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.
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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:
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