial completion shall be deemed to be the day that said Landlord
Work would have been substantially completed absent any such Delay(s). The
Landlord Work shall be deemed to be substantially completed on the date
that Landlord reasonably determines that all Landlord's Work has been
performed (or would have been performed absent any Delays), other than any
details of construction, mechanical adjustment or any other matter, the
noncompletion of which does not materially interfere with Tenant's use of
the Premises. If the Landlord Work is not substantially completed on or
before the Target Completion Date, then Tenant shall be entitled to a
credit against Tenant's obligation to pay Base Rental under the Lease for
the period from the Target Completion Date to the Completion Date. Such
credit shall be Tenant's sole remedy and shall constitute full settlement
of all claims that Tenant might otherwise have against Landlord by reason
of the Premises not being ready for occupancy by Tenant on the Target
Commencement Date. Notwithstanding the foregoing, if there have been no
Delays and the Completion Date does not occur on or before the date eight
(8) months after the date that Tenant delivers final approved Plans to
Landlord for the Landlord Work (the "Outside Completion Date"), Tenant, as
its sole remedy, may terminate this Lease by giving Landlord written
notice of termination on or before the earlier to occur of: (i) the date
thirty (30) days after the Outside Completion Date; and (ii) the
Completion Date. In such event, this Lease shall be deemed null and void
and of no further force and effect and Landlord shall promptly refund any
Security Deposit previously advanced by Tenant under this Lease provided
however, that Landlord shall have no obligation to refund any Rental paid
by Tenant under the Lease, and, so long as Tenant has not previously
defaulted under any of its obligations under this Work Letter, the parties
hereto shall have no further responsibilities or obligations to each other
with respect to this Lease. Landlord and Tenant acknowledge and agree
that: (i) the determination of the Completion Date shall take into
consideration the effect of any Delays by Tenant; and (ii) the Outside
Completion Date shall be postponed by the number of days the Completion
Date is delayed due to events of Force Majeure. Notwithstanding anything
herein to the contrary, if Landlord determines that it will be unable to
cause the Completion Date to occur by the Outside Completion Date,
Landlord shall have the right to immediately cease its performance of the
Landlord Work and provide Tenant with written notice (the "Outside
Extension Notice") of such inability, which Outside Extension Notice shall
set forth the date on which Landlord reasonably believes that the
Completion Date will occur. Upon receipt of the Outside Extension Notice,
Tenant shall have the right to terminate this Lease by providing written
notice of termination to Landlord within five (5) Business Days after the
date of the Outside Extension Notice. In the event that Tenant does not
terminate this Lease within such five (5) Business Day period,
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the Outside Completion Date shall automatically be amended to be the date
set forth in Landlord's Outside Extension Notice.
4. In the event Landlord's estimate and/or the actual cost of construction
shall exceed the Allowance, Landlord, prior to commencing any construction
of Landlord Work, shall submit to Tenant a written estimate setting forth
the anticipated cost of the Landlord Work, including but not limited to
labor and materials, contractor's fees and permit fees. Within three (3)
Business Days thereafter, Tenant shall notify Landlord as to any deletions
or substitutions in the Landlord Work. If Tenant fails to timely notify
Landlord of any such deletions or substitutions, Tenant shall be deemed to
have agreed to pay the Excess Costs, as defined in Paragraph 5 hereof.
5. In the event Landlord's actual cost of construction shall exceed the
Allowance, if any (such amounts exceeding the Allowance being herein
referred to as the "Excess Costs"), Tenant shall pay to Landlord such
Excess Costs upon billing therefor, from time to time, in proportion to
the ratio that the Excess Costs bears to Landlord's actual cost of
construction. For example, if Landlord's actual cost of construction is
$52.00 per rentable square foot of the Premises, the Excess Costs shall be
equal to $13.00 per rentable square foot of the Premises and Tenant shall
pay 25% (i.e., the ratio that the Excess Costs bears to Landlord's actual
cost of construction) and Landlord shall pay 75% of each requisition
submitted by Landlord to Tenant for payment until the Allowance is used in
full. The statements of costs submitted to Landlord by Landlord's
contractors shall be conclusive for purposes of determining the actual
cost of the items described therein. The amounts payable hereunder
constitute Rent payable pursuant to the Lease, and the failure to timely
pay same constitutes an event of default under the Lease.
6. If Tenant shall request any change, addition or alteration in any of the
Plans after approval by Landlord, Landlord shall have such revisions to
the drawings prepared, and Tenant shall reimburse Landlord for the cost
thereof upon demand. Promptly upon completion of the revisions, Landlord
shall notify Tenant in writing of the increased cost which will be
chargeable to Tenant by reason of such change, addition or deletion.
Tenant, within one (1) Business Day, shall notify Landlord in writing
whether it desires to proceed with such change, addition or deletion. In
the absence of such written authorization, Landlord shall have the option
to continue work on the Premises disregarding the requested change,
addition or alteration, or Landlord may elect to discontinue work on the
Premises until it receives notice of Tenant's decision, in which event
Tenant shall be responsible for any Delay in completion of the Premises
resulting therefrom. In the event such revisions result in a higher
estimate of the cost of construction and/or higher actual construction
costs which exceed the Allowance, such increased estimate or costs shall
be deemed Excess Costs pursuant to Paragraph 5 hereof and Tenant shall pay
such Excess Costs upon demand.
7. Following approval of the Plans and the payment by Tenant of the required
portion of the Excess Costs, if any, Landlord shall cause the Landlord
Work to be constructed substantially in accordance with the approved
Plans. Landlord shall notify Tenant of substantial completion of the
Landlord Work.
8. Landlord, provided Tenant is not in default, beyond the expiration of
applicable notice and grace period, agrees to provide Tenant with an
allowance (the "Allowance") in an amount not to exceed Five Hundred
Twenty-Six Thousand Seven Hundred Thirty-Four and 00/100 Dollars
($526,734.00) (i.e., $39.00 per rentable square foot of the Premises) to
be applied toward the cost of the Landlord Work in the Premises. In the
event the Allowance shall not be sufficient to complete the Landlord Work,
Tenant shall pay the Excess Costs as prescribed in paragraph 5 above. In
the event the Allowance exceeds the cost of Landlord
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Work, any remaining Allowance shall accrue to the sole benefit of
Landlord, it being agreed that Tenant shall not be entitled to any credit,
offset, abatement or payment with respect thereto. Landlord shall be
entitled to deduct from the Allowance a construction management fee for
Landlord's oversight of the Landlord Work in an amount equal to two and
one-half percent (2 1/2%) of the total cost of the Landlord Work.
9. In addition to the Allowance, Landlord shall, at Tenant's sole option,
provide Tenant with an additional allowance ("Landlord's Additional
Allowance") of up to Two Hundred Six Thousand Six Hundred Ten and 00/100
($206,610.00) Dollars towards the cost of the Landlord Work. Commencing as
of the Commencement Date (if the Commencement Date is the first day of a
calendar month, or otherwise on the first day of the calendar month next
following the Commencement Date), and continuing on the first day of each
month thereafter throughout the term of the Lease, Tenant shall pay to
Landlord, as additional rent, Construction Rent, as hereinafter defined,
based upon Landlord's Additional Allowance. Tenant's monthly payments of
Construction Rent shall be equal to the amount of equal monthly payments
of principal and interest which would be necessary to repay a loan in the
amount of Landlord's Additional Allowance, together with interest at the
rate of thirteen (13%) percent per annum, on a level direct reduction
basis over a term equal to the term of the Lease. Monthly payments of
Construction Rent shall be payable at the same time and in the same manner
as Base Rental is payable under the Lease. Construction Rent shall not be
abated or reduced for any reason whatsoever (including, without
limitation, untenantability of the premises or termination of the Lease).
Without limiting the foregoing, the rent abatement provisions of Articles
XIX and XXI of the Lease shall not apply to Construction Rent. Since the
payment of Construction Rent represents a reimbursement to Landlord of
costs which Landlord will incur in connection with the construction of the
Premises, if there is any default (beyond the expiration of any applicable
grace periods) of any of Tenant's obligations under the Lease (including,
without limitation, its obligation to pay Construction Rent) of if the
term of this Lease is terminated for any reason whatsoever prior to the
termination of the term of the Lease, Tenant shall pay to Landlord,
immediately upon demand, the unamortized balance of Landlord's Additional
Allowance. Tenant's obligation to pay the unamortized balance of
Landlord's Additional Allowance shall be in addition to all other rights
and remedies which Landlord has based upon any default of Tenant under the
Lease, and Tenant shall not be entitled to any credit or reduction in such
payment based upon amounts collected by Landlord from reletting the
premises after the default of Tenant.
10. This Exhibit D shall not be deemed applicable to any additional space
added to the original Premises at any time or from time to time, whether
by any options under the Lease or otherwise, or to any portion of the
original Premises or any additions to the Premises in the event of a
renewal or extension of the original Term of this Lease, whether by any
options under the Lease or otherwise, unless expressly so provided in the
Lease or any amendment or supplement to the Lease.
11. Tenant hereby designates Ms. Veta Micevic, whose telephone number is
651-649-1221, as Tenant's authorized representative for the purpose of
approving submittals and issuing requests for any changes to the Plans or
Landlord's Work. Landlord and its agents shall rely only upon her
direction. Tenant shall have no obligation to pay costs incurred as the
result of Landlord's reliance upon the authority of any other person as
Tenant's representative. Tenant reserves the right to amend these
designations at any time upon written notice to Landlord.
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IN WITNESS WHEREOF, Landlord and Tenant have entered into this Exhibit as
of the date first written above.
WITNESS/ATTEST: LANDLORD:
Sarah L. Wills BEAMETFED, INC., a Maryland corporation
SARAH L. WILLS By: /s/ Christopher P. Mundy
- ----------------------------------- -------------------------------------
Name: (print): Name: CHRISTOPHER P. MUNDY
Title: SENIOR VICE PRESIDENT
WITNESS/ATTEST: TENANT:
Steven J. Machov, Sec. MERRILL CORPORATION, a Minnesota
corporation
RICK ATTERBURY By: /s/ Rick Atterbury V.P.
- ----------------------------------- -------------------------------------
Name: (print): (Name) (Title)
Hereunto Duly Authorized
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EXHIBIT E
COMMENCEMENT DATE AGREEMENT
Reference is made to that certain Lease by and between ___________________
_______________, a(n) _______________________________, Landlord and
____________________________, a(n) _______________________________, Tenant, and
dated ___________________, a Notice of which is filed for registration with the
[Suffolk Registry District of the Land Court] as Document
No.________________________.
Landlord and Tenant hereby confirm and agree that the Commencement Date
under the Lease is __________________________.
This Commencement Date Agreement is executed as a sealed instrument as of
__________,19__.
WITNESS/ATTEST: LANDLORD:_______________________________
___________________________________ a(n) ___________________________________
Name (print):______________________ By:_____________________________________
___________________________________ _____________________________________
Name (print):______________________ By:__________________________________
__________________________________
By:_______________________________
Name:_____________________________
Title:____________________________
WITNESS/ATTEST: TENANT:______________________________
___________________________________ a(n)____________________________________
Name (print):______________________ By:_____________________________________
___________________________________ Name:___________________________________
Name (print):______________________ Title:__________________________________
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EXHIBIT F
ADDITIONAL PROVISIONS
This Exhibit is attached to and made a part of the Lease dated July 30,
1998, by and between BEAMETFED, INC., a Maryland corporation ("Landlord") and
MERRILL CORPORATION, a Minnesota corporation ("Tenant") for space in the
Building located at 101 Federal Street, Boston, Massachusetts.
1. TENANT'S RENEWAL OPTION
A. Tenant, provided it is not in default and has not sublet the Premises
or assigned this Lease, shall have the right to extend the Lease Term for one
additional period of five (5) years commencing on the day following the
Termination Date and ending on the fifth (5th) anniversary of the Termination
Date (the "Renewal Term"). Such Renewal Option shall be exercised by providing
written notice ("Initial Renewal Notice") to Landlord on or after the date
fifteen (15) months prior to the Termination Date and on or before the date
twelve (12) months prior to the Termination Date.
B. The initial Base Rental rate per rentable square foot for the Premises
during the Renewal Term shall equal the prevailing market rate for such space as
determined in Landlord's reasonable judgment.
C. Tenant shall pay Additional Base Rental for the Premises during the
Renewal Term in accordance with the terms of this Lease.
D. Within thirty (30) days after receipt of Tenant's Initial Renewal
Notice, Landlord shall advise Tenant of the applicable Base Rental rate for the
Premises for the Renewal Term. Tenant, within fifteen (15) days after the date
on which Landlord advises Tenant of the applicable Base Rental rate for the
Renewal Term, shall either (i) give Landlord final binding written notice
("Binding Notice") of Tenant's exercise of its option, or (ii) if Tenant
disagrees with Landlord's determination, provide Landlord with written notice of
rejection (the "Rejection Notice"). If Tenant fails to provide Landlord with
either a Binding Notice or Rejection Notice within such fifteen (15) day period,
Tenant's Renewal Option shall be null and void and of no further force and
effect. If Tenant provides Landlord with a Binding Notice, Landlord and Tenant
shall enter into the Renewal Amendment upon the terms and conditions set forth
herein. If Tenant provides Landlord with a Rejection Notice, Landlord and Tenant
shall work together in good faith to agree upon the Prevailing Market Base
Rental rate for the Premises during the Renewal Term. Upon agreement Tenant
shall provide Landlord with Binding Notice and Landlord and Tenant shall enter
into the Renewal Amendment in accordance with the terms and conditions hereof.
Notwithstanding the foregoing, if Landlord and Tenant are unable to agree upon
the Prevailing Market Base Rental rate for the Premises within thirty (30) days
after the date on which Tenant provides Landlord with a Rejection Notice,
Tenant's Renewal Option shall be null and void and of no force and effect.
E. If Tenant is entitled to and properly exercises its Renewal Option,
Landlord shall prepare an amendment (the "Renewal Amendment") to reflect changes
in the Base Rental, Lease Term, Termination Date and other appropriate terms.
The Renewal Amendment shall be sent to Tenant within a reasonable time after
receipt of the Binding Notice, and executed by Tenant and returned to Landlord
within fifteen (15) days after Tenant's receipt thereof from Landlord.
2. TENANT'S RIGHT OF FIRST OFFER
A. Tenant shall have the one time right of first offer with respect to an
area on the twenty-first (21st) floor of the Building containing 2,750 square
feet of Total
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Rentable Area ("Area A") and an area on the twenty-first (21st) floor of the
Building containing 2,968 square feet of Total Rentable Area ("Area B") (each
area being an "Offering Space"). The Right of First Offer shall be exercised as
follows: at any time after Landlord has determined that the existing tenant in
an Offering Space will not extend or renew the term of its lease for such
Offering Space (but prior to leasing such Offering Space to a party other than
the existing tenant), Landlord shall advise Tenant (the "Advice") of the terms
under which Landlord is prepared to lease an Offering Space to Tenant for the
remainder of the Lease Term, which terms shall reflect the Prevailing Market
(hereinafter defined) rate for such Offering Space as reasonably determined by
Landlord. Notwithstanding anything to the contrary herein contained, the parties
hereby acknowledge that Area A is currently vacant. Therefore, Landlord shall
have no obligation to give Tenant an Advice with respect to Area A until Area A
has been leased to a third party, and thereafter, Landlord determines that the
then existing tenant of Area A will not extend or renew the term of its lease
for Area A. Tenant may lease such Offering Space in its entirety only, under
such terms, by delivering written notice of exercise to Landlord ("Notice of
Exercise") within five (5) days after the date of the Advice, except that Tenant
shall have no such Right of First Offer and Landlord need not provide Tenant
with an Advice, if:
1. Tenant is in default beyond any applicable cure periods under the Lease
at the time Landlord would otherwise deliver the Advice; or
2. the Premises, or any portion thereof, is sublet at the time Landlord
would otherwise deliver the Advice; or
3. the Lease has been assigned prior to the date Landlord would otherwise
deliver the Advice; or
4. Tenant is not occupying the Premises on the date Landlord would
otherwise deliver the Advice; or
5. such Offering Space is not intended for the exclusive use of Tenant
during the Lease Term; or
6. the existing tenant in such Offering Space is interested in extending
or renewing its lease for such Offering Space or entering into a new lease
for such Offering Space.
B. 1. The term for such Offering Space shall commence upon the
commencement date stated in the Advice and thereupon such Offering Space shall
be considered a part of the premises, provided that all of the terms stated in
the Advice shall govern Tenant's leasing of such Offering Space and only to the
extent that they do not conflict with the Advice, the terms and conditions of
this Lease shall apply to such Offering Space.
2. Tenant shall pay Base Rental and Additional Base Rental for the
Offering Space in accordance with the terms and conditions of the Advice, which
terms and conditions shall reflect the prevailing market rate for such Offering
Space as determined in Landlord's reasonable judgment.
3. Such Offering Space (including improvements and personalty, if
any) shall be accepted by Tenant in its condition and as-built configuration
existing on the earlier of the date Tenant takes possession of such Offering
Space or as of the date the term for such Offering Space commences, unless the
Advice specifies any work to be performed by Landlord in such Offering Space, in
which case Landlord shall perform such work in such Offering Space.
C. The rights of Tenant hereunder with respect to such Offering Space
shall terminate on the earlier to occur of: (i) Tenant's failure to exercise its
Right of First Offer
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within the five (5) day period provided in Paragraph A above, and (ii) the date
Landlord would have provided Tenant an Advice if Tenant had not been in
violation of one or more of the conditions set forth in Paragraph A above.
However, Tenant shall have rights from time to time thereafter throughout the
term of the Lease, until Tenant's right to lease any Offering Space has lapsed,
with respect to other Offering Space.
D. Notwithstanding anything to the contrary herein contained, the rights
of Tenant under this Paragraph 2 shall terminate on the date one (1) year prior
to the Termination Date of the original term of the Lease (i.e., Landlord shall
have no obligation to give Tenant an Advice with respect to any Offering Space
from and after the date one (1) year prior to the Termination Date of the
initial term of the Lease).
E. 1. If Tenant exercises its Right of First Offer, Landlord shall prepare
an amendment (the "Offering Amendment") adding the Offering Space to the
premises on the terms set forth in the Advice and reflecting the changes in the
Basic Rent, Total Rentable Area of the Premises, Tenant's Proportionate Shares
and other appropriate terms.
2. A copy of the Offering Amendment shall be (i) sent to Tenant
within a reasonable time after receipt of the Notice of Exercise executed by
Tenant, and (ii) executed by Tenant and returned to Landlord within ten (10)
days thereafter (provided that such Offering Amendment does, indeed, reflect the
terms set forth in the Advice or otherwise agreed between the parties).
3. PARKING
A. During the term of the Lease, the Landlord will make available two (2)
monthly parking passes for use in the garage ("Garage") in the Building and one
(1) monthly parking pass for use in a garage owned by an affiliate of Landlord
known as the 150 Federal Street Garage. If, for any reason, Tenant shall fail
timely to pay the charge for said parking passes, or if, for any reason, Tenant
shall cease to use any of such parking passes, Tenant shall have no further
right to such parking pass under this Paragraph 3. Said parking passes will be
on an unassigned, non-reserved basis.
B. Tenant shall pay Landlord (or at Landlord's option, the Operator) Rent
for each non-reserved parking space in the Garage and for the one (1)
non-reserved space in the 150 Federal Street Garage at the initial rate of Three
Hundred Twenty and 00/100 ($320.00) Dollars per space per month, plus any
applicable tax imposed thereon. Such monthly rate shall be subject to increase
from time to time to reflect the then current prevailing rates in the Garage and
150 Federal Street Garage, as such rates may vary from time to time.
C. Landlord shall not be responsible for money, jewelry, automobiles or
other personal property lost in or stolen from the Garage or the 150 Federal
Street Garage regardless of whether such loss or theft occurs when the Garage or
the 150 Federal Street Garage or other areas therein are locked or otherwise
secured against entry. Except as caused by the negligence or willful misconduct
of Landlord, Landlord shall not be liable for any loss, injury or damage to
persons using the Garage or the 150 Federal Street Garage or automobiles or
other property therein, it being agreed that, to the fullest extent permitted by
law, the use of the Garage and the 150 Federal Street Garage shall be at the
sole risk of Tenant and its employees.
D. Landlord shall have the right from time to time to promulgate
reasonable rules and regulations regarding the Garage and Landlord's affiliate
shall have the right from time to time to promulgate reasonable rules and
regulations regarding the 150 Federal Street Garage, the parking spaces and the
use thereof, including, but not limited to, rules and regulations controlling
the flow of traffic to and from various parking areas, the angle and direction
of parking and the like. Tenant shall comply with and cause its
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employees to comply with all such rules and regulations as well as all
reasonable additions and amendments thereto.
E. Tenant shall not store or permit its employees to store any automobiles
in the Garage or the 150 Federal Street Garage without the prior written consent
of Landlord or Landlord's affiliate, as the case may be, which consent shall not
be unreasonably conditioned, withheld or delayed in emergency circumstances.
Except for emergency repairs, Tenant and its employees shall not perform any
work on any automobiles while located in the Garage or the 150 Federal Street
Garage or on the Property. If it is necessary for Tenant or its employees to
leave an automobile in the Garage or in the 150 Federal Street Garage overnight,
Tenant shall provide Landlord or Landlord's affiliate, as the case may be, with
prior notice thereof designating the license plate number and model of such
automobile.
F. Landlord or Landlord's affiliate, as the case may be, shall have the
right to temporarily close the Garage and the 150 Federal Street Garage or
certain areas therein in order to perform necessary repairs, maintenance and
improvements to the Garage and the 150 Federal Street Garage.
G. Tenant shall have no right to sublet, assign, or otherwise transfer
said parking passes. Landlord shall have the right to terminate Tenant's parking
rights with respect to any parking spaces that Tenant desires to sublet or
assign in violation of the foregoing sentence.
IN WITNESS WHEREOF, Landlord and Tenant have executed this exhibit as of
the day and year first above written.
WITNESS/ATTEST: LANDLORD:
SARAH L. WILLIS BEAMETFED, INC., a Maryland corporation
/s/ Sarah L. Willis By: /s/ Christopher P. Mundy
- ----------------------------------- -------------------------------------
Name (print): Name: CHRISTOPHER P. MUNDY
Title: SENIOR VICE PRESIDENT
WITNESS/ATTEST: TENANT:
Steven J. Machov, Sec. MERRILL CORPORATION, a Minnesota
corporation
RICK ATTERBURY By: /s/ Rick Atterbury V.P.
- ----------------------------------- -------------------------------------
Name (print): (Name) (Title)
Hereunto Duly Authorized
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STANDARD FORM OF OFFICE LEASE
THE REAL ESTATE BOARD OF NEW YORK, INC.
AGREEMENT OF LEASE, ("lease" or "Lease") made as of January 25, 1995, between
THE OVERTON-LA CHOLLA JOINT VENTURE, having an office at c/o Heron Financial
Corporation, Suite 917, Heron Building, 510 W. 6th Street, Los Angeles,
California 90014
party of the first part, hereinafter referred to as OWNER, or LANDLORD, and
DANIELS PRINTING, LIMITED PARTNERSHIP, having an office at
WITNESSETH: party of the second part, hereinafter referred to as TENANT,
Owner hereby leases to Tenant and Tenant hereby hires from Owner
the fourth and fifth floors as shown on the floor plan attached
hereto as Schedule A, which the parties agree consists of a total
of 13, 830 rentable square feet ("demised premises" or "Demised
Premises") in the building known as 70 East 55th Street
("Building") constructed by Owner on the land ("Land") described
in Schedule B attached hereto, the Building and the Land are to
be hereinafter collectively referred to as the "Property", in
the Borough of Manhattan, City of New York, for a term ("Term")
of approximately five (5) years and ten (10) months (or until
such term shall cease and expire as hereinafter provided) to
commence as provided in Article 37 of Rider attached hereto and
made a part hereof at an annual rental rate ("rent" or "fixed
annual rent") of Four Hundred One Thousand and Seventy and
00/100 Dollars ($401,070.00), provided however, the rent
commencement date shall be February 7, 1995.
which Tenant agrees to pay in lawful money of the United States which shall
be legal tender in payment of all debts and dues, public and private, at the
time of payment, in cash or by check (drawn upon a bank which is a member of
the New York Clearing House) in equal monthly installments in advance on the
first day of each month during said term, at the office of Owner or such
other place as Owner may designate, without any set off or deduction
whatsoever, except that Tenant shall pay the first monthly installment(s)
on the execution hereof (unless this lease be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner
pursuant to the terms of another lease with Owner or with Owner's predecessor
in interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder
and the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees,
executors, administrators, legal representatives, successors and assigns,
hereby covenants as follows:
RENT
1. Tenant shall pay the rent and additional rent as above and as hereinafter
provided.
OCCUPANCY
2. Tenant shall use and occupy demised premises for general and executive
offices for Tenant's business (Tenant shall not use the Demised Premises for
printing, except that composition and typesetting may be done by computer and
modem) and for no other purpose.
(See Article 45 of Rider)
TENANT ALTERATIONS:
3. Tenant shall make no changes in or to the demised premises of any nature
without Owner's prior written consent. Subject to the prior written consent
of Owner, and to the provisions of this article, Tenant at Tenant's expense,
may make alterations, installations, additions or improvements which are
non-structural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises by using
contractors or mechanics first approved by Owner. Tenant shall, before making
any alterations, additions, installations or improvements, at its expense,
obtain all permits, approvals and certificates required by any governmental
or quasi-governmental bodies and (upon completion) certificates of final
approval thereof and shall deliver promptly duplicates of all such permits,
approvals and certificates to Owner and Tenant agrees to carry and will cause
Tenant's contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage insurance as
Owner may require. If any mechanic's lien is filed against the demised
premises, or the building of which the same forms a part, for work claimed to
have been done for, or materials furnished to, Tenant, whether or not done
pursuant to this article, the same shall be discharged by Tenant within
thirty days thereafter, at Tenant's expense, by filing the bond required by
law. All fixtures and all paneling, partitions, railings and like
installations, installed in the premises at any time, either by Tenant or by
Owner in Tenant's behalf, shall, upon installation, become the property of
Owner and shall remain upon and be surrendered with the demised premises
unless Owner, by notice to Tenant no later than twenty days prior to the date
fixed as the termination of this lease, elects to relinquish Owner's right
thereto and to have them removed by Tenant, in which event the same shall be
removed from the premises by Tenant prior to the expiration of the lease, at
Tenant's expense. Nothing in this Article shall be construed to give Owner
title to or to prevent Tenant's removal of trade fixtures, moveable office
furniture and equipment, but upon removal of any such from the premises or
upon removal of other installations as may be required by Owner, Tenant shall
immediately and at its expense, repair and restore the premises to the
condition existing prior to installation and repair any damage to the demised
premises or the building due to such removal. All property permitted or
required to be removed, by Tenant at the end of the term remaining in the
premises after Tenant's removal shall be deemed abandoned and may, at the
election of Owner, either be retained as Owner's property or may be removed
from the premises by Owner, at Tenant's expense.
(See Article 57 of Rider)
MAINTENANCE AND REPAIRS
4. Tenant shall, throughout the term of this lease, take good care of the
demised premises and the fixtures and appurtenances therein. Tenant shall be
responsible for all damage or injury to the demised premises or any other
part of the building and the systems and equipment thereof, whether requiring
structural or nonstructural repairs caused by or resulting from
carelessness, omission, neglect or improper conduct of Tenant, Tenant's
subtenants, agents, employees, invitees or licensees, or which arise out of
any work, labor, service or equipment done for or supplied to Tenant or any
subtenant or arising out of the installation, use or operation of the
property or equipment of Tenant or any subtenant. Tenant shall also repair
all damage to the building and the demised premises caused by the moving of
Tenant's fixtures, furniture and equipment. Tenant shall promptly make, at
Tenant's expense, all repairs in and to the demised premises for which Tenant
is responsible, using only the contractor for the trade or trades in
question, selected from a list of at least two contractors per trade
submitted by Owner. Any other repairs in or to the building or the facilities
and systems thereof for which Tenant is responsible shall be performed by
Owner at the Tenant's expense. Owner shall maintain in good working order and
repair the exterior and the structural portions of the building, including
the structural portions of its demised premises, and the public portions of
the building interior and the building plumbing, electrical, heating and
ventilating systems (to the extent such systems presently exist) serving the
demised premises. Tenant agrees to give prompt notice of any defective
condition in the premises for which Owner may be responsible hereunder. There
shall be no allowance to Tenant for diminution of rental value and no
liability on the part of Owner by reason of inconvenience, annoyance or
injury to business arising from Owner or others making repairs, alterations,
additions or improvements in or to any portion of the building or the demised
premises or in and to the fixtures, appurtenances or equipment thereof. It is
specifically agreed that Tenant shall not be entitled to any setoff or
reduction of rent by reason of any failure of Owner to comply with the
covenants of this or any other article of this Lease. Tenant agrees that
Tenant's sole remedy at law in such instance will be by way of an action for
damages for breach of contract. The provisions of this Article 4 shall not
apply in the case of fire or other casualty which are dealt with in Article 9
hereof.
(See Article 57 of Rider)
WINDOW CLEANING:
5. Tenant will not clean nor require, permit, suffer or allow any window in
the demised premises to be cleaned from the outside in violation of Section
202 of the Labor Law or any other applicable law or of the Rules of the Board
of Standards and Appeals, or of any other Board or body having or asserting
jurisdiction.
REQUIREMENTS OF LAW, FIRE INSURANCE, FLOOR LOADS:
6. Prior to the commencement of the lease term, if Tenant is then in
possession, and at all times thereafter, Tenant, at Tenant's sole cost and
expense, shall promptly comply with all present and future laws, orders and
regulations of all state, federal, municipal and local governments,
departments, commissions and boards and any direction of any public officer
pursuant to law, and all orders, rules and regulations of the New York Board
of Fire Underwriters, Insurance Services Office, or any similar body which
shall impose any violation, order or duty upon Owner or Tenant with respect
to the demised premises, whether or not arising out of Tenant's use or manner
of use thereof, (including Tenant's permitted use) or, with respect to the
building if arising out of Tenant's
Fleet Bank of MA, N.A. is acceptable
<PAGE>
use or manner of use of the premises or the building (including the use
permitted under the lease). Nothing herein shall require Tenant to make
structural repairs or alterations unless Tenant has, by its manner of use of
the demised premises or method of operation therein, violated any such laws,
ordinances, orders, rules, regulations or requirements with respect thereto.
Tenant may, after securing Owner to Owner's satisfaction against all damages,
interest, penalties and expenses, including, but not limited to, reasonable
attorney's fees, by cash deposit or by surety bond in an amount and in a
company satisfactory to Owner, contest and appeal any such laws, ordinances,
orders, rules, regulations or requirements provided same is done with all
reasonable promptness and provided such appeal shall not subject Owner to
prosecution for a criminal offense or constitute a default under any lease or
mortgage under which Owner may be obligated, or cause the demised premises or
any part thereof to be condemned or vacated. Tenant shall not do or permit
any act or thing to be done in or to the demised premises which is contrary
to law, or which will invalidate or be in conflict with public liability,
fire or other policies of insurance at any time carried by or for the benefit
of Owner with respect to the demised premises or the building of which the
demised premises form a part, or which shall or might subject Owner to any
liability or responsibility to any person or for property damage. Tenant
shall not keep anything in the demised premises except as now or hereafter
permitted by the Fire Department, Board of Fire Underwriters, Fire Insurance
Rating Organization or other authority having jurisdiction, and then only in
such manner and such quantity so as not to increase the rate for fire
insurance applicable to the building, nor use the premises in a manner which
will increase the insurance rate for the building or any property located
therein over that in effect prior to the commencement of Tenant's occupancy.
Tenant shall pay all costs, expenses, fines, penalties, or damages, which may
be imposed upon Owner by reason of Tenant's failure to comply with the
provisions of this article and if by reason of such failure the fire
insurance rate shall, at the beginning of this lease or at any time
thereafter, be higher than it otherwise would be, then Tenant shall reimburse
Owner, as additional rent hereunder, for that portion of all fire insurance
premiums thereafter paid by Owner which shall have been charged because of
such failure by Tenant. In any action or proceeding wherein Owner and Tenant
are parties, a schedule or "make-up" of rate for the building or demised
premises issued by the New York Fire Insurance Exchange, or other body making
fire insurance rates applicable to said premises shall be conclusive evidence
of the facts therein stated and of the several items and charges in the fire
insurance rates then applicable to said premises. Tenant shall not place a
load upon any floor of the demised premises exceeding the floor load per
square foot area which it was designed to carry and which is allowed by law.
Owner reserves the right to prescribe the weight and position of all safes,
business machines and mechanical equipment. Such installations shall be
placed and maintained by Tenant, at Tenant's expense, in settings sufficient,
in Owner's judgement, to absorb and prevent vibration, noise and annoyance.
SUBORDINATION:
7. This lease is subject and subordinate to all ground or underlying leases
and to all mortgages which may now or hereafter affect such leases or the
real property of which demised premises are a part and to all renewals,
modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument of subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real
property of which the demised premises are a part. In confirmation of such
subordination, Tenant shall execute promptly any certificate that Owner may
request.
PROPERTY--LOSS, DAMAGE, REIMBURSEMENT, INDEMNITY:
8. Owner or its agents shall not be liable for any damage to property of
Tenant or of others entrusted to employees of the building, nor for loss of
or damage to any property of Tenant (which shall include Tenant's Property as
hereinafter defined) by theft or otherwise, nor for any injury or damage to
persons or property resulting from any cause of whatsoever nature, unless
caused by or due to the negligence of Owner, its agents, servants or
employees. Owner or its agents will not be liable for any such damage caused
by other tenants or persons in, upon or about said building or caused by
operations in construction of any private, public or quasi public work.
If at any time any windows of the demised premises are temporarily closed,
darkened or bricked up (or permanently closed, darkened or bricked up, if
required by law) for any reason whatsoever including, but not limited to
Owner's own acts, Owner shall not be liable for any damage Tenant may sustain
thereby and Tenant shall not be entitled to any compensation therefor nor
abatement or diminution of rent nor shall the same release Tenant from its
obligations hereunder nor constitute an eviction. Tenant shall indemnify and
save harmless Owner against and from all liabilities, obligations, damages,
penalties, claims, costs and expenses for which Owner shall not be reimbursed
by insurance, including reasonable attorneys fees, paid, suffered or
incurred as a result of any breach by Tenant, Tenant's agents, contractors,
employees, invitees, or licensees, of any covenant or condition of this
lease, or the carelessness, negligence or improper conduct of the Tenant,
Tenant's agents, contractors, employees, invitees or licensees. Tenant's
liability under this lease extends to the acts and omissions of any
sub-tenant, and any agent, contractor, employee, invitee or licensee of any
sub-tenant. In case any action or proceeding is brought against Owner by
reason of any such claim, Tenant, upon written notice from Owner, will, at
Tenant's expense, resist or defend such action or proceeding by counsel
approved by Owner in writing, such approval not to be unreasonably withheld.
(See Article 49 of Rider)
DESTRUCTION, FIRE AND OTHER CASUALTY:
9. (a) If the demised premises or any part thereof shall be damaged by fire
or other casualty, Tenant shall give immediate notice thereof to Owner and
this lease shall continue in full force and effect except as hereinafter set
forth. (b) If the demised premises are partially damaged or rendered
partially unusable by fire or other casualty, the damages thereto shall be
repaired by and at the expense of Owner and the rent and additional rent
until such repair shall be substantially completed, shall be apportioned from
the day following the casualty according to the part of the premises which is
usable. (c) If the demised premises are totally damaged or rendered wholly
unusable by fire or other casualty, then the rent and additional rent shall
be proportionately paid up to the time of the casualty and thenceforth shall
cease until the date when the premises shall have been repaired and restored
by Owner, subject to Owner's right to elect not to restore the same as
hereinafter provided. (d) If the demised premises are rendered wholly
unusable or (whether or not the demised premises are damaged in whole or in
part) if the building shall be so damaged that Owner shall decide to demolish
it or to rebuild it, then, in any of such events, Owner may elect to
terminate this lease by written notice to Tenant, given within 90 days after
such fire or casualty, specifying a date for the expiration of the lease,
which date shall not be more than 60 days after the giving of such notice,
and upon the date specified in such notice the term of this lease shall
expire as fully and completely as if such date were the date set forth above
for the termination of this lease and Tenant shall forthwith quit, surrender
and vacate the premises without prejudice however, to Landlord's rights and
remedies against Tenant under the lease provisions in effect prior to such
termination, and any rent owing shall be paid up to such date and any
payments of rent made by Tenant which were on account of any period
subsequent to such date shall be returned to Tenant. Unless Owner shall serve
a termination notice as provided for herein, Owner shall make the repairs and
restorations under the conditions of (b) and (c) hereof, with all reasonable
expedition, subject to delays due to adjustment of insurance claims, labor
troubles and causes beyond Owner's control. After any such casualty, Tenant
shall cooperate with Owner's restoration by removing from the premises as
promptly as reasonably possible, all of Tenant's salvageable inventory and
movable equipment, furniture, and other property. Tenant's liability for rent
shall resume five (5) days after written notice from Owner that the premises
are substantially ready for Tenant's occupancy. (e) Nothing contained
hereinabove shall relieve Tenant from liability that may exist as a result of
damage from fire or other casualty. Notwithstanding the foregoing, each party
shall look first to any insurance in its favor before making any claim
against the other party for recovery for loss or damage resulting from fire
or other casualty, and to the extent that such insurance is in force and
collectible and to the extent permitted by law, Owner and Tenant each hereby
releases and waives all right of recovery against the other or any one
claiming through or under each of them by way of subrogation or otherwise.
The foregoing release and waiver shall be in force only if both releasors'
insurance policies contain a clause providing that such a release or waiver
shall not invalidate the insurance. If, and to the extent, that such waiver
can be obtained only by the payment of additional premiums, then the party
benefitting from the waiver shall pay such premium within ten days after
written demand or shall be deemed to have agreed that the party obtaining
insurance coverage shall be free of any further obligation under the
provisions hereof with respect to waiver of subrogation. Tenant acknowledges
that Owner will not carry insurance on Tenant's furniture and/or furnishings
or any fixtures or equipment, improvements, or appurtenances removable by
Tenant and agrees that Owner will not be obligated to repair any damage
thereto or replace the same. (f) Tenant hereby waives the provisions of
Section 227 of the Real Property Law and agrees that the provisions of this
article shall govern and control in lieu thereof.
EMINENT DOMAIN:
10. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose,
then and in that event, the term of this lease shall cease and terminate from
the date of title vesting in such proceeding and Tenant shall have no claim
for the value of any unexpired term of said lease and assigns to Owner,
Tenant's entire interest in any such award.
ASSIGNMENT, MORTGAGE, ETC.:
(See Article 42 of Rider)
ELECTRIC CURRENT:
(See Article 43 of Rider)
ACCESS TO PREMISES:
<PAGE>
(See Article 44 of Rider)
VAULT, VAULT SPACE, AREA:
14. No Vaults, vault space or area, whether or not enclosed or covered, not
within the property line of the building is leased hereunder, anything
contained in or indicated on any sketch, blue print or plan, or anything
contained elsewhere in this lease to the contrary notwithstanding. Owner
makes no representation as to the location of the property line of the
building. All vaults and vault space and all such areas not within the
property line of the building, which Tenant may be permitted to use and/or
occupy, is to be used and/or occupied under a revocable license, and if any
such license be revoked, or if the amount of such space or area be diminished
or required by any federal, state or municipal authority or public utility,
Owner shall not be subject to any liability nor shall Tenant be entitled to
any compensation or diminution or abatement of rent, nor shall such
revocation, diminution or requisition be deemed constructive or actual
eviction. Any tax, fee or charge of municipal authorities for such vault or
area shall be paid by Tenant.
OCCUPANCY:
15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the building of which
the demised premises are a part. Tenant has inspected the premises and
accepts them as is, subject to the riders annexed hereto with respect to
Owner's work, if any. In any event, Owner makes no representation as to the
condition of the premises and Tenant agrees to accept the same subject to
violations, whether or not of record.
BANKRUPTCY:
16. (a) Anything elsewhere in this lease to the contrary notwithstanding,
this lease may be cancelled by Owner by the sending of a written notice to
Tenant within a reasonable time after the happening of any one or more of the
following events: (1) the commencement of a case in bankruptcy or under the
laws of any state naming Tenant as the debtor; or (2) the making by Tenant of
an assignment or any other arrangement for the benefit of creditors under any
state statute, or (3) after the conclusion of all Tenant's bankruptcy
proceedings and any related cases and appeals of such proceeding and cases.
Neither Tenant nor any person claiming through or under Tenant, or by reason
of any statute or order of court, shall thereafter be entitled to possession
of the premises demised but shall forthwith quit and surrender the premises.
If this lease shall be assigned in accordance with its terms, the provisions
of this Article 16 shall be applicable only to the party then owning Tenant's
interest in this lease, provided however, if this Lease is assumed or
assigned under Title 11 of the U.S. Code (bankruptcy code) or any similar
Federal or State statute, then the provisions of this Article 16 may be
applicable, at Owner's option, to both the Tenant and the party then owning
Tenant's interest in this lease.
(b) it is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference
between the rent reserved hereunder for the unexpired portion of the term
demised and the fair and reasonable rental value of the demised premises for
the same period. In the computation of such damages the difference between
any installment of rent becoming due hereunder after the date of termination
and the fair and reasonable rental value of the demised premises for the
period for which such installment was payable shall be discounted to the date
of termination at the rate of four percent (4%) per annum. If such premises
or any part thereof be relet by the Owner for the unexpired term of said
lease, or any part thereof, before presentation of proof of such liquidated
damages to any court, commission or tribunal, the amount of rent reserved
upon such reletting shall be deemed to be the fair and reasonable rental
value for the part or the whole of the premises so re-let during the term of
the re-letting. Nothing herein contained shall limit or prejudice the right
of the Owner to prove for and obtain as liquidated damages by reason of such
termination, an amount equal to the maximum allowed by any statute or rule of
law in effect at the time when, and governing the proceedings in which, such
damages are to be proved, whether or not such amount be greater, equal to, or
less than the amount of the difference referred to above. (See Article 41 of
Rider)
DEFAULT:
17. (1) If Tenant defaults in fulfilling any of the covenants of this lease
other than the covenants for the payment of rent or additional rent; or if
the demised premises becomes vacant or deserted for 30 days in succession; or
if any execution or attachment shall be issued against Tenant or any of
Tenant's property whereupon the demised premises shall be taken or occupied
by someone other than Tenant; or if this lease be rejected under Title 11 of
the U.S. Code (bankruptcy code); or if Tenant shall fail to move into or take
possession of the premises within fifteen (15) days after the commencement of
the term of this lease, then, in any one or more of such events, upon Owner
serving a written 30 days notice upon Tenant specifying the nature of said
default and upon the expiration of said 30 days, if Tenant shall have failed
to comply with or remedy such default, or if the said default or omission
complained of shall be of a nature that the same cannot be completely cured
or remedied within said 30 day period, and if Tenant shall not have
diligently commenced during such default within such 30 day period, and shall
not thereafter with reasonable diligence and in good faith, proceed to remedy
or cure such default, then Owner may serve a written three (3) days' notice of
cancellation of this lease upon Tenant, and upon the expiration of said three
(3) days this lease and the term thereunder shall end and expire as fully and
completely as if the expiration of such three (3) day period were the day
herein definitely fixed for the end and expiration of this lease and the term
thereof and Tenant shall then quit and surrender the demised premises to
Owner but Tenant shall remain liable as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been given, and
the term shall expire as aforesaid; or if Tenant shall make default in the
payment of the rent reserved herein or any item of additional rent herein
mentioned or any part of either or in making any other payment herein
required: and such default in payment remains uncured for 5 days after
written notice from Landlord (provided however, Tenant shall only be entitled
to such notice and grace period only two (2) times in any twelve (12) month
period during the Lease term); then and in any of such events Owner may
without notice, re-enter the demise premises either by force or otherwise,
and dispossess Tenant by summary proceedings or otherwise, and the legal
representative or Tenant or other occupant of demised premises and remove
their effects and hold the premises as if this lease had not been made, and
Tenant hereby waives the service of notice of intention to re-enter or to
institute legal proceedings to that end. If Tenant shall make default
hereunder prior to the date fixed as the commencement of any renewal or
extension of this lease, Owner may cancel and terminate such renewal or
extension agreement by written notice. (See Articles 49 and 56 of Rider)
REMEDIES OF OWNER AND WAIVER OF REDEMPTION:
18. In case of any such default, re-entry, expiration and/or dispossess by
summary proceedings or otherwise, (a) the rent shall become due thereupon and
be paid up to the time of such re-entry, dispossess and/or expiration, (b)
Owner may re-let the premises or any part or parts thereof, either in the
name of Owner or otherwise, for a term or terms, which may at Owner's option
be less than or exceed the period which would otherwise have constituted the
balance of the term of this lease and may grant concessions or free rent or
charge a higher rental than that in this lease, and/or (c) Tenant or the
legal representatives of Tenant shall also pay Owner as liquidated damages
for the failure of Tenant to observe and perform said Tenant's covenants
herein contained, any deficiency between the rent hereby reserved and/or
covenanted to be paid and the net amount, if any, of the rents collected on
account of the lease or leases of the demised premises for each month of the
period which would otherwise have constituted the balance of the term of this
lease. The failure of Owner to re-let the premises of any part or parts
thereof shall not release or affect Tenant's liability for damages. In
computing such liquidated damages there shall be added to the said deficiency
such expenses as Owner may incur in connection with re-letting, such as legal
expenses, attorney's fees, brokerage, advertising and for keeping the demised
premises in good order or for preparing the same for re-letting. Any such
liquidated damages shall be paid in monthly installments by Tenant on the
rent day specified in this lease and any suit brought to collect the amount
of the deficiency for any month shall not prejudice in any way the rights of
Owner to collect the deficiency for any month shall not prejudice in any way
the rights of Owner to collect the deficiency of any subsequent month by a
similar proceeding Owner, in putting the demised premises in good order or
preparing the same for re-rental may, at Owner's option, make such
alterations, repairs, replacements, and/or decorations in the demised
premises as Owner, in Owner's sole judgment, considers advisable and
necessary for the purpose of re-letting the demised premises, and the making
of such alterations, repairs, replacements, and/or decorations shall not
operate or be construed to release Tenant from liability hereunder as
aforesaid. Owner shall in no event be liable in any way whatsoever for
failure to re-let the demised premises, or in the event that the demised
premises are re-let, for failure to collect the rent thereof under such
re-letting, and in no event shall Tenant be entitled to receive any excess,
if any, of such net rents collected over the sums payable by Tenant to Owner
hereunder. In the event of a breach or threatened breach by Tenant of any of
the covenants or provisions hereof, Owner shall have the right of injunction
and the right to invoke any remedy allowed at law or in equity as if
re-entry, summary proceedings and other remedies were not herein provided
for Mention in this lease of any particular remedy, shall not preclude Owner
from any other remedy, in law or in equity. Tenant hereby expressly waives
any and all rights of redemption granted by or under any present or future
laws in the event of Tenant being evicted or dispossessed for any cause, or
in the event of Owner obtaining possession of demised premises, by reason of
the violation by Tenant of any of the covenants and conditions of this lease,
or otherwise. (See Article 49 of Rider)
FEES AND EXPENSES
19. If Tenant shall default in the observance or performance of any term or
covenant on Tenant's part to be observed or performed under or by virtue of
any of the terms or provisions in any article of this lease, then, unless
otherwise provided elsewhere in this lease. Owner may immediately or at any
time thereafter and without notice perform the obligation of Tenant
thereunder. If Owner, in connection with the foregoing or in connection with
any default by Tenant in the covenant to pay rent hereunder, makes any
expenditures or incurs any obligations for the payment of money, including
but not limited to reasonable attorney's fees, in instituting, prosecuting or
defending any action or proceeding, then Tenant will reimburse Owner for such
sums so paid or obligations incurred with interest and costs. The foregoing
expenses incurred by reason of Tenant's default shall be deemed to be
additional rent hereunder and shall be paid by Tenant to Owner within five
(5) days of rendition of any bill or statement to Tenant therefor. If
Tenant's lease term shall have expired at the time of making of such
expenditures or incurring of such obligations, such sums shall be recoverable
by Owner as damages.
BUILDING ALTERATIONS AND MANAGEMENT:
20. Owner shall have the right at any time without the same constituting an
eviction and without incurring liability to Tenant therefor to change the
arrangement and/or location of public entrances, passageways, doors,
doorways, corridors, elevators, stairs, toilets or other public parts of the
building and to change the name, number or designation by which the building
may be known. There shall be no allowance to Tenant to diminution of rental
value and no liability on the part of Owner by reason of inconvenience,
annoyance or injury to business arising from Owner or other Tenants making
any repairs in the building or any such alterations, additions and
improvements. Furthermore, Tenant shall not have any claim against Owner by
reason of Owner's imposition of such controls of the manner of access to the
building by Tenant's social or business visitors as the Owner may deem
necessary for the security of the building and its occupants.
NO REPRESENTATIONS BY OWNER:
21. Neither Owner nor Owner's agents have made any representations or
promises with respect to the physical condition of the building, the land
upon which
<PAGE>
it is erected or the demised premises, the rents, leases, expenses of
operation or any other matter or thing affecting or related to the premises
except as herein expressly set forth and no rights, easements or licenses are
acquired by Tenant by implication or otherwise except as expressly set forth
in the provisions of this lease. Tenant has inspected the building and the
demised premises and is thoroughly acquainted with their condition and agrees
to take the same "as is" and acknowledges that the taking of possession of
the demised premises by Tenant shall be conclusive evidence that the said
premises and the building of which the same form a part were in good and
satisfactory condition at the time such possession was so taken, except as to
latent defects. All understandings and agreements heretofore made between the
parties hereto are merged in this contract, which alone fully and completely
expresses the agreement between Owner and Tenant and any executory agreement
hereafter made shall be ineffective to change, modify, discharge or effect an
abandonment of it in whole or in part, unless such executory agreement is in
writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
END OF TERM:
22. Upon the expiration or other termination of the term of this lease,
Tenant shall quit and surrender to Owner the demised premises, broom clean,
in good order and condition, ordinary wear and damages which Tenant is not
required to repair as provided elsewhere in this lease excepted, and Tenant
shall remove all its property. Tenant's obligation to observe or perform this
covenant shall survive the expiration or other termination of this lease. If
the last day of the term of this Lease or any renewal thereof, falls on
Sunday, this lease shall expire at noon on the preceding Saturday unless it
be a legal holiday in which case it shall expire at noon on the preceding
business day. (See Article 49 of Rider)
QUIET ENJOYMENT:
23. Owner covenants and agrees with Tenant that upon Tenant paying the rent
and additional rent and observing and performing all the terms, covenants and
conditions, on Tenant's part to be observed and performed, Tenant may
peaceably and quietly enjoy the premises hereby demised, subject,
nevertheless, to the terms and conditions of this lease including, but not
limited to, Article 7 hereof and to the ground leases, underlying leases and
mortgages hereinbefore mentioned.
FAILURE TO GIVE POSSESSION:
24. If Owner is unable to give possession of the demised premises on the date
of the commencement of the term hereof, because of the holding-over or
retention of possession of any tenant, undertenant or occupants or if the
demised premises are located in a building being constructed, because such
building has not been sufficiently completed to make the premises ready for
occupancy or because of the fact that a certificate of occupancy has not been
procured or for any other reason, Owner shall not be subject to any liability
for failure to give possession on said date and the validity of the lease
shall not be impaired under such circumstances, nor shall the same be
construed in any wise to extend the term of the lease, but the rent payable
hereunder shall be abated (provided Tenant is not responsible for Owner's
inability to obtain possession) until after Owner shall have given Tenant
written notice that the premises are substantially ready for Tenant's
occupancy. If permission is given to Tenant to enter into the possession of
the demised premises or to occupy premises other than the demised premises
prior to the date specified as the commencement of the term of this lease,
Tenant covenants and agrees that such occupancy shall be deemed to be under
all the terms, covenants, conditions and provisions of this lease, except as
to the covenant to pay rent. The provisions of this article are intended to
constitute "an express provision to the contrary" within the meaning of
Section 223-a of the New York Real Property Law.
NO WAIVER:
25. The failure of Owner to seek redress for violation of, or to insist upon
the strict performance of any covenant or condition of this lease or of any
of the Rules or Regulations, set forth or hereafter adopted by Owner, shall
not prevent a subsequent act which would have originally constituted a
violation from having all the force and effect of an original violation. The
receipt by Owner of rent with knowledge of the breach of any covenant of this
lease shall not be deemed a waiver of such breach and no provision of this
lease shall be deemed to have been waived by Owner unless such waiver be in
writing signed by Owner. No payment by Tenant or receipt by Owner of a lesser
amount than the monthly rent herein stipulated shall be deemed to be other
than on account of the earliest stipulated rent, nor shall any endorsement or
statement of any check or any letter accompanying any check or payment as
rent be deemed an accord and satisfaction, and Owner may accept such check or
payment without prejudice to Owner's right to recover the balance of such
rent or pursue any other remedy in this lease provided. No act or thing done
by Owner or Owner's agents during the term hereby demised shall be deemed an
acceptance of a surrender of said premises, and no agreement to accept such
surrender shall be valid unless in writing signed by Owner. No employee of
Owner or Owner's agent shall have any power to accept the keys of said
premises prior to the termination of the lease and the delivery of keys to
any such agent or employee shall not operate as a termination of the lease or
a surrender of the premises.
WAIVER OF TRIAL BY JURY:
26. It is mutually agreed by and between Owner and Tenant that the respective
parties hereto shall and they hereby do waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto against
the other (except for personal injury or property damage) on any matters
whatsoever arising out of or in any way connected with this lease, the
relationship of Owner and Tenant, Tenant's use of or occupancy of said
premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Owner commences any summary
proceeding for possession of the premises, Tenant will not interpose any
counterclaim of whatever nature or description in any such proceeding
including a counterclaim under Article 4.
INABILITY TO PERFORM:
27. This Lease and the obligation of Tenant to pay rent hereunder and perform
all of the other covenants and agreements hereunder on part of Tenant to be
performed shall in no wise be affected, impaired or excused because Owner is
unable to fulfill any of its obligations under this lease or to supply or is
delayed in supplying any service expressly or impliedly to be supplied or is
unable to make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment
or fixtures if Owner is prevented or delayed from so doing by reason of
strike or labor troubles or any cause whatsoever including, but not limited
to, government preemption in connection with a National Emergency or by
reason of any rule, order or regulation of any department or subdivision
thereof of any government agency or by reason of the conditions of supply and
demand which have been or are affected by war or other emergency.
BILLS AND NOTICES:
28. (See Article 47 of Rider)
SERVICES PROVIDED BY OWNERS
29. As long as Tenant is not in default under any of the covenants of this
lease, Owners shall provide: (a) necessary elevator facilities on business
days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m. and have
one elevator subject to call at all other times; (b) heat to the demised
premises when and as required by law, on business days from 8 a.m. to 6 p.m.
and on Saturdays from 8 a.m. to 1 p.m.; (c) water for ordinary lavatory
purposes, but if Tenant uses or consumes water for any other purposes or in
unusual quantities (of which fact Owner shall be the sole judge), Owner may
install a water meter at Tenant's expense which Tenant shall thereafter
maintain at Tenant's expense in good working order and repair to register
such water consumption and Tenant shall pay for water consumed as shown on
said meter as additional rent as and when bills are rendered; (d) cleaning
service for the demised premises on business days as set forth in Schedule E
at Owner's expense provided that the same are kept in order by Tenant. Tenant
shall pay Owner the cost of removal of any of Tenant's refuse and rubbish
from the building which is not removed by normal cleaning services under
Schedule E; (e) If the demised premises is serviced by Owner's air
conditioning/cooling and ventilating system, air condition/cooling will be
furnished to tenant from May 15th through September 30th on business days
(Mondays through Fridays, holidays excepted) from 8:00 a.m. to 6:00 p.m., and
ventilation will be furnished on business days during the aforesaid hours
except when air conditioning/cooling is being furnished as aforesaid. If
Tenant requires air conditioning/cooling or ventilation for more extended
hours or on Saturdays, Sundays or on holidays, as defined under Owner's
contract with Operating Engineers Local 94-94A, Owner will furnish the same
at Tenant's expense. [POINTER] RIDER to be added in respect to rates and
conditions for such additional service; (f) Owner reserves the right to stop
services of the heating, elevators, plumbing, air conditioning, power systems
or cleaning or other services, if any, when necessary by reason of accident
or for repairs, alterations, replacements or improvements necessary or
desirable in the judgment of Owner for as long as may be reasonably required
by reason thereof. If the building of which the demised premises are a part
supplies manually-operated elevator service, Owner at any time may substitute
automatic-control elevator service and upon ten days' written notice to
Tenant, proceed with alterations necessary therefor without in any wise
affecting this lease or the obligation of Tenant hereunder. The same shall be
done with a minimum of inconvenience to Tenant and Owner shall pursue the
alteration with due diligence.
CAPTIONS:
30. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this lease nor
the intent of any provisions thereof.
DEFINITIONS:
31. The term "office", or "offices", wherever used in this lease, shall not
be construed to mean premises used as a store or stores, for the sale or
display, at any time, of goods, wares or merchandise, of any kind, or as a
restaurant, shop, booth, bootblack or other stand, barber shop, or for other
similar purposes or for manufacturing. The term "Owner" means a landlord or
lessor, and as used in this lease means only the owner, or the mortgagee in
possession, for the time being of the land and building (or the owner of a
lease of the building or of the land and building) of which the demised
premises form a part, so that in the event of any sale or sales of said land
and building or of said lease, or in the event of a lease of said building,
or of the land and building, the said Owner shall be and hereby is entirely
freed and relieved of all covenants and obligations of Owner hereunder, and
it shall be deemed and construed without further agreement between the
parties or their successors in interest, or between the parties and the
purchaser, at any such sale, or the said lessee of the the building, or of
the land and building, that the purchaser or the lessee of the building has
assumed and agreed to carry out any and all covenants and obligations of
Owner, hereunder. The words "re-enter" and "re-entry" as used in this lease
are not restricted to their technical legal meaning. The term "business days"
as used in this lease shall mean all days except Saturdays, Sundays and all
days observed by the City, State or Federal Government as legal holidays and
those designated as holidays by the applicable building service union
employees service contract or by the applicable Operating Engineers contract
with respect to HVAC service.
- ----------
[POINTER] Rider to be added if necessary
<PAGE>
ADJACENT EXCAVATION--SHORING:
32. If an excavation shall be made upon land adjacent to the demised
premises, or shall be authorized to be made, Tenant shall afford to the
person causing or authorized to cause such excavation, license to enter upon
the demised premises for the purpose of doing such work as said person shall
deem necessary to preserve the wall or the building of which demised premises
form a part from injury or damage and to support the same by proper
foundations without any claim for damages or indemnity against Owner, or
diminution or abatement of rent.
RULES AND REGULATIONS:
33. Tenant and Tenant's servants, employees, agents, visitors, and licensees
shall observe faithfully, and comply strictly with, the Rules and Regulations
as set forth in Schedule D hereof and such other and further reasonable Rules
and Regulations as Owner or Owner's agents may from time to time adopt.
Notice of any additional rules or regulations shall be given in such manner
as Owner may elect. In case Tenant disputes the reasonableness of any
additional Rule or Regulation hereafter made or adopted by Owner or Owner's
agents, the parties hereto agree to submit the question of the reasonableness
of such Rule or Regulation for decision to the New York office of the
American Arbitration Association, whose determination shall be final and
conclusive upon the parties hereto. The right to dispute the reasonableness
of any additional Rule or Regulation upon Tenant's part shall be deemed
waived unless the same shall be asserted by service of a notice, in writing
upon Owner within ten (10) days after the giving of notice thereof. Nothing
in this lease contained shall be construed to impose upon Owner any duty or
obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease, as against any other tenant and Owner shall
not be liable to Tenant for violation of the same by any other tenant, its
servants, employees, agents, visitors or licensees. Landlord shall uniformly
enforce the Rules and Regulations against all tenants in the Building.
SECURITY:
[POINTER] 34. Tenant has deposited with Owner the sum of $133,690.00 as
security for the faithful performance and observance by Tenant of the terms,
provisions and conditions of this lease: it is agreed that in the event
Tenant defaults in respect of any of the terms, provisions and conditions of
this lease, including, but not limited to, the payment of rent and additional
rent, Owner may use, apply or retain the whole or any part of the security so
deposited to the extent required for the payment of any rent and additional
rent or any other sum as to which Tenant is in default or for any sum which
Owner may expend or may be required to expend by reason of Tenant's default
in respect of any of the terms, covenants and conditions of this lease,
including but not limited to, any damages or deficiency in the re-letting of
the premises, whether such damages or deficiency accrued before or after
summary proceedings or other re-entry by Owner. In the event that Tenant
shall fully and faithfully comply with all of the terms, provisions,
covenants and conditions of this lease, the security shall be returned to
Tenant after the date fixed as the end of the Lease and after delivery of
entire possession of the demised premises to Owner. In the event of a sale of
the land and building or leasing of the building, of which the demised
premises form a part. Owner shall have the right to transfer the security to
the vendee or lessee and Owner shall thereupon be released by Tenant from all
liability for the return of such security, and Tenant agrees to look to the
new Owner solely for the return of said security, and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
security to a new Owner. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Owner nor its successors or assigns shall be bound
by any such assignment, encumbrance, attempted assignment or attempted
encumbrance. In the event Landlord applies or retains any portion or all of
the security deposited, Tenant shall forthwith fully restore the amount so
applied or retained. Landlord shall place the security deposit in an
interest-bearing account and upon return of said security, such interest
shall be paid to Tenant less one (1) percent per annum for Landlord's
administrative costs. (See Article 54 of Rider).
ESTOPPEL CERTIFICATE
35. (See Article 48 of Rider)
SUCCESSORS AND ASSIGNS:
36. The covenants, conditions and agreements contained in this lease shall
bind and inure to the benefit of Owner and Tenant and their respective heirs,
distributees, executors, administrators, successors, and except as otherwise
provided in this lease, their assigns.
- ------------------------------------
[POINTER] Space to be filled in or deleted
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
<TABLE>
<S> <C>
THE OVERTON-LA CHOLLA [SEAL]
Witness for Owner: JOINT VENTURE
BY: HERON JV ACQUISITIONS, INC.
By: [illegible]
- ------------------------------------------------- -------------------------------------- [L.S.]
Executive Vice President
DANIELS PRINTING,
LIMITED PARTNERSHIP,
Witness for Tenant: By: Daniels Printing Corp., Inc, its [SEAL]
Sole General Partner
/s/ Jeannette C Faber By: /s/ [illegible]
- ------------------------------------------------- -------------------------------------- [L.S.]
JEANNETTE C FABER [illegible]
Vice President
</TABLE>
ACKNOWLEDGMENTS
<TABLE>
<S> <C>
CORPORATE OWNER CORPORATE TENANT
STATE OF NEW YORK SS.: STATE OF NEW YORK SS.:
COUNTY OF COUNTY OF
On this day of , 19 , before me On this day of , 19 , before me
personally came personally came
to me known, who being by me duly sworn, did depose and to me known, who being by me duly sworn, did depose and
say that he resides say that he resides
in in
that he is the of that he is the of
the corporation described in and which executed the the corporation described in and which executed the
foregoing instrument, as OWNER that he knows the seal foregoing instrument, as TENANT that he knows the seal
of said corporation, that the seal affixed to said of said corporation, that the seal affixed to said
instrument is such corporate seal, that it was so instrument is such corporate seal, that it was so
affixed by order of the Board of Directors of said affixed by order of the Board of Directors of said
corporation, and that he signed his name thereto by corporation, and that he signed his name thereto by
like order like order
INDIVIDUAL OWNER INDIVIDUAL TENANT
STATE OF NEW YORK SS.: STATE OF NEW YORK SS.:
COUNTY OF COUNTY OF
On this day of , 19 , before me On this day of , 19 , before me
personally came personally came
to me known and known to me to be the individual to me known and known to me to be the individual
described in and who, as OWNER, described in and who, as TENANT,
executed the foregoing instrument and acknowledged executed the foregoing instrument and acknowledged
to me that he executed the same to me that he executed the same
</TABLE>
<PAGE>
LEASE RIDER FOR 70 EAST 55th STREET
TENANT: Daniels Printing, Limited Partnership
-------------------------------------
SPACE: Entire 4th AND 5th Floors
-------------------------
ARTICLE 37
COMMENCEMENT OF TERM
37.01.A. The "Commencement Date" of the Term shall be the date set
forth on the first page of the printed form of this Lease
B. The "Expiration Date" of the Term shall be December 15, 2000.
C. The "Occupancy Date" shall be the date Tenant first occupies
the Demises Premises for the conduct of its business.
ARTICLE 38
TAX AND EXPENSE
ESCALATION
38.01.A. For purposes hereof, the following definitions shall apply:
(a) The term "Base Tax" shall mean the average of the Taxes
payable for the tax year July 1, 1994 through June 30, 1995 and the
tax year July 1, 1995 through June 30, 1996.
(b) The term "Tax Year" shall mean each period of twelve (12)
months which includes any part of the Term which now or hereafter is
or may be duly adopted as the fiscal year for real estate tax purposes
of the City of New York.
(c) The term "Taxes" shall mean (i) all real estate taxes,
assessments, sewer and water rents, governmental levies, municipal
taxes, county taxes or any other governmental charge, general or
special, ordinary or extraordinary, unforeseen as well as foreseen, of
any kind or nature whatsoever, which are or may be assessed, levied or
imposed upon all or any part of the Property and the sidewalks, plazas
or streets adjacent thereto, including any tax, excise or fee measured
by or payable with respect to any rent (other than any occupancy or
rent tax payable by Tenant pursuant to Article 36.03), and levied
against Landlord and/or the Property under the laws of the United
States, the City or State of New York, or any political subdivision
thereof (excluding Landlord's income tax), and (ii) any expenses
incurred by Landlord, including payments to attorneys and appraisers,
in contesting any of the items set forth in this subclause (c) (i), or
the assessed valuations of all or any part of the Property. If due to
a future change in the method of taxation or in the taxing authority,
a new or additional real estate tax, or a franchise, income, transit,
profit or other tax or governmental imposition, however designated,
shall be levied against Landlord, and/or the Property, in addition to,
or in substitution in whole or in part for any tax which would
constitute Taxes, or in lieu of additional taxes, such tax or
imposition shall be deemed for the purposes hereof to be included
within the term Taxes.
(d) The term "Tenant's Tax Share" shall mean Nine and
Sixty-Four Hundredths percent (9.64%).
(e) The term "Escalation Statement" shall mean a statement
setting forth the amount payable by Tenant for a
-1-
<PAGE>
specified Tax Year or operating Year (as hereinafter defined), as
the case may be, or for some portion thereof pursuant to this
Article 38.
B. Tenant shall pay to Landlord as additional rent for each Tax
Year a sum equal to Tenant's Tax Share of the amount by which the taxes for
such Tax Year exceed the Base Tax ("Tenant's Tax Payment"). Landlord shall
furnish the Tenant an annual Escalation Statement (subject to revision as
hereinafter provided) for each Tax Year setting forth Tenant's Tax Payment
for such Tax Year. Tenant's Tax Payment shall be due and payable on the first
day of each month during such Tax Year in an amount equal to one-twelfth
(1/12th) of such Tenant's Tax Payment for such Tax Year. If an annual
Escalation Statement is furnished to the Tenant after the commencement of the
Tax Year to which it relates, then (a) until such Escalation Statement is
rendered, Tenant shall pay Tenant's Tax Payment for such Tax Year in
installments based upon the last Escalation Statement rendered to Tenant with
respect to Taxes and (b) Tenant shall, within ten (10) days after such annual
Escalation Statement is furnished to Tenant, pay to Landlord an amount equal
to any underpayment of the installments of Tenant's Tax Payment theretofore
paid by Tenant for such Tax Year and, in the event of an overpayment by
Tenant, Landlord shall permit Tenant to credit against subsequent payments
under this Article 38.01 the amount of such overpayment. If there shall be
any increase in Taxes for any Tax Year, whether during or after such Tax
Year, Landlord shall furnish a revised Escalation Statement for such Tax Year
to Tenant, and Tenant's Tax Payment for such Tax Year shall be adjusted and
paid or credited, as appropriate, in the same manner as provided in the
preceding sentence. If during the Term, Taxes are required to be paid (either
to the appropriate taxing authorities or as tax escrow payments to a superior
mortgagee or ground lessor) in full or on any other date or dates than as
presently required, then at landlord's option, Tenant's Tax Payments shall be
correspondingly accelerated or revised so that said Tenant's Tax Payments are
due at least thirty (30) days prior to the date payments are due to the
taxing authorities or the superior mortgagee or ground lessor. The benefit of
any discount for any early payment or prepayment of Taxes shall accrue solely
to the benefit of Landlord and such discount shall not be subtracted from
Taxes.
C. If Landlord shall receive a refund of Taxes for any Tax Year,
Landlord shall permit Tenant to credit against subsequent payments under this
Article 38.01, Tenant's Tax Share of the refund, but not in excess of,
Tenant's Tax Payment paid for such Tax Year.
38.02.A. For purposes hereof, the following definitions shall apply:
(a) The term "Expense Base Factor" shall mean the Expenses for the
calendar year 1995.
(b) The term "Operating Year" shall mean each calendar year which
includes any part of the Term.
(c) The term "Tenant's Expense Share" shall mean Nine and Seventy-Six
Hundredths percent (9.76%).
(d) The term "Expenses" shall mean the total of all the costs and
expenses (and taxes thereon, if any) incurred by Landlord with respect
to the operation and maintenance of the Property and the services
provided to the tenants of the IM Building computed on an accrual basis
including, without limitation, the costs and expenses with respect to:
steam, gas and any other fuel or utilities; water rates and sewer
rents; air conditioning for areas other than those leased to individual
tenants; heating and related ventilation; electricity as indicated by
meter for areas other than those
-2-
<PAGE>
leased to individual tenants or if there be no meter, as determined by a
reputable, independent electrical consultant selected by Landlord whose
determinations shall be binding on Landlord and Tenant ("Landlord's
Electrical Consultant"); elevators and escalators; metal, elevator cab,
lobby, plaza, basement gardens, sidewalk, curb and other public area
maintenance and cleaning; interior and exterior landscaping and
decoration; painting of non-tenant areas; window cleaning; building
standard cleaning service supplied to tenants by Landlord; the purchase
price or rental cost, as applicable, of all building and cleaning
supplies, tools, materials, machinery and equipment; depreciation hand
tools and other movable equipment used in the operation or maintenance
of the Property; fire, extended coverage, boiler and machinery,
sprinkler apparatus, public liability and property damage, loss of
rental, fidelity and plate glass insurance and any other insurance
required by the holder of any mortgage or ground lease covering the
Property or customarily carried with respect to buildings similar to the
Building; wages, salaries, training costs, bonuses, disability benefits,
hospitalization, medical, surgical, union and general welfare benefits
(including group life insurance), any pension, retirement or life
insurance plan and other benefit or similar expense respecting employees
of the Landlord up to and including the level of the building manager;
uniforms and working clothes for such employees and the cleaning and
replacement thereof; expenses imposed on the Landlord pursuant to law or
to any collective bargaining agreement with respect to such employees;
workmen's compensation insurance, payroll, social security, unemployment
and other similar taxes with respect to such employees; salaries of
bookkeepers and accountants; professional and consulting fees, including
legal and accounting fees; charges for independent contractors
performing work included within the definition of Expenses; association
fees or dues; telephone and stationery; guards, watchmen, and other
security personnel services and/or systems; directory; Building
telephone(s); repairs, replacements and improvements which are necessary
or appropriate for the continued operation of the Building as a
first-class office building; and management fees for the management of
the Building, or if no managing agent is employed by Landlord, a sum in
lieu thereof which is not in excess of the then prevailing rates for
management fees in the Borough of Manhattan for first-class office
buildings similar to the Building.
The following costs and expenses shall be excluded or deducted, as
appropriate, from the foregoing costs and expenses:
(i) the cost of electricity, if any, furnished to the Demised
Premises and other space leased to tenants as measured by meters, or
if there be no meters, as determined by Landlord's Electrical
Consultant;
(ii) leasing commissions, relocation costs for tenants, costs
for tenant evictions and tenant fit-out work;
(iii) salaries for Landlord's executives above the grade of
building manager;
(iv) amounts received by Landlord through proceeds of
insurance to the extent the proceeds are compensation for expenses
which were previously included in Expenses hereunder;
(v) cost of repairs or replacements incurred by reason of
fire or other casualty or condemnation to the extent to which
Landlord is compensated therefor through proceeds of insurance or
condemnation award;
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(vi) advertising and promotional expenditures other than for
prospective building employees of the Landlord (which expenditures
shall be included within the definition of Expenses);
(vii) Taxes;
(viii) costs for performing Landlord's Work for any individual
tenant or for performing work or furnishing services to or for
individual tenants at such tenant's expense;
(ix) expenditures for capital improvements except those which
under generally applied real estate practice are expended or regarded
as deferred expenses and except for capital expenditures required by
law, in either of which cases the cost thereof shall be included in
Expenses for the comparative year in which the costs are incurred and
subsequent comparative years, on a straight line basis, to the extent
that such items are amortized over an appropriate period, but not more
than ten (10) years, with interest at an annual rate of one (1) per
centum in excess of the prime interest rate of Chemical Bank, as
publicly announced from time to time or if Chemical Bank shall cease
to exist or cease to announce such rate, any similar rate designated
by Landlord which is publicly announced from time to time by any other
bank in the City of New York having combined capital and surplus in
excess of One Hundred Million Dollars ($100,000,000) ("Prime Rate");
(x) payments on account of rent under a ground lease (if any)
of the Land and/or Building and on account of or under any mortgage on
the Property and the costs and expenses of refinancing same.
If Landlord shall purchase any item of capital equipment or make
any capital expenditures designed to result in savings or reductions in
Expenses, then the costs for same shall be included in Expenses. The costs of
such capital equipment or capital expenditures are to be included in Expenses
for the comparative year in which the costs are incurred and subsequent
comparative years, on a straight line basis, to the extent that such items are
amortized over such period of time as reasonably can be estimated as the time in
which such savings or reductions in Expenses are expected to equal Landlord's
costs for such capital equipment or capital expenditure, with interest at an
annual rate of one (1) per centum over Prime Rate. If Landlord shall lease any
such item of capital equipment designed to result in savings or reductions in
Expenses, then the rentals and other costs paid pursuant to such leasing shall
be included in Expenses for the comparative year in which they were incurred.
If during all or part of any Operating Year, Landlord shall not
furnish any particular item(s) of work or service (which would constitute an
Expense hereunder) to portions of the Building, due to the fact that
construction of the Building is not completed, or such portions are not occupied
or leased, or because such item of work or service is not required or desired by
the Tenant of such portion, or such Tenant is itself obtaining and providing
such item of work or service, or for other reasons, then, for the purpose of
computing the additional rent payable hereunder, the amount of the Expenses for
such item for such period shall be increased by an amount equal to the
additional operating and maintenance expenses which would reasonably have been
incurred during such period by Landlord if it had at its own expense furnished
such item of work or services to such portion of the Building.
B. If the Expenses for any Operating Year exceed the Expense
Base Factor, Tenant shall pay to Landlord as additional
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rent for such Operating Year a sum equal to Tenant's Expense Share of the amount
by which the Expenses for such Operating Year exceed the Expense Base Factor
("Tenant's Expense Payment").
C. Landlord shall furnish to Tenant for each Operating Year an
Escalation Statement (subject to revision as hereinafter provided) setting forth
Landlord's estimate of Tenant's Expense Payment for such Operating Year. Tenant
shall pay to Landlord on the first day of each month during such Operating Year
an amount equal to one-twelfth (1/12) of Landlord's estimate of Tenant's Expense
Payment for such Operating Year. If Landlord shall furnish such estimate for an
Operating Year after the commencement thereof, then (a) until the first day of
the month following the month in which such estimate is furnished to Tenant,
Tenant shall pay to Landlord on the first day of each month an amount equal to
the monthly sum payable by Tenant to Landlord under this Article 38.02C. for the
last month of the preceding Operating Year; (b) Landlord shall notify Tenant in
the Escalation Statement containing such estimate whether the installments of
Tenant's Expense Payment previously paid for such Operating Year were more or
less than the installments which should have been paid for such Operating Year
pursuant to such estimate and (i) if there shall be an underpayment, Tenant
shall pay the amount thereof within ten (10) days after being furnished with
such Escalation Statement or (ii) if there shall be an overpayment, Tenant shall
be entitled to a credit in the amount thereof against subsequent payments under
this Article 38.02; and (c) on the first day of the month following the month in
which such estimate is furnished to Tenant and monthly thereafter for the
balance of such Operating Year, Tenant shall pay to Landlord an amount equal to
one-twelfth (1/12) of Tenant's Expense Payment as shown on such estimate.
Landlord may at any time and from time to time (but not more often than four (4)
times in any Operating Year) furnish to Tenant an Escalation Statement setting
forth Landlord's revised estimate of Tenant's Expense Payment for a particular
Operating Year and Tenant's Expense Payment for such operating year shall be
adjusted and paid or credited, as applicable, in the same manner as provided in
the preceding sentence.
D. After the end of each Operating Year, Landlord shall submit to
Tenant an annual Escalation Statement prepared by Landlord setting forth the
Expenses for the preceding Operating Year and the balance of Tenant's Expense
Payment, if any, due to Landlord from Tenant for such Operating Year. If such
annual Escalation Statement shall show that the sums paid by Tenant under this
Article 38.02 exceeded Tenant's Expense Payment for such Operating Year, Tenant
shall be entitled to a credit in the amount of such excess against subsequent
payments under this Article 38.02. If such annual Escalation Statement shall
show that the sums so paid by Tenant were less than Tenant's Expense Payment for
such Operating Year, Tenant shall pay the amount of such deficiency to the
Landlord within thirty (30) days after being furnished with such annual
Escalation Statement.
E. The annual Escalation Statement with respect to Expenses to be
furnished by Landlord as provided above shall be in reasonable detail but need
not be audited or certified by accountants. Landlord may use operating cost
allocations and estimates if such allocations or estimates are required for this
Article 38.02.
38.03. Tenant shall pay to Landlord within ten (10) now days
of demand, as additional rent, any occupancy tax or rent now in effect or
hereafter enacted, which Landlord is now or hereafter required to pay with
respect to the Demised Premises or this Lease. The term "additional rent"
shall include the additional charges under this Article 38 and any and all of
Tenant's Tax Payments, Tenant's expense Payments and any payments due under
this Lease other than fixed annual rent.
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38.04. If the Commencement Date shall be other than the first day
of a Tax Year or an Operating Year or if the date of the expiration or other
termination of this Lease shall be a day other than the last day of a Tax
Year or an Operating Year, then Tenant's Tax Payment and/or Tenant's Expense
Payment for such partial year shall be equitably adjusted taking into
consideration the portion of such Tax Year or Operating Year falling within
the Term. Landlord shall, as soon as reasonably practicable, cause an
Escalation Statement with respect to Taxes for the Tax Year and/or Expenses
for the operating Year in which the Term expires to be prepared and furnished
to Tenant. Such Escalation Statement shall be prepared as of the expiration
date of the Term if such date is December 31, and if not, as of the first to
occur of June 30 or December 31 after the expiration date of the Term.
Landlord and Tenant shall thereupon make appropriate adjustments of amounts
then owing.
38.05. In no event shall the fixed annual rent ever be reduced by
operation of this Article 38. The rights and obligations of Landlord and
Tenant under the provisions of this Article 38 shall survive the
termination of this Lease, and payments shall be made pursuant to this
Article 38 notwithstanding the fact that an Escalation Statement is
furnished to Tenant after the expiration or other-termination of the Term.
38.06. Landlord's failure to render an Escalation Statement with
respect to any Tax Year or operating Year shall not prejudice Landlord's
right to thereafter render an Escalation Statement with respect thereto or
with respect to any subsequent Tax Year or Operating Year. Landlord shall
issue an Escalation Statement (a) with respect to any Operating Year not
later than two (2) years after the Operating Year to which the Escalation
Statement relates, and (b) with respect to any Tax Year not later than
five (5) years after such Tax Year to which the Escalation Statement
relates; and any Escalation Statement not rendered within these specified
time periods of two (2) years and five (5) years and shall be null and
void.
38.07. The Escalation Statement to be furnished by Landlord shall
be certified by Landlord and shall be prepared in reasonable detail for
Landlord by Landlord's accountant (who may be the certified public
accountants now or then employed by Landlord for the audit of its accounts);
said certified public accountants may rely on Landlord's allocations and
estimates wherever operating cost allocations or estimates are needed for
this Article 38. The Escalation Statement thus furnished to Tenant shall
constitute a final determination as between Landlord and Tenant of the
Expenses for the periods represented thereby, unless within forty-five (45)
days after receipt of such Escalation Statement, Tenant shall notify Landlord
that it disputes the correctness of such Escalation Statement and identify
the items which Tenant claims are incorrect. Upon such notice, Landlord shall
make available to Tenant Landlord's records relating to such particular items
for Tenant's review (which Tenant may review at Tenant's expense). Pending
resolution of such dispute by Tenant, Tenant shall pay Landlord in accordance
with the disputed Escalation Statement without prejudice to Tenant's
position. If Tenant is correct in its dispute, Landlord shall credit any
amounts overpaid by Tenant against subsequent payments due under Article
38.02 (C) for Tenant's Expense Payment or if no further payments are due
from Tenant, Landlord shall promptly refund such overpayment to Tenant.
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ARTICLE 39
TWENTY-FOUR HOUR BUILDING
39.01. Supplementing Article 29 HEREOF AND subject to the
conditions and terms thereof, Landlord shall have available, twenty-four
hours per day on business days, (a) elevator facilities; (b) heating or
air conditioning, as seasonally required under this lease; and (c) a
security guard in lobby area, all without any overtime charges to Tenant.
ARTICLE 40
INSURANCE
40.01.A. Tenant shall obtain and keep in full force and effect
during the Term (or at the time Tenant's Property is placed in the Demised
Premises, if such placement is prior to the commencement of the Term), at its
own cost and expense,(a) public liability insurance, such insurance to
afford protection in an amount of not less than One Million Dollars
($1,000,000) for injury or death arising out of any one occurrence, and
One Million Dollars ($1,000,000) for damage to property, and Five
Million Dollars ($5,000,000) liability and property umbrella policy,
protecting Landlord, the lessor under any underlying lease, the holder of any
mortgage and Tenant as insureds against any and all claims for personal
injury, death or property damage occurring in, upon, adjacent to or connected
with the Demised Premises or any part thereof; and (b) insurance against
loss or damage by fire, and such other risks and hazards as are insurable
under present and future standard forms of fire and extended coverage
insurance policies, to Tenant's Property (as hereinafter defined) for the
full insurable value thereof, protecting Landlord, the holder of any superior
mortgage, the lessor under any underlying lease and Tenant as insureds. Prior
to the time such insurance is first required to be carried by Tenant and
thereafter, at least fifteen (15) days prior to the effective date of any
such policy, Tenant agrees to deliver to Landlord either a duplicate original
of the aforesaid policy or a certificate evidencing such insurance. Said
certificate shall contain an endorsement that such insurance may not be
canceled except upon at least thirty (30) days' prior notice to Landlord.
Tenant's failure to provide and keep in force the aforementioned insurance
shall be regarded as a material default hereunder entitling Landlord to
exercise any or all of the remedies provided in this Lease in the event of
Tenant's default. As used in this Lease, the term "Tenant's Property" shall
mean and be deemed to include all paneling, movable partitions, lighting
fixtures, special-cabinet work, other business and trade fixtures, machinery
and equipment, communications equipment and office equipment, whether or not
attached to or built into the Demised Premises, which are installed in the
Demised Premises by or for the account of Tenant and can be removed without
permanent structural damage to the Building, and all furniture, furnishings
and other articles of movable personal property owned by Tenant and located
in the Demised Premises.
B. Said insurance is to be written in form and substance
satisfactory to Landlord by a good and solvent insurance company of
recognized standing, admitted to do business in the State of New York, which
shall be reasonably satisfactory to Landlord. Tenant shall procure, maintain
and place such insurance and pay all premiums and charges therefor and upon
lie failure to do so Landlord may, but shall not be obligated to, procure,
maintain and place such insurance or make such payments, and in such
event-the Tenant agrees to pay the amount thereof, plus interest at two
(2) per centum in excess of Prime Rate, to Landlord on demand and said sum
shall be in each instance collectible as additional rent on the first day of
the month
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following the date of payment by Landlord. Tenant shall cause to be included
in all such insurance policies a provision to the effect that the same will
be non-cancelable except upon twenty (20) days' written notice to Landlord.
On the Commencement Date the original insurance policies or appropriate
certificates shall be deposited with Landlord. Any renewals, replacements or
endorsements thereto shall also be deposited with Landlord to the end that
said insurance shall be in full force and effect during the Term.
40.02. Each party agrees to use its best efforts to include in each
of its insurance policies (insuring the building and Landlord's property
therein, in the case of Landlord, and insuring Tenant's Property and business
interest in the Demised Premises [business interruption insurance], in the
case of Tenant, against loss, damage or destruction by fire or other
casualty) a waiver of the insurer's right of subrogation against the other
party, or if such waiver should be unobtainable or unenforceable at any time,
then for such time period, (a) an express agreement that such policy shall
not be invalidated if the insured waives or has waived before the casualty
the right of recovery against any party responsible for a casualty covered by
the policy, or (b) any other form of permission for the release of the
other party, or (c) the inclusion of the other party as an additional
insured, but not a party to whom any loss shall be payable. If such waiver,
agreement or permission shall not be, or shall cease to be, obtainable
without additional charge or at all, the insured party shall so notify the
other party promptly after learning thereof. In such case, if the other party
shall agree in writing to pay the insurer's additional charge therefor, such
waiver, agreement or permission shall be included in the policy, or the other
party shall be named as an additional insured in the policy, but not a party
to whom any loss shall be payable. Each such policy which shall so name a
party hereto as an additional insured shall contain, if obtainable,
agreements by the insurer that the policy will not be canceled without at
least twenty (20) days' prior notice to both insureds and that the act or
omission of one insured will not invalidate the policy as to the other
insured.
40.03. As long as Landlord's fire insurance policies then in force
include the waiver of subrogation or agreement or permission to release
liability referred to in Article 40.02 or name the Tenant as an additional
insured, Landlord hereby waives (a) any obligation on the part of Tenant
to make repairs to the Demised Premises necessitated or occasioned by fire or
other casualty that is an insured risk under such policies, and (b) any
right of recovery against Tenant, any other permitted occupant of the Demised
Premises, and any of their servants, employees, agents or contractors, for
any loss occasioned by fire or other casualty that is an insured risk under
such policies. In the event that at any time Landlord's fire insurance
carriers shall not include such or similar provisions in Landlord's fire
insurance policies, the waivers set forth in the foregoing sentence shall be
deemed of no further force or effect.
40.04. As long as Tenant's fire insurance policies then in force
include the waiver of subrogation or agreement or permission to release
liability referred to in Article 40.02, or name the Landlord as an
additional insured, Tenant hereby waives (and agrees to cause any other
permitted occupants of the Demised Premises to execute and deliver to
Landlord written instruments waiving) any right of recovery against Landlord,
the lessor under any underlying lease, the holder of any superior mortgage,
any other tenants or occupants of the Building, and any servants, employees,
agents or contractors of Landlord, or of any such lessor, or of any such
other tenants or occupants, for any loss occasioned by fire or other casualty
which is an insured risk under such policies. In the event that at any time
Tenant's fire insurance carriers shall not include such or similar provisions
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in Tenant's fire insurance policies, the waiver set forth in the foregoing
sentence shall, upon notice given by Tenant to Landlord, be deemed of no further
force or effect with respect to any insured risks under such policies from and
after the giving of such notice. During any period while the foregoing waiver of
right of recovery is in effect, Tenant, or any other permitted occupant of the
Demised Premises, as the case may be, shall look solely to the proceeds of such
policies to compensate Tenant or such other-permitted occupant for any loss
occasioned by fire or other casualty which is an insured risk under such
policies.
40.05. except to the extent expressly provided in Article 40.03,
nothing contained in this Lease shall relieve Tenant of any liability to
Landlord or to its insurance-carriers which Tenant may have under law or the
provisions of this Lease in connection with any damage to the Demised
Premises or the Building by fire or other casualty.
40.06. Except as otherwise provided in Article 40.01, nothing
contained in Articles 40.02, 40.03 and 40.04 shall be deemed to impose upon
Landlord or Tenant any duty to procure or maintain any kinds of insurance or
any particular amounts or limits of any such kinds of insurance. The
insurance policies referred to in Article 40.02 shall be deemed to include
policies procured and maintained by a party for the benefit of its lessor,
mortgagee or pledgee.
ARTICLE 41
CONDITIONS OF LIMITATION
41.01. This Lease and the Term and estate hereby granted are
subject to the limitation that if any event shall occur or any contingency
shall arise whereby this Lease or the estate hereby granted or the unexpired
balance of the Term would, by operation of law or otherwise, devolve upon or
pass to any person, firm or corporation other than Tenant except as is
expressly permitted under Article 42 and Article 41.02, then in any of
said events Landlord may give to Tenant notice of intention to end the Term
at the expiration of three (3) days from the date of the giving of such
notice, and, in the event such notice is given, this Lease and the Term and
estate hereby granted (whether or not the Term shall have commenced) shall
terminate upon the expiration of said three (3) days with the same effect as
if that day were the Expiration Date, but Tenant shall remain liable for
damages as provided in this Lease.
41.02. Supplementing the provisions of Article 16 hereof, if this
Lease is not terminated under Article 16 and is assigned to any person or
entity pursuant to the provisions of the Bankruptcy Code, 11 U.S.C. Section
101 ET SEA. or any statute of similar nature and purpose ("Bankruptcy Code"),
any and all monies or other considerations payable or otherwise to be
delivered in connection with such assignment shall be paid or delivered to
Landlord, shall be and remain the exclusive property of Landlord and shall
not constitute property of Tenant or of the estate of Tenant within the
meaning of the Bankruptcy Code. Any and all monies or other considerations
constituting Landlord's property under the preceding sentence not paid or
delivered to Landlord shall be held in trust for the benefit of Landlord and
be promptly paid to or turned over to Landlord. Any monies received by
Landlord or on behalf of Tenant during the pendency of any proceeding in
bankruptcy shall be deemed paid as co compensation for the use and occupation
of the Demised Premises and the acceptance of any such compensation by
Landlord shall not be deemed an acceptance of rent or a waiver on the part of
Landlord of any rights under this Lease. Notwithstanding anything contained
in this Lease to the contrary, all amounts payable by Tenant to or on behalf
of Landlord under this Lease,
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whether or not expressly denominated, fixed annual rent, additional rent or any
other charges under this Lease shall constitute rent for the purposes of Section
502(b)(7) of the Bankruptcy Code.
41.03. If, at any time, (a) Tenant shall be comprised of two
(2) or more persons, or (b) Tenant's obligations under this Lease shall
have been guaranteed by any person other than Tenant, or (c) Tenant's
interest in this Lease shall have been assigned, the word "Tenant", as used
in Articles 41.01 and 41.02, shall be deemed to mean any one or more of the
persons primarily or secondarily liable Tenant's obligations under
this Lease.
ARTICLE 42
ASSIGNMENT, MORTGAGING, SUBLETTING
42.01. Except as otherwise expressly provided in this Article
42, Tenant shall not without, in each instance, obtaining the prior consent
of Landlord, (a) assign or otherwise transfer this Lease or the term and
estate hereby granted, (b) sublet all or part of the Demised Premises or
allow the same to be used or occupied by others or in violation of Articles 2
and 45, (c) mortgage, pledge or encumber this Lease or all or part of the
Demised Premises in any manner by reason of any act or omission on the part
of Tenant, or (d) advertise, or authorize a broker to advertise, for a
subtenant for all or part of the Demised Premises or for an assignee of this
Lease. For purposes of this Article 42, (i) the transfer of a majority
of the issued and outstanding capital stock of any corporate tenant or
subtenant, or the transfer of a majority of the total interest in any other
entity (partnership or otherwise) which is a tenant or subtenant, however
accomplished, whether in a single transaction or in a series of related or
unrelated transactions, shall be deemed an assignment of this Lease, or of
such sublease, as the case may be, (ii) a takeover agreement shall be
deemed a transfer of this Lease,(iii) any person or legal representative
of Tenant, to whom Tenant's interest under this Lease passes by operation of
law, or otherwise, shall be bound by the provisions of this Article 42, and
(iv) a modification, amendment or extension without Landlord's prior
written consent of a sublease previously consented to by Landlord shall be
deemed a new sublease. Tenant agrees to furnish to Landlord upon demand at
any time and from time to time such information and assurances as Landlord
may reasonably request that neither Tenant, nor any subtenant, shall have
violated the provisions of this Article 42.01.
42.02. The provisions of subclauses 42.01 (a) and (b) shall
not apply to transactions entered into by Tenant with a corporation into or
with which Tenant is merged or consolidated or with an entity to which
substantially all of Tenant's assets are transferred, provided (a) such
merger, consolidation or transfer of assets is for a good business purpose
and not principally for the purpose of transferring the leasehold estate
created hereby, and (b) the assignee or successor entity has a net worth
at least equal to or in excess of the net worth of Tenant either (i)
immediately prior to such merger, consolidation or transfer or (ii) as of
the date hereof, whichever is greater.
42.03. Any assignment or transfer, whether made with Landlord's
consent as required by Article 42.01 or without Landlord's consent
pursuant to Article 42.02, shall not be effective unless and until (a) the
assignee shall execute, acknowledge and deliver to Landlord a recordable
agreement, in form and substance reasonably satisfactory to Landlord, whereby
the assignee shall (i) assume the obligations and performance of this Lease and
agree to be personally bound by all of the covenants, agreements, terms,
provisions and conditions hereof on the part of Tenant to be performed or
observed on and after the
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effective date of any such assignment and (ii) agree that the provisions of this
Article 42 shall, notwithstanding such assignment or transfer, continue to be
binding upon it in the future, and (b) in the case of an assignment or transfer
pursuant to Article 42.02 Tenant or its successor shall have delivered to
Landlord financial statements certified by a reputable firm of certified public
accountants evidencing satisfaction of the net worth requirements referred to in
Article 42.02. Tenant covenants that, notwithstanding any assignment or
transfer, whether or not in violation of the provisions of this Lease, and
notwithstanding the acceptance of fixed annual rent by Landlord from an assignee
or transferee or any other party, Tenant shall remain fully and primarily and
jointly and severally liable for the payment of the fixed annual rent and all
additional rent due and to become due under this Lease and for the performance
and observance of all of the covenants, agreements, terms, provisions and
conditions of this Lease on the part of Tenant to be performed or observed.
42.04. The liability of Tenant, and the due performance by
Tenant of the obligations on its part to be performed under this Lease, shall
not be discharged, released or impaired in any respect by an agreement or
stipulation made by Landlord or any grantee or assignee of Landlord, by way
of mortgage or otherwise, with a third party, extending the time of, or
modifying any of the obligations contained in this Lease, or by any waiver or
failure of Landlord to enforce any of the obligations on Tenant's part to be
performed under this Lease, and Tenant shall continue to be liable hereunder.
If any such agreement or modification operates to increase the obligations of
the Tenant under this Lease, the liability under this Article 42.04 of Tenant
or any of its successors in interest (unless such party shall have expressly
consented in writing to such agreement or modification), shall continue to be
no greater than if such agreement or modification had not been made.
42.05. Landlord shall not unreasonably withhold or delay its
consent to an assignment of this Lease or to a subletting of the whole or a part
of the Demised Premises to not more than two (2) subtenants per floor for
substantially the remainder of the Term of this Lease, provided;
(a) Tenant shall furnish Landlord with the name and business
address of the proposed subtenant or assignee, information with
respect to the nature and character of the proposed subtenant's or
assignee's business, or activities, such references and current
financial information with respect to net worth, credit and financial
responsibility as are reasonably satisfactory to Landlord, and an
executed counterpart of the sublease or assignment agreement;
(b) The proposed subtenant or assignee is a reputable party
whose financial net worth, credit, financial responsibility and
security is, considering the responsibilities involved, reasonably
satisfactory to Landlord;
(c) The nature and character of the proposed subtenant or
assignee, its business or activities and intended use of the Demised
Premises are, in Landlord's reasonable judgment, in keeping with the
standards of the Building and the floor or floors on which the Demised
Premises are located;
(d) The proposed subtenant or assignee is not then an occupant
of any part of the Building or a party who dealt with Landlord or
Landlord's agent (directly or through a broker) with respect to space
in the Building, during the twelve (12) months immediately preceding
Tenant's request for Landlord's consent;
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(e) All costs incurred with respect to providing reasonably
appropriate means of ingress and egress from the sublet space or to
separate the sublet space from the remainder of the Demised Premises
shall be borne by Tenant and shall otherwise be subject to the
provisions of Articles 3 and 57 with respect to alterations,
installations, additions or improvements;
(f) Each assignment or sublease shall specifically state that
(i) it is subject to all of the terms, covenants, agreements,
provisions, and conditions of this Lease, (ii) the subtenant or
assignee, as the case may be, will not have the right to further
assign or sublet all or part of the Demised Premises or to allow
same to be used by others, without the consent of Landlord in each
instance, (iii) a consent by Landlord thereto shall not be deemed
or construed to modify, amend or affect the terms and provisions of
this Lease, or Tenant's obligations hereunder, which shall continue
to apply to the Demised Premises involved, and the occupants
thereof, as if the sublease or assignment had not been made, (iv)
if Tenant defaults in the payment of any rent, Landlord is
authorized to collect any rents due or accruing from any assignee,
subtenant or other occupant of the Demised Premises and to apply
the net amounts collected to the fixed annual rent and additional
rent due hereunder, (v) the receipt by Landlord of any amounts from
an assignee or subtenant, or other occupant of any part of the
Demised Premises shall not be deemed or construed as releasing
Tenant from Tenant's obligations hereunder or the acceptance of
that party as a direct tenant and (vi) the subtenant shall be
required to pay its proportionate share of Tenant's Tax Payment and
Tenant's Expense Payment;
(g) Tenant shall, together with requesting Landlord's consent
hereunder, have paid Landlord any costs incurred by Landlord to review
the requested consent including any attorneys' and other
professionals' fees and expenses incurred by Landlord;
(h) The proposed subtenant or assignee is not a tenant with a
use and occupancy prohibited by Articles 2 and 45;
(i) In the case of a subletting of a portion of the Demised
Premises, the portion so sublet shall be regular in shape and suitable
for normal renting purposes;
(j) Tenant shall have granted to Landlord or its agent, at
Landlord's election, the exclusive right to sublease the Demised
Premises or such portion thereof as Tenant proposes to sublet, or to
assign this Lease, as the case may be, for a period of three (3)
months and Tenant shall pay to Landlord's agent upon execution of such
sublease, assignment, release or other disposition a commission
computed in accordance with Landlord's agent's standard rates and
rules then in effect for the locality in which the Demised Premises
are located;
(k) The subletting or assignment shall not be at a lower rental
rate than that being charged by Landlord at the time for similar space
then available in the Building; and
(l) The proposed assignment or sublease shall provide that it is
subject to the Landlord's rights under Article 42.06. Tenant shall
have complied with the provisions of Article 42.06 and Landlord shall
not have made any of the elections provided for therein.
42.06.A. If Tenant seeks Landlord's consent to assign this
Lease or sublet all or any portion of the Demised Premises, Tenant shall, no
later than sixty (60) days prior to the
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effective date anticipated for such assignment or sublet ("Effective Date")
deliver to Landlord executed counterparts of any such agreement and all
ancillary agreements with the proposed assignee or sublessee, as applicable, and
Landlord shall then have the right to elect by notice to Tenant given within
thirty (30) days after such delivery (x) to consent or refuse to consent to such
assignment or sublease or (y) to elect to:
(a) with respect to a proposed assignment of this Lease:
(i) terminate this Lease as of the Effective Date as if
it were the Expiration Date set forth herein; or
(ii) accept an assignment of this Lease from Tenant in
which event Tenant shall promptly execute and deliver to Landlord
or Landlord's designee an assignment of this Lease in form
reasonably satisfactory to Landlord's counsel which shall be
effective as of the Effective Date;
(b) With respect to a proposed subletting of the entire Demised
Premises:
(i) proceed under subclause (a)(i) OR (a)(ii) above; or
(ii) accept a sublease from Tenant OF the entire Demised
Premises in which event Tenant shall promptly execute and deliver
to Landlord or Landlord's designee a sublease for the remainder
of the Term hereof less one (1) day commencing with the Effective
Date on (x) the rental terms specified in the proposed sublease
or (y) the rental terms specified in this Lease, as elected by
Landlord in its notice to proceed under this subclause (b)(ii);
and
(c) With respect to a proposed subletting of less than the
entire Demised Premises:
(i) terminate this Lease as to the portion of the Demised
Premises affected by such subletting as of the Effective Date in
which case Tenant shall promptly execute and deliver to Landlord
an appropriate modification of this Lease in form satisfactory to
Landlord; or
(ii) accept a sublease from Tenant of the portion of the
Demised Premises affected by such subletting in which event
Tenant shall promptly execute and deliver to Landlord or
Landlord's designee a sublease for the remainder of the term
hereof less one (1) day commencing with the Effective Date at (x)
the rental terms specified in the proposed sublease or (y) the
rental terms specified in this Lease on a per rentable square
foot basis, as elected by Landlord in its notice to proceed under
this subclause (c)(ii).
B. In the event that this Lease shall be assigned to
Landlord or Landlord's designee or if all or part of the Demised Premises
shall be sublet to Landlord or Landlord's designee pursuant to this Article
42.06, the provisions of any such assignment or sublease and the obligations
of Landlord and the rights of Tenant with respect thereto shall not be
binding upon or otherwise affect the rights of any holder of a superior
mortgage or of a superior lease unless such holder shall elect by written notice
to Tenant to succeed to the position of Landlord or its designee thereunder.
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C. If Landlord should elect to have Tenant execute and
deliver a Sublease back to Landlord pursuant to the provisions of Article
42.06A, said sublease shall be in form reasonably satisfactory to Landlord's
counsel and on all the terms contained in this Lease, except that:
(a) The rental terms shall be those specified by Landlord as
provided in subclause 42.06A(c)(ii);
(b) The sublease shall not provide for any work to be done
for the subtenant or for any initial rent concessions or contain
provisions inapplicable to a sublease, except that in the case of a
subletting of a portion of the Demised Premises, Tenant shall pay
to subtenant (i) the cost of erecting such demising walls as are
necessary to separate the subleased premises from the remainder of
the Demised Premises and to provide access thereto and (ii) the
estimated cost of such other work as was to be paid for or
performed by Tenant pursuant to any sublease for which Landlord's
consent was requested;
(c) The subtenant thereunder shall have the right to underlet
the subleased premises, in whole or in part, or assign the sublease,
without Tenant's consent;
(d) The subtenant thereunder shall have the right to make, or
cause to be made, any changes, alterations, decorations, additions and
improvements that such subtenant may desire to authorize;
(e) Such sublease shall expressly negate any intention that any
estate created by or under such sublease be merged with any other
estate held by either of the parties thereto;
(f) Any consent required by Tenant, as sublessor under that
sublease, shall be deemed granted if consent with respect thereto is
granted by Landlord;
(g) There shall be no limitation as to the use of the sublet
premises by the subtenant thereunder; and
(h) Any failure of the subtenant thereunder to comply. with the
provisions of said sublease, other than with respect to the payment of
rent to Tenant, shall not constitute a default thereunder or hereunder
if Landlord has consented to such noncompliance.
D. If pursuant to the exercise of any of Landlord's options
under this Article 42.06, this Lease is terminated as to only a portion of
the Demised Premises, then the fixed annual rent payable hereunder and the
additional rent payable pursuant to Article 38 shall be adjusted in
proportion to the portion of the Demised Premises affected by such
termination.
E. If the Landlord shall give its consent to any assignment
of this Lease or to any sublease, Tenant shall in consideration therefor, pay
to Landlord, as additional rent:
(a) in the case of an assignment, an amount equal to all sums
and other consideration paid to Tenant by the assignee for or by
reason of such assignment (including, but not limited to, sums paid
for the sale of Tenant's fixtures, leasehold improvements, equipment,
furniture, furnishings or other personal property, less in the case of
a sale thereof, the then net unamortized or undepreciated cost thereof
determined on the basis of Tenant's federal income tax returns, or, if
Tenant does not file such returns, on the same basis as carried on
Tenant's books); and
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(b) in the case of a sublease, any rents, additional charges or
other consideration payable under the sublease to Tenant by the
subtenant which is in excess of the fixed annual rent and additional
rent accruing during the term of the sublease in respect of the
subleased space (at the rate per rentable square foot payable by
Tenant hereunder) pursuant to the terms hereof (including, but not
limited to, sums paid for the sale or rental of Tenant's fixtures,
leasehold improvements, equipment, furniture or furnishings or other
personal property, less, in the case of the sale thereof, the then
net unamortized or undepreciated cost thereof determined on the basis
of Tenant's federal income tax returns, or, if Tenant does not file
such returns, on the same basis as carried on Tenant's books).
The sums payable under this Article 42.06E shall be paid to
Landlord as and when paid by the assignee or subtenant to Tenant.
F. If Landlord exercises any of its options under this
Article 42.06, Landlord shall be free to, and shall have no liability to
Tenant if Landlord shall, lease the Demised Premises or any portion thereof
with respect to which one of such options exercised, to Tenant's proposed
assignee or subtenant, as the case may be.
G. (a) If Tenant (for the purposes of this Article 42.06G,
the term Tenant shall include its trustee in bankruptcy) assumes this Lease
and proposes to assign the same pursuant to the provisions of the Bankruptcy
Code to any person or entity who shall have made a BONA FIDE arms-length
offer to accept an assignment of this Lease on terms acceptable to Tenant,
then notice of such proposed assignment shall be given to Landlord by Tenant
no later than twenty (20) days after receipt of such offer by Tenant, but in
any event no later than ten (10) days prior to the date that Tenant shall
make application to a court of competent jurisdiction for authority and
approval to enter into such assignment and assumption. Such notice shall set
forth (i) the name and address of such person, (ii) all of the terms and
conditions of such offer, and (iii) adequate assurance of future performance
by such person under the Lease, including, without limitation, the assurance
referred to in Section 365(b)(3) of the Bankruptcy Code. Landlord shall have
the prior right and option, to be exercised by notice to Tenant given at any
time prior to the effective date of such proposed assignment, to accept an
assignment of this Lease upon the same terms and conditions and for the same
consideration, if any, as the BONA FIDE arms-length offer made by such
person, less any brokerage commissions which would otherwise be payable by
Tenant out of the consideration to be paid by such person in connection with
the assignment of this Lease. Any person or entity to which this Lease is
assigned pursuant to the provisions of the Bankruptcy Code shall be deemed
without further act or deed to have assumed all of the obligations arising
under this Lease from and after the date of such assignment. Any such
assignee shall execute and deliver to Landlord upon demand an instrument
confirming such assumption. If this Lease is assigned to any person or
entity pursuant to the provisions of the Bankruptcy Code, any and all monies
or other consideration payable or otherwise to be delivered in connection
with such assignment shall be paid or delivered to Landlord, shall be and
remain the exclusive property of Landlord and shall not constitute property
of Tenant or of the estate of Tenant within the meaning of the Bankruptcy
Code. Any and all monies or other consideration constituting Landlord's
property under the preceding sentence not paid or delivered to Landlord shall
be held in trust for the benefit of Landlord and shall be promptly paid to or
turned over to Landlord.
(b) The term "adequate assurance of future performance" as used
in this Lease shall mean (in addition to the
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assurances called for in said Section 365(b)(3) of the Bankruptcy Code) that any
proposed assignee shall, among other things, (i) deposit with Landlord on the
assumption of this Lease as security for the faithful performance and observance
by such assignee of the terms and obligations of this Lease, an amount equal to
the fixed annual rent and additional rent for the twelve (12) month period
immediately preceding the assumption of this Lease, which sum shall be held in
accordance with the provisions of Article 34 hereof, (ii) furnish Landlord with
financial statements of such proposed assignee for the prior three (3) fiscal
years, as finally determined after an audit and certified as correct by a
certified public accountant, which financial statements shall show a net worth
at least equal to five (5) times the then fixed annual rent plus additional rent
payable in the year such statements shall be furnished, (iii) grant to Landlord
a security interest in such property of the proposed assignee as Landlord shall
deem necessary to secure such proposed assignee's future performance under this
Lease, and (d) provide such other information or take such action as Landlord,
in its reasonable judgment, shall determine is necessary to provide adequate
assurance of the performance by such proposed assignee of its obligations under
the Lease.
(c) If, at any time after tenant may have assigned Tenant's
interest in this Lease, this Lease shall be disaffirmed or rejected in
any proceeding of the types described in Article 16 of this Lease, or
in any similar proceeding, or in the event of termination of this
Lease by reason of any such proceeding or by reason of lapse of time
following notice of termination given pursuant to said Article 16,
Tenant, upon request of Landlord given within thirty (30) days next
following any such disaffirmance, rejection or termination (and actual
notice thereof to Landlord in the event of a disaffirmance or
rejection or in the event of termination other than by act of
Landlord), shall (i) pay to Landlord all fixed annual rent, additional
rent and other items of rent charges due and owing by the assignee to
Landlord under this Lease to and including the date of such
disaffirmance, rejection or termination, and (ii) as "tenant", enter
into a new lease with Landlord of the Premises for a term commencing
on the effective date of such disaffirmance, rejection or termination
and ending on the Expiration Date, unless sooner terminated as in such
lease provided, at the same annual fixed rent (and other items of rent
changes) and upon the then executory terms, covenants and conditions
as are contained in this Lease, except that (1) Tenant's rights under
the new lease shall be subject to the possessory rights of the
assignee under this Lease and to the possessory rights of any person
claiming through or under such assignee or by virtue of any statute or
of any order of any court, and (2) such new lease shall require all
defaults existing under this Lease to be cured by Tenant with due
diligence, and (3) such new lease shall require Tenant to pay all
fixed annual rent, additional rent and other items of rent changes
reserved in this Lease which, had this Lease not been so disaffirmed,
rejected or terminated, would have accrued under the provisions of
this Lease after the date of such disaffirmance, rejection or
termination with respect to any period prior thereto. If Tenant shall
default in its obligation to enter into said new lease for a period of
ten (10) days next following Landlord's request therefor, then, in
addition to all other rights and remedies by reason of such default,
either at law or in equity, Landlord shall have the same rights and
remedies against Tenant as if Tenant had entered into such new lease
and such new lease had thereafter been terminated as of the
commencement date thereof by reason of Tenant's default thereunder.
The provisions of this Article 42.06G shall survive the expiration or
earlier termination of this Lease.
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ARTICLE 43
ELECTRICITY
43.01. If the Demised Premises form one or more entire floor(s)
Tenant shall purchase its electric current directly from the public utility
serving the Building for all of the electric current consumption of the
Demised Premises, including without limitation, the heating, ventilation and
air-conditioning system ("HVAC") for the Demised Premises, and Tenant shall
be responsible for the payment of all bills therefor. If Tenant shall fail to
pay any such bills, Landlord, at its option, may pay the same and collect
such payment with interest (as set forth in Article 56.02) as additional rent.
43.02. If one or more electric meters measure the consumption of
electric current by Tenant and another lessee of space in the Building (i.e.,
more than one tenant on a floor), or if there is no meter measuring Tenant's
consumption of electric current for any purpose, including without limitation,
lighting in common areas and HVAC on a floor shared by Tenant and another lessee
of space in the Building, Tenant agrees to pay to Landlord or Landlord's
designated agent charges for electric current consumed by Tenant as determined,
at Landlord's option, (a) by Landlord's Electrical Consultant or (b) by the
percentage that the square footage of the Demised Premises bears to the total
square footage of the floor shared by Tenant with other lessee(s) of the
Building. Bills therefor, at the rate charged to Landlord for such electric
current, plus the amount of sales tax imposed thereon by any governmental or
recognized authority, plus ten percent (10%) of the total amount thereof for
administration and processing, shall be rendered at such times as Landlord may
elect and shall be payable by Tenant as additional rent. In the event that bills
hereunder are not paid within five (5) days after the same are rendered,
Landlord may, without further notice, discontinue the service of electric
current to the Demised Premises without releasing Tenant from any liability
under this Lease and without Landlord or Landlord's agent incurring any
liability for any damage or loss sustained by Tenant by such discontinuance of
service. Tenant shall permit Landlord's Electrical Consultant to make surveys in
the Demised Premises from time to time during normal business hours regarding
the electrical equipment and fixtures and the use of electric current therein.
Tenant acknowledges that the Demised Premises form One Hundredths percent (100%)
of the fourth (4th) and fifth (5th) floors.
43.03. If Tenant pays for electric current consumed pursuant to
Article 43.02, Landlord reserves the right to discontinue furnishing electric
current to Tenant at any time upon not less than sixty (60) days' written notice
to Tenant, and from and after the effective date of such termination, Landlord
shall no longer be obligated to furnish Tenant with electric current, provided,
however that such termination date may be extended for a time reasonably
necessary for Tenant to make arrangements to obtain electric service directly
from the public utility company servicing the Building. If Landlord exercises
such right of termination, this Lease shall remain unaffected thereby and shall
continue in full force and effect; and thereafter Tenant shall diligently
arrange to obtain electric service directly from the public utility company
servicing the Building, and may utilize the then existing electric feeders,
risers and wiring serving the Demised Premises to the extent available and
safely capable of being used for such purpose and only to the extent of Tenant's
then authorized connected load. Landlord shall not be obligated to pay any part
of the cost incurred by Tenant in obtaining direct electric service.
43.04. Landlord at Tenant's sole cost and expense shall be
responsible for any repair, maintenance and replacement
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of any electric meter, panel board and all wires, wiring, feeders and risers
serving the Demised Premises, and Tenant shall pay Landlord's reasonable
charges therefor on demand. Tenant covenants that at no time shall the use of
electrical energy in the Demised Premises exceed the capacity of the existing
feeders or wiring installations then serving the Demised Premises. Tenant
shall not make or perform, or permit the making or performance of, any
alterations to wiring installations or other electrical facilities in or
serving the Demised Premises or any additions to the business machines,
office equipment or other appliances (other than typewriters and similar low
energy consuming office machines) in the Demised Premises which utilize
electrical energy, without the prior consent of Landlord in each instance.
43.05. Landlord shall furnish and install all replacement lighting,
tubes, lamps, starters, bulbs, and ballasts required in the Demised Premises and
Tenant shall pay to Landlord or its designated contractor, upon demand, the then
charges established by Landlord therefor as additional rent. Landlord shall have
the right to relamp the Building in sequence.
ARTICLE 44
ACCESS; CHANGE IN FACILITIES
44.01. All parts (except surfaces facing the interior of the
Demised Premises) of all walls, windows and doors bounding the Demised Premises
(including exterior Building walls, core corridor walls, doors and entrances),
all balconies, terraces and roofs adjacent to the Demised Premises, all space in
or adjacent to the Demised Premises used for shafts, stacks, stairways, chutes,
pipes, conduits, ducts, fan rooms, heating, air conditioning, plumbing,
electrical and other mechanical facilities, service closets and other Building
facilities, and the use thereof, as well as access thereto through the Demised
Premises for the purposes of operation, decoration, maintenance, alteration and
repair, are hereby reserved to Landlord. Landlord reserves the right, at any
time, without incurring any liability to Tenant therefor, to make such changes
in or to the Building and the fixtures and equipment of the Building as well as
in the entrances, passageways, halls, doors, doorways, corridors, elevators,
escalators, stairs, toilets and other public parts of the Building, as it may
deem necessary or desirable, provided any such change (a) does not permanently
and unreasonably deprive Tenant of access to the Demised Premises, (b) does not
interfere with the use of the Demised Premises or the services furnished to the
Demised Premises for an unreasonable length of time, and (c) does not reduce the
floor area of the Demised Premises in excess of two percent (2%) (without an
appropriate adjustment in fixed annual rent). Nothing contained in this Article
44.01 shall impose any obligation upon Landlord with respect to the operation,
decoration, maintenance, alteration or repair of the Demised Premises or the
Building.
44.02. Tenant shall permit Landlord to install, use and maintain
pipes, ducts and conduits within or through the Demised Premises, or through the
walls, columns and ceilings therein, provided that the installation work is
performed at such times and by such methods as will not unreasonably interfere
with Tenant's use and occupancy of the Demised Premises, or damage the
appearance thereof, reduce the floor area thereof by more than two percent (2%)
(without an appropriate adjustment in fixed annual rent) or materially affect
the layout of the Demised Premises. Where access doors are required in or
adjacent to the Demised Premises for mechanical trades, Landlord shall furnish
and install such access doors and confine their location, wherever practical to
closets, coat rooms, toilet rooms, corridors and kitchen or pantry rooms.
Landlord and Tenant shall
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cooperate with each other in the location of Landlord's and Tenant's facilities
requiring such access doors.
44.03. Landlord or Landlord's agents shall have the right to enter
the Demised Premises at all times upon reasonable notice (except in an emergency
when no notice if required) for any of the purposes specified in this Article 44
and (a) to examine the Demised Premises or for the purpose of performing any
obligation of Landlord or exercising any right or remedy reserved to Landlord in
this Lease; (b) to exhibit the Demised Premises to others; (c) to make such
decorations, repairs, alterations, improvements or additions, or to perform such
maintenance, including the maintenance of all air conditioning, elevator,
plumbing, electrical, sanitary, mechanical and other service or utility systems
as Landlord may deem necessary or desirable; (d) to take all materials into and
upon the Demised Premises that may be required in connection with any such
decorations, repairs, alterations, improvements, additions or maintenance; and
(e) to alter, renovate and decorate the Demised Premises at any time during the
Term if Tenant shall have removed all or substantially all of Tenant's Property
from the Demised Premises. During the last six (6) months of the Term, Landlord
may place upon the Building and/or the Demised Premises notices of space to be
leased or sold, including without limitation notices identifying the floor
location of the Demised Premises stating "To Let" and "For Sale" which notices
Tenant shall permit to remain without molestation. If Tenant, its officers,
partners, agents or employees shall not be personally present or shall not open
and permit an entry into the Demised Premises at any time when such entry shall
be necessary or permissible, Landlord may use a master key or forcibly enter the
Demised Premises. The lessor under any underlying lease and the holder of any
superior mortgage affecting the underlying lease or the land shall have the
right to enter the Demised Premises at all times to examine the Demised Premises
or for the purpose of exercising any right reserved to Landlord under this
Article 44. In the exercise of any rights reserved to Landlord under this
Article 44, Landlord shall (except in an emergency situation) use reasonable
efforts not to interfere with Tenant's use of the Demised Premises (provided
however, Landlord shall not be required to use overtime labor).
44.04. Landlord, Landlord's agents and consultants and representatives
of Landlord's insurance carriers shall have the right to permit access to the
Demised Premises at any hour, and whether or not Tenant shall be present, to
any receiver, trustee, assignee for the benefit of creditors, sheriff, marshal
or court officer entitled to, or reasonably purporting to be entitled to, such
access for the purpose of taking possession of, or removing, any of Tenant's
Property or property of any other occupant of the Demised Premises, or for any
other lawful purpose, or by any representative of the fire, police, building,
sanitation or other department of the city, state or federal governments.
Neither anything contained in this Article 44.04, nor any action taken by
Landlord under this Article 44.04, shall be deemed to constitute recognition by
Landlord that any person other than Tenant has any right or interest in this
Lease or the Demised Premises.
44.05. The exercise or non-exercise of any right reserved to
Landlord in this Article 44 shall not constitute an actual or constructive
eviction, in whole or in part, or entitle Tenant to any abatement or diminution
of rent, or relieve Tenant from any of its obligations under this Lease, or
impose any liability upon Landlord or Landlord's agents, or upon the lessor
under any underlying lease or the holder of any superior mortgage.
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ARTICLE 45
PROHIBITED USE
45.01. Supplementing the provisions of Article 2, in no event shall
Tenant ever use or occupy the Demised Premises in contravention of the Rules and
Regulations or as a (a) savings bank, state or federal savings and loan
association, commercial bank, trust company or safe deposit business, (b)
facility for the sale or distribution of tickets for railroad, steamship,
airline or bus transportation or as a travel agency or any use related thereto,
(c) employment or recruitment agency, (d) school, college, university or
educational institution whether or not for profit; (e) government (domestic or
foreign) or any subdivision or agency thereof; (f) wholesale or retail sales or
showroom facility; and/or (g) restaurant or any facility selling or serving food
or beverages, except this subclause (g) shall not prevent Tenant from using a
portion of the Demised Premises for private dining facilities for its officers,
employees and guests, provided all municipal or governmental approvals and
consents for such use are obtained and kept in full force and effect and no
alcoholic beverages including wine, beer and liquor are kept, dispensed or
imbibed on or at the Demised Premises unless permitted by law.
45.02. Those portions, if any, of the Demised Premises which are
identified as toilets and utility areas, shall be used by Tenant only for the
purposes for which they are designed.
45.03. Tenant shall not use or permit the use of the Demised
Premises or any part thereof in any way which would violate any of the
covenants, agreements, terms, provisions and conditions of this Lease or for any
unlawful purposes or in any unlawful manner or in violation of any Certificate
of Occupancy for the Demised Premises or the Building, and Tenant shall not
suffer or permit the Demised Premises or any part thereof to be used in any
manner or anything to be done therein or anything to be brought into or kept
therein which, in the judgment of Landlord, shall in any way impair or tend to
impair the character, reputation or appearance of the Building as a high quality
office building, impair or interfere with or tend to impair or interfere with
any of the Building services or the proper and economic heating, cleaning, air
conditioning or other servicing of the Building or the Demised Premises, or
impair or interfere with or tend to impair or interfere with the use of any of
the other areas of the Building by, or occasion discomfort, inconvenience,
annoyance or peril to, any of the other tenants or occupants of the Building.
Tenant shall not install any electrical or other equipment of any kind which, in
the judgment of Landlord, might cause any such impairment, interference,
discomfort, inconvenience, annoyance or peril. Tenant shall not move any safe,
heavy machinery, heavy equipment, bulky matter, or fixtures into or out of the
Building without Landlord's prior written consent. If such safe, machinery,
equipment, bulky matter or fixtures requires special handling, all work in
connection therewith shall comply with the Administrative Code of the City of
New York and all other laws and regulations applicable thereto and shall be done
during such hours as Landlord may designate.
45.04. If any governmental license or permit shall be required for
the proper and lawful conduct of Tenant's business or other activity carried on
in the Demised Premises, and if the failure to secure such license or permit
might or would, in any way, affect Landlord, including without limitation,
Landlord's insurance policies or mortgages, then Tenant, at Tenant's expense,
shall duly procure and thereafter maintain such license or permit and submit the
same for inspection by Landlord. Tenant, at Tenant's expense, shall, at all
times, comply with the requirements of such license or permit.
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ARTICLE 46
BROKERAGE
46.01.A. Tenant represents that in the negotiation of this
Lease it dealt with no brokers other than Galbreath Riverbank, L.P. and
Weatherall Green & Smith (New York) Inc. and that so far as Tenant is aware
said brokers are the sole brokers who negotiated this Lease. Landlord agrees
to pay said brokers commissions in accordance with separate agreements.
Tenant hereby indemnifies Landlord and holds it harmless from and all losses,
damages, liabilities and expenses arising out of any inaccuracy or alleged
inaccuracy of the above representation, including court costs and attorneys'
fees. Landlord shall have no liability for brokerage commissions arising out
of a sublease or assignment by Tenant, and Tenant shall and does hereby
indemnify Landlord and hold it harmless from any and all liability for
brokerage commissions arising out of any such sublease or assignment.
B. Landlord represents that in the negotiations of this
Lease it dealt with no brokers other than Galbreath Riverbank, L.P. and
Weatherall Green & Smith (New York) Inc. and that so far as Landlord is aware
said brokers are the sole brokers who negotiated this Lease. Landlord hereby
indemnifies Tenant and holds it harmless from any and all losses, damages,
liabilities and expenses arising out of any inaccuracy or alleged inaccuracy
of the immediately foregoing representation of Landlord, including court
costs and attorneys' fees.
ARTICLE 47
NOTICES
47.01.A. Except as otherwise expressly provided in this
Lease, any bills, statements, notices, demands, requests, consents or other
communications given or required to be given under this Lease shall be
effective only if rendered or given in writing and
(a) if to Tenant, then, at the option of Landlord,
(i) sent to: Office Manager, by mail, postage prepaid,
addressed to Tenant's address as set forth in this
Lease if mailed prior to the Commencement Date or at
the Building if subsequent to the Commencement Date,
or to such other address as Tenant may designate as
its new address for such purpose by notice given to
Landlord in accordance with the provisions of this
Article 47, or
(ii) delivered personally to Tenant,
(b) if to Landlord, sent by registered or certified mail, return
receipt requested, postage PREPAID, addressed to Landlord's address as
set forth in this Lease or to such other address as Landlord may
designate as its new address for such purpose by notice given to
Tenant in accordance with the provisions of this Article 47.
B. Any such bill, statement, notice, demand, request, consent
or other communication shall be deemed to have been rendered or given:
(a) on the date delivered, if delivered to Tenant personally,
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(b) three (3) days after the date mailed, if mailed to Landlord
or Tenant as provided in this Article 47, unless mailed outside of the
State of New York, in which case it shall be deemed to have been
given, rendered or made on the expiration of five (5) days after
mailing.
ARTICLE 48
ESTOPPEL CERTIFICATE; TENANT FINANCIAL
48.01. At any time and from time to time upon not less than
ten (10) days' prior notice by one party to the other party, the answering
party shall execute, acknowledge and deliver to Landlord a statement in
writing in form satisfactory to the requesting party certifying that this
Lease is unmodified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as modified and
stating the modifications), and the dates to which the fixed annual rent and
additional rent have been paid in advance, if any, and stating whether or not
to the best knowledge of the signer of such certificate the requesting party
is in default in performance of any term, covenant or condition contained in
this Lease and, if so, specifying each such default of which the signer may
have knowledge, it being intended that any such statement delivered pursuant
hereto may be relied upon by any prospective purchaser of the Building or any
part thereof or of the interest of Landlord in any part thereof, by any
mortgagee or prospective mortgagee thereof, by any lessor or prospective
lessor thereof, by any lessee or prospective lessee thereof, or by any
prospective assignee of any mortgage thereof, or by any party having a
financial interest in Tenant.
48.02. Tenant shall, within one hundred fifty (150) days
after the end of each fiscal year of Tenant, deliver to Landlord an annual
statement showing a balance sheet as of the last day of such fiscal year,
prepared in accordance with generally accepted accounting principles and
certified by the chief financial officer for Tenant.
ARTICLE 49
NON-LIABILITY AND INDEMNIFICATION; SURRENDER
49.01. Supplementing the provisions of Article 8, neither
Landlord nor Landlord's agents, officers, directors and shareholders shall be
liable to Tenant, its employees, agents, contractors and licensees, and
Tenant shall save Landlord, any mortgagee, and Landlord's and such
mortgagee's respective agents, employees, contractors and officers and the
lessor under any underlying lease harmless of and from all loss, cost,
liability, claim, damage and expense, including reasonable counsel fees and
expenses, penalties and fines incurred in connection with or arising from any
injury to Tenant or to any other person or for any damage to, or loss (by
theft or otherwise) of, any of Tenant's Property and/or of the property of
any other person, irrespective of the cause of such injury, damage or loss
(including the acts or negligence of any tenant or occupant of the Building
or of any owners or occupants of adjacent or contiguous property) and whether
occasioned by or from explosion, falling plaster, electricity, smoke, water,
snow or ice being upon or coming through or from the street, roof,
subsurface, skylight, trapdoor or windows, electric wiring, plumbing,
dampness, water, gas, steam or other pipes or sewage, or the failure of the
air conditioning or refrigeration system, or the breaking of any electric
wire, the bursting, leaking or running of water from any tank, washstand,
watercloset, waste-pipe, sprinkler system, radiator, or from any other pipe
in, above, upon or about the Building or the Demised Premises or which may
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at any time hereafter be placed therein, or from any other cause whatsoever.
Landlord shall, however, be responsible for any of the foregoing if caused by or
due to the negligence of Landlord or Landlord's agents without contributory
negligence on the part of Tenant, it being understood that no property, other
than such as might normally be brought upon or kept in the Demised Premises as
incident to the reasonable and appropriate use of the Demised Premises for the
purposes herein permitted will be brought upon or be kept in the Demised
Premises. Landlord and Landlord's agents shall not be liable, to the extent of
insurance coverage, for any loss of or damage to any such property even if due
to the negligence of Landlord of Landlord's agents. Any Building employees to
whom any property shall be entrusted by or on behalf of tenant shall be deemed
to be acting as Tenant's agents with respect to such property, and neither
Landlord nor Landlord's agents shall be liable for any loss of or damage to any
such property by theft or otherwise.
49.02. Further supplementing the provisions of Article 8, neither
(a) the performance by Landlord, Tenant or others of any decorations, repairs,
alterations, additions or improvements of whatever nature, in or to the Building
(including but not limited to improvements in structure and Building systems) or
the Demised Premises, nor (b) the failure of Landlord or others to make any such
decorations, repairs, alterations, additions, or improvements, nor (c) any
latent defect in the Building or in the Demised Premises, nor (d) any
inconvenience or annoyance to Tenant or injury to or interruption of Tenant's
business by reason of any of the events or occurrences referred to in the
foregoing subclauses (a) through (d) shall constitute an actual or constructive
eviction, in whole or in part, or entitle Tenant to any abatement or diminution
of rent, or relieve Tenant of any of its obligations under this Lease, or impose
any liability upon Landlord, or Landlord's agents, other than such liability as
may be imposed upon Landlord by law for Landlord's negligence or the negligence
of Landlord's agents in the operation or maintenance of the Building or for the
breach by Landlord of any express covenant of this Lease on Landlord's part to
be performed.
49.03. Further supplementing the provisions of Article 8, Tenant
agrees to indemnify and save Landlord, Landlord's agents and the lessor under
any underlying lease and any mortgagee and its agents harmless of and from all
loss, cost, liability, claims, damage and expense including reasonable counsel
fees and expenses, penalties and fines, incurred in connection with or arising
from (a) any default by Tenant in the observance or performance of any of the
terms, covenants or conditions of this Lease on Tenant's part to be observed or
performed, or (b) the use or occupancy or manner of use or occupancy of the
Demised Premises by Tenant or any person claiming through or under Tenant, or
(c) any acts, omissions or negligence of Tenant or any such person, or the
contractors, agents, servants, employees, visitors or licensees of Tenant or any
such person, in or about the Demised Premises or the Building either prior to,
during, or after the expiration of, the Term including any acts, omissions or
negligence in the making or performing of any improvements. If any action or
proceeding shall be brought against Landlord or Landlord's agents, the lessor
under any underlying lease or any mortgagee, based upon any such claim and if
Tenant, upon notice from Landlord, shall cause such action or proceeding to be
defended at Tenant's expense by counsel reasonably satisfactory to Landlord,
without any disclaimer of liability by Tenant in connection with such claim,
Tenant shall not be required to indemnify Landlord or Landlord's agents for
counsel fees in connection with such action or proceeding.
49.04. Tenant shall pay to Landlord, as additional rent, within
five (5) days next following rendition by Landlord
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to Tenant of bills or statements therefor, sums equal to all losses, costs,
liabilities, claims, damages and expenses referred to in Article 49.03. Tenant's
obligations under this Article 49.04 shall survive the termination of this
Lease.
49.05. (a) In any action brought to enforce the obligations of
Landlord under this Lease, any judgment or decree shall be enforceable against
Landlord only to the extent of Landlord's interest in the Building, and no such
judgment shall be the basis of execution on, or be a lien on, assets of Landlord
other than its interest in the Building. If Landlord or any successor in
interest to Landlord shall be an individual, joint venturer, tenant-in-common,
general or limited partnership, unincorporated association or other
unincorporated aggregate of individuals (collectively, "unincorporated
Landlord") and shall at any time have any liability under, pursuant to or in
connection with this Lease, neither Tenant nor any other person or entity shall
seek any personal or money judgment against unincorporated Landlord or any joint
venturer, tenant-in-common, partner or member of Landlord under or pursuant to
this Lease or otherwise, and Tenant shall look solely to the interest of
unincorporated Landlord in the Building for the satisfaction of any remedy
Tenant may have for a breach by unincorporated Landlord of this Lease, or
otherwise. Any attempt by Tenant or others to seek any personal liability or
monetary obligations shall, in addition to and not in limitation of the other
rights, powers, privileges and remedies of unincorporated Landlord under this
Lease, immediately vest unincorporated Landlord with the unconditional right to
cancel this Lease on three (3) days' notice to Tenant.
(b) Whenever in this Lease Landlord's consent or approval is
required, such consent or approval shall mean prior written consent or approval.
Whenever Tenant shall claim under this Lease, that Landlord has unreasonably
withheld or delayed its consent to some request of Tenant, Tenant shall have no
claim for damages by reason of such alleged withholding or delay, and Tenant's
sole remedies therefore shall be a right to obtain specific performance, but in
any event without recovery of damages.
49.06. If the Demised Premises are not surrendered upon the
termination of this Lease, Tenant hereby indemnifies Landlord and holds it
harmless against any loss and/or liability resulting from delay by Tenant in so
surrendering the Demised Premises, including, without limitation, any claims
made by any succeeding tenant or prospective tenant founded upon such delay, or
any loss of a prospective tenancy relating to such delay.
49.07. In the event Tenant remains in possession of the Demised
Premises after the termination of this Lease without the execution of a new
lease, Tenant, at the option of Landlord, may be deemed to be occupying the
Demised Premises as a tenant from month-to-month, at a monthly rental equal to
three (3) times the fixed annual rent and additional rent payable during the
last month of the Term, subject to all of the other terms of this Lease insofar
as the same are applicable to a month-to-month tenancy.
49.08. If this Lease be terminated as provided in Article 17 or by
or under any summary proceeding or any other action or proceeding, or if
Landlord shall re-enter the Demised Premises, Tenant covenants and agrees,
notwithstanding anything to the contrary contained in this Lease:
(a) That the Demised Premises shall be, upon such earlier
termination or re-entry, in the same condition as that in which Tenant
has agreed to surrender them to Landlord on the Expiration Date;
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(b) That Tenant, on or before the occurrence of any event of
default hereunder, shall have performed every covenant contained in
this Lease for the making of any Tenant's Changes, as hereinafter
defined in Article 57.01, to the Demised Premises; and
(c) That, for the breach of either subclause (a) or (b) above,
or both, Landlord shall be entitled immediately, without notice or
other action by. Landlord, to recover, and Tenant shall pay, as and
for agreed damages therefor, the then cost of performing such
covenants, plus interest thereon at two (2) per centum above the Prime
Rate for the period between the date of the occurrence of any event of
default and the date when any such work or act, the cost of which is
computed, should have been performed under the other terms of this
Lease had such event of default not occurred.
Each and every covenant contained in this Article 49.08 shall be deemed separate
and independent, and not dependent on any other term of this Lease for the use
and occupation of the Demised Premises by Tenant, and the performance of any
such term shall not be considered to be rent or other payment for the use of
said Demised Premises. It is understood that the consideration for the covenants
in this Article 49.08 is the making of this Lease, and the damages for failure
to perform the same shall be in addition to and separate and independent of the
damages accruing by reason of default in observing any other term of this Lease.
49.09. Supplementing the provisions of Article 17 hereof, and
notwithstanding anything contained herein to the contrary notwithstanding, if
Landlord terminates this Lease pursuant to Article 17 of this Lease and such
termination shall be stayed by order of any court having jurisdiction over any
proceeding described in Article 16 or any similar proceeding, or by federal or
state statute, then, following the expiration of any such stay, or if the
trustee appointed in any Bankruptcy Code proceeding, Tenant or Tenant as
debtor-in-possession shall fail to assume Tenant's obligations under this Lease
within the period prescribed therefor by law or within sixty (60) days after
entry of the order for relief or as may be allowed by the court, or if said
trustee, Tenant or Tenant as debtor-in-possession shall fail to provide adequate
protection of Landlord's right, title and interest in and to the Premises or
adequate assurance of the complete and continuous future performance of Tenant's
obligations under this Lease as provided in Article 42.06G(b) hereof, Landlord,
to the extent permitted by law or by leave of the court having jurisdiction over
such proceeding, shall have the right, at its election, to terminate this Lease
on five (5) days' notice to said trustee, Tenant or Tenant as
debtor-in-possession, and upon the expiration of said five (5) day period this
Lease shall cease and expire as aforesaid and said trustee, Tenant or Tenant as
debtor-in-possession shall immediately quit and surrender the Demised Premises
as aforesaid.
49.10. Tenant expressly waives, for itself and for any person
claiming through or under Tenant, any rights which Tenant or any such person may
have under the provisions of Section 2201 of the New York Civil Practice Law and
Rules and of any similar or successor law of same import then in force, in
connection with any holdover proceedings which Landlord may institute to enforce
the provisions of this Article 49.
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ARTICLE 50
(INTENTIONALLY OMITTED]
ARTICLE 51
DIRECTORY LISTING
51.01. Landlord shall provide Tenant with Nine and Sixty-Four
Hundredths percent (9.64%) of the total spaces on any directory established
for the Building from time to time.
ARTICLE 52
RENT ABATEMENT
52.01. Notwithstanding the provisions of the printed portion of
this Lease on page 1 respecting the payment of fixed annual rent, Landlord
agrees that Tenant shall be permitted to occupy the Demised Premises without
liability for payment of such fixed annual rent for a period from the rent
commencement date of February 7, 1995 to and including December 15, 1995.
Tenant shall be fully liable for all other charges in the rent abatement
period and shall be obligated to pay one (1) full monthly installment of
fixed annual rent for the Demised Premises upon the execution of this Lease,
which rent shall be applied to the first and second monthly installments due
pursuant to this Lease.
ARTICLE 53
RENEWAL OPTION
53.01. Provided that Tenant (a) provides notice to Landlord no later
than seven (7) months and fifteen (15) days prior to the Expiration Date of
this Lease ("Request for Renewal Rent Notice"), (b) has not sublet or
assigned any portion of the Demised Premises at the time of the Request for
Renewal Rent Term (as hereinafter defined) and (c) is not in default beyond
any applicable grace period under the Lease at the time of the Request for
Renewal Rent Notice and is not in default beyond any applicable grace period
under the Lease on the commencement date of the Renewal Term, Tenant shall
have the option to renew this Lease for one (1) additional term of four (4)
years and one (1) month and nineteen (19) days commencing on the day after
the Expiration Date and expiring on January 23, 2005 ("Renewal Term"), at a
fixed annual rent equal to ninety percent (90%) of the then fair market rent
as determined in this Article 53. If Tenant provides the Request for Renewal
Rent Notice but all conditions set forth in this Article 53 are not met, this
option for the Renewal Term shall, at Landlord's option, be deemed to be null
and void and Landlord shall have no obligation whatsoever to Tenant with
respect to such Renewal Term.
53.02. Within one hundred eighty (180) days after the later of the
date Landlord receives Tenant's Request for Renewal Rent Notice or seven (7)
months prior to the Expiration Date, Landlord shall give Tenant notice of
Landlord's determination of the fair market fixed annual rent for the Renewal
Term ("Fair Market Rent Notice"). The phrase "fair market fixed annual rent"
shall be determined by taking (i) the average of the three (3) most recent
arm's-length leases for office space in the Building executed in the twelve
(12) month period preceding the Fair Market Rent Notice and in the event
there have not been three (3) arm's-length leases executed in such twelve
(12) month period in the Building, then Landlord shall determine the fair
market fixed annual rent by the average of three (3) arm's-length leases for
comparable office space in comparable first-class office buildings in midtown
Manhattan executed in the twelve (12) month
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period preceding the Fair Market Rent Notice and (ii) subtracting from the
average under subparagraph (i) the amount of additional rent payable by
Tenant pursuant to Article 38 hereof for the twelve (12) month period
preceding the Fair Market Rent Notice.
53.03. Within thirty (30) days after Landlord's giving of such Fair
Market Rent Notice, Tenant shall provide Landlord with a notice that (a)
Tenant seeks to renew the Lease at the rent set forth in Landlord's Fair
Market Rent Notice ("Renewal Notice") or (b) Tenant will not exercise its
option to renew the Lease ("Non-renewal Notice"). If Tenant provides Landlord
with the Renewal Notice, Tenant shall be obligated to renew this Lease and
occupy the Demised Premises, and commencing on the day after the Expiration
Date, Tenant shall pay to Landlord the amount of fixed annual rent set forth
in the Fair Market Rent Notice. If Tenant does not provide Landlord with any
notice under this Article 53.03 within the thirty (30) day period after the
Fair Market Rent Notice or Tenant provides a Non-renewal Notice, then upon
the expiration of the thirty (30) day period or the giving of the Non-renewal
Notice, as the case may be, this option for the Renewal Term shall be deemed
null and void and Landlord shall have no obligation whatsoever to Tenant with
respect to such renewal. Nothing contained in this Article 53 shall be deemed
in any way to alter or modify the provisions of Article 38 hereof, and the
additional rent payable by Tenant under this Lease shall continue to be
payable from and after the Renewal Term without any change in the Base Tax or
Expense Base Factor or any other provisions of this Lease relating to
additional rent. The renewal option contained in this Article 53 may only be
exercised by, and for the benefit of the Tenant named herein, Daniels
Printing, Limited Partnership, and not any subtenant or assignee.
ARTICLE 54
LETTER OF CREDIT
54.01. In lieu of the security deposit of One Hundred Thirty-Three
Thousand Six Hundred Ninety and 00/100 Dollars ($133,690.00) in cash required
by Article 34, Tenant shall have the right to substitute therefor an
unconditional Letter of Credit issued by a bank which is a member of the New
York Clearing House Association with an office in New York City where the
Letter of Credit may be presented for payment and approved by Landlord, in
the sum of One Hundred Thirty-Three Thousand Six Hundred Ninety and 00/100
Dollars ($133,690.00) in form and content substantially similar to the form
attached hereto as Schedule F and otherwise satisfactory to Landlord.
Landlord hereby agrees that Fleet Bank is an acceptable issuer for said
Letter of Credit. Said Letter of Credit shall provide that (i) upon receipt
by said bank of a written notice by Landlord that Tenant is in default,
beyond the applicable grace period, if any, under the terms of this Lease,
said bank will pay to Landlord the sum of One Hundred Thirty-Three Thousand
Six Hundred Ninety and 00/100 Dollars ($133,690.00); and (ii) the Letter of
Credit shall be freely transferrable by Landlord, without charge and without
recourse, so that upon a transfer of title to the Building or a lease of
same, Landlord shall have the right to transfer the Letter of Credit to the
vendee or lessee (subject to the provisions of Article 34 hereof). Tenant
covenants that not later than sixty (60) days in advance of the expiration of
the term of any existing Letter of Credit prior to a date two (2) months
after the expiration of the Term of this Lease or any renewals of this Lease,
Tenant shall deliver to the Landlord an endorsement extending said Letter of
Credit or a Letter of Credit replacing the expiring Letter of Credit. If by
the sixtieth (60th) day preceding the expiration of any Letter of Credit,
Tenant shall have failed to deliver such extension, endorsement or
replacement Letter of Credit, such failure shall be deemed a default under
the Lease and Landlord shall have the right to receive and collect the sum
payable under the then existing Letter of Credit, thereafter to be held and
applied in accordance with the provisions of Article 34. Tenant may at any
time thereafter demand that Landlord pay over such money to Tenant, in
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consideration of Tenant's simultaneous delivery of a replacement Letter of
Credit.
54.02. In the event that Landlord shall receive or collect the sum
payable under any Letter of Credit referred to in this Article 54, it shall
have the right to retain and apply the same in accordance with the provisions
of Article 34 upon the occurrence of a default by Tenant. If, after Landlord
has received the proceeds of said Letter of Credit, Tenant shall cure the
default and Landlord accepts such cure, the said proceeds shall be held by
Landlord pursuant to Article 34; provided, however, that at Tenant's option,
upon presentation of a new Letter of Credit in the form and amount required
under this Article 54, Landlord shall repay Tenant such proceeds. Said Letter
of Credit, or any successor Letter of Credit, shall be returned to the Tenant
at the expiration of the Term, provided Tenant is not then in default.
ARTICLE 55
RELOCATION OF DEMISED PREMISES
55.01. Landlord may, during the Term of this Lease, elect by notice
to Tenant to substitute for the Demised Premises other office space in the
Building ("Substitute Premises") designated by Landlord, provided that the
Substitute Premises contains at least the same usable square foot area as the
Demised Premises, has a configuration substantially similar to that of the
Demised Premises, is not more than one (1) floor down in the Building, and
the Demised Premises are on contiguous floors. Landlord's notice shall be
accompanied by a plan of the Substitute Premises, and such notice or the plan
shall set forth the usable square foot area of the Substitute Premises.
Tenant shall occupy the Substitute Premises promptly (and, in any event, not
later than fifteen (15) days) after substantial completion of the work to be
performed in the Substitute Premises. Tenant shall pay the same rents with
respect to the Substitute Premises as were payable with respect to the
Demised Premises, except that if the usable square foot area of the
Substitute Premises are diminished, the rent and additional rent shall be
adjusted downward accordingly. In any such event, this Lease (a) shall no
longer apply to the Demised Premises, except with respect to obligations
which accrued on or prior to such surrender date; and (b) shall apply to the
Substitute Premises as if the Substitute Premises had been the space
originally demised under this Lease. Landlord shall have no liability to
Tenant in the event of such substitution but Landlord shall reimburse Tenant
for any reasonable expenses it incurs for: architects or engineers, fit-out of
Substitute Premises (to standard of the former Demised Premises) and
relocation within the Building to the Substitute Premises.
ARTICLE 56
LIMITATION ON RENT; FAILURE TO PERFORM
56.01. If at the commencement of, or at any time during the term of
this Lease, the rent reserved in this Lease is not fully collectible by
reason of any federal, state, county or city law, proclamation, order or
regulation, or direction of a public officer or body pursuant to law,
Landlord, at its sole option, may elect to terminate this Lease by written
notice to Tenant and Tenant within thirty (30) days after the notice shall
surrender the Demised Premises as if the Term of the Lease had expired. If
Landlord does not give such notice of termination, Tenant agrees to take such
steps as Landlord may request to permit Landlord to collect the maximum rents
which may be legally permissible from time to time during the continuance of
such legal rent restriction (but not in excess of the amounts reserved
therefor under this Lease) and upon the termination of such legal rent
restriction, Tenant shall pay to Landlord, to the
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extent permitted by law, an amount equal to (a) the rents which would have
been paid pursuant to this Lease but for such legal rent restriction less (b)
the rents paid by Tenant to Landlord during the period such legal rent
restriction was in effect.
56.02. Supplementing the provisions of Article 17 hereof, if Tenant
shall fail to pay when due any installment of fixed annual rent or any
payment of additional rent for a period of three (3) days after such
installment or payment shall have become due, Tenant shall pay interest
thereon at the lesser of (a) two (2) per centum in excess of the Prime Rate
or (b) the maximum rate of interest, if any, which Tenant may legally
contract to pay, from the date when such installment or payment shall have
become due to the date of the payment thereof, and such interest shall be
deemed additional rent. This provision is in addition to all other rights or
remedies available to Landlord for nonpayment of fixed annual rent or
additional rent under this Lease and at law and in equity. If Tenant shall
default in the performance of any provision of this Lease to be performed by
Tenant (other than the payment of fixed annual rent or additional rent) more
than three (3) times in any period of six (6) months or, with respect to the
payment of fixed annual rent or additional rent, more than two (2) times in
any period of twelve (12) months, then, notwithstanding that such defaults
shall have each been cured within the applicable grace period, if any, as
provided in this Lease or Landlord has otherwise accepted cures of any such
defaults, any further similar default shall be deemed to be deliberate and
Landlord thereafter may serve a ten (10) days' notice of termination upon
Tenant without affording to Tenant an opportunity to cure or accepting any
cure by Tenant of such further default. All Tenant Changes shall be done in a
manner which will not interfere or disturb other lessees of the Building and
Landlord shall have the right from time to time to inspect Tenant's Changes.
ARTICLE 57
ALTERATIONS, REPAIRS; PLANS AND SPECIFICATIONS;
LANDLORD CONTRIBUTION
57.01. Supplementing the provisions of Articles 3 and 4 hereof,
Tenant covenants and agrees that, prior to the commencement of any
alterations, installations, additions, improvements, repairs or replacements
(collectively, "Tenant's Changes"), Tenant shall submit to Landlord, for
Landlord's written approval, plans and specifications (to be prepared by and
at the expense of Tenant) of such proposed Tenant's Changes in detail
satisfactory to Landlord, and shall reimburse Landlord any cost or expense
incurred thereby in connection with Landlord's review and approval of such
plans and specifications. Landlord shall approve or disapprove Tenant's plans
and specifications so submitted promptly and in any event within ten (10)
business days of the submission. If Landlord does not so respond within said
ten (10) business day period, Tenant may provide a notice to Landlord stating
that if Landlord does not respond within two (2) business days after receipt
of the notice the plans and specifications shall be deemed approved, and if
Landlord does not respond within said two (2) business day period, Tenant's
plans and specifications so submitted shall be deemed approved. In no event
shall any material or equipment be incorporated in or to the Demised Premises
in connection with any such Tenant's Changes which is subject to any lien,
security agreement, charge, mortgage or encumbrance of any kind whatsoever or
is subject to any conditional sale or other similar or dissimilar title
retention agreement. No Tenant's Changes shall be undertaken, started or
begun by Tenant or its agents, employees, contractors or any one else acting
for or on behalf of Tenant until Landlord has approved such plans and
specifications, and no amendments thereto shall be made without the prior
written consent of Landlord. Tenant agrees that it will not at any time prior
to or during the Term of this Lease, either directly or indirectly, use any
contractors and/or labor and/or materials if the use of such
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contractors and/or labor and/or materials would or will create any difficulty
with other contractors and/or labor engaged by Tenant or Landlord or others
engaged in the construction, maintenance and/or operation of the Building or
any part thereof. Where any Tenant's Changes involves or affects the
plumbing, electrical, heating, ventilating and air-conditioning or any other
Building system, Tenant shall as a pre-condition for obtaining Landlord's
consent to such Tenant's Change, provide to Landlord at Tenant's expense a
report certified by a professional engineer licensed under the laws of the
State of New York, providing in substance that such Building system shall not
be adversely affected by the implementation of such proposed Tenant's Change,
and if Landlord shall in its discretion permit the implementation of such
proposed Tenant's Change, and Tenant shall undertake the same, Tenant shall in
performing same take all steps necessary to ensure that the service provided
by such Building system shall not be interrupted thereby.
57.02. Landlord agrees to pay to Tenant on the Occupancy Date the
amount of Two Hundred Thousand and 00/100 Dollars ($200,000.00) as a
contribution for Tenant's construction cost in the Demised Premises. In the
event Tenant incurs some construction costs, including soft construction
costs of architectural fees and similar expenses, prior to the Occupancy
Date, Landlord shall reimburse Tenant for such costs within thirty (30) days
following delivery to Landlord of itemized paid invoices and lien waivers for
said costs. In no event shall Landlord be required to pay to Tenant any funds
for said construction costs in excess of the sum of Two Hundred Thousand and
00/100 Dollars ($200,000.00). If Landlord does not pay Tenant said Two
Hundred Thousand and 00/100 Dollars ($200,000.00), Tenant may, upon not less
than ten (10) business days prior written notice, offset such amount against
rent and additional rent due under this Lease. Tenant acknowledges that this
right of offset is only for the amount specified under this Article 57.02 and
there is no other right of offset for rent or additional whatsoever provided
in this Lease.
ARTICLE 58
INCONSISTENT PROVISIONS
58.01. In the event of any inconsistencies between the provisions
of the Rider to this Lease and the printed provisions of this Lease, the
provisions of this Rider shall control.
ARTICLE 59
ENTIRE AGREEMENT; NO OTHER REPRESENTATIONS; GOVERNING LAW
59.01. This Lease contains the entire agreement between the parties
and all prior negotiations and agreements are merged in this Lease. This Lease
may not be changed, modified or discharged, in whole or in part, except by a
written instrument executed by the party against whom enforcement of the change,
modification or discharge is sought.
59.02. Tenant expressly acknowledges that neither Landlord nor
Landlord's agents has or is making, and Tenant, in executing and delivering this
Lease, is not relying upon any warranties, representations, promises or
statements, except to the extent that the same are expressly set forth in this
Lease, and no rights, easements or licenses are or shall be acquired by Tenant
by implication or otherwise unless expressly set forth in this Lease.
-30-
<PAGE>
59.03. This Lease shall be governed in all respects by the laws of
the State of New York.
IN WITNESS WHEREOF Landlord and Tenant have duly executed this
Lease as of the day and year first above written.
LANDLORD
THE OVERTON-IA CHOLLA JOINT VENTURE
By: /s/ Robert Lucy
--------------------------------------
Name: Robert Lucy
Title: Executive Vice President
TENANT
DANIELS PRINTING, LIMITED
PARTNERSHIP
By: /s/ Daniels Printing Corp, Inc., Ltd.
--------------------------------------
Title: Solc General Partner
By: /s/ [Illegible]
--------------------------------------
Name: [Illegible]
Title: Vice President
-31-
<PAGE>
SCHEDULE A
FLOOR PLAN
A-1
<PAGE>
SCHEDULE B
DESCRIPTION OF LAND
All those certain lots, pieces or parcels of land together with the
buildings and improvements thereon erected, situate, lying and being in the
Borough of Manhattan, County of New York, City of New York and State of New
York and bounded and described as follows:
Beginning at a point on the Southerly Line of East 55th Street
distant 116'-8" Westerly from the corner formed by the intersection of said
SOUTHERLY Line of East 55th Street with the Westerly Line of Park Avenue;
Thence Southerly and parallel with said Park Avenue 1001-511 to the center of
the line of the block;
Thence Westerly along said center line of the block 72' -4'';
Thence Northerly parallel with Park Avenue and part of the distance through a
party wall, 1001-511 to the Southerly Line of East 55th Street;
Thence Easterly along the Southerly Line of East 55th Street 72' - to the
point or place of beginning; said premises being known by the House Numbers
66, 68, 70, 72 East 55th Street.
B-1
<PAGE>
SCHEDULE C
[INTENTIONALLY OMITTED)
C-1
<PAGE>
SCHEDULE D
RULES AND REGULATIONS
1. The rights of tenants in the entrances, corridors, elevators
and escalators of the Building are limited to ingress to and engress from
tenants', premises for tenants and their employees, licensees and invites,
and no tenant shall use, or permit the use of, the entrances, corridors,
escalators or elevators for any other purpose. No tenant shall invite to
tenant's premises, or permit the visit of, persons in such numbers or under
such conditions as to interfere with the use and enjoyment of any of the
plazas, entrances, corridors, escalators, elevators and other facilities of
the Building by other tenants. exits and stairways are for emergency use
only, and they shall not be used for any other purposes by the tenants, their
employees, licensees or invites. No tenant shall encumber or obstruct, or
permit the encumbrance or obstruction of any of the sidewalks, plazas,
entrances, corridors, escalators, elevators, fire exits or stairways of the
Building. The Landlord reserves the right to control and operate the public
portions of the Building and the public facilities, as well as facilities
furnished for the common use of tenants, in such manner as it deems best for
the benefit of the tenants generally.
2. The cost of repairing any damage to the public portions of the
building or the public facilities or to any facilities used in common with
other tenants, caused by a tenant or the employees, licensees or invites of a
tenant, shall be paid by such tenant.
3. Landlord may refuse admission to the Building outside of
ordinary business hours to any person not known to the watchman in charge or
not having a pass issued by Landlord or not properly identified, and may
require all persons admitted to or leaving the Building outside of ordinary
business hours to register. Tenants' employees, agents and visitors shall be
permitted to enter and leave the Building whenever appropriate arrangements
have been previously made between Landlord and tenant with respect thereto.
Each tenant shall be responsible for all persons for whom he requests such
permission and shall be liable to Landlord for all acts of such persons. Any
person whose presence in the Building at any time shall, in the judgment of
Landlord, be prejudicial to the safety, character, reputation and interests
of the Building or its tenants may be denied access to the Building or may be
ejected therefrom. In case of invasion, riot, public excitement or other
commotion Landlord may prevent all access to the Building during the
continuance of the same, by closing the doors or otherwise, for the safety of
tenants and protection of property in the Building. Landlord may require any
person leaving the Building with any package or other object to exhibit a
pass from tenant from whose premises the package or object is being removed,
but the establishment and enforcement of such requirements shall not impose
any responsibility on the Landlord for the protection of any tenant against
the removal of property from the premises of tenant. Landlord shall, in no
way, be liable to any tenant for damages or .loss arising from the admission,
exclusion or ejection of any person to or from a tenant's premises or the
Building under the provisions of this rule.
4. No tenant shall obtain or accept or use in its premises ice,
drinking water, food, beverage, towel, barbering, boot blacking, floor
polishing, lighting maintenance, cleaning or other similar services from any
persons not authorized by Landlord in writing to furnish such services,
provided always that charges for such services by persons authorized by
Landlord are not excessive. Such services shall be furnished only at such
hours, in such places within tenant's premises and under such regulations as
may be fixed by Landlord.
5. No awnings or other projections over or around the windows
shall be installed by any tenant and only such window
D-1
<PAGE>
blinds as are supplied or permitted by Landlord shall be used in tenant's
premises.
6. There shall not be used in any space, or in the public halls of
the Building, either by tenant or by jobbers or others, in the delivery or
receipt of merchandise or mail any hand trucks, except those equipped with
rubber tires and side guards. All deliveries to tenants, except mail, shall
be made to such place as Landlord shall designate and shall be distributed to
tenants only during the hours from 8:00 A.M. to 12:00 noon and 2:00 P.M. to
4:00 P.M. on business days, excluding labor strikes.
7. All entrance doors in each tenant's premises shall be left
locked when the tenant's premises are not in use. entrance doors shall not be
left open at any time. All windows in each tenant's premises shall be kept
closed at all times and all blinds or drapes therein above the ground floor
shall be lowered or closed when and as reasonably required because of the
position of the sun, during the operation of the Building air conditioning
system to cool or ventilate the tenant's premises.
8. No noise, including the playing of any musical instruments,
radio or television, which, in the judgment of the Landlord, might disturb
other tenants in the Building shall be made or permitted by any tenant and no
cooking shall be done in the Tenant's premises except as expressly approved
by the Landlord. Nothing shall be done or permitted in any tenant's premises,
and nothing shall be brought into or kept in any tenant's premises, which
would impair or interfere with any of the Building services or the proper and
economic heating, cleaning or other servicing of the Building or the
premises, or the use or enjoyment by any other tenant of any other premises,
nor shall there by installed by any tenant any ventilating air conditioning,
electrical or other equipment of any kind which, in the judgment of the
Landlord, might cause any such impairment or interference. No dangerous,
inflammable, combustible or explosive object or material shall be brought
into the Building by any tenant or with the permission of any tenant.
9. Tenant shall not permit any cooking or food odors emanating
from the demised premises to seep into other portions of the Building.
10. No acids, vapors or other materials shall be discharged or
permitted to be discharged into the waste lines, vents or flues of the
Building which may damage them. The water and wash closets and other plumbing
fixtures in or serving any tenant's premises shall not be used for any
purpose other than the purpose for which they were designed or constructed
and no sweepings, rubbish, rags, acids or other foreign substances shall be
deposited therein. All damages resulting from any misuse of the fixtures
shall be borne by the tenant who, or whose servants, employees, agents,
visitors or licensees, shall have caused the same.
11. Tenant shall not display any sign, graphics, notice, picture,
or poster, or any advertising matter whatsoever, anywhere in or about the
premises or the Building at places visible from anywhere outside or at the
entrance to the premises without first obtaining Landlord's written consent
thereto, such consent to be at Landlord's sole discretion except that
Landlord will not unreasonably withhold or delay its consent to a sign with
tenant's name on it in the elevator lobby adjacent to the tenant's premises
provided the same complies with Landlord's then-existing standards and
requirements for signs and is otherwise in keeping with the first class,
high-quality nature of the Building. Any such consent by Landlord shall be
upon the understanding and condition that tenant will remove the same at the
expiration or sooner termination of tenant's lease and tenant shall repair
any damage to the demised premises or the Building caused thereby.
D-2
<PAGE>
In the event of the violation of the foregoing by any tenant,
Landlord may remove the same without any liability, and may charge the
expense incurred by such removal to tenant violating this rule. Interior
signs and lettering on doors and elevators shall be inscribed, painted, or
affixed for each by Landlord at the expense of such tenant, and shall be of a
size, color and style acceptable to Landlord. Landlord shall have the right
to prohibit any advertising by any tenant which impairs the reputation of the
Building or its desirability as a building for offices, and upon written
notice from Landlord, tenant shall refrain from or discontinue such
advertising.
12. No additional locks or bolts of any kind shall be placed upon
any of the doors or windows in any tenant's premises and no lock on any door
therein shall be changed or altered in any respect. Duplicate keys for a
tenant's premises and toilet rooms shall be procured only from the Landlord,
which may make a reasonable charge therefor. Upon the termination of tenant's
lease, all keys to tenant's premises and toilet rooms shall be delivered to
Landlord.
13. No tenant shall mark, paint, drill into, or in any way deface
any part of the Building or tenant's premises. No boring, cutting or
stringing of wires shall be permitted, except with the prior written consent
of Landlord, and as Landlord may direct. No tenant shall install any
resilient tile or similar floor covering in tenant's premises except in a
manner approved by Landlord.
14. No tenant shall engage or pay any employees in the Building,
except those actually working for tenant in the Building or advertise for
laborers giving an address at the Building.
15. No premises shall be used, or permitted to be used, at any
time, as a store for the sale or display of goods or merchandise of any kind,
or as a restaurant, shop, booth, bootblack or other stand, or for the conduct
of any business or occupation which involved direct patronage of the general
public in the tenant's premises, or for manufacturing or for other similar
purposes.
16. The requirements of tenants will be attended to only upon
application at the office of the Building. Employees of Landlord shall not
perform any work or do anything outside of the regular duties, unless under
special instructions from the office of Landlord.
17. Each tenant shall, at its expense, provide artificial light in
tenant's premises demised for Landlord's agents, contractors and employees
while performing janitorial or other cleaning services and making repairs or
alterations in said premises.
18. No tenant's employees shall loiter around the hallways,
stairways, elevators, front, roof or any other part of the building used in
common by the occupants thereof.
19. All tenants, at their sole expense, shall cause its premises
to be exterminated, from time to time, to the satisfaction of Landlord, and
shall employ such exterminators therefor as shall be approved by Landlord.
20. Any cuspidors, or similar containers or receptacles used in any
tenant's premises shall be cared for and cleaned by and at the expense of
such tenant.
21. All tenants shall use only the designated service elevator for
deliveries and only at hours prescribed by Landlord. Bulky materials, as
determined by Landlord, may not be delivered during usual business hours but
only thereafter. Tenants agree to pay for use of the service elevator at
rates prescribed by Landlord.
D-3
<PAGE>
22. No tenant shall have right of access to the roof of tenant's
premises or the Building and shall not install, repair or replace any aerial,
fan, air conditioner or other device on the roof of tenant's premises or the
Building without the prior written consent of Landlord. Any aerial, fan, air
conditional or device installed without such written consent shall be subject
to removal, at tenant's expense, without notice, at any time.
D-4
<PAGE>
SCHEDULE E
CLEANING SPECIFICATIONS
1. GENERAL OFFICE AREAS
A. NIGHTLY ON BUSINESS DAYS
1. All stone, ceramic, tile, marble, terrazzo and other unwaxed
flooring to be swept nightly using dust-down preparations; wash
flooring weekly, scrub when necessary.
All unwaxed flooring used as corridors adjacent to the core
shall be cleaned and wet mopped weekly.
2. All linoleum, vinyl, rubber, asphalt tile and other similar types
of waxed flooring to be swept nightly.. Waxing, if any, shall be
done at Tenant's expense.
Mop up and wash floors for spills, smears and foot tracks
throughout, including tenant's space, as needed.
3. All carpeting and rugs to be carpet-swept nightly and vacuum
cleaned weekly.
4. Hand dust with treated cloth and wipe clean all furniture,
fixtures and custom wooden window enclosures nightly.
5. Empty and clean all waste receptacles nightly and remove from the
demised premises wastepaper to designated areas.
6. Empty and clean all ash trays and screen all sand urns nightly.
7. Dust interior of all waste disposal cans and baskets nightly;
damp-dust as necessary.
8. Wash clean all water fountains and coolers nightly.
9. Dust all floor and other ventilating louvres within reach; damp
wipe as necessary.
10. Dust all telephones as necessary.
11. Keep locker and slop sink rooms in neat and orderly condition
where applicable.
12. Wipe clean and polish all brass and other bright work, as
necessary.
13. Sweep all private staircases nightly.
14. Metal doors of all elevator cars to be cleaned, as necessary.
15. Remove all gum and foreign matter on sight.
16. Clean all glass furniture tops.
17. Collect and remove wastepaper, cardboard boxes and waste material
to a designated area on the premises.
E-1
<PAGE>
All waste material which is extraordinary in amount, type or size
shall be removed by Tenant at Tenant's expense.
18. Dust and wash closet and coat room shelving, coat racks and
flooring.
B. PERIODIC CLEANING
Periodic cleaning to be performed as needed but not less than once
each month:
1. Vacuum all furniture fabric and drapes.
2. wash and remove all finger marks, ink stains, smudges, scuff
marks and other marks from metal partitions, sills, all
vertical surfaces (doors, walls, window sills) including
elevator doors and other surfaces.
3. Clean and sweep all vacant areas.
4. Dust and clean electric fixtures, all baseboards and other
fixtures or fittings.
C. HIGH DUSTING
High dusting every three (3) months, unless otherwise specified, of
the following:
1. Vacuum and dust all pictures, frames, charts, graphs and
similar wall hangings not reached in nightly cleaning. Damp
dust as required.
2. Vacuum and dust all vertical surfaces such as walls,
partitions, doors, bucks and ventilating louvres, grilles,
high mouldings and other surfaces not reached in nightly
cleaning.
3. Dust all overhead pipes, sprinklers, ventilating and air
conditioning levers, ducts, high mouldings and other high
areas not reached in nightly cleaning.
4. Dust all venetian blinds. Dust all window frames.
5. Dust exterior of lighting fixtures.
6. Wash all furniture glass as needed.
7. Vacuum and dust ceiling tiles around ventilators and clean
air conditioning diffusers as required.
E-2
<PAGE>
SCHEDULE F
BANK
NEW YORK CITY BRANCH
Irrevocable Stand-By Letter of Credit
- --------------------------------------------------------------------------------
Date Credit No.
- --------------------------------------------------------------------------------
Landlord
Gentlemen:
We hereby establish our Irrevocable Letter of Credit in your favor and shall
authorize you to draw on us, up to the aggregate amount of US$
only and we engage with you that all drafts drawn under and in compliance
with the terms of this credit will be fully honored by us if presented at
this office on or before provided:
Any draft(s) drawn by you under this letter of credit shall be accompanied
by your written certification that tenant ( tenant name )
is in default, beyond the applicable grace period, if any, under the terms
of the lease.
This letter of credit shall be freely transferrable by landlord without
charge or recourse, so that upon transfer of title to the building or a
lease of same, landlord shall have the right to transfer the letter of
credit to the vendee or lessee. Landlord must notify us (issuing bank) in
writing immediately after this letter of credit is transferred.
This letter of credit is subject to the uniform customs and practice for
documentary credits (1983 revision) I.C.C. publication No. 400.
Notwithstanding Article 19 of said publication, if this credit expires
during an interruption of business, as described in Article 19, the bank
specifically agrees to effect payment, if the letter is drawn against
within thirty days after the resumption of the bank's business.
Very truly yours,
-------------------------
Authorized Signature
F-1
<PAGE>
IMPORTANT - PLEASE READ
RULES AND REGULATIONS ATTACHED TO AND
MADE A PART OF THIS LEASE
IN ACCORDANCE WITH ARTICLE 33.
Address 70 East 55th Street
New York, New York
Premises Entire 4th and 5th Floors
----------------------------------------------
----------------------------------------------
THE OVERTON-LA CHOLLA JOINT VENTURE
TO
DANIELS PRINTING, LIMITED PARTNERSHIP
----------------------------------------------
----------------------------------------------
STANDARD FORM C F
[LOGO] OFFICE [LOGO]
LEASE
THE REAL ESTATE BOARD OF NEW YORK, INC.
Copyright 1983. All Rights Reserved.
Reproduction in whole or in part prohibited.
----------------------------------------------
----------------------------------------------
Dated January , 1995
Rent per year $401,070.00
Rent per Month $33,422.50
Term 5 years and 10 months
From (See Lease Rider)
To
Drawn by Checked by
Entered by Approved by
----------------------------------------------
----------------------------------------------
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Certain statements in Management's Discussion and Analysis of Financial
Condition and Results of Operations constitute FORWARD-LOOKING statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
FORWARD-LOOKING statements involve known and unknown risks, uncertainties or
achievements of the Company which may cause actual results to be materially
different from any future results, performance or achievements expressed or
implied by such FORWARD-LOOKING statements. These risks and uncertainties
include, but are not limited to, the effect of economic and financial
market conditions, government public reporting regulations, paper costs, the
integration and performance of recent acquisitions and Year 2000 readiness.
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, the percentage
relationship to revenue of certain items in the Company's consolidated
statements of operations and the percentage changes in the dollar amounts of
such items in comparison to the prior years.
<TABLE>
<CAPTION>
For the Years Ended January 31,
---------------------------------------------------------
% Increase (Decrease)
---------------------
Percentage of Revenue 1999 1998
------------------------------- VS. vs.
1999 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue
Specialty Communication Services:
Financial 36.5% 38.2% 40.6% 6% 22%
Corporate 31.4 31.6 27.6 11 49
Commercial and other 19.7 18.5 20.6 18 17
- ----------------------------------------------------------------------------------------------------------------
87.6 88.3 88.8 10 29
Document Services:
Document management services 12.4 11.7 11.2 17 35
- ----------------------------------------------------------------------------------------------------------------
100.0 100.0 100.0 11 30
Cost of revenue 64.9% 64.3% 64.3% 12% 30%
Gross profit 35.1 35.7 35.7 9 30
Selling, general and administrative expenses 25.1 24.8 25.4 12 27
Operating income 10.0 10.9 10.3 3 37
Interest expense (0.8) (0.9) (1.2) (8) 5
Other income, net 0.2 0.1 0.1 (49) 217
Income before provision for income taxes 9.4 10.1 9.2 3 43
Provision for income taxes 4.2 4.4 4.1 4 40
Net income 5.2 5.7 5.1 2 46
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
BUSINESS Merrill Corporation is a diversified electronic and paper document
management company. During 1999, the Company adopted Statement of Financial
Standards No. 131. As a result, the Company defined its reportable segments and
changed the information it reports about its operating segments. Operating
segment information for prior years has been restated to conform to the 1999
presentation. Following the new standard, the Company's operating segments have
been aggregated into two reportable segments: Specialty Communication Services
and Document Services. Under Specialty Communication Services, we include three
business units: Financial Document Services, Investment Company Services and
Managed Communications Programs. Revenue generated by these
16 MERRILL CORPORATION
<PAGE>
three business units is categorized as financial, corporate
and commercial and other. Document Management Services is the
sole business reported in the Document Services segment.
Revenue generated by this business unit is categorized as
document management services. All accounting policies of the
reportable segments are consistent with generally accepted
accounting principles and the accounting policies of the
Company described in Note One of the notes to consolidated
financial statements. Additional information about the 1999 REVENUE
Company's reportable segments is included in Note Nine BY CATEGORY
of the notes to consolidated financial statements. [GRAPH]
The financial revenue category generally reflects the level of
transactional activity in the capital markets. The financial
revenue category encompasses many types of transactions, and some
types of transactions tend to increase when others are out of
favor. However, a prolonged reduction in the overall level of
financial transactions could be expected to have a negative impact
on this category. The corporate revenue category encompasses
required regulatory compliance and mutual fund documentation and
other repetitive work and is typically not significantly affected
by capital market fluctuations. The commercial and other revenue
category tends to follow general economic trends.
Document management services revenue category tends to follow general economic
trends.
FISCAL YEAR 1999 VS. FISCAL YEAR 1998 Overall revenue for fiscal year 1999
increased 11 percent over the previous year. Revenue in the Specialty
Communication Services segment increased 10 percent over the previous year. The
financial revenue category increased six percent compared to the prior year.
This increase was driven by strong mergers and acquisition activity in the first
six months of fiscal year 1999. The financial revenue category declined in the
second half of the fiscal year by 15 percent as a result of the Fall market
volatility. International revenue, which is included in the financial revenue
category, represented less than 10 percent of consolidated revenue and increased
over fiscal year 1998 revenue. Management does not anticipate significant
fluctuations in the relative percentage of international revenue during fiscal
year 2000. The corporate revenue category increased 11 percent compared to
fiscal year 1998. This increase is attributed mainly to strong growth in
Investment Company Services products and continued solid demand for corporate
compliance business. The commercial and other revenue category realized revenue
growth of 18 percent over fiscal year 1998. The growth is primarily the result
of our Managed Communications Programs business.
Document Services segment revenue grew 17 percent in fiscal year 1999. Ten
percent of the growth was a result of the acquisition of Executech and
affiliated World Wide Scan Services in June 1998. Document Service Centers,
which totaled 80 at January 31, 1999, contributed revenue growth of seven
percent on a same-site comparison.
Fiscal year 1999 gross profit of approximately 35 percent declined slightly
from fiscal year 1998. Strong margins were maintained despite the significant
slowdown in financial transaction activity in the second half of the fiscal
year. A significant portion of our cost structure is fixed; thus, management
implemented cost control measures in the second half of the fiscal year to
offset the lower production activity.
Selling, general and administrative expenses increased in both dollar terms
and percentage of revenue. The increase in these expenses in fiscal year 1999
was principally a result of our continued expansion of the Company's sales and
marketing activities and provisions for losses on trade receivables.
Average short-term borrowings under the Company's line of credit arrangement
were approximately $4.3 million, $4.7 million and $30.1 million in fiscal years
1999, 1998 and 1997, respectively.
Interest expense for fiscal year 1999 declined slightly compared to fiscal
year 1998, which reflects stable interest rates and a slight reduction in
overall amounts borrowed during fiscal year 1999.
The effective income tax rate for fiscal year 1999 was 44.5 percent compared
to 44 percent for fiscal year 1998. The effective rates were higher than the
statutory federal income tax rate primarily because of state income taxes and
the impact of increased non-deductible business entertainment expenses incurred
in conjunction with the financial and corporate revenue category activity
previously discussed. The effective income tax rate in future years is expected
to approximate 44.5 percent.
1999 ANNUAL REPORT 17
<PAGE>
FISCAL YEAR 1998 VS. FISCAL YEAR 1997 Overall revenue for fiscal year 1998
increased 30 percent over the previous year. Revenue in the Specialty
Communication Services segment increased 29 percent over the previous year. The
financial revenue category increased 22 percent compared to 1997. This increase
was driven by continued strong mergers and acquisition activity in financial
markets throughout fiscal year 1998. The increase was also driven by the results
of the Corporate Printing Company (CPC) business acquired in April 1996.
International revenue, which is included in the financial
revenue category, represented less than 10 percent of consolidated revenue and
increased over fiscal year 1997 revenue. The corporate revenue category
increased 49 percent when compared to fiscal year 1997. This increase is
attributed to strong corporate compliance business, continued solid demand for
EDGAR services and strong growth in Investment Company Services products. The
commercial and other revenue category experienced a 17 percent increase in
revenue over fiscal year 1997. The growth is primarily the result of our Managed
Communications Programs.
Document Services segment revenue grew 35 percent in fiscal year 1998,
reflecting continued growth in the number of Document Service Centers, which
totaled 76 at January 31, 1998. This resulted from internal growth and the
acquisition of selected assets of Total Management Support Services.
Fiscal year 1998 gross profit of approximately 36 percent remained level with
fiscal year 1997. Continued strong margins in both financial and corporate
revenue category activity along with high production utilization allowed us to
maintain the same margins.
Selling, general and administrative expenses increased, but as a percent of
revenue, declined slightly in the last year. The increase in these expenses in
fiscal year 1998 was principally a result of our continued expansion of sales
and marketing activities and provisions for incentive compensation.
Average short-term borrowings under the Company's line of credit arrangement
were approximately $4.7 million, $30.1 million and $2.2 million in fiscal years
1998, 1997 and 1996, respectively. The significant decrease in the average
short-term borrowings in fiscal year 1998 resulted from the issuance of $35
million in unsecured senior notes in October 1996.
Interest expense for fiscal year 1998 remained relatively consistent compared
to fiscal year 1997, which reflects stable interest rates and consistent overall
amounts borrowed during the time periods.
The effective income tax rate for fiscal year 1998 was 44 percent compared to
45 percent for fiscal year 1997. The effective rates were higher than the
statutory federal rate primarily because of state income taxes and the impact of
increased non-deductible business entertainment expenses incurred in conjunction
with the additional financial and corporate revenue category activity previously
discussed.
IMPACT OF INFLATION The Company does not believe that inflation has had a
significant impact on the results of its operations.
LIQUIDITY AND CAPITAL RESOURCES The Company continued to strengthen its
financial position during fiscal year 1999. Working capital at January 31,
1999, increased to $81.6 million from $79.3 million a year ago. Our current
ratio remained consistent at 2.1:1 in fiscal year 1999 when compared to
fiscal year 1998. Working capital increased primarily from higher cash
balances, reflecting strong collection of trade receivables during the entire
year. Trade accounts receivable decreased as a result of the strong cash
collections and the reduction in the financial transaction activity.
Work-in-process inventories decreased at January 31, 1999, reflecting the
downturn in financial transaction activity in the fourth quarter and improved
inventory turns. Cash and cash equivalents increased to $23.5 million with no
borrowings under the Company's line of credit at January 31, 1999. Long-term
obligations to total capitalization was 21.9 percent at January 31, 1999,
compared to 25.0 percent a year ago.
Cash provided by operating activities was $55.8 million in fiscal year
1999, compared to $30.9 million in fiscal year 1998 and $8.5 million in
fiscal year 1997. Operating cash flows for fiscal year 1999 included strong
earnings performance and a decrease in accounts receivable and work-in-process
18 MERRILL CORPORATION
<PAGE>
inventories offset by decreases in accounts payable and accrued expenses.
Operating cash flows for fiscal year 1998 included strong earnings performance,
a decrease in work-in-process inventories and an increase in accounts payable
and accrued expenses offset by an increase in accounts receivable.
Net cash used in investing activities was $23.1 million in fiscal year 1999,
compared to $30.1 million in fiscal year 1998 and $35.8 million in fiscal year
1997. Capital expenditures were $16.5 million, $17.1 million and $9.2 million
for the years ended January 31, 1999, 1998 and 1997, respectively. Capital
expenditures in each fiscal year were principally for reprographic and computer
based production equipment and for leasehold improvements. Cash used for
businesses acquired included Executech in fiscal year 1999, Superstar Computing,
Total Management Support Services and The Corporate Printing Company in fiscal
year 1998 and The Corporate Printing Company and FMC Resource Management
Corporation in fiscal year 1997.
Net cash used in financing activities was $11.8 million in fiscal year 1999
compared to $3.4 million in fiscal year 1998. Net cash used in these fiscal
years was primarily a result of repurchases of common stock offset by stock
option exercises and repayment of borrowings under the Company's line of
credit. Fiscal year 1997 cash provided by financing activities of $20.4
million was primarily a result of the issuance of long-term debt offset by
payments on long-term debt and capital lease obligations.
The Company repurchased 734,000 shares of its common stock for approximately
$12.8 million in fiscal year 1999. A cumulative total of 998,000 shares have
been repurchased for approximately $15.9 million under the 1,500,000 share
repurchase program authorized by the Board of Directors in fiscal year 1997.
The Company expects capital expenditures in fiscal year 2000 to range from $25
million to $30 million for computer and production equipment and facility
expansion and remodeling. Approximately $2 million of this amount is committed
at this time.
The Company has historically been working-capital intensive, but in recent
years has increased its needs for technology and production equipment. The
Company generally has been able to generate sufficient cash from operations to
fund its capital needs.
At January 31, 1999, the Company's principal internal sources of liquidity
were cash and cash equivalents and cash flow provided by operating activities.
The Company has available an unsecured bank line of credit expiring on November
29, 1999. The amount available was increased from $40 million to $70 million
subsequent to January 31, 1999. Management anticipates that these sources will
satisfy its needs for fiscal year 2000.
YEAR 2000 READINESS Many older computer software programs refer to years in
terms of their final two digits only. Such programs may interpret the year 2000
to mean the year 1900 instead. If not corrected, those programs could cause
date-related transaction failures. Merrill Corporation has a Year 2000 project
underway that addresses our internal business systems including software,
hardware and firmware as well as external business partners, supply chains and
customers. Our plan includes the
following steps:
ASSESSMENT. We have identified and prioritized systems and individual
components of systems that contain potentially date-sensitive computer codes.
REMEDIATION. We are making decisions on how to make systems and processes Year
2000-ready, then proceeding to make the necessary changes.
THIRD-PARTY VENDORS. We have surveyed for Year 2000 readiness by material
third-party vendors, including external providers of software and hardware
products, as well as print producers.
CONFIGURATION MANAGEMENT. We have tracked source code components of an
application and changes to the components to manage the remediation process.
VALIDATION/TESTING. We have substantially completed testing of data and have
reviewed results to determine that errors were not introduced during the
conversion process.
1999 ANNUAL REPORT 19
<PAGE>
CONTINGENCY PLANNING. We are formulating contingency plans that address the
continuum from minor administrative interruptions to failure of mission critical
processes to include alternate material and services suppliers where applicable.
Our project plan includes initial testing and remediation which was begun last
year and continued into the fourth quarter of the fiscal year ended January 31,
1999 (fiscal 1999). The Company completed the surveying of key suppliers in the
fourth quarter of fiscal 1999. The Company is currently in the process of
developing contingency plans, as necessary, with the initial draft to be
completed July 31, 1999.
We plan to have Merrill's mission-critical internal systems and electronic
data links ready by July 31, 1999, and resolve any supplier problems. We have
surveyed our major utility companies and have received most response statements.
We are in the process of analyzing those statements and following up, where
needed, for clarity.
A master project plan has been developed and a Steering Committee, chartered
by the Board of Directors, meets regularly to monitor the plan and address
issues. The project has progressed through the system assessment stage into the
remediation stage where programming changes are being made to major business and
production systems. The Company believes that the project is currently on
schedule.
The Company estimates that the total cost to identify and remediate Year 2000
problems is approximately $3.0 million. Approximately $1.1 million of these
costs have been incurred as of January 31, 1999. These costs are expensed as
incurred. These costs are primarily consultant and payroll-related costs for the
Company's information technology group and some computer hardware and software
package upgrade purchase costs. Such costs do not include normal system upgrades
and replacements.
Detailed system-by-system status for major systems is available on our web
site HTTP://WWW.MERRILLCORP.COM for those interested parties.
We, of course, do not have control over many Year 2000 problems. The nature of
our society and the interconnected systems of government agencies, utilities,
businesses and even individuals can affect our ability to provide goods and
services to our customers, and by extension could also affect our financial
position. We are making every effort to evaluate, correct and test potential
problem areas, but ultimately, the resolutions of Year 2000 questions by other
entities in our network of relationships could influence us significantly.
QUARTERLY STOCK PRICE INFORMATION
Merrill Corporation shares are traded on the Nasdaq Stock Market under the
symbol MRLL. The table below sets forth the range of high and low sales prices
per share as reported by the Nasdaq Stock Market. These prices do not include
adjustments for retail markups, markdowns or commissions. There were
approximately 2,100 shareholders of record and non-objecting beneficial owners
of the Company's common stock at the close of trading on April 15, 1999. The
Company paid annualized cash dividends of $.08 per share in fiscal year 1999 and
$.07 per share in fiscal year 1998. Total cash dividends approximated $1.3
million and $1.1 million in fiscal years 1999 and 1998, respectively.
<TABLE>
<CAPTION>
First Second Third Fourth
Stock Price Per Share Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FY 1999 High 23 9/16 24 3/4 23 7/8 19 1/2
Low 18 20 12 1/16 12 3/4
FY 1998 High 14 20 5/16 24 1/4 24
Low 10 1/4 11 5/8 17 1/8 18 5/32
</TABLE>
20 MERRILL CORPORATION
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of January 31,
---------------------------
(In thousands, except share data) 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 23,477 $ 2,531
Trade receivables, less allowance for doubtful accounts
of $8,126 and $6,992, respectively 102,365 116,721
Work-in-process inventories 12,639 13,686
Other inventories 7,559 7,112
Other current assets 12,253 10,290
- ------------------------------------------------------------------------------------------------
Total current assets 158,293 150,340
Property, plant and equipment, net 44,935 41,045
Goodwill, net 49,744 44,437
Other assets 12,973 10,657
- ------------------------------------------------------------------------------------------------
Total assets $265,945 $246,479
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 2,210 $ 655
Current maturities of capital lease obligations 236 249
Accounts payable 29,640 29,142
Accrued expenses 44,642 41,033
- ------------------------------------------------------------------------------------------------
Total current liabilities 76,728 71,079
Long-term debt, net of current maturities 38,110 40,225
Capital lease obligations, net of current maturities 1,375 1,616
Other liabilities 8,581 7,884
- ------------------------------------------------------------------------------------------------
Total liabilities 124,794 120,804
- ------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 3 and 5)
Shareholders' equity
Common stock, $.01 par value: 25,000,000 shares authorized;
15,823,155 and 16,315,136 shares, respectively, issued
and outstanding 158 163
Undesignated stock: 500,000 shares authorized; no shares issued
Additional paid-in capital 12,722 22,401
Retained earnings 128,271 103,111
- ------------------------------------------------------------------------------------------------
Total shareholders' equity 141,151 125,675
- ------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $265,945 $246,479
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
1999 ANNUAL REPORT 21
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended January 31,
----------------------------------------------
(In thousands, except share and per share data) 1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 509,543 $ 459,516 $ 353,769
Cost of revenue 330,632 295,390 227,478
- ------------------------------------------------------------------------------------------------
Gross profit 178,911 164,126 126,291
Selling, general and administrative expenses 127,705 114,174 89,946
- ------------------------------------------------------------------------------------------------
Operating income 51,206 49,952 36,345
Interest expense (3,961) (4,321) (4,124)
Other income, net 426 835 263
- ------------------------------------------------------------------------------------------------
Income before provision for income taxes 47,671 46,466 32,484
Provision for income taxes 21,214 20,445 14,645
- ------------------------------------------------------------------------------------------------
Net income $ 26,457 $ 26,021 $ 17,839
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Net income per share:
Basic $ 1.63 $ 1.61 $ 1.13
Diluted $ 1.55 $ 1.54 $ 1.11
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding:
Basic 16,253,148 16,129,341 15,792,161
Diluted 17,020,673 16,906,382 16,117,432
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22 MERRILL CORPORATION
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended January 31,
----------------------------------------------
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 26,457 $ 26,021 $ 17,839
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 13,066 11,147 10,825
Amortization of intangible assets 4,573 4,286 2,581
Writedown of goodwill 1,180
Provision for losses on trade receivables 3,273 2,064 2,861
Provision for unbillable inventories 67 (1,063) 2,678
Deferred income taxes (3,518) (2,592) (6,555)
Change in deferred compensation 1,807 1,285 401
Changes in operating assets and liabilities,
net of effects from business acquisitions
Trade receivables 11,796 (36,706) (18,499)
Work-in-process inventories 865 12,082 (11,667)
Other inventories (333) (1,667) 583
Other current assets 1,301 (1,798) (1,718)
Accounts payable (348) 7,336 (3,720)
Accrued expenses (3,267) 11,537 11,365
Income taxes (1,109) (1,059) 1,530
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 55,810 30,873 8,504
- -------------------------------------------------------------------------------------------------------------------
Investing activities
Purchase of property, plant and equipment (16,479) (17,069) (9,216)
Business acquisitions, net of cash acquired (4,039) (13,179) (26,010)
Other investing activities, net (2,551) 137 (564)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (23,069) (30,111) (35,790)
- -------------------------------------------------------------------------------------------------------------------
Financing activities
Borrowings on notes payable to banks 86,600 104,275 139,050
Repayments on notes payable to banks (86,600) (110,225) (139,100)
Proceeds from issuance of long-term debt 35,000
Principal payments on long-term debt and
capital lease obligations (814) (936) (15,164)
Repurchase of common stock (12,813) (3,065)
Dividends paid (1,297) (1,133) (948)
Exercise of stock options 2,149 5,417 1,045
Tax benefit realized upon exercise of stock options 884 2,192 328
Other equity transactions, net 96 83 162
- -------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided
by financing activities (11,795) (3,392) 20,373
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 20,946 (2,630) (6,913)
Cash and cash equivalents, beginning of year 2,531 5,161 12,074
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 23,477 $ 2,531 $ 5,161
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Supplemental cash flow disclosures
Income taxes paid $ 24,724 $ 22,000 $ 19,253
Interest paid 3,599 3,757 2,866
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
1999 ANNUAL REPORT 23
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the Years Ended January 31, 1999, 1998 and 1997
-------------------------------------------------------------
Additional
Common Paid-in Retained
(In thousands, except per share data) Stock Capital Earnings Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 31, 1996 $ 157 $ 16,245 $ 61,332 $ 77,734
Exercise of stock options 2 1,043 1,045
Tax benefit realized upon
exercise of stock options 328 328
Other 162 162
Cash dividends ($.06 per share) (948) (948)
Net income 17,839 17,839
- -------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1997 $ 159 $ 17,778 $ 78,223 $ 96,160
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Exercise of stock options 7 5,410 5,417
Tax benefit realized upon
exercise of stock options 2,192 2,192
Repurchase of common stock (3) (3,062) (3,065)
Other 83 83
Cash dividends ($.07 per share) (1,133) (1,133)
Net income 26,021 26,021
- -------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1998 $ 163 $ 22,401 $103,111 $125,675
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Exercise of stock options 2 2,147 2,149
Tax benefit realized upon
exercise of stock options 884 884
Repurchase of common stock (7) (12,806) (12,813)
Other 96 96
Cash dividends ($.08 per share) (1,297) (1,297)
Net income 26,457 26,457
- -------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 31, 1999 $ 158 $ 12,722 $128,271 $141,151
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24 MERRILL CORPORATION
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ONE - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS The Company provides paper and electronic document
services consisting of creative design, typesetting, printing, reproduction,
distribution, data and information services to financial, legal, investment
company, real estate and corporate clients worldwide.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from those estimates. The most significant
areas which require the use of management's estimates relate to the
determination of the allowances for doubtful accounts and unbillable
inventories.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include all
majority-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
CASH EQUIVALENTS The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
INVENTORIES Work-in-process, which includes purchased services, materials,
direct labor and overhead, is valued at the lower of cost or net realizable
value, with cost determined on a specific job-cost basis. Other inventories
consist primarily of paper and printed materials and are valued at the lower of
cost or market, with cost determined on a specific job-cost basis.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at
cost. Significant additions or improvements extending asset lives are
capitalized; normal maintenance and repair costs are expensed as incurred.
Depreciation is determined using the straight-line method over the estimated
useful lives of the assets which range from three to 30 years. Amortization of
leasehold improvements is recorded on a straight-line basis over the estimated
useful lives of the assets or the lease term, whichever is shorter. When assets
are sold or retired, related gains or losses are included in the results of
operations.
GOODWILL Goodwill recognized in business acquisitions accounted for as
purchases is amortized on the straight-line method, principally over 15 years.
The Company periodically evaluates the recoverability of unamortized goodwill
through measurement of future estimated undiscounted operating unit cash flows.
INCOME TAXES Deferred income taxes are recognized for the tax consequences in
future years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable for the year and the change during the
year in deferred tax assets and liabilities.
REVENUE RECOGNITION The Company recognizes revenue when service projects are
completed or products are shipped.
NET INCOME PER SHARE The Company has disclosed basic and diluted net income
per share for all periods presented in accordance with the Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." The
dilutive effect on net income per share resulted from the assumed exercise of
dilutive stock options outstanding under the Company's stock option plans.
1999 ANNUAL REPORT 25
<PAGE>
ONE - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
STOCK-BASED COMPENSATION The Company accounts for stock-based compensation
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, compensation costs for stock options granted to
employees are measured as the excess, if any, of the fair value of the
Company's stock at the date of the grant over the amount an employee must pay
to acquire the stock. Such compensation costs, if any, are amortized on a
straight-line basis over the underlying option vesting terms. The Company
accounts for stock-based compensation to non-employees using the fair value
method prescribed by SFAS No. 123, "Accounting for Stock Based Compensation."
Compensation costs for stock options granted to non-employees are based on
fair value of the option at the date of grant.
BUSINESS SEGMENTS Effective January 31, 1999, the Company adopted SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information,"
which requires the Company to report information about its operating segments
according to the management approach for determining reportable segments. This
approach is based on the way management organizes segments within a company for
making operating decisions and assessing performance. Segment results have been
reported for all periods presented and are described in Note Nine.
TWO - SELECTED FINANCIAL STATEMENT DATA
<TABLE>
<CAPTION>
As of January 31,
--------------------------
(In thousands) 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT, NET
Land $ 1,951 $ 1,951
Buildings 12,111 11,965
Equipment 63,068 54,929
Furniture and fixtures 14,157 11,057
Leasehold improvements 18,664 10,479
Construction in progress 1,090 5,609
- ------------------------------------------------------------------------------------------------
111,041 95,990
Less accumulated depreciation and amortization (66,106) (54,945)
- ------------------------------------------------------------------------------------------------
$ 44,935 $ 41,045
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
GOODWILL, NET
Goodwill $ 63,462 $ 52,913
Less accumulated amortization (13,718) (8,476)
- ------------------------------------------------------------------------------------------------
$ 49,744 $ 44,437
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
ACCRUED EXPENSES
Commissions and compensation $ 22,089 $ 25,003
Retirement plan 3,970 4,965
Purchase price consideration 7,734 800
Other 10,849 10,265
- ------------------------------------------------------------------------------------------------
$ 44,642 $ 41,033
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
26 MERRILL CORPORATION
<PAGE>
THREE - BUSINESS ACQUISITIONS
On April 15, 1996, the Company purchased substantially all of the operating
assets and assumed certain liabilities of The Corporate Printing Company, Inc.
and Affiliated Group (CPC) for approximately $22.6 million in cash. The Company
did not purchase any assets relating to CPC's pressroom and shipping businesses.
The purchase price was subsequently reduced by approximately $1.7 million in
accordance with terms of the purchase agreement. In accordance with the
agreement, additional contingent purchase consideration of $8 million was paid
in August 1997. The Company also entered into a five-year non-compete agreement
with CPC's principal shareholder that requires payments totaling $3.4 million
through April 15, 2001. The principal shareholder is also entitled to an
additional $500,000 annually through March 31, 2001, as the Company maintained
certain business of a specified customer. The acquisition has been accounted for
as a purchase.
On March 28, 1996, the Company purchased all of the outstanding common
stock of FMC Resource Management Corporation for $5.4 million in cash and
promissory notes for $2.0 million. The agreement calls for additional
contingent consideration, not to exceed $4 million, based on annual gross
profits of the acquired business through January 31, 2001, as defined in the
agreement. Contingent consideration recorded through January 31, 1999, was
$2.4 million. The acquisition has been accounted for as a purchase.
Results of the acquired companies' operations have been included in the
Consolidated Statements of Operations from their respective dates of
acquisitions. Pro forma (unaudited) results of the Company for the year ended
January 31, 1997, as if the acquisitions had been effective at February 1, 1995,
are as follows:
<TABLE>
<CAPTION>
For the Year Ended January 31,
------------------------------
(In thousands, except per share data) 1997
- ------------------------------------------------------------------------------
<S> <C>
Revenue $376,647
Net income 17,047
Net income per share - diluted 1.05
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
During fiscal year 1999, the Company completed the acquisition of
substantially all of the operating assets and liabilities of Executech, Inc. and
an affiliated company, World Wide Scan Services, LLC for $3.2 million in cash.
The agreement calls for additional consideration totalling approximately $10.0
million through fiscal year 2003. The acquisition has been accounted for as a
purchase and is not significant to the financial position or results of
operations of the Company.
1999 ANNUAL REPORT 27
<PAGE>
FOUR - FINANCING ARRANGEMENTS
BANK FINANCING The Company has a revolving credit agreement with a group of
banks that provides for an unsecured bank line of credit which expires on
November 29, 1999. Subsequent to January 31, 1999, the agreement was amended to
increase the amount available for borrowing from $40 million to $70 million.
There were no borrowings outstanding under this agreement at January 31, 1999
and 1998. Under the agreement, the Company has the option to borrow at the
Agent's reference rate, at 1.0% above the London Interbank Offered Rate (LIBOR)
or at 1.0% above a certificate of deposit-based rate, and is required to pay
quarterly commitment fees of 0.25% on the unused portion of the line of credit.
The weighted average interest rates on borrowings on the line of credit were
8.44%, 8.26% and 7.39% for the years ended 1999, 1998 and 1997, respectively.
The revolving credit agreement includes various covenants, including the
maintenance of minimum tangible net worth and limitations on the amounts of
certain transactions, including payment of dividends.
LONG-TERM DEBT Long-term debt consisted of the following:
<TABLE>
<CAPTION>
As of January 31,
---------------------------
(In thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Unsecured senior notes, bearing interest at 7.463%, with semi-annual
interest only payments through October 2000, at which time annual
principal and semi-annual interest payments are due through
October 2006. The notes have various covenants, including the
maintenance of certain financial ratios and limitations on the
amount of certain transactions including the payment of dividends. $35,000 $35,000
Industrial development bonds, due in annual installments, including
interest ranging from 4.2% to 5.5%, over the life of the bonds with
the remaining unpaid balance due on August 1, 2010; collateralized
by land, building and equipment with a carrying value of $4,712
at January 31, 1999. 3,320 3,380
Unsecured promissory notes payable due in March 1999. The notes bear
interest at LIBOR plus 1.0%, adjustable and payable annually. The
interest rate at January 31, 1999 and 1998 was 6.8125% and 7.281%,
respectively. 2,000 2,000
Unsecured promissory note payable in equal annual installments of $500
on December 31 through 1998. 500
- -------------------------------------------------------------------------------------------------------------------
40,320 40,880
Less current maturities of long-term debt (2,210) (655)
- -------------------------------------------------------------------------------------------------------------------
$38,110 $40,225
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
(In thousands)
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
2000 $ 2,210
2001 5,220
2002 5,230
2003 5,240
2004 5,250
Thereafter 17,170
- -------------------------------------------------------------------------------------------------------------------
$40,320
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Based on quoted market prices for similar issues, the fair value of long-term
debt approximated its carrying value at January 31, 1999 and 1998.
28 MERRILL CORPORATION
<PAGE>
FIVE - LEASES
The Company leases an office and production facility and the associated land
and equipment under capital leases that terminate at various dates through
November 30, 2005. Certain leases contain bargain purchase options. A summary of
the Company's property under capital leases, which is classified as property,
plant and equipment, is as follows:
<TABLE>
<CAPTION>
As of January 31,
---------------------------
(In thousands) 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Land $ 333 $ 333
Building 2,439 2,439
Equipment 389 594
Less accumulated amortization (1,334) (1,366)
- -------------------------------------------------------------------------------
$ 1,827 $ 2,000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
The Company also leases office space and equipment under noncancelable
operating leases which expire at various dates through October 31, 2014. Rental
expense charged to operations was $9.0 million, $8.0 million and $6.0 million
for the years ended January 31, 1999, 1998 and 1997, respectively.
Future minimum rental commitments under noncancelable leases at January 31,
1999, are as follows:
<TABLE>
<CAPTION>
Capital Operating
(In thousands) Leases Leases
- ------------------------------------------------------------------------------
<S> <C> <C>
2000 $ 392 $ 6,697
2001 330 5,737
2002 330 4,645
2003 330 4,349
2004 330 3,751
Thereafter 605 16,317
- ------------------------------------------------------------------------------
2,317 $41,496
-------
Imputed interest (706)
- ------------------------------------------------------------------
Present value of minimum lease payments 1,611
Less current maturities of capital lease obligations (236)
- ------------------------------------------------------------------
Capital lease obligations, net of current maturities $1,375
- ------------------------------------------------------------------
- ------------------------------------------------------------------
</TABLE>
1999 ANNUAL REPORT 29
<PAGE>
SIX - INCOME TAXES
Components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
For the Years Ended January 31,
------------------------------------
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $21,204 $19,974 $17,758
State 3,528 3,063 3,442
- ------------------------------------------------------------------------------
24,732 23,037 21,200
Deferred (3,518) (2,592) (6,555)
- ------------------------------------------------------------------------------
Provision for income taxes $21,214 $20,445 $14,645
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
Temporary differences comprising the net deferred tax asset recognized in
the accompanying Consolidated Balance Sheets are as follows:
<TABLE>
<CAPTION>
As of January 31,
-----------------------
(In thousands) 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred compensation $ 3,997 $ 1,980
Property, plant and equipment 2,359 2,126
Insurance reserves 1,406 1,130
Vacation accrual 1,228 1,085
Allowance for doubtful accounts 1,188 1,349
Goodwill amortization 1,131 433
Inventories 1,038 958
Other, net 1,204 972
- -------------------------------------------------------------------------------
Net deferred tax asset $13,551 $10,033
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Management expects that the Company will fully realize the benefits
attributable to the net deferred tax asset at January 31, 1999. Accordingly, no
valuation allowance has been recorded at January 31, 1999.
Significant differences between income taxes on income for financial
reporting purposes and income taxes calculated using the federal statutory tax
rate are as follows:
<TABLE>
<CAPTION>
As of January 31,
---------------------------------------
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for federal income taxes at statutory rate $16,684 $16,263 $11,369
State income taxes, net of federal benefit 1,967 1,646 1,444
Non-deductible business meeting and
entertainment expenses 2,003 1,832 1,210
Other 560 704 622
- ------------------------------------------------------------------------------------------------
$21,214 $20,445 $14,645
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
Consolidated federal income tax returns filed by the Company have been
examined by the Internal Revenue Service through fiscal 1994. The Company's
fiscal 1995, 1996 and 1997 federal and certain state income tax returns are
presently under audit. Management believes any additional taxes which may
ultimately result from these audits or any other state or local agencies' audits
would not have a material adverse effect on the Company's consolidated financial
position or results of operations.
30 MERRILL CORPORATION
<PAGE>
SEVEN - RETIREMENT PLAN
On February 1, 1998, the Company combined its defined contribution retirement
plan and its 401(k) incentive savings plan. Under the new plan, Company
contributions are based on 4% of eligible employee compensation and 100%
matching contributions up to a maximum of the first 3% of a participant's 401(k)
contribution. Substantially all employees of the Company are covered by the new
plan. Related costs of all retirement plans charged to operations were $6.1
million, $5.1 million and $4.0 million for the years ended January 31, 1999,
1998 and 1997, respectively.
EIGHT - SHAREHOLDERS' EQUITY
COMMON STOCK In August 1997, the Company's Board of Directors declared a
2-for-1 stock split of the Company's common stock in the form of a 100% stock
dividend which was paid on October 15, 1997, to shareholders of record on
September 30, 1997. The Consolidated Statements of Changes in Shareholders'
Equity and all share and per share amounts have been retroactively restated
to reflect the stock split. Also, all information regarding shares
outstanding, stock purchase agreements, stock options and stock grants has
been retroactively restated to reflect the stock split.
The classes, series, rights and preferences of the undesignated stock may be
established by the Company's Board of Directors. No action with respect to such
shares has been taken. During fiscal year 1997, the Company's Board of Directors
approved the repurchase of up to 1,500,000 shares of the Company's common stock.
In fiscal year 1999, the Company repurchased 734,000 shares of common stock for
approximately $12.8 million. Through January 31, 1999, 998,000 shares of common
stock had been repurchased for approximately $15.9 million.
EARNINGS PER SHARE The denominator used to calculate diluted earnings per
share includes the dilutive impact of 767,525, 777,041 and 325,271 stock options
for the years ended January 31, 1999, 1998 and 1997, respectively.
STOCK PLANS Under Company-sponsored incentive and stock option plans,
6,506,000 shares of common stock were reserved for the granting of incentive
awards to employees in the form of incentive stock options, nonstatutory stock
options and restricted stock awards at exercise prices not less than 100% of the
fair market value of the Company's common stock on the date of grant. As of
January 31, 1999, stock options for 5,342,300 shares and 70,800 restricted stock
awards had been granted under the plans, leaving 1,092,900 shares available for
future grants.
Under the Company's 1996 Non-employee Director Plan (the Plan), 400,000
shares of common stock were reserved for granting of non-statutory options
and awarding of common stock as partial payment to non-employee directors who
serve on the Company's Board of Directors. Non-statutory stock options issued
under the Plan are granted at an exercise price not less than 100% of the
fair market value of the Company's common stock on the date of grant.
Compensation expense is recorded when common stock is awarded as partial
payment for the director's annual retainer in an amount approximately equal
to the fair market value of the Company's common stock on the date of grant.
As of January 31, 1999, non-statutory options for 120,000 shares and 10,863
shares of common stock had been granted under the Plan, leaving 269,137
shares available for future grants.
In addition to options granted under the plans above, the Company has
granted non-qualified options to directors and consultants at prices equal to
or exceeding market value at date of grant. Options granted under all
Company-sponsored stock plans generally vest and expire over five to seven
years.
1999 ANNUAL REPORT 31
<PAGE>
EIGHT - SHAREHOLDERS' EQUITY, CONTINUED
A summary of selected information regarding all stock options for the three
years ended January 31, 1999, is as follows:
<TABLE>
<CAPTION>
Weighted Average
Number of Exercise Price Exercise Price
Shares Per Share Per Share
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 31, 1996 1,854,628 $ 2.00-14.88 $ 8.46
Granted 1,092,000 8.12-11.96 9.06
Exercised (152,436) 3.68-10.38 6.85
Canceled (106,364) 8.12-13.25 9.86
- ---------------------------------------------------------------------------------------------
Balance, January 31, 1997 2,687,828 2.00-14.88 8.74
Granted 1,129,200 11.19-22.75 13.95
Exercised (759,400) 2.00-15.06 7.88
Canceled (88,200) 8.13-10.00 8.86
- ---------------------------------------------------------------------------------------------
Balance, January 31, 1998 2,969,428 2.00-22.75 10.94
Granted 611,000 18.25-21.38 20.95
Exercised (239,750) 2.00-15.06 8.97
Canceled (70,600) 8.13-21.38 13.92
- ---------------------------------------------------------------------------------------------
BALANCE, JANUARY 31, 1999 3,270,078 $3.68-22.75 $12.89
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
At January 31, 1999, the weighted average exercise price and remaining life
of the stock options are as follows:
<TABLE>
Range of exercise prices $ 3.68-8.25 $8.50-13.50 $14.75-22.75 Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total options outstanding 821,700 1,485,878 962,500 3,270,078
Weighted average exercise price $8.06 $10.94 $20.00 $12.89
Weighted average remaining life 3.3 years 3.5 years 4.6 years 3.8 years
Options exercisable 248,400 386,918 128,100 763,418
Weighted average price of
exercisable options $7.92 $11.30 $18.24 $11.37
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
32 MERRILL CORPORATION
<PAGE>
EIGHT - SHAREHOLDERS' EQUITY, CONTINUED
Had the Company used the fair value-based method of accounting for its
incentive and stock option plans beginning on February 1, 1995, and charged
compensation cost against income, over the vesting period based on the fair
value of options at the date of grant, net income and net income per share would
have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
For the Years Ended January 31,
---------------------------------------------------
(In thousands except per share data) 1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME
As reported $26,457 $26,021 $17,839
Pro forma 24,300 24,541 17,223
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
NET INCOME PER SHARE
As reported - basic $ 1.63 $ 1.61 $ 1.13
As reported - diluted 1.55 1.54 1.11
Pro forma - basic 1.50 1.52 1.09
Pro forma - diluted 1.43 1.45 1.07
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
The pro forma information above includes only stock options granted since
fiscal year 1996. Pro forma compensation expense under the fair value-based
method of accounting will increase in the future as additional stock option
grants will be considered.
The weighted average grant date fair value of options granted during fiscal
years 1999, 1998 and 1997 was $10.32, $6.68 and $4.72, respectively. The
weighted average grant date fair value of options was calculated by using the
fair value of each option grant, utilizing the Black-Scholes option-pricing
model and the following key assumptions:
<TABLE>
<CAPTION>
For the Years Ended January 31,
--------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk free interest rate 5.50% 6.50% 6.87%
Expected life 5 YEARS 5 years 6 years
Expected volatility 51.18% 43.52% 48.85%
Expected dividend yield 0.41% 0.38% 0.68%
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
1999 ANNUAL REPORT 33
<PAGE>
NINE - SEGMENT AND RELATED INFORMATION
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," changes the way the Company reports information about its
operating segments. The information for fiscal years 1998 and 1997 is also
presented.
The Company's business units have been aggregated into two reportable segments
comprising of Specialty Communication Services and Document Services.
SPECIALTY COMMUNICATION SERVICES This segment consists of three business
units -- Financial Document Services, Investment Company Services and Managed
Communications Programs -- that print documents and deliver services used in the
financial marketplace, including mutual fund and insurance companies and banks,
and national organizations. The principal markets for this segment include major
metropolitan centers in the world including North America, Europe, Latin America
and the Far East. Customers include major investment bankers, corporate
officers, mutual fund companies, national and regional real estate networks and
other business services.
DOCUMENT SERVICES Document Management Services is the sole business unit
reported in this segment. They deliver document management solutions to legal
and corporate clients through client-based service centers. These
Merrill-managed facilities provide clients with a broad range of value-added
document services, including litigation copying and support, imaging,
electronic document scanning, storage and retrieval, binding and
post-production shipping. The principal markets for this segment are major
metropolitan areas in North America. Customers include law firms and large
corporations.
The accounting policies of the reportable segments are the same as those
described in Note One of Notes to Consolidated Financial Statements. The Company
evaluates the performance of its operating segments based on revenue and
operating earnings of the respective business units. Intersegment sales and
transfers are not significant.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "Interest & Other" column
includes corporate-related items and, as it relates to income before
provision for income taxes, income and expense not allocated to reportable
segments.
<TABLE>
<CAPTION>
(In thousands) Specialty Communication Services Document Services Interest & Other Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Revenue $446,579 $62,964 $509,543
Income (loss) before provision
for income taxes 52,995 (1,789) $(3,535) 47,671
Total assets 186,825 25,966 53,154 265,945
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
1998
Revenue $405,742 $53,774 $459,516
Income (loss) before provision
for income taxes 57,276 (7,324) $(3,486) 46,466
Total assets 205,200 16,530 24,749 246,479
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
1997
Revenue $314,187 $39,582 $353,769
Income (loss) before provision
for income taxes 45,555 (9,210) $(3,861) 32,484
Total assets 167,043 11,729 23,225 201,997
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
34 MERRILL CORPORATION
<PAGE>
TEN - QUARTERLY DATA (UNAUDITED)
The following is a summary of unaudited quarterly data for the years ended
January 31, 1999 and 1998:
<TABLE>
<CAPTION>
First Second Third Fourth
(In thousands except per share data) Quarter Quarter Quarter Quarter Total
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 Revenue $ 123,514 $148,458 $119,759 $117,812 $509,543
Gross profit 48,358 53,974 39,100 37,479 178,911
Net income 8,012 8,706 6,488 3,251 26,457
Net income per share - basic .49 .53 .40 .20 1.63
Net income per share - diluted .47 .50 .38 .20 1.55
Dividends declared per share .02 .02 .02 .02 .08
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
1998 Revenue $ 109,859 $115,601 $112,091 $121,965 $459,516
Gross profit 43,585 41,066 39,374 40,101 164,126
Net income 7,754 6,312 5,707 6,248 26,021
Net income per share - basic .49 .39 .35 .38 1.61
Net income per share - diluted .47 .38 .33 .36 1.54
Dividends declared per share .015 .015 .02 .02 .07
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
For fiscal year 1999, the summations of quarterly net income per share --
basic does not equate to the calculation for the year as quarterly calculations
are performed on a discrete basis.
ELEVEN - SUBSEQUENT EVENT
On April 14, 1999, the Company purchased substantially all assets and assumed
certain liabilities of Daniels Printing, Limited Partnership for $45 million in
cash plus $10.6 million in payoff of existing term debt and line of credit plus
the assumption of $7.7 million of certain ordinary course liabilities. The
acquisition will be accounted for as a purchase. The acquisition was financed
using the Company's line of credit and available operating cash.
1999 ANNUAL REPORT 35
<PAGE>
SUMMARY OF OPERATING AND FINANCIAL DATA
<TABLE>
<CAPTION>
For the Years Ended January 31,
-------------------------------------------------------------------------------------
(In thousands, except employee,
per share data and ratio) 1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenue $ 509,543 $ 459,516 $ 353,769 $ 245,306 $ 236,878 $ 181,584
Costs and expenses 461,872 413,050 321,285 226,600 215,724 159,593
- -----------------------------------------------------------------------------------------------------------------------------
Income before provision
for income taxes 47,671 46,466 32,484 18,706 21,154 21,991
Provision for income taxes 21,214 20,445 14,645 8,044 9,171 8,820
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 26,457 $ 26,021 $ 17,839 $ 10,662 $ 11,983 $ 13,348
- -----------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Net income - basic $ 1.63 $ 1.61 $ 1.13 $ .69 $ .79 $ .90
Net income - diluted $ 1.55 $ 1.54 $ 1.11 $ .68 $ .76 $ .86
Cash dividends declared $ .08 $ .07 $ .06 $ .06 $ .06 $ .05
Book value $ 8.92 $ 7.70 $ 6.06 $ 4.95 $ 4.35 $ 3.58
- -----------------------------------------------------------------------------------------------------------------------------
FINANCIAL DATA/OTHER
Working capital $ 81,565 $ 79,261 $ 69,220 $ 39,379 $ 31,523 $ 22,528
Current ratio 2.1 2.1 2.2 2.0 2.0 1.6
Total assets $ 265,945 $ 246,479 $ 201,997 $ 125,521 $ 106,470 $ 100,123
Shareholders' equity $ 141,151 $ 125,675 $ 96,160 $ 77,734 $ 66,061 $ 53,597
Return on average
shareholders' equity 19.8% 23.5% 20.5% 14.8% 20.0% 28.7%
Long-term obligations $ 39,485 $ 41,841 $ 42,729 $ 6,454 $ 7,522 $ 8,656
Long-term obligations
to capitalization 21.9% 25.0% 30.8% 7.7% 10.2% 13.9%
Number of employees 3,385 3,297 2,539 1,932 1,739 1,601
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
36 MERRILL CORPORATION
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF MERRILL CORPORATION:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows present fairly, in all material respects, the financial position of
Merrill Corporation and Subsidiaries as of January 31, 1999 and 1998 and
the results of their operations and their cash flows for each of the three years
in the period ended January 31, 1999, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
Merrill Corporation's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
March 29, 1999
Saint Paul, Minnesota
1999 ANNUAL REPORT 37
<PAGE>
EXHIBIT 99.10
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
JURISDICTION OF
NAME INCORPORATION PERCENT OWNED
- --------------------------------------------------------------------- --------------- -------------
<S> <C> <C>
Merrill/New York Company............................................. Minnesota 100%
Merrill/Magnus Publishing Corporation................................ Minnesota 100%
Merrill Corporation, Canada ......................................... Ontario 100%
Merrill/May, Inc..................................................... Minnesota 100%
Merrill International Inc............................................ Minnesota 100%
Merrill Real Estate Company.......................................... Minnesota 100%
FMC Resource Management Corporation.................................. Washington 100%
Merrill Training & Technology, Inc................................... Minnesota 100%
Merrill Global, Inc.................................................. Minnesota 100%
Merrill/Executech, Inc............................................... Minnesota 100%
Merrill Daniels, Inc................................................. Minnesota 100%
Document.com, LLC.................................................... Minnesota 100%
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements on
Form S-8 of Merrill Corporation and Subsidiaries (File Nos. 33-46275, 33-52623
and 33-06897) of our report dated March 29, 1999, on our audits of the
consolidated financial statements of Merrill Corporation and Subsidiaries as of
January 31, 1999 and 1998, and for each of the three years in the period ended
January 31, 1999, which report is incorporated by reference in this Annual
Report on Form 10-K, and our report dated March 29, 1999, on the related
financial statement schedule included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
May 3, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 23,477
<SECURITIES> 0
<RECEIVABLES> 110,491
<ALLOWANCES> 8,126
<INVENTORY> 20,198
<CURRENT-ASSETS> 158,293
<PP&E> 111,041
<DEPRECIATION> 66,106
<TOTAL-ASSETS> 265,945
<CURRENT-LIABILITIES> 76,728
<BONDS> 39,485
0
0
<COMMON> 158
<OTHER-SE> 140,993
<TOTAL-LIABILITY-AND-EQUITY> 265,945
<SALES> 509,543
<TOTAL-REVENUES> 509,543
<CGS> 330,632
<TOTAL-COSTS> 330,632
<OTHER-EXPENSES> 127,705
<LOSS-PROVISION> 3,273
<INTEREST-EXPENSE> 3,961
<INCOME-PRETAX> 47,671
<INCOME-TAX> 21,214
<INCOME-CONTINUING> 26,457
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,457
<EPS-PRIMARY> 1.63
<EPS-DILUTED> 1.55
</TABLE>
