-----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, IH5iK2GYs6/LuhEst0oyPKuAPUo4in9qlVhj+neReVhgC5YMGvyt0kWf6QRO1/6B /BqXJVIYPfNz3ESahBc2fQ== 0001047469-99-017817.txt : 19990505 0001047469-99-017817.hdr.sgml : 19990505 ACCESSION NUMBER: 0001047469-99-017817 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990503 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: SEC FILE NUMBER: 000-14082 FILM NUMBER: 99609353 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 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES 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, 1999 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________. COMMISSION FILE NUMBER: 0-14082 ------------------------ 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: (651) 646-4501 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $.01 PER SHARE ------------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes ____ No _X_ As of April 15, 1999, 15,919,680 shares of Common Stock of the Registrant were outstanding, and the aggregate market value of the Common Stock of the Registrant as of that date (based upon the last reported sale price of the Common Stock on that date by the Nasdaq National Market) excluding outstanding shares owned beneficially by officers and directors, was approximately $190,391,201. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the Fiscal Year ending Parts I, II and January 31, 1999............................................................. IV Portions of the Proxy Statement for the 1999 Annual Meeting of Shareholders.... Part III
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS INTRODUCTION Merrill Corporation provides a full range of typesetting, printing, document management and reproduction, distribution and marketing communication services to financial, legal, investment companies and corporate markets. Our headquarters are in St. Paul, Minnesota and we have 35 other locations in major cities across the United States, including seven regional printing plants and two distribution centers. We also service financial and corporate printing clients internationally with strategic relationships in Canada, Europe, Asia and Australia, and through arrangements with printing companies in many cities around the world. In June 1998, we acquired substantially all of the assets of Executech, Inc. and World Wide Scan Services, LLC through our wholly-owned subsidiary Merrill/Executech, Inc. Merrill/ Executech, Inc. provides an electronic document imaging, coding and retrieval system for law firms and corporate law departments. In April 1999, we acquired substantially all of the assets of Daniels Printing, Limited Partnership, through our wholly-owned subsidiary Merrill Daniels, Inc. Merrill Daniels, Inc. provides financial, corporate and commercial printing services. Merrill Corporation is a Minnesota corporation that was organized in 1968 under the name "K.F. Merrill Company." Our main offices are at One Merrill Circle, Energy Park, St. Paul, Minnesota 55108, telephone (651) 646-4501. NOTE THAT THROUGHOUT THIS FORM 10-K, WE "INCORPORATE BY REFERENCE" CERTAIN INFORMATION IN PARTS OF OTHER DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC). THE SEC ALLOWS US TO DISCLOSE IMPORTANT INFORMATION BY REFERRING TO IT IN THAT MATTER. PLEASE REFER TO SUCH INFORMATION. BUSINESS SEGMENTS We have two reportable segments: Specialty Communication Services and Document Services. Under specialty communication services, we include three business units: Financial Document Services, Investment Company Services and Managed Communications Programs. Revenue generated by these three business units is categorized as financial, corporate and commercial and other. Document Management Services is the sole business unit reported in the document services segment. Revenue generated by this business unit is categorized as Document Management Services. For additional information, please see pages 16, 17 and 34 of our 1999 Annual Report to Shareholders, which is incorporated by reference into this Form 10-K. On February 1, 1999, we created a fifth line of business called the Merrill Print Group. This business unit manages all of our printing operations. The Merrill Print Group will be included within our reportable segment--specialty communication services. DESCRIPTION OF BUSINESS We are a document management and services company using advanced computer and telecommunications technology to provide a full range of services to our customers. Specifically, we provide typesetting, printing, electronic document formation and distribution, electronic imaging, coding and scanning, reproduction, facilities management, distribution and marketing communication services. 1 REVENUE CATEGORIES OF SERVICE The following table shows the percentage of revenue we have produced in each reportable segment for our past three fiscal years:
PERCENTAGE OF REVENUE YEAR ENDING JANUARY 31, ------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Specialty Communications Services: Financial................. 36.5% 38.2% 40.6% Corporate................. 31.4% 31.6% 27.6% Commercial & Other........ 19.7% 18.5% 20.6% ----- ----- ----- 87.6% 88.3% 88.8% Document Services........... 12.4% 11.7% 11.2% ----- ----- ----- Total................... 100.0% 100.0% 100.0% ----- ----- ----- ----- ----- -----
SPECIALTY COMMUNICATION SERVICES FINANCIAL AND CORPORATE REVENUE OVERVIEW OF PRODUCTS AND SERVICES. The financial revenue category includes the production and distribution (electronic and paper) of time-sensitive, transactional financial documents, such as registration statements, prospectuses and other printed materials that are part of business financings and acquisitions. These documents are marketed through our Financial Document Services business unit. Our corporate revenue category includes the production and distribution (electronic and paper) of regulatory compliance and marketing documents that are prepared at regular intervals and includes documents marketed through both our Financial Document Services and Investment Company Services business units. Examples of these documents are: - - annual and quarterly reports for public companies; - - proxy materials for public companies and investment companies; - - registration statements for unit investment trusts, mutual funds and variable annuities; and - - financial reports and marketing materials for unit investment trusts, mutual funds and variable annuities. ELECTRONIC DISTRIBUTION OF PRODUCTS AND SERVICES. Our financial and corporate revenue categories also include revenue from the electronic distribution of transactional and regulatory compliance and marketing documents. Both the SEC and the Canadian Securities Administrators (CSA) require public companies or their agents to file most disclosure information in an electronic format. The SEC currently requires these filings to be made in ASCII text format (American Standard Code for Information Interchange), with optional HTML format (Hypertext Mark-up Language) filings beginning in May 1999. In May 1999, the SEC will also permit courtesy copy filings in PDF formats (Portable Document Format). The CSA requires their regulatory filings to be made in PDF, Microsoft Word or WordPerfect formats. We offer electronic filing with both the SEC, through the EDGAR system, and CSA, through the SEDAR system. In addition to our EDGAR and SEDAR services, we also electronically distribute transactional, regulatory compliance and marketing documents through the Internet (through a dedicated web-site or through a client's web-site) and e-mail. We use the following products for document creation, preparation and electronic distribution to our clients: - - MERRILL E-COLLABORATE-TM- is a web-based document management tool that is designed to streamline the creation of time sensitive documents. It provides a secure electronic work space where working group members can offer comments and review our proofs instantly, without having to wait for couriers or standard e-mail messages. MERRILL E-COLLABORATE-TM- also has a built in address book with e-mail capabilities, a group discussion area and links to various securities law publications. - - MERRILL E:PROOF-TM- is an electronic distribution method of typeset and EDGAR documents through Internet e-mail or a secure point-to-point connection. Documents distributed through MERRILL E:PROOF-TM- can be viewed on-screen, distributed by e-mail or printed as hard copy from any computer with access to e-mail and a printer. MERRILL E:PROOF-TM- eliminates the need for time-consuming and 2 costly couriers, faxes and mail services. All documents distributed via MERRILL E:PROOF-TM- are password protected and encrypted to ensure a secure document. - - MERRILL< >LINK-TM- permits a client to receive sharp, clear page proofs right in a client's office without the necessity of couriers, e-mail or faxes through the use of a remote printer. MERRILL< >LINK-TM- has multiport capabilities permitting printers in multiple locations to receive proof pages simultaneously. All proofs distributed through MERRILL< >LINK-TM- exactly mirror the printed document. - - MBD< >LINK-TM- offers clients the ability to print a blueline directly in their office, eliminating the need for courier and overnight delivery of bluelines. MBD< >LINK-TM- generates a full-size booklet-form blueline with color breaks represented. INVESTMENT COMPANY SERVICES' SOFTWARE TOOLS. A growing and increasingly important portion of our corporate revenue category includes license, maintenance and other fees for several software products used by our clients in managing, creating, disseminating and otherwise distributing corporate documents. We offer the following software tools to our investment companies: - - MERRILL TEXTMANAGER-TM- is a Microsoft Word-based tool that allows a mutual fund client to create, manage and share text among multiple users, facilitating collaboration within and among teams. MERRILL TEXTMANAGER-TM- creates an electronic library of text that can be accessed and retrieved. It also tracks changes within individual documents and changes among groups of documents. - - MERRILLREPORTS-TM- is a software program that assists investment companies in preparing its shareholder reports by automating the process of creating, typesetting and transmitting financial reports. MERRILLREPORTS-TM- is customized to fit a fund's accounting system and is customized to the specific requirements of each fund's financial mapping and style. MERRILLREPORTS-TM- allows a mutual fund to create and distribute its own proofs internally and to its filing agent. - - MERRILLCONNECT-TM- is an integrated software system that completely manages the sales and marketing process for investment companies including: (i) order entry; (ii) database management; and (iii) fulfillment. The system combines sales tracking and marketing activity information with actual cash flows through an interface with a fund's transfer agent. MERRILLCONNECT-TM- also gives investment companies the ability to accept orders directly through the Internet (either through an investment company's own web-site or on a site hosted by us). - - ELECTRONIC DISTRIBUTION SERVICES (EDS) is a client consent database system designed to comply with SEC regulations requiring fund companies to obtain consent from an investor before sending them electronic information. EDS manages the process by keeping a database of client consent replies, as well as client preferences for diskette, CD-ROM or Internet distribution. MARKETING OF FINANCIAL AND CORPORATE REVENUE PRODUCTS. Our Financial Document Services business unit is responsible for marketing our financial and corporate revenue products to executives of corporations whose securities are or are about to be publicly traded and to their advisers (corporate finance underwriters, municipal bond underwriters, and attorneys). We sell these products and services nationwide through a direct sales organization operating from our service facilities and sales offices. We market in Canada through employees of our joint venture, Quebecor Merrill Canada Inc. Internationally, we sell with Burrups, Ltd. through direct sales by employees of each company. Our Investment Company Services business unit is responsible for marketing our financial and corporate revenue products to mutual fund, variable annuity and unit investment trust managers. We sell these products nationwide through a direct sales organization operating from our service facilities and sales offices. 3 MARKET FLUCTUATIONS AND SEASONALITY. Our financial revenue category is affected by conditions in the United States' capital markets. Our revenue and operating results in this revenue category depends upon the volume of public financings and mergers and acquisition activities, which are influenced by corporate funding needs, stock market fluctuations, prevailing interest rates, and general economic and political conditions. A portion of our corporate revenue is seasonal as the greatest number of proxy statements, 10-Ks and annual reports are required to be printed during our first fiscal quarter. COMMERCIAL AND OTHER REVENUE OVERVIEW OF PRODUCTS AND SERVICES. The commercial and other revenue category includes the following document services: - - custom marketing communication services to corporate customers; - - creation, production, management and distribution services for branded marketing, corporate and compliance materials for large, geographically dispersed national customers with large employee, sales or agent bases; multiple franchisees, locations, divisions or affiliates; or large customer bases. These include real estate companies, financial service companies, healthcare organizations, travel and hospitality companies, retailers and the general business market. In addition to the above services, the commercial and other revenue category includes revenue from the production of other commercial documents including: - - health care provider directories, - - price catalogs, - - insurance industry annual reports, - - sample ballots, - - directories, and - - technical manuals. In 1999, we introduced several new products to assist our clients sell more real estate. One is called MERRILL NET:PROSPECT PLUS-TM-, a turnkey, on-line management and direct mail fulfillment system, customizable to individual real estate broker specifications. We also launched MERRILL PREFERRED PAGES-TM-, a professional agent and broker web-site design and hosting service. MERRILL PREFERRED PAGES-TM- provides valuable consumer content, including personal information, property listings, open house listings, school data, mortgage calculators and home buying articles. MARKETING OF COMMERCIAL AND OTHER REVENUE. Our Managed Communications Programs business unit is responsible for marketing our commercial and other revenue products to large, geographically dispersed national customers with large employee, sales or agent bases; multiple franchisees, locations, divisions or affiliates; or large customer bases. We sell our services primarily to real estate companies, financial service companies, healthcare organizations, travel and hospitality companies, retailers and the general business market. We sell our Managed Communications Programs services nationwide through the Internet, direct mail and telemarketing, operating from our service facilities and sales offices located primarily in St. Cloud, Minnesota and Monroe, Washington and through a newly established, regionally based direct sales force. Since our program typically changes the way our clients run their businesses, our sales cycle for our Managed Communications Programs products is typically 12 to 18 months, with an additional 12 to 18 months to implement the new program for the customer. DOCUMENT SERVICES DOCUMENT MANAGEMENT SERVICES REVENUE OVERVIEW OF PRODUCTS AND SERVICES. We provide comprehensive document management services for our customers. We work both on an ongoing basis, which can include management of the client's entire photocopying, desktop publishing, imaging and/or mailroom facilities, and on a transactional basis, which includes photocopying, electronic imaging and scanning services as needed. We also provide a software product that allows a customer to electronically image, code and retrieve documents for litigation management. We license this software product separately to clients or as a part of our overall document management and imaging programs. 4 We offer comprehensive office photocopying, desktop publishing and mailroom facility management services to our customers in Document Service Centers (DSCs) within their offices. Our services include providing a client's total document management needs, including on-site employees, equipment and management of the operation. We typically enter into three-year agreements with our clients to provide a range of services at their location. We help our customers determine their needs, and provide the equipment, staff, and management to meet those needs. Since most of our DSCs are located in cities where we have our own service facilities, we can provide back-up capacity and personnel to our DSC customers as needed. The transactional portion of our document management services revenue includes document reproduction for projects that are time-sensitive or otherwise require special services, such as photocopying or imaging documents for large litigation matters. We produce the photocopies and images at our own service facilities or we place photocopying or imaging equipment and personnel at the client's office. Document reproduction services require rapid turnaround and availability twenty-four hours per day. Our document reproduction customers typically have several boxes of documents that may be in file folders, stapled or on varying sizes of paper. We take apart, photocopy or image and reassemble the original documents as instructed by the client. We also provide sequential numbering, binding and indexing services for these documents, if requested. These services are provided manually, if we are photocopying documents and electronically, through E-TECH-TM-, if we are imaging documents. Photocopying and imaging projects range from single copies of short documents to very complicated tasks. Our service facilities include document management equipment and personnel. Each service facility is equipped with high-performance photocopying equipment. We also operate document reproduction facilities in Los Angeles (3 centers) and San Francisco, California; Denver, Colorado; St. Paul, Minnesota; Chicago, Illinois; Dallas and Houston, Texas; Boston, Massachusetts; Union, New Jersey; and Washington, D.C. With our acquisition of Executech, Inc. and World Wide Scan Services, LLC in fiscal 1999, we now offer our clients another tool for litigation management--E-TECH-TM-. Our E-TECH-TM- software is a document imaging, coding and retrieval system that enables our customers to analyze, sort, folder, annotate, edit and print litigation documents. As part of the total solution to litigation management, using E-TECH-TM-, we also offer: - - scanning--performed at our customer's site or at a local Merrill facility; - - coding--completed from images and performed by us or our customer's staff; - - systems integration/technical support-- including installation and customized programming services if requested; and - - central site repositories-- providing customers the flexibility to store documents at our central locations. Our E-TECH-TM- software also electronically captures email files and their attached documents. This module, EFD, automatically extracts bibliographic information, such as dates, sender and all recipients including carbon and blind copies, preserves all attachment relationships and automatically extracts textual content on a page basis for full text searches. MARKETING OF DOCUMENT MANAGEMENT SERVICES REVENUE. Our Document Management Services business unit is responsible for marketing our Document Management Services products to lawyers, paralegals, law office administrators, and legal departments of corporations. We sell our Document Management Services nationwide through a direct sales organization operating from our service facilities and sales offices. PRINTING OPERATIONS AND PRODUCTION OF DOCUMENTS MANUFACTURING CAPABILITIES We operate financial and corporate printing plants in St. Paul, Minnesota; Los Angeles, California; Chicago, Illinois; Dallas, Texas; Union, New Jersey; and Everett, Massachusetts. We have found it advantageous to operate printing presses at these locations to service primarily our 5 Financial Document Services and Investment Company Services business unit customers. We also service a portion of our recurring corporate and commercial printing business through these facilities. Corporate and commercial printing is generally more predictable in volume and less time-sensitive in nature than financial printing. Because we use the presses for both types of printing, we retain the flexibility to meet the immediate demands of financial printing. With our acquisition of Daniels Printing, Limited Partnership and the addition of our plant in Everett, Massachusetts, we have expanded our financial and corporate printing capabilities by adding high-quality, eight-color sheet-fed presses; high-speed cold-set web presses and improved prepress capabilities. In addition to our financial and corporate printing plants, we also operate a printing plant in St. Cloud, Minnesota for our specialized color printing services, primarily for our Managed Communications Programs business unit. Our centralized production and fulfillment center benefits both the national account client and its member organizations. The national account client can control the use of its trademarks and enjoy the economies of mass production. The members, the ultimate consumers of our services, receive quality products, fast delivery and prices that we believe are competitive with prices charged by local print shops. In all markets, we have identified several printers capable of meeting our production needs on an "as required" basis in the event customer demand exceeds our capacity. We use associated printers when we need additional capacity in markets where we do not own presses, when special printing equipment is needed, or when we have overflow work. We generally select associated printers on a job-by-job basis, based upon considerations of price, availability and suitability of press equipment. PRODUCTION OF FINANCIAL AND CORPORATE DOCUMENTS The production of financial and corporate documents requires rapid typesetting, printing and electronic conversion services that are available twenty-four hours per day and tailored to the exacting demands of our customers. We receive information directly from our customers in various forms, including typed or handwritten pages, e-mails, faxes, disks, secure uploads via the Internet, and direct links from customers' computers. The information may come into any one of our offices, which will transmit it by facsimile or direct electronic connection (modem) to our centralized production facilities for processing into a typeset or electronic document. Each document typically goes through many cycles of proofreading and editing. Each version of a document is typeset or converted to an electronic format required by the SEC or the CSA, and distributed to the people drafting it, including corporate executives, investment bankers, attorneys and accountants. Since the drafters are often at various locations, the proofs must be delivered simultaneously to different cities, worldwide. Proofs are delivered to our customers on paper or electronically, using Merrill E-COLLABORATE-TM-, MERRILL E-PROOF-TM- or MERRILL< >LINK-TM-. In addition, we distribute digital bluelines through MBD< >LINK-TM-. Just before the final version of a financial or corporate document is completed, the drafting group usually meets in one of our conference rooms in our offices. We have over 200 conference rooms in the United States. Additional conference facilities are available through our joint venture arrangements worldwide. These "in-houses" are one of the most time-critical services that we provide. In-house sessions require the accurate and rapid turnaround of the edited pages and expert knowledge of the documents and filing requirements of the SEC and CSA. We also need to provide a comfortable and pleasant environment for the many hours of drafting. After the customers have made their final changes, we quickly prepare an electronic submission for filing through EDGAR or SEDAR. We also may create paper copies of the document and exhibits for filing with other regulatory authorities. The document is then printed, collated, bound and distributed in booklet form, or, at the client's request, electronically. Our electronic distribution is frequently performed through the Internet via secure e-mail in either PDF or HTML formats. 6 "HUB AND SPOKE" NETWORK We use computers and telecommunication technology to create a "hub and spoke" network for our financial and corporate document services, linking our composition centers in St. Paul, Minnesota and suburban Baltimore, Maryland (the hubs) with our 23 service facilities in the United States (the spokes). We also have the technology to link the hubs directly to our customers and to our international partners and affiliates. - - CENTRALIZED PRODUCTION. We have computer systems in our central production facility located in St. Paul, Minnesota that work with communication technology and software we operate. We use computers, communication controllers, text entry and editing stations, digital-imaging equipment, and a number of special purpose computer subsystems that we have developed, for data conversion and information management. Each critical piece of equipment in the system has at least one back-up device. We designed the computer systems to be high-performance, reliable, and secure. - - NATIONAL COMMUNICATIONS NETWORK. We have a private telecommunication network connecting our service facilities with the hubs. We transmit documents and production control information electronically among our offices. The network consists of digital lines connecting each of our service facilities with the hubs, routers and the software that controls the communications. Designed to operate continuously, the network is highly efficient and reliable. In the event any section of our network fails, we have a back-up service for each section. - - SERVICE FACILITIES. We staff service facilities with sales, administrative, customer service, typesetting, production, duplication and distribution personnel. The service facilities have conference rooms with support staff, office equipment and amenities to give our customers a comfortable work environment to meet, write and revise their documents. The service facilities have photo-imaging equipment to produce high quality images using the electronic information received from the hubs. Within minutes of completion, we can transmit documents to one or more service facilities for distribution. - - INTERNATIONAL SERVICE. We, together with Burrups, Ltd., a London-based financial printing company, market international financial transaction business worldwide as Merrill Burrups. Both companies work together to give customers integrated document typesetting, printing and distribution services wherever the document originates or needs to be delivered. Merrill Burrups has full service facilities in Paris, France; Frankfurt, Germany; Luxembourg; and Tokyo, Japan. Merrill Burrups has additional facilities in Melbourne, Australia; Hong Kong, China; Singapore; and Tel Aviv, Israel for use in our joint international service. In Canada, we market financial transactions through our joint venture with Quebecor Merrill Canada. Quebecor Merrill Canada operates in four Canadian cities. We have also established relationships with financial printing companies in 47 countries who provide services to us on an "as needed" basis. We have the software and hardware for electronic communications between our production hubs and the international service facilities. With this electronic connection, we can transmit high-quality typeset documents for printing and distribution throughout the world without the time delays and costs of air shipment. PRODUCTION OF MANAGED COMMUNICATIONS PROGRAMS DOCUMENTS Through our facility in St. Cloud, Minnesota, we produce multi-color, commercial quality printed materials, such as business cards and stationery, marketing materials, training materials, compliance documents and health care provider directories. We use a sophisticated order entry system, including a large inbound telemarketing staff, to receive and process orders. A member organization or an individual can place an order by the Internet, e-mail, bulk transmission of data, mail, facsimile or toll free number. Our customer service representative processing the order will have access to the client's purchase history (if an existing client) and can suggest 7 the reordering of certain items, cross-sell complementary items or alert the client to current specials. We produce printed materials both on-demand and in larger quantities, which we warehouse pending receipt of an order. Products ordered from a catalog typically require additional "personalizing" for the ordering member organization. They are checked for quality, packaged and shipped. Promotional merchandise (point of purchase, advertising specialty, premiums and incentives) included in a catalog that are produced by third parties are generally shipped directly by the manufacturer to the ordering member organization. We use a "materials handling system" with automated handling, order consolidation and shipping. Most orders are filled within four days of receipt. COMPETITION In our Financial Document Services and Investment Company Services business units, we compete with many domestic and international companies, including two principal U.S.-based competitors, Bowne & Co., Inc. and R.R. Donnelley & Sons Company. Both Bowne and Donnelley are major competitors in most of our financial and compliance printing markets. We also compete for complex, large-run typesetting work with a number of other computer typesetting firms, and we compete for medium-run printing work with a number of commercial web press printers. In the Managed Communications Programs business unit, we believe our primary competitors are large, national integrated print and information service providers such as Standard Register, Wallace, Moore, Reynolds & Reynolds, Taylor Corporation and Banta, as well as a number of smaller regional and local companies. In our Document Management Services business unit, we compete with nationwide service companies, Xerox Corporation, Pitney Bowes and IKON, and a number of smaller local companies. We also compete with litigation support services vendors and a large number of photocopying and imaging shops, including privately-owned shops as well as franchise operations. Competition in this part of our business is intense and is based principally on service, price, speed, accuracy, technological capability and established relationships. For our E-TECH-TM- software, we compete with various software products licensed by Trion Systems, IKON, Steelpoint and Bowne & Co., Inc. We believe we compete favorably with our competitors. EMPLOYEES As of April 16, 1999, we had 3,797 full-time employees and 136 temporary employees. None of our employees are covered by a collective bargaining agreement. We consider our employee relations to be good. Our senior management and certain technical personnel have substantial experience and expertise in the document services industry. We consider the retention of these employees to be important to our continued success. We compete intensely with others in the industry to attract and retain qualified salespeople. However, we believe that we are able to provide incentives sufficient to minimize the loss of key salespeople and to attract productive new salespeople for both replacement and expansion of our sales team. Many salespeople are under employment contracts of varying terms with us. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES Substantially all of our revenue, operating profit and identifiable assets are based in the United States. IMPORTANT FACTORS TO CONSIDER Our disclosure and analysis in this report and in our 1999 Annual Report to Shareholders contain some forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning 8 in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, prospective products, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Any or all of our forward-looking statements in this report, in the 1999 Annual Report and in any other public statements we make may turn out to be incorrect. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many factors mentioned in the discussion above--for example, competition--will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our 10-Q, 8-K and 10-K reports to the SEC. Also note that we provide the following cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our businesses. These are factors that we think could cause our actual results to differ materially from expected and historical results. Other factors besides those listed here could also adversely affect our operations or financial condition. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995. - - RISKS ASSOCIATED WITH GROWTH AND DIVERSIFICATION THROUGH ACQUISITIONS. As part of our growth and diversification strategy, we intend to pursue acquisitions of businesses, technologies and product lines that are complementary to our core businesses. Our ability to grow through such acquisitions will be dependent upon the availability of suitable acquisition candidates at an acceptable cost, our ability to compete effectively for these acquisition candidates and the availability of capital to complete such acquisitions. - - DEMAND FOR PRINTED FINANCIAL DOCUMENTS. The market for a substantial portion of our products currently depends on the demand for printed financial documents, driven largely by the SEC and other regulatory bodies. There can be no assurance that competition from alternative methods of financial document delivery (e.g., electronic commerce, on-line services and other electronic media) or relaxed SEC regulatory requirements will not erode the demand for printed financial documents. - - COMPETITION. The financial printing industry is highly competitive. Our primary competitors are R.R. Donnelley & Sons Company and Bowne & Co., Inc. To remain competitive, we must continue to compete favorably on the basis of value by providing technologically advanced financial printing solutions that satisfy the demands of customers and by offering superior customer service, enhanced quality and reliability levels. - - NEW COMPETITION FROM ELECTRONIC PRINTERS. Recently, we have seen the emergence of new competitors that print documents solely through electronic means (e.g. Internet, CD ROM and diskettes). While these competitors are currently not significant either in number or size, we anticipate that they may increase in number and size as the demand for printed documents decreases. - - YEAR 2000 COMPLIANCE. As described in our "MANAGEMENT'S DISCUSSION AND ANALYSIS," we are working to address "Year 2000" problems. If we should fail to identify or fix all such problems in our own operations, or if we are affected by the inability of a supplier or a major customer to continue operations due to such a problem, our operations and/or cash flows could be affected. 9 ITEM 2. PROPERTIES We have leases or own the following facilities:
- ------------------------------------------------------------------------------------------------------ LEASED OR APPROXIMATE SQUARE LOCATION REPORTABLE SEGMENT OWNED FOOTAGE TERMS - ------------------------------------------------------------------------------------------------------ St. Cloud, Specialty Owned 123,000 sq.ft. N/A Minnesota Communication Services - ------------------------------------------------------------------------------------------------------ St. Paul, Specialty Owned 150,000 sq. ft. in N/A Minnesota Communication two buildings, Services and approximately 85,000 Document Services sq. ft. is leased to other businesses - ------------------------------------------------------------------------------------------------------ Everett, Specialty Owned 135,745 sq. ft. in N/A Massachusetts Communication two buildings Services - ------------------------------------------------------------------------------------------------------ St. Paul, Specialty Building and 47,000 sq. ft. $24,069 per month and Minnesota Communication Land leased $3,431 per month, for the Services from Port building and the land Authority of respectively, for terms the City of expiring on November 30, St. Paul under 2005. Each lease grants us leases dated the option to purchase the October 1, property at the end of the 1985 term. Under the facilities lease, we may purchase the building for $254,500 and the land for $167,140 at the end of the lease terms. - ------------------------------------------------------------------------------------------------------ New York, New Specialty Leased for a 13,830 sq. ft. $33,444 per month. York Communication term expiring Services November 25, 2005 - ------------------------------------------------------------------------------------------------------ Boston, Specialty Leased for a 13,500 sq. ft. $45,020 per month. Massachusetts Communication term expiring Services November 30, 2003 - ------------------------------------------------------------------------------------------------------ New York, New Specialty Leased for a 102,000 sq. ft. $61,500 per month. York Communication term expiring Services October 31, 2014. - ------------------------------------------------------------------------------------------------------ Other cities Specialty Leased with 150 to 77,000 sq. Aggregate of $460,000 per Communication expirations ft. month, including rental Services and ranging from fees, real estate taxes and Document Services June 30, 1999 operating expenses to October 31, 2014 - ------------------------------------------------------------------------------------------------------
We make a continuing effort to keep all of our properties and facilities modern, efficient and adequate for our operating needs. 10 ITEM 3. LEGAL PROCEEDINGS We do not know of any pending legal, governmental, administrative or other matters that would materially affect our business or property. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS We did not ask our shareholders to vote on anything during the fourth quarter of fiscal year 1999. 11 ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT Our executive officers, their ages, the year they became executive officers and the offices held as of April 28, 1999 are as follows:
NAME AGE YEAR OFFICE HELD - ------------------------ ----------- --------- ------------------------------------------------------------------ John W. Castro 50 1980 President and Chief Executive Officer Rick R. Atterbury 45 1981 Executive Vice President--Chief Technology Officer Steven J. Machov 48 1987 Vice President, General Counsel and Secretary Kathleen A. Larkin 39 1993 Vice President--Human Resources Kay A. Barber 48 1995 Vice President--Finance, Chief Financial Officer, Treasurer Allen J. McNee 40 1999 President--Document Management Services B. Michael James 42 1999 President--Financial Document Services Mark A. Rossi 41 1999 President--Investment Company Services Joseph P. Pettirossi 34 1999 President--Managed Communications Programs Raymond J. Goodwin 35 1999 President--Merrill Print Group
Our executive officers are elected by the Board of Directors and serve one-year terms beginning with their election at the first meeting of the Board of Directors after the annual meeting of shareholders. Their terms end at the same meeting the following year. The President and Chief Executive Officer appoints all other officers who serve at his discretion. There are no family relationships between any of the executive officers or directors. There has been no change in position of any of the executive officers during the past five years, except as we explain below: - - MR. ATTERBURY was elected Executive Vice President--Chief Technology Officer in February 1999. From 1996 to January 1999, Mr. Atterbury was the Executive Vice President. Prior to that time, he served as Vice President--Operations. - - MS. BARBER joined our organization in August 1995 as Vice President--Finance, Chief Financial Officer and Treasurer. From January 1993 to August 1995, Ms. Barber was Vice President, Finance and Controller for Growing Healthy, Inc., a frozen baby food company. - - MR. MCNEE was elected President--Document Management Services in February 1999. From February 1996 through January 1999, Mr. McNee was the Vice President, Document Management Services. Prior to that time, Mr. McNee served as the Director of Facilities Management/Document Reproduction Group, from February 1992 through January 1996. - - MR. JAMES was elected President--Financial Document Services in February 1999 and since January 1994, has been the President, Merrill/New York Company. From January 1996 to February 1999, Mr. James was our Vice President of the East Region and International Operations. Prior to that time, Mr. James was the Vice President of Human Resources (from June 1989, when Mr. James joined our company, to January 1994). - - MR. ROSSI was elected President--Investment Company Services in February 1999. From February 1997 to February 1999, Mr. Rossi was our Vice President of the Central Region. Prior to that time, Mr. Rossi served as our President of Southern California, from February 1993 to January 1997. - - MR. PETTIROSSI was elected President--Managed Communications Programs in February 1999. From July 1996 to February 1999, Mr. Pettirossi was the President of one of our subsidiaries, Merrill/May, Inc. Prior to joining us in 1996, Mr. Pettirossi was the 12 Chief Operating Officer and Chief Financial Officer of Northwest Racquet Swim & Health Clubs, Inc. (from November 1994 to June 1996) and the Vice President and Chief Financial Officer of the Minnesota Professional Basketball Limited Partnership and the Minnesota Arena Limited Partnership (from September 1992 to March 1995). - - MR. GOODWIN was elected President--Merrill Print Group in February 1999. From March 1997 to February 1999, Mr. Goodwin was our Central Region Sales Manager. Prior to that time, Mr. Goodwin served as President of our Denver and Houston operations, from January 1993 to March 1997. 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information required by this item is incorporated by reference from the "QUARTERLY STOCK PRICE INFORMATION" in our 1999 Annual Report. We did not sell any unregistered equity securities from February 1, 1998 through January 31, 1999. ITEM 6. SELECTED FINANCIAL DATA Information required by this item is incorporated by referenced from the table entitled "SUMMARY OF OPERATING AND FINANCIAL DATA" in our 1999 Annual Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information required by this item is incorporated by reference from the "MANAGEMENT'S DISCUSSION AND ANALYSIS" in our 1999 Annual Report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We regularly invest excess operating cash in overnight repurchase agreements that are subject to changes in short-term interest rates. Accordingly, we believe that the market risk arising from its holding of these financial instruments is minimal. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information required by this item is incorporated by reference from our "CONSOLIDATED FINANCIAL STATEMENTS" (including the unaudited information in the "SUMMARY OF OPERATING AND FINANCIAL DATA") and the "REPORT OF INDEPENDENT ACCOUNTANTS" in our 1999 Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were none. 14 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required by this item is incorporated by reference from the discussion under the headings "ELECTION OF DIRECTORS--INFORMATION ABOUT NOMINEES," "OTHER INFORMATION ABOUT NOMINEES" and "OTHER MATTERS--SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" in our 1999 Proxy Statement. Information concerning our executive officers is included in this Report under Item 4A, "EXECUTIVE OFFICERS OF THE REGISTRANT." ITEM 11. EXECUTIVE COMPENSATION Information required by this item is incorporated by reference from the discussion under the headings "GOVERNANCE--DIRECTORS' COMPENSATION" and "EXECUTIVE COMPENSATION" (excluding the "COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION") in our 1999 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this item is incorporated by reference from the discussion under the headings "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" and "EXECUTIVE COMPENSATION--CHANGE IN CONTROL ARRANGEMENTS" in our 1999 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this item is incorporated by reference from the discussion under the heading "OTHER MATTERS--CERTAIN TRANSACTIONS" in our 1999 Proxy Statement. 15 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 1. FINANCIAL STATEMENTS: The following financial statements are part of our disclosure in this Report and are found on the following pages in our 1999 Annual Report:
- -------------------------------------------------- FINANCIAL STATEMENT PAGE NO. - -------------------------------------------------- Consolidated Balance Sheets as of January 31, 1999 and 1998............ 21 Consolidated Statements of Operations for the years ended January 31, 1999, 1998 and 1997........................ 22 Consolidated Statements of Cash Flows for the years ended January 31, 1999, 1998 and 1997........................ 23 Consolidated Statements of Changes in Shareholders' Equity for the years ended January 31, 1999, 1998 and 1997................................. 24 Notes to Consolidated Financial Statements........................... 25-35 Report of Independent Accountants...... 37 - --------------------------------------------------
2. FINANCIAL STATEMENT SCHEDULE: The following supplemental schedule and report of independent accountants are part of our disclosure in this Report and should be read together with the consolidated financial statements in the 1999 Annual Report we refer to above (page numbers refer to pages in this Report):
- -------------------------------------------------- SCHEDULE PAGE NO. - -------------------------------------------------- Report of Independent Accountants...... 18 Valuation and Qualifying Accounts...... 19 - --------------------------------------------------
We are omitting all other schedules either because the information does not apply or the information is in the consolidated financial statements or related notes. 3. EXHIBITS: The exhibits to this Report are listed in the Exhibit Index of this Report. If you were a shareholder on April 15, 1999, you may request copies of any of these exhibits by writing to: Investor Relations, Merrill Corporation, One Merrill Circle, St. Paul, Minnesota 55108. We may charge a small handling fee for the copies. The following is a list of each management contract or compensatory plan or arrangement we need to file as an exhibit to this Report: - - Employment Agreement with John W. Castro (incorporated by reference to our Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 1989). - - First Amendment to Employment Agreement with John W. Castro (incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended January 31, 1994). - - Second Amendment to Employment Agreement with John W. Castro (incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended January 31, 1998). - - Deferred Compensation Agreement with John W. Castro (incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended January 31, 1998). - - Employment Agreement with Rick R. Atterbury (incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended January 31, 1991). - - First Amendment to Employment Agreement with Rick R. Atterbury (incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended January 31, 1994). - - Second Amendment to Employment Agreement with Rick R. Atterbury (incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended January 31, 1998). - - 1987 Omnibus Stock Plan, as amended (incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended January 31, 1991). 16 - - 1993 Stock Incentive Plan, as amended (incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended January 31, 1997). - - Option Agreement with Ronald N. Hoge (incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended January 31, 1993). - - 1996 Non-Employee Director Plan (incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended January 31, 1997). - - 1996 Non-Statutory Stock Option Plan (included with this filing) - - Stock Purchase Loan Program (included with this filing) - - Stock Option Deferral Program (included with this filing). - - Form of Letter Agreement effective May 28, 1998 with John W. Castro and Rick R. Atterbury (included with this filing). - - Form of Letter Agreement effective May 28, 1998 with Kay A. Barber, Steven J. Machov and Kathleen A. Larkin (included with this filing). (b) REPORTS ON FORM 8-K: No reports on Form 8-K were filed during the fourth quarter of the fiscal year ended January 31, 1999. 17 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE Our report on the consolidated financial statements of Merrill Corporation and Subsidiaries has been incorporated by reference in this Form 10-K from page 37 of the 1999 Annual Report to Shareholders of Merrill Corporation. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in Item 14(a)2 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. PricewaterhouseCoopers LLP St. Paul, Minnesota March 29, 1999 18 SCHEDULE II MERRILL CORPORATION VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997 (IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ------------------------------------------ ----------- -------------------------- ----------- ----------- ADDITIONS -------------------------- BALANCE AT CHARGED TO DEDUCTIONS BEGINNING CHARGED TO OTHER FROM BALANCE AT DESCRIPTION OF YEAR INCOME ACCOUNTS RESERVES END OF YEAR - ------------------------------------------ ----------- ----------- ------------- ----------- ----------- Year Ended January 31, 1997 Valuation account deducted from assets to which it applies-- Allowance for doubtful accounts........... $ 3,545 $ 2,861 $ 61(A) $ 440(B) $ 6,027 ----------- ----------- --- ----------- ----------- ----------- ----------- --- ----------- ----------- Allowance for unbillable inventories......................... $ 562 $ 2,678 $ 3,240 ----------- ----------- ----------- ----------- ----------- ----------- Year Ended January 31, 1998 Valuation account deducted from assets to which it applies-- Allowance for doubtful accounts........... $ 6,027 $ 2,064 $ 55(A) $ 1,154(B) $ 6,992 ----------- ----------- --- ----------- ----------- ----------- ----------- --- ----------- ----------- Allowance for unbillable inventories......................... $ 3,240 $ 1,063(C) $ 2,177 ----------- ----------- ----------- ----------- ----------- ----------- Year Ended January 31, 1999 Valuation account deducted from assets to which it applies-- Allowance for doubtful accounts........... $ 6,992 $ 3,273 $ 2,139(B) $ 8,126 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Allowance for unbillable inventories......................... $ 2,177 $ 67 $ 2,244 ----------- ----------- ----------- ----------- ----------- -----------
- ------------------------ (A) Recoveries on accounts previously written off. (B) Uncollectible accounts written off and adjustments to the allowance. (C) Adjustments to the allowance account to reflect estimated net realizable value at year-end. 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on April 29, 1999. MERRILL CORPORATION By: /s/ JOHN W. CASTRO ----------------------------------------- John W. Castro Its: President and Chief Executive Officer
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.
SIGNATURE TITLE - ------------------------------ -------------------------------- /s/ JOHN W. CASTRO President and Chief Executive - ------------------------------ Officer (Principal Executive John W. Castro Officer) and Director Vice President--Finance, Chief /s/ KAY A. BARBER Financial Officer and - ------------------------------ Treasurer (Principal Financial Kay A. Barber and Accounting Officer) /s/ ROBERT F. NIENHOUSE - ------------------------------ Director Robert F. Nienhouse /s/ RICHARD G. LAREAU - ------------------------------ Director Richard G. Lareau /s/ PAUL G. MILLER - ------------------------------ Director Paul G. Miller /s/ RICK R. ATTERBURY - ------------------------------ Director Rick R. Atterbury /s/ RONALD N. HOGE - ------------------------------ Director Ronald N. Hoge /s/ JAMES R. CAMPBELL - ------------------------------ Director James R. Campbell /s/ FREDERICK W. KANNER - ------------------------------ Director Frederick W. Kanner /s/ MICHAEL S. SCOTT MORTON - ------------------------------ Director Michael S. Scott Morton
20 MERRILL CORPORATION EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED JANUARY 31, 1999
ITEM NO. DESCRIPTION METHOD OF FILING - ----------- --------------------------------------------------- --------------------------------------------------- 3.1 Articles of Incorporation Incorporated by reference to our Registration Statement on Form S-1 (File No. 33-4062). 3.2 Amendments to Articles of Incorporation as of June Incorporated by reference to our Annual Report on 20, 1986 and March 27, 1987 Form 10-K for the fiscal year ended January 31, 1987. 3.3 Restated Bylaws Incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended January 31, 1990. 10.1 Credit Agreement dated as of November 25, 1996 Incorporated by reference to our Quarterly Report among First Bank, N.A., as Agent and as a Bank, on Form 10-Q for the fiscal quarter ended October Norwest Bank Minnesota, N.A., and Merrill 31, 1996. Corporation 10.2 First Amendment to Credit Agreement dated May 23, Included with this filing electronically. 1997 between First Bank National Association, Norwest Bank Minnesota, National Association and Merrill Corporation 10.3 Second Amendment to Credit Agreement dated August Included with this filing electronically. 17, 1998 between First Bank National Association, Norwest Bank Minnesota, National Association and Merrill Corporation 10.4 Third Amendment to Credit Agreement dated March 24, Included with this filing electronically. 1999 between First Bank National Association, Norwest Bank Minnesota, National Association and Merrill Corporation 10.5 Note Purchase Agreement, dated as of October 25, Incorporated by reference to our Quarterly Report 1996 on Form 10-Q for the fiscal quarter ended October 31, 1996. 10.6 Loan Agreement, dated as of July 1, 1990 between Incorporated by reference to our Annual Report on May Printing Company and Minnesota Agricultural and Form 10-K for the fiscal year ended January 31, Economic Development Board, amended as of December 1994. 31, 1993
21
ITEM NO. DESCRIPTION METHOD OF FILING - ----------- --------------------------------------------------- --------------------------------------------------- 10.7 First Amendment to Loan Agreement dated as of Incorporated by reference to our Annual Report on December 31, 1993 between Merrill/ May, Inc. and Form 10-K for the fiscal year ended January 31, Minnesota Agricultural and Economic Development 1994 (included with the Loan Agreement, dated as of Board July 1, 1990 between May Printing Company and Minnesota Agricultural and Economic Development Board, amended as of December 31, 1993). 10.8 Second Amendment to Loan Agreement dated as of July Included with this filing electronically. 1, 1998 between Merrill/ May, Inc. and Minnesota Agricultural and Economic Development Board 10.9 Bond Purchase Agreement dated June 26, 1998 between Included with this filing electronically. Dougherty Summit Securities LLC and Piper Jaffray Inc. 10.10 Guaranty of Loan Obligations of May Printing Incorporated by reference to our Annual Report on Company by Merrill Corporation in favor of Form 10-K for the fiscal year ended January 31, Minnesota Agricultural and Economic Development 1994. Board, dated as of December 31, 1993 10.11 Employment Agreement between Rick R. Atterbury and Incorporated by reference to our Annual Report on Merrill Corporation, dated as of February 1, 1987, Form 10-K for the fiscal year ended January 31, as amended 1991. 10.12 First Amendment to Employment Agreement between Incorporated by reference to our Annual Report on Rick R. Atterbury and Merrill Corporation, dated as Form 10-K for the fiscal year ended January 31, of April 29, 1994 1994. 10.13 Second Amendment to Employment Agreement between Incorporated by reference to our Annual Report on Rick R. Atterbury and Merrill Corporation, dated as Form 10-K for the fiscal year ended January 31, of April 8, 1998 1998. 10.14 Employment Agreement between John W. Castro and Incorporated by reference to our Quarterly Report Merrill Corporation dated as of February 1, 1989 on Form 10-Q for the fiscal quarter ended April 30, 1989. 10.15 Amendment to Employment Agreement between John W. Incorporated by reference to our Annual Report on Castro and Merrill Corporation dated as of April Form 10-K for the fiscal year ended January 31, 29, 1994 1994. 10.16 Second Amendment to Employment Agreement between Incorporated by reference to our Annual Report on John W. Castro and Merrill Corporation, dated as of Form 10-K for the fiscal year ended January 31, April 8, 1998 1998. 10.17 Deferred Compensation Plan for John W. Castro, Incorporated by reference to our Annual Report on dated as of March 30, 1998 Form 10-K for the fiscal year ended January 31, 1998.
22
ITEM NO. DESCRIPTION METHOD OF FILING - ----------- --------------------------------------------------- --------------------------------------------------- 10.18 1987 Omnibus Stock Plan, as amended Incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended January 31, 1991. 10.19 1993 Incentive Stock Plan, as amended Incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended January 31, 1997. 10.20 1996 Non-Employee Director Plan Incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended January 31, 1997. 10.21 1996 Non-Statutory Stock Option Plan Included with this filing electronically. 10.22 Option Agreement dated as of July 1, 1991 between Incorporated by reference to our Annual Report on Ronald N. Hoge and Merrill Corporation Form 10-K for the fiscal year ended January 31, 1993. 10.23 Stock Purchase Loan Program Included with this filing electronically. 10.24 Stock Option Deferral Program Included with this filing electronically. 10.25 Form of Letter Agreement effective May 28, 1998 Included with this filing electronically. with John W. Castro and Rick R. Atterbury 10.26 Form of Letter Agreement effective May 28, 1998 Included with this filing electronically. with Kay A. Barber, Steven J. Machov and Kathleen A. Larkin 10.27 Stock Purchase Agreement, dated March 28, 1996, by Incorporated by reference to our Current Report on and among Merrill Corporation and the Shareholders Form 8-K dated April 15, 1996. of FMC Resource Management Corporation 10.28 Asset Purchase Agreement dated as of June 11, 1998 Included with this filing electronically. among Merrill Acquisition Corporation and Executech, Inc., World Wide Scan Services, LLC, the Shareholders of Executech, Inc. and the Members of World Wide Scan Services LLC 10.29 First Amendment to Asset Purchase Agreement dated Included with this filing electronically. December 18, 1998 among Merrill/Executech, Inc. and Executech, Inc., World Wide Scan Services, LLC, the Shareholders of Executech, Inc. and the Members of World Wide Scan Services LLC 10.30 Second Amendment to Asset Purchase Agreement dated Included with this filing electronically. effective as of June 11, 1998 among Merrill/Executech, Inc. and Executech, Inc., World Wide Scan Services, LLC, the Shareholders of Executech, Inc. and the Members of World Wide Scan Services LLC
23
ITEM NO. DESCRIPTION METHOD OF FILING - ----------- --------------------------------------------------- --------------------------------------------------- 10.31 Asset Purchase Agreement dated March 11, 1999 among Incorporated by reference to our Current Report on Merrill Daniels, Inc., Daniels Printing, Limited Form 8-K filed on April 29, 1999. Partnership and all of the partners of Daniels Printing Limited Partnership 10.32 Facilities Lease dated October 1, 1985 between the Incorporated by reference to our Registration Port Authority of the City of Saint Paul as lessor Statement on Form S-1 (File No. 33-4062). and Merrill Corporation as lessee 10.33 Land Lease dated October 1, 1985 between the Port Incorporated by reference to our Registration Authority of the City of Saint Paul as lessor and Statement on Form S-1 (File No. 33-4062). Merrill Corporation as lessee 10.34 Lease dated as of May 1, 1994 between The Rector, Incorporated by reference to our Annual Report on Church-Wardens, and Vestrymen of Trinity Church in Form 10-K for the fiscal year ended January 31, the City of New York, as landlord and The Corporate 1997. Printing Company, Inc, as lessee, assignor to Merrill/ New York Company 10.35 Office Lease Agreement dated July 30, 1998 between Included with this filing electronically. Beametfed Inc. and Merrill Corporation 10.36 Agreement of Lease dated January 25, 1995 between Included with this filing electronically. East 55th Street Limited Partnership (assignee of The Overton-La Cholla Joint Venture) and Merrill Daniels, Inc. (assignee to Daniels Printing, Limited Partnership) 13.1 Portions of Annual Report to Shareholders Included with this filing electronically 21.1 Subsidiaries Included with this filing electronically 23.1 Consent of Independent Accountants Included with this filing electronically 27.1 Financial Data Schedule for the year ended January Included with this filing electronically 31, 1999
24 EX-10.2 2 EXHIBIT 10.2 Exhibit 10.2 FIRST AMENDMENT TO CREDIT AGREEMENT THIS First AMENDMENT, dated as of May 23, 1997, amends and modifies a certain Credit Agreement, dated as of November 25, 1996 (the "Credit Agreement"), among MERRILL CORPORATION (the "Borrower"), FIRST BANK NATIONAL ASSOCIATION, as Agent (the "Agent"), and the banks or financial institutions party thereto, which currently consist of FIRST BANK NATIONAL ASSOCIATION and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION (the "Banks"). Terms not otherwise expressly defined herein shall have the meanings set forth in the Credit Agreement. FOR VALUE RECEIVED, the Borrower, the Agent and the Banks agree that the Credit Agreement is amended as follows. ARTICLE I - AMENDMENTS TO THE CREDIT AGREEMENT 1.1 NEW SUBSIDIARY. Schedule 7.15 is amended by adding Merrill/Superstar Computing Company to the list of Subsidiaries of the Borrower. 1.2 GUARANTORS. Section 8.14 is amended by deleting "April 30, 1997" and inserting "June 30, 1997" in place thereof. 1.3 INDEBTEDNESS. The final paragraph of Schedule 9.2 is amended to read as follows: "Obligations of Merrill Corporation under a Guaranty of Indebtedness of an Incorporated Company dated August 30, 1996 (as amended) wherein Merrill Corporation has guaranteed 49% of the outstanding obligations under a revolving credit agreement between Bank of Montreal as Lender and Quebecor Merrill Canada, in the maximum principal amount of $3,000,000." 1.4 GUARANTIES. Section 9.3(b) is amended to read as follows: "(b) guaranties, endorsements and other direct or contingent liabilities in connection with the obligations of other Persons in existence on the date hereof and listed in SCHEDULE 9.3, PROVIDED, that the Borrower may increase its guaranty of the obligation of Quebecor Merrill Canada from 49% of the outstanding obligations under a revolving credit agreement in the maximum principal amount of $1,600,000 to 49% of the outstanding obligations under an agreement or agreements providing for a loan or loans in the aggregate principal amount of up to $3,000,000;" 1.5 INVESTMENTS. Section 9.4(g) is amended to read as follows: "(g) investments in readily-marketable stock or debt instruments of other Persons which in the aggregate do not exceed $5,000,000 at any time outstanding." 1 1.6 CONSOLIDATION AND MERGER; ACQUISITION OF ASSETS AND STOCK. The final sentence of Section 9.6 is amended to read as follows: "The Borrower agrees that in each consecutive 12 month period, the amount that is expended (whether in cash or in stock) by the Borrower and its Subsidiaries to acquire all or substantially all of the assets or any stock of another Person, and to merge or consolidate with another Person, shall not exceed $10,000,000 in the aggregate for all such transactions and shall not exceed $5,000,000 for any single transaction or series of related transactions." 1.7 CONSTRUCTION. All references in the Credit Agreement to "this Agreement", "herein" and similar references shall be deemed to refer to the Credit Agreement as amended by this Amendment. ARTICLE II - REPRESENTATIONS AND WARRANTIES To induce the Agent and the Banks to enter into this Amendment and to make and maintain the Loans under the Credit Agreement as amended hereby, the Borrower hereby warrants and represents to the Agent and the Banks that it is duly authorized to execute and deliver this Amendment, and to perform its obligations under the Credit Agreement as amended hereby, and that this Amendment constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms. ARTICLE III - CONDITIONS PRECEDENT This Amendment shall become effective on the date first set forth above, provided, however, that the effectiveness of this Amendment is subject to the satisfaction of each of the following conditions precedent: 3.1 WARRANTIES. Before and after giving effect to this Amendment, the representations and warranties in ARTICLE VII of the Credit Agreement shall be true and correct as though made on the date hereof, except for changes that are permitted by the terms of the Credit Agreement. The execution by the Borrower of this Amendment shall be deemed a representation that the Borrower has complied with the foregoing condition. 3.2 DEFAULTS. Before and after giving effect to this Amendment, no Default and no Event of Default shall have occurred and be continuing under the Credit Agreement. The execution by the Borrower of this Amendment shall be deemed a representation that the Borrower has complied with the foregoing condition. 3.3 NEW GUARANTOR. The Borrower has acquired or formed an additional Subsidiary, Merrill/Superstar Computing Company, which shall become a Guarantor as provided in Section 8.14 of the Credit Agreement. The Borrower shall cause such new Subsidiary to deliver the following documents (the "New Guarantor Documents"): 2 (a) A Guaranty in the form of Exhibit AA to this Amendment; (b) A certified copy of the approval resolutions for such Guaranty, together with an incumbency certificate and certified copies of the Articles of Incorporation and By-laws of such new Subsidiary; (c) A certificate of good standing of such new Subsidiary; and (d) An opinion of counsel for such new Subsidiary covering matters similar to those covered by the opinion of the existing Guarantors. 3.4 DOCUMENTS. The Borrower, the Agent and the Banks shall have executed and delivered this Amendment, the Guarantors shall have executed and delivered the Guarantors' Acknowledgment in the form attached hereto, and the New Guarantor Documents shall have been executed and delivered. ARTICLE IV - GENERAL 4.1 EXPENSES. The Borrower agrees to reimburse the Agent upon demand for all reasonable expenses (including reasonable attorneys' fees and legal expenses) incurred by this Agent in the preparation, negotiation and execution of this Amendment and any other document required to be furnished herewith, and in enforcing the obligations of the Borrower hereunder, and to pay and save the Agent and the Banks harmless from all liability for, any stamp or other taxes which may be payable with respect to the execution or delivery of this Amendment, which obligations of the Borrower shall survive any termination of the Credit Agreement. 4.2 COUNTERPARTS. This Amendment may be executed in as many counterparts as may be deemed necessary or convenient, and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same instrument. 4.3 SEVERABILITY. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. 4.4 LAW. This Amendment shall be a contract made under the laws of the State of Minnesota, which laws shall govern all the rights and duties hereunder. 4.5 SUCCESSORS; ENFORCEABILITY. This Amendment shall be binding upon the Borrower, the Agent and the Banks and their respective successors and assigns, and shall inure to the benefit of the Borrower, the Agent and the Banks and the successors and assigns of the Agent and the Banks. Except as hereby amended, the Credit Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed at Minneapolis, Minnesota by their respective officers thereunto duly authorized as of the date first written above. MERRILL CORPORATION By: /s/ Kay A. Barber ----------------------------------------- Kay A. Barber Vice President - Finance, Chief Financial Officer and Treasurer By: /s/ Steven J. Machov ----------------------------------------- Steven J. Machov Vice President, General Counsel and Secretary FIRST BANK NATIONAL ASSOCIATION, as Agent and as a Bank By: /s/ Kathleen A. Skow ----------------------------------------- Kathleen A. Skow Senior Vice President NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By: /s/ Lynn S. Hultstrand ----------------------------------------- Lynn S. Hultstrand Vice President 4 EX-10.3 3 EXHIBIT 10.3 Exhibit 10.3 SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT, dated as of August 17, 1998, amends and modifies a certain Credit Agreement, dated as of November 25, 1996, as amended by an Amendment dated as of May 23, 1997 (as so amended, the "Credit Agreement"), among MERRILL CORPORATION (the "Borrower"), U.S. BANK NATIONAL ASSOCIATION, formerly known as First Bank National Association, as Agent (the "Agent"), and the banks or financial institutions party thereto, which currently consist of U.S. BANK NATIONAL ASSOCIATION and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION (the "Banks"). Terms not otherwise expressly defined herein shall have the meanings set forth in the Credit Agreement. FOR VALUE RECEIVED, the Borrower, the Agent and the Banks agree that the Credit Agreement is amended as follows. ARTICLE I - AMENDMENTS TO THE CREDIT AGREEMENT 1.1 CONSOLIDATION AND MERGER; ACQUISITION OF ASSETS AND STOCK. The final sentence of Section 9.6 is amended to read as follows: "The Borrower agrees that in each consecutive 12 month period, the aggregate amount that is expended (whether in cash or in stock) by the Borrower and its Subsidiaries to acquire all or substantially all of the assets or any stock of another Person, and to merge or consolidate with another Person, shall not exceed $15,000,000 in the aggregate." 1.2 EXPENDITURES FOR FIXED ASSETS. Section 9.8 is amended by deleting "$20,000,000" and inserting "$30,000,000" in place thereof. 1.3 SCHEDULE OF CONTINGENT LIABILITIES. SCHEDULE 7.6 is amended by including the text on Exhibit A attached hereto respecting contingent purchase payments in connection with the acquisition of Executech, Inc. and World Wide Scan Services LLC. 1.4 CONSTRUCTION. All references in the Credit Agreement to "this Agreement", "herein" and similar references shall be deemed to refer to the Credit Agreement as amended by this Amendment. ARTICLE II - REPRESENTATIONS AND WARRANTIES To induce the Agent and the Banks to enter into this Amendment and to make and maintain the Loans under the Credit Agreement as amended hereby, the Borrower hereby warrants and represents to the Agent and the Banks that it is duly authorized to execute and deliver this Amendment, and to perform its obligations under the Credit Agreement as amended hereby, and that this Amendment constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms. ARTICLE III - CONDITIONS PRECEDENT This Amendment shall become effective on the date first set forth above, provided, however, that the effectiveness of this Amendment is subject to the satisfaction of each of the following conditions precedent: 3.1 WARRANTIES. Before and after giving effect to this Amendment, the representations and warranties in ARTICLE VII of the Credit Agreement shall be true and correct as though made on the date hereof, except for changes that are permitted by the terms of the Credit Agreement. The execution by the Borrower of this Amendment shall be deemed a representation that the Borrower has complied with the foregoing condition. 3.2 DEFAULTS. Before and after giving effect to this Amendment, no Default and no Event of Default shall have occurred and be continuing under the Credit Agreement. The execution by the Borrower of this Amendment shall be deemed a representation that the Borrower has complied with the foregoing condition. 3.3 DOCUMENTS. The Borrower, the Agent and the Banks shall have executed and delivered this Amendment, and Guarantors shall have executed Guarantors' Acknowledgments in the form of those attached hereto. 3.4 NEW SUBSIDIARY. The Borrower's new Subsidiary, Merrill/Executech, Inc., shall issue a Guaranty as provided in SECTION 8.14, and shall deliver certified copies of its approval resolution for such guaranty and its incumbency certificate. ARTICLE IV - GENERAL 4.1 EXPENSES. The Borrower agrees to reimburse the Agent upon demand for all reasonable expenses (including reasonable attorneys' fees and legal expenses) incurred by this Agent in the preparation, negotiation and execution of this Amendment and any other document required to be furnished herewith, and in enforcing the obligations of the Borrower hereunder, and to pay and save the Agent and the Banks harmless from all liability for, any stamp or other taxes which may be payable with respect to the execution or delivery of this Amendment, which obligations of the Borrower shall survive any termination of the Credit Agreement. 4.2 COUNTERPARTS. This Amendment may be executed in as many counterparts as may be deemed necessary or convenient, and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same instrument. 4.3 SEVERABILITY. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. 2 4.4 LAW. This Amendment shall be a contract made under the laws of the State of Minnesota, which laws shall govern all the rights and duties hereunder. 4.5 SUCCESSORS; ENFORCEABILITY. This Amendment shall be binding upon the Borrower, the Agent and the Banks and their respective successors and assigns, and shall accrue to the benefit of the Borrower, the Agent and the Banks and the successors and assigns of the Agent and the Banks. Except as hereby amended, the Credit Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed at Minneapolis, Minnesota by their respective officers thereunto duly authorized as of the date first written above. MERRILL CORPORATION By /s/ Kay A. Barber _________________________________________ Kay A. Barber Vice President - Finance, Chief Financial Officer and Treasurer By /s/ Steven J. Machov _________________________________________ Steven J. Machov Vice President, General Counsel and Secretary U.S. BANK NATIONAL ASSOCIATION, as Agent and as a Bank By /s/ William J. Umscheid _________________________________________ William J. Umscheid Vice President NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By /s/ Lynn S. Hultstrand _________________________________________ Lynn S. Hultstrand Vice President 3 Exhibit A Executech Contingent Purchase Price Rider: Contingent purchase price consideration in connection with the acquisition of substantially all of the assets of Executech, Inc. and World Wide Scan Services, LLC pursuant to the Asset Purchase Agreement (the "Executech Purchase Agreement"), dated as of June 11, 1998, is by and between Merrill Corporation, Merrill Acquisition Corporation, Executech, Inc., World Wide Scan Services, LLC, Theodore M. Davis and Michael Z. Sperling. The contingent purchase price is payable annually through January 31, 2002 and is equal to the following:
FISCAL YEAR CONTINGENT PURCHASE PRICE PAYMENT ----------- --------------------------------- January 1, 1998 through January 31, 1999 450% of the After-Tax Earnings for the First ("FIRST FISCAL YEAR") Fiscal Year (the "BASE YEAR EARNINGS"); provided however, the Base Year Earnings equal or exceed Four Hundred Thousand Dollars ($400,000) February 1, 1999 through January 31, 2000 50% of the After-Tax Earnings for the Second ("SECOND FISCAL YEAR") Fiscal Year in excess of the greater of (x) 120% of Base Year Earnings; and (y) Seven Hundred Twenty Thousand Dollars ($720,000) February 1, 2000 through January 31, 2001 50% of the After-Tax Earnings for the Third ("THIRD FISCAL YEAR") Fiscal Year in excess of the greater of (x) 144% of the Base Year Earnings; and (y) Eight Hundred Sixty Four Thousand ($864,000) February 1, 2001 through January 31, 2002 50% of the After-Tax Earnings for the Fourth ("FOURTH FISCAL YEAR") Fiscal Year in excess of the greater of (x) 172.8% of the Base Year Earnings; and (y) One Million Thirty-Six Thousand Eight Hundred Dollars ($1,036,800)
GUARANTORS' ACKNOWLEDGMENT The undersigned have executed and delivered a Guaranty, dated as of November 25, 1996 (the "Guaranty"), whereby the undersigned have jointly and severally guaranteed payment and performance of obligations of MERRILL CORPORATION (the "Borrower") to U.S. Bank National Association, formerly known as First Bank National Association, as Agent (the "Agent"), and each of the other Banks (the "Banks") under a Credit Agreement, dated as of November 25, 1996 (as thereafter amended, modified, extended, renewed and replaced from time to time called the "Credit Agreement"), each Note issued thereunder and each further Loan Document, as defined in the Credit Agreement, and all further obligations defined as the "Liabilities" in the Guaranty. Each of the undersigned acknowledges that it has received a copy of the proposed Second Amendment to the Credit Agreement, to be dated on or about August 17, 1998 (the "Amendment"). Each of the undersigned agrees and acknowledges that the Amendment shall in no way impair or limit the right of the Bank under the Guaranty, and confirms that by the Guaranty, it continues to guaranty payment and performance of the Liabilities, including without limitation obligations under the Credit Agreement as amended pursuant to the Amendment. Each of the undersigned hereby confirms that the Guaranty remains in full force and effect, enforceable against the undersigned in accordance with its terms. MERRILL/NEW YORK COMPANY By /s/ Kay A. Barber _________________________________________ Kay A. Barber Treasurer By /s/ Steven J. Machov _________________________________________ Steven J. Machov Secretary MERRILL/MAY, INC. By /s/ Kay A. Barber _________________________________________ Kay A. Barber Treasurer By /s/ Steven J. Machov _________________________________________ Steven J. Machov Secretary (Additional Signature Pages Follow) FMC RESOURCE MANAGEMENT CORPORATION By /s/ Kay A. Barber _________________________________________ Kay A. Barber Treasurer By /s/ Steven J. Machov _________________________________________ Steven J. Machov Secretary MERRILL/MAGNUS PUBLISHING CORPORATION By /s/ Kay A. Barber _________________________________________ Kay A. Barber Treasurer By /s/ Steven J. Machov _________________________________________ Steven J. Machov Secretary MERRILL CORPORATION CANADA By /s/ Richard Atterbury _________________________________________ Richard Atterbury Vice President By /s/ Steven J. Machov _________________________________________ Steven J. Machov Secretary (Additional Signature Page Follows) MERRILL INTERNATIONAL INC. By /s/ Kay A. Barber _________________________________________ Kay A. Barber Treasurer By /s/ Steven J. Machov _________________________________________ Steven J. Machov Secretary MERRILL REAL ESTATE COMPANY By /s/ Kay A. Barber _________________________________________ Kay A. Barber Treasurer By /s/ Steven J. Machov _________________________________________ Steven J. Machov Secretary GUARANTORS' ACKNOWLEDGMENT The undersigned has executed and delivered a Guaranty, dated as of April 23, 1997 (the "Guaranty"), whereby the undersigned has guaranteed payment and performance of obligations of MERRILL CORPORATION (the "Borrower") to U.S. Bank National Association, formerly known as First Bank National Association, as Agent (the "Agent"), and each of the other Banks (the "Banks") under a Credit Agreement, dated as of November 25, 1996 (as thereafter amended, modified, extended, renewed and replaced from time to time called the "Credit Agreement"), each Note issued thereunder and each further Loan Document, as defined in the Credit Agreement, and all further obligations defined as the "Liabilities" in the Guaranty. The undersigned acknowledges that it has received a copy of the proposed Second Amendment to the Credit Agreement, to be dated on or about August 17, 1998 (the "Amendment"). The undersigned agrees and acknowledges that the Amendment shall in no way impair or limit the right of the Bank under the Guaranty, and confirms that by the Guaranty, it continues to guaranty payment and performance of the Liabilities, including without limitation obligations under the Credit Agreement as amended pursuant to the Amendment. The undersigned hereby confirms that the Guaranty remains in full force and effect, enforceable against the undersigned in accordance with its terms. MERRILL TRAINING & TECHNOLOGY, INC. (formerly known as Merrill/Superstar Computing Company) By /s/ Kay A. Barber _________________________________________ Kay A. Barber Treasurer By /s/ Steven J. Machov _________________________________________ Steven J. Machov Secretary EX-10.4 4 EXHIBIT 10.4 Exhibit 10.4 THIRD AMENDMENT TO CREDIT AGREEMENT THIS THIRD AMENDMENT, dated as of March 24, 1999, amends and modifies a certain Credit Agreement, dated as of November 25, 1996, as amended by Amendments dated as of May 23, 1997 and August 17, 1998 (as so amended, the "Credit Agreement"), among MERRILL CORPORATION (the "Borrower"), U.S. BANK NATIONAL ASSOCIATION, formerly known as First Bank National Association, as Agent (the "Agent"), and the banks or financial institutions party thereto, which currently consist of U.S. BANK NATIONAL ASSOCIATION and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION (the "Banks"). Terms not otherwise expressly defined herein shall have the meanings set forth in the Credit Agreement. For VALUE RECEIVED, the Borrower, the Agent and the Banks agree that the Credit Agreement is amended as follows. ARTICLE I - AMENDMENTS TO THE CREDIT AGREEMENT 1.1 DEFINITIONS. (a) The definition of "Commitment" in Section 1.1 is amended to read as follows: "COMMITMENT": (i) The maximum unpaid principal amount of the Loans of all Banks which may from time to time be outstanding hereunder, being $70,000,000 from and after the effectiveness of the Third Amendment hereof, as the same may be reduced from time to time pursuant to SECTION 4.3, or (ii) if so indicated for an individual Bank, the maximum unpaid principal amount of the Loans of such Bank which may from time to time be outstanding hereunder, being initially the amounts set forth on the signature pages of the Third Amendment hereof or in the relevant Assignment and Assumption Agreement for such Bank, as the same may be reduced from time to time pursuant to SECTION 4.3, or (iii) as the context may require, the agreement of each Bank to make Loans to the Borrower subject to the terms and conditions of this Agreement up to its Commitment. (b) The definition of "Interest Period" in Section 1.1 is amended by adding the following sentence at the end of such definition: "The Borrower shall not select any Interest Period in an amount and duration that would require early termination of such Interest Period in order to make payments of the Loans required under SECTION 4.1, including without limitation payments due on mandatory reduction of the Commitments." (c) The following new definition is added to Section 1.1 in alphabetical order: "DANIELS ACQUISITION": The acquisition by the Borrower or a Subsidiary of greater than 50% of the voting stock of Daniels Printing Limited Partnership or of a substantial portion of the assets of Daniels Printing Company. Total consideration, including cash, assumed indebtedness, and contingent obligations, paid in connection with the Daniels Acquisition shall not exceed $58,000,000. 1.2 PURPOSE OF LOANS. New Section 2.8 is added after Section 2.7, and shall read as follows: "Section 2.8 PURPOSE OF THE LOANS. Amounts of the Loans in excess of $40,000,000 shall be used by the Borrower solely to fund the Daniels Acquisition." 1.3 REPAYMENT. Section 4.1 is amended to read as follows: Section 4.1 REPAYMENT. Principal of the Loans in excess of the Commitments at any time, giving effect to all reductions of the Commitment under SECTION 4.3, shall be immediately due and payable. All principal of the Loans, together with all accrued and unpaid interest thereon, shall be due and payable on the Termination Date." 1.4 REDUCTION OF COMMITMENTS. The title of Section 4.3 is changed to "REDUCTION OR TERMINATION OF COMMITMENT", the first paragraph is lettered and titled "(a) OPTIONAL REDUCTION OR TERMINATION OF COMMITMENT", and a second paragraph is added and shall read as follows: "(b) MANDATORY REDUCTION OF COMMITMENT. The Commitments shall be reduced to an amount equal to the remainder of (i) $40,000,000 less (ii) the amount of any prior voluntary reductions of the Commitments under Section 4.3(a), upon the first to occur of: (A) September 1, 1999, or (B) the date of receipt by the Borrower of proceeds of issuance of Indebtedness or equities intended to finance the Daniels Acquisition." 1.5 INVESTMENTS. Section 9.4 is amended by adding a new subsection (h) to read as follows: "(h) the Daniels Acquisition, provided that it complies with the terms of the definition thereof." 1.6 CONSOLIDATED AND MERGER; ACQUISITION OF ASSETS AND STOCK. Section 9.6 is amended by adding the following sentences at the end of such Section: "Notwithstanding the foregoing, the Borrower may make the Daniels Acquisition in accordance with the terms of the definition thereof, PROVIDED, that the New Guarantor shall hold the assets acquired in the Daniels Acquisition. Consideration paid in connection with the Daniels Acquisition shall not be counted for purposes of ascertaining compliance with the $15,000,000 test set forth in this Section." 1.7 CONSOLIDATED TANGIBLE NET WORTH. Section 8.11 is amended by adding the following sentence at the end of such Section: "Notwithstanding the foregoing, if the Daniels Acquisition shall be consummated: (a) the Borrower will maintain, at the end of each fiscal quarter, its Consolidated Tangible Net Worth at an amount not less than $67,000,000 in lieu of the amount calculated as provided above, and (b) Consolidated Tangible Net Worth of the Borrower will be adjusted for purposes of this Section by adding (to the extent subtracted in calculating Consolidated Tangible Net Worth) goodwill associated with the contingent earn-out 2 provisions related to acquisition of FMC Resource Management Corporation and Merrill/Executech, Inc." 1.18 NOTES. The Notes shall be replaced by Notes in the form of Exhibit AA hereto, which shall constitute the "Notes" for purposes of all references in the Credit Agreement. 1.19 CONSTRUCTION. All references in the Credit Agreement to "this Agreement", "herein" and similar references shall be deemed to refer to the Credit Agreement as amended by this Amendment. ARTICLE II - REPRESENTATIONS AND WARRANTIES To induce the Agent and the Banks to enter into this Amendment and to make and maintain the Loans under the Credit Agreement as amended hereby, the Borrower hereby warrants and represents to the Agent and the Banks that it is duly authorized to execute and deliver this Amendment, and to perform its obligations under the Credit Agreement as amended hereby, and that this Amendment constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms. ARTICLE III - CONDITIONS PRECEDENT This Amendment shall become effective on the date first set forth above, provided, however, that the effectiveness of this Amendment is subject to the satisfaction of each of the following conditions precedent: 3.1 WARRANTIES. Before and after giving effect to this Amendment, the representations and warranties in ARTICLE VII of the Credit Agreement shall be true and correct as though made on the date hereof, except for changes that are permitted by the terms of the Credit Agreement. The execution by the Borrower of this Agreement shall be deemed a representation that the Borrower has complied with the foregoing condition. 3.2 DEFAULTS. Before and after giving effect to this Amendment, no Default and no Event of Default shall have occurred and be continuing under the Credit Agreement. The execution by the Borrower of this Amendment shall be deemed a representation that the Borrower has complied with the foregoing condition. 3.3 DOCUMENTS. The Borrower, the Agent and the Banks shall have executed and delivered this Amendment, and the Borrower and Guarantors, as applicable, shall have executed and delivered the following: (a) NOTES. The Notes in the form of Exhibit AA hereto, payable to the respective Banks. (b) RESOLUTIONS; INCUMBENCY. Certified copies of resolutions of the Board of Directors of the Borrower authorizing or ratifying the execution, delivery and performance, respectively, of this Amendment and the Notes, and a certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names of the officer or officers of the Borrower authorized to sign this Amendment and the Note and other 3 documents provided for in this Amendment, together with a sample of the true signature of each such officer. (c) CERTIFICATE OF INCORPORATION AND BY-LAWS. A certified copy of any amendment or restatement of the Certificate or Articles of Incorporation or the By-laws of the Borrower made or entered following date of the most recent certified copies furnished to the Bank (or a certificate stating that no changes have been made). (d) GUARANTORS' ACKNOWLEDGMENTS. Guarantors' Acknowledgments in the form of those attached hereto. (e) AMENDMENT FEES. The Borrower shall pay an amendment fee in the amount of $40,000 to the Agent for the account of the Banks, to be paid by the Agent in the amount of $20,000 to each of the Banks. (f) NEW SUBSIDIARY. The Borrower's new Subsidiary, Merrill Acquisition Corp., a Minnesota corporation, or such other new Subsidiary as will hold substantially all of the assets acquired in the Daniels Acquisition, shall issue a Guaranty as provided in SECTION 8.14, and shall deliver certified copies of its approval resolution for such guaranty and its incumbency certificate. (g) OPINION OF COUNSEL TO THE BORROWER. An opinion of counsel to the Borrower and Guarantors, addressed to the Banks, in substantially the form of EXHIBIT BB to this Amendment. ARTICLE IV - GENERAL 4.1 EXPENSES. The Borrower agrees to reimburse the Agent upon demand for all reasonable expenses (including reasonable attorneys' fees and legal expenses) incurred by this Agent in the preparation, negotiation and execution of this Amendment and any other document required to be furnished herewith, and in enforcing the obligations of the Borrower hereunder, and to pay and save the Agent and the Banks harmless from all liability for, any stamp or other taxes which may be payable with respect to the execution or delivery of this Amendment and the Notes, which obligations of the Borrower shall survive any termination of the Credit Agreement. 4.2 COUNTERPARTS. This Amendment may be executed in as many counterparts as may be deemed necessary or convenient, and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same instrument. 4.3 SEVERABILITY. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. 4 4.4 LAW. This Amendment shall be a contract made under the laws of the State of Minnesota, which laws shall govern all the rights and duties hereunder. 4.5 SUCCESSORS; ENFORCEABILITY. This Amendment shall be binding upon the Borrower, the Agent and the Banks and their respective successors and assigns, and shall accrue to the benefit of the Borrower, the Agent and the Banks and the successors and assigns of the Agent and the Banks. Except as hereby amended, the Credit Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed at Minneapolis, Minnesota by their respective officers thereunto duly authorized as of the date first written above. MERRILL CORPORATION By /s/ Kay A. Barber ----------------------------------- Kay A. Barber Vice President - Finance, Chief Financial Officer and Treasurer By /s/ Steven J. Machov ----------------------------------- Steven J. Machov Vice President, General Counsel and Secretary U.S. BANK NATIONAL ASSOCIATION, as Agent and as a Bank By /s/ William J. Umscheid ----------------------------------- William J. Umscheid Vice President Commitment: $35,000,000 NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By /s/ Lynn S. Hultstrand ----------------------------------- Lynn S. Hultstrand Vice President Commitment: $35,000,000 5 EX-10.8 5 EXHIBIT 10.8 Exhibit 10.8 Execution Copy SECOND AMENDMENT TO LOAN AGREEMENT (Series 1990B, Lot 1) THIS SECOND AMENDMENT TO LOAN AGREEMENT, dated as of this 1st day of July, 1998, among the Minnesota Agricultural and Economic Development Board, as the statutory successor to the Minnesota Energy and Economic Development Authority (the "Authority") (collectively herein, such Board and Authority shall be referred to as the "Board") and Merrill/May, Inc. (the "Borrower") is being entered into to amend and modify certain provisions of the Loan Agreement dated as of July 1, 1990 (the "1990 Loan Agreement") by and between the Board and May Printing Company (the "1990 Borrower") as amended by the First Amendment to Loan Agreement dated as of December 31, 1993 (the "First Amendment to Loan Agreement") by and between the Board and the Borrower; and WHEREAS, pursuant to the 1990 Loan Agreement, the 1990 Borrower was provided a loan in the original principal amount of $4,205,000; and WHEREAS, the 1990 Borrower entered into an agreement under which the 1990 Borrower sold and transferred to Merrill/May, Inc. (the "Borrower") substantially all of the operating assets and selected liabilities of the 1990 Borrower pursuant to that certain Asset Purchase Agreement dated December 31, 1993 (the "Asset Purchase Agreement"); and WHEREAS, in connection with the Asset Purchase Agreement, the Borrower agreed to assume the obligations of the 1990 Borrower under the 1990 Loan Agreement by entering into a First Amendment to Loan Agreement dated as of December 31, 1993 (the "First Amendment to Loan Agreement") (the 1990 Loan Agreement as amended by the First Amendment to Loan Agreement is referred to herein as the "Original Loan Agreement") so as to reflect the obligations under the Original Loan Agreement by the Borrower; and WHEREAS, the Borrower has requested that the Board issue, pursuant to MINNESOTA STATUTES, Chapter 41A (and including certain provisions of MINNESOTA STATUTES 1986, Chapter 116M notwithstanding the repeal thereof) (collectively the "Act"), its Minnesota Agricultural and Economic Development Board Minnesota Small Business Development Loan Program Refunding Revenue Bonds, Series 1998B, Lot 2 (the "Series 1998B Lot 2 Bonds") in the principal amount not to exceed $3,320,000 to fund a loan to the Borrower to redeem and prepay on August 1, 1998 the outstanding principal amount of the Minnesota Agricultural and Economic Development Board Minnesota Small Business Development Loan Program Revenue Bonds, Series 1990B, Lot 1 (the "Series 1990B Lot 1 Bonds") previously issued by the Board to finance the Project (as defined in the Original Loan Agreement); WHEREAS, the Borrower has requested that the Board enter into this Second Amendment to Loan Agreement to refund the Series 1990B Lot 1 Bonds; and WHEREAS, Section 6.08 of the Minnesota Small Business Development Loan Program Revenue Bonds General Bond Resolution adopted by the Board on September 26, 1984 (the "General Bond Resolution") provides that the Board may consent to any amendment or modification of a loan agreement, security instrument or any other security arrangement that would not impair or materially adversely affect in any manner the rights or security of holders of the Bonds (as defined in the General Bond Resolution); and WHEREAS, the Board approved Resolution 98-317 on June 29, 1998, approving this Second Amendment to Loan Agreement; and NOW, THEREFORE, the parties hereby desire to amend the Original Loan Agreement and hereby covenant and agree as follows: Section 1. DEFINITIONS. The following definitions in Section 1.1. are deleted in their entirety and new definitions as follows are substituted in lieu thereof: "Agreement" means the Loan Agreement dated as of July 1, 1990 between the 1990 Borrower and the Board as amended and supplemented by the First Amendment to Loan Agreement dated as of December 31, 1993 between the Borrower and the Board and as further amended and supplemented by this Second Amendment to Loan Agreement dated as of July 1, 1998 between the Borrower and the Board. "Business Loan Reserve Account Requirement" means, as of any date of calculation, with respect to any Lot of Bonds, that sum which is equal to (i) the maximum Aggregate Debt Service for any Bond Year over the period from the date of calculation to (and including) the final maturity date of such Lot of Bonds or (ii) such lesser amount as shall be required pursuant to Section 103(c) of the Code to preserve the tax-exempt status of such Lot of Bonds. "Note" means the promissory note of the Borrower dated as of the date of the Series 1998B Lot 2 Bonds, evidencing the Borrower's obligations pursuant to this Agreement, substantially in the form of Appendix I hereto. "Single Lot Bonds" means the Minnesota Agricultural and Economic Development Board Minnesota Small Business Development Loan Program Refunding Revenue Bonds, Series 1998B Lot 2 in the aggregate principal amount of $3,320,000 authorized by the Single Lot Resolution. "Single Lot Resolution" means the Single Lot Bond Resolution of the Authority authorizing the issuance of the 1990B Lot 1 Bonds adopted by the Authority on June 29, 1990 as amended by the resolution by the Authority on June 29, 1998 authorizing the issuance of the Series 1998B Lot 2 Bonds. Section 2. APPENDIX I. Appendix I to the Original Loan Agreement is deleted in its entirety and a new Appendix I is substituted therefore in the form of Appendix I hereto. Section 3. AUTHORITY FOR SECOND AMENDMENT TO LOAN AGREEMENT. This Second Amendment to Loan Agreement is being entered into without need for the consent of the holders of any Bond (as defined in the General Bond Resolution) issued under the General Bond Resolution being obtained pursuant to Section 12.4 of the Loan Agreement and Section 6.08 of the General Bond Resolution. The Borrower hereby represents that the amendments to the Original Loan Agreement set forth in this Second Amendment to Loan Agreement will not impair or materially adversely affect in any manner, the rights or security of the bondholders of the Related Lot of Bonds (as defined in the Original Loan Agreement). Section 4. DELIVERY OF DOCUMENTATION. The Borrower agrees to execute and deliver to the Board any and all documents, amendments to documents, filings, and notices as reasonably requested by the -2- Board to memorialize this Second Amendment to Loan Agreement and provide notice as required under law or as deemed appropriate by the Board. Section 5. NO FURTHER MODIFICATIONS OR REVISIONS. Except as amended hereby, the Original Loan Agreement and all bond documents issued thereunder, as they relate thereto, shall remain in full force and effect. Section 6. EFFECTIVENESS. This Second Amendment to Loan Agreement shall become effective as of the date first written above. -3- IN WITNESS WHEREOF, the Board and the Borrower have caused this Second Amendment to Loan Agreement to be executed in their respective names as of the date first above written. MINNESOTA AGRICULTURAL AND ECONOMIC DEVELOPMENT BOARD, as statutory successor to the Minnesota Energy and Economic Development Authority By /s/ Paul Moe ----------------------------------- Its Executive Director MERRILL/MAY, INC. By /s/ John Castro ----------------------------------- Its President Signature page of the Second Amendment to Loan Agreement between the Minnesota Agricultural and Economic Development Board and Merrill/May, Inc. dated as of July 1, 1998. -4- EX-10.9 6 EXHIBIT 10.9 - ------------------------------------------------------------------------------- $3,320,000 MINNESOTA AGRICULTURAL AND ECONOMIC DEVELOPMENT BOARD MINNESOTA SMALL BUSINESS DEVELOPMENT LOAN PROGRAM REFUNDING REVENUE BONDS SERIES 1998B, LOT 2 BOND PURCHASE AGREEMENT June 26, 1998 - ------------------------------------------------------------------------------- $3,320,000 MINNESOTA SMALL BUSINESS DEVELOPMENT LOAN PROGRAM REFUNDING REVENUE BONDS SERIES 1998B, LOT 2 BOND PURCHASE AGREEMENT Minnesota Agricultural and June 26, 1998 Economic Development Board St. Paul, Minnesota 55101 Merrill/May Inc. One Merrill Circle, Energy Park St. Paul, MN 55108 Ladies and Gentlemen: We, Dougherty Summit Securities LLC and Piper Jaffray Inc. (sometimes herein referred to as the "Underwriters") hereby offer to purchase upon the terms and conditions hereinafter specified, $3,320,000 principal amount of Minnesota Small Business Development Loan Program Refunding Revenue Bonds, Series 1998B, Lot 2, dated as of July 1, 1998 (the "Bonds") to be issued by the Minnesota Agricultural and Economic Development Board, St. Paul, Minnesota (the "Issuer"). The Bonds are described in and will be offered for sale by the Underwriters pursuant to an Official Statement dated July 7, 1998 prepared in connection with the issuance of the Bonds (together with the Appendices thereto, the "Official Statement"). The Underwriters have approved a form of a Preliminary Official Statement relating to the Bonds (the "Preliminary Official Statement"). If and when accepted by all of you, this document shall constitute our Bond Purchase Agreement. 1. BACKGROUND. The Bonds are to be issued by the Issuer pursuant to, and will be secured as provided in, the Minnesota Small Business Development Loan Program Revenue Bonds General Bond Resolution, as amended (the "General Bond Resolution") and the Series 1998B, Lot 2 Bond Resolution (the "Lot Bond Resolution") adopted June 29, 1998. The net proceeds of the Bonds will be used to refund the Issuer's Series 1990B, Lot 1 Bonds, finance the costs of constructing a manufacturing building (the "Project") which is owned by Merrill/May Inc., a Minnesota corporation (the "Borrower"). Prior to the issuance of the Bonds, the Issuer and the Borrower will amend an existing Loan Agreement (as amended, the "Loan Agreement") under which the Borrower will agree, among other things, to borrow the proceeds of the Bonds from the Issuer and to pay loan repayments in amounts sufficient to pay the principal of, premium, if any, and interest on the Bonds when due. The proceeds of the Bonds will be disbursed by U.S. Bank Trust National Association, as agent for U.S. Bank National Association (formerly First National Bank of Minneapolis) (the "Trustee"), pursuant to the General Bond Resolution. The Bonds and redemption premium, if any, and interest thereon do not constitute a debt of the Issuer or the State of Minnesota within the meaning of any constitutional or statutory limitation or provision and shall not constitute or give rise to any pecuniary liability of the Issuer or charge against the Issuer's general credit or taxing powers, if any, and shall not constitute a charge or encumbrance, legal or equitable, upon the property of the Issuer except as may be provided in the General Bond Resolution, the Lot Bond Resolution, the General Guaranty Fund Resolution (described below) or the Loan Agreement. The Bonds are secured by the Lot Bond Resolution, the General Bond Resolution, the General Guaranty Fund Resolution adopted September 26, 1984, as amended, (the "General Guaranty Fund Resolution") and the General Guaranty Fund Pledge and Escrow Agreement dated as of September 26, 1984, as amended, (the "General Guaranty Fund Pledge and Escrow Agreement") between U.S. Bank National Association (formerly First National Bank of Minneapolis), as Escrow Holder and the Issuer. The Loan Agreement is secured by a mortgage and certain other instruments (the "Security Instruments"). Merrill Corporation (the "Guarantor") will confirm its guaranty of the Loan Agreement pursuant to a Confirmation of Guaranty (the "Confirmation"). The Issuer and the Trustee will enter into a Continuing Disclosure Agreement dated as of July 1, 1998 for the benefit of the holders of the Bonds. The Bonds will mature and bear interest and contain certain other terms as set forth in the Lot Bond Resolution. The Bonds will be sold by us pursuant to the Preliminary Official Statement and the Official Statement. 2. REPRESENTATIONS OF THE ISSUER. The Issuer makes the following representations: (a) The Issuer is an agency duly organized and existing under the laws of the State of Minnesota, with full power and authority to act on behalf of the State of Minnesota (within the meaning of Rev. Rul. 63-20) to adopt the General Bond Resolution, the Lot Bond Resolution and the General Guaranty Fund Resolution, to issue the Bonds, to pledge the loan repayments and other sums to be received pursuant to the Loan Agreement and to conduct its corporate purposes as described in the Official Statement. The Issuer has full power and authority to execute and deliver the Loan Agreement, the General Guaranty Fund Pledge and Escrow Agreement and this Bond Purchase Agreement and to carry out the terms thereof and hereof. (b) This Bond Purchase Agreement has been duly and validly authorized. This Bond Purchase Agreement, when executed and delivered, will be in full force and effect and is a legal, valid, binding and enforceable obligation of the Issuer in accordance with its terms. The General Guaranty Fund Pledge and Escrow Agreement, the Loan Agreement, and the Bonds, when executed and delivered, shall have been duly and validly authorized, executed and delivered, shall be in full force and effect and shall be legal, valid, binding and enforceable obligations of the Issuer in accordance with their terms, respectively, except to the extent limited by any future proceedings under 2 bankruptcy, reorganization, or other laws of general application relating to or affecting the enforcement of creditors' rights. (c) The consummation of the transactions contemplated by the Loan Agreement, the Official Statement and this Bond Purchase Agreement and the carrying out of the terms thereof and hereof shall not result in the violation of any provision of or restriction contained in any agreement to which the Issuer is a party or by which it is bound; provided, however, that the representations in this paragraph shall not apply to the qualification of the Bonds under state or federal securities or Blue Sky laws or the law of any jurisdiction outside the United States. (d) To the best knowledge of the Issuer there is no action, suit, proceeding or investigation, at law or in equity, before or by any court, public board or body, pending or threatened against or affecting the Issuer wherein an unfavorable decision, ruling or finding would materially adversely affect the transactions contemplated by the Loan Agreement, the Official Statement and this Bond Purchase Agreement. (c) Any certificate signed by any official of the Issuer and delivered to the Underwriters on or prior to the Closing Date shall be deemed a representation by the Issuer to the Underwriters as to the truth of the statements therein contained. 3. THE BORROWER'S AND GUARANTOR'S REPRESENTATIONS. The Borrower and the Guarantor make the following warranties and representations: (a) The Borrower is a corporation duly organized and validly existing under the laws of the State of Minnesota with full power and authority to own the Project and otherwise conduct its business as described in Appendix B to the Official Statement. To the best of its knowledge, the Borrower is conducting its business in substantial compliance with all applicable and valid laws, rules and regulations of each jurisdiction where it owns or leases substantial property or where it transacts material intrastate business. (b) The Guarantor is a corporation duly organized and validly existing under the laws of the State of Minnesota with full power and authority to operate the Project and otherwise conduct its business as described in Appendix B to the Official Statement. To the best of its knowledge, the Guarantor is conducting its business in substantial compliance with all applicable and valid laws, rules and regulations of each jurisdiction where it owns or leases substantial property or where it transacts material intrastate business. (c) The Borrower has full power and authority to execute and deliver the Loan Agreement and this Agreement and to carry out the terms thereof. The Guarantor has full power and authority to deliver the Confirmation and this Agreement. This Agreement and the Loan Agreement, when executed and delivered by the Borrower, will have been duly and validly authorized, executed and delivered by the Borrower, will be in full force 3 and effect and will be valid and binding instruments of the Borrower, enforceable in accordance with their terms, except as limited by bankruptcy, insolvency or other laws affecting creditors' rights generally. This Agreement and the Confirmation, when executed and delivered by the Guarantor, will have been duly and validly authorized, executed and delivered by the Guarantor, will be in full force and effect and will be valid and binding instruments of the Guarantor, enforceable in accordance with their terms, except as limited by bankruptcy, insolvency or other laws affecting creditors' rights generally. (d) The consummation of the transactions herein contemplated and carrying out of the terms hereof will not result in a material violation of any provision of, or a default under the Articles of Incorporation or Bylaws of the Borrower or the Guarantor or any indenture, mortgage, deed of trust, indebtedness, agreement, judgment, decree, order, statute, rule or regulation to which the Borrower or Guarantor is a party or by which the property of either is bound; provided, however, that the representations and warranties in this paragraph shall not apply to the qualification of the Bonds under state or federal securities or Blue Sky Laws or the law of any jurisdiction outside the United States. (e) Except as described in the Official Statement, to the best of their knowledge, no approval, authorization, consent or other order of any public board or body (other than the authorization of the Issuer and registration under and compliance with the federal or securities or Blue Sky laws of various states) is legally required for the transactions contemplated hereby. (f) Neither the Guarantor nor the Borrower is in violation of any material provision of its Articles of Incorporation or Bylaws. Neither the Borrower nor the Guarantor is in violation of any provision of, or in material default under, any indenture, mortgage, deed of trust, indebtedness agreement, instrument, judgment, decree, order, statute, rule or regulation to which it is a party or by which it or its property is bound. (g) There are no legal or governmental proceedings pending or, to the best of its knowledge, threatened or contemplated by governmental authorities or threatened by others to which the Borrower or Guarantor is or may become a party or of which any property of the Borrower or Guarantor is or may become subject, other than as is set forth in the Official Statement, which, if determined adversely to the Borrower or Guarantor, would have a material and adverse effect on the financial condition of the Borrower or Guarantor. (h) The information contained in the Official Statement under the heading "THE SERIES 1998B BONDS - Lot 2 Estimated Sources and Uses of Funds", and the information concerning the Borrower and Guarantor in Appendix B thereto is accurate in all material respects. (i) Subsequent to the respective dates as of which information is given in the Official Statement and prior to the Closing Date hereinafter mentioned, except as 4 described to the Underwriters and Issuer or set forth in or contemplated by the Official Statement, (1) neither the Borrower nor the Guarantor shall have incurred any material liabilities or obligations, direct or contingent, except in the ordinary course of business, or shall have entered into any material transaction not in the ordinary course of business, (2) there has not been any material adverse change in the business of the Borrower or Guarantor or the financial position or results of operations of the Borrower or Guarantor, (3) no loss or damage (whether or not insured) to the property of the Borrower or Guarantor has been sustained which materially and adversely affects the operations of the Borrower or Guarantor, and (4) no legal or governmental proceedings affecting the transactions contemplated by this Agreement have been instituted or threatened which are material. 4. PURCHASE, SALE AND DELIVERY OF THE BONDS. On the basis of the representations and warranties and subject to the terms and conditions set forth herein, we agree to purchase, and the Issuer agrees to sell to us, the total principal amount of the Bonds at a purchase price of $3,320,000 plus interest accrued from the date of the Bonds to the Closing Date. From other available funds, the Borrower shall pay us an underwriting fee of $83,000. Payment for the Bonds shall be made to the Issuer or its order by wire transfer or by certified or official bank check or checks payable in immediately available funds at the office of Lindquist & Vennum P.L.L.P., Bond Counsel, in Minneapolis, Minnesota, at 10 a.m. Central Time, on July 15, 1998, or at such later date as may be agreed upon by an appropriate officer of the Issuer, the Borrower and us against delivery of the Bonds to us. The date and time of such payment and delivery are herein called the "Closing Date". The Bonds will be delivered to us on the Closing Date in the office of the bond counsel in Minneapolis, Minnesota, in fully registered form, as requested by us before the Closing Date, and the Bonds shall be made available to us for inspection at least one day prior to the Closing Date. The Bonds shall bear CUSIP numbers, provided that neither the printing of a wrong number on any Bond nor the failure to print a number thereon shall constitute cause to refuse delivery of a Bond. 5. COVENANTS OF THE BORROWER. The Borrower: (a) except in connection with the issuance of additional obligations under the General Bond Resolution or changes in the Guaranty Fund Amount, if at any time for a period of six months after the date of the Official Statement an event shall have occurred as a result of which it is necessary to amend or supplement the Official Statement in order to make the statements therein with respect to the Borrower and Guarantor not untrue or misleading, notify us promptly thereof and furnish to us an appropriate amendment or a supplement that will correct the statements in the Official Statement in order to make the statements therein with respect to the Borrower and Guarantor not untrue or misleading; and (b) advise the Underwriters promptly upon obtaining knowledge thereof of the institution of any proceedings by any governmental agency or otherwise affecting the use of the Official Statement or in connection with the sale and distribution of the Bonds. 5 The Issuer, the Borrower and the Guarantor shall cooperate with the Underwriters to maintain the eligibility of the Bonds for secondary market trading in the State of Minnesota, provided, however, in no event shall the Issuer be required to expend any moneys or funds to maintain such eligibility and if moneys or funds need be expended therefor such expenditures shall be the sole obligation of the Borrower. For this purpose the Borrower and the Guarantor shall provide the information necessary for the Issuer to furnish the Underwriters with an annual report in the form required and the Issuer shall furnish such annual report to the Underwriters and the Borrower and the Guarantor shall pay any annual fee of the State of Minnesota required in this connection. 6. CONDITIONS OF OBLIGATIONS OF UNDERWRITERS AND ISSUERS. Our obligation to purchase and pay for the Bonds, and the obligation of the Issuer to issue the Bonds is subject to the following conditions: (a) The representations and warranties of the Borrower and Guarantor shall be true and correct as of the date hereof and the Closing Date. (b) At the Closing Date, the Borrower and the Guarantor shall have performed all of its obligations hereunder theretofore to be performed. (c) At the Closing Date, there shall be delivered to us and dated as of the Closing Date: (i) opinions of Lindquist & Vennum P.L.L.P., Minneapolis, Minnesota, as Bond Counsel, addressed to the Issuer substantially in the form set forth as Exhibit A and a separate opinion of Bond Counsel, addressed to us, substantially in the form set forth as Exhibit B. (ii) one or more opinions of counsel to the Borrower and Guarantor, addressed to us and the Issuer, substantially in the form set forth as Exhibit C. (iii) certificate of an authorized representative of the Issuer, substantially in the form of Exhibit D. (iv) opinion of the Office of the Attorney General of the State of Minnesota, as counsel to the Issuer, addressed to us and the Issuer, substantially in the form set forth as Exhibit E. In rendering the above opinions, counsel may rely upon customary certificates. (d) The General Guaranty Fund Pledge and Escrow Agreement, the Loan Agreement, the Continuing Disclosure Agreement and the Confirmation, in substantially the forms existing on the date hereof, with such changes therein as may be mutually agreed upon by the parties thereto and us, and all instruments contemplated thereby, shall 6 have been duly authorized, executed and delivered by the respective parties thereto and shall be in full force and effect on the Closing Date. (e) All proceedings and related matters in connection with the authorization, issue, sale and delivery of the Bonds shall have been satisfactory to Bond Counsel, and such counsel shall have been furnished with such papers and information as they may have reasonably requested to enable them to pass upon the matters referred to in this Section 6. (f) The Borrower shall have furnished or caused to be furnished to us on the Closing Date certificates satisfactory to us as to the accuracy of all representations and warranties contained herein as of the date hereof and as of the Closing Date and as to the performance by the Borrower of all of their obligations hereunder to be performed at or prior to the Closing Date. (g) The offer and sale of the Bonds shall be exempt from registration under the Securities Act of 1933, as amended. (h) The Bonds shall be registered under the Blue Sky laws of the State of Minnesota and registered or exempt from registration for sale in such states as the Underwriters and the Issuer shall have mutually agreed upon and the Underwriters shall have been furnished one or more memoranda to such effect by Faegre & Benson. All such opinions, certificates, letters and documents will be in compliance with the provisions hereof only if they are in all material respects satisfactory to us. If any condition of our obligation hereunder to be satisfied prior to the Closing Date is not so satisfied, this Agreement may be terminated by us by notice in writing or by telegram to the Borrower and the Issuer. We may waive in writing compliance by the Borrower and Guarantor or the Issuer with any one or more of the foregoing conditions or extend the time for their performance. 7. INDEMNIFICATION. The Borrower will indemnify and hold harmless the Underwriters and the Issuer and each person, if any, who controls the Underwriters and the Issuer (in this paragraph separately and collectively referred to as the "defendants") within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, from and against any and all losses, claims, damages, expenses or liabilities, joint or several, to which they or any of them may become subject under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, or under any other statute or at common law or otherwise, and, except as hereinafter provided, will reimburse the Underwriters, the Issuer and each such controlling person, if any, for any legal or other expenses reasonably incurred by them or any of them in connection with investigation or defending any actions whether or not resulting in any liability, insofar as such losses, claims, damages, expenses, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact 7 or failure to state a material fact contained in the Official Statement (or the Official Statement as from time to time amended or supplemented) under, and only under, the heading "THE SERIES 1998 BONDS - Lot 2 Estimated Sources and Uses of Funds" or that portion of Appendix B relating to the Borrower and Guarantor. Promptly after receipt by the Underwriters, the Issuer or any such controlling person of notice of the commencement of any action in respect of which indemnity may be sought against the Borrower and Guarantor under this Section, such person will notify the Borrower and Guarantor in writing of the commencement of any action in respect of which indemnity may be sought against the Borrower and Guarantor under this Section, such person will notify the Borrower and Guarantor in writing of the commencement thereof, and, subject to the provisions hereinafter stated, the Borrower and Guarantor shall assume the defense of such action (including the employment of counsel, who shall be counsel satisfactory to the Underwriters, the Issuer or such controlling person, as the case may be, and the payment of expenses) insofar as such action shall relate to any alleged liability in respect of which indemnity may be sought against the Borrower and Guarantor. The issuer or any such controlling person shall have the right to employ separate counsel in any such action and to participate in the defense thereof, and the fees and expenses of such counsel shall be at the expense of the Borrower and Guarantor. The Borrower and Guarantor shall not be liable to indemnify any person for any settlement of any such action effected without its consent. To the same extent as the foregoing indemnity contained in this Section from the Borrower and Guarantor to the Underwriters and the Issuer and each person, if any, who controls the Underwriter and the Issuer, the Underwriters agree to indemnify and hold harmless the Borrower and Guarantor and the Issuer and each person, if any, who controls the Borrower and Guarantor and the Issuer within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (hereinafter in this paragraph separately and collectively referred to as the "defendants"), but only with reference to information furnished by us specifically for use in the preparation of the Official Statement and Preliminary Official Statement. In case any such claim shall be presented in writing or any action shall be brought against any of the defendants based on the Official Statement or Preliminary Official Statement, in respect of which indemnity may be sought from the Underwriters on account of its agreement contained in this Section, the Underwriters shall have the rights and duties given to the Borrower and Guarantor in the above paragraph and the defendants shall have the rights and duties given by the above paragraph to the persons therein referred to as "defendants". 8. OFFERING BY UNDERWRITERS. We propose to offer the Bonds for sale to the public under the applicable securities laws in the states in which the Bonds will be reoffered as set forth in the Official Statement. Concessions from the offering price may be allowed to selected dealers and special purchasers. The offering price and concessions vary after the initial offering and the Bonds may be offered at prices other than the par value thereof. The Borrower and Guarantor hereby confirm and the Issuer hereby consents to the authority and use by the Underwriters of the Preliminary Official Statement and the Official Statement. 9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. The representations, warranties, indemnities, agreements and other statements of the Borrower, the Guarantor, the Issuer and the Underwriters or their officers and authorized representatives set forth in or made pursuant to this Agreement will remain operative and in full force and effect regardless of any investigation or statement as to the results thereof made by or on behalf of the 8 Borrower, the Guarantor, the Issuer or the Underwriters or any controlling person and will survive delivery of and payment for the Bonds. 10. PAYMENT OF COSTS AND EXPENSES. There shall be paid by the Borrower and Guarantor the following: the fees and disbursements of Underwriters' counsel, the costs of registration or filing fees with the various states; fees and disbursements of bond counsel and staff for the State of Minnesota or Issuer, costs of preparation and any printing of the General Bond Resolution, and any similar documents, if any; costs of printing the Preliminary Official Statement and the final Official Statement; the initial fees of the Trustee, the Escrow Holder and paying agents. The Borrower shall, in addition, pay the underwriting fee of $83,000 referred to in Section 4 on the Closing Date. 11. TERMINATION OF AGREEMENT. This Agreement may be terminated at any time prior to the Closing Date by us by written notice to the Issuer and the Borrower if in our judgment it is impracticable to offer for sale or to enforce contracts made by the Underwriters for the resale of the Bonds agreed to be purchased hereunder by reason of (i) trading in securities on the New York Stock Exchange, Inc. or the American Stock Exchange having been suspended or limited or minimum prices having been established on either such Exchange, (ii) a banking moratorium having been declared by either Federal or applicable state authorities, (iii) an outbreak of major hostilities or other national or international calamity having occurred, (iv) any action having been taken by any government in respect of its monetary affairs which, in our opinion, has a material adverse effect on the United States securities markets, (v) legislation is introduced in Congress, or a decision rendered by any court, or any order, ruling, regulation or statement issued by any agency of the United States which, in our opinion, would result in the interest payable on the Bonds being subject to United States income taxes or the Bonds, Loan Agreement, Lot Bond Resolution, General Bond Resolution, General Guaranty Fund Resolution being subject to registration or qualification with the Securities and Exchange Commission, (vi) by reason of a default with respect to any security issued by a state or any subdivision or instrumentality of a state having a population of more than one million, which, in our opinion, has a material adverse effect on the United States securities markets or (vii) the occurrence of any event, or knowledge to that effect, which makes untrue, incorrect or misleading in any material respect any statement or information contained in the Official Statement, or has the effect that the Official Statement contains an untrue, incorrect or misleading statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. If this Agreement shall be terminated pursuant to Section 6 or this Section 11, or if the purchase provided for herein is not consummated because any condition to our obligation hereunder is not satisfied or because of any refusal, inability or failure on the part of the Borrower, the Guarantor or the Issuer to comply with any of the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Borrower, the Guarantor or the Issuer shall be unable to perform all of their respective obligations under this Agreement, neither the Borrower, Guarantor nor the Issuer shall be liable to us for damages on account of loss of anticipated profits arising out of the transactions covered by this Agreement, but the Borrower and Guarantor shall remain liable to the extent provided in Section 10 hereof, and the Borrower and Guarantor shall pay all reasonable out-of-pocket expenses incurred by us, Bond Counsel, Issuer's Counsel and 9 Underwriters' Counsel hereunder, including the fees and disbursements of such Counsel in contemplation of the purchase and sale of the Bonds. 12. NOTICES AND GOVERNING LAW. All communications hereunder shall be in writing and, except as otherwise provided, shall be delivered at, or mailed or telegraphed to, the following addresses: if to the Underwriters, to Dougherty Summit Securities, LLC, 90 South Seventh Street, 4300 Norwest Center, Minneapolis, Minnesota 55402 Attention: Mark Landreville; if to the Borrower and Guarantor, addressed to them at One Merrill Circle, St. Paul, MN 55108 Attention: Dale Kopel; if to the Issuer, addressed to it at 500 Metro Square, 121 7th Place East, St. Paul, Minnesota 55101, Attention: Chair. This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota. 13. PARTIES IN INTEREST. This Agreement shall be binding upon and shall inure to the benefit of the Underwriters, the Borrowers and the Issuer, and, to the extent expressed, any person controlling the Issuer, the Underwriters, the Borrower, the Guarantor and their respective executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" shall not include any purchaser, as such purchaser, from the Underwriters of the Bonds. 14. TIME. Time shall be of the essence of this Agreement. 15. COUNTERPARTS. This Agreement may be executed in any number of counterparts. 16. SURVIVABILITY. The covenants, representations, and warranties contained in this Bond Purchase Agreement shall survive the purchase, sale, and delivery of the Bonds. [This page intentionally left blank.] 10 If the foregoing is in accordance with your understanding of the Agreement, kindly sign and return to us the enclosed duplicate copies hereof, whereupon it will become a binding agreement among the Issuer, the Borrower and the Underwriters in accordance with its terms. Very truly yours, DOUGHERTY SUMMIT SECURITIES LLC For and On behalf of the Underwriters and Itself By /s/ Mark Landreville -------------------------------------- Its Executive Vice President Confirmed and accepted as of the date first above written. MINNESOTA AGRICULTURAL AND ECONOMIC DEVELOPMENT BOARD By /s/ [Illegible] ---------------------------------------- Executive Director MERRILL/MAY INC. By /s/ John Castro ----------------------------------------- Its -------------------------------------- MERRILL CORPORATION By /s/ John Castro ---------------------------------------- Its -------------------------------------- 11 EXHIBIT A [Lindquist & Vennum Letterhead] [CLOSING DATE], 1998 Minnesota Agricultural and Economic Development Board 500 Metro Square 121 7th Place East St. Paul, Minnesota 55101 Dougherty Summit Securities, LLC 90 South Seventh Street 4300 Norwest Center Minneapolis, Minnesota 55402 Piper Jaffray Inc. 222 South Ninth Street Minneapolis, Minnesota 55440 RE: $________Minnesota Agricultural and Economic Development Board Minnesota Small Business Development Loan Program Revenue Bonds, Series 1998B, Lot 2 [Bond Counsel's opinion substantially similar to the form attached as Appendix D to Preliminary Official Statement dated _______, 1998] Very truly yours, 12 EXHIBIT B [Lindquist & Vennum Letterhead] [CLOSING DATE], 1998 Minnesota Agricultural and Economic Development Board 500 Metro Square 121 7th Place East St. Paul, Minnesota 55101 Dougherty Summit Securities, LLC 90 South Seventh Street 4300 Norwest Center Minneapolis, Minnesota 55402 Piper Jaffray Inc. 222 South Ninth Street Minneapolis, Minnesota 55440 RE: $________Minnesota Agricultural and Economic Development Board Minnesota Small Business Development Loan Program Revenue Bonds, Series 1998B, Lot 2 [Form of opinion to be substantially as follows:] 1. The Bonds, the General Bond Resolution and other documents securing the Bonds, except the Loan Agreement, are exempt from registration pursuant to the Securities Act of 1933, as amended; the Bonds constitute "municipal securities" within the meaning of the Securities and Exchange Act of 1934, as amended; and the General Bond Resolution is exempt from qualification under the Trust Indenture Act of 1939, as amended. 2. The statements in the Official Statement relating to the Bonds under the headings "THE SERIES 1998B BONDS", "SECURITY FOR THE BONDS", "SUMMARY OF CERTAIN PROVISIONS OF GENERAL BOND RESOLUTION", "SUMMARY OF CERTAIN PROVISIONS OF GENERAL GUARANTY FUND PLEDGE AND ESCROW AGREEMENT", "SUMMARY OF CERTAIN PROVISIONS OF LOAN AGREEMENTS, COLLATERAL AND SECURITY INSTRUMENTS" and "TAX EXEMPTION", are true and accurate and do not omit a material fact necessary to be included therein for the purpose for 13 which they were intended. In preparation of the remaining portions of the Official Statement, the Underwriters have been represented by their counsel and we have not examined or verified such other provisions in the Official Statement, or appendices thereto, and accordingly express no opinion thereon. We further express no opinion with respect to the adequacy of disclosure in the Official Statement with respect to any Borrowers described therein or any documents to which they are a party or any collateral which they have provided. We hereby consent to the use of our firm name on the cover page and under the headings "TAX EXEMPTION" and "APPROVAL OF LEGAL MATTERS" in the Official Statement. Very truly yours, 14 EXHIBIT C 15 EXHIBIT D CERTIFICATE OF ISSUER Dougherty Summit Securities, LLC Minneapolis, Minnesota Piper Jaffray Inc. Minneapolis, Minnesota RE: $_________ Minnesota Agricultural and Economic Development Board Minnesota Small Business Development Loan Program, Series 1998B, Lot 2 The Minnesota Agricultural and Economic Development Board (the "Board") does hereby certify in connection with the issuance of the above-captioned Bonds which were purchased by you pursuant to a Bond Purchase Agreement dated ___________, 1998 among you, the Board, and Merrill/May Inc. (the "Borrower") that to the best of its knowledge as of this date the Official Statement, except as noted below, does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. The Board has relied on the information furnished by the Borrower in preparing the sections under the heading "THE SERIES 1998B BONDS -- Lot 2 Estimated Sources and Uses of Funds" and in Appendix B. Date:__________ MINNESOTA AGRICULTURAL AND ECONOMIC DEVELOPMENT BOARD By___________________________ Its________________________ 16 EXHIBIT E [Letterhead of the Office of the Attorney General] [CLOSING DATE], 1998 Minnesota Agricultural and Economic Development Board 500 Metro Square 121 7th Place East St. Paul, Minnesota 55101 Dougherty Summit Securities, LLC 90 South Seventh Street 4300 Norwest Center Minneapolis, Minnesota 55402 Piper Jaffray Inc. Piper Jaffray Tower 222 South Ninth Street Minneapolis, Minnesota 55440 RE: $_________ Minnesota Agricultural and Economic Development Board Minnesota Small Business Development Loan Program Revenue Bonds, Series 1998B, Lot 2 [Form of opinion to be substantially as follows:] 1. The Board was duly created and is validly existing under the provisions of the Act as a Board authorized to act on behalf of the State (within the meaning of Rev. Rul. 63-20) with full power and authority to adopt the General Resolution, the Lot Resolution and the General Guaranty Fund Resolution; to issue, execute, sell and deliver the Bonds; and to execute, deliver and perform the Bond Purchase Agreement, the Escrow Agreement and the Loan Agreement. 2. The General Resolution, the Lot Resolution and the General Guaranty Fund Resolution have been duly adopted by, and the Bond Purchase Agreement, the Escrow Fund Resolution and the Loan Agreement have been duly authorized, executed and delivered by the Board, and constitute valid, binding and legal obligations of the Board enforceable in accordance with their respective terms except to the extent that the enforceability thereof may be limited by 17 bankruptcy, insolvency or other laws affecting creditors' rights generally or because the obligations are held to be contrary to public policy. 3. The indebtedness of the Board, including that represented by the Bonds, is within every limit, constitutional, statutory or other, prescribed by any regulations or statute or law. All capitalized terms used in this opinion and not otherwise defined shall have the same meanings as in the General Resolution. Very truly yours, --------------------- Special Assistant Attorney General 18 **$210,000** UNITED STATES OF AMERICA STATE OF MINNESOTA MINNESOTA AGRICULTURAL AND ECONOMIC DEVELOPMENT BOARD MINNESOTA SMALL BUSINESS DEVELOPMENT LOAN PROGRAM REFUNDING REVENUE BOND SERIES 1998B LOT 2 No. SR98B2-1 Cusip No. 604920VJ4 INTEREST RATE MATURITY DATE DATED DATE ------------- ------------- ---------- 4.20% August 1, 1999 July 1, 1998 Minnesota Agricultural and Economic Development Board (the "Board"), constituted as an authority to act on behalf of the State of Minnesota (the "State") created and existing by virtue of the laws of the State, acknowledges itself indebted and for value received hereby promises to pay, solely from the sources and as hereinafter provided, to CEDE & CO or registered assigns, the principal sum of **TWO HUNDRED TEN THOUSAND*****************DOLLARS on the maturity date set forth above, unless redeemed prior thereto as hereinafter provided, upon presentation and surrender of this bond at the corporate trust office of U.S. Bank National Association, Minneapolis, Minnesota (the "Trustee" or the "Paying Agent"), and to pay interest (calculated on the basis of a 360-day year of twelve 30-day months) on such principal sum from the date hereof at the interest rate set forth above per annum until such principal sum is paid, payable on the first days of February and August of each year commencing February 1, 1999. Interest hereon shall be payable by check or draft mailed from said office of the Trustee to the person in whose name this bond is registered at the close of business on the 15th day of the calendar month next preceding each semiannual interest payment date. In case an event of default, as defined in the General Resolution (hereinbelow described), shall occur, the principal of this bond may be declared due and payable in the manner and with the effect provided in the Resolutions (defined below). Amounts paid on this bond after such declaration shall be paid by the Trustee to the person in whose name this bond is registered as of a special record date to be fixed by the Trustee, notice of which is to be mailed to the registered owners of all Bonds then outstanding. The principal or redemption price, if any, of and interest on this bond are payable in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts; provided, however, that interest on this fully registered bond shall be paid by check or draft as set forth above. This bond is one of a duly authorized lot of bonds of the board designated "Minnesota Agricultural and Economic Development Board Minnesota Small Business Development Loan Program Refunding Revenue Bonds, Series 1998B, Lot 2 (the "Single Lot Bonds") issued by the Board in the aggregate principal amount of $3,320,000 under and pursuant to (i) that act of the legislature of the State, enacted as Chapter 547 of the Laws of Minnesota for 1980, as amended and supplemented (and set forth in MINNESOTA STATUTES 1986, Chapter 116M notwithstanding the subsequent repeal thereof by Minnesota Laws of 1987, Chapter 386) and MINNESOTA STATUTES, Chapter 41A (collectively, the "Act"), (ii) the Minnesota Small Business Development Loan Program Revenue Bonds General Bond Resolution duly adopted by the Minnesota Energy and Economic Development Authority (the "Authority"), as amended and supplemented (the "General Resolution") and (iii) the Single Lot Resolution, as amended, authorizing the issuance of the Single Lot Bonds (the "Single Lot Resolution") duly adopted by the Board (the General Resolution and the Single Lot Resolution are herein collectively called the "Resolutions"). The Board is the statutory successor to the Authority with respect to General Resolution and the Program (as therein defined). The Board and the Authority are collectively referred to herein as the "Board". The Single Lot Bonds are all of the like date and tenor except as to number, dates, denominations, interest rate and maturity, and are issued for the purposes of acquiring a Business Loan to provide financing for the costs of a project to be used by a Business in its business operations (as such capitalized terms are defined in the Resolutions) and for other proper purpose of the Authority as provided by the Resolutions. Reference is hereby made to the Resolutions, as the same may be amended and supplemented from time to time, for a description of the rights, limitations of rights, obligations, duties and immunities of the Board, the Trustee, the Paying Agent and the holders of the bonds. (All bonds issued under the General Resolution, including the Single Lot Bonds, are herein collectively called the "Bonds"). Certified copies of the Resolutions are on file in the corporate trust office of the Trustee in St. Paul, Minnesota nd in the principal office of the Authority in Saint Paul, Minnesota. As provided in the General Resolution, Bonds issued thereunder shall be special obligations of the Board, the principal or redemption price, if any, of and interest on the Bonds which are payable solely from and secured solely by the revenues, funds and other property or assets of the Board described in the Resolutions and pledged therefor. It is provided, however, that Bonds issued under the General Resolution shall be secured by the General Guaranty Fund, created as an account of the Economic Development Fund under MINNESOTA STATUTES 1986, Section 116M.06, Subd. 2 and Subd. 4 (now repealed) as transferred to the Agricultural and Economic Development Fund and renamed the Agricultural and Economic Development Account of the Special Revenues Fund in the State Treasury (herein, such account to the extent it has received such transferred moneys is referred to as the "General Guaranty Fund"). The General Guaranty Fund is held under and in accordance with the terms and provisions of the General Guaranty Pledge and Escrow Agreement dated as of September 26, 1984, as amended and supplemented, by and between the Board and U.S. Bank National Association, Minneapolis, Minnesota, as escrow holder (the "Escrow Holder") thereunder. Amounts from time to time on deposit in the General Guaranty Fund are pledged and allocated to -2- guarantee the payment of debt service payments and prepayments due on such bonds that correspond to unpaid payments of principal and interest then due on the related Business Loan with respect to such Bonds, whether due upon scheduled payment dates or upon acceleration prior to the occurrence of such scheduled payment dates. Reference is hereby made to the General Resolution and the General Guaranty Fund Pledge and Escrow Agreement, as the same may be amended and supplemented from time to time, for a description of the rights, limitations of rights, obligations, duties and immunities of the Board, the Trustee, the Escrow Holder and the holders of the Bonds, all with respect to the General Guaranty Fund. THIS BOND DOES NOT CONSTITUTE A DEBT OR LOAN OF CREDIT OF THE STATE OF MINNESOTA OR ANY AGENCY OR ANY POLITICAL SUBDIVISION THEREOF (OTHER THAN THE BOARD) OR THE UNITED STATES OF AMERICA OR ANY AGENCY OR DEPARTMENT THEREOF AND NEITHER THE STATE OF MINNESOTA OR ANY AGENCY OR ANY POLITICAL SUBDIVISION THEREOF (OTHER THAN THE BOARD) NOR THE UNITED STATES OF AMERICA OR ANY AGENCY OR DEPARTMENT THEREOF SHALL BE LIABLE ON THIS BOND. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF MINNESOTA OR ANY AGENCY OR ANY POLITICAL SUBDIVISION THEREOF OR OF THE UNITED STATES OF AMERICA OR ANY AGENCY OR DEPARTMENT THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR THE INTEREST ON THIS BOND. With respect to the creation of the General Guaranty Fund and the pledge and allocation and guarantee obligation undertaken in connection therewith, the Board includes and recites in this bond the following covenant of the State as set forth in Section 116M.06, Subd. 2 of the Act. The State covenants with all holders of the Board's bonds interested in the disposition of money in the Economic Development Fund or its accounts (including the General Guaranty Fund) which money the Board has irrevocably pledged and allocated for any authorized purpose described in Section 116M.06, Subd. 2 of the Act, that the State will not take any action to limit the effect of the pledge and allocation and will not take any action to limit the effect of contracts entered into as authorized in section 116M.06, Subd. 2 of the Act with respect to the pledge and allocation and will not limit or alter the rights vested in the Board or the State to administer the application of money pursuant to the pledge and allocation and to perform its obligations under the contracts. As provided in the General Resolution, additional Bonds have been issued and may be issued from time to time, all pursuant to additional lot resolutions, in one or more series or lots and in various principal amounts, which may mature at different times, may bear interest at different rates and otherwise may vary as provided in the General Resolution or any resolution amendatory thereof or supplemental thereto. The aggregate principal amount of Bonds that may be issued under the General Resolution is not limited except as provided therein and in the Act and all Bonds issued and to be issued thereunder are and will be equally secured by the pledge and -3- covenants made therein, except as otherwise expressly provided or permitted in the General Resolution. To the extent and in the manner permitted by the terms thereof, the Resolution and any resolution amendatory thereof or supplemental thereto may be modified or amended, provided, however, that no such modification or amendment shall permit a change in the terms of redemption or maturity of the principal of any outstanding Bond or of any installment of interest thereon or a reduction in the principal amount of redemption price thereof or in the rate of interest thereon without the consent of the holder of such Bond, or shall reduce the percentage of Bonds, the consent of the registered owners of which is required to effect any such modification or amendment without the consent of the registered owners of all Bonds then outstanding. The Single Lot Bonds maturing in any particular year are issuable in the form of fully registered bonds, without coupons, in denominations of $5,000 or of any integral multiple thereof, not exceeding the aggregate principal amount of Single Lot Bonds maturing in such year. This Bond is transferable, as provided in the General Resolution, only upon the books of the Board kept for that purpose at the corporate trust office of the Trustee by the registered holder thereof in person or by his duly authorized attorney, (i) upon surrender of this Bond together with a written instrument of transfer satisfactory to the Trustee duly executed by the registered holder or his duly authorized attorney and (ii) upon payment of the charges prescribed in the General Resolution. Thereupon a new Bond of the same aggregate principal amount, series or Lot and maturity shall be issued in the name of the transferee in exchange therefor as provided in the General Resolution. The Board, the Trustee and any other paying agent may deem and treat the person in whose name this Bond is registered as the absolute owner hereof for the purpose of receiving payment of or on account of the principal or redemption price hereof and interest due hereon and for all other purposes. The Single Lot Bonds are subject to redemption prior to maturity as hereinafter set forth in each instance at the respective redemption prices set forth (expressed as percentages of the principal amount of any Single Lot Bonds or portions thereof to be so redeemed) together with accrued interest to the redemption date. (a) The Bonds maturing on and after August 1, 2005, are redeemable on August 1, 2004 and on any date thereafter, at the option of the Board, at a redemption price of par plus accrued interest to the date of redemption, all in the manner provided by the General Bond Resolution. (b) All Single Lot Bonds are subject to redemption prior to maturity, in whole or in part on any bond payment date at 100% of the principal amount of such Single Lot Bonds to be so redeemed on such bond payment date in an amount equal to (i) the net proceeds received by the Board on account of an involuntary acceleration or prepayment of the Related Business Loan that are deposited in or transferred to the Special Redemption Account created with respect -4- thereto or (ii) Bond proceeds and certain other moneys that are transferred from time to time to said Special Redemption Account, provided such redemptions must equal or exceed $5,000, all as more fully described in the Resolutions. (c) On and after August 1, 1998, the Board may issue Bonds to refund the Single Lot Bonds and to effect such refunding, deposit the proceeds thereof into the Special Redemption Account, such proceeds to be applied as otherwise provided in clause (b) above. This special redemption may be made at the discretion of the Board notwithstanding the fact that the Single Lot Bonds may not be optionally redeemed pursuant to Section 2.7 of the Single Lot Resolution. (d) The Single Lot Bonds are subject to mandatory redemption, in whole and not in part at a redemption price of 103% of their principal amount plus accrued interest to the date of redemption, in the event that the Business, after the occurrence of a Determination of Taxability (as defined in the Loan Agreement), deposits sufficient funds in the Related Lot Special Redemption Account to effect such redemption pursuant to its obligation under the Loan Agreement. Such redemption will occur on the first interest payment date following such deposit for which notice of redemption may be timely given. If less than all of the Single Lot Bonds are to be redeemed, bonds shall be redeemed from each maturity of the Single Lot Bonds in the proportion which the amount of bonds then outstanding of such maturity bears to the total of all bonds of such Lot then outstanding if less than all of the Single Lot Bonds of like maturity are to be redeemed, the particular bonds to be redeemed shall be selected by the Trustee at random in such manner as the Trustee in its discretion may deem fair and appropriate. Fully registered Single Lot Bonds in a denomination of more than $5,000 may be redeemed in part from time to time in one or more units of $5,000 in the manner provided in the General Resolution. In addition to the foregoing, the Single Lot Bonds due August 1, 2010 are subject to redemption prior to maturity by payment of Sinking Fund Installments as provided in the Single Lot Resolution, at 100% of the principal amount of such Single Lot Bonds or portions thereof to be so redeemed, together with accrued interest to the redemption date. In the event that any Single Lot Bond is to be called for redemption as aforesaid, notice of such redemption setting forth in the place or places of payment, shall be given to the registered holder of each Single Lot Bond to be redeemed in whole or in part at the address shown on the registration books by mailing a copy of the redemption notice by first class mail not less than 30 days (unless a shorter notice period is required to maintain the exemption of interest on the Single Lot Bonds from Federal income taxation) nor more than 60 days prior to the redemption date. On the specified redemption date, all Single Lot Bonds or portions thereof so called for redemption shall cease to bear or accrue interest and shall not longer be secured by the Resolution provided moneys for their redemption are on deposit at the place of payment at that time. -5- The holder of this Single Lot Bond shall have no right to enforce the provisions of the Resolutions, or to institute any action to enforce the covenants therein, or to take any action with respect to any event of default under the Resolution, or to institute, appear in or defend any suit or other proceedings with respect thereto, except as otherwise expressly provided in the Resolutions. In addition, the right of the holder of this Bond to institute or prosecute a suit for the enforcement of payment hereof or to enter a judgment in any such suit is limited to the extent that such action would result in the surrender, impairment, waiver or loss of the security provided under the Resolutions for the equal and ratable benefit of all holders of Bonds. The Act provides that neither the members of the Board nor any authorized person executing bonds issued pursuant to the Act shall be liable personally on the Bonds or subject to any personal liability or accountability by reason of the issuance thereof. It is hereby certified and recited by the Board that all acts, conditions and things necessary to be done precedent to and in the issuance of the Single Lot Bonds in order to make the Single Lot Bonds the legal, valid and binding special obligations of the Board in accordance with their terms, have been done, have happened and have been performed in regular and due form as required by law, and that the issuance of the Single Lot Bonds does not exceed or violate any constitutional, statutory or other limitation upon the amount of indebtedness prescribed bylaw of by the Resolutions. This Bond shall not be valid or obligatory for any purpose and shall not be subject to the benefits of the guaranty provided by the General Guaranty Fund until the certificate of authentication hereon shall have been signed by the Trustee. -6- IN WITNESS WHEREOF, Minnesota Agricultural and Economic Development Board has caused this bond to be executed in its name and on its behalf by the manual or facsimile signature of the Chair and attested to by the manual or facsimile signature of its Executive Director, all as of the date of original issue, being the 1st day of July, 1998. MINNESOTA AGRICULTURAL AND ECONOMIC DEVELOPMENT BOARD (Seal) By /s/ Wayne [Illegible] --------------------------------- Its Chair Attest: By /s/ [Illegible] ---------------------------- Its Executive Director Authentication Date: 7/15/98 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This Bond is one of the bonds described in the within mentioned Resolutions. The undersigned has received from the Escrow Holder a certificate that the amounts in the General Guaranty Fund are pledged to guarantee the payment of debt service payments and certain mandatory prepayments due on this bond in the manner and to the extent set forth in said General Guaranty Fund Pledge and Escrow Agreement and this Bond is subject to the benefits of the guaranty provided by the General Guaranty Fund. U.S. BANK NATIONAL ASSOCIATION, as Trustee By /s/ [Illegible] ---------------------------- Authorized Signature (END OF FORM OF CERTIFICATE OF AUTHENTICATION) -7- ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ______________________ the within Bond and all rights and title thereunder, and hereby irrevocably constitutes and appoints _______________________________ attorney to transfer the within Bond on the books kept for registration thereof, with full power of substitution in the premises. Dated: Medallion Signature Guarantee: Address of transferee Social security or other tax identification number of transferee: ------------------------------------------------ NOTICE: The signature of this assignment must correspond with the name as it appears on the face of the within bond in every particular without alteration or enlargement or any change whatever. The following abbreviations, when used in the inscription on the face of this Bond, shall be construed as though they were written out in full according to the applicable laws or regulations: TEN COM - as tenants UTMA in common ......Custodian....... (Cust) (Minor) TEN ENT - as tenants by the entireties under Uniform Transfer JT TEN - as joint tenants Gifts to Minors Act... with right of (State) survivorship and not as tenants in common Additional abbreviations may also be used, though not in the above list. --------------- -8- DOCUMENT NO. 27 $3,320,000 MINNESOTA AGRICULTURAL AND ECONOMIC DEVELOPMENT BOARD MINNESOTA SMALL BUSINESS DEVELOPMENT LOAN PROGRAM REFUNDING REVENUE BONDS SERIES 1998B, LOT 2 NON-ARBITRAGE CERTIFICATE OF THE BORROWER I, the undersigned, President, on behalf of Merrill/May, Inc. (the "Borrower") do hereby certify and declare with respect to the $3,320,000 Minnesota Agricultural and Economic Development Board Minnesota Small Business Development Loan Program Refunding Revenue Bonds, Series 1998B, Lot 2 (the "1998B Lot 2 Bonds") as follows: 1. This Certificate is given to certify certain facts regarding the expenditure of the proceeds of the 1998B Lot 2 Bonds, pursuant to Section 148 of the Internal Revenue Code of 1986, as amended. 2. The 1998B Lot 2 Bonds are initially dated as of July 1, 1998, and are issued pursuant to the General Resolution of the Minnesota Agricultural Economic Development Authority (now the Minnesota Agricultural and Economic Development Board (the "Board"), as adopted on December 22, 1986, as amended (the "General Bond Resolution"), and the Single Lot Resolution with the respect to the Minnesota Small Business Loan Development Program Revenue Bonds, Series 1990B, Lot 1 (the "1990B Lot 1 Bonds"), dated June 29, 1990 as amended by the Amendment to Single Lot Resolution dated June 29, 1998 with respect to the 1998B Lot 2 Bonds (the "Single Lot Resolution") (the General Bond Resolution and the Single Lot Resolution are herein collectively referred to as the "Resolutions"), pursuant to which the U.S. Bank National Association is serving as Trustee (the "Trustee"). 3. The Board will receive $3,326,706.39 from the purchaser of the 1998B Lot 2 Bonds. That amount represents a payment of 100% of the principal of the 1998B Lot 2 Bonds less $-0- original issue discount, plus $6,706.39 representing accrued interest on the 1998B Lot 2 Bonds from their date to the date of delivery. All of the money received by the Board from the purchase of the 1998B Lot 2 Bonds will be made available to the Borrower for refunding the 1990B Lot 1 Bonds and will be so used, provided that the accrued interest will be deposited in the Holding Account and to be used to pay interest on the 1998B Lot 2 Bonds due on August 1, 1998 if certain conditions are met in the Loan Agreement dated July 1, 1990 as amended and supplemented by the First Amendment to Loan Agreement dated December 31, 1993 and as further amended and supplemented by the Second Amendment to Loan Agreement dated July 1, 1998 (collectively, the "Loan Agreement") and provided further that $332,000 in the Business Loan Reserve Account established for the 1990B Lot 1 Bonds will be deposited into the related Business Loan Reserve Account established with respect to the 1998B Lot 2 Bonds. 4. The amounts to be received by the Board from the proceeds of the 1998B Lot 2 Bonds, less the costs of issuance of the 1998B Lot 2 Bonds, do not exceed the amounts to be spent by the Borrower to refund the 1990B Lot 2 Bonds. 5. The Project (as defined in the Loan Agreement) has not been and is not expected to be sold or otherwise disposed of by the Borrower during the term of the Bonds. 6. The principal of and interest on the 1998B Lot 2 Bonds is to be paid from the Holding Account established under the Resolutions. All moneys deposited in the Holding Account, including investment income are expected to be used to pay principal of or interest on the 1998B Lot 2 Bonds on August 1, 1998. All amounts are transferred out of the related Revenue Accounts and Holding Accounts within twelve months of the date such moneys were so deposited principally to pay fiduciary expenses and debt service through the Holding Account, except for an amount not to exceed the greater of (A) 1 year's earnings on the portions of such Funds and Accounts used to pay debt service or (B) 1/12th of the annual debt service on the 1998B Lot 2 Bonds. It is not reasonably expected that any amounts ever will be on deposit in the Special Redemption Account, the Optional Redemption Account, the Reimbursement Account or the Reconstruction Account for the 1998B Lot 2 Bonds. 7. On the basis of the foregoing, it is not expected that the proceeds of the 1998B Lot 2 Bonds will be used in a manner that would cause the Bonds to be arbitrage bonds under Section 148 of the Internal Revenue Code of 1986, as amended, and the Regulations prescribed under that Section. 8. To the best of the Borrower's knowledge and belief, the expectations of the Borrower, as set forth above, are reasonable and there are no facts, estimates or circumstances other than those mentioned above that would materially change the foregoing conclusions. 9. To the extent they are within the knowledge, belief or control of the Borrower, the facts, circumstances, and expectations set forth in the arbitrage certificate of the Board may be relied upon by the Board and its bond counsel with respect to the 1998B Lot 2 Bonds, and the expectations set forth in such arbitrage certificate are the expectations of the Borrower. -2- IN WITNESS WHEREOF, I have signed this certificate this 15th day of July, 1998. MERRILL/MAY, INC. By /s/ John Castro ------------------------------ Its President -------------------------- Signature page of Document No. 27, Non-Arbitrage Certificate of the Borrower -3- EX-10.21 7 EXHIBIT 10.21 MERRILL CORPORATION 1996 NON-STATUTORY STOCK OPTION PLAN (May 1998, as amended) 1. PURPOSE OF PLAN. The purpose of the Merrill Corporation 1996 Non-Statutory Stock Option Plan (the "Plan") is to advance the interests of Merrill Corporation (the "Company") and its shareholders by enabling the Company and its Subsidiaries to attract and retain persons of ability to perform services for the Company and its Subsidiaries by providing an incentive to such individuals through equity participation in the Company and by rewarding such individuals who contribute to the achievement by the Company of its economic objectives. 2. DEFINITIONS. The following terms will have the meanings set forth below, unless the context clearly otherwise requires: 2.1 "ADVERSE ACTIONS" mean the actions described in Section 10.5 of the Plan. 2.2 "BOARD" means the Board of Directors of the Company. 2.3 "BROKER EXERCISE NOTICE" means a written notice pursuant to which a Participant, upon exercise of an Option, irrevocably instructs a broker or dealer to sell a sufficient number of shares or loan a sufficient amount of money to pay all or a portion of the exercise price of the Option and/or any related withholding tax obligations and remit such sums to the Company and directs the Company to deliver stock certificates to be issued upon such exercise directly to such broker or dealer. 2.4 "CHANGE IN CONTROL" means an event described in Section 9.1 of the Plan. 2.5 "CODE" means the Internal Revenue Code of 1986, as amended. 2.6 "COMMITTEE" means the group of individuals administering the Plan, as provided in Section 3 of the Plan. 2.7 "COMMON STOCK" means the common stock of the Company, par value $.01 per share, or the number and kind of shares of stock or other securities into which such Common Stock may be changed in accordance with Section 4.3 of the Plan. 2.8 "DISABILITY" means the disability of the Participant such as would entitle the Participant to receive disability income benefits pursuant to the long-term disability plan of the Company or Subsidiary then covering the Participant or, if no such plan exists or is applicable to the Participant, the permanent and total disability of the Participant within the meaning of Section 22(e)(3) of the Code. 2.9 "ELIGIBLE RECIPIENTS" means all employees of the Company or any Subsidiary and any non-employee consultants and independent contractors of the Company or any Subsidiary; provided, however, that officers and directors of the Company will not be Eligible Recipients for purposes of the Plan. 2.10 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. 2.11 "FAIR MARKET VALUE" means, with respect to the Common Stock, as of any date, the closing sale price of the Common Stock as reported on the Nasdaq National Market on the day immediately preceding such date (or, if no shares were traded on such preceding day, as of the next preceding day on which there was such a trade). 2.12 "OPTION" means a right to purchase Common Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan, which Option will not qualify as an "incentive stock option" within the meaning of Section 422 of the Code. 2.13 "PARTICIPANT" means an Eligible Recipient who receives one or more Options under the Plan. 2.14 "PREVIOUSLY ACQUIRED SHARES" means shares of Common Stock that are already owned by the Participant or, with respect to any Option, that are to be issued upon the exercise of such Option. 2.15 "RETIREMENT" means termination of employment or service pursuant to and in accordance with the regular (or, if approved by the Board for purposes of the Plan, early) retirement/pension plan or practice of the Company or Subsidiary then covering the Participant, provided that if the Participant is not covered by any such plan or practice, the Participant will be deemed to be covered by the Company's plan or practice for purposes of this determination. 2.16 "SECURITIES ACT" means the Securities Act of 1933, as amended. 2.17 "SUBSIDIARY" means any entity that is directly or indirectly controlled by the Company or any entity in which the Company has a significant equity interest, as determined by the Committee. 2.18 "TAX DATE" means the date any withholding tax obligation arises under the Code for a Participant with respect to an Option. 3. PLAN ADMINISTRATION. 3.1 THE COMMITTEE. The Plan will be administered by the Board or by a committee consisting of at least two members, and the Board or such a committee, if established, will be referred to as the "Committee." To the extent consistent with corporate law, the Committee may delegate to any officers of the Company the duties, power and authority of the Committee under the Plan pursuant to such conditions or limitations as the Committee may establish. Each determination, interpretation or other action made or taken by the Committee pursuant to the provisions of the Plan will be conclusive and binding for all purposes and on all persons, and no member of the Committee will be liable for any action or determination made in good faith with respect to the Plan or any Option granted under the Plan. 3.2 AUTHORITY OF THE COMMITTEE. (a) In accordance with and subject to the provisions of the Plan, the Committee will have the authority to determine all provisions of Options as the Committee may deem necessary or desirable and as consistent with the terms of the Plan, including, without limitation, the following: (i) the Eligible Recipients to be selected as Participants; (ii) the nature and extent of the Options to be granted to each Participant (including the number of shares of Common Stock to be subject to each Option, the exercise price and the manner in which Options will become exercisable) and the form of written agreement, if any, evidencing such Option; (iii) the time or times when Options 2 will be granted; (iv) the duration of each Option; and (v) the restrictions and other conditions to which Options may be subject. In addition, the Committee will have the authority under the Plan in its sole discretion to pay the economic value of any Option in the form of cash, Common Stock or any combination of both. (b) The Committee will have the authority under the Plan to amend or modify the terms of any outstanding Option in any manner, including, without limitation, the authority to modify the number of shares or other terms and conditions of an Option, extend the term of an Option, accelerate the exercisability or otherwise terminate any restrictions relating to an Option, accept the surrender of any outstanding Option or, to the extent not previously exercised, authorize the grant of new Options in substitution for surrendered Options; provided, however, that the amended or modified terms are permitted by the Plan as then in effect and that any Participant adversely affected by such amended or modified terms has consented to such amendment or modification. No amendment or modification to an Option, however, whether pursuant to this Section 3.2 or any other provisions of the Plan, will be deemed to be a regrant of such Option for purposes of this Plan. (c) In the event of (i) any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, extraordinary dividend or divestiture (including a spin-off) or any other change in corporate structure or shares, (ii) any purchase, acquisition, sale or disposition of a significant amount of assets or a significant business, (iii) any change in accounting principles or practices, or (iv) any other similar change, in each case with respect to the Company or any other entity whose performance is relevant to the grant or exercisability of an Option, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) may, without the consent of any affected Participant, amend or modify the criteria for the grant or exercisability of any Option that is based in whole or in part on the financial performance of the Company (or any Subsidiary or division thereof) or such other entity so as equitably to reflect such event, with the desired result that the criteria for evaluating such financial performance of the Company or such other entity will be substantially the same (in the sole discretion of the Committee or the board of directors of the surviving corporation) following such event as prior to such event; provided, however, that the amended or modified terms are permitted by the Plan as then in effect. 4. SHARES AVAILABLE FOR ISSUANCE. 4.1 MAXIMUM NUMBER OF SHARES AVAILABLE. Subject to adjustment as provided in Section 4.3 of the Plan, the maximum number of shares of Common Stock that will be available for issuance under the Plan will be 1,906,000 shares, including share amounts adjusted to reflect a two-for-one stock split effective October 15, 1997. 4.2 ACCOUNTING FOR OPTIONS. Shares of Common Stock that are issued under the Plan or that are subject to outstanding Options will be applied to reduce the maximum number of shares of Common Stock remaining available for issuance under the Plan. Any shares of Common Stock that are subject to an Option that lapses, expires, is forfeited or for any reason is terminated unexercised or unvested and any shares of Common Stock that are subject to an Option that is settled or paid in cash or any form other than shares of Common Stock will automatically again become available for issuance under the Plan. 3 4.3 ADJUSTMENTS TO SHARES AND OPTIONS. In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, divestiture or extraordinary dividend (including a spin-off) or any other change in the corporate structure or shares of the Company, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) will make appropriate adjustment (which determination will be conclusive) as to the number and kind of securities available for issuance under the Plan and, in order to prevent dilution or enlargement of the rights of Participants, the number, kind and exercise price of securities subject to outstanding Options. 5. PARTICIPATION. Participants in the Plan will be those Eligible Recipients who, in the judgment of the Committee, have contributed, are contributing or are expected to contribute to the achievement of economic objectives of the Company or its Subsidiaries. Eligible Recipients may be granted from time to time one or more Options, singly or in combination or in tandem with other Options, as may be determined by the Committee in its sole discretion. Options will be deemed to be granted as of the date specified in the grant resolution of the Committee, which date will be the date of any related agreement with the Participant. 6. OPTIONS. 6.1 GRANT. An Eligible Recipient may be granted one or more Options under the Plan, and such Options will be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. 6.2 EXERCISE PRICE. The per share price to be paid by a Participant upon exercise of an Option will be determined by the Committee in its discretion at the time of the Option grant but will not be less than 85% of the Fair Market Value of one share of Common Stock on the date of grant. 6.3 EXERCISABILITY AND DURATION. An Option will become exercisable at such times and in such installments as may be determined by the Committee in its sole discretion at the time of grant; provided, however, that no Option may be exercisable after 10 years from its date of grant. 6.4 PAYMENT OF EXERCISE PRICE. The total purchase price of the shares to be purchased upon exercise of an Option will be paid entirely in cash (including check, bank draft or money order); provided, however, that the Committee, in its sole discretion and upon terms and conditions established by the Committee, may allow such payments to be made, in whole or in part, by tender of a Broker Exercise Notice, Previously Acquired Shares, a promissory note or by a combination of such methods. 6.5 MANNER OF EXERCISE. An Option may be exercised by a Participant in whole or in part from time to time, subject to the conditions contained in the Plan and in the agreement evidencing such Option, by delivery in person, by facsimile (with written confirmation) or through the mail of written notice of exercise to the Company (Attention: Secretary) at its principal executive office in St. Paul, Minnesota and by paying in full the total exercise price for the shares of Common Stock to be purchased in accordance with Section 6.4 of the Plan. 7. EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE. 7.1 TERMINATION DUE TO DEATH, DISABILITY OR RETIREMENT. In the event a Participant's employment or other service with the Company and all Subsidiaries is terminated by reason of death, 4 Disability or Retirement, all outstanding Options then held by the Participant will become immediately exercisable in full and will remain exercisable for a period of one year (three months in the case of Retirement) after such termination (but in no event after the expiration date of any such Option). 7.2 TERMINATION FOR REASONS OTHER THAN DEATH, DISABILITY OR RETIREMENT. (a) In the event a Participant's employment or other service is terminated with the Company and all Subsidiaries for any reason other than death, Disability or Retirement, or a Participant is in the employ or service of a Subsidiary and the Subsidiary ceases to be a Subsidiary of the Company (unless the Participant continues in the employ or service of the Company or another Subsidiary), all rights of the Participant under the Plan and any agreements evidencing an Option will immediately terminate without notice of any kind, and no Options then held by the Participant will thereafter be exercisable; provided, however, that if such termination is due to any reason other than termination by the Company or any Subsidiary for "cause," all outstanding Options then held by such Participant will remain exercisable to the extent exercisable as of such termination for a period of three months after such termination (but in no event after the expiration date of any such Option). (b) For purposes of this Section 7.2, "cause" (as determined by the Committee) will be as defined in any employment or other agreement or policy applicable to the Participant or, if no such agreement or policy exists, will mean (i) dishonesty, fraud, misrepresentation, embezzlement or deliberate injury or attempted injury, in each case related to the Company or any Subsidiary, (ii) any unlawful or criminal activity of a serious nature, (iii) any intentional and deliberate breach of a duty or duties that, individually or in the aggregate, are material in relation to the Participant's overall duties, or (iv) any material breach of any employment, service, confidentiality or noncompete agreement entered into with the Company or any Subsidiary. 7.3 MODIFICATION OF RIGHTS UPON TERMINATION. Notwithstanding the other provisions of this Section 7, upon a Participant's termination of employment or other service with the Company and all Subsidiaries, the Committee may, in its sole discretion (which may be exercised at any time on or after the date of grant, including following such termination), cause Options (or any part thereof) then held by such Participant to become or continue to become exercisable and/or remain exercisable following such termination of employment or service in the manner determined by the Committee; provided, however, that no Option may remain exercisable beyond its expiration date. 7.4 DATE OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE. Unless the Committee otherwise determines in its sole discretion, a Participant's employment or other service will, for purposes of the Plan, be deemed to have terminated on the date recorded on the personnel or other records of the Company or the Subsidiary for which the Participant provides employment or other service, as determined by the Committee in its sole discretion based upon such records. 8. PAYMENT OF WITHHOLDING TAXES. 8.1 GENERAL RULES. The Company is entitled to (a) withhold and deduct from future wages of the Participant (or from other amounts that may be due and owing to the Participant from the Company or a Subsidiary), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any and all federal, state and local withholding and employment-related tax requirements attributable to an Option, including, without limitation, the grant or exercise of an Option, or (b) require the Participant promptly to remit the amount of such withholding to the Company before taking any 5 action, including issuing any shares of Common Stock, with respect to an Option. 8.2 SPECIAL RULES. The Committee may, in its sole discretion and upon terms and conditions established by the Committee, permit or require a Participant to satisfy, in whole or in part, any withholding or employment-related tax obligation described in Section 8.1 of the Plan by electing to tender Previously Acquired Shares or a Broker Exercise Notice, or by a combination of such methods. 9. CHANGE IN CONTROL. 9.1 CHANGE IN CONTROL. For purposes of this Section 9.1, a "Change in Control" of the Company will mean (a) the sale, lease, exchange or other transfer of substantially all of the assets of the Company (in one transaction or in a series of related transaction) to a person or entity that is not controlled by the Company, (b) a merger or consolidation to which the Company is a party if the shareholders of the Company immediately prior to effective date of such merger or consolidation do not have "beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) immediately following the effective date of such merger or consolidation of more than 80% of the combined voting power of the surviving corporation's outstanding securities ordinarily having the right to vote at elections of directors, or (c) a change in control of the Company of a nature that would be required to be reported pursuant to Section 13 or 15(d) of the Exchange Act, whether or not the Company is then subject to such reporting requirements, including, without limitation, such time as (i) any person becomes after the effective date of the Plan the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 20% or more of the combined voting power of the Company's outstanding securities ordinarily having the right to vote at elections of directors, or (ii) individuals who constitute the Board on the effective date of the Plan cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the effective date of the Plan whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors comprising the Board on the effective date of the Plan will, for purposes of this clause (ii), be considered as though such persons were a member of the Board on the effective date of the Plan. 9.2 ACCELERATION OF VESTING. Without limiting the authority of the Committee under Section 3.2 of the Plan, if a Change in Control of the Company occurs, then, if approved by the Committee in its sole discretion either in an agreement evidencing an Option at the time of grant or at any time after the grant of an Option, all Options will become immediately exercisable in full and will remain exercisable for the remainder of their terms, regardless of whether the Participants to whom such Options have been granted remain in the employ or service of the Company or any Subsidiary. 9.3 CASH PAYMENT. If a Change in Control of the Company occurs, then the Committee, if approved by the Committee in its sole discretion either in an agreement evidencing an Option at the time of grant or at any time after the grant of an Option, and without the consent of any Participant effected thereby, may determine that some or all Participants holding outstanding Options will receive, with respect to some or all of the shares of Common Stock subject to such Options (and in lieu of exercising such Options), as of the effective date of any such Change in Control of the Company, cash in an amount equal to the excess of the Fair Market Value of such shares immediately prior to the effective date of such Change in Control of the Company over the exercise price per share of such Options. 9.4 LIMITATION ON CHANGE IN CONTROL PAYMENTS. Notwithstanding anything in Section 9.2 or 9.3 of the Plan to the contrary, if, with respect to a Participant, the acceleration of the exercisability of an Option as provided in Section 9.2 or the payment of cash in exchange for all or part of an Option as provided in Section 9.3 (which acceleration or payment could be deemed a "payment" within the meaning 6 of Section 280G(b)(2) of the Code), together with any other payments which such Participant has the right to receive from the Company or any corporation that is a member of an "affiliated group" (as defined in Section 1504(a) of the Code without regard to Section 1504(b) of the Code) of which the Company is a member, would constitute a "parachute payment" (as defined in Section 280G(b)(2) of the Code), then the payments to such Participant pursuant to Section 9.2 or 9.3 will be reduced to the largest amount as will result in no portion of such payments being subject to the excise tax imposed by Section 4999 of the Code; provided, however, that if such Participant is subject to a separate agreement with the Company or a Subsidiary which specifically provides that payments attributable to one or more forms of employee stock incentives or to payments made in lieu of employee stock incentives will not reduce any other payments under such agreement, even if it would constitute an excess parachute payment, then the limitations of this Section 9.4 will, to that extent, not apply. 10. RIGHTS OF ELIGIBLE RECIPIENTS AND PARTICIPANTS; TRANSFERABILITY. 10.1 EMPLOYMENT OR SERVICE. Nothing in the Plan will interfere with or limit in any way the right of the Company or any Subsidiary to terminate the employment or service of any Eligible Recipient or Participant at any time, nor confer upon any Eligible Recipient or Participant any right to continue in the employ or service of the Company or any Subsidiary. 10.2 RIGHTS AS A SHAREHOLDER. As a holder of Options, a Participant will have no rights as a shareholder unless and until such Options are exercised for shares of Common Stock and the Participant becomes the holder of record of such shares. Except as otherwise provided in the Plan, no adjustment will be made for dividends or distributions with respect to such Options as to which there is a record date preceding the date the Participant becomes the holder of record of such shares, except as the Committee may determine in its discretion. 10.3 RESTRICTIONS ON TRANSFER. Except pursuant to testamentary will or the laws of descent and distribution or as otherwise expressly permitted by the Plan, no right or interest of any Participant in an Option prior to the exercise of such Option will be assignable or transferable, or subjected to any lien, during the lifetime of the Participant, either voluntarily or involuntarily, directly or indirectly, by operation of law or otherwise. A Participant will, however, be entitled to designate a beneficiary to receive an Option upon such Participant's death, and in the event of a Participant's death, payment of any amounts due under the Plan will be made to, and exercise of any Options (to the extent permitted pursuant to Section 7 of the Plan) may be made by, the Participant's legal representatives, heirs and legatees. 10.4 NON-EXCLUSIVITY OF THE PLAN. Nothing contained in the Plan is intended to modify or rescind any previously approved compensation plans or programs of the Company or create any limitations on the power or authority of the Board to adopt such additional or other compensation arrangements as the Board may deem necessary or desirable. 10.5 RESTRICTIONS REGARDING EMPLOYMENT OR SERVICE. (a) Notwithstanding anything in the Plan to the contrary, in the event that a Participant, prior to or following such Participant's voluntary termination of employment or other service with the Company or any Subsidiary, takes Adverse Actions with respect to the Company or any Subsidiary, the Committee in its sole discretion will have the authority (by so providing in the agreement evidencing the Option at the time of grant) to terminate immediately all rights of the Participant under the Plan and any agreement evidencing Options than held by the Participant without notice of any kind. In addition, to the extent that a Participant takes such Adverse Actions during the period beginning 12 months prior to, and ending 12 months following, the date of such 7 voluntary employment or service termination, the Committee in its sole discretion will have the authority (by so providing in the agreement evidencing the Option at the time of grant) to rescind the exercise of any Options of the Participant that were exercised during such period and to require the Participant to pay to the Company, within 10 days of receipt from the Company of notice of such rescission, the amount of any gain realized as a result of such rescinded exercise. Such payment will be made in cash (including check, bank draft or money order) or, with the Committee's consent, shares of Common Stock with a Fair Market Value on the date of payment equal to the amount of such payment. The Company will be entitled to withhold and deduct from future wages of the Participant (or from other amounts that may be due and owing to the Participant from the Company or a Subsidiary) or make other arrangements for the collection of all amounts necessary to satisfy such payment obligation. (b) For purposes of this Section 10.5, an "Adverse Action" will mean any action by a Participant that the Committee, in its sole discretion, determines to be adverse to the interests of the Company or any Subsidiary, including, without limitation, (i) disclosing confidential information of the Company or any Subsidiary to any person not authorized by the Company to receive it, (ii) engaging, directly or indirectly, in any commercial activity that in the judgment of the Committee competes with the business of the Company or any Subsidiary, or (iii) interfering with the relationships of the Company or its Subsidiaries with their respective employees and customers. 11. SECURITIES LAW AND OTHER RESTRICTIONS. Notwithstanding any other provision of the Plan or any agreements entered into pursuant to the Plan, the Company will not be required to issue any shares of Common Stock under this Plan, and a Participant may not sell, assign, transfer or otherwise dispose of shares of Common Stock issued pursuant to Options granted under the Plan, unless (a) there is in effect with respect to such shares a registration statement under the Securities Act and any applicable state securities laws or an exemption from such registration under the Securities Act and applicable state securities laws, and (b) there has been obtained any other consent, approval or permit from any other regulatory body which the Committee, in its sole discretion, deems necessary or advisable. The Company may condition such issuance, sale or transfer upon the receipt of any representations or agreements from the parties involved, and the placement of any legends on certificates representing shares of Common Stock, as may be deemed necessary or advisable by the Company in order to comply with such securities law or other restrictions. 12. PLAN AMENDMENT, MODIFICATION AND TERMINATION The Board may suspend or terminate the Plan or any portion thereof at any time, and may amend the Plan from time to time in such respects as the Board may deem advisable in order that Options under the Plan will conform to any change in applicable laws or regulations or in any other respect the Board may deem to be in the best interests of the Company. No termination, suspension or amendment of the Plan may adversely affect any outstanding Option without the consent of the affected Participant; provided, however, that this sentence will not impair the right of the Committee to take whatever action it deems appropriate under Sections 4.3 and 9 of the Plan. 13. EFFECTIVE DATE AND DURATION OF THE PLAN The Plan is effective as of March 25, 1996, the date it was adopted by the Board. The Plan will terminate at midnight on March 24, 2006, and may be terminated prior to such time to by Board action, 8 and no Option will be granted after such termination. Options outstanding upon termination of the Plan may continue to be exercised, or become free of restrictions, in accordance with their terms. 14. MISCELLANEOUS 14.1 GOVERNING LAW. The validity, construction, interpretation, administration and effect of the Plan and any rules, regulations and actions relating to the Plan will be governed by and construed exclusively in accordance with the laws of the State of Minnesota, notwithstanding any conflicts of laws principles. 14.2 SUCCESSORS AND ASSIGNS. The Plan will be binding upon and inure to the benefit of the successors and permitted assigns of the Company and the Participants. 9 EX-10.23 8 EXHIBIT 10.23 STOCK PURCHASE LOAN PROGRAM The purpose of the Merrill Loan Program is to facilitate the exercise of stock options, to encourage ownership by executives, to reduce tax consequences for those individuals, and to minimize the need to sell shares in the open market to pay income taxes due upon the exercise of options. Approval of the loans is subject to the sole and absolute discretion of the Compensation Committee (the "Committee"). The following is an overview of the program: LOAN PARAMETERS FOR THE FIRST LOAN REQUEST THE EMPLOYEE MAY BORROW UP TO: (a) 100% of the option price of the option, plus 100% of the state and federal income taxes actually paid within 15 months of such exercise on any income recognized by reason of such exercise, or (b) 60% of the cost to purchase stock on the open market at the fair market value at the time of purchase. FOR ANY SUBSEQUENT LOAN REQUESTS, THE EMPLOYEE MAY BORROW THE LESSER OF: (a) 100% of the option price of the option, plus 100% of the state and federal income taxes actually paid within 15 months of such exercise on any income recognized by reason of such exercise, or (b) 60% of the cost to purchase stock on the open market at the fair market value at the time of purchase, or (c) the amount that, when added to the principal amount of all outstanding loans under Merrill Loan Program, will not exceed 60% of the market value of all of the Company's stock pledged as collateral by the employee immediately following the loan, or (d) eight times the employee's then current base salary. Notwithstanding the foregoing criteria, no loan may be made which would cause the aggregate amount of principal and accrued interest outstanding under all loans to an employee to exceed 100% of the market value of all the Company's stock pledged as collateral by that employee under the Merrill Loan Program. TERMS OF LOANS - -- Loans under the program must be repaid within five years of the grant of the loan. At the discretion of the Compensation Committee the term of the loan may be extended. - -- Upon termination of the employment (voluntary or involuntary), the loan must be repaid within 45 days or such longer period as the Committee may determine. - -- Upon death or long term disability of the employee, the Committee may extend the repayment of the loan up to six months. - -- The Committee may demand repayment of the note(s) at any time. - -- The loan is a full recourse loan. If the value of the Merrill stock pledged as collateral for repayment of the loan is insufficient to repay the outstanding principal, Merrill may proceed to collect any remaining balance due. INTEREST The loans made under the Merrill Loan Program are made on an interest-free basis with respect to all amounts advanced to pay the options exercise price and the amounts advanced to pay taxes or to purchase shares on the open market. For tax purposes, the executive must recognize income in an amount equal to the interest-free discount received on the loan proceeds. The interest rate that will be used for imputed income purposes will be set at the time of the origination of the loan and will remain unchanged for the life of the loan. LOAN REPAYMENT - -- Each individual borrowing agreement is evidenced by a written demand promissory note executed by the executive at the time the loan is granted. The note provides that thirty percent (30%) of the executive's bonus compensation received under the Bonus Plan (net of applicable taxes and other withholdings) will be applied to repay the principal under the note. The repayment will begin with the bonus payout connected to the year that the loan was originated (e.g., if a loan were originated in November 1999, the repayment would begin with any bonus payable in April 2000). - -- In addition, 50% of the after tax proceeds from any sale of the Company's stock pledged under the Merrill Loan Program must be applied to the outstanding principal balance under the Merrill Loan Program. - -- All dividends received by an executive for Merrill stock pledged for a loan, net of applicable estimated tax withholdings on such dividends, are also applied to the outstanding principal balance. - -- All outstanding principal shall be due and payable on the fifth anniversary of the origination of the loan. PROCESS - -- A copy of a promissory note is included with these materials. To begin the process the executive must execute promissory note and return it to legal. - -- Once shares are acquired, executive must deliver certificates to Legal to be held as collateral until loan is repaid. DEMAND PROMISSORY NOTE $__________________________ St. Paul, Minnesota _____________, 199__ FOR VALUE RECEIVED, the undersigned ________________________________________ (the "Maker") promises to pay to the order of MERRILL CORPORATION, a Minnesota corporation ("Merrill"), its successors and assigns, at its office at One Merrill Circle, St. Paul, Minnesota 55108, or such other place as the holder hereof may designate in writing from time to time, the principal sum of _______________________ ($______________) in lawful money of the United States. Except as provided below in the case of an Event of Default, no interest shall accrue or become payable pursuant to this Note. The principal amount of this Note shall be payable on the earliest of the following dates and in the following manner: (i) All outstanding principal shall be due and payable on the forty-fifth (45th) day after Maker's employment with Merrill is terminated for any reason, whether voluntary or involuntary, provided, however, that Merrill, in its sole discretion, may extend the due date for a period of up to six months in the event that such termination of employment is caused by the death or long term disability of the Maker; (ii) On an annual basis, Merrill shall apply thirty percent (30%) (the "Applicable Percentage") of the Maker's bonus, if any, paid pursuant to the Merrill Corporation Executive Incentive Plan (the "Bonus Plan") to the outstanding principal balance hereunder. The amount to be applied hereunder shall be calculated by multiplying the Applicable Percentage times the payment under the Bonus Plan after subtracting all withholding taxes required to be deducted from such bonus amount; (iii) Maker shall apply fifty percent (50%) of the after-tax proceeds of the sale of all Merrill Stock (as defined below) to the outstanding principal balance hereunder; (iv) Maker shall apply all dividends paid with respect to Merrill Stock (net of any tax withholdings) to the outstanding principal balance hereunder; (v) All outstanding principal shall be due and payable immediately upon demand by Merrill; and (vi) All outstanding principal shall be due and payable on the fifth anniversary of the date of this Note. The principal of this Note may be prepaid in full or in part at any time, without premium or penalty. Maker represents and warrants that the proceeds of the loan evidenced by this Note will be used solely for the purpose of (i) exercising certain stock options available to the Maker under either the Merrill Corporation 1993 Non-Statutory Stock Option Plan or the Merrill Corporation 1996 Non-Statutory Stock Option Plan (the "Stock Options"); (ii) paying the federal or state income taxes associated with the exercise of such stock options; or (iii) purchasing Merrill Stock in the open market. As security for the timely payment of all amounts due or to become due under this Note, Maker pledges and grants to Merrill a security interest in (a) the shares of Merrill stock to be acquired by Maker pursuant to the exercising of the Stock Options or otherwise (the "Merrill Stock"), (b) all securities, instruments and other property, rights or interests of any kind at any time issued or issuable as an addition to, in substitution or exchange for, or with respect to, the Merrill Stock, and (c) all cash, dividends, proceeds or other income or property accrued and hereafter accruing, received, receivable or otherwise distributed in respect of, in exchange for, or upon the sale or other disposition of any of the foregoing. Maker shall deliver to Merrill the certificates evidencing the Merrill Stock, together with stock powers therefor executed in blank. Maker agrees and acknowledges that the pledge and security interest granted hereby is a continuing security interest and shall continue in full force and effect until this Note is paid in full. Maker further acknowledges that this Note is fully recourse against the Maker and that if the value of the Merrill Stock pledged as security for repayment of this Note is insufficient to repay the outstanding principal hereunder, Merrill may proceed against the Maker to collect any remaining amount due. If an Event of Default, as defined below, shall occur, Merrill or other holder may, without notice, demand, presentment for payment and notice of nonpayment, all of which Maker hereby expressly waives, declare the indebtedness evidenced hereby and all other indebtedness and obligations of Maker to Merrill or holder hereof immediately due and payable and Merrill or other holder hereof may, without notice, immediately exercise any and all rights and remedies available at law or in equity for the collection of this Note, including, without limitation, enforcement of the security interest granted herein. Upon an Event of Default, the unpaid principal balance hereunder shall begin to accrue interest from the date of the Event of Default until fully paid, at an annual interest rate of one percent (1%) per annum plus the prevailing Reference Rate of interest established and announced by US Bancorp (the "Bank") as the same may change from time to time. The "Reference Rate" means the rate of interest established and publicly announced by the Bank from time to time as its reference rate. In the event that the Bank ceases to establish and announce a reference rate at any time during the term of this Note, Merrill shall be entitled to designate a reasonably comparable substitute index for the calculation of the interest rate hereon so long as any amount remains outstanding hereunder. All changes in the rate of interest applicable hereto shall become effective on the same day that the change in said Reference Rate is announced. The term "Event of Default" shall mean any of the following events: (i) the Maker shall default in the payment when due of any principal on this Note; or (ii) the insolvency, bankruptcy, receivership, or occurrence of any other adverse change in the financial condition of the Maker. If this Note is placed with any attorney(s) for collection upon any default, Maker agrees to pay to Merrill or other holder its reasonable attorneys' fees and all lawful costs and expenses of collection, whether or not a suit is commenced. Time is of the essence. No delay or omission on the part of Merrill or other holder hereof in exercising any right or remedy hereunder shall operate as a waiver of such right or of any other right or remedy under this Note or any other document or agreement executed in connection herewith. All waivers by Merrill must be in writing to be effective and a waiver on any occasion shall not be construed as a bar to or a waiver of any similar right or remedy on a future occasion. 2 Maker hereby consents to any extension or alteration of the time or terms of payment hereon, any renewal, any release of all or any part of any security given for the payment hereof, any acceptance of additional security of any kind, and any release of, or resort to any party liable for payment hereof. No provision of this Note shall require the payment or permit the collection of interest in excess of the rate permitted by applicable law. Any payment due on any non-business day of Merrill shall be due upon the next business day. This Note represents a loan negotiated, executed and to be performed in the State of Minnesota and shall be construed, interpreted and governed by the laws of said state. The Maker hereby consents to the personal jurisdiction of the state and federal courts located in the State of Minnesota in connection with any controversy related to this Note, and waives any argument that venue in such forums is not convenient. IN WITNESS WHEREOF, the Maker has executed and delivered this Note to Merrill as of the day and year first above written. MAKER: ----------------------------------- 3 EX-10.24 9 EXHIBIT 10.24 STOCK OPTION DEFERRAL PROGRAM The Merrill Corporation Stock Option Deferral Program ("Deferral Program") allows participants to defer compensation from stock option. This means that you can defer, pre-tax, the difference between the option price and the fair market value of the stock on the date of exercise, times the number of shares exercised (the "Deferred Stock Option Compensation"). It works like this: 1. You elect to defer compensation from a specific stock option grant by completing a Stock Option Deferral Election Form for that grant. You must file a separate election form for each grant with respect to which you want to defer compensation. YOUR ELECTION IS IRREVOCABLE. 2. You agree not to exercise any portion on the option grant during a specified waiting period, which is 6 months from the time the election is filed. 3. To exercise your option, you file a Deferred Stock Option Compensation Exercise Notice with the Stock Option Plan Administrator. You cannot exercise any portion of your option grant during the waiting period (e.g., six months from the time the election is filed). You must still exercise the option before it expires. 4. You must use the stock-for-stock method of exercise. On the date of exercise, you must have enough "mature" Merrill common stock to cover the purchase price. "Mature" stock is stock that you have owned for more than six months and that has not been used in another stock-for-stock swap during that period. If you do not have enough "mature" Merrill common stock to pay the purchase price, you may not exercise the option, even if the option will expire. 5. The amount of you Deferred Stock Option Compensation is determined at the time of exercise. You must pay FICA taxes on the compensation in cash and at the time of exercise. NO TAXES ARE DEDUCTED FROM THE COMPENSATION AT THE TIME OF EXERCISE. The Deferred Stock Option Compensation is credited to your Stock Option Deferral Account under the terms of the Deferral Program. 6. Your Stock Option Deferral Account is allocated to the Merrill common stock earnings option. No other earnings options are available. The value of your Deferred Stock Option Compensation will increase or decrease based on the value of Merrill common stock. 7. You receive the value of your account, LESS ALL APPLICABLE INCOME WITHHOLDING TAXES, in cash on the date(s) you specify in the election and in accordance with the terms of the Deferral Program. THE FOLLOWING IS AN EXAMPLE OF THE MECHANICS OF THE PROGRAM: ASSUMPTIONS: Options: 5,000 Strike price: $10.50 Current price: $22.00 STEPS: a. Eligible participant makes election to defer gain at least six months prior to exercise. The deferral is irrevocable. At the time of election, the Participant will designate a distribution period and beneficiary(ies). The participant cannot exercise any portion of the option grant for at least six months. b. At the time of exercise, the exercise occurs in a stock for stock manner. The participant surrenders enough mature stock (mature shares that have been owned by the employee for at least six months) to purchase the shares. The employee must have enough mature shares to cover the purchase or the exercise cannot be completed. In this example, the Participant would need to surrender 2386 shares to exercise the option: c. The participant receives 2386 shares back d. The participant's deferral account will be credited with "share units" to reflect gain at the time of exercise. Share units are calculated as follows: Options x exercise price/current price. In this example, the Participant will be credited with 2614 share units into his/her account to defer the gain. The participant cannot vote these deferral units. e. As of the date on which dividends are paid on shares, a participant will be paid such dividends on shares in his/her deferral account in cash. f. Per the employee's deferral instructions, at some date in the future the employee receives the value in his/her account less applicable taxes, in cash. At the time of distribution, the entire value of the distribution (including all appreciation) will be taxed as ordinary income. THINGS TO CONSIDER: - -- Except for FICA taxes, Deferred Stock Option Compensation is not taxable on the date of exercise. However, upon distribution of your Stock Option Deferral Account, the entire value of the distribution (including all appreciation) is taxed as ordinary income. By contrast, compensation from exercises of non-statutory stock option that is not deferred is taxed as ordinary income on the date or exercise, but any subsequent appreciation in the shares acquired may be taxed at capital gain rates when the shares are sold. - -- A stock option that vests incrementally is considered as one stock option grant. If you make a deferral election for that grant, all Deferred Stock Option Compensation received from that grant will be deferred. A Stock Option Deferral Election Form is enclosed. Please read it carefully. I suggest you consult your tax advisor and/or financial planner before making a decision. The concept of deferring stock option compensation is relatively new and therefore has not been considered in developing many individual tax strategies and financial plans. THE ELECTION IS IRREVOCABLE. IT CANNOT BE CHANGED EVEN IN THE EVENT OF MISTAKES, MISUNDERSTANDINGS OR ERRONEOUS ADVICE. THE PERIOD TO FILE A STOCK OPTION DEFERRAL ELECTION ENDS MARCH 31, 1999. ELECTIONS FILED BY THIS DATE WILL BE EFFECTIVE OCTOBER 1, 1999. IF YOU FILE AN ELECTION FOR THIS PERIOD YOU WILL NOT BE ALLOWED TO EXERCISE THE OPTION COVERED BY THE ELECTION BEFORE OCTOBER 1, 1999. EX-10.25 10 EXHIBIT 10.25 [Form of Change in Control Agreement with John Castro and Rick Atterbury] Effective May 28, 1998 [Name and Address of Executive] Dear [Executive]: The Board considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of the Company and its stockholders. In this connection, the Board recognizes that the possibility of a Change in Control may raise uncertainty and questions among management which may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders. Accordingly, the Board has determined that appropriate steps should be taken to minimize the risk that Company executive management will depart prior to a Change in Control, thereby leaving the Company without adequate executive management personnel during such a critical period, and to reinforce and encourage the continued attention and dedication of members of the Company's executive management to their assigned duties without distraction in circumstances arising from the possibility of a Change in Control. The Board recognizes that continuance of your position with the Company involves a substantial commitment to the Company in terms of your personal life and professional career and the possibility of foregoing present and future career opportunities, for which the Company receives substantial benefits. Therefore, to induce you to remain in the employ of the Company, this Agreement, which has been approved by the Board, sets forth the benefits that the Company agrees will be provided to you in the event your employment with the Company is terminated in connection with a Change in Control under the circumstances described below. 1. DEFINITIONS. The following terms have the meaning set forth below unless the context clearly requires otherwise. Terms defined elsewhere in this Agreement have the same meaning throughout this Agreement. (a) "AFFILIATE" means (i) any corporation at least a majority of whose outstanding securities ordinarily having the right to vote at elections of directors is owned directly or indirectly by the Parent Corporation or (ii) any other form of business entity in which the Parent Corporation, by virtue of a direct or indirect ownership interest, has the right to elect a majority of the members of such entity's governing body. (b) "AGREEMENT" means this letter agreement as amended, extended or renewed from time to time in accordance with its terms. (c) "BASE PAY" means your annual base salary from the Company at the rate in effect immediately prior to a Change in Control or at the time Notice of Termination is given, whichever is greater. Base Pay includes only regular cash salary and is determined before any reduction for deferrals pursuant to any nonqualified deferred compensation plan or arrangement, qualified cash or deferred arrangement or cafeteria plan. (d) "BENEFIT PLAN" means any (i) employee benefit plan as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended; (ii) cafeteria plan described in Code Section 125; (iii) plan, policy or practice providing for paid vacation, other paid time off or short-or long-term profit sharing, bonus or incentive payments; or (iv) stock option, stock purchase, restricted stock, phantom stock, stock appreciation right or other equity-based compensation plan with respect to the securities of any Affiliate made available to employees of the Company generally or any group of employees or you in particular. (e) "BOARD" means the board of directors of the Parent Corporation duly qualified and acting at the time in question. On and after the date of a Change in Control, any duty of the Board in connection with this Agreement is nondelegable and any attempt by the Board to delegate any such duty is ineffective. (f) "CAUSE" means: (i) your gross misconduct; (ii) your willful and continued failure to perform substantially your duties with the Company (other than any such failure (1) resulting from your incapacity due to bodily injury or physical or mental illness or (2) relating to changes in your duties after a Change in Control which constitute Good Reason) after a demand for substantial performance is delivered to you by the chair of the Board which specifically identifies the manner in which you have not substantially performed your duties and provides for a reasonable period of time within which you may take corrective actions; or (iii) your conviction (including a plea of nolo contendere) of willfully engaging in illegal conduct constituting a felony or gross misdemeanor under federal or state law which is materially and demonstrably injurious to the Company or which impairs your ability to perform substantially your duties for the Company. An act or failure to act will be considered "gross or willful" for this purpose only if done, or omitted to be done, by you in bad faith and without reasonable belief that it was in, or not opposed to, the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board (or a committee thereof) or based upon the advice of counsel for the Company will be conclusively presumed to be done, or omitted to be done, by you in good faith and in the best interests of the Company. It is also expressly understood that your attention to matters not directly related to the business of the Company will not provide a basis for termination for Cause so long as the Board did not expressly disapprove in writing of your engagement in such activities either before or within a reasonable period of time after the Board knew or could reasonably have known that you engaged in those activities. Notwithstanding the foregoing, you may not be terminated for Cause unless and until there has been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of the conduct set forth above in clauses (i), (ii) or (iii) of this definition and specifying the particulars thereof in detail. (g) "CHANGE IN CONTROL" means any of the following: (i) the sale, lease, exchange or other transfer, directly or indirectly, of substantially all of the assets of the Parent Corporation, in one transaction or in a series of related transactions, to any Person; (ii) any Person, other than a "bona fide underwriter," becomes, after the date of this Agreement, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 20 percent or more of the combined voting power of the Parent Corporation's outstanding securities ordinarily having the right to vote at elections of directors; (iii) a merger or consolidation to which the Parent Corporation is a party if the stockholders of the Parent Corporation immediately prior to the effective date of such merger or consolidation have, solely on account of ownership of securities of the Parent Corporation at such time, "beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) immediately following the effective date of such merger or consolidation of securities of the surviving corporation representing less than 80 percent of the combined voting power of the surviving corporation's then outstanding securities ordinarily having the right to vote at elections of directors; (iv) the continuity directors cease for any reason to constitute at least a majority of the Board; or (v) a change in control of a nature that is determined by outside legal counsel to the Parent Corporation, in a written opinion specifically referencing this provision of the Agreement, to be required to be reported (assuming such event has not been "previously reported") pursuant to Section 13 or 15(d) of the Exchange Act, whether or not the Parent Corporation is then subject to such reporting requirement. For purposes of this Section 1(g), a "continuity director" means any individual who is a member of the Board on May 28, 1998, while he or she is a member of the Board, and any individual who subsequently becomes a member of the Board whose election or nomination for election by the Parent Corporation's stockholders was approved by a vote of at least a majority of the directors who are continuity directors (either by a specific vote or by approval of the proxy statement of the Parent Corporation in which such individual is named as a nominee for director without objection to such nomination). For example, if a majority of the 10 individuals constituting the Board on May 28, 1998 approved a proxy statement in which six different individuals were nominated to replace six of the individuals who were members of the Board on May 28, 1998, upon their election by the Parent Corporation's stockholders, the six newly elected directors would join the four directors who were members of the Board on May 28, 1998 as continuity directors. Similarly, if a majority of those 10 directors approved a proxy statement in which four different individuals were nominated to replace the four remaining directors who were members of the Board on May 28, 1998, upon their election by the Parent Corporation's stockholders, the four newly elected directors would also become, along with the other six directors, continuity directors. Individuals subsequently joining the Board could become continuity directors under the principles reflected in this example. For purposes of this Section 1(g), a "bona fide underwriter" means a Person engaged in business as an underwriter of securities that acquires securities of the Parent Corporation through such Person's participation in good faith in a firm commitment underwriting until the expiration of 40 days after the date of such acquisition. (h) "CODE" means the Internal Revenue Code of 1986, as amended. Any reference to a specific provision of the Code includes a reference to such provision as it may be amended from time to time and to any successor provision. (i) "COMPANY" means the Parent Corporation, any Successor and any Affiliate. (j) "DATE OF TERMINATION" following a Change in Control (or prior to a Change in Control if your termination was either a condition of the Change in Control or was at the request or insistence of any Person related to the Change in Control) means: (i) if your employment is to be terminated by you for Good Reason, the date specified in the Notice of Termination which in no event may be a date more than 15 days after the date on which Notice of Termination is given unless the Company agrees in writing to a later date; (ii) if your employment is to be terminated by the Company for Cause, the date specified in the Notice of Termination; (iii) if your employment is terminated by reason of your death, the date of your death; or (iv) if your employment is to be terminated by the Company for any reason other than Cause or your death, the date specified in the Notice of Termination, which in no event may be a date earlier than 15 days after the date on which a Notice of Termination is given, unless you expressly agree in writing to an earlier date. In the case of termination by the Company of your employment for Cause, if you have not previously expressly agreed in writing to the termination, then within the 30-day period after your receipt of the Notice of Termination, you may notify the Company that a dispute exists concerning the termination, in which event the Date of Termination will be the date set either by mutual written agreement of the parties or by the judge or arbitrators in a proceeding as provided in Section 11 of this Agreement. During the pendency of any such dispute, you will continue to make yourself available to provide services to the Company and the Company will continue to pay you your full compensation and benefits in effect immediately prior to the date on which the Notice of Termination is given (without regard to any changes to such compensation or benefits that constitute Good Reason) and until the dispute is resolved in accordance with Section 11 of this Agreement. You will be entitled to retain the full amount of any such compensation and benefits without regard to the resolution of the dispute unless the judge or arbitrators decide(s) that your claim of a dispute was frivolous or advanced by you in bad faith. (k) "EMPLOYMENT AGREEMENT" means that certain Employment Agreement, dated as of [date of employment agreement], between the Parent Corporation and you, as amended. (l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. Any reference to a specific provision of the Exchange Act or to any rule or regulation thereunder includes a reference to such provision as it may be amended from time to time and to any successor (m) "GOOD REASON" means: (i) a change in your title(s), status, position(s), authority, duties or responsibilities as an executive of the Company as in effect immediately prior to the Change in Control which, in your reasonable judgment, is material and adverse (other than, if applicable, any such change directly attributable to the fact that the Parent Corporation is no longer publicly owned); provided, however, that Good Reason does not include such a change that is remedied by the Company promptly after receipt of notice of such change is given by you; (ii) a reduction by the Company in your Base Pay, or an adverse change in the form or timing of the payment thereof, as in effect immediately prior to the Change in Control or as thereafter increased; (iii) the failure by the Company to cover you under Benefit Plans that, in the aggregate, provide substantially similar benefits to you and/or your family and dependents at a substantially similar total cost to you (e.g., premiums, deductibles, co-pays, out of pocket maximums, required contributions and the like) relative to the benefits and total costs under the Benefit Plans in which you (and/or your family or dependents) were participating at any time during the 90-day period immediately preceding the Change in Control; (iv) the Company's requiring you to be based more than 30 miles from where your office is located immediately prior to the Change in Control, except for required travel on the Company's business, and then only to the extent substantially consistent with the business travel obligations which you undertook on behalf of the Company during the 90-day period immediately preceding the Change in Control (without regard to travel related to or in anticipation of the Change in Control); (v) the failure by the Company to obtain from any Successor the assent to this Agreement contemplated by Section 5 of this Agreement; (vi) any purported termination by the Company of your employment that is not properly effected pursuant to a Notice of Termination and pursuant to any other requirements of this Agreement, and, for purposes of this Agreement, no such purported termination will be effective; or (vii) any refusal by the Company to continue to allow you to attend to matters or engage in activities not directly related to the business of the Company which, at any time prior to the Change in Control, you were not expressly prohibited in writing by the Board from attending to or engaging in. Your continued employment does not constitute consent to, or waiver of any rights arising in connection with, any circumstances constituting Good Reason. Your termination of employment for Good Reason as defined in this Section 1(m) will constitute Good Reason for all purposes of this Agreement notwithstanding that you may also thereby be deemed to have retired under any applicable benefit plan, policy or practice of the Company. (n) "NOTICE OF TERMINATION" means a written notice given on or after the date of a Change in Control (unless your termination before the date of the Change in Control was either a condition of the Change in Control or was at the request or insistence of any Person related to the Change in Control) which indicates the specific termination provision in this Agreement pursuant to which the notice is given. Any purported termination by the Company or by you for Good Reason on or after the date of a Change in Control (or before the date of a Change in Control if your termination was either a condition of the Change in Control or was at the request or insistence of any Person related to the Change in Control) must be communicated by written Notice of Termination to be effective; provided, that your failure to provide Notice of Termination will not limit any of your rights under this Agreement except to the extent the Company demonstrates that it suffered material actual damages by reason of such failure. (o) "PARENT CORPORATION" means Merrill Corporation and any Successor. (p) "PERSON" means any individual, corporation partnership, group, association or other "person," as such term is used in Section 13(d) or Section 14(d) of the Exchange Act, other than the Parent Corporation, any Affiliate or any benefit plan(s) sponsored by the Parent Corporation or an Affiliate. (q) "SUCCESSOR" means any Person that succeeds to, or has the practical ability to control (either immediately or solely with the passage of time), the Parent Corporation's business directly, by merger, consolidation or other form of business combination, or indirectly, by purchase of the Parent Corporation's outstanding securities ordinarily having the right to vote at the election of directors or all or substantially all of its assets or otherwise. 2. TERM OF AGREEMENT. This Agreement is effective immediately and will continue in effect until January 1, 2000; provided, however, that commencing on January 1, 2000 and each January 1 thereafter, the term of this Agreement will automatically be extended for 12 additional months beyond the expiration date otherwise then in effect, unless at least 90 calendar days prior to any such January 1, the Company or you has given notice that this Agreement will not be extended; and, provided, further, that if a Change in Control has occurred during the term of this Agreement, this Agreement will continue in effect beyond the termination date then in effect for a period of 24 months following the month during which the Change in Control occurs or, if later, until the date on which the Company's obligations to you arising under or in connection with this Agreement have been satisfied in full. 3. BENEFITS UPON A CHANGE IN CONTROL TERMINATION. You will become entitled to the benefits described in this Section 3 if and only if (i) the Company terminates your employment for any reason other than your death or Cause, or you terminate your employment with the Company for Good Reason and (ii) the termination occurs either within the period beginning on the date of a Change in Control and ending on the last day of the twenty-fourth month that begins after the month during which the Change in Control occurs or prior to a Change in Control if your termination was either a condition of the Change in Control or was at the request or insistence of a Person related to the Change in Control. (a) CASH PAYMENT. Not more than five business days following the Date of Termination, or, if later, not more than five business days following the date of the Change in Control, the Company will make a lump-sum cash payment to you in an amount equal to three times the sum of (i) your Base Pay plus (ii) your target cash bonus for the year during which the Change in Control occurs or the average of your cash bonus for the three fiscal years ending immediately prior to the Change in Control, whichever is greater. This payment is in lieu of any other cash bonus payment to which you may otherwise be entitled under any bonus plan for any period ending after your Date of Termination. Cash bonus payments relating to any period ending on or before your Date of Termination will be paid to you in accordance with the terms of the bonus plan. (b) HEALTH BENEFITS. During the period beginning on your Date of Termination and ending on the last day of the thirty-sixth month that begins after your Date of Termination, the Company will provide, or arrange to provide, medical, dental and vision benefits (excluding premium conversion or flexible spending accounts under any cafeteria plan) to you (and your family members and dependents who were eligible to be covered at any time during the 90-day period immediately prior to the date of a Change in Control for the period after the Change in Control in which such family members and dependents would otherwise continue to be covered under the terms of the applicable Benefit Plan in effect immediately prior to the Change in Control) under the same terms and at the same cost to you and your family members and dependents as similarly situated individuals who continue to be employed by the Company (without regard to any reduction in such benefits that constitutes Good Reason). To the extent you incur a tax liability (including federal, state and local taxes and any interest and penalties with respect thereto) in connection with a benefit provided pursuant to this Section 3(b) which you would not have incurred had you been an active employee of the Company participating in the Company's group health plan, the Company will make a payment to you in an amount equal to such tax liability plus an additional amount sufficient to permit you to retain a net amount after all taxes (including penalties and interest) equal to the initial tax liability in connection with the benefit. For purposes of applying the foregoing, your tax rate will be deemed to be the highest statutory marginal state and federal tax rate (on a combined basis) then in effect. The payment pursuant to this Section 3(b) will be made within 10 days after your remittal of a written request for payment accompanied by a statement indicating the basis for and amount of the liability. (c) SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Company will cause your account balance under the Merrill Corporation Supplemental Executive Retirement Plan to become fully vested and nonforfeitable effective as of the Date of Termination and at all times thereafter. In addition, the Company will cause any distribution to which you are entitled under the Merrill Corporation Supplemental Executive Retirement Plan to be made without regard to any provision of the Plan that permits your distribution to be deferred to the extent necessary to ensure that no part of the distribution is nondeductible pursuant to Code Section 162(m). (d) GROSS-UP PAYMENTS. Following a Change in Control, the Company will cause its independent auditors promptly to review, at the Company's sole expense, the applicability of Code Section 4999 to any payment or distribution of any type by the Company to or for your benefit, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, any Benefit Plan or otherwise (the "Total Payments"). If the auditor determines that the Total Payments result in an excise tax imposed by Code Section 4999 or any comparable state or local law or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are collectively referred to as the "Excise Tax"), the Company will make an additional cash payment (a "Gross-Up Payment") to you within 10 days after such determination equal to an amount such that after payment by you of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, you would retain an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. For purposes of the foregoing determination, your tax rate will be deemed to be the highest statutory marginal state and federal tax rate (on a combined basis) then in effect. If no determination by the Company's auditors is made prior to the time you are required to file a tax return reflecting the Total Payments, you will be entitled to receive from the Company a Gross-Up Payment calculated on the basis of the Excise Tax you reported in such tax return, within 10 days after the later of the date on which you file such tax return or the date on which you provide a copy thereof to the Company. In all events, if any tax authority determines that a greater Excise Tax should be imposed upon the Total Payments than is determined by the Company's independent auditors or reflected in your tax return pursuant to this Section 3(d), you will be entitled to receive from the Company the full Gross-Up Payment calculated on the basis of the amount of Excise Tax determined to be payable by such tax authority within 10 days after you notify the Company of such determination. If any other Benefit Plan or other plan, policy or practice of the Company or any other agreement between you and the Company (an "Other Arrangement") specifically provides that benefits thereunder will be reduced or limited so that such benefits or the Total Payments will not result in the imposition of an excise tax pursuant to Code Section 4999, the reduction or limitation will apply, to the extent provided in the Other Arrangement, solely to the benefits provided pursuant to the Other Arrangement as if the benefits under the Other Arrangement constituted the entire Total Payments, and such reduction or limitation will not otherwise reduce or limit the actual Total Payments. If any benefits are provided pursuant to this section, such benefits will be in lieu of the benefits described in Section 8 of the Employment Agreement. If, on or after the date of a Change in Control, an Affiliate is sold, merged, transferred or in any other manner or for any other reason ceases to be an Affiliate or all or any portion of the business or assets of an Affiliate are sold, transferred or otherwise disposed of and the acquiror is not the Parent Corporation or an Affiliate (a "Disposition"), and you remain or become employed by the acquiror or an affiliate of the acquiror (as defined in this Agreement but substituting "acquiror" for "Parent Corporation") in connection with the Disposition, you will be deemed to have terminated employment on the effective date of the Disposition for purposes of this Section 3 unless (x) the acquiror and its affiliates jointly and severally expressly assume and agree, in a manner that is enforceable by you, to perform the obligations of this Agreement to the same extent that the Company would be required to perform if the Disposition had not occurred and (y) the Successor guarantees, in a manner that is enforceable by you, payment and performance by the acquiror. 4. INDEMNIFICATION. Following a Change in Control, the Company will indemnify and advance expenses to you for damages, costs and expenses (including, without limitation, judgments, fines, penalties, settlements and reasonable fees and expenses of your counsel) incurred in connection with all matters, events and transactions relating to your service to or status with the Company or any other corporation, employee benefit plan or other entity with whom you served at the request of the Company to the extent that the Company would have been required to do so under applicable law, corporate articles, bylaws or agreements or instruments of any nature with or covering you, as in effect immediately prior to the Change in Control and to any further extent as may be determined or agreed upon following the Change in Control. 5. SUCCESSORS. The Parent Corporation will seek to have any Successor, by agreement in form and substance satisfactory to you, assent to the fulfillment by the Company of the Company's obligations under this Agreement. Failure of the Parent Corporation to obtain such assent at least three business days prior to the time a Person becomes a Successor (or where the Parent Corporation does not have at least three business days' advance notice that a Person may become a Successor, within one business day after having notice that such Person may become or has become a Successor) will constitute Good Reason for termination by you of your employment. The date on which any such succession becomes effective will be deemed the Date of Termination, and Notice of Termination will be deemed to have been given on that date. A Successor has no rights, authority or power with respect to this Agreement prior to a Change in Control. 6. BINDING AGREEMENT. This Agreement inures to the benefit of, and is enforceable by, you, your personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you die while any amount would still be payable to you under this Agreement if you had continued to live, all such amounts, unless otherwise provided in this Agreement, will be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there be no such designee, to your estate. 7. NO MITIGATION. You will not be required to mitigate the amount of any benefits the Company becomes obligated to provide to you in connection with this Agreement by seeking other employment or otherwise. The benefits to be provided to you in connection with this Agreement may not be reduced, offset or subject to recovery by the Company by any benefits you may receive from other employment or otherwise. 8. NO SETOFF. The Company has no right to setoff benefits owed to you under this Agreement against amounts owed or claimed to be owed by you to the Company under this Agreement or otherwise. 9. TAXES. All benefits to be provided to you in connection with this Agreement will be subject to required withholding of federal, state and local income, excise and employment-related taxes. The Company's good faith determination with respect to its obligation to withhold such taxes relieves it of any obligation that such amounts should have been paid to you. 10. NOTICES. For the purposes of this Agreement, notices and all other communications provided for in, or required under, this Agreement must be in writing and will be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid and addressed to each party's respective address set forth on the first page of this Agreement (provided that all notices to the Company must be directed to the attention of the chair of the Board), or to such other address as either party may have furnished to the other in writing in accordance with these provisions, except that notice of change of address will be effective only upon receipt. 11. DISPUTES. If you so elect, any dispute, controversy or claim arising under or in connection with this Agreement will be settled exclusively by binding arbitration administered by the American Arbitration Association in Minneapolis, Minnesota in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect; provided that you may seek specific performance of your right to receive benefits until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. Judgment may be entered on the arbitrator's award in any court having jurisdiction. If any dispute, controversy or claim for damages arising under or in connection with this Agreement is settled by arbitration, the Company will pay, or if elected by you, reimburse, all fees, costs and expenses incurred by you related to such arbitration unless the arbitrators decide that your claim was frivolous or advanced by you in bad faith. If you do not elect arbitration, you may pursue all available legal remedies. The Company will pay, or if elected by you, reimburse you for, all fees, costs and expenses incurred by you in connection with any actual, threatened or contemplated litigation relating to this Agreement to which you are or reasonably expect to become a party, whether or not initiated by you, if you are successful in recovering any benefit under this Agreement as a result of such action. The parties agree that any litigation arising under or in connection with this Agreement must be brought in a court of competent jurisdiction in the State of Minnesota, and hereby consent to the exclusive jurisdiction of said courts for this purpose and agree not to assert that such courts are an inconvenient forum. The Company will not assert in any dispute or controversy with you arising under or in connection with this Agreement your failure to exhaust administrative remedies. 12. RELATED AGREEMENTS. (a) EMPLOYMENT AGREEMENT. The provisions of this Agreement supersede the provisions of Section 8 of the Employment Agreement except for the provisions of Section 8.5 of the Employment Agreement. This Agreement will not otherwise control or supersede the Employment Agreement. (b) OTHER ARRANGEMENTS. To the extent that any provision of any Benefit Plan or other benefit plan, policy, practice or agreement between the Company or any Affiliate and you other than the Employment Agreement (an "Other Arrangement") limits, qualifies or is inconsistent with any provision of this Agreement, then for purposes of this Agreement, while such Other Arrangement remains in force, the provision of this Agreement will control and such provision of such Other Arrangement will be deemed to have been superseded, and to be of no force or effect, as if such Other Arrangement had been formally amended to the extent necessary to accomplish such purpose. Nothing in this Agreement prevents or limits your continuing or future participation in any Other Arrangement for which you may qualify, and nothing in this Agreement limits or otherwise affects the rights you may have under any Other Arrangement. Amounts that are vested benefits or which you are otherwise entitled to receive under any Other Arrangement at or subsequent to the Date of Termination will be payable in accordance with such Other Arrangement. 13. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement is intended to provide you with any right to continue in the employ of the Company for any period of specific duration or interfere with or otherwise restrict in any way your rights or the rights of the Company, which rights are governed by the Employment Agreement. 14. PAYMENT; ASSIGNMENT. Benefits payable under this Agreement will be paid only from the general assets of the Company. No person has any right to or interest in any specific assets of the Company by reason of this Agreement. To the extent benefits under this Agreement are not paid when due to any individual, he or she is a general unsecured creditor of the Company with respect to any amounts due. Benefits payable pursuant to this Agreement and the right to receive future benefits may not be anticipated, alienated, sold, transferred, assigned, pledged, encumbered or subject to any charge. 15. SURVIVAL. The respective obligations of, and benefits afforded to, the Company and you which by their express terms or clear intent survive termination of your employment with the Company or termination of this Agreement, as the case may be, will survive termination of your employment with the Company or termination of this Agreement, as the case may be, and will remain in full force and effect according to their terms. 16. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in a writing signed by you and a duly authorized officer of the Parent Corporation. No waiver by any party to this Agreement at any time of any breach by another party to this Agreement of, or of compliance with any condition or provision of this Agreement to be performed by such party will be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter to this Agreement have been made by any party which are not expressly set forth in this Agreement. This Agreement and the legal relations among the parties as to all matters, including, without limitation, matters of validity, interpretation, construction, performance and remedies, will be governed by and construed exclusively in accordance with the internal laws of the State of Minnesota (without regard to the conflict of laws principles of any jurisdiction). Headings are for purposes of convenience only and do not constitute a part of this Agreement. The parties to this Agreement agree to perform, or cause to be performed, such further acts and deeds and to execute and deliver or cause to be executed and delivered, such additional or supplemental documents or instruments as may be reasonably required by the other party to carry into effect the intent and purpose of this Agreement. The invalidity or unenforceability of all or any part of any provision of this Agreement will not affect the validity or enforceability of the remainder of such provision or of any other provision of this Agreement, which will remain in full force and effect. This Agreement may be executed in several counterparts, each of which will be deemed to be an original, but all of which together will constitute one and the same instrument. If this letter correctly sets forth our agreement on the subject matter discussed above, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject. MERRILL CORPORATION By: ---------------------------- ------------------------------- [Executive] EX-10.26 11 EXHIBIT 10.26 FORM OF CHANGE IN CONTROL AGREEMENT WITH STEVEN J. MACHOV, KAY BARBER AND KATHLEEN LARKIN Effective May 28, 1998 [Name and address of Executive] Dear [executive]: The Board considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of the Company and its stockholders. In this connection, the Board recognizes that the possibility of a Change in Control may raise uncertainty and questions among management which may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders. Accordingly, the Board has determined that appropriate steps should be taken to minimize the risk that Company executive management will depart prior to a Change in Control, thereby leaving the Company without adequate executive management personnel during such a critical period, and to reinforce and encourage the continued attention and dedication of members of the Company's executive management to their assigned duties without distraction in circumstances arising from the possibility of a Change in Control. The Board recognizes that continuance of your position with the Company involves a substantial commitment to the Company in terms of your personal life and professional career and the possibility of foregoing present and future career opportunities, for which the Company receives substantial benefits. Therefore, to induce you to remain in the employ of the Company, this Agreement, which has been approved by the Board, sets forth the benefits that the Company agrees will be provided to you in the event your employment with the Company is terminated in connection with a Change in Control under the circumstances described below. 1. DEFINITIONS. The following terms have the meaning set forth below unless the context clearly requires otherwise. Terms defined elsewhere in this Agreement have the same meaning throughout this Agreement. (a) "AFFILIATE" means (i) any corporation at least a majority of whose outstanding securities ordinarily having the right to vote at elections of directors is owned directly or indirectly by the Parent Corporation or (ii) any other form of business entity in which the Parent Corporation, by virtue of a direct or indirect ownership interest, has the right to elect a majority of the members of such entity's governing body. (b) "AGREEMENT" means this letter agreement as amended, extended or renewed from time to time in accordance with its terms. (c) "BASE PAY" means your annual base salary from the Company at the rate in effect immediately prior to a Change in Control or at the time Notice of Termination is given, whichever is greater. Base Pay includes only regular cash salary and is determined before any reduction for deferrals pursuant to any nonqualified deferred compensation plan or arrangement, qualified cash or deferred arrangement or cafeteria plan. (d) "BENEFIT PLAN" means any (i) employee benefit plan as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended; (ii) cafeteria plan described in Code Section 125; (iii) plan, policy or practice providing for paid vacation, other paid time off or short-or long-term profit sharing, bonus or incentive payments; or (iv) stock option, stock purchase, restricted stock, phantom stock, stock appreciation right or other equity-based compensation plan with respect to the securities of any Affiliate made available to employees of the Company generally or any group of employees or you in particular. (e) "BOARD" means the board of directors of the Parent Corporation duly qualified and acting at the time in question. On and after the date of a Change in Control, any duty of the Board in connection with this Agreement is nondelegable and any attempt by the Board to delegate any such duty is ineffective. (f) "CAUSE" means: (i) your gross misconduct; (ii) your willful and continued failure to perform substantially your duties with the Company (other than any such failure (1) resulting from your incapacity due to bodily injury or physical or mental illness or (2) relating to changes in your duties after a Change in Control which constitute Good Reason) after a demand for substantial performance is delivered to you by the chair of the Board which specifically identifies the manner in which you have not substantially performed your duties and provides for a reasonable period of time within which you may take corrective actions; or (iii) your conviction (including a plea of nolo contendere) of willfully engaging in illegal conduct constituting a felony or gross misdemeanor under federal or state law which is materially and demonstrably injurious to the Company or which impairs your ability to perform substantially your duties for the Company. An act or failure to act will be considered "gross or willful" for this purpose only if done, or omitted to be done, by you in bad faith and without reasonable belief that it was in, or not opposed to, the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board (or a committee thereof) or based upon the advice of counsel for the Company will be conclusively presumed to be done, or omitted to be done, by you in good faith and in the best interests of the Company. It is also expressly understood that your attention to matters not directly related to the business of the Company will not provide a basis for termination for Cause so long as the Board did not expressly disapprove in writing of your engagement in such activities either before or within a reasonable period of time after the Board knew or could reasonably have known that you engaged in those activities. Notwithstanding the foregoing, you may not be terminated for Cause unless and until there has been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of the conduct set forth above in clauses (i), (ii) or (iii) of this definition and specifying the particulars thereof in detail. (g) "CHANGE IN CONTROL" means any of the following: (i) the sale, lease, exchange or other transfer, directly or indirectly, of substantially all of the assets of the Parent Corporation, in one transaction or in a series of related transactions, to any Person; (ii) any Person, other than a "bona fide underwriter," becomes, after the date of this Agreement, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 20 percent or more of the combined voting power of the Parent Corporation's outstanding securities ordinarily having the right to vote at elections of directors; (iii) a merger or consolidation to which the Parent Corporation is a party if the stockholders of the Parent Corporation immediately prior to the effective date of such merger or consolidation have, solely on account of ownership of securities of the Parent Corporation at such time, "beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) immediately following the effective date of such merger or consolidation of securities of the surviving corporation representing less than 80 percent of the combined voting power of the surviving corporation's then outstanding securities ordinarily having the right to vote at elections of directors; (iv) the continuity directors cease for any reason to constitute at least a majority of the Board; or (v) a change in control of a nature that is determined by outside legal counsel to the Parent Corporation, in a written opinion specifically referencing this provision of the Agreement, to be required to be reported (assuming such event has not been "previously reported") pursuant to Section 13 or 15(d) of the Exchange Act, whether or not the Parent Corporation is then subject to such reporting requirement. For purposes of this Section 1(g), a "continuity director" means any individual who is a member of the Board on May 28, 1998, while he or she is a member of the Board, and any individual who subsequently becomes a member of the Board whose election or nomination for election by the Parent Corporation's stockholders was approved by a vote of at least a majority of the directors who are continuity directors (either by a specific vote or by approval of the proxy statement of the Parent Corporation in which such individual is named as a nominee for director without objection to such nomination). For example, if a majority of the 10 individuals constituting the Board on May 28, 1998 approved a proxy statement in which six different individuals were nominated to replace six of the individuals who were members of the Board on May 28, 1998, upon their election by the Parent Corporation's stockholders, the six newly elected directors would join the four directors who were members of the Board on May 28, 1998 as continuity directors. Similarly, if a majority of those 10 directors approved a proxy statement in which four different individuals were nominated to replace the four remaining directors who were members of the Board on May 28, 1998, upon their election by the Parent Corporation's stockholders, the four newly elected directors would also become, along with the other six directors, continuity directors. Individuals subsequently joining the Board could become continuity directors under the principles reflected in this example. For purposes of this Section 1(g), a "bona fide underwriter" means a Person engaged in business as an underwriter of securities that acquires securities of the Parent Corporation through such Person's participation in good faith in a firm commitment underwriting until the expiration of 40 days after the date of such acquisition. (h) "CODE" means the Internal Revenue Code of 1986, as amended. Any reference to a specific provision of the Code includes a reference to such provision as it may be amended from time to time and to any successor provision. (i) "COMPANY" means the Parent Corporation, any Successor and any Affiliate. (j) "DATE OF TERMINATION" following a Change in Control (or prior to a Change in Control if your termination was either a condition of the Change in Control or was at the request or insistence of any Person related to the Change in Control) means: (i) if your employment is to be terminated by you for Good Reason, the date specified in the Notice of Termination which in no event may be a date more than 15 days after the date on which Notice of Termination is given unless the Company agrees in writing to a later date; (ii) if your employment is to be terminated by the Company for Cause, the date specified in the Notice of Termination; (iii) if your employment is terminated by reason of your death, the date of your death; or (iv) if your employment is to be terminated by the Company for any reason other than Cause or your death, the date specified in the Notice of Termination, which in no event may be a date earlier than 15 days after the date on which a Notice of Termination is given, unless you expressly agree in writing to an earlier date. In the case of termination by the Company of your employment for Cause, if you have not previously expressly agreed in writing to the termination, then within the 30-day period after your receipt of the Notice of Termination, you may notify the Company that a dispute exists concerning the termination, in which event the Date of Termination will be the date set either by mutual written agreement of the parties or by the judge or arbitrators in a proceeding as provided in Section 11 of this Agreement. During the pendency of any such dispute, you will continue to make yourself available to provide services to the Company and the Company will continue to pay you your full compensation and benefits in effect immediately prior to the date on which the Notice of Termination is given (without regard to any changes to such compensation or benefits that constitute Good Reason) and until the dispute is resolved in accordance with Section 11 of this Agreement. You will be entitled to retain the full amount of any such compensation and benefits without regard to the resolution of the dispute unless the judge or arbitrators decide(s) that your claim of a dispute was frivolous or advanced by you in bad faith. (k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. Any reference to a specific provision of the Exchange Act or to any rule or regulation thereunder includes a reference to such provision as it may be amended from time to time and to any successor (l) "GOOD REASON" means: (i) a change in your title(s), status, position(s), authority, duties or responsibilities as an executive of the Company as in effect immediately prior to the Change in Control which, in your reasonable judgment, is material and adverse (other than, if applicable, any such change directly attributable to the fact that the Parent Corporation is no longer publicly owned); provided, however, that Good Reason does not include such a change that is remedied by the Company promptly after receipt of notice of such change is given by you; (ii) a reduction by the Company in your Base Pay, or an adverse change in the form or timing of the payment thereof, as in effect immediately prior to the Change in Control or as thereafter increased; (iii) the failure by the Company to cover you under Benefit Plans that, in the aggregate, provide substantially similar benefits to you and/or your family and dependents at a substantially similar total cost to you (e.g., premiums, deductibles, co-pays, out of pocket maximums, required contributions and the like) relative to the benefits and total costs under the Benefit Plans in which you (and/or your family or dependents) were participating at any time during the 90-day period immediately preceding the Change in Control; (iv) the Company's requiring you to be based more than 30 miles from where your office is located immediately prior to the Change in Control, except for required travel on the Company's business, and then only to the extent substantially consistent with the business travel obligations which you undertook on behalf of the Company during the 90-day period immediately preceding the Change in Control (without regard to travel related to or in anticipation of the Change in Control); (v) the failure by the Company to obtain from any Successor the assent to this Agreement contemplated by Section 5 of this Agreement; (vi) any purported termination by the Company of your employment that is not properly effected pursuant to a Notice of Termination and pursuant to any other requirements of this Agreement, and, for purposes of this Agreement, no such purported termination will be effective; or (vii) any refusal by the Company to continue to allow you to attend to matters or engage in activities not directly related to the business of the Company which, at any time prior to the Change in Control, you were not expressly prohibited in writing by the Board from attending to or engaging in. Your continued employment does not constitute consent to, or waiver of any rights arising in connection with, any circumstances constituting Good Reason. Your termination of employment for Good Reason as defined in this Section 1(l) will constitute Good Reason for all purposes of this Agreement notwithstanding that you may also thereby be deemed to have retired under any applicable benefit plan, policy or practice of the Company. (m) "NOTICE OF TERMINATION" means a written notice given on or after the date of a Change in Control (unless your termination before the date of the Change in Control was either a condition of the Change in Control or was at the request or insistence of any Person related to the Change in Control) which indicates the specific termination provision in this Agreement pursuant to which the notice is given. Any purported termination by the Company or by you for Good Reason on or after the date of a Change in Control (or before the date of a Change in Control if your termination was either a condition of the Change in Control or was at the request or insistence of any Person related to the Change in Control) must be communicated by written Notice of Termination to be effective; provided, that your failure to provide Notice of Termination will not limit any of your rights under this Agreement except to the extent the Company demonstrates that it suffered material actual damages by reason of such failure. (n) "PARENT CORPORATION" means Merrill Corporation and any Successor. (o) "PERSON" means any individual, corporation partnership, group, association or other "person," as such term is used in Section 13(d) or Section 14(d) of the Exchange Act, other than the Parent Corporation, any Affiliate or any benefit plan(s) sponsored by the Parent Corporation or an Affiliate. (p) "SUCCESSOR" means any Person that succeeds to, or has the practical ability to control (either immediately or solely with the passage of time), the Parent Corporation's business directly, by merger, consolidation or other form of business combination, or indirectly, by purchase of the Parent Corporation's outstanding securities ordinarily having the right to vote at the election of directors or all or substantially all of its assets or otherwise. 2. TERM OF AGREEMENT. This Agreement is effective immediately and will continue in effect until January 1, 2000; provided, however, that commencing on January 1, 2000 and each January 1 thereafter, the term of this Agreement will automatically be extended for 12 additional months beyond the expiration date otherwise then in effect, unless at least 90 calendar days prior to any such January 1, the Company or you has given notice that this Agreement will not be extended; and, provided, further, that if a Change in Control has occurred during the term of this Agreement, this Agreement will continue in effect beyond the termination date then in effect for a period of 24 months following the month during which the Change in Control occurs or, if later, until the date on which the Company's obligations to you arising under or in connection with this Agreement have been satisfied in full. 3. BENEFITS UPON A CHANGE IN CONTROL TERMINATION. You will become entitled to the benefits described in this Section 3 if and only if (i) the Company terminates your employment for any reason other than your death or Cause, or you terminate your employment with the Company for Good Reason and (ii) the termination occurs either within the period beginning on the date of a Change in Control and ending on the last day of the twenty-fourth month that begins after the month during which the Change in Control occurs or prior to a Change in Control if your termination was either a condition of the Change in Control or was at the request or insistence of a Person related to the Change in Control. (a) CASH PAYMENT. Not more than five business days following the Date of Termination, or, if later, not more than five business days following the date of the Change in Control, the Company will make a lump-sum cash payment to you in an amount equal to two times the sum of (i) your Base Pay plus (ii) your target cash bonus for the year during which the Change in Control occurs or the average of your cash bonus for the three fiscal years ending immediately prior to the Change in Control, whichever is greater. This payment is in lieu of any other cash bonus payment to which you may otherwise be entitled under any bonus plan for any period ending after your Date of Termination. Cash bonus payments relating to any period ending on or before your Date of Termination will be paid to you in accordance with the terms of the bonus plan. (b) HEALTH BENEFITS. During the period beginning on your Date of Termination and ending on the last day of the twenty-fourth month that begins after your Date of Termination, the Company will provide, or arrange to provide, medical, dental and vision benefits (excluding premium conversion or flexible spending accounts under any cafeteria plan) to you (and your family members and dependents who were eligible to be covered at any time during the 90-day period immediately prior to the date of a Change in Control for the period after the Change in Control in which such family members and dependents would otherwise continue to be covered under the terms of the applicable Benefit Plan in effect immediately prior to the Change in Control) under the same terms and at the same cost to you and your family members and dependents as similarly situated individuals who continue to be employed by the Company (without regard to any reduction in such benefits that constitutes Good Reason). To the extent you incur a tax liability (including federal, state and local taxes and any interest and penalties with respect thereto) in connection with a benefit provided pursuant to this Section 3(b) which you would not have incurred had you been an active employee of the Company participating in the Company's group health plan, the Company will make a payment to you in an amount equal to such tax liability plus an additional amount sufficient to permit you to retain a net amount after all taxes (including penalties and interest) equal to the initial tax liability in connection with the benefit. For purposes of applying the foregoing, your tax rate will be deemed to be the highest statutory marginal state and federal tax rate (on a combined basis) then in effect. The payment pursuant to this Section 3(b) will be made within 10 days after your remittal of a written request for payment accompanied by a statement indicating the basis for and amount of the liability. (c) SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Company will cause your account balance under the Merrill Corporation Supplemental Executive Retirement Plan to become fully vested and nonforfeitable effective as of the Date of Termination and at all times thereafter. In addition, the Company will cause any distribution to which you are entitled under the Merrill Corporation Supplemental Executive Retirement Plan to be made without regard to any provision of the Plan that permits your distribution to be deferred to the extent necessary to ensure that no part of the distribution is nondeductible pursuant to Code Section 162(m). (d) GROSS-UP PAYMENTS. Following a Change in Control, the Company will cause its independent auditors promptly to review, at the Company's sole expense, the applicability of Code Section 4999 to any payment or distribution of any type by the Company to or for your benefit, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, any Benefit Plan or otherwise (the "Total Payments"). If the auditor determines that the Total Payments result in an excise tax imposed by Code Section 4999 or any comparable state or local law or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are collectively referred to as the "Excise Tax"), the Company will make an additional cash payment (a "Gross-Up Payment") to you within 10 days after such determination equal to an amount such that after payment by you of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, you would retain an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. For purposes of the foregoing determination, your tax rate will be deemed to be the highest statutory marginal state and federal tax rate (on a combined basis) then in effect. If no determination by the Company's auditors is made prior to the time you are required to file a tax return reflecting the Total Payments, you will be entitled to receive from the Company a Gross-Up Payment calculated on the basis of the Excise Tax you reported in such tax return, within 10 days after the later of the date on which you file such tax return or the date on which you provide a copy thereof to the Company. In all events, if any tax authority determines that a greater Excise Tax should be imposed upon the Total Payments than is determined by the Company's independent auditors or reflected in your tax return pursuant to this Section 3(d), you will be entitled to receive from the Company the full Gross-Up Payment calculated on the basis of the amount of Excise Tax determined to be payable by such tax authority within 10 days after you notify the Company of such determination. If any other Benefit Plan or other plan, policy or practice of the Company or any other agreement between you and the Company (an "Other Arrangement") specifically provides that benefits thereunder will be reduced or limited so that such benefits or the Total Payments will not result in the imposition of an excise tax pursuant to Code Section 4999, the reduction or limitation will apply, to the extent provided in the Other Arrangement, solely to the benefits provided pursuant to the Other Arrangement as if the benefits under the Other Arrangement constituted the entire Total Payments, and such reduction or limitation will not otherwise reduce or limit the actual Total Payments. If, on or after the date of a Change in Control, an Affiliate is sold, merged, transferred or in any other manner or for any other reason ceases to be an Affiliate or all or any portion of the business or assets of an Affiliate are sold, transferred or otherwise disposed of and the acquiror is not the Parent Corporation or an Affiliate (a "Disposition"), and you remain or become employed by the acquiror or an affiliate of the acquiror (as defined in this Agreement but substituting "acquiror" for "Parent Corporation") in connection with the Disposition, you will be deemed to have terminated employment on the effective date of the Disposition for purposes of this Section 3 unless (x) the acquiror and its affiliates jointly and severally expressly assume and agree, in a manner that is enforceable by you, to perform the obligations of this Agreement to the same extent that the Company would be required to perform if the Disposition had not occurred and (y) the Successor guarantees, in a manner that is enforceable by you, payment and performance by the acquiror. 4. INDEMNIFICATION. Following a Change in Control, the Company will indemnify and advance expenses to you for damages, costs and expenses (including, without limitation, judgments, fines, penalties, settlements and reasonable fees and expenses of your counsel) incurred in connection with all matters, events and transactions relating to your service to or status with the Company or any other corporation, employee benefit plan or other entity with whom you served at the request of the Company to the extent that the Company would have been required to do so under applicable law, corporate articles, bylaws or agreements or instruments of any nature with or covering you, as in effect immediately prior to the Change in Control and to any further extent as may be determined or agreed upon following the Change in Control. 5. SUCCESSORS. The Parent Corporation will seek to have any Successor, by agreement in form and substance satisfactory to you, assent to the fulfillment by the Company of the Company's obligations under this Agreement. Failure of the Parent Corporation to obtain such assent at least three business days prior to the time a Person becomes a Successor (or where the Parent Corporation does not have at least three business days' advance notice that a Person may become a Successor, within one business day after having notice that such Person may become or has become a Successor) will constitute Good Reason for termination by you of your employment. The date on which any such succession becomes effective will be deemed the Date of Termination, and Notice of Termination will be deemed to have been given on that date. A Successor has no rights, authority or power with respect to this Agreement prior to a Change in Control. 6. BINDING AGREEMENT. This Agreement inures to the benefit of, and is enforceable by, you, your personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you die while any amount would still be payable to you under this Agreement if you had continued to live, all such amounts, unless otherwise provided in this Agreement, will be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there be no such designee, to your estate. 7. NO MITIGATION. You will not be required to mitigate the amount of any benefits the Company becomes obligated to provide to you in connection with this Agreement by seeking other employment or otherwise. The benefits to be provided to you in connection with this Agreement may not be reduced, offset or subject to recovery by the Company by any benefits you may receive from other employment or otherwise. 8. NO SETOFF. The Company has no right to setoff benefits owed to you under this Agreement against amounts owed or claimed to be owed by you to the Company under this Agreement or otherwise. 9. TAXES. All benefits to be provided to you in connection with this Agreement will be subject to required withholding of federal, state and local income, excise and employment-related taxes. The Company's good faith determination with respect to its obligation to withhold such taxes relieves it of any obligation that such amounts should have been paid to you. 10. NOTICES. For the purposes of this Agreement, notices and all other communications provided for in, or required under, this Agreement must be in writing and will be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid and addressed to each party's respective address set forth on the first page of this Agreement (provided that all notices to the Company must be directed to the attention of the chair of the Board), or to such other address as either party may have furnished to the other in writing in accordance with these provisions, except that notice of change of address will be effective only upon receipt. 11. DISPUTES. If you so elect, any dispute, controversy or claim arising under or in connection with this Agreement will be settled exclusively by binding arbitration administered by the American Arbitration Association in Minneapolis, Minnesota in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect; provided that you may seek specific performance of your right to receive benefits until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. Judgment may be entered on the arbitrator's award in any court having jurisdiction. If any dispute, controversy or claim for damages arising under or in connection with this Agreement is settled by arbitration, the Company will pay, or if elected by you, reimburse, all fees, costs and expenses incurred by you related to such arbitration unless the arbitrators decide that your claim was frivolous or advanced by you in bad faith. If you do not elect arbitration, you may pursue all available legal remedies. The Company will pay, or if elected by you, reimburse you for, all fees, costs and expenses incurred by you in connection with any actual, threatened or contemplated litigation relating to this Agreement to which you are or reasonably expect to become a party, whether or not initiated by you, if you are successful in recovering any benefit under this Agreement as a result of such action. The parties agree that any litigation arising under or in connection with this Agreement must be brought in a court of competent jurisdiction in the State of Minnesota, and hereby consent to the exclusive jurisdiction of said courts for this purpose and agree not to assert that such courts are an inconvenient forum. The Company will not assert in any dispute or controversy with you arising under or in connection with this Agreement your failure to exhaust administrative remedies. 12. RELATED AGREEMENTS. To the extent that any provision of any Benefit Plan or other benefit plan, policy, practice or agreement between the Company or any Affiliate and you (an "Other Arrangement") limits, qualifies or is inconsistent with any provision of this Agreement, then for purposes of this Agreement, while such Other Arrangement remains in force, the provision of this Agreement will control and such provision of such Other Arrangement will be deemed to have been superseded, and to be of no force or effect, as if such Other Arrangement had been formally amended to the extent necessary to accomplish such purpose. Nothing in this Agreement prevents or limits your continuing or future participation in any Other Arrangement for which you may qualify, and nothing in this Agreement limits or otherwise affects the rights you may have under any Other Arrangement. Amounts that are vested benefits or which you are otherwise entitled to receive under any Other Arrangement at or subsequent to the Date of Termination will be payable in accordance with such Other Arrangement. 13. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement is intended to provide you with any right to continue in the employ of the Company for any period of specific duration or interfere with or otherwise restrict in any way your rights or the rights of the Company, which rights are hereby expressly reserved to each, to terminate your employment at any time for any reason or no reason whatsoever, with or without cause. 14. PAYMENT; ASSIGNMENT. Benefits payable under this Agreement will be paid only from the general assets of the Company. No person has any right to or interest in any specific assets of the Company by reason of this Agreement. To the extent benefits under this Agreement are not paid when due to any individual, he or she is a general unsecured creditor of the Company with respect to any amounts due. Benefits payable pursuant to this Agreement and the right to receive future benefits may not be anticipated, alienated, sold, transferred, assigned, pledged, encumbered or subject to any charge. 15. SURVIVAL. The respective obligations of, and benefits afforded to, the Company and you which by their express terms or clear intent survive termination of your employment with the Company or termination of this Agreement, as the case may be, will survive termination of your employment with the Company or termination of this Agreement, as the case may be, and will remain in full force and effect according to their terms. 16. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in a writing signed by you and a duly authorized officer of the Parent Corporation. No waiver by any party to this Agreement at any time of any breach by another party to this Agreement of, or of compliance with any condition or provision of this Agreement to be performed by such party will be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter to this Agreement have been made by any party which are not expressly set forth in this Agreement. This Agreement and the legal relations among the parties as to all matters, including, without limitation, matters of validity, interpretation, construction, performance and remedies, will be governed by and construed exclusively in accordance with the internal laws of the State of Minnesota (without regard to the conflict of laws principles of any jurisdiction). Headings are for purposes of convenience only and do not constitute a part of this Agreement. The parties to this Agreement agree to perform, or cause to be performed, such further acts and deeds and to execute and deliver or cause to be executed and delivered, such additional or supplemental documents or instruments as may be reasonably required by the other party to carry into effect the intent and purpose of this Agreement. The invalidity or unenforceability of all or any part of any provision of this Agreement will not affect the validity or enforceability of the remainder of such provision or of any other provision of this Agreement, which will remain in full force and effect. This Agreement may be executed in several counterparts, each of which will be deemed to be an original, but all of which together will constitute one and the same instrument. If this letter correctly sets forth our agreement on the subject matter discussed above, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject. MERRILL CORPORATION By: ------------------------------------ --------------------------------------- [Executive] EX-10.28 12 EXHIBIT 10.28 ASSET PURCHASE AGREEMENT Dated as of June 11, 1998 Among Merrill Corporation, Merrill Acquisition Corporation, and Executech, Inc., World Wide Scan Services, LLC the Shareholders of Executech, Inc. and the Members of World Wide Scan Services, LLC ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT, dated as of June 11, 1998, is by and between Merrill Corporation, a Minnesota corporation ("MERRILL"), Merrill Acquisition Corporation a Minnesota Corporation (the "PURCHASER") and Executech, Inc., a New York corporation ("EXECUTECH"), World Wide Scan Services, LLC, a Connecticut limited liability company ("WORLD WIDE", which together with Executech is hereinafter referred to as the "SELLERS"), Theodore M. Davis ("DAVIS") and Michael Z. Sperling ("SPERLING", who together with Davis are collectively referred to as the "SHAREHOLDERS")(Davis and Sperling are also collectively referred to as the "MEMBERS") (the Members and the Shareholders are collectively referred to as the "OWNERS"). A. The parties hereto wish to provide for the terms and conditions upon which the Purchaser will purchase substantially all of the Sellers' business (the "BUSINESS"). B. The parties hereto wish to make certain representations, warranties, covenants and agreements in connection with the purchase of the assets and the Business and also to prescribe various conditions to such transaction. Accordingly, and in consideration of the representations, warranties, covenants, agreements and conditions herein contained, the parties hereto agree as follows: 1. PURCHASE OF ASSETS 1.1 ASSETS TO BE PURCHASED. (a) Upon the terms and subject to the conditions of this Agreement, the Sellers will sell, transfer, convey, assign and deliver to the Purchaser, and the Purchaser will purchase, as a going concern, from the Sellers, at the Closing, all of the businesses, assets, properties, goodwill and rights of the Sellers, of every nature, kind and description, tangible and intangible, real, personal or mixed, wheresoever located and whether or not carried or reflected on the books and records of the Sellers, including, without limitation, real and personal property that is now owned or leased by the Sellers or in which the Sellers have any right or interest; franchises; all right, title and interest in and to the use of Sellers' corporate names and any derivatives or combinations thereof, including, without limitation, those listed in Exhibit 1.1(a) hereto; logos, trademarks, trademark registrations and trademark applications or registrations thereof, including the goodwill associated therewith; the goodwill of the Sellers' businesses; copyrights, copyright applications and copyright registrations, patents and patent applications; rights under or pursuant to licenses by or to the Sellers; development and prototype hardware, software, processes, formula, trade secrets, inventories and royalties, including all rights to sue for past infringements; leaseholds and other interests in land, inventory (accumulated costs of jobs and supplies), equipment, machinery, furniture, fixtures, motor vehicles and supplies; cash, money and deposits with financial institutions and others, certificates of deposit, commercial paper, notes, evidences of indebtedness, stocks, bonds and other investments; accounts receivables; prepaid expenses; insurance policies, contracts, purchase orders, customers, lists of customers and suppliers, sales representative agreements, and all favorable business relationships, causes of action, judgments, claims and demands of whatever nature; telephone, telefax and telex numbers; all listings in all telephone books and directories; all credit balances of or inuring to the Sellers under any state unemployment compensation plan or fund; employment contracts; obligations of the present and former officers and employees and of individuals and corporations; rights under joint venture agreements or arrangements; files, papers and records relating to the Sellers' businesses and assets; and the assets as reflected on the Latest Balance Sheet, with only such dispositions of such assets reflected on the Latest Balance Sheet as shall have occurred in the ordinary course of Sellers' businesses between the date thereof and the Closing and which are permitted by the terms hereof (the foregoing are sometimes collectively called the "ASSETS"). (b) Notwithstanding the foregoing, the Sellers will not sell, transfer, convey, assign or deliver to the Purchaser, and the Purchaser will not purchase from the Sellers, the following assets: (i) the consideration delivered to the Sellers pursuant to this Agreement for the Assets; (ii) the minute books (and any documents related to the Sellers' organization or foreign qualification contained in such minute books), corporate seal, stock records of Executech and member records of World Wide; (iii) shares of capital stock of Executech, including shares held by Executech as treasury shares; (iv) membership interests or other interests representing the ownership of World Wide; (v) amounts owing to either of the Sellers by: (A) the Owners; (B) officers and directors of Executech; and (C) managers of World Wide; (vi) all documentation pertaining to any liability of the Sellers not assumed by Purchaser; (vii) the Plans and Welfare Plans, except to the extent set forth on the Liabilities Undertaking; and (viii) the assets specifically described on Exhibit 1.1(b) hereto. 1.2 LIABILITIES ASSUMED. Upon satisfaction of all conditions to the obligations of the parties contained herein (other than such conditions as have been made in accordance with the terms hereof), the Purchaser will assume the liabilities of the Sellers (the "ASSUMED LIABILITIES") set forth on Exhibit 1.2 (the 2 "LIABILITIES UNDERTAKING"). The Sellers expressly understand and agree that, except for the Assumed Liabilities, the Purchaser has not agreed to pay, will not be required to assume and will have no liability or obligation, direct or indirect, absolute or contingent, for the liabilities of the Sellers or any respective affiliates or associates, which liabilities will, as between the Sellers and the Owners, on the one hand, and the Purchaser, on the other hand, remain the sole responsibility of, and will be satisfied by, the Sellers (the "RETAINED LIABILITIES"), including without limitation: (a) any debt, liability or obligation of the Sellers or any affiliates or associates, direct or indirect, known or unknown, fixed, contingent or otherwise, that (i) is unrelated to the Assets or the Business; or (ii) relates to the Assets and is based upon or arises from any act, omission, transaction, circumstance, sale of goods or services, state of facts or other condition occurring or existing on or before the Closing Date, whether or not then known, due or payable, except to the extent that the same was expressly assumed by the Purchaser pursuant to the terms of the Liabilities Undertaking; (b) any obligation for Taxes related to any of the Assets for any Tax period or portion thereof ending on or before the Closing Date (including any tax liability (other than sales and use taxes) relating to or arising from the transfer of Assets) and any obligation for other Taxes of the Sellers or the Owners, except to the extent that the same was expressly assumed by the Purchaser pursuant to the terms of the Liabilities Undertaking; (c) any debt, liability or obligation, direct or indirect, known or unknown, fixed, contingent or otherwise, based upon or arising from any act, omission, transaction, circumstance, state of facts or other condition occurring or existing on or before the Closing Date and relating to any collective bargaining agreement or any employee benefit plan, policy, practice or agreement to which either of the Sellers are a party or under which either of the Sellers' employees or former employees is covered, including without limitation any obligation to contribute to, or any obligation or liability for any withdrawal liability arising in connection with, any Multiemployer Plan attributable to participation therein by current or former employees of the Sellers as a result of this Agreement and the transactions contemplated hereby or otherwise or any of the matters described in Sections 2.16 or 2.19 of the Disclosure Schedule; (d) (i) (A) any liability arising out of or related to the events, circumstances or conditions described in Section 2.21 of the Disclosure Schedule; (B) any liability arising out of or related to the management of wastes, byproducts or spent materials generated by either of the Sellers, any subsidiaries, former subsidiaries or affiliates; or (C) any liability arising out of or related to any pollution or threat to human health or the environment or violation of any Environmental and Occupational Safety and Health Law that is related in any way to any of the Sellers', or any previous owner's or operator's management, use, control, ownership or operation of the Assets, any Property or the business of the Sellers, any subsidiary, former subsidiaries or affiliates, including without limitation any on-site or off-site activities involving Environmentally Regulated Materials, and that occurred, existed, arises out of conditions or circumstances that occurred or existed, or was caused, in whole or in part, on or before the Closing Date, whether or not the pollution or threat to 3 human health or the environment or violation of any Environmental and Occupational Safety and Health Law is described in the Disclosure Schedule; and (ii) any Environmental Claim against any person or entity whose liability for such Environmental Claim of the Sellers have or may have assumed or retained either contractually or by operation of law; (e) any debt, liability or obligation, direct or indirect, known or unknown, fixed, contingent or otherwise owing by either of the Sellers to (i) any of the Owners; (ii) officers or directors of Executech; or (iii) managers of World Wide; (f) any debt, liability or obligation, direct or indirect, known or unknown, fixed, contingent or otherwise arising out of or under Executech, Inc.'s Performance Share Plan which was adopted by Executech's Board of Directors effective as of December 31, 1997 (the "EXECUTECH PERFORMANCE SHARE PLAN") or its termination; and (g) any liability arising out of or related to the events, circumstances or conditions described in Sections 2.14 and 2.15 of the Disclosure Schedule, to the extent such events, circumstances or conditions occurred prior to the Closing Date. At the Closing, the Sellers will convey, transfer, assign and delegate, and the Purchaser will accept and assume, those contracts, agreements and commitments listed on the Liabilities Undertaking to be assumed by the Purchaser (the "ASSUMED CONTRACTS"). 1.3 PURCHASE PRICE. (a) The total consideration to be paid by the Purchaser to the Sellers, or their designees, for the Assets (the "PURCHASE PRICE") will be an amount equal to: (i) Three Million Two Hundred Thousand Dollars ($3,200,000); plus (ii) the assumption by the Purchaser of the Assumed Liabilities as of the Closing Date pursuant to the Liabilities Undertaking referred to in Section 1.2 hereof; plus (iii) any Contingent Purchase Price. (b) PAYMENTS. At the Closing, the Purchaser will: (A) pay the Sellers, by wire transfer, immediately available funds of Three Million Two Hundred Thousand Dollars ($3,200,000) to a bank account of the Sellers pursuant to written instructions of the Sellers given to the Purchaser at least 48 hours prior to the Closing; and (B) execute and deliver to the Sellers the Liabilities Undertaking. (c) The Owners hereby acknowledge and agree that that amounts paid to each Seller are adequate consideration for the purchase of the Assets of each Seller and represent the fair market value of the Assets of each Seller. Immediately prior to the Closing, the Shareholders were the sole direct and indirect shareholders of Executech and the Members were the sole direct and indirect members of World Wide. Executech will 4 use reasonable efforts to redeem or otherwise terminate all award shares outstanding under the Executech Performance Share Plan. 1.4 CONTINGENT PURCHASE PRICE. (a) During the period from the Closing through the period ending January 31, 2002 (the "CONTINGENT PURCHASE PRICE PERIOD"), the Purchaser will pay additional amounts equal to a percentage of the After-Tax Earnings, in excess of certain thresholds, generated by the "business," as defined below, being acquired by the Purchaser. The threshold amounts of After-Tax Earnings and the percentage payable for each fiscal year of the Contingent Purchase Price Period are set forth according to the following schedule (the "Contingent Purchase Price"): - -------------------------------------------------------------------------------- FISCAL YEAR CONTINGENT PURCHASE PRICE PAYMENT - -------------------------------------------------------------------------------- January 1, 1998 through January 31, 450% of the After-Tax Earnings for the 1999 ("FIRST FISCAL YEAR") First Fiscal Year (the "BASE YEAR EARNINGS"); provided however, the Base Year Earnings equal or exceed Four Hundred Thousand Dollars ($400,000) - -------------------------------------------------------------------------------- February 1, 1999 through January 31, 50% of the After-Tax Earnings for the 2000 ("SECOND FISCAL YEAR") Second Fiscal Year in excess of the greater of (x) 120% of Base Year Earnings; and (y) Seven Hundred Twenty Thousand Dollars ($720,000) - -------------------------------------------------------------------------------- February 1, 2000 through January 31, 50% of the After-Tax Earnings for the 2001 ("THIRD FISCAL YEAR") Third Fiscal Year in excess of the greater of (x) 144% of the Base Year Earnings; and (y) Eight Hundred Sixty Four Thousand ($864,000) - -------------------------------------------------------------------------------- February 1, 2001 through January 31, 50% of the After-Tax Earnings for the 2002 ("FOURTH FISCAL YEAR") Fourth Fiscal Year in excess of the greater of (x) 172.8% of the Base Year Earnings; and (y) One Million Thirty-Six Thousand Eight Hundred Dollars ($1,036,800) - -------------------------------------------------------------------------------- For clarity purposes and not intending to create additional rights or obligations, no Contingent Purchase Price will be paid to the Sellers for the Second Fiscal Year, Third Fiscal Year and/or Fourth Fiscal Year in the event that After-Tax Earnings for such year does not exceed both of the thresholds set forth in clause (x) and (y) in the above table. 5 (b) To the extent required by the Internal Revenue Code of 1986, as amended (the "CODE"), any such Contingent Purchase Price will consist of interest compounded semiannually at the applicable federal mid-term interest rate. (c) For purposes of this Section 1.4, the "AFTER-TAX EARNINGS" generated by the "business" (as hereinafter defined in Section 1.4(c)(i)) for each period contained in the Contingent Purchase Price Period means Purchaser's net income (or loss), after Taxes, determined in accordance with generally accepted accounting principles consistently applied ("GAAP"). Assuming the accuracy of the representations and warranties of the Sellers and the Owners contained in Section 2.7 hereof and except as otherwise set forth in this Section 1.4(c), the Purchaser acknowledges and agrees with the Sellers' application of GAAP for the Sellers' After-Tax Earnings for the period from January 1, 1998 through June 5, 1998, as set forth in Exhibit 1.4 attached hereto, and further agrees that the net income shown therein will be used to calculate the After-Tax Net Earnings for that portion of the First Fiscal Year provided that the underlying numbers, as represented by the Sellers in Section 2.7 hereof, are correct. Except as otherwise set forth in this Section 1.4(c), the Purchaser further agrees that such methodology will be substantially the same methodology used by the Purchaser in calculating the Contingent Purchase Price, subject to future changes in and additions to GAAP. Notwithstanding the foregoing, the Purchaser is, in no way, certifying or agreeing that the numbers set forth in Exhibit 1.4 attached hereto, are accurate or complete or otherwise fairly present the financial position of the Sellers for such period. Notwithstanding the foregoing, the following provisions will govern the computation of the After-Tax Earnings for purposes of this Section 1.4. (i) For purposes of this Section 1.4, the term "business" or "businesses" means the operations of the Purchaser that represent a succession to and a continuation of the Business conducted by the Sellers prior to the Closing, as such "business" may be reconstituted, expanded or developed. Specifically, the "business" means the collection, organization, management and dissemination of data via what is currently known as the E-TECH system and its derivatives, successors, ancillary products and comparable tools (the "E-TECH SYSTEM") and all scanning and imaging services provided therewith, together with the installation and management of the hardware associated with the E-TECH System and all training, maintenance, support and consulting associated with the E-TECH System. Notwithstanding the foregoing, the term "business" or "businesses" does not include any software products, training, maintenance, support or consulting services that are currently being offered by the Purchaser or Merrill, and, to the extent that they are not competitive with the E-TECH System, that are contemplated to be offered by the Purchaser or Merrill. Notwithstanding the foregoing, the term "business" does not include any products or services that are acquired or purchased by Merrill, the Purchaser or any of their respective affiliates as part of the acquisition of substantially all of the business or assets of an entity, except to the extent provided in Section 1.4(c)(vii); 6 (ii) The Assets will be depreciated as though their basis had not changed as a result of their purchase by Purchaser pursuant to this Agreement. All Assets will be depreciated based on their current depreciation schedules and no amortization related to the purchase of the Assets will be included in the calculation of After-Tax Net Earnings; (iii) It is anticipated that Merrill will provide certain services for the benefit of the "business" related to sales and general and administrative expenses for which the "business" will be charged (the "SG&A COSTS"). The SG&A Costs will be five percent (5%) of Gross Revenues for the First Fiscal Year and ten percent (10%) of Gross Revenues for the Second Fiscal Year, Third Fiscal Year and Fourth Fiscal Year. For purposes of this Section 1.4, the term "GROSS REVENUES" means the Purchaser's gross revenues, determined in accordance with GAAP, net of allowances, discounts and returns, generated from the "business." The SG&A Costs include costs incurred from the following services to be provided by Merrill: accounting, tax, legal, human resources, finance/cash management, cost of capital, general corporate and equipment insurance, executive management of Merrill, MIS support provided by Merrill, telecommunications, purchasing, sales and marketing related expenses (e.g., marketing, public relations, market research, brochures, advertising, trade shows, web presence, promotions, sales force and sales force support costs including, but not limited to, costs of salaries, commissions, bonuses, benefits, facilities, equipment, travel and entertainment and training for the E-Tech system and services of the "business") and use of Merrill's existing help desk/customer support infrastructure (excluding incremental personnel costs required solely for the purpose of supporting the "business"); (iv) The benefit plans used in calculating the After-Tax Earnings will be in conformance with the fringe benefit programs (A) of the Sellers in effect as of the Closing Date for the First Fiscal Year and (B) of Merrill in effect for the Second Fiscal Year, Third Fiscal Year and Fourth Fiscal Year; (v) An estimated combined federal, state, local and foreign income tax rate of 38% will be applied to pre-tax income to calculate After-Tax Net Earnings; (vi) Except as otherwise provided for in this Section 1.4, the After-Tax Earnings will be computed as if the "business" were not directly or indirectly an affiliate of the Purchaser or any of its affiliates. All other intercompany transactions will be calculated as if they were being done as independent, arms-length transactions. It is anticipated that use of Merrill's facilities or personnel for providing services related to the "business" will be allocated at prices reflective of reasonable market rates. Sales of the E-TECH System and related services associated with the "business" to Merrill and its wholly-owned subsidiaries will be treated as a sale at a discount of 20% to the then prevailing market rates, unless otherwise mutually agreed. Technology-related consulting services performed by the Sellers on behalf of Merrill, but not related the "business" will be priced at 7 market consulting rates and be included in the computation of After-Tax Earnings; (vii) Any reasonable expenses paid, incurred or charged in connection with the expansion of the "business" as a result of opening and staffing of new offices, and any income or revenues directly derived therefrom, will be included in the computation of After-Tax Earnings of the "business." In the event that Merrill contemplates acquiring another entity, business or assets similar to the "business," Merrill will present such opportunity to the Sellers and Merrill and the Sellers will agree to work in good faith to reach mutually agreeable terms on the treatment of such acquisition and its effect on this Section 1.4. In the event the parties fail to agree on the treatment of such acquisition and its effect on this Section 1.4, neither the revenue nor the expense of such acquisition will be included in the computation of After-Tax Earnings. Notwithstanding the foregoing, nothing in this Section 1.4 (vii) will prevent or otherwise prohibit Merrill from acquiring any entity, assets or business whether or not similar to the "business." It is anticipated that there will be circumstances when expenses related to growth will be in the longer term strategic interest of Merrill, but may be detrimental to the short-term interests of the Sellers. The Purchaser and the Sellers agree to work in good faith to equitably allocate these expenses. Expenses incurred in expanding Merrill's scanning and imaging operations in Merrill's corporate offices located in Saint Paul, Minnesota and Merrill's document service center located in Dallas, Texas will not be included in the computation of After-Tax Earnings during the First Fiscal Year. (viii) All costs and expenses associated with the development, modification, enhancement or improvement of software products will be treated consistently with Merrill's accounting policies for such costs and expenses, which such policy is currently to expense such costs and expenses as incurred; (ix) All revenue, including, without limitation, all license and maintenance fees, will be recognized in accordance with GAAP, which generally requires that revenue be recognized over the life of the applicable contract; and (x) No costs or expenses will be recognized for payments made under the Executech Performance Share Plan. (xi) In the event that any of the Employment Agreements with Davis, Sperling or Jeffrey DuBowe are terminated, for whatever reason, After-Tax Earnings will include, in addition to other charges contemplated by this Section 1.4, all reasonable expenses paid, incurred or charged in connection with recruiting, replacing, training and compensating (including benefits) replacement personnel. (d) The Purchaser agrees to provide Davis and Sperling monthly financial reports consistent with those provided to Merrill's regional managers. 8 (e) As soon as may be practicable after the end of each fiscal year in the Contingent Purchase Price Period, but not later than March 25, Purchaser will deliver to the Representative, a statement, prepared by the Purchaser, setting forth in reasonable detail, Purchaser's calculation of After-Tax Earnings for each fiscal year of the Contingent Purchase Price Period and the amount of the Contingent Purchase Price, if any, to be paid to the Sellers pursuant to this Section 1.4 (the "CONTINGENT PURCHASE PRICE STATEMENT"). (f) Within 15 business days after receipt of the Contingent Purchase Price Statement, the Representative will notify (the "REPRESENTATIVE NOTICE") Purchaser if the Representative disagrees with the calculation of the Contingent Purchase Price. If such notice is not given (or at such time as the Representative provides written notice to Purchaser that the Representative has no objection to such calculation), the Contingent Purchase Price Statement provided by Purchaser will be final and conclusive for all purposes and, upon payment in full of the Contingent Purchase Price, the Purchaser will thereafter have no further liability to the Sellers or the Owners pursuant to this Section 1.4. If the parties are unable to resolve their differences within 60 days of the receipt of the Representative Notice, the Sellers, the Owners and the Purchaser agree to retain the accounting firm of Arthur Anderson LLP, or, if Arthur Anderson LLP is not independent with respect to the Sellers, the Owners, the Purchaser and Merrill, a mutually agreeable independent, Big-Six accounting firm, (the "AUDITOR") to arbitrate the dispute and render a decision within 30 days of such retention, which decision shall be final and binding for all purposes. Any award pursuant to this Section 1.4(e) may be entered in and enforced by any court having jurisdiction over the matter and the parties hereby consent and commit themselves to the jurisdiction of the courts of Delaware for the purposes of the enforcement of any such award. If the amount of the Contingent Purchase Price, as determined by the Auditor, is (A) less than five percent (5%) higher than the amount set forth in the Contingent Purchase Price Statement, or (B) lower than, or (C) equal to the amount set forth in the Contingent Purchase Price Statement, the Purchaser and the Owners will each pay one-half of the costs of services rendered by the Auditor. If the amount of the Contingent Purchase Price, as determined by the Auditor, is higher than the amount set forth in the Contingent Purchase Price Statement by five percent or more, the Purchaser will pay such costs. (g) Within five days after the earlier of (i) the receipt by the Purchaser of written notice from the Representative that the Representative has no objection to the calculation of the Contingent Purchase Price pursuant to Section 1.4 hereof, (ii) the expiration of the 15-day period for giving notice of disagreement with such calculation, if no such notice is given, or (iii) the resolution of any dispute pursuant to Section 1.4(e), the Purchaser will by wire transfer in immediately available funds make payment to the Representative of the Contingent Purchase Price, if any. In the event that payment is not made within such 5-day period, the Purchaser will pay to the Sellers', in addition to the amount due as Contingent Purchase Price, a late payment charge equal to one percent (1%) per month of the Contingent Purchase Price due together with interest at the Late Payment Rate. If the amount of the Contingent Purchase Price is disputed and is being arbitrated in accordance with Section 1.4(e), during the course of such arbitration and 9 until a final, non-appealable arbitration award is issued, no late payment charge shall accrue, but, interest will be payable by the Purchaser on the balance of the Contingent Purchase Price due but unpaid, at the Late Payment Rate. For purposes of this Agreement, the term "LATE PAYMENT RATE" means the prime rate, as published by Chase Manhattan Bank as its prime lending rate from time to time, plus three percent (3%). 1.5 ALLOCATION OF PURCHASE PRICE. The Purchase Price will be allocated among the Assets in the manner required by Section 1060 of the Code. In making such allocation, the allocations set forth in Exhibit 1.5 attached hereto will apply. In preparing Exhibit 1.5, the Purchaser and the Sellers will negotiate in good faith the values of the Assets and the resulting allocation of the Purchase Price among the various Assets; it being understood that such determination will be binding on the Purchaser only for the purposes of U.S. Federal, state and local taxation. The Purchaser, the Sellers and the Owners will file all Tax Returns and tax reports (including IRS Form 8594) in accordance with and based upon such allocation and will take no position in any Tax Return, tax proceeding or tax audit which is inconsistent with such allocation. 1.6 COLLECTION OF ACCOUNTS RECEIVABLE. For a period of 180 days after the Closing Date, the Purchaser will use its commercially reasonable efforts to collect the accounts receivable included in the Assets reflected on the Latest Balance Sheet, other than accounts receivable owing by World Wide to Executech (the "GUARANTEED RECEIVABLES") in accordance with the Sellers' prior reasonable commercial practices, which efforts will be in addition to the efforts engaged in by the Purchaser to collect any accounts receivable included in the Assets reflected on the Closing Balance Sheet that arose after the date of the Latest Balance Sheet. The Purchaser may in its discretion, reasonably exercised, resort to litigation or the use of collection agencies or similar efforts to collect the Guaranteed Receivables. Any payment made to the Purchaser or any affiliate of the Purchaser by an account debtor with more than one outstanding account receivable will be applied to particular accounts receivable as specified by the account debtor; provided, however, that if such account debtor does not specify to which account receivable the payment is to be applied, the Purchaser will apply such payments to the oldest account receivable of such account debtor and then to the next oldest account receivable of such account debtor until such payment has been fully reflected. The Contingent Purchase Price will be reduced by the amount, if any, by which the net amount of the Guaranteed Receivables not collected on or before the 180th day after the Closing Date exceeds the Bad Debt Reserve (as hereinafter defined) (such excess is hereinafter referred to as the "GUARANTEED RECEIVABLES SHORTFALL"). Any Guaranteed Receivables not collected within 180 days will be returned to the Sellers. For purposes of this Agreement, the term "BAD DEBT RESERVE" means the Sellers' reserve for bad debts and reserve for allowances as of the date of the Latest Balance Sheet, determined in a manner consistent with the prior practices of the Sellers reflected in the Latest Balance Sheet. The Purchaser will have the right to set-off any amount owing to the Sellers as a Contingent Purchase Price payment for any reduction arising from this Section 1.6. 10 1.7 CLOSING. Unless this Agreement has been terminated and the transactions contemplated have been abandoned pursuant to Article 7 hereof, a closing (the "CLOSING") will be held on June 9, 1998 at 9:00 a.m., New York, New York local time or at such other time as the parties may agree upon (the "CLOSING DATE"); provided, however, that if any of the conditions provided for in Articles 5 and 6 hereof have not been satisfied or waived by such date, then the party to this Agreement which is unable to satisfy such condition or conditions, despite the best efforts of such party, will be entitled to postpone the Closing by notice to the other parties until such condition or conditions will have been satisfied (which such notifying party will seek to cause to happen at the earliest practicable date) or waived, but in no event will the Closing occur later than June 15, 1998 (the "TERMINATION DATE"). The parties will use their best efforts to complete the Closing by June 9, 1998. The Closing will be held at such place as the parties may agree, at such time as the parties may agree, at which time and place the documents and instruments necessary or appropriate to effect the transactions contemplated herein will be exchanged by the parties. 1.8 INSTRUMENTS OF TRANSFER TO PURCHASER. (a) At the Closing, the Sellers will deliver to the Purchaser such bills of sale, endorsements, assignments, deeds and other good and sufficient instruments of conveyance and transfer, in form and substance reasonably satisfactory to the Purchaser and its counsel, as will be required to vest in the Purchaser title to the Assets, including without limitation: (i) a cashier's or certified check drawn by each of the Sellers to the order of the Purchaser in the aggregate amount of all of the Sellers' cash on hand and in banks less an amount equal to the sum of (A) all uncleared checks which have been drawn by the Sellers prior to the Closing and (B) such other amounts as the parties may otherwise agree, (ii) bills of sale executed by the Sellers vesting in the Purchaser good and marketable title to all of the Assets in the form attached as Exhibit 1.8 hereof; (iii) appropriate endorsements and assignments of the contracts, licenses, agreements, permits, plans, commitments and other binding arrangements included in the Assets; (iv) all data relating to the Assets, property, goodwill and business included in the Sellers' business; and (v) all copies of the source code and object code and all documentation relating thereto for all computer software programs included in the Assets. (b) The Sellers will take all other actions necessary to put the Purchaser in actual possession and operating control of the Assets. 11 2. REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE OWNERS The Sellers and Owners, jointly and severally, hereby represent and warrant to the Purchaser as of the date hereof as follows: 2.1 DISCLOSURE SCHEDULE. The disclosure schedule attached as Exhibit 2 hereto (the "DISCLOSURE SCHEDULE") is divided into sections which correspond to the sections of this Article 2. The Disclosure Schedule is accurate and complete. Nothing in the Disclosure Schedule will be deemed adequate to disclose an exception to a representation or warranty made herein, unless the Disclosure Schedule identifies the exception with reasonable particularity and describes the relevant facts in reasonable detail. Without limiting the generality of the foregoing, the mere listing (or inclusion of a copy) of a document or other item will not be deemed adequate to disclose an exception to a representation or warranty made herein (unless the representation or warranty has to do with the existence of the document or other item itself). 2.2 CORPORATE ORGANIZATION. (a) Executech is a corporation duly organized, validly existing and in good standing under the laws of the State of New York, has the full corporate power and authority to carry on its business as it is now being conducted and to own, lease and operate its properties and assets. Executech is duly qualified or licensed to do business as a foreign corporation in good standing in every other jurisdiction in which the character or location of the properties and assets owned, leased or operated by it or the conduct of the business requires such qualification or licensing, except where the failure to so qualify would not have a Material Adverse Effect. The Disclosure Schedule contains a list of all jurisdictions in which Executech is qualified or licensed to do business. (b) World Wide is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Connecticut with requisite power and authority to carry on its business as it is now being conducted and to own, operate and lease its properties and assets. World Wide is duly qualified or licensed to do business as a foreign limited liability company in good standing in every other jurisdiction in which the character or location of the properties and assets owned, leased or operated by it or the conduct of its business requires such qualification or licensing, except where the failure to so qualify would not have a Material Adverse Effect. The Disclosure Schedule contains a list of all jurisdictions in which World Wide is qualified or licensed to do business. 2.3 CAPITALIZATION. (a) The authorized capital stock of Executech is set forth on the Disclosure Schedule. The number of shares of capital stock of Executech outstanding as of the date of this Agreement is set forth on the Disclosure Schedule. All issued and outstanding shares of capital stock of Executech are duly authorized, validly issued, fully paid and non-assessable. The Shareholders are the sole direct and indirect shareholders of Executech. 12 (b) The amount and type of membership interests of World Wide outstanding as of the date of this Agreement are set forth on the Disclosure Schedule. All issued and outstanding membership interests of World Wide are duly authorized, validly issued, and are without, and were not issued in violation of, preemptive rights. The Members are the sole direct and indirect members of World Wide. 2.4 AUTHORIZATION. The Sellers have full power and authority to enter into this Agreement and to carry out the transactions contemplated herein. The Owners, and each of them, have the legal capacity to enter into this Agreement and to carry out the transactions contemplated herein, including without limitation, the legal capacity to execute, deliver and perform the agreements or contracts, if any, required by Article 5 to be executed and delivered by any of them as a condition to the Closing. The Board of Directors of Executech and the Manager of World Wide and the Owners have taken all action required by law, Executech's articles of incorporation and bylaws, World Wide's articles of organization and operating agreement and otherwise to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein. This Agreement has been duly and validly executed and delivered by the Sellers and no other corporate or limited liability company action, as the case may be, is necessary. This Agreement has been duly and validly executed by the Owners. This Agreement is the valid and binding legal obligation of the Sellers and the Owners, enforceable against them in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws of applicability relating to or affecting creditors' rights and general principles of equity. 2.5 NON-CONTRAVENTION. Except as set forth in the Disclosure Schedule, neither the execution, delivery and performance of this Agreement nor the consummation of the transactions contemplated herein will: (i) violate or be in conflict with any provision of the articles of incorporation or bylaws of Executech; (ii) violate or be in conflict with any provision of the articles of organization or operating agreement of World Wide; (iii) except for violations, conflicts, defaults, accelerations, terminations, cancellations, impositions of fees or penalties which would not, individually or in the aggregate, have a Material Adverse Effect on the Business, be in conflict with, or constitute a default, however defined (or an event which, with the giving of due notice or lapse of time, or both, would constitute such a default), under, or cause or permit the acceleration of the maturity of, or give rise to any right of termination, cancellation, imposition of fees or penalties under any debt, note, bond, lease, mortgage, indenture, license, obligation, contract, commitment, franchise, permit, instrument or other agreement or obligation to which either of the Sellers are a party or by which either of the Sellers or any of the Sellers' properties or assets is or may be bound; (iv) result in the creation or imposition of any mortgage, pledge, lien, security interest, conditional or installment sales agreement, encumbrance, claim, easement, right of way, tenancy, covenant, encroachment, restriction or charge of any kind of nature (whether or not of record) (a "LIEN"), other than (A) mechanics', carriers', workers' or other like liens arising in the ordinary course of business; (B) minor imperfections of title which do not individually or in the aggregate, impair the continued use and operation of the assets and fixtures to which they relate in the operation of 13 the Business as currently conducted; (C) liens for current taxes not yet due and payable; and (D) Liens created by this Agreement (clauses (A), (B), (C) and (D) collectively "PERMITTED LIENS"), upon the Assets, under any Assumed Contract or any debt, obligation, contract, agreement or commitment to which either of the Sellers are a party or by which either of the Sellers or any of the Assets is or may be bound; or (v) to Sellers' knowledge, violate any statute, treaty, law, judgment, writ, injunction, decision, decree, order, regulation, ordinance or other similar authoritative matters (referred to herein individually as a "LAW" and collectively as "LAWS") of any foreign, federal, state or local governmental or quasi-governmental, administrative, regulatory or judicial court, department, commission, agency, board, bureau, instrumentality or other authority (referred to herein individually as an "AUTHORITY" and collectively as "AUTHORITIES"). 2.6 CONSENTS AND APPROVALS. Except as set forth in the Disclosure Schedule, with respect to each of the Sellers and the Owners, no consent, approval, order or authorization of or from, or registration, notification, declaration or filing with ("CONSENT") any individual or entity, including without limitation any Authority, is required (that has not been obtained or waived) in connection with the execution, delivery or performance of this Agreement by the Sellers or the Owners or the consummation by the Sellers and the Owners of the transactions contemplated herein, other than any Consent which, if not obtained, will not have a Material Adverse Effect on the Business. 2.7 FINANCIAL STATEMENTS. The Disclosure Schedule contains true and complete copies of unaudited balance sheets of each of the Sellers as of December 31, 1997 and June 5, 1998, and the related statement of operations (or income or loss) for the five (5) months ended June 5, 1998. The balance sheet as of June 5, 1998 is referred to herein as the "LATEST BALANCE SHEET." Except as disclosed therein, the June 5, 1998 financial statements (i) are in accordance with the books and records of the Sellers; and (ii) fairly present the financial position of the Sellers as of the respective dates thereof, and the results of operations (or income or loss) for the periods then ended. 2.8 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent (i) reflected and reserved against in the Latest Balance Sheet, (ii) set forth on the Disclosure Schedule or (iii) incurred in the ordinary course of business after the date of the Latest Balance Sheet and not material in amount, either individually or in the aggregate, the Sellers do not have any debt, liability or obligation, known or unknown, secured or unsecured, whether accrued, absolute, contingent, unasserted or otherwise, of any nature whatsoever, including without limitation any foreign or domestic tax liabilities or deferred tax liabilities incurred in respect of or measured by the Sellers' income, or any other debts, liabilities or obligations relating to or arising out of any act, omission, transaction, circumstance, sale of goods or services, state of facts or other condition which occurred or existed on or before the date hereof, whether or not known, due or payable (collectively "LIABILITY"). Sellers are not subject to any obligation or requirement to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any person or entity. 14 2.9 ABSENCE OF CERTAIN CHANGES. Except as set forth in the Disclosure Schedule, since the date of the Latest Balance Sheet, the Sellers have owned and operated the Assets in the ordinary course of business and consistent with past practice. Without limiting the generality of the foregoing, subject to the foregoing exceptions: (a) the Sellers have not experienced any change which has had a Material Adverse Effect on either of the Sellers or experienced any event or failed to take any action which reasonably could be expected to result in a Material Adverse Effect on either of the Sellers; (b) the Sellers have not suffered any material loss, damage, destruction of property or Assets or other casualty to property or Assets (whether or not covered by insurance); (c) the Sellers have not suffered any loss of officers, directors, managers, employees, dealers, distributors, independent contractors, customers or suppliers which had or may reasonably be expected to result in a Material Adverse Effect on either of the Sellers; and (d) no event has taken place which if consummated following the date hereof would constitute a violation of Section 4.1 hereof. 2.10 ASSETS. (a) Except as set forth in the Disclosure Schedule, the Sellers have good and marketable title to all of the Assets, free and clear of any Lien, other than Permitted Liens. (b) The Sellers have full right and power to, and at the Closing will, deliver to the Purchaser good title to all of the Assets, free and clear of any Lien, other than Permitted Liens. (c) The machinery, equipment, vehicles and other personal property used by the Sellers in the Business are in good operating condition and repair, normal wear and tear excepted, and fit for the intended purposes thereof, and no material maintenance, replacement or repair has been deferred or neglected. (d) The Assets constitute all of the property and assets, real, personal and mixed, tangible and intangible, presently used to carry on the Business of the Sellers, and the Assets are adequate to carry on the Business of the Sellers as presently conducted. (e) The Sellers do not own any real properties. Neither of the Sellers are foreign persons and are not controlled by a foreign person, as the term foreign person is defined in Section 1445(f)(3) of the Code. 15 2.11 INVENTORIES. The Sellers do not maintain any inventory. 2.12 RECEIVABLES AND PAYABLES. (a) The Disclosure Schedule contains a listing of all of the receivables, if any, of the Sellers included in the Assets. Except as set forth on the Disclosure Schedule, (i) the Sellers have good right, title and interest in and to the trade accounts receivable and notes receivable constituting the Assets; (ii) none of such trade accounts receivable and notes receivable is subject to any Lien, other than Permitted Liens; (iii) all of the trade accounts receivable and notes receivable owing to either of the Sellers constitute valid and enforceable claims arising from bona fide transactions in the ordinary course of business, and there are no known claims, refusals to pay or other rights of set-off against any thereof; (iv) the aging schedule of the trade accounts receivable and notes receivable accounts of the Sellers attached to the Disclosure Schedule is complete and accurate; and (vi) the reserve established by the Sellers on the Latest Balance Sheet is adequate to cover any doubtful accounts. (b) The Disclosure Schedule contains a listing of all trade accounts payable and notes payable of the Sellers. All such trade accounts payable and notes payable arose from bona fide transactions in the ordinary course of the Sellers' Business and, except as set forth on the Disclosure Schedule, no such account payable or note payable is delinquent by more than 30 days in its payment. 2.13 INTELLECTUAL PROPERTY RIGHTS. (a) The Disclosure Schedule contains a listing of all (i) patents, patent applications (collectively the "PATENTS"), (ii) copyright registration applications and copyright registration certificates (the "COPYRIGHTS"), (iii) tradenames, registered and common law trademarks, trademark applications (collectively, the "TRADEMARKS"), (iv) service marks, service mark applications (collectively, the "SERVICE MARKS"), and (v) computer programs and proprietary specifications, inventions and technology (the "TRADE SECRETS") used as of the Closing Date in connection with the Assets and for the conduct of the Business of the Sellers (the Patents, Copyrights, Trademarks, Service Marks and Trade Secrets are collectively referred to as "INTELLECTUAL PROPERTY RIGHTS"). All issued Patents and registered Copyrights, Trademarks and Service Marks are collectively referred to as the "REGISTERED INTELLECTUAL PROPERTY RIGHTS." The Intellectual Property Rights are reasonably sufficient to conduct the Business as conducted as of the Closing Date. (b) The Sellers own, have the unrestricted right to use and have sole and exclusive possession of and have good and valid title to, or sufficient license or other rights to, all of the Intellectual Property Rights, free and clear of all Liens other than Permitted Liens. 16 (c) All Registered Intellectual Property Rights are in compliance with formal legal requirements (including the payment of filing, examination and maintenance fees and proofs of working or use), are valid and enforceable and are not subject to any maintenance fees or taxes or U.S. Patent and Trademark office actions falling due within 90 days after the Closing Date. The Sellers do not own any Patents. Except as set forth on the Disclosure Schedule, no Trademarks have been or are involved in any opposition, invalidation or cancellation proceeding and, there is no basis for the commencement of any such proceeding. To the Sellers' and the Owners' knowledge, the Trademarks are valid and enforceable and no person holds any infringing or potentially infringing trademark and no application for any infringing or potentially infringing trademark has been made. (d) A copy of all available documentation relating to the Trade Secrets has been furnished to the Purchaser. To the knowledge of the Sellers and the Owners, the Trade Secrets are not part of the public domain or literature nor have they been used, divulged or appropriated for the benefit of any person or entity other than the Sellers or to the detriment of either of the Sellers. The Sellers have taken reasonable measures and precautions to protect the secrecy, confidentiality and value of the Trade Secrets. (e) Except as set forth on the Disclosure Schedule, the use of all Intellectual Property Rights necessary or required for the conduct of the Business of the Sellers as presently conducted as of the Closing Date does not infringe or violate any trade secrets, plans and specifications, patents, copyrights, tradenames, registered and common law trademarks, trademark applications, service marks, service mark applications, computer programs and other computer software, inventions, know-how, technology, proprietary processes and formulae or other intellectual property rights of any other person or entity (the "THIRD PARTY INTELLECTUAL PROPERTY RIGHTS"). To the Sellers' and the Owners' knowledge, the Sellers are not using any confidential information or trade secrets of others in an unauthorized manner. (f) All agreements relating to licenses of Intellectual Property Rights granted by or to the Sellers or any of their respective Owners are set forth on the Disclosure Schedule. All such licenses set forth on the Disclosure Schedule are in good standing, valid and effective in accordance with their respective terms and there is not, under any of such licenses, any existing default or event of default (or event which with notice or lapse of time, or both, would constitute a default, or would constitute a basis for a claim of force majeure or other claim of excusable delay or non-performance), in each case by either of the Sellers or, to the knowledge of the Sellers and the Owners, by any other party thereto. Except as set forth on the Disclosure Schedule, there are no outstanding and, to the knowledge of the Sellers and the Owners, no threatened disputes or disagreements with respect to any such agreement. (g) Except as set forth on the Disclosure Schedule, the Sellers are not obligated or under any Liability whatsoever to make any payments by way of royalties, fees or otherwise to any owner of, licensor of, or other claimant to, any Intellectual Property Rights or Third Party Intellectual Property Rights. 17 2.14 LITIGATION. Except as set forth in the Disclosure Schedule, there is no legal, administrative, arbitration, or other proceeding, suit, claim or action of any nature or investigation, review or audit of any kind (including without limitation a proceeding, suit, claim or action, or an investigation, review or audit, involving any environmental Law or matter), judgment, decree, decision, injunction, writ or order pending, noticed, scheduled, or, to the knowledge of the Sellers, threatened or contemplated by or against or involving the Sellers, their respective assets, properties or business or their officers, directors, governors, managers, agents or employees (but only in their capacity as such), whether at law or in equity, before or by any person or entity or Authority, or which questions or challenges the validity of this Agreement or any action taken or to be taken by the parties hereto pursuant to this Agreement or in connection with the transactions contemplated herein. 2.15 TAX MATTERS. (a) The Owners or the Sellers, as the case may be, will be responsible for and will pay all Taxes attributable to or arising from the business and operations of Sellers and will be responsible for their own income and franchise Taxes, if any, arising from the transactions contemplated by this Agreement. The Purchaser will be responsible for and will pay all Taxes in the nature of sales and use Taxes attributable to or arising from the transactions contemplated by this Agreement. (b) There have been properly completed and duly filed on a timely basis (subject to any valid extensions filed by the Sellers or the Owners, as the case may be) and in form that is, in all material respects, correct, all Tax Returns required to be filed on or prior to the date hereof by the Sellers and the Owners, as the case may be, with respect to Taxes of the Sellers (or relating to the business and operation of the Sellers). As of the time of filing, the foregoing Tax Returns correctly reflected, in all material respects, the facts regarding the income, business, assets, operations, activities, status or other matters of the Sellers or any other information required to be shown thereon. There is no material omission, deficiency, error, misstatement or misrepresentation, whether innocent, intentional or fraudulent, in any Tax Return filed by the Sellers or the Owners for any period. Any Tax Returns filed after the date hereof, but including periods through the Closing Date, will conform with the provisions of this subsection 2.15(b). (c) With respect to all amounts of Taxes imposed upon or reported by the Sellers, with respect to all taxable periods or portions of periods ending on or before or including the Closing Date, all applicable Tax Laws and agreements have been or will be complied with, in all material respects and all such amounts of Taxes required to be paid by the Sellers to taxing Authorities or others on or before the date hereof have been duly paid or will be paid on or before the Closing Date. Except for Permitted Liens, there are no Liens for such Taxes upon any property or assets of the Sellers. The Sellers have withheld and remitted all amounts required to be withheld and remitted by them in respect of Taxes. 18 (d) Except as set forth in the Disclosure Schedule, neither the federal Tax Returns of the Sellers nor any state, local or foreign Tax Return of the Sellers have been examined by the Internal Revenue Service or any similar state, local or foreign Authority, and, except to the extent shown therein, all deficiencies asserted as a result of such examinations have been paid or finally settled and no issue has been raised by the Internal Revenue Service or any similar state, local or foreign Authority in any such examination which, by application of similar principles, reasonably could be expected to result in a proposed deficiency for any other period not so examined. Except as set forth in the Disclosure Schedule, all deficiencies and assessments of Taxes of the Sellers resulting from an examination of any Tax Returns by any Authority have been paid and there are no pending examinations currently being made by any Authority nor has there been any written or oral notification to the Sellers or the Owners of any intention to make an examination of any Taxes by any Authority. Except as set forth in the Disclosure Schedule, there are no outstanding agreements or waivers extending the statutory period of limitations applicable to any Tax Return of the Sellers for any period. (e) For purposes of computing Taxes and the filing of Tax Returns, the Sellers have only hired independent contractors through recognized consulting firms. Such firms have been responsible for payment of all necessary employment related Taxes. 2.16 BENEFIT PLANS (a) PENSION BENEFIT PLANS The Disclosure Schedule lists and the Sellers have delivered to the Purchaser true and complete copies of all plans, programs, agreements, commitments and arrangements maintained by or on behalf of Sellers that provide benefits to, or for the benefit of, any employee or former employee of Sellers (or their spouses, dependents or beneficiaries) that is an "employee pension benefit plan" as such term is defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") (the "PLANS"), including without limitation any such plan that is excluded from coverage by Section 4 of ERISA or is a "MULTIEMPLOYER PLAN" within the meaning of Section 3(37) of ERISA. Each Plan that is not a Multiemployer Plan has been operated in all material respects in accordance with its terms and in compliance in all material respects with the applicable provisions of ERISA, the Code and all other applicable law. All Plans that are not Multiemployer Plans which the Sellers operate as plans that are qualified under Section 401(a) of the Code satisfy in all material respects in form and operation all applicable qualification requirements. Neither the Sellers nor any other "person" within the meaning of Section 7701(a)(1) of the Code, that together with the Sellers are considered a single employer pursuant to Sections 414(b), (c), (m) or (o) of the Code or Sections 3(5) or 4401(b)(1) of ERISA (an "AFFILIATED ORGANIZATION"), sponsors, maintains, contributes to or is required to contribute to, or has sponsored, maintained, contributed to or been required to contribute to, a plan which is subject to the requirements of Section 412 of the Code or Section 302 of ERISA or which is covered by Title IV of ERISA. Neither the Sellers nor any Affiliated 19 Organization is contributing to, is or has been required to contribute to, or could have any liability of any nature, whether known or unknown, direct or indirect, fixed or contingent, arising under or in connection with, any Plan which is a Multiemployer Plan. Neither the Sellers nor any Affiliated Organization has, with respect to any Plan, engaged in any prohibited transaction as defined in Sections 406 and 407 of ERISA or Section 4975 of the Code which is not exempt from both the penalty in Section 502(i) of ERISA and the excise tax in Section 4975 of the Code. (b) WELFARE BENEFIT PLANS Except as set forth in the Disclosure Schedule: Neither the Sellers nor any Affiliated Organization sponsors, maintains, contributes to, is required to contribute to or has or could have any liability of any nature, whether known or unknown, direct or indirect, fixed or contingent, with respect to, any "employee welfare benefit plan" ("WELFARE PLAN") as such term is defined in Section 3(1) of ERISA, whether insured or otherwise, including without limitation any such plan that is excluded from coverage by Section 4 of ERISA or is a Multiemployer Plan within the meaning of Section 3(37) of ERISA. Each Welfare Plan that is not a Multiemployer Plan has been operated in all material respects in accordance with its terms and in compliance in all material respects with the applicable provisions of ERISA, the Code and all other applicable Law. Benefits under each Welfare Plan other than a Multiemployer Plan are fully insured by an insurance company unrelated to the Sellers or any Affiliated Organization. No insurance contract or policy requires or permits any retroactive increase in premiums or payments due thereunder. Each insurance contract may be transferred to or assumed by the Purchaser without the consent of any other person and without any change in any material term of such contract. Neither the Sellers nor any Affiliated Organization has established or contributed to, or is required to contribute to or has or could have any liability of any nature, whether known or unknown, direct or indirect, fixed or contingent, with respect to any "voluntary employees' beneficiary association" within the meaning of Section 501(c)(9) of the Code, "welfare benefit fund" within the meaning of Section 419 of the Code, "qualified asset account" within the meaning of Section 419A of the Code or "multiple employer welfare arrangement" within the meaning of Section 3(40) of ERISA. Neither the Sellers nor any Affiliated Organization is contributing to, is or has been required to contribute to any Welfare Plan which is a Multiemployer Plan. Neither the Sellers nor any Affiliated Organization maintains, contributes to or has or could have any liability of any nature, whether known or unknown, direct or indirect, fixed or contingent, with respect to medical, health, life or other welfare benefits for present or future terminated employees or their spouses or dependents other than as required by Part 6 of Subtitle B of Title I of ERISA, Section 4980B of the Code or any comparable state law. Exhibit 4.11(d) includes a complete list of each current or former employee of the Sellers or any Affiliated Organization and each other individual who is a "qualified beneficiary" with respect to such current or former employee in connection with a "group health plan" maintained by the Sellers or any Affiliated Organization (as such terms are defined in Section 4980B of the Code) currently receiving, or eligible to receive, group health plan continuation coverage in accordance with Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA under the Sellers group health plans. 20 There are no facts or circumstances which could, directly or indirectly, subject the Sellers or any Affiliated Organization to any (1) excise tax or other liability under Chapter 47 of Subtitle D of the Code, (2) penalty tax or other liability under Chapter 68 of Subtitle F of the Code or (3) civil penalty, damages or other liability arising under Section 502 of ERISA with respect to any Welfare Plan. Full payment has been made of all amounts which the Sellers or any Affiliated Organization is required, under applicable Law, the terms of any Welfare Plan, or any agreement relating to any Welfare Plan, to have paid as a contribution, premium or other remittance thereto or benefit thereunder. The Sellers and each Affiliated Organization has made adequate provisions for reserves or accruals in accordance with GAAP to meet contribution, benefit or funding obligations arising under applicable Law or the terms of any Welfare Plan or related agreement and Sellers could not reasonably be expected to incur any liability, whether known or unknown, direct or indirect, fixed or contingent, with respect to any Welfare Plan that is not reflected on the Latest Balance Sheet. There will be no change on or before Closing in the operation of any Welfare Plan or any documents with respect thereto which will result in an increase in the benefit liabilities under such plans, except as may be required by Law. The Sellers and each Affiliated Organization have timely complied in all material respects with all reporting and disclosure obligations with respect to the Welfare Plans imposed by the Code, ERISA or other applicable Law. There are no pending or, to the Sellers' and the Owners' knowledge, threatened audits, investigations, claims, suits, grievances or other proceedings, and there are no facts known to the Sellers that could give rise thereto, involving, directly or indirectly, any Welfare Plan, or any rights or benefits thereunder, other than the ordinary and usual claims for benefits by participants, dependents or beneficiaries. The transactions contemplated herein do not result in the acceleration of accrual, vesting, funding or payment of any contribution or benefit under any Welfare Plan. No action or omission of the Sellers or any officer, director, governor, manager, employee, or agent thereof in any way restricts, impairs or prohibits the Purchaser or the Sellers or any successor from amending, merging, or terminating any Welfare Plan in accordance with the express terms of any such plan and applicable Law. The Disclosure Schedule lists and the Sellers have delivered to the Purchaser true and complete copies of: (i) all Welfare Plans and related trust agreements or other agreements or contracts evidencing any funding vehicle with respect thereto; (ii) the three most recent annual reports on Treasury Form 5500, including all schedules and attachments thereto, with respect to any Welfare Plan for which such a report is required; (iii) the form of summary plan description, including any summary of material modifications thereto or other modifications communicated to participants, currently in effect with respect to each Welfare Plan; and (iv) all professional opinions, material internal memoranda, material correspondence with regulatory authorities and administrative policies, manuals, interpretations and the like with respect to each Welfare Plan. 21 2.17 CONTRACTS AND COMMITMENTS; NO DEFAULT. (a) The Disclosure Schedule contains an accurate and complete list and brief description of: (i) All real property owned by the Sellers included in the Assets or in which the Sellers have a leasehold or other interest and which is included in the Assets or which is used by the Sellers in connection with the operation of their business, together with a description of each lease, sublease, license, or any other instrument under which the Sellers claim or hold such leasehold or other interest or right to the use thereof or pursuant to which the Sellers have assigned, sublet or granted any rights therein, identifying the parties thereto, the rental or other payment terms, expiration date and cancellation and renewal terms thereof. (ii) All machinery, tools, equipment, motor vehicles and other tangible personal property (other than inventory and supplies), owned, leased or used by the Sellers and included in the Assets, except for items having a cost of less than $5,000. The Sellers have provided the Purchaser with either a copy of or a summary description of all leases and Liens relating thereto, identifying the parties thereto, the rental or other payment terms, expiration date and cancellation and renewal terms thereof. (iii) All contracts, agreements and commitments, whether or not fully performed, in respect of the issuance, sale or transfer of capital stock bonds, membership interests or other securities of the Sellers or pursuant to which the Sellers have acquired any substantial portion of their business or assets. (iv) All contracts, agreements, commitments or understandings that restrict the Sellers from carrying on their businesses or any part thereof anywhere in the world or from competing in any line of business with any person or entity. (v) All purchase or sale contracts or agreements that call for aggregate purchases or sales in excess over the course of such contract or agreement of $5,000 or which continues for a period of more than twelve months (including without limitation periods covered by any option to renew or extend by either party) which is not terminable on 60 days' or less notice without cost or other Liability at or any time after the Closing. (vi) Any contract, commitment, agreement or arrangement with any "disqualified individual" (as defined in Section 280G(c) of the Code) which contains any severance or termination pay liabilities which would result in a disallowance of the deduction for any "excess parachute payment" (as defined in Section 280G(b)(1) of the Code) under Section 280G of the Code. (vii) All Assumed Contracts. 22 (viii) The names and current annual salary rates of all employees of and consultants to the Sellers, showing separately for each such person the amounts paid or payable as salary, bonus payments and any indirect compensation for the year ended December 31, 1997. (ix) The names of all of the officers and directors of Executech and managers of World Wide. (x) All collective bargaining agreements, employment and consulting agreements, executive compensation plans, bonus plans, deferred compensation agreements, employee option or purchase plans, other employee arrangements or commitments, whether or not legally binding, including without limitation, holiday, vacation, Christmas and other bonus practices, to which either of the Sellers are a party or is bound or which relates to the operation of the Business. (b) The Assumed Contracts and all other contracts, agreements, leases, licenses and commitments required to be listed on the Disclosure Schedule (other than those which have been fully performed), are valid and binding upon and enforceable in accordance with their respective terms in all material respects, except as enforcement might be limited by bankruptcy and other laws related to creditors' rights and principles of equity, against the Sellers and are in full force and effect. Except as otherwise specified in the Disclosure Schedule, the Assumed Contracts are validly assignable to the Purchaser without the consent of any other party so that, after the assignment thereof to the Purchaser pursuant hereto, the Purchaser will be entitled to the full benefits thereof. Except as disclosed in the Disclosure Schedule, none of the payments required to be made under any Assumed Contract has been prepaid more than 90 days prior to the due date of such payment thereunder. Except as set forth in the Disclosure Schedule, the Sellers are not in material breach, violation or default, however defined, in the performance of any of their obligations under any Assumed Contract or any other contract, agreement, lease, license or commitment required to be listed on the Disclosure Schedule, and no facts and circumstances exist which, whether with the giving of due notice, lapse of time, or both, would constitute such a material breach, violation or default thereunder or thereof. Except as set forth in the Disclosure Schedule, none of the Assumed Contracts is subject to renegotiation with any government body. True and complete copies of all of the Assumed Contracts (together with any and all amendments thereto) have been delivered to the Purchaser and identified with a reference to this Section of this Agreement. 2.18 ORDERS, COMMITMENTS AND RETURNS. Except as set forth in the Disclosure Schedule, all accepted and unfulfilled orders for the sale of products and the performance of services entered into by the Sellers and all outstanding material contracts or material commitments for the purchase of supplies, materials and services were made in bona fide transactions in the ordinary course of business. To the best of the Sellers' and the Owners' knowledge, neither of the Sellers are subject to any outstanding sales or purchase contracts, commitments or proposals which is anticipated to result in an overall loss upon completion or performance thereof. 23 2.19 LABOR MATTERS. The Disclosure Schedule attached hereto includes a true and complete list of all employees of Sellers, together with each person's job title and compensation level. The Disclosure Schedule also identifies all employees of Sellers on leave of absence and employees of Sellers and former employees of Sellers and their dependents receiving health benefits, or eligible to receive health benefits, as required by COBRA. Notice of the availability of healthcare continuation coverage for employees and former employees of Sellers and their respective dependents, in accordance with the requirements of COBRA, will have been provided to all persons entitled thereto, and all persons electing such coverage are being (or have been, if applicable) provided such coverage. Except as set forth in the Disclosure Schedule: (a) the Sellers are and have been in compliance in all material respects with all applicable Laws respecting employment and employment practices, terms and conditions of employment and wages and hours, including without limitation any such Laws respecting employment discrimination and occupational safety and health requirements, and have not and are not engaged in any unfair labor practice; (b) there is no unfair labor practice complaint against either of the Sellers pending or threatened before the National Labor Relations Board or any other comparable Authority; (c) there is no labor strike, dispute, slowdown or stoppage actually pending or threatened against or directly affecting the Sellers; (d) no labor representation question exists respecting the employees of either of the Sellers and there is not pending or threatened any activity intended or likely to result in a labor representation vote respecting the employees of either of the Sellers; (e) no grievance or any arbitration proceeding arising out of or under collective bargaining agreements is pending and no claims therefor exist or have been threatened; (f) no collective bargaining agreement is binding and in force against the Sellers or currently being negotiated by the Sellers; (g) the Sellers have not experienced any significant work stoppage or other significant labor difficulty; (h) the Sellers are not delinquent in payments to any persons for any wages, salaries, commissions, bonuses or other direct or indirect compensation for any services performed by them or amounts required to be reimbursed to such persons, including without limitation any amounts due under any Pension Plan, Welfare Plan or Compensation Plan; and (i) upon termination of the employment of any person, neither the Sellers, the Purchaser, Merrill or any subsidiary of Merrill will, by reason of anything done at or prior 24 to or as of the Closing Date, be liable to any of such persons for so-called "severance pay" or any other payments. 2.20 COMPLIANCE WITH LAW; PERMITS AND OTHER OPERATING RIGHTS. Except as set forth in the Disclosure Schedule, and without limiting the scope of any other representations or warranties contained in this Agreement, but without intending to duplicate the scope of such other representations and warranties, the assets, properties, business and operations of the Sellers, are and have been in compliance in all material respects with all Laws applicable to the Sellers' assets, properties, business and operations. Except as set forth in the Disclosure Schedule, the Sellers do not require the Consent of any Authority to permit them to operate in the manner in which they are presently being operated. The Sellers possess all permits, licenses and other authorizations from all Authorities necessary to permit them to operate the Business in the manner in which it presently is conducted and the consummation of the transactions contemplated by this Agreement will not prevent the Sellers from being able to continue to use such permits and operating rights. 2.21 ENVIRONMENTAL AND SAFETY MATTERS. Except as set forth on the Disclosure Schedule: (a) Neither the Sellers, any subsidiary or former subsidiary of the Sellers, nor, to the best of the Sellers' knowledge, any previous owner, tenant, occupant or user of any property owned or leased by or to the Sellers, or by or to any subsidiary or former subsidiary (the "PROPERTIES") engaged in or permitted, direct or indirect operations or activities upon, or any use or occupancy of the Properties, or any portion thereof, for the purpose of or in any way involving the handling, manufacture, treatment, storage, use, generation, emission, release, discharge, refining, dumping or disposal of any Environmentally Regulated Materials (whether legal or illegal, accidental or intentional, direct or indirect) on, under, in or about the Properties, or transported any Environmentally Regulated Materials to, from or across the Properties, nor are any Environmentally Regulated Materials presently constructed, deposited, stored, placed or otherwise located on, under, in or about the Properties, nor have any Environmentally Regulated Materials migrated from the Properties upon or beneath other properties, nor have any Environmentally Regulated Materials migrated or threatened to migrate from other properties upon, about or beneath the Properties. The Properties do not contain any: (i) underground or aboveground storage tanks; (ii) asbestos; (iii) equipment using PCBs; (iv) underground injection wells; or (v) septic tanks in which process waste water or any Environmentally Regulated Materials have been disposed. (b) (i) No violation or noncompliance with Environmental and Occupational Safety and Health Laws has occurred with respect to the Properties or operations conducted thereon during the period in which the Sellers operated such Properties and conducted such operations and prior to such time as the Sellers operated such Properties and conducted such operations; the Sellers have obtained all permits, licenses and authorizations required by, and the Sellers and the Properties are in 25 compliance with, all Environmental and Occupational Safety and Health Laws including, without limitation, all applicable restrictions, conditions, standards, limitations, prohibitions, requirements, obligations, schedules and timetables contained in the Environmental and Occupational Safety and Health Laws or contained in any regulation, code, plan, order, decree, judgment, injection, notice or demand letter issued, entered, promulgated or approved thereunder; (ii) no enforcement, investigation, cleanup, removal, remediation or response or other governmental or regulatory actions have been, or could have been at any time in the past, asserted or threatened (A) with respect to operations conducted by the Sellers on the Properties or, (B) with respect to the Properties themselves or (C) against the Sellers or any subsidiary or former subsidiary with respect to or in any way regarding the Properties pursuant to any Environmental and Occupational Safety and Health Laws; and (iii) no claims or settlements relating to or arising out of Environmental and Occupational Safety and Health Laws or Environmentally Regulated Materials, have been made or, to the knowledge of the Sellers, been threatened by any third party, including any Authority, nor, to the knowledge of the Sellers, does there exist any basis for any such claim (any such enforcement, investigation, cleanup, removal, remediation or response, other governmental or regulatory action, claim or settlement is herein referred to as an "Environmental Claim") against the Sellers or any subsidiary or former subsidiaries with respect to the Properties or operations conducted thereon, or with respect to the Properties or the operations thereon. (c) With regard to the Sellers, there are no past or present events, conditions, circumstances, activities, practices, incidents, actions or plans which may interfere with or prevent compliance or continued compliance with Environmental and Occupational Health and Safety Laws, as in effect on the Closing Date. 2.22 INSURANCE. The Disclosure Schedule contains a listing of all policies of fire and other casualty, general liability, theft, life, workers' compensation, health, directors and officers, business interruption and other forms of insurance owned or held by the Sellers, specifying the insurer, the policy number, the risk insured against, the term of the coverage, the limits of coverage, the deductible amount (if any), the premium rate, the date through which coverage will continue by virtue of premiums already paid and, in the case of any "claims made" coverage, the same information as to predecessor policies for the previous five years. All present policies are in full force and effect and all premiums with respect thereto have been paid. The Sellers have not been denied any form of insurance and no policy of insurance has been revoked or rescinded during the past five years, except as described on the Disclosure Schedule. 26 2.23 BANK ACCOUNTS. The Disclosure Schedule contains a list of the names of all financial institutions, investment banking and brokerage houses, and other similar institutions at which the Sellers maintain accounts, deposits, safe deposit boxes of any nature, and the names of all persons authorized to draw thereon or make withdrawals therefrom; and the names of all persons, if any, holding tax or other powers of attorney from the Sellers and a summary of the terms thereof. 2.24 BROKERS. Except as set forth in the Disclosure Schedule and except for amounts owing to Southport Partners, which such amounts will be paid at Closing, neither the Sellers, the Owners nor any of the Sellers' respective directors, officers, shareholders, managers, members or employees have employed any broker, finder, or financial advisor or incurred any liability for any brokerage fee or commission, finder's fee or financial advisory fee, in connection with the transactions contemplated hereby, nor is there any basis known to the Sellers or the Owners for any such fee or commission to be claimed by any person or entity. 2.25 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Sellers, nor any director, officer, manager, employee or agent of the Sellers, nor any other person acting on their behalf, have, directly or indirectly, within the past five years given or agreed to give any gift or similar benefit to any customer, supplier, governmental employee or other person who is or may be in a position to help or hinder the Sellers (or assist the Sellers in connection with any actual or proposed transaction) which: (i) might subject the Sellers, the Purchaser, Merrill or the Purchaser's or Merrill's affiliates to any damage or penalty in any civil, criminal or governmental litigation proceeding; (ii) if not given in the past, might have had a Material Adverse Effect on the Business; or (iii) if not continued in the future, might materially adversely effect the Business or which might subject the Sellers, the Purchaser, Merrill or the Purchaser's or Merrill's affiliates to suit or penalty in any private or governmental litigation or proceeding. 2.26 BUSINESS GENERALLY. Except as set forth in the Disclosure Schedule, there has been no event, transaction or information which has come to the attention of the Sellers which would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Sellers. Without limiting the generality of the foregoing, except as set forth in the Disclosure Schedule, there has not been in the 12-month period prior to the date hereof any material adverse change in the business relationship of the Sellers with any customer, dealer or supplier to the Sellers, except for such changes in the ordinary course of business consistent with past practices. 2.27 TRANSACTIONS WITH CERTAIN PERSONS. Except as set forth in the Disclosure Schedule and excluding transactions between Executech and World Wide, during the past three years, the Sellers have not, directly or indirectly, purchased, leased or otherwise acquired any property or obtained any services from, or 27 sold, leased or otherwise disposed of any property or furnished any services to, or otherwise dealt with, in the ordinary course of business or otherwise, any affiliate or associate of the Sellers or any member, shareholder, or partner of any affiliate or associate of the Sellers (except with respect to compensation in the ordinary course of business for services rendered as a director, officer, manager or employee of the Sellers). The Sellers do not owe any amount to, or have any agreement or contract with or commitment to, any of its shareholders, directors, officers, members, governors, managers, employees or consultants or any affiliate or associate thereof (other than compensation for current services not yet due and payable and reimbursement of expenses arising in the ordinary course of business), and none of such persons owes any amount to either of the Sellers. 2.28 CUSTOMERS. Except as set forth on the Disclosure Schedule, there has not been in the 12-month period prior to the date hereof, any dispute with any customer of the Sellers, nor any other set of circumstances, which is reasonably anticipated to have a Material Adverse Effect on the relationship between either of the Sellers and any of such customers. Except as set forth on the Disclosure Schedule, the Sellers are not aware of any circumstances that could materially affect the ability of any customer of either of the Sellers, to continue doing business with either of the Sellers in the manner in which such business has been conducted in the past. 2.29 ACCURACY OF INFORMATION. No representation or warranty made by the Sellers or the Owners in this Agreement, the Disclosure Schedule, or in any written agreement, instrument, document, certificate, statement or letter furnished or to be furnished to the Purchaser at the Closing by or on behalf of the Sellers or the Owners in connection with any of the transactions contemplated by this Agreement contains or will contain any untrue statement of material fact or omit or will omit to state any material fact necessary in order to make the statements herein or therein not misleading in light of the circumstances in which they are made, and all of the foregoing completely and correctly present the information required or purported to be set forth herein or therein. There is no material fact as of the date hereof which has not been disclosed in writing to the Purchaser to which the Sellers have knowledge related to either of the Sellers, its operations, properties, financial condition or prospects which has a Material Adverse Effect or, to the knowledge of the Sellers and the Owners, in the future may have a Material Adverse Effect on either of the Sellers. The representations and warranties contained in this Article 2 or elsewhere in this Agreement or any document delivered pursuant hereto will not be affected or deemed waived by reason of the fact that the Purchaser or its representatives should have known that any such representation or warranty is or might be inaccurate in any respect. 3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. The Purchaser represents and warrants to the Sellers as of the date hereof as follows: 28 3.1 CORPORATE ORGANIZATION. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota and has the full corporate power and authority to carry on its business as it is now being conducted and to own, lease and operate its properties and assets. 3.2 AUTHORIZATION. The Purchaser has all the requisite corporate power and authority to enter into this Agreement and to carry out the transactions contemplated herein. The Board of Directors of the Purchaser has taken all action required by law, its articles of incorporation and bylaws or otherwise to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein and no action of the stockholders of the Purchaser is required. This Agreement is a valid and binding legal obligation of the Purchaser enforceable against it in accordance with its terms subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws of applicability relating to or affecting creditors' rights and general principals of equity. 3.3 NON-CONTRAVENTION. Neither the execution, delivery and performance of this Agreement nor the consummation of the transactions contemplated herein will: (i) violate any provision of the articles of incorporation or bylaws of the Purchaser; or (ii) except for such violations, conflicts, defaults, accelerations, terminations, cancellations, impositions of fees or penalties, mortgages, pledges, liens, security interests, encumbrances, restrictions and charges which would not, individually or in the aggregate, have a Material Adverse Effect on the Purchaser, violate, be in conflict with, or constitute a default, however defined (or an event which, with the giving of due notice or lapse of time, or both, would constitute such a default), under, or cause or permit the acceleration of the maturity of, or give rise to, any right of termination, cancellation, imposition of fees or penalties under, any debt, note, bond, lease, mortgage, indenture, license, obligation, contract, commitment, franchise, permit, instrument or other agreement or obligation to which the Purchaser is a party or by which the Purchaser or any of its properties or assets is or may be bound (unless with respect to which defaults or other rights, requisite waivers or consents shall have been obtained at or prior to the Closing) or (iii) result in the creation or imposition of any Lien, upon any property or assets of the Purchaser under any debt, obligation, contract, agreement or commitment to which the Purchaser is a party or by which the Purchaser or any of its assets or properties is or may be bound; or (iv) violate any Law of any Authority. 3.4 CONSENTS AND APPROVALS. No Consent is required by any person or entity, including without limitation any Authority, in connection with the execution, delivery and performance by the Purchaser of this Agreement, or the consummation of the transactions contemplated herein, other than any Consent which, if not made or obtained, will not, individually or in the aggregate, have a Material Adverse Effect on the business of the Purchaser or the transactions contemplated herein. 29 3.5 BROKERS. Except as set forth in the Disclosure Schedule, neither the Purchaser, nor any of its officers, directors or employees have employed any broker, finder, or financial advisor or incurred any liability for any brokerage fee or commission, finder's fee or financial advisory fee, in connection with the transactions contemplated hereby, nor is there any basis known to the Purchaser for any such fee or commission to be claimed by any person or entity. 3.6 FINANCIAL STATEMENTS. Except as disclosed therein, the audited financial statements of Merrill as of and for the year ended January 31, 1998, included in its 1998 Annual Report to Shareholders (i) are in accordance with the books and records of Merrill and have been prepared in conformity with GAAP, and (ii) fairly present the consolidated financial position of Merrill as of the date thereof, and the results of operations (or income or loss), changes in shareholders' equity and changes in cash flow for the period then ended, all in accordance with GAAP. 3.7 TAXES. Merrill has properly completed and duly filed on a timely basis (subject to any valid extensions filed by Merrill) and in a form that is correct, in all materials respects, all Tax Returns required to be filed on or prior to the date hereof by Merrill. As of the time of filing, the foregoing Tax Returns correctly reflected, in all material respects, the facts regarding the income, business, assets, operations, activities, status or other matters of Merrill. 4. COVENANTS OF THE PARTIES 4.1 INTENTIONALLY OMITTED. 4.2 INTENTIONALLY OMITTED. 4.3 INTENTIONALLY OMITTED. 4.4 CONFIDENTIALITY. Each of the parties hereto agrees that it will not use, or permit the use of, any of the information relating to any other party hereto furnished to it in connection with the transactions contemplated herein ("INFORMATION") in a manner or for a purpose detrimental to such other party or otherwise than in connection with the transaction, and that they will not disclose, divulge, provide or make accessible (collectively, "DISCLOSE"), or permit the Disclosure of, any of the Information to any person or entity, other than their respective directors, officers, governors, managers, employees, investment advisors, accountants, counsel and other authorized representatives and agents, except as may be required by judicial or administrative process or, in the opinion of such party's counsel, by other requirements of Law; PROVIDED, HOWEVER, that prior to any Disclosure of any Information permitted hereunder, the disclosing party shall first obtain the recipients' undertaking to comply with the provisions of this subsection with respect to such Information. The term "Information" as used herein shall not include any information relating to 30 a party which the party disclosing such information can show: (i) to have been in its possession prior to its receipt from another party hereto; (ii) to be now or to later become generally available to the public through no fault of the disclosing party; (iii) to have been available to the public at the time of its receipt by the disclosing party; (iv) to have been received separately by the disclosing party in an unrestricted manner from a person entitled to disclose such information; or (v) to have been developed independently by the disclosing party without regard to any information received in connection with this transaction. Each party hereto also agrees to promptly return to the party from whom it originally received such Information all original and duplicate copies of materials in any media containing Information should the transactions contemplated herein not occur. A party hereto shall be deemed to have satisfied its obligations to hold the Information confidential if it exercises the highest care as it takes with respect to its own similar information. 4.5 INTENTIONALLY OMITTED. 4.6 FURTHER ASSURANCES; COOPERATION; NOTIFICATION. Each party hereto will, before, at and after Closing, execute and deliver such instruments and take such other actions as the other party or parties, as the case may be, may reasonably require in order to carry out the intent of this Agreement. Without limiting the generality of the foregoing, at any time after the Closing, at the request of the Purchaser and without further consideration, the Sellers will execute and deliver such instruments of sale, transfer, conveyance, assignment and confirmation and take such action as the Purchaser may reasonably deem necessary or desirable in order to more effectively consummate the transactions contemplated hereby and to vest in the Purchaser good and marketable title to, all of the Assets, to put the Purchaser in actual possession and operating control thereof and to assist the Purchaser in exercising all rights with respect thereto, without further cost or expense to the Purchaser. 4.7 INTENTIONALLY OMITTED. 4.8 INTENTIONALLY OMITTED. 4.9 TAX MATTERS. (a) Intentionally Omitted. (b) In addition to and without limiting those representations and warranties set forth in Section 2.15 of this Agreement, in the event that any sales or use Tax, or any Tax in the nature of a sales or use tax, or any transactional Tax is payable or assessed relative to the transactions contemplated herein, the Purchaser will pay all such Taxes and will not collect any part thereof from the Sellers. The parties hereto will cooperate to make any necessary filings with state and local or foreign taxing Authorities and to furnish any required supplemental information with respect to any state and local or foreign Tax liabilities resulting from the consummation of the transactions contemplated herein. (c) In addition to and without limiting those representations and warranties set forth in Section 2.15 of this Agreement and except as otherwise set forth in Section 4.9(b) 31 herein, the Sellers will pay all Taxes arising from or relating to the transactions contemplated by this Agreement, including without limitation Tax on any income or gains arising from the sale of the Assets. The Sellers will file all federal, foreign and state income Tax Returns for the Sellers reflecting all activities of the Sellers through and including the Closing Date. Except as otherwise agreed to by the parties and regardless of any prior practice, no distribution of cash or property will be made by the Sellers on or before the Closing Date without the express written consent of the Purchaser. (d) The Sellers, the Owners and the Purchaser will: (i) each provide the other with such assistance as may reasonably be requested by any of them in connection with the preparation of any Tax Return, audit or other examination by any taxing Authority or judicial or administrative proceedings relating to liability for Taxes, (ii) each retain and provide the other with any records or other information which may be relevant to such Tax Return, audit or examination, proceeding or determination, and (iii) each provide the other with any final determination of such audit or examination, proceeding or determination that affects any amount required to be shown on any Tax Return of the other for any period. (e) Without limiting the generality of the foregoing, the Sellers, the Owners and the Purchaser will retain, until the applicable statutes of limitations (including all extensions) have expired, copies of all Tax Returns, supporting work schedules and other records or information which may be relevant to such Tax Returns for all Tax periods or portions thereof ending on or before the Closing Date and will not destroy or otherwise dispose of any such records without first providing the other party with a reasonable opportunity to review and copy the same. 4.10 BULK TRANSFERS. The Sellers, the Owners and the Purchaser hereby waive the requirements of the Uniform Commercial Code concerning bulk transfers, as in effect in the various states in which the Sellers have assets, including without limitation the requirement of notice to creditors. 4.11 EMPLOYEE BENEFITS. (a) The Purchaser will not have any liability or obligation to employ or offer employment to any employee of the Sellers in connection with the transactions contemplated hereby other than those listed on Exhibit 4.11 hereto. The Sellers hereby authorize the Purchaser to enter into discussions with any of such employees listed on Exhibit 4.11 concerning the future employment of such individual by the Purchaser; provided, however, that (i) such discussions will not be commenced prior to the giving of notice by the Sellers to the employees of the Sellers of the transactions contemplated by this Agreement; and (ii) all such discussions will be conducted in such a manner as not to 32 interfere unreasonably with the business operations of the Sellers. The terms and conditions of such employment will be established by the Purchaser in its sole discretion. (b) Except as expressly provided in this subsection (b), the Sellers will be responsible for making any required payment of severance compensation including any notice pay and severance pay in order to comply with the requirements of the Worker Adjustment and Retraining Act ("WARN") to any employee of the Sellers who is not offered employment by the Purchaser or who refuses to accept any such offer of employment by the Purchaser. (c) The Sellers and the Owners will not, commencing with the Closing Date and ending on January 31, 2002, take any action, other than with the written consent of the Purchaser, to induce any employee who accepts an offer pursuant to subsection(a) above, while still employed by the Purchaser or any affiliate of the Purchaser, to enter into the employ of the Sellers, the Owners or any affiliate of the Sellers or the Owners. (d) The Purchaser will not be obligated under, and hereby specifically disclaims any assumption or liability with respect to, any collective bargaining agreement to which the Sellers are a party or under which the Sellers' employees or former employees are covered or any Pension Plan, Compensation Plan or except as provided in this subsection (d), any Welfare Plan. Without limiting the generality of the foregoing, the Purchaser is not assuming any obligation to contribute to, or any obligation or liability for any withdrawal liability arising in connection with, any Multiemployer Plan attributable to participation therein by current or former employees of the Sellers as a result of this Agreement or the transactions contemplated hereby. The Purchaser will be obligated under, and hereby specifically agrees to assume, all group health plans maintained by the Sellers as of the Closing Date that are listed on the Disclosure Schedule (the "Assumed Group Health Plans"). Exhibit 4.11(d) includes a complete list of each "qualified beneficiary" currently receiving or eligible to receive group health plan continuation coverage in accordance with Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA under the Assumed Group Health Plans in connection with any "qualifying event" that has occurred on or before the Closing Date. With respect to the "qualified beneficiaries" listed on Exhibit 4.11 who have received proper notification of their continuation coverage rights pursuant to Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA, in connection with any "qualifying event" that has occurred on or before the Closing Date or with respect to whom the deadline for providing such notice in connection with such qualifying event has not yet passed, as between the 33 Purchaser, on the one hand, and the Sellers, on the other hand, the Purchaser is responsible for providing group health plan continuation coverage in accordance with Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA to such "qualified beneficiaries." With respect to any other individual who is not listed on Exhibit 4.11 or who has not received proper notification of their continuation coverage rights pursuant to Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA, but who is a "qualified beneficiary" currently receiving or eligible to receive group health plan continuation coverage under any of the Assumed Group Health Plans or any other "group health plan" maintained by the Sellers or any Affiliated Organization, as between the Purchaser, on the one hand, and the Sellers, on the other hand, the Sellers are responsible for providing group health plan continuation coverage in accordance with Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA (without regard to whether the Purchaser is ultimately determined to be responsible to provide such coverage to any such individual) and the Sellers will indemnify, defend and hold harmless the Purchaser and its affiliates from and against any liability, expense, cost, tax or obligation of any nature with respect to such individual arising in connection with group health plan coverage required under Section 4980B of the Code or Part 6 of Subtitle B of Title I of ERISA. 4.12 AUTHORIZATION. (a) On or prior to the Closing, the Sellers will deliver to the Purchaser a copy of the resolutions of the Board of Directors and Shareholders of Executech and Members of World Wide, approving the execution and delivery of this Agreement and the consummation of all of the transactions contemplated hereby, duly certified by an officer of Executech and a manager of World Wide. (b) On or prior to the Closing, the Purchaser will deliver to the Sellers a copy of the resolutions of the Board of Directors approving the execution and delivery of this Agreement and the consummation of all of the transactions contemplated hereby, duly certified by an officer of the Purchaser. 4.13 ADDITIONAL POST-CLOSING OBLIGATIONS OF THE SELLERS. Effective as of the Closing, the Sellers appoint the Purchaser their successor and assigns, the true and lawful attorney or attorneys of the Sellers, with full power of substitution, in the name of the Sellers but on behalf and for the benefit of and at the expense of the Purchaser: (a) to collect in the name of the Sellers for the account of the Purchaser all receivables and other items included in the Assets, if any, to be sold and transferred to the Purchaser as provided herein; (b) to institute and prosecute, in the name of the Sellers or otherwise, all proceedings which the Purchaser may reasonably deem necessary or desirable in order to collect, assert or enforce any claim, right or title of any kind arising with respect to the Assets, unless the Sellers are controlling the claim as provided herein; (c) to defend and compromise any and all actions, suits or proceedings in respect of the Assets to the extent liability therefor has been assumed by the Purchaser hereunder, unless the Sellers are controlling the claim as provided herein; and (d) to do all such acts and things in relation to the foregoing as is reasonably necessary to exercise such powers, as the Purchaser may reasonably deem advisable. The foregoing power is coupled with an interest and will be irrevocable by the Sellers or by their dissolution in any manner or for any reason. Except to the extent indemnified by the Sellers or the Owners hereunder, the Purchaser will retain for its own account any amounts collected 34 pursuant to the foregoing power, including any sums payable as interest in respect thereof, and the Sellers will pay to the Purchaser, when received, any amounts which will be received by the Sellers in respect of any receivables or other assets or properties related to the Assets. The Purchaser will pay to the Sellers, when received, any amounts which will be received by the Purchaser in respect of any receivables or other assets or properties of the Sellers (other than those related to the Assets), including any Guaranteed Receivables returned to the Sellers Pursuant to Section 1.6. 4.14 GUARANTEE BY MERRILL. Merrill hereby absolutely, unconditionally and irrevocably guarantees to the Sellers and the Owners the prompt and full payment and other performance of all of the obligations of the Purchaser under this Agreement and the Liabilities Undertaking (the "Transaction Documents") when each of such obligations is due or to be performed. 4.15 CAPITAL REQUIREMENTS. The Purchaser will provide any capital requirements of the "business" arising after the Closing Date on a basis consistent with Merrill's policies and procedures applicable to its document management service business unit in effect at the time of such capital requirement. 4.16 TERMINATION OF PENSION PLANS. Sellers will adopt resolutions and take all other necessary actions to terminate all Plans, effective as of a date prior to the Closing Date. After the Closing Date, and at the Sellers and the Owners expense, the Sellers will submit requests to the Internal Revenue Service for determination letters stating that the termination of the Plans does not adversely affect their qualification for federal tax purposes. 5. INTENTIONALLY OMITTED. 6. INTENTIONALLY OMITTED. 7. INTENTIONALLY OMITTED. 8. SURVIVAL AND INDEMNIFICATION. 8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS; INVESTIGATION. All representations and warranties of the parties contained in this Agreement will survive the Closing Date for a period of three (3) years (other than the representations and warranties set forth in Section 2.10(a) and 2.13(b), which survive indefinitely, the representations and warranties set forth in Sections 2.15, 2.16 and 2.21 which survive for the applicable statute of limitations and the representations and warranties set forth in Sections 3.6 and 3.7 which do not survive the Closing Date). The covenants and agreements contained herein and in the exhibits hereto will survive the Closing without limitation as to time unless the covenant or agreement specifies the term, in which case such covenant or agreement will survive until the expiration of 35 such specified term and will thereupon expire. The right to indemnification or any other remedy based on representations, warranties, covenants and obligations in this Agreement will not be affected by any investigation conducted with respect to, or any knowledge capable of being acquired at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant or obligation. The waiver of the performance of or compliance with any covenant or obligation, will not affect the right to indemnification or any other remedy based on such covenants and obligations. 8.2 INDEMNIFICATION BY THE PURCHASER. The Purchaser and Merrill, jointly and severally agree to indemnify, defend and hold the Sellers and the Owners and their respective officers, directors and employees ("SELLER INDEMNIFIED PARTIES") harmless from and against any and all losses, liabilities, obligations, demands, judgments, settlements, damages (but excluding consequential damages, lost profits or punitive damages suffered directly by Seller Indemnified Parties as opposed to consequential damages, lost profits or punitive damages paid by any Seller Indemnified Parties to a third party), Taxes, or expense (including but not limited to interest, penalties, fees and reasonable professional fees and expenses) and against all claims in respect thereof (including, without limitation, amounts paid in settlement and costs of investigation) or diminution in value, whether or not involving a third-party claim (herein referred to collectively as "SELLERS' LOSS" or "SELLERS' LOSSES") to which the Seller Indemnified Parties may suffer or incur, directly or indirectly, as a result from or in connection with: (a) any untrue representation, or breach of warranty by, the Purchaser contained in Sections 3.1 through 3.5 of this Agreement; and (b) the breach of or nonfulfillment of any covenant, agreement or undertaking of the Purchaser in this Agreement; (c) the operation of the Business and ownership of the Assets after the Closing Date unless such Sellers' Losses or Sellers' Loss is subject to indemnification by the Sellers and the Owners pursuant to Section 8.3 hereof; (d) any Assumed Liabilities; and (e) any Taxes arising out of the Purchaser's ownership of the Assets or operation of the Business after the Closing Date. 8.3 INDEMNIFICATION BY THE SELLERS AND THE OWNERS. The Sellers and the Owners, jointly and severally, agree to indemnify the Purchaser and Merrill, their respective subsidiaries and affiliates and each of their respective shareholders, officers, directors and employees (the "PURCHASER INDEMNIFIED PARTIES") against all losses, liabilities, obligations, demands, judgments, settlements, damages (but excluding any claims for consequential damages, lost profits or punitive damages suffered directly by the Purchaser Indemnified Parties as opposed to consequential damages, lost profits or punitive damages 36 actually paid by the Purchaser Indemnified Parties to a third party), Taxes, or expenses (including, but not limited to, interest, penalties, fees, and reasonable professional fees and expenses) and against all claims in respect thereof (including, without limitation, amounts paid in settlement and costs of investigation) or diminution in value, whether or not involving a third-party claim (herein referred to collectively as "PURCHASER'S LOSSES" or individually as a "PURCHASER'S LOSS") to which the Purchaser Indemnified Parties, may become subject to or which they may suffer or incur, directly or indirectly, as a result from or in connection with: (a) any untrue representation of or breach of express warranty, by the Sellers or the Owners in any part of this Agreement; (b) the breach of or nonfulfillment of any covenant, agreement or undertaking of the Sellers or the Owners in this Agreement; (c) any debt, liability or obligation, direct or indirect, known or unknown, fixed contingent or otherwise not included in the Assumed Liabilities, that relates to the Sellers or the Owners and is based upon or arises from any act or omission, transaction, circumstance, state of facts or other condition occurring or existing on or before the Closing Date, whether or not then known, due or payable; (d) any obligation for Taxes of the Sellers or the Owners for any period (or portion thereof) prior to the Closing Date; (e) any Retained Liabilities; (f) the failure of the Sellers or the Owners to comply with the requirements of the Uniform Commercial Code concerning bulk transfers, as in effect in the various states in which the Sellers have assets, including, without limitation, the requirement of notice to creditors, unless such Purchaser's Loss or Purchaser's Losses is subject to indemnification by the Purchaser and Merrill pursuant to Section 8.2(d); (g) the failure of the Sellers or the Owners to obtain any clearance certificate or similar document required by any taxing Authority in order to relieve the Purchaser of any obligation to withhold any portion of the Purchase Price or in order to avoid any successor liability for Taxes; and (h) except as otherwise provided in Section 4.11, any liability, expense, cost, tax or obligation of any nature with respect to such current or former employee or other individual arising in connection with group health plan coverage required under Section 4980B of the Code or Part 6 of Subtitle B of Title I of ERISA. 8.4 BASKET AMOUNT. Notwithstanding anything in Section 8.3 to the contrary, none of the Purchaser Indemnified Parties will be entitled to any indemnification under Section 8.3 if the aggregate amount of all claims thereunder is less than $25,000; provided, however, if the aggregate amount of all claims equals or exceeds such amount, then the Purchaser Indemnified Parties will be 37 entitled to full indemnification of all claims under Section 8.3 in excess of $25,000. The parties hereto do not intend that such exception amount be deemed to be a definition of what is "material" for any purpose in this Agreement. 8.5 RIGHT OF SET-OFF. Following good faith discussions among the Sellers, the Owners and the Purchaser, upon notice to the Sellers and the Owners, specifying in reasonable detail the basis therefor, the Purchaser may set off the amount of any Purchaser's Losses to which it may be entitled under this Article 8, that is fixed or determinable, against amounts otherwise payable under Section 1.4. In the event of Purchaser's Losses arising from third party claims that are not yet fixed or determinable, the Purchaser may set off amounts to which it may be entitled upon the earlier of the entry of a judgment, whether in a court of law or arbitration proceeding, or upon settlement of such matter. In addition, the Sellers and the Owners acknowledge that the Purchaser may set-off an amount equal to its fees and expenses (including reasonable attorneys fees) as incurred in resolving the contest of any claims made under this Article 8, against amounts otherwise payable under Section 1.4. The exercise of such right of set-off by the Purchaser will not constitute an event of default or a breach under this Agreement if made in accordance with this Section 8.5. In the event that the Sellers and the Owners do not agree with the appropriateness of such set-off, the parties will resolve the dispute pursuant to Section 9.8 below. In the event that the Purchaser improperly sets off amounts under this Section 8.5, as determined by the arbitration panel appointed pursuant to Section 9.8 below, the Sellers will be entitled to interest on the amounts improperly set off at an interest rate equal to the Late Payment Rate from the date of such set-off to the date of payment in full of the amount due together with such interest. Neither the exercise of, nor the failure to exercise, such right of set-off will constitute an election of remedies nor limit the Purchaser in any manner in the enforcement of any other remedies that may be available to it. 8.6 CLAIMS FOR INDEMNIFICATION. (a) GENERAL. The parties intend that all indemnification claims be made as promptly as practicable by the party seeking indemnification (the "INDEMNIFIED PARTY"). Whenever any claim will arise for indemnification hereunder the Indemnified Party will promptly notify the party from whom indemnification is sought (the "INDEMNIFYING PARTY") of the claim and, when known, the facts constituting the basis for such claim. The failure so to notify the Indemnifying Party will not relieve the Indemnifying Party of any liability that it may have to the Indemnified Party except to the extent the Indemnifying Party demonstrates that the defense of such action is materially prejudiced thereby. (b) CLAIMS BY THIRD PARTIES. With respect to claims made by third parties, the Indemnifying Party will be entitled to assume control of the defense of such action or claim with counsel reasonably satisfactory to the Indemnified Party; provided, however, that: 38 (i) the Indemnified Party will be entitled to participate in the defense of such claim and to employ counsel at its own expense to assist in the handling of such claim; (ii) no Indemnifying Party will consent to (A) the entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by each claimant or plaintiff to each Indemnified Party of a release from all liability in respect of such claim or (B) if, pursuant to or as a result of such consent or settlement, injunctive or other equitable relief would be imposed against the Indemnified Party or such judgment or settlement could materially interfere with the business, operations or assets of the Indemnified Party; and, (iii) if the Indemnifying Party does not assume control of the defense of such claim in accordance with the foregoing provisions within five (5) business days after receipt of notice of the claim, the Indemnified Party will have the right to defend such claim in such manner as it may deem appropriate at the cost and expense of the Indemnifying Party, and the Indemnifying Party will promptly reimburse the Indemnified Party therefore in accordance with this Article 8; provided that the Indemnified Party will not be entitled to consent to the entry of any judgment or enter into any settlement of such claim that does not include as an unconditional term thereof the giving by each claimant or plaintiff to each Indemnifying Party of a release from all liability in respect of such claim without the prior written consent of the Indemnifying Party if, pursuant to or as a result of such consent or settlement, injunctive or other equitable relief would be imposed against the Indemnifying Party or such judgment or settlement could materially interfere with the business, operations or assets of the Indemnifying Party. (c) REMEDIES CUMULATIVE. The remedies provided herein will be cumulative and will not preclude assertion by any party of any rights or the seeking of any other remedies against any other party. 8.7 LIMIT ON DAMAGES. The aggregate amount payable by the Sellers and the Owners to the Purchaser Indemnified Parties hereunder will not exceed the Purchase Price (other than with respect to claims made pursuant to Section 8.3(e) related to the Retained Liabilities described in Section 1.2 hereto, as to which there shall be no limit). EXCEPT AS SPECIFICALLY PROVIDED HEREIN, THE SELLERS AND THE OWNERS MAKE NO WARRANTY OF MERCHANTIBILITY OR FITNESS FOR A PARTICULAR PURPOSE. 39 9. MISCELLANEOUS PROVISIONS. 9.1 EXPENSES. The Purchaser, Merrill, the Sellers and the Owners will each bear their own costs and expenses relating to the transactions contemplated hereby, including without limitation, fees and expenses of legal counsel, accountants, investment bankers, brokers or finders, printers, copiers, consultants or other representatives for the services used, hired or connected with the transactions contemplated hereby. 9.2 AMENDMENT AND MODIFICATION. This Agreement may not be amended or modified by the parties hereto except by means of a writing duly executed by each of the parties hereto. 9.3 WAIVER OF COMPLIANCE; CONSENTS. Any failure of a party to comply with any obligation, covenant, agreement or condition herein may be expressly waived in writing by the party entitled hereby to such compliance, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition will not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. No single or partial exercise of a right or remedy will preclude any other or further exercise thereof or of any other right or remedy hereunder. Whenever this Agreement requires or permits the consent by or on behalf of a party, such consent will be given in writing in the same manner as for waivers of compliance. 9.4 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement will entitle any person or entity (other than a party hereto and his, her or its respective successors and assigns permitted hereby) to any claim, cause of action, remedy or right of any kind. 9.5 NOTICES. All notices, requests, demands and other communications required or permitted hereunder will be made in writing by personal delivery, certified or registered mail or recognized overnight courier and will be deemed to have been duly given and effective: (i) on the date of delivery, if delivered personally; (ii) on the date of the return receipt acknowledgment, if mailed, postage prepaid, by certified or registered mail, return receipt requested; or (iii) on the date of confirmed delivery, if sent by recognized overnight courier: 40 If to the Sellers and the Owners: To: Theodore M. Davis, Representative Executech, Inc. 444 Westport Avenue Norwalk, CT 06851 With copies to: Brown, Raysman, Millstein, Felder & Steiner LLP 120 West 45th Street New York, NY 10036 Attn.: Gerard R. Boyce, Esq. or to such other person or address as the Representative will furnish to the other parties hereto in writing in accordance with this subsection. If to Purchaser: To: Merrill Acquisition Corporation One Merrill Circle St. Paul, MN 55108 Attn.: Steven J. Machov, Esq. With a copy to: Oppenheimer Wolff & Donnelly LLP 45 South Seventh Street Suite 3400, Plaza VII Minneapolis, MN 55402 Attn.: Kristine L. Gabel, Esq. or to such other person or address as the Purchaser will furnish to the other parties hereto in writing in accordance with this subsection. 9.6 ASSIGNMENT. This Agreement and all of the provisions hereof will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned (whether voluntarily, involuntarily, by operation of law or otherwise) by any of the parties hereto without the prior written consent of the other parties, PROVIDED, HOWEVER, that the Purchaser may assign its rights (but not its obligations) under this Agreement, in whole or in any part, and from time to time, to a wholly owned, direct or indirect, subsidiary of Merrill. 41 9.7 GOVERNING LAW. This Agreement and the legal relations among the parties hereto shall be governed by and construed in accordance with the internal substantive laws of the State of New York (without regard to the laws of conflict that might otherwise apply) as to all matters, including without limitation matters of validity, construction, effect, performance and remedies. 9.8 ARBITRATION. (a) The parties agree that any dispute arising out of or relating to this Agreement or the formation, breach, termination or validity thereof, except for injunctive relief contemplated by Section 9.12 (a "DISPUTE") will be resolved as follows. If the Dispute cannot be settled through direct discussions, the parties will first try to settle the Dispute in an amicable manner by mediation under the Commercial Mediation Rules of the American Arbitration Association, before resorting to arbitration. Any Dispute that has not been resolved within 60 days of the initiation of the mediation procedure (the "MEDIATION DEADLINE") will be settled by binding arbitration in Delaware by a panel of three (3) arbitrators, selected in accordance with subsection (b) below, in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "AMERICAN ARBITRATION RULES"). The arbitrators in any such arbitration will have the discretion to order a pre-hearing exchange of information by the parties, including, without limitation, production of requested documents, exchange of summaries of testimony and proposed witnesses, and examination by deposition of parties. The arbitrators are not empowered to award damages in excess of compensatory damages, as limited by this Agreement, and each party hereby irrevocably waives any damages in excess of compensatory damages. Judgment upon any arbitration award may be entered in any court having jurisdiction thereof and the parties consent to the jurisdiction of the courts of the State of Delaware for this purpose. The parties agree that service of process and of any notices required in connection with any arbitration hereunder or any related court proceedings may be given in the manner provided for the giving of notices under this Agreement as set forth in Section 9.5. (b) Within twenty (20) days of the Mediation Deadline, the Purchaser will nominate one arbitrator and the Sellers and the Owners, together, will nominate one arbitrator. Within thirty (30) days of the nomination and appointment of the two arbitrators, the two arbitrators shall select a third arbitrator, and if they fail to do so, a neutral arbitrator shall be chosen in accordance with the American Arbitration Rules. (c) The prevailing party in any Dispute will be entitled to recover all of its reasonable fees and expenses (including reasonable attorneys fees) in connection with mediating and arbitrating such Dispute. It is the intent of the parties that the arbitrators are entitled to determine which party actually prevails in the Dispute and to award fees and expenses to such party in accordance with this Section 9.8(c) 42 9.9 COUNTERPARTS. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 9.10 HEADINGS. The table of contents and the headings of the sections and subsections of this Agreement are inserted for convenience only and shall not constitute a part hereof. 9.11 ENTIRE AGREEMENT. This Agreement, the Disclosure Schedule and the exhibits and other writings referred to in this Agreement or in the Disclosure Schedule or any such exhibit or other writing are part of this Agreement, together they embody the entire agreement and understanding of the parties hereto in respect of the transactions contemplated by this Agreement and together they are referred to as this "AGREEMENT" or the "AGREEMENT". There are no restrictions, promises, warranties, agreements, covenants or undertakings, other than those expressly set forth or referred to in this Agreement. This Agreement supersedes all prior agreements and understandings between the parties with respect to the transaction or transactions contemplated by this Agreement, including, but not limited to, the letter of intent dated April 30, 1998. Any provision of this Agreement that becomes invalid or unenforceable under applicable Law will be stricken to the extent necessary and the remainder of such provisions and the remainder of this Agreement will continue in full force and effect. 9.12 INJUNCTIVE RELIEF. It is expressly agreed among the parties hereto that monetary damages would be inadequate to compensate a party hereto for any breach by any other party of its agreements and covenants in this Agreement. Accordingly, the parties agree and acknowledge that any such violation or threatened violation will cause irreparable injury to the other and that, in addition to any other remedies which may be available, such party will be entitled to injunctive relief against the threatened breach of this Agreement hereof or the continuation of any such breach without the necessity or proving actual damages and may seek to specifically enforce the terms thereof. 9.13 SHAREHOLDER'S REPRESENTATIVE. (a) In order to efficiently administer (i) the waiver of any condition to the obligations of the Sellers and the Owners to consummate the transactions contemplated hereby, and (ii) the defense and/or settlement of any claims for which the Sellers or the Owners may be required to indemnify the Purchaser Indemnified Parties pursuant to Article 8 hereof, each of the Sellers and each Owner hereby irrevocably appoints and designates Theodore Davis as his, her or its representative and attorney-in-fact (the "REPRESENTATIVE"). 43 (b) The Sellers and the Owners hereby authorize the Representative (i) to take all action necessary in connection with (aa) the waiver of any condition to the obligations of any Seller or any Owner to consummate the transactions contemplated hereby, or (bb) the defense and/or settlement of any claims for which any Seller or Owner may be required to indemnify the Purchaser Indemnified Parties pursuant to Article 8 hereof, and (iii) to take any and all additional action as is contemplated to be taken by or on behalf of the Sellers and the Owners by the terms of this Agreement. (c) In the event that the Representative dies, becomes unable to perform his responsibilities hereunder or resigns from such position, a majority of the Owners will select another representative to fill each such vacancy and such substituted representative will be irrevocably appointed and designated the Representative for all purposes of this Agreement. (d) All decisions and actions by the Representative, including, without limitation, (i) any agreement between the Representative and the Purchaser or Merrill relating to the waiver of any condition to the obligations of any Seller or Owner to consummate the transaction contemplated hereby, or (ii) the defense or settlement of any claims for which the Sellers or the Owners may be required to indemnify the Purchaser Indemnified Parties pursuant to Article 8 hereof, will be binding upon each of the Sellers and all of the Owners, and no Seller or Owner will have the right to object, dissent, protest or otherwise contest the same. (e) By their execution of this Agreement, each of the Sellers and the Owners agree that: (i) the Purchaser or Merrill will be able to rely conclusively on the instructions and decisions of the Representative as to (aa) the settlement of any claims arising out of Article 8 hereof, or (bb) any other actions required to be taken by the Representative hereunder, and no party hereunder will have any cause of action against the Purchaser or Merrill for any action taken by the Purchaser or Merrill in reliance upon the instructions or decisions of the Representative; (ii) all actions, decisions and instructions of the Representative will be conclusive and binding upon each of the Sellers and all of the Owners, and no party hereto will have any cause of action against the Representative, in his capacity as a Representative, for any action taken, decision made or instruction given by the Representative under this Agreement, except for fraud or willful misconduct by the Representative; (iii) the provisions of this Section 9.13 are independent and severable, are irrevocable and coupled with an interest and will be enforceable notwithstanding any rights or remedies that either Seller or any Owner may have in connection with the transactions contemplated by this Agreement; and 44 (iv) the provisions of this Section 9.13 will be binding upon the executors, heirs, legal representatives and successors of each Seller and each Owner, and any references in this Agreement to a Seller or an Owner will mean and include the successors to the rights of the Sellers and the Owners hereunder, whether pursuant to testamentary disposition, the laws of descent and distribution or otherwise. 9.14 CERTAIN DEFINITIONS. For purposes of this Agreement, the terms: (a) "ENVIRONMENTAL AND OCCUPATIONAL SAFETY AND HEALTH LAW" means any common law or duty, caselaw or other Law, that (i) regulates, creates standards for or imposes liability or standards of conduct concerning any element, compound, pollutant, contaminant, or toxic or hazardous substance, material or waste, or any mixture thereof, or relates in any way to emissions or releases into the environment or ambient environmental conditions, or conduct affecting such matters, or (ii) is designed to provide safe and healthful working conditions or reduce occupational safety and health hazards. Such laws shall include, but not be limited to, the National Environmental Policy Act, 42 U.S.C. Sections 4321 et seq., the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. Sections 9601 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901 et seq., the Federal Water Pollution Control Act, 33 U.S.C. Sections 1251 et seq., the Federal Clean Air Act, 42 U.S.C. Sections 7401 et seq., the Toxic Substances Control Act, 15 U.S.C. Sections 2601 et seq., the Emergency Planning and Community Right to Know Act, 42 U.S.C. Section 11011, the Hazard Communication Act, 29 U.S.C. Sections 651 et seq., the Occupational Safety and Health Act, 29 U.S.C. Sections 651 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Section 136, and any caselaw interpretations, amendments or restatements thereof, or similar enactments thereto, as is now or at any time hereafter may be in effect, as well as their international, state and local counterparts. (b) "ENVIRONMENTALLY REGULATED MATERIALS" means any element, compound, pollutant, contaminant, substance, material or waste, or any mixture thereof, designated, listed, referenced, regulated or identified pursuant to any Environmental and Occupational Safety and Health Law. (c) "MATERIAL ADVERSE EFFECT" means an individual or cumulative material adverse change in or material adverse effect on the business, customers, customer relations, operations, properties, working capital condition (financial or otherwise), assets, properties or liabilities of the Sellers, taken as a whole, or the Purchaser, Merrill and their subsidiaries, taken as a whole, as the case may be or that would prevent the Sellers and the Owners, on the one hand, or the Purchaser, on the other hand, from consummating the transactions contemplated hereby. (d) "TAXES" means all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, 45 service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, real or personal property, windfall profits, customs, duties or other taxes, fees, assessments, charges or levies of any kind whatever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto, and the term "TAX" means any one of the foregoing Taxes. (e) "TAX RETURNS" means all returns, declarations, reports, statements and other documents required to be filed with any Authority in respect of Taxes, and the term "TAX RETURN" means any one of the foregoing Tax Returns. 46 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. MERRILL CORPORATION EXECUTECH, INC. By: /s/ Steven J. Machov By: /s/ Theodore M. Davis Its: /s/ Vice President, Its: President General Counsel & Secretary MERRILL ACQUISITION CORPORATION WORLD WIDE SCAN SERVICES, LLC By: /s/ Steven J. Machov By: Theodore M. Davis Its: /s/ Secretary Its: Manager /s/ Theodore M. Davis --------------------- Theodore M. Davis /s/ Michael Z. Sperling ----------------------- Michael Z. Sperling 47 TABLE OF CONTENTS 1. PURCHASE OF ASSETS........................................................1 1.1 Assets to be Purchased..............................................1 1.2 Liabilities Assumed.................................................3 1.3 Purchase Price......................................................4 1.4 Contingent Purchase Price...........................................5 1.5 Allocation of Purchase Price.......................................10 1.6 Collection of Accounts Receivable..................................10 1.7 Closing............................................................11 1.8 Instruments of Transfer to Purchaser...............................11 2. REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE OWNERS.............12 2.1 Disclosure Schedule................................................12 2.2 Corporate Organization.............................................12 2.3 Capitalization.....................................................13 2.4 Authorization......................................................13 2.5 Non-Contravention..................................................13 2.6 Consents and Approvals.............................................14 2.7 Financial Statements...............................................14 2.8 Absence of Undisclosed Liabilities.................................15 2.9 Absence of Certain Changes.........................................15 2.10 Assets............................................................15 2.11 Inventories.......................................................16 2.12 Receivables and Payables..........................................16 2.13 Intellectual Property Rights......................................16 2.14 Litigation........................................................18 2.15 Tax Matters.......................................................18 2.16 Benefit Plans.....................................................19 2.17 Contracts and Commitments; No Default.............................22 2.18 Orders, Commitments and Returns...................................24 2.19 Labor Matters.....................................................24 2.20 Compliance with Law; Permits and Other Operating Rights...........25 2.21 Environmental and Safety Matters..................................25 2.22 Insurance.........................................................27 2.23 Bank Accounts.....................................................27 2.24 Brokers...........................................................27 2.25 Absence of Certain Business Practices.............................27 2.26 Business Generally................................................27 2.27 Transactions with Certain Persons.................................27 2.28 Customers.........................................................28 2.29 Accuracy of Information...........................................28 3. REPRESENTATIONS AND WARRANTIES OF PURCHASER..............................28 3.1 Corporate Organization.............................................29
i 3.2 Authorization......................................................29 3.3 Non-Contravention..................................................29 3.4 Consents and Approvals.............................................29 3.5 Brokers............................................................30 3.6 Financial Statements...............................................30 3.7 Taxes..............................................................30 4. COVENANTS OF THE PARTIES.................................................30 4.1 Intentionally Omitted..............................................30 4.2 Intentionally Omitted..............................................30 4.3 Intentionally Omitted..............................................30 4.4 Confidentiality....................................................30 4.5 Intentionally Omitted..............................................31 4.6 Further Assurances; Cooperation; Notification......................31 4.7 Intentionally Omitted..............................................31 4.8 Intentionally Omitted..............................................31 4.9 Tax Matters........................................................31 4.10 Bulk Transfers....................................................32 4.11 Employee Benefits.................................................32 4.12 Authorization.....................................................34 4.13 Additional Post-Closing Obligations of the Sellers................34 4.14 Guarantee by Merrill..............................................35 4.15 Capital Requirements..............................................35 4.16 Termination of Pension Plans......................................35 5. INTENTIONALLY OMITTED....................................................35 6. INTENTIONALLY OMITTED....................................................35 7. INTENTIONALLY OMITTED....................................................35 8. SURVIVAL AND INDEMNIFICATION.............................................35 8.1 Survival of Representations, Warranties and Covenants; Investigation.....................................................35 8.2 Indemnification by the Purchaser...................................36 8.3 Indemnification by the Sellers and the Owners......................36 8.4 Basket Amount......................................................37 8.5 Right of Set-Off...................................................38 8.6 Claims for Indemnification.........................................38 8.7 Limit on Damages...................................................39 9. MISCELLANEOUS PROVISIONS.................................................40 9.1 Expenses...........................................................40 9.2 Amendment and Modification.........................................40 9.3 Waiver of Compliance; Consents.....................................40 9.4 No Third Party Beneficiaries.......................................40 9.5 Notices............................................................40 9.6 Assignment.........................................................41 9.7 Governing Law......................................................42 9.8 Arbitration........................................................42 9.9 Counterparts.......................................................43 9.10 Headings..........................................................43
ii 9.11 Entire Agreement..................................................43 9.12 Injunctive Relief.................................................43 9.13 Shareholder's Representative......................................43 9.14 Certain Definitions...............................................45
iii The following documents are exhibits to the Asset Purchase Agreement and have been omitted pursuant to Item 601(b)(2) of Regulation S-K. These exhibits will be furnished supplementally to the Commission upon request. LIST OF EXHIBITS NAME OF EXHIBIT NUMBER OF EXHIBIT - --------------- ----------------- List of Trade Names to be Purchased.............................Exhibit 1.1(a) Excluded Assets.................................................Exhibit 1.1(b) Liabilities Undertaking...........................................Exhibit 1.2 Application of GAAP to June 5, 1998 Income Statement...............Exhibit 1.4 Allocation of Purchase Price Among the Assets......................Exhibit 1.5 Bill of Sale.......................................................Exhibit 1.8 Disclosure Schedule..................................................Exhibit 2 Employees to be Hired.............................................Exhibit 4.11 COBRA Participants.............................................Exhibit 4.11(d) iv LIST OF DEFINED TERMS
Term Page - ---- ---- Affiliated Organization.....................................................20 After-Tax Earnings...........................................................6 Agreement...................................................................44 American Arbitration Rules..................................................43 Assets.......................................................................2 Assumed Contracts............................................................4 Assumed Liabilities..........................................................3 Auditor......................................................................9 Authorities.................................................................14 Authority...................................................................14 Bad Debt Reserve............................................................11 Base Year Earnings...........................................................5 Business.....................................................................1 Closing.....................................................................11 Closing Date................................................................11 Code.........................................................................6 Consent.....................................................................14 Contingent Purchase Price Statement..........................................9 Copyrights..................................................................17 Davis........................................................................1 Disclose....................................................................31 Disclosure Schedule.........................................................12 Dispute.....................................................................43 Environmental and Occupational Safety and Health Law........................46 Environmental Claim.........................................................27 Environmentally Regulated Materials.........................................46 ERISA.......................................................................20 E-TECH System................................................................6 Executech....................................................................1 Executech Performance Share Plan.............................................4 First Fiscal Year............................................................5 Fourth Fiscal Year...........................................................5 GAAP.........................................................................6 Gross Revenues...............................................................7 Guaranteed Receivables......................................................10 Guaranteed Receivables Shortfall............................................11 Indemnified Party...........................................................39 Indemnifying Party..........................................................39 Information.................................................................31 Intellectual Property Rights................................................17 Late Payment Rate...........................................................10
Latest Balance Sheet........................................................15 Law.........................................................................14 Laws........................................................................14 Liabilities Undertaking......................................................3 Liability...................................................................15 Lien........................................................................14 Material Adverse Effect.....................................................46 Mediation Deadline..........................................................43 Members......................................................................1 Merrill......................................................................1 Multiemployer Plan..........................................................20 Owners.......................................................................1 Patents.....................................................................17 Permitted Liens.............................................................14 Plans.......................................................................20 Properties..................................................................26 Purchase Price...............................................................4 Purchaser....................................................................1 Purchaser's Loss............................................................38 Purchaser's Losses..........................................................38 Purchaser Indemnified Parties...............................................38 Registered Intellectual Property Rights.....................................17 Representative..............................................................45 Representative Notice........................................................9 Retained Liabilities.........................................................3 Second Fiscal Year...........................................................5 Seller Indemnified Parties..................................................37 Sellers......................................................................1 Sellers' Loss...............................................................37 Sellers' Losses.............................................................37 Service Marks...............................................................17 SG&A Costs...................................................................7 Shareholders.................................................................1 Sperling.....................................................................1 Tax.........................................................................47 Tax Return..................................................................47 Tax Returns.................................................................47 Taxes.......................................................................47 Termination Date............................................................11 Third Fiscal Year............................................................5 Third Party Intellectual Property Rights....................................18 Trade Secrets...............................................................17 Trademarks..................................................................17 Transaction Documents.......................................................36 WARN........................................................................34
Welfare Plan................................................................21 World Wide...................................................................1
EX-10.29 13 EXHIBIT 10.29 ================================================================================ FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT Dated as of December 18, 1998 Among MERRILL CORPORATION, MERRILL/EXECUTECH, INC. (f/k/a MERRILL ACQUISITION CORPORATION), And EXECUTECH, INC., WORLD WIDE SCAN SERVICES, LLC, The SHAREHOLDERS OF EXECUTECH, INC., And The MEMBERS of WORLD WIDE SCAN SERVICES, LLC ================================================================================ FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT THIS FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made this 18th day of December, 1998 by and among MERRILL CORPORATION, a Minnesota corporation, MERRILL/EXECUTECH, INC. (f/k/a MERRILL ACQUISITION CORPORATION), a Minnesota corporation ("PURCHASER") and EXECUTECH, INC., a New York corporation ("EXECUTECH"), WORLD WIDE SCAN SERVICES, LLC, a Connecticut limited liability company ("WORLD WIDE"), THEODORE M. DAVIS and MICHAEL Z. SPERLING (all such entities and individuals are collectively referred to herein as the "PARTIES"). RECITALS A. The Parties entered into that certain Asset Purchase Agreement dated as of June 11, 1998 (the "ASSET PURCHASE AGREEMENT"; all capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Asset Purchase Agreement, and all references herein to a particular "Section" shall be deemed to refer to a Section of the Asset Purchase Agreement unless stated otherwise to the contrary herein), pursuant to which Purchaser purchased substantially all of Executech's and World Wide's assets. B. The Parties desire to modify certain terms of the Asset Purchase Agreement as more particularly set forth herein. C. The Parties are willing to make such modifications to the Asset Purchase Agreement, provided each shall execute and deliver this Agreement. NOW, THEREFORE, in consideration of the above premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows: SECTION 1. SUBSTITUTION OF SECTION. Section 1.4 (a) of the Asset Purchase Agreement shall be deemed deleted in its entirety and replaced with the following paragraph: "(a) During the period from the Closing through the period ending January 31, 2003 (the "CONTINGENT PURCHASE PRICE PERIOD"), the Purchaser will pay additional amounts equal to: (1) for the First Fiscal Year (as defined below), the greater of (i) Two Million Eight Hundred Thousand Dollars ($2,800,000) or (ii) a percentage of the After-Tax Earnings, generated by the "business" (as defined below) being acquired by the Purchaser; and (2) for all other fiscal years of the Contingent Purchase Price Period, the guaranteed dollar amounts specified in the table below. The percentage payable for the First Fiscal Year and the fixed dollar amounts for each additional fiscal year of the Contingent Purchase Price Period are set forth according to the following schedule (the "CONTINGENT PURCHASE PRICE"):
FISCAL YEAR CONTINGENT PURCHASE PRICE PAYMENT - ----------------------------------------------------------------------------------------------- January 1, 1998 through January 31, 1999 The greater of (i) Two Million Eight Hundred ("FIRST FISCAL YEAR") Thousand Dollars ($2,800,000) or (ii) 450% of the After-Tax Earnings for the First Fiscal Year (the "Base Year Earnings") - ----------------------------------------------------------------------------------------------- February 1, 1999 through January 31, 2000 The sum of Four Hundred Thousand Dollars ("SECOND FISCAL YEAR") ($400,000) - ----------------------------------------------------------------------------------------------- February 1, 2000 through January 31, 2001 The sum of Five Hundred Thousand Dollars ("THIRD FISCAL YEAR") ($500,000) - ----------------------------------------------------------------------------------------------- February 1, 2001 through January 31, 2002 The sum of Six Hundred Fifty Thousand Dollars ("FOURTH FISCAL YEAR") ($650,000) - ----------------------------------------------------------------------------------------------- February 1, 2002 through January 31, 2003 The sum of Eight Hundred Fifty Thousand ("FIFTH FISCAL YEAR") Dollars ($850,000) - -----------------------------------------------------------------------------------------------
SECTION 2. MODIFICATION OF SECTION. The first sentence of Section 1.4 (c) of the Asset Purchase Agreement shall be deemed deleted in its entirety and replaced with the following sentence: "For purposes of this Section 1.4, the "After-Tax Earnings" generated by the "business" (as hereinafter defined in Section 1.4(c)(i)) for the First Fiscal Year means Purchaser's net income (or loss), after Taxes, determined in accordance with generally accepted accounting principles consistently applied ("GAAP")." SECTION 3. MODIFICATION OF SECTION. The second sentence of Section 1.4 (c) (iii) of the Asset Purchase Agreement shall be deemed deleted in its entirety and replaced with the following sentence: "The SG&A Costs will be five percent (5%) of Gross Revenues for the First Fiscal Year." SECTION 4. SUBSTITUTION OF SECTION. Section 1.4 (c)(iv) of the Asset Purchase Agreement shall be deemed deleted in its entirety and replaced with the following paragraph: "(iv) The benefit plans used in calculating the After-Tax Earnings will be in conformance with the fringe benefit programs of the Sellers in effect as of the Closing Date for the First Fiscal Year." SECTION 5. SUBSTITUTION OF SECTION. Section 1.4 (d) of the Asset Purchase Agreement shall be deemed deleted in its entirety and replaced with the following paragraph: "(d) During the First Fiscal Year, the Purchaser agrees to provide Davis and Sperling monthly financial reports consistent with those provided to Merrill's regional managers." 2 SECTION 6. SUBSTITUTION OF SECTION. Section 1.4 (e) of the Asset Purchase Agreement shall be deemed deleted in its entirety and replaced with the following paragraph: "(e) As soon as may be practicable after the end of the First Fiscal Year, but not later than March 25, 1999, Purchaser will deliver to the Representative a statement prepared by the Purchaser setting forth in reasonable detail Purchaser's calculation of After-Tax Earnings for the First Fiscal Year and the amount of the Contingent Purchase Price, if any, to be paid to the Sellers for the First Fiscal Year pursuant to this Section 1.4 (the "CONTINGENT PURCHASE PRICE STATEMENT"). SECTION 7. SUBSTITUTION OF SECTION. Section 1.4 (g) of the Asset Purchase Agreement shall be deemed deleted in its entirety and replaced with the following paragraph: "(g) The Contingent Purchase Price for the First Fiscal Year, if any, shall be paid by the Purchaser to the Representative by wire transfer in immediately available funds within five (5) days after the earlier of (i) the receipt by the Purchaser of written notice from the Representative that the Representative has no objection to the calculation of the Contingent Purchase Price pursuant to Section 1.4 hereof, (ii) the expiration of the 15-day period for giving notice of disagreement with such calculation, if no such notice is given, or (iii) the resolution of any dispute pursuant to Section 1.4(e). The Contingent Purchase Price for the Second Fiscal Year, Third Fiscal Year, Fourth Fiscal Year, and Fifth Fiscal Year shall be paid by the Purchaser to the Representative by wire transfer in immediately available funds within five (5) days of the last day of each such fiscal year. In the event that payment is not made within such 5-day period, the Purchaser will pay to the Sellers, in addition to the amount due as the Contingent Purchase Price, a late payment charge equal to one percent (1%) per month of the Contingent Purchase Price due together with interest at the Late Payment Rate. If the amount of the Contingent Purchase Price for the First Fiscal Year is disputed and is being arbitrated in accordance with Section 1.4(e), during the course of such arbitration and until a final, non-appealable arbitration award is issued, no late payment charge shall accrue, but, interest will be payable by the Purchaser on the balance of the Contingent Purchase Price due but unpaid at the Late Payment Rate. For purposes of this Agreement, the term "Late Payment Rate" means the prime rate, as published by Chase Manhattan Bank as its prime lending rate from time to time, plus three percent (3%). SECTION 8. FULL FORCE AND EFFECT; RATIFICATION; REFERENCES. Except as amended hereby, the Asset Purchase Agreement remains unamended and in full force and effect. The Parties hereby ratify all of the terms and provisions of the Asset Purchase Agreement except as modified 3 hereby. All references in the Asset Purchase Agreement to "this Agreement" or words of like import, shall be deemed to refer to the Asset Purchase Agreement as amended hereby. All references in any of the Transaction Documents or any of the Employment Agreements between Davis, Sperling or DuBowe effective as of June 11, 1998 to the "Purchase Agreement" or words of like import, shall be deemed to refer to the Asset Purchase Agreement as amended hereby. SECTION 9. MISCELLANEOUS PROVISIONS. 9.1. GOVERNING LAW. The place of negotiation, execution and delivery of this Agreement is the State of New York. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York. 9.2. COUNTERPARTS; HEADINGS. This Agreement may be executed in counterparts, each of which shall constitute an original, and all of which, when taken together, shall constitute but one instrument. The captions and headings of the various sections of this Agreement are for purposes of reference only and are not to be construed as confining or limiting in any way the scope or intent of the provisions hereof. Whenever the context requires or permits, the singular shall include the plural, the plural shall include the singular, and the masculine, feminine and neuter shall be freely interchangeable. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year first above written. MERRILL CORPORATION EXECUTECH, INC. By: /s/ Steven J. Machov By: /s/ Theodore M. Davis --------------------------------- ----------------------------------- Its: Vice President General Counsel Its: President -------------------------------- ---------------------------------- MERRILL/EXECUTECH, INC. WORLD WIDE SCAN SERVICES, LLC By: /s/ Steven J. Machov By: /s/ Theodore M. Davis --------------------------------- ----------------------------------- Its: Secretary Its: Manager -------------------------------- ---------------------------------- /s/ Theodore M. Davis ----------------------------------- Theodore M. Davis /s/ Michael Z. Sperling ----------------------------------- Michael Z. Sperling 4 EX-10.30 14 EXHIBIT 10.30 ================================================================================ SECOND AMENDMENT TO ASSET PURCHASE AGREEMENT Dated as of June 11, 1998 Among MERRILL CORPORATION, MERRILL/EXECUTECH, INC. (F/K/A MERRILL ACQUISITION CORPORATION), And EXECUTECH, INC., WORLD WIDE SCAN SERVICES, LLC, THE SHAREHOLDERS OF EXECUTECH, INC., And THE MEMBERS OF WORLD WIDE SCAN SERVICES, LLC ================================================================================ SECOND AMENDMENT TO ASSET PURCHASE AGREEMENT THIS SECOND AMENDMENT TO ASSET PURCHASE AGREEMENT (this "AGREEMENT") dated as of June 11, 1998 by and among MERRILL CORPORATION, a Minnesota corporation, MERRILL/EXECUTECH, INC. (f/k/a MERRILL ACQUISITION CORPORATION), a Minnesota corporation ("PURCHASE") and EXECUTECH, INC., a New York corporation ("EXECUTECH"), WORLD WIDE SCAN SERVICES, LLC, a Connecticut limited liability company ("WORLD WIDE"), THEODORE M. DAVIS and MICHAEL Z. SPERLING (all such entities and individuals are collectively referred to herein as the "PARTIES"). RECITALS WHEREAS, the Parties entered into that certain Asset Purchase Agreement dated as of June 11, 1998 (the "ASSET PURCHASE AGREEMENT"; all capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Asset Purchase Agreement, and all references herein to a particular "Section" shall be deemed to refer to a Section of the Asset Purchase Agreement unless stated otherwise to the contrary herein), pursuant to which Purchaser purchased substantially all of Executech's and World Wide's assets; WHEREAS, the Parties desire to delete in its entirety Exhibit 1.5 of said Asset Purchase Agreement and to replace same with a new Exhibit 1.5 in order to properly reflect certain modifications and corrections to the Allocation of Purchase Price, said allocation which is more fully described in Section 1.5 of the Asset Purchase Agreement; WHEREAS, the Parties are willing to make such modifications and corrections to the Exhibit 1.5 of the Asset Purchase Agreement, provided each shall execute and deliver this Agreement. NOW, THEREFORE, in consideration of the above premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows: SECTION 1.5 SUBSTITUTION OF EXHIBIT 1.5 Exhibit 1.5 in accordance with Section 1.5 of the Asset Purchase Agreement--entitled Merrill Corporation Purchase Price Allocation/Opening Balance Sheet, Executech, Inc. and World Wide Scan dated 6/11/98--2:27PM CST, shall be deemed deleted in its entirety and replaced with a new Exhibit 1.5 in lieu thereof, a copy of which is annexed hereto and made a part hereof. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year first above written. MERRILL CORPORATION EXECUTECH, INC. By: By: --------------------------------- ------------------------------------ Its: Its: -------------------------------- ----------------------------------- MERRILL EXECUTECH, INC. WORLD WIDE SCAN SERVICES, LLC By: By: --------------------------------- ------------------------------------ Its: Its: -------------------------------- ----------------------------------- --------------------------------------- Theodore M. Davis --------------------------------------- Michael Z. Sperling 2 Sheet 1 Merrill Corporation Purchase Price Allocation/Opening Balance Sheet Executech, Inc. & World Wide Scan 3/16/99 10:12 AM CST FINAL DETERMINATION E-Tech WWS Total ---------------------------------- ASSETS PURCHASED: - ---------------------------- Cash 79,583 10,852 90,435 CLASS I Accounts Receivable 529,620 217,430 747,050 CLASS III Fixed Assets 290,129 166,848 456,977 CLASS III Value of Intangible Software 100,000 100,000 (1) CLASS III Deposits 17,845 10,000 27,845 CLASS III Leasehold Improvements 4,976 15,000 19,976 CLASS III ---------------------------------- Total Assets Purchased 1,022,153 420,130 1,442,283 ================================== LIABILITIES ASSUMED: - -------------------- Accounts Payable 418,996 419,282 838,278 Accrued Expenses 5,930 5,930 Accrued Interest 2,672 2,672 Sales Tax Payable 33,581 22,798 56,379 Retainer 20,883 20,883 ---------------------------------- Total Liabilities Assumed 461,179 462,963 924,142 ================================== TOTAL CONSIDERATION: - -------------------- Cash 2,675,000 525,000 3,200,000 Liabilities Assumed 461,179 462,963 924,142 ---------------------------------- 3,136,179 987,963 4,124,142 ================================== SECTION 197 ASSETS: - ------------------- Total 2,114,026 567,833 2,681,859 CLASS IV Covenant Not To Compete 15,000 10,000 25,000 (2) ================================== Goodwill 2,099,026 557,833 2,656,859 (1) Total CLASS I 79,583 10,852 90,435 Total CLASS II -- -- -- Total CLASS III 942,570 409,278 1,351,848 Total CLASS IV 2,114,026 567,833 2,681,859 ================================== 3,136,179 987,963 4,124,142 Page 1 EX-10.35 15 EXHIBIT 10.35 101 FEDERAL STREET BOSTON, MASSACHUSETTS OFFICE LEASE BETWEEN BEAMETFED, INC., a Maryland corporation ("LANDLORD"), AND MERRILL CORPORATION, a Minnesota corporation ("TENANT") 1 TABLE OF CONTENTS I. Basic Lease Information; Definitions .................................. 1 II. Lease Grant .......................................................... 4 III. Adjustment of Commencement Date/Possession .......................... 4 IV. Rent ................................................................. 4 V. Use ................................................................... 10 VI. Security Deposit ..................................................... 11 VII. Services to be Furnished by Landlord ................................ 11 VIII. Leasehold Improvements ............................................. 12 IX. Graphics ............................................................. 13 X. Repairs and Alterations ............................................... 13 XI. Use of Electrical Services by Tenant ................................. 14 XII. Entry by Landlord ................................................... 16 XIII. Assignment and Subletting .......................................... 16 XIV. Liens ............................................................... 18 XV. Indemnity and Waiver of Claims ....................................... 18 XVI. Tenant's Insurance .................................................. 20 XVII. Subrogation ........................................................ 21 XVIII. Landlord's Insurance .............................................. 22 XIX. Casualty Damage ..................................................... 22 XX. Demolition ........................................................... 23 XXI. Condemnation ........................................................ 24 XXII. Events of Default .................................................. 24 XXIII. Remedies .......................................................... 25 XXIV. LIMITATION OF LIABILITY ............................................ 27 XXV. No Waiver ........................................................... 28 XXVI. Event of Bankruptcy ................................................ 28 XXVII. Waiver of Jury Trial .............................................. 29 XXVIII. Relocation ....................................................... 30 XXIX. Holding Over ....................................................... 30 XXX. Subordination to Mortgages; Estoppel Certificate .................... 30 XXXI. Attorneys' Fees .................................................... 31 XXXII. Notice ............................................................ 31 XXXIII. Landlord's Lien .................................................. 31 XXXIV. Excepted Rights ................................................... 31 XXXV. Surrender of Premises .............................................. 32 XXXVI. Miscellaneous ..................................................... 32 XXXVII. Entire Agreement ................................................. 35
i OFFICE LEASE AGREEMENT This Office Lease Agreement (the "Lease") is made and entered into as of the 30th day of July, 1998, by and between BEAMETFED, INC., a Maryland corporation ("Landlord") and MERRILL CORPORATION, a Minnesota corporation ("Tenant"). I. Basic Lease Information; Definitions. A. The following are some of the basic lease information and defined terms used in this Lease. 1. "Additional Base Rental" shall mean Tenant's Pro Rata Share of Basic Costs and any other sums (exclusive of Base Rental) that are required to be paid by Tenant to Landlord hereunder, which sums are deemed to be additional rent under this Lease. Additional Base Rental and Base Rental are sometimes collectively referred to herein as "Rent". 2. "Base Rental" shall mean the sum of Two Million Seven Hundred One Thousand Two Hundred and 00/100 Dollars ($2,701,200.00), payable by Tenant to Landlord in sixty (60) monthly installments as follows: Sixty (60) equal installments of Forty-Five Thousand Twenty and 00/100 Dollars ($45,020.00), each payable on or before the first day of each month during the period beginning November 15 1998, and ending November 30, 2003, provided that the installment of Base Rental for the first full calendar month of the Lease Term shall be payable upon the execution of this Lease by Tenant. 3. "Building" shall mean the office building located at 101 Federal Street, County of Suffolk, Commonwealth of Massachusetts, commonly known as 101 Federal Street. 4. The "Commencement Date," "Lease Term" and "Termination Date" shall have the meanings set forth in subsection I.A.4.b. below: a. The "Lease Term" shall mean a period of sixty (60) months, commencing on November 15, 1998 (the "Commencement Date") and, unless sooner terminated as provided herein, ending on November 30, 2003.; b. Intentionally Omitted. 5. "Premises" shall mean the area located on the twenty-first (21st) floor of the Building, as outlined on Exhibit A attached hereto and incorporated herein. Landlord and Tenant hereby stipulate and agree that the "Rentable Area of the Premises" shall mean 13,506 square feet, the useable area of the Premises shall mean 10,786 square feet and the "Rentable Area of the Building" shall mean 553,000 square feet. If the Premises being leased to Tenant hereunder include one or more floors within the Building in their entirety, the definition of Premises with respect to such full floor(s) shall include all corridors and restroom facilities located on such floor(s). Notwithstanding the forgoing, unless specifically -1- provided herein to the contrary, the Premises shall not include any telephone closets, electrical closets, janitorial closets, equipment rooms or similar areas on any full or partial floor that are used by Landlord for the operation of the Building. 6. "Permitted Use" shall mean general office use. 7. "Security Deposit" shall mean $-0-. 8. "Tenant's Pro Rata Share" shall mean two and forty-four hundredths percent (2.44%), which is the quotient (expressed as a percentage), derived by dividing the Rentable Area of the Premises by the Rentable Area of the Building. 9. "Guarantor(s)" shall mean None. 10. "Notice Addresses" shall mean the following addresses for Tenant and Landlord, respectively: Tenant: Steve Machov, Esq. General Counsel Merrill Corporation One Merrill Circle St. Paul, Minnesota 55108 With a copy to: Merrill Corporation Attn: Facilities Manager One Merrill Circle St. Paul, Minnesota 55108 and to: Robert Smith, Esq. 701 Fourth Avenue South Suite 500 Minneapolis, Minnesota 55415 Landlord: BeaMetFed, Inc. c/o Equity Office Properties Trust 75 Federal Street Boston, Massachusetts 02210 Attention: Building Manager With a copy to: Equity Office Properties Trust Two North Riverside Plaza Suite 2200 Chicago, Illinois 60606 Attention: General Counsel of Property Operations Payments of Rent only shall be made payable to the order of: Equity Office Properties -2- at the following address: EOP Operating Limited Partnership, as Agent for BeaMetFed, Inc. P.0. Box 30019 Hartford, Connecticut 06150-0019 B. The following are additional definitions of some of the defined terms used in the Lease. 1. "Expenses Base Year" shall mean the 1998 calendar year for purposes of determining Tenant's Pro Rata Share of increases in Expenses (as hereinafter defined) and "Tax Base Year" shall mean the fiscal year July 1, 1998 through June 30, 1999 for purposes of determining Tenant's Pro Rata Share of increases in Taxes (as hereinafter defined). For purposes hereof, the term "Fiscal Year" shall mean the Tax Base Year and each period of July 1st to June 30th thereafter. 2. "Basic Costs" shall mean all costs and expenses paid or incurred in connection with operating, maintaining, repairing, managing and owning the Building and the Property, as further described in Article IV hereof. 3. "Broker" means CB Richard Ellis, Inc. 4. "Building Standard" shall mean the type, grade, brand, quality and/or quantity of materials Landlord designates from time to time to be the minimum quality and/or quantity to be used in the Building. 5. "Business Day(s)" shall mean Mondays through Fridays exclusive of the normal business holidays ("Holidays") of New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Landlord, from time to time during the Lease Term, shall have the right to designate additional Holidays, provided that such additional Holidays are commonly recognized by other office buildings in the area where the Building is located. 6. "Common Areas" shall mean those areas provided for the common use or benefit of all tenants generally and/or the public, such as corridors, elevator foyers, common mail rooms, restrooms, vending areas, lobby areas (whether at ground level or otherwise) and other similar facilities. 7. "Landlord Work" shall mean the work, if any, that Landlord is obligated to perform in the Premises pursuant to the Work Letter Agreement, if any, attached hereto as Exhibit D. 8. "Maximum Rate" shall mean the greatest per annum rate of interest permitted from time to time under applicable law. 9. "Normal Business Hours" for the Building shall mean 8:00 A.M. to 6:00 P.M. Mondays through Fridays, exclusive of Holidays. 10. "Prime Rate" shall mean the per annum interest rate publicly announced by The First National Bank of Chicago or any successor thereof from time to time (whether or not charged in each instance) as its prime or base rate in Chicago, Illinois. -3- 11. "Property" shall mean the Building and the parcel(s) of land on which it is located and, at Landlord's discretion, the Building garage, if any, and all other improvements owned by Landlord and serving the Building and the tenants thereof and the parcel(s) of land on which they are located. II. Lease Grant. Subject to and upon the terms herein set forth, Landlord leases to Tenant and Tenant leases from Landlord the Premises, together with the right, in common with others, to use the Common Areas. III. Adjustment of Commencement Date/Possession. A. Intentionally Omitted. B. Tenant shall lease the Premises "as-is", in the condition in which the Premises are in as of the date of this Lease, without any obligation on the part of Landlord to prepare or construct the Premises for Tenant's occupancy, except as expressly set forth in Exhibit D herein. By taking possession of the Premises, Tenant is deemed to have accepted the Premises and agreed that the Premises is in good order and satisfactory condition, with no representation or warranty by Landlord as to the condition of the Premises or the Building or suitability thereof for Tenant's use. C. Intentionally Omitted. D. If Tenant takes possession of the Premises prior to the Commencement Date, such possession shall be subject to all the terms and conditions of the Lease and Tenant shall pay Base Rental and Additional Base Rental to Landlord for each day of occupancy prior to the Commencement Date. Notwithstanding the foregoing, if Tenant, with Landlord's prior approval, takes possession of the Premises prior to the Commencement Date for the sole purpose of performing any Landlord-approved improvements therein or installing furniture, equipment or other personal property of Tenant, such possession shall be subject to all of the terms and conditions of the Lease, except that Tenant shall not be required to pay Base Rental or Additional Base Rental with respect to the period of time prior to the Commencement Date during which Tenant performs such work. Tenant shall, however, be liable for the cost of any services (e.g. electricity, HVAC, freight elevators) that are provided to Tenant or the Premises during the period of Tenant's possession prior to the Commencement Date. Nothing herein shall be construed as granting Tenant the right to take possession of the Premises prior to the Commencement Date, whether for construction, fixturing or any other purpose, without the prior consent of Landlord. IV. Rent. A. During each calendar year, or portion thereof, falling within the Lease Term, Tenant shall pay to Landlord as Additional Base Rental hereunder the sum of: (1) Tenant's Pro Rata Share of the amount, if any, by which Taxes (hereinafter defined) for the applicable Fiscal Year exceed Taxes for the Tax Base Year plus; (2) Tenant's Pro Rata Share of the amount, if any, by which Expenses (hereinafter defined) for the applicable calendar year exceed Expenses for the Expenses Base Year. For purposes hereof, "Expenses" shall mean all Basic Costs with the exception of Taxes. -4- Tenant's Pro Rata Share of increases in Taxes and Tenant's Pro Rata Share of increases in Expenses shall be computed separate and independent of each other prior to being added together to determine the "Excess". In the event that Taxes in any Fiscal Year decrease below the amount of Taxes for the Tax Base Year, Tenant's Pro Rata Share of Taxes for such Fiscal Year shall be deemed to be $0, it being understood that Tenant shall not be entitled to any credit or offset if Taxes decrease below the corresponding amount for the Tax Base Year. In the event that Expenses in any calendar year decrease below the amount of Expenses for the Expenses Base Year, Tenant's Pro Rata Share of Expenses for such calendar year shall be deemed to be $0, it being understood that Tenant shall not be entitled to any credit or offset if Expenses decrease below the corresponding amount for the Expenses Base Year. Notwithstanding the fact that Tenant's Pro Rata Share of increases in Taxes over the Tax Base Year is calculated on a Fiscal Year basis, Landlord shall be entitled to bill Tenant for such amounts following the end of each calendar year at the same time that Tenant will be billed for its Pro Rata Share of increases in Expenses over the Expenses Base Year. For example, during the calendar year 2000, Tenant, on a monthly basis as provided below, shall pay Landlord an amount equal to one-twelfth (1/12) of the estimated amount by which Taxes for the Fiscal Year 1999 (7/1/98 - 6/30/99) will exceed Taxes for the Tax Base Year. Following the date on which Landlord receives the quarterly tax bill with respect to the actual amount of Taxes for Fiscal Year 2000, Landlord, as provided below, shall provide Tenant with a reconciliation of Tenant's actual Pro Rata Share of the amount by which Taxes for the Fiscal Year 2000 exceed Taxes for the Tax Base Year. Such reconciliation statement may be sent by Landlord separately or together with Landlord's reconciliation of Tenant's actual Pro Rata Share of the amount by which Expenses for the calendar year 1999 exceed Expenses for the Expenses Base Year. If the Tax Base Year is more than or less than twelve (12) months, the Tax Base Year shall be adjusted pro-rata so that the Tax Base Year is determined on a twelve (12) month basis. If any Fiscal Year after the Tax Base Year is more than or less than twelve (12) months, then such Fiscal Year shall be adjusted pro-rata so that such Fiscal Year is determined on a twelve (12) month basis for the purposes of calculating the Excess for such Fiscal Year. As soon as is practical following the end of each calendar year during the Lease Term, Landlord shall furnish to Tenant a statement of Landlord's actual Basic Costs and the actual Excess for the previous calendar year. Landlord shall use reasonable efforts to furnish the statement of actual Basic Costs on or before June 1 of the calendar year immediately following the calendar year to which the statement applies. If the estimated Excess actually paid by Tenant for the prior year is in excess of Tenant's actual Pro Rata Share of the Excess for such prior year, then Landlord shall apply such overpayment against Additional Base Rental due or to become due hereunder, provided if the Lease Term expires prior to the determination of such overpayment, Landlord shall refund such overpayment to Tenant after first deducting the amount of any Rent due hereunder. Likewise, Tenant shall pay to Landlord, within thirty (30) days after demand, any underpayment with respect to the prior year, whether or not the Lease has terminated prior to receipt by Tenant of a statement for such underpayment, it being understood that this clause shall survive the expiration of the Lease. B. Basic Costs shall mean all costs and expenses paid or incurred in each calendar year in connection with operating, maintaining, repairing, managing and owning the Building and the Property, including, but not limited to, the following: -5- 1. All labor costs for all persons performing services required or utilized in connection with the operation, repair, replacement and maintenance of and control of access to the Building and the Property, including but not limited to amounts incurred for wages, salaries and other compensation for services, payroll, social security, unemployment and other similar taxes, workers' compensation insurance, uniforms, training, disability benefits, pensions, hospitalization, retirement plans, group insurance or any other similar or like expenses or benefits. 2. All management fees, the cost of equipping and maintaining a management office at the Building, accounting services, legal fees not attributable to leasing and collection activity, and all other administrative costs relating to the Building and the Property. If management services are not provided by a third party, Landlord shall be entitled to a management fee comparable to that due and payable to third parties provided Landlord or management companies owned by, or management divisions of, Landlord perform actual management services of a comparable nature and type as normally would be performed by third parties. 3. All rental and/or purchase costs of materials, supplies, tools and equipment used in the operation, repair, replacement and maintenance and the control of access to the Building and the Property. 4. All amounts charged to Landlord by contractors and/or suppliers for services, replacement parts, components, materials, equipment and supplies furnished in connection with the operation, repair, maintenance, replacement of and control of access to any part of the Building, or the Property generally, including the heating, air conditioning, ventilating, plumbing, electrical, elevator and other systems and equipment. At Landlord's option, major repair items may be amortized over a period of up to five (5) years. 5. All premiums and deductibles paid by Landlord for fire and extended coverage insurance, earthquake and extended coverage insurance, liability and extended coverage insurance, rental loss insurance, elevator insurance, boiler insurance and other insurance customarily carried from time to time by landlords of comparable office buildings or required to be carried by Landlord's Mortgagee. 6. Charges for water, gas, steam and sewer, but excluding those charges for which Landlord is otherwise reimbursed by tenants, and charges for Electrical Costs. For purposes hereof, the term "Electrical Costs" shall mean: (i) all charges paid by Landlord for electricity supplied to the Building, Property and Premises, regardless of whether such charges are characterized as distribution charges, transmission charges, generation charges, public good charges, disconnection charges, competitive transaction charges, stranded cost recoveries or otherwise; (ii) except to the extent otherwise included in Basic Costs, any costs incurred in connection with the energy management program for the Building, Property and Premises, including any costs incurred for the replacement of lights and ballasts and the purchase and installation of sensors and other energy saving equipment; and (iii) if and to the extent permitted by law, a reasonable fee for the services provided by Landlord in connection with the selection of utility companies and -6- the negotiation and administration of contracts for the generation of electricity. Notwithstanding the foregoing, Electrical Costs shall be adjusted as follows: (a) any amounts received by Landlord as reimbursement for above standard electrical consumption shall be deducted from Electrical Costs, (b) the cost of electricity incurred in providing overtime HVAC to specific tenants shall be deducted from Electrical Costs, it being agreed that the electrical component of overtime HVAC Costs shall be calculated as a reasonable percentage of the total HVAC costs charged to such tenants, and (c) if Tenant is billed directly for the cost of electricity to the Premises as a separate charge in addition to Base Rental and Basic Costs, the cost of electricity to individual tenant spaces in the Building shall be deducted from Electrical Costs. 7. "Taxes", which for purposes hereof, shall mean: (a) all real estate taxes and assessments on the Property, the Building or the Premises, and taxes and assessments levied in substitution or supplementation in whole or in part of such taxes, (b) all personal property taxes for the Building's personal property, including license expenses, (c) all taxes imposed on services of Landlord's agents and employees, (d) all other taxes, fees or assessments now or hereafter levied by any governmental authority on the Property, the Building or its contents or on the operation and use thereof (except as relate to specific tenants), and (e) all costs and fees incurred in connection with seeking reductions in or refunds in Taxes including, without limitation, any costs incurred by Landlord to challenge the tax valuation of the Building, but excluding income taxes. For the purpose of determining real estate taxes and assessments for any given Fiscal Year, the amount to be included in Taxes for such year shall be as follows: (1) with respect to any special assessment that is payable in installments, Taxes for such year shall include the amount of the installment (and any interest) due and payable during such Fiscal Year; and (2) with respect to all other real estate taxes, Taxes for such Fiscal Year shall include the amount due and payable for such Fiscal Year. If a reduction in Taxes is obtained for any Fiscal Year of the Lease Term during which Tenant paid its Pro Rata Share of Basic Costs, then Basic Costs for such year will be retroactively adjusted and Landlord shall provide Tenant with a credit, if any, based on such adjustment. Likewise, if d reduction is subsequently obtained for Taxes for the Tax Base Year, Basic Costs for the Tax Base Year shall be restated and the Excess for all subsequent years recomputed. Tenant shall pay to Landlord Tenant's Pro Rata Share of any such increase in the Excess within thirty (30) days after Tenant's receipt of a statement therefor from Landlord. 8. All landscape expenses and costs of maintaining, repairing, resurfacing and striping of the parking areas and garages of the Property, if any. 9. Cost of all maintenance service agreements, including those for equipment, alarm service, window cleaning, drapery or venetian blind cleaning, janitorial services, pest control, uniform supply, plant maintenance, landscaping, and any parking equipment. 10. Cost of all other repairs, replacements and general maintenance of the Property and Building neither specified above nor directly billed to tenants. -7- 11. The amortized cost of capital improvements made to the Building or the Property which are: (a) primarily for the purpose of reducing operating expense costs or otherwise improving the operating efficiency of the Property or Building; or (b) required to comply with any laws, rules or regulations of any governmental authority or a requirement of Landlord's insurance carrier. The cost of such capital improvements shall be amortized over a period of five (5) years and shall, at Landlord's option, include interest at a rate that is reasonably equivalent to the interest rate that Landlord would be required to pay to finance the cost of the capital improvement in question as of the date such capital improvement is performed, provided if the payback period for any capital improvement is less than five (5) years, Landlord may amortize the cost of such capital improvement over the payback period. 12. Any other expense or charge of any nature whatsoever which, in accordance with general industry practice with respect to the operation of a first-class office building, would be construed as an operating expense. Basic Costs shall not include the cost of capital improvements (except as set forth above and as distinguished from replacement parts or components purchased and installed in the ordinary course), depreciation, interest (except as provided above with respect to the amortization of capital improvements), lease commissions, and principal payments on mortgage and other non-operating debts of Landlord. In addition, if Landlord incurs any common Expenses in connection with the Building and one or more other buildings, the cost of such Expenses shall be equitably prorated between the Building and such other buildings. If the Building is not at least ninety-five percent (95%) occupied during any calendar year of the Lease Term or if Landlord is not supplying services to at least ninety-five percent (95%) of the total Rentable Area of the Building at any time during any calendar year of the Lease Term, actual Basic Costs for purposes hereof shall, at Landlord's option, be determined as if the Building had been ninety-five percent (95%) occupied and Landlord had been supplying services to ninety-five percent (95%) of the Rentable Area of the Building during such year. If Tenant pays for its Pro Rata Share of Basic Costs based on increases over a "Base Year" and Basic Costs for any calendar year during the Lease Term are determined as provided in the foregoing sentence, Basic Costs for such Base Year shall also be determined as if the Building had been ninety-five percent (95%) occupied and Landlord had been supplying services to ninety-five percent (95%) of the Rentable Area of the Building. Any necessary extrapolation of Basic Costs under this Article shall be performed by adjusting the cost of those components of Basic Costs that are impacted by changes in the occupancy of the Building (including, at Landlord's option, Taxes) to the cost that would have been incurred if the Building had been ninety-five percent (95%) occupied and Landlord had been supplying services to ninety-five percent (95%) of the Rentable Area of the Building. In addition, if Tenant's Pro Rata Share of Basic Costs is determined based upon increases over a Base Year and Basic Costs for the Base Year include exit and disconnection fees, stranded cost charges and/or competitive transaction charges, such fees and charges may, at Landlord's option, be imputed as a Basic Cost for subsequent years in which such fees and charges are not incurred. In no event, however, shall the amount of such imputed fees and charges exceed the actual amount of exit and disconnection fees, stranded cost charges and/or competitive transaction charges that were actually included in Basic Costs for the Base Year. -8- C. If Basic Costs for any calendar year increase by more than five percent (5%) over Basic Costs for the immediately preceding calendar year, Tenant, within ninety (90) days after receiving Landlord's statement of actual Basic Costs for a particular calendar year, shall have the right to provide Landlord with written notice (the "Review Notice") of its intent to review Landlord's books and records relating to the Basic Costs for such calendar year. Within a reasonable time after receipt of a timely Review Notice, Landlord shall make such books and records available to Tenant or Tenant's agent for its review at either Landlord's home office or at the office of the Building, provided that if Tenant retains an agent to review Landlord's books and records for any calendar year, such agent must be a CPA firm licensed to do business in the state in which the Building is located and must not be paid on a contingent fee basis. Tenant shall be solely responsible for any and all costs, expenses and fees incurred by Tenant or Tenant's agent in connection with such review. If Tenant elects to review Landlord's books and records, within thirty (30) days after such books and records are made available to Tenant, Tenant shall have the right to give Landlord written notice stating in reasonable detail any objection to Landlord's statement of actual Basic Costs for such calendar year. If Tenant fails to give Landlord written notice of objection within such thirty (30) day period or fails to provide Landlord with a Review Notice within the ninety (90) day period provided above, Tenant shall be deemed to have approved Landlord's statement of Basic Costs in all respects and shall thereafter be barred from raising any claims with respect thereto. Upon Landlord's receipt of a timely objection notice from Tenant, Landlord and Tenant shall work together in good faith to resolve the discrepancy between Landlord's statement and Tenant's review. If Landlord and Tenant determine that Basic Costs for the calendar year in question are less than reported, Landlord shall provide Tenant with a credit against future Additional Base Rental in the amount of any overpayment by Tenant. Likewise, if Landlord and Tenant determine that Basic Costs for the calendar year in question are greater than reported, Tenant shall forthwith pay to Landlord the amount of underpayment by Tenant. Any information obtained by Tenant pursuant to the provisions of this Section shall be treated as confidential. Notwithstanding anything herein to the contrary, Tenant shall not be permitted to examine Landlord's books and records or to dispute any statement of Basic Costs unless Tenant has paid to Landlord the amount due as shown on Landlord's statement of actual Basic Costs, said payment being a condition precedent to Tenant's right to examine Landlord's books and records. D. Tenant covenants and agrees to pay to Landlord during the Lease Term, without any setoff or deduction whatsoever, except as expressly set forth in Exhibit D, the full amount of all Base Rental, as additional rent, and Additional Base Rental due hereunder. In addition, Tenant shall pay and be liable for, as additional rent, all rental, sales and use taxes or other similar taxes, if any, levied or imposed by any city, state, county or other governmental body having authority, such payments to be in addition to all other payments required to be paid to Landlord by Tenant under the terms and conditions of this Lease. Any such payments shall be paid concurrently with the payments of the Rent on which the tax is based. The Base Rental, Tenant's Pro Rata Share of Basic Costs and any recurring monthly charges due hereunder shall be due and payable in advance on the first day of each calendar month during the Lease Term without demand, provided that the installment of Base Rental for the first full calendar month of the Lease Term shall be payable upon the execution of this Lease by Tenant. All other items of Rent shall be due and payable by Tenant on or before ten (10) days after billing by Landlord. Notwithstanding the foregoing, any charges which are not fixed amounts and for which -9- Landlord must bill Tenant, such as year-end adjustment of Tenant's Pro Rata Share of Basic Costs (as opposed to estimated payments due monthly), shall be paid by Tenant within twenty (20) days after the date Tenant receives the bill for such charges. If the Lease Term commences on a day other than the first day of a calendar month or terminates on a day other than the last day of a calendar month, then the monthly Base Rental and Tenant's Pro Rata Share of Basic Costs for such month shall be prorated for the number of days in such month occurring within the Lease Term based on a fraction, the numerator of which is the number of days of the Lease Term that fell within such calendar month and the denominator of which is thirty (30). All such payments shall be by a good and sufficient check. No payment by Tenant or receipt or acceptance by Landlord of a lesser amount than the correct amount of Rent due under this Lease shall be deemed to be other than a payment on account of the earliest Rent due hereunder, nor shall any endorsement or statement on any check or any letter accompanying any check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance or pursue any other available remedy. The acceptance by Landlord of any Rent on a date after the due date of such payment shall not be construed to be a waiver of Landlord's right to declare a default for any other late payment. Tenant's covenant to pay Rent shall be independent of every other covenant set forth in this Lease. E. All Rent not paid when due and payable shall bear interest from the date due until paid at the lesser of: (1) eighteen percent (18%) per annum; or (2) the Maximum Rate, provided Tenant shall be entitled to a grace period of five (5) days with respect to the first two (2) late payments in any calendar year. In addition, if Tenant fails to pay any installment of Rent when due and payable hereunder, a service fee equal to five percent (5%) of such unpaid amount will be due and payable immediately by Tenant to Landlord, provided Tenant shall be entitled to a grace period of five (5) days with respect to the first two (2) late payments in any calendar year. F. Intentionally Omitted. V. Use. The Premises shall be used for the Permitted Use and for no other purpose. Tenant agrees not to use or permit the use of the Premises for any purpose which is illegal, dangerous to life, limb or property or which, in Landlord's reasonable opinion, creates a nuisance or which would increase the cost of insurance coverage with respect to the Building. Tenant shall conduct its business and control its agents, servants, contractors, employees, customers, licensees, and invitees in such a manner as not to interfere with, annoy or disturb other tenants, or in any way interfere with Landlord in the management and operation of the Building. Tenant will maintain the Premises in a clean and healthful condition, and comply with all laws, ordinances, orders, rules and regulations of any governmental entity with reference to the operation of Tenant's business and to the use, condition, configuration or occupancy of the Premises, including without limitation, the Americans with Disabilities Act (collectively referred to as "Laws"). Tenant, within ten (10) days after receipt thereof, shall provide Landlord with copies of any notices it receives with respect to a violation or alleged violation of any Laws. Tenant shall reimburse and compensate Landlord for all expenditures made by, or damages or fines sustained or incurred by, Landlord due to any violations of Laws by Tenant or any Tenant Related Parties with respect to the Premises. Tenant will comply with the rules and regulations of the Building attached hereto as Exhibit B and such other rules and regulations adopted and altered by Landlord from time to time and will cause all of its agents, servants, contractors, employees, customers, licensees and invitees to do so. All changes to such rules and regulations will be reasonable and shall be sent by -10- Landlord to Tenant in writing. VI. Security Deposit. Intentionally Omitted. VII. Services to be Furnished by Landlord. A. Landlord, as part of Basic Costs (except as otherwise provided), agrees to furnish Tenant the following services: 1. Water for use in the lavatories on the floor(s) on which the Premises is located. If Tenant desires water in the Premises for any approved reason, including a private lavatory or kitchen, cold water shall be supplied, at Tenant's sole cost and expense, from the Building water main through a line and fixtures installed at Tenant's sole cost and expense with the prior reasonable consent of Landlord. If Tenant desires hot water in the Premises, Tenant, at its sole cost and expense and subject to the prior reasonable consent of Landlord, may install a hot water heater in the Premises. Tenant shall be solely responsible for maintenance and repair of any such hot water heater. 2. Central heat and air conditioning in season during Normal Business Hours, at such temperatures and in such amounts as are considered by Landlord, in its reasonable judgment, to be standard for buildings of similar class, size, age and location, or as required by governmental authority. In the event that Tenant requires central heat, ventilation or air conditioning at hours other than Normal Business Hours, such central heat, ventilation or air conditioning shall be furnished only upon the written request of Tenant delivered to Landlord at the office of the Building prior to 3:00 P.M. at least one Business Day in advance of the date for which such usage is requested. Tenant shall pay Landlord, as Additional Base Rental, the entire cost of additional service as such costs are determined by Landlord from time to time, Landlord acknowledges that Tenant will operate its business and use the Premises 24 hours per day up to seven (7) days per week. Provided that Landlord first approves Tenant's plans and specifications therefor pursuant to and in accordance with Article X.B hereof, Tenant shall have the right to install, at Tenant's sole cost and expense, a supplemental HVAC system which Tenant intends to use after Normal Business Hours. Tenant shall, at Tenant's sole cost and expense, be responsible for the repair, maintenance and operating expenses of the supplemental HVAC system. 3. Maintenance and repair of all Common Areas in the manner and to the extent reasonably deemed by Landlord to be standard for buildings of similar class, size, age and location. 4. Janitor service on Business Days; provided, however, if Tenant's use, floor covering or other improvements require special services, Tenant shall pay the additional cost reasonably attributable thereto as Additional Base Rental. 5. Passenger elevator service in common with other tenants of the Building. -11- 6. Electricity to the Premises for general office use, in accordance with and subject to the terms and conditions set forth in Article XI of this Lease. B. The failure by Landlord to any extent to furnish, or the interruption or termination of, any services in whole or in part, resulting from adherence to laws, regulations and administrative orders, wear, use, repairs, improvements, alterations or any causes beyond the reasonable control of Landlord shall not render Landlord liable in any respect nor be construed as a constructive eviction of Tenant, nor give rise to an abatement of Rent, nor relieve Tenant from the obligation to fulfill any covenant or agreement hereof. Should any of the equipment or machinery used in the provision of such services for any cause cease to function properly, Landlord shall use reasonable diligence to repair such equipment or machinery. Notwithstanding anything to the contrary contained in this Section VII.B. if: (i) Landlord ceases to furnish any service in the Building for a period in excess of five (5) consecutive days after Tenant notifies Landlord of such cessation (the "Interruption Notice"); (ii) such cessation does not arise as a result of an act or omission of Tenant; (iii) such cessation is not caused by a fire or other casualty (in which case Article XIX shall control); (iv) the restoration of such service is reasonably within the control of Landlord; and (v) as a result of such cessation, the Premises or a material portion thereof, is rendered untenantable (meaning that Tenant is unable to use the Premises in the normal course of its business) and Tenant in fact ceases to use the Premises, or material portion thereof, then Tenant, as its sole remedy, shall be entitled to receive an abatement of Base Rental payable hereunder during the period beginning on the sixth (6th) consecutive day of such cessation and ending on the day when the service in question has been restored. In the event the entire Premises has not been rendered untenantable by the cessation in service, the amount of abatement that Tenant is entitled to receive shall be prorated based upon the percentage of the Premises so rendered untenantable and not used by Tenant. C. Tenant expressly acknowledges that if Landlord, from time to time, elects to provide security services, Landlord shall not be deemed to have warranted the efficiency of any security personnel, service, procedures or equipment and Landlord shall not be liable in any manner for the failure of any such security personnel, services, procedures or equipment to prevent or control, or apprehend anyone suspected of personal injury, property damage or any criminal conduct in, on or around the Property. VIII. Leasehold Improvements. Any trade fixtures, unattached and movable equipment or furniture, or other personalty brought into the Premises by Tenant ("Tenant's Property") shall be owned and insured by Tenant. Tenant shall remove all such Tenant's Property from the Premises in accordance with the terms of Article XXXV hereof. Any and all alterations, additions and improvements to the Premises, including any built-in furniture (collectively, "Leasehold Improvements") shall be owned and insured by Landlord and shall remain upon the Premises, all without compensation, allowance or credit to Tenant. Landlord may, nonetheless, at any time prior to, or within six (6) months after, the expiration or earlier termination of this Lease or Tenant's right to possession, require Tenant to remove any Leasehold Improvements performed by or for the benefit of Tenant and all electronic, phone and data cabling as are designated by Landlord (the "Required Removables") at Tenant's sole cost. In the event that Landlord so elects, Tenant shall remove such Required Removables within fifteen (15) days after notice from Landlord, provided that in no event shall Tenant be required to remove such Required Removables prior to the expiration or earlier termination of this Lease or Tenant's right to possession. In addition to Tenant's obligation to remove the Required Removables, Tenant shall repair any -12- damage caused by such removal and perform such other work as is reasonably necessary to restore the Premises to a "move in" condition. If Tenant fails to remove any specified Required Removables or to perform any required repairs and restoration within the time period specified above, Landlord, at Tenant's sole cost and expense, may remove, store, sell and/or dispose of the Required Removables and perform such required repairs and restoration work. Tenant, within five (5) days after demand from Landlord, shall reimburse Landlord for any and all reasonable costs incurred by Landlord in connection with the Required Removables. Notwithstanding the foregoing, Tenant may request in writing at the time it submits its plans and specifications for an alteration, addition or improvement, that Landlord advise Tenant whether Landlord will require Tenant to remove, at the termination of this Lease or Tenant's right to possession hereunder, such alteration, addition or improvement, or any particular portion thereof and Landlord shall advise Tenant within twenty (20) days after receipt of Tenant's request as to whether Landlord will require removal; provided, however, Landlord shall have the right to require Tenant to remove any vault, stairway, raised floor or structural alterations installed in the Premises, regardless of whether Landlord timely notified Tenant that it would require such removal. IX. Graphics. Landlord shall provide and install, at Tenant's cost, any suite numbers and Tenant identification on the exterior of the Premises using the standard graphics for the Building. Tenant shall not be permitted to install any signs or other identification without Landlord's prior written consent. X. Repairs and Alterations. A. Except to the extent such obligations are imposed upon Landlord hereunder, Tenant, at its sole cost and expense, shall perform all maintenance and repairs to the Premises as are necessary to keep the same in good condition and repair throughout the entire Lease Term, reasonable wear and tear excepted. Tenant's repair and maintenance obligations with respect to the Premises shall include, without limitation, any necessary repairs with respect to: (1) any carpet or other floor covering, (2) any interior partitions, (3) any doors, (4) the interior side of any demising walls, (5) any telephone and computer cabling that serves Tenant's equipment exclusively, (6) any supplemental air conditioning units, private showers and kitchens, including any plumbing in connection therewith, and similar facilities serving Tenant exclusively, and (7) any alterations, additions or improvements performed by contractors retained by Tenant. All such work shall be performed in accordance with section X.B. below and the rules, policies and procedures reasonably enacted by Landlord from time to time for the performance of work in the Building. If Tenant fails to make any necessary repairs to the Premises, Landlord may, at its option, make such repairs, and Tenant shall pay the cost thereof to the Landlord on demand as Additional Base Rental, together with an administrative charge in an amount equal to ten percent (10%) of the cost of such repairs. Landlord shall, at its expense (except as included in Basic Costs), keep and maintain in good repair and working order and make all repairs to and perform necessary maintenance upon: (a) all structural elements of the Building; and (b) all mechanical, electrical and plumbing systems that serve the Building in general; and (c) the Building facilities common to all tenants including, but not limited to, the ceilings, walls and floors in the Common Areas. In addition, Landlord may elect, at the expense of Tenant, to repair any damage or injury to the Building caused by moving property of Tenant in or out of the Building, or by installation or removal of furniture or other property, or by misuse by, or neglect, or -13- improper conduct of, Tenant or any Tenant Related Parties (hereinafter defined). B. Tenant shall not make or allow to be made any alterations, additions or improvements to the Premises without first obtaining the written consent of Landlord in each such instance, which consent shall not be unreasonably withheld or delayed except that, with respect to matters of aesthetics, Landlord may withhold its consent in Landlord's sole discretion. Prior to commencing any such work and as a condition to obtaining Landlord's consent, Tenant must furnish Landlord with plans and specifications reasonably acceptable to Landlord; names and addresses of contractors reasonably acceptable to Landlord; copies of contracts; necessary permits and approvals; evidence of contractor's and subcontractor's insurance in accordance with Article XVI section B hereof; and payment bond or other security, all in form and amount satisfactory to Landlord. All such improvements, alterations or additions shall be constructed in a good and workmanlike manner using Building Standard materials or other new materials of equal or greater quality. Landlord, to the extent reasonably necessary to avoid any disruption to the tenants and occupants of the Building, shall have the right to designate the time when any such alterations, additions and improvements may be performed and to otherwise designate reasonable rules, regulations and procedures for the performance of work in the Building. Upon completion, Tenant shall furnish "as-built" plans, contractor's affidavits and full and final waivers of lien and receipted bills covering all labor and materials. All improvements, alterations and additions shall comply with all insurance requirements, codes, ordinances, laws and regulations, including without limitation, the Americans with Disabilities Act. Tenant shall reimburse Landlord upon demand as Additional Base Rental for all sums, if any, expended by Landlord for third party examination of the architectural, mechanical, electric and plumbing plans for any alterations, additions or improvements. In addition, if Landlord so requests, Landlord shall be entitled to oversee the construction of any alterations, additions or improvements that may affect the structure of the Building or any of the mechanical, electrical, plumbing or life safety systems of the Building. In the event Landlord elects to oversee such work, Landlord shall be entitled to receive a fee for such oversight in an amount equal to five percent (5%) of the cost of such alterations, additions or improvements. Landlord's approval of Tenant's plans and specifications for any work performed for or on behalf of Tenant shall not be deemed to be a representation by Landlord that such plans and specifications comply with applicable insurance requirements, building codes, ordinances, laws or regulations or that the alterations, additions and improvements constructed in accordance with such plans and specifications will be adequate for Tenant's use. Tenant shall pay, as an additional charge, the entire increase in real estate taxes on the Building which shall, at any time prior to or after the Commencement Date, result from or be attributable to any alteration, addition or improvement to the Premises made by or for the account of Tenant in excess of the Building Standard improvements for the Building. XI. Use of Electrical Services by Tenant. A. The parties acknowledge that the consumption of electricity in the Premises (other than electricity consumed for the purposes of providing the services which Landlord is required to provide hereunder) will be measured by a separate sub-meter installed in the Premises. Tenant shall reimburse Landlord for the entire cost of such electric current as follows: -14- 1. Commencing as of the Commencement Date and continuing until the procedures set forth in Subparagraph 2 of this Paragraph A are effected, Tenant shall pay to Landlord at the same time and in the same manner that it pays its monthly payments of Base Rental hereunder, estimated monthly payments on account of Tenant's obligation to reimburse Landlord for electricity consumed in the Premises. 2. Periodically after the Commencement Date, Landlord shall determine the actual cost of electricity consumed by Tenant in the premises (i.e. by reading Tenant's sub-meter and by applying the actual monthly electric rate(s) applicable to the preceding period). If the total of Tenant's estimated monthly payments on account of such period is less than the actual cost of electricity consumed in the premises during such period, Tenant shall pay the difference to Landlord when billed therefor. If the total of Tenant's estimated monthly payments on account of such period is greater than the actual cost of electricity consumed in the premises during such period, Tenant may credit the difference against its next installment of rental or other charges due hereunder. 3. After each adjustment, as set forth in Paragraph 2 above, the amount of estimated monthly payments on account of Tenant's obligation to reimburse Landlord for electricity in the premises shall be adjusted based upon the actual cost of electricity consumed during the immediately preceding period. It is understood that electrical service to the Premises may be furnished by one or more companies providing electrical generation, transmission and/or distribution services and that the cost of electricity may be billed as a single charge or divided into and billed in a variety of categories such as distribution charges, transmission charges, generation charges, public good charges or other similar categories. Landlord shall have the exclusive right to select the company(ies) providing electrical service to the Building, Premises and Property, to aggregate the electrical service for the Building, Premises and Property with other buildings, to purchase electricity for the Building, Premises and Property through a broker and/or buyers group and to change the providers and/or manner of purchasing electricity from time to time. Landlord shall be entitled to receive a reasonable fee (if permitted by law) for the services provided by Landlord in connection with the selection of utility companies and the negotiation and administration of contracts for the generation of electricity. In addition, if Landlord bills Tenant directly for the cost of electricity as Additional Base Rental, the cost of electricity may include (if permitted by law) an administrative fee to reimburse Landlord for the cost of reading meters, preparing invoices and related costs. B. Tenant's use of electrical service in the Premises shall not exceed, either in voltage, rated capacity, use beyond Normal Business Hours or overall load, that which Landlord deems to be standard for the Building. In the event Tenant shall consume (or request that it be allowed to consume) electrical service in excess of that deemed by Landlord to be standard for the Building, Landlord may refuse to consent to such excess usage or may condition its consent to such excess usage upon such conditions as Landlord reasonably elects (including the installation of utility service upgrades, submeters, air handlers or cooling units), and all such additional usage (to the extent permitted by law), installation and maintenance thereof shall be paid for by Tenant as Additional Base Rental. Landlord, at any time during the Lease Term, shall have the right to separately meter -15- electrical usage for the Premises or to measure electrical usage by survey or any other method that Landlord, in its reasonable judgment, deems to be appropriate. Landlord acknowledges that Tenant will operate its business and use the Premises 24 hours per day up to seven (7) days per week. As a result, Tenant will use electrical service beyond Normal Business Hours and Landlord hereby consents to such use, provided that such use does not adversely affect any of the Building systems. C. Notwithstanding Section A. above to the contrary, if Landlord permits Tenant to purchase electrical power for the Premises from a provider other than Landlord's designated company(ies), such provider shall be considered to be a contractor of Tenant and Tenant shall indemnify and hold Landlord harmless from such provider's acts and omissions while in, or in connection with their services to, the Building or Premises in accordance with the terms and conditions of Article XV. In addition, at the request of Landlord, Tenant shall allow Landlord to purchase electricity from Tenant's provider at Tenant's rate or at such lower rate as can be negotiated by the aggregation of Landlord's and Tenant's requirements for electricity power. XII. Entry by Landlord. Landlord and its agents or representatives shall have the right to enter the Premises to inspect the same, or to show the Premises to prospective purchasers, mortgagees, tenants (during the last twelve months of the Lease Term or earlier in connection with a potential relocation) or insurers, or to clean or make repairs, alterations or additions thereto, including any work that Landlord deems necessary for the safety, protection or preservation of the Building or any occupants thereof, or to facilitate repairs, alterations or additions to the Building or any other tenants' premises. Except for any entry by Landlord in an emergency situation or to provide normal cleaning and janitorial service, Landlord shall provide Tenant with reasonable prior notice of any entry into the Premises, which notice may be given verbally. If reasonably necessary for the protection and safety of Tenant and its employees, Landlord shall have the right to temporarily close the Premises to perform repairs, alterations or additions in the Premises, provided that Landlord shall use reasonable efforts to perform all such work on weekends and after Normal Business Hours. Entry by Landlord hereunder shall not constitute a constructive eviction or entitle Tenant to any abatement or reduction of Rent by reason thereof. Notwithstanding the foregoing, except in emergency situations as determined by Landlord, Landlord shall exercise reasonable efforts to perform any entry into the Premises in a manner that is reasonably designed to minimize interference with the operation of Tenant's business in the Premises. XIII. Assignment and Subletting. A. Tenant shall not assign, sublease, transfer or encumber this Lease or any interest therein or grant any license, concession or other right of occupancy of the Premises or any portion thereof or otherwise permit the use of the Premises or any portion thereof by any party other than Tenant (any of which events is hereinafter called a "Transfer") without the prior written consent of Landlord, which consent shall not be unreasonably withheld with respect to any proposed assignment or subletting. Landlord's consent shall not be considered unreasonably withheld if: (1) the proposed transferee's financial responsibility does not meet the same criteria Landlord uses to select Building tenants; (2) the proposed transferee's business is not suitable for the Building considering the business of the other tenants and the Building's prestige or would result in a violation of an exclusive right granted to another tenant in the Building; (3) the proposed use is different than the Permitted Use; (4) the proposed -16- transferee is a government agency or occupant of the Building; (5) Tenant is in default; (6) any portion of the Building or Premises would become subject to additional or different governmental laws or regulations as a consequence of the proposed Transfer and/or the proposed transferee's use and occupancy of the Premises; or (7) Landlord has commenced negotiations with the proposed transferee for other space in the Building. Tenant acknowledges that the foregoing is not intended to be an exclusive list of the reasons for which Landlord may reasonably withhold its consent to a proposed Transfer. Tenant covenants and agrees that it will not advertise the Premises, or any portion thereof, for sublet or assignment for a rental rate which is lower than the rental rate then being offered by Landlord for comparable space in the Building. Any attempted Transfer in violation of the terms of this Article shall, at Landlord's option, be void. Consent by Landlord to one or more Transfers shall not operate as a waiver of Landlord's rights as to any subsequent Transfers. In addition, Tenant shall not, without Landlord's consent, publicly advertise the proposed rental rate for any Transfer. B. If Tenant requests Landlord's consent to a Transfer, Tenant, together with such request for consent, shall provide Landlord with the name of the proposed transferee and the nature of the business of the proposed transferee, the term, use, rental rate and all other material terms and conditions of the proposed Transfer, including, without limitation, a copy of the proposed assignment, sublease or other contractual documents and evidence satisfactory to Landlord that the proposed transferee is financially responsible. Notwithstanding Landlord's agreement to act reasonably under Section XIII.A. above, Landlord may, within thirty (30) days after its receipt of all information and documentation required herein, either, (1) consent to or reasonably refuse to consent to such Transfer in writing; or (2) negotiate directly with the proposed transferee and in the event Landlord is able to reach an agreement with such proposed transferee, terminate this Lease (in part or in whole, as appropriate) upon thirty (30) days' notice; or (3) cancel and terminate this Lease, in whole or in part as appropriate, upon thirty (30) days' notice. In the event Landlord consents to any such Transfer, the Transfer and consent thereto shall be in a form approved by Landlord, and Tenant shall bear all reasonable costs and expenses incurred by Landlord in connection with the review and approval of such documentation ("Review and Approval Costs"), which Review and Approval Costs shall be deemed to be at least Seven Hundred Fifty Dollars ($750.00). Notwithstanding the foregoing, provided that Tenant does not request any changes to this Lease or Landlord's standard form of consent in connection with the proposed transfer, such Review and Approval Costs shall not exceed Seven Hundred Fifty Dollars ($750.00). C. Fifty percent (50%) of all cash or other proceeds (the "Transfer Consideration") of any Transfer of Tenant's interest in this Lease and/or the Premises, whether consented to by Landlord or not, shall be paid to Landlord and Tenant hereby assigns all rights it might have or ever acquire in any such proceeds to Landlord. In addition to the Rent hereunder, Tenant hereby covenants and agrees to pay to Landlord fifty percent (50%) of all rent and other consideration which it receives which is in excess of the Rent payable hereunder within ten (10) days following receipt thereof by Tenant. In determining excess rent in connection with an assignment or subletting, Tenant may, on an amortized basis over the term of the sublease or assignment, deduct the following expenditures resulting from such subletting or assignment: (1) brokerage and marketing fees; (2) legal fees (including the Review and Approval Costs); and (3) construction costs. In addition to any other rights Landlord may have, Landlord shall have the right to contact any transferee and require that all payments made -17- pursuant to the Transfer shall be made directly to Landlord, except that Landlord shall have no right to collect rent from subtenants and other occupants of the Premises other than an assignee, except during such times as Tenant is in default of its obligations under the Lease, beyond the expiration of applicable notice and grace periods. D. If Tenant is a corporation, limited liability company or similar entity, and if at any time during the Lease Term the entity or entities who own the voting shares at the time of the execution of this Lease cease for any reason (including but not limited to merger, consolidation or other reorganization involving another corporation) to own a majority of such shares, or if Tenant is a partnership and if at any time during the Lease Term the general partner or partners who own the general partnership interests in the partnership at the time of the execution of this Lease, cease for any reason to own a majority of such interests (except as the result of transfers by gift, bequest or inheritance to or for the benefit of members of the immediate family of such original shareholder[s] or partner[s]), such an event shall be deemed to be a Transfer. The preceding sentence shall not apply whenever Tenant is a corporation, the outstanding stock of which is listed on a recognized security exchange, or if at least eighty percent (80%) of its voting stock is owned by another corporation, the voting stock of which is so listed. E. Any Transfer consented to by Landlord in accordance with this Article XIII shall be only for the Permitted Use and for no other purpose. In no event shall any Transfer release or relieve Tenant or any Guarantors from any obligations under this Lease. XIV. Liens. Tenant will not permit any mechanic's liens or other liens to be placed upon the Premises or Tenant's leasehold interest therein, the Building, or the Property. Landlord's title to the Building and Property is and always shall be paramount to the interest of Tenant, and nothing herein contained shall empower Tenant to do any act that can, shall or may encumber Landlord's title. In the event any such lien does attach, Tenant shall, within five (5) days of notice of the filing of said lien, either discharge or bond over such lien to the satisfaction of Landlord and Landlord's Mortgagee (as hereinafter defined), and in such a manner as to remove the lien as an encumbrance against the Building and Property. If Tenant shall fail to so discharge or bond over such lien, then, in addition to any other right or remedy of Landlord, Landlord may, but shall not be obligated to bond over or discharge the same. Any amount paid by Landlord for any of the aforesaid purposes, including reasonable attorneys' fees (if and to the extent permitted by law) shall be paid by Tenant to Landlord on demand as Additional Base Rental. Landlord shall have the right to post and keep posted on the Premises any notices that may be provided by law or which Landlord may deem to be proper for the protection of Landlord, the Premises and the Building from such liens. XV. Indemnity and Waiver of Claims. A. Tenant shall indemnify, defend and hold Landlord, its members, principals, beneficiaries, partners, officers, directors, employees, Mortgagee(s) and agents, and the respective principals and members of any such agents (collectively the "Landlord Related Parties") harmless against and from all liabilities, obligations, damages, penalties, claims, costs, charges and expenses, including, without limitation, reasonable attorneys' fees and other professional fees (if and to the extent permitted by law), which may be imposed upon, incurred by, or asserted against Landlord or any of the Landlord Related Parties and arising, directly or indirectly, out of or in connection with the use, occupancy or maintenance -18- of the Premises by, through or under Tenant including, without limitation, any of the following: (1) any work or thing done in, on or about the Premises or any part thereof by Tenant or any of its transferees, agents, servants, contractors, employees, customers, licensees or invitees; (2) any use, non-use, possession, occupation, condition, operation or maintenance of the Premises or any part thereof; (3) any act or omission of Tenant or any of its transferees, agents, servants, contractors, employees, customers, licensees or invitees, regardless of whether such act or omission occurred within the Premises; (4) any injury or damage to any person or property occurring in, on or about the Premises or any part thereof; or (5) any failure on the part of Tenant to perform or comply with any of the covenants, agreements, terms or conditions contained in this Lease with which Tenant must comply or perform. In case any action or proceeding is brought against Landlord or any of the Landlord Related Parties by reason of any of the foregoing, Tenant shall, at Tenant's sole cost and expense, resist and defend such action or proceeding with counsel approved by Landlord or, at Landlord's option, reimburse Landlord for the cost of any counsel retained directly by Landlord to defend and resist such action or proceeding. B. Landlord and the Landlord Related Parties shall not be liable for, and Tenant hereby waives, all claims for loss or damage to Tenant's business or damage to person or property sustained by Tenant or any person claiming by, through or under Tenant [including Tenant's principals, agents and employees (collectively, the "Tenant Related Parties")] resulting from any accident or occurrence in, on or about the Premises, the Building or the Property, including, without limitation, claims for loss, theft or damage resulting from: (1) the Premises, Building, or Property, or any equipment or appurtenances becoming out of repair; (2) wind or weather; (3) any defect in or failure to operate, for whatever reason, any sprinkler, heating or air-conditioning equipment, electric wiring, gas, water or steam pipes; (4) broken glass; (5) the backing up of any sewer pipe or downspout; (6) the bursting, leaking or running of any tank, water closet, drain or other pipe; (7) the escape of steam or water; (8) water, snow or ice being upon or coming through the roof, skylight, stairs, doorways, windows, walks or any other place upon or near the Building; (9) the falling of any fixture, plaster, tile or other material; (10) any act, omission or negligence of other tenants, licensees or any other persons or occupants of the Building or of adjoining or contiguous buildings, or owners of adjacent or contiguous property or the public, or by construction of any private, public or quasi-public work; or (11) any other cause of any nature except, as to items 1-9, where such loss or damage is due to Landlord's willful or negligent failure to make repairs required to be made pursuant to other provisions of this Lease, after the expiration of a reasonable time after written notice to Landlord of the need for such repairs. Notwithstanding the foregoing, except as provided in Article XVII to the contrary, Tenant shall not be required to waive any claims against Landlord (other than for loss or damage to Tenant's business) where such loss or damage is due to Landlord's negligence. Nothing herein shall be construed as to diminish the repair and maintenance obligations of Landlord contained elsewhere in this Lease. To the maximum extent permitted by law, Tenant agrees to use and occupy the Premises, and to use such other portions of the Building as Tenant is herein given the right to use, at Tenant's own risk. C. Except to the extent such losses, liabilities, obligations, damages, penalties, claims, costs, charges and expenses result from the negligence of Tenant or any Tenant Related Parties, Landlord shall indemnify and hold Tenant harmless from and against all liabilities, obligations, damages -19- (other than consequential damages), penalties, claims, costs, charges and expenses, including, without limitation, reasonable attorneys' fees, which may be imposed upon, incurred by, or asserted against Tenant by any third parties and arising, directly or indirectly, out of or in connection with any of the following: (i) any work or thing done in, on or about the Common Areas or any part thereof by Landlord or any of its agents, contractors or employees; (ii) any use, non-use, possession, occupation, condition, operation, maintenance or management of the Common Areas or any part thereof by Landlord or any of its agents, contractors or employees; (iii) any act or omission of Landlord or any of its agents, contractors or employees; and (iv) any injury or damage to any person or property occurring in, on or about the Common Areas or any part thereof; provided, however, that in each case such liability, obligation, damage, penalty, claim, cost, charge or expense results from the negligence of Landlord and/or its agents, employees or contractors. In case any action or proceeding is brought against Tenant or any of the Tenant Related Parties by a third party by reason of any of the foregoing, Landlord shall, at Landlord's sole cost and expense, resist and defend such action or proceeding with counsel reasonably approved by Tenant. XVI. Tenant's Insurance. A. At all times commencing on and after the earlier of the Commencement Date and the date Tenant or its agents, employees or contractors enters the Premises for any purpose, Tenant shall carry and maintain, at its sole cost and expense: 1. Commercial General Liability Insurance applicable to the Premises and its appurtenances providing, on an occurrence basis, a minimum combined single limit of Two Million Dollars ($2,000,000.00), with a contractual liability endorsement covering Tenant's indemnity obligations under this Lease. 2. All Risks of Physical Loss Insurance written at replacement cost value and with a replacement cost endorsement covering all of Tenant's Property in the Premises. 3. Workers' Compensation Insurance as required by the state in which the Premises is located and in amounts as may be required by applicable statute, and Employers' Liability Coverage of One Million Dollars ($1,000,000.00) per occurrence. 4. Whenever good business practice, in Landlord's reasonable judgment, indicates the need of additional insurance coverage or different types of insurance in connection with the Premises or Tenant's use and occupancy thereof, Tenant shall, upon request, obtain such insurance at Tenant's expense and provide Landlord with evidence thereof. B. Except for items for which Landlord is responsible under the Work Letter Agreement, before any repairs, alterations, additions, improvements, or construction are undertaken by or on behalf of Tenant, Tenant shall carry and maintain, at its expense, or Tenant shall require any contractor performing work on the Premises to carry and maintain, at no expense to Landlord, in addition to Workers' Compensation Insurance as required by the jurisdiction in which the Building is located, All Risk Builder's Risk Insurance in the amount of the replacement cost of any alterations, additions or improvements (or such other amount reasonably required by Landlord) and Commercial General Liability Insurance (including, -20- without limitation, Contractor's Liability coverage, Contractual Liability coverage and Completed Operations coverage,) written on an occurrence basis with a minimum combined single limit of Two Million Dollars ($2,000,000.00) and adding "the named Landlord hereunder (or any successor thereto), Equity Office Properties Trust, a Maryland real estate investment trust, EOP Operating Limited Partnership, a Delaware limited partnership, and their respective members, principals, beneficiaries. partners, officers, directors, employees, agents and any Mortgagee(s)", and other designees of Landlord as the interest of such designees shall appear, as additional insureds (collectively referred to as the "Additional Insureds"). C. Any company writing any insurance which Tenant is required to maintain or cause to be maintained pursuant to the terms of this Lease (all such insurance as well as any other insurance pertaining to the Premises or the operation of Tenant's business therein being referred to as "Tenant's Insurance"), as well as the form of such insurance, shall at all times be subject to Landlord's reasonable approval, and each such insurance company shall have an A.M. Best rating of "A-" or better and shall be licensed and qualified to do business in the state in which the Premises is located. All policies evidencing Tenant's Insurance (except for Workers' Compensation Insurance) shall specify Tenant as named insured and the Additional Insureds as additional insureds. Provided that the coverage afforded Landlord and any designees of Landlord shall not be reduced or otherwise adversely affected, all of Tenant's Insurance may be carried under a blanket policy covering the Premises and any other of Tenant's locations. All policies of Tenant's Insurance shall contain endorsements that the insurer(s) will give to Landlord and its designees at least thirty (30) days' advance written notice of any change, cancellation, termination or lapse of said insurance. Tenant shall be solely responsible for payment of premiums for all of Tenant's Insurance. Tenant shall deliver to Landlord at least fifteen (15) days prior to the time Tenant's Insurance is first required to be carried by Tenant, and upon renewals at least fifteen (15) days prior to the expiration of any such insurance coverage, a certificate of insurance of all policies procured by Tenant in compliance with its obligations under this Lease. The limits of Tenant's Insurance shall in no event limit Tenant's liability under this Lease. D. Tenant shall not do or fail to do anything in, upon or about the Premises which will: (1) violate the terms of any of Landlord's insurance policies; (2) prevent Landlord from obtaining policies of insurance acceptable to Landlord or any Mortgagees; or (3) result in an increase in the rate of any insurance on the Premises, the Building, any other property of Landlord or of others within the Building. In the event of the occurrence of any of the events set forth in this Section, Tenant shall pay Landlord upon demand, as Additional Base Rental, the cost of the amount of any increase in any such insurance premium, provided that the acceptance by Landlord of such payment shall not be construed to be a waiver of any rights by Landlord in connection with a default by Tenant under the Lease. If Tenant fails to obtain the insurance coverage required by this Lease, Landlord may, at its option, obtain such insurance for Tenant, and Tenant shall pay, as Additional Base Rental, the cost of all premiums thereon and all of Landlord's costs associated therewith. XVII. Subrogation. Notwithstanding anything set forth in this Lease to the contrary, Landlord and Tenant do hereby waive any and all right of recovery, claim, action or cause of action against the other, their respective principals, beneficiaries, partners, officers, directors, -21- agents, and employees, and, with respect to Landlord, its Mortgagee(s), for any loss or damage that may occur to Landlord or Tenant or any party claiming by, through or under Landlord or Tenant, as the case may be, with respect to their respective property, the Building, the Property or the Premises or any addition or improvements thereto, or any contents therein, by reason of fire, the elements or any other cause, regardless of cause or origin, including the negligence of Landlord or Tenant, or their respective principals, beneficiaries, partners, officers, directors, agents and employees and, with respect to Landlord, its Mortgagee(s), which loss or damage is (or would have been, had the insurance required by this Lease been carried) covered by insurance. Since this mutual waiver will preclude the assignment of any such claim by subrogation (or otherwise) to an insurance company (or any other person), Landlord and Tenant each agree to give each insurance company which has issued, or in the future may issue, policies of insurance, with respect to the items covered by this waiver, written notice of the terms of this mutual waiver, and to have such insurance policies properly endorsed, if necessary, to prevent the invalidation of any of the coverage provided by such insurance policies by reason of such mutual waiver. For the purpose of the foregoing waiver, the amount of any deductible applicable to any loss or damage shall be deemed covered by, and recoverable by the insured under the insurance policy to which such deductible relates. In the event that Tenant is permitted to and self-insures any risk which would have been covered by the insurance required to be carried by Tenant pursuant to Article XVI of the Lease, or if Tenant fails to carry any insurance required to be carried by Tenant pursuant to Article XVI of this Lease, then all loss or damage to Tenant, its leasehold interest, its business, its property, the Premises or any additions or improvements thereto or contents thereof shall be deemed covered by and recoverable by Tenant under valid and collectible policies of insurance. XVIII. Landlord's Insurance. Landlord shall maintain property insurance on the Building in such amounts as Landlord reasonably elects. The cost of such insurance shall be included as a part of the Basic Costs, and payments for losses and recoveries thereunder shall be made solely to Landlord or the Mortgagees of Landlord as their interests shall appear. XIX. Casualty Damage. If the Premises or any part thereof shall be damaged by fire or other casualty, Tenant shall give prompt written notice thereof to Landlord. In case the Building shall be so damaged that in Landlord's reasonable judgment, substantial alteration or reconstruction of the Building shall be required (whether or not the Premises has been damaged by such casualty) or in the event Landlord will not be permitted by applicable law to rebuild the Building in substantially the same form as existed prior to the fire or casualty or in the event the Premises has been materially damaged and there is less than two (2) years of the Lease Term remaining on the date of such casualty or in the event any Mortgagee should require that the insurance proceeds payable as a result of a casualty be applied to the payment of the mortgage debt or in the event of any material uninsured loss to the Building, Landlord may, at its option, terminate this Lease by notifying Tenant in writing of such termination within ninety (90) days after the date of such casualty. Such termination shall be effective as of the date of fire or casualty, with respect to any portion of the Premises that was rendered untenantable, and the effective date of termination specified in Landlord's notice, with respect to any portion of the Premises that remained tenantable. If Landlord does not elect to terminate this Lease, Landlord shall commence and proceed with reasonable diligence to restore the Building (provided that Landlord shall not be required to restore any unleased premises in the Building) and the Leasehold Improvements (but excluding any improvements, alterations or additions made by Tenant in violation of this Lease) located within the Premises, if any, which Landlord has insured to substantially the same condition they were in immediately prior to the happening of the casualty. Notwithstanding the foregoing, Landlord's obligation to restore the Building, and the Leasehold Improvements, if any, shall not require Landlord to expend for such repair and restoration work more than the insurance proceeds actually -22- received by the Landlord as a result of the casualty. When repairs to the Premises have been completed by Landlord, Tenant shall complete the restoration or replacement of all Tenant's Property necessary to permit Tenant's reoccupancy of the Premises, and Tenant shall present Landlord with evidence satisfactory to Landlord of Tenant's ability to pay such costs prior to Landlord's commencement of repair and restoration of the Premises. Landlord shall not be liable for any inconvenience or annoyance to Tenant or injury to the business of Tenant resulting in any way from such damage or the repair thereof, except that, subject to the provisions of the next sentence, Landlord shall allow Tenant a fair diminution of Rent on a per diem basis during the time and to the extent any damage to the Premises causes the Premises to be rendered untenantable and not used by Tenant. If the Premises or any other portion of the Building is damaged by fire or other casualty resulting from the negligence of Tenant or any Tenant Related Parties, the Rent hereunder shall not be diminished during any period during which the Premises, or any portion thereof, is untenantable (except to the extent Landlord is entitled to be reimbursed by the proceeds of any rental interruption insurance), and Tenant shall be liable to Landlord for the cost of the repair and restoration of the Building caused thereby to the extent such cost and expense is not covered by insurance proceeds. Landlord and Tenant hereby waive the provisions of any law from time to time in effect during the Lease Term relating to the effect upon leases of partial or total destruction of leased property. Landlord and Tenant agree that their respective rights in the event of any damage to or destruction of the Premises shall be those specifically set forth herein. Notwithstanding anything in this Article XIX to the contrary, if all or any portion of the Premises shall be made untenantable by a fire or other casualty, Landlord shall with reasonable promptness, cause an architect or general contractor selected by Landlord to estimate the amount of time required to substantially complete repair and restoration of the Premises and make the Premises tenantable again, using standard working methods (the "Completion Estimate"). If the Completion Estimate indicates that the Premises cannot be made tenantable within twelve (12) months from the date the repair and restoration is started, either party shall have the right to terminate this Lease by giving written notice to the other of such election within ten (10) days after its receipt of the Completion Estimate. Tenant, however, shall not have the right to terminate this Lease in the event that the fire or casualty in question was caused by the negligence or intention misconduct of Tenant or any Tenant Related Parties. If the Completion Estimate indicates that the Premises can be made tenantable within twelve (12) months from the date the repair and restoration is started and Landlord has not otherwise exercised its right to terminate the Lease pursuant to the terms hereof, or if the Completion Estimate indicates that the Premises cannot be made tenantable within twelve (12) months but neither party terminates this Lease pursuant to this Article XIX, Landlord shall proceed with reasonable promptness to repair and restore the Premises. Notwithstanding the foregoing, if Tenant was entitled to but elected not to exercise its right to terminate the Lease and Landlord does not substantially complete the repair and restoration the Premises within two (2) months after the expiration of the estimated period of time set forth in the Completion Estimate, which period shall be extended to the extent of any Reconstruction Delays, then Tenant may terminate this Lease by written notice to Landlord within fifteen (15) days after the expiration of such period, as the same may be extended. For purposes of this Lease, the term "Reconstruction Delays" shall mean: (i) any delays caused by the insurance adjustment process; (ii) any delays caused by Tenant; and (iii) any delays caused by events of Force Majeure. XX. Demolition. Landlord shall have the right to terminate this Lease if Landlord proposes or is required, for any reason, to remodel, remove, or demolish the Building or any substantial portion thereof. Such cancellation shall be exercised by Landlord by the service of not less than ninety (90) days' written notice of such termination. Such notice shall set forth the date upon which the termination will be effective. No money or other consideration -23- shall be payable by Landlord to Tenant for Landlord's exercise of this right, and the right is hereby reserved to Landlord and all purchasers, successors, assigns, transferees, and ground tenants of Landlord, as the case may be, and is in addition to all other rights of Landlord. Tenant has read the foregoing and understands that Landlord has a right to terminate this Lease as provided above. XXI. Condemnation. If (a) the whole or any substantial part of the Premises or (b) any portion of the Building or Property which would leave the remainder of the Building unsuitable for use as an office building comparable to its use on the Commencement Date, shall be taken or condemned for any public or quasi-public use under governmental law, ordinance or regulation, or by right of eminent domain, or by private purchase in lieu thereof, then Landlord may, at its option, terminate this Lease effective as of the date the physical taking of said Premises or said portion of the Building or Property shall occur. In the event this Lease is not terminated, the Rentable Area of the Building, the Rentable Area of the Premises and Tenant's Pro Rata Share shall be appropriately adjusted. In addition, Rent for any portion of the Premises so taken or condemned shall be abated during the unexpired term of this Lease effective when the physical taking of said portion of the Premises shall occur. All compensation awarded for any such taking or condemnation, or sale proceeds in lieu thereof, shall be the property of Landlord, and Tenant shall have no claim thereto, the same being hereby expressly waived by Tenant, except for any portions of such award or proceeds which are specifically allocated by the condemning or purchasing party for the taking of or damage to trade fixtures of Tenant, which Tenant specifically reserves to itself. In addition, Tenant may file a claim at its sole cost and expense and receive an award for the Tenant's Property and Tenant's reasonable relocation expenses, provided the filing of any claim for relocation expenses does not adversely affect or diminish the award which would otherwise have been received by Landlord had Tenant not filed such a claim and received such award. XXII. Events of Default. The following events shall be deemed to be events of default under this Lease: A. Tenant shall fail to pay when due any Base Rental, Additional Base Rental or other Rent under this Lease and such failure shall continue for five (5) days after written notice from Landlord (hereinafter sometimes referred to as a "Monetary Default"). B. Any failure by Tenant (other than a Monetary Default) to comply with any term, provision or covenant of this Lease, including, without limitation, the rules and regulations, which failure is not cured within ten (10) days after delivery to Tenant of notice of the occurrence of such failure, (or such longer period of time as may be reasonably necessary to cure (not to exceed 60 days), provided that Tenant commences to cure such default within ten (10) days after notice from Landlord and, from time to time upon request of Landlord, furnishes Landlord with evidence that demonstrates, in Landlord's reasonable judgment, that Tenant is diligently pursuing a course that will remedy such failure) provided that if any such failure creates a hazardous condition, such failure must be cured immediately. Notwithstanding the foregoing, if Tenant fails to comply with any particular provision or covenant of this Lease, including, without limitation, Tenant's obligation to pay Rent when due, on three (3) occasions during any twelve (12) month period, any subsequent violation of such provision or covenant shall be considered to be an incurable default by Tenant. C. Tenant or any Guarantor shall become insolvent, or shall make a transfer in fraud of creditors, or shall commit an act of bankruptcy or shall make an -24- assignment for the benefit of creditors, or Tenant or any Guarantor shall admit in writing its inability to pay its debts as they become due. D. Tenant or any Guarantor shall file a petition under any section or chapter of the United States Bankruptcy Code, as amended, pertaining to bankruptcy, or under any similar law or statute of the United States or any State thereof, or Tenant or any Guarantor shall be adjudged bankrupt or insolvent in proceedings filed against Tenant or any Guarantor thereunder; or a petition or answer proposing the adjudication of Tenant or any Guarantor as a debtor or its reorganization under any present or future federal or state bankruptcy or similar law shall be filed in any court and such petition or answer shall not be discharged or denied within sixty (60) days after the filing thereof. E. A receiver or trustee shall be appointed for all or substantially all of the assets of Tenant or any Guarantor or of the Premises or of any of Tenant's Property located thereon in any proceeding brought by Tenant or any Guarantor, or any such receiver or trustee shall be appointed in any proceeding brought against Tenant or any Guarantor and shall not be discharged within sixty (60) days after such appointment or Tenant or such Guarantor shall consent to or acquiesce in such appointment. F. The leasehold estate hereunder shall be taken on execution or other process of law or equity in any action against Tenant. G. Intentionally Omitted. H. Intentionally Omitted. I. The liquidation, termination, dissolution, forfeiture of right to do business, or death of Tenant or any Guarantor. J. Tenant is in default beyond any notice and cure period under any other lease with Landlord. XXIII. Remedies. A. Upon the occurrence of any event or events of default under this Lease, Landlord shall have the option to pursue any one or more of the following remedies upon notice, but without any demand whatsoever (and without limiting the generality of the foregoing, Tenant hereby specifically waives demand for payment of Rent or other obligations due [except as expressly prescribed in Article XXII above] and waives any and all other notices or demand requirements imposed by applicable law): 1. Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord. If Tenant fails to surrender the Premises upon termination of the Lease hereunder, Landlord may without prejudice to any other remedy which it may have, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying said Premises, or any part thereof, and Tenant hereby agrees to pay to Landlord on demand the amount of all loss and damage, including consequential damage, which Landlord may suffer by reason of such termination, whether through inability to relet the Premises on satisfactory terms or otherwise, specifically including but not limited to all Costs of Reletting (hereinafter defined) and any deficiency that may arise by reason of any reletting or failure to relet. -25- 2. Enter upon and take possession of the Premises and expel or remove Tenant or any other person who may be occupying said Premises, or any part thereof, without having any civil or criminal liability therefor and without terminating this Lease. Landlord may (but shall be under no obligation to) relet the Premises or any part thereof for the account of Tenant, in the name of Tenant or Landlord or otherwise, without notice to Tenant for such term or terms which may be greater or less than the period which would otherwise have constituted the balance of the Lease Term and on such conditions (which may include concessions, free rent and alterations of the Premises) and for such uses as Landlord in its absolute discretion may determine, and Landlord may collect and receive any rents payable by reason of such reletting. Tenant agrees to pay Landlord on demand all Costs of Reletting and any deficiency that may arise by reason of such reletting or failure to relet. Landlord shall not be responsible or liable for any failure to relet the Premises or any part thereof or for any failure to collect any Rent due upon any such reletting. No such re-entry or taking of possession of the Premises by Landlord shall be construed as an election on Landlord's part to terminate this Lease unless a written notice of such termination is given to Tenant. 3. Enter upon the Premises without having any civil or criminal liability therefor, and do whatever Tenant is obligated to do under the terms of this Lease, and Tenant agrees to reimburse Landlord on demand for any expense which Landlord may incur in thus affecting compliance with Tenant's obligations under this Lease together with interest at the lesser of a per annum rate equal to: (a) the Maximum Rate, or (b) the Prime Rate plus five percent (5%). 4. In order to regain possession of the Premises and to deny Tenant access thereto in any instance in which Landlord has terminated this Lease or Tenant's right to possession, or to limit access to the Premises in accordance with local law in the event of a default by Tenant, Landlord or its agent may, at the expense and liability of the Tenant, alter or change any or all locks or other security devices controlling access to the Premises without posting or giving notice of any kind to Tenant. Landlord shall have no obligation to provide Tenant a key or grant Tenant access to the Premises so long as Tenant is in default under this Lease. Tenant shall not be entitled to recover possession of the Premises, terminate this Lease, or recover any actual, incidental, consequential, punitive, statutory or other damages or award of attorneys' fees, by reason of Landlord's alteration or change of any lock or other security device. Landlord may, without notice, remove and either dispose of or store, at Tenant's expense, any property belonging to Tenant that remains in the Premises after Landlord has regained possession thereof, provided however, that Landlord shall not have any lien upon Tenant's furniture, fixtures or equipment remaining in the Premises. Notwithstanding anything herein to the contrary, if Landlord has not previously obtained a court order terminating this Lease or Tenant's right to possession, Landlord's right to limit or deny Tenant's access to the Premises shall be exercised only during the continuance of an uncured event of default and only for the limited purpose of prohibiting Tenant from removing any furniture, equipment, trade fixtures or other property with respect to which Landlord could reasonably be expected to have a statutory lien interest. In addition, in the event -26- that any of the rights and remedies granted to Landlord under this Section XXIII.A.4. are specifically prohibited by applicable law, the limitations and prohibitions imposed upon Landlord under such law shall prevail for the purpose of determining Landlord's rights and remedies under this Lease. 5. Terminate this Lease, in which event, Tenant shall immediately surrender the Premises to Landlord and pay to Landlord the sum of: (a) all Rent accrued hereunder through the date of termination, and, upon Landlord's determination thereof, (b) an amount equal to: the total Rent that Tenant would have been required to pay for the remainder of the Lease Term discounted to present value at the Prime Rate then in effect, minus the then present fair rental value of the Premises for the remainder of the Lease Term, similarly discounted, after deducting all anticipated Costs of Reletting (as defined below). B. For purposes of this Lease, the term "Costs of Reletting" shall mean all costs and expenses incurred by Landlord in connection with the reletting of the Premises, including without limitation, the cost of cleaning, renovation, repairs, decoration and alteration of the Premises for a new tenant or tenants, advertisement, marketing, brokerage and legal fees (if and to the extent permitted by law), the cost of protecting or caring for the Premises while vacant, the cost of removing and storing any property located on the Premises, any increase in insurance premiums caused by the vacancy of the Premises and any other out-of-pocket expenses incurred by Landlord including tenant incentives, allowances and inducements. C. Except as otherwise herein provided, no repossession or re-entering of the Premises or any part thereof pursuant to Article XXIII hereof or otherwise shall relieve Tenant or any Guarantor of its liabilities and obligations hereunder, all of which shall survive such repossession or re-entering. Notwithstanding any such repossession or re-entering by reason of the occurrence of an event of default, Tenant will pay to Landlord the Rent required to be paid by Tenant pursuant to this Lease. D. No right or remedy herein conferred upon or reserved to Landlord is intended to be exclusive of any other right or remedy, and each and every right and remedy shall be cumulative and in addition to any other right or remedy given hereunder or now or hereafter existing by agreement, applicable law or in equity. In addition to other remedies provided in this Lease, Landlord shall be entitled, to the extent permitted by applicable law, to injunctive relief, or to a decree compelling performance of any of the covenants, agreements, conditions or provisions of this Lease, or to any other remedy allowed to Landlord at law or in equity. Forbearance by Landlord to enforce one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of such default. E. Intentionally Omitted. F. This Article XXIII shall be enforceable to the maximum extent such enforcement is not prohibited by applicable law, and the unenforceability of any portion thereof shall not thereby render unenforceable any other portion. XXIV. LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN -27- THIS LEASE, THE LIABILITY OF LANDLORD (AND OF ANY SUCCESSOR LANDLORD HEREUNDER) TO TENANT SHALL BE LIMITED TO THE INTEREST OF LANDLORD IN THE BUILDING, AND TENANT AGREES TO LOOK SOLELY TO LANDLORD'S INTEREST IN THE BUILDING AND IN THE UNCOLLECTED RENTS, ISSUES AND PROFITS THEREOF, FOR THE RECOVERY OF ANY JUDGMENT OR AWARD AGAINST THE LANDLORD, IT BEING INTENDED THAT NEITHER LANDLORD NOR ANY MEMBER, PRINCIPAL, PARTNER, SHAREHOLDER, OFFICER, DIRECTOR OR BENEFICIARY OF LANDLORD SHALL BE PERSONALLY LIABLE FOR ANY JUDGMENT OR DEFICIENCY. TENANT HEREBY COVENANTS THAT, PRIOR TO THE FILING OF ANY SUIT FOR AN ALLEGED DEFAULT BY LANDLORD HEREUNDER, IT SHALL GIVE LANDLORD AND ALL MORTGAGEES WHOM TENANT HAS BEEN NOTIFIED HOLD MORTGAGES OR DEED OF TRUST LIENS ON THE PROPERTY, BUILDING OR PREMISES NOTICE AND REASONABLE TIME TO CURE SUCH ALLEGED DEFAULT BY LANDLORD. WITHOUT LIMITING THE FOREGOING, IN NO EVENT SHALL LANDLORD OR ANY MORTGAGEES OR LANDLORD RELATED PARTIES EVER BE LIABLE FOR ANY CONSEQUENTIAL OR INCIDENTAL DAMAGES OR ANY LOST PROFITS OF TENANT. XXV. No Waiver. Failure of Landlord to declare any default immediately upon its occurrence, or delay in taking any action in connection with an event of default shall not constitute a waiver of such default, nor shall it constitute an estoppel against Landlord, but Landlord shall have the right to declare the default at any time and take such action as is lawful or authorized under this Lease. Failure by Landlord to enforce its rights with respect to any one default shall not constitute a waiver of its rights with respect to any subsequent default. Receipt by Landlord of Tenant's keys to the Premises shall not constitute an acceptance or surrender of the Premises. XXVI. Event of Bankruptcy. In addition to, and in no way limiting the other remedies set forth herein, Landlord and Tenant agree that if Tenant ever becomes the subject of a voluntary or involuntary bankruptcy, reorganization, composition, or other similar type proceeding under the federal bankruptcy laws, as now enacted or hereinafter amended, then: A. "Adequate protection" of Landlord's interest in the Premises pursuant to the provisions of Section 361 and 363 (or their successor sections) of the Bankruptcy Code, 11 U.S.C. Section 101 et seq., (such Bankruptcy Code as amended from time to time being herein referred to as the "Bankruptcy Code"), prior to assumption and/or assignment of the Lease by Tenant shall include, but not be limited to all (or any part) of the following: 1. the continued payment by Tenant of the Base Rental and all other Rent due and owing hereunder and the performance of all other covenants and obligations hereunder by Tenant; 2. the furnishing of an additional/new security deposit by Tenant in the amount of three (3) times the then current monthly Base Rental. B. "Adequate assurance of future performance" by Tenant and/or any assignee of Tenant pursuant to Bankruptcy Code Section 365 will include (but not be limited to) payment of an additional/new Security Deposit in the amount of three (3) times the then current monthly Base Rental payable hereunder. -28- C. Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code, shall be deemed without further act or deed to have assumed all of the obligations of Tenant arising under this Lease on and after the effective date of such assignment. Any such assignee shall, upon demand by Landlord, execute and deliver to Landlord an instrument confirming such assumption of liability. D. Notwithstanding anything in this Lease to the contrary, all amounts payable by Tenant to or on behalf of the Landlord under this Lease, whether or not expressly denominated as "Rent," shall constitute "rent" for the purposes of Section 502(b) (6) of the Bankruptcy Code. E. If this Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, any and all monies or other considerations payable or otherwise to be delivered to Landlord (including Base Rentals and other Rent hereunder), shall be and remain the exclusive property of Landlord and shall not constitute property of Tenant or of the bankruptcy estate of Tenant. Any and all monies or other considerations constituting Landlord's property under the preceding sentence not paid or delivered to Landlord shall be held in trust by Tenant or Tenant's bankruptcy estate for the benefit of Landlord and shall be promptly paid to or turned over to Landlord. F. If Tenant assumes this Lease and proposes to assign the same pursuant to the provisions of the Bankruptcy Code to any person or entity who shall have made a bona fide offer to accept an assignment of this Lease on terms acceptable to the Tenant, then notice of such proposed offer/assignment, setting forth: (1) the name and address of such person or entity, (2) all of the terms and conditions of such offer, and (3) the adequate assurance to be provided Landlord to assure such person's or entity's future performance under the Lease, shall be given to Landlord by Tenant no later than twenty (20) days after receipt by Tenant, but in any event no later than ten (10) days prior to the date that Tenant shall make application to a court of competent jurisdiction for authority and approval to enter into such assumption and assignment, and Landlord shall thereupon have the prior right and option, to be exercised by notice to Tenant given at any time prior to the effective date of such proposed assignment, to accept an assignment of this Lease upon the same terms and conditions and for the same consideration, if any, as the bona fide offer made by such persons or entity, less any brokerage commission which may be payable out of the consideration to be paid by such person for the assignment of this Lease. G. To the extent permitted by law, Landlord and Tenant agree that this Lease is a contract under which applicable law excuses Landlord from accepting performance from (or rendering performance to) any person or entity other than Tenant within the meaning of Sections 365(c) and 365(e) (2) of the Bankruptcy Code. XXVII. Waiver of Jury Trial. Landlord and Tenant hereby waive any right to a trial by jury in any action or proceeding based upon, or related to, the subject matter of this Lease. This waiver is knowingly, intentionally, and voluntarily made by Tenant, and Tenant acknowledges that neither Landlord nor any person acting on behalf of Landlord has made any representations of fact to induce this waiver of trial by jury or in any way to modify or nullify its effect. Tenant further acknowledges that it has been represented (or has had the opportunity to be represented) in the signing of this Lease and in the making of this waiver by independent legal counsel, selected of its own free will, and that it has had the opportunity to discuss this waiver with counsel. -29- XXVIII. Relocation. Intentionally Omitted. XXIX. Holding Over. In the event of holding over by Tenant after Expiration or other termination of this Lease or in the event Tenant continues to occupy the Premises after the termination of Tenant's right of possession pursuant to Articles XXII and XXIII hereof, occupancy of the Premises subsequent to such termination or expiration shall be that of a tenancy at sufferance and in no event for month-to-month or year-to-year. Tenant shall, throughout the entire holdover period, be subject to all the terms and provisions of this Lease and shall pay for its use and occupancy an amount (on a per month basis without reduction for any partial months during any such holdover) equal to twice the sum of the greater of (x) the Base Rental and Additional Base Rental due for the period immediately preceding such holding over, or (y) the fair market rental for the Premises during such period. No holding over by Tenant or payments of money by Tenant to Landlord after the expiration of the term of this Lease shall be construed to extend the Lease Term or prevent Landlord from recovery of immediate possession of the Premises by summary proceedings or otherwise. In addition to the obligation to pay the amounts set forth above during any such holdover period, Tenant also shall be liable to Landlord for all damage, including any consequential damage, which Landlord may suffer by reason of any holding over by Tenant, and Tenant shall indemnify Landlord against any and all claims made by any other tenant or prospective tenant against Landlord for delay by Landlord in delivering possession of the Premises to such other tenant or prospective tenant. Notwithstanding anything to the contrary herein contained, the payment of rent by Tenant (i) to the address set forth in Section I.A.10, or (ii) pursuant to the automatic debit provisions of Section IV.F, in either case after the expiration or earlier termination of the Term of this Lease, whether or not Landlord cashes such rent check or credits such automatic payment to its bank account, shall not act to create a tenancy at will. Tenant acknowledges that a tenancy at will after the expiration or earlier termination of the Term of this Lease can only be created by a writing signed by the Landlord. XXX. Subordination to Mortgages; Estoppel Certificate. Tenant accepts this Lease subject and subordinate to any mortgage, deed of trust, ground lease or other lien presently existing or hereafter arising upon the Premises, or upon the Building and/or the Property and to any renewals, modifications, refinancings and extensions thereof (any such mortgage, deed of trust, lease or other lien being hereinafter referred to as a "Mortgage", and the person or entity having the benefit of same being referred to hereinafter as a "Mortgagee"), but Tenant agrees that any such Mortgagee shall have the right at any time to subordinate such Mortgage to this Lease on such terms and subject to such conditions as such Mortgagee may deem appropriate in its discretion. This clause shall be self-operative and no further instrument of subordination shall be required. However, Landlord is hereby irrevocably vested with full power and authority to subordinate this Lease to any Mortgage, and Tenant agrees upon demand to execute such further instruments subordinating this Lease, acknowledging the subordination of this Lease or attorning to the holder of any such Mortgage as Landlord may reasonably request. The terms of this Lease are subject to approval by the Landlord's existing lender(s) and any lender(s) who, at the time of the execution of this Lease, have committed or are considering committing to Landlord to make a loan secured by all or any portion of the Property, and such approval is a condition precedent to Landlord's obligations hereunder, in the event that Tenant shall fail to execute any subordination or other agreement required by this Article within ten (10) days after request by Landlord, such failure shall be considered to be an event of default by Tenant entitling Landlord to exercise its rights and remedies under Article XXIII of this Lease. If any person shall succeed to all or part of Landlord's interests in the Premises whether -30- by purchase, foreclosure, deed in lieu of foreclosure, power of sale, termination of lease or otherwise, and if and as so requested or required by such successor-in-interest, Tenant shall, without charge, attorn to such successor-in-interest. Tenant agrees that it will from time to time upon request by Landlord and, within fifteen (15) days of the date of such request, execute and deliver to such persons as Landlord shall request an estoppel certificate or other similar statement in recordable form certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as so modified), stating the dates to which Rent and other charges payable under this Lease have been paid, stating that Landlord is not in default hereunder (or if Tenant alleges a default stating the nature of such alleged default) and further stating such other matters as Landlord shall reasonably require. Notwithstanding the foregoing, upon written request by Tenant, Landlord will use reasonable efforts to obtain a non-disturbance, subordination and attornment agreement from Landlord's then current mortgagee on such mortgagee's then current standard form of agreement. "Reasonable efforts" of Landlord shall not require Landlord to incur any cost, expense or liability to obtain such agreement, it being agreed that Tenant shall be responsible for any fee or review costs charged by the mortgagee. Upon request of Landlord, Tenant will execute the mortgagees form of non-disturbance, subordination and attornment agreement and return the same to Landlord for execution by the mortgagee. Landlord's failure to obtain a non-disturbance, subordination and attornment agreement for Tenant shall have no effect on the rights, obligations and liabilities of Landlord and Tenant or be considered to be a default by Landlord hereunder. XXXI. Attorneys' Fees. In the event that Landlord should institute any suit against Tenant for violation of or to enforce any of the covenants or conditions of this Lease, or should Tenant institute any suit against Landlord for violation of any of the covenants or conditions of this Lease, or should either party intervene in any suit in which the other is a party to enforce or protect its interest or rights hereunder, the prevailing party in any such suit shall be entitled to all of its costs, expenses and reasonable fees of its attorney(s) (if and to the extent permitted by law) in connection therewith. XXXII. Notice. Whenever any demand, request, approval, consent or notice ("Notice") shall or may be given to either of the parties by the other, each such Notice shall be in writing and shall be sent by registered or certified mail with return receipt requested, or sent by overnight courier service (such as Federal Express) at the respective addresses of the parties for notices as set forth in Section I.A.10. of this Lease, provided that if Tenant has vacated the Premises or is in default of this Lease Landlord may serve Notice by any manner permitted by law. Any Notice under this Lease delivered by registered or certified mail shall be deemed to have been given, delivered, received and effective on the earlier of (a) the third day following the day on which the same shall have been mailed with sufficient postage prepaid or (b) the delivery date indicated on the return receipt. Notice sent by overnight courier service shall be deemed given, delivered, received and effective upon the day after such notice is delivered to or picked up by the overnight courier service. Either party may, at any time, change its Notice Address by giving the other party Notice stating the change and setting forth the new address. XXXIII. Landlord's Lien. Intentionally Omitted. XXXIV. Excepted Rights. This Lease does not grant any rights to light or air over or about the Building. Landlord specifically excepts and reserves to itself the use of any roofs, the exterior portions of the Premises, all rights to the land and improvements below the improved -31- floor level of the Premises, the improvements and air rights above the Premises and the improvements and air rights located outside the demising walls of the Premises, and such areas within the Premises as are required for installation of utility lines and other installations required to serve any occupants of the Building and the right to maintain and repair the same, and no rights with respect thereto are conferred upon Tenant unless otherwise specifically provided herein. Landlord further reserves to itself the right from time to time: (a) to change the Building's name or street address; (b) to install, fix and maintain signs on the exterior and interior of the Building; (c) to designate and approve window coverings; (d) to make any decorations, alterations, additions, improvements to the Building, or any part thereof (including the Premises) which Landlord shall desire, or deem necessary for the safety, protection, preservation or improvement of the Building, or as Landlord may be required to do by law; (e) to have access to the Premises to perform its duties and obligations and to exercise its rights under this Lease; (f) to retain at all times and to use pass-keys to all locks within and into the Premises; (g) to approve the weight, size, or location of heavy equipment, or articles in and about the Premises; (h) to close or restrict access to the Building at all times other than Normal Business Hours subject to Tenant's right to admittance at all times under such regulations as Landlord may prescribe from time to time, or to close (temporarily or permanently) any of the entrances to the Building; (i) to change the arrangement and/or location of entrances of passageways, doors and doorways, corridors, elevators, stairs, toilets and public parts of the Building; (j) if Tenant has vacated the Premises during the last month of the Lease Term, to perform additions, alterations and improvements to the Premises in connection with a reletting or anticipated reletting thereof without being responsible or liable for the value or preservation of any then existing improvements to the Premises; and (k) to grant to anyone the exclusive right to conduct any business or undertaking in the Building. Landlord, in accordance with Article XII hereof, shall have the right to enter the Premises in connection with the exercise of any of the rights set forth herein and such entry into the Premises and the performance of any work therein shall not constitute a constructive eviction or entitle Tenant to any abatement or reduction of Rent by reason thereof. XXXV. Surrender of Premises. At the expiration or earlier termination of this Lease or Tenant's right of possession hereunder, Tenant shall remove all Tenant's Property from the Premises, remove all Required Removables designated by Landlord and quit and surrender the Premises to Landlord, broom clean, and in good order, condition and repair, ordinary wear and tear excepted. If Tenant fails to remove any of Tenant's Property within one (1) week after the termination of this Lease or Tenant's right to possession hereunder, Landlord, at Tenant's sole cost and expense, shall be entitled to remove and/or store such Tenant's Property and Landlord shall in no event be responsible for the value, preservation or safekeeping thereof. Tenant shall pay Landlord, upon demand, any and all expenses caused by such removal and all storage charges against such property so long as the same shall be in the possession of Landlord or under the control of Landlord. In addition, if Tenant fails to remove any Tenant's Property from the Premises or storage, as the case may be, within ten (10) days after written notice from Landlord, Landlord, at its option, may deem all or any part of such Tenant's Property to have been abandoned by Tenant and title thereof shall immediately pass to Landlord. XXXVI. Miscellaneous. A. If any term or provision of this Lease, or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and enforced to the fullest extent permitted by law. This Lease represents the result of negotiations between Landlord and Tenant, each of which has been (or has had opportunity to be) represented by counsel of its own selection, and neither of which has acted -32- under duress or compulsion, whether legal, economic or otherwise. Consequently, Landlord and Tenant agree that the language in all parts of the Lease shall in all cases be construed as a whole according to its fair meaning and neither strictly for nor against Landlord or Tenant. B. Tenant agrees not to record this Lease or any memorandum or notice hereof without Landlord's prior written consent; provided, however, Landlord agrees to consent to the recordation or registration of a memorandum or notice of this Lease, at Tenant's cost and expense (and in form reasonably satisfactory to Landlord), if the initial term of this Lease or the initial term plus any renewal terms granted herein exceed, in the aggregate, seven (7) years. If this Lease is terminated before the term expires, then upon Landlord's request the parties shall execute, deliver and record an instrument acknowledging such fact and the date of termination of this Lease. C. This Lease and the rights and obligations of the parties hereto shall be interpreted, construed, and enforced in accordance with the laws of the state in which the Building is located. D. Events of "Force Majeure" shall include strikes, riots, acts of God, shortages of labor or materials and war. Whenever a period of time is herein prescribed for the taking of any action by Landlord or Tenant, as the case may be, other than the payment of rent or any other sums due hereunder, such party shall not be liable or responsible for, and there shall be excluded from the computation of such a period of time, any delays due to events of Force Majeure. E. Landlord shall have the right to transfer and assign, in whole or in part, all of its rights and obligations hereunder and in the Building and Property referred to herein, and in such event and upon such transfer Landlord shall be released from any further obligations hereunder, and Tenant agrees to look solely to such successor in interest of Landlord for the performance of such obligations, provided that Landlord and its successors, as the case may be, shall remain liable after their respective periods of ownership with respect to any sums due in connection with a breach or default that arose during such period of ownership. F. Tenant hereby represents to Landlord that it has dealt directly with and only with the Broker as a broker in connection with this Lease. Tenant agrees to indemnify and hold Landlord and the Landlord Related Parties harmless from all claims of any brokers claiming to have represented Tenant in connection with this Lease. Landlord hereby represents to Tenant that it has dealt directly with and only with the Broker as a broker in connection with this Lease. Landlord agrees to indemnify and hold Tenant and the Tenant Related Parties harmless from all claims of any brokers claiming to have represented Landlord in connection with this Lease. G. If there is more than one Tenant, or if the Tenant is comprised of more than one person or entity, the obligations hereunder imposed upon Tenant shall be joint and several obligations of all such parties. If Tenant is a partnership, then each present and future partner shall be personally bound by and upon all of the covenants, agreements, terms, provisions and conditions set forth in this Lease on the part of Tenant to be performed. In confirmation of the foregoing, Landlord may (but without being required to do so) request (and Tenant shall duly comply) that Tenant, at the time that Tenant admits any new partner to its partnership, shall require each such new partner to execute an agreement in form and substance -33- satisfactory to Landlord whereby such new partner shall agree to be personally bound by and upon all of the covenants, agreements, terms, provisions and conditions of this Lease on the part of Tenant to be performed, without regard to the time when such new partner is admitted to partnership or when any obligations under any such covenants, etc., accrue. All notices, payments, and agreements given or made by, with or to any one of such persons or entities shall be deemed to have been given or made by, with or to all of them. H. In the event Tenant is a corporation (including any form of professional association), partnership (general or limited), or other form of organization other than an individual (each such entity is individually referred to herein as an "Organizational Entity"), then Tenant hereby covenants, warrants and represents: (1) that such individual is duly authorized to execute or attest and deliver this Lease on behalf of Tenant in accordance with the organizational documents of Tenant; (2) that this Lease is binding upon Tenant; (3) that Tenant is duly organized and legally existing in the state of its organization, and is qualified to do business in the state in which the Premises is located; and (4) that the execution and delivery of this Lease by Tenant will not result in any breach of, or constitute a default under any mortgage, deed of trust, lease, loan, credit agreement, partnership agreement or other contract or instrument to which Tenant is a party or by which Tenant may be bound. If Tenant is an Organizational Entity, upon request, Tenant will, prior to the Commencement Date, deliver to Landlord true and correct copies of all organizational documents of Tenant, including, without limitation, copies of an appropriate resolution or consent of Tenant's board of directors or other appropriate governing body of Tenant authorizing or ratifying the execution and delivery of this Lease, which resolution or consent will be duly certified to Landlord's satisfaction by an appropriate individual with authority to certify such documents, such as the secretary or assistant secretary or the managing general partner of Tenant. I. Tenant acknowledges that the financial capability of Tenant to perform its obligations hereunder is material to Landlord and that Landlord would not enter into this Lease but for its belief, based on its review of Tenant's financial statements, that Tenant is capable of performing such financial obligations. Tenant hereby represents, warrants and certifies to Landlord that its financial statements previously furnished to Landlord were at the time given true and correct in all material respects and that there have been no material subsequent changes thereto as of the date of this Lease. At any time during the Lease Term, Tenant shall provide Landlord, upon ten (10) days' prior written notice from Landlord, with a current financial statement and financial statements of the two (2) years prior to the current financial statement year and such other information as Landlord or its Mortgagee may reasonably request in order to create a "business profile" of Tenant and determine Tenant's ability to fulfill its obligations under this Lease. Such statement shall be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant. J. Except as expressly otherwise herein provided, with respect to all required acts of Tenant, time is of the essence of this Lease. This Lease shall create the relationship of Landlord and Tenant between the parties hereto. K. This Lease and the covenants and conditions herein contained shall inure to the benefit of and be binding upon Landlord and Tenant and their respective permitted successors and assigns. -34- L. Notwithstanding anything to the contrary contained in this Lease, the expiration of the Lease Term, whether by lapse of time or otherwise, shall not relieve Tenant from Tenant's obligations accruing prior to the expiration of the Lease Term, and such obligations shall survive any such expiration or other termination of the Lease Term. M. The headings and titles to the paragraphs of this Lease are for convenience only and shall have no affect upon the construction or interpretation of any part hereof. N. Landlord has delivered a copy of this Lease to Tenant for Tenant's review only, and the delivery hereof does not constitute an offer to Tenant or option. This Lease shall not be effective until an original of this Lease executed by both Landlord and Tenant and an original Guaranty, if any, executed by each Guarantor is delivered to and accepted by Landlord, and this Lease has been approved by Landlord's Mortgagees, if required. 0. QUIET ENJOYMENT. Tenant shall, and may peacefully have, hold, and enjoy the Premises, subject to the other terms of this Lease (including, without limitation, Article XXX hereof), provided that Tenant pays the Rent herein recited to be paid by Tenant and performs all of Tenant's covenants and agreements herein contained. This covenant and any and all other covenants of Landlord shall be binding upon Landlord and its successors only during its or their respective periods of ownership of the Landlord's interest hereunder. XXXVII. Entire Agreement. This Lease Agreement, including the following Exhibits: EXHIBIT A - Outline and Location of Premises EXHIBIT B - Rules and Regulations EXHIBIT C - Intentionally Omitted EXHIBIT D - Work Letter Agreement EXBIBIT E - Commencement Date Agreement (for recording) (if applicable) EXHIBIT F - Additional Provisions constitutes the entire agreement between the parties hereto with respect to the subject matter of this Lease and supersedes all prior agreements and understandings between the parties related to the Premises, including all lease proposals, letters of intent and similar documents. TENANT EXPRESSLY ACKNOWLEDGES AND AGREES THAT LANDLORD HAS NOT MADE AND IS NOT MAKING, AND TENANT, IN EXECUTING AND DELIVERING THIS LEASE, IS NOT RELYING UPON, ANY WARRANTIES, REPRESENTATIONS, PROMISES OR STATEMENTS, EXCEPT TO THE EXTENT THAT THE SAME ARE EXPRESSLY SET FORTH IN THIS LEASE. ALL UNDERSTANDINGS AND AGREEMENTS HERETOFORE MADE BETWEEN THE PARTIES ARE MERGED IN THIS LEASE WHICH ALONE FULLY AND COMPLETELY EXPRESSES THE AGREEMENT OF THE PARTIES, NEITHER PARTY RELYING UPON ANY STATEMENT OR REPRESENTATION NOT EMBODIED IN THIS LEASE. THIS LEASE MAY BE MODIFIED ONLY BY A WRITTEN AGREEMENT SIGNED BY LANDLORD AND TENANT. LANDLORD AND TENANT EXPRESSLY AGREE THAT THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY, HABITABILITY, SUITABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE, ALL OF WHICH ARE HEREBY WAIVED BY TENANT, AND THAT THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN THIS LEASE. -35- IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written. WITNESS/ATTEST: LANDLORD: Sarah L. Wills BEAMETFED, INC., a Maryland corporation SARAH L. WILLS By: /s/ Christopher P. Mundy - ----------------------------------- ------------------------------------- Name (print): Name: CHRISTOPHER P. MUNDY Title: SENIOR VICE PRESIDENT WITNESS/ATTEST: TENANT: MERRILL CORPORATION, a Minnesota Steven J. Machov, Sec. corporation RICK ATTERBURY By: /s/ Rick Atterbury V.P. - ----------------------------------- ------------------------------------- Name (print): (Name) (Title) Hereunto Duly Authorized -36- EXHIBIT A PREMISES This Exhibit is attached to and made a part of the Lease dated July 30, 1998, by and between BEAMETFED, INC., a Maryland corporation ("Landlord") and MERRILL CORPORATION, a Minnesota corporation ("Tenant") for space in the Building located at 101 Federal Street, Boston, Massachusetts. [GRAPHIC OMITTED] 101 FEDERAL STREET BOSTON MASSACHUSETTS FLOOR 21 -37- EXHIBIT B BUILDING RULES AND REGULATIONS The following rules and regulations shall apply, where applicable, to the Premises, the Building, the parking garage associated therewith (if any), the Property and the appurtenances thereto: 1. Sidewalks, doorways, vestibules, halls, stairways and other similar areas shall not be obstructed by Tenant or used by Tenant for any purpose other than ingress and egress to and from the Premises. No rubbish, liter, trash, or material of any nature shall be placed, emptied, or thrown in those areas. At no time shall Tenant permit Tenant's employees to loiter in common areas or elsewhere in or about the Building or Property. 2. Plumbing fixtures and appliances shall be used only for the purposes for which designed, and no sweepings, rubbish, rags or other unsuitable material shall be thrown or placed therein. Damage resulting to any such fixtures or appliances from misuse by Tenant or its agents, employees or invitees, shall be paid for by Tenant, and Landlord shall not in any case be responsible therefor. 3. No signs, advertisements or notices shall be painted or affixed on or to any windows, doors or other parts of the Building, except those of such color, size, style and in such places as shall be first approved in writing by Landlord. No nails, hooks or screws shall be driven or inserted into any part of the Premises or Building except by the Building maintenance personnel, nor shall any part of the Building be defaced by Tenant. 4. Landlord may provide and maintain in the first floor (main lobby) of the Building an alphabetical directory board listing all Tenants, and no other directory shall be permitted unless previously consented to by Landlord in writing. 5. Tenant shall not place any additional lock or locks on any door in the Premises or Building without Landlord's prior written consent. A reasonable number of keys to the locks on the doors in the Premises shall be furnished by Landlord to Tenant at the cost of Tenant, and Tenant shall not have any duplicate keys made. All keys shall be returned to Landlord at the expiration or earlier termination of this Lease. 6. All contractors, contractor's representatives, and installation technicians performing work in the Building shall be subject to Landlord's prior approval and shall be required to comply with Landlord's standard rules, regulations, policies and procedures, as the same may be revised from time to time. Tenant shall be solely responsible for complying with all applicable laws, codes and ordinances pursuant to which said work shall be performed. Notwithstanding anything to the contrary herein or in the Lease contained, Landlord has no obligation to allow any particular telecommunication service provider to have access to the Building or to Tenant's premises. If Landlord permits such access, Landlord may condition such access upon the payment to Landlord by the service provider of fees assessed by Landlord in its sole discretion. 7. Movement in or out of the Building of furniture or office equipment, or dispatch or receipt by Tenant of any merchandise or materials which require the use of elevators, stairways, lobby areas, or loading dock areas, shall be restricted to hours designated by Landlord. Tenant must seek Landlord's prior approval by providing in writing a detailed listing of any such activity. If approved by Landlord, such activity shall be under the supervision of Landlord and performed in the manner stated by Landlord. Landlord may prohibit any article, equipment or any other item from being brought into the Building. Tenant is to assume all -38- risk for damage to articles moved and injury to any persons resulting from such activity. If any equipment, property, and/or personnel of Landlord or of any other tenant is damaged or injured as a result of or in connection with such activity, Tenant shall be solely liable for any and all damage or loss resulting therefrom. 8. Landlord shall have the power to prescribe the weight and position of safes and other heavy equipment or items, which in all cases shall not in the opinion of Landlord exceed acceptable floor loading and weight distribution requirements. All damage done to the Building by the installation, maintenance, operation, existence or removal of any property of Tenant shall be repaired at the expense of Tenant. 9. Corridor doors, when not in use, shall be kept closed. 10. Tenant shall not: (1) make or permit any improper, objectionable or unpleasant noises or odors in the Building, or otherwise interfere in any way with other tenants or persons having business with them; (2) solicit business or distribute, or cause to be distributed, in any portion of the Building any handbills, promotional materials or other advertising; or (3) conduct or permit any other activities in the Building that might constitute a nuisance. 11. No animals, except seeing eye dogs, shall be brought into or kept in, on or about the Premises. 12. No inflammable, explosive or dangerous fluid or substance shall be used or kept by Tenant in the Premises or Building. Tenant shall not, without Landlord's prior written consent, use, store, install, spill, remove, release or dispose of within or about the Premises or any other portion of the Property, any asbestos-containing materials or any solid, liquid or gaseous material now or hereafter considered toxic or hazardous under the provisions of 42 U.S.C. Section 9601 et seq., M.G.L. c. 21C, M.G.L.c.21E, or any other applicable environmental law which may now or hereafter be in effect. If Landlord does give written consent to Tenant pursuant to the foregoing sentence, Tenant shall comply with all applicable laws, rules and regulations pertaining to and governing such use by Tenant, and shall remain liable for all costs of cleanup or removal in connection therewith. 13. Tenant shall not use or occupy the Premises in any manner or for any purpose which would injure the reputation or impair the present or future value of the Premises or the Building; without limiting the foregoing, Tenant shall not use or permit the Premises or any portion thereof to be used for lodging, sleeping or for any illegal purpose. 14. Tenant shall not take any action which would violate Landlord's labor contracts affecting the Building or which would cause any work stoppage, picketing, labor disruption or dispute, or any interference with the business of Landlord or any other tenant or occupant of the Building or with the rights and privileges of any person lawfully in the Building. Tenant shall take any actions necessary to resolve any such work stoppage, picketing, labor disruption, dispute or interference and shall have pickets removed and, at the request of Landlord, immediately terminate at any time any construction work being performed in the Premises giving rise to such labor problems, until such time as Landlord shall have given its written consent for such work to resume. Tenant shall have no claim for damages of any nature against Landlord or any of the Landlord Related Parties in connection therewith, nor shall the date of the commencement of the Term be extended as a result thereof. 15. Tenant shall utilize the termite and pest extermination service designated by Landlord to control termites and pests in the Premises. Except as included in -39- Basic Costs, Tenant shall bear the cost and expense of such extermination services. 16. Tenant shall not install, operate or maintain in the Premises or in any other area of the Building, any electrical equipment which does not bear the U/L (Underwriters Laboratories) seal of approval, or which would overload the electrical system or any part thereof beyond its capacity for proper, efficient and safe operation as determined by Landlord, taking into consideration the overall electrical system and the present and future requirements therefor in the Building. Tenant shall not furnish any cooling or heating to the Premises, including, without limitation, the use of any electronic or gas heating devices, without Landlord's prior written consent. Tenant shall not use more than its proportionate share of telephone lines available to service the Building. 17. Tenant shall not operate or permit to be operated on the Premises any coin or token operated vending machine or similar device (including, without limitation, telephones, lockers, toilets, scales, amusement devices and machines for sale of beverages, foods, candy, cigarettes or other goods), except for those vending machines or similar devices which are for the sole and exclusive use of Tenant's employees, and then only if such operation does not violate the lease of any other tenant of the Building. 18. Bicycles and other vehicles are not permitted inside or on the walkways outside the Building, except in those areas specifically designated by Landlord for such purposes. 19. Landlord may from time to time adopt appropriate systems and procedures for the security or safety of the Building, its occupants, entry and use, or its contents. Tenant, Tenant's agents, employees, contractors, guests and invitees shall comply with Landlord's reasonable requirements relative thereto. 20. Landlord shall have the right to prohibit the use of the name of the Building or any other publicity by Tenant that in Landlord's opinion may tend to impair the reputation of the Building or its desirability for Landlord or other tenants. Upon written notice from Landlord, Tenant will refrain from and/or discontinue such publicity immediately. 21. Tenant shall carry out Tenant's permitted repair, maintenance, alterations, and improvements in the Premises only during times agreed to in advance by Landlord and in a manner which will not interfere with the rights of other tenants in the Building. 22. Canvassing, soliciting, and peddling in or about the Building is prohibited. Tenant shall cooperate and use its best efforts to prevent the same. 23. At no time shall Tenant permit or shall Tenant's agents, employees, contractors, guests, or invitees smoke in any common area of the Building, unless such common area has been declared a designated smoking area by Landlord, or to allow any smoke from the Premises to emanate into the common areas or any other tenant's premises. Landlord shall have the right at any time to designate the Building as a non-smoking building. 24. Tenant shall observe Landlord's rules with respect to maintaining standard window coverings at all windows in the Premises so that the Building presents a uniform exterior appearance. Tenant shall ensure that to the extent reasonably practicable, window coverings are closed on all windows in the Premises while they are exposed to the direct rays of the sun. 25. All deliveries to or from the Premises shall be made only at such times, in the areas and through the entrances and exits designated for such purposes by Landlord. Tenant shall not permit the process of receiving deliveries to or from -40- the Premises outside of said areas or in a manner which may interfere with the use by any other tenant of its premises or of any common areas, any pedestrian use of such area, or any use which is inconsistent with good business practice. 26. The work of cleaning personnel shall not be hindered by Tenant after 5:30 P.M., and such cleaning work may be done at any time when the offices are vacant. Windows, doors and fixtures may be cleaned at any time. Tenant shall provide adequate waste and rubbish receptacles necessary to prevent unreasonable hardship to Landlord regarding cleaning service. -41- EXHIBIT C INTENTIONALLY OMITTED -42- EXHIBIT D WORK LETTER This Exhibit is attached to and made a part of the Lease dated July 30, 1998, by and between BEAMETFED, INC., a Maryland corporation by ("Landlord") and MERRILL CORPORATION, a Minnesota corporation ("Tenant") for space in the Building located at 101 Federal Street, Boston, Massachusetts. 1. This Work Letter shall set forth the obligations of Landlord and Tenant with respect to the preparation of the Premises for Tenant's occupancy. All improvements described in this Work Letter to be constructed in and upon the Premises by Landlord are hereinafter referred to as the "Landlord Work." It is agreed that construction of the Landlord Work will be completed at Tenant's sole cost and expense, subject to the Allowance (as defined below). Landlord shall enter into a direct contract for the Landlord Work with a general contractor selected by Landlord. In addition, Landlord shall have the right to select and/or approve of any subcontractors used in connection with the Landlord Work. 2. Tenant shall be solely responsible for the preparation and submission to Landlord of the final architectural, electrical and mechanical construction drawings, plans and specifications (called "Plans") necessary to construct the Landlord Work, which plans shall be subject to approval by Landlord and Landlord's architect and engineers and shall comply with their requirements to avoid aesthetic or other conflicts with the design and function of the balance of the Building. Tenant shall be responsible for all elements of the design of Tenant's plans (including, without limitation, compliance with law, functionality of design, the structural integrity of the design, the configuration of the premises and the placement of Tenant's furniture, appliances and equipment), and Landlord's approval of Tenant's plans shall in no event relieve Tenant of the responsibility for such design. If requested by Tenant, Landlord's architect will prepare the Plans necessary for such construction at Tenant's cost. Whether or not the layout and Plans are prepared with the help (in whole or in part) of Landlord's architect, Tenant agrees to remain solely responsible for the preparation and submission of the Plans and for all elements of the design of such Plans and for all costs related thereto. (The word "architect" as used in this Article 4 shall include an interior designer or space planner.) 3. Landlord shall use reasonable efforts to have the Landlord substantially completed on or before the date ("Target Completion Date") ninety (90) days after the date that Tenant delivers final approved Plans to Landlord for the Landlord Work. For the purposes hereof, the "Completion Date" shall be the date on which the Landlord Work in the Premises has been substantially completed; provided, however, that if Landlord shall be delayed in substantially completing the Landlord Work as a result of the occurrence of any of the following (a "Delay"): 1. Tenant's failure to furnish information in accordance with the Work Letter Agreement or to respond to any request by Landlord for any approval or information within any time period prescribed, or if no time period is prescribed, then within two (2) Business Days of such request; or 2. Tenant's insistence on materials, finishes or installations that have long lead times after having first been informed by Landlord that such materials, finishes or installations will cause a Delay; or 3. Changes in any plans and specifications requested by Tenant; or -43- 4. The performance or nonperformance by a person or entity employed by Tenant in the completion of any work in the Premises (all such work and such persons or entities being subject to the prior approval of Landlord); or 5. Any request by Tenant that Landlord delay the completion of any of the Landlord Work; or 6. Any breach or default by Tenant in the performance of Tenant's obligations under this Lease; or 7. Any delay resulting from Tenant's having taken possession of the Premises for any reason prior to substantial completion of the Landlord Work; or 8. Any other delay chargeable to Tenant, its agents, employees or independent contractors; then, for purposes of determining the Completion Date, the date of substantial completion shall be deemed to be the day that said Landlord Work would have been substantially completed absent any such Delay(s). The Landlord Work shall be deemed to be substantially completed on the date that Landlord reasonably determines that all Landlord's Work has been performed (or would have been performed absent any Delays), other than any details of construction, mechanical adjustment or any other matter, the noncompletion of which does not materially interfere with Tenant's use of the Premises. If the Landlord Work is not substantially completed on or before the Target Completion Date, then Tenant shall be entitled to a credit against Tenant's obligation to pay Base Rental under the Lease for the period from the Target Completion Date to the Completion Date. Such credit shall be Tenant's sole remedy and shall constitute full settlement of all claims that Tenant might otherwise have against Landlord by reason of the Premises not being ready for occupancy by Tenant on the Target Commencement Date. Notwithstanding the foregoing, if there have been no Delays and the Completion Date does not occur on or before the date eight (8) months after the date that Tenant delivers final approved Plans to Landlord for the Landlord Work (the "Outside Completion Date"), Tenant, as its sole remedy, may terminate this Lease by giving Landlord written notice of termination on or before the earlier to occur of: (i) the date thirty (30) days after the Outside Completion Date; and (ii) the Completion Date. In such event, this Lease shall be deemed null and void and of no further force and effect and Landlord shall promptly refund any Security Deposit previously advanced by Tenant under this Lease provided however, that Landlord shall have no obligation to refund any Rental paid by Tenant under the Lease, and, so long as Tenant has not previously defaulted under any of its obligations under this Work Letter, the parties hereto shall have no further responsibilities or obligations to each other with respect to this Lease. Landlord and Tenant acknowledge and agree that: (i) the determination of the Completion Date shall take into consideration the effect of any Delays by Tenant; and (ii) the Outside Completion Date shall be postponed by the number of days the Completion Date is delayed due to events of Force Majeure. Notwithstanding anything herein to the contrary, if Landlord determines that it will be unable to cause the Completion Date to occur by the Outside Completion Date, Landlord shall have the right to immediately cease its performance of the Landlord Work and provide Tenant with written notice (the "Outside Extension Notice") of such inability, which Outside Extension Notice shall set forth the date on which Landlord reasonably believes that the Completion Date will occur. Upon receipt of the Outside Extension Notice, Tenant shall have the right to terminate this Lease by providing written notice of termination to Landlord within five (5) Business Days after the date of the Outside Extension Notice. In the event that Tenant does not terminate this Lease within such five (5) Business Day period, -44- the Outside Completion Date shall automatically be amended to be the date set forth in Landlord's Outside Extension Notice. 4. In the event Landlord's estimate and/or the actual cost of construction shall exceed the Allowance, Landlord, prior to commencing any construction of Landlord Work, shall submit to Tenant a written estimate setting forth the anticipated cost of the Landlord Work, including but not limited to labor and materials, contractor's fees and permit fees. Within three (3) Business Days thereafter, Tenant shall notify Landlord as to any deletions or substitutions in the Landlord Work. If Tenant fails to timely notify Landlord of any such deletions or substitutions, Tenant shall be deemed to have agreed to pay the Excess Costs, as defined in Paragraph 5 hereof. 5. In the event Landlord's actual cost of construction shall exceed the Allowance, if any (such amounts exceeding the Allowance being herein referred to as the "Excess Costs"), Tenant shall pay to Landlord such Excess Costs upon billing therefor, from time to time, in proportion to the ratio that the Excess Costs bears to Landlord's actual cost of construction. For example, if Landlord's actual cost of construction is $52.00 per rentable square foot of the Premises, the Excess Costs shall be equal to $13.00 per rentable square foot of the Premises and Tenant shall pay 25% (i.e., the ratio that the Excess Costs bears to Landlord's actual cost of construction) and Landlord shall pay 75% of each requisition submitted by Landlord to Tenant for payment until the Allowance is used in full. The statements of costs submitted to Landlord by Landlord's contractors shall be conclusive for purposes of determining the actual cost of the items described therein. The amounts payable hereunder constitute Rent payable pursuant to the Lease, and the failure to timely pay same constitutes an event of default under the Lease. 6. If Tenant shall request any change, addition or alteration in any of the Plans after approval by Landlord, Landlord shall have such revisions to the drawings prepared, and Tenant shall reimburse Landlord for the cost thereof upon demand. Promptly upon completion of the revisions, Landlord shall notify Tenant in writing of the increased cost which will be chargeable to Tenant by reason of such change, addition or deletion. Tenant, within one (1) Business Day, shall notify Landlord in writing whether it desires to proceed with such change, addition or deletion. In the absence of such written authorization, Landlord shall have the option to continue work on the Premises disregarding the requested change, addition or alteration, or Landlord may elect to discontinue work on the Premises until it receives notice of Tenant's decision, in which event Tenant shall be responsible for any Delay in completion of the Premises resulting therefrom. In the event such revisions result in a higher estimate of the cost of construction and/or higher actual construction costs which exceed the Allowance, such increased estimate or costs shall be deemed Excess Costs pursuant to Paragraph 5 hereof and Tenant shall pay such Excess Costs upon demand. 7. Following approval of the Plans and the payment by Tenant of the required portion of the Excess Costs, if any, Landlord shall cause the Landlord Work to be constructed substantially in accordance with the approved Plans. Landlord shall notify Tenant of substantial completion of the Landlord Work. 8. Landlord, provided Tenant is not in default, beyond the expiration of applicable notice and grace period, agrees to provide Tenant with an allowance (the "Allowance") in an amount not to exceed Five Hundred Twenty-Six Thousand Seven Hundred Thirty-Four and 00/100 Dollars ($526,734.00) (i.e., $39.00 per rentable square foot of the Premises) to be applied toward the cost of the Landlord Work in the Premises. In the event the Allowance shall not be sufficient to complete the Landlord Work, Tenant shall pay the Excess Costs as prescribed in paragraph 5 above. In the event the Allowance exceeds the cost of Landlord -45- Work, any remaining Allowance shall accrue to the sole benefit of Landlord, it being agreed that Tenant shall not be entitled to any credit, offset, abatement or payment with respect thereto. Landlord shall be entitled to deduct from the Allowance a construction management fee for Landlord's oversight of the Landlord Work in an amount equal to two and one-half percent (2 1/2%) of the total cost of the Landlord Work. 9. In addition to the Allowance, Landlord shall, at Tenant's sole option, provide Tenant with an additional allowance ("Landlord's Additional Allowance") of up to Two Hundred Six Thousand Six Hundred Ten and 00/100 ($206,610.00) Dollars towards the cost of the Landlord Work. Commencing as of the Commencement Date (if the Commencement Date is the first day of a calendar month, or otherwise on the first day of the calendar month next following the Commencement Date), and continuing on the first day of each month thereafter throughout the term of the Lease, Tenant shall pay to Landlord, as additional rent, Construction Rent, as hereinafter defined, based upon Landlord's Additional Allowance. Tenant's monthly payments of Construction Rent shall be equal to the amount of equal monthly payments of principal and interest which would be necessary to repay a loan in the amount of Landlord's Additional Allowance, together with interest at the rate of thirteen (13%) percent per annum, on a level direct reduction basis over a term equal to the term of the Lease. Monthly payments of Construction Rent shall be payable at the same time and in the same manner as Base Rental is payable under the Lease. Construction Rent shall not be abated or reduced for any reason whatsoever (including, without limitation, untenantability of the premises or termination of the Lease). Without limiting the foregoing, the rent abatement provisions of Articles XIX and XXI of the Lease shall not apply to Construction Rent. Since the payment of Construction Rent represents a reimbursement to Landlord of costs which Landlord will incur in connection with the construction of the Premises, if there is any default (beyond the expiration of any applicable grace periods) of any of Tenant's obligations under the Lease (including, without limitation, its obligation to pay Construction Rent) of if the term of this Lease is terminated for any reason whatsoever prior to the termination of the term of the Lease, Tenant shall pay to Landlord, immediately upon demand, the unamortized balance of Landlord's Additional Allowance. Tenant's obligation to pay the unamortized balance of Landlord's Additional Allowance shall be in addition to all other rights and remedies which Landlord has based upon any default of Tenant under the Lease, and Tenant shall not be entitled to any credit or reduction in such payment based upon amounts collected by Landlord from reletting the premises after the default of Tenant. 10. This Exhibit D shall not be deemed applicable to any additional space added to the original Premises at any time or from time to time, whether by any options under the Lease or otherwise, or to any portion of the original Premises or any additions to the Premises in the event of a renewal or extension of the original Term of this Lease, whether by any options under the Lease or otherwise, unless expressly so provided in the Lease or any amendment or supplement to the Lease. 11. Tenant hereby designates Ms. Veta Micevic, whose telephone number is 651-649-1221, as Tenant's authorized representative for the purpose of approving submittals and issuing requests for any changes to the Plans or Landlord's Work. Landlord and its agents shall rely only upon her direction. Tenant shall have no obligation to pay costs incurred as the result of Landlord's reliance upon the authority of any other person as Tenant's representative. Tenant reserves the right to amend these designations at any time upon written notice to Landlord. -46- IN WITNESS WHEREOF, Landlord and Tenant have entered into this Exhibit as of the date first written above. WITNESS/ATTEST: LANDLORD: Sarah L. Wills BEAMETFED, INC., a Maryland corporation SARAH L. WILLS By: /s/ Christopher P. Mundy - ----------------------------------- ------------------------------------- Name: (print): Name: CHRISTOPHER P. MUNDY Title: SENIOR VICE PRESIDENT WITNESS/ATTEST: TENANT: Steven J. Machov, Sec. MERRILL CORPORATION, a Minnesota corporation RICK ATTERBURY By: /s/ Rick Atterbury V.P. - ----------------------------------- ------------------------------------- Name: (print): (Name) (Title) Hereunto Duly Authorized 47 EXHIBIT E COMMENCEMENT DATE AGREEMENT Reference is made to that certain Lease by and between ___________________ _______________, a(n) _______________________________, Landlord and ____________________________, a(n) _______________________________, Tenant, and dated ___________________, a Notice of which is filed for registration with the [Suffolk Registry District of the Land Court] as Document No.________________________. Landlord and Tenant hereby confirm and agree that the Commencement Date under the Lease is __________________________. This Commencement Date Agreement is executed as a sealed instrument as of __________,19__. WITNESS/ATTEST: LANDLORD:_______________________________ ___________________________________ a(n) ___________________________________ Name (print):______________________ By:_____________________________________ ___________________________________ _____________________________________ Name (print):______________________ By:__________________________________ __________________________________ By:_______________________________ Name:_____________________________ Title:____________________________ WITNESS/ATTEST: TENANT:______________________________ ___________________________________ a(n)____________________________________ Name (print):______________________ By:_____________________________________ ___________________________________ Name:___________________________________ Name (print):______________________ Title:__________________________________ -48- EXHIBIT F ADDITIONAL PROVISIONS This Exhibit is attached to and made a part of the Lease dated July 30, 1998, by and between BEAMETFED, INC., a Maryland corporation ("Landlord") and MERRILL CORPORATION, a Minnesota corporation ("Tenant") for space in the Building located at 101 Federal Street, Boston, Massachusetts. 1. TENANT'S RENEWAL OPTION A. Tenant, provided it is not in default and has not sublet the Premises or assigned this Lease, shall have the right to extend the Lease Term for one additional period of five (5) years commencing on the day following the Termination Date and ending on the fifth (5th) anniversary of the Termination Date (the "Renewal Term"). Such Renewal Option shall be exercised by providing written notice ("Initial Renewal Notice") to Landlord on or after the date fifteen (15) months prior to the Termination Date and on or before the date twelve (12) months prior to the Termination Date. B. The initial Base Rental rate per rentable square foot for the Premises during the Renewal Term shall equal the prevailing market rate for such space as determined in Landlord's reasonable judgment. C. Tenant shall pay Additional Base Rental for the Premises during the Renewal Term in accordance with the terms of this Lease. D. Within thirty (30) days after receipt of Tenant's Initial Renewal Notice, Landlord shall advise Tenant of the applicable Base Rental rate for the Premises for the Renewal Term. Tenant, within fifteen (15) days after the date on which Landlord advises Tenant of the applicable Base Rental rate for the Renewal Term, shall either (i) give Landlord final binding written notice ("Binding Notice") of Tenant's exercise of its option, or (ii) if Tenant disagrees with Landlord's determination, provide Landlord with written notice of rejection (the "Rejection Notice"). If Tenant fails to provide Landlord with either a Binding Notice or Rejection Notice within such fifteen (15) day period, Tenant's Renewal Option shall be null and void and of no further force and effect. If Tenant provides Landlord with a Binding Notice, Landlord and Tenant shall enter into the Renewal Amendment upon the terms and conditions set forth herein. If Tenant provides Landlord with a Rejection Notice, Landlord and Tenant shall work together in good faith to agree upon the Prevailing Market Base Rental rate for the Premises during the Renewal Term. Upon agreement Tenant shall provide Landlord with Binding Notice and Landlord and Tenant shall enter into the Renewal Amendment in accordance with the terms and conditions hereof. Notwithstanding the foregoing, if Landlord and Tenant are unable to agree upon the Prevailing Market Base Rental rate for the Premises within thirty (30) days after the date on which Tenant provides Landlord with a Rejection Notice, Tenant's Renewal Option shall be null and void and of no force and effect. E. If Tenant is entitled to and properly exercises its Renewal Option, Landlord shall prepare an amendment (the "Renewal Amendment") to reflect changes in the Base Rental, Lease Term, Termination Date and other appropriate terms. The Renewal Amendment shall be sent to Tenant within a reasonable time after receipt of the Binding Notice, and executed by Tenant and returned to Landlord within fifteen (15) days after Tenant's receipt thereof from Landlord. 2. TENANT'S RIGHT OF FIRST OFFER A. Tenant shall have the one time right of first offer with respect to an area on the twenty-first (21st) floor of the Building containing 2,750 square feet of Total -49- Rentable Area ("Area A") and an area on the twenty-first (21st) floor of the Building containing 2,968 square feet of Total Rentable Area ("Area B") (each area being an "Offering Space"). The Right of First Offer shall be exercised as follows: at any time after Landlord has determined that the existing tenant in an Offering Space will not extend or renew the term of its lease for such Offering Space (but prior to leasing such Offering Space to a party other than the existing tenant), Landlord shall advise Tenant (the "Advice") of the terms under which Landlord is prepared to lease an Offering Space to Tenant for the remainder of the Lease Term, which terms shall reflect the Prevailing Market (hereinafter defined) rate for such Offering Space as reasonably determined by Landlord. Notwithstanding anything to the contrary herein contained, the parties hereby acknowledge that Area A is currently vacant. Therefore, Landlord shall have no obligation to give Tenant an Advice with respect to Area A until Area A has been leased to a third party, and thereafter, Landlord determines that the then existing tenant of Area A will not extend or renew the term of its lease for Area A. Tenant may lease such Offering Space in its entirety only, under such terms, by delivering written notice of exercise to Landlord ("Notice of Exercise") within five (5) days after the date of the Advice, except that Tenant shall have no such Right of First Offer and Landlord need not provide Tenant with an Advice, if: 1. Tenant is in default beyond any applicable cure periods under the Lease at the time Landlord would otherwise deliver the Advice; or 2. the Premises, or any portion thereof, is sublet at the time Landlord would otherwise deliver the Advice; or 3. the Lease has been assigned prior to the date Landlord would otherwise deliver the Advice; or 4. Tenant is not occupying the Premises on the date Landlord would otherwise deliver the Advice; or 5. such Offering Space is not intended for the exclusive use of Tenant during the Lease Term; or 6. the existing tenant in such Offering Space is interested in extending or renewing its lease for such Offering Space or entering into a new lease for such Offering Space. B. 1. The term for such Offering Space shall commence upon the commencement date stated in the Advice and thereupon such Offering Space shall be considered a part of the premises, provided that all of the terms stated in the Advice shall govern Tenant's leasing of such Offering Space and only to the extent that they do not conflict with the Advice, the terms and conditions of this Lease shall apply to such Offering Space. 2. Tenant shall pay Base Rental and Additional Base Rental for the Offering Space in accordance with the terms and conditions of the Advice, which terms and conditions shall reflect the prevailing market rate for such Offering Space as determined in Landlord's reasonable judgment. 3. Such Offering Space (including improvements and personalty, if any) shall be accepted by Tenant in its condition and as-built configuration existing on the earlier of the date Tenant takes possession of such Offering Space or as of the date the term for such Offering Space commences, unless the Advice specifies any work to be performed by Landlord in such Offering Space, in which case Landlord shall perform such work in such Offering Space. C. The rights of Tenant hereunder with respect to such Offering Space shall terminate on the earlier to occur of: (i) Tenant's failure to exercise its Right of First Offer -50- within the five (5) day period provided in Paragraph A above, and (ii) the date Landlord would have provided Tenant an Advice if Tenant had not been in violation of one or more of the conditions set forth in Paragraph A above. However, Tenant shall have rights from time to time thereafter throughout the term of the Lease, until Tenant's right to lease any Offering Space has lapsed, with respect to other Offering Space. D. Notwithstanding anything to the contrary herein contained, the rights of Tenant under this Paragraph 2 shall terminate on the date one (1) year prior to the Termination Date of the original term of the Lease (i.e., Landlord shall have no obligation to give Tenant an Advice with respect to any Offering Space from and after the date one (1) year prior to the Termination Date of the initial term of the Lease). E. 1. If Tenant exercises its Right of First Offer, Landlord shall prepare an amendment (the "Offering Amendment") adding the Offering Space to the premises on the terms set forth in the Advice and reflecting the changes in the Basic Rent, Total Rentable Area of the Premises, Tenant's Proportionate Shares and other appropriate terms. 2. A copy of the Offering Amendment shall be (i) sent to Tenant within a reasonable time after receipt of the Notice of Exercise executed by Tenant, and (ii) executed by Tenant and returned to Landlord within ten (10) days thereafter (provided that such Offering Amendment does, indeed, reflect the terms set forth in the Advice or otherwise agreed between the parties). 3. PARKING A. During the term of the Lease, the Landlord will make available two (2) monthly parking passes for use in the garage ("Garage") in the Building and one (1) monthly parking pass for use in a garage owned by an affiliate of Landlord known as the 150 Federal Street Garage. If, for any reason, Tenant shall fail timely to pay the charge for said parking passes, or if, for any reason, Tenant shall cease to use any of such parking passes, Tenant shall have no further right to such parking pass under this Paragraph 3. Said parking passes will be on an unassigned, non-reserved basis. B. Tenant shall pay Landlord (or at Landlord's option, the Operator) Rent for each non-reserved parking space in the Garage and for the one (1) non-reserved space in the 150 Federal Street Garage at the initial rate of Three Hundred Twenty and 00/100 ($320.00) Dollars per space per month, plus any applicable tax imposed thereon. Such monthly rate shall be subject to increase from time to time to reflect the then current prevailing rates in the Garage and 150 Federal Street Garage, as such rates may vary from time to time. C. Landlord shall not be responsible for money, jewelry, automobiles or other personal property lost in or stolen from the Garage or the 150 Federal Street Garage regardless of whether such loss or theft occurs when the Garage or the 150 Federal Street Garage or other areas therein are locked or otherwise secured against entry. Except as caused by the negligence or willful misconduct of Landlord, Landlord shall not be liable for any loss, injury or damage to persons using the Garage or the 150 Federal Street Garage or automobiles or other property therein, it being agreed that, to the fullest extent permitted by law, the use of the Garage and the 150 Federal Street Garage shall be at the sole risk of Tenant and its employees. D. Landlord shall have the right from time to time to promulgate reasonable rules and regulations regarding the Garage and Landlord's affiliate shall have the right from time to time to promulgate reasonable rules and regulations regarding the 150 Federal Street Garage, the parking spaces and the use thereof, including, but not limited to, rules and regulations controlling the flow of traffic to and from various parking areas, the angle and direction of parking and the like. Tenant shall comply with and cause its -51- employees to comply with all such rules and regulations as well as all reasonable additions and amendments thereto. E. Tenant shall not store or permit its employees to store any automobiles in the Garage or the 150 Federal Street Garage without the prior written consent of Landlord or Landlord's affiliate, as the case may be, which consent shall not be unreasonably conditioned, withheld or delayed in emergency circumstances. Except for emergency repairs, Tenant and its employees shall not perform any work on any automobiles while located in the Garage or the 150 Federal Street Garage or on the Property. If it is necessary for Tenant or its employees to leave an automobile in the Garage or in the 150 Federal Street Garage overnight, Tenant shall provide Landlord or Landlord's affiliate, as the case may be, with prior notice thereof designating the license plate number and model of such automobile. F. Landlord or Landlord's affiliate, as the case may be, shall have the right to temporarily close the Garage and the 150 Federal Street Garage or certain areas therein in order to perform necessary repairs, maintenance and improvements to the Garage and the 150 Federal Street Garage. G. Tenant shall have no right to sublet, assign, or otherwise transfer said parking passes. Landlord shall have the right to terminate Tenant's parking rights with respect to any parking spaces that Tenant desires to sublet or assign in violation of the foregoing sentence. IN WITNESS WHEREOF, Landlord and Tenant have executed this exhibit as of the day and year first above written. WITNESS/ATTEST: LANDLORD: SARAH L. WILLIS BEAMETFED, INC., a Maryland corporation /s/ Sarah L. Willis By: /s/ Christopher P. Mundy - ----------------------------------- ------------------------------------- Name (print): Name: CHRISTOPHER P. MUNDY Title: SENIOR VICE PRESIDENT WITNESS/ATTEST: TENANT: Steven J. Machov, Sec. MERRILL CORPORATION, a Minnesota corporation RICK ATTERBURY By: /s/ Rick Atterbury V.P. - ----------------------------------- ------------------------------------- Name (print): (Name) (Title) Hereunto Duly Authorized -52- EX-10.36 16 EXHIBIT 10.36 STANDARD FORM OF OFFICE LEASE THE REAL ESTATE BOARD OF NEW YORK, INC. AGREEMENT OF LEASE, ("lease" or "Lease") made as of January 25, 1995, between THE OVERTON-LA CHOLLA JOINT VENTURE, having an office at c/o Heron Financial Corporation, Suite 917, Heron Building, 510 W. 6th Street, Los Angeles, California 90014 party of the first part, hereinafter referred to as OWNER, or LANDLORD, and DANIELS PRINTING, LIMITED PARTNERSHIP, having an office at WITNESSETH: party of the second part, hereinafter referred to as TENANT, Owner hereby leases to Tenant and Tenant hereby hires from Owner the fourth and fifth floors as shown on the floor plan attached hereto as Schedule A, which the parties agree consists of a total of 13, 830 rentable square feet ("demised premises" or "Demised Premises") in the building known as 70 East 55th Street ("Building") constructed by Owner on the land ("Land") described in Schedule B attached hereto, the Building and the Land are to be hereinafter collectively referred to as the "Property", in the Borough of Manhattan, City of New York, for a term ("Term") of approximately five (5) years and ten (10) months (or until such term shall cease and expire as hereinafter provided) to commence as provided in Article 37 of Rider attached hereto and made a part hereof at an annual rental rate ("rent" or "fixed annual rent") of Four Hundred One Thousand and Seventy and 00/100 Dollars ($401,070.00), provided however, the rent commencement date shall be February 7, 1995. which Tenant agrees to pay in lawful money of the United States which shall be legal tender in payment of all debts and dues, public and private, at the time of payment, in cash or by check (drawn upon a bank which is a member of the New York Clearing House) in equal monthly installments in advance on the first day of each month during said term, at the office of Owner or such other place as Owner may designate, without any set off or deduction whatsoever, except that Tenant shall pay the first monthly installment(s) on the execution hereof (unless this lease be a renewal). In the event that, at the commencement of the term of this lease, or thereafter, Tenant shall be in default in the payment of rent to Owner pursuant to the terms of another lease with Owner or with Owner's predecessor in interest, Owner may at Owner's option and without notice to Tenant add the amount of such arrears to any monthly installment of rent payable hereunder and the same shall be payable to Owner as additional rent. The parties hereto, for themselves, their heirs, distributees, executors, administrators, legal representatives, successors and assigns, hereby covenants as follows: RENT 1. Tenant shall pay the rent and additional rent as above and as hereinafter provided. OCCUPANCY 2. Tenant shall use and occupy demised premises for general and executive offices for Tenant's business (Tenant shall not use the Demised Premises for printing, except that composition and typesetting may be done by computer and modem) and for no other purpose. (See Article 45 of Rider) TENANT ALTERATIONS: 3. Tenant shall make no changes in or to the demised premises of any nature without Owner's prior written consent. Subject to the prior written consent of Owner, and to the provisions of this article, Tenant at Tenant's expense, may make alterations, installations, additions or improvements which are non-structural and which do not affect utility services or plumbing and electrical lines, in or to the interior of the demised premises by using contractors or mechanics first approved by Owner. Tenant shall, before making any alterations, additions, installations or improvements, at its expense, obtain all permits, approvals and certificates required by any governmental or quasi-governmental bodies and (upon completion) certificates of final approval thereof and shall deliver promptly duplicates of all such permits, approvals and certificates to Owner and Tenant agrees to carry and will cause Tenant's contractors and sub-contractors to carry such workman's compensation, general liability, personal and property damage insurance as Owner may require. If any mechanic's lien is filed against the demised premises, or the building of which the same forms a part, for work claimed to have been done for, or materials furnished to, Tenant, whether or not done pursuant to this article, the same shall be discharged by Tenant within thirty days thereafter, at Tenant's expense, by filing the bond required by law. All fixtures and all paneling, partitions, railings and like installations, installed in the premises at any time, either by Tenant or by Owner in Tenant's behalf, shall, upon installation, become the property of Owner and shall remain upon and be surrendered with the demised premises unless Owner, by notice to Tenant no later than twenty days prior to the date fixed as the termination of this lease, elects to relinquish Owner's right thereto and to have them removed by Tenant, in which event the same shall be removed from the premises by Tenant prior to the expiration of the lease, at Tenant's expense. Nothing in this Article shall be construed to give Owner title to or to prevent Tenant's removal of trade fixtures, moveable office furniture and equipment, but upon removal of any such from the premises or upon removal of other installations as may be required by Owner, Tenant shall immediately and at its expense, repair and restore the premises to the condition existing prior to installation and repair any damage to the demised premises or the building due to such removal. All property permitted or required to be removed, by Tenant at the end of the term remaining in the premises after Tenant's removal shall be deemed abandoned and may, at the election of Owner, either be retained as Owner's property or may be removed from the premises by Owner, at Tenant's expense. (See Article 57 of Rider) MAINTENANCE AND REPAIRS 4. Tenant shall, throughout the term of this lease, take good care of the demised premises and the fixtures and appurtenances therein. Tenant shall be responsible for all damage or injury to the demised premises or any other part of the building and the systems and equipment thereof, whether requiring structural or nonstructural repairs caused by or resulting from carelessness, omission, neglect or improper conduct of Tenant, Tenant's subtenants, agents, employees, invitees or licensees, or which arise out of any work, labor, service or equipment done for or supplied to Tenant or any subtenant or arising out of the installation, use or operation of the property or equipment of Tenant or any subtenant. Tenant shall also repair all damage to the building and the demised premises caused by the moving of Tenant's fixtures, furniture and equipment. Tenant shall promptly make, at Tenant's expense, all repairs in and to the demised premises for which Tenant is responsible, using only the contractor for the trade or trades in question, selected from a list of at least two contractors per trade submitted by Owner. Any other repairs in or to the building or the facilities and systems thereof for which Tenant is responsible shall be performed by Owner at the Tenant's expense. Owner shall maintain in good working order and repair the exterior and the structural portions of the building, including the structural portions of its demised premises, and the public portions of the building interior and the building plumbing, electrical, heating and ventilating systems (to the extent such systems presently exist) serving the demised premises. Tenant agrees to give prompt notice of any defective condition in the premises for which Owner may be responsible hereunder. There shall be no allowance to Tenant for diminution of rental value and no liability on the part of Owner by reason of inconvenience, annoyance or injury to business arising from Owner or others making repairs, alterations, additions or improvements in or to any portion of the building or the demised premises or in and to the fixtures, appurtenances or equipment thereof. It is specifically agreed that Tenant shall not be entitled to any setoff or reduction of rent by reason of any failure of Owner to comply with the covenants of this or any other article of this Lease. Tenant agrees that Tenant's sole remedy at law in such instance will be by way of an action for damages for breach of contract. The provisions of this Article 4 shall not apply in the case of fire or other casualty which are dealt with in Article 9 hereof. (See Article 57 of Rider) WINDOW CLEANING: 5. Tenant will not clean nor require, permit, suffer or allow any window in the demised premises to be cleaned from the outside in violation of Section 202 of the Labor Law or any other applicable law or of the Rules of the Board of Standards and Appeals, or of any other Board or body having or asserting jurisdiction. REQUIREMENTS OF LAW, FIRE INSURANCE, FLOOR LOADS: 6. Prior to the commencement of the lease term, if Tenant is then in possession, and at all times thereafter, Tenant, at Tenant's sole cost and expense, shall promptly comply with all present and future laws, orders and regulations of all state, federal, municipal and local governments, departments, commissions and boards and any direction of any public officer pursuant to law, and all orders, rules and regulations of the New York Board of Fire Underwriters, Insurance Services Office, or any similar body which shall impose any violation, order or duty upon Owner or Tenant with respect to the demised premises, whether or not arising out of Tenant's use or manner of use thereof, (including Tenant's permitted use) or, with respect to the building if arising out of Tenant's Fleet Bank of MA, N.A. is acceptable use or manner of use of the premises or the building (including the use permitted under the lease). Nothing herein shall require Tenant to make structural repairs or alterations unless Tenant has, by its manner of use of the demised premises or method of operation therein, violated any such laws, ordinances, orders, rules, regulations or requirements with respect thereto. Tenant may, after securing Owner to Owner's satisfaction against all damages, interest, penalties and expenses, including, but not limited to, reasonable attorney's fees, by cash deposit or by surety bond in an amount and in a company satisfactory to Owner, contest and appeal any such laws, ordinances, orders, rules, regulations or requirements provided same is done with all reasonable promptness and provided such appeal shall not subject Owner to prosecution for a criminal offense or constitute a default under any lease or mortgage under which Owner may be obligated, or cause the demised premises or any part thereof to be condemned or vacated. Tenant shall not do or permit any act or thing to be done in or to the demised premises which is contrary to law, or which will invalidate or be in conflict with public liability, fire or other policies of insurance at any time carried by or for the benefit of Owner with respect to the demised premises or the building of which the demised premises form a part, or which shall or might subject Owner to any liability or responsibility to any person or for property damage. Tenant shall not keep anything in the demised premises except as now or hereafter permitted by the Fire Department, Board of Fire Underwriters, Fire Insurance Rating Organization or other authority having jurisdiction, and then only in such manner and such quantity so as not to increase the rate for fire insurance applicable to the building, nor use the premises in a manner which will increase the insurance rate for the building or any property located therein over that in effect prior to the commencement of Tenant's occupancy. Tenant shall pay all costs, expenses, fines, penalties, or damages, which may be imposed upon Owner by reason of Tenant's failure to comply with the provisions of this article and if by reason of such failure the fire insurance rate shall, at the beginning of this lease or at any time thereafter, be higher than it otherwise would be, then Tenant shall reimburse Owner, as additional rent hereunder, for that portion of all fire insurance premiums thereafter paid by Owner which shall have been charged because of such failure by Tenant. In any action or proceeding wherein Owner and Tenant are parties, a schedule or "make-up" of rate for the building or demised premises issued by the New York Fire Insurance Exchange, or other body making fire insurance rates applicable to said premises shall be conclusive evidence of the facts therein stated and of the several items and charges in the fire insurance rates then applicable to said premises. Tenant shall not place a load upon any floor of the demised premises exceeding the floor load per square foot area which it was designed to carry and which is allowed by law. Owner reserves the right to prescribe the weight and position of all safes, business machines and mechanical equipment. Such installations shall be placed and maintained by Tenant, at Tenant's expense, in settings sufficient, in Owner's judgement, to absorb and prevent vibration, noise and annoyance. SUBORDINATION: 7. This lease is subject and subordinate to all ground or underlying leases and to all mortgages which may now or hereafter affect such leases or the real property of which demised premises are a part and to all renewals, modifications, consolidations, replacements and extensions of any such underlying leases and mortgages. This clause shall be self-operative and no further instrument of subordination shall be required by any ground or underlying lessor or by any mortgagee, affecting any lease or the real property of which the demised premises are a part. In confirmation of such subordination, Tenant shall execute promptly any certificate that Owner may request. PROPERTY--LOSS, DAMAGE, REIMBURSEMENT, INDEMNITY: 8. Owner or its agents shall not be liable for any damage to property of Tenant or of others entrusted to employees of the building, nor for loss of or damage to any property of Tenant (which shall include Tenant's Property as hereinafter defined) by theft or otherwise, nor for any injury or damage to persons or property resulting from any cause of whatsoever nature, unless caused by or due to the negligence of Owner, its agents, servants or employees. Owner or its agents will not be liable for any such damage caused by other tenants or persons in, upon or about said building or caused by operations in construction of any private, public or quasi public work. If at any time any windows of the demised premises are temporarily closed, darkened or bricked up (or permanently closed, darkened or bricked up, if required by law) for any reason whatsoever including, but not limited to Owner's own acts, Owner shall not be liable for any damage Tenant may sustain thereby and Tenant shall not be entitled to any compensation therefor nor abatement or diminution of rent nor shall the same release Tenant from its obligations hereunder nor constitute an eviction. Tenant shall indemnify and save harmless Owner against and from all liabilities, obligations, damages, penalties, claims, costs and expenses for which Owner shall not be reimbursed by insurance, including reasonable attorneys fees, paid, suffered or incurred as a result of any breach by Tenant, Tenant's agents, contractors, employees, invitees, or licensees, of any covenant or condition of this lease, or the carelessness, negligence or improper conduct of the Tenant, Tenant's agents, contractors, employees, invitees or licensees. Tenant's liability under this lease extends to the acts and omissions of any sub-tenant, and any agent, contractor, employee, invitee or licensee of any sub-tenant. In case any action or proceeding is brought against Owner by reason of any such claim, Tenant, upon written notice from Owner, will, at Tenant's expense, resist or defend such action or proceeding by counsel approved by Owner in writing, such approval not to be unreasonably withheld. (See Article 49 of Rider) DESTRUCTION, FIRE AND OTHER CASUALTY: 9. (a) If the demised premises or any part thereof shall be damaged by fire or other casualty, Tenant shall give immediate notice thereof to Owner and this lease shall continue in full force and effect except as hereinafter set forth. (b) If the demised premises are partially damaged or rendered partially unusable by fire or other casualty, the damages thereto shall be repaired by and at the expense of Owner and the rent and additional rent until such repair shall be substantially completed, shall be apportioned from the day following the casualty according to the part of the premises which is usable. (c) If the demised premises are totally damaged or rendered wholly unusable by fire or other casualty, then the rent and additional rent shall be proportionately paid up to the time of the casualty and thenceforth shall cease until the date when the premises shall have been repaired and restored by Owner, subject to Owner's right to elect not to restore the same as hereinafter provided. (d) If the demised premises are rendered wholly unusable or (whether or not the demised premises are damaged in whole or in part) if the building shall be so damaged that Owner shall decide to demolish it or to rebuild it, then, in any of such events, Owner may elect to terminate this lease by written notice to Tenant, given within 90 days after such fire or casualty, specifying a date for the expiration of the lease, which date shall not be more than 60 days after the giving of such notice, and upon the date specified in such notice the term of this lease shall expire as fully and completely as if such date were the date set forth above for the termination of this lease and Tenant shall forthwith quit, surrender and vacate the premises without prejudice however, to Landlord's rights and remedies against Tenant under the lease provisions in effect prior to such termination, and any rent owing shall be paid up to such date and any payments of rent made by Tenant which were on account of any period subsequent to such date shall be returned to Tenant. Unless Owner shall serve a termination notice as provided for herein, Owner shall make the repairs and restorations under the conditions of (b) and (c) hereof, with all reasonable expedition, subject to delays due to adjustment of insurance claims, labor troubles and causes beyond Owner's control. After any such casualty, Tenant shall cooperate with Owner's restoration by removing from the premises as promptly as reasonably possible, all of Tenant's salvageable inventory and movable equipment, furniture, and other property. Tenant's liability for rent shall resume five (5) days after written notice from Owner that the premises are substantially ready for Tenant's occupancy. (e) Nothing contained hereinabove shall relieve Tenant from liability that may exist as a result of damage from fire or other casualty. Notwithstanding the foregoing, each party shall look first to any insurance in its favor before making any claim against the other party for recovery for loss or damage resulting from fire or other casualty, and to the extent that such insurance is in force and collectible and to the extent permitted by law, Owner and Tenant each hereby releases and waives all right of recovery against the other or any one claiming through or under each of them by way of subrogation or otherwise. The foregoing release and waiver shall be in force only if both releasors' insurance policies contain a clause providing that such a release or waiver shall not invalidate the insurance. If, and to the extent, that such waiver can be obtained only by the payment of additional premiums, then the party benefitting from the waiver shall pay such premium within ten days after written demand or shall be deemed to have agreed that the party obtaining insurance coverage shall be free of any further obligation under the provisions hereof with respect to waiver of subrogation. Tenant acknowledges that Owner will not carry insurance on Tenant's furniture and/or furnishings or any fixtures or equipment, improvements, or appurtenances removable by Tenant and agrees that Owner will not be obligated to repair any damage thereto or replace the same. (f) Tenant hereby waives the provisions of Section 227 of the Real Property Law and agrees that the provisions of this article shall govern and control in lieu thereof. EMINENT DOMAIN: 10. If the whole or any part of the demised premises shall be acquired or condemned by Eminent Domain for any public or quasi public use or purpose, then and in that event, the term of this lease shall cease and terminate from the date of title vesting in such proceeding and Tenant shall have no claim for the value of any unexpired term of said lease and assigns to Owner, Tenant's entire interest in any such award. ASSIGNMENT, MORTGAGE, ETC.: (See Article 42 of Rider) ELECTRIC CURRENT: (See Article 43 of Rider) ACCESS TO PREMISES: (See Article 44 of Rider) VAULT, VAULT SPACE, AREA: 14. No Vaults, vault space or area, whether or not enclosed or covered, not within the property line of the building is leased hereunder, anything contained in or indicated on any sketch, blue print or plan, or anything contained elsewhere in this lease to the contrary notwithstanding. Owner makes no representation as to the location of the property line of the building. All vaults and vault space and all such areas not within the property line of the building, which Tenant may be permitted to use and/or occupy, is to be used and/or occupied under a revocable license, and if any such license be revoked, or if the amount of such space or area be diminished or required by any federal, state or municipal authority or public utility, Owner shall not be subject to any liability nor shall Tenant be entitled to any compensation or diminution or abatement of rent, nor shall such revocation, diminution or requisition be deemed constructive or actual eviction. Any tax, fee or charge of municipal authorities for such vault or area shall be paid by Tenant. OCCUPANCY: 15. Tenant will not at any time use or occupy the demised premises in violation of the certificate of occupancy issued for the building of which the demised premises are a part. Tenant has inspected the premises and accepts them as is, subject to the riders annexed hereto with respect to Owner's work, if any. In any event, Owner makes no representation as to the condition of the premises and Tenant agrees to accept the same subject to violations, whether or not of record. BANKRUPTCY: 16. (a) Anything elsewhere in this lease to the contrary notwithstanding, this lease may be cancelled by Owner by the sending of a written notice to Tenant within a reasonable time after the happening of any one or more of the following events: (1) the commencement of a case in bankruptcy or under the laws of any state naming Tenant as the debtor; or (2) the making by Tenant of an assignment or any other arrangement for the benefit of creditors under any state statute, or (3) after the conclusion of all Tenant's bankruptcy proceedings and any related cases and appeals of such proceeding and cases. Neither Tenant nor any person claiming through or under Tenant, or by reason of any statute or order of court, shall thereafter be entitled to possession of the premises demised but shall forthwith quit and surrender the premises. If this lease shall be assigned in accordance with its terms, the provisions of this Article 16 shall be applicable only to the party then owning Tenant's interest in this lease, provided however, if this Lease is assumed or assigned under Title 11 of the U.S. Code (bankruptcy code) or any similar Federal or State statute, then the provisions of this Article 16 may be applicable, at Owner's option, to both the Tenant and the party then owning Tenant's interest in this lease. (b) it is stipulated and agreed that in the event of the termination of this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any other provisions of this lease to the contrary, be entitled to recover from Tenant as and for liquidated damages an amount equal to the difference between the rent reserved hereunder for the unexpired portion of the term demised and the fair and reasonable rental value of the demised premises for the same period. In the computation of such damages the difference between any installment of rent becoming due hereunder after the date of termination and the fair and reasonable rental value of the demised premises for the period for which such installment was payable shall be discounted to the date of termination at the rate of four percent (4%) per annum. If such premises or any part thereof be relet by the Owner for the unexpired term of said lease, or any part thereof, before presentation of proof of such liquidated damages to any court, commission or tribunal, the amount of rent reserved upon such reletting shall be deemed to be the fair and reasonable rental value for the part or the whole of the premises so re-let during the term of the re-letting. Nothing herein contained shall limit or prejudice the right of the Owner to prove for and obtain as liquidated damages by reason of such termination, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, such damages are to be proved, whether or not such amount be greater, equal to, or less than the amount of the difference referred to above. (See Article 41 of Rider) DEFAULT: 17. (1) If Tenant defaults in fulfilling any of the covenants of this lease other than the covenants for the payment of rent or additional rent; or if the demised premises becomes vacant or deserted for 30 days in succession; or if any execution or attachment shall be issued against Tenant or any of Tenant's property whereupon the demised premises shall be taken or occupied by someone other than Tenant; or if this lease be rejected under Title 11 of the U.S. Code (bankruptcy code); or if Tenant shall fail to move into or take possession of the premises within fifteen (15) days after the commencement of the term of this lease, then, in any one or more of such events, upon Owner serving a written 30 days notice upon Tenant specifying the nature of said default and upon the expiration of said 30 days, if Tenant shall have failed to comply with or remedy such default, or if the said default or omission complained of shall be of a nature that the same cannot be completely cured or remedied within said 30 day period, and if Tenant shall not have diligently commenced during such default within such 30 day period, and shall not thereafter with reasonable diligence and in good faith, proceed to remedy or cure such default, then Owner may serve a written three (3) days' notice of cancellation of this lease upon Tenant, and upon the expiration of said three (3) days this lease and the term thereunder shall end and expire as fully and completely as if the expiration of such three (3) day period were the day herein definitely fixed for the end and expiration of this lease and the term thereof and Tenant shall then quit and surrender the demised premises to Owner but Tenant shall remain liable as hereinafter provided. (2) If the notice provided for in (1) hereof shall have been given, and the term shall expire as aforesaid; or if Tenant shall make default in the payment of the rent reserved herein or any item of additional rent herein mentioned or any part of either or in making any other payment herein required: and such default in payment remains uncured for 5 days after written notice from Landlord (provided however, Tenant shall only be entitled to such notice and grace period only two (2) times in any twelve (12) month period during the Lease term); then and in any of such events Owner may without notice, re-enter the demise premises either by force or otherwise, and dispossess Tenant by summary proceedings or otherwise, and the legal representative or Tenant or other occupant of demised premises and remove their effects and hold the premises as if this lease had not been made, and Tenant hereby waives the service of notice of intention to re-enter or to institute legal proceedings to that end. If Tenant shall make default hereunder prior to the date fixed as the commencement of any renewal or extension of this lease, Owner may cancel and terminate such renewal or extension agreement by written notice. (See Articles 49 and 56 of Rider) REMEDIES OF OWNER AND WAIVER OF REDEMPTION: 18. In case of any such default, re-entry, expiration and/or dispossess by summary proceedings or otherwise, (a) the rent shall become due thereupon and be paid up to the time of such re-entry, dispossess and/or expiration, (b) Owner may re-let the premises or any part or parts thereof, either in the name of Owner or otherwise, for a term or terms, which may at Owner's option be less than or exceed the period which would otherwise have constituted the balance of the term of this lease and may grant concessions or free rent or charge a higher rental than that in this lease, and/or (c) Tenant or the legal representatives of Tenant shall also pay Owner as liquidated damages for the failure of Tenant to observe and perform said Tenant's covenants herein contained, any deficiency between the rent hereby reserved and/or covenanted to be paid and the net amount, if any, of the rents collected on account of the lease or leases of the demised premises for each month of the period which would otherwise have constituted the balance of the term of this lease. The failure of Owner to re-let the premises of any part or parts thereof shall not release or affect Tenant's liability for damages. In computing such liquidated damages there shall be added to the said deficiency such expenses as Owner may incur in connection with re-letting, such as legal expenses, attorney's fees, brokerage, advertising and for keeping the demised premises in good order or for preparing the same for re-letting. Any such liquidated damages shall be paid in monthly installments by Tenant on the rent day specified in this lease and any suit brought to collect the amount of the deficiency for any month shall not prejudice in any way the rights of Owner to collect the deficiency for any month shall not prejudice in any way the rights of Owner to collect the deficiency of any subsequent month by a similar proceeding Owner, in putting the demised premises in good order or preparing the same for re-rental may, at Owner's option, make such alterations, repairs, replacements, and/or decorations in the demised premises as Owner, in Owner's sole judgment, considers advisable and necessary for the purpose of re-letting the demised premises, and the making of such alterations, repairs, replacements, and/or decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Owner shall in no event be liable in any way whatsoever for failure to re-let the demised premises, or in the event that the demised premises are re-let, for failure to collect the rent thereof under such re-letting, and in no event shall Tenant be entitled to receive any excess, if any, of such net rents collected over the sums payable by Tenant to Owner hereunder. In the event of a breach or threatened breach by Tenant of any of the covenants or provisions hereof, Owner shall have the right of injunction and the right to invoke any remedy allowed at law or in equity as if re-entry, summary proceedings and other remedies were not herein provided for Mention in this lease of any particular remedy, shall not preclude Owner from any other remedy, in law or in equity. Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Tenant being evicted or dispossessed for any cause, or in the event of Owner obtaining possession of demised premises, by reason of the violation by Tenant of any of the covenants and conditions of this lease, or otherwise. (See Article 49 of Rider) FEES AND EXPENSES 19. If Tenant shall default in the observance or performance of any term or covenant on Tenant's part to be observed or performed under or by virtue of any of the terms or provisions in any article of this lease, then, unless otherwise provided elsewhere in this lease. Owner may immediately or at any time thereafter and without notice perform the obligation of Tenant thereunder. If Owner, in connection with the foregoing or in connection with any default by Tenant in the covenant to pay rent hereunder, makes any expenditures or incurs any obligations for the payment of money, including but not limited to reasonable attorney's fees, in instituting, prosecuting or defending any action or proceeding, then Tenant will reimburse Owner for such sums so paid or obligations incurred with interest and costs. The foregoing expenses incurred by reason of Tenant's default shall be deemed to be additional rent hereunder and shall be paid by Tenant to Owner within five (5) days of rendition of any bill or statement to Tenant therefor. If Tenant's lease term shall have expired at the time of making of such expenditures or incurring of such obligations, such sums shall be recoverable by Owner as damages. BUILDING ALTERATIONS AND MANAGEMENT: 20. Owner shall have the right at any time without the same constituting an eviction and without incurring liability to Tenant therefor to change the arrangement and/or location of public entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets or other public parts of the building and to change the name, number or designation by which the building may be known. There shall be no allowance to Tenant to diminution of rental value and no liability on the part of Owner by reason of inconvenience, annoyance or injury to business arising from Owner or other Tenants making any repairs in the building or any such alterations, additions and improvements. Furthermore, Tenant shall not have any claim against Owner by reason of Owner's imposition of such controls of the manner of access to the building by Tenant's social or business visitors as the Owner may deem necessary for the security of the building and its occupants. NO REPRESENTATIONS BY OWNER: 21. Neither Owner nor Owner's agents have made any representations or promises with respect to the physical condition of the building, the land upon which it is erected or the demised premises, the rents, leases, expenses of operation or any other matter or thing affecting or related to the premises except as herein expressly set forth and no rights, easements or licenses are acquired by Tenant by implication or otherwise except as expressly set forth in the provisions of this lease. Tenant has inspected the building and the demised premises and is thoroughly acquainted with their condition and agrees to take the same "as is" and acknowledges that the taking of possession of the demised premises by Tenant shall be conclusive evidence that the said premises and the building of which the same form a part were in good and satisfactory condition at the time such possession was so taken, except as to latent defects. All understandings and agreements heretofore made between the parties hereto are merged in this contract, which alone fully and completely expresses the agreement between Owner and Tenant and any executory agreement hereafter made shall be ineffective to change, modify, discharge or effect an abandonment of it in whole or in part, unless such executory agreement is in writing and signed by the party against whom enforcement of the change, modification, discharge or abandonment is sought. END OF TERM: 22. Upon the expiration or other termination of the term of this lease, Tenant shall quit and surrender to Owner the demised premises, broom clean, in good order and condition, ordinary wear and damages which Tenant is not required to repair as provided elsewhere in this lease excepted, and Tenant shall remove all its property. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of this lease. If the last day of the term of this Lease or any renewal thereof, falls on Sunday, this lease shall expire at noon on the preceding Saturday unless it be a legal holiday in which case it shall expire at noon on the preceding business day. (See Article 49 of Rider) QUIET ENJOYMENT: 23. Owner covenants and agrees with Tenant that upon Tenant paying the rent and additional rent and observing and performing all the terms, covenants and conditions, on Tenant's part to be observed and performed, Tenant may peaceably and quietly enjoy the premises hereby demised, subject, nevertheless, to the terms and conditions of this lease including, but not limited to, Article 7 hereof and to the ground leases, underlying leases and mortgages hereinbefore mentioned. FAILURE TO GIVE POSSESSION: 24. If Owner is unable to give possession of the demised premises on the date of the commencement of the term hereof, because of the holding-over or retention of possession of any tenant, undertenant or occupants or if the demised premises are located in a building being constructed, because such building has not been sufficiently completed to make the premises ready for occupancy or because of the fact that a certificate of occupancy has not been procured or for any other reason, Owner shall not be subject to any liability for failure to give possession on said date and the validity of the lease shall not be impaired under such circumstances, nor shall the same be construed in any wise to extend the term of the lease, but the rent payable hereunder shall be abated (provided Tenant is not responsible for Owner's inability to obtain possession) until after Owner shall have given Tenant written notice that the premises are substantially ready for Tenant's occupancy. If permission is given to Tenant to enter into the possession of the demised premises or to occupy premises other than the demised premises prior to the date specified as the commencement of the term of this lease, Tenant covenants and agrees that such occupancy shall be deemed to be under all the terms, covenants, conditions and provisions of this lease, except as to the covenant to pay rent. The provisions of this article are intended to constitute "an express provision to the contrary" within the meaning of Section 223-a of the New York Real Property Law. NO WAIVER: 25. The failure of Owner to seek redress for violation of, or to insist upon the strict performance of any covenant or condition of this lease or of any of the Rules or Regulations, set forth or hereafter adopted by Owner, shall not prevent a subsequent act which would have originally constituted a violation from having all the force and effect of an original violation. The receipt by Owner of rent with knowledge of the breach of any covenant of this lease shall not be deemed a waiver of such breach and no provision of this lease shall be deemed to have been waived by Owner unless such waiver be in writing signed by Owner. No payment by Tenant or receipt by Owner of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement of any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Owner may accept such check or payment without prejudice to Owner's right to recover the balance of such rent or pursue any other remedy in this lease provided. No act or thing done by Owner or Owner's agents during the term hereby demised shall be deemed an acceptance of a surrender of said premises, and no agreement to accept such surrender shall be valid unless in writing signed by Owner. No employee of Owner or Owner's agent shall have any power to accept the keys of said premises prior to the termination of the lease and the delivery of keys to any such agent or employee shall not operate as a termination of the lease or a surrender of the premises. WAIVER OF TRIAL BY JURY: 26. It is mutually agreed by and between Owner and Tenant that the respective parties hereto shall and they hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other (except for personal injury or property damage) on any matters whatsoever arising out of or in any way connected with this lease, the relationship of Owner and Tenant, Tenant's use of or occupancy of said premises, and any emergency statutory or any other statutory remedy. It is further mutually agreed that in the event Owner commences any summary proceeding for possession of the premises, Tenant will not interpose any counterclaim of whatever nature or description in any such proceeding including a counterclaim under Article 4. INABILITY TO PERFORM: 27. This Lease and the obligation of Tenant to pay rent hereunder and perform all of the other covenants and agreements hereunder on part of Tenant to be performed shall in no wise be affected, impaired or excused because Owner is unable to fulfill any of its obligations under this lease or to supply or is delayed in supplying any service expressly or impliedly to be supplied or is unable to make, or is delayed in making any repair, additions, alterations or decorations or is unable to supply or is delayed in supplying any equipment or fixtures if Owner is prevented or delayed from so doing by reason of strike or labor troubles or any cause whatsoever including, but not limited to, government preemption in connection with a National Emergency or by reason of any rule, order or regulation of any department or subdivision thereof of any government agency or by reason of the conditions of supply and demand which have been or are affected by war or other emergency. BILLS AND NOTICES: 28. (See Article 47 of Rider) SERVICES PROVIDED BY OWNERS 29. As long as Tenant is not in default under any of the covenants of this lease, Owners shall provide: (a) necessary elevator facilities on business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m. and have one elevator subject to call at all other times; (b) heat to the demised premises when and as required by law, on business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m.; (c) water for ordinary lavatory purposes, but if Tenant uses or consumes water for any other purposes or in unusual quantities (of which fact Owner shall be the sole judge), Owner may install a water meter at Tenant's expense which Tenant shall thereafter maintain at Tenant's expense in good working order and repair to register such water consumption and Tenant shall pay for water consumed as shown on said meter as additional rent as and when bills are rendered; (d) cleaning service for the demised premises on business days as set forth in Schedule E at Owner's expense provided that the same are kept in order by Tenant. Tenant shall pay Owner the cost of removal of any of Tenant's refuse and rubbish from the building which is not removed by normal cleaning services under Schedule E; (e) If the demised premises is serviced by Owner's air conditioning/cooling and ventilating system, air condition/cooling will be furnished to tenant from May 15th through September 30th on business days (Mondays through Fridays, holidays excepted) from 8:00 a.m. to 6:00 p.m., and ventilation will be furnished on business days during the aforesaid hours except when air conditioning/cooling is being furnished as aforesaid. If Tenant requires air conditioning/cooling or ventilation for more extended hours or on Saturdays, Sundays or on holidays, as defined under Owner's contract with Operating Engineers Local 94-94A, Owner will furnish the same at Tenant's expense. [POINTER] RIDER to be added in respect to rates and conditions for such additional service; (f) Owner reserves the right to stop services of the heating, elevators, plumbing, air conditioning, power systems or cleaning or other services, if any, when necessary by reason of accident or for repairs, alterations, replacements or improvements necessary or desirable in the judgment of Owner for as long as may be reasonably required by reason thereof. If the building of which the demised premises are a part supplies manually-operated elevator service, Owner at any time may substitute automatic-control elevator service and upon ten days' written notice to Tenant, proceed with alterations necessary therefor without in any wise affecting this lease or the obligation of Tenant hereunder. The same shall be done with a minimum of inconvenience to Tenant and Owner shall pursue the alteration with due diligence. CAPTIONS: 30. The Captions are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this lease nor the intent of any provisions thereof. DEFINITIONS: 31. The term "office", or "offices", wherever used in this lease, shall not be construed to mean premises used as a store or stores, for the sale or display, at any time, of goods, wares or merchandise, of any kind, or as a restaurant, shop, booth, bootblack or other stand, barber shop, or for other similar purposes or for manufacturing. The term "Owner" means a landlord or lessor, and as used in this lease means only the owner, or the mortgagee in possession, for the time being of the land and building (or the owner of a lease of the building or of the land and building) of which the demised premises form a part, so that in the event of any sale or sales of said land and building or of said lease, or in the event of a lease of said building, or of the land and building, the said Owner shall be and hereby is entirely freed and relieved of all covenants and obligations of Owner hereunder, and it shall be deemed and construed without further agreement between the parties or their successors in interest, or between the parties and the purchaser, at any such sale, or the said lessee of the the building, or of the land and building, that the purchaser or the lessee of the building has assumed and agreed to carry out any and all covenants and obligations of Owner, hereunder. The words "re-enter" and "re-entry" as used in this lease are not restricted to their technical legal meaning. The term "business days" as used in this lease shall mean all days except Saturdays, Sundays and all days observed by the City, State or Federal Government as legal holidays and those designated as holidays by the applicable building service union employees service contract or by the applicable Operating Engineers contract with respect to HVAC service. - ---------- [POINTER] Rider to be added if necessary ADJACENT EXCAVATION--SHORING: 32. If an excavation shall be made upon land adjacent to the demised premises, or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause such excavation, license to enter upon the demised premises for the purpose of doing such work as said person shall deem necessary to preserve the wall or the building of which demised premises form a part from injury or damage and to support the same by proper foundations without any claim for damages or indemnity against Owner, or diminution or abatement of rent. RULES AND REGULATIONS: 33. Tenant and Tenant's servants, employees, agents, visitors, and licensees shall observe faithfully, and comply strictly with, the Rules and Regulations as set forth in Schedule D hereof and such other and further reasonable Rules and Regulations as Owner or Owner's agents may from time to time adopt. Notice of any additional rules or regulations shall be given in such manner as Owner may elect. In case Tenant disputes the reasonableness of any additional Rule or Regulation hereafter made or adopted by Owner or Owner's agents, the parties hereto agree to submit the question of the reasonableness of such Rule or Regulation for decision to the New York office of the American Arbitration Association, whose determination shall be final and conclusive upon the parties hereto. The right to dispute the reasonableness of any additional Rule or Regulation upon Tenant's part shall be deemed waived unless the same shall be asserted by service of a notice, in writing upon Owner within ten (10) days after the giving of notice thereof. Nothing in this lease contained shall be construed to impose upon Owner any duty or obligation to enforce the Rules and Regulations or terms, covenants or conditions in any other lease, as against any other tenant and Owner shall not be liable to Tenant for violation of the same by any other tenant, its servants, employees, agents, visitors or licensees. Landlord shall uniformly enforce the Rules and Regulations against all tenants in the Building. SECURITY: [POINTER] 34. Tenant has deposited with Owner the sum of $133,690.00 as security for the faithful performance and observance by Tenant of the terms, provisions and conditions of this lease: it is agreed that in the event Tenant defaults in respect of any of the terms, provisions and conditions of this lease, including, but not limited to, the payment of rent and additional rent, Owner may use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any rent and additional rent or any other sum as to which Tenant is in default or for any sum which Owner may expend or may be required to expend by reason of Tenant's default in respect of any of the terms, covenants and conditions of this lease, including but not limited to, any damages or deficiency in the re-letting of the premises, whether such damages or deficiency accrued before or after summary proceedings or other re-entry by Owner. In the event that Tenant shall fully and faithfully comply with all of the terms, provisions, covenants and conditions of this lease, the security shall be returned to Tenant after the date fixed as the end of the Lease and after delivery of entire possession of the demised premises to Owner. In the event of a sale of the land and building or leasing of the building, of which the demised premises form a part. Owner shall have the right to transfer the security to the vendee or lessee and Owner shall thereupon be released by Tenant from all liability for the return of such security, and Tenant agrees to look to the new Owner solely for the return of said security, and it is agreed that the provisions hereof shall apply to every transfer or assignment made of the security to a new Owner. Tenant further covenants that it will not assign or encumber or attempt to assign or encumber the monies deposited herein as security and that neither Owner nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. In the event Landlord applies or retains any portion or all of the security deposited, Tenant shall forthwith fully restore the amount so applied or retained. Landlord shall place the security deposit in an interest-bearing account and upon return of said security, such interest shall be paid to Tenant less one (1) percent per annum for Landlord's administrative costs. (See Article 54 of Rider). ESTOPPEL CERTIFICATE 35. (See Article 48 of Rider) SUCCESSORS AND ASSIGNS: 36. The covenants, conditions and agreements contained in this lease shall bind and inure to the benefit of Owner and Tenant and their respective heirs, distributees, executors, administrators, successors, and except as otherwise provided in this lease, their assigns. - ------------------------------------ [POINTER] Space to be filled in or deleted IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed this lease as of the day and year first above written. THE OVERTON-LA CHOLLA [SEAL] Witness for Owner: JOINT VENTURE BY: HERON JV ACQUISITIONS, INC. By: [illegible] - ------------------------------------------------- -------------------------------------- [L.S.] Executive Vice President DANIELS PRINTING, LIMITED PARTNERSHIP, Witness for Tenant: By: Daniels Printing Corp., Inc, its [SEAL] Sole General Partner /s/ Jeannette C Faber By: /s/ [illegible] - ------------------------------------------------- -------------------------------------- [L.S.] JEANNETTE C FABER [illegible] Vice President
ACKNOWLEDGMENTS CORPORATE OWNER CORPORATE TENANT STATE OF NEW YORK SS.: STATE OF NEW YORK SS.: COUNTY OF COUNTY OF On this day of , 19 , before me On this day of , 19 , before me personally came personally came to me known, who being by me duly sworn, did depose and to me known, who being by me duly sworn, did depose and say that he resides say that he resides in in that he is the of that he is the of the corporation described in and which executed the the corporation described in and which executed the foregoing instrument, as OWNER that he knows the seal foregoing instrument, as TENANT that he knows the seal of said corporation, that the seal affixed to said of said corporation, that the seal affixed to said instrument is such corporate seal, that it was so instrument is such corporate seal, that it was so affixed by order of the Board of Directors of said affixed by order of the Board of Directors of said corporation, and that he signed his name thereto by corporation, and that he signed his name thereto by like order like order INDIVIDUAL OWNER INDIVIDUAL TENANT STATE OF NEW YORK SS.: STATE OF NEW YORK SS.: COUNTY OF COUNTY OF On this day of , 19 , before me On this day of , 19 , before me personally came personally came to me known and known to me to be the individual to me known and known to me to be the individual described in and who, as OWNER, described in and who, as TENANT, executed the foregoing instrument and acknowledged executed the foregoing instrument and acknowledged to me that he executed the same to me that he executed the same
LEASE RIDER FOR 70 EAST 55th STREET TENANT: Daniels Printing, Limited Partnership ------------------------------------- SPACE: Entire 4th AND 5th Floors ------------------------- ARTICLE 37 COMMENCEMENT OF TERM 37.01.A. The "Commencement Date" of the Term shall be the date set forth on the first page of the printed form of this Lease B. The "Expiration Date" of the Term shall be December 15, 2000. C. The "Occupancy Date" shall be the date Tenant first occupies the Demises Premises for the conduct of its business. ARTICLE 38 TAX AND EXPENSE ESCALATION 38.01.A. For purposes hereof, the following definitions shall apply: (a) The term "Base Tax" shall mean the average of the Taxes payable for the tax year July 1, 1994 through June 30, 1995 and the tax year July 1, 1995 through June 30, 1996. (b) The term "Tax Year" shall mean each period of twelve (12) months which includes any part of the Term which now or hereafter is or may be duly adopted as the fiscal year for real estate tax purposes of the City of New York. (c) The term "Taxes" shall mean (i) all real estate taxes, assessments, sewer and water rents, governmental levies, municipal taxes, county taxes or any other governmental charge, general or special, ordinary or extraordinary, unforeseen as well as foreseen, of any kind or nature whatsoever, which are or may be assessed, levied or imposed upon all or any part of the Property and the sidewalks, plazas or streets adjacent thereto, including any tax, excise or fee measured by or payable with respect to any rent (other than any occupancy or rent tax payable by Tenant pursuant to Article 36.03), and levied against Landlord and/or the Property under the laws of the United States, the City or State of New York, or any political subdivision thereof (excluding Landlord's income tax), and (ii) any expenses incurred by Landlord, including payments to attorneys and appraisers, in contesting any of the items set forth in this subclause (c) (i), or the assessed valuations of all or any part of the Property. If due to a future change in the method of taxation or in the taxing authority, a new or additional real estate tax, or a franchise, income, transit, profit or other tax or governmental imposition, however designated, shall be levied against Landlord, and/or the Property, in addition to, or in substitution in whole or in part for any tax which would constitute Taxes, or in lieu of additional taxes, such tax or imposition shall be deemed for the purposes hereof to be included within the term Taxes. (d) The term "Tenant's Tax Share" shall mean Nine and Sixty-Four Hundredths percent (9.64%). (e) The term "Escalation Statement" shall mean a statement setting forth the amount payable by Tenant for a -1- specified Tax Year or operating Year (as hereinafter defined), as the case may be, or for some portion thereof pursuant to this Article 38. B. Tenant shall pay to Landlord as additional rent for each Tax Year a sum equal to Tenant's Tax Share of the amount by which the taxes for such Tax Year exceed the Base Tax ("Tenant's Tax Payment"). Landlord shall furnish the Tenant an annual Escalation Statement (subject to revision as hereinafter provided) for each Tax Year setting forth Tenant's Tax Payment for such Tax Year. Tenant's Tax Payment shall be due and payable on the first day of each month during such Tax Year in an amount equal to one-twelfth (1/12th) of such Tenant's Tax Payment for such Tax Year. If an annual Escalation Statement is furnished to the Tenant after the commencement of the Tax Year to which it relates, then (a) until such Escalation Statement is rendered, Tenant shall pay Tenant's Tax Payment for such Tax Year in installments based upon the last Escalation Statement rendered to Tenant with respect to Taxes and (b) Tenant shall, within ten (10) days after such annual Escalation Statement is furnished to Tenant, pay to Landlord an amount equal to any underpayment of the installments of Tenant's Tax Payment theretofore paid by Tenant for such Tax Year and, in the event of an overpayment by Tenant, Landlord shall permit Tenant to credit against subsequent payments under this Article 38.01 the amount of such overpayment. If there shall be any increase in Taxes for any Tax Year, whether during or after such Tax Year, Landlord shall furnish a revised Escalation Statement for such Tax Year to Tenant, and Tenant's Tax Payment for such Tax Year shall be adjusted and paid or credited, as appropriate, in the same manner as provided in the preceding sentence. If during the Term, Taxes are required to be paid (either to the appropriate taxing authorities or as tax escrow payments to a superior mortgagee or ground lessor) in full or on any other date or dates than as presently required, then at landlord's option, Tenant's Tax Payments shall be correspondingly accelerated or revised so that said Tenant's Tax Payments are due at least thirty (30) days prior to the date payments are due to the taxing authorities or the superior mortgagee or ground lessor. The benefit of any discount for any early payment or prepayment of Taxes shall accrue solely to the benefit of Landlord and such discount shall not be subtracted from Taxes. C. If Landlord shall receive a refund of Taxes for any Tax Year, Landlord shall permit Tenant to credit against subsequent payments under this Article 38.01, Tenant's Tax Share of the refund, but not in excess of, Tenant's Tax Payment paid for such Tax Year. 38.02.A. For purposes hereof, the following definitions shall apply: (a) The term "Expense Base Factor" shall mean the Expenses for the calendar year 1995. (b) The term "Operating Year" shall mean each calendar year which includes any part of the Term. (c) The term "Tenant's Expense Share" shall mean Nine and Seventy-Six Hundredths percent (9.76%). (d) The term "Expenses" shall mean the total of all the costs and expenses (and taxes thereon, if any) incurred by Landlord with respect to the operation and maintenance of the Property and the services provided to the tenants of the IM Building computed on an accrual basis including, without limitation, the costs and expenses with respect to: steam, gas and any other fuel or utilities; water rates and sewer rents; air conditioning for areas other than those leased to individual tenants; heating and related ventilation; electricity as indicated by meter for areas other than those -2- leased to individual tenants or if there be no meter, as determined by a reputable, independent electrical consultant selected by Landlord whose determinations shall be binding on Landlord and Tenant ("Landlord's Electrical Consultant"); elevators and escalators; metal, elevator cab, lobby, plaza, basement gardens, sidewalk, curb and other public area maintenance and cleaning; interior and exterior landscaping and decoration; painting of non-tenant areas; window cleaning; building standard cleaning service supplied to tenants by Landlord; the purchase price or rental cost, as applicable, of all building and cleaning supplies, tools, materials, machinery and equipment; depreciation hand tools and other movable equipment used in the operation or maintenance of the Property; fire, extended coverage, boiler and machinery, sprinkler apparatus, public liability and property damage, loss of rental, fidelity and plate glass insurance and any other insurance required by the holder of any mortgage or ground lease covering the Property or customarily carried with respect to buildings similar to the Building; wages, salaries, training costs, bonuses, disability benefits, hospitalization, medical, surgical, union and general welfare benefits (including group life insurance), any pension, retirement or life insurance plan and other benefit or similar expense respecting employees of the Landlord up to and including the level of the building manager; uniforms and working clothes for such employees and the cleaning and replacement thereof; expenses imposed on the Landlord pursuant to law or to any collective bargaining agreement with respect to such employees; workmen's compensation insurance, payroll, social security, unemployment and other similar taxes with respect to such employees; salaries of bookkeepers and accountants; professional and consulting fees, including legal and accounting fees; charges for independent contractors performing work included within the definition of Expenses; association fees or dues; telephone and stationery; guards, watchmen, and other security personnel services and/or systems; directory; Building telephone(s); repairs, replacements and improvements which are necessary or appropriate for the continued operation of the Building as a first-class office building; and management fees for the management of the Building, or if no managing agent is employed by Landlord, a sum in lieu thereof which is not in excess of the then prevailing rates for management fees in the Borough of Manhattan for first-class office buildings similar to the Building. The following costs and expenses shall be excluded or deducted, as appropriate, from the foregoing costs and expenses: (i) the cost of electricity, if any, furnished to the Demised Premises and other space leased to tenants as measured by meters, or if there be no meters, as determined by Landlord's Electrical Consultant; (ii) leasing commissions, relocation costs for tenants, costs for tenant evictions and tenant fit-out work; (iii) salaries for Landlord's executives above the grade of building manager; (iv) amounts received by Landlord through proceeds of insurance to the extent the proceeds are compensation for expenses which were previously included in Expenses hereunder; (v) cost of repairs or replacements incurred by reason of fire or other casualty or condemnation to the extent to which Landlord is compensated therefor through proceeds of insurance or condemnation award; -3- (vi) advertising and promotional expenditures other than for prospective building employees of the Landlord (which expenditures shall be included within the definition of Expenses); (vii) Taxes; (viii) costs for performing Landlord's Work for any individual tenant or for performing work or furnishing services to or for individual tenants at such tenant's expense; (ix) expenditures for capital improvements except those which under generally applied real estate practice are expended or regarded as deferred expenses and except for capital expenditures required by law, in either of which cases the cost thereof shall be included in Expenses for the comparative year in which the costs are incurred and subsequent comparative years, on a straight line basis, to the extent that such items are amortized over an appropriate period, but not more than ten (10) years, with interest at an annual rate of one (1) per centum in excess of the prime interest rate of Chemical Bank, as publicly announced from time to time or if Chemical Bank shall cease to exist or cease to announce such rate, any similar rate designated by Landlord which is publicly announced from time to time by any other bank in the City of New York having combined capital and surplus in excess of One Hundred Million Dollars ($100,000,000) ("Prime Rate"); (x) payments on account of rent under a ground lease (if any) of the Land and/or Building and on account of or under any mortgage on the Property and the costs and expenses of refinancing same. If Landlord shall purchase any item of capital equipment or make any capital expenditures designed to result in savings or reductions in Expenses, then the costs for same shall be included in Expenses. The costs of such capital equipment or capital expenditures are to be included in Expenses for the comparative year in which the costs are incurred and subsequent comparative years, on a straight line basis, to the extent that such items are amortized over such period of time as reasonably can be estimated as the time in which such savings or reductions in Expenses are expected to equal Landlord's costs for such capital equipment or capital expenditure, with interest at an annual rate of one (1) per centum over Prime Rate. If Landlord shall lease any such item of capital equipment designed to result in savings or reductions in Expenses, then the rentals and other costs paid pursuant to such leasing shall be included in Expenses for the comparative year in which they were incurred. If during all or part of any Operating Year, Landlord shall not furnish any particular item(s) of work or service (which would constitute an Expense hereunder) to portions of the Building, due to the fact that construction of the Building is not completed, or such portions are not occupied or leased, or because such item of work or service is not required or desired by the Tenant of such portion, or such Tenant is itself obtaining and providing such item of work or service, or for other reasons, then, for the purpose of computing the additional rent payable hereunder, the amount of the Expenses for such item for such period shall be increased by an amount equal to the additional operating and maintenance expenses which would reasonably have been incurred during such period by Landlord if it had at its own expense furnished such item of work or services to such portion of the Building. B. If the Expenses for any Operating Year exceed the Expense Base Factor, Tenant shall pay to Landlord as additional -4- rent for such Operating Year a sum equal to Tenant's Expense Share of the amount by which the Expenses for such Operating Year exceed the Expense Base Factor ("Tenant's Expense Payment"). C. Landlord shall furnish to Tenant for each Operating Year an Escalation Statement (subject to revision as hereinafter provided) setting forth Landlord's estimate of Tenant's Expense Payment for such Operating Year. Tenant shall pay to Landlord on the first day of each month during such Operating Year an amount equal to one-twelfth (1/12) of Landlord's estimate of Tenant's Expense Payment for such Operating Year. If Landlord shall furnish such estimate for an Operating Year after the commencement thereof, then (a) until the first day of the month following the month in which such estimate is furnished to Tenant, Tenant shall pay to Landlord on the first day of each month an amount equal to the monthly sum payable by Tenant to Landlord under this Article 38.02C. for the last month of the preceding Operating Year; (b) Landlord shall notify Tenant in the Escalation Statement containing such estimate whether the installments of Tenant's Expense Payment previously paid for such Operating Year were more or less than the installments which should have been paid for such Operating Year pursuant to such estimate and (i) if there shall be an underpayment, Tenant shall pay the amount thereof within ten (10) days after being furnished with such Escalation Statement or (ii) if there shall be an overpayment, Tenant shall be entitled to a credit in the amount thereof against subsequent payments under this Article 38.02; and (c) on the first day of the month following the month in which such estimate is furnished to Tenant and monthly thereafter for the balance of such Operating Year, Tenant shall pay to Landlord an amount equal to one-twelfth (1/12) of Tenant's Expense Payment as shown on such estimate. Landlord may at any time and from time to time (but not more often than four (4) times in any Operating Year) furnish to Tenant an Escalation Statement setting forth Landlord's revised estimate of Tenant's Expense Payment for a particular Operating Year and Tenant's Expense Payment for such operating year shall be adjusted and paid or credited, as applicable, in the same manner as provided in the preceding sentence. D. After the end of each Operating Year, Landlord shall submit to Tenant an annual Escalation Statement prepared by Landlord setting forth the Expenses for the preceding Operating Year and the balance of Tenant's Expense Payment, if any, due to Landlord from Tenant for such Operating Year. If such annual Escalation Statement shall show that the sums paid by Tenant under this Article 38.02 exceeded Tenant's Expense Payment for such Operating Year, Tenant shall be entitled to a credit in the amount of such excess against subsequent payments under this Article 38.02. If such annual Escalation Statement shall show that the sums so paid by Tenant were less than Tenant's Expense Payment for such Operating Year, Tenant shall pay the amount of such deficiency to the Landlord within thirty (30) days after being furnished with such annual Escalation Statement. E. The annual Escalation Statement with respect to Expenses to be furnished by Landlord as provided above shall be in reasonable detail but need not be audited or certified by accountants. Landlord may use operating cost allocations and estimates if such allocations or estimates are required for this Article 38.02. 38.03. Tenant shall pay to Landlord within ten (10) now days of demand, as additional rent, any occupancy tax or rent now in effect or hereafter enacted, which Landlord is now or hereafter required to pay with respect to the Demised Premises or this Lease. The term "additional rent" shall include the additional charges under this Article 38 and any and all of Tenant's Tax Payments, Tenant's expense Payments and any payments due under this Lease other than fixed annual rent. -5- 38.04. If the Commencement Date shall be other than the first day of a Tax Year or an Operating Year or if the date of the expiration or other termination of this Lease shall be a day other than the last day of a Tax Year or an Operating Year, then Tenant's Tax Payment and/or Tenant's Expense Payment for such partial year shall be equitably adjusted taking into consideration the portion of such Tax Year or Operating Year falling within the Term. Landlord shall, as soon as reasonably practicable, cause an Escalation Statement with respect to Taxes for the Tax Year and/or Expenses for the operating Year in which the Term expires to be prepared and furnished to Tenant. Such Escalation Statement shall be prepared as of the expiration date of the Term if such date is December 31, and if not, as of the first to occur of June 30 or December 31 after the expiration date of the Term. Landlord and Tenant shall thereupon make appropriate adjustments of amounts then owing. 38.05. In no event shall the fixed annual rent ever be reduced by operation of this Article 38. The rights and obligations of Landlord and Tenant under the provisions of this Article 38 shall survive the termination of this Lease, and payments shall be made pursuant to this Article 38 notwithstanding the fact that an Escalation Statement is furnished to Tenant after the expiration or other-termination of the Term. 38.06. Landlord's failure to render an Escalation Statement with respect to any Tax Year or operating Year shall not prejudice Landlord's right to thereafter render an Escalation Statement with respect thereto or with respect to any subsequent Tax Year or Operating Year. Landlord shall issue an Escalation Statement (a) with respect to any Operating Year not later than two (2) years after the Operating Year to which the Escalation Statement relates, and (b) with respect to any Tax Year not later than five (5) years after such Tax Year to which the Escalation Statement relates; and any Escalation Statement not rendered within these specified time periods of two (2) years and five (5) years and shall be null and void. 38.07. The Escalation Statement to be furnished by Landlord shall be certified by Landlord and shall be prepared in reasonable detail for Landlord by Landlord's accountant (who may be the certified public accountants now or then employed by Landlord for the audit of its accounts); said certified public accountants may rely on Landlord's allocations and estimates wherever operating cost allocations or estimates are needed for this Article 38. The Escalation Statement thus furnished to Tenant shall constitute a final determination as between Landlord and Tenant of the Expenses for the periods represented thereby, unless within forty-five (45) days after receipt of such Escalation Statement, Tenant shall notify Landlord that it disputes the correctness of such Escalation Statement and identify the items which Tenant claims are incorrect. Upon such notice, Landlord shall make available to Tenant Landlord's records relating to such particular items for Tenant's review (which Tenant may review at Tenant's expense). Pending resolution of such dispute by Tenant, Tenant shall pay Landlord in accordance with the disputed Escalation Statement without prejudice to Tenant's position. If Tenant is correct in its dispute, Landlord shall credit any amounts overpaid by Tenant against subsequent payments due under Article 38.02 (C) for Tenant's Expense Payment or if no further payments are due from Tenant, Landlord shall promptly refund such overpayment to Tenant. -6- ARTICLE 39 TWENTY-FOUR HOUR BUILDING 39.01. Supplementing Article 29 HEREOF AND subject to the conditions and terms thereof, Landlord shall have available, twenty-four hours per day on business days, (a) elevator facilities; (b) heating or air conditioning, as seasonally required under this lease; and (c) a security guard in lobby area, all without any overtime charges to Tenant. ARTICLE 40 INSURANCE 40.01.A. Tenant shall obtain and keep in full force and effect during the Term (or at the time Tenant's Property is placed in the Demised Premises, if such placement is prior to the commencement of the Term), at its own cost and expense,(a) public liability insurance, such insurance to afford protection in an amount of not less than One Million Dollars ($1,000,000) for injury or death arising out of any one occurrence, and One Million Dollars ($1,000,000) for damage to property, and Five Million Dollars ($5,000,000) liability and property umbrella policy, protecting Landlord, the lessor under any underlying lease, the holder of any mortgage and Tenant as insureds against any and all claims for personal injury, death or property damage occurring in, upon, adjacent to or connected with the Demised Premises or any part thereof; and (b) insurance against loss or damage by fire, and such other risks and hazards as are insurable under present and future standard forms of fire and extended coverage insurance policies, to Tenant's Property (as hereinafter defined) for the full insurable value thereof, protecting Landlord, the holder of any superior mortgage, the lessor under any underlying lease and Tenant as insureds. Prior to the time such insurance is first required to be carried by Tenant and thereafter, at least fifteen (15) days prior to the effective date of any such policy, Tenant agrees to deliver to Landlord either a duplicate original of the aforesaid policy or a certificate evidencing such insurance. Said certificate shall contain an endorsement that such insurance may not be canceled except upon at least thirty (30) days' prior notice to Landlord. Tenant's failure to provide and keep in force the aforementioned insurance shall be regarded as a material default hereunder entitling Landlord to exercise any or all of the remedies provided in this Lease in the event of Tenant's default. As used in this Lease, the term "Tenant's Property" shall mean and be deemed to include all paneling, movable partitions, lighting fixtures, special-cabinet work, other business and trade fixtures, machinery and equipment, communications equipment and office equipment, whether or not attached to or built into the Demised Premises, which are installed in the Demised Premises by or for the account of Tenant and can be removed without permanent structural damage to the Building, and all furniture, furnishings and other articles of movable personal property owned by Tenant and located in the Demised Premises. B. Said insurance is to be written in form and substance satisfactory to Landlord by a good and solvent insurance company of recognized standing, admitted to do business in the State of New York, which shall be reasonably satisfactory to Landlord. Tenant shall procure, maintain and place such insurance and pay all premiums and charges therefor and upon lie failure to do so Landlord may, but shall not be obligated to, procure, maintain and place such insurance or make such payments, and in such event-the Tenant agrees to pay the amount thereof, plus interest at two (2) per centum in excess of Prime Rate, to Landlord on demand and said sum shall be in each instance collectible as additional rent on the first day of the month -7- following the date of payment by Landlord. Tenant shall cause to be included in all such insurance policies a provision to the effect that the same will be non-cancelable except upon twenty (20) days' written notice to Landlord. On the Commencement Date the original insurance policies or appropriate certificates shall be deposited with Landlord. Any renewals, replacements or endorsements thereto shall also be deposited with Landlord to the end that said insurance shall be in full force and effect during the Term. 40.02. Each party agrees to use its best efforts to include in each of its insurance policies (insuring the building and Landlord's property therein, in the case of Landlord, and insuring Tenant's Property and business interest in the Demised Premises [business interruption insurance], in the case of Tenant, against loss, damage or destruction by fire or other casualty) a waiver of the insurer's right of subrogation against the other party, or if such waiver should be unobtainable or unenforceable at any time, then for such time period, (a) an express agreement that such policy shall not be invalidated if the insured waives or has waived before the casualty the right of recovery against any party responsible for a casualty covered by the policy, or (b) any other form of permission for the release of the other party, or (c) the inclusion of the other party as an additional insured, but not a party to whom any loss shall be payable. If such waiver, agreement or permission shall not be, or shall cease to be, obtainable without additional charge or at all, the insured party shall so notify the other party promptly after learning thereof. In such case, if the other party shall agree in writing to pay the insurer's additional charge therefor, such waiver, agreement or permission shall be included in the policy, or the other party shall be named as an additional insured in the policy, but not a party to whom any loss shall be payable. Each such policy which shall so name a party hereto as an additional insured shall contain, if obtainable, agreements by the insurer that the policy will not be canceled without at least twenty (20) days' prior notice to both insureds and that the act or omission of one insured will not invalidate the policy as to the other insured. 40.03. As long as Landlord's fire insurance policies then in force include the waiver of subrogation or agreement or permission to release liability referred to in Article 40.02 or name the Tenant as an additional insured, Landlord hereby waives (a) any obligation on the part of Tenant to make repairs to the Demised Premises necessitated or occasioned by fire or other casualty that is an insured risk under such policies, and (b) any right of recovery against Tenant, any other permitted occupant of the Demised Premises, and any of their servants, employees, agents or contractors, for any loss occasioned by fire or other casualty that is an insured risk under such policies. In the event that at any time Landlord's fire insurance carriers shall not include such or similar provisions in Landlord's fire insurance policies, the waivers set forth in the foregoing sentence shall be deemed of no further force or effect. 40.04. As long as Tenant's fire insurance policies then in force include the waiver of subrogation or agreement or permission to release liability referred to in Article 40.02, or name the Landlord as an additional insured, Tenant hereby waives (and agrees to cause any other permitted occupants of the Demised Premises to execute and deliver to Landlord written instruments waiving) any right of recovery against Landlord, the lessor under any underlying lease, the holder of any superior mortgage, any other tenants or occupants of the Building, and any servants, employees, agents or contractors of Landlord, or of any such lessor, or of any such other tenants or occupants, for any loss occasioned by fire or other casualty which is an insured risk under such policies. In the event that at any time Tenant's fire insurance carriers shall not include such or similar provisions -8- in Tenant's fire insurance policies, the waiver set forth in the foregoing sentence shall, upon notice given by Tenant to Landlord, be deemed of no further force or effect with respect to any insured risks under such policies from and after the giving of such notice. During any period while the foregoing waiver of right of recovery is in effect, Tenant, or any other permitted occupant of the Demised Premises, as the case may be, shall look solely to the proceeds of such policies to compensate Tenant or such other-permitted occupant for any loss occasioned by fire or other casualty which is an insured risk under such policies. 40.05. except to the extent expressly provided in Article 40.03, nothing contained in this Lease shall relieve Tenant of any liability to Landlord or to its insurance-carriers which Tenant may have under law or the provisions of this Lease in connection with any damage to the Demised Premises or the Building by fire or other casualty. 40.06. Except as otherwise provided in Article 40.01, nothing contained in Articles 40.02, 40.03 and 40.04 shall be deemed to impose upon Landlord or Tenant any duty to procure or maintain any kinds of insurance or any particular amounts or limits of any such kinds of insurance. The insurance policies referred to in Article 40.02 shall be deemed to include policies procured and maintained by a party for the benefit of its lessor, mortgagee or pledgee. ARTICLE 41 CONDITIONS OF LIMITATION 41.01. This Lease and the Term and estate hereby granted are subject to the limitation that if any event shall occur or any contingency shall arise whereby this Lease or the estate hereby granted or the unexpired balance of the Term would, by operation of law or otherwise, devolve upon or pass to any person, firm or corporation other than Tenant except as is expressly permitted under Article 42 and Article 41.02, then in any of said events Landlord may give to Tenant notice of intention to end the Term at the expiration of three (3) days from the date of the giving of such notice, and, in the event such notice is given, this Lease and the Term and estate hereby granted (whether or not the Term shall have commenced) shall terminate upon the expiration of said three (3) days with the same effect as if that day were the Expiration Date, but Tenant shall remain liable for damages as provided in this Lease. 41.02. Supplementing the provisions of Article 16 hereof, if this Lease is not terminated under Article 16 and is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, 11 U.S.C. Section 101 ET SEA. or any statute of similar nature and purpose ("Bankruptcy Code"), any and all monies or other considerations payable or otherwise to be delivered in connection with such assignment shall be paid or delivered to Landlord, shall be and remain the exclusive property of Landlord and shall not constitute property of Tenant or of the estate of Tenant within the meaning of the Bankruptcy Code. Any and all monies or other considerations constituting Landlord's property under the preceding sentence not paid or delivered to Landlord shall be held in trust for the benefit of Landlord and be promptly paid to or turned over to Landlord. Any monies received by Landlord or on behalf of Tenant during the pendency of any proceeding in bankruptcy shall be deemed paid as co compensation for the use and occupation of the Demised Premises and the acceptance of any such compensation by Landlord shall not be deemed an acceptance of rent or a waiver on the part of Landlord of any rights under this Lease. Notwithstanding anything contained in this Lease to the contrary, all amounts payable by Tenant to or on behalf of Landlord under this Lease, -9- whether or not expressly denominated, fixed annual rent, additional rent or any other charges under this Lease shall constitute rent for the purposes of Section 502(b)(7) of the Bankruptcy Code. 41.03. If, at any time, (a) Tenant shall be comprised of two (2) or more persons, or (b) Tenant's obligations under this Lease shall have been guaranteed by any person other than Tenant, or (c) Tenant's interest in this Lease shall have been assigned, the word "Tenant", as used in Articles 41.01 and 41.02, shall be deemed to mean any one or more of the persons primarily or secondarily liable Tenant's obligations under this Lease. ARTICLE 42 ASSIGNMENT, MORTGAGING, SUBLETTING 42.01. Except as otherwise expressly provided in this Article 42, Tenant shall not without, in each instance, obtaining the prior consent of Landlord, (a) assign or otherwise transfer this Lease or the term and estate hereby granted, (b) sublet all or part of the Demised Premises or allow the same to be used or occupied by others or in violation of Articles 2 and 45, (c) mortgage, pledge or encumber this Lease or all or part of the Demised Premises in any manner by reason of any act or omission on the part of Tenant, or (d) advertise, or authorize a broker to advertise, for a subtenant for all or part of the Demised Premises or for an assignee of this Lease. For purposes of this Article 42, (i) the transfer of a majority of the issued and outstanding capital stock of any corporate tenant or subtenant, or the transfer of a majority of the total interest in any other entity (partnership or otherwise) which is a tenant or subtenant, however accomplished, whether in a single transaction or in a series of related or unrelated transactions, shall be deemed an assignment of this Lease, or of such sublease, as the case may be, (ii) a takeover agreement shall be deemed a transfer of this Lease,(iii) any person or legal representative of Tenant, to whom Tenant's interest under this Lease passes by operation of law, or otherwise, shall be bound by the provisions of this Article 42, and (iv) a modification, amendment or extension without Landlord's prior written consent of a sublease previously consented to by Landlord shall be deemed a new sublease. Tenant agrees to furnish to Landlord upon demand at any time and from time to time such information and assurances as Landlord may reasonably request that neither Tenant, nor any subtenant, shall have violated the provisions of this Article 42.01. 42.02. The provisions of subclauses 42.01 (a) and (b) shall not apply to transactions entered into by Tenant with a corporation into or with which Tenant is merged or consolidated or with an entity to which substantially all of Tenant's assets are transferred, provided (a) such merger, consolidation or transfer of assets is for a good business purpose and not principally for the purpose of transferring the leasehold estate created hereby, and (b) the assignee or successor entity has a net worth at least equal to or in excess of the net worth of Tenant either (i) immediately prior to such merger, consolidation or transfer or (ii) as of the date hereof, whichever is greater. 42.03. Any assignment or transfer, whether made with Landlord's consent as required by Article 42.01 or without Landlord's consent pursuant to Article 42.02, shall not be effective unless and until (a) the assignee shall execute, acknowledge and deliver to Landlord a recordable agreement, in form and substance reasonably satisfactory to Landlord, whereby the assignee shall (i) assume the obligations and performance of this Lease and agree to be personally bound by all of the covenants, agreements, terms, provisions and conditions hereof on the part of Tenant to be performed or observed on and after the -10- effective date of any such assignment and (ii) agree that the provisions of this Article 42 shall, notwithstanding such assignment or transfer, continue to be binding upon it in the future, and (b) in the case of an assignment or transfer pursuant to Article 42.02 Tenant or its successor shall have delivered to Landlord financial statements certified by a reputable firm of certified public accountants evidencing satisfaction of the net worth requirements referred to in Article 42.02. Tenant covenants that, notwithstanding any assignment or transfer, whether or not in violation of the provisions of this Lease, and notwithstanding the acceptance of fixed annual rent by Landlord from an assignee or transferee or any other party, Tenant shall remain fully and primarily and jointly and severally liable for the payment of the fixed annual rent and all additional rent due and to become due under this Lease and for the performance and observance of all of the covenants, agreements, terms, provisions and conditions of this Lease on the part of Tenant to be performed or observed. 42.04. The liability of Tenant, and the due performance by Tenant of the obligations on its part to be performed under this Lease, shall not be discharged, released or impaired in any respect by an agreement or stipulation made by Landlord or any grantee or assignee of Landlord, by way of mortgage or otherwise, with a third party, extending the time of, or modifying any of the obligations contained in this Lease, or by any waiver or failure of Landlord to enforce any of the obligations on Tenant's part to be performed under this Lease, and Tenant shall continue to be liable hereunder. If any such agreement or modification operates to increase the obligations of the Tenant under this Lease, the liability under this Article 42.04 of Tenant or any of its successors in interest (unless such party shall have expressly consented in writing to such agreement or modification), shall continue to be no greater than if such agreement or modification had not been made. 42.05. Landlord shall not unreasonably withhold or delay its consent to an assignment of this Lease or to a subletting of the whole or a part of the Demised Premises to not more than two (2) subtenants per floor for substantially the remainder of the Term of this Lease, provided; (a) Tenant shall furnish Landlord with the name and business address of the proposed subtenant or assignee, information with respect to the nature and character of the proposed subtenant's or assignee's business, or activities, such references and current financial information with respect to net worth, credit and financial responsibility as are reasonably satisfactory to Landlord, and an executed counterpart of the sublease or assignment agreement; (b) The proposed subtenant or assignee is a reputable party whose financial net worth, credit, financial responsibility and security is, considering the responsibilities involved, reasonably satisfactory to Landlord; (c) The nature and character of the proposed subtenant or assignee, its business or activities and intended use of the Demised Premises are, in Landlord's reasonable judgment, in keeping with the standards of the Building and the floor or floors on which the Demised Premises are located; (d) The proposed subtenant or assignee is not then an occupant of any part of the Building or a party who dealt with Landlord or Landlord's agent (directly or through a broker) with respect to space in the Building, during the twelve (12) months immediately preceding Tenant's request for Landlord's consent; -11- (e) All costs incurred with respect to providing reasonably appropriate means of ingress and egress from the sublet space or to separate the sublet space from the remainder of the Demised Premises shall be borne by Tenant and shall otherwise be subject to the provisions of Articles 3 and 57 with respect to alterations, installations, additions or improvements; (f) Each assignment or sublease shall specifically state that (i) it is subject to all of the terms, covenants, agreements, provisions, and conditions of this Lease, (ii) the subtenant or assignee, as the case may be, will not have the right to further assign or sublet all or part of the Demised Premises or to allow same to be used by others, without the consent of Landlord in each instance, (iii) a consent by Landlord thereto shall not be deemed or construed to modify, amend or affect the terms and provisions of this Lease, or Tenant's obligations hereunder, which shall continue to apply to the Demised Premises involved, and the occupants thereof, as if the sublease or assignment had not been made, (iv) if Tenant defaults in the payment of any rent, Landlord is authorized to collect any rents due or accruing from any assignee, subtenant or other occupant of the Demised Premises and to apply the net amounts collected to the fixed annual rent and additional rent due hereunder, (v) the receipt by Landlord of any amounts from an assignee or subtenant, or other occupant of any part of the Demised Premises shall not be deemed or construed as releasing Tenant from Tenant's obligations hereunder or the acceptance of that party as a direct tenant and (vi) the subtenant shall be required to pay its proportionate share of Tenant's Tax Payment and Tenant's Expense Payment; (g) Tenant shall, together with requesting Landlord's consent hereunder, have paid Landlord any costs incurred by Landlord to review the requested consent including any attorneys' and other professionals' fees and expenses incurred by Landlord; (h) The proposed subtenant or assignee is not a tenant with a use and occupancy prohibited by Articles 2 and 45; (i) In the case of a subletting of a portion of the Demised Premises, the portion so sublet shall be regular in shape and suitable for normal renting purposes; (j) Tenant shall have granted to Landlord or its agent, at Landlord's election, the exclusive right to sublease the Demised Premises or such portion thereof as Tenant proposes to sublet, or to assign this Lease, as the case may be, for a period of three (3) months and Tenant shall pay to Landlord's agent upon execution of such sublease, assignment, release or other disposition a commission computed in accordance with Landlord's agent's standard rates and rules then in effect for the locality in which the Demised Premises are located; (k) The subletting or assignment shall not be at a lower rental rate than that being charged by Landlord at the time for similar space then available in the Building; and (l) The proposed assignment or sublease shall provide that it is subject to the Landlord's rights under Article 42.06. Tenant shall have complied with the provisions of Article 42.06 and Landlord shall not have made any of the elections provided for therein. 42.06.A. If Tenant seeks Landlord's consent to assign this Lease or sublet all or any portion of the Demised Premises, Tenant shall, no later than sixty (60) days prior to the -12- effective date anticipated for such assignment or sublet ("Effective Date") deliver to Landlord executed counterparts of any such agreement and all ancillary agreements with the proposed assignee or sublessee, as applicable, and Landlord shall then have the right to elect by notice to Tenant given within thirty (30) days after such delivery (x) to consent or refuse to consent to such assignment or sublease or (y) to elect to: (a) with respect to a proposed assignment of this Lease: (i) terminate this Lease as of the Effective Date as if it were the Expiration Date set forth herein; or (ii) accept an assignment of this Lease from Tenant in which event Tenant shall promptly execute and deliver to Landlord or Landlord's designee an assignment of this Lease in form reasonably satisfactory to Landlord's counsel which shall be effective as of the Effective Date; (b) With respect to a proposed subletting of the entire Demised Premises: (i) proceed under subclause (a)(i) OR (a)(ii) above; or (ii) accept a sublease from Tenant OF the entire Demised Premises in which event Tenant shall promptly execute and deliver to Landlord or Landlord's designee a sublease for the remainder of the Term hereof less one (1) day commencing with the Effective Date on (x) the rental terms specified in the proposed sublease or (y) the rental terms specified in this Lease, as elected by Landlord in its notice to proceed under this subclause (b)(ii); and (c) With respect to a proposed subletting of less than the entire Demised Premises: (i) terminate this Lease as to the portion of the Demised Premises affected by such subletting as of the Effective Date in which case Tenant shall promptly execute and deliver to Landlord an appropriate modification of this Lease in form satisfactory to Landlord; or (ii) accept a sublease from Tenant of the portion of the Demised Premises affected by such subletting in which event Tenant shall promptly execute and deliver to Landlord or Landlord's designee a sublease for the remainder of the term hereof less one (1) day commencing with the Effective Date at (x) the rental terms specified in the proposed sublease or (y) the rental terms specified in this Lease on a per rentable square foot basis, as elected by Landlord in its notice to proceed under this subclause (c)(ii). B. In the event that this Lease shall be assigned to Landlord or Landlord's designee or if all or part of the Demised Premises shall be sublet to Landlord or Landlord's designee pursuant to this Article 42.06, the provisions of any such assignment or sublease and the obligations of Landlord and the rights of Tenant with respect thereto shall not be binding upon or otherwise affect the rights of any holder of a superior mortgage or of a superior lease unless such holder shall elect by written notice to Tenant to succeed to the position of Landlord or its designee thereunder. -13- C. If Landlord should elect to have Tenant execute and deliver a Sublease back to Landlord pursuant to the provisions of Article 42.06A, said sublease shall be in form reasonably satisfactory to Landlord's counsel and on all the terms contained in this Lease, except that: (a) The rental terms shall be those specified by Landlord as provided in subclause 42.06A(c)(ii); (b) The sublease shall not provide for any work to be done for the subtenant or for any initial rent concessions or contain provisions inapplicable to a sublease, except that in the case of a subletting of a portion of the Demised Premises, Tenant shall pay to subtenant (i) the cost of erecting such demising walls as are necessary to separate the subleased premises from the remainder of the Demised Premises and to provide access thereto and (ii) the estimated cost of such other work as was to be paid for or performed by Tenant pursuant to any sublease for which Landlord's consent was requested; (c) The subtenant thereunder shall have the right to underlet the subleased premises, in whole or in part, or assign the sublease, without Tenant's consent; (d) The subtenant thereunder shall have the right to make, or cause to be made, any changes, alterations, decorations, additions and improvements that such subtenant may desire to authorize; (e) Such sublease shall expressly negate any intention that any estate created by or under such sublease be merged with any other estate held by either of the parties thereto; (f) Any consent required by Tenant, as sublessor under that sublease, shall be deemed granted if consent with respect thereto is granted by Landlord; (g) There shall be no limitation as to the use of the sublet premises by the subtenant thereunder; and (h) Any failure of the subtenant thereunder to comply. with the provisions of said sublease, other than with respect to the payment of rent to Tenant, shall not constitute a default thereunder or hereunder if Landlord has consented to such noncompliance. D. If pursuant to the exercise of any of Landlord's options under this Article 42.06, this Lease is terminated as to only a portion of the Demised Premises, then the fixed annual rent payable hereunder and the additional rent payable pursuant to Article 38 shall be adjusted in proportion to the portion of the Demised Premises affected by such termination. E. If the Landlord shall give its consent to any assignment of this Lease or to any sublease, Tenant shall in consideration therefor, pay to Landlord, as additional rent: (a) in the case of an assignment, an amount equal to all sums and other consideration paid to Tenant by the assignee for or by reason of such assignment (including, but not limited to, sums paid for the sale of Tenant's fixtures, leasehold improvements, equipment, furniture, furnishings or other personal property, less in the case of a sale thereof, the then net unamortized or undepreciated cost thereof determined on the basis of Tenant's federal income tax returns, or, if Tenant does not file such returns, on the same basis as carried on Tenant's books); and -14- (b) in the case of a sublease, any rents, additional charges or other consideration payable under the sublease to Tenant by the subtenant which is in excess of the fixed annual rent and additional rent accruing during the term of the sublease in respect of the subleased space (at the rate per rentable square foot payable by Tenant hereunder) pursuant to the terms hereof (including, but not limited to, sums paid for the sale or rental of Tenant's fixtures, leasehold improvements, equipment, furniture or furnishings or other personal property, less, in the case of the sale thereof, the then net unamortized or undepreciated cost thereof determined on the basis of Tenant's federal income tax returns, or, if Tenant does not file such returns, on the same basis as carried on Tenant's books). The sums payable under this Article 42.06E shall be paid to Landlord as and when paid by the assignee or subtenant to Tenant. F. If Landlord exercises any of its options under this Article 42.06, Landlord shall be free to, and shall have no liability to Tenant if Landlord shall, lease the Demised Premises or any portion thereof with respect to which one of such options exercised, to Tenant's proposed assignee or subtenant, as the case may be. G. (a) If Tenant (for the purposes of this Article 42.06G, the term Tenant shall include its trustee in bankruptcy) assumes this Lease and proposes to assign the same pursuant to the provisions of the Bankruptcy Code to any person or entity who shall have made a BONA FIDE arms-length offer to accept an assignment of this Lease on terms acceptable to Tenant, then notice of such proposed assignment shall be given to Landlord by Tenant no later than twenty (20) days after receipt of such offer by Tenant, but in any event no later than ten (10) days prior to the date that Tenant shall make application to a court of competent jurisdiction for authority and approval to enter into such assignment and assumption. Such notice shall set forth (i) the name and address of such person, (ii) all of the terms and conditions of such offer, and (iii) adequate assurance of future performance by such person under the Lease, including, without limitation, the assurance referred to in Section 365(b)(3) of the Bankruptcy Code. Landlord shall have the prior right and option, to be exercised by notice to Tenant given at any time prior to the effective date of such proposed assignment, to accept an assignment of this Lease upon the same terms and conditions and for the same consideration, if any, as the BONA FIDE arms-length offer made by such person, less any brokerage commissions which would otherwise be payable by Tenant out of the consideration to be paid by such person in connection with the assignment of this Lease. Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be deemed without further act or deed to have assumed all of the obligations arising under this Lease from and after the date of such assignment. Any such assignee shall execute and deliver to Landlord upon demand an instrument confirming such assumption. If this Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, any and all monies or other consideration payable or otherwise to be delivered in connection with such assignment shall be paid or delivered to Landlord, shall be and remain the exclusive property of Landlord and shall not constitute property of Tenant or of the estate of Tenant within the meaning of the Bankruptcy Code. Any and all monies or other consideration constituting Landlord's property under the preceding sentence not paid or delivered to Landlord shall be held in trust for the benefit of Landlord and shall be promptly paid to or turned over to Landlord. (b) The term "adequate assurance of future performance" as used in this Lease shall mean (in addition to the -15- assurances called for in said Section 365(b)(3) of the Bankruptcy Code) that any proposed assignee shall, among other things, (i) deposit with Landlord on the assumption of this Lease as security for the faithful performance and observance by such assignee of the terms and obligations of this Lease, an amount equal to the fixed annual rent and additional rent for the twelve (12) month period immediately preceding the assumption of this Lease, which sum shall be held in accordance with the provisions of Article 34 hereof, (ii) furnish Landlord with financial statements of such proposed assignee for the prior three (3) fiscal years, as finally determined after an audit and certified as correct by a certified public accountant, which financial statements shall show a net worth at least equal to five (5) times the then fixed annual rent plus additional rent payable in the year such statements shall be furnished, (iii) grant to Landlord a security interest in such property of the proposed assignee as Landlord shall deem necessary to secure such proposed assignee's future performance under this Lease, and (d) provide such other information or take such action as Landlord, in its reasonable judgment, shall determine is necessary to provide adequate assurance of the performance by such proposed assignee of its obligations under the Lease. (c) If, at any time after tenant may have assigned Tenant's interest in this Lease, this Lease shall be disaffirmed or rejected in any proceeding of the types described in Article 16 of this Lease, or in any similar proceeding, or in the event of termination of this Lease by reason of any such proceeding or by reason of lapse of time following notice of termination given pursuant to said Article 16, Tenant, upon request of Landlord given within thirty (30) days next following any such disaffirmance, rejection or termination (and actual notice thereof to Landlord in the event of a disaffirmance or rejection or in the event of termination other than by act of Landlord), shall (i) pay to Landlord all fixed annual rent, additional rent and other items of rent charges due and owing by the assignee to Landlord under this Lease to and including the date of such disaffirmance, rejection or termination, and (ii) as "tenant", enter into a new lease with Landlord of the Premises for a term commencing on the effective date of such disaffirmance, rejection or termination and ending on the Expiration Date, unless sooner terminated as in such lease provided, at the same annual fixed rent (and other items of rent changes) and upon the then executory terms, covenants and conditions as are contained in this Lease, except that (1) Tenant's rights under the new lease shall be subject to the possessory rights of the assignee under this Lease and to the possessory rights of any person claiming through or under such assignee or by virtue of any statute or of any order of any court, and (2) such new lease shall require all defaults existing under this Lease to be cured by Tenant with due diligence, and (3) such new lease shall require Tenant to pay all fixed annual rent, additional rent and other items of rent changes reserved in this Lease which, had this Lease not been so disaffirmed, rejected or terminated, would have accrued under the provisions of this Lease after the date of such disaffirmance, rejection or termination with respect to any period prior thereto. If Tenant shall default in its obligation to enter into said new lease for a period of ten (10) days next following Landlord's request therefor, then, in addition to all other rights and remedies by reason of such default, either at law or in equity, Landlord shall have the same rights and remedies against Tenant as if Tenant had entered into such new lease and such new lease had thereafter been terminated as of the commencement date thereof by reason of Tenant's default thereunder. The provisions of this Article 42.06G shall survive the expiration or earlier termination of this Lease. -16- ARTICLE 43 ELECTRICITY 43.01. If the Demised Premises form one or more entire floor(s) Tenant shall purchase its electric current directly from the public utility serving the Building for all of the electric current consumption of the Demised Premises, including without limitation, the heating, ventilation and air-conditioning system ("HVAC") for the Demised Premises, and Tenant shall be responsible for the payment of all bills therefor. If Tenant shall fail to pay any such bills, Landlord, at its option, may pay the same and collect such payment with interest (as set forth in Article 56.02) as additional rent. 43.02. If one or more electric meters measure the consumption of electric current by Tenant and another lessee of space in the Building (i.e., more than one tenant on a floor), or if there is no meter measuring Tenant's consumption of electric current for any purpose, including without limitation, lighting in common areas and HVAC on a floor shared by Tenant and another lessee of space in the Building, Tenant agrees to pay to Landlord or Landlord's designated agent charges for electric current consumed by Tenant as determined, at Landlord's option, (a) by Landlord's Electrical Consultant or (b) by the percentage that the square footage of the Demised Premises bears to the total square footage of the floor shared by Tenant with other lessee(s) of the Building. Bills therefor, at the rate charged to Landlord for such electric current, plus the amount of sales tax imposed thereon by any governmental or recognized authority, plus ten percent (10%) of the total amount thereof for administration and processing, shall be rendered at such times as Landlord may elect and shall be payable by Tenant as additional rent. In the event that bills hereunder are not paid within five (5) days after the same are rendered, Landlord may, without further notice, discontinue the service of electric current to the Demised Premises without releasing Tenant from any liability under this Lease and without Landlord or Landlord's agent incurring any liability for any damage or loss sustained by Tenant by such discontinuance of service. Tenant shall permit Landlord's Electrical Consultant to make surveys in the Demised Premises from time to time during normal business hours regarding the electrical equipment and fixtures and the use of electric current therein. Tenant acknowledges that the Demised Premises form One Hundredths percent (100%) of the fourth (4th) and fifth (5th) floors. 43.03. If Tenant pays for electric current consumed pursuant to Article 43.02, Landlord reserves the right to discontinue furnishing electric current to Tenant at any time upon not less than sixty (60) days' written notice to Tenant, and from and after the effective date of such termination, Landlord shall no longer be obligated to furnish Tenant with electric current, provided, however that such termination date may be extended for a time reasonably necessary for Tenant to make arrangements to obtain electric service directly from the public utility company servicing the Building. If Landlord exercises such right of termination, this Lease shall remain unaffected thereby and shall continue in full force and effect; and thereafter Tenant shall diligently arrange to obtain electric service directly from the public utility company servicing the Building, and may utilize the then existing electric feeders, risers and wiring serving the Demised Premises to the extent available and safely capable of being used for such purpose and only to the extent of Tenant's then authorized connected load. Landlord shall not be obligated to pay any part of the cost incurred by Tenant in obtaining direct electric service. 43.04. Landlord at Tenant's sole cost and expense shall be responsible for any repair, maintenance and replacement -17- of any electric meter, panel board and all wires, wiring, feeders and risers serving the Demised Premises, and Tenant shall pay Landlord's reasonable charges therefor on demand. Tenant covenants that at no time shall the use of electrical energy in the Demised Premises exceed the capacity of the existing feeders or wiring installations then serving the Demised Premises. Tenant shall not make or perform, or permit the making or performance of, any alterations to wiring installations or other electrical facilities in or serving the Demised Premises or any additions to the business machines, office equipment or other appliances (other than typewriters and similar low energy consuming office machines) in the Demised Premises which utilize electrical energy, without the prior consent of Landlord in each instance. 43.05. Landlord shall furnish and install all replacement lighting, tubes, lamps, starters, bulbs, and ballasts required in the Demised Premises and Tenant shall pay to Landlord or its designated contractor, upon demand, the then charges established by Landlord therefor as additional rent. Landlord shall have the right to relamp the Building in sequence. ARTICLE 44 ACCESS; CHANGE IN FACILITIES 44.01. All parts (except surfaces facing the interior of the Demised Premises) of all walls, windows and doors bounding the Demised Premises (including exterior Building walls, core corridor walls, doors and entrances), all balconies, terraces and roofs adjacent to the Demised Premises, all space in or adjacent to the Demised Premises used for shafts, stacks, stairways, chutes, pipes, conduits, ducts, fan rooms, heating, air conditioning, plumbing, electrical and other mechanical facilities, service closets and other Building facilities, and the use thereof, as well as access thereto through the Demised Premises for the purposes of operation, decoration, maintenance, alteration and repair, are hereby reserved to Landlord. Landlord reserves the right, at any time, without incurring any liability to Tenant therefor, to make such changes in or to the Building and the fixtures and equipment of the Building as well as in the entrances, passageways, halls, doors, doorways, corridors, elevators, escalators, stairs, toilets and other public parts of the Building, as it may deem necessary or desirable, provided any such change (a) does not permanently and unreasonably deprive Tenant of access to the Demised Premises, (b) does not interfere with the use of the Demised Premises or the services furnished to the Demised Premises for an unreasonable length of time, and (c) does not reduce the floor area of the Demised Premises in excess of two percent (2%) (without an appropriate adjustment in fixed annual rent). Nothing contained in this Article 44.01 shall impose any obligation upon Landlord with respect to the operation, decoration, maintenance, alteration or repair of the Demised Premises or the Building. 44.02. Tenant shall permit Landlord to install, use and maintain pipes, ducts and conduits within or through the Demised Premises, or through the walls, columns and ceilings therein, provided that the installation work is performed at such times and by such methods as will not unreasonably interfere with Tenant's use and occupancy of the Demised Premises, or damage the appearance thereof, reduce the floor area thereof by more than two percent (2%) (without an appropriate adjustment in fixed annual rent) or materially affect the layout of the Demised Premises. Where access doors are required in or adjacent to the Demised Premises for mechanical trades, Landlord shall furnish and install such access doors and confine their location, wherever practical to closets, coat rooms, toilet rooms, corridors and kitchen or pantry rooms. Landlord and Tenant shall -18- cooperate with each other in the location of Landlord's and Tenant's facilities requiring such access doors. 44.03. Landlord or Landlord's agents shall have the right to enter the Demised Premises at all times upon reasonable notice (except in an emergency when no notice if required) for any of the purposes specified in this Article 44 and (a) to examine the Demised Premises or for the purpose of performing any obligation of Landlord or exercising any right or remedy reserved to Landlord in this Lease; (b) to exhibit the Demised Premises to others; (c) to make such decorations, repairs, alterations, improvements or additions, or to perform such maintenance, including the maintenance of all air conditioning, elevator, plumbing, electrical, sanitary, mechanical and other service or utility systems as Landlord may deem necessary or desirable; (d) to take all materials into and upon the Demised Premises that may be required in connection with any such decorations, repairs, alterations, improvements, additions or maintenance; and (e) to alter, renovate and decorate the Demised Premises at any time during the Term if Tenant shall have removed all or substantially all of Tenant's Property from the Demised Premises. During the last six (6) months of the Term, Landlord may place upon the Building and/or the Demised Premises notices of space to be leased or sold, including without limitation notices identifying the floor location of the Demised Premises stating "To Let" and "For Sale" which notices Tenant shall permit to remain without molestation. If Tenant, its officers, partners, agents or employees shall not be personally present or shall not open and permit an entry into the Demised Premises at any time when such entry shall be necessary or permissible, Landlord may use a master key or forcibly enter the Demised Premises. The lessor under any underlying lease and the holder of any superior mortgage affecting the underlying lease or the land shall have the right to enter the Demised Premises at all times to examine the Demised Premises or for the purpose of exercising any right reserved to Landlord under this Article 44. In the exercise of any rights reserved to Landlord under this Article 44, Landlord shall (except in an emergency situation) use reasonable efforts not to interfere with Tenant's use of the Demised Premises (provided however, Landlord shall not be required to use overtime labor). 44.04. Landlord, Landlord's agents and consultants and representatives of Landlord's insurance carriers shall have the right to permit access to the Demised Premises at any hour, and whether or not Tenant shall be present, to any receiver, trustee, assignee for the benefit of creditors, sheriff, marshal or court officer entitled to, or reasonably purporting to be entitled to, such access for the purpose of taking possession of, or removing, any of Tenant's Property or property of any other occupant of the Demised Premises, or for any other lawful purpose, or by any representative of the fire, police, building, sanitation or other department of the city, state or federal governments. Neither anything contained in this Article 44.04, nor any action taken by Landlord under this Article 44.04, shall be deemed to constitute recognition by Landlord that any person other than Tenant has any right or interest in this Lease or the Demised Premises. 44.05. The exercise or non-exercise of any right reserved to Landlord in this Article 44 shall not constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of rent, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Landlord or Landlord's agents, or upon the lessor under any underlying lease or the holder of any superior mortgage. -19- ARTICLE 45 PROHIBITED USE 45.01. Supplementing the provisions of Article 2, in no event shall Tenant ever use or occupy the Demised Premises in contravention of the Rules and Regulations or as a (a) savings bank, state or federal savings and loan association, commercial bank, trust company or safe deposit business, (b) facility for the sale or distribution of tickets for railroad, steamship, airline or bus transportation or as a travel agency or any use related thereto, (c) employment or recruitment agency, (d) school, college, university or educational institution whether or not for profit; (e) government (domestic or foreign) or any subdivision or agency thereof; (f) wholesale or retail sales or showroom facility; and/or (g) restaurant or any facility selling or serving food or beverages, except this subclause (g) shall not prevent Tenant from using a portion of the Demised Premises for private dining facilities for its officers, employees and guests, provided all municipal or governmental approvals and consents for such use are obtained and kept in full force and effect and no alcoholic beverages including wine, beer and liquor are kept, dispensed or imbibed on or at the Demised Premises unless permitted by law. 45.02. Those portions, if any, of the Demised Premises which are identified as toilets and utility areas, shall be used by Tenant only for the purposes for which they are designed. 45.03. Tenant shall not use or permit the use of the Demised Premises or any part thereof in any way which would violate any of the covenants, agreements, terms, provisions and conditions of this Lease or for any unlawful purposes or in any unlawful manner or in violation of any Certificate of Occupancy for the Demised Premises or the Building, and Tenant shall not suffer or permit the Demised Premises or any part thereof to be used in any manner or anything to be done therein or anything to be brought into or kept therein which, in the judgment of Landlord, shall in any way impair or tend to impair the character, reputation or appearance of the Building as a high quality office building, impair or interfere with or tend to impair or interfere with any of the Building services or the proper and economic heating, cleaning, air conditioning or other servicing of the Building or the Demised Premises, or impair or interfere with or tend to impair or interfere with the use of any of the other areas of the Building by, or occasion discomfort, inconvenience, annoyance or peril to, any of the other tenants or occupants of the Building. Tenant shall not install any electrical or other equipment of any kind which, in the judgment of Landlord, might cause any such impairment, interference, discomfort, inconvenience, annoyance or peril. Tenant shall not move any safe, heavy machinery, heavy equipment, bulky matter, or fixtures into or out of the Building without Landlord's prior written consent. If such safe, machinery, equipment, bulky matter or fixtures requires special handling, all work in connection therewith shall comply with the Administrative Code of the City of New York and all other laws and regulations applicable thereto and shall be done during such hours as Landlord may designate. 45.04. If any governmental license or permit shall be required for the proper and lawful conduct of Tenant's business or other activity carried on in the Demised Premises, and if the failure to secure such license or permit might or would, in any way, affect Landlord, including without limitation, Landlord's insurance policies or mortgages, then Tenant, at Tenant's expense, shall duly procure and thereafter maintain such license or permit and submit the same for inspection by Landlord. Tenant, at Tenant's expense, shall, at all times, comply with the requirements of such license or permit. -20- ARTICLE 46 BROKERAGE 46.01.A. Tenant represents that in the negotiation of this Lease it dealt with no brokers other than Galbreath Riverbank, L.P. and Weatherall Green & Smith (New York) Inc. and that so far as Tenant is aware said brokers are the sole brokers who negotiated this Lease. Landlord agrees to pay said brokers commissions in accordance with separate agreements. Tenant hereby indemnifies Landlord and holds it harmless from and all losses, damages, liabilities and expenses arising out of any inaccuracy or alleged inaccuracy of the above representation, including court costs and attorneys' fees. Landlord shall have no liability for brokerage commissions arising out of a sublease or assignment by Tenant, and Tenant shall and does hereby indemnify Landlord and hold it harmless from any and all liability for brokerage commissions arising out of any such sublease or assignment. B. Landlord represents that in the negotiations of this Lease it dealt with no brokers other than Galbreath Riverbank, L.P. and Weatherall Green & Smith (New York) Inc. and that so far as Landlord is aware said brokers are the sole brokers who negotiated this Lease. Landlord hereby indemnifies Tenant and holds it harmless from any and all losses, damages, liabilities and expenses arising out of any inaccuracy or alleged inaccuracy of the immediately foregoing representation of Landlord, including court costs and attorneys' fees. ARTICLE 47 NOTICES 47.01.A. Except as otherwise expressly provided in this Lease, any bills, statements, notices, demands, requests, consents or other communications given or required to be given under this Lease shall be effective only if rendered or given in writing and (a) if to Tenant, then, at the option of Landlord, (i) sent to: Office Manager, by mail, postage prepaid, addressed to Tenant's address as set forth in this Lease if mailed prior to the Commencement Date or at the Building if subsequent to the Commencement Date, or to such other address as Tenant may designate as its new address for such purpose by notice given to Landlord in accordance with the provisions of this Article 47, or (ii) delivered personally to Tenant, (b) if to Landlord, sent by registered or certified mail, return receipt requested, postage PREPAID, addressed to Landlord's address as set forth in this Lease or to such other address as Landlord may designate as its new address for such purpose by notice given to Tenant in accordance with the provisions of this Article 47. B. Any such bill, statement, notice, demand, request, consent or other communication shall be deemed to have been rendered or given: (a) on the date delivered, if delivered to Tenant personally, -21- (b) three (3) days after the date mailed, if mailed to Landlord or Tenant as provided in this Article 47, unless mailed outside of the State of New York, in which case it shall be deemed to have been given, rendered or made on the expiration of five (5) days after mailing. ARTICLE 48 ESTOPPEL CERTIFICATE; TENANT FINANCIAL 48.01. At any time and from time to time upon not less than ten (10) days' prior notice by one party to the other party, the answering party shall execute, acknowledge and deliver to Landlord a statement in writing in form satisfactory to the requesting party certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications), and the dates to which the fixed annual rent and additional rent have been paid in advance, if any, and stating whether or not to the best knowledge of the signer of such certificate the requesting party is in default in performance of any term, covenant or condition contained in this Lease and, if so, specifying each such default of which the signer may have knowledge, it being intended that any such statement delivered pursuant hereto may be relied upon by any prospective purchaser of the Building or any part thereof or of the interest of Landlord in any part thereof, by any mortgagee or prospective mortgagee thereof, by any lessor or prospective lessor thereof, by any lessee or prospective lessee thereof, or by any prospective assignee of any mortgage thereof, or by any party having a financial interest in Tenant. 48.02. Tenant shall, within one hundred fifty (150) days after the end of each fiscal year of Tenant, deliver to Landlord an annual statement showing a balance sheet as of the last day of such fiscal year, prepared in accordance with generally accepted accounting principles and certified by the chief financial officer for Tenant. ARTICLE 49 NON-LIABILITY AND INDEMNIFICATION; SURRENDER 49.01. Supplementing the provisions of Article 8, neither Landlord nor Landlord's agents, officers, directors and shareholders shall be liable to Tenant, its employees, agents, contractors and licensees, and Tenant shall save Landlord, any mortgagee, and Landlord's and such mortgagee's respective agents, employees, contractors and officers and the lessor under any underlying lease harmless of and from all loss, cost, liability, claim, damage and expense, including reasonable counsel fees and expenses, penalties and fines incurred in connection with or arising from any injury to Tenant or to any other person or for any damage to, or loss (by theft or otherwise) of, any of Tenant's Property and/or of the property of any other person, irrespective of the cause of such injury, damage or loss (including the acts or negligence of any tenant or occupant of the Building or of any owners or occupants of adjacent or contiguous property) and whether occasioned by or from explosion, falling plaster, electricity, smoke, water, snow or ice being upon or coming through or from the street, roof, subsurface, skylight, trapdoor or windows, electric wiring, plumbing, dampness, water, gas, steam or other pipes or sewage, or the failure of the air conditioning or refrigeration system, or the breaking of any electric wire, the bursting, leaking or running of water from any tank, washstand, watercloset, waste-pipe, sprinkler system, radiator, or from any other pipe in, above, upon or about the Building or the Demised Premises or which may -22- at any time hereafter be placed therein, or from any other cause whatsoever. Landlord shall, however, be responsible for any of the foregoing if caused by or due to the negligence of Landlord or Landlord's agents without contributory negligence on the part of Tenant, it being understood that no property, other than such as might normally be brought upon or kept in the Demised Premises as incident to the reasonable and appropriate use of the Demised Premises for the purposes herein permitted will be brought upon or be kept in the Demised Premises. Landlord and Landlord's agents shall not be liable, to the extent of insurance coverage, for any loss of or damage to any such property even if due to the negligence of Landlord of Landlord's agents. Any Building employees to whom any property shall be entrusted by or on behalf of tenant shall be deemed to be acting as Tenant's agents with respect to such property, and neither Landlord nor Landlord's agents shall be liable for any loss of or damage to any such property by theft or otherwise. 49.02. Further supplementing the provisions of Article 8, neither (a) the performance by Landlord, Tenant or others of any decorations, repairs, alterations, additions or improvements of whatever nature, in or to the Building (including but not limited to improvements in structure and Building systems) or the Demised Premises, nor (b) the failure of Landlord or others to make any such decorations, repairs, alterations, additions, or improvements, nor (c) any latent defect in the Building or in the Demised Premises, nor (d) any inconvenience or annoyance to Tenant or injury to or interruption of Tenant's business by reason of any of the events or occurrences referred to in the foregoing subclauses (a) through (d) shall constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of rent, or relieve Tenant of any of its obligations under this Lease, or impose any liability upon Landlord, or Landlord's agents, other than such liability as may be imposed upon Landlord by law for Landlord's negligence or the negligence of Landlord's agents in the operation or maintenance of the Building or for the breach by Landlord of any express covenant of this Lease on Landlord's part to be performed. 49.03. Further supplementing the provisions of Article 8, Tenant agrees to indemnify and save Landlord, Landlord's agents and the lessor under any underlying lease and any mortgagee and its agents harmless of and from all loss, cost, liability, claims, damage and expense including reasonable counsel fees and expenses, penalties and fines, incurred in connection with or arising from (a) any default by Tenant in the observance or performance of any of the terms, covenants or conditions of this Lease on Tenant's part to be observed or performed, or (b) the use or occupancy or manner of use or occupancy of the Demised Premises by Tenant or any person claiming through or under Tenant, or (c) any acts, omissions or negligence of Tenant or any such person, or the contractors, agents, servants, employees, visitors or licensees of Tenant or any such person, in or about the Demised Premises or the Building either prior to, during, or after the expiration of, the Term including any acts, omissions or negligence in the making or performing of any improvements. If any action or proceeding shall be brought against Landlord or Landlord's agents, the lessor under any underlying lease or any mortgagee, based upon any such claim and if Tenant, upon notice from Landlord, shall cause such action or proceeding to be defended at Tenant's expense by counsel reasonably satisfactory to Landlord, without any disclaimer of liability by Tenant in connection with such claim, Tenant shall not be required to indemnify Landlord or Landlord's agents for counsel fees in connection with such action or proceeding. 49.04. Tenant shall pay to Landlord, as additional rent, within five (5) days next following rendition by Landlord -23- to Tenant of bills or statements therefor, sums equal to all losses, costs, liabilities, claims, damages and expenses referred to in Article 49.03. Tenant's obligations under this Article 49.04 shall survive the termination of this Lease. 49.05. (a) In any action brought to enforce the obligations of Landlord under this Lease, any judgment or decree shall be enforceable against Landlord only to the extent of Landlord's interest in the Building, and no such judgment shall be the basis of execution on, or be a lien on, assets of Landlord other than its interest in the Building. If Landlord or any successor in interest to Landlord shall be an individual, joint venturer, tenant-in-common, general or limited partnership, unincorporated association or other unincorporated aggregate of individuals (collectively, "unincorporated Landlord") and shall at any time have any liability under, pursuant to or in connection with this Lease, neither Tenant nor any other person or entity shall seek any personal or money judgment against unincorporated Landlord or any joint venturer, tenant-in-common, partner or member of Landlord under or pursuant to this Lease or otherwise, and Tenant shall look solely to the interest of unincorporated Landlord in the Building for the satisfaction of any remedy Tenant may have for a breach by unincorporated Landlord of this Lease, or otherwise. Any attempt by Tenant or others to seek any personal liability or monetary obligations shall, in addition to and not in limitation of the other rights, powers, privileges and remedies of unincorporated Landlord under this Lease, immediately vest unincorporated Landlord with the unconditional right to cancel this Lease on three (3) days' notice to Tenant. (b) Whenever in this Lease Landlord's consent or approval is required, such consent or approval shall mean prior written consent or approval. Whenever Tenant shall claim under this Lease, that Landlord has unreasonably withheld or delayed its consent to some request of Tenant, Tenant shall have no claim for damages by reason of such alleged withholding or delay, and Tenant's sole remedies therefore shall be a right to obtain specific performance, but in any event without recovery of damages. 49.06. If the Demised Premises are not surrendered upon the termination of this Lease, Tenant hereby indemnifies Landlord and holds it harmless against any loss and/or liability resulting from delay by Tenant in so surrendering the Demised Premises, including, without limitation, any claims made by any succeeding tenant or prospective tenant founded upon such delay, or any loss of a prospective tenancy relating to such delay. 49.07. In the event Tenant remains in possession of the Demised Premises after the termination of this Lease without the execution of a new lease, Tenant, at the option of Landlord, may be deemed to be occupying the Demised Premises as a tenant from month-to-month, at a monthly rental equal to three (3) times the fixed annual rent and additional rent payable during the last month of the Term, subject to all of the other terms of this Lease insofar as the same are applicable to a month-to-month tenancy. 49.08. If this Lease be terminated as provided in Article 17 or by or under any summary proceeding or any other action or proceeding, or if Landlord shall re-enter the Demised Premises, Tenant covenants and agrees, notwithstanding anything to the contrary contained in this Lease: (a) That the Demised Premises shall be, upon such earlier termination or re-entry, in the same condition as that in which Tenant has agreed to surrender them to Landlord on the Expiration Date; -24- (b) That Tenant, on or before the occurrence of any event of default hereunder, shall have performed every covenant contained in this Lease for the making of any Tenant's Changes, as hereinafter defined in Article 57.01, to the Demised Premises; and (c) That, for the breach of either subclause (a) or (b) above, or both, Landlord shall be entitled immediately, without notice or other action by. Landlord, to recover, and Tenant shall pay, as and for agreed damages therefor, the then cost of performing such covenants, plus interest thereon at two (2) per centum above the Prime Rate for the period between the date of the occurrence of any event of default and the date when any such work or act, the cost of which is computed, should have been performed under the other terms of this Lease had such event of default not occurred. Each and every covenant contained in this Article 49.08 shall be deemed separate and independent, and not dependent on any other term of this Lease for the use and occupation of the Demised Premises by Tenant, and the performance of any such term shall not be considered to be rent or other payment for the use of said Demised Premises. It is understood that the consideration for the covenants in this Article 49.08 is the making of this Lease, and the damages for failure to perform the same shall be in addition to and separate and independent of the damages accruing by reason of default in observing any other term of this Lease. 49.09. Supplementing the provisions of Article 17 hereof, and notwithstanding anything contained herein to the contrary notwithstanding, if Landlord terminates this Lease pursuant to Article 17 of this Lease and such termination shall be stayed by order of any court having jurisdiction over any proceeding described in Article 16 or any similar proceeding, or by federal or state statute, then, following the expiration of any such stay, or if the trustee appointed in any Bankruptcy Code proceeding, Tenant or Tenant as debtor-in-possession shall fail to assume Tenant's obligations under this Lease within the period prescribed therefor by law or within sixty (60) days after entry of the order for relief or as may be allowed by the court, or if said trustee, Tenant or Tenant as debtor-in-possession shall fail to provide adequate protection of Landlord's right, title and interest in and to the Premises or adequate assurance of the complete and continuous future performance of Tenant's obligations under this Lease as provided in Article 42.06G(b) hereof, Landlord, to the extent permitted by law or by leave of the court having jurisdiction over such proceeding, shall have the right, at its election, to terminate this Lease on five (5) days' notice to said trustee, Tenant or Tenant as debtor-in-possession, and upon the expiration of said five (5) day period this Lease shall cease and expire as aforesaid and said trustee, Tenant or Tenant as debtor-in-possession shall immediately quit and surrender the Demised Premises as aforesaid. 49.10. Tenant expressly waives, for itself and for any person claiming through or under Tenant, any rights which Tenant or any such person may have under the provisions of Section 2201 of the New York Civil Practice Law and Rules and of any similar or successor law of same import then in force, in connection with any holdover proceedings which Landlord may institute to enforce the provisions of this Article 49. -25- ARTICLE 50 (INTENTIONALLY OMITTED] ARTICLE 51 DIRECTORY LISTING 51.01. Landlord shall provide Tenant with Nine and Sixty-Four Hundredths percent (9.64%) of the total spaces on any directory established for the Building from time to time. ARTICLE 52 RENT ABATEMENT 52.01. Notwithstanding the provisions of the printed portion of this Lease on page 1 respecting the payment of fixed annual rent, Landlord agrees that Tenant shall be permitted to occupy the Demised Premises without liability for payment of such fixed annual rent for a period from the rent commencement date of February 7, 1995 to and including December 15, 1995. Tenant shall be fully liable for all other charges in the rent abatement period and shall be obligated to pay one (1) full monthly installment of fixed annual rent for the Demised Premises upon the execution of this Lease, which rent shall be applied to the first and second monthly installments due pursuant to this Lease. ARTICLE 53 RENEWAL OPTION 53.01. Provided that Tenant (a) provides notice to Landlord no later than seven (7) months and fifteen (15) days prior to the Expiration Date of this Lease ("Request for Renewal Rent Notice"), (b) has not sublet or assigned any portion of the Demised Premises at the time of the Request for Renewal Rent Term (as hereinafter defined) and (c) is not in default beyond any applicable grace period under the Lease at the time of the Request for Renewal Rent Notice and is not in default beyond any applicable grace period under the Lease on the commencement date of the Renewal Term, Tenant shall have the option to renew this Lease for one (1) additional term of four (4) years and one (1) month and nineteen (19) days commencing on the day after the Expiration Date and expiring on January 23, 2005 ("Renewal Term"), at a fixed annual rent equal to ninety percent (90%) of the then fair market rent as determined in this Article 53. If Tenant provides the Request for Renewal Rent Notice but all conditions set forth in this Article 53 are not met, this option for the Renewal Term shall, at Landlord's option, be deemed to be null and void and Landlord shall have no obligation whatsoever to Tenant with respect to such Renewal Term. 53.02. Within one hundred eighty (180) days after the later of the date Landlord receives Tenant's Request for Renewal Rent Notice or seven (7) months prior to the Expiration Date, Landlord shall give Tenant notice of Landlord's determination of the fair market fixed annual rent for the Renewal Term ("Fair Market Rent Notice"). The phrase "fair market fixed annual rent" shall be determined by taking (i) the average of the three (3) most recent arm's-length leases for office space in the Building executed in the twelve (12) month period preceding the Fair Market Rent Notice and in the event there have not been three (3) arm's-length leases executed in such twelve (12) month period in the Building, then Landlord shall determine the fair market fixed annual rent by the average of three (3) arm's-length leases for comparable office space in comparable first-class office buildings in midtown Manhattan executed in the twelve (12) month -26- period preceding the Fair Market Rent Notice and (ii) subtracting from the average under subparagraph (i) the amount of additional rent payable by Tenant pursuant to Article 38 hereof for the twelve (12) month period preceding the Fair Market Rent Notice. 53.03. Within thirty (30) days after Landlord's giving of such Fair Market Rent Notice, Tenant shall provide Landlord with a notice that (a) Tenant seeks to renew the Lease at the rent set forth in Landlord's Fair Market Rent Notice ("Renewal Notice") or (b) Tenant will not exercise its option to renew the Lease ("Non-renewal Notice"). If Tenant provides Landlord with the Renewal Notice, Tenant shall be obligated to renew this Lease and occupy the Demised Premises, and commencing on the day after the Expiration Date, Tenant shall pay to Landlord the amount of fixed annual rent set forth in the Fair Market Rent Notice. If Tenant does not provide Landlord with any notice under this Article 53.03 within the thirty (30) day period after the Fair Market Rent Notice or Tenant provides a Non-renewal Notice, then upon the expiration of the thirty (30) day period or the giving of the Non-renewal Notice, as the case may be, this option for the Renewal Term shall be deemed null and void and Landlord shall have no obligation whatsoever to Tenant with respect to such renewal. Nothing contained in this Article 53 shall be deemed in any way to alter or modify the provisions of Article 38 hereof, and the additional rent payable by Tenant under this Lease shall continue to be payable from and after the Renewal Term without any change in the Base Tax or Expense Base Factor or any other provisions of this Lease relating to additional rent. The renewal option contained in this Article 53 may only be exercised by, and for the benefit of the Tenant named herein, Daniels Printing, Limited Partnership, and not any subtenant or assignee. ARTICLE 54 LETTER OF CREDIT 54.01. In lieu of the security deposit of One Hundred Thirty-Three Thousand Six Hundred Ninety and 00/100 Dollars ($133,690.00) in cash required by Article 34, Tenant shall have the right to substitute therefor an unconditional Letter of Credit issued by a bank which is a member of the New York Clearing House Association with an office in New York City where the Letter of Credit may be presented for payment and approved by Landlord, in the sum of One Hundred Thirty-Three Thousand Six Hundred Ninety and 00/100 Dollars ($133,690.00) in form and content substantially similar to the form attached hereto as Schedule F and otherwise satisfactory to Landlord. Landlord hereby agrees that Fleet Bank is an acceptable issuer for said Letter of Credit. Said Letter of Credit shall provide that (i) upon receipt by said bank of a written notice by Landlord that Tenant is in default, beyond the applicable grace period, if any, under the terms of this Lease, said bank will pay to Landlord the sum of One Hundred Thirty-Three Thousand Six Hundred Ninety and 00/100 Dollars ($133,690.00); and (ii) the Letter of Credit shall be freely transferrable by Landlord, without charge and without recourse, so that upon a transfer of title to the Building or a lease of same, Landlord shall have the right to transfer the Letter of Credit to the vendee or lessee (subject to the provisions of Article 34 hereof). Tenant covenants that not later than sixty (60) days in advance of the expiration of the term of any existing Letter of Credit prior to a date two (2) months after the expiration of the Term of this Lease or any renewals of this Lease, Tenant shall deliver to the Landlord an endorsement extending said Letter of Credit or a Letter of Credit replacing the expiring Letter of Credit. If by the sixtieth (60th) day preceding the expiration of any Letter of Credit, Tenant shall have failed to deliver such extension, endorsement or replacement Letter of Credit, such failure shall be deemed a default under the Lease and Landlord shall have the right to receive and collect the sum payable under the then existing Letter of Credit, thereafter to be held and applied in accordance with the provisions of Article 34. Tenant may at any time thereafter demand that Landlord pay over such money to Tenant, in -27- consideration of Tenant's simultaneous delivery of a replacement Letter of Credit. 54.02. In the event that Landlord shall receive or collect the sum payable under any Letter of Credit referred to in this Article 54, it shall have the right to retain and apply the same in accordance with the provisions of Article 34 upon the occurrence of a default by Tenant. If, after Landlord has received the proceeds of said Letter of Credit, Tenant shall cure the default and Landlord accepts such cure, the said proceeds shall be held by Landlord pursuant to Article 34; provided, however, that at Tenant's option, upon presentation of a new Letter of Credit in the form and amount required under this Article 54, Landlord shall repay Tenant such proceeds. Said Letter of Credit, or any successor Letter of Credit, shall be returned to the Tenant at the expiration of the Term, provided Tenant is not then in default. ARTICLE 55 RELOCATION OF DEMISED PREMISES 55.01. Landlord may, during the Term of this Lease, elect by notice to Tenant to substitute for the Demised Premises other office space in the Building ("Substitute Premises") designated by Landlord, provided that the Substitute Premises contains at least the same usable square foot area as the Demised Premises, has a configuration substantially similar to that of the Demised Premises, is not more than one (1) floor down in the Building, and the Demised Premises are on contiguous floors. Landlord's notice shall be accompanied by a plan of the Substitute Premises, and such notice or the plan shall set forth the usable square foot area of the Substitute Premises. Tenant shall occupy the Substitute Premises promptly (and, in any event, not later than fifteen (15) days) after substantial completion of the work to be performed in the Substitute Premises. Tenant shall pay the same rents with respect to the Substitute Premises as were payable with respect to the Demised Premises, except that if the usable square foot area of the Substitute Premises are diminished, the rent and additional rent shall be adjusted downward accordingly. In any such event, this Lease (a) shall no longer apply to the Demised Premises, except with respect to obligations which accrued on or prior to such surrender date; and (b) shall apply to the Substitute Premises as if the Substitute Premises had been the space originally demised under this Lease. Landlord shall have no liability to Tenant in the event of such substitution but Landlord shall reimburse Tenant for any reasonable expenses it incurs for: architects or engineers, fit-out of Substitute Premises (to standard of the former Demised Premises) and relocation within the Building to the Substitute Premises. ARTICLE 56 LIMITATION ON RENT; FAILURE TO PERFORM 56.01. If at the commencement of, or at any time during the term of this Lease, the rent reserved in this Lease is not fully collectible by reason of any federal, state, county or city law, proclamation, order or regulation, or direction of a public officer or body pursuant to law, Landlord, at its sole option, may elect to terminate this Lease by written notice to Tenant and Tenant within thirty (30) days after the notice shall surrender the Demised Premises as if the Term of the Lease had expired. If Landlord does not give such notice of termination, Tenant agrees to take such steps as Landlord may request to permit Landlord to collect the maximum rents which may be legally permissible from time to time during the continuance of such legal rent restriction (but not in excess of the amounts reserved therefor under this Lease) and upon the termination of such legal rent restriction, Tenant shall pay to Landlord, to the -28- extent permitted by law, an amount equal to (a) the rents which would have been paid pursuant to this Lease but for such legal rent restriction less (b) the rents paid by Tenant to Landlord during the period such legal rent restriction was in effect. 56.02. Supplementing the provisions of Article 17 hereof, if Tenant shall fail to pay when due any installment of fixed annual rent or any payment of additional rent for a period of three (3) days after such installment or payment shall have become due, Tenant shall pay interest thereon at the lesser of (a) two (2) per centum in excess of the Prime Rate or (b) the maximum rate of interest, if any, which Tenant may legally contract to pay, from the date when such installment or payment shall have become due to the date of the payment thereof, and such interest shall be deemed additional rent. This provision is in addition to all other rights or remedies available to Landlord for nonpayment of fixed annual rent or additional rent under this Lease and at law and in equity. If Tenant shall default in the performance of any provision of this Lease to be performed by Tenant (other than the payment of fixed annual rent or additional rent) more than three (3) times in any period of six (6) months or, with respect to the payment of fixed annual rent or additional rent, more than two (2) times in any period of twelve (12) months, then, notwithstanding that such defaults shall have each been cured within the applicable grace period, if any, as provided in this Lease or Landlord has otherwise accepted cures of any such defaults, any further similar default shall be deemed to be deliberate and Landlord thereafter may serve a ten (10) days' notice of termination upon Tenant without affording to Tenant an opportunity to cure or accepting any cure by Tenant of such further default. All Tenant Changes shall be done in a manner which will not interfere or disturb other lessees of the Building and Landlord shall have the right from time to time to inspect Tenant's Changes. ARTICLE 57 ALTERATIONS, REPAIRS; PLANS AND SPECIFICATIONS; LANDLORD CONTRIBUTION 57.01. Supplementing the provisions of Articles 3 and 4 hereof, Tenant covenants and agrees that, prior to the commencement of any alterations, installations, additions, improvements, repairs or replacements (collectively, "Tenant's Changes"), Tenant shall submit to Landlord, for Landlord's written approval, plans and specifications (to be prepared by and at the expense of Tenant) of such proposed Tenant's Changes in detail satisfactory to Landlord, and shall reimburse Landlord any cost or expense incurred thereby in connection with Landlord's review and approval of such plans and specifications. Landlord shall approve or disapprove Tenant's plans and specifications so submitted promptly and in any event within ten (10) business days of the submission. If Landlord does not so respond within said ten (10) business day period, Tenant may provide a notice to Landlord stating that if Landlord does not respond within two (2) business days after receipt of the notice the plans and specifications shall be deemed approved, and if Landlord does not respond within said two (2) business day period, Tenant's plans and specifications so submitted shall be deemed approved. In no event shall any material or equipment be incorporated in or to the Demised Premises in connection with any such Tenant's Changes which is subject to any lien, security agreement, charge, mortgage or encumbrance of any kind whatsoever or is subject to any conditional sale or other similar or dissimilar title retention agreement. No Tenant's Changes shall be undertaken, started or begun by Tenant or its agents, employees, contractors or any one else acting for or on behalf of Tenant until Landlord has approved such plans and specifications, and no amendments thereto shall be made without the prior written consent of Landlord. Tenant agrees that it will not at any time prior to or during the Term of this Lease, either directly or indirectly, use any contractors and/or labor and/or materials if the use of such -29- contractors and/or labor and/or materials would or will create any difficulty with other contractors and/or labor engaged by Tenant or Landlord or others engaged in the construction, maintenance and/or operation of the Building or any part thereof. Where any Tenant's Changes involves or affects the plumbing, electrical, heating, ventilating and air-conditioning or any other Building system, Tenant shall as a pre-condition for obtaining Landlord's consent to such Tenant's Change, provide to Landlord at Tenant's expense a report certified by a professional engineer licensed under the laws of the State of New York, providing in substance that such Building system shall not be adversely affected by the implementation of such proposed Tenant's Change, and if Landlord shall in its discretion permit the implementation of such proposed Tenant's Change, and Tenant shall undertake the same, Tenant shall in performing same take all steps necessary to ensure that the service provided by such Building system shall not be interrupted thereby. 57.02. Landlord agrees to pay to Tenant on the Occupancy Date the amount of Two Hundred Thousand and 00/100 Dollars ($200,000.00) as a contribution for Tenant's construction cost in the Demised Premises. In the event Tenant incurs some construction costs, including soft construction costs of architectural fees and similar expenses, prior to the Occupancy Date, Landlord shall reimburse Tenant for such costs within thirty (30) days following delivery to Landlord of itemized paid invoices and lien waivers for said costs. In no event shall Landlord be required to pay to Tenant any funds for said construction costs in excess of the sum of Two Hundred Thousand and 00/100 Dollars ($200,000.00). If Landlord does not pay Tenant said Two Hundred Thousand and 00/100 Dollars ($200,000.00), Tenant may, upon not less than ten (10) business days prior written notice, offset such amount against rent and additional rent due under this Lease. Tenant acknowledges that this right of offset is only for the amount specified under this Article 57.02 and there is no other right of offset for rent or additional whatsoever provided in this Lease. ARTICLE 58 INCONSISTENT PROVISIONS 58.01. In the event of any inconsistencies between the provisions of the Rider to this Lease and the printed provisions of this Lease, the provisions of this Rider shall control. ARTICLE 59 ENTIRE AGREEMENT; NO OTHER REPRESENTATIONS; GOVERNING LAW 59.01. This Lease contains the entire agreement between the parties and all prior negotiations and agreements are merged in this Lease. This Lease may not be changed, modified or discharged, in whole or in part, except by a written instrument executed by the party against whom enforcement of the change, modification or discharge is sought. 59.02. Tenant expressly acknowledges that neither Landlord nor Landlord's agents has or is making, and Tenant, in executing and delivering this Lease, is not relying upon any warranties, representations, promises or statements, except to the extent that the same are expressly set forth in this Lease, and no rights, easements or licenses are or shall be acquired by Tenant by implication or otherwise unless expressly set forth in this Lease. -30- 59.03. This Lease shall be governed in all respects by the laws of the State of New York. IN WITNESS WHEREOF Landlord and Tenant have duly executed this Lease as of the day and year first above written. LANDLORD THE OVERTON-IA CHOLLA JOINT VENTURE By: /s/ Robert Lucy -------------------------------------- Name: Robert Lucy Title: Executive Vice President TENANT DANIELS PRINTING, LIMITED PARTNERSHIP By: /s/ Daniels Printing Corp, Inc., Ltd. -------------------------------------- Title: Solc General Partner By: /s/ [Illegible] -------------------------------------- Name: [Illegible] Title: Vice President -31- SCHEDULE A FLOOR PLAN A-1 SCHEDULE B DESCRIPTION OF LAND All those certain lots, pieces or parcels of land together with the buildings and improvements thereon erected, situate, lying and being in the Borough of Manhattan, County of New York, City of New York and State of New York and bounded and described as follows: Beginning at a point on the Southerly Line of East 55th Street distant 116'-8" Westerly from the corner formed by the intersection of said SOUTHERLY Line of East 55th Street with the Westerly Line of Park Avenue; Thence Southerly and parallel with said Park Avenue 1001-511 to the center of the line of the block; Thence Westerly along said center line of the block 72' -4''; Thence Northerly parallel with Park Avenue and part of the distance through a party wall, 1001-511 to the Southerly Line of East 55th Street; Thence Easterly along the Southerly Line of East 55th Street 72' - to the point or place of beginning; said premises being known by the House Numbers 66, 68, 70, 72 East 55th Street. B-1 SCHEDULE C [INTENTIONALLY OMITTED) C-1 SCHEDULE D RULES AND REGULATIONS 1. The rights of tenants in the entrances, corridors, elevators and escalators of the Building are limited to ingress to and engress from tenants', premises for tenants and their employees, licensees and invites, and no tenant shall use, or permit the use of, the entrances, corridors, escalators or elevators for any other purpose. No tenant shall invite to tenant's premises, or permit the visit of, persons in such numbers or under such conditions as to interfere with the use and enjoyment of any of the plazas, entrances, corridors, escalators, elevators and other facilities of the Building by other tenants. exits and stairways are for emergency use only, and they shall not be used for any other purposes by the tenants, their employees, licensees or invites. No tenant shall encumber or obstruct, or permit the encumbrance or obstruction of any of the sidewalks, plazas, entrances, corridors, escalators, elevators, fire exits or stairways of the Building. The Landlord reserves the right to control and operate the public portions of the Building and the public facilities, as well as facilities furnished for the common use of tenants, in such manner as it deems best for the benefit of the tenants generally. 2. The cost of repairing any damage to the public portions of the building or the public facilities or to any facilities used in common with other tenants, caused by a tenant or the employees, licensees or invites of a tenant, shall be paid by such tenant. 3. Landlord may refuse admission to the Building outside of ordinary business hours to any person not known to the watchman in charge or not having a pass issued by Landlord or not properly identified, and may require all persons admitted to or leaving the Building outside of ordinary business hours to register. Tenants' employees, agents and visitors shall be permitted to enter and leave the Building whenever appropriate arrangements have been previously made between Landlord and tenant with respect thereto. Each tenant shall be responsible for all persons for whom he requests such permission and shall be liable to Landlord for all acts of such persons. Any person whose presence in the Building at any time shall, in the judgment of Landlord, be prejudicial to the safety, character, reputation and interests of the Building or its tenants may be denied access to the Building or may be ejected therefrom. In case of invasion, riot, public excitement or other commotion Landlord may prevent all access to the Building during the continuance of the same, by closing the doors or otherwise, for the safety of tenants and protection of property in the Building. Landlord may require any person leaving the Building with any package or other object to exhibit a pass from tenant from whose premises the package or object is being removed, but the establishment and enforcement of such requirements shall not impose any responsibility on the Landlord for the protection of any tenant against the removal of property from the premises of tenant. Landlord shall, in no way, be liable to any tenant for damages or .loss arising from the admission, exclusion or ejection of any person to or from a tenant's premises or the Building under the provisions of this rule. 4. No tenant shall obtain or accept or use in its premises ice, drinking water, food, beverage, towel, barbering, boot blacking, floor polishing, lighting maintenance, cleaning or other similar services from any persons not authorized by Landlord in writing to furnish such services, provided always that charges for such services by persons authorized by Landlord are not excessive. Such services shall be furnished only at such hours, in such places within tenant's premises and under such regulations as may be fixed by Landlord. 5. No awnings or other projections over or around the windows shall be installed by any tenant and only such window D-1 blinds as are supplied or permitted by Landlord shall be used in tenant's premises. 6. There shall not be used in any space, or in the public halls of the Building, either by tenant or by jobbers or others, in the delivery or receipt of merchandise or mail any hand trucks, except those equipped with rubber tires and side guards. All deliveries to tenants, except mail, shall be made to such place as Landlord shall designate and shall be distributed to tenants only during the hours from 8:00 A.M. to 12:00 noon and 2:00 P.M. to 4:00 P.M. on business days, excluding labor strikes. 7. All entrance doors in each tenant's premises shall be left locked when the tenant's premises are not in use. entrance doors shall not be left open at any time. All windows in each tenant's premises shall be kept closed at all times and all blinds or drapes therein above the ground floor shall be lowered or closed when and as reasonably required because of the position of the sun, during the operation of the Building air conditioning system to cool or ventilate the tenant's premises. 8. No noise, including the playing of any musical instruments, radio or television, which, in the judgment of the Landlord, might disturb other tenants in the Building shall be made or permitted by any tenant and no cooking shall be done in the Tenant's premises except as expressly approved by the Landlord. Nothing shall be done or permitted in any tenant's premises, and nothing shall be brought into or kept in any tenant's premises, which would impair or interfere with any of the Building services or the proper and economic heating, cleaning or other servicing of the Building or the premises, or the use or enjoyment by any other tenant of any other premises, nor shall there by installed by any tenant any ventilating air conditioning, electrical or other equipment of any kind which, in the judgment of the Landlord, might cause any such impairment or interference. No dangerous, inflammable, combustible or explosive object or material shall be brought into the Building by any tenant or with the permission of any tenant. 9. Tenant shall not permit any cooking or food odors emanating from the demised premises to seep into other portions of the Building. 10. No acids, vapors or other materials shall be discharged or permitted to be discharged into the waste lines, vents or flues of the Building which may damage them. The water and wash closets and other plumbing fixtures in or serving any tenant's premises shall not be used for any purpose other than the purpose for which they were designed or constructed and no sweepings, rubbish, rags, acids or other foreign substances shall be deposited therein. All damages resulting from any misuse of the fixtures shall be borne by the tenant who, or whose servants, employees, agents, visitors or licensees, shall have caused the same. 11. Tenant shall not display any sign, graphics, notice, picture, or poster, or any advertising matter whatsoever, anywhere in or about the premises or the Building at places visible from anywhere outside or at the entrance to the premises without first obtaining Landlord's written consent thereto, such consent to be at Landlord's sole discretion except that Landlord will not unreasonably withhold or delay its consent to a sign with tenant's name on it in the elevator lobby adjacent to the tenant's premises provided the same complies with Landlord's then-existing standards and requirements for signs and is otherwise in keeping with the first class, high-quality nature of the Building. Any such consent by Landlord shall be upon the understanding and condition that tenant will remove the same at the expiration or sooner termination of tenant's lease and tenant shall repair any damage to the demised premises or the Building caused thereby. D-2 In the event of the violation of the foregoing by any tenant, Landlord may remove the same without any liability, and may charge the expense incurred by such removal to tenant violating this rule. Interior signs and lettering on doors and elevators shall be inscribed, painted, or affixed for each by Landlord at the expense of such tenant, and shall be of a size, color and style acceptable to Landlord. Landlord shall have the right to prohibit any advertising by any tenant which impairs the reputation of the Building or its desirability as a building for offices, and upon written notice from Landlord, tenant shall refrain from or discontinue such advertising. 12. No additional locks or bolts of any kind shall be placed upon any of the doors or windows in any tenant's premises and no lock on any door therein shall be changed or altered in any respect. Duplicate keys for a tenant's premises and toilet rooms shall be procured only from the Landlord, which may make a reasonable charge therefor. Upon the termination of tenant's lease, all keys to tenant's premises and toilet rooms shall be delivered to Landlord. 13. No tenant shall mark, paint, drill into, or in any way deface any part of the Building or tenant's premises. No boring, cutting or stringing of wires shall be permitted, except with the prior written consent of Landlord, and as Landlord may direct. No tenant shall install any resilient tile or similar floor covering in tenant's premises except in a manner approved by Landlord. 14. No tenant shall engage or pay any employees in the Building, except those actually working for tenant in the Building or advertise for laborers giving an address at the Building. 15. No premises shall be used, or permitted to be used, at any time, as a store for the sale or display of goods or merchandise of any kind, or as a restaurant, shop, booth, bootblack or other stand, or for the conduct of any business or occupation which involved direct patronage of the general public in the tenant's premises, or for manufacturing or for other similar purposes. 16. The requirements of tenants will be attended to only upon application at the office of the Building. Employees of Landlord shall not perform any work or do anything outside of the regular duties, unless under special instructions from the office of Landlord. 17. Each tenant shall, at its expense, provide artificial light in tenant's premises demised for Landlord's agents, contractors and employees while performing janitorial or other cleaning services and making repairs or alterations in said premises. 18. No tenant's employees shall loiter around the hallways, stairways, elevators, front, roof or any other part of the building used in common by the occupants thereof. 19. All tenants, at their sole expense, shall cause its premises to be exterminated, from time to time, to the satisfaction of Landlord, and shall employ such exterminators therefor as shall be approved by Landlord. 20. Any cuspidors, or similar containers or receptacles used in any tenant's premises shall be cared for and cleaned by and at the expense of such tenant. 21. All tenants shall use only the designated service elevator for deliveries and only at hours prescribed by Landlord. Bulky materials, as determined by Landlord, may not be delivered during usual business hours but only thereafter. Tenants agree to pay for use of the service elevator at rates prescribed by Landlord. D-3 22. No tenant shall have right of access to the roof of tenant's premises or the Building and shall not install, repair or replace any aerial, fan, air conditioner or other device on the roof of tenant's premises or the Building without the prior written consent of Landlord. Any aerial, fan, air conditional or device installed without such written consent shall be subject to removal, at tenant's expense, without notice, at any time. D-4 SCHEDULE E CLEANING SPECIFICATIONS 1. GENERAL OFFICE AREAS A. NIGHTLY ON BUSINESS DAYS 1. All stone, ceramic, tile, marble, terrazzo and other unwaxed flooring to be swept nightly using dust-down preparations; wash flooring weekly, scrub when necessary. All unwaxed flooring used as corridors adjacent to the core shall be cleaned and wet mopped weekly. 2. All linoleum, vinyl, rubber, asphalt tile and other similar types of waxed flooring to be swept nightly.. Waxing, if any, shall be done at Tenant's expense. Mop up and wash floors for spills, smears and foot tracks throughout, including tenant's space, as needed. 3. All carpeting and rugs to be carpet-swept nightly and vacuum cleaned weekly. 4. Hand dust with treated cloth and wipe clean all furniture, fixtures and custom wooden window enclosures nightly. 5. Empty and clean all waste receptacles nightly and remove from the demised premises wastepaper to designated areas. 6. Empty and clean all ash trays and screen all sand urns nightly. 7. Dust interior of all waste disposal cans and baskets nightly; damp-dust as necessary. 8. Wash clean all water fountains and coolers nightly. 9. Dust all floor and other ventilating louvres within reach; damp wipe as necessary. 10. Dust all telephones as necessary. 11. Keep locker and slop sink rooms in neat and orderly condition where applicable. 12. Wipe clean and polish all brass and other bright work, as necessary. 13. Sweep all private staircases nightly. 14. Metal doors of all elevator cars to be cleaned, as necessary. 15. Remove all gum and foreign matter on sight. 16. Clean all glass furniture tops. 17. Collect and remove wastepaper, cardboard boxes and waste material to a designated area on the premises. E-1 All waste material which is extraordinary in amount, type or size shall be removed by Tenant at Tenant's expense. 18. Dust and wash closet and coat room shelving, coat racks and flooring. B. PERIODIC CLEANING Periodic cleaning to be performed as needed but not less than once each month: 1. Vacuum all furniture fabric and drapes. 2. wash and remove all finger marks, ink stains, smudges, scuff marks and other marks from metal partitions, sills, all vertical surfaces (doors, walls, window sills) including elevator doors and other surfaces. 3. Clean and sweep all vacant areas. 4. Dust and clean electric fixtures, all baseboards and other fixtures or fittings. C. HIGH DUSTING High dusting every three (3) months, unless otherwise specified, of the following: 1. Vacuum and dust all pictures, frames, charts, graphs and similar wall hangings not reached in nightly cleaning. Damp dust as required. 2. Vacuum and dust all vertical surfaces such as walls, partitions, doors, bucks and ventilating louvres, grilles, high mouldings and other surfaces not reached in nightly cleaning. 3. Dust all overhead pipes, sprinklers, ventilating and air conditioning levers, ducts, high mouldings and other high areas not reached in nightly cleaning. 4. Dust all venetian blinds. Dust all window frames. 5. Dust exterior of lighting fixtures. 6. Wash all furniture glass as needed. 7. Vacuum and dust ceiling tiles around ventilators and clean air conditioning diffusers as required. E-2 SCHEDULE F BANK NEW YORK CITY BRANCH Irrevocable Stand-By Letter of Credit - -------------------------------------------------------------------------------- Date Credit No. - -------------------------------------------------------------------------------- Landlord Gentlemen: We hereby establish our Irrevocable Letter of Credit in your favor and shall authorize you to draw on us, up to the aggregate amount of US$ only and we engage with you that all drafts drawn under and in compliance with the terms of this credit will be fully honored by us if presented at this office on or before provided: Any draft(s) drawn by you under this letter of credit shall be accompanied by your written certification that tenant ( tenant name ) is in default, beyond the applicable grace period, if any, under the terms of the lease. This letter of credit shall be freely transferrable by landlord without charge or recourse, so that upon transfer of title to the building or a lease of same, landlord shall have the right to transfer the letter of credit to the vendee or lessee. Landlord must notify us (issuing bank) in writing immediately after this letter of credit is transferred. This letter of credit is subject to the uniform customs and practice for documentary credits (1983 revision) I.C.C. publication No. 400. Notwithstanding Article 19 of said publication, if this credit expires during an interruption of business, as described in Article 19, the bank specifically agrees to effect payment, if the letter is drawn against within thirty days after the resumption of the bank's business. Very truly yours, ------------------------- Authorized Signature F-1 IMPORTANT - PLEASE READ RULES AND REGULATIONS ATTACHED TO AND MADE A PART OF THIS LEASE IN ACCORDANCE WITH ARTICLE 33. Address 70 East 55th Street New York, New York Premises Entire 4th and 5th Floors ---------------------------------------------- ---------------------------------------------- THE OVERTON-LA CHOLLA JOINT VENTURE TO DANIELS PRINTING, LIMITED PARTNERSHIP ---------------------------------------------- ---------------------------------------------- STANDARD FORM C F [LOGO] OFFICE [LOGO] LEASE THE REAL ESTATE BOARD OF NEW YORK, INC. Copyright 1983. All Rights Reserved. Reproduction in whole or in part prohibited. ---------------------------------------------- ---------------------------------------------- Dated January , 1995 Rent per year $401,070.00 Rent per Month $33,422.50 Term 5 years and 10 months From (See Lease Rider) To Drawn by Checked by Entered by Approved by ---------------------------------------------- ---------------------------------------------- EX-13.1 17 EXHIBIT 13.1 MANAGEMENT'S DISCUSSION AND ANALYSIS Certain statements in Management's Discussion and Analysis of Financial Condition and Results of Operations constitute FORWARD-LOOKING statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such FORWARD-LOOKING statements involve known and unknown risks, uncertainties or achievements of the Company which may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such FORWARD-LOOKING statements. These risks and uncertainties include, but are not limited to, the effect of economic and financial market conditions, government public reporting regulations, paper costs, the integration and performance of recent acquisitions and Year 2000 readiness. RESULTS OF OPERATIONS The following table sets forth, for the years indicated, the percentage relationship to revenue of certain items in the Company's consolidated statements of operations and the percentage changes in the dollar amounts of such items in comparison to the prior years.
For the Years Ended January 31, --------------------------------------------------------- % Increase (Decrease) --------------------- Percentage of Revenue 1999 1998 ------------------------------- VS. vs. 1999 1998 1997 1998 1997 - ---------------------------------------------------------------------------------------------------------------- Revenue Specialty Communication Services: Financial 36.5% 38.2% 40.6% 6% 22% Corporate 31.4 31.6 27.6 11 49 Commercial and other 19.7 18.5 20.6 18 17 - ---------------------------------------------------------------------------------------------------------------- 87.6 88.3 88.8 10 29 Document Services: Document management services 12.4 11.7 11.2 17 35 - ---------------------------------------------------------------------------------------------------------------- 100.0 100.0 100.0 11 30 Cost of revenue 64.9% 64.3% 64.3% 12% 30% Gross profit 35.1 35.7 35.7 9 30 Selling, general and administrative expenses 25.1 24.8 25.4 12 27 Operating income 10.0 10.9 10.3 3 37 Interest expense (0.8) (0.9) (1.2) (8) 5 Other income, net 0.2 0.1 0.1 (49) 217 Income before provision for income taxes 9.4 10.1 9.2 3 43 Provision for income taxes 4.2 4.4 4.1 4 40 Net income 5.2 5.7 5.1 2 46 - ----------------------------------------------------------------------------------------------------------------
BUSINESS Merrill Corporation is a diversified electronic and paper document management company. During 1999, the Company adopted Statement of Financial Standards No. 131. As a result, the Company defined its reportable segments and changed the information it reports about its operating segments. Operating segment information for prior years has been restated to conform to the 1999 presentation. Following the new standard, the Company's operating segments have been aggregated into two reportable segments: Specialty Communication Services and Document Services. Under Specialty Communication Services, we include three business units: Financial Document Services, Investment Company Services and Managed Communications Programs. Revenue generated by these 16 MERRILL CORPORATION three business units is categorized as financial, corporate and commercial and other. Document Management Services is the sole business reported in the Document Services segment. Revenue generated by this business unit is categorized as document management services. All accounting policies of the reportable segments are consistent with generally accepted accounting principles and the accounting policies of the Company described in Note One of the notes to consolidated financial statements. Additional information about the 1999 REVENUE Company's reportable segments is included in Note Nine BY CATEGORY of the notes to consolidated financial statements. [GRAPH] The financial revenue category generally reflects the level of transactional activity in the capital markets. The financial revenue category encompasses many types of transactions, and some types of transactions tend to increase when others are out of favor. However, a prolonged reduction in the overall level of financial transactions could be expected to have a negative impact on this category. The corporate revenue category encompasses required regulatory compliance and mutual fund documentation and other repetitive work and is typically not significantly affected by capital market fluctuations. The commercial and other revenue category tends to follow general economic trends. Document management services revenue category tends to follow general economic trends. FISCAL YEAR 1999 VS. FISCAL YEAR 1998 Overall revenue for fiscal year 1999 increased 11 percent over the previous year. Revenue in the Specialty Communication Services segment increased 10 percent over the previous year. The financial revenue category increased six percent compared to the prior year. This increase was driven by strong mergers and acquisition activity in the first six months of fiscal year 1999. The financial revenue category declined in the second half of the fiscal year by 15 percent as a result of the Fall market volatility. International revenue, which is included in the financial revenue category, represented less than 10 percent of consolidated revenue and increased over fiscal year 1998 revenue. Management does not anticipate significant fluctuations in the relative percentage of international revenue during fiscal year 2000. The corporate revenue category increased 11 percent compared to fiscal year 1998. This increase is attributed mainly to strong growth in Investment Company Services products and continued solid demand for corporate compliance business. The commercial and other revenue category realized revenue growth of 18 percent over fiscal year 1998. The growth is primarily the result of our Managed Communications Programs business. Document Services segment revenue grew 17 percent in fiscal year 1999. Ten percent of the growth was a result of the acquisition of Executech and affiliated World Wide Scan Services in June 1998. Document Service Centers, which totaled 80 at January 31, 1999, contributed revenue growth of seven percent on a same-site comparison. Fiscal year 1999 gross profit of approximately 35 percent declined slightly from fiscal year 1998. Strong margins were maintained despite the significant slowdown in financial transaction activity in the second half of the fiscal year. A significant portion of our cost structure is fixed; thus, management implemented cost control measures in the second half of the fiscal year to offset the lower production activity. Selling, general and administrative expenses increased in both dollar terms and percentage of revenue. The increase in these expenses in fiscal year 1999 was principally a result of our continued expansion of the Company's sales and marketing activities and provisions for losses on trade receivables. Average short-term borrowings under the Company's line of credit arrangement were approximately $4.3 million, $4.7 million and $30.1 million in fiscal years 1999, 1998 and 1997, respectively. Interest expense for fiscal year 1999 declined slightly compared to fiscal year 1998, which reflects stable interest rates and a slight reduction in overall amounts borrowed during fiscal year 1999. The effective income tax rate for fiscal year 1999 was 44.5 percent compared to 44 percent for fiscal year 1998. The effective rates were higher than the statutory federal income tax rate primarily because of state income taxes and the impact of increased non-deductible business entertainment expenses incurred in conjunction with the financial and corporate revenue category activity previously discussed. The effective income tax rate in future years is expected to approximate 44.5 percent. 1999 ANNUAL REPORT 17 FISCAL YEAR 1998 VS. FISCAL YEAR 1997 Overall revenue for fiscal year 1998 increased 30 percent over the previous year. Revenue in the Specialty Communication Services segment increased 29 percent over the previous year. The financial revenue category increased 22 percent compared to 1997. This increase was driven by continued strong mergers and acquisition activity in financial markets throughout fiscal year 1998. The increase was also driven by the results of the Corporate Printing Company (CPC) business acquired in April 1996. International revenue, which is included in the financial revenue category, represented less than 10 percent of consolidated revenue and increased over fiscal year 1997 revenue. The corporate revenue category increased 49 percent when compared to fiscal year 1997. This increase is attributed to strong corporate compliance business, continued solid demand for EDGAR services and strong growth in Investment Company Services products. The commercial and other revenue category experienced a 17 percent increase in revenue over fiscal year 1997. The growth is primarily the result of our Managed Communications Programs. Document Services segment revenue grew 35 percent in fiscal year 1998, reflecting continued growth in the number of Document Service Centers, which totaled 76 at January 31, 1998. This resulted from internal growth and the acquisition of selected assets of Total Management Support Services. Fiscal year 1998 gross profit of approximately 36 percent remained level with fiscal year 1997. Continued strong margins in both financial and corporate revenue category activity along with high production utilization allowed us to maintain the same margins. Selling, general and administrative expenses increased, but as a percent of revenue, declined slightly in the last year. The increase in these expenses in fiscal year 1998 was principally a result of our continued expansion of sales and marketing activities and provisions for incentive compensation. Average short-term borrowings under the Company's line of credit arrangement were approximately $4.7 million, $30.1 million and $2.2 million in fiscal years 1998, 1997 and 1996, respectively. The significant decrease in the average short-term borrowings in fiscal year 1998 resulted from the issuance of $35 million in unsecured senior notes in October 1996. Interest expense for fiscal year 1998 remained relatively consistent compared to fiscal year 1997, which reflects stable interest rates and consistent overall amounts borrowed during the time periods. The effective income tax rate for fiscal year 1998 was 44 percent compared to 45 percent for fiscal year 1997. The effective rates were higher than the statutory federal rate primarily because of state income taxes and the impact of increased non-deductible business entertainment expenses incurred in conjunction with the additional financial and corporate revenue category activity previously discussed. IMPACT OF INFLATION The Company does not believe that inflation has had a significant impact on the results of its operations. LIQUIDITY AND CAPITAL RESOURCES The Company continued to strengthen its financial position during fiscal year 1999. Working capital at January 31, 1999, increased to $81.6 million from $79.3 million a year ago. Our current ratio remained consistent at 2.1:1 in fiscal year 1999 when compared to fiscal year 1998. Working capital increased primarily from higher cash balances, reflecting strong collection of trade receivables during the entire year. Trade accounts receivable decreased as a result of the strong cash collections and the reduction in the financial transaction activity. Work-in-process inventories decreased at January 31, 1999, reflecting the downturn in financial transaction activity in the fourth quarter and improved inventory turns. Cash and cash equivalents increased to $23.5 million with no borrowings under the Company's line of credit at January 31, 1999. Long-term obligations to total capitalization was 21.9 percent at January 31, 1999, compared to 25.0 percent a year ago. Cash provided by operating activities was $55.8 million in fiscal year 1999, compared to $30.9 million in fiscal year 1998 and $8.5 million in fiscal year 1997. Operating cash flows for fiscal year 1999 included strong earnings performance and a decrease in accounts receivable and work-in-process 18 MERRILL CORPORATION inventories offset by decreases in accounts payable and accrued expenses. Operating cash flows for fiscal year 1998 included strong earnings performance, a decrease in work-in-process inventories and an increase in accounts payable and accrued expenses offset by an increase in accounts receivable. Net cash used in investing activities was $23.1 million in fiscal year 1999, compared to $30.1 million in fiscal year 1998 and $35.8 million in fiscal year 1997. Capital expenditures were $16.5 million, $17.1 million and $9.2 million for the years ended January 31, 1999, 1998 and 1997, respectively. Capital expenditures in each fiscal year were principally for reprographic and computer based production equipment and for leasehold improvements. Cash used for businesses acquired included Executech in fiscal year 1999, Superstar Computing, Total Management Support Services and The Corporate Printing Company in fiscal year 1998 and The Corporate Printing Company and FMC Resource Management Corporation in fiscal year 1997. Net cash used in financing activities was $11.8 million in fiscal year 1999 compared to $3.4 million in fiscal year 1998. Net cash used in these fiscal years was primarily a result of repurchases of common stock offset by stock option exercises and repayment of borrowings under the Company's line of credit. Fiscal year 1997 cash provided by financing activities of $20.4 million was primarily a result of the issuance of long-term debt offset by payments on long-term debt and capital lease obligations. The Company repurchased 734,000 shares of its common stock for approximately $12.8 million in fiscal year 1999. A cumulative total of 998,000 shares have been repurchased for approximately $15.9 million under the 1,500,000 share repurchase program authorized by the Board of Directors in fiscal year 1997. The Company expects capital expenditures in fiscal year 2000 to range from $25 million to $30 million for computer and production equipment and facility expansion and remodeling. Approximately $2 million of this amount is committed at this time. The Company has historically been working-capital intensive, but in recent years has increased its needs for technology and production equipment. The Company generally has been able to generate sufficient cash from operations to fund its capital needs. At January 31, 1999, the Company's principal internal sources of liquidity were cash and cash equivalents and cash flow provided by operating activities. The Company has available an unsecured bank line of credit expiring on November 29, 1999. The amount available was increased from $40 million to $70 million subsequent to January 31, 1999. Management anticipates that these sources will satisfy its needs for fiscal year 2000. YEAR 2000 READINESS Many older computer software programs refer to years in terms of their final two digits only. Such programs may interpret the year 2000 to mean the year 1900 instead. If not corrected, those programs could cause date-related transaction failures. Merrill Corporation has a Year 2000 project underway that addresses our internal business systems including software, hardware and firmware as well as external business partners, supply chains and customers. Our plan includes the following steps: ASSESSMENT. We have identified and prioritized systems and individual components of systems that contain potentially date-sensitive computer codes. REMEDIATION. We are making decisions on how to make systems and processes Year 2000-ready, then proceeding to make the necessary changes. THIRD-PARTY VENDORS. We have surveyed for Year 2000 readiness by material third-party vendors, including external providers of software and hardware products, as well as print producers. CONFIGURATION MANAGEMENT. We have tracked source code components of an application and changes to the components to manage the remediation process. VALIDATION/TESTING. We have substantially completed testing of data and have reviewed results to determine that errors were not introduced during the conversion process. 1999 ANNUAL REPORT 19 CONTINGENCY PLANNING. We are formulating contingency plans that address the continuum from minor administrative interruptions to failure of mission critical processes to include alternate material and services suppliers where applicable. Our project plan includes initial testing and remediation which was begun last year and continued into the fourth quarter of the fiscal year ended January 31, 1999 (fiscal 1999). The Company completed the surveying of key suppliers in the fourth quarter of fiscal 1999. The Company is currently in the process of developing contingency plans, as necessary, with the initial draft to be completed July 31, 1999. We plan to have Merrill's mission-critical internal systems and electronic data links ready by July 31, 1999, and resolve any supplier problems. We have surveyed our major utility companies and have received most response statements. We are in the process of analyzing those statements and following up, where needed, for clarity. A master project plan has been developed and a Steering Committee, chartered by the Board of Directors, meets regularly to monitor the plan and address issues. The project has progressed through the system assessment stage into the remediation stage where programming changes are being made to major business and production systems. The Company believes that the project is currently on schedule. The Company estimates that the total cost to identify and remediate Year 2000 problems is approximately $3.0 million. Approximately $1.1 million of these costs have been incurred as of January 31, 1999. These costs are expensed as incurred. These costs are primarily consultant and payroll-related costs for the Company's information technology group and some computer hardware and software package upgrade purchase costs. Such costs do not include normal system upgrades and replacements. Detailed system-by-system status for major systems is available on our web site HTTP://WWW.MERRILLCORP.COM for those interested parties. We, of course, do not have control over many Year 2000 problems. The nature of our society and the interconnected systems of government agencies, utilities, businesses and even individuals can affect our ability to provide goods and services to our customers, and by extension could also affect our financial position. We are making every effort to evaluate, correct and test potential problem areas, but ultimately, the resolutions of Year 2000 questions by other entities in our network of relationships could influence us significantly. QUARTERLY STOCK PRICE INFORMATION Merrill Corporation shares are traded on the Nasdaq Stock Market under the symbol MRLL. The table below sets forth the range of high and low sales prices per share as reported by the Nasdaq Stock Market. These prices do not include adjustments for retail markups, markdowns or commissions. There were approximately 2,100 shareholders of record and non-objecting beneficial owners of the Company's common stock at the close of trading on April 15, 1999. The Company paid annualized cash dividends of $.08 per share in fiscal year 1999 and $.07 per share in fiscal year 1998. Total cash dividends approximated $1.3 million and $1.1 million in fiscal years 1999 and 1998, respectively.
First Second Third Fourth Stock Price Per Share Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------ FY 1999 High 23 9/16 24 3/4 23 7/8 19 1/2 Low 18 20 12 1/16 12 3/4 FY 1998 High 14 20 5/16 24 1/4 24 Low 10 1/4 11 5/8 17 1/8 18 5/32
20 MERRILL CORPORATION CONSOLIDATED BALANCE SHEETS
As of January 31, --------------------------- (In thousands, except share data) 1999 1998 - ------------------------------------------------------------------------------------------------ ASSETS Current assets Cash and cash equivalents $ 23,477 $ 2,531 Trade receivables, less allowance for doubtful accounts of $8,126 and $6,992, respectively 102,365 116,721 Work-in-process inventories 12,639 13,686 Other inventories 7,559 7,112 Other current assets 12,253 10,290 - ------------------------------------------------------------------------------------------------ Total current assets 158,293 150,340 Property, plant and equipment, net 44,935 41,045 Goodwill, net 49,744 44,437 Other assets 12,973 10,657 - ------------------------------------------------------------------------------------------------ Total assets $265,945 $246,479 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current maturities of long-term debt $ 2,210 $ 655 Current maturities of capital lease obligations 236 249 Accounts payable 29,640 29,142 Accrued expenses 44,642 41,033 - ------------------------------------------------------------------------------------------------ Total current liabilities 76,728 71,079 Long-term debt, net of current maturities 38,110 40,225 Capital lease obligations, net of current maturities 1,375 1,616 Other liabilities 8,581 7,884 - ------------------------------------------------------------------------------------------------ Total liabilities 124,794 120,804 - ------------------------------------------------------------------------------------------------ Commitments and contingencies (Notes 3 and 5) Shareholders' equity Common stock, $.01 par value: 25,000,000 shares authorized; 15,823,155 and 16,315,136 shares, respectively, issued and outstanding 158 163 Undesignated stock: 500,000 shares authorized; no shares issued Additional paid-in capital 12,722 22,401 Retained earnings 128,271 103,111 - ------------------------------------------------------------------------------------------------ Total shareholders' equity 141,151 125,675 - ------------------------------------------------------------------------------------------------ Total liabilities and shareholders' equity $265,945 $246,479 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 1999 ANNUAL REPORT 21 CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended January 31, ---------------------------------------------- (In thousands, except share and per share data) 1999 1998 1997 - ------------------------------------------------------------------------------------------------ Revenue $ 509,543 $ 459,516 $ 353,769 Cost of revenue 330,632 295,390 227,478 - ------------------------------------------------------------------------------------------------ Gross profit 178,911 164,126 126,291 Selling, general and administrative expenses 127,705 114,174 89,946 - ------------------------------------------------------------------------------------------------ Operating income 51,206 49,952 36,345 Interest expense (3,961) (4,321) (4,124) Other income, net 426 835 263 - ------------------------------------------------------------------------------------------------ Income before provision for income taxes 47,671 46,466 32,484 Provision for income taxes 21,214 20,445 14,645 - ------------------------------------------------------------------------------------------------ Net income $ 26,457 $ 26,021 $ 17,839 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ Net income per share: Basic $ 1.63 $ 1.61 $ 1.13 Diluted $ 1.55 $ 1.54 $ 1.11 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ Weighted average number of shares outstanding: Basic 16,253,148 16,129,341 15,792,161 Diluted 17,020,673 16,906,382 16,117,432 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 22 MERRILL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended January 31, ---------------------------------------------- (In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Operating activities Net income $ 26,457 $ 26,021 $ 17,839 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 13,066 11,147 10,825 Amortization of intangible assets 4,573 4,286 2,581 Writedown of goodwill 1,180 Provision for losses on trade receivables 3,273 2,064 2,861 Provision for unbillable inventories 67 (1,063) 2,678 Deferred income taxes (3,518) (2,592) (6,555) Change in deferred compensation 1,807 1,285 401 Changes in operating assets and liabilities, net of effects from business acquisitions Trade receivables 11,796 (36,706) (18,499) Work-in-process inventories 865 12,082 (11,667) Other inventories (333) (1,667) 583 Other current assets 1,301 (1,798) (1,718) Accounts payable (348) 7,336 (3,720) Accrued expenses (3,267) 11,537 11,365 Income taxes (1,109) (1,059) 1,530 - ------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 55,810 30,873 8,504 - ------------------------------------------------------------------------------------------------------------------- Investing activities Purchase of property, plant and equipment (16,479) (17,069) (9,216) Business acquisitions, net of cash acquired (4,039) (13,179) (26,010) Other investing activities, net (2,551) 137 (564) - ------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (23,069) (30,111) (35,790) - ------------------------------------------------------------------------------------------------------------------- Financing activities Borrowings on notes payable to banks 86,600 104,275 139,050 Repayments on notes payable to banks (86,600) (110,225) (139,100) Proceeds from issuance of long-term debt 35,000 Principal payments on long-term debt and capital lease obligations (814) (936) (15,164) Repurchase of common stock (12,813) (3,065) Dividends paid (1,297) (1,133) (948) Exercise of stock options 2,149 5,417 1,045 Tax benefit realized upon exercise of stock options 884 2,192 328 Other equity transactions, net 96 83 162 - ------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (11,795) (3,392) 20,373 - ------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 20,946 (2,630) (6,913) Cash and cash equivalents, beginning of year 2,531 5,161 12,074 - ------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 23,477 $ 2,531 $ 5,161 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Supplemental cash flow disclosures Income taxes paid $ 24,724 $ 22,000 $ 19,253 Interest paid 3,599 3,757 2,866 - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 1999 ANNUAL REPORT 23 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended January 31, 1999, 1998 and 1997 ------------------------------------------------------------- Additional Common Paid-in Retained (In thousands, except per share data) Stock Capital Earnings Total - ------------------------------------------------------------------------------------------------------------------- Balance, January 31, 1996 $ 157 $ 16,245 $ 61,332 $ 77,734 Exercise of stock options 2 1,043 1,045 Tax benefit realized upon exercise of stock options 328 328 Other 162 162 Cash dividends ($.06 per share) (948) (948) Net income 17,839 17,839 - ------------------------------------------------------------------------------------------------------------------- Balance, January 31, 1997 $ 159 $ 17,778 $ 78,223 $ 96,160 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Exercise of stock options 7 5,410 5,417 Tax benefit realized upon exercise of stock options 2,192 2,192 Repurchase of common stock (3) (3,062) (3,065) Other 83 83 Cash dividends ($.07 per share) (1,133) (1,133) Net income 26,021 26,021 - ------------------------------------------------------------------------------------------------------------------- Balance, January 31, 1998 $ 163 $ 22,401 $103,111 $125,675 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Exercise of stock options 2 2,147 2,149 Tax benefit realized upon exercise of stock options 884 884 Repurchase of common stock (7) (12,806) (12,813) Other 96 96 Cash dividends ($.08 per share) (1,297) (1,297) Net income 26,457 26,457 - ------------------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 31, 1999 $ 158 $ 12,722 $128,271 $141,151 - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 24 MERRILL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ONE - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS The Company provides paper and electronic document services consisting of creative design, typesetting, printing, reproduction, distribution, data and information services to financial, legal, investment company, real estate and corporate clients worldwide. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. The most significant areas which require the use of management's estimates relate to the determination of the allowances for doubtful accounts and unbillable inventories. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include all majority-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. CASH EQUIVALENTS The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. INVENTORIES Work-in-process, which includes purchased services, materials, direct labor and overhead, is valued at the lower of cost or net realizable value, with cost determined on a specific job-cost basis. Other inventories consist primarily of paper and printed materials and are valued at the lower of cost or market, with cost determined on a specific job-cost basis. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Significant additions or improvements extending asset lives are capitalized; normal maintenance and repair costs are expensed as incurred. Depreciation is determined using the straight-line method over the estimated useful lives of the assets which range from three to 30 years. Amortization of leasehold improvements is recorded on a straight-line basis over the estimated useful lives of the assets or the lease term, whichever is shorter. When assets are sold or retired, related gains or losses are included in the results of operations. GOODWILL Goodwill recognized in business acquisitions accounted for as purchases is amortized on the straight-line method, principally over 15 years. The Company periodically evaluates the recoverability of unamortized goodwill through measurement of future estimated undiscounted operating unit cash flows. INCOME TAXES Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the year and the change during the year in deferred tax assets and liabilities. REVENUE RECOGNITION The Company recognizes revenue when service projects are completed or products are shipped. NET INCOME PER SHARE The Company has disclosed basic and diluted net income per share for all periods presented in accordance with the Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." The dilutive effect on net income per share resulted from the assumed exercise of dilutive stock options outstanding under the Company's stock option plans. 1999 ANNUAL REPORT 25 ONE - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED STOCK-BASED COMPENSATION The Company accounts for stock-based compensation using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation costs for stock options granted to employees are measured as the excess, if any, of the fair value of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. Such compensation costs, if any, are amortized on a straight-line basis over the underlying option vesting terms. The Company accounts for stock-based compensation to non-employees using the fair value method prescribed by SFAS No. 123, "Accounting for Stock Based Compensation." Compensation costs for stock options granted to non-employees are based on fair value of the option at the date of grant. BUSINESS SEGMENTS Effective January 31, 1999, the Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," which requires the Company to report information about its operating segments according to the management approach for determining reportable segments. This approach is based on the way management organizes segments within a company for making operating decisions and assessing performance. Segment results have been reported for all periods presented and are described in Note Nine. TWO - SELECTED FINANCIAL STATEMENT DATA
As of January 31, -------------------------- (In thousands) 1999 1998 - ------------------------------------------------------------------------------------------------ PROPERTY, PLANT AND EQUIPMENT, NET Land $ 1,951 $ 1,951 Buildings 12,111 11,965 Equipment 63,068 54,929 Furniture and fixtures 14,157 11,057 Leasehold improvements 18,664 10,479 Construction in progress 1,090 5,609 - ------------------------------------------------------------------------------------------------ 111,041 95,990 Less accumulated depreciation and amortization (66,106) (54,945) - ------------------------------------------------------------------------------------------------ $ 44,935 $ 41,045 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ GOODWILL, NET Goodwill $ 63,462 $ 52,913 Less accumulated amortization (13,718) (8,476) - ------------------------------------------------------------------------------------------------ $ 49,744 $ 44,437 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ ACCRUED EXPENSES Commissions and compensation $ 22,089 $ 25,003 Retirement plan 3,970 4,965 Purchase price consideration 7,734 800 Other 10,849 10,265 - ------------------------------------------------------------------------------------------------ $ 44,642 $ 41,033 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------
26 MERRILL CORPORATION THREE - BUSINESS ACQUISITIONS On April 15, 1996, the Company purchased substantially all of the operating assets and assumed certain liabilities of The Corporate Printing Company, Inc. and Affiliated Group (CPC) for approximately $22.6 million in cash. The Company did not purchase any assets relating to CPC's pressroom and shipping businesses. The purchase price was subsequently reduced by approximately $1.7 million in accordance with terms of the purchase agreement. In accordance with the agreement, additional contingent purchase consideration of $8 million was paid in August 1997. The Company also entered into a five-year non-compete agreement with CPC's principal shareholder that requires payments totaling $3.4 million through April 15, 2001. The principal shareholder is also entitled to an additional $500,000 annually through March 31, 2001, as the Company maintained certain business of a specified customer. The acquisition has been accounted for as a purchase. On March 28, 1996, the Company purchased all of the outstanding common stock of FMC Resource Management Corporation for $5.4 million in cash and promissory notes for $2.0 million. The agreement calls for additional contingent consideration, not to exceed $4 million, based on annual gross profits of the acquired business through January 31, 2001, as defined in the agreement. Contingent consideration recorded through January 31, 1999, was $2.4 million. The acquisition has been accounted for as a purchase. Results of the acquired companies' operations have been included in the Consolidated Statements of Operations from their respective dates of acquisitions. Pro forma (unaudited) results of the Company for the year ended January 31, 1997, as if the acquisitions had been effective at February 1, 1995, are as follows:
For the Year Ended January 31, ------------------------------ (In thousands, except per share data) 1997 - ------------------------------------------------------------------------------ Revenue $376,647 Net income 17,047 Net income per share - diluted 1.05 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------
During fiscal year 1999, the Company completed the acquisition of substantially all of the operating assets and liabilities of Executech, Inc. and an affiliated company, World Wide Scan Services, LLC for $3.2 million in cash. The agreement calls for additional consideration totalling approximately $10.0 million through fiscal year 2003. The acquisition has been accounted for as a purchase and is not significant to the financial position or results of operations of the Company. 1999 ANNUAL REPORT 27 FOUR - FINANCING ARRANGEMENTS BANK FINANCING The Company has a revolving credit agreement with a group of banks that provides for an unsecured bank line of credit which expires on November 29, 1999. Subsequent to January 31, 1999, the agreement was amended to increase the amount available for borrowing from $40 million to $70 million. There were no borrowings outstanding under this agreement at January 31, 1999 and 1998. Under the agreement, the Company has the option to borrow at the Agent's reference rate, at 1.0% above the London Interbank Offered Rate (LIBOR) or at 1.0% above a certificate of deposit-based rate, and is required to pay quarterly commitment fees of 0.25% on the unused portion of the line of credit. The weighted average interest rates on borrowings on the line of credit were 8.44%, 8.26% and 7.39% for the years ended 1999, 1998 and 1997, respectively. The revolving credit agreement includes various covenants, including the maintenance of minimum tangible net worth and limitations on the amounts of certain transactions, including payment of dividends. LONG-TERM DEBT Long-term debt consisted of the following:
As of January 31, --------------------------- (In thousands) 1999 1998 - ------------------------------------------------------------------------------------------------------------------- Unsecured senior notes, bearing interest at 7.463%, with semi-annual interest only payments through October 2000, at which time annual principal and semi-annual interest payments are due through October 2006. The notes have various covenants, including the maintenance of certain financial ratios and limitations on the amount of certain transactions including the payment of dividends. $35,000 $35,000 Industrial development bonds, due in annual installments, including interest ranging from 4.2% to 5.5%, over the life of the bonds with the remaining unpaid balance due on August 1, 2010; collateralized by land, building and equipment with a carrying value of $4,712 at January 31, 1999. 3,320 3,380 Unsecured promissory notes payable due in March 1999. The notes bear interest at LIBOR plus 1.0%, adjustable and payable annually. The interest rate at January 31, 1999 and 1998 was 6.8125% and 7.281%, respectively. 2,000 2,000 Unsecured promissory note payable in equal annual installments of $500 on December 31 through 1998. 500 - ------------------------------------------------------------------------------------------------------------------- 40,320 40,880 Less current maturities of long-term debt (2,210) (655) - ------------------------------------------------------------------------------------------------------------------- $38,110 $40,225 - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
The aggregate maturities of long-term debt are as follows:
(In thousands) - ------------------------------------------------------------------------------------------------------------------- 2000 $ 2,210 2001 5,220 2002 5,230 2003 5,240 2004 5,250 Thereafter 17,170 - ------------------------------------------------------------------------------------------------------------------- $40,320 - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
Based on quoted market prices for similar issues, the fair value of long-term debt approximated its carrying value at January 31, 1999 and 1998. 28 MERRILL CORPORATION FIVE - LEASES The Company leases an office and production facility and the associated land and equipment under capital leases that terminate at various dates through November 30, 2005. Certain leases contain bargain purchase options. A summary of the Company's property under capital leases, which is classified as property, plant and equipment, is as follows:
As of January 31, --------------------------- (In thousands) 1999 1998 - ------------------------------------------------------------------------------- Land $ 333 $ 333 Building 2,439 2,439 Equipment 389 594 Less accumulated amortization (1,334) (1,366) - ------------------------------------------------------------------------------- $ 1,827 $ 2,000 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
The Company also leases office space and equipment under noncancelable operating leases which expire at various dates through October 31, 2014. Rental expense charged to operations was $9.0 million, $8.0 million and $6.0 million for the years ended January 31, 1999, 1998 and 1997, respectively. Future minimum rental commitments under noncancelable leases at January 31, 1999, are as follows:
Capital Operating (In thousands) Leases Leases - ------------------------------------------------------------------------------ 2000 $ 392 $ 6,697 2001 330 5,737 2002 330 4,645 2003 330 4,349 2004 330 3,751 Thereafter 605 16,317 - ------------------------------------------------------------------------------ 2,317 $41,496 ------- Imputed interest (706) - ------------------------------------------------------------------ Present value of minimum lease payments 1,611 Less current maturities of capital lease obligations (236) - ------------------------------------------------------------------ Capital lease obligations, net of current maturities $1,375 - ------------------------------------------------------------------ - ------------------------------------------------------------------
1999 ANNUAL REPORT 29 SIX - INCOME TAXES Components of the provision for income taxes are as follows:
For the Years Ended January 31, ------------------------------------ (In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------ Current Federal $21,204 $19,974 $17,758 State 3,528 3,063 3,442 - ------------------------------------------------------------------------------ 24,732 23,037 21,200 Deferred (3,518) (2,592) (6,555) - ------------------------------------------------------------------------------ Provision for income taxes $21,214 $20,445 $14,645 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------
Temporary differences comprising the net deferred tax asset recognized in the accompanying Consolidated Balance Sheets are as follows:
As of January 31, ----------------------- (In thousands) 1999 1998 - ------------------------------------------------------------------------------- Deferred compensation $ 3,997 $ 1,980 Property, plant and equipment 2,359 2,126 Insurance reserves 1,406 1,130 Vacation accrual 1,228 1,085 Allowance for doubtful accounts 1,188 1,349 Goodwill amortization 1,131 433 Inventories 1,038 958 Other, net 1,204 972 - ------------------------------------------------------------------------------- Net deferred tax asset $13,551 $10,033 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Management expects that the Company will fully realize the benefits attributable to the net deferred tax asset at January 31, 1999. Accordingly, no valuation allowance has been recorded at January 31, 1999. Significant differences between income taxes on income for financial reporting purposes and income taxes calculated using the federal statutory tax rate are as follows:
As of January 31, --------------------------------------- (In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------------------------ Provision for federal income taxes at statutory rate $16,684 $16,263 $11,369 State income taxes, net of federal benefit 1,967 1,646 1,444 Non-deductible business meeting and entertainment expenses 2,003 1,832 1,210 Other 560 704 622 - ------------------------------------------------------------------------------------------------ $21,214 $20,445 $14,645 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------
Consolidated federal income tax returns filed by the Company have been examined by the Internal Revenue Service through fiscal 1994. The Company's fiscal 1995, 1996 and 1997 federal and certain state income tax returns are presently under audit. Management believes any additional taxes which may ultimately result from these audits or any other state or local agencies' audits would not have a material adverse effect on the Company's consolidated financial position or results of operations. 30 MERRILL CORPORATION SEVEN - RETIREMENT PLAN On February 1, 1998, the Company combined its defined contribution retirement plan and its 401(k) incentive savings plan. Under the new plan, Company contributions are based on 4% of eligible employee compensation and 100% matching contributions up to a maximum of the first 3% of a participant's 401(k) contribution. Substantially all employees of the Company are covered by the new plan. Related costs of all retirement plans charged to operations were $6.1 million, $5.1 million and $4.0 million for the years ended January 31, 1999, 1998 and 1997, respectively. EIGHT - SHAREHOLDERS' EQUITY COMMON STOCK In August 1997, the Company's Board of Directors declared a 2-for-1 stock split of the Company's common stock in the form of a 100% stock dividend which was paid on October 15, 1997, to shareholders of record on September 30, 1997. The Consolidated Statements of Changes in Shareholders' Equity and all share and per share amounts have been retroactively restated to reflect the stock split. Also, all information regarding shares outstanding, stock purchase agreements, stock options and stock grants has been retroactively restated to reflect the stock split. The classes, series, rights and preferences of the undesignated stock may be established by the Company's Board of Directors. No action with respect to such shares has been taken. During fiscal year 1997, the Company's Board of Directors approved the repurchase of up to 1,500,000 shares of the Company's common stock. In fiscal year 1999, the Company repurchased 734,000 shares of common stock for approximately $12.8 million. Through January 31, 1999, 998,000 shares of common stock had been repurchased for approximately $15.9 million. EARNINGS PER SHARE The denominator used to calculate diluted earnings per share includes the dilutive impact of 767,525, 777,041 and 325,271 stock options for the years ended January 31, 1999, 1998 and 1997, respectively. STOCK PLANS Under Company-sponsored incentive and stock option plans, 6,506,000 shares of common stock were reserved for the granting of incentive awards to employees in the form of incentive stock options, nonstatutory stock options and restricted stock awards at exercise prices not less than 100% of the fair market value of the Company's common stock on the date of grant. As of January 31, 1999, stock options for 5,342,300 shares and 70,800 restricted stock awards had been granted under the plans, leaving 1,092,900 shares available for future grants. Under the Company's 1996 Non-employee Director Plan (the Plan), 400,000 shares of common stock were reserved for granting of non-statutory options and awarding of common stock as partial payment to non-employee directors who serve on the Company's Board of Directors. Non-statutory stock options issued under the Plan are granted at an exercise price not less than 100% of the fair market value of the Company's common stock on the date of grant. Compensation expense is recorded when common stock is awarded as partial payment for the director's annual retainer in an amount approximately equal to the fair market value of the Company's common stock on the date of grant. As of January 31, 1999, non-statutory options for 120,000 shares and 10,863 shares of common stock had been granted under the Plan, leaving 269,137 shares available for future grants. In addition to options granted under the plans above, the Company has granted non-qualified options to directors and consultants at prices equal to or exceeding market value at date of grant. Options granted under all Company-sponsored stock plans generally vest and expire over five to seven years. 1999 ANNUAL REPORT 31 EIGHT - SHAREHOLDERS' EQUITY, CONTINUED A summary of selected information regarding all stock options for the three years ended January 31, 1999, is as follows:
Weighted Average Number of Exercise Price Exercise Price Shares Per Share Per Share - --------------------------------------------------------------------------------------------- Balance, January 31, 1996 1,854,628 $ 2.00-14.88 $ 8.46 Granted 1,092,000 8.12-11.96 9.06 Exercised (152,436) 3.68-10.38 6.85 Canceled (106,364) 8.12-13.25 9.86 - --------------------------------------------------------------------------------------------- Balance, January 31, 1997 2,687,828 2.00-14.88 8.74 Granted 1,129,200 11.19-22.75 13.95 Exercised (759,400) 2.00-15.06 7.88 Canceled (88,200) 8.13-10.00 8.86 - --------------------------------------------------------------------------------------------- Balance, January 31, 1998 2,969,428 2.00-22.75 10.94 Granted 611,000 18.25-21.38 20.95 Exercised (239,750) 2.00-15.06 8.97 Canceled (70,600) 8.13-21.38 13.92 - --------------------------------------------------------------------------------------------- BALANCE, JANUARY 31, 1999 3,270,078 $3.68-22.75 $12.89 - --------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------
At January 31, 1999, the weighted average exercise price and remaining life of the stock options are as follows: Range of exercise prices $ 3.68-8.25 $8.50-13.50 $14.75-22.75 Total - ------------------------------------------------------------------------------------------------------------------- Total options outstanding 821,700 1,485,878 962,500 3,270,078 Weighted average exercise price $8.06 $10.94 $20.00 $12.89 Weighted average remaining life 3.3 years 3.5 years 4.6 years 3.8 years Options exercisable 248,400 386,918 128,100 763,418 Weighted average price of exercisable options $7.92 $11.30 $18.24 $11.37 - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
32 MERRILL CORPORATION EIGHT - SHAREHOLDERS' EQUITY, CONTINUED Had the Company used the fair value-based method of accounting for its incentive and stock option plans beginning on February 1, 1995, and charged compensation cost against income, over the vesting period based on the fair value of options at the date of grant, net income and net income per share would have been reduced to the following pro forma amounts:
For the Years Ended January 31, --------------------------------------------------- (In thousands except per share data) 1999 1998 1997 - --------------------------------------------------------------------------------------------- NET INCOME As reported $26,457 $26,021 $17,839 Pro forma 24,300 24,541 17,223 - --------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------- NET INCOME PER SHARE As reported - basic $ 1.63 $ 1.61 $ 1.13 As reported - diluted 1.55 1.54 1.11 Pro forma - basic 1.50 1.52 1.09 Pro forma - diluted 1.43 1.45 1.07 - --------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------
The pro forma information above includes only stock options granted since fiscal year 1996. Pro forma compensation expense under the fair value-based method of accounting will increase in the future as additional stock option grants will be considered. The weighted average grant date fair value of options granted during fiscal years 1999, 1998 and 1997 was $10.32, $6.68 and $4.72, respectively. The weighted average grant date fair value of options was calculated by using the fair value of each option grant, utilizing the Black-Scholes option-pricing model and the following key assumptions:
For the Years Ended January 31, -------------------------------------------------- 1999 1998 1997 - --------------------------------------------------------------------------------------------- Risk free interest rate 5.50% 6.50% 6.87% Expected life 5 YEARS 5 years 6 years Expected volatility 51.18% 43.52% 48.85% Expected dividend yield 0.41% 0.38% 0.68% - --------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------
1999 ANNUAL REPORT 33 NINE - SEGMENT AND RELATED INFORMATION SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," changes the way the Company reports information about its operating segments. The information for fiscal years 1998 and 1997 is also presented. The Company's business units have been aggregated into two reportable segments comprising of Specialty Communication Services and Document Services. SPECIALTY COMMUNICATION SERVICES This segment consists of three business units -- Financial Document Services, Investment Company Services and Managed Communications Programs -- that print documents and deliver services used in the financial marketplace, including mutual fund and insurance companies and banks, and national organizations. The principal markets for this segment include major metropolitan centers in the world including North America, Europe, Latin America and the Far East. Customers include major investment bankers, corporate officers, mutual fund companies, national and regional real estate networks and other business services. DOCUMENT SERVICES Document Management Services is the sole business unit reported in this segment. They deliver document management solutions to legal and corporate clients through client-based service centers. These Merrill-managed facilities provide clients with a broad range of value-added document services, including litigation copying and support, imaging, electronic document scanning, storage and retrieval, binding and post-production shipping. The principal markets for this segment are major metropolitan areas in North America. Customers include law firms and large corporations. The accounting policies of the reportable segments are the same as those described in Note One of Notes to Consolidated Financial Statements. The Company evaluates the performance of its operating segments based on revenue and operating earnings of the respective business units. Intersegment sales and transfers are not significant. Summarized financial information concerning the Company's reportable segments is shown in the following table. The "Interest & Other" column includes corporate-related items and, as it relates to income before provision for income taxes, income and expense not allocated to reportable segments.
(In thousands) Specialty Communication Services Document Services Interest & Other Total - ---------------------------------------------------------------------------------------------------------------------------- 1999 Revenue $446,579 $62,964 $509,543 Income (loss) before provision for income taxes 52,995 (1,789) $(3,535) 47,671 Total assets 186,825 25,966 53,154 265,945 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 1998 Revenue $405,742 $53,774 $459,516 Income (loss) before provision for income taxes 57,276 (7,324) $(3,486) 46,466 Total assets 205,200 16,530 24,749 246,479 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 1997 Revenue $314,187 $39,582 $353,769 Income (loss) before provision for income taxes 45,555 (9,210) $(3,861) 32,484 Total assets 167,043 11,729 23,225 201,997 - ---------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------
34 MERRILL CORPORATION TEN - QUARTERLY DATA (UNAUDITED) The following is a summary of unaudited quarterly data for the years ended January 31, 1999 and 1998:
First Second Third Fourth (In thousands except per share data) Quarter Quarter Quarter Quarter Total - ----------------------------------------------------------------------------------------------------- 1999 Revenue $ 123,514 $148,458 $119,759 $117,812 $509,543 Gross profit 48,358 53,974 39,100 37,479 178,911 Net income 8,012 8,706 6,488 3,251 26,457 Net income per share - basic .49 .53 .40 .20 1.63 Net income per share - diluted .47 .50 .38 .20 1.55 Dividends declared per share .02 .02 .02 .02 .08 - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- 1998 Revenue $ 109,859 $115,601 $112,091 $121,965 $459,516 Gross profit 43,585 41,066 39,374 40,101 164,126 Net income 7,754 6,312 5,707 6,248 26,021 Net income per share - basic .49 .39 .35 .38 1.61 Net income per share - diluted .47 .38 .33 .36 1.54 Dividends declared per share .015 .015 .02 .02 .07 - ----------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------
For fiscal year 1999, the summations of quarterly net income per share -- basic does not equate to the calculation for the year as quarterly calculations are performed on a discrete basis. ELEVEN - SUBSEQUENT EVENT On April 14, 1999, the Company purchased substantially all assets and assumed certain liabilities of Daniels Printing, Limited Partnership for $45 million in cash plus $10.6 million in payoff of existing term debt and line of credit plus the assumption of $7.7 million of certain ordinary course liabilities. The acquisition will be accounted for as a purchase. The acquisition was financed using the Company's line of credit and available operating cash. 1999 ANNUAL REPORT 35 SUMMARY OF OPERATING AND FINANCIAL DATA
For the Years Ended January 31, ------------------------------------------------------------------------------------- (In thousands, except employee, per share data and ratio) 1999 1998 1997 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS Revenue $ 509,543 $ 459,516 $ 353,769 $ 245,306 $ 236,878 $ 181,584 Costs and expenses 461,872 413,050 321,285 226,600 215,724 159,593 - ----------------------------------------------------------------------------------------------------------------------------- Income before provision for income taxes 47,671 46,466 32,484 18,706 21,154 21,991 Provision for income taxes 21,214 20,445 14,645 8,044 9,171 8,820 - ----------------------------------------------------------------------------------------------------------------------------- Net income $ 26,457 $ 26,021 $ 17,839 $ 10,662 $ 11,983 $ 13,348 - ----------------------------------------------------------------------------------------------------------------------------- PER COMMON SHARE Net income - basic $ 1.63 $ 1.61 $ 1.13 $ .69 $ .79 $ .90 Net income - diluted $ 1.55 $ 1.54 $ 1.11 $ .68 $ .76 $ .86 Cash dividends declared $ .08 $ .07 $ .06 $ .06 $ .06 $ .05 Book value $ 8.92 $ 7.70 $ 6.06 $ 4.95 $ 4.35 $ 3.58 - ----------------------------------------------------------------------------------------------------------------------------- FINANCIAL DATA/OTHER Working capital $ 81,565 $ 79,261 $ 69,220 $ 39,379 $ 31,523 $ 22,528 Current ratio 2.1 2.1 2.2 2.0 2.0 1.6 Total assets $ 265,945 $ 246,479 $ 201,997 $ 125,521 $ 106,470 $ 100,123 Shareholders' equity $ 141,151 $ 125,675 $ 96,160 $ 77,734 $ 66,061 $ 53,597 Return on average shareholders' equity 19.8% 23.5% 20.5% 14.8% 20.0% 28.7% Long-term obligations $ 39,485 $ 41,841 $ 42,729 $ 6,454 $ 7,522 $ 8,656 Long-term obligations to capitalization 21.9% 25.0% 30.8% 7.7% 10.2% 13.9% Number of employees 3,385 3,297 2,539 1,932 1,739 1,601 - -----------------------------------------------------------------------------------------------------------------------------
36 MERRILL CORPORATION REPORT OF INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF MERRILL CORPORATION: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, changes in shareholders' equity and cash flows present fairly, in all material respects, the financial position of Merrill Corporation and Subsidiaries as of January 31, 1999 and 1998 and the results of their operations and their cash flows for each of the three years in the period ended January 31, 1999, in conformity with generally accepted accounting principles. These financial statements are the responsibility of Merrill Corporation's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP PRICEWATERHOUSECOOPERS LLP March 29, 1999 Saint Paul, Minnesota 1999 ANNUAL REPORT 37 EX-21.1 18 EXHIBIT 21.1 EXHIBIT 99.10 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 ......................................... Ontario 100% Merrill/May, Inc..................................................... Minnesota 100% Merrill International Inc............................................ Minnesota 100% Merrill Real Estate Company.......................................... Minnesota 100% FMC Resource Management Corporation.................................. Washington 100% Merrill Training & Technology, Inc................................... Minnesota 100% Merrill Global, Inc.................................................. Minnesota 100% Merrill/Executech, Inc............................................... Minnesota 100% Merrill Daniels, Inc................................................. Minnesota 100% Document.com, LLC.................................................... Minnesota 100%
EX-23.1 19 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements on Form S-8 of Merrill Corporation and Subsidiaries (File Nos. 33-46275, 33-52623 and 33-06897) of our report dated March 29, 1999, on our audits of the consolidated financial statements of Merrill Corporation and Subsidiaries as of January 31, 1999 and 1998, and for each of the three years in the period ended January 31, 1999, which report is incorporated by reference in this Annual Report on Form 10-K, and our report dated March 29, 1999, on the related financial statement schedule included in this Annual Report on Form 10-K. PricewaterhouseCoopers LLP Minneapolis, Minnesota May 3, 1999 EX-27 20 EXHIBIT 27
5 1,000 YEAR JAN-31-1999 FEB-01-1998 JAN-31-1999 23,477 0 110,491 8,126 20,198 158,293 111,041 66,106 265,945 76,728 39,485 0 0 158 140,993 265,945 509,543 509,543 330,632 330,632 127,705 3,273 3,961 47,671 21,214 26,457 0 0 0 26,457 1.63 1.55
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