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Exhibit 10.4  
  

 
 

MERRILL CORPORATION
  DIRECT INVESTMENT PLAN,
  AS AMENDED
  OCTOBER 26, 2000  
  

1.    Purpose.    

        The
purpose of the Merrill Corporation Direct Investment Plan (the "Plan") is to advance the interests of Merrill Corporation (the
"Company") and its shareholders by facilitating the purchase of shares of the Company's voting class B common stock, $0.01 par value per share
("Common Stock") by Eligible Employees (as defined below) of the Company. These purchases are intended to (i) increase Common Stock ownership
among Eligible Employees of the Company and its Subsidiaries; (ii) more closely align such Eligible Employees' financial rewards with the financial rewards realized by all other holders of
capital stock of the Company; and (iii) increase such Eligible Employees' motivation to manage the Company as owners. 

2.    Definitions.    

        In
addition to the capitalized terms otherwise defined herein, the following additional capitalized terms will have the meanings set forth below, unless the context clearly otherwise
requires: 

        2.1    "Adverse Action" means any of the actions described in Section 8.7(b) of the Plan. 

        2.2    "Board" means the Board of Directors of the Company. 

        2.3    "Cause" means (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, (iv) any material breach of any employment, service, confidentiality or non-compete
agreement entered into with the Company or any Subsidiary, or (v) an Adverse Action. 

        2.4    "Closing Date" means the date the Company closes on the sale of Shares to Eligible Employees who are initially offered
the right to purchase Shares under the Plan, which the Company expects to be on or before January 31, 2000. 

        2.5    "Code" means the Internal Revenue Code of 1986, as amended. 

        2.6    "Coinvestment Shares" mean the shares of Common Stock offered to the Participant pursuant to Section 5.2 of the
Plan. 

        2.7    "Committee" means the group of individuals administering the Plan, as provided in Section 3.1 of the Plan. 

        2.8    "Common Stock" shall have the meaning given such term in Section 1, or the number and kind of shares of stock or
other securities into which such Common Stock may be changed in accordance with Section 7.3 of the Plan. 

 

        2.9    "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. 

        2.10    "DLJMB" means DLJ Merchant Banking Partners II, L.P. and all its affiliated entities as described in the Investors'
Agreement. 

        2.11    "DLJMB Liquidation Event" means, except for transfers to Permitted Transferees (as defined in the Investors' Agreement),
(i) a sale or other transfer by DLJMB of 60% or more of its shares of common equity in the Company (including all common equity originally purchased by DLJMB and any additional common equity
purchased by DLJMB thereafter, whether voting, Class B or any other class of common equity created by the Company) to one or more persons or entities (in one transaction or in a series of
related transactions) other than in connection with a public offering of the Company's common equity, (ii) the sale, lease, exchange or other transfer, directly or indirectly, of substantially
all of the assets of the Company (in one transaction or in a series of related transactions) to a person or entity that is not controlled by the Company, or (iii) a merger or consolidation to
which the Company is a party if the shareholders of the Company immediately prior to the 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 50% of the combined voting power of the surviving
corporation's outstanding securities ordinarily having the right to vote at elections of directors. 

        2.12    "Effective Date" means the date set forth in Section 12.1 of the Plan. 

        2.13    "Eligible Employees" means any employee of the Company or any Subsidiary, and any non-employee director,
consultant and independent contractor of the Company or any Subsidiary. 

        2.14    "Eligibility Notice" means the notice described in Section 4.1 of the Plan. 

        2.15    "Enterprise Value" means a value equal to six times the Pro-Forma EBITDA as shown on the Company's
consolidated statement of operations for its most recent fiscal year end. 

        2.16    "Exchange Act" means the Securities Exchange Act of 1934, as amended. 

        2.17    "Fair Market Value" means, with respect to the Common Stock, as of a Valuation Date (or, if no shares were traded or
quoted on such date, as of the next preceding date on which there was such a trade or quote) (i) the mean between the reported high and low sale prices of the Common Stock if the Common Stock
is listed, admitted to unlisted trading privileges or reported on any foreign or national securities exchange or on the NASDAQ National Market or an equivalent foreign market on which sale prices are
reported; (ii) if the Common Stock is not so listed, admitted to unlisted trading privileges or reported, the closing bid price as reported by the NASDAQ SmallCap Market, OTC Bulletin Board or
the National Quotation Bureau, Inc. or other comparable service; or (iii) if the Common Stock is not so listed or reported, such price shall be the Formula Value, or such other price as
the Committee shall determine is appropriate in its sole discretion. The Committee's determination as to the Fair Market Value of the Common 

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Stock
shall be final, conclusive and binding for all purposes and on all persons, including, without limitation, the Company, shareholders of the Company, the Participants and their respective
successors-in-interest. No member of the Board or the Committee shall be liable for any determination regarding current values of the Common Stock that is made in good faith. 

        2.18    "Formula Value" means the price determined on a Valuation Date by subtracting (i) Total Debt and
(ii) Total Preferred Stock from the Enterprise Value, adding Total Cash to this difference and dividing such sum by the aggregate of the number of shares of capital stock of the Company
outstanding on such Valuation Date (including all vested and unvested Shares) and all shares of common equity of the Company which may be issuable upon the exercise of options and warrants of the
Company outstanding on such Valuation Date (whether or not then exercisable); provided, however, that any option which is not subject to a specific vesting schedule and only becomes fully exercisable
upon a DLJMB Liquidation Event which realizes an internal rate of return in excess of fifty percent shall not be included in the outstanding option number on such Valuation Date. 

        2.19    "Interest Rate" means the rate of interest on the Purchase Loan as set forth in Section 6.2 of the Plan. 

        2.20    "Investors' Agreement" means the Investors' Agreement, dated November 23, 1999, by and among the Company and its
shareholders, as amended from time to time. 

        2.21    "Note" means the Nonrecourse Promissory Note in the form attached hereto as  Exhibit A to be entered into by each Participant in connection with the purchase of
Coinvestment Shares. 

        2.22    "Partial Termination" means a change in the Participant's employment or other service with the Company and all its
Subsidiaries such that the number of hours worked by such Participant is substantially reduced for any reason as the Committee in its sole discretion may determine from the number of hours such
Participant is required to work for the Company or Subsidiary and such reduction is expected to extend for an indefinite period of time. 

        2.23    "Participant" means an Eligible Employee of the Company or any Subsidiary who is selected by the Committee to
participate in the Plan, and to the extent such Participant transfers any Shares purchased under this Plan to a Permitted Transferee (as defined in the Investors' Agreement) in accordance with the
terms of the Investors' Agreement such term shall mean the Participant and such Permitted Transferee of such Participant. 

        2.24    "Pledge Agreement" means the Pledge and Custody Agreement in the form attached hereto as  Exhibit B to be entered into by each Participant and the Company in
connection with the purchase of Coinvestment Shares. 

        2.25    "Pro-Forma EBITDA" means earnings before interest, taxes, depreciation, amortization and
non-cash compensation expense as computed using generally accepted accounting principles on a pro-forma basis as allowed by Regulation S-X of the Securities
Act. 

        2.26    "Pro Rata Adjustment" means a price per Share (which price could be negative) determined by subtracting the Fair Market
Value of such Share as determined on the 

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Valuation
Date in the fiscal year in which the Participant's employment or other service is terminated from the Fair Market Value of such Share as determined on the Valuation Date in the fiscal year
immediately following the fiscal year in which the Participant's employment or other service is terminated, and then multiplying such difference by a fraction, the numerator of which shall be the
number of calendar days the Participant was employed by the Company or any Subsidiary in the fiscal year in which the Participant's employment or other services is terminated, and the denominator of
which shall be the total number of calendar days in the fiscal year in which the Participant's employment or other services is terminated. 

        2.27    "Purchase Date" means the date, time and place the Company plans to close the sale of Shares and collect the payment of
the purchase price for the Shares from the Participant as set forth in Section 4.1 of the Plan. 

        2.28    "Purchase Loan" means a nonrecourse interest bearing loan that may be made by the Company to the Participant to enable
the Participant to purchase Coinvestment Shares pursuant to Section 5.2 of the Plan which shall be evidenced by a Note. 

        2.29    "Reinvestment Shares" means the shares of Common Stock offered to the Participant pursuant to Section 5.1 of the
Plan. 

        2.30    "Repurchase Date" means the date the Company will repurchase Shares from the Participant as set forth in
Section 8.2 of the Plan. 

        2.31    "Repurchase Right" means the irrevocable and exclusive right the Company has to repurchase Shares as set forth in
Section 8 of the Plan. 

        2.32    "Retirement" means termination of employment or service pursuant to and in accordance with the regular (or, if approved
by the Committee 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. 

        2.33    "Securities Act" means the Securities Act of 1933, as amended. 

        2.34    "Shares" means the Reinvestment Shares and the Coinvestment Shares offered to a Participant pursuant to Sections 5.1 and
5.2 of the Plan. 

        2.35    "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. 

        2.36    "Total Cash" means the total amount of cash and cash equivalents shown on the Company's consolidated balance sheet as of
its most recent fiscal year end. 

        2.37    "Total Debt" means any indebtedness of the Company in respect of borrowed money or evidenced by bonds, notes, debentures
or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances, except any such balance that constitutes an accrued expense, trade payable or
customer contract advance, if and to the extent that any of the foregoing (other than letters of credit) would appear as 

4

 

a
liability on the Company's consolidated balance sheet as of its most recent fiscal year end. 

        2.38    "Total Preferred Stock" means the total amount of the liquidation preference on all of the Company's issued and
outstanding preferred stock as of its most recent fiscal year end. 

        2.39    "Valuation Date" means a date on which the Committee shall determine the Fair Market Value of the Common Stock, which
date shall be no more than ninety (90) days following the Company's fiscal year end. 

3.    Administration.    

        3.1    The Committee.    The Plan will be administered by the Board or by a committee of the Board. So long as the
Company has a class of its equity securities registered under Section 12 of the Exchange Act, any committee administering the Plan will consist solely of two or more members of the Board who
are "non-employee directors" within the meaning of Rule 16b-3 under the Exchange Act and, if the Board determines in its sole discretion, who are "outside directors"
within the meaning of Section 162(m) of the Code. As used in the Plan, "Committee" will refer to the Board or to such a committee, if established. The Committee will act by majority approval of
the members (but may also take action with the written consent of a majority of the members of the Committee), and a majority of the members of the Committee will constitute a quorum. 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; provided, however, that only the Committee may exercise such duties, power and authority with respect to Eligible Employees who are subject to Section 16 of the
Exchange Act. The Committee may exercise its duties, power and authority under the Plan in its sole and absolute discretion without the consent of any Participant or other party, unless the Plan
specifically provides otherwise. Each determination, interpretation or other action made or taken by the Committee pursuant to the provisions of the Plan will be final, conclusive and binding for all
purposes and on all persons, including, without limitation, the Company, the shareholders of the Company, the Participants and their respective successors-in-interest. No
member of the Committee will be liable for any action or determination made in good faith with respect to the Plan. 

        3.2    Authority of the Committee.    

        (a)   Notwithstanding
any other provision to the contrary in the Plan, the Committee will have the authority in its sole discretion to (i) determine the Eligible
Employees to be selected as Participants in the Plan, (ii) determine the number of Shares such Participant is allowed to purchase, or the Company is allowed to repurchase, under the Plan,
(iii) determine the periods or dates when Shares may be purchased by the Participant, or repurchased by the Company, under the Plan, (iv) determine the amount of Purchase Loans to be
made to Participants in connection with the purchase of Coinvestment Shares (which amount shall not exceed sixty-five percent (65%) of the total purchase price of the Coinvestment Shares),
(v) determine the terms and conditions of the Note and Pledge Agreement as described in Section 6 hereof, (vi) adopt, alter, amend, waive or repeal any administrative rules,
guidelines, practices and provisions governing the Plan or the administration of the Plan as the Committee shall, from time to 

5

 

time,
deem advisable, (vii) interpret the terms and provisions of the Plan (and any agreement or document related hereto) and to supervise the administration of the Plan, and
(viii) determine the terms and conditions to which the Shares may be subject upon a Participant's death, Disability, Retirement or termination of employment or other service with the Company or
any Subsidiary, including, without limitation, the right of the Company to accelerate the vesting of unvested Coinvestment Shares and the right of the Company to repurchase the Shares. 

        (b)   The
Committee will also have the authority under the Plan to amend or modify the terms of any outstanding Shares in any manner, including, without limitation, the terms
and conditions of any Shares or otherwise terminate any restrictions relating to any Shares; 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. The Committee shall also have the authority to correct any defect, supply any
omission or reconcile any inconsistency in the Plan, any Purchase Loan or any related document or agreement in the manner and to the extent it shall deem desirable to carry it into effect. 

4.    Participation.    

        4.1    Selection of Participants.    The Committee will have the authority to select from the Eligible Employees the
Participants in the Plan in accordance with Section 3 hereof. Eligible Employees will be given written notice of their eligibility to participate in the Plan (the
"Eligibility Notice"). The Eligibility Notice shall specify (i) the specific number of Reinvestment Shares and Coinvestment Shares the
Participant shall have the right to purchase from the Company, (ii) the per share price the Participant must pay for Reinvestment Shares and Coinvestment Shares, (iii) the maximum amount
the Participant may borrow from the Company to assist with the purchase price of the Coinvestment Shares (which in no event shall exceed sixty-five percent (65%) of the total purchase
price for the Coinvestment Shares), and (iv) the date, time and place the Company plans to close the sale of Shares and collect the payment of the purchase price for the Shares from the
Participant (the "Purchase Date"). Eligible Employees will have fifteen (15) days from the date of the Eligibility Notice to elect to participate
in the Plan, and if the Eligible Employee elects to participate in the Plan, he or she must satisfy all of the conditions set forth in Section 4.2 hereof on or prior to the Purchase Date
determined by the Committee; provided, however, that the Eligible Employees initially selected to participate in the Plan shall have until the Closing Date to elect to participate in the Plan and to
satisfy the conditions set forth in Section 4.2 hereof. No Eligible Employee shall have at any time the right (i) to be selected as a Participant, (ii) to be entitled to purchase
any Shares, or (iii) having been selected to purchase Shares, to purchase any additional Shares. 

        4.2    Election to Participate in Plan.    Eligible Employees are not required to participate in the Plan. Each
Eligible Employee who elects to participate in the Plan, however, shall satisfy the following requirements on or prior to the Purchase Date or the Closing Date, as applicable: 

        (a)   Submit
a completed, signed and irrevocable agreement to purchase the Shares under the Plan, which agreement shall specify the number of Coinvestment 

6

   
Shares and Reinvestment Shares to be purchased by the Participant and the total purchase price for such Shares; 

        (b)   Deliver
to the Company in cash (including check, bank draft or money order) the total purchase price for the Reinvestment Shares purchased by the Participant pursuant to
Section 5.1 hereof, and that portion of the Coinvestment Shares not covered by the Note pursuant to Section 5.2 hereof; 

        (c)   Complete
and sign all necessary agreements and other documents relating to the Purchase Loan described in Section 6 hereof in connection with the purchase of the
Coinvestment Shares; 

        (d)   Execute
and deliver to the Company an agreement to become a party to the Investors' Agreement pursuant to Section 12.2 hereof; 

        (e)   If
required by the Committee, execute and deliver to the Company an agreement acknowledging to be bound by a confidentiality and non-compete agreement; 

        (f)    If
required by the Committee, execute an agreement to waive or modify certain compensation provisions in any existing employment agreement or arrangement between the
Company and the Participant; and 

        (g)   Satisfy
all other terms and conditions of participation specified in the Plan, or as may be required from time to time by the Committee after the Effective Date. 

        The
agreements and other documents specified in this Section 4.2 shall be in such forms and shall be submitted at such times to such Participants as specified by the Committee or
its designee(s). 

5.    Purchase of Shares.    

        5.1    Reinvestment Shares.    Each Participant selected by the Committee to participate in the Plan shall be granted
the right to purchase, out of such Participant's own funds, that number of Reinvestment Shares, at a price per share, as determined by the Committee. If a Participant elects to participate in the
Plan, such Participant shall have the right to purchase any number of the Reinvestment Shares up to the total amount awarded the Participant in the Eligibility Notice. Each Participant electing to
purchase such Reinvestment Shares shall deliver to the Company on the Purchase Date or the Closing Date, as applicable, the total purchase price for the number of Reinvestment Shares such Participant
is electing to purchase. Each Participant electing to purchase Reinvestment Shares shall be solely responsible for paying the entire amount of the total purchase price of the Reinvestment Shares, and
the Company will not lend any funds to the Participant to assist with the purchase of any Reinvestment Shares. On the Purchase Date or the Closing Date, as applicable, the Participant will be recorded
on the books of the Company as the owner of the Reinvestment Shares, and the Company will issue one or more duly issued and executed stock certificates to the Participant evidencing such Reinvestment
Shares. 

        5.2    Coinvestment Shares.    Each Participant selected by the Committee to participate in the Plan may also be
granted the right to purchase Coinvestment Shares as determined by the Committee. Such Participant shall have the right to purchase any number of 

7

 

Coinvestment
Shares up to the total amount awarded the Participant in the Eligibility Notice. On the Purchase Date or the Closing Date, as applicable, the Company shall make a Purchase Loan to the
Participant in an amount determined by the Committee in its sole discretion (which amount shall not exceed sixty-five percent (65%) of the total purchase price of the Coinvestment Shares)
to pay for a portion of the total purchase price for the number of Coinvestment Shares the Participant is electing to purchase, and the Participant shall be solely responsible for paying the remaining
balance of such purchase price. The proceeds of the Purchase Loan shall be used solely to assist the Participant with the purchase of the Coinvestment Shares. As a condition to the Company making the
Purchase Loan, all of the Coinvestment Shares purchased by the Participant pursuant this Section 5.2 (whether purchased with the Participant's own funds or with the Purchase Loan) must be
pledged as collateral for the Purchase Loan pursuant to Section 6.4 hereof. The Coinvestment Shares purchased by the Participant shall vest in accordance with the vesting schedule set forth on
an exhibit to the written agreement evidencing such purchase. On the Purchase Date or the Closing Date, as applicable, the Participant will be recorded on the books of the Company as the owner of the
Coinvestment Shares, and, subject to Section 6.4 hereof, the Company will issue one or more duly issued and executed stock certificates evidencing such Coinvestment Shares. 

        5.3    Restrictions on Transferability of Shares.    In no event will a Participant be entitled to sell or transfer
any Shares purchased by the Participant pursuant to the Plan during the six (6) months following the Purchase Date or the Closing Date, as applicable. In addition, all Shares purchased by
Participants under the Plan shall be subject to the transfer restrictions and other provisions of the Plan and the Investors' Agreement, and until such time as such restrictions on transfer expire, no
right or interest of any Participant under the Plan shall be subject in any manner to alienation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance of any kind nor in
any manner be subject to the debts or liabilities of any person, and any attempt to so alienate or subject any such amount, whether presently or thereafter payable, or any such right shall be void,
except as may otherwise be provided for in the Plan or the Investors' Agreement. Subject to Section 6.1 hereof, and in addition to the other restrictions contained in the Plan and the
Investors' Agreement, a Participant may not sell, transfer, assign, pledge, attach, charge or encumber in any way or in any manner any unvested Coinvestment Shares. To enforce the transfer
restrictions set forth in the Plan and the Investors' Agreement, the Committee, in its sole discretion, may place a legend on the stock certificates evidencing that the Shares are subject to certain
transfer restrictions and may require the Company to hold any stock certificates issued to the Participant for the Coinvestment Shares, together with stock powers executed in blank, in the custody of
the Company or its transfer agent until the restrictions on the Coinvestment Shares have terminated. 

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6.    Purchase Loans.    

        6.1    Note.    All Purchase Loans shall be evidenced by the Participant's execution of a Note. In the event that a
Participant transfers all or a portion of his or her Coinvestment Shares to a Permitted Transferee (as defined in the Investors' Agreement), such Permitted Transferee, as a condition to the transfer
of the Coinvestment Shares, shall agree to be bound by the terms and conditions of the Plan, any agreement evidencing the sale of the Shares to the Participant, and shall also agree to take such
Shares subject to the terms and conditions of the Note and Pledge Agreement. The Participant, however, shall remain the primary obligor of all obligations outstanding under the Note and the Pledge
Agreement regardless of such a transfer to a Permitted Transferee. 

        6.2    Interest.    Purchase Loans will accrue at a fixed rate of interest equal to eight percent (8%) per annum
beginning on the date the Note is executed to evidence the Purchase Loan; provided, however, that such interest rate shall not exceed the rate permitted by applicable law (the
"Interest Rate"). While interest on the Purchase Loan will accrue at the Interest Rate, interest will not be paid by the Participant during the term of
the Note, but will be paid upon maturity of the Purchase Loan pursuant to Section 6.3 hereof and the terms of the Note. Accrued but unpaid interest on the Purchase Loan will be in addition to
the principal balance of the Purchase Loan. 

        6.3    Repayment.    The principal of the Purchase Loan and all accrued but unpaid interest will be due and payable by
the Participant in a single payment, pursuant to the terms and conditions of the Plan and the Note, as of the earlier of (i) the Participant's termination of employment or other service with
the Company and all its Subsidiaries in accordance with Section 8 hereof, (ii) a DLJMB Liquidation Event, (iii) a sale or transfer of the Coinvestment Shares in accordance with
the terms and conditions of the Investors' Agreement (other than transfers to Permitted Transferees under the Investors' Agreement or hardship repurchases under Section 8.5 hereof),
(iv) eight years from the Purchase Date or Closing Date, as applicable, for the Coinvestment Shares or (v) within 120 days following an initial public offering of the Company's
equity securities in which case the principal of the Purchase Loan and all accrued interest thereon must be paid with cash, or the Committee in its sole discretion may allow the Company to repurchase
the Participant's Reinvestment Shares and vested Coinvestment Shares at Fair Market Value, and the Participant's unvested Coinvestment Shares at a purchase price determined by the Committee in its
sole discretion, and apply the proceeds the Company owes the Participant against the outstanding balance of the Note and all accrued interest; provided, however, that if the Participant elects to
repay the Purchase Loan and all accrued interest with the Participant's Shares, the Participant will not be required to repay the Note and all accrued interest if the total purchase price paid for
such Shares does not exceed the outstanding balance of the Note, all accrued interest and any tax liability of the Participant associated with the sale of the Shares. Notwithstanding anything to the
contrary in this Section 6.3, however, the Committee may decide, in its sole discretion, to extend the maturity of the Note. In the event that the Participant sells or transfers (other than
transfers to Permitted Transferees under the Investors' Agreement or hardship repurchases under Section 8.5 hereof) all or a portion of the Coinvestment Shares in accordance with the Plan and
the Investors' Agreement, the Purchase Loan will become immediately due and payable by the Participant to the extent of the lesser of (i) the total outstanding balance of unpaid principal and
all accrued interest on the Purchase Loan or (ii) the net after tax proceeds realized upon such sale. The Company shall have the right to apply any amounts it owes the Participant for the
purchase of Coinvestment Shares 

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pursuant
to Section 8 hereof towards the outstanding principal and accrued interest on the Note in accordance with Section 8.7(c) hereof, and, in the event the Participant sells or
transfers the Coinvestment Shares in connection with a DLJMB Liquidation Event or pursuant to the provisions of the Investors' Agreement (other than to a Permitted Transferee, the Participant shall be
required to use all proceeds received from such sale or transfer to repay the outstanding balance of the Note and all accrued interest. 

        6.4    Pledge of Shares.    As collateral for the Note, the Participant shall grant to the Company a security interest
in the Coinvestment Shares by executing the Pledge Agreement. Any stock certificates issued for Coinvestment Shares purchased pursuant to Section 5.2 hereof shall be held by the Company as
collateral for the Purchase Loan until such time as the Purchase Loan and all accrued interest on the Purchase Loan are paid in full; provided, however, that the Committee may in its sole discretion
release, upon request of the Participant, Shares if the collateral for the Note exceeds the outstanding balance of the Purchase Loan and all accrued interest and the Committee determines in its sole
discretion that the remaining collateral is sufficient to secure the outstanding balance of the Note and accrued interest. If the Company repurchases the Coinvestment Shares so pledged in accordance
with Section 8 hereof, the Company shall have the right to apply all proceeds it owes the Participant against the outstanding balance of the Purchase Loan and all accrued interest.
Notwithstanding anything to the
contrary in the Plan or in the Investors' Agreement, so long as Coinvestment Shares are pledged to the Company pursuant to this Section 6.4 in no event can such Coinvestment Shares (whether
vested or unvested) be subject in any manner to alienation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance of any kind nor in any manner be subject to the debts or
liabilities of any person, except that such Coinvestment Shares may be transferred to Permitted Transferees (as defined in the Investors' Agreement). 

7.    Shares Available for Issuance.    

        7.1    Maximum Number of Shares Available.    Subject to adjustment as provided in Section 7.3 of the Plan, the
maximum number of shares of Common Stock that will be available for issuance under the Plan will be 1,355,091 shares of Common Stock of which 214,392 shares will be designated for Reinvestment Shares
and 1,140,699 shares will be designated for Coinvestment Shares. 

        7.2    Accounting for Shares.    Shares of Common Stock that are sold under the Plan as Reinvestment Shares will be
applied to reduce the number of shares of Common Stock designated for Reinvestment Shares remaining available for issuance under the Plan and shares of Common Stock that are sold under the Plan as
Coinvestment Shares will be applied to reduce the number of shares of Common Stock designated for Coinvestment Shares remaining available for issuance under the Plan. In addition, in the event that
any Shares purchased under the Plan are reacquired by the Company pursuant to any right of repurchase, right of first refusal or forfeiture provisions, such Shares will automatically again become
available for issuance under the Plan and such shares of Common Stock shall be divided by the Committee between Reinvestment Shares and Coinvestment Shares in such amounts as the Committee deems
appropriate. 

        7.3    Adjustments to Shares.    In the event that the Committee determines that 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 similar change in the corporate structure or 

10

 

shares
of the Company, affects the Shares such that an adjustment is determined by the Committee, in its sole discretion, to be appropriate in order to prevent dilution or enlargement of the benefits
or potential benefits of a Participant's investment in the Shares under the Plan, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of
the surviving corporation) shall, in such manner as it deems equitable, make such adjustments, if any, to the number and kind of Shares (or number and kind of other securities or property) with
respect to the Shares purchased under the Plan, as it deems appropriate and necessary. 

8.    Repurchase Rights upon Participant's Termination of Services.    

        8.1    Repurchase Right.    Subject to the other provisions of this Section 8, in the event a Participant's
employment or other service with the Company and all its Subsidiaries is terminated for any reason whatsoever, whether due to death, Disability, Retirement or termination with or without Cause, prior
to a DLJMB Liquidation Event, the Company shall have the irrevocable and exclusive right to repurchase (the "Repurchase Right") at the price determined
in accordance with this Section 8.1 and in the manner set forth in Section 8.2 hereof all or any portion of the Participant's Shares; provided, however, that the Committee in its sole
discretion may determine to pay a price other than the price determined in accordance with this Section 8.1 but in no event shall such price be less than the price determined in accordance with
this Section 8.1: 

        (a)   If
the Participant's employment or other service with the Company and all its Subsidiaries is terminated during a fiscal year by reason of voluntary resignation, death,
Disability, Retirement or termination by the Company without Cause, the Company shall pay: (i) for each Coinvestment Share that is vested at the time of termination and each Reinvestment
Share, an amount equal to the Fair Market Value of each Share as determined on the Valuation Date in the fiscal year in which the Participant's employment or other service is terminated plus any Pro
Rata Adjustment; and (ii) for each Coinvestment Share that is not vested at the time of termination, an amount equal to the lesser of (x) the Fair Market Value of each Coinvestment Share
as determined on the Valuation Date in the fiscal year in which the Participant's employment or other service is terminated plus any Pro Rata Adjustment, or (y) the purchase price paid by the
Participant for each unvested Coinvestment Share, plus all accrued and unpaid interest on the Purchase Loan relating to such unvested Coinvestment Shares. 

        (b)   If
the Participant's employment or other service with the Company and all its Subsidiaries is terminated during a fiscal year by the Company for Cause, the Company shall
pay for each Share owned by the Participant (whether vested or unvested) the lesser of (i) the Fair Market Value for each Share as determined on the Valuation Date in the fiscal year in which
the Participant's employment or other service is terminated plus any Pro Rata Adjustment, or (ii) the purchase price paid by the Participant for each Share, without any accrued and unpaid
interest on the Purchase Loan relating to the Coinvestment Shares being paid. 

        (c)   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 

11

 

other
service, as determined by the Committee in its sole discretion based upon such records. 

        8.2    Exercisability of Repurchase Right.    Subject to Section 8.7 hereof, if the Company elects to exercise
its Repurchase Right or any other right or obligation the Company may have to repurchase Shares pursuant to the Plan, the Company shall give the Participant written notice of its intent to exercise
its Repurchase Right (the "Notice of Repurchase") within sixty (60) days of such Participants termination of employment or other service. The
Notice of Repurchase shall specify (i) the number of Reinvestment Shares and Coinvestment Shares (including the number of vested and unvested Coinvestment Shares) the Company intends to
repurchase and (ii) the date the Company expects to purchase the Reinvestment Shares and Coinvestment Shares from the Participant which date shall be no later than thirty (30) days
following the Valuation Date in the fiscal year immediately following the fiscal year in which the Participant's employment or other service is terminated (the "Repurchase
Date"). On or before the Repurchase Date, the Participant shall deliver to the Company the stock certificates representing the Reinvestment Shares and Coinvestment Shares being
purchased by the Company, properly endorsed for transfer, unless the Company is holding such Coinvestment Shares pursuant to Section 6.4 hereof in which case such Coinvestment Shares shall be
deemed to have been delivered to the Company. By such delivery, or deemed delivery, of such certificates, the Participant warrants that (i) the Participant has good title to, the right to
possession of, and the right to sell, the Reinvestment Shares and the Coinvestment Shares, (ii) such Reinvestment Shares and Coinvestment Shares are free and clear of all pledges, liens,
encumbrances, charges, proxies, restrictions, options, transfers and other adverse claims, except such as have been imposed by the Plan or the Investors' Agreement, and except such restrictions on
transfer as may be imposed by federal or state securities laws, and (iii) the Participant shall hold harmless the Company from all costs, expenses and fees incurred in defending title and right
to possession. On the Repurchase Date, the Company shall pay to the Participant the total purchase price for the Reinvestment Shares and Coinvestment Shares purchased by the Company. 

        8.3    Assignability of Repurchase Right.    The Company, in its sole discretion, may assign its Repurchase Right to
one or more employees, officers, directors, shareholders or other persons or organizations. In the event the Company does assign its Repurchase Right to one or more employees, officers, directors,
shareholders or other persons or organizations, such persons or organizations shall exercise such Repurchase Right in accordance with Section 8.2 hereof. 

        8.4    Put Right.    Subject to Section 8.7 hereof, in the event that neither the Company nor any assignee of
the Company exercises the Repurchase Right and a Participant's employment or other service with the Company and all Subsidiaries is terminated by reason of voluntary resignation, death, Disability,
Retirement or termination by the Company without Cause, the Participant shall have the right to require the Company to purchase, in the manner set forth in Section 8.2 hereof, all or any
portion of the Reinvestment Shares and vested Coinvestment Shares owned by the Participant at the time of termination at a purchase price per share equal to the Fair Market Value for each such Share
as determined on the Valuation Date in the fiscal year in which the Participant's employment or other service is terminated plus any Pro Rata Adjustment. 

12

 

        8.5    Hardship Repurchases.    

        (a)   Subject
to the provisions of Section 8.5(e) and Section 8.7 hereof, a Participant may request that the Committee repurchase his or her Reinvestment Shares
and vested Coinvestment Shares if the Participant is deemed to be in immediate and heavy financial need as determined in accordance with Section 8.5(b) and (c) hereof. A hardship
repurchase will be permitted only if the Committee determines in its sole discretion that the repurchase is being requested on account of an immediate and heavy financial need of the Participant and
is necessary to satisfy such financial need. The fact that the Committee grants a hardship repurchase to a Participant, however, will not impact the discretion of the Committee in the future to
determine whether to grant additional hardship repurchases to such Participant or any other Participant, and each application for a hardship repurchase will be considered by the Committee on an
individual basis independent of any facts or circumstances surrounding any previous hardship repurchase grants. 

        (b)   A
repurchase will be deemed to be made on account of an immediate and heavy financial need only if it is determined by the Committee in its sole discretion to be on
account of: (i) expenses for medical care (as described in Code section 213(d)), incurred or to be incurred by the Participant, the Participant's spouse or the Participant's dependent
(as described in Code section 152), (ii) payments necessary to prevent the eviction of the Participant from his or her principal residence or foreclosure on the mortgage on the
Participant's principal residence, or (iii) any other situation in which the Committee in its sole discretion determines such Participant is in immediate and heavy financial need. 

        (c)   A
hardship repurchase will be deemed to be necessary to satisfy the immediate and heavy financial need of the Participant only if the Committee determines in its sole
discretion that the aggregate purchase price the Company must pay is not more than the sum of the amount of the immediate and heavy financial need of the Participant plus the amount necessary to pay
any federal, state or local taxes or penalties that the Participant will incur in connection with the repurchase, as estimated by the Committee. 

        (d)   The
Committee's determination of the existence of a Participant's financial hardship and the amount that may be repurchased to satisfy the need created by such hardship
will be made in accordance with all applicable laws, and is final and binding on the Participant. The Committee may require the Participant to make representations and certifications concerning his or
her entitlement to a repurchase pursuant to this Section 8.5 and is entitled to rely on such representations and certifications unless the Committee has actual knowledge to the contrary. The
Committee is not obligated to supervise or otherwise verify that amounts repurchased are applied in the manner specified in the Participant's repurchase application. 

        (e)   In
addition to the provisions of Section 8.7 hereof, all repurchases of Shares under this Section 8.5 shall be subject to the following rules: 

          (i)  Applications
for repurchases may be made at anytime during the Company's fiscal year. The Company, however, will not be required to 

13

 

make
any payments for such Shares repurchased within any specific time period designated by the Participant in his or her repurchase application. The Company will pay the purchase price for such
Shares being repurchased pursuant to this Section 8.5 as soon as administratively practicable after the Committee's determination that the Participant is entitled to have his or her Shares
repurchased by the Company. 

         (ii)  The
price to be paid by the Company to the Participant for each Share shall be the Fair Market Value for such Share as determined on the most recent Valuation Date
prior to the hardship repurchase. 

        (iii)  No
payment for Shares purchased by the Company under this Section 8.5 will be made if the total purchase price for such Shares is less than $1,000. 

        (iv)  All
payments for Shares purchased will be made by the Company in the form of a lump sum payment by check. 

         (v)  The
Company shall be permitted to repurchase Shares pursuant to this Section 8.5 only to the extent that the Fair Market Value of the Coinvestment Shares held as
collateral for the Note exceeds the outstanding balance of the Purchase Loan and all accrued interest, and at no time shall the Company be permitted to repurchase Shares under this Section 8.5
if such repurchase would cause the collateral securing the Note to be insufficient to repay the Purchase Loan and all accrued interest in full. 

        8.6    Partial Terminations.    Subject to Section 8.7 hereof, in the event that there is a Partial Termination
of the Participant, the Company shall have the irrevocable and exclusive right to repurchase, in the manner set forth in Section 8.2 hereof, all or any portion of the Participant's Coinvestment
Shares (whether vested or unvested) at the time of the Partial Termination as is determined by the Committee in its sole discretion, and the Company shall pay the Participant: (i) for each
Coinvestment Share that is vested at the time of the Partial Termination, an amount equal to the Fair Market Value of each share as determined on the Valuation Date in the fiscal year in which the
Participant has a Partial Termination plus any Pro Rata Adjustment; and (ii) for each Coinvestment Share that is not vested at the time of the Partial Termination, an amount equal to the lesser
of (x) the Fair Market Value of each Coinvestment Share as determined on the Valuation Date in the fiscal year in which the Participant has a Partial Termination plus any Pro Rata Adjustment,
or (y) the purchase price paid by the Participant for such unvested Coinvestment Share, plus all accrued and unpaid interest on the Purchase Loan relating to such unvested Coinvestment Shares. 

        8.7    Obligations, Limitations and Restrictions on Repurchase Shares.    

        (a)    Violation of Law and Contractual Obligations.    Notwithstanding anything to the contrary in the Plan, the
Company shall only be required to repurchase any Shares pursuant to this Section 8 as rapidly as permissible without violating any loan covenants or other contractual restrictions applicable
to, and binding upon, the Company, and any amounts not paid to the Participant on the Repurchase Date in such case will bear interest at the Interest
Rate. The Company shall only 

14

 

be
required to repurchase any Shares pursuant to this Section 8 to the extent that such repurchase does not violate any applicable laws. 

        (b)    Adverse Actions.    

          (i)  Notwithstanding
anything in the Plan to the contrary, in the event that a Participant takes Adverse Actions with respect to the Company or any Subsidiary
(1) prior to such Participant's termination of employment or other service with the Company and all its Subsidiaries or (2) during the period ending twelve (12) months following
the date of the Participant's termination of employment or other service with the Company and all Subsidiaries by reason of voluntary resignation, death, Disability, Retirement or termination by the
Company without Cause, the Committee in its sole discretion will have the authority to treat such Participant's termination of employment or other service as a termination for Cause and to repurchase
all Shares held by such Participant in the manner set forth in Section 8.2 hereof for the lesser of (x) the Fair Market Value for each Share as determined on the Valuation Date in the
fiscal year in which the Participant's employment or other service is terminated plus any Pro Rata Adjustment or (y) the purchase price paid by the Participant for each Share. In addition, to
the extent a Participant has received an amount in excess of such purchase price in connection with a prior exercise of the Company's Repurchase Right or the sale or other transfer of such Shares
either in the twelve (12) months prior to, or the twelve (12) months following, such Participant's termination of employment or service, then the Participant shall be required to pay to
the Company any such excess. The Company shall be entitled to require the Participant to pay to the Company, within ten (10) days of receipt of notice from the Company, the amount of any
excess. Such payment will be made in cash (including check, bank draft or money order). The Company will be entitled to off-set any amounts that may be due and owing to the Participant
from the Company or any Subsidiary pursuant to Section 8.7(c) or make other arrangements for the collection of all amounts necessary to satisfy such payment obligations. 

         (ii)  For
purposes of the Plan, 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, (x) disclosing confidential information of the Company or any Subsidiary
to any person not authorized by the Company to receive it, (y) engaging, directly or indirectly, in any commercial activity that in the judgement of the Committee competes with the business of
the Company or any Subsidiary or (z) interfering with the relationships of the Company or any Subsidiary and their respective employees and customers. 

        (c)    Right of Off-Set.    The Company shall have the right to set-off against any amounts
owing by the Company to the Participants, including, without limitation, any dividends paid on the Shares, which amounts shall be applied first to accrued interest on the Note and then to the
outstanding principal balance of the Note. Neither the exercise of, nor the failure to exercise, such right of set-off will 

15

 

constitute
an election of remedies nor limit the Company in any manner in the enforcement of any other remedies that may be available to it. 

        (d)    Repayment of Interest.    In the event that the Company repurchases Coinvestment Shares pursuant to Sections
8.1, 8.4, 8.6 or 8.7(b) hereof, the Committee, in its sole discretion, shall on the Repurchase Date make an appropriate adjustment to the purchase price paid on such date to repay any interest that
has accrued on the Purchase Loan from the date of the Participant's termination of employment or other services with the Company and all its Subsidiaries until the date the Company repurchases the
Coinvestment Shares pursuant to this Section 8. 

9.    Shareholder Rights.    Subject to the provisions of Section 5 and Section 12.2 hereof, upon the Participant's
purchase of the Shares (whether vested or unvested) such Participant shall have all the rights of a shareholder of the Company with respect to the Shares, including, without limitation, all voting
rights, liquidation rights and rights to receive all dividends paid on the Shares at the same times and in the same amounts as all other shares of Common Stock; provided, however, that all dividends
paid on the Coinvestment Shares shall be pledged as collateral for the Note until such time as the Note and all accrued interest is paid in full, and the Company shall be entitled to
set-off against such dividends in accordance with Section 8.7(c) hereof. Nothing in the Plan, however, 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 Employee or Participant at any time, nor confer upon any Eligible Employee or Participant any right to continue in the employ or
service of the Company. 

10.    Taxes.    

        10.1    General Rules for Withholding.    The Company is entitled to (i) 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 foreign, federal, state and local withholding and employment-related tax requirements attributable to the acquisition of the Shares, the receipt of dividends or
distributions on the Shares or the termination of the security interest or restrictions applicable to the Shares, or (ii) require the Participant promptly to remit the amount of such
withholding to the Company before taking any action, including issuing any Shares. In the event the Company is unable to withhold such amounts, for whatever reasons, the Participant hereby agrees to
pay to the Company an amount equal to the amount the Company would otherwise be required to withhold under foreign, federal, state or local law. 

        10.2    Special Rules for Withholding.    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 10.1 hereof by electing
to tender shares of the Company previously acquired by the Participant or a promissory note (on terms acceptable to the Committee in its sole discretion), or by a combination of such methods. 

        10.3    Section 83(b) Election.    The Participant has reviewed with the Participant's own tax advisors the
federal, state, local and foreign tax consequences of the purchase of the Shares and the other transactions contemplated by the Plan. The Participant is relying solely on such advisors and not on any
statements or representations of the Company or any of its agents. The Participant understands that the Participant (and not the Company) 

16

 

shall
be responsible for the Participant's own tax liability that may arise as a result of the purchase of the Shares or the other transactions contemplated by this Agreement. The Company recommends
that each Participant consult with such Participant's own tax advisor with respect to the making of an election pursuant to Section 83(b) of the Code. Any such election, if made, must be filed
with the Internal Revenue Service within thirty (30) days of the purchase of such Shares. THE PARTICIPANT ACKNOWLEDGES THAT IT IS THE PARTICIPANT'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S
RESPONSIBILITY TO FILE SUCH ELECTION ON A TIMELY BASIS, EVEN IF THE PARTICIPANT REQUESTS THAT THE COMPANY OR ITS REPRESENTATIVES MAKE SUCH FILING ON BEHALF OF THE PARTICIPANT. 

11.    DLJMB Liquidation Event.    

        11.1    Acceleration of Vesting.    Without limiting the authority of the Committee under the Plan, if a DLJMB
Liquidation Event occurs, then, unless otherwise provided by the Committee in its sole discretion in an agreement with the Participant, all unvested Coinvestment Shares will become immediately vested
in full. 

        11.2    Limitation on Payments in Connection with a DLJMB Liquidation Event.    Notwithstanding anything in
Section 11.1 hereof to the contrary, if, with respect to a Participant, the acceleration of the vesting of Coinvestment Shares as provided in Section 11.1 (which acceleration or payment
could be deemed a "payment" within the meaning of Section 280G(b)(2) of the Code), together with any other "payments" that 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 11.1 hereof 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 a Participant is subject to a separate
agreement with the Company or a Subsidiary that expressly addresses the potential application of Sections 280G or 4999 of the Code (including, without limitation, that
"payments" under such agreement or otherwise will be reduced, that the Participant will have the discretion to determine which "payments" will be reduced, that such "payments" will not be reduced or
that such "payments" will be "grossed up" for tax purposes), then this Section 11.2 will not apply, and any "payments" to a Participant pursuant to Section 11.1 hereof will be treated as
"payments" arising under such separate agreement. 

12.    Miscellaneous.    

        12.1    Effective Date and Duration of the Plan.    The Plan is effective as of December 20, 1999, the date it
was adopted by the Board. The Plan will terminate at midnight on December 19, 2009, and may be terminated prior to such time to by Board action, and no Shares will be granted after such
termination. 

        12.2    Investors' Agreement.    Each Participant who purchases Shares under the Plan shall become a party to the
Investors' Agreement. Each Participant who (i) is an employee of the Company or any Subsidiary reporting directly to the Chief Executive Officer
("CEO") or Chief Operating Officer ("COO") of the Company or (ii) acquires more than a certain
percentage of Common Stock available for sale under the Plan as determined by 

17

 

the
Committee in its sole discretion from time to time, shall be deemed a "Co-invest Management Stockholder" for all purposes of the Investors' Agreement, and all other Participants who
acquire shares of Common Stock under the Plan shall be deemed "Other Stockholders" for purposes of the Investors' Agreement, including, without limitation, all transfer restrictions and provisions
thereof; provided, however, if a Participant after the Purchase Date or Closing Date, as applicable, is no longer required to report directly to the CEO or COO such Participant shall thereafter be
deemed an "Other Stockholder," and any "Other Stockholder" who acquires more than the percentage of Common Stock available for sale under the Plan as determined by the Committee or reports directly to
the CEO or COO after the Purchase Date or Closing Date, as applicable, shall thereafter be deemed a "Co-invest Management Stockholder," for all purposes of the Investors' Agreement.
Notwithstanding anything to the contrary in the Plan, if the Investors' Agreement has terminated by its terms, the provisions of this Section 12.2 shall no longer apply. 

        12.3    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. 

        12.4    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 under the Plan, and a Participant may not sell, assign, transfer or otherwise dispose of Shares issued under the
Plan, unless (i) there is in effect with respect to such shares a registration statement under the Securities Act and any applicable state or foreign securities laws or an exemption from such
registration under the Securities Act and applicable state or foreign securities laws, and (ii) 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, as may be deemed necessary or advisable by the Company in order to comply with such securities law or other
restrictions. 

        12.5    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 Shares issued or to be issued 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; provided, however, that no amendments to the Plan will be effective without
approval of the shareholders of the Company if shareholder approval of the amendment is then required pursuant to Section 422 of the Code or the rules of any stock exchange or NASDAQ or similar
regulatory body. No termination, suspension or amendment of the Plan may adversely affect any outstanding Shares 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 in accordance with the terms and conditions of the Plan. 

        12.6    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 

18

 

and
construed exclusively in accordance with the laws of the State of Minnesota, notwithstanding the conflicts of laws principles of any jurisdictions. 

        12.7    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. 

19

 
 

EXHIBIT A
  FORM OF SECURED DEMAND NOTE    
    

[See
Form of Participation Agreement] 

 
 

EXHIBIT B
  FORM OF PLEDGE AND CUSTODY AGREEMENT    
    

[See
Form of Participation Agreement] 

 
 

EXHIBIT C
  VESTING SCHEDULE FOR COINVESTMENT SHARES    
    

(ONLY ATTACHED TO SUBSCRIPTION AGREEMENT)

        On
the Purchase Date or Closing Date, as applicable, thirty-five percent (35%) of the Coinvestment Shares purchased by the Participant shall immediately vest, and the vesting
schedule for the Coinvestment shall be as follows: 

	Vesting Date
 
	 	Percentage of Coinvestment Shares

Vested as of the Vesting Date*

	One Year from Purchase Date or

Closing Date, as applicable	 	35% of the Coinvestment Shares

purchased by the Participant
	

Two Years from Purchase Date or

Closing Date, as applicable	
 	

35% of the Coinvestment Shares

purchased by the Participant
	

Three Years from Purchase Date or

Closing Date, as applicable	
 	

57% of the Coinvestment Shares

purchased by the Participant
	

Four Years from Purchase Date or

Closing Date, as applicable	
 	

79% of the Coinvestment Shares

purchased by the Participant
	

Five Years from Purchase Date or

Closing Date, as applicable	
 	

100% of Coinvestment Shares

purchased by the Participant

	*
	In
the event that the vesting of any Coinvestment Shares results in a fractional Coinvestment Share, such fractional Coinvestment Share shall be rounded up to the nearest whole
Coinvestment Share. 

QuickLinks

Exhibit 10.4

MERRILL CORPORATION DIRECT INVESTMENT PLAN, AS AMENDED OCTOBER 26, 2000

EXHIBIT A FORM OF SECURED DEMAND NOTE

EXHIBIT B FORM OF PLEDGE AND CUSTODY AGREEMENT

EXHIBIT C VESTING SCHEDULE FOR COINVESTMENT SHARESQuickLinks
 -- Click here to rapidly navigate through this document

 
 

Exhibit 10.5    
    

 
 

PARTICIPATION AGREEMENT    
    
    (OPTIONS ONLY)    
    

        This Participation Agreement (this "Agreement") is made and entered into as of
[DATE], 2004 by and between Merrill Corporation, a Minnesota corporation
("Merrill") and [NAME], an individual residing at
[ADDRESS] (the "Employee"). 

W I T N E S S E T H  

        WHEREAS, on December 20, 1999, the Board of Directors and shareholders of Merrill adopted the 1999 Merrill Corporation Stock Option Plan (as amended from
time to time, the "Option Plan") authorizing the Compensation Committee of the Board of Directors of Merrill to grant stock options to employees and
independent contractors of Merrill or any subsidiary of Merrill pursuant to the terms and conditions of the Option Plan. 

        WHEREAS,
the Employee must execute and deliver this Agreement as a condition to participating in the Option Plan and receiving certain awards under the Option Plan. 

        WHEREAS,
all capitalized terms not otherwise defined in this Agreement or the attachments to this Agreement shall have such meanings given such terms in the Option Plan. 

        NOW,
THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto hereby agree as follows: 

1.    Stock Option Grant.    

        1.1    As
of the date of this Agreement ("Date of Grant") Merrill hereby grants to the Employee the right, privilege, and option
(the "Option") to purchase [NUMBER OF SHARES] shares (the
"Option Shares") of Common Stock, according to the terms and subject to the conditions set forth in this Agreement, the "Terms and Conditions of
Non-Statutory Stock Option Awards" attached to this Agreement and the Option Plan. The Option is not intended to be an "incentive stock
option," as that term is used in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 

        1.2    The
per share price to be paid by the Employee in the event of an exercise of the Option will be $[EXERCISE
PRICE] per share. 

        1.3    The
Option will become exercisable with respect to fifty percent (50%) of the Option Shares in accordance with the "Time Vesting Option Schedule" attached to this
Agreement, and the remaining fifty percent (50%) of the Option Shares will become exercisable in accordance with the "Performance Vesting Option Schedule" attached to this Agreement. 

        1.4    The
Employee hereby acknowledges and agrees that by executing this Agreement, the Employee will be bound by the terms and conditions set forth in the "Terms and
Conditions of Non-Statutory Stock Options" attached to this Agreement. 

2.    Investors' Agreement.    

        2.1    In
connection with the Employee's purchase of Common Stock upon the exercise of the Option pursuant to the Option Plan, the Employee hereby acknowledges and agrees that
the Employee has received and reviewed a copy of the Investors' Agreement, dated November 23, 1999, by and among Merrill and its shareholders (as amended from time to time, the
"Investors' Agreement"). By execution of this Agreement, the Employee hereby acknowledges and agrees to be bound by the terms and conditions of the
Investors' Agreement, as amended from time to time, in the same manner and to the same effect as if the Employee were an original party thereto, including, without limitation, acknowledgment that the
Employee shall be considered a "Co-invest Management Stockholder" or "Other Stockholder" as such terms are defined in the Investors' Agreement. The other shareholders of Merrill, and the
Board of Directors of Merrill, shall be entitled to rely on this Agreement in the same 

 

manner
as if a counterpart of the Investors' Agreement were executed by the Employee, and Merrill's Board of Directors may utilize this Agreement as evidence of the signature of the Employee and
attach the same to a copy of the Investors' Agreement, with this Agreement having the same validity, force and effect as if the Investor's Agreement and any amendments thereto had been executed by the
Employee. 

        2.2    Upon
the exercise of the Option and pursuant to the Option Plan, the Employee shall be deemed an "other" Stockholder within the meaning of the Investors' Agreement as of
12:01 a.m. of the Date of Grant (the "Effective Date"), the Date of Grant of the Option to the Employee for all purposes of the Investors'
Agreement. 

        2.3    Merrill
shall notify the Employee promptly if the Employee's status for purposes of the Investors' Agreement changes for any reason pursuant to the terms and conditions
of the Option Plan. 

3.    Miscellaneous.    

        3.1    Employment or Service.    Nothing in this Agreement or any attachments hereto will interfere with or limit in
any way the right of Merrill or any Subsidiary to terminate the employment or other service of the Employee at any time, nor confer upon the Employee any right to continue in the employ or other
service of Merrill or any Subsidiary at any particular position or rate of pay or for any particular period of time. Furthermore, if the Employee was an at-will employee prior to executing
this Agreement, the Employee shall be an at-will employee after executing this Agreement, and if the Employee was bound by a written employment agreement prior to executing this Agreement,
the Employee will continue to be bound by such agreement after executing this Agreement; provided, however, that such written agreement shall be subject to the terms and conditions in this Agreement
and shall be deemed to be amended and superseded with respect to the subject matter contained in this Agreement. 

        3.2    Binding Effect.    This Agreement, including all the attachments hereto, will be binding upon the heirs,
executors, administrators and successors of the parties to this Agreement. 

        3.3    Governing Law.    This Agreement, including all the attachments hereto, and all rights and obligations under it
will be construed in accordance with the Option Plan and governed by the laws of the State of Minnesota, without regard to conflicts of laws provisions. Any legal proceeding related to this Agreement,
including all the attachments hereto, will be brought in an appropriate Minnesota court, and the parties to this Agreement consent to the exclusive jurisdiction of the court for this purpose. 

        3.4    Entire Agreement.    This Agreement, including all attachments hereto, and the Option Plan set forth the entire
agreement and understanding of the parties to this Agreement with respect to the grant and exercise of the Option and the administration of the Option Plan, and supersede all prior agreements,
arrangements, plans and understandings relating to the foregoing. 

        3.5    Amendment and Waiver.    Other than as provided in this Agreement, including all attachments hereto, or the
Option Plan, none of the terms or provisions of this Agreement, including all attachment to this Agreement may be amended, waived, supplemented, canceled or otherwise modified only by a written
instrument executed by the parties to this Agreement or, in the case of a waiver, by the party waiving compliance. 

        3.6    Counterparts.    This Agreement may be executed in several counterparts, each of which shall constitute an
original, but all of which, when taken together, shall constitute but one agreement. 

2

 

        IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above. 

	 	 	MERRILL CORPORATION:
	

 	
 	

By:	

  
 John W. Castro
	 	 	Its:	Chief Executive Officer
	

 	
 	

EMPLOYEE:
	

 	
 	

  
 Signature
 [EMPLOYEE NAME]
	

 	
 	

  
 Address
	

 	
 	

  
 City, State and Zip Code
	

 	
 	

  
 Social Security Number

*
* * * * * * * 

        Upon
execution of this Agreement the Employee acknowledges having been delivered and reviewed a copy of the Option Plan, the Investors' Agreement and all attachments to this Agreement. 

3

 
 
 

TIME VESTING OPTION SCHEDULE    
    

        The following table sets forth the initial dates of exercisability of each installment and the percentage of Option Shares as to which the portion of the Option
governed by this Time Vesting Option Schedule will be exercisable: 

	DATE OF EXERCISABILITY

On or After:
 
	 	PERCENTAGE OF OPTION SHARES

GOVERNED BY THIS TIME VESTING

OPTION SCHEDULE

AVAILABLE FOR EXERCISE
	 
	February 1,2005	 	0	%
	February 1,2006	 	0	%
	February 1,2007	 	25	%
	February 1,2008	 	50	%
	February 1,2009	 	75	%
	February 1,2010	 	100	%

        In
no event will the portion of the Option governed by this Time Vesting Option Schedule be exercisable after, and the portion of the Option governed by this Time Vesting Option Schedule
will become void and expire as to all unexercised Option Shares at, 5:00 p.m. (St. Paul, Minnesota time) on the 10th anniversary of the Date of Grant (the "Time of
Termination"). 

        If
a DLJMB Liquidation Event (as defined below) occurs, then, unless otherwise provided by the Committee in its sole discretion, the unvested portion of the Option governed by this Time
Vesting Option Schedule will become immediately vested in full, subject to Section 9.3 of the Option Plan. 

        For
purposes of this Time Vesting Option Schedule, the following terms shall have the meanings set forth below: 

        1.     "DLJMB Entities" shall mean DLJ Merchant Banking Partners II, L.P. and all its affiliated entities as described in the
Investors' Agreement. 

        2.     "DLJMB Liquidation Event" means, except for transfers to Permitted Transferees (as defined in the Investors' Agreement),
(i) a sale or other transfer by the DLJMB Entities of 90% or more of its shares of common equity in Merrill (including all common equity originally purchased by the DLJMB Entities and any
additional common equity purchased by the DLJMB Entities thereafter, whether voting, Class B or any other class of common equity created by Merrill) to one or more persons or entities (in one
transaction or in a series of related transactions) other than in connection with a public offering of Merrill's common equity, (ii) the sale, lease, exchange or other transfer, directly or
indirectly, of substantially all of the assets of Merrill (in one transaction or in a series of related transactions) to a person or entity that is not controlled by Merrill, or (iii) a merger
or consolidation to which Merrill is a party if the shareholders of Merrill immediately prior to the 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 50% of the combined voting power of the surviving
corporation's outstanding securities ordinarily having the right to vote at elections of directors. 

4

 
 
 

PERFORMANCE VESTING OPTION SCHEDULE    
    

        The portion of the Option governed by this Performance Vesting Option Schedule will become vested and exercisable on the dates and in the proportions indicated in
Table 1 below if Merrill's actual EBITDA (as defined below) equals or exceeds the amount stated for the relevant fiscal year or years, as indicated in Table 1 below, but in any event such portion will
vest in full eight (8) years from the Date of Grant. If a DLJMB Liquidation Event (as defined below) occurs, then, unless otherwise provided by the Committee in its sole discretion, the portion
of the Option governed by this Performance Vesting Option Schedule will become immediately vested and exercisable in full, subject to Section 9.3 of the Option Plan. 

        For
purposes of this Performance Vesting Option Schedule, the following terms shall have the meanings set forth below: 

        1.     "DLJMB
Entities" shall mean DLJ Merchant Banking Partners II, L.P. and all its affiliated entities as described in the Investors' Agreement. 

        2.     "DLJMB
Liquidation Event" means, except for transfers to Permitted Transferees (as defined in the Investors' Agreement), (i) a sale or other transfer by the DLJMB
Entities of 90% or more of its shares of common equity in Merrill (including all common equity originally purchased by the DLJMB Entities and any additional common equity purchased by the DLJMB
Entities thereafter, whether voting, Class B or any other class of common equity created by Merrill) to one or more persons or entities (in
one transaction or in a series of related transactions) other than in connection with a public offering of Merrill's common equity, (ii) the sale, lease, exchange or other transfer, directly or
indirectly, of substantially all of the assets of Merrill (in one transaction or in a series of related transactions) to a person or entity that is not controlled by Merrill or (iii) a merger
or consolidation to which Merrill is a party if the shareholders of Merrill immediately prior to the 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 50% of the combined voting power of the surviving
corporation's outstanding securities ordinarily having the right to vote at elections of directors. 

        3.     "EBITDA"
means, for any applicable period, as determined by Merrill, (i) the sum of Merrill's consolidated (A) net income; (B) depreciation and
amortization and other non-cash charges or expenses; (C) income taxes; (D) interest expenses; and (E) net loss realized in connection with any sale or other
disposition of any asset or any extraordinary or non-recurring loss; minus (ii) Merrill's consolidated net gain realized in connection with any sale or other disposition of any
asset or any extraordinary or non-recurring gain. 

5

 

 
 

TABLE 1    
    

	Fiscal Year Ended January

31
 
	 	EBITDA
	 	Percentage of Option Shares Governed by this Performance Vesting Option

Schedule Available for Exercise**

	2005	 	$	68,676,000	 	20%
	2006	 	$	73,721,000	 	20%; or

40% if the sum of EBITDA for fiscal years ending January 31,

2005 through January 31, 2006 equals or exceeds $142,397,000
	2007	 	 	80,535,000	 	20%; or

60% if the sum of EBITDA for fiscal years ending January 31,

2005 through January 31, 2007 equals or exceeds $222,932,000
	2008	 	$	87,969,000	 	20%; or

80% if the sum of EBITDA for fiscal years ending January 31,

2005 through January 31, 2008 equals or exceeds $310,901,000
	2009	 	$	96,100,000	 	20%; or

100% if the sum of EBITDA for fiscal years ending January 31,

2005 through January 31, 2009 equals or exceeds $407,001,000

	*
	Such
percentage of Option Shares available for exercise shall vest on the April 30th immediately following the last day of the fiscal year indicated above.

	**
	The
20% stated for each fiscal year shall be vested on the April 30th following the last day of such fiscal year if Merrill's actual EBITDA for such fiscal year equals or
exceeds the amount stated in the table for such fiscal year, regardless of whether any vesting occurred regarding any previous fiscal year. Additionally, vesting shall apply retroactively and
cumulatively (on the applicable April 30th) if at the end of any fiscal year the sum of Merrill's actual EBITDA for the corresponding fiscal years stated in the table equals or exceeds
the corresponding total EBITDA stated in the table for such fiscal years. 

        The
portion of the Option governed by this Performance Vesting Option Schedule will not be exercisable after, and will become void and expire as to all unexercised Option Shares at,
5:00 p.m. (St. Paul, Minnesota time), on the earlier of (i) December 1, 2013 or (ii) the day immediately following the completion of a DLJMB Liquidation Event. 

6

  

 
 

TERMS AND CONDITIONS
  OF
  NON-STATUTORY STOCK OPTION AWARDS    
    

        Upon execution of the Participation Agreement, the Employee hereby acknowledges and agrees to be bound by the following terms and conditions relating to the
Option: 

1.    Duration of Option and Time of Exercise.    

        1.1    Termination of Employment or Other Service.    

        (a)    Termination for Cause.    In the event the Employee's employment or other service with Merrill and all
Subsidiaries is terminated by Merrill or any Subsidiary for Cause, all rights of the Employee under the Option Plan with respect to the Option and the Participation Agreement will immediately
terminate without notice of any kind, and the Option, whether exercisable or not on the date of termination, will immediately terminate without notice of any kind, and Merrill will also have the right
to repurchase (the "Repurchase Right") from the Employee all shares of Common Stock previously acquired upon exercise of the Option at a price equal to
the exercise price paid by the Employee to acquire such shares of Common Stock in the manner set forth in Section 2 below. 

        (b)    Termination for Reasons Other Than Cause.    In the event the Employee's employment or other service with
Merrill and all Subsidiaries is terminated other than for Cause by reason of voluntary resignation, death, Disability or Retirement, the Option will remain exercisable, to the extent exercisable as of
the date of such termination, for a period of one year following the date the Employee's employment or other service is terminated, and any portion of the Option which is not exercisable as of the
date of such termination will immediately terminate without notice of any kind. 

        (c)    Partial Terminations.    In the event of a Partial Termination, the Committee shall have the right in its sole
discretion to modify the terms of any unvested Options then held by the Employee at the time of the Partial Termination, including, without limitation, the right to immediately terminate without
notice of any kind all rights the Employee has in any unvested Options then held by the Employee at the time of the Partial Termination. 

2.    Exercisability of Repurchase Right.    

        If
Merrill elects to exercise its Repurchase Right, Merrill shall give the Employee written notice of its intent to exercise its Repurchase Right (the "Notice of
Repurchase") within sixty (60) days of such Employee's termination of employment or other service. The Notice of Repurchase shall specify (i) the number of shares
of Common Stock Merrill intends to repurchase, (ii) the applicable purchase price for such shares of Common Stock, and (iii) the date Merrill expects to purchase such shares of Common
Stock from the Employee which date shall be no later than thirty (30) days following the Valuation Date in the fiscal year immediately following the fiscal year in which the Employee's
employment or other service is terminated (the "Repurchase Date"). On or before the Repurchase Date, the Employee shall deliver to Merrill the stock
certificates representing the shares of Common Stock being purchased by Merrill, properly endorsed for transfer. By such delivery of such certificates, the Employee warrants that (i) the
Employee has good title to, the right to possession of, and the right to sell, the shares of Common Stock, (ii) such shares of Common Stock are free and clear of all pledges, liens,
encumbrances, charges, proxies, restrictions, options, transfers and other adverse claims, except such as have been imposed by the Option Plan or the Investors' Agreement, and except such restrictions
on transfer as may be imposed by federal or state securities laws, and (iii) the Employee shall hold harmless Merrill from all costs, expenses and fees incurred in defending title and right to
possession. On the Repurchase Date, Merrill shall pay to the Employee the total purchase price for the shares of Common Stock to be purchased by Merrill. Notwithstanding anything to the contrary in
the 

7

 

Option
Plan, however, Merrill shall only be required to pay for such shares of Common Stock as rapidly as permissible without violating any loan covenants or other contractual restrictions applicable
to, and binding upon, Merrill, and any amounts not paid to the Employee on the Repurchase Date will bear interest at a fixed rate of interest equal to eight percent (8%) per annum; provided, however,
that such interest rate shall not exceed the rate permitted by applicable law. Merrill shall only be required to repurchase shares of Common Stock pursuant to this Section 2 to the extent that
such repurchase does not violate any applicable laws. 

3.    Manner of Option Exercise.    

        3.1    Notice.    The Option may be exercised by the Employee in whole or in part from time to time, subject to the
conditions contained in the Option Plan and in the Participation Agreement, by delivery, in person, by facsimile or electronic transmission (with written confirmation via the mail to follow such
electronic transmission) or through the mail, to Merrill at its principal executive office in St. Paul, Minnesota (Attention: Secretary), of a written notice of exercise. Such notice must be in a form
satisfactory to the Committee, must identify the Option, must specify the number of Option Shares with respect to which the Option is being exercised, and must be signed by the person or persons so
exercising the Option. Such notice must be accompanied by payment in full of the total purchase price of the Option Shares purchased. In the event that the Option is being exercised, as provided by
the Option Plan and the Participation Agreement, by any person or persons other than the Employee, the notice must be accompanied by appropriate proof of right of such person or persons to exercise
the Option. As soon as practicable after the effective exercise of the Option, the Employee will be
recorded on the stock transfer books of Merrill as the owner of the Option Shares purchased, and Merrill will deliver to the Employee one or more duly issued stock certificates evidencing such
ownership. 

        3.2    Payment.    At the time of exercise of the Option, the Employee must pay the total purchase price of the Option
Shares to be purchased entirely in cash (including a check, bank draft or money order, payable to the order of Merrill); provided, however, that the Committee, in its sole discretion, may allow such
payment to be made, in whole or in part, by tender of a promissory note (on terms acceptable to the Committee in its sole discretion) or a Broker Exercise Notice or Previously Acquired Shares (as such
terms are defined in the Option Plan), or by a combination of such methods. In the event the Employee is permitted to pay the total purchase price of the Option in whole or in part with Previously
Acquired Shares, the value of such shares will be equal to their Fair Market Value on the date of exercise of the Option. 

4.    DLJMB Liquidation Event.    

        4.1    Acceleration of Vesting.    Without limiting the authority of the Committee under the Option Plan, if a DLJMB
Liquidation Event (as defined in the Option Plan) occurs, then, unless otherwise provided by the Committee in its sole discretion all unvested Options will become immediately vested in full, subject
to Section 9.3 of the Option Plan. 

        4.2    Limitation on Payments in Connection with a DLJMB Liquidation Event.    Notwithstanding anything in
Section 4.1 above or 4.3 below to the contrary, if, with respect to the Employee, the acceleration of the vesting of Options as provided in Section 4.1 (which acceleration or payment
could be deemed a "payment" within the meaning of Section 280G(b)(2) of the Code) or a "payment" under Section 4.3 below, together with any other "payments" that the Employee has the
right to receive from Merrill 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 Merrill is a member, would constitute a "parachute payment" (as defined in Section 280G(b)(2) of the Code), then the "payments" to the Employee pursuant to Section 4.1 or 4.3 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 the Employee is
subject to a separate agreement with Merrill or a Subsidiary 

8

 

that
expressly addresses the potential application of Sections 280G or 4999 of the Code (including, without limitation, that "payments" under such agreement or otherwise will be reduced, that the
Employee will have the discretion to determine which "payments" will be reduced, that such "payments" will not be reduced or that such "payments" will be "grossed up" for tax purposes), then this
Section 4.2 will not apply, and any "payments" to the Employee pursuant to Section 4.1 or 4.3 will be treated as "payments" arising under such separate agreement. 

        4.3    Additional Rights in Connection with a DLJMB Liquidation Event.    Without limiting the authority of the
Committee under the Option Plan or otherwise under the Participation Agreement, the Committee may elect, in its sole discretion, to proceed pursuant to this Section 4.3 in connection with the
occurrence of a DLJMB Liquidation Event. 

        (a)   The
Committee may determine that no additional vesting of the Option shall occur in connection with or after such DLJMB Liquidation Event (without notice of any kind).
In connection therewith, the Committee may determine for each Option Share an amount that is equal to (i) the per-share amount received in connection with such DLJMB Liquidation
Event by a holder of shares of common equity of the Company who is not a DLJMB Entity, minus (ii) the per share price to be paid by the Employee in the event of an exercise of the Option (the
result of the foregoing being the "Per-Option Share Amount"). 

        (b)   For
the portion of the Option that is vested immediately prior to such DLJMB Liquidation Event, the Company may pay to the Employee, in cash, an amount equal to the
Per-Option Share Amount for each Option Share subject to such vested portion of the Option, with such payment being due on or before the 10th business day following the effective date of
such DLJMB Liquidation Event. 

        (c)   For
the portion of the Option that is not yet vested immediately prior to such DLJMB Liquidation Event, the Committee may cause the Company to, subject to
Section 4.3(d) below, on or before the 10th business day following the effective date of such DLJMB Liquidation Event, place an amount equal to the Per-Option Share Amount for each
Option Share subject to such unvested portion of the Option (along with any or all corresponding amounts payable to other option holders under the Option Plan) in an escrow account, a
so-called "Rabbi Trust" or a similar account or fund under terms determined by the Company from time to time, in its discretion; provided,  however, that
(i) the Company shall pay (or cause to be paid) to the Employee such amount in installments over a period that is the shorter of
two years from the date of such DLJMB Liquidation Event or the remainder of the period in which the Option would otherwise have vested in full pursuant its vesting schedule (assuming, for purposes of
this clause, that the Option is governed entirely by the Employee's Time Vesting Option Schedule), (ii) such installments shall be allocated equally over such period and shall not be paid less
frequently than once per calendar quarter, (iii) any (if any) interest or other earnings or proceeds earned thereon shall be for the benefit of the Employee and (iv) the Company may
cause such portion of such amount to be prepaid to the Employee in whole or in part at any time and from time to time, including on or before such 10th business day following the effective date of
such DLJMB Liquidation Event. 

        (d)   If
the Committee elects to proceed pursuant to this Section 4.3, then notwithstanding any other provision herein, the following shall apply: 

          (i)  The
Option shall be cancelled and terminated without notice of any kind, and the Employee shall have no right with respect thereto, except the right to receive payment
under the terms, and subject to the conditions, of this Section 4.3. If the Per-Option Share Amount is less than or equal to $0, then the Option shall be cancelled and terminated
without notice of any kind, and the Employee shall have no right with respect thereto, including without 

9

 

limitation
any right to receive any payment under this Section 4.3 or otherwise under the Participation Agreement or the Option Plan. 

         (ii)  If,
in connection with or after such DLJMB Liquidation Event, the Employee's employment or other service with the Company or any Subsidiary is terminated for Cause or
by resignation by the Employee (other than a bona fide retirement substantiated and documented as determined, and subject to conditions stated, by the Company), then after the effective date of such
termination or resignation (as applicable) no amount whatsoever shall be payable to the Employee regarding the portion of the Option that is not yet vested immediately prior to such DLJMB Liquidation
Event (including under Section 4.3(c) above) and all amounts in respect of the Option held in an escrow account, a so-called "Rabbi Trust" or a similar account or fund pursuant to
Section 4.3(c) above shall immediately revert to and be owned by the Company. 

        (iii)  In
electing how to proceed under Section 4.3(c) above, the Committee shall not place any amount in an escrow account, a so-called "Rabbi Trust" or a
similar account or fund (as contemplated in such Section), unless (A) such placement is not a taxable event in which income is presently recognized for any option holder under the Option Plan
at the time the Company does so or (B) if such placement is a taxable event described in the preceding clause (A), then the Company causes there to be a payment of tax, or takes such
other action, so that such taxable event does not cause any reduction (from withholding or otherwise) in the Employee's usual and regular employment compensation. (As examples only, the Company could
withhold from such amount the taxes required to be withheld by it and then place only the balance in such an escrow account, so-called "Rabbi Trust" or similar account or fund, or the
Company could make a gross up payment to the Employee (and the corresponding withholdings therefrom) at the time of such placement in an amount sufficient to pay the Employee's associated tax
obligations.) If the Company is not able to so place such amount without such placement being such a taxable event and the Company does not take any such action contemplated by the preceding
clause (B), then the Company shall pay to the Employee the amount owed under Section 4.3(c) regarding such unvested portion of the Option on or before the 10th business day following the
effective date of such DLJMB Liquidation Event. 

        (iv)  The
Company shall only be required to make payments in connection with this Section 4.3 as rapidly as is permissible to avoid breaching or violating, or creating
or accelerating any right or obligation with respect to, any loan, credit or debt arrangement, or any covenant, obligation or other contractual restriction, then applicable to, or binding upon, the
Company; provided, however, that at and after a DLJMB Liquidation Event, the foregoing shall not restrict any such payment to a greater extent than such payment could have been restricted based on any
loan, credit or debt arrangement, or any covenant, obligation or other contractual restriction that applied to, or was binding upon, the Company immediately prior to such DLJMB Liquidation Event. 

         (v)  For
purposes of this Section 4.3, the "Company" means, at any time prior to such DLJMB Liquidation Event, Merrill Corporation, and "Company" means, at any time
after such DLJMB Liquidation Event, Merrill Corporation or a successor entity of Merrill Corporation (or a successor to, or transferee of, all or substantially all of its assets) as a result of such
DLJMB Liquidation Event (including without limitation any surviving entity of a merger or consolidation with Merrill Corporation). 

5.    Rights of Employee: Transferability.    

        5.1    Employment or Service.    Nothing in the Participation Agreement or any attachments thereto will interfere with
or limit in any way the right of Merrill or any Subsidiary to terminate the 

10

 

employment
or other service of the Employee at any time, nor confer upon the Employee any right to continue in the employ or other service of Merrill or any Subsidiary at any particular position or
rate of pay or for any particular period of time. 

        5.2    Rights as a Shareholder.    The Employee will have no rights as a shareholder unless and until all conditions
to the effective exercise of the Option (including, without limitation, the conditions set forth in Sections 3 and 6 of this attachment to the Participation Agreement) have been satisfied and the
Employee has become the holder of record of such shares. No adjustment will be made for dividends or distributions with respect to the Option as to which there is a record date preceding the date the
Employee becomes the holder of record of such shares, except as may otherwise be provided in the Option Plan or determined by the Committee in its sole discretion. 

        5.3    Restrictions on Transfer.    Unless approved by the Committee in its sole discretion, no right or interest of
any Employee 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 Employee, either voluntarily or involuntarily,
directly or indirectly, by operation of law or otherwise; provided, however, once an Employee exercises an Option all shares of Common Stock issued upon exercise of the Option will be subject to the
transfer restrictions and other provisions set forth in the Investors' Agreement. 

6.    Restrictions Regarding Employment or Service.    

        6.1    Effect of Adverse Action.    Notwithstanding anything in the Option Plan, the Participation Agreement or any
attachments thereto and all attachments thereto to the contrary, in the event that an Employee takes an Adverse Action with respect to Merrill or any Subsidiary (1) prior to such Employee's
termination of employment or other service with Merrill and all its Subsidiaries or (2) during the period ending twelve (12) months following the date of the Employee's termination of
employment or other service with Merrill and all Subsidiaries without Cause, the Committee in its sole discretion will have the authority to terminate immediately all rights of the Employee under the
Option Plan and any agreement evidencing Options then held by the Employee without notice of any kind. In addition, to the extent that the Employee takes such Adverse Action during the period
beginning twelve (12) months prior to, and ending twelve (12) months following, such date of termination of employment or other service, the Committee in its sole discretion will have
the authority to rescind the exercise of any Options of the Employee that were exercised during such period and to require the Participant to pay to Merrill, within ten (10) days of receipt
from Merrill 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. Merrill will be entitled to withhold and deduct from future
wages of the Employee (or from other amounts that may be due and owing to the Employee from Merrill or a Subsidiary) or make other arrangements for the collection of all amounts necessary to satisfy
such payment obligations. 

        6.2    Definition of Adverse Action.    An "Adverse Action" will mean
any action by an Employee that the Committee, in its sole discretion, determines to be adverse to the interests of Merrill or any Subsidiary, including, without limitation, (i) disclosing
confidential information of Merrill or any Subsidiary to any person not authorized by Merrill or Subsidiary to receive it, (ii) engaging, directly or indirectly, in any commercial activity that
in the judgment of the Committee competes with the business of Merrill or any Subsidiary or (iii) interfering with the relationships of Merrill or any Subsidiary and their respective employees
and customers. 

7.    Securities Law and Other Restrictions.    

        Notwithstanding
any other provision of the Option Plan, the Participation Agreement or any attachments thereto and all attachments thereto, Merrill will not be required to issue, and the
Employee may not sell, assign, transfer or otherwise dispose of, any Option Shares, unless (i) there is 

11

 

in
effect with respect to the Option Shares a registration statement under the Securities Act of 1933, as amended, and any applicable state or foreign securities laws or an exemption from such
registration, and (ii) 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.
Merrill 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
Option Shares, as may be deemed necessary or advisable by Merrill in order to comply with such securities law or other restrictions. 

8.    Withholding Taxes.    

        8.1    General Rules.    Merrill is entitled to (i) withhold and deduct from future wages of the Employee (or
from other amounts that may be due and owing to the Employee from Merrill or a Subsidiary), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any and
all foreign, federal, state and local withholding and employment-related tax requirements attributable to the Option, including, without limitation, the grant or exercise of the Option or a
disqualifying disposition of stock received upon exercise of an Incentive Stock Option or in connection with Section 4.3 above, or (ii) require the Employee promptly to remit the amount
of such withholding to Merrill before taking any action, including issuing any shares of Common Stock, with respect to the Option. 

        8.2    Special Rules.    The Committee may, in its sole discretion and upon terms and conditions established by the
Committee, permit or require an Employee to satisfy, in whole or in part, any withholding or employment-related tax obligation described in Section 8.1 of the Option Plan by electing to tender
Previously Acquired Shares, a Broker Exercise Notice or a promissory note (on terms acceptable to the Committee in its sole discretion), or by a combination of such methods. 

9.    Adjustments.    

        In
the event that the Committee determines that any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of
shares, rights offering, divestiture or extraordinary dividend (including a spin-oft) or any other similar change in the corporate structure or shares of Merrill, affects the Option such
that an adjustment is determined by the Committee, in its sole discretion, to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made
available under the Option Plan, the Committee (or, if Merrill is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) shall, in such manner as
it deems equitable, adjust any or all of (i) the number of shares of Common Stock of Merrill (or number and kind of other securities or property) available for issuance or payment under the
Option Plan, (ii) the number of shares of Common Stock or other securities of Merrill (or number and kind of other securities or property) subject to outstanding Options, and (iii) the
grant or exercise price with respect to any Options, or, if deemed appropriate, make provisions for a cash payment to the holder of an outstanding Option. 

10.    Subject to Option Plan.    

        The
Option and the Option Shares granted and issued pursuant to the Participation Agreement and the attachments thereto have been granted and issued under, and are subject to the terms
of, the Option Plan. The terms of the Option Plan are incorporated by reference in the Participation Agreement and the attachments thereto in their entirety, and the Employee, by execution of the
Participation Agreement, acknowledges having received a copy of the Option Plan. The provisions of the Participation Agreement and attachments thereto will be interpreted as to be consistent with the
Option Plan, and any ambiguities in the Participation Agreement or the attachments thereto will be interpreted by reference to the Option Plan. In the event that any provision of the Participation
Agreement or the attachments thereto are inconsistent with the terms of the Option Plan, the terms of the Option Plan will prevail. 

12

QuickLinks

Exhibit 10.5

PARTICIPATION AGREEMENT (OPTIONS ONLY)

TIME VESTING OPTION SCHEDULE

PERFORMANCE VESTING OPTION SCHEDULE

TABLE 1

TERMS AND CONDITIONS OF NON-STATUTORY STOCK OPTION AWARDS

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