-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gc8XszfHwZzCG/0c1V3kkvkB8IZ4QAsIqsxr5A+/oqq0j/6m+UeGxr9AKIqBYbfs KIbEFLfiJrMl7SzYgaa2UQ== 0000912057-96-007564.txt : 19960501 0000912057-96-007564.hdr.sgml : 19960501 ACCESSION NUMBER: 0000912057-96-007564 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19960131 FILED AS OF DATE: 19960430 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERRILL CORP CENTRAL INDEX KEY: 0000790406 STANDARD INDUSTRIAL CLASSIFICATION: COMMERCIAL PRINTING [2750] IRS NUMBER: 410946258 STATE OF INCORPORATION: MN FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14082 FILM NUMBER: 96554018 BUSINESS ADDRESS: STREET 1: ONE MERRILL CIRCLE STREET 2: ENERGY PARK CITY: ST PAUL STATE: MN ZIP: 55108 BUSINESS PHONE: 6126464501 FORMER COMPANY: FORMER CONFORMED NAME: MERRILL CORP/FA DATE OF NAME CHANGE: 19930915 10-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to __________________ COMMISSION FILE NUMBER: 0-14082 MERRILL CORPORATION (Exact name of Registrant as specified in its charter) 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)
Registrant's telephone number, including area code: (612) 646-4501 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $.01 PER SHARE ------------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K./ / As of April 22, 1996, 7,863,883 shares of Common Stock of the Registrant were outstanding, and the aggregate market value of the Common Stock of the Registrant as of that date (based upon the last reported sale price of the Common Stock at that date by the Nasdaq National Market) excluding outstanding shares owned beneficially by officers and directors, was approximately $116,791,000. DOCUMENTS INCORPORATED BY REFERENCE Parts I and II of this Annual Report on Form 10-K incorporate by reference information (to the extent specific pages are referred to herein) from the Registrant's Annual Report to Shareholders for the year ended January 31, 1996 (the "1996 Annual Report"). Part III of this Annual Report on Form 10-K incorporates by reference information (to the extent specific sections are referred to herein) from the Registrants' Proxy Statement for its Annual Meeting to be held May 21, 1996 (the "1996 Proxy Statement"). - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS (A) GENERAL DEVELOPMENT OF BUSINESS Merrill Corporation provides a full range of typesetting, printing, document reproduction, distribution and marketing communication services to financial, legal, insurance and corporate markets. The Company is headquartered in St. Paul, Minnesota and has 19 full service offices in major financial centers across the United States and in Canada, as well as 5 regional printing plants, and printing and distribution operations in St. Cloud, Minnesota and Monroe, Washington. The Company also has established affiliations with financial printing companies internationally. Since February 1, 1995, the Company has completed two acquisitions. On March 29, 1996, the Company acquired all the issued and outstanding capital stock of FMC Resource Management Corporation ("FMC"), a Washington corporation located near Seattle. FMC is engaged in the manufacture, distribution and inventory management business. On April 15, 1996, the Company acquired certain of the assets of The Corporate Printing Company, Inc. ("CPC"), a New York corporation along with certain of the assets of its affiliates. CPC was a regional financial and corporate printing company with offices in New York, Washington, D.C. and Maryland. In connection with these acquisitions, the Company has increased its revolving bank line of credit from $15 million to $60 million. The Company, which is a Minnesota corporation, was organized in 1968 under the name "K.F. Merrill Company." The Company's executive offices are located at One Merrill Circle, Energy Park, St. Paul, Minnesota 55108. Its telephone number is (612) 646-4501. Unless the context otherwise requires, the terms "Merrill Corporation" or the "Company" include its subsidiaries, Merrill/New York Company, Merrill/Magnus Publishing Corporation, Merrill Corporation, Canada, Merrill/ May, Inc., Merrill International, Inc, Merrill Real Estate Company and FMC Resource Management Corporation. (B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS Since its inception, the Company's revenues, operating profits and assets have been attributable to one business segment -- providing document typesetting, printing, reproduction, distribution and marketing communication services for the financial, legal, insurance and corporate markets. Financial information about this segment is contained on pages 15 to 28 of the Company's 1996 Annual Report to Shareholders,which information is incorporated herein by reference. (C) NARRATIVE DESCRIPTION OF BUSINESS Merrill is a document services company that utilizes advanced computer and telecommunications technology to provide a full range of services to its customers. These services include typesetting, printing, electronic document formation, distribution and marketing communications services. Operationally, the Company's services can be divided into four categories: financial, corporate, commercial and other services, and document management services. The following table sets forth the percentage of revenue attributable to each of the Company's categories of service for each of the past three fiscal years:
YEAR ENDED JANUARY 31, ------------------------------------- CATEGORY OF SERVICE 1996 1995 1994 - --------------------------------------------------- ----------- ----------- ----------- Financial.......................................... 36.1% 33.4% 42.4% Corporate.......................................... 29.5% 33.4% 34.4% Commercial and other............................... 21.5% 23.3% 13.8% Document management services....................... 12.9% 9.9% 9.4% ----- ----- ----- Total.......................................... 100.0% 100.0% 100.0% ----- ----- ----- ----- ----- -----
1 FINANCIAL AND CORPORATE SERVICES GENERAL In its financial printing business, the Company applies advanced computer and telecommunications technology to the production and distribution of time-sensitive, transactional financial documents, such as registration statements, prospectuses and other printed materials related to corporate financings and acquisitions. The Company's corporate printing business involves typesetting and printing of corporate documents which are prepared annually or at regular intervals, such as annual and quarterly reports and proxy materials for companies, and registration statements for unit investment trusts and mutual funds. Operationally, the Company utilizes the same technology and personnel in providing its financial and corporate printing services. The Company's financial and corporate document business is service oriented. The production of financial and corporate documents requires rapid typesetting, printing and electronic conversion services, available 24 hours a day and tailored to the exacting demands of the Company's customers. The Company receives information directly from its customers in various forms, including typed or handwritten pages, magnetic recording media, and by direct telecommunication with its clients' computer equipment. This information is transmitted by facsimile or direct electronic connection to the Company's central production facility for processing into a typeset or electronic document. Each document typically goes through numerous proof cycles, and at each cycle the document is typeset, duplicated and distributed to the parties, including corporate executives, investment bankers, attorneys and accountants. Individual participants are frequently located in different cities, often requiring proofs to be delivered simultaneously to different parts of the country. Just prior to the completion of a financial or corporate document, a drafting group generally will meet at one of the Company's service facilities where conference rooms and other amenities are maintained for customer use. Accommodating the needs of its customers "in-house" is the most time-critical service that the Company provides, and requires, among other things, the accurate and rapid turnaround of the edited pages and expert knowledge of the documents and filing requirements of the SEC. After final changes have been made, the Company is usually required to quickly prepare paper copies of the document (including any exhibits) for filing with the SEC or an electronic submission for filing through the SEC's Electronic Data Gathering, Analysis, and Retrieval system ("EDGAR"). The document is then printed, collated, bound and distributed in booklet form, and can also be produced electronically for distribution via the Internet. "HUB AND SPOKE" NETWORK By using advanced computer and telecommunications technology, the Company has created a "hub and spoke" network for its financial and corporate services linking its central computerized production facility in St. Paul, Minnesota (a "hub") with its 19 full-service facilities located throughout the United States and in Canada (the "Spokes"). In addition, the Company has technology that also links the St. Paul hub directly to its customers and international service affiliates. In connection with the acquisition of CPC, the Company recently acquired a second typesetting hub in Maryland which it plans to integrate with the Company's existing systems during fiscal 1997. CENTRAL COMPUTERIZED PRODUCTION FACILITY. The Company has integrated multiple systems with communications technology and proprietary software in its central production facility. This facility consists of multiple computers, communication controllers, text entry and editing stations, laser typesetting equipment, as well as a number of special purpose computer subsystems for data conversion and information management. Each critical piece of equipment in the system has at least one secondary or back-up device to protect against interruptions should any piece of equipment temporarily fail. This computer equipment has been integrated by the Company to create a document production environment which is designed to have a high level of performance, data protection and system reliability. The concentration of equipment and typesetting personnel in a central facility has been a key Company strategy to reduce overhead and labor expense, implement more effective training programs 2 and more efficiently use its management resources. The Company believes that this strategy has enabled it to benefit more quickly from new technologies that have decreased costs and improved the quality of its service, since new technologies and methods, when implemented in the central facility, immediately benefit all service facilities. The Company also believes that this concentration of personnel and equipment at the hub, and the linking of service facilities to the hub, enables it to respond quickly to fluctuating demand for typesetting services in each of its service facilities across the country by efficiently allocating its typesetting resources when and where they are needed. NATIONAL COMMUNICATIONS NETWORK. The Company has established a dedicated telecommunications network, connecting each of its service facilities with the hub, which permits typeset documents and production control information to be electronically transmitted to each of its service facilities. The network consists of digital lines connecting each of the Company's service facilities with the hub, automated data switching and routing equipment, and the necessary software to manage and control the communications. Designed to operate continuously, the network is highly efficient and reliable, and contains secondary or back-up service for each portion of the network to minimize the possibility of an interruption in service. SERVICE FACILITIES. Each service facility is staffed with sales, administrative, customer service, production, duplication and distribution personnel. The service facilities all have conference rooms with support staff, office equipment and amenities to give the Company's customers a comfortable work environment in which to meet, write and revise their documents. Each service facility has the necessary photo imaging equipment to produce documents with high image quality, using the electronic information received from the hub. This enables the Company to transmit completed documents to one or more service facilities for distribution within minutes of completion. MERRILLLINK-TM-. The Company has developed the MerrillLink system that connects the hub to locations outside of its service facilities through the use of portable printing devices. These printing devices, usually placed in the customer's office or at the Company's sales offices, allow the Company to edit typeset pages and provide proof distribution to remote locations throughout the world. MerrillLink lets the Company service transactional work in locations that do not justify the cost of a full service facility and where rapid turnaround distribution is needed. INTERNATIONAL SERVICE. The Company and Burrups, Ltd., a London based financial printing company, jointly market their communications and production facilities and services on a worldwide basis. The objective of this arrangement is to work together to provide customers with integrated document typesetting, printing and distribution services wherever the document originates or needs to be delivered. Besides London, Burrups has full service facilities in Frankfurt, Luxembourg, Paris, Seoul and Tokyo. In addition, the Company has established relationships with financial printing companies in 36 countries which have agreed to work as service facilities for the Company on an "as needed" basis. The Company has made software and hardware modifications in order to successfully establish electronic communications between its production hub and the service facilities overseas. With this electronic connection as well as the MerrillLink system, the Company is able to transmit high-quality typeset documents for printing and distribution in Europe, Asia, the Middle East, Africa, the Pacific Rim and South America without the time delays and costs incurred by conventional air shipment. The Company also is able to offer its financial and corporate services in Canada through its full service facilities in Toronto and Montreal. THE JOB CONTROL SYSTEM. The Company coordinates the activities of its service facilities through a proprietary Job Control System ("JCS"). This system tracks each document from the time it is initially received by the Company at a service facility through completion of production and billing. The JCS is used as a national production control system with each service facility being "on-line" to the system through the Company's communications network. Information can be sent to and retrieved from the JCS by any service facility, and can be immediately read by the hub to aid in the rapid and accurate completion of each document. Each service facility can also immediately send instructions to another service facility using this system. During the production phase of a document, the JCS 3 assigns job numbers and keeps track of specific information about the document, such as dates and the times at which proofs are due, style and job specifications, messages regarding the job and last-minute changes. Distribution of drafts is a critical task in the preparation of financial documents, and the JCS simplifies this task by keeping a current address list for each job and history of the distribution and method of delivery for each proof of the document. The Company also uses the production information collected in the JCS to assist in the pricing of its services. EDGAR The SEC requires participants or their agents to file most disclosure information in an electronic format through EDGAR rather than by the traditional paper filing package. This electronic format, usually in ASCII, includes additional submission information and coding "tags" within the document for aid in the SEC's analysis of the document and retrieval by the public. This electronic format is generally delivered by direct telecommunications, but may be delivered on magnetic computer tape or by diskette. EDGAR allows registrants to file and the public to retrieve disclosure information electronically. The Company converts SEC forms and exhibit documents in standard word processing and other computer formats to the EDGAR format and assembles these documents for electronic filing with the SEC. The Company has been involved in all stages of development of EDGAR. The Company has written proprietary software that enables it to quickly prepare and file the electronic version of financial and corporate documents through a dedicated data line directly to the SEC's computers. In addition, the Company has spent considerable time training its staff to coordinate the preparation of these EDGAR filings. The Company also keeps participants informed of EDGAR developments by publishing quarterly Merrill's EDGAR Advisor-TM-, a newsletter for distribution to lawyers, corporate executives and other interested parties, and by conducting seminars throughout the country to inform participants about EDGAR. The Company has a toll-free telephone information line for its customer's questions regarding EDGAR and also distributes EDGAR rules, forms and reference materials. The Company has experienced an increased demand for EDGAR filing services for financial as well as corporate categories of services and believes that the EDGAR system will continue to increase the demand for the time-sensitive services of the Company, since many filing companies will use outside services to meet EDGAR filing requirements. COMMERCIAL AND OTHER SERVICES GENERAL In its commercial and other printing business, the Company typesets, prints and distributes commercial and other documents, including price catalogs, directories, insurance industry annual reports, sample ballots and technical manuals from electronic information supplied by customers. Included in this category are the Company's Merrill/May, Inc. ("Merrill/May") and FMC subsidiaries. Merrill/May provides custom marketing communication services to corporate customers and demand printing and distribution services designed to promote the corporate identity of large, national clients with multiple franchisees, members, divisions or affiliated organizations. FMC provides manufacture, distribution, and inventory management services of marketing items for large, geographically diverse companies with a need for sophisticated logistics management. The Company's commercial typesetting business provides turnkey document services, including camera, pre-press and printing services for one- or multi-color publications. These commercial printing projects, like financial and corporate printing, require a high level of attention to detail, quick turnaround times and responsive customer service. The Company believes that offering high levels of service is a competitive advantage in certain niches of the commercial printing business. MANAGED MARKETING COMMUNICATIONS As part of its commercial and other services category, the Company is engaged in the managed marketing communications business through its Merrill/May subsidiary and its recently acquired FMC subsidiary. Merrill/May provides demand printing and distribution services designed to support 4 the corporate identity of large, national clients with multiple franchisees, members, divisions or affiliated organizations ("member organizations"). FMC is also engaged in the manufacture, distribution, and inventory management business for large, national clients. Merrill/May is authorized by its national clients to develop and produce custom printed products such as business cards, stationery and collateral support print materials with a uniform appearance for the client's member organizations. Working with each national account client, Merrill/May prepares a catalog to merchandise these custom printed products, along with other promotional merchandise produced by third parties. Merrill/May distributes each client-specific catalog to the national client's member organizations. In marketing its national account printed products, Merrill/May develops direct relationships with each of the individual member organizations, which are independently owned and operated and make their own print purchasing decisions. Merrill/May uses a sophisticated order entry system, supported by a large inbound telemarketing staff, to receive and process orders. After reviewing a catalog, a member organization can place an order by mail, fax or toll free Merrill/May telephone number. A Merrill/May customer service representative processing the order will have access to the customer's purchase history (if an existing customer) and can suggest reordering certain items, cross-sell complementary items or alert the customer to current specials. Merrill/May accepts major credit cards and payment is typically made upon placing the order. Merrill/May produces large quantities of printed materials for each national client, which it warehouses pending receipt of an order for the product. Merrill/May can produce multi-color, highly technical, commercial quality printed materials. Products ordered from a catalog typically require additional "personalizing" for the ordering member organization, after which they are checked for quality, packaged and shipped. Promotional merchandise (point of purchase, advertising specialty, premiums and incentives) included in a catalog that are produced by third parties are generally shipped directly by the manufacturer to the ordering member organization. Merrill/May uses a sophisticated materials handling system with automated handling, order consolidation and shipping. Most orders are filled within four days of receipt. The demand printing and distribution services provided by Merrill/May benefit both the national account client and the member organizations. The national account client benefits from Merrill/May's centralized production and fulfillment by controlling the use of its trademarks and facilitating the economies of mass production for its membership while the ultimate consumer of Merrill/May's services, the member organization, receives quality products, fast delivery and prices that the Company believes are competitive with prices charged by local print shops. In addition to working with national accounts, Merrill/May provides general commercial printing services. The commercial printing services that Merrill/May provides help keep it current with printing industry trends and enhance overall printing quality. Merrill/May's customers are located in all 50 states and Canada, with limited shipments to Mexico, Puerto Rico, Australia/New Zealand, France and England. Merrill/May also provides custom marketing communications and publishing services, primarily marketed to financial services companies, media organizations, retailers and the health care industry. The types of custom publications the Company produces include magazines, tabloids, newsletters, booklets and catalogs used by its customers for their marketing purposes. The Company, generally pursuant to an annual contract, works with customers in the design and editorial content of these publications, typesets and prints the publications, then assists the customer in locating a target mailing list and mails the publications. On March 29, 1996, the Company acquired all the issued and outstanding capital stock of Seattle area based FMC. Similar to Merrill/May, FMC provides manufacturing, distribution, and inventory 5 management services of non-revenue producing items, such as commercial printing, business forms, digital printing, display items, collateral materials, and uniforms, for large multi-locational, multi-departmental companies. DOCUMENT MANAGEMENT SERVICES The Company provides comprehensive document management services for its customers both on a transactional basis, which includes photocopying and electronic imaging services and on an on-going basis, which can include management of the customer's entire photocopying, typesetting, imaging and/or mailroom facilities. The transactional business includes document reproduction and imaging services for projects that are time-sensitive or otherwise require special service, such as photocopying or imaging documents for large litigation matters. The Company will produce the photocopies at its service facilities or locate photocopying equipment and personnel at the customer's office. Document reproduction services require rapid turnaround and availability 24 hours a day. The Company's document reproduction customers typically have several boxes of documents which may be in file folders, stapled or on varying sizes of paper. The Company will take apart, photocopy and reassemble the original documents and copies as instructed by the customer. The Company also provides sequential numbering and binding services for these documents, if requested. Photocopying projects range from single copies of short documents to the more complicated copying jobs described above. The Company operates a document reproduction facility in Century City (Los Angeles area) and uses its financial and corporate printing service facilities and its printing plant facility in Union, New Jersey in connection with its document reproduction services. Each service facility is equipped with sophisticated photocopying equipment. The Company is able to make more efficient use of this equipment by performing project photocopying during times when the equipment would otherwise be idle. The Company's imaging portion of the transactional business captures data from its customers' paper documents and creates a digital picture of each page. The customer may then store large quantities of documents on CD-ROM (Compact disk -- read only memory), rather than on paper in boxes or file cabinets. Retrieval of the documents may be accessed simply by one user with a personal computer, or simultaneously by multiple users at multiple sites. The Company disassembles the customers' documents, captures the image, and reassembles the original documents. The Company may also create for the customer text files using Optical Character Recognition ("OCR") processing for full text retrieval systems, perform document management services such as barcoding, document coding, and perform services to assist with database development, programming, data management and conversions. The Company also consults with the customer regarding its hardware, software and network needs for development of an imaging system. Imaging projects can take from one day to several months to complete. The Company may provide imaging services at its service facilities, or provide on-site equipment, employees and management at the customer's location. The Company also offers comprehensive office photocopying, typesetting and mailroom facility management services to its customers. These services involve providing for a customer's document management needs, including on-site equipment, employees and management of the operation. PRINTING SERVICES The demand for financial printing services, like that for typesetting, fluctuates significantly. In order to adequately meet this fluctuating demand, financial printing companies have typically invested in printing presses and employed a complete printing workforce in or near each of the markets they serve. The Company meets this fluctuating demand by owning presses only in those markets where it has an adequate amount of recurring business and identifying in these and the other markets it serves several printers capable of meeting a portion of the Company's production needs on an "as required" basis. The Company currently operates printing plants in Minneapolis/St. Paul, Los Angeles, Chicago, Dallas, and New Jersey, markets in which the Company has found it advantageous to acquire printing presses to service a portion of its recurring corporate and commercial printing business. Corporate and commercial printing is generally both more predictable in volume and less time-sensitive in 6 nature than financial printing. Because the Company only owns presses in those markets in which its corporate and commercial printing business requires presses, the Company is able to adequately utilize these printing presses for its recurring corporate and commercial work while retaining the flexibility to use the presses for financial printing. The Company also operates a printing plant in St. Cloud, Minnesota, for its specialized printing services. See "Business -- Commercial and Other Services -- Managed Marketing Communications" above. The Company uses associated printers when it needs additional capacity in markets where the Company does not own presses or where special printing equipment is needed. The Company generally selects associated printers on a job-by-job basis, based upon considerations of price, availability and suitability of press equipment. MARKETING AND CUSTOMERS The Company markets its services nationwide and in Canada through a direct sales organization operating from its full service facilities and sales offices. The Company markets internationally with Burrups, Ltd. through both companies' direct sales organizations. The services provided by Merrill/ May are marketed through a direct sales organization operating from Merrill/May's principal facility in St. Cloud, Minnesota, and sales offices in the Company's facilities in Minneapolis/St. Paul, Irvine and San Francisco. The Company markets its financial and corporate document production services to executives or corporations whose securities are publicly traded, or are planned to be publicly traded, corporate finance underwriters, municipal bond underwriters, attorneys and others who require fast and accurate typesetting. The Company markets its commercial printing services primarily to corporations, associations, insurance companies and legal, institutional and governmental publishers, and markets its document reproduction services primarily to lawyers, paralegal and law office administrators, as well as to the legal departments of corporations. Merrill/May markets its demand printing and distribution services to large, national clients with multiple franchisees, members, divisions or affiliated organizations and its custom publication services to financial service companies (such as banks, credit unions and insurance companies), television and radio stations and networks, trade associations, manufacturers and the health care and vacation travel industries. The Company markets all of these services through personal contacts with customers, corporate advertising, promotional programs and direct mail. As of April 22, 1996, the Company employed 205 full-time salespeople to market its typesetting, printing, publishing, distribution, imaging and document reproduction services. The Company's salespersons solicit business from existing and prospective customers and, together with the customer service representatives, act as coordinators between the customer and the Company's production personnel, and provide advice and assistance to customers. COMPETITION The Company competes with a number of other companies in the financial and corporate printing industry, including regional firms, two principal nationwide competitors, Bowne & Co., Inc. and R.R. Donnelley & Sons Company, and international printing firms. Both Bowne and Donnelley have been in business longer, may have greater financial resources and revenues than the Company, and are major competitors in most of the Company's financial and corporate printing markets. In its commercial and other printing business, the Company competes for complex computer intensive and large-run typesetting work with a number of other computer typesetting firms, and medium-run printing work with a number of commercial web press printers. In the insurance printing business, the Company competes with other national and regional printers, including Bowne. In the managed marketing communications business, the Company believes that its primary competitors are local print shops and marketing service firms, including advertising agencies, custom publication printers, direct mail firms, and television, radio, newspapers, magazine and other media organizations. In its document management services businesses, the Company competes with two nationwide service companies, Xerox Corporation and Pitney Bowes, litigation support services vendors, and a large 7 number of photocopying and imaging shops, including privately owned shops as well as franchise operations. Competition in the Company's business is intense, and is based principally on service, price, speed, accuracy, technological capability and established relationships. The Company believes that it competes favorably with its competitors. EMPLOYEES As of April 22, 1996, the Company had 2,202 full-time employees and 51 part-time employees. None of the Company's employees are covered by a collective bargaining agreement. The Company considers its employee relations to be good. The Company's senior management and certain technical personnel have substantial experience and expertise in the document services industry. The Company considers the retention of these employees to be important to its continued success. The Company competes intensively with others in the industry to attract and retain qualified sales personnel. However, the Company believes that it is able to provide employment incentives sufficient to minimize the loss of key sales producers and to attract new sales personnel capable of producing significant amounts of business should the need or opportunity arise. Many sales personnel are under employment contracts of varying terms with the Company. (D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES Substantially all of the Company's revenue, operating profit and identifiable assets are attributable to the United States. ITEM 2. PROPERTIES The Company leases all of its facilities, except the principal facility of Merrill/May and the Energy Park Business Center that houses certain corporate and administrative departments. The Company's principal production and administrative office facility, located in St. Paul, includes 47,000 square feet of space and is leased, together with the associated land, from the Port Authority of the City of St. Paul. The terms of the Company's agreements with the Port Authority are contained in a facilities lease and land lease, both dated October 1, 1985, which require the Company to pay rents to the Port Authority in the amounts of $24,069 per month and $3,431 per month, respectively, for a term expiring on November 30, 2005. Each lease grants the Company the option to purchase the property at the end of the term, or earlier. Under the facilities lease, the Company may purchase the building for $254,500 at the end of the lease term or after ten years if the Company pays the remaining principal and interest on the bonds outstanding at the time of exercise of the options. The land may be purchased for $167,140 at the end of the lease term or $334,280 at the end of ten years. The Company owns Merrill/May's principal production, administrative and warehousing facility. This facility, which is located in St. Cloud, Minnesota, includes approximately 122,900 square feet of space. In July 1995, the Company purchased the Energy Park Business Center consisting of approximately 150,000 square feet in two buildings adjacent to the Company's principal production and administrative office facility. The Company maintains several of its corporate and administration departments in these buildings along with an imaging center, prepress and reprographics departments. The Company believes the purchase of these buildings will allow the Company to better plan its expansion as needed. Of the approximately 97,000 square feet of space available for lease, approximately 93% is currently leased to third parties. The Company also leases other office and warehouse space in the Minneapolis/St. Paul metropolitan area, service facilities in each of its other eighteen cities and sales offices in four other cities, with space ranging from 200 square feet to 77,000 square feet. These leases have expiration dates ranging from July 1996 to October 2014 under which the Company makes monthly payments aggregating approximately $458,000, including rental fees, real estate and taxes and operating expense. The Company makes a continuing effort to keep all of its properties and facilities modern, efficient and adequate for its operating needs, through the acquisition, disposition, expansion and improvement of such properties and facilities. As a result of the acquisition of CPC, the Company has 8 assumed certain leases for production and service facilities in New York, Maryland and Washington, D.C. The Company anticipates consolidating these new facilities with its existing facilities in New York and Washington, D.C. As a result the Company believes that it may have some excess capacity in these areas, however the Company believes that its properties and facilities at the other locations are, on an aggregate basis, fully utilized and adequate for the conduct of its business. ITEM 3. LEGAL PROCEEDINGS There are no material pending or threatened legal, governmental, administrative or other proceedings to which the Company or its subsidiaries is a party or of which any of their property is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Report. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company, their ages, the year first elected or appointed as an executive officer and the offices held as of April 22, 1996 are as follows:
YEAR FIRST ELECTED OR APPOINTED AS AN EXECUTIVE NAME AGE OFFICER TITLE - ------------------------ --- ---------------- ------------------------------------------ John W. Castro 47 1980 President and Chief Executive Officer Rick R. Atterbury 42 1981 Executive Vice President Steven J. Machov 45 1987 Vice President, General Counsel and Secretary Kathleen A. Larkin 36 1993 Vice President -- Human Resources Kay A. Barber 45 1995 Vice President -- Finance, Chief Financial Officer, Treasurer
Executive officers of the Company are elected by the Board of Directors and serve for one-year terms, commencing with their election at the first meeting of the Board of Directors immediately following the annual meeting of shareholders and continuing until the next such meeting of the Board of Directors. Appointed officers serve at the discretion of the President and Chief Executive Officer. There are no family relationships between or among any of the executive officers or directors of the Company. Except as indicated below, there has been no change in position of any of the executive officers during the past five years. Mr. Atterbury was elected Executive Vice President in 1996. Prior to the date, he served as Vice President -- Operations. Mr. Machov has been General Counsel of the Company since January 1987. He was elected to the office of Secretary in February 1990 and Vice President in May 1993. Ms. Larkin joined the Company in April 1993 as Manager of Human Resources and was appointed Vice President -- Human Resources in December 1993. From February 1987 to March 1993, Ms. Larkin was Employee Relations Manager for The Gillette Company, a manufacturer of personal care products. Ms. Barber joined the Company in September 1995 as Vice President -- Finance, Chief Financial Officer and Treasurer. From January 1993 to August 1995, Ms. Barber was Vice President, Finance and Controller for Growing Healthy, Inc., a marketer of frozen baby food products. From March 1991 to August 1992, she served as Director, Planning and Financial Analysis for NeXT Computer, Inc., a manufacturer of computer hardware and software. 9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information under the caption "Quarterly Stock Price Comparison" on page 14 of the Company's 1996 Annual Report is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The financial information in the table on page 28 of the Company's 1996 Annual Report is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 9 to 14 of the Company's 1996 Annual Report is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's Consolidated Financial Statements on pages 15 to 28 (including the unaudited information set forth under the caption "Quarterly Financial Data" on page 27) and the Report of its Independent Accountants on page 29 of the Company's 1996 Annual Report are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) DIRECTORS OF THE REGISTRANT. The information under the captions "Election of Directors -- Information About Nominees" and "Other Information About Nominees" on pages 5 and 6 of the Company's 1996 Proxy Statement is incorporated herein by reference. (b) EXECUTIVE OFFICERS OF THE REGISTRANT. Information concerning Executive Officers of the Company is included in this Report under Item 4A, "Executive Officers of the Registrant." (c) COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. The information under the caption "Security Ownership of Certain Beneficial Owners and Management" on pages 3 and 4 of the Company's 1996 Proxy Statement is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information under the captions "Election of Directors -- Directors' Compensation" on page 7 and "Executive Compensation" on pages 8 to 15, (excluding the "Comparative Stock Performance" graph on page 11), of the Company's 1996 Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under the captions "Security Ownership of Certain Beneficial Owners and Management" on pages 3 and 4, and "Election of Directors -- Information About Nominees" on page 5 of the Company's 1996 Proxy Statement is incorporated herein by reference. 10 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial statements: The following Financial Statements are incorporated herein by reference from the pages indicated in the Company's 1996 Annual Report: Consolidated Balance Sheets as of January 31, 1996 and 1995 -- page 15. Consolidated Statements of Operations for the years ended January 31, 1996, 1995 and 1994 -- page 16. Consolidated Statements of Cash Flows for the years ended January 31, 1996, 1995 and 1994 -- page 17. Consolidated Statements of Changes in Shareholders' Equity for the years ended January 31, 1996, 1995 and 1994 -- page 18. Notes to Consolidated Financial Statements -- pages 19-28. Report of Independent Accountants -- page 29. 2. Financial statement schedules: The following supplemental schedule and report of independent accountants thereon are included herein and should be read in conjunction with the consolidated financial statements referred to above (page numbers refer to pages in this Report):
PAGE ----- Report of Independent Accountants.................................................................... 13 Supplemental Schedule: II Valuation and Qualifying Accounts......................................................... 14
All other schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes. 3. Exhibits: The exhibits to this Report are listed in the Exhibit Index on pages 16 to 18 herein. A copy of any of these exhibits will be furnished at a reasonable cost to any person who was a shareholder of the Company as of April 1, 1996, upon receipt from any such person of a written request for any such exhibit. Such request should be sent to Merrill Corporation, One Merrill Circle, St. Paul, Minnesota 55108, Attention: Secretary. The following is a list of each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K: A. Employment Agreement between John Castro and the Company (incorporated by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 1989 (File No. 0-14082)). B. Amendment to Employment Agreement between John Castro and the Company (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1994 (File No. 0-14082)). 11 C. Employment Agreement between Rick R. Atterbury and the Company (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1991 (File No. 0-14082)). D. Amendment to Employment Agreement between Rick R. Atterbury and the Company (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1994 (File No. 0-14082)). E. 1987 Omnibus Stock Plan, as amended (incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1991 (File No. 0-14082)). F. 1993 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1995 (File No. 0-14082). G. Option Agreement between Ronald N. Hoge and the Company (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1993 (File No. 0-14082)). (b) REPORTS ON FORM 8-K: No reports on Form 8-K were filed during the fourth quarter of the fiscal year ended January 31, 1996. 12 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE Our report on the consolidated financial statements of Merrill Corporation has been incorporated by reference in this Form 10-K from page 29 of the 1996 Annual Report to Shareholders of Merrill Corporation. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in Item 14(a)2 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. St. Paul, Minnesota March 19, 1996 13 SCHEDULE II MERRILL CORPORATION VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994 (IN THOUSANDS)
COLUMN C ---------------------------- COLUMN B ADDITIONS COLUMN D ------------ ---------------------------- ------------ COLUMN E COLUMN A BALANCE AT CHARGED DEDUCTIONS ------------ - ---------------------------------------- BEGINNING OF CHARGED TO OTHER FROM BALANCE AT DESCRIPTION YEAR TO INCOME ACCOUNTS RESERVES END OF YEAR - ---------------------------------------- ------------ ------------ ------------ ------------ ------------ Year Ended January 31, 1994 Valuation account deducted from assets to which it applies -- Allowance for doubtful accounts...... $ 2,455 $ 579 $ 30 (A) $ 770 (B) $ 2,294 ------------ ------------ ----- ------------ ------------ ------------ ------------ ----- ------------ ------------ Year Ended January 31, 1995 Valuation account deducted from assets to which it applies -- Allowance for doubtful accounts...... $ 2,294 $ 2,038 $ 177 (A) $ 1,679 (B) $ 2,830 ------------ ------------ ----- ------------ ------------ ------------ ------------ ----- ------------ ------------ Year Ended January 31, 1996 Valuation account deducted from assets to which it applies -- Allowance for doubtful accounts...... $ 2,830 $ 1,486 $ 26 (A) $ 797 (B) $ 3,545 ------------ ------------ ----- ------------ ------------ ------------ ------------ ----- ------------ ------------ - ------------------------ (A) Recoveries on accounts previously written off. (B) Uncollectible accounts written off and adjustments to the allowance.
14 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. (REGISTRANT) MERRILL CORPORATION BY (SIGNATURE) /s/ JOHN W. CASTRO (NAME AND TITLE) John W. Castro, President and Chief Executive Officer (DATE) April 29, 1996
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. BY (SIGNATURE) /s/ JOHN W. CASTRO (NAME AND TITLE) John W. Castro, President and Chief Executive Officer (Principal Executive Officer) and Director (DATE) April 29, 1996 BY (SIGNATURE) /s/ KAY A. BARBER (NAME AND TITLE) Kay A. Barber, Vice President -- Finance, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) (DATE) April 29, 1996 BY (SIGNATURE) /s/ KENNETH F. MERRILL (NAME AND TITLE) Kenneth F. Merrill, Director (DATE) April 29, 1996 BY (SIGNATURE) /s/ ROBERT F. NIENHOUSE (NAME AND TITLE) Robert F. Nienhouse, Director (DATE) April 29, 1996 BY (SIGNATURE) /s/ RICHARD G. LAREAU (NAME AND TITLE) Richard G. Lareau, Director (DATE) April 29, 1996 BY (SIGNATURE) /s/ PAUL G. MILLER (NAME AND TITLE) Paul G. Miller, Director (DATE) April 29, 1996 BY (SIGNATURE) /s/ RICK R. ATTERBURY (NAME AND TITLE) Rick R. Atterbury, Director (DATE) April 29, 1996 BY (SIGNATURE) (NAME AND TITLE) Ronald N. Hoge, Director (DATE) April 29, 1996 BY (SIGNATURE) /s/ JAMES R. CAMPBELL (NAME AND TITLE) James R. Campbell, Director (DATE) April 29, 1996 BY (SIGNATURE) /s/ FREDERICK W. KANNER (NAME AND TITLE) Frederick W. Kanner, Director (DATE) April 29, 1996
15 MERRILL CORPORATION EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED JANUARY 31, 1995
ITEM NO. DESCRIPTION METHOD OF FILING - ----------- -------------------------------------------------- -------------------------------------------------- 3.1 Articles of Incorporation of the Company Incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 (File No. 33-4062) 3.2 Amendments to Articles of Incorporation as of June Incorporated by reference to Exhibit 3.2 to the 20, 1986 and March 27, 1987 Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1987 3.3 Restated Bylaws of the Company Incorporated by reference to Exhibit 3.3 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1990 10.1 1985 Incentive Stock Option Plan Incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-1 (File No. 33-4062) 10.2 Employment Agreement between Rick R. Atterbury and Incorporated by reference to Exhibit 10.2 to the the Company, dated as of February 1, 1987, as Company's Annual Report on Form 10-K for the amended fiscal year ended January 31, 1991 10.3 Amendment to Employment Agreement between Rick R. Incorporated by reference to Exhibit 10.3 to the Atterbury and the Company, dated as of April 29, Company's Annual Report on Form 10-K for the 1994. fiscal year ended January 31, 1994 10.4 Facilities Lease dated October 1, 1985 between the Incorporated by reference to Exhibit 10.17 to the Port Authority of the City of Saint Paul as Company's Registration Statement on Form S-1 lessor and the Company as lessee (File No. 33-4062) 10.5 Land Lease dated October 1, 1985 between the Port Incorporated by reference to Exhibit 10.18 to the Authority of the City of Saint Paul as lessor and Company's Registration Statement on Form S-1 the Company as lessee (File No. 33-4062) 10.6 Restated and Amended Revolving Credit Agreement Incorporated by reference to Exhibit 10.6 to the dated as of June 20, 1994 between First Bank, Company's Annual Report on Form 10-K for the N.A. and the Company fiscal year ended January 31, 1995 10.7 First Amendment to Restated and Amended Revolving Incorporated by reference to Exhibit 10.7 to the Credit Agreement dated as of September 28, 1994 Company's Annual Report on Form 10-K for the between First Bank, N.A. and the Company. fiscal year ended January 31, 1995 10.8 Second Amendment to Restated and Amended Revolving Incorporated by reference to Exhibit 10.8 to the Credit Agreement dated as of April 20, 1995 Company's Annual Report on Form 10-K for the between First Bank, N.A. and the Company. fiscal year ended January 31, 1995 10.9 Third Amendment to Restated and Amended Revolving Filed herewith electronically Credit Agreement dated as of August 29, 1995 between First Bank, N.A. and the Company
16
ITEM NO. DESCRIPTION METHOD OF FILING - ----------- -------------------------------------------------- -------------------------------------------------- 10.10 Fourth Amendment to Restated and Amended Revolving Filed herewith electronically Credit Agreement dated as of February 29, 1996 between First Bank, N.A. and the Company 10.11 Fifth Amendment to Restated and Amended Revolving Filed herewith electronically Credit Agreement dated as of April 12, 1996 between First Bank, N.A. and the Company 10.12 1987 Omnibus Stock Plan, as amended Incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1991 10.13 Employment Agreement between John Castro and the Incorporated by reference to Exhibit 10 to the Company dated as of February 1, 1989 Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 1989 10.14 Amendment to Employment Agreement between John Incorporated by reference to Exhibit 10.9 to the Castro and the Company dated as of April 29, Company's Annual Report on Form 10-K for the 1994. fiscal year ended January 31, 1994 10.15 1993 Incentive Stock Plan, as amended Incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1995 10.16 Option Agreement dated as of July 1, 1991 between Incorporated by reference to Exhibit 10.9 to the Ronald N. Hoge and the Company Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1993 10.17 Asset Purchase Agreement, dated as of December 31, Incorporated by reference to Exhibit 2.1 to the 1993 among the Company, Merrill Acquisition Company's Current Report on Form 8-K dated Corporation, May Printing Company and December 31, 1993. Shareholders of May Printing Company. 10.18 Loan Agreement, dated as of July 1, 1990 between Incorporated by reference to Exhibit 10.13 to the May Printing Company and Minnesota Agricultural Company's Annual Report on Form 10-K for the and Economic Development Board, amended as of fiscal year ended January 31, 1994 December 31, 1993. 10.19 Guaranty of Loan Obligations of May Printing Incorporated by reference to Exhibit 10.14 to the Company by the Company in favor of Minnesota Company's Annual Report on Form 10-K for the Agricultural and Economic Development Board, fiscal year ended January 31, 1994 dated as of December 31, 1993. 10.20 Guaranty Agreement of the obligations of Merrill Incorporated by reference to Exhibit 10.15 to the Acquisition Corporation by the Company in favor Company's Annual Report on Form 10-K for the of May Printing Company, and Thomas May and James fiscal year ended January 31, 1994 Scott May, dated as of December 31, 1993. 10.21 Stock Purchase Agreement, dated March 28, 1996, by Incorporated by reference to Exhibit 2.1 to the and among the Company and the Shareholders of FMC Company's Current Report on Form 8-K dated April Resource Management Corporation 15, 1996
17
ITEM NO. DESCRIPTION METHOD OF FILING - ----------- -------------------------------------------------- -------------------------------------------------- 10.22 Asset Purchase Agreement, dated April 15, 1996, by Filed herewith electronically and among the Company, Merrill/New York Company and The Corporate Printing Company, Inc., CPC Communications, Inc., CPC Reprographics, Inc., The Corporate Printing Company International, Ltd., CP International Holdings, Inc., CPC Management Services, Inc., The Corporate Printing Company International SNC, The Corporate Printing Company International PTE Ltd., Oakland Composition Limited Partnership, and the Shareholders of the above Affiliated Companies. (Omitted from this Agreement, as filed, are the exhibits listed in the "List of Exhibits" included at the beginning of the Agreement. The Company will furnish supplementally a copy of any such omitted exhibits to the Commission upon request.) 11.1 Computation of per share earnings Filed herewith electronically 13.1 Portions of Annual Report to Shareholders Filed herewith electronically 21.1 Subsidiaries of the Company Filed herewith electronically 23.1 Consent of Independent Accountants Filed herewith electronically 27.1 Financial Data Schedule Filed herewith electronically
18 EX-10.9 2 THIRD AMD TO RESTATED AND AMD REVOLVING CREDIT THIRD AMENDMENT TO RESTATED AND AMENDED REVOLVING CREDIT AGREEMENT THIS AMENDMENT is made as of the 29th day of August, 1995, by and between Merrill Corporation, a Minnesota corporation (the "Borrower"), and First Bank National Association, a national banking association (the "Bank"). RECITALS The Borrower and the Bank executed and delivered a Restated and Amended Revolving Credit Agreement, dated as of June 20, 1994, which was amended pursuant to an Amendment to Restated and Amended Revolving Credit Agreement, dated as of September 29, 1994, and a Second Amendment to Restated and Amended Revolving Credit Agreement, dated as of April 20, 1995 (herein, as amended, the "Loan Agreement"), pursuant to which the Bank committed to extending certain financial accommodations to the Borrower on the terms and subject to the conditions therein contained. At the request of the Borrower, the Bank has agreed to further amend the terms and conditions of the Loan Agreement on the terms herein provided. NOW, THEREFORE, for One Dollar and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree to amend the Loan Agreement as follows: 1. AMENDMENT TO LOAN AGREEMENT. The parties hereto hereby agree to amend the Loan Agreement as follows: (a) The definition of "Commitment" is hereby deleted from Section 1.01 and the following definition is substituted therefor: "'Commitment' means, from time to time, the difference between $15,000,000 and the outstanding face amount of the Letters of Credit." (b) The Revolving Note attached to the Loan Agreement as Exhibit A is hereby deleted and the Revolving Note attached to this Amendment as Exhibit A is substituted therefor. (c) Section 2.07 is hereby amended by (i) deleting the "0.85%" in paragraph (a) thereof and substituting "three-quarters of one percent (0.75%)" therefor, (ii) deleting the "1.00%" in paragraph (b) thereof and substituting "three-quarters of one percent (0.75%)" therefor, and (iii) deleting the period at the end of paragraph (c) thereof and substituting therefor "minus one-quarter of one percent (0.25%)." (d) Section 2.14(a) is hereby amended by deleting the "1.00%" located therein and substituting "three-quarters of one percent (0.75%)" therefor. (e) Section 7.06 of the Loan Agreement is hereby amended by deleting the period at the end thereof and substituting therefor the following provision: "; provided, however, that the amount, not to exceed $3,200,000, expended to acquire up to thirty percent (30%) of the stock of Roman Financial Press, Ltd., a British corporation, conducting a financial printing business in Hong Kong, China, shall not be subject to the foregoing limitation." (f) Section 7.08 of the Loan Agreement is hereby amended by deleting the period at the end thereof and substituting therefor the following provision: "plus for the fiscal year ending January 31, 1996, and for each fiscal year thereafter, the amount, not to exceed $5,500,000 in the aggregate for all fiscal years, expended during said fiscal year to enable Merrill Real Estate Company to purchase the corporate office and warehouse real estate located at 1419 through 1513 Energy Park Drive, in St. Paul, Minnesota." (g) Exhibit C to the Loan Agreement is hereby amended by inserting the following information at the end thereof: EXHIBIT C EXISTING SUBSIDIARIES - -------------------------------------------------------------------------------- NAME STATE OF PERCENT OWNED BY NAME OF MINORITY INCORPORATION MERRILL OWNER CORPORATION - -------------------------------------------------------------------------------- Merrill Real Estate Minnesota 100% ------ Company - -------------------------------------------------------------------------------- 2 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written. Merrill Corporation By:/s/John Castro -------------------------------- Its: President & CEO By:/s/Kay Barber -------------------------------- Its: VP & C.F.O. First Bank National Association By:/s/Steven L. Flack -------------------------------- Its: Vice President 3 EXHIBIT A RESTATED REVOLVING NOTE $15,000,000 Minneapolis, Minnesota August 29, 1995 For value received, the undersigned, Merrill Corporation, a Minnesota corporation, hereby promises to pay on May 31, 1997, to the order of First Bank National Association, a national banking association (the "Bank"), at its main office at Minneapolis, Minnesota, or at any other place designated at any time by the holder hereof, in lawful money of the United States of America and in immediately available funds, the principal sum of Fifteen Million Dollars ($15,000,000) or, if less, the aggregate unpaid principal amount of all advances made by the Bank to the undersigned hereunder (the "Principal Balance"). Interest shall accrue on the Principal Balance remaining unpaid from time to time in accordance with the provisions of Section 2.07 of the Restated and Amended Revolving Credit Agreement of even date herewith by and between the undersigned and the Bank, as amended. This Note may be prepaid in whole at any time or from time to time in part only as permitted under Section 2.04 of the Restated and Amended Revolving Credit Agreement. This Note is issued pursuant to, and subject to, the Restated and Amended Revolving Credit Agreement, which, among other things, provides for acceleration of the maturity hereof upon the occurrence of an Event of Default (as defined in that Restated and Amended Revolving Credit Agreement). This Note represents the restatement of and an increase in the Restated Revolving Note dated June 20, 1994 payable by the undersigned, to the order of the Bank, and not the repayment thereof. This Note shall be immediately due and payable (including unpaid interest accrued hereon) without demand or notice thereof upon filing of a petition by or against the undersigned under the United States Bankruptcy Code. The undersigned hereby agrees to pay all costs of collection, including reasonable attorneys' fees and legal expenses, in the event this Note is not paid when due, whether or not legal proceedings are commenced. Presentment or other demand for payment, notice of dishonor and protest are expressly waived. MERRILL CORPORATION By:_____________________________________ Its:__________________________________ By:_____________________________________ Its:__________________________________ 2 EX-10.10 3 FOURTH AMD TO RESTATED AND AMD REVOLVING CREDIT FOURTH AMENDMENT TO RESTATED AND AMENDED REVOLVING CREDIT AGREEMENT THIS AMENDMENT is made as of the 29th day of February, 1996, by and between Merrill Corporation, a Minnesota corporation (the "Borrower"), and First Bank National Association, a national banking association (the "Bank"). RECITALS The Borrower and the Bank executed and delivered a Restated and Amended Revolving Credit Agreement, dated as of June 20, 1994, which was amended pursuant to an Amendment to Restated and Amended Revolving Credit Agreement, dated as of September 29, 1994, a Second Amendment to Restated and Amended Revolving Credit Agreement, dated as of April 20, 1995, and a Third Amendment to Restated and Amended Revolving Credit Agreement dated as of August 29, 1995 (herein, as amended, the "Loan Agreement"), pursuant to which the Bank committed to extending certain financial accommodations to the Borrower on the terms and subject to the conditions therein contained. At the request of the Borrower, the Bank has agreed to further amend the terms and conditions of the Loan Agreement on the terms herein provided. NOW, THEREFORE, for One Dollar and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree to amend the Loan Agreement as follows: 1. AMENDMENT TO LOAN AGREEMENT. The parties hereto hereby agree to amend the Loan Agreement as follows: (a) Section 7.06 of the Loan Agreement is hereby amended by deleting the period at the end thereof and substituting therefor the following provision: "; provided, however, that the amount, not to exceed $9.5 million, expended or assumed to acquire all of the stock of FMC Resource Management Corp., a Washington corporation, shall not be subject to the foregoing limitation." (b) Exhibit C to the Loan Agreement is hereby amended by substituting Attachment I to this Amendment in lieu therefor. 2. SUBSIDIARY GUARANTIES. To induce the Bank to amend the Loan Agreement as herein provided, the Borrower agrees to deliver by June 20, 1996: (a) Guaranties executed by each Subsidiary, in the form of Attachment II to this Fourth Amendment; (b) Resolutions from the Board of Directors of each Subsidiary authorizing the execution and delivery of the Guaranty; (c) The Articles of Incorporation and Bylaws of each Subsidiary certified as true and correct by the corporate secretary or assistant secretary; and (d) An opinion of counsel for each Subsidiary in form and substance satisfactory to the Bank which may be rendered by the Subsidiary's in-house counsel. To induce the Bank to accept the Guaranties, and to amend the Loan Agreement as herein provided, the Borrower represents and warrants to the Bank that (i) each Subsidiary has or will receive adequate consideration to support the Guaranty, (ii) none of the Subsidiaries is, or as a result of the Guaranty will be rendered, insolvent, (iii) none of the Subsidiaries will retain unreasonably small capital following the execution of the Guaranty, and (iv) none of the Subsidiaries intends to incur, or believes that it will incur, debts beyond its ability to pay as they matured. The Borrower agrees that if the foregoing documents are not delivered to the Bank by June 20, 1996, the Bank can declare a default or an Event of Default under the Loan Agreement. 3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby reaffirms that the representations and warranties contained in the Loan Agreement are true and correct as of the date hereof as though made on that date, except for those representations and warranties which specifically refer to an earlier date. The Borrower further represents and warrants that (i) the execution, delivery and performance of the Loan Agreement and this Fourth Amendment by the Borrower have been duly authorized by all necessary corporate action, (ii) the Loan Agreement, as amended hereby, constitutes the legal valid and binding obligation of the Borrower, enforceable in accordance with its respective terms, (iii) there does not now exist an Event of Default (as defined in the Loan Agreement) or any event, which with the giving of notice, or the passage of time, or both, could become an Event of Default, and (iv) all loans evidenced by the Revolving Note are due without offset, counterclaim or defense. 4. CONDITIONS PRECEDENT. This Fourth Amendment shall not become effective until the Borrower shall deliver the following documents to the Bank: (i) This Fourth Amendment executed on behalf of the Borrower; (ii) An opinion of counsel for the Borrower, in form and substance satisfactory to the Bank which may be rendered by the Borrower's in-house counsel. 5. EXPENSES. The Borrower hereby agrees to reimburse the Bank for its expenses incurred in the preparation of this Fourth Amendment and the other writings executed by the parties in connection herewith, including reasonable attorneys' fees. 6. MISCELLANEOUS. Except as amended hereby, all of the other terms of the Loan Agreement shall remain the same. This Fourth Amendment shall be governed by the laws 2 of the State of Minnesota and may not be waived, amended or modified except in writing signed by all the parties hereto. The Borrower represents, warrants and agrees that as of the date hereof, the Borrower has no offsets, counterclaims or defenses against its obligations under the Loan Agreement, as amended hereby. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written. Merrill Corporation By:/s/John Castro ------------------------------------------ Its: President and CEO By:/s/Kay Barber ------------------------------------------ Its: Vice President-Finace, CFO and Treasurer First Bank National Association By:/s/Steven L. Flack ------------------------------------------ Its: Vice President 3 ATTACHMENT I EXHIBIT C Subsidiaries of the Company Jurisdiction of Percent Owned Incorporation Merrill/New York Company Minnesota 100% Merrill/Magnus Publishing Corporation Minnesota 100% Merrill/May, Inc. Minnesota 100% Merrill Corporation, Canada d/b/a Merrill Atwell Fleming Ontario 100% Merrill Real Estate Company Minnesota 100% *FMC Resource Management Corporation Washington 100% * Subject to completion of acquisition ATTACHMENT II GUARANTY Minneapolis, Minnesota _________ 1996 For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and to induce FIRST BANK NATIONAL ASSOCIATION, its participants, successors and assigns (the "Bank"), at its option, at any time or from time to time to make loans or extend other accommodations to or for the account of MERRILL CORPORATION, a Minnesota corporation ("Borrower"), or to engage in any other transactions with Borrower, the undersigned hereby absolutely and unconditionally guarantee(s) to the Bank the full and prompt payment and performance of each and every debt, liability and obligation of every type or description which the Borrower may owe to the Bank, whatever such debt, liability or obligation now exists or is hereafter created or incurred (herein collectively the "Indebtedness"). The undersigned further acknowledge(s) and agree(s) with the Bank that: 1. No act or thing need occur to establish the liability of the undersigned hereunder, and no act or thing, except full payment and discharge of all Indebtedness, shall in any way exonerate the undersigned or modify, reduce, limit or release the liability of the undersigned hereunder. 2. If the undersigned shall be dissolved, or shall be or become insolvent (however defined) then the Bank shall have the right to declare immediately due and payable, and the undersigned will forthwith pay to the Bank, the full amount of all Indebtedness, whether due and payable or unmatured. If the undersigned voluntarily commences or there is commenced involuntarily against the undersigned a case under the United States Bankruptcy Code, the full amount of all Indebtedness, whether due and payable or unmatured, shall be immediately due and payable without demand or notice thereof. 3. Indebtedness may be created and continued in any amount, whether or not in excess of such principal amount, without affecting or impairing the liability of the undersigned hereunder. The Bank may apply any sums received by or available to the Bank on account of the Indebtedness from Borrower or any other person (except the undersigned), from their properties, out of any collateral security or from any other source to payment of the excess. Such application of receipts shall not reduce, affect or impair the liability of the undersigned hereunder. 4. The undersigned will not exercise or enforce any right of contribution, reimbursement, recourse or subrogation available to the undersigned against any person liable for payment of the Indebtedness, or as to any collateral security therefor, unless and until all of the Indebtedness shall have been fully paid and discharged. 5 5. The undersigned will pay or reimburse the Bank for all costs and expenses (including reasonable attorneys' fees and legal expenses) incurred by the Bank in connection with the protection, defense or enforcement of this guaranty in any litigation or bankruptcy or insolvency proceedings. 6. Whether or not any existing relationship between the undersigned and Borrower has been changed or ended and whether or not this guaranty has been revoked, the Bank may, but shall not be obligated to, enter into transactions resulting in the creation or continuance of Indebtedness, without any consent or approval by the undersigned and without any notice to the undersigned. The liability of the undersigned shall not be affected or impaired by any of the following acts or things (which the Bank is expressly authorized to do, omit or suffer from time to time, both before and after revocation of this guaranty, without notice to or approval by the undersigned): (i) any acceptance of collateral security, guarantors, accommodation parties or sureties for any or all Indebtedness; (ii) any one or more extensions or renewals of Indebtedness (whether or not for longer than the original period) or any modification of the interest rates, maturities or other contractual terms applicable to any Indebtedness; (iii) any waiver or indulgence granted to Borrower, any delay or lack of diligence in the enforcement of Indebtedness, or any failure to institute proceedings, file a claim, give any required notices or otherwise protect any Indebtedness; (iv) any full or partial release of, settlement with, or agreement not to sue, Borrower or any other guarantor or other person liable in respect of any Indebtedness; (v) any discharge of any evidence of Indebtedness or the acceptance of any instrument in renewal thereof of substitution therefor; (vi) any failure to obtain collateral security (including rights of setoff), protect, insure, or enforce any collateral security or perfect any security interest in collateral; or any modification, substitution, discharge, impairment, or loss of any collateral security; (vii) any foreclosure or enforcement of any collateral security; (viii) any transfer of any indebtedness or any evidence thereof; (ix) any order of application of any payments or credits upon Indebtedness; (x) any election by the Bank under Section 1111(b)(2) of the United States Bankruptcy Code. 7. The undersigned waive(s) any and all defenses, claims and discharges of Borrower, or any other obligor, pertaining to Indebtedness, except the defense of discharge by payment in full. Without limiting the generality of the foregoing, the undersigned will not assert, plead or enforce against the Bank any defense of waiver, release, discharge in bankruptcy, statute of limitations, res judicata, statute of frauds, anti-deficiency statute, fraud, incapacity, minority, usury, illegality or unenforceability which may be available to Borrower or any other person liable in respect of any Indebtedness, or any setoff available against the Bank to Borrower or any such other person, whether or not on account of a related transaction. The undersigned expressly agree(s) that the undersigned shall be and remain liable for any deficiency remaining after foreclosure of any mortgage or security interest securing Indebtedness, whether or not the liability of Borrower or any other obligor for such deficiency is discharged pursuant to statute or judicial decision. 2 8. The undersigned waive(s) presentment, demand for payment, notice of dishonor or nonpayment, and protest of any instrument evidencing Indebtedness. The Bank shall not be required first to resort for payment of the Indebtedness to Borrower or other persons or their properties, or first to enforce, realize upon or exhaust any collateral security for Indebtedness, before enforcing this guaranty. 9. If any payment applied by the Bank to Indebtedness is thereafter set aside, recovered, rescinded or required to be returned for any reason (including, without limitation, the bankruptcy, insolvency or reorganization of Borrower or any other obligor), the Indebtedness to which such payment was applied shall for the purposes of this guaranty be deemed to have continued in existence, notwithstanding such application, and this guaranty shall be enforceable as to such Indebtedness as fully as if such application had never been made. 10. The liability of the undersigned under this guaranty is in addition to and shall be cumulative with all other liabilities of the undersigned to the Bank as guarantor or otherwise, without any limitation as to amount, unless the instrument or agreement evidencing or creating such other lability specifically provides to the contrary. 11. This guaranty shall be enforceable against each person signing this guaranty, even if only one person signs and regardless of any failure of other persons to sign this guaranty. If there be more than one signer, all agreements and promises herein shall be construed to be, and are hereby declared to be, joint and several in each and every particular and shall be fully binding upon and enforceable against either, any or all the undersigned. This guaranty shall be effective upon delivery to the Bank, without further act, condition or acceptance by the Bank, shall be binding upon the undersigned and the heirs, representatives, successors and assigns of the undersigned and shall inure to the benefit of the Bank and its participants, successors and assigns. Any invalidity or unenforceability of any provision or application of this guaranty shall not affect other lawful provisions and application hereof, and to this end the provisions of this guaranty are declared to be severable. This guaranty may not be waived, modified, amended, terminated, released or otherwise changed except by a writing signed by the undersigned and the Bank. This guaranty shall be governed by the laws of the State of Minnesota. The undersigned waive(s) notice of the Bank's acceptance hereof and waive(s) the right to a trial by jury in any action based on or pertaining to this guaranty. 3 IN WITNESS WHEREOF, this guaranty has been duly executed by the undersigned the day and year first above written. Merrill/New York Company By:_____________________________________ Its:________________________________ By:_____________________________________ Its:________________________________ Merrill/May, Inc. By:_____________________________________ Its:________________________________ By:_____________________________________ Its:________________________________ FMC Resource Management Corporation By:_____________________________________ Its:________________________________ By:_____________________________________ Its:________________________________ 4 EX-10.11 4 FIFTH AMD TO RESTATED AND AMD REVOLVING CREDIT FIFTH AMENDMENT TO RESTATED AND AMENDED REVOLVING CREDIT AGREEMENT THIS AMENDMENT is made as of the 12th day of April, 1996, by and between Merrill Corporation, a Minnesota corporation (the "Borrower"), and First Bank National Association, a national banking association (the "Bank"). RECITALS The Borrower and the Bank executed and delivered a Restated and Amended Revolving Credit Agreement, dated as of June 20, 1994, which was amended pursuant to an Amendment to Restated and Amended Revolving Credit Agreement, dated as of September 29, 1994, a Second Amendment to Restated and Amended Revolving Credit Agreement, dated as of April 20, 1995, a Third Amendment to Restated and Amended Revolving Credit Agreement dated as of August 29, 1995, and a Fourth Amendment to Restated and Amended Revolving Credit Agreement, dated as of February 29, 1996 (herein, as amended, the "Loan Agreement"), pursuant to which the Bank committed to extending certain financial accommodations to the Borrower on the terms and subject to the conditions therein contained. At the request of the Borrower, the Bank has agreed to further amend the terms and conditions of the Loan Agreement on the terms herein provided. Capitalized terms not otherwise defined herein shall have the meanings given to them in the Loan Agreement. NOW, THEREFORE, for One Dollar and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. THE CORPORATE PRINTING COMPANY, INC. AND FMC RESOURCE MANAGEMENT CORPORATION. The Borrower and Merrill/New York Corporation have executed and delivered the CPC Purchase Agreement pursuant to which Merrill/New York Corporation has agreed to purchase certain assets of The Corporate Printing Company, Inc. and the other Affiliated Companies (as defined therein) and the Borrower has absolutely, unconditionally and irrevocably guaranteed the obligations of Merrill/New York Corporation thereunder. The Borrower has also executed and delivered the FMC Purchase Agreement pursuant to which the Borrower has purchased all the issued and outstanding stock of FMC Resource Management Corporation. To fund the purchase price under the CPC Purchase Agreement, the Borrower has requested the Bank to increase the Commitment on the terms herein contained. 2. REPRESENTATIONS AND WARRANTIES. To induce the Bank to increase the Commitment, the Borrower hereby represents and warrants to the Bank that: (a) Copies of the fully executed CPC Purchase Agreement and the FMC Purchase Agreement have been delivered to the Bank concurrently therewith. (b) When the Borrower requests an Advance to fund the purchase of the assets pursuant to the CPC Purchase Agreement, the Borrower shall provide the Bank with a Draw Request in the form of Attachment I, which represents and warrants that the representations and warranties of the respective seller contained in the CPC Purchase Agreement are true and correct to the best of the Borrower's knowledge and that the acquisition will close pursuant to the terms of the CPC Purchase Agreement without material variance or waiver. The Borrower shall not be required to submit the Draw Request in connection with any Advance under the Loan Agreement which will be used for any other purpose. (c) The Borrower has delivered to the Bank combined pro forma financial projections, which incorporate the results of the Borrower's consolidated financial operations following the acquisition of the assets and stock pursuant to the CPC Purchase Agreement and FMC Purchase Agreement, and which represent the Borrower's best good faith estimates of the financial performance of the Borrower and its Subsidiaries for the periods provided. (d) Within 30 days of each Advance to fund the closing under the CPC Purchase Agreement, the Borrower, at its expense, will provide the Bank with copies of the transcripts containing the closing documents evidencing such closing, which shall be certified by the general counsel or the chief financial officer of the Borrower as true and complete. (e) The Borrower will deliver to the Bank, by June 20, 1996, the Guarantees executed by each Subsidiary other than the Subsidiaries described in Section 3(f) hereof, and the other documents and opinions, required by with the provisions of paragraph 2 of the Fourth Amendment to Restated and Amended Revolving Credit Agreement. 3. CONDITIONS PRECEDENT OR CONCURRENT. This Amendment shall not take effect until the Borrower shall have delivered to the Bank the following documents, each of which must be in the form and content acceptable to the Bank: (a) Copies of the executed CPC Purchase Agreement and FMC Purchase Agreement, certified by the general counsel or chief financial officer of the Borrower as true and complete. (b) The Revolving Note in the form attached hereto as Attachment II. 2 (c) Resolutions of the Borrower's Board of Directors approving the execution and delivery of the CPC Purchase Agreement and the loans to the Borrower on the terms contained in the Loan Agreement. (d) A current good standing certificate for the Borrower from the Minnesota Secretary of State. (e) An origination fee of $150,000 which shall be payable by the Borrower and fully earned by the Bank upon the execution of this Amendment regardless of whether the full amount of the Commitment is advanced by the Bank. (f) Guaranties and the other documents and opinions required by paragraph 2 of the Fourth Amendment to Restated and Amended Revolving Credit Agreement of Merrill/New York Corporation, and FMC Resource Management Corporation, and Merrill/May, Inc.; provided that the Guaranties and the other documents and opinions for the other Subsidiaries shall be delivered to the Bank by June 20, 1996 in accordance with the provisions of paragraph 2 of the Fourth Amendment to Restated and Amended Revolving Credit Agreement. (g) Audited financial statements for The Corporate Printing Company, Inc. and its affiliates for the fiscal years ended December 31, 1993, and December 31, 1994, and unaudited financial statements for the fiscal year ended December 31, 1995, and the month ended January 31, 1996. (h) Reviewed financial statements for FMC Resource Management Corporation for the three most recently ended fiscal years. (i) A copy of the escrow agreement pursuant to which the purchase price under the CPC Purchase Agreement will be funded. (j) A letter from Fleet Bank addressed to the Borrower containing the loan payoff amounts and agreeing to release any liens on the assets of CPC in due ordinary course. (k) Incumbency certificates from the Borrower and each Guarantor, containing the specimen signatures of each officer executing the Fifth Amendment, Note and Guaranty, respectively. (l) An opinion from Oppenheimer Wolff & Donnelly, counsel to the Borrower, addressed to the Bank, in the form delivered to the sellers pursuant to the terms of the CPC Purchase Agreement. (m) An opinion from Steven J. Machov, general counsel of the Borrower and the Subsidiaries, in the form of Attachment III hereto. 3 4. AMENDMENT TO LOAN AGREEMENT. The parties hereto hereby agree to amend the Loan Agreement as follows: (a) Section 1.01 DEFINITIONS of the Loan Agreement is hereby amended by adding or amending the following definitions: "`Cash Flow Leverage' means the ratio of (a) total Debt, including capital leases, at the end of each fiscal quarter, to (b) net income of the Borrower before extraordinary gains, plus depreciation and amortization expense, minus capital expenditures, calculated over the four consecutive quarters ending on the date of the test; provided, however, that (i) for the fiscal quarter ended July 31, 1996, adjusted net income shall be annualized by multiplying the quarterly result by four; (ii) for the fiscal quarter ended October 31, 1996, adjust net income shall be annualized by multiplying the result for the two consecutive quarters ending on the date of the test by two; and (iii) for the fiscal quarter ended January 31, 1997, adjusted net income shall be annualized by multiplying the result for the three consecutive quarters ending on the date of the test by four- thirds. `Commitment' means, from time to time, the difference between $60,000,000 and the outstanding face amounts of all Standby Letters of Credit; provided, however, that the Commitment shall reduce by the amount of any privately placed senior notes referred to in Section 7.02(f) hereof, but in no event shall the reduction(s) exceed $40,000,000 in the aggregate. `CPC Purchase Agreement' means the Asset Purchase Agreement dated as of April 12, 1996, by and among the Borrower, Merrill Acquisition Corp., the Affiliated Companies (including The Corporate Printing Company) and Shareholders (as defined therein). `Documentary Letters of Credit' means the documentary letters of credit issued for the account of the Borrower pursuant to the provisions of Section 2.14(b) hereof. `FMC Purchase Agreement' means the Stock Purchase Agreement dated as of March 29, 1996, by and among the Borrower and the shareholders of FMC Resource Management Corporation. `Standby Letters of Credit' means the standby letters of credit issued for the account of the Borrower pursuant to the provisions of Section 2.14(a) hereof. `Termination Date' means the earliest of (a) April 12, 1999, (b) the date on which the Commitment is terminated pursuant to Section 8.02 hereof or (c) the date on which the Commitment is reduced to zero pursuant to Section 2.13 hereof." 4 (b) REVOLVING NOTE. Exhibit A to the Loan Agreement is hereby amended by substituting Attachment II to this Amendment in lieu thereof. Any reference in the Loan Agreement to Note shall refer to the Revolving Note attached hereto as Attachment II. (c) Section 2.07 INTEREST is hereby amended by (i) deleting the "three- quarters of one percent (0.75%)" in paragraphs (a) and (b) and substituting "one percent (1.00%)" therefore, and (ii) deleting the "minus one-quarter of one percent (0.25%)" contained in paragraph (c) thereof. (d) Section 2.12 COMMITMENT FEES is hereby amended by deleting "COMMITMENT FEES" and substituting "COMMITMENT AND OTHER FEES" therefor and by inserting the following sentence at the end thereof: "In addition, if by April 12, 1997, the Borrower has not received at least $15,000,000 from a private placement of senior notes, on terms acceptable to the Bank, the Borrower shall pay the Bank on that date, the sum of $75,000 as an additional commitment fee, to compensate the Bank for the continued commitment hereunder, which fee shall be considered earned when due, regardless of whether the Borrower thereafter raises additional permitted indebtedness." (e) Section 2.14 THE LETTERS OF CREDIT is hereby amended by deleting subparagraph (a) and substituting the following subparagraph therefor: "(a) The Bank may, in its discretion, on the terms and subject to the conditions hereinafter set forth, and subject to the terms and conditions contained in the letter of credit applications executed by the Borrower in the form of Exhibit F hereof, issue the Standby Letters of Credit for the account of the Borrower in an aggregate face amount not to exceed $1,000,000. The Standby Letters of Credit shall mature within one year or on or before the Termination Date, whichever first occurs. The Borrower shall pay the Bank an application fee of $250 for each Standby Letter of Credit issued. In addition, the Borrower shall pay the Bank a letter of credit fee of 0.75% per annum of the face amount of the Standby Letter of Credit, payable in advance. The Borrower agrees to reimburse the Bank on demand for the amount of any draft drawn upon the Standby Letters of Credit." The "(b)" and "(c)" before each of the other subparagraphs of Section 2.14 are hereby deleted and "(c)" and "(d)" are substituted therefor, respectively. The following subparagraph (b) is hereby added to Section 2.14: "(b) The Bank may, in its discretion, issue Documentary Letters of Credit for the account of the Borrower, on the terms and subject to the conditions contained in the applications executed at the time of issuance." (f) Section 6.09 MAXIMUM CASH FLOW LEVERAGE is hereby amended by deleting the "5.0 to 1.0" contained therein and substituting "4.50 to 1.0" therefor. 5 (g) The following provision is hereby added as Section 6.10 of the Loan Agreement: "Section 6.10 MINIMUM INTEREST, LEASE AND DIVIDEND COVERAGE. The Borrower will maintain at the end of each fiscal quarter, the ratio of (a) its net income before extraordinary gains, interest expense, income tax expense, amortization expense and operating lease expense, to (b) the sum of (i) total interest on interest bearing Debt, including the interest component of capitalized bases, (ii) the total payments on all operating leases, and (iii) the total dividends declared and paid (which ratio shall be calculated over the periods of one, two, and three consecutive fiscal quarters beginning, in each on May 1, 1996, and ending on July 31, 1996, October 31, 1996, and January 31, 1997, and over the period of four consecutive fiscal quarters ending on April 30, 1997, and the last day of each fiscal quarter thereafter) at not less than 2.00 to 1.0. (h) Section 7.02 INDEBTEDNESS is hereby amended by (i) deleting the period at the end thereof and substituting ";" therefor, (ii) deleting the "$1,500,000" contained in subsection (d) thereof and substituting "$5,000,000" therefor, and (iii) and inserting the following subparagraphs: "(e) unsecured notes issued by the Borrower pursuant to the FMC Purchase Agreement in an aggregate amount not to exceed $2,000,000; and (f) privately placed senior notes issued on terms and subject to conditions approved in writing by the Bank." (i) Section 7.06 CONSOLIDATION AND MERGER; ACQUISITION OF ASSETS AND STOCK is hereby amended by adding the following sentence at the end thereof: "Anything herein to the contrary notwithstanding, the Borrower may expend up to $35,000,000 to acquire certain assets pursuant to the CPC Purchase Agreement and may expend up to $9,400,000 in cash, plus an additional $2,600,000 cash outlay for earnout, to acquire the stock pursuant to the FMC Purchase Agreement." (j) The following provision is hereby added as Section 9.12 of the Loan Agreement: "Section 9.12 PERMITTED ASSIGNMENTS. The Bank may, in the ordinary course of its business and in accordance with applicable law, at any time assign to one or more banks or other entities ("Purchasers") all or any part of its rights and obligations under the Loan Agreement. The Borrower's consent to the assignment shall be required, which may not be unreasonably withheld or delayed, unless an Event of Default, or any event with the giving of notice or passage of time or both, shall have occurred hereunder, in which case the Borrower's consent to assignment shall not be required. Such Assignment shall be substantially in a form as may be agreed to by 6 the Bank and the Purchasers. On and after the effective date of such assignment, such Purchaser shall for all purposes be a lender to the Loan Agreement and shall have all the rights and obligations of a lender under the Loan Agreement, to the same extent as if it were an original party hereto, and no further consent or action by the Borrower shall be required to release the Bank with respect to the percentage of the Commitment assigned to such Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to this Section 9.12, the Bank and the Borrower shall make appropriate arrangements so that replacement Notes are issued to such transferor lender and new Notes or, as appropriate, replacement Notes, are issued to such Purchaser, in each case in principal amounts reflecting their Commitment, as adjusted pursuant to such assignment." The Bank shall be the agent for the Purchasers and shall collect an agency fee from them for acting in that capacity unless it otherwise elects. 5. EXPENSES. The Borrower hereby agrees to reimburse the Bank for its expenses incurred in the preparation of this Fifth Amendment and the other writings executed by the parties in connection herewith, including reasonable attorneys' fees. 6. MISCELLANEOUS. Except as amended hereby, all of the other terms of the Loan Agreement shall remain the same. This Fifth Amendment shall be governed by the laws of the State of Minnesota and may not be waived, amended or modified except in writing signed by all the parties hereto. The Borrower represents, warrants and agrees that as of the date hereof, the Borrower has no offsets, counterclaims or defenses against its obligations under the Loan Agreement, as amended hereby. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written. Merrill Corporation By:/s/Rick Atterbury ------------------------------------------ Its: Executive Vice President By:/s/Kay A. Barber ------------------------------------------ Its: CFO First Bank National Association By:/s/Steven L. Flack ------------------------------------------ Its: Vice President 7 ATTACHMENT I DRAW REQUEST Merrill Corporation, a Minnesota corporation (the "Borrower"), hereby submits this Draw Request to First Bank National Association, a national association, and its permitted successors, participants and assigns (the "Bank") pursuant to the provisions of paragraph 1 of the Fifth Amendment to Restated and Amended Revolving Credit Agreement, dated as of April 12, 1996 (the "Fifth Amendment to Credit Agreement"). Capitalized terms not otherwise defined herein shall have the meanings given to them in the Fifth Amendment to Credit Agreement. 1. The Borrower hereby requests an Advance of $ which will be used by the Borrower to fund the acquisition pursuant to the terms of the CPC Purchase Agreement (the "Purchase Agreement"). 2. The Advance should be made on April 12, 1996, by the Bank, pursuant to the following [wiring] instructions: ________________________________________________________________________________ _______________________________________________________________________________. 3. The Borrower represents and warrants to the Bank that the representations and warranties of the seller(s) contained in the Purchase Agreement are true and correct to the best of the Borrower's knowledge and that the acquisition will close pursuant to the terms of the Purchase Agreement without material variance or waiver. IN WITNESS WHEREOF, the undersigned has executed this Draw Request on behalf of the Borrower, on this 12th day of April, 1996. MERRILL CORPORATION By:__________________________________________ Its:_____________________________________ ATTACHMENT II EXHIBIT A RESTATED REVOLVING NOTE $60,000,000 Minneapolis, Minnesota April 12, 1996 For value received, the undersigned, Merrill Corporation, a Minnesota corporation, hereby promises to pay on April 12, 1999, to the order of First Bank National Association, a national banking association (the "Bank"), at its main office at Minneapolis, Minnesota, or at any other place designated at any time by the holder hereof, in lawful money of the United States of America and in immediately available funds, the principal sum of Sixty Million Dollars ($60,000,000) or, if less, the aggregate unpaid principal amount of all advances made by the Bank to the undersigned hereunder (the "Principal Balance"). Interest shall accrue on the Principal Balance remaining unpaid from time to time in accordance with the provisions of Section 2.07 of the Restated and Amended Revolving Credit Agreement dated as of June 20, 1994, by and between the undersigned and the Bank, as amended. This Note may be prepaid in whole at any time or from time to time in part only as permitted under Section 2.04 of the Restated and Amended Revolving Credit Agreement. This Note is issued pursuant to, and subject to, the Restated and Amended Revolving Credit Agreement, which, among other things, provides for acceleration of the maturity hereof upon the occurrence of an Event of Default (as defined in that Restated and Amended Revolving Credit Agreement). This Note represents the restatement of and an increase in the Restated Revolving Note dated August 29, 1995 payable by the undersigned, to the order of the Bank, and not the repayment thereof. This Note shall be immediately due and payable (including unpaid interest accrued hereon) without demand or notice thereof upon filing of a petition by or against the undersigned under the United States Bankruptcy Code. The undersigned hereby agrees to pay all costs of collection, including reasonable attorneys' fees and legal expenses, in the event this Note is not paid when due, whether or not legal proceedings are commenced. 1 Presentment or other demand for payment, notice of dishonor and protest are expressly waived. MERRILL CORPORATION By:_____________________________________ Its:__________________________________ By:____________________________________ Its:________________________________ ATTACHMENT III OPINION OF BORROWER'S GENERAL COUNSEL [MERRILL CORPORATION] April 12, 1996 First Bank National Association First Bank Place 601 Second Avenue South 8th Floor Minneapolis, MN 55402 Attention: Mr. Steven L. Flack Gentlemen: I am General Counsel to Merrill Corporation, a Minnesota corporation (the "Borrower"), and have represented the Borrower in connection with the execution and delivery of the $60,000,000 Restated Revolving Note payable to First Bank National Association, and the Fifth Amendment to Restated and Amended Revolving Credit Agreement, each of even date herewith. In my capacity as counsel to the Borrower, I have examined the following documents: a. The $60,000,000 Restated Revolving Note payable by the Borrower to the order of the Bank; and b. The Fifth Amendment to Restated and Amended Revolving Credit Agreement (the "Fifth Amendment"), which amends the Restated and Amended Revolving Credit Agreement, dated as of June 20, 1994, as amended as of September 29, 1994, April 20, 1995, August 29, 1995, and February 29, 1996 (herein, as amended, the "Credit Agreement"); and c. The Articles of Incorporation and the Bylaws of the Borrower; and d. A Good Standing Certificate of the Borrower; and e. Certified Resolutions of the Board of Directors of the Borrower authorizing and approving the loan transaction. I am also General Counsel to Merrill/New York Corporation, FMC Resource Management Corporation, and Merrill/May, Inc. (collectively, the "Guarantors"), and have represented them in connection with the execution and delivery of a Corporate Guaranty of even date herewith (the "Guaranty") of the indebtedness and other obligations owed to the Bank by the Borrower. In my capacity as counsel to the Guarantors, I have examined the following documents: First Bank National Association April 12, 1996 Page 2 a. The Guaranty; and b. The Articles of Incorporation and the Bylaws of each Guarantor; and c. A Good Standing Certificate of each Guarantor; and d. Certified Resolutions of the board of Directors of each Guarantor authorizing and approving the execution and delivery of the Guaranty. I have also examined such other documents, official records and other instruments and such laws and regulations as I have deemed necessary in order to render this opinion. In such examination, I have assumed the genuineness of all signatures other than those of the officers of the Borrower and the Guarantors, the authenticity of all documents submitted to me as originals and the conformity with the originals of all documents submitted to me as copies. As used herein, "Loan Documents" shall mean the Restated Revolving Note, the Loan Agreement and the other documents delivered in connection therewith. Any undefined capitalized terms used in this opinion shall have the meanings assigned to them in the Loan Agreement. Based upon the foregoing, it is our opinion that: 1. The Borrower is a corporation duly organized and validly existing and in good standing under the laws of the State of Minnesota, is duly qualified and in good standing in each state where the nature of its business requires such qualification, and has full corporate power and authority to execute and deliver the Loan Documents to which it is a party. Each Subsidiary is a corporation duly organized and validly existing and in good standing under the laws of its state of incorporation. The Borrower and each Guarantor have all requisite power and authority to execute and deliver the Loan Documents and Guaranty, respectively, to perform its obligations under the Loan Documents and Guaranty, respectively, and to engage in the transactions contemplated thereby. 2. The Loan Documents and Guaranty each constitute the legal, valid and binding obligations of the Borrower and each Guarantor, respectively, enforceable in accordance with its respective terms, except as enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting creditors' rights generally and by general principles of equity. First Bank National Association April 12, 1996 Page 3 3. The execution, delivery and performance by the Borrower of the Loan Documents, and by each Guarantor of the Guaranty, do not and will not (i) require any consent or approval of the stockholders of the Borrower or any Guarantor or any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any provision of any law, rule or regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System) or of any order, writ, injunction or decree presently in effect having applicability to the Borrower or any Guarantor, or of the Articles of Incorporation or Bylaws of the Borrower, (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Borrower or any Guarantor is a party or by which it or its properties may be bound or affected, or (iv) result in or require the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance of any nature upon or with respect to any of the properties now owned or hereafter acquired by the Borrower or any Guarantor. 4. There is no litigation pending or, to the best of my knowledge (after due inquiry), threatened in any way questioning the execution or validity of any of the instruments and documents executed by the Borrower or any Guarantor in connection with the transaction contemplated by the Loan Documents; and there are no other legal or governmental proceedings pending, or to the best of our knowledge, threatened or contemplated by governmental authorities or others, by which the Borrower or any Guarantor is or may be bound, or to which any property of the Borrower or any Guarantor is or may be subject, which, if determined adversely to the Borrower or any Guarantor, would individually or in the aggregate have material, adverse effect on the financial position or results of operations of the Borrower or the Guarantor. Yours very truly, Stephen J. Machov General Counsel Merrill Corporation EX-10.22 5 ASSET PURCHASE AGREEMENT DATED APRIL 15, 1996 ---------------------------------------------------------- ASSET PURCHASE AGREEMENT ---------------------------------------------------------- BY AND AMONG MERRILL CORPORATION, MERRILL/NEW YORK COMPANY AND THE CORPORATE PRINTING COMPANY, INC., CPC COMMUNICATIONS, INC., CPC REPROGRAPHICS, INC. THE CORPORATE PRINTING COMPANY INTERNATIONAL, LTD., CP INTERNATIONAL HOLDINGS, INC., CPC MANAGEMENT SERVICES, INC. THE CORPORATE PRINTING COMPANY INTERNATIONAL SNC, THE CORPORATE PRINTING COMPANY INTERNATIONAL PTE LTD. OAKLAND COMPOSITION LIMITED PARTNERSHIP AND SHAREHOLDERS OF THE ABOVE AFFILIATED COMPANIES DATED AS OF APRIL 15, 1996 TABLE OF CONTENTS PAGE ARTICLE 1 PURCHASE OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Assets to be Purchased . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Liabilities Assumed. . . . . . . . . . . . . . . . . . . . . . . . 3 1.3 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.4 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.5 Instruments of Transfer to Purchaser . . . . . . . . . . . . . . . 11 ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE AFFILIATED COMPANIES AND SHAREHOLDERS . . . . . . . . . . . 12 2.1 Disclosure Schedule. . . . . . . . . . . . . . . . . . . . . . . . 12 2.2 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . 13 2.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.4 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.5 Non-Contravention. . . . . . . . . . . . . . . . . . . . . . . . . 14 2.6 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . 15 2.7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 15 2.8 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . 15 2.9 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . 16 2.10 The Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2.11 Schedules; No Contract Defaults. . . . . . . . . . . . . . . . . . 17 2.12 Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.13 Receivables and Payables . . . . . . . . . . . . . . . . . . . . . 19 2.14 Intellectual Property Rights . . . . . . . . . . . . . . . . . . . 20 2.15 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.16 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.17 Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . 22 2.18 Orders, Commitments and Returns. . . . . . . . . . . . . . . . . . 23 2.19 Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.20 Business Generally . . . . . . . . . . . . . . . . . . . . . . . . 24 2.21 Compliance with Law; Permits and Other Operating Rights. . . . . . 24 2.22 Environmental and Safety Matters . . . . . . . . . . . . . . . . . 24 2.23 Transactions with Certain Persons. . . . . . . . . . . . . . . . . 26 2.24 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 2.25 Absence of Certain Business Practices. . . . . . . . . . . . . . . 27 2.26 Information Concerning Merrill; Knowledge and Experience of Affiliated Companies and the Shareholders. . . . . . . . . . . . . 27 2.27 Customers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2.28 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND MERRILL . . . . . . . . . . . . . . . . . . . 28 3.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . 28 3.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 28 -i- 3.3 Non-Contravention. . . . . . . . . . . . . . . . . . . . . . . . . 28 3.4 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . 29 3.5 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 3.6 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 3.7 Litigation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 3.8 Absence of Certain Business Practices. . . . . . . . . . . . . . . 29 3.9 Disclosure.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 3.10 Certain Actions. . . . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE 4 COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 4.1 Conduct of Business of the Affiliated Companies. . . . . . . . . . 30 4.2 No Solicitation of Alternate Transaction . . . . . . . . . . . . . 32 4.3 Full Access to Purchaser . . . . . . . . . . . . . . . . . . . . . 33 4.4 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . 33 4.5 Filings; Removal of Objections; Consents . . . . . . . . . . . . . 34 4.6 Further Assurances; Cooperation; Notification. . . . . . . . . . . 34 4.7 Supplements to Disclosure Schedule . . . . . . . . . . . . . . . . 35 4.8 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . 35 4.9 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 4.10 Bulk Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . 36 4.11 Non-Competition Agreement; Employment Agreement. . . . . . . . . . 36 4.12 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . 37 4.13 Directors and Shareholders Authorization; Change of Corporate Name 40 4.14 Additional Post-Closing Obligations of Affiliated Companies and the Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 40 4.15 Guarantee by Merrill . . . . . . . . . . . . . . . . . . . . . . . 40 ARTICLE 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 ARTICLE 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 ARTICLE 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 ARTICLE 8 SURVIVAL AND INDEMNIFICATION . . . . . . . . . . . . . . . . . . . 41 8.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 8.2 Indemnification by Merrill and the Purchaser . . . . . . . . . . . 42 8.3 Indemnification by Affiliated Companies and the Shareholders . . . 42 8.4 Basket Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . 43 8.5 Right of Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . 43 8.6 Claims for Indemnification . . . . . . . . . . . . . . . . . . . . 43 ARTICLE 9 MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . 44 9.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 9.3 Amendment and Modification . . . . . . . . . . . . . . . . . . . . 44 9.4 Waiver of Compliance; Consents . . . . . . . . . . . . . . . . . . 44 9.5 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . 45 9.6 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 9.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 -ii- 9.8 Governing Law; Jurisdiction. . . . . . . . . . . . . . . . . . . . 46 9.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 9.10 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 9.11 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 46 9.12 Injunctive Relief. . . . . . . . . . . . . . . . . . . . . . . . . 47 9.13 Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . . 48 9.14 Shareholder's Representative.. . . . . . . . . . . . . . . . . . . 48 -iii- LIST OF EXHIBITS NAME OF EXHIBIT NUMBER OF EXHIBIT - --------------- ----------------- Trade and Other Names to be Purchased. . . . . . . . . Exhibit 1.1(a) Excluded Assets. . . . . . . . . . . . . . . . . . . . Exhibit 1.1(b) Liabilities Undertaking. . . . . . . . . . . . . . . . Exhibit 1.2 Escrow Agreement . . . . . . . . . . . . . . . . . . . Exhibit 1.3(b)(ii) Allocation of Participation Payment Among Shareholders . . . . . . . . . . . . . . . . Exhibit 1.3(c) Allocation of Purchase Price Among the Assets . . . . . . . . . . . . . . . . . . . . Exhibit 1.3(f) Bill of Sale . . . . . . . . . . . . . . . . . . . . . Exhibit 1.5 Indemnification Percentages for Shareholders . . . . . Exhibit 2 Disclosure Schedule. . . . . . . . . . . . . . . . . . Exhibit 2.1 Information Required to be Kept Confidential By Merrill . . . . . . . . . . . . . . . . . . . . Exhibit 4.4 Non-Competition Agreement. . . . . . . . . . . . . . . Exhibit 4.11(a) Employment Agreement . . . . . . . . . . . . . . . . . Exhibit 4.11(b) Opinion of Affiliated Companies Counsel. . . . . . . . Exhibit 5.7 Opinion of Purchaser Counsel . . . . . . . . . . . . . Exhibit 6.6 -iv- (Omitted from this Agreement, as filed, are the above-referenced exhibits. The Registrant will furnish supplementally a copy of any such omitted exhibits to the Commission upon request.) LIST OF DEFINED TERMS TERM PAGE - ---- ---- Acquisition Proposals. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Affiliated Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Affiliated Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 American Arbitration Rules . . . . . . . . . . . . . . . . . . . . . . . . . 47 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Assumed Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Assumed Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Average Stock Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Bad Debt Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Best Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Closing Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Closing Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Consent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Cooney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Corporate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Corporate Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 CP Holdings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 CPC International SNC. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 CPC International. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 CPC Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 CPC Press Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 CPC Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 CPC Shipping Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Disclose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Disclosure Schedule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Dispute. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Doherty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Environmental and Occupational Safety and Health Law . . . . . . . . . . . . 26 Environmental Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Environmentally Regulated Materials. . . . . . . . . . . . . . . . . . . . . 26 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Glick. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Guaranteed Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Indemnification Percentages. . . . . . . . . . . . . . . . . . . . . . . . . 12 Indemnified Party. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Indemnifying Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 -v- Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . 20 Knowledge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Latest Unaudited Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . 15 Latest Audited Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . 15 Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Liabilities Undertaking. . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Mediation Deadline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Merrill Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Merrill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Multiemployer Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Non-Competition Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 36 Notice Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Oakland. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Participation Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Partnership Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Permitted Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Purchaser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Reprographics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Retained Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Shifrin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Tax Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Transaction Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Transferred Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 WARN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 -vi- ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT, dated as of April 15, 1996, is by and among Merrill Corporation, a Minnesota corporation ("MERRILL"), Merrill/New York Company, a Minnesota corporation and wholly owned subsidiary of Merrill (the "PURCHASER"), The Corporate Printing Company, Inc., a New York corporation ("CORPORATE"), CPC Communications, Inc., a New York corporation ("CPC COMMUNICATIONS"), CPC Reprographics, Inc., a New York corporation ("REPROGRAPHICS"), The Corporate Printing Company International, Ltd., a New York corporation ("CPC INTERNATIONAL"), CP International Holdings, Inc., a Delaware corporation ("CP HOLDINGS") CPC Management Services, Inc., a New York corporation ("CPC MANAGEMENT"), The Corporate Printing Company International SNC, a partnership organized under the laws of the Republic of France ("CPC INTERNATIONAL SNC"), The Corporate Printing Company International PTE Ltd., a Singapore corporation ("CPC INTERNATIONAL PTE"), Oakland Composition Limited Partnership, a limited partnership organized under the laws of the State of Maryland ("OAKLAND"), (Corporate, CPC Communications, Reprographics, CPC International, CP Holdings, CPC Management, CPC International SNC, CPC International PTE, and Oakland are collectively referred to in this Agreement as the "AFFILIATED COMPANIES"), George Shifrin ("SHIFRIN"), John Doherty ("DOHERTY"), Joel E. Glick ("GLICK") and Harold A. Cooney ("COONEY")(Shifrin, Doherty, Glick and Cooney are collectively referred to as the "SHAREHOLDERS"). A. The parties hereto wish to provide for the terms and conditions upon which the Purchaser will acquire substantially all of the assets of the Affiliated Companies. B. The parties hereto wish to make certain representations, warranties, covenants and agreements in connection with the purchase of the assets and also to prescribe various conditions to such transaction. Accordingly, and in consideration of the representations, warranties, covenants, agreements and conditions herein contained, the parties hereto agree as follows: ARTICLE 1 PURCHASE OF ASSETS 1.1 ASSETS TO BE PURCHASED. (a) Upon the terms and subject to the conditions of this Agreement and except for those assets described in Section 1.1(b), the Affiliated Companies will sell, transfer, convey, assign and deliver to the Purchaser and the Purchaser will purchase (and Merrill will cause the Purchaser to so purchase), as a going concern, from the Affiliated Companies, at the Closing hereunder, all of the business, assets, properties, goodwill and rights of the Affiliated Companies, of every nature, kind and description, tangible and intangible, real, personal or mixed, wheresoever located and whether or not carried or reflected on the books and records of the Affiliated Companies including, without limitation, cash and cash equivalents, real and personal property that is now owned or leased by any of the Affiliated Companies or in which any of the Affiliated Companies has any right or interest; franchises; all right, title and interest in and to the use of any and all of the Affiliated Companies' corporate names and any derivatives or combinations thereof, including, without limitation, those listed in Exhibit 1.1(a) hereto; logos, trademarks, trademark registrations and trademark applications or registrations thereof, including the goodwill 1 associated therewith; the goodwill of the Affiliated Companies' business; copyrights, copyright applications and copyright registrations, patents and patent applications; rights under or pursuant to licenses by or to any of the Affiliated Companies; development and prototype hardware, software, processes, formula, trade secrets, inventories and royalties, including all rights to sue for past infringements; leaseholds and other interests in land, inventory (accumulated costs of jobs and supplies), equipment, machinery, furniture, fixtures, motor vehicles and supplies; cash, money and deposits with financial institutions and others, certificates of deposit, commercial paper, notes, evidences of indebtedness, stocks, bonds and other investments; accounts receivables; prepaid expenses; insurance policies, contracts, purchase orders, customers, lists of customers and suppliers, sales representative agreements, and all favorable business relationships, causes of action, judgments, claims and demands of whatever nature; all credit balances of or inuring to any of the Affiliated Companies under any state unemployment compensation plan or fund; employment contracts; obligations of the present and former officers and employees and of individuals and corporations; rights under joint venture agreements or arrangements; files, papers and records relating to the Affiliated Companies' business and assets; and the assets as reflected on the Latest Unaudited Balance Sheet (as hereinafter defined) and other assets acquired by the Affiliated Companies since the date of the Latest Unaudited Balance Sheet, with only such dispositions of such assets reflected on the Latest Unaudited Balance Sheet (as hereinafter defined) as will have occurred in the ordinary course of the Affiliated Companies' business between the date thereof and the Closing and which are permitted by the terms hereof (the foregoing are sometimes collectively called the "ASSETS"). (b) Notwithstanding the foregoing, Affiliated Companies will not sell, transfer, convey, assign or deliver to the Purchaser, and the Purchaser will not purchase from the Affiliated Companies, the following assets: (i) the consideration delivered to the Affiliated Companies pursuant to this Agreement for the Assets; (ii) the minute books, corporate seal and stock records of the Affiliated Companies; (iii) shares of the capital stock or other interests representing the ownership of the Affiliated Companies, including shares or other interests held by any of the Affiliated Companies as treasury shares or otherwise; (iv) any assets of any of the Affiliated Companies located in (A) its press room at 225 Varick Street, New York, New York, and used therein by employees of the Affiliated Companies represented by Graphic Communications Union Local 51, G.C.I.U.-A.F.L.-C.I.O.-C.L.C. and other employees (the "CPC PRESS BUSINESS") and (B) its shipping department at 225 Varick Street, New York, New York, and used therein by employees of the Affiliated Companies represented by Graphic Communications International Union, Local 119B-Local 43B and other employees (the "CPC SHIPPING BUSINESS"), all of which assets are specifically described on Exhibit 1.1(b) hereto; and (v) the assets specifically described on Exhibit 1.1(b) hereto. 2 1.2 LIABILITIES ASSUMED. At the Closing, the Purchaser will assume the liabilities of the Affiliated Companies (the "ASSUMED LIABILITIES") set forth on Exhibit 1.2 (the "LIABILITIES UNDERTAKING") by executing and delivering to the Affiliated Companies and the Shareholders the Liabilities Undertaking. The Affiliated Companies and the Shareholders expressly understand and agree that except for the Assumed Liabilities, the Purchaser and Merrill have not agreed to pay, will not be required to assume and will have no liability or obligation, direct or indirect, absolute or contingent, of any of the Affiliated Companies, any of the Shareholders or any of their respective Affiliates or Associates (as defined herein), which liabilities will, as between the Affiliated Companies and the Shareholders, on the one hand, and the Purchaser and Merrill, on the other hand, remain the sole responsibility of, and will be satisfied by, the Affiliated Companies or the Shareholders (the "RETAINED LIABILITIES"), including without limitation: (a) any debt, liability or obligation arising out of or relating to (i) the Union Contracts (as hereinafter defined); (ii) the employment relationships with any of the individuals covered by the Union Contracts, including without limitation, wages or benefits; (iii) the employment relationships with respect to four employees not members of the collective bargaining units who will be employed by the CPC Press Business or the CPC Shipping Business, namely, R. Carpenter, M. Giannavola, I. Isaac and A. Mercato; and (iv) leases on equipment used in the CPC Press Business or the CPC Shipping Business; (b) any obligation for Taxes (as hereinafter defined) related to any of the Assets for any Tax period or portion thereof ending on or before the Closing Date (including any tax liability relating to or arising from the transfer of Assets) and any obligation for other Taxes of the Affiliated Companies or any of the Shareholders, except to the extent that the same was expressly assumed by Merrill or the Purchaser pursuant to the terms of the Liabilities Undertaking; (c) any debt, liability or obligation, direct or indirect, known or unknown, fixed, contingent or otherwise, based upon or arising from any act, omission, transaction, circumstance, state of facts or other condition occurring or existing on or before the Closing Date and relating to any collective bargaining agreement or any employee benefit plan, policy, practice or agreement to which any of the Affiliated Companies is a party or under which any of the Affiliated Companies' employees or former employees is covered, including without limitation any obligation to contribute to, or any obligation or liability for any withdrawal liability arising in connection with, any Multiemployer Plan (as hereinafter defined) attributable to participation therein by current or former employees of the Affiliated Companies as a result of this Agreement and the transactions contemplated hereby or otherwise or any of the matters described in Sections 2.17 or 2.19 of the Disclosure Schedule; and (d) (i) any liability arising out of or related to the events, circumstances or conditions described in Section 2.22 of the Disclosure Schedule; (ii) any liability arising out of or related to the management of wastes, byproducts or spent materials generated by the Affiliated Companies or any subsidiary or former subsidiaries; or (iii) any liability arising out of or related to any pollution or threat to human health or the environment or violation of any Environmental and Occupational Safety and Health Law (as hereinafter defined) that is related in any way to any of the Affiliated Companies' or, to the Knowledge of any of the Shareholders, any previous owner's or operator's management, use, control, ownership or operation of the Assets, any Property (as hereinafter defined) or the business of any of the Affiliated Companies, including without limitation any on-site or off-site activities involving Environmentally Regulated Materials 3 (as hereinafter defined), and that occurred, existed, arises out of conditions or circumstances that occurred or existed, or was caused, in whole or in part, on or before the Closing Date, whether or not the pollution or threat to human health or the environment or violation of any Environmental and Occupational Safety and Health Law is described in the Disclosure Schedule; and any Environmental Claim (as hereinafter defined) against any person or entity whose liability for such Environmental Claim any of the Affiliated Companies or any Shareholder has or may have assumed or retained either contractually or by operation of law. At the Closing, the Affiliated Companies will convey, transfer and assign, and the Purchaser will accept and assume, those contracts, agreements and commitments listed on the Liabilities Undertaking to be assumed by Purchaser (the "ASSUMED CONTRACTS"). 1.3 PURCHASE PRICE. (a) The total consideration to be paid by the Purchaser to the Affiliated Companies for the Assets (the "PURCHASE PRICE") will be an amount equal to: (i) Twenty-Two Million Six Hundred Thousand Four Hundred Dollars ($22,600,400) LESS, on a dollar-for-dollar basis, (x) the amount, if any, (A) of the aggregate of liabilities of the Affiliated Companies as of January 31, 1996 to (aa) Fleet Bank pursuant to the Second Amended and Restated Credit Agreement dated as of January 31, 1994 between certain of the Affiliated Companies and Fleet Bank, (bb) New York Typographical Union No. 6 (the "Typographical Union") pursuant to the Subordinated Note Agreement dated as of December 29, 1994 by and among certain of the Affiliated Companies and the Typographical Union and the related Junior Secured Subordinated Note payable to the Typographical Union dated December 29, 1994, in the original principal amount of $5,000,000, and (cc) Deferred Income Taxes payable as reflected on the Latest Unaudited Balance Sheet (as hereinafter defined), in excess of (B) Ten Million Dollars ($10,000,000), and (y) the amount, if any, by which (A) the book value of the Assets on the Latest Unaudited Balance Sheet (as hereinafter defined), excluding the book value on such balance sheet of any assets specifically described in Exhibit 1.1(b) hereto, less (B) the Assumed Liabilities shown on the Latest Unaudited Balance Sheet, is less than Thirteen Million Two Hundred Thousand Dollars ($13,200,000); LESS (ii) any adjustment in connection with the collection of Guaranteed Receivables pursuant to Section 1.3(e) hereof; LESS (iii) an amount equal to any net loss of the Affiliated Companies between January 1, 1996 and the Closing Date, as reflected in the Closing Balance Sheet; PLUS (iv) any Participation Payment, as defined in Section 1.3(c) hereof; PLUS (v) an amount equal to 11% of the net income of the Affiliated Companies which are S corporations from February 1, 1996 to the Closing Date, payable to the Shareholders (85% to Shifrin; 5% to Glick; and 10% to Doherty) five business days after the parties agree on the completed Closing Balance Sheet pursuant to Section 1.3(e) hereto; and 4 LESS (vi) closing expenses for the Affiliated Companies' Paris, France and Hong Kong offices. In addition, the Purchaser will assume the Assumed Liabilities as of the Closing Date pursuant to the Liabilities Undertaking referred to in Section 1.2 hereof. The Shareholders hereby acknowledge and agree that the amounts paid to each Affiliated Company are adequate consideration for the purchase of the Assets of each of the Affiliated Companies and represent the fair market value of the Assets of each such entity. Immediately prior to the Closing, Shifrin, Doherty and Glick were the sole direct and indirect shareholders of the Affiliated Companies. Although Cooney is not a direct or indirect shareholder of the Affiliated Companies, pursuant to Section 4.11 below Cooney has agreed to be a party to, and a "Shareholder" as defined in, this Agreement. Effective as of the Closing, the Affiliated Companies will redeem all of the shares of the Affiliated Companies then owned by Doherty or Glick. Payment of the Purchase Price to the Affiliated Companies will be made to the Shareholders in the manner set forth in this Agreement on behalf of the Affiliated Companies in connection with the redemption of their shares or the liquidation of the Affiliated Companies. (b) At the Closing, the Purchaser will: (i) Pay the Affiliated Companies, by wire transfer, immediately available funds of Nineteen Million Six Hundred Thousand Four Hundred Dollars ($19,600,400) (the "CLOSING PAYMENT") to a bank account of the Affiliated Companies pursuant to written instructions of the Affiliated Companies given to the Purchaser at least 48 hours prior to the Closing, in the amounts and to the Affiliated Companies as indicated on Exhibit 1.3(b)(i); (ii) Deliver Three Million Dollars ($3,000,000) to First Trust National Association (the "Escrow Agent") pursuant to the terms and conditions of the Escrow Agreement attached hereto as Exhibit 1.3(b)(ii) (the "Escrow Agreement"). The parties hereto intend that the funds held by the Escrow Agent (together with the interest or other income earned thereon) may be used as a nonexclusive means to satisfy the Purchaser's claims under this Agreement, pursuant to and in accordance with Section 8.5. The term of the Escrow Agreement shall be for a period of six months; and (iii) Execute and deliver to the Affiliated Companies the Liabilities Undertaking. (c) As additional consideration for the acquisition of the Assets by the Purchaser, the Affiliated Companies may be entitled to receive an additional payment from the Purchaser, pursuant to the terms and conditions of this Section 1.3(c). (i) At any time during the five-year period beginning on the Closing Date, the Affiliated Companies, acting through the Representative (as hereinafter defined), have the right (the "PUT RIGHT"), in the event of certain increases in the Average Stock Price (as defined below) of the common stock, $.01 par value, of Merrill ("MERRILL COMMON STOCK") referred to in this Section, to cause the Purchaser to make to the Affiliated Companies a cash payment (the "PUT PARTICIPATION PAYMENT"), as set forth on Exhibit 1.3(c) hereto. The amount of any Put Participation Payment to be made pursuant to the 5 exercise of a Put Right will be equal to 800,000 (the "MULTIPLIER") multiplied by the increase after the Closing Date in the Average Stock Price (as hereinafter defined) of Merrill Common Stock from the Base Stock Price (as hereinafter defined) (such an increase is herein defined as a "MERRILL STOCK PRICE INCREASE"); provided, however, that notwithstanding anything in this Agreement to the contrary, in no event will the Put Participation Payment exceed $8,000,000 during the period commencing on the Closing and ending on the third anniversary of the Closing Date; $10,000,000 during the period commencing on the day after the third anniversary of the Closing Date and ending on the fourth anniversary of the Closing Date; and $12,000,000 during the period commencing on the day after the fourth anniversary of the Closing Date and ending on the fifth anniversary of the Closing Date. In case Merrill at any time after the date of this Agreement subdivides the outstanding Merrill Common Stock into a greater number of shares or declares a dividend payable in Merrill Common Stock, the amount of the Multiplier will be proportionately increased and the amount of the Base Price will be proportionately decreased, and conversely, in case the outstanding Merrill Common Stock is combined into a smaller number of shares, the amount of the Multiplier will be proportionately decreased and the amount of the Base Price will be proportionately increased. The Put Right will not be exercisable from and after the date the Purchaser exercises its Call Right pursuant to paragraph (ii) below. In no event will the Representative be permitted to exercise the Put Right after the fifth anniversary of the Closing Date. Notwithstanding the foregoing, in accordance with and subject to the provisions of Sections 8.5, 9.12(c) and 9.12(d) hereof, the Purchaser may set off any amount to which it or Merrill may be entitled under Article 8 (including without limitation the time limits expressed therein) against the Participation Payment. (ii) At any time during the five-year period beginning on the Closing Date, the Purchaser has the right (the "CALL RIGHT") to make to the Affiliated Companies a cash payment (the "CALL PARTICIPATION PAYMENT"), in the percentages set forth on Exhibit 1.3(c) hereto, in lieu of making a Put Participation Payment. The amount of any Call Participation Payment to be made pursuant to the exercise of a Call Right will be equal to the amount determined from the table below. From and after the time that the Purchaser exercises its Call Right, the Put Right will cease being exercisable; provided that if the Purchaser fails to make the Call Participation Payment as provided in this Section 1.3(c) (except for any failure to pay pursuant to Section 8.5) the Affiliated Companies' Put Right will be reinstated. The Put Participation Payment and the Call Participation Payment are sometimes referred to herein as the "PARTICIPATION PAYMENTS"). 6 Call Time Period Participation Payment ----------- --------------------- From Closing Date to third anniversary of Closing Date $8,000,000 From the day after the third anniversary to fourth anniversary of Closing Date $10,000,000 From the day after the fourth anniversary to fifth anniversary of Closing Date $12,000,000 (iii) The Representative of the Affiliated Companies will exercise their Put Right, and the Purchaser will exercise its Call Right, by providing written notice of such exercise to the other party. Within sixty (60) days from the dispatch by the Representative of the Put Notice or within sixty (60) days from the dispatch by the Purchaser of the Call Notice, as the case may be, the Purchaser will pay the Affiliated Companies, as set forth on Exhibit 1.3(c) hereof, by wire transfer, either the Put Participation Payment or the Call Participation Payment, as the case may be, in immediately available funds to bank accounts designated by the Representative to the Purchaser pursuant to written instructions received by the Purchaser at least 48 hours prior to such date of payment. (iv) In case of any consolidation or merger to which Merrill is a party (other than a merger or consolidation in which Merrill is the continuing corporation and in which Merrill Common Stock outstanding immediately prior to the merger or consolidation is not exchanged for cash, or the securities or other property of another corporation), or in case of any sale or conveyance to another corporation of the property of Merrill as an entirety or substantially as an entirety, or in the case of any statutory exchange of securities with another corporation (other than in connection with a merger or consolidation) (collectively, a "MERRILL ACQUISITION"), the corporation formed by such consolidation or the corporation whose securities, cash or other property will immediately after the merger or consolidation be owned, by virtue of the merger or consolidation, by the holders of Merrill Common Stock immediately prior to the merger or the corporation which shall have acquired such assets or securities of Merrill, as the case may be, shall execute and deliver to the Representative an agreement pursuant to which such corporation will assume all of the rights and obligations of Merrill and the Purchaser pursuant to this Section 1.3(c), except that the Multiplier, the Average Stock Price, the Base Stock Price and the Merrill Stock Price shall be appropriately adjusted to provide for a potential economic benefit to the Affiliated Companies essentially equivalent to that which would be available pursuant to this Section 1.3(c) had such consolidation, merger, sale or conveyance not taken place; provided, however, that if in connection with such a Merrill Acquisition, substantially all shares of Merrill Common Stock outstanding immediately prior to the effectiveness of the Merrill Acquisition are not changed into or exchanged for equity securities of the surviving corporation or the ultimate parent of the surviving corporation ("ACQUISITION SECURITIES"), which Acquisition Securities, immediately following the effectiveness thereof, are listed for trading on the New York Stock Exchange or the American Stock Exchange or are traded on the Nasdaq National 7 Market, then prior to the closing of the Merrill Acquisition, the Purchaser will be required to make a Call Participation Payment to the Affiliated Companies in an amount set forth in paragraph (ii) above. Merrill agrees to provide twenty (20) days' advance written notice to the Representative prior to the closing of any Merrill Acquisition. (v) Neither the Affiliated Companies nor any Shareholder has taken nor will they take, directly or indirectly, any action designed to or which has constituted, or which might reasonably be expected to cause or result in, manipulation of the price of Merrill Common Stock. (vi) For purposes of this Section 1.3(c), the following terms have the following meaning: (1) "AVERAGE STOCK PRICE" means (i) the average of the average between the high and low reported sales prices of one share of Merrill Common Stock on the national over-the-counter market, as reported by the Nasdaq National Market on each of the thirty (30) trading days ending on the third trading day immediately preceding the Notice Date (hereinafter defined) if Merrill Common Stock is listed, admitted to unlisted trading privileges, or reported on any national securities exchange or on the Nasdaq National Market System; or (ii) if Merrill Common Stock is not so listed, admitted to unlisted trading privileges, or reported on any national exchange or on the Nasdaq National Market System, the average reported closing bid price of one share of Merrill Common Stock during the thirty (30) trading days ending on the third trading day immediately preceding the Notice Date, as reported by the Nasdaq System or the National Quotation Bureau, Inc., or a comparable service; or (iii) if Merrill Common Stock is not listed, admitted to unlisted trading privileges, or reported on any national exchange, listed on the Nasdaq National Market System or reported by the Nasdaq System, the National Quotation Bureau, Inc. or a comparable service, such price as the Board of Directors of Merrill determines in good faith in the exercise of its reasonable discretion. (2) "BASE STOCK PRICE" means the average of the high and low reported sales prices of one share of Merrill Common Stock on the national over-the-counter market on April 12, 1996, as reported by the Nasdaq National Market. (3) "NOTICE DATE" means the date of dispatch by the Purchaser of notice of the exercise of the Put Right by the Affiliated Companies, or, in the case of the exercise of the Call Right, on the date of dispatch by the Purchaser of the notice exercising the Purchaser's Call Right. (d) For a period of 180 days after the Closing Date, the Purchaser will use its commercially reasonable efforts (which efforts will include consultation with the Representative) to collect the accounts receivable included in the Assets reflected on the Latest Unaudited Balance Sheet (as hereinafter defined) (the "GUARANTEED RECEIVABLES") in accordance with the Affiliated Companies' prior reasonable commercial practices, which efforts will be in addition to the efforts engaged in by the Purchaser to collect any accounts receivable included in the Assets reflected 8 on the Closing Balance Sheet that arose after the date of the Latest Unaudited Balance Sheet. The Purchaser may in its discretion, reasonably exercised, resort to litigation or the use of collection agencies or similar efforts to collect the Guaranteed Receivables; provided, however, that (i) all costs and expenses (including without limitation legal fees and fees charged by collection agencies) in excess of an aggregate of $20,000 incurred by Purchaser in connection with such efforts will be deemed for purposes of this Section 1.3(d) to reduce the amount of any Guaranteed Receivable collected pursuant to such efforts and (ii) the Representative must consent to any legal fees incurred in connection with the collection of any specific Guaranteed Receivables included in the Assets that had been written off prior to the date of the latest Unaudited Balance Sheet and which were not included in the Bad Debt Reserve (as hereinafter defined) (the "WRITTEN-OFF RECEIVABLES"). Any payment made to the Purchaser or any affiliate of the Purchaser by an account debtor with more than one outstanding account receivable will be applied to particular accounts receivable as specified by the account debtor; provided, however, that if such account debtor does not specify to which account receivable the payment is to be applied, the Purchaser will apply such payments to the oldest account receivable of such account debtor and then to the next oldest account receivable of such account debtor until such payment has been fully reflected. The Purchase Price will be reduced by the amount, if any, by which the net amount of the Guaranteed Receivables not collected on or before the 180th day after the Closing Date exceeds the Bad Debt Reserve (as hereinafter defined) (such excess is hereinafter referred to as the "GUARANTEED RECEIVABLES SHORTFALL"); provided, however, that notwithstanding the existence of a Guaranteed Receivables Shortfall, the Purchase Price will not be reduced pursuant to this Section 1.3(e) to the extent that such Guaranteed Receivables Shortfall is less than an amount equal to: (i) the amount, if any, by which (A) the book value of the Assets on the Latest Unaudited Balance Sheet (as hereinafter defined), excluding the book value on such balance sheet of any assets specifically described on Exhibit 1.1(b) hereto, less (B) the Assumed Liabilities shown on the Latest Unaudited Balance Sheet, exceeds Thirteen Million Two Hundred Thousand Dollars ($13,200,000); plus (ii) the net amount of any Written-Off Receivable collected by the Purchaser on or before the 180th day after the Closing Date. For purposes of this Agreement, the term "BAD DEBT RESERVE" means the Affiliated Companies' reserve for bad debts and reserve for allowances as of the date of the Latest Unaudited Balance Sheet, determined in a manner consistent with the prior practices of the Affiliated Companies reflected in the Latest Audited Balance Sheet. The Purchaser will have the right to obtain an amount equal to the reduction in the Purchase Price as calculated pursuant to this Section 1.3(d) from the funds held by the Escrow Agent in accordance with the terms of the Escrow Agreement and Section 8.5 hereof, to the extent that at the time any such reduction is determined the amount of such reduction is less than or equal to the amount then held by the Escrow Agent under the Escrow Agreement as to which there are not then outstanding claims made by Merrill or the Purchaser. In any other event, the Purchaser will have the right to obtain the amount of such reduction from either the funds held by the Escrow Agent or directly from the Affiliated Companies, in either case in accordance with the terms of Section 8.5 hereof. (e) The Affiliated Companies will prepare and deliver to the Purchaser a balance sheet for each of the Affiliated Companies as of the beginning of business (and reflecting the completion of the transactions pursuant to this Agreement) on April 15, 1996 (the "CLOSING BALANCE SHEET"), which Closing Balance Sheet will be delivered in preliminary form to the Purchaser on or before May 7, 1996 and in completed form to the Purchaser on or before June 17, 1996. The Closing Balance Sheet will be unaudited and will be prepared from the books and records of the Affiliated Companies in accordance with generally accepted accounting principles 9 and applied consistently with the principles, practices and procedures used in the preparation of the Latest Audited Balance Sheet. All inventory and supplies reflected on the Closing Balance Sheet shall be so reflected on the basis of a complete physical count taken beginning April 13, 1996 and shall be valued at the lower of cost or market in accordance with prior practices of the Affiliated Companies as reflected in the Latest Audited Balance Sheet. Representatives of both the Affiliated Companies and the Purchaser shall have the right to participate in the taking of such physical inventory and the valuation thereof. The Affiliated Companies, the Shareholders and the Purchaser will provide each other with full cooperation in connection with the preparation of the Closing Balance Sheet (provided that normal operations of business of the Purchaser and Merrill are not interfered with). Within 10 days after receipt of the Closing Balance Sheet, the Purchaser will notify the Representative if it disagrees with any of the amounts included in the Closing Balance Sheet. If such notice is not given, the Closing Balance Sheet will be final and conclusive for all purposes. If the parties are unable between themselves to resolve the differences within 10 days of the receipt of the Closing Balance Sheet, they will resolve their differences pursuant to Sections 9.12(c) and (d) below. (f) The Purchase Price will be allocated among the Assets in the manner required by Section 1060 of the Internal Revenue Code of 1986, as amended (the "CODE"). In making such allocation, the allocations set forth in Exhibit 1.3(f) attached hereto will apply, which exhibit will be completed based on the amounts shown in the Closing Balance Sheet. In preparing Exhibit 1.3(f), the Purchaser and the Shareholders will negotiate in good faith the values of the Assets and the resulting allocation of the Purchase Price among the various Assets; it being understood that such determination will be binding on the Purchaser and the Shareholders only for the purposes of U.S. Federal, state and local taxation. The Shareholders and the Purchaser will file all Tax Returns and tax reports (including IRS Form 8594) in accordance with and based upon such allocation and will take no position in any Tax Return, tax proceeding or tax audit which is inconsistent with such allocation. 1.4 CLOSING. Unless this Agreement has been terminated and the transactions contemplated have been abandoned pursuant to Article 7 hereof, a closing (the "CLOSING") will be held on April 15, 1996 at 7:00 a.m., Minneapolis, Minnesota local time or at such other time as the parties may agree upon (the "CLOSING DATE"); provided, however, that if any of the conditions provided for in Articles 5 and 6 hereof have not been satisfied or waived by such date, then the party to this Agreement which is unable to satisfy such condition or conditions, despite the best efforts of such party, will be entitled to postpone the Closing by notice to the other parties until such condition or conditions will have been satisfied (which such notifying party will seek to cause to happen at the earliest practicable date) or waived, but in no event will the Closing occur later than June 1, 1996 (the "TERMINATION DATE"). The parties will use their best efforts to complete the Closing by April 15, 1996. The Closing will be held at such place as the parties may agree, at such time as the parties may agree, at which time and place the documents and instruments necessary or appropriate to effect the transactions contemplated herein will be exchanged by the parties. 10 1.5 INSTRUMENTS OF TRANSFER TO PURCHASER. (a) At the Closing, the Affiliated Companies will deliver to the Purchaser: (i) such bills of sale, endorsements, assignments, deeds and other good and sufficient instruments of conveyance and transfer, in form and substance reasonably satisfactory to the Purchaser and its counsel, as will be required to vest in the Purchaser title to the Assets, including without limitation: (A) an assignment of all of the Affiliated Companies' bank accounts in form and substance satisfactory to the Purchaser; (B) general bills of sale executed by each of the Affiliated Companies vesting in the Purchaser good and marketable title to all of the Assets in the form attached as Exhibit 1.5 hereof; (C) appropriate endorsements and assignments of the contracts, licenses, agreements, permits, plans, commitments and other binding arrangements included in the Assets; and (D) specific bills of sale, endorsements and assignments transferring to Purchaser the Intellectual Property Rights (as hereinafter defined). (ii) all data relating to the assets, property, goodwill and business included in any of the Affiliated Companies' business. (b) The Affiliated Companies will deliver to the Purchaser, as promptly as practicable after the Closing, but in any event within 10 days for Affiliated Companies organized in the United States and 30 days for Affiliated Companies organized outside of the United States, written evidence reasonably satisfactory to the Purchaser that the Affiliated Companies' names, other than Oakland, have been changed. Simultaneously with such delivery, the Affiliated Companies will take all actions necessary to put the Purchaser in actual possession and operating control of the Assets. 1.6 CERTAIN LIABILITIES. Notwithstanding anything in this Agreement to the contrary, the Affiliated Companies and the Shareholders will not be required to indemnify Merrill or the Purchaser, or otherwise have liability to Merrill or the Purchaser under this Agreement, with respect to: (a) any claim by any current or former employee of the Affiliated Companies, or the bargaining representative of any such current or former employee, that (i) Merrill or the Purchaser is a "successor" to the Affiliated Companies under the provisions of the Labor Management Relations Act, 29 U.S.C. Section 141, et seq., or (ii) any claim that the Closing of the transactions contemplated by this Agreement in and of itself constitutes a breach of, or default, under (A) the Shop Rules and Wage Scales Contract between C.P.C. Reprographics Financial Print Division and Graphic Communications Union Local 51 G.C.I.U.-A.F.L.-C.I.O.-C.L.C., effective on March 3, 1995, (B) the Shop Rules and Wage Scales Contract for Book and Job Offices between Graphic Communications International Union Local 119B-43B, New York and 11 Corporate Printing Co., Inc. and CPC Reprographics, Inc.-Financial Printing Division, effective on March 3, 1995, (C) the Shop Rules and Wage Scales Contract for Offset Lithography, Xerography and Binding between C.P.C. Reprographics, Inc. and Graphic Communications Union Local 51 G.C.I.U.- A.F.L.-C.I.O.-C.L.C., dated as of March 15, 1995, or (D) the Master Agreement between The Corporate Printing Co., Inc. and Paper Products and Miscellaneous Drivers, Warehousemen, Helpers and Messengers Local 27, affiliated with International Brotherhood of Teamsters, AFL-CIO, effective on October 1, 1994 (the "UNION CONTRACTS"); (b) any claim that Merrill or the Purchaser has assumed sponsorship of or maintains The Corporate Printing Company, Inc. 401(K) Plan as a result of the transactions contemplated by this Agreement; or (c) any liability related to or arising from any asbestos found in the pipe insulation on the eleventh floor located at the corporate headquarters at 225 Varick Street, New York, NY; provided, however, that nothing contained in this Section 1.6 relieves the Affiliated Companies, the Shareholders or any other person of any obligations or duties it may have arising under or in connection with the Union Contracts or Benefit Plans or limits the right of Merrill and the Purchaser to be indemnified as provided in this Agreement. By agreeing to the foregoing neither Merrill nor the Purchaser makes any admission of any liability, or waives any defenses, in connection with any claim brought by any third party relating to any of the foregoing matters. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE AFFILIATED COMPANIES AND SHAREHOLDERS The Affiliated Companies, jointly and severally, and the Shareholders, on a several basis in accordance with the percentage shares identified on Exhibit 2 hereto (the "INDEMNIFICATION PERCENTAGES"), hereby represent and warrant to the Purchaser and Merrill as of the date hereof as follows: 2.1 DISCLOSURE SCHEDULE. The disclosure schedule attached as Exhibit 2.1 hereto, which will be delivered to Merrill and the Purchaser at least 48 hours prior to execution of this Agreement (the "DISCLOSURE SCHEDULE"), is divided into sections which correspond to the sections of this Article 2. The Disclosure Schedule is true, accurate and complete in all material respects. Nothing in the Disclosure Schedule will be deemed adequate to disclose an exception to a representation or warranty made herein, unless the Disclosure Schedule identifies the exception with reasonable particularity and describes the facts in reasonable detail in the context of the representation or warranty to which such exception relates. Disclosures in any subsection of the Disclosure Schedule will not constitute disclosure for purposes of any other subsection and other section of this Agreement or any exhibit to or other writing which is designated herein as being part of this Agreement, unless expressly so stated. 2.2 CORPORATE ORGANIZATION. (a) Each of Corporate, CPC Communications, Reprographics, CPC International, CP Holdings, CPC International, PTE and CPC Management (collectively the "CORPORATE ENTITIES") is a corporation duly organized, validly existing and in good standing under the laws of its respective state of incorporation, has the full corporate power and authority to carry on its business as it is now being conducted and to own, lease and operate their properties and assets; 12 except as set forth in the Disclosure Schedule, is duly qualified or licensed to do business as foreign corporations in good standing in every other jurisdiction in which the character or location of the properties and assets owned, leased or operated by it or the conduct of the business requires such qualification or licensing; and has heretofore delivered to the Purchaser and Merrill complete and correct copies of its articles of incorporation and bylaws, as presently in effect. The Disclosure Schedule contains a list of all jurisdictions in which the Corporate Entities are qualified or licensed to do business. Except as provided in the Disclosure Schedule, none of the Affiliated Companies owns (and has not at any time during the preceding five (5) years owned) of record or beneficially more than five percent (5%) of the outstanding equity securities having ordinary voting rights or power of any corporation or partnership or other legal entity. (b) CPC International SNC (the "PARTNERSHIP ENTITY") is a partnership in good standing and organized under the laws of its jurisdiction of organization and has the full power and authority to carry on its businesses as it is now being conducted and to own, lease and operate its properties and assets; except as set forth in the Disclosure Schedule, is duly qualified or licensed to do business in every other jurisdiction in which the character or location of the properties and assets owned, leased or operated by it or the conduct of its business requires such qualification or licensing; and has heretofore delivered to the Purchaser and Merrill complete and correct copies of its partnership agreement and other charter documents, as presently in effect. (c) Oakland is a limited partnership, in good standing and organized under the laws of the State of Maryland and has the full power and authority to carry on its businesses as it is now being conducted and to own, lease and operate its properties and assets; except as set forth in the Disclosure Schedule, is duly qualified or licensed to do business as a foreign limited partnership in good standing in every jurisdiction in which the character or location of the properties and assets owned, leased or operated by it or the conduct of its business requires such qualification or licensing, and has heretofore delivered to the Purchaser and Merrill complete and correct copies of its partnership agreement and its certificate of limited partnership, as presently in effect. 2.3 CAPITALIZATION. The authorized capital stock of the Corporate Entities are set forth on the Disclosure Schedule. The number of shares of capital stock of the Corporate Entities outstanding as of the date of this Agreement are set forth on the Disclosure Schedule. All issued and outstanding shares of capital stock of the Corporate Entities are duly authorized, validly issued, fully paid and non-assessable. All equity interests of the Partnership Entity and Oakland are set forth on the Disclosure Schedule. Except as set forth on the Disclosure Schedule, all shares of capital stock of the Corporate Entities and all equity interests in the Partnership Entity and Oakland are owned by the Shareholders free and clear of any lien, security interest, pledge, charge, claim, option, right to acquire, restriction on transfer or encumbrance of any nature whatsoever. 2.4 AUTHORIZATION. The Affiliated Companies have full power and authority to enter into this Agreement and to carry out the transactions contemplated herein. The Shareholders, and each of them, have the legal capacity to enter into this Agreement and to carry out the transactions contemplated herein, including without limitation the legal capacity to execute, deliver and perform the agreements or contracts, if any, required by Article 5 to be executed and delivered by any of them as a condition to the Closing. The Board of Directors of the Corporate Entities and the Shareholders have taken all action 13 required by law, the Corporate Entities' articles of incorporation and bylaws, the Partnership Entity and Oakland's partnership agreements and otherwise to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein. This Agreement has been duly and validly executed and delivered by the Affiliated Companies and no other action is necessary. This Agreement has been duly and validly executed by the Shareholders. This Agreement is the valid and binding legal obligation of the Affiliated Companies and of the Shareholders, enforceable against the Affiliated Companies and the Shareholders in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws of applicability relating to or affecting creditors' rights and general principles of equity. 2.5 NON-CONTRAVENTION. Except as set forth in the Disclosure Schedule, neither the execution, delivery and performance of this Agreement nor the consummation of the transactions contemplated herein will: (i) violate or be in conflict with any provision of the articles of incorporation or bylaws of the Corporate Entities or the partnership agreements or other charter documents of the Partnership Entity and Oakland; or (ii)(1) be in conflict with, or constitute a default, however defined (or an event which, with the giving of due notice or lapse of time, or both, would constitute such a default), under, or cause or permit the acceleration of the maturity of, or give rise to any right of termination, cancellation, imposition of fees or penalties under, any Assumed Contract or any debt, note, bond, lease, mortgage, indenture, license, obligation, contract, commitment, franchise, permit, instrument or other agreement or obligation to which any Affiliated Company is a party or by which the Affiliated Companies or any of the Assets is or may be bound (unless with respect to which defaults or other rights, requisite waivers or consents will have been obtained at or prior to the Closing) or (2) result in the creation or imposition of any mortgage, pledge, lien, security interest, encumbrance, restriction, adverse claim or charge of any kind, upon the Assets, under any Assumed Contract or any debt, obligation, contract, agreement or commitment to which any of the Affiliated Companies is a party or by which the Affiliated Companies or any of the Assets is or may be bound; or (iii) violate any statute, treaty, law, judgment, writ, injunction, decision, decree, order, regulation, ordinance or other similar authoritative matters (sometimes hereinafter separately referred to as a "LAW" and sometimes collectively as "LAWS") of any foreign, federal, state or local governmental or quasi-governmental, administrative, regulatory or judicial court, department, commission, agency, board, bureau, instrumentality or other authority (hereinafter sometimes separately referred to as an "AUTHORITY" and sometimes collectively as "AUTHORITIES"). Except as set forth on the Disclosure Schedule, neither the execution, delivery and performance of the Non-Competition Agreement or Employment Agreement to be executed and delivered pursuant to Section 4.11 hereof, or the consummation of the transactions contemplated thereby, will conflict with, or, with or without the giving of notice or passage of time, result in any breach of the terms, conditions or provisions of, or constitute a default under any contract or other instrument which the Shareholders executing such agreements are a party. 2.6 CONSENTS AND APPROVALS. Except for filings under the Hart-Scott- Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the "HSR Act") or otherwise as set forth in the Disclosure Schedule, with respect to the Affiliated Companies and each Shareholder, no consent, approval, order or authorization of or from, or registration, notification, declaration or filing with (hereinafter sometimes separately referred to as a "CONSENT" and sometimes collectively as "CONSENTS") any individual or entity, including without limitation any Authority, is required in connection with the execution, delivery or performance of this Agreement by the Affiliated Companies or any Shareholder or the consummation by the Affiliated Companies or any Shareholder of the transactions contemplated herein. 14 2.7 FINANCIAL STATEMENTS. The Disclosure Schedule contains true and complete copies of (a) the combined and consolidated audited balance sheets of the Affiliated Companies as of December 31, 1995, 1994 and 1993, and the related statements of operations (or income or loss), changes in shareholders' equity and changes in cash flow for each of the respective fiscal years then ended, and the report thereon of Mirsky, Furst & Peretz, P.A., independent certified public accountants; and (b) combined and consolidated unaudited balance sheets of the Affiliated Companies as of January 31, 1996 and October 31, 1995. The audited balance sheet as of December 31, 1995, including the notes thereto, is referred to herein as the "LATEST AUDITED BALANCE SHEET." The unaudited balance sheet as of January 31, 1996 is referred to herein as the "LATEST UNAUDITED BALANCE SHEET." Except as disclosed in Section 2.7 in the Disclosure Schedule and in the foregoing financial statements, the foregoing financial statements (x) are in accordance with the books and records of the Affiliated Companies and have been prepared in conformity with generally accepted accounting principles ("GAAP") consistently applied for all periods, and (y) fairly present the financial position of the Affiliated Companies as of the respective dates thereof, and the results of operations (or income or loss), changes in shareholders' equity and changes in cash flow for the periods then ended, all in accordance with GAAP consistently applied for all periods (except, with respect to the unaudited financial statements, for the absence of notes which, if presented, would not be inconsistent with those included in the Latest Audited Balance Sheet). Neither the Latest Audited Balance Sheet, the Latest Unaudited Balance Sheet nor the Closing Balance Sheet reflect any capitalized leases. 2.8 ABSENCE OF UNDISCLOSED LIABILITIES. The Affiliated Companies do not have any liabilities, obligations or claims of any kind whatsoever, which are required to be set forth in financial statements prepared in accordance with GAAP whether secured or unsecured, accrued or unaccrued, fixed or contingent, matured or unmatured, direct or indirect, contingent or otherwise and whether due or to become due (referred to herein individually as a "LIABILITY" and collectively as "LIABILITIES"), other than: (a) Assumed Liabilities; (b) Liabilities that are reserved for or disclosed in the Latest Unaudited Balance Sheet; (c) Liabilities that are set forth on the Disclosure Schedule; (d) Liabilities incurred by the Affiliated Companies in the ordinary course of business after the date of the Latest Unaudited Balance Sheet (none of which results from, arises out of, relates to, is in the nature of, or was caused by any breach of contract, breach of warranty, tort, infringement or violation of Law); or (e) Liabilities for express executory obligations to be performed after the Closing under the contracts described in Exhibit 1.2 hereto (other than any express executory obligations that might arise due to any default or other failure of performance by the Affiliated Companies prior to the Closing Date). For purposes of this Section 2.8, Liabilities shall not include Taxes. 2.9 ABSENCE OF CERTAIN CHANGES. Except as set forth in the Disclosure Schedule, since December 31, 1995, the Affiliated Companies have owned and operated their assets, properties and business in the ordinary course of business and consistent with past practice. Without limiting the generality of the foregoing, subject to the aforesaid exceptions: (a) the Affiliated Companies have not experienced any change which has had a Material Adverse Effect on the Affiliated Companies or experienced any event or failed to take any action which reasonably could be expected to result in a Material Adverse Effect on the Affiliated Companies; (b) the Affiliated Companies have not suffered (i) any material loss, damage, destruction of properties or Assets or other casualty to properties or Assets (whether or not covered by insurance) or (ii) any loss of officers or employees or, to the Knowledge of the Shareholders, dealers, distributors, independent contractors, customers or suppliers, which had or may reasonably be expected to result in a Material Adverse Effect on the Affiliated Companies; and (c) no event has taken place which if consummated following the date hereof would constitute a violation of Section 4.1 hereof. 15 2.10 THE ASSETS. (a) Except as set forth in the Disclosure Schedule, the Affiliated Companies have good title to, or in the case of leased Assets or any licensed Intellectual Property Rights (as hereinafter defined), other right to use, all of the Assets, free and clear of any mortgage, pledge, lien, security interest, conditional or installment sales agreement, encumbrance, claim, easement, right-of-way, tenancy, covenant, encroachment, restriction or charge of any kind or nature (whether or not of record) (herein called a "LIEN"), except the following (herein called "PERMITTED LIENS"): (i) liens securing specified liabilities or obligations of the Affiliated Companies shown on the Latest Audited Balance Sheet with respect to which no breach, violation or default exists; (ii) mechanics', carriers', workers' and other similar liens arising in the ordinary course of business of the Affiliated Companies; and (iii) liens for current Taxes of the Affiliated Companies not yet due and payable or being contested in good faith by appropriate proceedings. (b) The Affiliated Companies have full right and power to, and at the Closing will, deliver to Purchaser good title to, or in the case of leased Assets or any licensed Intellectual Property Rights, other right to use, all of the Assets, free and clear of any Lien (except as set forth in the Disclosure Schedule and for Permitted Liens). (c) Except as set forth in the Disclosure Schedule, the machinery, equipment, vehicles and other personal property of the Affiliated Companies included in the Assets are in good operating condition and repair, ordinary wear and tear excepted, and fit for the intended purposes thereof. (d) The Assets constitute substantially all of the property and assets, real, personal and mixed, tangible and intangible, presently used to carry on the business of the Affiliated Companies, and the Assets are adequate to carry on the business of the Affiliated Companies as presently conducted. (e) Except as set forth in the Disclosure Schedule, upon the Closing of the transactions contemplated by this Agreement, no Shareholder will have any claim against any of the Assets, the Purchaser or Merrill as a result of any buy-sell, tax sharing or other similar agreement among the Shareholders. (f) The Affiliated Companies own no real properties. The Affiliated Companies (other than the Partnership Entity and CPC International PTE) are not foreign persons and are not controlled by a foreign person, as the term foreign person is defined in Section 1445(f)(3) of the Code. Neither the Partnership Entity nor CPC International PTE hold any "United States real property interests" as such phrase is defined in Section 897(c) of the Code. 2.11 SCHEDULES; NO CONTRACT DEFAULTS. The Disclosure Schedule contains an accurate and complete list and brief description of: (a) All real property owned by the Affiliated Companies included in the Assets or in which any of the Affiliated Companies has a leasehold or other interest and which is included in the Assets. The Affiliated Companies have provided the Purchaser with either a copy of or a description of each lease, sublease, license, or any other instrument under which the Affiliated Companies claim or hold such leasehold or other interest or right to the use thereof or pursuant 16 to which the Affiliated Companies have assigned, sublet or granted any rights therein, identifying the parties thereto, the rental or other payment terms, expiration date and cancellation and renewal terms thereof. (b) All machinery, tools, equipment, motor vehicles, rolling stock and other tangible personal property (other than inventory and supplies), owned, leased or used by any of the Affiliated Companies and included in the Assets, except for items having a cost of less than $5,000. The Affiliated Companies have provided the Purchaser with either a copy of or a summary description of all leases, liens, claims, encumbrances, charges, restrictions, covenants and conditions relating thereto, identifying the parties thereto, the rental or other payment terms, expiration date and cancellation and renewal terms thereof. (c) All patents, patent applications, patent licenses, trademarks, trademark registrations, and applications therefor, service marks, service names, trade names, copyrights and copyright registrations, and applications therefor, and any other documents embodying Intellectual Property Rights (as hereinafter defined), wholly or partially owned or held by any of the Affiliated Companies. (d) All contracts, agreements, commitments or licenses relating to Intellectual Property Rights to which any of the Affiliated Companies is a party or by which it is bound. (e) As of January 31, 1996, all of the receivables of the Affiliated Companies included in the Assets (which will include accounts receivable, loans receivable and any advances). (f) All Assumed Contracts. (g) All policies of fire and other casualty, general liability, theft, life, workers' compensation, health, directors and officers, business interruption, life insurance and other forms of insurance owned or held by any of the Affiliated Companies (including any self-insurance arrangements), specifying the insurer, the policy number, the risk insured against, the term of the coverage, the limits of coverage, the deductible amount (if any), the premium rate, a description of any retroactive premium adjustments or other material loss-sharing arrangements, the date through which coverage will continue by virtue of premiums already paid and, in the case of any "claims made" coverage, the same information as to predecessor policies for the previous five years. All present policies are in full force and effect and all premiums with respect thereto have been paid. No event has occurred which, with notice or lapse of time, would constitute a breach or default, or permit termination, modification or acceleration, under any policy. None of the Affiliated Companies has been denied any form of insurance and no policy of insurance has been revoked or rescinded during the past five years, except as described on the Disclosure Schedule. (h) All contracts, agreements and commitments, whether or not fully performed, in respect of the issuance, sale or transfer of the capital stock, bonds or other securities of the Affiliated Companies or pursuant to which any of the Affiliated Companies has acquired any substantial portion of its business or assets during the past three years. 17 (i) All collective bargaining agreements, employment and consulting agreements, executive compensation plans, bonus plans, deferred compensation agreements, employee pension plans or retirement plans, employee stock options or stock purchase plans and group life, health and accident insurance other employee benefit plans, agreements, arrangements or commitments, whether or not legally binding, including, without limitation, holiday, vacation, Christmas and other bonus practices, to which any of the Affiliated Companies is a party or is bound or which relate to the operation of the Affiliated Companies' business. (j) All contracts, commitments, agreements and arrangements with any "disqualified individual" (as defined in Section 280G(c) of the Code) which contains any severance or termination pay liabilities which would result in a disallowance of the deduction for any "excess parachute payment" (as defined in Section 280G(b)(1) of the Code) under Section 280G of the Code. (k) The names and current annual salary rates of all employees of and consultants to the Affiliated Companies, showing separately for each such person the amounts paid or payable as salary, bonus payments and any indirect compensation for the year ended December 31, 1995. (l) The names of all of the directors and officers of each Corporate Entity and the partners of each of the Partnership Entity and Oakland; the names of all financial institutions, investment banking and brokerage houses, and other similar institutions at which any of the Affiliated Companies maintain accounts, deposits, safe deposit boxes of any nature. The Assumed Contracts and all other contracts, agreements, leases, licenses and commitments required to be listed on the Disclosure Schedule (other than those which have been fully performed), are valid and binding, enforceable in accordance with their respective terms in all material respects, except as enforcement might be limited by bankruptcy and other laws related to creditors' rights and principles of equity, and are in full force and effect. Except as otherwise specified in the Disclosure Schedule, the Assumed Contracts are validly assignable to the Purchaser without the consent of any other party so that, after the assignment thereof to the Purchaser pursuant hereto, the Purchaser will be entitled to the full benefits thereof. Except as disclosed in the Disclosure Schedule, none of the payments required to be made under any Assumed Contract has been prepaid more than 30 days prior to the due date of such payment thereunder. Except as set forth in the Disclosure Schedule, none of the Affiliated Companies is in material breach, violation or default, however defined, in the performance of any of its obligations under any Assumed Contract or any other contract, agreement, lease, license or commitment required to be listed on the Disclosure Schedule, and no facts and circumstances exist which, whether with the giving of due notice, lapse of time, or both, would constitute such a material breach, violation or default thereunder or thereof; and to the Knowledge of the Shareholders no other parties thereto are in material breach, violation or default, however defined, thereunder or thereof. To the Knowledge of the Shareholders, none of the Assumed Contracts is, either when considered singly or in the aggregate with others, materially adverse, unduly burdensome, or onerous to the Affiliated Companies' business, properties, assets, earnings or prospects or likely, either before or after the Closing, to result in any material loss or liability. Except as set forth in the Disclosure Schedule, none of the Assumed Contracts is subject to renegotiation with any government body. True and complete copies of all of the Assumed Contracts (together with any and all amendments thereto) have been delivered to the Purchaser and identified with a reference to this Section of this Agreement. The only equipment covered by the Master Equipment Lease Agreement No. 30888 between Fleet Credit Corporation and Corporate, Reprographics 18 and CPC Management are two printing presses retained by the Affiliated Companies as part of the CPC Press Business. 2.12 INVENTORIES. Except as set forth in the Disclosure Schedule, all accumulated costs on jobs in progress as of the date of the Latest Unaudited Balance Sheet are, and as of the Closing Date will be, valued at the lower of cost or market. Except as set forth on the Disclosure Schedule, all supplies of the Affiliated Companies (including without limitation paper, ink and chemicals): (i) are of a quality and quantity usable in the ordinary course of business, and the present quantities of supplies of the Affiliated Companies are reasonable in the present circumstances of the businesses as currently conducted by the Affiliated Companies; and (ii) meet in the aggregate the stricter of industry or Affiliated Companies' specifications applicable to such supplies. 2.13 RECEIVABLES AND PAYABLES. (a) Except as set forth on the Disclosure Schedule, (i) the Affiliated Companies have good right, title and interest in and to all their accounts and notes receivable and trade notes and trade accounts constituting the Assets; (ii) none of the accounts and notes receivable and trade notes and trade accounts is subject to any Lien; (iii) all of the accounts and notes receivable and trade notes and trade accounts owing to the Affiliated Companies constitute valid and enforceable claims arising from bona fide transactions in the ordinary course of business, and, other than routine negotiations concerning receivables invoiced after the Latest Unaudited Balance Sheet, there are no claims, refusals to pay or other rights of set-off against any thereof Known to the Shareholders; and (iv) the aging schedule of the accounts and notes receivable and trade notes and trade accounts of the Affiliated Companies previously furnished to Purchaser is complete and accurate to the date thereof in all material respects; and (b) All accounts payable and notes payable by the Affiliated Companies arose in bona fide transactions in the ordinary course of business. 2.14 INTELLECTUAL PROPERTY RIGHTS. The Affiliated Companies own or have the unrestricted right to use, and the Disclosure Schedule contains a detailed listing of, all patents, patent applications, patent rights, registered and unregistered trademarks, trademark applications, trade names, service marks, service mark applications, copyrights, computer programs and other computer software, inventions, know-how, trade secrets, technology, proprietary processes, trade dress and formulae (collectively, "INTELLECTUAL PROPERTY RIGHTS") used in connection with the Assets and business being purchased hereunder. Except as set forth on the Disclosure Schedule, the use of all Intellectual Property Rights necessary or required for the conduct of the business of the Affiliated Companies as presently conducted and as proposed to be conducted does not and will not infringe or violate in any material respect the Intellectual Property Rights of any person or entity. Except as described on the Disclosure Schedule: (i) the Affiliated Companies do not own or use any Intellectual Property Rights pursuant to any written license agreement; (ii) the Affiliated Companies have not granted any person or entity any rights, pursuant to a written license agreement or otherwise, to use the Intellectual Property Rights; and (iii) all of said Intellectual Property Rights of the Affiliated Companies are free and clear of all Liens. 2.15 LITIGATION. Except as set forth in the Disclosure Schedule, there is no legal, administrative, arbitration, or other proceeding, suit, claim or action of any nature or investigation, review or audit of any kind (including without limitation a proceeding, suit, claim or action, or an 19 investigation, review or audit, involving any environmental Law or matter), judgment, decree, decision, injunction, writ or order pending, noticed, scheduled or, to the Best Knowledge of the Affiliated Companies threatened or contemplated by or against or involving the Affiliated Companies, their assets, properties or businesses or their directors, officers, agents or employees (but only in their capacity as such), whether at law or in equity, before or by any person or entity or Authority, or which questions or challenges the validity of this Agreement or any action taken or to be taken by the parties hereto pursuant to this Agreement or in connection with the transactions contemplated herein which is reasonably likely to have a Material Adverse Effect. 2.16 TAX MATTERS. For purposes of this Agreement, the term "TAXES" means all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, real or personal property, windfall profits, customs, duties or other taxes, fees, assessments, charges or levies of any kind whatever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto, and the term "TAX" means any one of the foregoing Taxes. In addition, the term "TAX RETURNS" means all returns, declarations, reports, statements and other documents required to be filed with any Authority in respect of Taxes, and the term "TAX RETURN" means any one of the foregoing Tax Returns. Except as set forth in the Disclosure Schedule, the Affiliated Companies and the Shareholders hereby represent and warrant the following with respect to the Affiliated Companies: (a) LIABILITY FOR TAXES. Except to the extent set forth in the Liabilities Undertaking, the Affiliated Companies and the Shareholders will be responsible for and will pay all Taxes attributable to or arising from the business and operations of the Affiliated Companies conducted on or before the Closing Date and will be responsible for their own income and franchise Taxes, if any, arising from the transactions contemplated by this Agreement. (b) FILING OF TAX RETURNS. All Tax Returns required to be filed on or prior to the date hereof by the Affiliated Companies or the Shareholders with respect to Taxes of the Affiliated Companies have been properly completed and duly filed on a timely basis and in correct form. As of the time of filing, the foregoing Tax Returns correctly reflected the facts regarding the income, business, assets, operations, activities, status or other matters of the Affiliated Companies or any other information required to be shown thereon. There is no material omission, deficiency, error, misstatement or misrepresentation, whether innocent, intentional or fraudulent, in any such Tax Return for any period. Any Tax Returns filed after the date hereof, but on or before the Closing Date by the Affiliated Companies or the Shareholders with respect to Taxes of the Affiliated Companies, will conform with the provisions of this subsection 2.16(b). (c) PAYMENT OF TAXES. With respect to all amounts of Taxes imposed upon the Affiliated Companies, or for which the Affiliated Companies are or could be liable, whether to taxing Authorities (as, for example, under Law) or to other persons or entities (as, for example, under tax allocation agreements), with respect to all taxable periods or portions of periods ending on or before the Closing Date, all applicable Tax Laws and agreements have been or will be fully complied with, and all such amounts of Taxes required to be paid by the Affiliated Companies to taxing Authorities or others on or before the date hereof have been duly paid or will be paid on or before the Closing Date; the reserves for all such Taxes reflected in the Latest Audited Balance Sheet are adequate and there are no liens for such Taxes upon any property or assets of 20 the Affiliated Companies. The Affiliated Companies have withheld and remitted all amounts required to be withheld and remitted by them in respect of Taxes. No Shareholder of any of the Affiliated Companies which is an S Corporation under the Code has since October 31, 1995 received any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of any such Affiliated Companies' capital stock or equity interest to pay Taxes. (d) AUDITS AND EXTENSIONS. Except as set forth in the Disclosure Schedule, neither the federal Tax Returns of the Affiliated Companies (and of the Shareholders to the extent the operations of the Affiliated Companies are reflected in the Shareholders' Tax Returns) nor any state or local or foreign Tax Return of the Affiliated Companies have been examined by the Internal Revenue Service or any similar state or local or foreign Authority, and, except to the extent shown therein, all deficiencies asserted as a result of such examinations have been paid or finally settled and no issue has been raised by the Internal Revenue Service or any similar state or local or foreign Authority in any such examination which, by application of similar principles, reasonably could be expected to result in a proposed deficiency for any other period not so examined. Except as set forth in the Disclosure Schedule, all deficiencies and assessments of Taxes of the Affiliated Companies (or any of the Shareholders' to the extent attributable to the business or operations of the Affiliated Companies) resulting from an examination of any Tax Returns by any Authority have been paid and there are no pending examinations currently being made by any Authority nor has there been any written or oral notification to the Affiliated Companies or the Shareholders of any intention to make an examination of any Taxes attributable to the business or operations of the Affiliated Companies by any Authority. Except as set forth in the Disclosure Schedule, there are no outstanding agreements or waivers extending the statutory period of limitations applicable to any Tax Return of the Affiliated Companies for any period. (e) S CORPORATION ELECTIONS. Except as set forth in the Disclosure Schedule, Corporate, CPC International and CPC Communications each have had in effect a valid election under Code Section 1362 to be treated as an "S corporation" for each of their taxable years since inception. Neither the Corporate Entities nor any of the Shareholders have taken any action to revoke that election. Neither the Corporate Entities nor the Shareholders are aware of any basis or the existence of any facts that would permit the Internal Revenue Service to revoke that election for any period prior to the Closing Date. Except as described on the Disclosure Schedule, since the effective date of the Corporate Entities' election as an S corporation to and including the Closing Date, the Corporate Entities will not have incurred or become liable for the payment of any corporate-level income tax, or any related penalties or interest. 2.17 BENEFIT PLANS. Except as set forth in the Disclosure Schedule: (a) Neither the Affiliated Companies nor any other "person" within the meaning of Section 7701(a)(1) of the Code, that together with the Affiliated Companies are considered a single employer pursuant to Sections 414(b), (c), (m) or (o) of the Code or Sections 3(5) or 4001(b)(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") (an "AFFILIATED ORGANIZATION") maintains, contributes to, has participated in or agreed to participate in any "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA subject to Title IV of ERISA (a "MULTIEMPLOYER PLAN"). Neither any of the Affiliated Companies nor any Affiliated Organization currently has any obligation, direct or indirect, absolute or contingent, 21 to make any withdrawal liability payment to any Multiemployer Plan. Neither the Affiliated Companies nor any Affiliated Organization has been a party to a sale of assets to which Section 4204 of ERISA applied with respect to which it could incur any withdrawal liability (including any contingent or secondary withdrawal liability) to any Multiemployer Plan. Neither the Affiliated Companies nor any Affiliated Organization has incurred (or has experienced an event that will, within the ensuing 12 months, result in) a "complete withdrawal" or "partial withdrawal," as such terms are defined respectively in Sections 4203 and 4205 of ERISA, with respect to a Multiemployer Plan, and to the Shareholders' Knowledge, nothing has occurred that could reasonably be expected to result in such a complete or partial withdrawal. (b) To the Shareholders' Knowledge, none of the Affiliated Companies has or could reasonably be expected to have any liability of any nature, whether direct or indirect, absolute or contingent, with respect to, any "employee welfare benefit plan," as such term is defined in Section 3(1) of ERISA, which is a multiemployer plan within the meaning of Section 3(37) of ERISA. Each of the Affiliated Companies and Affiliated Organizations has complied in all material respects with all applicable requirements of Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA. (c) When an employment agreement that is an Assumed Contract provides for life or long-term disability insurance in a stated amount, the insurance policy has been issued, the policy is owned by the employee or by the Affiliated Companies and the policy is in full force and effect. If such an insurance policy is owned by the Affiliated Companies, to the Shareholders' Knowledge it is assignable; or, if not assignable, the Affiliated Companies will continue to pay premiums (for which they will be reimbursed by the Purchaser) until the policy is assigned to the Purchaser or the Purchaser has obtained replacement insurance. Any proceeds from any of these policies received by the Affiliated Companies will be held in trust for and paid over to the Purchaser. Any payment under an Assumed Contract which might otherwise be considered a "parachute payment" within the meaning of Code Section 280G is not a parachute payment by operation of Code Section 280G(b)(5). (d) There are no pending or, to the Affiliated Companies' Knowledge, threatened audits, investigations, claims, suits, grievances or other proceedings, and to the Shareholders' knowledge, there are no facts that could reasonably be expected to give rise thereto, involving, directly or indirectly, any "employee benefit plan" as defined in Section 3(3) of ERISA, maintained or contributed to by one or more of the Affiliated Companies, or any rights or benefits thereunder, other than the ordinary and usual claims for benefits by participants, dependents or beneficiaries. 2.18 ORDERS, COMMITMENTS AND RETURNS. Except as set forth in the Disclosure Schedule, all accepted and unfulfilled orders for the sale of products and the performance of services entered into by the Affiliated Companies and all outstanding contracts or commitments for the purchase of supplies, materials and services were made in bona fide transactions in the ordinary course of business. With respect to the Assumed Contracts, the Affiliated Companies are not subject to any outstanding sales or purchase contracts, commitments or proposals which is anticipated to result in any material loss upon completion or performance thereof. Except as set forth in the Disclosure Schedule or as reserved in the Latest Audited Balance Sheet, there are no claims against Affiliated Companies to return products by reason of alleged over-shipments, defective products or otherwise, or of products in the hands of customers, retailers or distributors under an understanding that such products would be returnable. 2.19 LABOR MATTERS. Except as set forth in the Disclosure Schedule, to the Knowledge of the Shareholders as of the Closing Date: (i) the Affiliated Companies are and have been in compliance in all material respects with all applicable Laws respecting employment and employment practices, terms and conditions of employment and wages and hours, including without limitation any such Laws respecting employment discrimination and occupational safety and health requirements and are not 22 engaged in any unfair labor practice and have not in the past engaged in any such practice that could reasonably be expected to have a Material Adverse Effect; (ii) there are no unfair labor practice complaints against any of the Affiliated Companies pending or threatened before the National Labor Relations Board or any other comparable Authority; (iii) there are no labor strikes, disputes, slowdowns or stoppages actually pending or threatened against or directly affecting the Affiliated Companies; (iv) no labor representation question exists respecting the employees of the Affiliated Companies and there are no pending or any threatened activity intended or likely to result in a labor representation vote respecting the employees of the Affiliated Companies; (v) no grievance or any arbitration proceeding arising out of or under collective bargaining agreements is pending and no claims that could reasonably be expected to result in any such proceeding exist or have been threatened, (vi) no collective bargaining agreement is binding and in force against the Affiliated Companies or currently being negotiated by the Affiliated Companies; (vii) in the 12-month period prior to the Closing Date the Affiliated Companies did not experience any significant work stoppage or other significant labor difficulty; (viii) the Affiliated Companies are not delinquent in payments to any person listed on Schedule 4.12 as employees to 23 whom Merrill and the Purchaser shall extend offers of employment for any wages, salaries, commissions, bonuses or other direct or indirect compensation for any services performed by them or amounts required to be reimbursed to such persons; (ix) upon termination of the employment of any person by the Affiliated Companies as of the Closing Date, neither the Purchaser, Merrill nor any subsidiary of Merrill or the Purchaser will, by reason of anything done at or prior to or as of the Closing Date by the Shareholders or, the Affiliated Companies, be liable to any of such persons for so-called "severance pay" or any other like payments made under or pursuant to any benefit plan maintained by the Affiliated Companies; and (x) within the 12-month period prior to the date hereof there has not been any written expression of intention to the Affiliated Companies by any officer or key employee to terminate such employment; and the Affiliated Companies have not, since October 31, 1995, terminated, entered into, adopted, instituted or otherwise become subject to or amended in any material respect any collective bargaining agreement. The representations and warranties in this Section 2.19 are as of the Closing Date. 2.20 BUSINESS GENERALLY. Except as set forth in the Disclosure Schedule, since October 31, 1995 there has been no event, transaction or information which has come to the attention of the Shareholders which, as it relates directly to the businesses of the Affiliated Companies, would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Affiliated Companies. Without limiting the generality of the foregoing, except as set forth in the Disclosure Schedule, to the Knowledge of the Shareholders there has not been in the 12-month period prior to the date hereof any material adverse change in the business relationship of the Affiliated Companies with any material dealer or supplier to the Affiliated Companies, except for such changes in the ordinary course of business consistent with past practices where such change is not reasonably likely to have a Material Adverse Effect. 2.21 COMPLIANCE WITH LAW; PERMITS AND OTHER OPERATING RIGHTS. Except as set forth in the Disclosure Schedule, and without limiting the scope of any other representations or warranties contained in this Agreement, but without intending to duplicate the scope of such other representations and warranties, the assets, properties, business and operations of the Affiliated Companies are in compliance in all material respects with all Laws applicable to the Affiliated Companies' assets, properties, business and operations. Except as set forth in the Disclosure Schedule, the Affiliated Companies do not require the Consent of any Authority to permit them to operate in the manner in which its business is presently being operated. The Affiliated Companies possess all permits, licenses and other authorizations from all Authorities necessary to permit them to operate their business in the manner in which they are presently conducted and the consummation of the transactions contemplated by this Agreement will not prevent the Affiliated Companies from being able to continue to use such permits and operating rights. Except as set forth in the Disclosure Schedule, the Affiliated Companies are not restricted by agreement from carrying on their business or any part thereof anywhere in the world or from competing in any line of business with any person or entity. 2.22 ENVIRONMENTAL AND SAFETY MATTERS. Except as set forth in the Disclosure Schedule: (a) Neither any of the Affiliated Companies, any subsidiary or former subsidiaries of any of the Affiliated Companies, nor, to the Knowledge of the Shareholders, any previous owner, tenant, occupant or user of any real property owned or leased by or to any of the Affiliated Companies or by or to any subsidiary or former subsidiary of any of the Affiliated Companies (the "PROPERTIES"), engaged in or permitted, direct or indirect operations or activities upon, or any use or occupancy of the Properties, or any portion thereof, for the purpose of or in any way involving the handling, manufacture, treatment, storage, use, generation, emission 24 release, discharge, refining, dumping or disposal of any Environmentally Regulated Materials (as hereinafter defined) (whether legal or illegal at such time, accidental or intentional, direct or indirect) on, under, in or about the Properties, or transported any Environmentally Regulated Materials to, from or across the Properties, nor are any Environmentally Regulated Materials presently constructed, deposited, stored, placed or otherwise located on, under, in or about the Properties, nor, to the Knowledge of the Shareholders, have any Environmentally Regulated Materials migrated from the Properties upon or beneath other properties, nor, to the Knowledge of the Shareholders, have any Environmentally Regulated Materials migrated or threatened to migrate from other properties upon, about or beneath the Properties. To the Knowledge of the Shareholders, the Properties do not contain any: (i) underground or aboveground storage tanks; (ii) asbestos; (iii) equipment using PCBs; (iv) underground injection wells; or (v) septic tanks in which process waste water or any Environmentally Regulated Materials have been disposed, which are not disclosed in this Agreement or the Disclosure Schedule. (b) (i) No violation or noncompliance with Environmental and Occupational Safety and Health Laws has occurred with respect to operations conducted on the Properties by the Affiliated Companies or any subsidiaries or former subsidiaries of any of the Affiliated Companies or, to the Knowledge of the Shareholders, by any previous owner, tenant, occupant or user of the Properties or otherwise with respect to the Properties themselves or the Affiliated Companies have obtained all permits, licenses and authorizations required by, and the Affiliated Companies and the Properties are in compliance with, all Environmental and Occupational Safety and Health Laws; (ii) no enforcement, investigation, cleanup, removal, remediation or response or other governmental or regulatory actions have been at any time in the past asserted or threatened with respect to operations conducted on the Properties by any of the Affiliated Companies or any subsidiary or former subsidiaries of any of the Affiliated Companies or, to the Knowledge of the Shareholders, by any previous owner, tenant, occupant or user of the Properties or otherwise with respect to the Properties themselves, or against any of the Affiliated Companies or any subsidiary or former subsidiary of any of the Affiliated Companies with respect to or in any way regarding the Properties pursuant to any Environmental and Occupational Safety and Health Laws; and (iii) no claims or settlements with respect to operations conducted on the Properties by any of the Affiliated Companies or any subsidiaries or former subsidiaries of any of the Affiliated Companies or, to the Knowledge of the Shareholders, by any previous owner, tenant, occupant or user of the Properties or otherwise with respect to the Properties themselves, or against any of the Affiliated Companies or any subsidiary or former subsidiary of any of the Affiliated Companies with respect to the Properties or operations conducted thereon, relating to or arising out of Environmental and Occupational Safety and Health Laws or Environmentally Regulated Materials have been made or been threatened by any third party, including any governmental entity, agency or representative, nor does there exist any basis for any such claim (any such enforcement, investigation, cleanup, removal, remediation or response other governmental or regulatory action, claim or settlement is herein referred to as an "ENVIRONMENTAL CLAIM." 25 (c) All drums either containing or formerly containing chemicals and other materials which were stored by the Affiliated Companies within the basement of the Manhattan property as of March 1, 1996 have been removed from the basement and have been properly disposed of by the Affiliated Companies prior to the date hereof in compliance with all applicable laws. The Affiliated Companies have completed all necessary forms in the name of Affiliated Companies required to properly dispose of the drums. The Affiliated Companies have notified the landlord of the Manhattan property that potentially asbestos containing materials which comprise the thermal system insulation in the basement are damaged. (d) The term "ENVIRONMENTAL AND OCCUPATIONAL SAFETY AND HEALTH LAW" as used in this Agreement means any common law or duty, case law or ruling, statue, rule, regulation, law, ordinance or code, whether local, state, federal, international or otherwise in effect, that (i) regulates, creates standards for or imposes liability or standards or conduct concerning any element, compound, pollutant, contaminant, or toxic or hazardous substance, material or waste, or any mixture thereof, or relates in any way to emissions or releases into the environment or ambient environmental conditions, or conduct affecting such matters or (ii) is designed to provide safe and healthful working conditions or reduce occupational safety and health hazards. Such laws include, but are not limited to, the National Environmental Policy Act, 42 U.S.C. Sections 4321 ET SEQ., the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Sections 9601 ET SEQ., the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901 ET SEQ., the Federal Water Pollution Control Act, 33 U.S.C. Sections 1251 ET SEQ., the Federal Clean Air Act, 42 U.S.C. Sections 7401 ET SEQ., the Toxic Substances Control act), 15 U.S.C. Sections 2601 ET SEQ., the Emergency Planning and Community Right to Know Act, 42 U.S.C. PARA 11001, the Hazard Communication Act 29 U.S.C. Sections 651 ET SEQ., the Occupational Safety and Health Act, 29 U.S.C. Sections 651 ET SEQ., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Section 136, and any case law interpretations, amendments or restatements thereof or similar enactment thereof, as is now or at any time hereafter may be in effect, as well as their international, state and local counterparts. (e) The term "ENVIRONMENTALLY REGULATED MATERIALS" as used in this Agreement means any element, compound, pollutant, contaminant, substance, material or waste, or any mixture thereof, designated, listed, referenced, regulated or identified pursuant to any Environmental and Occupational Safety and Health Law. 2.23 TRANSACTIONS WITH CERTAIN PERSONS. Except as set forth in the Disclosure Schedule, during the past three years the Affiliated Companies have not, directly or indirectly, purchased, leased or otherwise acquired any property or obtained any services from, or sold, leased or otherwise disposed of any property or furnished any services to, or otherwise dealt with, in the ordinary course of business or otherwise, (i) any Shareholder or partner of the Affiliated Companies or (ii) any affiliate or associate of the Affiliated Companies or any shareholder or partner of any affiliate or associate of the Affiliated Companies (except with respect to compensation in the ordinary course of business for services rendered as a director, officer or employee of the Affiliated Companies). Except as set forth in the Disclosure Schedule, as of the date hereof, the Affiliated Companies do not owe any amount to, or have any agreement or contract with or commitment to, any of its partners, shareholders, directors, officers, employees or consultants or any affiliate or associate thereof (other than compensation for current services not yet due and payable and reimbursement of expenses arising in the ordinary course of business), and none of such persons owes any amount to Affiliated Companies. Except as set forth in the Disclosure 26 Schedule, no part of the property or assets of any Shareholder or any direct or indirect subsidiary or affiliate or associate of any Shareholder is used by the Affiliated Companies. 2.24 BROKERS. Except as set forth in the Disclosure Schedule, neither the Affiliated Companies nor any of their directors, officers, partners, agents or employees have employed any broker, finder, or financial advisor or incurred any liability for any brokerage fee or commission, finder's fee or financial advisory fee, in connection with the transactions contemplated hereby, nor is there any basis known to the Affiliated Companies for any such fee or commission to be claimed by any person or entity. 2.25 ABSENCE OF CERTAIN BUSINESS PRACTICES. Except as set forth in the Disclosure Schedule, to the Knowledge of the Shareholders, neither the Affiliated Companies nor any officer, employee, partner or agent of the Affiliated Companies, nor any other person acting on its behalf, has, directly or indirectly, within the past five years given or agreed to give any gift or similar benefit to any customer, supplier, governmental employee or other person who is or may be in a position to help or hinder the business of the Affiliated Companies (or assist the Affiliated Companies in connection with any actual or proposed transaction) which (i) could reasonably be expected to subject the Purchaser or Merrill to any damage or penalty in any civil, criminal or governmental litigation proceeding, (ii) if not given in the past, could reasonably be expected to have had an adverse affect on the assets, business or operations of the Affiliated Companies as reflected in the financial statements described in Section 2.7, or (iii) if not continued in the future, could reasonably be expected to adversely affect the Affiliated Companies' assets, business, operations or prospects or which might subject the Affiliated Companies, the Purchaser or Merrill to suit or penalty in any private or governmental litigation or proceeding. 2.26 INFORMATION CONCERNING MERRILL; KNOWLEDGE AND EXPERIENCE OF AFFILIATED COMPANIES AND THE SHAREHOLDERS. The Affiliated Companies and the Shareholders agree that each of them is an "accredited investor" within the meaning of Rule 501 of the Securities Act of 1933 and that they have such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of the Participation Payments to be made pursuant to the terms of Section 1.3 hereof. The Affiliated Companies and the Shareholders acknowledge that they have (a) reviewed the following reports filed by Merrill with the Securities and Exchange Commission during the past 12 months pursuant to Section 13(a) of the Securities Exchange Act of 1934: Annual Report on Form 10-K for the year ended January 31, 1995, Quarterly Reports Form 10-Q for the quarters ending April 30, July 31 and October 31, 1995, and Proxy Statement for the 1995 Annual Meeting of Shareholders; and (b) had full access to Merrill's executive officers, such that the Affiliated Companies and the Shareholders have had adequate opportunities to discuss the business, management and affairs of Merrill. The Affiliated Companies and the Shareholders acknowledge that the Put Right and the Call Right are personal to the Affiliated Companies and the Shareholders and, pursuant to (and except as provided in) Section 9.7 hereof, may not be transferred or assigned. 2.27 CUSTOMERS. Except as set forth on the Disclosure Schedule, to the Knowledge of the Shareholders, there has not been in the 12-month period prior to the date hereof any dispute with any material customer of the Affiliated Companies nor any set of circumstances which is reasonably anticipated to have a material effect on the relationship between the Affiliated Companies and such customer. 2.28 DISCLOSURE. To the Knowledge of the Shareholders, there is no material fact as of the date hereof which has not been disclosed in writing to the Purchaser related to Affiliated Companies, the 27 Assets or the Affiliated Companies' operations, properties, financial condition or prospects which has a Material Adverse Effect or, to the Knowledge of any of the Shareholders, in the future may have a Material Adverse Effect on the Affiliated Companies or the Assets in the context of this transaction taken as a whole. The representations and warranties contained in this Article 2 or elsewhere in this Agreement or any document delivered pursuant hereto will not be affected or deemed waived by reason of the fact that Purchaser or their respective representatives knew (other than as a result of the Disclosure Schedule or other writing delivered to the Purchasers on the Closing Date) or should have known that any such representation or warranty is or might be inaccurate in any respect. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND MERRILL The Purchaser and Merrill, jointly and severally represent and warrant to the Affiliated Companies and the Shareholders as of the date hereof as follows: 3.1 CORPORATE ORGANIZATION. Each of Merrill and the Purchaser are corporations duly organized, validly existing and in good standing under the laws of the State of Minnesota. 3.2 AUTHORIZATION. Each of Merrill and the Purchaser have full corporate power and authority to enter into this Agreement and to carry out the transactions contemplated herein. The Board of Directors of Merrill and the Purchaser have taken all action required by law, their articles of incorporation and bylaws or otherwise to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein and no action of the stockholders of Merrill or the Purchaser is required. This Agreement is the valid and binding legal obligation of Merrill and the Purchaser enforceable against them in accordance with its terms subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws of applicability relating to or affecting creditors' rights and general principles of equity. 3.3 NON-CONTRAVENTION. Neither the execution, delivery and performance of this Agreement nor the consummation of the transactions contemplated herein will: (i) violate or be in conflict with any provision of the articles of incorporation or bylaws of Merrill or the Purchaser; or (ii) except for such violations, conflicts, defaults, accelerations, terminations, cancellations, impositions of fees or penalties, mortgages, pledges, liens, security interests, encumbrances, restrictions and charges which would not, individually or in the aggregate, have a material adverse effect on the purchaser or Merrill, (1) violate, be in conflict with, or constitute a default, however defined (or an event which, with the giving of due notice or lapse of time, or both, would constitute such a default), under, or cause or permit the acceleration of the maturity of, or give rise to, any right of termination, cancellation, imposition of fees or penalties under, any debt, note, bond, lease, mortgage, indenture, license, obligation, contract, commitment, franchise, permit, instrument or other agreement or obligation to which Merrill or the Purchaser is a party or by which it or any of their properties or assets are or may be bound (unless with respect to which defaults or other rights, requisite waivers or consents will have been obtained at or prior to the Closing) or (2) result in the creation or imposition of any mortgage, pledge, lien, security interest, encumbrance, restriction, adverse claim or charge of any kind, upon any property or assets of Merrill or the Purchaser under any debt, obligation, contract, agreement or commitment to which Merrill or the Purchaser are a party or by which Merrill or the Purchaser or any of their assets or properties is or may be bound; or (iii) violate any Law. 28 3.4 CONSENTS AND APPROVALS. Except for filings under the HSR Act, no Consent is required by any person or entity, including without limitation any Authority, in connection with the execution, delivery and performance by Merrill and the Purchaser of this Agreement, or the consummation of the transactions contemplated herein, other than any Consent which, if not made or obtained, will not, individually or in the aggregate, have a material adverse effect on the business of Merrill or the Purchaser. 3.5 NO DEFAULT. Merrill is not in default under or with respect to any contractual obligation in any respect which could materially adversely affect the financial condition of Merrill or the ability of Merrill to perform its obligations under this Agreement. Merrill is not in default under any order, award or decree of any arbitrator or court or any other governmental authority binding upon or affecting it or by which any of its properties or other assets may be bound or affected, which could materially adversely affect the ability of Merrill to perform its obligations hereunder. 3.6 BROKERS. Neither Merrill or Purchaser nor any of their respective directors, officers, partners, agents or employees have employed any broker, finder, or financial advisor in connection with the transactions contemplated hereby for which any Shareholders, any of the Affiliated Companies or any officer, director, employee, partner or agent of the Affiliated Companies could incur liability for any brokerage fee or commission, finder's fee or financial advisory fee in connection with the transactions contemplated hereby. 3.7 LITIGATION. There is no legal, administrative, arbitration, or other proceeding, suit, claim or action of any nature or investigation, review or audit of any kind, judgment, decree, decision, injunction, writ or order pending, noticed scheduled or to Best Knowledge of Merrill and Purchaser threatened or contemplated by or against or involving Merrill or Purchaser, their assets, properties or business, whether at law or in equity, before or by any Authority which questions or challenges the validity of this Agreement or any action taken or to be taken by Merrill or Purchaser pursuant to this Agreement or in connection with the transactions contemplated herein. 3.8 ABSENCE OF CERTAIN BUSINESS PRACTICES. To the Knowledge of the President and Chief Executive Officer, Vice President-Operations or Vice President-Finance, Chief Financial Officer, Treasurer of Merrill, neither Merrill nor any officer, employee, partner or agent of Merrill, nor any other person acting on its behalf, has, directly or indirectly, within the past five years given or agreed to give any gift or similar benefit to any customer, supplier, governmental employee or other person who is or may be in a position to help or hinder the business of Merrill (or assist Merrill in connection with any actual or proposed transaction) which (i) might subject Merrill to any damage or penalty in any civil, criminal or governmental litigation proceeding, (ii) if not given in the past, might have had an adverse affect on the assets, business or operations of Merrill as reflected in the financial statements in its Form 10-K referred to in Section 2.26, or (iii) if not continued in the future, might adversely affect Merrill's assets, business, operations or prospects or which might subject Merrill to suit or penalty in any private or governmental litigation or proceeding. 3.9 DISCLOSURE. To the Knowledge of the President and Chief Executive Officer, Vice President-Operations or Vice President-Finance, Chief Financial Officer, Treasurer of Merrill, there is no material fact as of the date hereof which has not been disclosed in writing to the Affiliated Companies related to Merrill or its operations, properties, financial condition or prospects which has a Material 29 Adverse Effect or, to the Knowledge of the Purchaser, in the future may have a Material Adverse Effect on the Affiliated Companies or the Assets in the context of this transaction taken as a whole. 3.10 CERTAIN ACTIONS. Neither Merrill nor the Purchaser has taken nor will they take, directly or indirectly, any action designed to or which has constituted, or which might be reasonably be expected to cause or result in, manipulation of the price of Merrill Common Stock. ARTICLE 4 COVENANTS 4.1 CONDUCT OF BUSINESS OF THE AFFILIATED COMPANIES. Except as contemplated by this Agreement, during the period from the date of this Agreement to the Closing Date, the Shareholders will cause the Affiliated Companies to conduct their business and operations according to its ordinary and usual course of business, to preserve substantially intact its business organizations and to preserve its current relationships with customers, employees, suppliers and other persons with which they have significant business relations. Without limiting the generality of the foregoing, and, except as otherwise expressly provided in this Agreement, prior to the Closing Date, without the prior written consent of Purchaser, the Shareholders agree that the Affiliated Companies will not: (a) amend the Corporate Entities' articles of incorporation or bylaws or the Partnership Entity or Oakland's partnership agreement or other charter documents; (b) issue, reissue, sell, deliver or pledge or authorize or propose the issuance, reissuance, sale, delivery or pledge of shares of capital stock of any class, or securities convertible into capital stock of any class, or any rights, warrants or options to acquire any convertible securities or capital stock of the Corporate Entities; provided, however, it is understood that Purchaser may not for purposes of this Section 4.1(b) unreasonably withhold or delay its consent; (c) adjust, split, combine, subdivide, reclassify or redeem, purchase or otherwise acquire, or propose to redeem or purchase or otherwise acquire, any shares of the Corporate Entities' capital stock, or any of the Corporate Entities' other securities; provided, however, it is understood that Purchaser may not for purposes of this Section 4.1(c) unreasonably withhold or delay its consent; (d) declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of the Affiliated Companies's capital stock or equity interests, redeem or otherwise acquire any shares of the Affiliated Companies' capital stock or equity interests; (e) (i) increase in any manner the compensation of any of the Affiliated Companies' directors, officers or other employees; (ii) pay or agree to pay any pension, retirement allowance or other employee benefit not required or permitted by any existing plan, agreement or arrangement to any such director, officer or employee, whether past or present of the Affiliated Companies; or (iii) except in connection with any written arrangement approved by the Purchaser, commit the Affiliated Companies to any additional pension, profit-sharing, bonus, incentive, deferred compensation, stock purchase, stock option, stock appreciation right, group insurance, severance pay, retirement or other employee benefit plan, agreement or arrangement, 30 or to any employment agreement or consulting agreement (arising out of prior employment) with or for the benefit of any person, or, except to the extent required to comply with applicable law, amend any of such plans or any of such agreements in existence on the date of this Agreement; (f) except in the ordinary course of business, incur, assume, suffer or become subject to, whether directly or by way of guarantee or otherwise, any Liabilities which, individually or in the aggregate, are material to the conduct of the businesses of the Affiliated Companies or hereof would have a Material Adverse Effect on the Affiliated Companies; (g) pay, discharge or satisfy any Liabilities of the Affiliated Companies other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice; (h) sell, transfer, or otherwise dispose of any of the Affiliated Companies' properties or assets (real, personal or mixed, tangible or intangible), other than inventory in the ordinary course of business and consistent with past practice; (i) permit or allow any of its property or assets (real, personal or mixed, tangible or intangible) to be subjected to any Lien, except for liens for current taxes not yet due; (j) write down the value of any Affiliated Companies inventory (including write-downs by reason of shrinkage or mark-down) or write off as uncollectible any of the Affiliated Companies' notes or accounts receivable, except for immaterial write-downs and write-offs in the ordinary course of business and consistent with past practice; (k) cancel any of the Affiliated Companies' debts or waive any of its claims or rights, in each case, of substantial value; (l) dispose of or permit to lapse any rights to the use of any of the Affiliated Companies' patent, trademark, trade name or copyright, or disposed of or disclosed (except as necessary in the conduct of its business) to any individual, corporation, partnership, joint venture, association, trust, unincorporated organization or, as applicable, any other entity other than representatives of the Purchaser, any trade secrets, formula, process or know-how not theretofore a matter of public knowledge; (m) make or enter into any commitment of the Affiliated Companies for capital expenditures for additions to property, plant, equipment or intangible capital assets; (n) pay, lend or advance any amount to, or sell, transfer or lease any Affiliated Companies' properties or assets (real, personal or mixed, tangible or intangible) to, or enter into any agreement or arrangement with, any of its officers or directors or any affiliate or associate of any of its officers or directors; (o) terminate, enter into or amend in any material respect any contract, agreement, lease, license or commitment identified in Section 2.11 of the Disclosure Schedule, or take any action or omit to take any action which will cause a breach, violation or default (however defined) under any such items, except in the ordinary course of business and consistent with past practice; 31 (p) acquire any of the business or assets of any other person or entity; (q) permit any of the Affiliated Companies' current insurance (or reinsurance) policies to be cancelled or terminated or any of the coverage thereunder to lapse, unless simultaneously with such termination, cancellation or lapse, replacement policies providing coverage equal to or greater than coverage remaining under those cancelled, terminated or lapsed are in full force and effect; (r) suffer any adverse change in the Affiliated Companies' relationship with a material customer, including the loss of any such customer; (s) enter into other agreements, commitments or contracts not in the ordinary course of business or in excess of current requirements; (t) modify, amend or terminate any Assumed Contract, or waive, release, relinquish or assign any Assumed Contract or other right or claim; (u) settle or compromise any material suit, claim or dispute or threatened material suit, claim or dispute; (v) make any change in the Affiliated Companies' accounting methods, principles or practices except as required by GAAP; or (w) agree in writing or otherwise to take any of the foregoing actions or any action which would make any representation or warranty in this Agreement untrue or incorrect in any material respect. 4.2 NO SOLICITATION OF ALTERNATE TRANSACTION. The Affiliated Companies and the Shareholders will not, and will ensure that, the Affiliated Companies' [directors, officers, partners and employees, independent contractors, consultants, counsel, accountants, investment advisors and other representatives and agents] will not, directly or indirectly, solicit or entertain offers from, negotiate with, provide any nonpublic information to, enter into any agreement with, or in any manner encourage, discuss, accept or consider any proposal of, any third party relating to the acquisition of the Affiliated Companies, their assets or business, in whole or in part, whether through a tender offer (including a self tender offer), exchange offer, merger, consolidation, sale of substantial assets or of a significant amount of assets, sale of securities, acquisition of the Affiliated Companies' securities, liquidation, dissolution or similar transactions involving the Affiliated Companies or any division of the Affiliated Companies (such proposals, announcements or transactions being called herein "ACQUISITION PROPOSALS"). The Affiliated Companies and the Shareholders will promptly inform the Purchaser of any inquiry (including the terms thereof and the identity of the third party making such inquiry) which it may receive in respect of an Acquisition Proposal and furnish to the Purchaser a copy of any such written inquiry. 4.3 FULL ACCESS TO PURCHASER. Throughout the period prior to Closing, the Affiliated Companies will afford to the Purchaser and its directors, officers, employees, counsel, accountants, investment advisors and other authorized representatives and agents, access to the facilities, properties, books and records of the Affiliated Companies in order that Purchaser may have full opportunity to make such investigations as it will desire to make of the affairs of the Affiliated Companies. The Affiliated Companies will furnish such additional financial and operating data and other information as Purchaser 32 will, from time to time, reasonably request, including without limitation access to the working papers of its independent certified public accountants; PROVIDED, HOWEVER, that any such investigation will not affect or otherwise diminish or obviate in any respect any of the representations and warranties of the Affiliated Companies or the Shareholders herein. 4.4 CONFIDENTIALITY. Each of the parties hereto agrees that it will not use, or permit the use of, any of the information relating to any other party hereto furnished to it in connection with the transactions contemplated herein ("INFORMATION") in a manner or for a purpose detrimental to such other party or otherwise than in connection with the transaction, and that they will not disclose, divulge, provide or make accessible (collectively, "DISCLOSE"), or permit the Disclosure of, any of the Information to any person or entity, other than their respective directors, officers, employees, investment advisors, accountants, counsel and other authorized representatives and agents, except as may be required by judicial or administrative process or, in the opinion of such party's counsel, by other requirements of Law; PROVIDED, HOWEVER, that prior to any Disclosure of any Information permitted hereunder, the disclosing party will first obtain the recipients' undertaking to comply with the provisions of this subsection with respect to such information. The term "INFORMATION" as used herein will not include any information relating to a party which the party disclosing such information can show: (i) to have been in its possession prior to its receipt from another party hereto; (ii) to be now or at the time of the disclosure by the recipient become generally available to the public through no fault of the disclosing party; (iii) to have been available to the public at the time of its receipt by the disclosing party; (iv) to have been received separately by the disclosing party in an unrestricted manner from a person entitled to disclose such information; or (v) to have been developed independently by the disclosing party without regard to any information received in connection with this transaction. Each party hereto also agrees to promptly return to the party from whom it originally received such information all original and duplicate copies of written materials containing Information should the transactions contemplated herein not occur. A party hereto will be deemed to have satisfied its obligations to hold the Information confidential if it exercises the same care as it takes with respect to its own similar information. Except for those items of Information set forth on Exhibit 4.4, which items shall be kept confidential for a period of five years from the Closing Date by Merrill or Purchaser unless Merrill or Purchaser is required to disclose such Information by Law (including the rules of the Nasdaq National Market System), the obligations of the Purchaser and Merrill under this paragraph will terminate at Closing. In the event that the Closing does not occur prior to the Closing Date, Merrill and Purchaser shall return any and all Information provided by the Affiliated Companies and Shareholders to Merrill or Purchaser. 4.5 FILINGS; REMOVAL OF OBJECTIONS; CONSENTS. Subject to the terms and conditions herein provided, the parties hereto will use their best efforts to take or cause to be taken all actions and do or cause to be done all things necessary, proper or advisable under applicable Laws to consummate and make effective, as soon as reasonably practicable, the transactions contemplated hereby, including without limitation obtaining all Consents of any Authority required in connection with the consummation of the transactions contemplated herein. In furtherance, and not in limitation of the foregoing, it is the intent of the parties to consummate the transactions contemplated herein at the earliest practicable time, and they respectively agree to exert their best efforts to that end, including without limitation: (i) to respond as promptly as practicable to all inquiries from the Federal Trade Commission ("FTC") or the Antitrust Division of the Department of Justice (the "ANTITRUST DIVISION") in connection with the filings made by Merrill and Shifrin with the FTC and Antitrust Division on February 29, 1996 pursuant to the HSR Act; (ii) the removal or satisfaction, if possible, of any objections to the validity or legality of the transactions contemplated herein; and (iii) the satisfaction of the conditions to consummation of the transactions contemplated hereby. 33 4.6 FURTHER ASSURANCES; COOPERATION; NOTIFICATION. (a) Each party hereto will, before, at and after Closing, execute and deliver such instruments and take such other actions as the other party or parties, as the case may be, may reasonably require in order to carry out the intent of this Agreement. Without limiting the generality of the foregoing, at any time after the Closing, at the request of the Purchaser and without further consideration, the Affiliated Companies and the Shareholders will execute and deliver such instruments of sale, transfer, conveyance, assignment and confirmation and take such action as the Purchaser may reasonably deem necessary or desirable in order to more effectively transfer, convey and assign to the Purchaser, and to confirm the Purchaser's title to, all of the Assets, to put the Purchaser in actual possession and operating control thereof and to assist the Purchaser in exercising all rights with respect thereto. (b) The Shareholders will cooperate with the Purchaser to promptly develop plans for the management of the businesses after the Closing, including without limitation plans relating to productivity, marketing, operations and improvements, and the Shareholders will further cooperate with Purchaser to provide for the implementation of such plans as soon as practicable after the Closing. Subject to applicable Law, the Shareholders will confer on a regular and reasonable basis with one or more representatives of the Purchaser to report on material operational matters and the general status of ongoing operations. (c) At all times from the date hereof until the Closing, each party will promptly notify the other in writing of the occurrence of any event which it reasonably believes will or may result in a failure by such party to satisfy the conditions specified in Article 5 and Article 6 hereof. 4.7 SUPPLEMENTS TO DISCLOSURE SCHEDULE. At least 48 hours prior to the Closing, the Affiliated Companies and the Shareholders will supplement or amend the Disclosure Schedule with respect to any event or development which, if existing or occurring at or prior to the date of this Agreement, would have been required to be set forth or described in the Disclosure Schedule or which is necessary to correct any information in the Disclosure Schedule or in any representation and warranty of the Affiliated Companies or the Shareholders which has been rendered inaccurate by reason of such event or development. For purposes of determining the accuracy as of the date hereof of the representations and warranties of the Affiliated Companies and Shareholders contained in Article 2 hereof in order to determine the fulfillment of the conditions set forth in Section 5.1 and to determine whether a material breach has occurred pursuant to Section 7.1(d), the Disclosure Schedule will be deemed to exclude any information contained in any supplement or amendment hereto delivered after the delivery of the Disclosure Schedule. 4.8 PUBLIC ANNOUNCEMENTS. None of the parties hereto will make any public announcement with respect to the transactions contemplated herein without the prior written consent of the other parties, which consent will not be unreasonably withheld or delayed; PROVIDED, HOWEVER, that any of the parties hereto may at any time make any announcements which are required by applicable Law so long as the party so required to make an announcement promptly upon learning of such requirement notifies the other parties of such requirement and discusses with the other parties in good faith the exact proposed wording of any such announcement. 34 4.9 TAX MATTERS. (a) TAX ELECTIONS. No new elections by any of the Affiliated Companies or any Shareholder with respect to Taxes, or any changes in current elections with respect to Taxes, affecting the Assets will be made after the date of this Agreement without the prior written consent of Merrill or the Purchaser. (b) TRANSACTIONAL AND TRANSFER TAXES. In addition to and without limiting those representations and warranties set forth in Section 2.16 of this Agreement, in the event that any sales or use Tax, or any Tax in the nature of a sales or use tax, or any transactional Tax is payable or assessed relative to the transactions contemplated herein, the Affiliated Companies or the Shareholders will pay all such Taxes and will not collect any part thereof from the Purchaser. The parties hereto will cooperate to make any necessary filings with state and local or foreign taxing Authorities and to furnish any required supplemental information with respect to any state and local or foreign Tax liabilities resulting from the consummation of the transactions contemplated herein. (c) TAX LIABILITIES; POST-CLOSING TAX RETURN FILINGS; NO DISTRIBUTIONS. In addition to and without limiting those representations and warranties set forth in Section 2.16 of this Agreement, the Shareholders or the Affiliated Companies, as appropriate, will pay all Taxes arising from or relating to the transactions contemplated by this Agreement, including without limitation Tax on any income or gains arising from the sale of the Assets. The Shareholders will cause to be prepared and filed all Federal, foreign and state income Tax Returns for the Affiliated Companies and the Shareholders reflecting all activities of the Affiliated Companies through and including the Closing Date. Irrespective of any prior practice, no dividend or other distribution of cash or property will be made by the Affiliated Companies on or before the Closing Date without the express written consent of the Purchaser. (d) COOPERATION AND RECORDS RETENTION. The Shareholders and the Purchaser will (i) each provide the other, and the Affiliated Companies and the Purchaser will provide the Shareholders, with such assistance as may reasonably be requested by any of them in connection with the preparation of any Tax Return, audit or other examination by any taxing Authority or judicial or administrative proceedings relating to liability for Taxes, (ii) each retain and provide the other, and the Affiliated Companies and the Purchaser will retain and provide the Shareholders, with any records or other information which may be relevant to such Tax Return, audit or examination, proceeding or determination, and (iii) each provide the other with any final determination of such audit or examination, proceeding or determination that affects any amount required to be shown on any Tax Return of the other for any period. Without limiting the generality of the foregoing, the Affiliated Companies, the Purchaser and the Shareholders will retain, until the applicable statutes of limitations (including all extensions) have expired, copies of all Tax Returns, supporting work schedules and other records or information which may be relevant to such Tax Returns for all Tax periods or portions thereof ending on or before the Closing Date and will not destroy or otherwise dispose of any such records without first providing the other party with a reasonable opportunity to review and copy the same. 4.10 BULK TRANSFERS. The Affiliated Companies have requested that the Purchaser and Merrill waive, and Purchaser hereby agrees to waive, the requirements of the Uniform Commercial Code 35 concerning bulk transfers, as in effect in the various states in which the Affiliated Companies have assets, including without limitation the requirement of notice to creditors. The Affiliated Companies and the Shareholders will jointly indemnify the Purchaser in connection herewith pursuant to Section 8.3(a) hereof. 4.11 NON-COMPETITION AGREEMENT; EMPLOYMENT AGREEMENT. At the Closing, the Purchaser and Shifrin will enter into a non-competition agreement in substantially the form of Exhibit 4.11(a) hereto (the "NON-COMPETITION AGREEMENT"). Also at the Closing, the Purchaser will assume the obligations of Corporate pursuant to an employment agreement between Corporate and Cooney in substantially the form of Exhibit 4.11(b) hereto (the "Employment Agreement"). Pursuant to the Employment Agreement, the Purchaser will agree to pay certain amounts to Cooney pursuant to the provisions of such Employment Agreement. In consideration for the assumption by Purchaser of the Employment Agreement, Cooney has agreed to be a party to and a Shareholder pursuant to this Agreement and, among other things, to be subject to the obligations of this Agreement, including without limitation the indemnification provisions of Article 8 below. 4.12 EMPLOYEE BENEFITS. (a) On or as soon as administratively practicable after the Closing Date, the Purchaser will extend offers of immediate employment to employees of the Affiliated Companies listed on Schedule 4.12 hereto. Except as otherwise expressly provided in this Agreement, the terms and conditions of each such offer and of any continuing employment will be determined by the Purchaser in its sole discretion and any resulting employment relationship will be at will. Any employee of the Affiliated Companies who accepts such an employment offer and reports for work on the date directed by the Purchaser shall be sometimes hereinafter referred to as a "TRANSFERRED EMPLOYEE." The Affiliated Companies hereby authorize Merrill and the Purchaser to enter into discussions with any of such employees listed on Schedule 4.12 concerning the future employment of such individual by the Purchaser; provided, however, that (i) such discussions will not be commenced prior to the giving of notice by the Affiliated Companies to the employees of the Affiliated Companies of the transactions contemplated by this Agreement; and (ii) all such discussions will be conducted in such a manner as not to interfere unreasonably with the business operations of the Affiliated Companies. (b) Each Transferred Employee will be permitted to participate in the Purchaser's benefit plans, policies and practices in accordance with the terms thereof applicable to newly hired employees and without regard to service with the Affiliated Companies or any aspect of participation in any benefit plans, practices or policies of the Affiliated Companies, except (i) subject to clause (v), a Transferred Employee will be eligible to participate in the Purchaser's medical and dental plans effective as of the date on which he or she becomes a Transferred Employee in accordance with the otherwise applicable terms of such plans (including, for example, the $2,500 limitation on coverage with respect to preexisting conditions), (ii) a Transferred Employee who would be eligible to participate in Merrill's 401(k) plan effective on February 1, 1997 if the Transferred Employee's service with the Affiliated Companies were counted as eligibility service for purposes of the Plan will be permitted to enter Merrill's 401(k) Plan on February 1, 1997, (iii) the Purchaser will recognize one-half of a Transferred Employee's service with the Affiliated Companies for purposes of the Purchaser's vacation policy, (iv) a Transferred Employee will not fail to earn a floating holiday for the calendar quarter ending on June 30, 1996 solely because the Transferred Employee's hire date with the Purchaser is after 36 April 1, 1996. The Affiliated Companies will provide the Purchaser with any information regarding Transferred Employees' service with the Affiliated Companies that the Purchaser may reasonably request to effect the foregoing and (v) notwithstanding clause (i) if, immediately prior to the Closing Date, a Transferred Employee was employed by the Affiliated Companies in Washington, D.C. or Maryland and was eligible for coverage under a group medical or group dental plan pursuant to an insurance or other contract that is an Assumed Contract, the Transferred Employee will, on and after the Closing Date, continue to be eligible for coverage under a group medical or group dental plan established by the Purchaser which is substantially similar to the Affiliated Companies' plan; provided, first, that the assumption by the Purchaser of any such insurance or other contract is not an assumption of any benefit plan, policy or practice of the Affiliated Companies; and, second, that nothing contained in this clause (v) in any manner limits, or prevents the Purchaser from changing the terms of any plan or changing the underlying insurance company or other provider at any time after the Closing Date. (c) The Affiliated Companies will be responsible for making any required payment of severance compensation including any notice pay and severance pay in order to comply with the requirements of the Worker Adjustment and Retraining Act ("WARN") to any employee of the Affiliated Companies who is not a Transferred Employee. The Purchaser will reimburse the Affiliated Companies for 50 percent of the amount of any payments in excess of $145,002 made by the Affiliated Companies (i) to those individuals (A) who, immediately prior to the Closing date, were employed by the Affiliated Companies in New York, (B) whose employment with the Affiliated Companies is terminated on or as soon as administratively practicable after the Closing Date and (C) who are not Transferred Employees (ii) to comply with the requirements of WARN arising in connection with such termination of employment. Such reimbursement will be made promptly following the Purchaser's receipt of a written request therefor from the Affiliated Companies which sets forth to the Purchaser's reasonable satisfaction the Affiliated Companies' entitlement thereto. In addition, the Affiliated Companies will pay to each employee whose employment is terminated in connection with the transactions contemplated by this Agreement, including each Transferred Employee, an amount equal to the value of such employee's accrued and unused vacation as reflected on the Closing Balance Sheet. Such payment shall be made as soon as administratively practicable after the employee's termination of employment. (d) Neither the Affiliated Companies nor any of the Shareholders will, for a period of three (3) years after the Closing Date, take any action, other than with the written consent of the Purchaser, to induce any Transferred Employee, while still employed by Merrill, the Purchaser or any subsidiary of Merrill, the Purchaser, to enter into the employ of the Affiliated Companies or any affiliate of the Affiliated Companies or the Shareholders. (e) Merrill and the Purchaser hereby specifically disclaim any assumption of, or liability with respect to, any collective bargaining agreement or employee benefit plan, policy, practice or agreement to which the Affiliated Companies are a party or under which any of the Affiliated Companies' employees or former employees are covered. Without limiting the generality of the foregoing, (i) neither the Purchaser nor Merrill is assuming any obligation to contribute to, or has any obligation or liability for any withdrawal liability arising in connection with, any Multiemployer Plan attributable to participation therein by current or former employees of the Affiliated Companies as a result of this Agreement and the transactions contemplated hereby or otherwise, and (ii) except as provided in Section 4.12(f), with respect to each current or former employee of the Affiliated Companies, including a Transferred Employee, and each 37 other individual who is a "qualified beneficiary" with respect to such current or former employee in connection with any "group health plan" (as such terms are defined in Section 4980B of the Code) maintained by any of the Affiliated Companies or any Affiliated Organization, as between the Purchaser and Merrill, on the one hand, and the Affiliated Companies, on the other hand, the Affiliated Companies are responsible for providing group health plan continuation coverage in accordance with Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA (without regard to whether the Purchaser or Merrill is ultimately determined to be responsible to provide such coverage to any such current or former employee) and will indemnify, defend and hold harmless the Purchaser, Merrill, and their affiliates from and against any liability, expense, cost, tax or obligation of any nature with respect to such current or former employee or other individual arising in connection with group health plan coverage required under Section 4980B of the Code or Part 6 of Subtitle B of Title I of ERISA. The Shareholders will, or will cause the Affiliated Companies to, promptly provide the Purchaser with any communications to and from any qualified beneficiary or to or from any insurance company or third-party administrator or other person as the Purchaser, in its sole discretion, determines to be reasonably necessary to determine the Affiliated Companies' compliance with clause (ii) of the preceding sentence but the Purchaser has no duty to make such determination and its failure to do so will in no way diminish, alter or impair the Affiliated Companies' obligations pursuant to such clause (ii). (f) The Purchaser is responsible for providing group health plan continuation coverage in accordance with Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA to each individual who immediately prior to the Closing Date, was either (i) eligible for such coverage through a group medical or dental plan of the Affiliated Companies with respect to which benefits were implemented pursuant to an Assumed Contract referenced in Section 4.12(b)(v) or (ii) employed by the Affiliated Companies in Washington, D.C. or Maryland and who becomes eligible for such continuation coverage as a result of a termination of employment in connection with the transactions contemplated by this Agreement. The Purchaser will indemnify, defend and hold harmless the Affiliated Companies from and against any liability, expense, cost, tax or obligation of any nature resulting from the Purchaser's breach of its obligation pursuant to this Section 4.12(f). The Purchaser will promptly provide Corporate with any communications to and from any qualified beneficiary or to or from any insurance company or third-party administrator or other person as Corporate, in its sole discretion, determines to be reasonably necessary to determine the Purchaser's compliance with this Section 4.12(f) but Corporate has no duty to make such determination and its failure to do so will in no way diminish, alter or impair the Purchaser's obligation pursuant to this Section 4.12(f). (g) Promptly after the Closing Date, the Affiliated Companies will take or cause to be taken all actions necessary or advisable to effect the termination of any qualified cash or deferred arrangement maintained by the Affiliated Companies pursuant to Section 401(k) of the Code so as to permit distributions therefrom to participants, including Transferred Employees, in accordance with Section 401(k)(10)(A)(i) of the Code and regulations thereunder. Merrill will permit distributions from any such terminated arrangement to a Transferred Employee to be rolled over into Merrill's 401(k) plan if the Affiliated Companies provide Merrill with a determination letter from the Internal Revenue Service or an opinion of counsel for the Affiliated Companies in form satisfactory to Merrill, obtained in either case at the Affiliated Companies' expense, indicating that the termination did not adversely affect the qualified status of the arrangement. 38 (h) If the party with whom any of the Affiliated Companies has contracted in the case of any of the Assumed Contracts referenced in Section 4.12(f) does not consent to the assignment of the contract to the Purchaser by way of a written instrument, in form acceptable to the Purchaser and binding on such party, delivered to the Purchaser not later than 60 days after the Closing Date, notwithstanding any other provision of this Agreement or the Liabilities Undertaking to the contrary, the attempted assignment of such contract is void, such contract will not be an Assumed Contract and the provisions of this Section 4.12 will be applied to any individual covered under such contract immediately prior to the Closing Date without regard to the first clause of Section 4.12(b)(i) (I.E., "subject to clause (v),"), any of Section 4.12(b)(v), the first clause of Section 4.12(e)(ii) (I.E., "except as provided in Section 4.12(f),") and any of Section 4.12(f). 4.13 DIRECTORS AND SHAREHOLDERS AUTHORIZATION; CHANGE OF CORPORATE NAME. (a) On or prior to the Closing, the Affiliated Companies will deliver to the Purchaser a copy of the resolutions of the Board of Directors and all required resolutions or consents of the shareholders of the Affiliated Companies, approving the execution and delivery of this Agreement and the consummation of all of the transactions contemplated hereby, duly certified by an officer of Affiliated Companies. (b) On or before the Closing, the Affiliated Companies will deliver to the Purchaser a duly executed and acknowledged certificates of amendment to the Affiliated Companies' (located in the United States) articles of organization or other appropriate document which is required to change such Affiliated Companies' corporate name so as to make such Affiliated Companies' present names available to the Purchaser. The Purchaser is hereby authorized to file such certificates or other document in order to effectuate such change of name at or reasonably promptly after the Closing as the Purchaser will elect, and to promptly notify the Representative thereof in writing. 4.14 ADDITIONAL POST-CLOSING OBLIGATIONS OF AFFILIATED COMPANIES AND THE SHAREHOLDERS. Effective as of the Closing, the Affiliated Companies appoints the Purchaser its successor and assigns, the true and lawful attorney or attorneys of the Affiliated Companies, with full power of substitution, in the name of the Affiliated Companies but on behalf and for the benefit of and at the expense of the Purchaser: (i) as provided in Section 1.3(d), to collect in the name of the Affiliated Companies for the account of the Purchaser all receivables and other items to be sold and transferred to the Purchaser as provided herein; (ii) as provided in Section 1.3(d), to institute and prosecute, in the name of the Affiliated Companies or otherwise, all proceedings which the Purchaser may deem necessary or desirable in order to collect, assert or enforce any claim, right or title of any kind in or to the Affiliated Companies' Assets; (iii) to defend and compromise any and all actions, suits or proceedings in respect of the Affiliated Companies' Assets to the extent liability therefor has been assumed by the Purchaser hereunder; and (iv) to do all such acts and things in relation to the foregoing as is reasonably necessary to exercise such powers, as the Purchaser may deem advisable. The foregoing power is coupled with an interest and will be irrevocable by the Affiliated Companies or by its dissolution in any manner or for any reason. Subject to Section 1.3(d), the Purchaser will retain for its own account any amounts collected pursuant to the foregoing power, including any sums payable as interest in respect thereof, and the Affiliated Companies will pay to the Purchaser, when received, any amounts which will be received by the Affiliated Companies in respect of any receivables or other assets or properties related to the Affiliated Companies' Assets. The Purchaser will pay to the Affiliated Companies, when received, any amounts which will be 39 received by the Purchaser in respect of any receivables or other assets or properties of the Affiliated Companies (other than those related to the Assets). 4.15 GUARANTEE BY MERRILL. Merrill hereby absolutely, unconditionally and irrevocably guarantees to the Affiliated Companies and Shareholders the prompt and full payment and other performance of all of the obligations of the Purchaser under this Agreement, the Liabilities Undertaking, the Escrow Agreement, the Non-Competition Agreement and the Employment Agreement (the "TRANSACTION DOCUMENTS") when each of such obligations is due or to be performed. The agreements and other obligations of Merrill guaranteed hereunder (i) shall be absolute, unconditional and irrevocable, irrespective (by way of example only) of the validity, legality or enforceability of this Agreement or any other Transaction Document, and (ii) shall be continuing and remain in full force and effect until the indefeasible payment in full and other full performance of all of the obligations of the Purchaser and the full payment and other performance of Merrill's other obligations contained in this Agreement or any other Transaction Document. ARTICLE 5 [INTENTIONALLY OMITTED] ARTICLE 6 [INTENTIONALLY OMITTED] ARTICLE 7 [INTENTIONALLY OMITTED] ARTICLE 8 SURVIVAL AND INDEMNIFICATION 8.1 SURVIVAL. All representations and warranties of the parties contained in this Agreement will survive the Closing Date for a period of 18 months, except that: (i) the representations and warranties set forth in Sections 2.4, 2.10(a) and (b) and 3.2 shall survive without limitation as to time; (ii) the representations and warranties set forth in Section 2.16 and, to the extent the representations and warranties in Section 2.7 relate to liabilities for Taxes, shall survive until the expiration of the applicable statute of limitations plus two months, but in no event longer than ten years after the Closing Date; and (iii) the representations and warranties contained in Section 2.22 shall survive until the expiration of the applicable statute of limitations plus two months. The covenants and agreements contained herein and in the exhibits hereto will survive the Closing without limitation as to time unless the covenant or agreement specifies the term, in which case such covenant or agreement will survive until the expiration of such specified term and will thereupon expire. The respective expiration dates for the survival of the representations and warranties and the covenants shall be referred to herein as the relevant "Expiration Date." The right to indemnification or any other remedy based on representations, warranties, covenants and obligations in this Agreement will not be affected by any investigation conducted with respect to, or any Knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant or obligation. The waiver of any condition 40 based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, will not affect the right to indemnification or any other remedy based on such representations, warranties, covenants and obligations. 8.2 INDEMNIFICATION BY MERRILL AND THE PURCHASER. Merrill and the Purchaser, jointly and severally, agree to indemnify, defend and hold the Affiliated Companies and the Shareholders harmless from and against: (a) any and all loss, liability or damage suffered or incurred by it arising out of or resulting from (i) any untrue representation of, or breach of warranty by, Merrill or the Purchaser in any part of this Agreement or any exhibit hereto, notice of which is given to Merrill prior to the relevant Expiration Date; (ii) any nonfulfillment of any covenant, agreement or undertaking of Merrill or the Purchaser in any part of this Agreement, notice of which is given to Merrill prior to the relevant Expiration Date; (iii) any failure to pay and perform Assumed Liabilities; or (iv) operation of the Assets or the business associated with the Assets after the Closing Date (which expressly does not include any such loss, liability or damage relating to or arising out of the CPC Press Business or the CPC Shipping Business); and (b) any and all actions, suits, proceedings, claims, demands, assessments, judgments, costs and expenses, including, without limitation, legal fees and expenses, incident to any of the foregoing or incurred in investigating or attempting to avoid the same or to oppose the imposition thereof, or in enforcing the indemnification rights of Affiliated Companies or the Shareholders pursuant to this Section 8.2. 8.3 INDEMNIFICATION BY AFFILIATED COMPANIES AND THE SHAREHOLDERS. The Affiliated Companies, jointly and severally, and each Shareholder, on a several basis in accordance with the Indemnification Percentages, agree to indemnify, defend and hold the Purchaser and Merrill and their respective agents, representatives, employees, officers, directors, shareholders, controlling persons and affiliates harmless from and against: (a) any and all loss, liability or damage suffered or incurred by the Purchaser or Merrill, whether or not involving a third-party claim, arising out of or resulting from (i) any untrue representation of, or breach of warranty by the Affiliated Companies or any Shareholder in any part of this Agreement or any exhibit hereto, notice of which is given to the Representative (as hereinafter defined) prior to the relevant Expiration Date; (ii) any nonfulfillment of any covenant, agreement or undertaking of the Affiliated Companies or any Shareholder in any part of this Agreement or the Non-Competition Agreement (as to which this indemnification shall be borne entirely by Shifrin), notice of which is given to the Representative (as hereinafter defined) prior to the relevant Expiration Date; or (iii) the failure of the Affiliated Companies to (A) comply with the requirements of the Uniform Commercial Code concerning bulk transfers, as in effect in the various states in which the Affiliated Companies has assets, including, without limitation, the requirement of notice to creditors, except that any liability arising out of the Purchaser's failure to pay and perform the Assumed Liabilities will not give rise to any liability of the Affiliated Companies or any Shareholder pursuant hereto or (B) obtain any clearance certificate or similar document required by any taxing Authority in order to relieve the Purchaser of any obligation to withhold any portion of the Purchase Price or in order to avoid any successor liability for Taxes; or (iv) any Retained Liabilities. 41 (b) any and all actions, suits, proceedings, claims, demands, assessments, judgments, costs and expenses, including, without limitation, legal fees and expenses, incident to any of the foregoing or incurred in investigating or attempting to avoid the same or to oppose the imposition thereof, or in enforcing the indemnification rights of the Purchaser and Merrill pursuant to this Section 8.3. 8.4 BASKET AMOUNT. Notwithstanding anything in Section 8.3 to the contrary, neither Merrill nor the Purchaser shall be entitled to any indemnification under Section 8.3 if the aggregate amount of all claims thereunder is less than $200,000; provided, however, if the aggregate amount of all claims equals or exceeds such amount, then Merrill and the Purchaser shall be entitled to full indemnification of all claims under Section 8.3 in excess of $100,000. The parties hereto do not intend that such exception amount be deemed to be a definition of what is "material" for any purpose in this Agreement. 8.5 RIGHT OF SET-OFF. Upon notice to the Affiliated Companies and the Shareholders specifying in reasonable detail the basis therefor, the Purchaser may set off any amount to which it may be entitled under this Article 8 against amounts otherwise payable as a Participation Payment. The exercise of such right of set-off by Purchaser will not constitute a breach under the Purchaser's obligations pursuant to Section 1.3(c) hereof. In the event that the Affiliated Companies or the Shareholders do not agree with the appropriateness of such set- off, they may attempt to resolve the dispute pursuant to Section 9.12(c) and (d) below. Neither the exercise of, nor the failure to exercise, such right of set- off will constitute an election of remedies nor limit Merrill or the Purchaser in any manner in the enforcement of any other remedies that may be available to it. Any set-off pursuant hereto will be applied proportionately among the Shareholders to which any Participation Payment might otherwise be payable. In the event that Merrill or the Purchaser chooses to exercise its right of set-off to satisfy a claim, and the amount of such claim at the time it is made is less than or equal to the amount then held by the Escrow Agent under the Escrow Agreement as to which there are not then outstanding claims made by Merrill or the Purchaser, the Purchaser or Merrill will make such claim against the funds held by the Escrow Agent in accordance with the terms of the Escrow Agreement. 8.6 CLAIMS FOR INDEMNIFICATION. Whenever any claim arises for indemnification under this Agreement, the party seeking indemnification (the "INDEMNIFIED PARTY") will promptly notify the party from whom indemnification is sought (the "INDEMNIFYING PARTY") of the claim and, when known, all of the facts constituting the basis for such claim. The failure so to notify the Indemnifying Party will not relieve the Indemnifying Party of any liability that it may have to the Indemnified Party except to the extent the Indemnifying Party demonstrates that the defense of such action is prejudiced thereby. In the case of any such claim for indemnification hereunder resulting from or in connection with any claim or legal proceedings of a third party (a "PROCEEDING"), the Indemnifying Party will be entitled to participate in such legal proceedings and, to the extent that it will wish (unless (i) the Indemnifying Party is also a party to such Proceeding and the Indemnified Party determines in good faith that joint representation would be inappropriate or (ii) the Indemnifying Party fails to provide reasonable assurance to the Indemnified Party of its financial capacity to defend such Proceeding and provide indemnification with respect thereto), to control the defense thereof with counsel reasonably satisfactory to the Indemnified Party and, after notice from Indemnifying Party to the Indemnified Party of its election so to control the defense thereof, the Indemnifying Party will not be liable to such the Indemnified Party under this Article for any fees of other counsel or any other expenses with respect to the defense of such Proceeding, in each case subsequently incurred by the Indemnified Party in connection with the defense thereof, other than reasonable costs of investigation. If an Indemnifying Party controls the defense of such a Proceeding, (i) no compromise or settlement thereof may be effected by the Indemnifying Party without 42 the Indemnified Party's consent unless (1) there is no finding or admission of any violation of Law or any violation of the rights of any person and no effect on any other claims that may be made against the Indemnified Party and (2) the sole relief provided is monetary damages that are paid in full by the Indemnifying Party and (ii) the Indemnifying Party will have no liability with respect to any compromise or settlement thereof effected without its consent. If notice is given to an Indemnifying Party of the commencement of any Proceeding and it does not, within ten (10) days after the Indemnified Party's notice is given, give notice to the Indemnified Party of its election to assume the defense thereof, the Indemnifying Party will be bound by any determination made in such action or any compromise or settlement thereof effected by the Indemnified Party. Notwithstanding the foregoing, if an Indemnified Party determines in good faith that there is a reasonable probability that a Proceeding may adversely affect it or its affiliates other than as a result of monetary damages, such Indemnified Party may, by notice to the Indemnifying Party, assume the exclusive right to defend, compromise or settle such Proceeding, but the Indemnifying Party will not be bound by any determination of a Proceeding so defended or any compromise or settlement thereof effected without its consent (which will not be unreasonably withheld). ARTICLE 9 MISCELLANEOUS PROVISIONS 9.1 EXPENSES. Except as otherwise provided herein, the Purchaser and the Shareholders (in the case of the Affiliated Companies) will each bear their own costs and expenses relating to the transactions contemplated hereby, including without limitation, fees and expenses of legal counsel, accountants, investment bankers, brokers or finders, printers, copiers, consultants or other representatives for the services used, hired or connected with the transactions contemplated hereby, except that the Affiliated Companies will be permitted to pay the reasonable fees of legal counsel and accountants (not to exceed $150,000 incurred by the Affiliated Companies related to the transactions contemplated by this Agreement. The Purchaser and the Shareholders (in the case of the Affiliated Companies) will each pay any commission or finder's fee or similar amount incurred by them by agreement or otherwise for retaining or consulting any broker, finder or investment banker in connection with the transactions contemplated by this Agreement. 9.2 [INTENTIONALLY OMITTED] 9.3 AMENDMENT AND MODIFICATION. Subject to applicable Law, this Agreemen may be amended or modified by the parties hereto at any time prior to the Closing with respect to any of the terms contained herein; PROVIDED, HOWEVER, that all such amendments and modifications must be in writing duly executed by all of the parties hereto. 9.4 WAIVER OF COMPLIANCE; CONSENTS. Any failure of a party to comply with any obligation, covenant, agreement or condition herein may be expressly waived in writing by the party entitled hereby to such compliance, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition will not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. No single or partial exercise of a right or remedy will preclude any other or further exercise thereof or of any other right or remedy hereunder. Whenever this Agreement requires or permits the consent by or on behalf of a party, such consent will be given in writing in the same manner as for waivers of compliance. 43 9.5 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement will entitle any person or entity (other than a party hereto and his, her or its respective successors and assigns permitted hereby) to any claim, cause of action, remedy or right of any kind; provided however, that First Trust National Association, as the Escrow Agent pursuant to the Escrow Agreement to be entered into pursuant to Section 1.3(b)(ii) of this Agreement, shall be entitled to rely upon Section 9.14 solely for purposes of the Escrow Agreement. 9.6 NOTICES. All notices, requests, demands and other communications required or permitted hereunder will be made in writing and will be deemed to have been duly given and effective: (i) on the date of delivery, if delivered personally; (ii) on the earlier of the fourth (4th) day after mailing or the date of the return receipt acknowledgement, if mailed, postage prepaid, by certified or registered mail, return receipt requested; or (iii) on the date of transmission, if sent by facsimile, telecopy, telegraph, telex or other similar telegraphic communications equipment: If to the Affiliated Companies or the Shareholders: To: George Shifrin, Representative c/o Printcom, Inc. 225 Varick Street, 8th Floor New York, NY 10014 With copies to: Kramer, Levin, Naftalis, Nessen, Kamin & Frankel 919 Third Avenue New York, NY 10022 Attn: Richard Marlin, Esq. Fax: (212) 715-8000 and George Shifrin 0450 Owl Creek Ranch Road Aspen, CO 81612 (970) 923-5527 or to such other person or address as the Representative will furnish to the other parties hereto in writing in accordance with this subsection. If to Merrill or the Purchaser: To: Merrill Corporation One Merrill Circle St. Paul, MN 55108 Attn: Steven J. Machov Fax: (612) 649-1348 44 With a copy to: Oppenheimer Wolff & Donnelly 45 South Seventh Street Plaza VI, Suite 3400 Minneapolis, MN 55402 Attn: Bruce A. Machmeier, Esq. Fax: (612) 344-9376 or to such other person or address as Purchaser will furnish to the other parties hereto in writing in accordance with this subsection. 9.7 ASSIGNMENT. This Agreement and all of the provisions hereof will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder will be assigned (whether voluntarily, involuntarily, by operation of law or otherwise) by any of the parties hereto without the prior written consent of the other parties, PROVIDED, HOWEVER, that (a) the Purchaser may assign its rights (but not its obligations) under this Agreement, in whole or in any part, and from time to time, to a wholly owned, direct or indirect, subsidiary of the Purchaser and such assignment shall not discharge or otherwise affect Merrill's guaranty pursuant to Section 4.15 hereof; and (b) in connection with the redemption of stock in or liquidation of the Affiliated Companies, the Affiliated Companies may assign to the Shareholders their respective distributive shares of (i) rights to receive Participation Payments, and (ii) other rights arising under this Agreement. 9.8 GOVERNING LAW; JURISDICTION. This Agreement and the legal relations among the parties hereto will be governed by and construed in accordance with the internal substantive laws of the State of New York (without regard to the laws of conflict that might otherwise apply) as to all matters, including without limitation matters of validity, construction, effect, performance and remedies. 9.9 COUNTERPARTS. This Agreement may be executed simultaneously in one or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. 9.10 HEADINGS. The table of contents and the headings of the sections and subsections of this Agreement are inserted for convenience only and will not constitute a part hereof. 9.11 ENTIRE AGREEMENT. This Agreement, the Disclosure Schedule and the exhibits and other writings referred to in this Agreement or in the Disclosure Schedule or any such exhibit or other writing are part of this Agreement, together they embody the entire agreement and understanding of the parties hereto in respect of the transactions contemplated by this Agreement and together they are referred to as "this AGREEMENT" or the "AGREEMENT". There are no restrictions, promises, warranties, agreements, covenants or undertakings, other than those expressly set forth or referred to in this Agreement. This Agreement supersedes all prior agreements and understandings between the parties with respect to the transaction or transactions contemplated by this Agreement. Provisions of this Agreement will be interpreted to be valid and enforceable under applicable Law to the extent that such interpretation does not materially alter this Agreement; PROVIDED, HOWEVER, that if any such provision will become invalid 45 or unenforceable under applicable Law such provision will be stricken to the extent necessary and the remainder of such provisions and the remainder of this Agreement will continue in full force and effect. 9.12 INJUNCTIVE RELIEF. (a) It is expressly agreed among the parties hereto that (i) monetary damages would be inadequate to compensate Merrill or the Purchaser for any breach by the Affiliated Companies or the Shareholders of the covenants and agreements in Sections 4.2 and 4.4 hereof; and (ii) that monetary damages would be inadequate to compensate Affiliated Companies or the Shareholders for any breach by Merrill or the Purchaser of the covenants and agreements of Merrill and Purchaser in Section 4.4 hereof. Accordingly, the parties agree and acknowledge that any such violation or threatened violation will cause irreparable injury to Merrill and the Purchaser or the Affiliated Companies and Shareholders, as the case may be, and that, in addition to any other remedies which may be available, Merrill and the Purchaser or the Affiliated Companies and Shareholders, as the case may be, will be entitled to injunctive relief against the threatened breach of Sections 4.2 and 4.4 hereof or the continuation of any such breach, as the case may be, without the necessity or proving actual damages and may seek to specifically enforce the terms thereof. (b) Notwithstanding anything contained in this Agreement to the contrary, the Affiliated Companies and the Shareholders, on the one hand, and Merrill and the Purchaser, on the other hand, will only have the right to make a claim against the other for damages (other than a claim for sums owing pursuant to Sections 9.1 or 9.2 hereof, a claim by Merrill or the Purchaser against the Affiliated Companies or the Shareholders for any breach by the Affiliated Companies or the Shareholders of Section 4.2 hereof, or an indemnification claim pursuant to Article 8 hereof) if the non-claiming party has willfully and materially breached any of its representations, covenants or agreements set forth in this Agreement. For purposes of this provision, a party will be deemed to have willfully breached any of its representations, covenants or agreements set forth in this Agreement if such party has intentionally and knowingly taken, or intentionally and knowingly failed to take, any action which causes a breach of any of its covenants or agreements set forth in this Agreement. The remedies and rights of the parties hereto will be cumulative. No party hereto will be entitled to rescind this Agreement after the Closing. (c) The parties agree that any dispute arising out of or relating to this Agreement or the formation, breach, termination or validity thereof, except for injunctive relief contemplated by paragraph (a) of this Section 9.12 (a "DISPUTE") will be resolved as follows. If the Dispute cannot be settled through direct discussions, the parties will first try to settle the Dispute in an amicable manner by mediation under the Commercial Mediation Rules of the American Arbitration Association, before resorting to arbitration. Any Dispute that has not been resolved within 60 days of the initiation of the mediation procedure (the "MEDIATION DEADLINE") will be settled by binding arbitration by a panel of three (3) arbitrators, selected in accordance with subsection (d) below, in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "AMERICAN ARBITRATION RULES"). In the event that the Purchaser or Merrill seek mediation or arbitration of a Dispute, the proceeding will be located in New York, New York. In the event that any of the Affiliated Companies or any of the Shareholders seek mediation or arbitration of a Dispute, the proceeding will be located in Minneapolis, Minnesota. The arbitrators are not empowered to award damages in excess of compensatory damages and 46 each party hereby irrevocably waives any damages in excess of compensatory damages. Judgment upon any arbitration award may be entered in any court having jurisdiction thereof and the parties consent to the jurisdiction of the courts of the State in which the arbitration occurred for this purpose. The parties agree that service of process and of any notices required in connection with any arbitration hereunder or any related court proceedings may be given in the manner provided for the giving of notices under this Agreement as set forth in Section 9.6. (d) Within twenty (20) days of the Mediation Deadline, Merrill and the Purchaser will collectively nominate one arbitrator and the Representative will nominate one arbitrator. Within thirty (30) days of the nomination and appointment of the two arbitrators, the two arbitrators shall select a third arbitrator, and if they fail to do so, a neutral arbitrator shall be chosen in accordance with the American Arbitration Rules. 9.13 CERTAIN DEFINITIONS. For purposes of this Agreement, the term: (a) "KNOWLEDGE" or "BEST KNOWLEDGE" of (i) an entity means knowledge actually possessed by any director or officer of the entity; and (ii) an individual means knowledge actually possessed by such individual; and (b) "MATERIAL ADVERSE EFFECT" means any event, change or occurrence which has or could reasonably be expected to have a material negative impact on the condition (financial or otherwise), businesses, results of operations, prospects of the Affiliated Companies taken as a whole or Merrill and its subsidiaries, taken as a whole, as the case may be, or the ability of the Affiliated Companies or Merrill, as the case may be, to consummate the transactions contemplated hereby. 9.14 SHAREHOLDER'S REPRESENTATIVE. (a) In order to efficiently administer (i) the waiver of any condition to the obligations of the Affiliated Companies and the Shareholders to consummate the transactions contemplated hereby, (ii) the defense and/or settlement of any claims for which the Affiliated Companies or the Shareholders may be required to indemnify the Purchaser or Merrill pursuant to Article 8 hereof, (iii) all of the Affiliated Companies and Shareholders' rights and obligations under the Escrow Agreement, and (iv) the exercise by the Affiliated Companies of their right to receive a Participation Payment pursuant to Section 1.3(c) hereof, each of the Affiliated Companies and each Shareholder hereby irrevocably appoints and designates Shifrin as his or its representative and attorney-in-fact (the "Representative"). (b) The Affiliated Companies and the Shareholders hereby authorize the Representative (i) to take all action necessary in connection with (aa) the waiver of any condition to the obligations of any Affiliated Company or any Shareholder to consummate the transactions contemplated hereby, (bb) the defense and/or settlement of any claims for which any Affiliated Company or Shareholder may be required to indemnify the Purchaser or Merrill pursuant to Article 8 hereof, (cc) the exercise and performance of the Affiliated Companies and Shareholders' rights and obligations under the Escrow Agreement, or (dd) the exercise by the Affiliated Companies of their right to receive a Participation Payment pursuant to Section 1.3(c) hereof, (ii) to give and receive all notices required or permitted under this Agreement, and (iii) to take any 47 and all additional action as is contemplated to be taken by or on behalf of the Shareholders by the terms of this Agreement. (c) In the event that the Representative dies, becomes unable to perform his responsibilities hereunder or resigns from such position, a majority of the Shareholders will select another representative to fill each such vacancy and such substituted representative will be irrevocably appointed and designated the Representative for all purposes of this Agreement. (d) All decisions and actions by the Representative, including, without limitation, (i) any agreement between the Representative and the Purchaser or Merrill relating to the waiver of any condition to the obligations of any Affiliated Company or Shareholder to consummate the transaction contemplated hereby, (ii) the defense or settlement of any claims for which the Affiliated Companies or the Shareholders may be required to indemnify the Purchaser or Merrill pursuant to Article 8 hereof, (iii) the exercise and performance of the Affiliated Companies and Shareholders' rights and obligations under the Escrow Agreement, or (iv) the exercise by the Affiliated Companies of their right to receive a Participation Payment pursuant to Section 1.3(c) hereof, will be binding upon all of the Affiliated Companies and all of the Shareholders, and no Affiliated Company or Shareholder will have the right to object, dissent, protest or otherwise contest the same. (e) By their execution of this Agreement, each of the Affiliated Companies and Shareholders agree that: (i) the Purchaser or Merrill will be able to rely conclusively on the instructions and decisions of the Representative as to (aa) the exercise by the Affiliated Companies of their right to receive a Participation Payment pursuant to Section 1.3(c) hereof, (bb) the settlement of Merrill pursuant to Article 8 hereof, (cc) the exercise and performance of the Affiliated Companies and Shareholders' rights and obligations under the Escrow Agreement or (dd) any other actions required to be taken by the Representative hereunder, and no party hereunder will have any cause of action against any the Purchaser or Merrill for any action taken by the Purchaser or Merrill in reliance upon the instructions or decisions of the Representative; (ii) all actions, decisions and instructions of the Representative will be conclusive and binding upon all of the Affiliated Companies and all of the Shareholders, and no party hereto will have any cause of action against the Representative, in his capacity as a Representative, for any action taken, decision made or instruction given by the Representative under this Agreement, except for fraud or willful misconduct by the Representative; (iii) the provisions of this Section 9.14 are independent and severable, are irrevocable and coupled with an interest and will be enforceable notwithstanding any rights or remedies that any Affiliated Company or any Shareholder may have in connection with the transactions contemplated by this Agreement; and (iv) the provisions of this Section 9.14 will be binding upon the executors, heirs, legal representatives and successors of each Affiliated Company and each Shareholder, and any references in this Agreement to an Affiliated Company or 48 Shareholder will mean and include the successors to the rights of the Affiliated Companies and Shareholders hereunder, whether pursuant to testamentary disposition, the laws of descent and distribution or otherwise. 49 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. MERRILL AFFILIATED COMPANIES MERRILL CORPORATION THE CORPORATE PRINTING COMPANY, INC. CPC COMMUNICATIONS, INC. By: /s/ Kay Barber ------------------------- Its: Vice President, CPC REPROGRAPHICS, INC. Chief Financial Officer and Treasurer -------------------- THE CORPORATE PRINTING COMPANY INTERNATIONAL, LTD. PURCHASER MERRILL/NEW YORK COMPANY CPC MANAGEMENT SERVICES, INC. CP INTERNATIONAL HOLDINGS, INC. By: /s/ Kay Barber ------------------------- Its: Treasurer THE CORPORATE PRINTING COMPANY -------------------- INTERNATIONAL PTE LTD. SHAREHOLDERS By: /s/ Harold A. Cooney ------------------------------------ An authorized officer /s/ George Shifrin - ------------------------------ George Shifrin THE CORPORATE PRINTING COMPANY INTERNATIONAL SNC By The Corporate Printing Company International, Ltd., a general partner /s/ John Doherty - ------------------------------ John Doherty By: /s/ Harold A. Cooney ---------------------------------- Its: President ----------------------------- By The Corporate Printing Company, Inc., /s/ Joel E. Glick a general partner - ------------------------------ Joel E. Glick By: /s/ Harold A. Cooney ---------------------------------- Its: President ----------------------------- 50 /s/ Harold A. Cooney - ------------------------------ Harold A. Cooney OAKLAND COMPOSITION LIMITED PARTNERSHIP By The Corporate Printing Company, Inc., its general partner By: /s/ Harold A. Cooney ----------------------------------- Its: President ------------------------------ 51 EX-11.1 6 COMPUTATION OF PER SHARE EARNINGS EXhibit 11.1 MERRILL CORPORATION SCHEDULE OF COMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
FOR THE YEARS ENDED JANUARY 31, ------------------------------------------- 1996 1995 1994 ------------- ------------- ------------- Primary Net income.............................................................. $ 10,662,199 $ 11,982,785 $ 13,348,330 ------------- ------------- ------------- ------------- ------------- ------------- Weighted average number of common shares outstanding during the period................................................................. 7,752,532 7,568,380 7,408,087 Add common equivalent shares relating to outstanding options to purchase common stock using the treasury stock method.................. 192,614 425,853 563,768 ------------- ------------- ------------- Total common and common equivalent shares outstanding............... 7,945,146 7,994,233 7,971,855 ------------- ------------- ------------- ------------- ------------- ------------- Primary income per common share........................................... $1.34 $1.50 $1.67 ------------- ------------- ------------- ------------- ------------- ------------- Fully diluted Net income.............................................................. $ 10,662,199 $ 11,982,785 $ 13,348,330 ------------- ------------- ------------- ------------- ------------- ------------- Weighted average number of common shares outstanding during the period................................................................. 7,752,532 7,568,380 7,408,087 Add common equivalent shares relating to outstanding options to purchase common stock using the treasury stock method.................. 196,731 425,759 597,688 ------------- ------------- ------------- Total common and common equivalent shares outstanding............... 7,949,263 7,994,139 8,005,775 ------------- ------------- ------------- ------------- ------------- ------------- Fully diluted income per common share.................................... $1.34 $1.50 $1.67 ------------- ------------- ------------- ------------- ------------- -------------
EX-13.1 7 PORTIONS OF ANNUAL REPORT TO SHAREHOLDERS MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS The following table sets forth for the years indicated the percentage relationship to revenue of certain items in the Company's consolidated statements of operations and the percentage changes in the dollar amounts of such items in comparison to the prior year.
Year ended January 31, ------------------------------------------------------ % Increase (Decrease) ------------------------ Percentage of Revenues 1996 1995 1994 ------------------------ vs. vs. vs. 1996 1995 1994 1995 1994 1993 - ----------------------------------------------------------------------------------------------- Revenues Financial 36.1% 33.4% 42.4% 12% 3% 52% Corporate 29.5 33.4 34.4 (9) 26 11 Commercial and other 21.5 23.3 13.8 (5) 120 2 Document management services 12.9 9.9 9.4 35 38 3 - ----------------------------------------------------------------- 100.0 100.0 100.0 4 30 23 Cost of sales 67.6 67.3 64.1 4 37 19 Gross profit 32.4 32.7 35.9 3 19 32 Selling, general and administrative expenses 24.5 23.5 23.8 8 29 22 Operating income 7.9 9.2 12.1 (10) (1) 55 Interest expense (0.4) (0.5) (0.2) (2) 249 26 Other income, primarily interest income 0.1 0.2 0.2 (36) 48 23 Income before provision for taxes 7.6 8.9 12.1 (12) (4) 55 Provision for income taxes 3.3 3.9 4.9 (12) 4 58 Income before change in accounting for income taxes 4.3 5.0 7.2 (11) (9) 53 - -----------------------------------------------------------------------------------------------
REVENUE Merrill Corporation is engaged in one line of business -- providing printed and electronic document services. The Company divides its revenue into four categories of service: financial printing, corporate printing, document management services, and commercial and other services. The percentage of revenue attributable to each of the categories of service is set forth in the table above. Revenue in the financial printing category generally reflects the level of activity in the capital markets. Financial printing encompasses many types of transactions, and some types of transactions tend to increase when others are out of favor. However, a prolonged reduction in the overall level of financial transactions could be expected to have a negative impact on this revenue category. The corporate printing category encompasses required regulatory and mutual fund documentation and other repetitive work and is typically not impacted to a significant degree by capital market fluctuations. Document management services and commercial and other services tend to follow general economic trends. Management's Discussion and Analysis of Financial Condition and Results of Operations [9] Revenue for fiscal year 1996 increased 4 percent over the previous year. The financial revenue category showed a 12 percent increase over last year resulting from the substantial increase in the level of financial market activity. The financial market over the last six months of the fiscal year showed a substantial increase in the number of new transactions, including mergers, acquisitions and initial public offerings, that improved the growth in the financial revenue category. This financial market activity continues to be strong and should add additional growth to the financial revenue category in the first quarter of fiscal 1997. International revenues, which are comprised of financial revenues, accounted for approximately 6% of consolidated revenues and increased by 26% from 1995. Management does not anticipate significant changes in the relative percentage of international revenues during 1997. However, actual results could vary materially from the foregoing forward- looking statement. Corporate revenue is down 9 percent from fiscal 1995. This shortfall was caused primarily by the absence this year of a few significant, one-time mutual fund projects that occurred during the last half of fiscal 1995. These large corporate projects were not bid on in the current year because of low margins. Document management services revenue grew at a 35 percent rate in fiscal 1996, with the addition of 18 new document service centers. These additions bring the total number of these service centers to 50 as of the end of fiscal 1996. General commercial revenue was down slightly as the absence of election-related printing in 1996 was nearly offset by the increase in revenue at Merrill/May. Merrill/May continues to add more national clients, including 15 new clients during fiscal 1996, which should generate increased revenues over the next 12-month period. However, actual results could vary materially from the foregoing forward-looking statement. Revenue increased 30 percent in fiscal year 1995 to $237 million. Approximately half of the revenue increase resulted from the inclusion of a full year of operations of May Printing Company which was acquired in December 1993. May was primarily responsible for the 120 percent increase in revenue in our commercial and other category. Also contributing to the revenue growth was the near doubling in the number of installations under management services contracts in the document management services category. Corporate revenue grew 26 percent in 1995, principally from increased mutual fund documentation services provided to both new and existing clients. Also impacting corporate revenue was growth in the number of companies using electronic filing services to comply with the Securities and Exchange Commission's EDGAR program. Financial category revenue was virtually flat compared to 1994 levels as rising interest rates and resulting uncertainty in the financial markets caused a dramatic mid- year reduction in the volume of capital market transactions. [10] Management's Discussion and Analysis of Financial Condition and Results of Operations The revenue improvement in fiscal year 1994 was principally due to a 52 percent increase in revenue from the financial printing category, reflecting a high level of activity in the nation's financial markets throughout the year and growth in market share, particularly in the Company's West Coast markets. International revenue, which includes the results of Atwell Fleming Printing Company in Canada, acquired in June 1993, and the Company's association with England's Burrups Ltd, also grew significantly, though still representing less than 5 percent of consolidated revenue. Corporate printing revenue increased 11 percent, due primarily to increased mutual fund documentation and corporate proxy work. Revenue in the commercial and other sector increased 2 percent. The inclusion of one month's revenue from May Printing Company, acquired December 31, 1993, offset a decline in election-related printing because 1993 was not a general election year. Revenue from reprographics and facilities management increased modestly, offsetting a reduction in publications revenue. GROSS PROFIT Fiscal year 1996 gross margins decreased slightly compared to the previous year. Financial revenue margins over the last half of fiscal 1996 improved from the increased volume of financial work, which typically has realized higher margins. However, 1996 margins on financial work are lower than in prior years from continued competitive pricing pressure. Gross margins over the last six months improved because of volume-related operating efficiencies in the Company's central typesetting facility and printing facilities. Also contributing to the lower overall gross margins is the increase in the number of document services centers. This business typically has lower margins than the Company's more traditional business. The reduction in gross margin in fiscal year 1995 versus 1994 was caused primarily by the sharp reduction in financial printing volume during the second half of the fiscal year. This reduced activity led to intense price competition for available work, further pressuring margins. Also reflected in the lower gross margins is the growth in the Company's document services center business, which has realized lower gross margins than the Company's more traditional businesses. The gross margin improvement in fiscal year 1994 versus 1993 can be attributed primarily to operating efficiencies related to the significant increase in activity in the financial printing category. Also positively impacting gross margins in 1994 was a full year of operations in the Company's New Jersey printing operation, which opened in the second quarter of fiscal year 1993. Management's Discussion and Analysis of Financial Condition and Results of Operations [11] SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses have increased in each of the last three fiscal years. The increase in these expenses in fiscal year 1996 was attributed to the continued expansion of the Company's sales and marketing organization, increased market penetration in existing offices and the marketing of new services. Merrill/May continues to incur higher selling expenses to add more national clients and increase marketing efforts to promote its services. Fiscal year 1995 included a full year of expenses from Merrill/May, together with the goodwill amortization associated with that acquisition. Bad debt expense in fiscal year 1995 increased substantially from 1994 levels principally from securities offerings being aborted because of poor market conditions. Fiscal year 1994 expenses reflect administrative staff additions and a fourfold increase in costs for employee training and development programs, partially offset by lower provisions for doubtful accounts, which was the result of improved collection experience. INTEREST EXPENSE AND OTHER INCOME Average short-term borrowings under the Company's bank line of credit were $2,221,000, $710,000 and $93,000, respectively, in fiscal years 1996, 1995 and 1994. Other income is primarily interest income. In fiscal 1996, interest expense remained consistent with last year from increased short-term borrowings reflecting expenditures associated with the build-up of accounts receivable and work-in-process inventories offset by lower long-term debt interest. Interest expense in fiscal 1995 was up over the previous year from cash expended and debt assumed in connection with the December 1993 acquisition of May Printing Company and interest expense associated with the IRS audits discussed below. PROVISION FOR INCOME TAXES The effective income tax rates for 1996 and 1995 were 43 percent, compared to 40 percent for 1994. The effective rates were higher than the statutory federal rates of 35 percent in these years primarily due to state income taxes. In addition, in 1996 and 1995, the effective rate increased because of a lower level of deductibility of business meeting and entertainment expenses, together with a provision for additional taxes payable of approximately $650,000 for fiscal years 1992, 1993 and 1994 resulting from an Internal Revenue Service audit of those years. The effective income tax rate in future years is expected to approximate 43 percent. IMPACT OF INFLATION The Company does not believe that inflation has had a significant impact on the results of its operations. [12] Management's Discussion and Analysis of Financial Condition and Results of Operations LIQUIDITY AND CAPITAL RESOURCES Working capital at January 31, 1996, increased to $39.4 million from $31.5 million a year ago, reflecting an increase in sales activity during the fourth quarter, as compared to sales activity during the fiscal 1995 fourth quarter. The increase in sales activity resulted in a corresponding increase in trade receivables. In addition, the number of work-in-process jobs at January 31, 1996 increased compared to January 31, 1995, reflecting the higher level of financial market activity. Capital expenditures for the period were $12.5 million, of which $5.5 million represented the purchase of two administration buildings in St. Paul which were previously partially leased. Other capital expenditures were principally for production equipment and office remodeling and furnishings. Cash and cash equivalents increased $2.1 million for the twelve month period and borrowings under the Company's bank line of credit were $6.0 million at January 31, 1996. Long-term debt at January 31, 1996, was 7.7 percent of total capitalization compared to 10.2 percent a year ago. The Company expects capital expenditures in fiscal year 1997 to be approximately $10 million to $13 million for production and printing equipment and facility expansion and remodeling. Approximately $1 million of this amount is committed at this time. Working capital at January 31, 1995, increased to $31.5 million from $22.5 million in 1994, reflecting positive earnings and operating cash flow. Capital expenditures in fiscal year 1995 were $10.1 million, primarily for production equipment and facility remodeling, compared with $7.6 million in 1994. In addition to funding capital expenditures, the strong cash flow resulted in a $7.4 million increase in cash and equivalents and elimination of short-term debt, of which $2.6 million was outstanding at January 31, 1994. Long-term debt at January 31, 1995, was 10.2 percent of total capitalization compared to 13.9 percent in 1994. The Company historically has been working-capital intensive, but in recent years has increased its needs for technology and production equipment. The Company generally has been able to generate sufficient cash flow from operations to fund its capital needs. At January 31, 1996, the Company's principal internal sources of liquidity were cash and cash equivalents and cash flow from operations. The Company also has available a $15 million unsecured bank line of credit, which expires May 31, 1997, under which there were $6 million of borrowings as of January 31, 1996. Subsequent to year end the line of credit has been increased to $60 million to provide for the purchases described in Note 10. Management anticipates that these sources will satisfy its capital needs for fiscal year 1997. Management's Discussion and Analysis of Financial Condition and Results of Operations [13] NEW ACCOUNTING STANDARD In October 1995, the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based Compensation." This statement establishes financial accounting and reporting standards for stock-based employee compensation plans. The Company intends to follow the option that permits companies to apply current accounting standards for stock-based employee compensation. Effective with fiscal year-end 1997 reporting, the Company will disclose proforma net income and net income per share amounts as if Statement No. 123 were applied. QUARTERLY STOCK PRICE COMPARISON Merrill Corporation shares are traded on The Nasdaq Stock Market under the symbol MRLL. The table below sets forth the range of high and low sale prices per share as reported by The Nasdaq Stock Market. These prices do not include adjustments for retail markups, markdowns or commissions. There were approximately 402 shareholders of record of the Company's common stock at the close of trading on March 29, 1996. The Company paid quarterly dividends in fiscal 1996 and 1995 in the amount of three cents per share, totaling $930,909 and $907,790, respectively.
First Second Third Fourth Fiscal Year Quarter Quarter Quarter Quarter - ---------------------------------------------------------------------------------------------------- 1996 High 20 21 1/4 19 1/2 20 3/4 Low 14 3/4 15 3/4 15 3/4 14 1/4 - ---------------------------------------------------------------------------------------------------- 1995 High 32 1/2 28 1/4 24 19 1/2 Low 21 18 17 13 3/4 - ----------------------------------------------------------------------------------------------------
[14] Management's Discussion and Analysis of Financial Condition and Results of Operations CONSOLIDATED BALANCE SHEETS
As of January 31, ----------------------- (In thousands, except share data) 1996 1995 - ------------------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents $ 12,074 $ 9,967 Trade receivables, less allowance for doubtful accounts of $3,545 and $2,830, respectively 48,566 39,284 Work in process inventories 10,898 7,007 Other inventories 5,235 4,526 Other current assets 2,463 2,686 - ------------------------------------------------------------------------------------- Total current assets 79,236 63,470 - ------------------------------------------------------------------------------------- Property, plant and equipment, net 31,681 28,918 Goodwill, net 10,528 11,423 Other assets 4,076 2,659 - ------------------------------------------------------------------------------------- Total assets $125,521 $106,470 - ------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Note payable to bank $ 6,000 Current maturities of long-term debt 770 $ 745 Current maturities of capital lease obligations 538 738 Accounts payable 17,598 16,004 Accrued expenses 14,951 12,809 Deferred income taxes 1,651 - ------------------------------------------------------------------------------------- Total current liabilities 39,857 31,947 - ------------------------------------------------------------------------------------- Long-term debt, net of current maturities 4,525 5,295 Capital lease obligations, net of current maturities 1,929 2,227 Other liabilities 1,476 940 Commitments and contingencies (Notes 3, 5 and 10) Shareholders' equity Common stock, $.01 par value: 25,000,000 shares authorized; 7,855,783 shares and 7,605,076 shares, respectively, issued and outstanding 78 76 Undesignated stock: 500,000 shares authorized; no shares issued Additional paid-in capital 16,324 14,384 Retained earnings 61,332 51,601 - ------------------------------------------------------------------------------------- Total shareholders' equity 77,734 66,061 - ------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $125,521 $106,470 - ------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. [15] CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended January 31, ---------------------------------------- (In thousands, except share and per share data) 1996 1995 1994 - ---------------------------------------------------------------------------------------------------- Revenues $ 245,306 $ 236,878 $ 181,584 Cost of sales 165,765 159,462 116,350 - ---------------------------------------------------------------------------------------------------- Gross profit 79,541 77,416 65,234 Selling, general and administrative expenses 60,079 55,680 43,286 - ---------------------------------------------------------------------------------------------------- Operating income 19,462 21,736 21,948 Interest expense (1,099) (1,120) (321) Other income, primarily interest income 343 538 364 - ---------------------------------------------------------------------------------------------------- Income before provision for income taxes and cumulative effect of change in accounting for income taxes 18,706 21,154 21,991 Provision for income taxes 8,044 9,171 8,820 - ---------------------------------------------------------------------------------------------------- Income before cumulative effect of change in accounting for income taxes 10,662 11,983 13,171 Cumulative effect of change in accounting for income taxes 177 - ---------------------------------------------------------------------------------------------------- Net income $ 10,662 $ 11,983 $ 13,348 - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- Income per common and common equivalent share before cumulative effect of change in accounting for income taxes $ 1.34 $ 1.50 $ 1.65 Cumulative effect of change in accounting for income taxes .02 - ---------------------------------------------------------------------------------------------------- Net income per common and common equivalent share $ 1.34 $ 1.50 $ 1.67 - ---------------------------------------------------------------------------------------------------- Weighted average number of common and common equivalent shares outstanding 7,945,146 7,994,233 7,971,854 - ---------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. [16] CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended January 31, -------------------------------------- (In thousands) 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------- Operating activities Net income $ 10,662 $ 11,983 $ 13,348 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 9,724 8,651 5,520 Amortization of intangible assets 1,088 1,127 362 Provision for losses on trade receivables 1,486 2,038 579 Deferred income taxes (2,583) (2,390) 2,336 Change in deferred compensation 582 600 Cumulative effect of change in accounting for income taxes (177) Changes in operating assets and liabilities, net of effects from business acquisitions Trade receivables (10,768) (1,946) (6,636) Work in process inventories (3,891) 4,814 (5,728) Other inventories (709) (540) (74) Other current assets 315 (31) (437) Accounts payable 1,594 (126) 3,026 Accrued expenses 2,142 (368) 3,710 Income taxes (89) (380) (2,196) - -------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 9,553 23,432 13,633 - -------------------------------------------------------------------------------------------------------------------- Investing activities Purchase of property, plant and equipment (12,487) (10,085) (7,620) Business acquisitions, net of cash acquired (993) (16,069) Other (727) (553) (350) - -------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (13,214) (11,631) (24,039) - -------------------------------------------------------------------------------------------------------------------- Financing activities Borrowings on note payable to bank 51,700 28,100 7,700 Repayments on note payable to bank (45,700) (30,700) (5,100) Principal payments on long-term debt and capital lease obligations (1,243) (2,273) (117) Dividends paid (931) (908) (741) Tax benefit realized upon exercise of stock options 1,451 863 1,103 Other equity transactions, net 491 526 557 - -------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 5,768 (4,392) 3,402 - -------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 2,107 7,409 (7,004) Cash and cash equivalents, beginning of year 9,967 2,558 9,562 - -------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 12,074 $ 9,967 $ 2,558 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Supplemental cash flow disclosures Income taxes paid $ 9,268 $ 11,088 $ 7,574 Interest paid 880 1,019 310 - -------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. [17] CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended January 31, 1996, 1995, 1994 --------------------------------------------------- Additional Common Paid-in Retained (In thousands, except per share data) Stock Capital Earnings Total - ------------------------------------------------------------------------------------------------------------------- Balance, January 31, 1993 $73 $11,338 $27,919 $39,330 Exercise of stock options 2 579 581 Tax benefit realized upon exercise of stock options 1,103 1,103 Other (24) (24) Cash dividends ($.10 per share) (741) (741) Net income 13,348 13,348 - ------------------------------------------------------------------------------------------------------------------- Balance, January 31, 1994 $75 $12,996 $40,526 $53,597 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Exercise of stock options 1 496 497 Tax benefit realized upon exercise of stock options 863 863 Other 29 29 Cash dividends ($.12 per share) (908) (908) Net income 11,983 11,983 - ------------------------------------------------------------------------------------------------------------------- Balance, January 31, 1995 $76 $14,384 $51,601 $66,061 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Exercise of stock options 2 374 376 Tax benefit realized upon exercise of stock options 1,451 1,451 Other 115 115 Cash dividends ($.12 per share) (931) (931) Net income 10,662 10,662 - ------------------------------------------------------------------------------------------------------------------- Balance, January 31, 1996 $78 $16,324 $61,332 $77,734 - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. [18] NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS The Company provides document typesetting, printing, reproduction, distribution and publishing services to financial, legal, corporate, insurance and commercial markets worldwide. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant areas which require the use of management's estimates relate to the determination of the allowances for uncollectible accounts receivable, sales credits and obsolete inventory. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include all majority-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. CASH EQUIVALENTS The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. WORK IN PROCESS INVENTORIES Work in process, which includes purchased services, materials, direct labor and overhead, is valued at the lower of cost or net realizable value, with cost determined on the specific job cost basis. OTHER INVENTORIES Other inventories consist primarily of paper and printed materials and are valued at the lower of cost or market, with cost determined at specific cost, which approximates market. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Significant additions or improvements extending asset lives are capitalized; normal maintenance and repair costs are expensed as incurred. Depreciation is determined using the straight-line method over the estimated useful lives of the assets which range from three to thirty years. Amortization of leasehold improvements is recorded on a straight-line basis over the estimated useful lives of the assets or the lease term, whichever is shorter. When assets are sold or retired, related gains or losses are included in the results of operations. GOODWILL Goodwill recognized in business acquisitions accounted for as purchases is being amortized on the straight-line method, principally over 15 years. The Company periodically evaluates the recoverability of unamortized goodwill through measurement of future estimated undiscounted operating unit cashflows. Notes to Consolidated Financial Statements [19] INCOME TAXES Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. REVENUE RECOGNITION The Company recognizes revenue when service projects are completed or products are shipped. NET INCOME PER SHARE Net income per common and common equivalent share is computed by dividing net income by the weighted average number of shares of common stock and dilutive common equivalent shares outstanding during each period. Common stock equivalents result from dilutive stock options computed using the treasury stock method. Fully diluted earnings per share did not differ from primary earnings per share in the periods presented. NOTE 2 - SELECTED FINANCIAL STATEMENT DATA
As of January 31, ----------------------- (In thousands) 1996 1995 - ------------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT Land $ 1,951 $ 853 Buildings 11,389 6,911 Equipment 37,907 32,450 Furniture and fixtures 8,228 7,530 Leasehold improvements 6,831 6,563 Construction in progress 404 1,577 - ------------------------------------------------------------------------------------- 66,710 55,884 Less accumulated depreciation and amortization (35,029) (26,966) - ------------------------------------------------------------------------------------- $ 31,681 $ 28,918 - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- GOODWILL Goodwill $ 12,597 $ 12,597 Less accumulated amortization (2,069) (1,174) - ------------------------------------------------------------------------------------- $ 10,528 $ 11,423 - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- ACCRUED EXPENSES Commissions and compensation $ 7,906 $ 7,898 Pension retirement plan 3,620 3,403 Other 3,425 1,508 - ------------------------------------------------------------------------------------- $ 14,951 $ 12,809 - ------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------
[20] Notes to Consolidated Financial Statements NOTE 3 - BUSINESS ACQUISITIONS On December 31, 1993, the Company purchased substantially all of the operating assets and assumed certain liabilities of May Printing Company, and obtained related covenants not to compete, for approximately $16 million in cash and a promissory note payable for $2.5 million. The agreement called for an additional contingent consideration, not to exceed $2 million, which was based on pretax earnings for the 12 months ended January 31, 1995, generated from the net assets acquired as defined in the purchase agreement. Management anticipates that there will be no contingent consideration paid. The excess of the purchase price over the estimated fair market value of the net identifiable assets acquired was approximately $11.5 million and is being amortized using the straight-line method over 15 years. The acquisition has been accounted for as a purchase. Results of operations since the purchase date are included in the Consolidated Statements of Operations. Pro forma data (unaudited) as though the acquisition had been effective February 1, 1993, is as follows: (In thousands, except per share data) Year Ended January 31, 1994 - -------------------------------------------------------------------------------- Revenue $208,797 Net income 14,325 Net income per share 1.79 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- On November 10, 1994, the Company purchased substantially all of the operating assets and assumed certain liabilities of Fourtress Reprographic Services, Inc., for approximately $647,000 cash. On June 1, 1993, the Company acquired the outstanding stock of Torrie Enterprises, LTD, doing business as Atwell Fleming Printing in Toronto, Ontario, for approximately $873,000 in cash. These acquisitions, accounted for as purchases, were not significant to the consolidated financial position or results of operations of the Company. Notes to Consolidated Financial Statements [21] NOTE 4 - FINANCIAL AGREEMENTS BANK FINANCING In August 1995, the Company amended its revolving credit agreement, which provides for a $15 million unsecured bank line of credit through May 31, 1997. Borrowings under the line of credit were $6.0 million at January 31, 1996, and bear interest at the bank's reference rate (8.5% at January 31, 1996 and 1995). There were no borrowings outstanding under this line of credit at January 31, 1995. Under the amended agreement, the Company has the option to borrow at the bank's reference rate, at 1.0% above the London Interbank Offered Rate or at 0.85% above a certificate of deposit-based rate, and is required to pay a commitment fee of 0.25% on the unused portion of the line annually. The weighted average interest rate on the note payable was 8.83%, 7.18% and 5.75% for the years ended 1996, 1995 and 1994, respectively. The revolving credit agreement includes various covenants, including the maintenance of minimum tangible net worth and limitations on the amounts of certain transactions without the approval of the bank. LONG-TERM DEBT Long-term debt consisted of the following:
As of January 31, ---------------------- (In thousands) 1996 1995 - ---------------------------------------------------------------------------------------------------- Industrial development bonds, due in semiannual installments including interest ranging from 7.0% to 8.375% over the life of the bonds with the remaining unpaid balance due on August 1, 2010; collateralized by land, building and equipment with a carrying value of $4,884 at January 31, 1996. $ 3,660 $ 3,785 Unsecured promissory note payable in equal installments of $500 on December 31 through 1999. The note bears interest at the prime rate and is payable annually. The prime interest rate at January 31, 1996 and 1995, was 8.5%. 1,500 2,000 Other notes 135 255 - ---------------------------------------------------------------------------------------------------- 5,295 6,040 Less current maturities (770) (745) - ---------------------------------------------------------------------------------------------------- $ 4,525 $ 5,295 - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- The aggregate maturities of long-term debt are as follows: (In thousands) - ---------------------------------------------------------------------------------------------------- 1997 $ 770 1998 645 1999 655 2000 170 2001 180 Thereafter 2,875 - ---------------------------------------------------------------------------------------------------- $ 5,295 - ---------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------
[22] Notes to Consolidated Financial Statements NOTE 5 - LEASES The Company leases an office and production facility and the associated land and equipment under capital leases that terminate at various dates through November 30, 2005. Certain leases contain bargain purchase options. A summary of the Company's property under capital leases, which is classified as property, plant and equipment, is as follows:
As of January 31, --------------------- (In thousands) 1996 1995 - ---------------------------------------------------------------------- Land $ 333 $ 333 Building 2,439 2,439 Equipment 542 1,552 Less accumulated amortization (856) (872) - ---------------------------------------------------------------------- $2,458 $3,452 - ---------------------------------------------------------------------- - ----------------------------------------------------------------------
The Company also leases office space and equipment under noncancelable operating leases which expire at various dates through December of 2000. Rental expense charged to operations on noncancelable operating leases was $4,664,000, $4,523,000 and $3,303,000, for the years ended January 31, 1996, 1995 and 1994, respectively. Future minimum rental commitments under noncancelable leases at January 31, 1996, are as follows:
Capital Operating (In thousands) Leases Leases - ------------------------------------------------------------------------------------- 1997 $ 544 $2,954 1998 445 2,148 1999 368 1,388 2000 341 713 2001 341 Thereafter 1,505 - ------------------------------------------------------------------------------------- $3,544 $7,203 ------ ------ Imputed interest (1,077) - ---------------------------------------------------------------------- Present value of minimum lease payments 2,467 Less current maturities of obligations under capital leases (538) - ---------------------------------------------------------------------- Long-term obligations under capital leases $1,929 - ---------------------------------------------------------------------- - ----------------------------------------------------------------------
Notes to Consolidated Financial Statements [23] NOTE 6 - INCOME TAXES The Company adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, effective February 1, 1993. The cumulative effect of this change in accounting for income taxes as of February 1, 1993, was to increase net income by $177,000 ($.02 per share) and is reported separately in the Consolidated Statement of Operations for the year ended January 31, 1994. The federal and state components of the provision for income taxes are as follows:
As of January 31, ------------------------------------- (In thousands) 1996 1995 1994 - ------------------------------------------------------------------------------------- Currently payable Federal $ 9,203 $ 9,879 $ 5,394 State 1,424 1,682 1,090 - ------------------------------------------------------------------------------------- 10,627 11,561 6,484 Deferred (2,583) (2,390) 2,336 - ------------------------------------------------------------------------------------- Provision for income taxes $ 8,044 $ 9,171 $ 8,820 - ------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------
Temporary differences comprising the net deferred tax asset (liability) recognized in the accompanying Consolidated Balance Sheet are as follows:
As of January 31, ---------------------- (In thousands) 1996 1995 - ---------------------------------------------------------------------- Capital loss carryforward $ 994 Allowance for doubtful accounts $ 1,383 1,089 Deferred compensation 576 344 Work in process inventories (2,068) (3,386) Depreciation 351 (272) Other 644 528 Deferred tax valuation allowance (994) - ---------------------------------------------------------------------- Net deferred tax asset (liability) $ 886 $(1,697) - ---------------------------------------------------------------------- - ----------------------------------------------------------------------
Management expects that the Company will fully realize the benefits attributable to the net deferred tax asset at January 31, 1996. Accordingly, no valuation allowance has been recorded at January 31, 1996. The capital loss carryforward expired unused in 1996. Significant differences between income taxes on income for financial reporting purposes and income taxes calculated using the federal statutory tax rate are as follows:
As of January 31, ------------------------------------ (In thousands) 1996 1995 1994 - ------------------------------------------------------------------------------------- Provision for federal income taxes at statutory rate $6,547 $7,404 $7,697 State income taxes, net of federal benefit 695 1,039 842 Nondeductible business meeting and entertainment expenses 778 565 172 Other 24 163 109 - ------------------------------------------------------------------------------------- $8,044 $9,171 $8,820 - ------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------
[24] Notes to Consolidated Financial Statements NOTE 7 - RETIREMENT PLAN The Company has a defined contribution retirement plan covering substantially all employees. Contributions to the plan are based on 7% of eligible employee compensation. Costs charged to operations were $3,620,000, $3,403,000 and $2,553,000 for the years ended January 31, 1996, 1995 and 1994, respectively. NOTE 8 - SHAREHOLDERS' EQUITY COMMON STOCK The classes, series, rights and preferences of the undesignated stock may be established by the Company's Board of Directors. No action with respect to such shares has been taken. STOCK PLANS 1993 STOCK INCENTIVE PLAN Under the Company's 1993 Stock Incentive Plan, 500,000 shares of common stock were reserved for granting of incentive awards to employees in the form of incentive stock options, nonstatutory stock options and restricted stock awards, at exercise prices not less than 100% of the fair market value of the Company's common stock on the date of the grant. During 1996 the Company increased the number of common shares reserved for issuance to 1,000,000 shares. As of January 31, 1996, nonstatutory options for 677,850 shares had been granted under the plan, leaving 322,150 shares available for future grants. 1987 OMNIBUS STOCK PLANS Under the Company's 1987 Omnibus Stock Plan, 800,000 shares of common stock were reserved for granting of incentive awards to employees in the form of incentive stock options, nonstatutory stock options or restricted stock awards, at exercise prices not less than 100% of the fair market value of the Company's common stock on the date of the grant. As of January 31, 1996, incentive stock options for 108,666 shares, nonstatutory options for 668,800 shares and restricted stock awards for 19,300 shares had been granted under the plan, leaving 3,234 shares available for future grants. NONQUALIFIED OPTIONS In addition to options granted under the plans, the Company has granted nonqualified options to directors and consultants at prices equal to or exceeding market value at date of grant. Notes to Consolidated Financial Statements [25] A summary of selected information regarding all stock options for the three years ended January 31, 1996, is as follows:
Shares Price Per Share - ------------------------------------------------------------------------------------- Balance, January 31, 1993 770,600 $ 3.37 - 14.06 Granted 401,000 17.50 - 29.50 Exercised (139,466) 3.37 - 10.50 Canceled (9,200) 3.37 - 3.87 - ------------------------------------------------------------------------------------- Balance, January 31, 1994 1,022,934 3.37 - 29.50 Granted 110,664 14.56 - 29.75 Exercised (113,134) 3.37 - 17.50 Canceled (34,500) 3.87 - 17.37 - ------------------------------------------------------------------------------------- Balance, January 31, 1995 985,964 3.37 - 29.75 Granted 304,500 16.25 - 18.50 Exercised (278,300) 3.37 - 17.37 Canceled (84,850) 17.37 - 29.75 - ------------------------------------------------------------------------------------- Balance, January 31, 1996 927,314 $ 4.00 - 29.75 - ------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------
Options for 307,564 shares were exercisable at January 31, 1996. ACCOUNTING FOR STOCK BASED COMPENSATION In October 1995, the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock Based Compensation." This statement establishes financial accounting and reporting standards for stock-based employee compensation plans. The Company intends to follow the option that permits companies to apply current accounting standards for stock-based employee compensation. Effective with fiscal year-end 1997 reporting, the Company will disclose proforma net income and net income per share amounts as if Statement No. 123 were applied. [26] Notes to Consolidated Financial Statements NOTE 9 - QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of unaudited quarterly financial data for fiscal years 1996 and 1995:
First Second Third Fourth (In thousands except per share data) Quarter Quarter Quarter Quarter Total - ------------------------------------------------------------------------------------------------------------------- 1996 Revenues $57,432 $62,703 $62,475 $62,696 $245,306 - ------------------------------------------------------------------------------------------------------------------- Gross profit 18,616 18,888 20,986 21,051 79,541 - ------------------------------------------------------------------------------------------------------------------- Net income 2,076 2,714 3,035 2,837 10,662 - ------------------------------------------------------------------------------------------------------------------- Net income per share .26 .34 .38 .36 1.34 - ------------------------------------------------------------------------------------------------------------------- Dividends declared per share .03 .03 .03 .03 .12 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- 1995 Revenues $61,463 $63,679 $57,474 $54,262 $236,878 - ------------------------------------------------------------------------------------------------------------------- Gross profit 23,016 21,762 16,921 15,717 77,416 - ------------------------------------------------------------------------------------------------------------------- Net income 4,699 4,396 2,205 683 11,983 - ------------------------------------------------------------------------------------------------------------------- Net income per share .58 .55 .28 .09 1.50 - ------------------------------------------------------------------------------------------------------------------- Dividends declared per share .03 .03 .03 .03 .12 - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
NOTE 10 - SUBSEQUENT EVENTS On March 28, 1996, the Company purchased all of the issued and outstanding shares of FMC Resource Management Corporation (FMC), a managed communication business based in the Pacific Northwest, for $5.4 million cash and a $2 million promissory note, plus contingent cash consideration of up to $4 million, dependent on FMC's future performance, as defined by the purchase agreement. On April 15, 1996, the Company purchased certain assets and assumed certain liabilities of the Corporate Printing Company, a financial printer with offices on the east coast, for approximately $23.6 million cash and a $3 million payable, plus contingent cash consideration of up to $14.5 million, as defined by the purchase agreement. During the first quarter of fiscal 1997, the Company's Board of Directors approved the repurchase of up to 750,000 shares of the Company's common stock. Notes to Consolidated Financial Statements [27] SUMMARY OF OPERATING AND FINANCIAL DATA
For the Years Ended January 31, (In thousands, except employee, ----------------------------------------------------------------------------------- per share data and ratios) 1996 1995 1994 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------------------- Operating results Revenues $245,306 $236,878 $181,584 $147,716 $125,312 $100,951 Costs and expenses 226,600 215,724 159,593 133,552 114,559 96,825 Income before provision for income taxes 18,706 21,154 21,991 14,164 10,753 4,126 Provision for income taxes 8,044 9,171 8,820 5,565 4,308 1,570 Net income 10,662 11,983 13,348 8,599 6,518 2,671 - ---------------------------------------------------------------------------------------------------------------------------------- Per common share Net income $ 1.34 $ 1.50 $ 1.67 $ 1.12 $ .86 $ .37 Book value 9.90 8.69 7.15 5.36 4.11 3.20 - ---------------------------------------------------------------------------------------------------------------------------------- Financial data/other Working capital $ 39,379 $ 31,523 $ 22,528 $ 24,650 $ 17,550 $ 9,388 Current ratio 2.0 2.0 1.6 2.1 1.9 1.4 Total assets $125,521 $106,470 $100,123 $ 66,042 $ 52,954 $ 46,892 Shareholders' equity 77,734 66,061 53,597 39,330 29,116 22,486 Return on average shareholders' equity 14.8% 20.0% 28.7% 25.1% 25.3% 12.4% Long-term obligations $ 6,454 $ 7,522 $ 8,656 $ 2,138 $ 2,230 $ 2,314 Long-term obligations to capitalization 7.7% 10.2% 13.9% 5.2% 7.1% 9.3% Number of employees 1,932 1,739 1,601 1,041 831 784 - ---------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------
[28] REPORT OF INDEPENDENT AUDITORS To the Shareholders and Board of Directors of Merrill Corporation: We have audited the accompanying consolidated balance sheets of Merrill Corporation as of January 31, 1996 and 1995, and the related consolidated statements of operations, cash flows and changes in shareholders' equity for each of the three years in the period ended January 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Merrill Corporation as of January 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended January 31, 1996, in conformity with generally accepted accounting principles. As discussed in Note 6 to the consolidated financial statements, the Company changed its method of accounting for income taxes effective February 1, 1993. /s/ Coopers & Lybrand L.L.P. Coopers & Lybrand L.L.P. St. Paul, Minnesota March 19, 1996, except as to Note 10, for which the date is April 15, 1996. [29] EX-21.1 8 SUBSIDIARIES OF THE COMPANY Exhibit 21.1 SUBSIDIARIES OF THE COMPANY
JURISDICTION OF NAME INCORPORATION PERCENT OWNED - --------------------------------------------------------------------- --------------- ------------- Merrill/New York Company............................................. Minnesota 100% Merrill/Magnus Publishing Corporation................................ Minnesota 100% Merrill Corporation, Canada d/b/a Merrill Atwell Fleming............. Ontario 100% Merrill/May, Inc..................................................... Minnesota 100% Merrill International Inc............................................ Minnesota 100% Merrill Real Estate Company.......................................... Minnesota 100% FMC Resource Management Corporation.................................. Washington 100%
EX-23.1 9 CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statement on Forms S-8 of Merrill Corporation (File No. 33-46275 and File No. 33-52623 of our report dated March 19, 1996, except as to Note 10, for which the date is April 15, 1996, on our audits of the consolidated financial statements of Merrill Corporation as of January 31, 1996 and 1995, and for each of the three years in the period ended January 31, 1996, which report is incorporated by reference in this Annual Report on Form 10-K, and our report dated March 19, 1996, on the related financial statement schedule included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Minneapolis, Minnesota April 29, 1996 EX-27 10 EXHIBIT 27 (FDS)
5 1,000 12-MOS JAN-31-1996 FEB-01-1995 JAN-31-1996 12,074 0 52,111 3,545 16,133 79,236 66,710 35,029 125,521 39,857 7,762 0 0 78 77,656 125,521 245,306 245,306 165,765 165,765 60,079 1,486 1,099 18,706 8,044 10,662 0 0 0 10,662 1.34 1.34
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