AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 2002JUNE 4, 2004
REGISTRATION NO. 333-90194
===========================================================================333-114337
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2 TO---------------
Amendment No. 1 to
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
MAIL-WELL---------------
CENVEO CORPORATION
(formerly known as Mail-Well I CORPORATIONCorporation)
AND
AFFILIATE GUARANTORS LISTED ON SCHEDULE ATTACHED
HERETO
(Exact name of registrant as specified in its charter)
DELAWARE 2677 84-1250533
(State or Other Jurisdiction of (Primary Standard Industrial
Incorporation or Organization) Classification Code Number)
DELAWARE 84-1250533
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
------------------------------Classification Code Number) Identification No.)
---------------
8310 S. VALLEY HIGHWAY, SUITE 400
ENGLEWOOD, CO 80112
(303) 790-8023
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
ROGER WERTHEIMER---------------
MARK ZOELLER
VICE PRESIDENT--GENERALPRESIDENT AND GENERAL COUNSEL
& SECRETARY
MAIL-WELL,CENVEO, INC.
(formerly known as Mail-Well, Inc.)
8310 S. VALLEY HIGHWAY, SUITE 400
ENGLEWOOD, CO 80112
(303) 790-8023
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
---------------------------------------------
COPIES TO:
HERBERT H. DAVIS III DOUGLAS R. WRIGHT
SENIOR VICE PRESIDENT--CORPORATE DEVELOPMENT JEFFREY A. SHERMAN
AND CHIEF LEGAL OFFICER MICHAEL M. MCGAWN
MAIL-WELL, INC. FAEGRE & BENSON LLP
8310 S. VALLEY HIGHWAY, SUITE 400 370 SEVENTEENTH STREET, SUITE 2500
ENGLEWOOD, CO 80112 DENVER, CO 80202HERBERT H. DAVIS III DOUGLAS R. WRIGHT
8310 S. VALLEY HIGHWAY, SUITE 400 FAEGRE & BENSON LLP
ENGLEWOOD, CO 80112 3200 WELLS FARGO CENTER
(303) 790-8023 1700 LINCOLN STREET
DENVER, CO 80203-4532
(303) 607-3500
---------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after this registration statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
===========================================================================
CALCULATION OF REGISTRATION FEE
=========================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE(1)
-------------------------------------------------------------------------------------------------------------------------
7 7/8% Senior Subordinated Notes due 2013... $320,000,000 100% $320,000,000 $ 40,544
Guarantee of 7 7/8% Senior Subordinated
Notes due 2013.............................. -- -- -- -- (2)
=========================================================================================================================
(1) Calculated in accordance with Rule 457(f)(2). For purposes of this
calculation, the offering price per note was assumed to be the stated
principal amount of each note that may be received in the exchange
transaction in which the notes will be offered.
(2) Pursuant to Rule 457(n), no registration fee is required for the
guarantees of the notes registered hereby.
================================================================================
ADDITIONAL REGISTRANTS
PRIMARY
STATE OR STANDARDPRIMARY
OTHER INDUSTRIALSTANDARD I.R.S.
JURISDICTION OF CLASSIFICATIONINDUSTRIAL EMPLOYER
NAME OF INCORPORATION CODECLASSIFICATION IDENTIFICATION
ADDITIONAL REGISTRANT OR FORMATION CODE NUMBER NUMBER
--------------------- --------------- -------------- ------------------------------------------------------ ------------ ----------- ------
ABP Books, Inc. ................................. MI 2732 38-1957430Classic Envelope Plus, Ltd.............. B.C., Canada 2677 N/A
Discount Labels, Inc. ...........................Inc.................... IN 2759 35-1119834
Hill Graphics,Innova Envelope Inc. ............................. TX/Enveloppe Innova
Inc................................... Ontario, Canada 2677 N/A
Mail-Well Alberta Finance LP............ Alberta, Canada 2752 74-1993978N/A
Mail-Well Canada Leasing Company Inc.... Nova Scotia, Canada 2752 20-0193038
Cenveo, Inc. (formerly known as
Mail-Well, Inc. .................................)...................... CO 6719 84-1250533
Cenveo Commercial, Inc. (formerly
known as Mail-Well Commercial
Printing, Inc. .............)....................... DE 2752 84-1461875
Cenveo Government Printing, Inc.
(formerly known as Mail-Well
Government Printing, Inc.)............ CO 2752 04-3671149
Cenveo Mexico Holdings, Inc. (formerly
known as Mail-Well Mexico Holdings,
Inc. .................)................................. CO 2677 84-1468396
Cenveo Services, Inc. (formerly known as
Mail-Well Services Inc. ........................LLC)............... CO 7331 84-15137022752 20-0186643
Cenveo Texas Finance, LP (formerly
known as Mail-Well Texas Finance L.P. ...................LP).. TX 2677 52-2360462
Cenveo West, Inc. (formerly known as
Mail-Well West, Inc. ............................)................. DE 2677 84-1313079
McLaren Morris and Todd Company......... Nova Scotia, Canada 2752 N/A
MM&T Packaging Company.................. Nova Scotia, Canada 2752 N/A
National Graphics Company........................Company............... CO 2761 84-0692676
PNG Inc................................. Ontario, Canada 2677 84-0692676
Quality Park, Inc. (formerly known as
Poser Business Forms, Inc. ......................)........... DE 2761 75-2195786
Precision Fine Papers, Inc.............. Ontario, Canada 2677 N/A
Supremex, Inc. ......................... Ontario, Canada 2677 N/A
Cenveo III, LLC (formerly known as
Wisco III, LLC...................................LLC)....................... DE 2677 84-1362168
The name and address of the principal executive office for each of the
additional registrants is the same as is set forth for Mail-Well ICenveo Corporation on
the facing page of this registration statement. The old notes are, and the
new notes will be, unconditionally guaranteed on a joint and several basis
by Cenveo, Inc. and the above registered subsidiaries.
***********************************************************************
* THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE *
* CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION *
* STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS *
* EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES *
* AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY *
* STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. *
***********************************************************************The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
Subject to completion, dated October 8, 2002June 4, 2004
PROSPECTUS
[Mail-Well[CENVEO LOGO]
CENVEO CORPORATION (formerly known as Mail-Well I Corporation Logo]
MAIL-WELL I CORPORATIONCorporation)
EXCHANGE OFFER FOR $350,000,000$320,000,000
OF
9 5/7 7/8% SENIOR SUBORDINATED NOTES DUE 2012
---------------------2013
---------------
Material terms of the exchange offer:
*o We are offering to exchange the notes that we sold on February 4,
2004 in a private offering on March 13, 2002 for new notes. The issuance of the new
notes to be issued in exchange for the old notes will be registered
under the
Securities Act of 1933, as amended.
*transactions.
o The exchange offer expires at 5:00 p.m., New York City time, on
, 2002,______________, 2004, unless we extend it.
------------
*o The new notes will be identical to the old notes in all material
respects, except that they will not have transfer restrictions,
registration rights, or certain rights to additional interest that
the old notes had.
*o The exchange of old notes for new notes will not be taxable for U.S.
Federal income tax purposes, but you should see the discussion under
the caption "Material"Certain U.S. Federal Income Tax Considerations"
beginning on page 9862 for more information.
*o We will exchange all old notes that are properly tendered. You
should carefully review the procedures for tendering the old notes
beginning on page 5521 of this prospectus.
*o Tenders of old notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the expiration date of the exchange
offer.
*o We will not receive any cash proceeds from the exchange offer.
*o As of September 1, 2002, $78.2May 22, 2004, $474.6 million in indebtedness outstanding under
our senior credit facility, senior notes and other secured
indebtedness was effectively senior to the new notes, and our senior
credit facility would have allowed us to incur an additional $210.5$137.4 million of
additional borrowing that would be effectively senior to the new
notes.
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 78 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
---------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
There is no established trading market for the new notes or the old
notes. However, you may trade the old notes and the new notes in the PORTAL market.
This prospectus is dated , 2002
------------
2004
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. The letter of transmittal
states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of new notes received in exchange for old notes where such old
notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. We have agreed that, for a period of
180 days after the expiration date of the exchange offer (as defined
herein), we will make this prospectus available to any broker-dealer for use
in connection with any such resale. See "Plan of Distribution" on page 102.
i66.
TABLE OF CONTENTS
PAGE
----
SUMMARY.................................................. 1
RISK FACTORS............................................. 7
FORWARD LOOKING STATEMENTS............................... 15
USE OF PROCEEDS.......................................... 15
SELECTED CONSOLIDATED FINANCIAL INFORMATION.............. 16
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION............................................ 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................... 20
BUSINESS................................................. 42
MANAGEMENT............................................... 50
THE EXCHANGE OFFER....................................... 53
DESCRIPTION OF THE NEW NOTES............................. 60
DESCRIPTION OF CERTAIN INDEBTEDNESS...................... 94
DESCRIPTION OF CAPITAL STOCK............................. 98
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS............... 98
PLAN OF DISTRIBUTION..................................... 102
LEGAL MATTERS............................................ 103
EXPERTS.................................................. 103
WHERE YOU CAN FIND MORE INFORMATION...................... 103
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS............... F-1
------------------------
ThisPAGE
----
Summary................................................... 1
Risk Factors.............................................. 8
Forward-Looking Statements................................ 16
Use of Proceeds........................................... 16
Selected Consolidated Financial Data...................... 17
The Exchange Offer........................................ 19
Description of the New Notes.............................. 26
Description of Certain Indebtedness....................... 59
Description of Capital Stock.............................. 61
Certain U.S. Federal Income Tax Considerations............ 62
Plan of Distribution...................................... 66
Legal Matters............................................. 67
Experts................................................... 67
Exchange Agent............................................ 67
---------------
WHERE YOU CAN FIND MORE INFORMATION
Our parent company, Cenveo, Inc. (formerly known as Mail-Well,
Inc.), is subject to the informational requirements of the Exchange Act, and
in accordance with the requirements of the Exchange Act files reports and
other information with the SEC. You may read and copy documents filed with
the SEC by Cenveo, Inc. at the Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. You can obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also
obtain the documents that Cenveo, Inc. files electronically from the SEC's
web site at http://www.sec.gov. While any notes remain outstanding, we will
make available, upon request, to any beneficial owner and any prospective
purchaser of notes the information regarding Cenveo, Inc. required pursuant
to Rule 144A(d)(4) under the Securities Act during any period in which
Cenveo, Inc. is not subject to Section 13 or 15(d) of the Exchange Act. Any
such request should be directed to Cenveo, Inc., Attn: Secretary, 8310 S.
Valley Highway, Suite 400, Englewood, Colorado 80112.
We "incorporate by reference" into this prospectus incorporatescertain
information filed by Cenveo, Inc. with the SEC, which means that we can
disclose important business and financial
information about usto you by referring you to those documents.
The information incorporated by reference is an important part of this
prospectus. Certain information that is subsequently filed with the SEC will
automatically update and supercede information in this prospectus and in
earlier filings with the SEC. We incorporate by reference the documents
listed below, which have been filed with the SEC, and any future filings
Cenveo, Inc. may make with the SEC under Sections 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934, until all the notes offered by this
prospectus have been exchanged and all conditions to the consummation of
those exchanges have been satisfied, provided, however, that we are not
included inincorporating any information furnished under Item 9 or deliveredItem 12 of any
Current Report on Form 8-K:
o Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 2003 filed with this
prospectus.the SEC on February 27, 2004;
o Mail-Well, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2004 filed with the SEC on May 3, 2004;
o Mail-Well, Inc.'s Proxy Statement on Schedule 14A filed with the
SEC on March 16, 2004;
o Mail-Well, Inc.'s Current Reports on Form 8-K filed with the SEC on
May 6, 2004, February 17, 2004, February 9, 2004 and January 21,
2004 and Cenveo, Inc.'s Current Report on Form 8-K filed with the
SEC on May 17, 2004.
This information is available without charge to security holders
upon written or oral request to Mail-Well,Cenveo, Inc., Attn: Secretary, 8310 S.
Valley Highway, Suite 400, Englewood, Colorado 80112, telephone (303)
790-8023. To obtain timely delivery of such information, you must request
the information no later than , 2002, which is 5 days
----------
prior to the final date for exchange.
ii___________, 2004.
SUMMARY
This summary highlights materialselected information contained in this
prospectusabout us and does not
contain all of the information that is important for you to consider in
deciding whether to participate in the exchange offer. In addition to
reading this summary, you should carefully review this entire prospectus,
especially the "Risk Factors" section beginning on page 7.8.
The data used in this prospectus are drawn from the financial
statements of Mail-Well,Cenveo, Inc. and its subsidiaries on a consolidated basis.
Mail-Well,Cenveo, Inc. is the direct parent company of Mail-Well ICenveo Corporation. Because
Mail-Well,Cenveo, Inc. has immaterial assets, revenues and expenses (other than
through ownership of Mail-Well ICenveo Corporation), the financial condition and
results of operations of Mail-Well ICenveo Corporation and its subsidiaries on a
consolidated basis do not materially differ from those of Mail-Well,Cenveo, Inc. on a
consolidated basis. Mail-Well,Cenveo, Inc. and certain of its subsidiaries will
guarantee all of Mail-Well ICenveo Corporation's obligations under the new notes.
OUR COMPANY
We are one of theNorth America's largest printers in North America competing primarily
in theproviders of printing and
printing related products and value added services. We produce general
commercial printing, high impact premium printing, custom and envelope market segments.stock
envelopes, printed business forms and labels. We believe we are the world's
largest manufacturer of envelopes, the leading printer of envelopes in the
United States and Canada, and the largestpremier printer of high impact color
printerprinting in the United States, and a leading general commercial printer in
several major U.S. markets.States. Our principal executive offices are located
at 8310 S. Valley Highway, Suite 400, Englewood, Colorado, 80112, and our
phone number is (303) 790-8023. We operateOn April 29, 2004, our shareholders
approved the change of our company's name from Mail-Well to Cenveo.
COMMERCIAL
Our commercial business had sales of $1.3 billion in 2003. This
business segment operates 66 manufacturing facilities and specializes in the
following market segments:
Commercial Printing. We serve two primary commercial printing markets:
(i) high impact color printing, in which we print a wide range of longer
run premium products for national and regional accounts; and (ii)annual reports, car brochures, brand marketing collateral,
financial communications, general commercial printing in which we print a wide arrayand the manufacture
and printing of products and offer
printing services to local commercial customers. Our commercial printing
segment operates 29 plants throughout the United States and one in Canada.
Envelope. We serve two primary markets with our envelope business: (i) customized envelopes for billing and packaging products, including Tyvek(R) mailers
used by the U.S. Postal Service, sold directly to end users or to
independent distributors who sell to end users;remittance and (ii) envelopes and
other products sold to wholesalers, paper merchants, printers, brokerage
firms, office product establishments and superstores. We manufacture
envelopes in 27 U.S. plants and 13 Canadian plants.
Printed Office Products.direct
mail advertising. In addition, we operate a printed office
products business.five distribution and fulfillment
centers and provide our customers with other value added services such as
ecommerce.
RESALE
Our resale business had sales of $399 million in 2003. This
business whichsegment operates 1220 manufacturing facilities throughout the United States, is a leading supplier of
customizedand produces business
forms and labels, custom and stock labels,envelopes and specialty packaging and
mailers generally sold to third-party dealers such as print distributors,
forms suppliers and printed business documents to
small and mid-size businesses generally through independent distributors of
office products. The labels produced and sold by our printed office
products division do not compete with those produced and sold by the
now-divested prime label segment due to differences in customer base,
distribution channels and production methods.office-products retail chains.
RESULTS OF 2001 STRATEGIC PLAN
In May 2001, we adopted a strategy to focus on our commercial printing
and envelope businesses and announced plans to divest certain non-core
businesses. In addition to the planned divestitures, we initiated a
restructuring program to consolidate manufacturing facilities to improve our
competitive position and implemented other initiatives to significantly
improve operations, reduce costs and increase marketing effectiveness. We
have substantially completed a comprehensive reviewthis strategic plan. The results of the
strategic plan included the following:
o The consolidation of our printing operations in the Philadelphia
market into one facility, the closure of our printing operation in
New York City, and adopted a new strategy that focused onthe consolidation of our two core businesses--commercialweb printing plant in
Indianapolis, Indiana into our web printing plants in St. Louis,
Missouri and envelope. In supportBaltimore, Maryland;
o The consolidation of this strategy, we sold our best envelope equipment, expertise and
operational capabilities into 39 facilities, down from 50 in 2000;
o The consolidation of the Denver, Colorado and Clearwater, Florida
printed office products manufacturing facilities into other plants;
o The sale of Curtis 1000 Inc. printed office products subsidiary in February 2002,(a distributor of business documents
and envelopes), our prime label segment in May 2002 andbusiness, the file folderfiling products
division of our envelope segment and certain digital graphics
operations in August 2002. We also consolidated three of our commercial printing plants
into one facility and closed 10 of our envelope plants and redeployed the
1
equipmentcommercial printing segment; and
other assets at other facilities. We also announced our
intention to sell our PrintXcel printed office products group of
subsidiaries, and to sell the digital graphics divisiono The restructuring of our commercial
printing business. In July 2002 we announced our intention to keep
PrintXcel. The sale of our digital graphics division remains in process.
To reflectdebt.
We believe these actions position us well for the effect of our new strategic plan, in the second quarter
of 2001 we began reporting our prime label and printed office products
segments as discontinued operations, began reporting our digital graphics
division and our filing products division as assets held for sale, and
recorded a loss based on the anticipated proceeds of the dispositions.
Beginning with the second quarter of 2002, we no longer account for
PrintXcel as a discontinued operation, due to our recent decision not to
sell that business. The financial statements appearing in this prospectus
reflect the results of PrintXcel as a continuing operation on both a
current and historical basis.
Our new strategy also includes the launch of several initiatives to
significantly improve operations and marketing effectiveness. Both the
commercial printing and envelope businesses have programs in place to
institute best practices, standardize costing and pricing systems and align
equipment and services to better serve our customers and markets.future.
2
SUMMARY DESCRIPTION OF THE EXCHANGE OFFER
Issuer.................................... Mail-Well I
Issuer.......................................... Cenveo Corporation.
Old Notes................................. 9 5/Notes....................................... 7 7/8% Senior Subordinated Notes due 2012,2013, which we
issued on March 13,
2002February 4, 2004 in transactions exempt from
registration under the Securities Act of 1933.
New Notes................................. 9 5/Notes....................................... 7 7/8% Senior Subordinated Notes due 2012,2013, the issuance
of which has beenwill be registered under the Securities Act.
The form and terms of the new notes are identical in
all material respects to those of the old notes, except
that the transfer restrictions and registration rights
relating to the old notes do not apply to the new
notes.
Exchange Offer............................Offer.................................. We are offering to issue up to $350,000,000$320,000,000 aggregate
principal amount of the new notes in exchange for a
like principal amount of the old notes to satisfy our
obligations under the registration rights agreement
that we entered into when the old notes were issued.
Expiration Date...........................Date................................. The exchange offer will expire at 5:00 p.m., New York City
time, on , 2002,__________________, 2004, or a later date and
time to ------------
which we extend it.
Withdrawal................................Withdrawal...................................... You may withdraw your tender of the old notes pursuant to
the exchange offer at any time prior to 5:00 p.m., New
York City time, on , 2002,______________, 2004, or a later date
and time
------------ to which we extend the offer. We will return any
old notes that we do not accept for exchange for any
reason without expense to the tendering holder as soon as
practicable after the exchange offer expires or
terminates.
2
Interest on the New Notes and the Old Notes...................................Notes..... Interest on the new notes will accrue from the date of the
original issuance of the old notes or from the date of the
last periodic payment of interest on the old notes,
whichever is later. No additional interest will be paid on
old notes tendered and accepted for exchange.
Conditions of the Exchange Offer..........Offer................ The exchange offer is subject to customary conditions,
some of which we may waive. We must assert any condition that we
choose not to waive on or before the expiration date of the
exchange offer. See "The Exchange
Offer--Conditions of the Exchange Offer" on page 57.Offer."
Procedures for Tendering Old Notes........Notes.............. To accept the exchange offer, you must complete, sign and
date the letter of transmittal in accordance with the
instructions contained in this prospectus and in the
letter of transmittal, and send the letter of transmittal
and the old notes and any other required documentation to
the exchange agent at the following address:
State StreetUS Bank and Trust Company,
Exchange Agent
Attn: MacKenzie Elijah, Corporate Actions
2 Avenue de Lafayette, Sixth Floor
Boston, Massachusetts 02111Specialized Finance
60 Livingston Ave.
St. Paul, Minnesota 55107
Telecopier No.: (617) 662-1452651-495-8158
If you hold the old notes through the Depository Trust
Company, to accept the exchange offer you must use the
DTC's Automated Tender Offer Program, by which each
3
tendering participant will agree to be bound by the letter
of transmittal. By executing or agreeing to be bound by
the letter of transmittal, each holder will represent to
us that, among other things,
*o it is acquiring the new notes in the exchange
offer in its ordinary course of business;
*o it has no arrangement or understanding with any
person to participate in a distribution of the
new notes, and if it is not a broker-dealer, it
is not engaged in, and does not intend to engage
in, a distribution of the new notes;
*o it is not an "affiliate" of Mail-Well ICenveo Corporation,
as defined in Rule 405 of the Securities Act, or
if it is such an affiliate, it will comply with
the registration and prospectus delivery
requirements of the Securities Act to the extent
applicable; and
*o if it is a broker-dealer, it will receive new
notes for its own account in exchange for old
notes that it acquired as a result of
market-making activities or other trading
activities.
3
Each broker-dealer that receives new notes for its own
account in exchange for old notes, where such old notes
were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. See "Plan of
Distribution" on
page 102.Distribution."
We will accept for exchange any and all old notes that are
properly tendered and not withdrawn in the exchange offer
prior to 5:00 p.m., New York City time, on ,
------------
2002._____________,
2004. The exchange agent will deliver the new notes issued
pursuant to the exchange offer promptly following the
expiration date. See "The Exchange Offer--Terms of the
Exchange Offer; Period for Tendering Old Notes" on page 54.
Holders of old notes who would like to tender old notes in
exchange for new notes should be sure to allow enough time
for the old notes to be delivered on time. We are not
required to notify you of defects or irregularities in
tenders of old notes for exchange. Old notes that are not
tendered or that are tendered but we do not accept for
exchange will, following consummation of the exchange offer,
continue to be subject to the existing transfer restrictions
under the Securities Act and, upon consummation of the
exchange offer, certain registration and other rights under
the registration rights agreement will terminate. See "The
Exchange Offer--Procedures for Tendering Old Notes" on page
55 and "The Exchange Offer--Consequences of Failure to
Exchange" on page 59.Notes."
Federal Income Tax Considerations.........Considerations............... The exchange of old notes for new notes in the exchange
offer will not be a taxable event for U.S. federal income
tax purposes. See "Material"Certain U.S. Federal Income Tax
Considerations" on page 98.Considerations."
Effect of Not Tendering................... If you doTendering......................... Old notes that are not exchange your old notes for new notes intendered or that are tendered but
not accepted will, following the completion of the
exchange offer, you will continue to be subject to the existing
restrictions on transfer of your old notes described in the
legend on the certificates for your old notes. The
restrictions on transfer of your old notes arise because we
issued the old notes under exemptions from, or in
transactions not subject to, the registration requirements
of the Securities Act and applicable state securities laws.
In general, you may only offer or sell the old notes if they
are registered under the Securities Act and applicable state
securities laws, or are offered and sold under an exemption
from these requirements. We do not currently plan to
register the old notes under the Securities Act, and excepttransfer. Except as described in
"Description of the New Notes--RegistrationNotes - Registration Rights;
Liquidated Damages" on page 72,Damages," we will have no further obligation to
provide for the registration under the Securities Act of
the old notes. Holders of old notes do not have any
appraisal or dissenters' rights in connection with the
exchange offer.
Regulatory Approvals......................Approvals............................ We do not believe that the receipt of any federal or state
approvals will be necessary in connection with the exchange
offer, other than the effectiveness of the registration
statement of which this prospectus constitutes a part.
4
approvals will be necessary in connection with the
exchange offer, other than the effectiveness of the
registration statement of which this prospectus
constitutes a part.
SUMMARY DESCRIPTION OF THE NEW NOTES
Issuer.................................... Mail-Well I
Issuer.......................................... Cenveo Corporation.
Maturity Date................................... December 1, 2013.
Interest Rate.............................Rate................................... The new notes will bear interest at an annual rate of 9 5/7 7/8%.
Interest Payment Dates....................Dates.......................... We will pay interest on the new notes semi-annually on
March
15June 1 and September 15December 1 of each year, beginning September 15,
2002.December 1, 2004.
Optional Redemption.......................Redemption............................. We may redeem the new notes, in whole or in part, on or
after March 15, 2007,December 1, 2008, at the redemption prices specified
under "Description of the New Notes--Optional Redemption" on
page 63.Redemption."
In addition, prior to March 15, 2005,December 1, 2006, we may redeem new
notes, in an aggregate principal amount not to exceed 35%
of the aggregate principal amount of notes originally
issued and at a redemption price of 109.625%108.875%, with the net
cash proceeds of certain equity offerings. See
"Description of the New Notes--Optional Redemption" on page 63.Redemption."
Change of Control.........................Control............................... If we experience a change of control, we may be required
to make an offer to purchase the new notes at a purchase
price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any.
Ranking...................................Ranking......................................... The new notes will be:
*be our unsecured senior unsecured obligationssubordinated
obligations. The note and equal in right of payment
withthe guarantees will rank:
o junior to all of our and the guarantors' existing
and future senior unsecured
indebtedness, and that of the subsidiary guarantors;
* senior to all of our existing and future subordinated
obligations and those of our parent company and the
subsidiary guarantors of which $300.0$137.4
million was outstanding on September 1, 2002; and
* effectively subordinated to $139.1 millionMay 22, 2004;
o equally with any of our parent
company'sand the guarantors'
existing and future senior subordinated
convertible notes, which are due in
November 2002,indebtedness; and
our secured obligations, of which we
had $78.2 million outstanding as of September 1, 2002. On
that date, an additional $87.5 million was available under
ouro senior credit facility and an additional $55.0 million
into any other secured borrowings were permitted under our
senior credit facility.
As of September 1, 2002, we had available cash of $71
million, and based on that amount we would be required to
borrow $68 million under our senior credit facility in
order to pay off the convertible notes. The $68 million is
separately reserved and is in addition to the $87.5 million
available as stated in the immediately preceding paragraph.
The indebtedness listed above as outstanding and available
includes amounts of outstanding and available indebtedness of our subsidiary guarantors.and the guarantors'
future subordinated indebtedness, if any.
Asset Sale Proceeds.......................Proceeds............................. We may be obligated to offer to purchase new notes at a
redemption price of 100% of the principal amount thereof
plus accrued and unpaid interest, if any, to the date of
purchase, with the net cash proceeds of certain sales or
other dispositions of assets.
Guarantees................................Guarantees...................................... The new notes will be unconditionally guaranteed on a
senior unsecured basis by our parent company and certain
of our existing domestic subsidiaries and our future domestic
subsidiaries.
5
Restrictive Covenants.....................Covenants........................... We will issue the new notes under the indenture among us,
the guarantors and State StreetU.S. Bank and Trust Company,National Association, as
5
trustee. The indenture will containcontains covenants that will limit
our ability and the ability of our restricted subsidiaries
to:
*o incur or guarantee additional indebtedness;
*o pay dividends or distributions on, or redeem or
repurchase, our capital stock;
*o make investments;
*o engage in transactions with affiliates;
*o transfer or sell assets;
*o create liens;
*o restrict dividend or other payments to us from
our subsidiaries;
*o issue or sell capital stock of our subsidiaries;
and
*o consolidate, merge or transfer all or
substantially all of our assets and the assets of
our subsidiaries.
These covenants are subject to important exceptions and
qualifications. See "Description of the New Notes--CertainNotes - Certain
Covenants" beginning on page 65.32.
Resale of the New Notes...................Notes......................... We believe that the new notes may be offered for sale,
resold or otherwise transferred by holders without
compliance with the registration and prospectus delivery
requirements of the Securities Act. Our belief is based on
interpretations by the staff of the Securities and
Exchange Commission, as set forth in no-action letters
issued to persons unrelated to us, and is conditioned upon
the new notes being acquired in the ordinary course of the
holders' business and the holders having no arrangement
with any person to engage in a distribution of new notes.
Furthermore, each holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend
to engage in, a distribution of the new notes and has no
arrangement or understanding to participate in a
distribution of new notes.
Each broker-dealer that receives new notes for its own
account in this exchange offer must acknowledge that it
will comply with the prospectus delivery requirements of
the Securities Act in connection with any resale of the
new notes. Broker-dealers that acquired old notes directly
from us and not as a result of market-making activities or
other trading activities may not rely on the staff's
interpretations discussed above or participate in the
exchange offer and must comply with the prospectus
delivery requirements of the Securities Act in order to
resell the old notes.
Please note that the Commission has not considered this
exchange offer in the context of a no-action letter and we
cannot be sure that the staff of the Commission would make
6
a similar determination with respect to this exchange
offer as it did in the no-action letters to the unrelated
persons upon which we are relying.
Use of Proceeds...........................Proceeds................................. We will not receive any proceeds from this offering.
Risk Factors..............................Factors.................................... See "Risk Factors" beginning on page 78 for a discussion of
the factors you should carefully consider before deciding
to participate in the exchange offer.
67
RISK FACTORS
You should carefully consider all of the information in this
prospectus, including the following risk factors, as well as the other
information included or incorporated by reference in this prospectus before
tendering your shares in the exchange offer. Certain information regarding
risks relating to us are incorporated by reference from Mail-Well, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 2003. When we use
the term "notes" in this prospectus, the term includes the old notes and the
new notes.
RISKS RELATING TO THE EXCHANGE OFFER
HOLDERS WHO FAIL TO EXCHANGE THEIR OLD NOTES WILL CONTINUE TO BE SUBJECT TO
RESTRICTIONS ON TRANSFER.
If you do not exchange your old notes for new notes in the exchange
offer, you will continue to be subject to the restrictions on transfer of
your old notes described in the legend on the certificates for your old
notes. The restrictions on transfer of your old notes arise because we
issued the old notes under exemptions from, or in transactions not subject
to, the registration requirements of the Securities Act and applicable state
securities laws. In general, you may only offer or sell the old notes if
they are registered under the Securities Act and applicable state securities
laws, or are offered and sold under an exemption from these requirements. We
do not plan to register the old notes under the Securities Act. For further
information regarding the consequences of tendering your old notes in the
exchange offer, see the discussions below under the captions "The Exchange
Offer -- Consequences of Failure to Exchange " and "Certain U.S. Federal
Income Tax Considerations."
YOU MUST COMPLY WITH THE EXCHANGE OFFER PROCEDURES IN ORDER TO RECEIVE NEW,
FREELY TRADABLE NEW NOTES.
Delivery of new notes in exchange for old notes tendered and
accepted for exchange pursuant to the exchange offer will be made only after
timely receipt by the exchange agent of the following:
o certificates for old notes or a book-entry confirmation of a
book-entry transfer of old notes into the exchange agent's
account at DTC, New York, New York as a depository, including
an agent's message if the tendering holder does not deliver a
letter of transmittal;
o a completed and signed letter of transmittal (or facsimile
thereof), with any required signature guarantees, or, in the
case of a book-entry transfer, an agent's message in lieu of
the letter of transmittal; and
o any other documents required by the letter of transmittal.
Therefore, holders of old notes who would like to tender old notes
in exchange for new notes should be sure to allow enough time for the old
notes to be delivered on time. We are not required to notify you of defects
or irregularities in tenders of old notes for exchange. Old notes that are
not tendered or that are tendered but we do not accept for exchange will,
following consummation of the exchange offer, continue to be subject to the
existing transfer restrictions under the Securities Act and, upon
consummation of the exchange offer, certain registration and other rights
under the registration rights agreement will terminate. See "The Exchange
Offer -- Procedures for Tendering Old Notes" and "The Exchange Offer --
Consequences of Failure to Exchange."
SOME HOLDERS WHO EXCHANGE THEIR OLD NOTES MAY BE DEEMED TO BE UNDERWRITERS.
If you exchange your old notes in the exchange offer for the
purpose of participating in a distribution of the new notes, you may be
deemed to have received restricted securities and, if so, will be required
to comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
8
RISKS RELATING TO HOLDING THE NEW NOTES
OUR SUBSTANTIAL EXISTING DEBT SERVICE REQUIREMENTS COULD IMPAIR OUR
FINANCIAL CONDITION AND OUR ABILITY TO FULFILL OUR OBLIGATIONS UNDER OUR
INDEBTEDNESS, INCLUDING THE NOTES.
We have incurred substantial amounts of debt, and our level of debt may
affect our operations and our ability to make payments on the new notes. As of
June 30, 2002,May 22, 2004, our total indebtedness was approximately $939.3$794.6 million,
representing 80.9%95.5% of our total capitalization (net of cash), and our
interest expense for the six months ended June 30, 2002 was approximately
$33.9 million.capitalization.
Our substantial indebtedness could have several important effects on
our future operations. For example:
*o our ability to obtain additional financing for working capital,
capital expenditures, acquisitions or other corporate purposes in
the future may be limited;
*o a substantial portion of our cash flow from operations will be
dedicated to the payment of principal and interest on indebtedness,
and will not be available to fund working capital, capital
expenditures, acquisitions and other business purposes;
*o we may be more vulnerable to economic downturns or other adverse
developments than less leveraged competitors;
*o borrowings under our senior credit facility bear interest at
fluctuating rates, which could result in higher interest expense in
the event of an increase in interest rates; and
*o we may be unable to repurchase all of the notes tendered to us if
we undergo a change of control.
Our ability to make scheduled payments of principal or interest on, or
to reduce or refinance, indebtedness will depend on our future operating
performance and resulting cash flow. To a certain extent, our future
performance will be subject to prevailing economic conditions and financial,
competitive and other factors beyond our control. IfWe cannot be certain,
however, that our business, or businesses that we may acquire in the future,
do notwill generate sufficient cash flow from operations to enable us to service
all of our debt, including the new notes or any old notes that remain outstanding
after completion of the exchange offer, we may trigger an event of default
under some or all of our indebtedness.notes. We may need additional funding from
either debt or equity offerings in the future in order to refinance our
existing debt, including the new notes, or to continue to grow our business. AdequateWe
cannot be sure that we will have access to any such sources of funding for these purposes may not be
available to us on
satisfactory terms or on a timely basis or at all. For
further information regarding the term of our indebtedness, see
"Description of the New Notes" on page 60 and "Description of Certain
Indebtedness" on page 94.
7
THE TERMS OF OUR INDEBTEDNESS IMPOSE SIGNIFICANT RESTRICTIONS ON OUR
BUSINESS.
The indentures governing the new notes and our senior subordinated
notes due 2012 and
the agreement governing our most recent senior credit facility contain various covenants
that limit our ability, and that of our restricted subsidiaries, to, among
other things:
*o incur or guarantee additional indebtedness;
*o make restricted payments, including dividends;
*o create or permit to exist certain liens;
*o enter into business combinations and asset sale transactions;
*o make investments;
*o enter into transactions with affiliates; and
*o enter into new businesses.
These restrictions could limit our ability to obtain future financing,
make acquisitions or needed capital expenditures, withstand a furtherfuture
downturn in our business or the economy in general, conduct operations or
otherwise take advantage of business opportunities that may arise. Our
senior credit facility also requires us to maintain a specified financial
ratio.ratios. Our ability to meet thefuture financial ratio required by our senior
credit facilityratios may be affected by
events beyond our control, such as general economic conditions. Our failure
to maintain this ratioapplicable financial ratios would prevent us
9
from borrowing additional amounts under our senior credit facility, and
could result in a default under that facility. A default could cause the
indebtedness outstanding under the facility, and by reason of
cross-acceleration or cross-default provisions, the new notes and any other
indebtedness we may then have, to become immediately due and payable. If we
are unable to repay those amounts, the lenders under our senior credit
facility could initiate a bankruptcy proceeding or liquidation proceeding or
proceed against the collateral granted to them to secure that indebtedness.
If the lenders under our senior credit facility were to accelerate the
repayment of outstanding borrowings, we might not have sufficient assets to
repay our indebtedness, including the new notes. See
"Description of the New Notes" on page 60 and "Description of Certain
Indebtedness" on page 94.
THERE ARE ADDITIONAL BORROWINGS AVAILABLE TO US THAT COULD FURTHER
EXACERBATE THE RISKS DESCRIBED ABOVE.
Despite current indebtedness levels, we and our subsidiaries may be
able to incur substantial additional indebtedness in the future. The terms
of the indenture governing the new notes limit but do not prohibit us from doing
so. OurAs of May 22, 2004, our senior credit facility would currently permit additional
borrowings of up to $211$137.4 million (less any outstanding letters of credit).
after completion of this offering. All of those borrowings would be secured
and effectively senior to the new notes and the guarantees. If new debt is added
to our and our subsidiaries' current debt levels, the related risks that we
and they now face could intensify.
NOTTHE NOTES WILL BE CONTRACTUALLY JUNIOR IN RIGHT OF PAYMENT TO OUR SENIOR
INDEBTEDNESS, AND THE GUARANTEES WILL BE CONTRACTUALLY JUNIOR TO ALL SUBSIDIARIES ARE GUARANTORSSENIOR
INDEBTEDNESS OF THE NEW NOTES, AND YOUR RIGHT TO
RECEIVE PAYMENTS ON THE NEW NOTES COULD BE ADVERSELY AFFECTED IF ANY OF OUR
NON-GUARANTOR SUBSIDIARIES DECLARE BANKRUPTCY, LIQUIDATE OR REORGANIZE.
SomeGUARANTORS.
The notes will be contractually junior in right of payment to all of
our subsidiariessenior indebtedness, and the guarantees will guarantee the new notes. See "Descriptionbe contractually junior in
right of payment to all senior indebtedness of the New Notes--Note Guarantees; Restrictions on Mail-Well,guarantors. As of
May 22, 2004, we, excluding our subsidiaries, had approximately $451.6
million of senior indebtedness, consisting of indebtedness under our senior
credit facility and our senior notes due 2012. In addition, our parent
Cenveo, Inc., excluding its subsidiaries, has approximately $451.6
million of senior indebtedness, consisting of its guarantee of our senior
credit facility and Subsidiaries" on page 62. The guarantor subsidiaries would be released fromour senior notes due 2012, and the subsidiary guarantors
have approximately $459.7 million of senior indebtedness, consisting of
their guarantees upon their saleof our senior credit facility and our senior notes due 2012
and $8.1 million of other senior indebtedness.
We may not pay principal, premium, if we satisfy certain conditions underany, interest or other amounts on
the indenture regarding application of the sale proceeds. Innotes in the event of a bankruptcy, liquidationpayment default in respect of certain senior
indebtedness, including debt under our senior credit facility, unless that
indebtedness has been paid in full or reorganizationthe default has been cured or waived.
In addition, if certain other defaults regarding certain senior indebtedness
occur, we may be prohibited from paying any amount on the notes and the
guarantors may be prohibited from paying any amount on the guarantees for a
designated period of time. If we are, or any of the non-guarantor
subsidiaries,guarantors is, declared
bankrupt or insolvent, or if there is a payment default under, or an
acceleration of, any senior indebtedness, we are required to pay the lenders
under our senior credit facility and any other creditors who are holders of
theirsenior indebtedness and their trade creditors will
generally be entitledin full before we apply any of our assets to paymentpay amounts
owing with respect to the notes. Accordingly, we may not have enough assets
remaining after payments to holders of their claims from the assets of those
subsidiaries before any assets are made available for distribution to us.
Such actions by the non-guarantor subsidiaries could adversely affect our debt coverage ratios or our abilitysenior indebtedness to make any
payments on the new notes when
they become due. After giving effect to the offering of the old notes and
assuming we
8
had completed the exchange offer prior to December 31, 2001, the new notes
would have been effectively junior to approximately $43 million of
indebtedness and other liabilities, including trade payables, of our
non-guarantor subsidiaries. In addition, an indeterminate amount may be
available to those subsidiaries for future borrowing. The non-guarantor
subsidiaries generated approximately 9% of our consolidated revenues in the
year ended December 31, 2001 and held approximately 14% of our consolidated
assets and approximately 4% of our consolidated liabilities as of December
31, 2001.notes.
THE GUARANTEES MAY BE SUBJECT TO FRAUDULENT CONVEYANCE LAWS, AND A COURT MAY
VOID THE GUARANTEES OF THE NEW NOTES OR SUBORDINATE THE GUARANTEES TO OTHER
OBLIGATIONS OF THE SUBSIDIARY GUARANTORS.
Although standards may vary depending on the applicable law, generally
under U.S. federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, if a court were to find that, among other things,
at the time any guarantor of the new notes incurred the debt evidenced by its
guarantee of the new notes, the guarantor:
either:
*o was insolvent or rendered insolvent by reason of the incurrence of
the guarantee;
*o was engaged or about to engage in a business or transaction for
which that guarantor's remaining assets constituted unreasonably
small capital;
*o was a defendant in an action for money damages, or had a judgment
for money damages docketed against
10
it, if in either case, after a final judgment, the judgment waswere
unsatisfied;
or
*o intended to incur, or believed that it would incur, debts beyond
its ability to pay such debts as they mature;
and
*o the guarantor received less than reasonably equivalent value or
fair consideration for the incurrence of its guarantee; or
*o incurred the guarantee or made related distributions or payments
with the intent of hindering, delaying or defrauding creditors,
there is a risk that the guarantee of that guarantor could be voided by the
court, or claims by holders of the new notes under the guarantee could be
subordinated to other debts of that guarantor. In addition, any payment by
that guarantor pursuant to its guarantee could be voided and required to be
returned to the guarantor, or to a fund for the benefit of the creditors of
the guarantor.
Different courts may applyThe measures of insolvency for purposes of these standards differentlyfraudulent transfer
laws will vary depending upon the law applied in any proceeding to determine
whether a fraudulent transfer has occurred. Generally, however, a guarantor
would be considered insolvent if:
o the guaranteessum of its debts, including contingent liabilities, were
greater than the new notes, and accordingly, one or more of the guarantees
may be adversely affected as described above.
THE NEW NOTES AND THE GUARANTEES THEREOF ARE EFFECTIVELY JUNIOR TO ALL OF
OUR AND THE GUARANTORS' EXISTING AND FUTURE SENIOR SECURED DEBT TO THE
EXTENT OF THE COLLATERAL.
The new notes and the guarantees provided by the guarantors will be
general unsecured obligations. This means that you will have no recourse to
our or the guarantors' specific assets upon any event of default under the
indenture governing the new notes. Accordingly, the new notes will be
effectively subordinated to any of our secured obligations to the extent of
thefair saleable value of all of its assets;
o the present fair saleable value of its assets securing such obligations. Under certain
circumstances, we may also incur secured debtwas less than the
amount that would be required to other creditors that will
havepay its probable liability on its
existing debts, including contingent liabilities, as they become
absolute and mature; or
o it could not pay its debts as they become due.
On the right to be repaid outbasis of specific property. Your right to be
repaid principal and interest on the new notes will be secondary to the
right of our lenders to be repaid for all current and future borrowings
under our senior credit facilityhistorical financial information, recent operating
history and other secured debt. We may also issue
additional unsecured and unsubordinated debt, which will also rank equally
with your right to be repaid. Your right to be repaid amounts owing under
the guarantees will rank equally to the rights of other unsecured and
unsubordinated obligations of the guarantors.
9
Iffactors, we default on the new notes, become bankrupt, liquidate or
reorganize:
* you will be entitled to be repaid from our remaining assets only
after any secured creditors have been paid out of proceeds from the
sale of their collateral; and
* to the extent there are assets available after all of the foregoing
creditors have been paid, then you will be entitled to be repaid on a
pro rata basis with and only to the extentbelieve that there are sufficient
assets to repay any other obligations of the Company and its
subsidiaries that rank equally with the new notes in right of
payment.
In the event we or the guarantors become bankrupt, liquidate or
reorganize or become involved in a similar proceeding, if we have secured
debt, the holders of the new notes will participate with all other holders
of our or the guarantors' unsecured and unsubordinated indebtedness in the
assets remaining after we and the guarantors have paid all of our secured
debt. In any such case, we and the guarantors may not have sufficient funds
to pay all of our unsecured creditors. If the holders of our secured debt
are not fully paid, the holders of the new notes will not receive any
payments. If, at the time of a bankruptcy, liquidation, reorganization or
similar proceeding relating to us or the guarantors, we and the guarantors
have no secured debt, holders of the new notes will participate ratably with
all of our and the guarantors' other unsecured and unsubordinated creditors,
including unsecured trade creditors and tort claimants, in our and the
guarantors' assets. See "Description of the New Notes" on page 60.
Assuming we had completed this offering on September 1, 2002 andeach guarantor, after giving
effect to its guarantee of these notes, will not be insolvent, will not have
unreasonably small capital for the offering of the old notes, the new notesbusiness in which it is engaged and the
guaranteeswill
not have incurred debts beyond its ability to pay such debts as they mature.
There can be no assurance, however, as to what standard a court would have been effectively subordinated to approximately $78
million of secured debt, and approximately $211 million (less any
outstanding letters of credit)apply
in making such determinations or that a court would have been available for borrowing as
additional secured debt underagree with our
senior credit facility. Under the terms
of the indenture, we will be permitted to borrow substantial additional
indebtedness, including secured debt,conclusions in the future. See "Description of
the New Notes--Certain Covenants--Incurrence of Indebtedness" on page 67.this regard.
THE INSTRUMENTS GOVERNING OUR CURRENT DEBT CONTAIN CROSS DEFAULT PROVISIONS
THAT MAY CAUSE ALL OF THE DEBT ISSUED UNDER SUCH INSTRUMENTS TO BECOME
IMMEDIATELY DUE AND PAYABLE AS A RESULT OF A DEFAULT UNDER AN UNRELATED DEBT
INSTRUMENT.
Our senior credit facility and the indentureindentures pursuant to which our
existing 8 3/4%9 5/8% senior subordinatednotes and the old notes were issued as well as the
indentureand under which
the new notes are beingwill be issued, contain numerous financial and operating
covenants and require us and our subsidiaries to meet certain financial
ratios and tests.
Our failure to comply with the obligations contained in the senior
credit facility the senior
subordinated indenture or the indenture governing the new notes could result in an
event of default under our senior credit facility, the senior
subordinated indenture or
the indenture, which could result in the related debt and the debt issued
under other instruments to become immediately due and payable. In such
event, we would need to raise funds through any number of alternative
available sources, which funds may not be available to us on favorable
terms, on a timely basis or at all. Alternatively, such a default would
require us to sell our assets and otherwise curtail operations in order to
pay our creditors.
For further information concerning the
cross-default provisions of our indebtedness, see "Description of the New
Notes--Events of Default and Remedies" on page 74 and "Description of
Certain Indebtedness" on page 94.
WE MAY BE UNABLE TO REPURCHASE THE NEW NOTES IF WE EXPERIENCE A CHANGE OF
CONTROL.
If we were to experience a change of control, as defined in the
indenture governing the new notes, we wouldwill be required to make an offer to
purchase all of the new notes at a purchase price equal to 101% of the principal
amount, plus accrued and unpaid interest. Our senior credit facility
restricts our ability to repurchase new notes, including the repurchase of new notes
under a change of control offer. Our failure to repay holders tendering
new notes upon a change of
11
control would result in an event of default under the new notes. A change of
control, or an event of default under the new notes, may also
10
result in an event
of default under our senior credit facility, which may result in the
acceleration of the indebtedness under that facility requiring us to repay
that indebtedness immediately. If a change of control were to occur, we
may notcannot assure you that we would have sufficient funds to repay debt
outstanding under the senior credit facility or to purchase the new notes or any
other securities which we would be required to offer to purchase or that
become immediately due and payable as a result. We expect that we would
require additional financing from third parties to fund any such purchases,
and suchwe cannot assure you that we would be able to obtain financing
may not be available to us on
satisfactory terms, or at all.
THERE IS NO PUBLIC TRADING MARKET FOR THE NOTES, AND THEY ARE SUBJECT TO
TRANSFER RESTRICTIONS.RESTRICTIONS
The new notes will be a new issue of securities for which there will be
a limited trading market.
The initial purchaserspurchaser of the old notes have advised us that they are
making a market in the notes and will do so for the new notes following the
completion of this offering. However, the initial purchasers arepurchaser is not
obligated to do so, and may discontinue any market-making activities with
respect to the new notes at any time without notice. In addition, such
market-makingmarket making activity will be subject to the limitations imposed by the
Securities Act and the Securities Exchange Act of 1934, and may be limited
during this exchange offer.
If an active market for the new notes were to exist, the new notes
might trade at prices lower than their initial offering price. The trading
price would depend on many factors, such as prevailing interest rates and
the market for similar securities, general economic conditions and our
financial condition, performance and prospects.
RISKS RELATED TO OUR BUSINESS
OUR PARENT COMPANY'S CONVERTIBLE NOTES BECOME DUEWe formed our company through the acquisition of over 50 separate
businesses. Until 2001, our business philosophy was generally to continue to
operate these businesses as separate businesses operating autonomously in
their historical markets. From June 2001 to 2003, we undertook a
restructuring that focused on the integration of our businesses and
operational improvements through the sale of non-core assets, consolidation
of facilities and sharing of best practices. Part of our current strategy
for growing market share and revenues includes a customer focused
reorganization of our company into a commercial segment serving our direct
customers and a resale segment serving wholesalers and value-added
resellers. To be successful with this part of our strategy, certain of our
customers will need to change the way they buy printed products as one stop
shopping has not been traditionally available except through resellers. In
addition, our sales people will need to be trained and change the way they
focus on new customer opportunities because in the past they generally only
sold the products offered at the location out of which they work. We believe
that this one stop shopping, total company solutions strategy will be
accepted by customers as a way to streamline the procurement process and
thereby reduce their print procurement costs. However, this strategy is
generally untested and therefore there is no assurance that it will be
successful.
WE HAVE REPORTED LOSSES IN NOVEMBER2001, 2002, AND WE
MAY NEED TO BORROW ON OUR SENIOR CREDIT FACILITY TO REPAY A PORTIONTHE FIRST QUARTER OF THOSE NOTES.
Mail-Well, Inc. has outstanding $139 million in aggregate principal
amount of 5% convertible notes. The convertible notes are due November 1,
2002. We expect to use available cash and, to the extent necessary,
borrowings under our senior credit facility to repay an inter-company note
between the Company and the Parent Company, which will use those funds to
repay the holders of the convertible notes. As of September 1, 2002, we had
available cash of $71 million, and based on that amount we would be
required to borrow $68 million under our senior credit facility in order
to pay off the convertible notes. The senior credit facility has several
conditions to borrowing. If we are unable to satisfy all of these
conditions, we would be unable to borrow under the senior credit facility
to repay the convertible notes. We would then need to obtain the funds to
repay the convertible notes through other sources, which funds may not be
available to us on favorable terms, on a timely basis or at all. The Parent
Company's failure to pay the convertible notes when due would be an event
of default under the convertible notes.
WE HAVE RECENTLY REPORTED LOSSES,2004, AND IT
IS UNCERTAIN WHEN WE WILLWHETHER OUR RETURN TO PROFITABILITY.PROFITABILITY CAN BE SUSTAINED.
We reported losses for the last three fiscal quarters of 2001 and 2002 primarily as a result of expenses
related to our restructuring initiatives and the economic slowdown. The
slowdown in the economy during 2001 significantly impacted our sales. Reductions by our
customers in spending on printed advertising material and direct mail
promotions impacted sales of commercial printing and envelopes. Technology and telecommunications customers in
particular, significantly reduced their promotional spending in 2001 due to
the decline in those sectors. In addition,
sales of traditional business forms by our printed office products business
declined in 2001. These
adverse factors have continued to affect our results indeclined. Although we were profitable for the six12 months ended June 30, 2002, and our results were belowDecember
31, 2003, we reported a net loss for the resultsfirst quarter of the comparable
period in 2001. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Consolidated Results of Operations" on
page 21.2004. Our ability
to return to profitability depends in part on our customers' recovery from
thisthe economic slowdown, and the successrealization of the benefits of our efforts to
reduce operating expenses through our plant consolidations and ongoing
cost-cutting
11
measures in connection with our recent strategic initiatives. Our operating
results are difficult to predict, and we may not be successful in achieving
increased revenues, positive cash flows or profitability.
WE NEED TO MAKE ADDITIONAL STRUCTURAL CHANGES IN RESPONSE TO CONTINUING
SALES DECLINES.
On August 21, 2002, our management approved a new restructuring plan
necessitated by the continued sales declines we are experiencing,
especially in our commercial printing business. A summary of this plan is
as follows:
* The sale or closure of our commercial printing plant in New York;
* Substantial curtailment of our printing operations in Philadelphia,
Pennsylvania and Seattle, Washington;
* Redeployment of our web presses now located in Indianapolis, Indiana
and Portland, Oregon; and
* Employee reductions throughout the organization.
We estimate the cost of this restructuring plan to be approximately $50
million, of which $31 million will be non-cash.
The implementation of these changes may adversely affect our results of
operations due to diversion of management's attention, negative reactions
from customers
and other factors. Furthermore, the costs of the
restructuring may be higher thancost reduction initiatives and our estimates or may have a higher cash
component, the restructuring may take longerability to implement than we expect
and anticipated cost savings may not fully materialize.our
current strategic plan.
TO THE EXTENT THAT WE MAKE SELECT ACQUISITIONS, WE MAY NOT BE ABLE TO
SUCCESSFULLY INTEGRATE THE ACQUIRED BUSINESSES INTO OUR BUSINESS.
12
In the past, we have grown rapidly through acquisitions. TheAlthough we
believe that our experience in making acquisitions is an important asset,
our strategic plan and the terms of our senior credit facility and our current financial resources limit the
acquisitions that we may currently pursue. To the extent that we pursue
acquisitions, we cannot be certain that we will be able to identify and
acquire other businesses on favorable terms or that, if we are able to
acquire businesses on favorable terms, we will be able to successfully
integrate the acquired businesses into our current business or profitably
manage them.
THE PRINTING BUSINESS DOES NOT GENERALLY USE LONG-TERM AGREEMENTS, AND OUR
PRINTING OPERATIONS MAY BE SUBJECT TO QUARTERLY AND CYCLICAL FLUCTUATIONS.
The printing industry in which we compete is generally characterized by
individual orders from customers or short-term contracts. Most of our
customers are not contractually obligated to purchase products or services
from us. Most customer orders are for specific printing jobs, and repeat
business largely depends on our customers' satisfaction with the work we do.
Due to these factors,Although our business does not depend on any one customer or group of
customers, we cannot be sure that any particular customer may notwill continue to
do business with us or may substantially decrease the amountfor any period of business they
do with us at any time. This makes it difficult for us to accurately
forecast our operating results. In addition, the timing of
particular jobs or types of jobs at particular times of year may cause
significant fluctuations in the operating results of our various printing
operations in any given quarter. We depend to some extent on sales to
certain industries, such as the advertising automotive and direct mail marketingautomotive industries. We
estimate that approximatelyover 50% of our commercial printing sales are related to
advertising. To the extent these industries experience downturns, as is currently the case in advertising, the
results of our operations are adversely affected.
OUR INDUSTRY IS HIGHLY COMPETITIVE.
The printing industry in which we compete is extremely fragmented and
highly competitive. In the commercial printing market, we compete against a
number of large, diversified and financially stronger
12
printing companies, as
well as regional and local commercial printers, many of which are capable of
competing with us on volume, price and production quality. In the envelope
market, we compete primarily with a few multi-plant and many single-plant
companies servicing regional and local markets. In the printed office
products market, we compete primarily with document printers with nationwide
manufacturing locations and regional or local printers. There currently is
excess capacity in the printing and envelope industries,industry, which could resulthas resulted in excessive
price competition. Our effortscompetition and may continue to do so. We are constantly seeking ways
to reduce our costs and become more efficient may notcompetitors. However, we cannot
be certain that these efforts will be successful andor that our competitors
maywill not be more successful in their similar efforts.efforts to reduce costs and
become more efficient. If we fail to reduce costs and increase productivity,
we may face decreased profit margins in markets where we encounter price
competition, which in turn could reduce our cash flow and profitability.
FACTORS AFFECTING U.S. AND CANADIAN POSTAL SERVICES CAN IMPACT OUR BUSINESS.
Most envelopes used in the United States and Canada are sent through
the mail and, as a result, postal rates can significantly affect envelope
usage. Historically, increases in postal rates, relative to changes in the
cost of alternative delivery means and/or advertising media, have resulted
in temporary reductions in the growth rate of mail sent, including direct
mail, which is a significant portion of our envelope volume. DirectWe cannot be
sure that direct mail marketers maywill not reduce their volume as a result of
any futureincreases. Because rate increases in the United States and Canada are
outside our control, we can provide no assurance that any increases in U.S.
and/or Canadian postal rates.rates will not have a negative effect on the level of
mail sent, or the volume of envelopes purchased, in either or both
countries. In such event, we would expect to experience a decrease in cash
flow and profitability.profitability or financial position.
Factors other than postal rates that detrimentally affect the volume of
mail sent through the U.S. and Canadian postal systems may also negatively
affect our business. If the threats of mass bio-terrorism in the U.S. mail
system persist,resume, or if there is a perception of a lack of safety in the U.S.
or Canadian postal systems, we cannot be sure that direct mail marketers
maywill not reduce their volume as a result of any such persisting threats or
insecurity. Any resultinginsecurity, or that such decreases in demand couldwill not have a negative effect
on the level of mail sent or the volume of envelopes purchased. Congress
recently enacted a federal "Do Not Call" registry in response to consumer
backlash against telemarketers
13
and is contemplating enacting so-called "anti-spam" legislation in response
to consumer complaints about unsolicited e-mail advertisements. If this
consumer trend becomes directed at direct mail advertising, or if similar
legislation or regulations prohibit or limit direct mail advertisements, our
business could be negatively affected.
INCREASES IN PAPER COSTS AND ANY DECREASES IN THE AVAILABILITY OF PAPER
COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
Paper costs represent a significant portion of our cost of materials.
Changes in paper pricing generally do not affect the operating margins of
our commercial printing business because prices for those paper grades
historically have been less volatile and we have been able to pass on paper
price increases. Paper pricing impactsdoes, however, impact the operating margins
of our envelope business because prices for those paper grades historically
have been more volatile and we generally are not able to increase our prices
as quickly as paper prices increase. We may notcannot be certain that we will be
able to continue to pass on future increases in the cost of paper to our customers.paper. Moreover,
rising paper costs and their consequent impact on our pricing could lead to
a decrease in our volume of units sold. For example, successiveAlthough we have been successful in
negotiating favorable pricing terms with paper price increases during late 1995
and early 1996 resulted in a decline in demand for our products,
particularly from the direct mail advertising industry. Ifvendors, we are notcannot be certain
we will be successful in negotiating favorable pricing terms in the future, thisfuture.
This may result in decreased sales volumes as well as decreased cash flow and
profitability.
We have received notice of an expected increase of 10% in the
price of uncoated paper, to take effect in the fourth quarter of 2002.
We depend on the availability of paper in manufacturing most of our
products. UnforeseenDuring periods of tight paper supply, many paper producers
allocate shipments of paper based on the historical purchase levels of
customers. As a result of our large volume paper purchases from several
paper producers, we generally have not experienced difficulty in obtaining
adequate quantities of paper, although we have occasionally experienced
minor delays in delivery. Although we believe that our attractiveness to
vendors as a large volume paper purchaser will continue to enable us to
receive adequate supplies of paper in the future, unforeseen developments in
world paper markets coupled with shortages of raw paper could result in a
decrease in supply, which in turn would cause a decrease in the volume of
products we could produce and sell and a corresponding decrease in cash flow
and profitability.
THE AVAILABILITY OF ALTERNATIVE DELIVERY MEDIA MAY ADVERSELY AFFECT OUR
BUSINESS.
Our envelope manufacturing and printing business is highly dependent upon the demand for envelopes sent
through the mail. Such demand comes from utility companies, banks and other
financial institutions, among others. Our printing business also depends upon
demand for printed advertising and business forms, among others. Consumers
increasingly use the Internet and other electronic media to purchase goods
and services, and for other purposes such as paying utility and credit card
bills. Advertisers use them for targeted campaigns directed at specific
electronic user groups. Large and small businesses use electronic media to
conduct business, send invoices and collect bills. As a result, we expect
the demand for envelopes traditional business forms and other printed materials for these purposes to
decline. In addition, companies have begun to deliver annual reports
electronically rather than in printed form, which could reduce demand for
our high impact color printing.
Although we expect countervailing trends, such as the growth of
targeted direct mail campaigns based upon mailing lists generated by
electronic purchases, to cause overall demand for envelopes and other
printed materials to continue to grow at rates comparable to recent
historical levels, we cannot be certain that the acceleration of the trend
towards electronic media such as the Internet and other alternative media
will not cause a decrease in the demand for our products. If demand for our
products for these purposes decreases, and is not
replaced by
13
increased demand from other uses of these products, we may not generate sufficient cash flow to make required
paymentspayment on the notes.
WE DEPEND ON GOOD LABOR RELATIONS.
Following the saleAs of our prime label segment, as of August 15, 2002,December 31, 2004, we had approximately 11,10010,000 full-time
employees, of whom approximately 2,2001,800 were members of various local labor
unions. If our unionized employees were to engage in a concerted strike or
other work stoppage, or if other employees were to become unionized, we
could experience a disruption of operations, higher labor costs or both. A
lengthy strike could result in a material decrease in our cash flow or
profitability.
14
ENVIRONMENTAL LAWS MAY AFFECT OUR BUSINESS.
Our operations are subject to federal, state, local and foreign
environmental laws and regulations, including those relating to air
emissions, wastewater discharge, waste generation, handling, management and
disposal, and remediation of contaminated sites. In addition, some of the
sellers from which we have bought businesses in the past have been
designated as potentially responsible parties under the federal
Comprehensive Environmental Response, Compensation and Liability Act of
1980, or CERCLA, or similar legislation in Canada, with respect to off-site
disposal of hazardous waste at two sites.Canada. CERCLA imposes strict,
and in certain circumstances joint and several, liability for response
costs. Liability may also include damages to natural resources. Currently unknown
conditionsWe believe
that we have minimal exposure as a result of such designations, either
because indemnities obtained in the course of acquisitions or matters may subject us to material costs forbecause of the
de minimis nature of the claims, or both. We also believe that our current
operations are in substantial compliance with or remediation underapplicable environmental laws
and regulations, andregulations. We cannot be certain, however, that available indemnities
may notwill be adequate to cover all such costs. Any such costs or that currently unknown conditions or
matters, new laws and regulations, or stricter interpretations of existing
laws and regulations maywill not have a material adverse effect on our business
or operations in the future.
IT MAY ADVERSELY AFFECT OUR BUSINESS IF WE CANNOT ATTRACT OR RETAINARE DEPENDENT ON KEY MANAGEMENT PERSONNEL.
We do not asOur success will continue to depend to a matter of policy have employment agreements withsignificant extent on our
executive officers and other key management personnel. We cannot be certain
that we may notwill be able to retain our executive officers and key personnel or
attract additional qualified management in the future.
If we are unable to retain current management, our ability to successfully
execute our business strategy may be adversely impacted, and as a
consequence our results of operations may not improve as quickly as we
expect. In addition, the
success of any acquisitions we may pursue may depend, in part, on our
ability to retain management personnel of the acquired companies. If such personnel do not continue in service with us
for an adequate period of time following our completion of an acquisition,
we may not integrate the acquired business into ours as quickly or
effectively as we expected to, and the advantage we expected to gain from
the acquisition may be diminished or lost. We do not
carry key person insurance on any of our managerial personnel.
14COMPLIANCE WITH RECENT LEGISLATION COULD BE BURDENSOME AND EXPENSIVE.
Recently enacted and proposed changes in the laws and regulations
affecting public companies, including the provisions of the Sarbanes-Oxley
Act of 2002 and rules proposed by the SEC and the New York Stock Exchange
could cause us to incur increased costs as we evaluate the implications of
new rules and respond to new requirements. The new rules could make it more
difficult for us to obtain certain types of insurance, including directors
and officer liability insurance, and we may be forced to accept reduced
policy limits and coverage or incur substantially higher costs to obtain the
same or similar coverage. The impact of these events could also make it more
difficult for us to attract and retain qualified persons to serve on our board
of directors, or as executive officers.
15
FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts included in
this prospectus regarding the prospects of our industry and our prospects,
plans, financial position and business strategy, other than statements of historical facts, may constitute
forward-looking statements. In addition, forward-looking statements
generally can be identified by the use of forward-looking terminology such
as "may," "will," "should," "expect," "intend," "estimate," "anticipate,"
"believe," "predict," "potential" or "continue" or the negatives of these
terms or variations of them or similar terminology. Although we believe that
the expectations reflected in these forward-looking statements are
reasonable, we cannot assure you that these expectations will prove to be
correct. Important factors that could cause actual results to differ
materially from our expectations are disclosed in this prospectus, including
in conjunction with the forward-looking statements included in this
prospectus and under "Risk Factors." All subsequent written and oral
forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by the cautionary
statements included in this document. These forward-looking statements speak
only as of the date of this prospectus. We do not intend to update these
statements unless the securities laws require us to do so.
USE OF PROCEEDS
We will not receive any proceeds from the issuance of the new notes or
consummation of the exchange offer. In consideration for issuing the new
notes as contemplated in this prospectus, we will receive corresponding old
notes in like principal amount. The old notes will be retired and cancelled
and cannot be reissued. Accordingly, issuance of the new notes will not
result in any change in our indebtedness.
The approximate net proceeds from our sale of the old notes, after
deducting underwriting fees and expenses of the offering, were $342.2$313 million.
We used the net proceeds to repay $197.0purchase $300 million principal amount of our bank term
debt, $134.0 million8 3/4%
senior subordinated notes due December 15, 2008, together with the premium
and accrued interest payable to the holders of our revolving credit facility,those notes, and $9.2 million of
other debt. The remaining $2.0 million of proceeds from the offering were
used for other working capital needs.
15to pay
related fees and expenses.
16
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated historical financial informationinformation: (i) for the
five years ended December 31, 1999 through 20012003 are derived from our consolidated
financial statements and notes, which have been audited by Ernst & Young LLP. The previously audited financial statementsLLP
and (ii) for the years ended December 31, 1997 and 1998 have been restated to reflect our
discontinued operations. This information for 1997 and 1998 has been
prepared by management, and these adjustments have not been reviewed by our
current or prior auditors. The following summary information for the sixthree months ended June 30, 2002March 31, 2003 and 2001 is2004, respectively,
are derived from our interim unaudited consolidated financial statements.statements and notes for such
periods.
Since the information presented below is only a summary and does not
provide all of the information contained in our financial statements,
including the related notes, you should read this information in conjunction
with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on page 20, and the consolidated financial statements and
accompanying notes beginning at page
F-1 of this prospectus.included in the Annual Report on Form 10-K for the year
ended December 31, 2003 and the Quarterly Report on Form 10-Q for the period
ended March 31, 2004.
SIXTHREE MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30
-------------------------------------------------------------- -------------------
1997 1998ENDED MARCH 31,
---------------------------------------------------------- -----------------------
1999 2000 2001 2001 2002 2003 2003 2004
---------- ---------- ---------- ---------- ---------- -------- ------------------ ----------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS:
Net sales......................... $1,096,830 $1,463,097sales .................................... $1,699,222 $2,044,350 $1,868,768 $960,336 $864,449$1,728,705 $1,671,664 $ 427,320 $ 423,742
Cost of sales..................... 857,105 1,159,328sales ................................ 1,315,735 1,599,613 1,481,135 755,999 697,5821,385,361 1,337,118 343,400 335,322
---------- ---------- ---------- ---------- ---------- -------- ------------------ ----------
Gross profit.................. 239,725 303,769profit ................................. 383,487 444,737 387,633 204,337 166,867343,344 334,546 83,920 88,420
Selling, general and administrative
expenses......... 153,897 191,780expenses and amortization .................. 232,679 300,035 293,201 151,352 138,255265,971 247,588 63,870 69,403
Restructuring, asset impairments and other
charges................... -- 28,923charges(1) ................................. 1,807 14,48812,135 79,608 28,856 43,078110,292 6,743 771 17,851
---------- ---------- ---------- ---------- ---------- -------- ------------------ ----------
Operating income.............. 85,828 83,066income (loss) ...................... 149,001 130,214132,567 14,824 24,129 (14,466)(32,919) 80,215 19,279 1,166
Interest expense.................. 30,157 34,853expense ............................. 45,811 72,997 63,314 33,771 33,87870,461 71,891 18,214 18,399
Other expense (income), net....... (2,088) (1,009)expenses ............................... (1,228) 847 1,923 984 3371,754 1,819 132 441
---------- ---------- ---------- ---------- ---------- -------- ------------------ ----------
Income (loss) from continuing operations
before income taxes....................... 57,759 49,222taxes and cumulative effect
of a change in accounting principle ........ 104,418 56,37058,723 (50,413) (10,626) (48,681)(105,134) 6,505 933 (17,674)
Provision (benefit) for income taxes........................... 22,783 23,676taxes ..... 42,421 21,62422,530 (5,200) (1,126) (7,128)(31,646) 2,581 (401) 1,139
---------- ---------- ---------- ---------- ---------- -------- ------------------ ----------
Income (loss) from continuing operations...................... 34,976 25,546operations
before cumulative effect of a change in
accounting principle ....................... 61,997 34,74636,193 (45,213) (9,500) (41,553)(73,488) 3,924 532 (16,535)
Income (loss) from discontinued operations,
net of income tax
expense (benefit)............... (6,100) 295taxes ............................... 2,485 (8,575) (91,004) (79,403) (8,152)(16,868) 1,548 2,500 --
---------- ---------- ---------- ---------- ---------- -------- ------------------ ----------
Income (loss) before extraordinary
gain............................ 28,876 25,841cumulative effect of a change in
accounting principle ....................... 64,482 26,17127,618 (136,217) (88,903) (49,705)
Extraordinary gain (loss),
net......................... -- (4,132) -- 1,447(90,356) 5,472 3,032 (16,535)
Cumulative effect of a change in accounting
principle .................................. -- -- (10,125)-- (111,748) (322) (322) --
---------- ---------- ---------- ---------- ---------- -------- ------------------ ----------
Net income (loss)................. $ 28,876 $ 21,709 ............................ $ 64,482 $ 27,618 $ (136,217) $(88,903) $(59,830)$ (202,104) $ 5,150 $ 2,710 $ (16,535)
========== ========== ========== ========== ========== ======== ========
Income (loss) from continuing
operations per share--basic.....========== ==========
OTHER DATA:
Capital expenditures ......................... $ 0.8685,501 $ 0.5567,063 $ 1.2732,742 $ 0.7130,896 $ (0.95)31,602 $ (0.20)6,416 $ (0.87)
Income (loss) from continuing
operations per share--
diluted......................... $ 0.82 $ 0.53 $ 1.16 $ 0.70 $ (0.95) $ (0.20) $ (0.87)
OTHER FINANCIAL DATA:5,647
Net cash provided by (used in) operating
activities ................................. 117,504 153,172 170,935 22,971 59,459 (13,067) (14,478)
Net cash provided by (used in) investing
activities ................................. (194,828) (153,449) (32,898) 100,819 (29,856) (2,037) (5,418)
Net cash provided by (used in) financing
activities ................................. 167,313 149,629 (144,144) (110,222) (33,256) 12,618 20,092
Ratio of earnings to fixed charges(1)...................... 1.94x 1.62x 2.07x 1.37xcharges
(unaudited)(2) ............................. 2.67x 1.57x N/A N/A 1.08x N/A
THREE MONTHS
YEAR ENDED DECEMBER 31, -------------------------------------------------------------- JUNE 30
1997 1998ENDED MARCH 31,
---------------------------------------------------------- -----------------------
1999 2000 2001 2002 2003 2003 2004
---------- ---------- ---------- ---------- ---------- --------------------- ----------
BALANCE SHEET DATA: (DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Working capital........................... $ 105,442 $ 157,248 $ 94,459 $ 363,384 $ 19,130 $ 197,520
Property, plant and equipment, net........ 262,797 388,883net ........... $ 451,419 $ 480,327 422,278 401,088
Intangible$ 428,564 $ 379,624 $ 388,240 $ 379,677 $ 380,328
Total assets net.................... 173,716 305,108 380,914 496,152 411,416 413,874
Total assets.............................. 671,411 1,127,955................................. 1,310,260 1,683,592 1,475,576 1,447,1231,476,867 1,107,367 1,107,393 1,110,270 1,111,973
Total debt................................ 340,890 587,124debt ................................... 666,397 922,351 855,221 939,293763,899 748,961 777,251 777,337
Long-term debt............................ 330,357 584,301debt ............................... 652,743 881,976 552,051 794,867760,938 746,386 775,058 774,749
Shareholders' equity...................... 171,820 299,375equity ......................... 375,310 385,853 241,877 186,791
Book value per share...................... 3.99 6.13 7.63 8.13 5.01 3.8742,768 68,019 53,449 49,658
- --------
(1) Restructuring, asset impairments and other charges includes pre-tax
loss (gain) from the early
17
extinguishment of debt of $(2.4) million, $16.5 million and $17.7 million in
2000, 2002, and the three months ended March 31, 2004, respectively,
impairment loss on assets held for sale of $6.4 million in 2002 and
impairment on operations formerly held for sale of $36.5 million and $12.8
million in 2001 and 2002, respectively.
(2) For purposes of calculating the ratio of earnings to fixed charges, (i)
earnings consist of income (loss) from continuing operations before
cumulative effect of change in accounting principle, fixed charges and income
taxes, and (ii) fixed charges consist of interest expense on all indebtedness
(including amounts allocated to discontinued operations), including the
amount of amortization of deferred financing costs and capitalized interest in 2001 and 2000.interest.
For the six months ended June 30, 2002 and the yearyears ended December 31, 2001 and 2002, the earnings, as defined
above, were less than fixed charges, as defined above, by $41.6$50.4 million and
$45.5 million, respectively.
16
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial data
include an unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 2001 and the six months ended
June 30, 2002. The pro forma statements are derived from our audited
consolidated financial statements for the year ended December 31, 2001 and
our unaudited consolidated financial statements for the period ended June
30, 2002, which are included elsewhere in this prospectus. The unaudited
pro forma condensed consolidated financial data have been prepared for
illustrative purposes only and do not purport to represent what our
financial condition or results of operations would actually have been had
the transactions described below in fact occurred as of the dates
specified. In addition, the unaudited pro forma condensed consolidated
financial data do not purport to project our results of operations as of
any date or for any future period.
The unaudited pro forma condensed consolidated statement of operations
includes the effects of the issuance of the new notes and other adjustments
related to the issuance of the new notes. The unaudited pro forma condensed
consolidated financial data should be read in conjunction with our audited
financial statements as of December 31, 2001 and the year then ended and
our unaudited consolidated financial statements as of June 30, 2002 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 20.
17
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
AND THE YEAR ENDED DECEMBER 31, 2001
(in thousands)
(Unaudited)
SIX MONTHS ENDED JUNE 30, 2002
------------------------------
PRO FORMA
OFFERING
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
Net sales........................................... $ 864,449 $ $ 864,449
Cost of sales....................................... 697,582 697,582
---------- -------- ----------
Gross profit.................................... 166,867 166,867
Selling, general and administrative expenses........ 138,255 138,255
Restructuring, asset impairments and other
charges........................................... 43,078 43,078
---------- -------- ----------
Operating loss...................................... (14,466) (14,466)
Interest expense (income)........................... 33,878 16,844 (a) 42,753
(6,985)(a)
(1,438)(b)
454 (c)
Other expenses...................................... 337 337
---------- -------- ----------
Loss from continuing operations before income
taxes............................................. (48,681) (8,875) (57,556)
Benefit for income taxes............................ (7,128) (3,417)(d) (10,545)
---------- -------- ----------
Net loss from continuing operations before
extraordinary items............................... $ (41,553) $ (5,458) $ (47,011)
========== ======== ==========
YEAR ENDED DECEMBER 31, 2001
----------------------------
PRO FORMA
OFFERING
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
Net sales........................................... $1,868,768 $ $1,868,768
Cost of sales....................................... 1,481,135 1,481,135
---------- -------- ----------
Gross profit.................................... 387,633 387,633
Selling, general and administrative expenses........ 293,201 293,201
Restructuring, asset impairments and other
charges........................................... 79,608 79,608
---------- -------- ----------
Operating income.................................... 14,824 14,824
Interest expense (income)........................... 63,314 33,688 (a) 77,592
(19,015)(a)
(1,299)(b)
904 (c)
Other expenses...................................... 1,923 1,923
---------- -------- ----------
Loss from continuing operations before income
taxes............................................. (50,413) (14,278) (64,691)
Benefit for income taxes............................ (5,200) (5,497)(d) (10,697)
---------- -------- ----------
Net loss from continuing operations before
extraordinary items............................... $ (45,213) $ (8,781) $ (53,994)
========== ======== ==========
18
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in thousands)
(a) Adjustment to record interest on the new notes, less interest incurred
on the portions of the Tranche A and B term loans and on other senior
debt repaid by the new notes and the reduction of interest expense as a
result of assumed decrease in balances outstanding under the revolving
credit facility.
DECEMBER 31 JUNE 30
2001 2002
------------ ---------
Interest on new notes.......................... $ 33,688 $16,844
Less:
Interest on Tranche A term loan repaid..... (7,114) (2,827)
Interest on Tranche B term loan repaid..... (7,242) (2,898)
Interest on other senior debt repaid....... (937) (317)
Interest on revolving credit facility...... (3,722) (946)
-------- -------
(19,015) (6,985)
-------- -------
$ 14,673 $ 9,859
======== =======
(b) Adjustment to remove amortization of deferred financing fees related to
the senior credit facility, which were written off as a result of the
sale of the new notes, net of additional amortization on fees incurred
to amend the senior credit facility. The pro forma adjustment does not
include the impact on results of the write-off of these fees since the
write-off is nonrecurring.
(c) Adjustment to record amortization of deferred financing fees related to
the new notes.
(d) Adjustment to record the taxes on the above adjustments at the
statutory rate of 38.5%.
Ratio of Earnings to Fixed Charges--For purposes of calculating the pro
forma ratio of earnings to fixed charges, (i) earnings consist of income
(loss) from continuing operations before fixed charges and income taxes,
and (ii) fixed charges consist of interest expense on all indebtedness
(including amounts allocated to discontinued operations), including the
amount of amortization of deferred financing costs and capitalized
interest. For the pro forma six months ended June 30, 2002 and the pro
forma year ended December 31, 2001, the earnings, as defined above, were
less than fixed charges, as defined above, by $57.6 million and $35.6
million, respectively.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CORPORATE OVERVIEW
In 2001, we adopted a strategy to focus on our two primary
businesses--envelopes and commercial printing--and announced plans to
divest our prime label and printed office products businesses and the
filing products division of our envelope business and the digital graphics
division of our commercial printing business. In addition to the planned
divestitures, we initiated a restructuring program to consolidate
manufacturing facilities to improve our competitive position and several
other initiatives to significantly improve operations, reduce costs and
increase marketing effectiveness.
In February 2002, we sold Curtis 1000 Inc., the distribution business
included in our printed office products business, and in May 2002, we sold
our prime label business. As of June 2002, we had not received an offer for
PrintXcel, also part of our printed office products business, that we
considered consistent with its value. Because PrintXcel generates reliable
cash flow and a satisfactory return on assets we concluded that it was not
in our best interest to sell this business, and we discontinued our efforts
to do so. This business is now an integral part of our strategy of expanding
our print products and services to a larger customer base.
In August 2002, we sold the filing products division of our envelope
business. We are continuing our efforts to sell the digital graphics
division of our commercial printing business.
We believe we are the world's largest manufacturer of envelopes. We
produce approximately 43 billion envelopes annually in our 40 envelope
manufacturing facilities located throughout the United States and Canada.
Approximately 84% of these envelopes are customized specifically for our
customers for use in billing and remittance, direct mail advertising and
specialty packaging. The remaining 16% are stock envelopes sold into the
resale market.
We are also one of the largest commercial printers in the United
States. We operate 29 printing plants located strategically throughout the
United States and one in Canada. We specialize in high impact printing, in
which we print a wide range of premium printed products for national and
regional customers, including advertising literature, corporate identity
materials, annual reports, car brochures, calendars, greeting cards, brand
marketing collateral, catalogs, maps, CD packaging and direct mail. We also
produce general commercial printing for local and regional customers.
In addition, we operate a printed office products business. This
business, which operates 12 manufacturing facilities throughout the United
States, is a leading supplier of customized and stock labels, mailers and
printed business documents to small and mid-size businesses generally
through independent distributors of office products. The labels produced
and sold by our printed office products division do not compete with those
produced and sold by the now-divested prime label business due to
differences in customer base, distribution channels and production methods.
Paper is our most significant raw material. We purchase approximately
494,000 tons of paper annually for our businesses. Prices of uncoated
papers, which are the principal grades of paper used to manufacture
envelopes, have been relatively stable in the first half of 2002, and
decreased 10% in 2001 after an increase of approximately 5% at the end of
1999. We have received notice of an expected increase of 10% in the price
of uncoated paper, to take effect in the fourth quarter of 2002. Prices of
coated papers, which are used principally in commercial printing, increased
approximately 3% in 2000, decreased approximately 8% in 2001 and remained
flat in the first half of 2002. Historical changes in paper pricing
generally have not affected the operating results of our commercial
printing business because we have been able to pass on paper price
increases to our customers. Paper pricing has, however, impacted the
operating margins of our envelope business. When paper prices are rising,
operating margins on our envelope products tend to be lower because we
generally are not able to increase our prices as quickly as paper prices
increase. Thus, when uncoated paper prices increased at the end of 1999,
operating margins of the envelope business were negatively impacted in
2000.
20
Prior to 2001, our growth was primarily due to our acquisition
strategy. However, we curtailed our acquisitions in 2001 in order to
concentrate on implementing our strategic plan. In 2000, we acquired
American Business Products, Inc. and four smaller companies. In 1999, we
acquired nine companies. The acquisitions completed in 2000 and 1999 were
accounted for as purchase transactions. Recording acquisitions in this
manner impacts comparability of our financial statements because the
results of each of the acquired companies are included in the consolidated
results from the dates acquired. The impacts of our acquisitions are
included in the following discussions of our results.
CONSOLIDATED RESULTS OF OPERATIONS
The financial statements for all periods presented have been restated as
required by generally accepted accounting principles to report the results
of our prime label and Curtis 1000 Inc. businesses as discontinued
operations. Our PrintXcel business had also been reported as a discontinued
operation prior to June 2002. Since this business is no longer held for
sale, the results of PrintXcel have been reclassified to be included in
continuing operations for all periods presented. The summary financial data
set forth in the tables that follow present reported amounts as well as
comparable financial data for New Mail-Well. When we refer to "New
Mail-Well," we are referring to results of the operations that will
constitute Mail-Well subsequent to the planned divestitures of the
operations reported as discontinued operations and assets held for sale and
that exclude restructuring, impairments and other charges reported in the
consolidated statements of operations for the years ended December 31, 2001,
2000 and 1999, and for the six months ended June 30, 2002 and 2001.
Mail-Well I Corporation receives a material percentage of its cash
flows through its subsidiaries. These subsidiaries distribute the net cash
flows they receive from customers to Mail-Well I Corporation in the form of
dividends.
The economic slowdown that began in 2001 has continued to adversely
affect the sales and margins of our businesses in 2002, especially the
portion of our commercial printing business related to print advertising,
the direct mail and resale segments of our envelope business, and the
traditional documents market of PrintXcel. We do not expect significant
increases in sales and margins until the markets we serve, especially
advertising, direct mail and office products, recover. In the meantime, we
have continued to take steps through our strategic initiatives and
otherwise to reduce costs and improve operations.
SALES
Comparison of Six-Month Periods in 2002 and 2001
SIX MONTHS
ENDED JUNE 30
----------------------- %
2002 2001 CHANGE
-------- -------- ------
(DOLLARS IN THOUSANDS)
Reported.................................................. $864,449 $960,336 (10)%
New Mail-Well*............................................ $816,477 $920,907 (11)%
- --------
* Excludes sales of certain operations of our envelope and commercial printing businesses held for sale
and includes sales to discontinued operations that are expected to continue. Sales to discontinued
operations prior to their divestiture were $3.7$105.1 million, and $18.4 million forrespectively. For the sixthree months ended June
30, 2002 and 2001, respectively.March 31, 2004, the
earnings, as defined above, were less than fixed charges, as defined above,
by $17.7 million.
New Mail-Well's sales in the first six months of 2002 were $104.4
million, or 11%, below the comparable period in 2001. We have seen no
improvements in the key markets we serve, specifically:
* Demand for commercial printing continues to be weak especially in the
advertising sector.
* Sales of envelopes into the resale and direct mail markets are below
levels a year ago.
21
* The market for traditional business documents produced by our printed
office products business continues to decline.
Reported sales during the six months ended June 30, 2002 compared to
the prior year declined similarly to the sales of New Mail-Well and were
affected by the same market dynamics.
Comparison of 2001, 2000 and 1999
YEAR ENDED DECEMBER 31 % CHANGE
-------------------------------------------- ---------------
2001 2000 1999 2001 2000
---------- ---------- ---------- ---- ----
(DOLLARS IN THOUSANDS)
Reported......................... $1,868,768 $2,044,350 $1,699,222 (9)% 20%
New Mail-Well*................... $1,789,991 $1,951,897 $1,607,293 (8)% 21%
- --------
* Excludes sales of certain operations of our envelope and commercial printing businesses held for sale.
New Mail-Well's sales include sales of $30.2 million and $23.5 million in 2001 and 2000, respectively,
to Curtis 1000 Inc. as well as other operations being divested, which sales are anticipated to continue
subsequent to the disposition of the operations.
New Mail-Well's sales were down $161.9 million, or 8%, in 2001 compared
to 2000. Excluding the impact of acquisitions completed during 2000, the
sales decline was $202.1 million, or 10%. The slowdown in the economy
during 2001 significantly impacted sales. Reductions by our customers in
spending on printed advertising material and direct mail promotions
impacted sales of commercial printing and envelopes. Technology and
telecommunications customers, in particular, significantly reduced their
promotional spending in 2001 due to the decline in those sectors. In
addition, sales of traditional business forms by our printed office
products business declined in 2001.
New Mail-Well's sales in 2000 were $344.6 million, or 21%, higher than
sales in 1999. Sales contributed by acquisitions completed in 2000 and 1999
accounted for $226 million of this increase. Internal growth in both our
commercial printing and envelope businesses, which more than offset lower
sales of traditional business forms, accounted for the remainder.
Reported sales in 2001 and 2000 changed from the prior year by similar
percentages and were impacted by the same factors as the sales of New
Mail-Well.
22
RESTRUCTURING, ASSET IMPAIRMENTS AND OTHER CHARGES
SIX MONTHS ENDED JUNE 30, 2002. In 2001, we began consolidating certain
of our operations to eliminate excess internal capacity, reduce costs and
improve our long-term competitive position. In addition, we are
significantly reducing the size of certain of our facilities in response to
current market conditions. The restructuring charge related to these plans
totaled $20.7 million in 2002. The following table and discussion present
the details of this restructuring charge, as well as other related charges
recorded during the six months ended June 30, 2002 (in thousands):
COMMERCIAL PRINTED OFFICE
ENVELOPE PRINTING PRODUCTS CORPORATE TOTAL
-------- ---------- -------------- --------- -------
Employee separation and
related employee expenses... $ -- $1,041 $ 507 $ -- $ 1,548
Employee training expenses.... 4,531 -- -- -- 4,531
Other exit costs.............. 3,657 -- 300 -- 3,957
Asset impairment charges,
net......................... 4,730 -- 240 -- 4,970
Project management expenses... 5,656 -- -- -- 5,656
------- ------ ------ ---- -------
Total restructuring
costs................... 18,574 1,041 1,047 -- 20,662
Other charges................. 985 1,414 -- 739 3,138
------- ------ ------ ---- -------
Total restructuring and
other charges........... $19,559 $2,455 $1,047 $739 $23,800
======= ====== ====== ==== =======
In addition to the three manufacturing facilities consolidated in 2001,
our envelope business has consolidated six facilities in 2002 and will
consolidate one additional operation during the third quarter of 2002. When
this consolidation plan is completed, we will have closed ten envelope
plants and substantially reduced excess internal capacity and improved
utilization of equipment and resources at the remaining 39 plants we
operate in the United States and Canada. In 2001, we accrued the separation
and related employee costs covering the 923 employees expected to be
terminated over the course of this project. As of June 30, 2002, 666
employees had been separated. Employee training expenses include the costs
to train the new employees that have been hired at the plants that are
absorbing the production of the plants being closed. The training programs
for these employees are between three and nine months in duration. Other
exit costs include the expenses incurred to move and reinstall equipment,
and the cost incurred to restore buildings to the condition required by
lease agreements or to prepare them for sale. Project management expenses
are primarily consulting fees and related expenses incurred to assist
management in managing the consolidation project. Consultants were used to
assist in such tasks as capacity planning, workflow planning, production
scheduling and change management. The write-downs recorded for property and
equipment taken out of service or sold as a result of the plant
consolidations are reported net of $6.2 million of proceeds received from
the sales of those assets. We expect to complete these consolidation plans
by the end of 2002 and incur additional charges of approximately $10
million.
Our commercial printing business completed the consolidation of its
operations in the Philadelphia, Pennsylvania area in 2001. In addition, in
response to changes in market conditions, commercial printing has made
significant changes to its cost structure by reducing its fixed costs. The
severance costs incurred as a result of eliminating 136 overhead positions
totaled $0.8 million.
In 2002, we closed our printed office products manufacturing facility in
Denver, Colorado, which had substantially curtailed its business in 2001.
Employee separation expenses incurred as a result of this plant closure were
$134,000, covering 19 employees. Expenses were also incurred to prepare the
building for sale and to write assets down to fair market value. In
addition, our printed office products business has reduced headcount at
certain of its other facilities in response to market conditions. Severance
costs incurred in connection with these reductions, covering 128 employees,
totaled $249,000.
23
In 2001, we initiated several programs to significantly improve
operations and marketing effectiveness. These programs include the
implementation of best practices, the standardization of costing and
pricing systems in the envelope and commercial printing businesses and the
alignment of equipment and services to better serve our customers and
markets. During the six months ended June 30, 2002, we invested $2.4
million in expenses for outside assistance in order to expedite the
implementation of these programs. In addition, we incurred consulting fees
of $587,000 related to tax matters that arose as a result of the
divestitures. These expenses have been reported as other charges.
On August 21, 2002, management approved a new restructuring plan
necessitated by the continued sales declines we are experiencing,
especially in our commercial printing business. A summary of this plan is
as follows:
* The sale or closure of our commercial printing plant in New York;
* Substantial curtailment of our printing operations in Philadelphia,
Pennsylvania and Seattle, Washington;
* Redeployment of our web presses now located in Indianapolis, Indiana
and Portland, Oregon;
* Employee reductions throughout the organization.
We estimate the cost of this restructuring plan to be approximately $50
million, of which $31 million will be non-cash.
2001. The restructuring charges related to our strategic plan totaled
$37.4 million in 2001. The following table and discussion present the
details of these restructuring charges, as well as other charges recorded
in 2001 (in thousands):
COMMERCIAL PRINTED OFFICE
ENVELOPE PRINTING PRODUCTS CORPORATE TOTAL
-------- ---------- -------------- --------- -------
Employee separation and
related expenses............ $ 9,042 $ 385 $ 618 $ -- $10,045
Lease termination costs....... 1,368 346 -- -- 1,714
Other exit costs.............. 13,174 1,632 691 -- 15,497
Asset impairment charges...... 8,178 601 (1,300) -- 7,479
Strategic assessment costs.... -- -- -- 2,677 2,677
------- ------ ------- ------ -------
Total restructuring
costs................... 31,762 2,964 9 2,677 37,412
Other charges................. 1,360 1,482 1,231 1,600 5,673
------- ------ ------- ------ -------
Total restructuring, asset
impairments and other
charges................. $33,122 $4,446 $ 1,240 $4,277 $43,085
======= ====== ======= ====== =======
The separation and related employee costs cover 923 employees to be
terminated over the course of the envelope plant consolidation project
described above, of which 359 had been separated as of December 31, 2001.
Other exit costs include training costs for those employees at the plants
that are absorbing the sales of the plants being closed and external
assistance in implementing the plant closures. As of December 31, 2001, we
had completed the closure of our facilities in Omaha, Nebraska; Allentown,
Pennsylvania; and Santa Fe Springs, California. The $8.2 million asset
impairment charge relates to the write down of equipment taken out of
service as a result of these plant closures.
Our commercial printing business consolidated three printing operations
in the Philadelphia, Pennsylvania area into one. This consolidation was
done to improve the cost effectiveness of these operations and their
competitive position in the Philadelphia market. The costs associated with
this consolidation included severance and related expenses covering the
termination of 25 employees, all of whom have been terminated. Other exit
costs include expenses incurred to move and reinstall equipment. Equipment
taken out of service was written down $0.6 million to its fair market
value.
24
Our printed office products business substantially curtailed its
operation in Denver, Colorado in 2001. The employee separation expenses of
$0.6 million were related to the termination of 62 employees. Other exit costs
were the expenses incurred to move equipment. Additionally, we reversed an
asset impairment charge of $1.3 million taken in 2000 to write-down a
building to its estimated fair market value at that time because we were
able to sell the building for more than its original carrying value.
In developing our strategic plan, we engaged outside advisors to
research and evaluate our markets, survey our customers and assess existing
strategies. In addition, we engaged financial advisors to evaluate options
for improving our capital structure. The cost of these advisors was $2.7
million.
The external incremental cost incurred for the initiatives to improve
operations and marketing effectiveness described above totaled $2.1 million
in 2001 and is included as other charges.
Other charges also include the write-off of a $1.6 million investment
in a company developing a service to enable online management of the
creative process of a printing job, a $0.7 million write-off of the cost
incurred for a human resource information system that will not be
implemented and $1.2 million of legal and settlement expenses related to
the settlement of a lawsuit.
2000. We began our comprehensive review of our operations in 2000 and
identified certain actions that could be taken at that time. The following
table and discussion present the details of restructuring charges, as well
as other charges recorded in 2000 (in thousands):
COMMERCIAL PRINTED OFFICE
ENVELOPE PRINTING PRODUCTS TOTAL
-------- ---------- -------------- -------
Employee separation and related employee
costs................................... $ 86 $ 188 $1,261 $ 1,535
Lease termination costs................... -- 428 860 1,288
Asset impairment charges.................. -- 749 3,299 4,048
Other exit costs.......................... -- 45 185 230
------ ------ ------ -------
Total restructuring costs............. 86 1,410 5,605 7,101
Other asset impairments................... 1,872 2,036 2,723 6,631
------ ------ ------ -------
Total restructuring, asset impairments
and other charges................... $1,958 $3,446 $8,328 $13,732
====== ====== ====== =======
Our envelope business closed a resale operation in Vancouver,
Washington. The separation and related employee costs covered the
termination of 19 employees, all of whom have been terminated.
Our commercial printing business consolidated two operations in St.
Louis into an existing facility and closed our bindery operation in Mexico.
We reduced our total workforce by 165 employees by taking these actions.
Our printed office products business announced the closure of its
Oceanside, California; Sparks, Nevada; and Houston, Texas manufacturing
facilities in response to the decline in demand for traditional business
forms. This restructuring plan involved the termination of 190 employees
for which the separation and related expense was $1.3 million. The asset
impairment charges in the printed office products business were related
to the plant closures.
We also incurred asset impairment charges in 2000 totaling $6.6 million
that were unrelated to the restructuring. These assets were taken out of
service and could not be redeployed or sold, and therefore were written
off.
We completed a restructuring program initiated in 1998 during 2000.
Charges related to that program, which were recorded in 2000, totaled
$0.8 million.
25
IMPAIRMENT OF ASSETS HELD FOR SALE
Our divestiture plans included the sale of certain operations that are
not strategic to our envelope and commercial printing businesses. In the
second quarter of 2002, we recorded an impairment charge of $2.8 million
based on the sales proceeds currently anticipated on the sale of the digital
graphics division of our commercial printing business and a $6.1 million
impairment charge as a result of the sale of the filing products division of
our envelope business that closed in August 2002. In 2001, certain of these
assets were written down $2.9 million to the fair market values based on
estimated sales proceeds at that time.
IMPAIRMENT ON FORMER DISCONTINUED OPERATION
In 2001, we reduced the carrying amounts of the net assets of PrintXcel
by $33.6 million to the expected net realizable value based on estimated
proceeds, net of expenses associated with its sale and a tax benefit of
$11.5 million that would have resulted from the sale. As a result of our
decision in June 2002 not to sell PrintXcel, we reversed the tax benefit
since it would not be realized and $1.1 million of expenses related to the
sale that had been accrued but not incurred. This additional net $10.4
million charge has been reported as an impairment on former discontinued
operation in the first half of 2002.
In total we have written-down the carrying value of PrintXcel by $45
million.
OPERATING INCOME
Comparison of Six-Month Periods in 2002 and 2001
SIX MONTHS
ENDED JUNE 30
---------------------- %
2002 2001 CHANGE
-------- ------- ------
(DOLLARS IN THOUSANDS)
Reported
Operating income (loss)............................... $(14,466) $24,129 (160)%
Operating margin...................................... (2)% 3%
New Mail-Well*
Operating income...................................... $ 28,555 $46,971 (39)%
Operating margin...................................... 3% 5%
- --------
* Excludes operating income as of June 30, 2002 and 2001 of certain operations of our envelope and
commercial printing businesses held for sale; impairment charges on assets held for sale of $8.9 million
and $8.8 million in the six months ended June 30, 2002 and 2001, respectively; an impairment charge of
$10.4 million on a former discontinued operation in 2002; and restructuring, asset impairments and other
charges of $23.8 million and $20.0 million in the six months ended June 30, 2002 and 2001, respectively.
New Mail-Well's operating income for the six months ended June 30, 2002
declined $18.4 million, or 39%, from the comparable six-month period of
2001. This decline was due primarily to the following:
* Gross profit was $158.1 million compared to $188.3 million during the
six months ended June 30, 2001. The reduction in gross profit due to
lower sales was approximately $37 million. Lower pricing due to
increased competition also reduced gross profit by approximately $9
million. Gross profit as a percent of sales declined 1% despite
reductions in fixed costs of approximately $15.7 million.
* Partially offsetting the decline, selling and administrative expenses
have been reduced approximately $5 million as a result of lower
commissions and cost reduction programs in our administrative
functions.
26
* Partially offsetting the decline, amortization expense was down $6.9
million due to the implementation of Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets,
which eliminated the amortization of goodwill.
The reported operating loss of $14.5 million for the six months ended
June 30, 2002 reflects the impairment charges on assets held for sale of
$8.9 million, the impairment charge of $10.4 million on a former
discontinued operation and restructuring and other charges of $23.8
million.
Comparison of 2001, 2000 and 1999
YEAR ENDED DECEMBER 31 % CHANGE
------------------------------------- -----------------
2001 2000 1999 2001 2000
------- -------- -------- ----- -----
(DOLLARS IN THOUSANDS)
Reported
Operating income................ $14,824 $130,214 $149,001 (89)% (13)%
Operating margin................ 1% 6% 9%
New Mail-Well*
Operating income................ $81,019 $131,650 $139,440 (38)% (6)%
Operating margin................ 5% 7% 9%
- --------
* Excludes operating income in 2001, 2000 and 1999 of certain operations of our envelope and commercial
printing businesses held for sale, the $2.9 million impairment of assets held for sale in 2001; an
impairment charge of $33.6 million on a former discontinued operation in 2001; and restructuring, asset
impairments and other charges of $43.1 million, $14.5 million and $1.8 million in 2001, 2000 and 1999,
respectively.
New Mail-Well's operating income declined 38% in 2001 to $81.0 million.
Excluding earnings of approximately $3.9 million contributed by
acquisitions completed in 2000, the decline was 41%. The reduction in
operating income was primarily due to the estimated $61 million of
contribution lost on the decline in sales and $5 million due to lower
margins. Offsetting these declines were reductions in fixed manufacturing
costs, primarily production support, and administrative expenses, which
totaled approximately $11 million during 2001.
New Mail-Well's operating income in 2000 declined 6%. Excluding the $22
million attributable to acquisitions completed in 2000 and 1999, the
decline was 21%. This decline was the result of lower margins in our
envelope business due to higher paper prices and lower profits in our
commercial printing business. The lower earnings of our commercial printing
business were due to a change in the mix of the products sold and to poor
operating performance at four manufacturing facilities, including asset
write-offs and accrual adjustments, totaling $6.1 million at two of these
plants. Corporate expenses were also higher primarily due to special
retirement expenses of $2.6 million recorded in 2000.
INTEREST EXPENSE
Comparison of Six-Month Periods in 2002 and 2001
SIX MONTHS
ENDED JUNE 30
----------------------- %
2002 2001 CHANGE
-------- -------- ------
(DOLLARS IN THOUSANDS)
Total interest expense...................................... $39,448 $41,667 (5)%
Less: Allocation to discontinued operations................. (5,570) (7,896) (30)%
------- -------
Reported interest expense................................... $33,878 $33,771 --
======= =======
New Mail-Well............................................... $35,491 $34,637 2%
======= =======
For the six months ended June 30, 2002, interest expense before
allocations to discontinued operations was lower than the comparable period
in 2001. Interest in 2002 reflects our weighted
27
average outstanding debt of $945.0 million in 2002 compared to $999.6
million in 2001 and our weighted average interest rate of 7.84% in 2002
compared to 7.73% in 2001. The increase in the weighted average interest
rate was due primarily to the issuance of $350 million of 9 5/8% senior
notes on March 13, 2002. Since a significant portion of the proceeds of the
senior notes was used to repay bank debt, which accrued interest at a lower
variable rate, our weighted average interest rate will continue to be higher
than in 2001.
Reported interest excludes an allocation of interest expense to
discontinued operations based on the net assets of those operations
relative to the net assets of the company.
Interest expense for New Mail-Well was calculated on a pro forma basis
as if the actual net proceeds from the sales of our prime label business and
Curtis 1000 Inc. were received on January 1, 2001. Interest expense
determined on this basis is greater than reported interest expense.
Comparison of 2001, 2000 and 1999
YEAR ENDED DECEMBER 31 % CHANGE
-------------------------------------- ----------------
2001 2000 1999 2001 2000
-------- -------- -------- ---- ----
(DOLLARS IN THOUSANDS)
Total interest expense................ $ 78,891 $ 92,138 $ 55,247 (14)% 67%
Less: Allocated to discontinued
operations.......................... (15,577) (19,141) (9,436)
-------- -------- --------
Reported interest expense............. $ 63,314 $ 72,997 $ 45,811 (13)% 59%
======== ======== ========
New Mail-Well......................... $ 66,142 $ 75,213 $ 44,485 (12)% 69%
======== ======== ========
In 2001, total interest expense declined 14% due to lower average debt
balances and lower average interest rates.
In February 2000, we entered into a new senior secured credit facility
to finance the acquisition of American Business Products, Inc. The increase
in interest in 2000 was due to higher total borrowings and higher average
interest rates.
Interest expense for New Mail-Well was calculated on a pro forma basis
as if the actual net proceeds from the sales of our prime label business and
Curtis 1000 Inc. were received on January 1, 1999. Interest expense
determined on this basis is greater than reported interest expense in 2001
and 2000.
INCOME TAXES
Comparison of Six-Month Periods in 2002 and 2001
SIX MONTHS
ENDED JUNE 30
-----------------------
2002 2001
-------- --------
(DOLLARS IN THOUSANDS)
Reported
Income tax benefit...................................... $(7,128) $(1,126)
Effective tax rate...................................... 15% 11%
New Mail-Well
Provision (benefit) for income taxes.................... $(3,074) $ 4,644
Effective tax rate...................................... 42% 46%
New Mail-Well's effective tax rate for 2002 is estimated to be 42% for
the tax year ended December 31, 2002 in which we have projected taxable
income, four percentage points lower than in 2001. The effective tax rate
in 2001 reflected the impact of nondeductible goodwill amortization.
28
The reported effective tax rates for 2002 and 2001 reflect the tax
impacts of the permanent differences related to impairment charges.
Comparison of 2001, 2000 and 1999
YEAR ENDED DECEMBER 31
-----------------------------------
2001 2000 1999
------- ------- -------
(DOLLARS IN THOUSANDS)
Reported
Provision (benefit) for income taxes................. $(5,200) $21,624 $42,421
Effective tax rate................................... 10.3% 38.4% 40.6%
New Mail-Well
Provision for income taxes........................... $ 5,361 $20,847 $40,147
Effective tax rate................................... 46.1% 37.6% 45.0%
New Mail-Well's effective tax rate for 2001 increased by 8.5 percentage
points due to lower pre-tax income, which increased the impact of
nondeductible goodwill amortization on the effective rate.
The 7.4 percentage point decline in New Mail-Well's effective tax rate
for 2000 was due in part to a reduction in the statutory rates in Canada.
In addition, the net impact of permanent differences reduced taxable income
in 2000.
The reported effective tax rate for 2001 reflects the tax impact of
permanent differences related to impairment charges discussed earlier.
INCOME (LOSS) FROM CONTINUING OPERATIONS AND INCOME PER SHARE--ASSUMING
DILUTION
Comparison of Six-Month Periods in 2002 and 2001
SIX MONTHS
ENDED JUNE 30
---------------------- %
2002 2001 CHANGE
-------- ------- ------
(DOLLARS IN THOUSANDS)
Income (loss) from continuing operations
Reported.............................................. $(41,553) $(9,500) (337)%
New Mail-Well*........................................ $ (4,248) $ 5,427 (178)%
Income (loss) from continuing operations per share
Reported.............................................. $ (0.87) $ (0.20) (335)%
New Mail-Well*........................................ $ (0.09) $ 0.11 (182)%
- --------
* Excludes operating income as of June 30, 2002 and 2001 of certain operations of our envelope and
commercial printing businesses held for sale; impairment charges on assets held for sale of $8.9 million
and $8.8 million in the six months ended June 30, 2002 and 2001, respectively; an impairment charge of
$10.4 million on a former discontinued operation in 2002; and restructuring, asset impairments and other
charges of $23.8 million and $20.0 million in the six months ended June 30, 2002 and 2001, respectively.
The results for New Mail-Well for the six months ended June 30, 2002
compared to the comparable period of the prior year were due to lower
sales, lower margins and higher interest expense partially offset by lower
fixed costs, lower amortization expense and a higher income tax benefit.
For the six months ended June 30, 2002, the reported loss includes
impairment, restructuring and other charges of $43.1 million compared to
$28.9 million in the same period of 2001.
29
Comparison of 2001, 2000 and 1999
YEAR ENDED DECEMBER 31 % CHANGE
------------------------------------ ------------------
2001 2000 1999 2001 2000
-------- ------- ------- ------ ------
(DOLLARS IN THOUSANDS)
Income (loss) from continuing
operations
Reported......................... $(45,213) $34,746 $61,997 (230)% (44)%
New Mail-Well*................... $ 6,266 $34,598 $49,622 (82)% (30)%
Income (loss) from continuing
operations per share--assuming
dilution
Reported......................... $ (0.95) $ 0.70 $ 1.16 (236)% (40)%
New Mail-Well*................... $ 0.13 $ 0.70 $ 0.94 (81)% (26)%
- --------
* Excludes income from continuing operations in 2001, 2000 and 1999 of certain operations of our envelope
and commercial printing businesses held for sale, the $2.9 million impairment of assets held for sale in
2001; an impairment charge of $33.6 million on a former discontinued operation in 2001; and
restructuring, asset impairments and other charges of $43.1 million, $14.5 million and $1.8 million in
2001, 2000 and 1999, respectively.
New Mail-Well's income from continuing operations declined 82% in 2001.
The decline was due to lower sales partially offset by lower fixed costs,
lower interest expense and an income tax benefit. In addition, our reported
loss from continuing operations of $45.2 million, or $0.95 per share, was
also negatively impacted by the restructuring, asset impairments and other
charges of $43.1 million, the impairment on a former discontinued operation
of $33.6 million and the impairment charge recorded on assets held for sale
of $2.9 million, which are excluded from income from continuing operations
of New Mail-Well.
In 2000, income from continuing operations for New Mail-Well declined
30% with a corresponding 26% decrease in earnings per share. This decline
reflected lower operating margins, higher fixed costs, higher amortization
expense and higher interest expense than in 1999.
LOSS FROM DISCONTINUED OPERATIONS
The loss from discontinued operations for the six months ended June 30,
2002 was $8.2 million. The loss on discontinued operations reflects the
proceeds received from our divestitures of Curtis 1000 Inc. and our prime
label business, net of related selling expenses and tax benefits.
Adjustments of this loss may occur if expenses are different than those
estimated or if there are additional revisions to the tax impact of the
sales.
The reported loss from discontinued operations for the year ended
December 31, 2001 was $91.0 million, or $1.91 per share, after income tax
benefits from the loss and included the following:
* A write-down to net realizable value in the amount of $123.5 million,
net of a tax benefit of $35.4 million, based on estimated sales
proceeds; and
* The actual and forecasted results of these businesses from the date
of the announcement through the expected date of disposal, including
an allocation of interest expense.
EXTRAORDINARY LOSS
Results for the six months ended June 30, 2002 include an extraordinary
charge of $10.1 million, or $0.22 per share. This represents the write-off
of deferred financing fees related to our bank credit facility that was
refinanced in 2002.
30
NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE--ASSUMING DILUTION
Comparison of Six-Month Periods in 2002 and 2001
SIX MONTHS
ENDED JUNE 30
-----------------------
2002 2001
-------- --------
(DOLLARS IN THOUSANDS)
Net income (loss)
Reported................................................ $(59,830) $(88,903)
New Mail-Well*.......................................... $ (4,248) $ 5,427
Net income (loss) per share
Reported................................................ $ (1.26) $ (1.87)
New Mail-Well*.......................................... $ (0.09) $ 0.11
- --------
* Excludes operating income as of June 30, 2002 and 2001 of certain operations of our envelope and
commercial printing businesses held for sale; impairment charges on assets held for sale of $8.9 million
and $8.8 million in the six months ended June 30, 2002 and 2001, respectively; an impairment charge of
$10.4 million on a former discontinued operation in 2002; restructuring, asset impairments and other
charges of $23.8 million and $20.0 million in the six months ended June 30, 2002 and 2001, respectively;
and the extraordinary loss of $10.1 million in 2002.
The reported net losses for the six months ended June 30, 2002 and 2001
were due to the losses from continuing operations, the impairment charges,
restructuring and other charges, the loss on discontinued operations and
the extraordinary loss in 2002.
New Mail-Well's net income and net income per share are the same as
shown from New Mail-Well's continuing operations because New Mail-Well
excludes results of discontinued operations, the impairment on assets held
for sale, the impairment on a former discontinued operation and the
restructuring, asset impairments and other charges.
Comparison of 2001, 2000 and 1999
YEAR ENDED DECEMBER 31 % CHANGE
------------------------------------- ------------------
2001 2000 1999 2001 2000
--------- ------- ------- ------- -----
(DOLLARS IN THOUSANDS)
Net income (loss)
Reported........................ $(136,217) $27,618 $64,482 (593)% (57)%
New Mail-Well*.................. $ 6,266 $34,598 $49,622 (82)% (30)%
Net income (loss) per
share--assuming dilution
Reported........................ $ (2.86) $ 0.56 $ 1.20 (611)% (53)%
New Mail-Well*.................. $ 0.13 $ 0.70 $ 0.94 (81)% (26)%
- --------
* Excludes operating income in 2001, 2000 and 1999 of certain operations of our envelope and commercial
printing businesses held for sale, the $2.9 million impairment of assets held for sale in 2001 and
restructuring; an impairment charge of $33.6 million on a former discontinued operation in 2001, asset
impairments and other charges of $43.1 million, $14.5 million and $1.8 million in 2001, 2000 and 1999,
respectively; and the extraordinary gain of $1.4 million in 2000.
In 2001, the reported net loss was $136.2 million, or $2.86 per share
assuming dilution. This loss was due to lower operating results from
continuing operations, the restructuring, asset impairments and other
charges and the losses recognized on discontinued operations and assets
held for sale. Net income in 2000 included an extraordinary gain of $1.4
million. Reported net income and net income per share in 2000 were down
over 50% from 1999 because of lower operating results, higher amortization
expense and higher interest expense.
31
New Mail-Well's net income and net income per share are the same as
shown from New Mail-Well's continuing operations because New Mail-Well
excludes results of discontinued operations, the impairment charges and the
restructuring, asset impairments and other charges.
BUSINESS SEGMENTS
ENVELOPE
The following tables present the reported sales and operating income of
our envelope business, as well as sales and operating income excluding the
results of operations that are held for sale and restructuring and
other charges ("New Envelope").
Comparison of Six-Month Periods in 2002 and 2001
SIX MONTHS
ENDED JUNE 30
----------------------- %
2002 2001 CHANGE
-------- -------- ------
(DOLLARS IN THOUSANDS)
Net sales
Reported.............................................. $396,143 $432,362 (8)%
New Envelope*......................................... $363,288 $406,186 (11)%
Operating income
Reported.............................................. $ 19,511 $ 30,693 (36)%
New Envelope*......................................... $ 36,481 $ 40,571 (10)%
- --------
* Excludes sales and operating income of the operations of the envelope business held for sale and
restructuring and other charges. Sales include sales to discontinued operations that are expected to
continue. Sales to discontinued operations prior to their divestiture, were $3.2 million for the
six months ended June 30, 2002 and $13.4 million for the six months ended June 30, 2001.
New Envelope's sales in the first half of 2002 were down $42.9 million,
or 11% from the prior year. We continue to experience lower sales in the
direct mail segment of our market. Sales to our direct mail customers were
down approximately $18.0 million. Demand in the resale segment of our
market, which began to soften in the second half of 2001, continues to be
weak. Sales to our merchant and office products customers were down
approximately $15.0 million. Consistent with an overall weak envelope
market, sales of our transactional and specialty envelopes were also down
in the quarter.
During the first six months of 2002, New Envelope's operating income
has declined $4.1 million, or 10%. Contribution lost due to lower sales
accounts for approximately a $13.1 million decline in earnings. Margins are
down approximately $2.9 million from the comparable period of 2001 due to
competitive pressures and lower sales of higher value added products. In
addition, certain plants absorbing work from plants closed as a result of
our consolidation program experienced inefficiencies during the early part
of the year. These reductions were offset in part by fixed costs being
$11.9 million lower in the first half of 2002 than in the first half of
2001.
Reported results of our envelope business are significantly lower due
in part to $19.6 million of restructuring and other charges recorded during
the six months ended June 30, 2002.
32
Comparison of 2001, 2000 and 1999
YEAR ENDED DECEMBER 31 % CHANGE
-------------------------------------- ----------------
2001 2000 1999 2001 2000
-------- -------- -------- ----- ----
(DOLLARS IN THOUSANDS)
Net sales
Reported........................ $835,534 $861,803 $738,288 (3)% 17%
New Envelope*................... $784,842 $803,863 $679,257 (2)% 18%
Operating income
Reported........................ $ 54,168 $ 90,202 $ 90,996 (40)% (1)%
New Envelope*................... $ 79,286 $ 84,980 $ 86,344 (7)% (2)%
- --------
* Excludes sales and operating income of certain operations of our envelope business held for sale. New
Envelope sales include sales of $20 million and $15.5 million in 2001 and 2000, respectively, to Curtis
1000 Inc. as well as other operations being divested, which sales are anticipated to continue subsequent
to the disposition of the operations.
New Envelope's sales in 2001 were down 2% from the prior year.
Excluding the impact of acquisitions completed in 2000, sales were down
approximately $35.6 million, or approximately 4%. This decline was due
primarily to the general decline in the economy. Sales to direct mail
customers were lower in 2001 by approximately $12.2 million due to
reductions in spending on direct mail promotions. Sales of specialty
packaging were down approximately $12.6 million primarily due to reduced
demand from the U.S. Postal Service. We also experienced lower sales of
approximately $4.7 million in the resale segment of our market as customers
reduced inventories.
In 2000, approximately $78.2 million of New Envelope's sales increase
was due to the impact of companies acquired in 2000. Internal growth
accounts for the remaining increase of $46.4 million.
Operating income of New Envelope was down 7% in 2001 from the prior
year. Excluding the earnings of companies acquired in 2000 the decline was
9%. The decline in operating income in 2001 was due to lower sales and the
resulting decrease in gross profit of $11.2 million. In response to the
lower sales, we reduced fixed manufacturing costs in 2001 such that gross
profit margin was down only 50 basis points to 20.5%. Excluding the impact
of acquisitions, selling and administrative expenses were down $3.5 million
from 2000 reflecting lower sales commissions and reductions in
administrative overhead.
In 2000, New Envelope's operating income was also down from the prior
year. Excluding earnings of companies acquired in 2000 and 1999, the
decline in operating income was 10%. In 2000, selling prices remained
relatively constant with selling prices in 1999 despite higher paper costs
in 2000 compared to 1999. Lower margins reduced gross profits by $14.5
million. Excluding the impact of acquisitions, administrative expenses were
$1.8 million lower in 2000 than in 1999.
33
COMMERCIAL PRINTING
The following tables present the reported sales and operating income of
our commercial printing business, as well as sales and operating income
excluding the results of its operations that are held for sale and
restructuring and other charges ("New Commercial Printing").
Comparison of Six-Month Periods in 2002 to 2001
SIX MONTHS
ENDED JUNE 30
----------------------- %
2002 2001 CHANGE
-------- -------- ------
(DOLLARS IN THOUSANDS)
Net sales
Reported............................................. $364,482 $418,750 (13)%
New Commercial Printing*............................. $351,245 $403,864 (13)%
Operating income (loss)
Reported............................................. $(11,151) $ 10,873 (203)%
New Commercial Printing*............................. $ (9,169) $ 10,475 (188)%
- --------
* Excludes sales and operating income of the operations of the commercial printing business held for sale
and restructuring and other charges. Sales include sales to discontinued operations that are expected to
continue. Sales to discontinued operations prior to their divestiture, were $2.4 million for the
six months ended June 30, 2002 and $3.4 million for the six months ended June 30, 2001.
Sales of New Commercial Printing in the first half of 2002 were $52.6
million, or 13%, below the first half of 2001. Demand for commercial
printing continues to be weak. We have yet to see any rebound in
advertising by our customers, which impacts about 50% of our commercial
printing sales. Sales at all of our commercial printing plants were either
flat or lower compared to the comparable period of 2001. Factors
contributing to the sales decline include the following:
* Sales in our web plants were down $22 million in the first half of
2002 compared to the comparable period of last year. Our web plants
typically produce jobs that require long runs. Demand for commercial
printing suited to these presses has been weak all year.
* Sales in the Philadelphia market were down approximately $15.6
million in the first half of 2002 from the comparable period of the
prior year. This decline was due in part to our closure of a plant in
Philadelphia in April 2001. Much of the work produced by this plant
was marginal work, which could not be produced profitably at any of
our other facilities in the Mid-Atlantic area. Sales were also off as
a result of the consolidation of our other facilities in the
Philadelphia area in October 2001, because some of our customers did
not move their work to the new facility.
* Sales of our operation in Seattle were down $3.4 million in the first
half of 2002. This decline is due primarily to the loss of a customer
in the telecommunications industry.
* Sales of our operation specializing in direct mail printing were $2.6
million lower in the first six months of 2002 than in the first
six months of 2001.
New Commercial Printing recorded an operating loss of $9.2 million as
of June 30, 2002 compared to operating income of $10.5 million during the
comparable period of 2001. The contribution lost due to lower sales totals
approximately $16.0 million. The loss in profitability due to lower margins
was $6.0 million. Partially offsetting these, fixed costs have been reduced
$2.4 million from the comparable period of 2001.
34
Comparison of 2001, 2000 and 1999
YEAR ENDED DECEMBER 31 % CHANGE
-------------------------------------- -----------------
2001 2000 1999 2001 2000
-------- -------- -------- ----- -----
(DOLLARS IN THOUSANDS)
Net sales
Reported....................... $817,937 $961,780 $795,552 (15)% 21%
New Commercial Printing*....... $788,389 $923,068 $760,992 (15)% 21%
Operating income
Reported....................... $ 14,763 $ 54,758 $ 65,108 (73)% (16)%
New Commercial Printing*....... $ 15,760 $ 52,874 $ 59,909 (70)% (12)%
- --------
* Excludes sales and operating income of certain operations of our commercial printing business held for
sale. New Commercial Printing sales include sales of $3 million and $0.5 million in 2001 and 2000,
respectively, to Curtis 1000 Inc. as well as other operations being divested, which sales are
anticipated to continue subsequent to the disposition of the operations.
The economic slowdown in 2001 had a significant impact on our
commercial printing business. Sales of New Commercial Printing were down
15% from the prior year. Excluding the impact of acquisitions completed in
2000, the sales decline was $147.3 million, or 16%. Customers reduced
spending on advertising in reaction to the recession, which directly
impacted our commercial printing business. Reductions in spending by our
customers on print advertising account for approximately 28% of the
sales decline in 2001. In addition, sales to our technology and
telecommunications customers were down approximately $30 million, or
approximately 20% of the decline, in 2001. The remaining sales decline was
due to general reductions in demand and increased competition.
New Commercial Printing's sales in 2000 were up 21%. Excluding the
impact of sales by companies acquired in 2000 and 1999, the increase was
13%. Sales of annual reports, automotive brochures, magazine inserts and
printed educational materials were strong in 2000 and responsible for much
of this growth.
The decline in operating income of New Commercial Printing in 2001 was
primarily related to the significant sales decline in 2001. Contribution
lost due to lower sales was more than $40 million. This reduction was
offset in part by a reduction in administrative expenses, before
considering acquisitions, of $3.3 million.
In 2000, New Commercial Printing's operating income declined 12%.
Excluding the impact of acquisitions completed in 2000 and 1999, the
decline in operating income was 17%. Despite the increase in sales during
2000, margins declined primarily due to significant operating problems at
four of our printing plants. The operating income at these four plants was
$10.1 million lower in 2000 than in 1999, before considering charges of
$6.1 million to write-off assets and adjust accruals at two of these
plants. A change in mix of business in 2000 also had a negative impact on
results.
35
PRINTED OFFICE PRODUCTS
The following tables present the reported sales and operating income of
our printed office products business, as well as sales and operating income
excluding restructuring and other charges ("New Printed Office Products").
Comparison of Six-Month Periods in 2002 to 2001
SIX MONTHS
ENDED JUNE 30
----------------------- %
2002 2001 CHANGE
-------- -------- ------
(DOLLARS IN THOUSANDS)
Net sales
Reported.............................................. $103,824 $109,224 (5)%
New Printed Office Products*.......................... $105,504 $114,918 (8)%
Operating income
Reported.............................................. $ 8,775 $ 9,168 (4)%
New Printed Office Products*.......................... $ 9,822 $ 11,543 (15)%
- --------
* Sales of New Printed Office Products include sales to discontinued operations that are expected to
continue. Operating income excludes restructuring and other charges. Sales to discontinued operations
prior to their divestiture, were $1.7 million and $5.7 million for the six months ended June 30, 2002
and 2001, respectively.
Sales of New Printed Office Products during the first six months of
2002 were down 8% from the comparable period of 2001. This decline was due
primarily to the decline in the demand for the traditional business forms.
The demand for traditional business forms has been declining for several
years due to the adoption of laser printing technology by businesses.
During the first six months of 2002, operating income was down $1.7
million, or 15%, from the first six months of 2001. The decline in
profitability was due to the contribution lost on lower sales in the first
half of 2002 partially offset by lower fixed costs and improved margins due
to a change in the overall product mix towards an increased percentage of
higher value added products.
Comparison of 2001, 2000 and 1999
YEAR ENDED DECEMBER 31 % CHANGE
-------------------------------------- -------------------
2001 2000 1999 2001 2000
-------- -------- -------- ------- -----
Net sales
Reported...................... $215,297 $220,767 $165,382 (3)% 34%
New Printed Office
Products*..................... $224,290 $231,250 $166,803 (3)% 39%
Operating income
Reported...................... $ 18,127 $ 16,306 $ 14,046 11% 16%
New Printed Office
Products*..................... $ 19,367 $ 24,634 $ 14,046 (21)% 75%
- --------
* Sales of New Printed Office Products include sales to discontinued operations that are expected to
continue. Operating income excludes restructuring and other charges. Intercompany sales, including sales
to discontinued operations prior to their divestiture, were $9.0 million, $10.5 million and $1.4 million
for the years ended December 31, 2001, 2000 and 1999, respectively.
Sales of New Printed Office Products declined $7.0 million in 2001
compared to 2000. Excluding the impact of an acquisition completed in early
2000, the decline was $15.6 million. As mentioned earlier, demand for
traditional business forms has been eroding. Our sales of these products
were $15.9 million lower in 2001 than in 2000. Growth in our specialty
mailer products offset lower sales of label products.
36
Operating income of New Printed Office Products was $5.3 million lower
in 2001 than in 2000. The decline was $7.1 million when excluding the
impact of the acquisition completed in 2000. The earning decline was the
result of contribution lost due to lower sales and lower margins. Reductions
in fixed costs during the year totaled $1.8 million.
The increase in sales in 2000 over 1999 was attributable to
acquisitions completed in 2000 and 1999. Excluding the impact of these
acquisitions, sales actually declined approximately $9.7 million. This
sales decline was also related to the general decline in the traditional
documents segment of the printed office products market.
Incremental earnings from the companies acquired in 2000 and 1999 more
than offset the contribution lost due to lower sales of traditional
documents and lower margins for these products due to pricing pressures.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 2002, we restructured a significant
portion of our outstanding debt. In March 2002, we sold $350 million of
9 5/8% senior notes due 2012. We used the net proceeds from this offering
to repay $197.0 million of our bank term debt, $134.0 million of our
revolving credit facility, and $9.2 million of other debt. The remaining
$2.0 million of net proceeds from the offering were used for other working
capital needs.
Also in March 2002, we applied $20.5 million of net proceeds received
from the sale of Curtis 1000 Inc. to the repayment of our bank term debt.
In May 2002, we applied $67.0 million of net proceeds received from the
sale of our prime label business to the repayment of our bank term debt.
In June 2002, we entered into a three-year $300 million senior secured
credit facility with a syndicate of banks. The purpose of this new facility
was to enable the refinancing of our existing bank term debt and secure
financing for ongoing working capital needs and other general corporate
purposes. Loans made under this facility are issued on a revolving basis and
are subject to availability and a borrowing base. For details regarding the
asset-based covenants in the credit facility see pages 94-95. Loans bear
interest at a base rate or LIBOR, plus a margin, and are secured by
substantially all of our domestic assets.
In December 1997, we entered into a sale/leaseback arrangement under
which we sold equipment to a trust and leased the same equipment back under
a renewable operating lease. A syndicate of financial institutions purchased
interests in the trust to finance the trust's purchase of the equipment.
In August 2002, we were required to refinance the sale/leaseback arrangement
because its covenants were tied to those in the banking agreement that was
replaced by our new senior credit facility. In connection with the
refinancing, we obtained a new five-year operating lease, the value of the
equipment pool was reduced from $34.9 million to $19.1 million, and we were
required to pay off the difference of $15.8 million. We will expense this
payment in the third quarter of 2002. In addition, in the third quarter of
2002 we will write off $5.5 million of the deferred financing costs associated
with the original arrangement.
Cash flow from continuing operations was $14.4 million in the first
half of 2002 compared to $84.5 million in the first half of 2001. Capital
expenditures totaled $21.4 million in the first half of 2002 compared to
$17.2 million in the first half of 2001. In addition, we made a $1.0
million contractual payment on a small acquisition that was consummated in
the first quarter of 2001 for $3.8 million.
We generated cash of $170.9 million from continuing operations in 2001
compared to $153.2 million in 2000 and $117.5 million in 1999. While we may
finance day-to-day operations with amounts available under our credit
facilities, we have historically met all of our short-term cash and
liquidity needs with cash flows from operations. While earnings declined in
2001 and 2000, noncash charges increased primarily due to the increase in
the noncash portion of the restructuring and asset impairment charges
recorded in 2001 and 2000. In addition, working capital, which increased
operating cash flows, consists of current assets exclusive of cash and cash
equivalents, net assets of discontinued
37
operations and net assets held for sale, less current liabilities,
exclusive of the current portion of long-term debt, was reduced $95.3
million in 2001 to $139.5 million at December 31, 2001 compared to a
reduction of $39.6 million in 2000 and an increase of $2.5 million in 1999.
Capital expenditures, excluding acquisitions, were $32.7 million in
2001, $67.1 million in 2000 and $70.6 million in 1999. We anticipate
capital expenditures of approximately $35 million in 2002.
Consistent with our new strategy to reduce our leverage, free cash flow
in 2001 was used primarily to reduce debt. There were no significant
acquisitions in 2001 or during the six months ended June 30, 2002. In 2000,
we obtained a new senior secured credit facility to fund the acquisition of
American Business Products, Inc. for $331.0 million in cash plus $7.5
million of assumed debt. We sold the extrusion coating and laminating
operation of American Business Products in September 2000 for after-tax cash
proceeds of approximately $110.6 million. Other acquisitions in 2000 included
three commercial printing companies and an envelope company. The cash paid
for these four companies totaled $53.2 million. Debt was the principal source
of funds used in 1999 for the acquisitions of seven printing companies, one
envelope company and the Lancer Label operation, which is part of our printed
office products business, for purchase prices totaling $127.5 million.
We repurchased 1,821,000 shares of common stock for an aggregate
purchase price of $10.0 million during 2000. We did not repurchase any
common stock in 2001 and have no plans to do so in 2002. In addition, we
repurchased $13.0 million of our outstanding convertible subordinated notes
in 2000. These transactions reduced the number of shares outstanding on a
fully diluted basis by 473,402 and 541,491, respectively. The impact on
diluted earnings per share was not material.
The following table summarizes our cash obligations as of June 30,
2002:
PAYMENTS DUE BY YEAR
------------------------------------------------------------------------------
YEAR 1 YEARS 2 AND 3 YEARS 4 AND 5 THEREAFTER TOTAL
-------- ------------- ------------- ---------- ----------
(IN THOUSANDS)
Long-term debt................. $144,426 $137,588 $ 1,654 $655,625 $ 939,293
Operating leases............... 35,080 57,626 42,628 32,066 167,400
-------- -------- ------- -------- ----------
Total cash obligations......... $179,506 $195,214 $44,282 $687,691 $1,106,693
======== ======== ======= ======== ==========
Long-term debt due during 2002 includes the retirement of our
convertible notes. Our convertible notes mature in November 2002. As of
June 30, 2002, we had sufficient cash available to pay off the convertible
notes.
At June 30, 2002, we had outstanding letters of credit of approximately
$11.4 million related to performance and payment guarantees. In addition,
we have issued letters of credit of $2.3 million as credit enhancements in
conjunction with other debt. Based on our experience with these
arrangements, we do not believe that any obligations that may arise will be
significant.
On July 9, 2002, Standard and Poor's downgraded our corporate credit
rating to 'BB", the subordinated debt rating to 'B' and the senior secured
and senior unsecured debt rating to 'BB'. Moody's Investor Service has not
changed our ratings since February 2002, which are as follows: Senior
Subordinated Notes: B2; Convertible Subordinated Notes: B3; Senior Implied:
B1; and Senior Unsecured Issuer: B1. The terms of our existing debt do not
have any rating triggers, and we do not believe that our current ratings
will impact our ability to raise additional capital.
In August 2002, we completed the sale of the filing products division
of our envelope business for $36.7 million, which was consistent with our
expectations. The net proceeds from this transaction were $31.5 million and
were used to reduce our revolving loan balance.
We expect to be able to fund our operations, capital expenditures and
debt and other contractual commitments within the next year from internally
generated cash flow and funds available under our new $300 million senior
credit facility. At June 30, 2002, we had $107.2 million of unused credit
available under this credit facility.
38
SEASONALITY AND ENVIRONMENT
Our commercial printing business experiences seasonal variations. Our
revenues from annual reports are generally concentrated from February
through April. Revenues associated with holiday catalogs and automobile
brochures tend to be concentrated from July through October, and calendars
from May to September. As a result of these seasonal variations, we are at
or near capacity in some facilities at certain times during these periods.
Several consumer direct market segments served by our envelope business
and certain segments of the direct mail market, experience seasonality, with
a higher percentage of the volume of products sold to these markets occurring
during the fourth quarter of the year. This seasonality is due to the
increase in sales to the direct mail market due to holiday purchases.
Seasonality is offset by the diversity of our other products and markets,
which are not materially affected by seasonal conditions.
Environmental matters have not had a material financial impact on our
historical operations and are not expected to have a material impact in the
future.
CRITICAL ACCOUNTING POLICIES AND JUDGMENTS
In preparing our financial statements, we are required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. We evaluate our estimates and
judgments on an ongoing basis, including those related to bad debts,
inventory valuations, property, plant and equipment, intangible assets,
income taxes, restructuring costs, and contingencies and litigation. We
base our estimates and judgments on historical experience and on various
other factors that we believe to be reasonable under the circumstances.
Actual results may differ from these estimates.
During the quarter ended June 30, 2002, the decision was made to
reinstate the PrintXcel business as an operating asset. Under generally
accepted accounting principles, when a business that was held for sale is
reinstated as a continuing operation, it is to be recorded at the lower of
its carrying value or fair market value. In 2001, we reduced the carrying
value of the net assets of this business to its net realizable value. We
based our determination of the net realizable value of this business on the
advice provided to us by our financial advisors. Our internal valuations of
this business support its current carrying value, which approximates its
fair market value.
Assets held for sale have been recorded at net realizable value. The
net realizable value of the assets of our commercial printing segment held
for sale is based on a letter of intent received from a prospective buyer.
We do not expect the actual proceeds to be significantly different from our
estimates; however, until the sale is completed, the possibility exists
that the actual proceeds could be materially different from our estimate.
We exercise judgment in evaluating our long-lived assets for
impairment. Except for our commercial printing business, we believe our
businesses will generate sufficient cash flow to more than recover the
investments we have made in property, plant and equipment, as well as the
goodwill and other intangibles recorded as a result of our acquisitions. In
connection with the implementation of SFAS 142 discussed below, we are in
the process of quantifying the impairment in our commercial printing
business.
We are self insured for the majority of our workers' compensation costs
and group health insurance costs. We rely on claims experience and the
advice of consulting actuaries and administrators in determining an
adequate liability for self-insurance claims.
The determination of our tax provision is complex due to operations in
several tax jurisdictions outside the United States. In addition,
realization of certain deferred tax assets is dependent upon our ability to
generate future taxable income and future capital gains.
39
NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.
Statement 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. Statement 141 also
includes guidance on the initial recognition and measurement of goodwill and
other intangible assets arising from business combinations completed after
June 30, 2001. Statement 142 prohibits the amortization of goodwill and
intangible assets with indefinite useful lives. Statement 142 requires that
these assets be reviewed for impairment at least annually. Intangible assets
with finite lives will continue to be amortized over their estimated useful
lives. Additionally, Statement 142 requires that goodwill included in the
carrying value of equity method investments no longer be amortized.
We began our application of Statement 142 beginning on January 1, 2002.
We have completed the first step of the two-step process prescribed in
Statement 142 to test goodwill for impairment and have concluded that a
portion of the $213.5 million of goodwill related to our commercial printing
business is impaired. We will not know the extent of this impairment until
we have completed step two of the process, which we have begun. We will
recognize the amount of the impairment as a cumulative effect of a change
in accounting principle as of January 1, 2002, when it is determined.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. Statement 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. Mail-Well will
adopt Statement 143 on January 1, 2003. We are evaluating the impact of the
adoption of Statement 143 on the consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which establishes one
accounting model to be used for long-lived assets to be disposed of by sale
and broadens the presentation of discontinued operations to include more
disposal transactions. Statement 144 supercedes SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets to Be Disposed Of and the
accounting and reporting provisions of APB Opinion No. 30, Reporting the
Results of Operations--Reporting the Effects Of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. Mail-Well adopted Statement 144 as of January 1, 2002 and
there was no impact from the adoption of this statement. Because the sale
of the discontinued operations and the assets held for sale were amortized
in 2001, these were accounted for under APB 30.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statement No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. This statement provides guidance on the
classification of gains and losses from the extinguishment of debt and on
the accounting for certain specified lease transactions. The Company is
currently evaluating the provisions of the new statement.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force ("EITF") Issue No.
94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). Generally, SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized as
incurred, whereas EITF Issue No. 94-3 required such a liability to be
recognized at the time that an entity committed to an exit plan. The
company is currently evaluating the provisions of the new rule, which is
effective for exit or disposal activities that are initiated after
December 31, 2002.
MARKET RISK
We are exposed to market risks such as changes in interest and foreign
currency exchange rates, which may adversely affect results of operations
and financial position. Risks from interest and foreign
40
currency exchange rate fluctuations are managed through normal operating and
financing activities. We do not utilize derivatives for speculative purposes,
nor do we hedge interest rate exposure through the use of swaps and options
or foreign exchange exposure through the use of forward contracts.
Exposure to market risk from changes in interest rates relates
primarily to our variable rate debt obligations. The interest on this debt
is the London Interbank Offered Rate ("LIBOR") plus a margin. At June 30,
2002, we had outstanding variable rate debt outstanding of $137.2 million.
A 1% increase in the base rate (which is tied to the prime rate) or LIBOR
on the maximum amount available under our credit agreement, which is
$302.2 million, would increase our annual interest expense by $3.0 million
and reduce annual net income by approximately $1.9 million.
We have operations in Canada, and thus are exposed to market risk for
changes in foreign currency exchange rates of the Canadian dollar.
RECENT DEVELOPMENTS
In August 2002, we sold the filing products division of our Envelope
segment for $36.7 million. We recorded an impairment loss of $6.1 million
in connection with this divestiture. Net proceeds of $31.5 million received
from the sale of this operation were applied to the revolving credit
facility.
Subsequent to June 30, 2002, we were required to refinance a
sale/leaseback arrangement because its covenants were tied to those in the
banking agreement that was replaced by our new senior credit facility. In
connection with the refinancing, we were required to make a payment of
$15.8 million that will be expensed in the third quarter. In addition, $5.5
million of the deferred costs associated with this arrangement will be
written-off. For additional detail, see "Liquidity and Capital
Resources," page 37.
In September 2002, we amended our senior credit facility to revise our
financial covenants in order to allow for the new restructuring plan announced
on August 21, 2002 and described on page 24 under "Restructuring, Asset
Impairments and Other Charges," as well as to clarify certain other covenants.
We also made conforming amendments to our sale/leaseback arrangement.
41
BUSINESS
We are one of the largest printers in North America competing primarily
in the commercial printing and envelopes market segments. We believe we are
the world's largest manufacturer of envelopes, the leading printer of
envelopes in the United States and Canada and the largest high impact color
printer in the United States. We operate 82 printing manufacturing
facilities throughout North America. The combination of our broad printing
facility network and our sales force, which is among the largest in the
industry, has enabled us to build our customer base to over 20,000 in the
commercial printing and envelope segments, including major national and
regional accounts. In addition to our two primary business segments, we
also operate a printed office products segment. We incorporated in Delaware
on November 13, 1993 as Mail-Well Corporation and we changed our name to
Mail-Well I Corporation on September 11, 1995.
In May 2001, we completed a comprehensive review of our operations and
adopted a new strategy that focused on our two core businesses--commercial
printing and envelope. In support of this strategy, we sold our Curtis 1000
Inc. printed office products distributorship in February 2002, our prime
label segment in May 2002 and the file folder division of our envelope
segment in August 2002. We also consolidated three of our commercial
printing plants into one facility and closed 10 of our envelope plants and
redeployed the equipment and other assets at other facilities. We also
announced our intention to sell our PrintXcel printed office products group
of subsidiaries, and to sell the digital graphics division of our
commercial printing business. In July 2002 we announced our intention to
keep PrintXcel. The sale of the digital graphics division of our commercial
printing assets remains in process.
To reflect the effect of our new strategic plan, in the second quarter
of 2001 we began reporting our prime label and printed office products
segments as discontinued operations, began reporting the digital graphics
division of our commercial printing business and the filing products
division of our envelope business as assets held for sale, and recorded a
loss based on the anticipated proceeds of the dispositions. Beginning with
the second quarter of 2002, we no longer account for PrintXcel as a
discontinued operation, in order to reflect our recent decision not to sell
that business. The financial statements appearing in this prospectus
reflect the results of PrintXcel as a continuing operation on both a
current and historical basis.
Our new strategy also includes the launch of several initiatives to
significantly improve operations and marketing effectiveness. Both the
commercial printing and envelope businesses have programs in place to
institute best practices, standardize costing and pricing systems and align
equipment and services to better serve our customers and markets.
THE PRINTING AND ENVELOPE INDUSTRIES
The printing industry is one of the largest and most fragmented
industries in the United States with total estimated 2000 sales of $163
billion among an estimated 47,667 printing businesses, according to the
Printing Industry of America, Inc. The printing industry includes general
commercial printing, financial printing, printing and publishing of books,
labels, newspapers and periodicals, quick printing and production of
business forms and greeting cards. The envelope industry is not as highly
fragmented as the print industry, and envelope printing and manufacturing
combined constitute a $4.3 billion market in North America. Products in the
envelope industry include customized envelopes for direct mailing,
transactional envelopes, non-custom envelopes for resale and specialty
envelopes and files.
OUR COMPETITIVE STRENGTHS
We believe that our business is characterized by the following
competitive strengths:
SUPERIOR INFRASTRUCTURE AND SCALE. We currently operate one of the
world's largest print and envelope manufacturing and distribution
networks, with 82 printing and manufacturing facilities throughout the
United States and Canada. Our extensive network allows us to
cost-effectively deliver high quality products to our customers on a
just-in-time basis. Our network also has
42
enabled us to increase sales to national customers that require our
products and services in multiple regions of the country. In addition
to the distribution and marketing advantages provided by our
strategically located infrastructure, our scale enables us to realize
cost savings as a result of volume related purchases of paper, ink and
other raw materials used in the printing process. We are one of the
largest U.S. buyers of several paper grades. In 2001, we purchased
494,000 tons of coated and uncoated paper. Our scale also enables us to
achieve cost savings through the consolidation of insurance
administration, financial management and other administrative
functions.
BROAD RANGE OF QUALITY PRODUCTS AND SERVICES. We provide one of the
broadest offerings of quality products and services in our industry. We
print virtually anything that can be printed, from business cards to
premium full-color brochures and annual reports and from white
envelopes to highly customized direct mailers and from traditional
business forms to specialized self-mailing documents. We offer a broad
range of services that are tailored to our customers' needs, including
direct-to-plate technology and color sheet-fed presses. The quality of
our work has been recognized in the commercial printing industry, and
we were awarded numerous Gold Ink Awards in 2001 for various brochures
and reports that we printed. We believe our commitment to quality,
combined with our broad range of specialized products and services, has
allowed us to continually meet our customers' needs.
STRONG, LONGSTANDING CUSTOMER RELATIONSHIPS IN DIVERSE END MARKETS. We
sell our products to approximately 40,000 customers, and we maintain
longstanding relationships with leading retailers, advertising agencies
and other Fortune 500 Companies. Our largest ten customers for 2001
included United Stationers Inc., the U.S. Postal Service, Corporate
Express, Inc., S.P. Richards Co. and the U.S. Government Printing
Office. The length of our relationships with our ten largest 2001
customers ranged from seven to 42 years, with an average of
approximately 16 years.
INDUSTRY LEADING TECHNOLOGY AND INNOVATION. Since our inception, we
have dedicated significant resources to our print technology in order
to be a leading innovator in the industry. We were one of the first
printing companies in the United States to operate an eight-unit web
press and ten color sheet-fed press. In addition, we were one of the
earliest adopters of direct-to-plate technology. Our state of the art
Anderson printing facility in Los Angeles is considered one of the
premier high impact printing facilities in the United States. Our
leading technology enables us to better meet our customers' needs for
product innovation, consistent quality and cost efficiency.
EXPERIENCED MANAGEMENT AND OPERATIONS TEAM. Our senior management team
has significant experience in printing and manufacturing and has
substantial experience implementing cost-cutting and facility
consolidation programs, integrating acquisitions, and managing a
company through changing economic conditions. Our chief executive
officer, Paul Reilly, has spent over 20 years in the printing and
publishing industry with our company and at Polychrome Corporation, a
pre-press supplier to the printing industry. Our chief financial
officer, Michel P. Salbaing, has served as chief financial officer of
several businesses over the course of his 34 year career, including
with Quebecor World, a leading Canadian printing company. Our plant
managers in the commercial printing and envelopes segments are some of
the most experienced in the business, averaging over 19 years in the
printing industry.
OUR STRATEGY
Our objective is to continue to increase our cash flows and profits
through a business strategy that minimizes fixed operating costs and
achieves cost efficiencies in our core business segments. The key elements
of our strategy include:
FOCUS ON CORE BUSINESSES. As mentioned previously, in May 2001 we
completed a comprehensive review of our operations and adopted a new
strategy that focuses on our two core businesses--commercial printing
and envelope. We decided to sell our prime label and printed office
products segments and the digital graphics division of our commercial
printing business and
43
the filing products division of our envelope business in order to
concentrate our resources on our core businesses in which we believe
there is significant opportunity for growth. Additionally, we plan to
target our resources on specific companies and industries that offer
the greatest potential opportunities for our core business. In June
2002 we revised our strategy to include PrintXcel rather than divest
it. In conjunction with our new strategy, we plan to consolidate
operations within the commercial printing and envelope segments and
improve our financial condition by reducing our outstanding debt.
We are taking these measures in order to optimize capacity utilization
and the use of our resources. We expect the consolidation of our
operations to generate approximately $26 million in annual cost savings.
IMPLEMENT INITIATIVES TO INCREASE OPERATING EFFICIENCY AND CASH
FLOW. We continually reevaluate our cost structure and processes to
identify potential cost savings and productivity improvements that will
increase our profitability and cash flow. In addition to the
significant savings we expect to realize from consolidating our plants,
we commenced the Excellence Demands Group Effort or EDGE Initiative in
June 2001. The EDGE Initiative and other initiatives we commenced in
2001 include implementing firm-wide "best practices," installing
standard pricing and costing models across our business, more
effectively aligning equipment and employee capabilities with the needs
of targeted customers and industries, reducing waste, and regionalizing
our sales and general administration functions. As part of all these
initiatives, we have developed dedicated teams to track and benchmark
operating performance as well as implement organizational changes.
EXPAND OUR PRODUCT AND SERVICE OFFERINGS. Since our inception, we have
worked closely with our customers to develop innovative products that
meet their specific requirements. During 2001, we introduced several
new commercial printing and envelope products and services. The
Visulope(TM), which is an envelope we began to manufacture in the
fourth quarter of 2001, has an extra window to detect unusual
substances prior to opening. In addition, we introduced Mail-Well
1-2-1, an Internet-based advertising solution that allows our clients
to send out personalized marketing materials. We also implemented our
innovative "Go-to-market" program, a team approach to expanding
customer service relationships that we believe is unique in the
printing industry. Under the "Go-to-market" program, we seek to
increase sales by bringing sales management discipline to our selling
process, including segmenting our customer base, understanding customer
profitability, and developing account action plans by sales
representatives. We will continue our focus on product and service
improvements and new innovations in order to meet our customers needs
and grow our business.
OUR PRODUCTS
Commercial Printing. We believe we are the leading printer of
envelopes in the United States and Canada, the largest high impact color
printer in the United States, and a leading general commercial printer in
several major U.S. markets. Our commercial printing segment generated $818
million of sales for the year ended December 31, 2001, representing 39% of
our total pro forma sales. We serve two primary commercial printing
markets: (i) high impact color printing, in which we print a wide range of
longer run premium products for national and regional accounts; and (ii)
general commercial printing, in which we print a wide array of products and
offer printing services to local commercial customers. Our printing
products include advertising literature, corporate identity materials,
annual reports, car brochures, calendars, greeting cards, brand marketing
materials, catalogs, maps, CD packaging and direct mail. We offer a wide
range of commercial printing services to our customers, including
electronic prepress, digital archiving, direct-to-plate technology, and
high quality web and color sheet-fed presses. Our high impact printing
customers include The Coca-Cola Company, Microsoft Corporation and
DaimlerChrysler AG, and our general commercial customers include
Anheuser-Busch Inc., Compaq Computer Corporation and GlaxoSmithKline PLC.
In 2001, we served over 12,000 commercial customers. We printed over
24 million annual reports for 122 public companies, including 10 of the
Fortune 50 companies, and we printed over 40 million auto brochures
44
for 14 automobile manufacturers. Our commercial printing segment operates
29 plants throughout the United States and one in Canada.
Envelope. We believe we are the world's largest manufacturer of
envelopes. Our envelopes segment generated $836 million of sales for the
year ended December 31, 2001, representing 40% of our total pro forma
sales. We serve two primary markets: (i) customized envelopes and packaging
products, including Tyvek(R) mailers used by the U.S. Postal Service, sold
directly to end users or to independent distributors who sell to end users;
and (ii) envelopes and other products sold to wholesalers, paper merchants,
printers, brokerage firms, office product establishments and superstores.
In the customized envelope market, we offer printed customized conventional
envelopes for billing and remittance, direct mail marketers, catalog orders
and other end-users, such as banks, brokerage firms and credit card
companies. In addition to the U.S. Postal Service, our major customized
envelope customers include State Farm Insurance Company, Reader's Digest
and the Internal Revenue Service. In the wholesale envelope market, we
manufacture and print a broad line of custom envelopes that are featured in
national catalogs for the office products market or offered through office
products retailers, including contract stationers. Our wholesale market
customers include United Stationers Inc., S.P. Richards Co., Boise Cascade
Office Products and Corporate Express, Inc. In 2001, we served over 8,000
envelope customers. We manufacture envelopes in 27 U.S. plants and 13
Canadian plants.
Printed Office Products. In addition to our two primary business
segments, we also operate a printed office products segment. We believe we
are the largest manufacturer of printed office products sold through
distributors. The printed office products segment prints a diverse line of
custom products for small and medium-sized businesses including both
traditional and specialty forms for use with desktop PCs and laser
printers. Printed office products customers include Data Supplies, Wall
Street Business Products and Minuteman Press International, Inc. Our
printed office products segment has 12 manufacturing facilities located
throughout the United States.
OUR SERVICES
We offer our customers a wide variety of related services to enhance
the value of our products, such as:
Prepress. The traditional design phase typically requires us to
incorporate customer-submitted graphics, photograph the artwork, develop
the file and prepare a plate from which to print.
Electronic Prepress. This is a fully automated electronic process that
allows the customer to submit its artwork and other data in digital format,
either on a diskette, high speed transmission line or in hard copy that can
be computer-scanned. We can then manipulate the image, prepare color
separations and edit the design on a computer to create the file from which
the printing plate is made. Electronic prepress greatly reduces the time
and the number of people involved in the production of plates, and we
believe that we are an industry leader in fully automated electronic
prepress operations.
Direct-to-Plate Technology. We offer digital direct-to-plate
technology, which eliminates the production of film and several manual
functions in the platemaking process. This technology offers a complete
digital workflow, providing a better printed product and faster turnaround
without additional cost.
Mail-Well 1-2-1. We offer on-demand digital printing services using
variable imaging and other features to produce personalized marketing
material, direct mail and other forms of targeted customer communications.
Digital Archiving. We allow customers to store digitally rendered
artwork on our file servers. The artwork can then be accessed and retrieved
either at the plant during the prepress stage or from a remote site via
high speed transmission during the design stage.
Delivery Systems. We offer a flexible "just-in-time" delivery program.
This program allows customers to receive their products just prior to when
they are needed.
45
Warehousing Services. A customer will often place an order for
significantly more product than it may need at the time. When this occurs,
we offer to store the finished product and drop-ship them on an "as-needed"
basis.
Inventory Management Systems. We offer this service primarily to large
national organizations with centralized purchasing and supply departments
that service multiple locations. We facilitate order processing by giving
customers information on usage by item and/or available supply in our
warehouses and provide for summary billing.
Fulfillment. We offer a complete fulfillment center with online order
assembly and barcoding located in Denver.
E-commerce. We have the capability to offer our customers a full range
of e-commerce services to order printing or other products through their
web page.
Printmailwell.com. We offer a full range of robust Internet-based
print procurement and print management solutions via our Printmailwell.com
e-commerce platform, powered by PrintCafe.
Our goal is to offer the highest standards in meeting our customers'
needs with our primary focus on responding quickly and competitively to
customer demands and requirements. Many of our production facilities are
open 24 hours a day, seven days a week, to allow for timely production of
materials. At certain facilities we also offer a number of unique services
to our customers such as complimentary transportation between the airport
and our offices, in-plant overnight accommodations, on-site meeting rooms
and lounge, travel and hotel arrangements and computers for use by the
customers when on-site.
We believe that the consolidation of the printing industry is being
driven in part by the rapid pace of technological change. Recent advances
in computer-based prepress equipment, such as electronic prepress, allow
for faster and more precise manipulation of images and text prior to
printing. Similarly, recent advances in photo imaging technology have
greatly increased the quality of the final image produced in the printing
process. These advances have increased the capital requirements for
maintaining technologically advanced equipment. We believe that many
smaller local and regional commercial printers will find it increasingly
difficult to obtain adequate financial resources to remain competitive in
the segments of the commercial printing market in which we operate.
MARKETING, DISTRIBUTION AND CUSTOMERS
As a result of the wide array of applications, customer preferences and
order sizes, our marketing efforts vary significantly among markets and by
region. Although our marketing efforts traditionally have been local or
regional, we continue to emphasize a more focused national accounts program
to attract customers whose needs are national or cover multiple regions. We
now have a national marketing director and a print marketing campaign.
We maintain one of the largest sales staffs in the industry, with
approximately 650 sales representatives as of December 31, 2001. The vast
majority of our printed products are sold through sales representatives,
the exception being occasional "house" or company accounts. Our sales
representatives work closely with customers from the initial concept
through prepress, proofing and finally the press run. Because our sales
representatives are our primary contacts with our customers, our goal is to
attract, train and retain an experienced, qualified sales force in each of
our business segments. Sales representatives typically are compensated by
straight commission. Commissions generally depend on such factors as order
size and type, prepress work, reruns or rework and overall profitability of
the job. We also coordinate sales efforts among regions within our
operating segments, and among the operating segments themselves, in order
to compete for national account business, enhance the internal
dissemination of successful new product ideas, efficiently allocate our
production equipment, share technical expertise and increase company-wide
selling of specialty products manufactured at selected facilities.
46
In commercial printing our marketing efforts differ between two broad
product areas: high impact color products, such as auto brochures, annual
reports and high-end catalogs, and general commercial work. We market high
impact printing primarily on a regional basis, through sales
representatives working out of sales offices across the United States.
Because of the highly fragmented nature of the general commercial printing
and envelope businesses, and the wide array of customer needs and
preferences, we market most of our general commercial printing and
envelopes locally. Due to the project-oriented nature of these market
segments, sales to particular customers may vary significantly from year to
year depending upon the number and size of their projects. Our customer
supply agreements are typically on an order by order basis or for a
specified period of time. The sales force is supported by a technical
service team that provides customers with highly customized printing
solutions. Most of our printing facilities have customer service
representatives that work with the sales team and the customers to manage
orders efficiently and effectively. In some cases, the customer service
representatives have direct responsibility for accounts. In 2001, we
implemented our innovative "Go-to-market" program as part of our strategic
plan. This program utilizes a team approach to customer service
relationships that we believe is unique in the printing industry.
Our customer base totals approximately 40,000. Our customers in the
high impact commercial printing market include Fortune 500 companies,
graphic designers and advertising agencies. Our customers in the general
commercial printing and envelope businesses include national and local
businesses, government agencies and not for profit organizations. In our
printed office products segment, our customers are primarily value-added
resellers of office products. None of our customers accounted for more than
2% of revenue in 2001.
PRINTING AND MANUFACTURING
Our commercial printing segment operates 29 printing facilities
throughout the United States, and one in Canada. These plants combine
advanced prepress technology with high-quality web and sheet-fed color
presses and extensive binding and finishing operations. Many of our
commercial printing facilities operate seven days a week, 24 hours a day to
meet customer printing requirements.
Our envelope segment operates 40 printing facilities throughout North
America. Envelopes are produced from either flat sheets or rolls of paper.
The paper is folded into an envelope, which is glued at the seams and on
the flap, and then printed as required. Webs are typically used for larger
runs with multiple colors and numerous features, and die cut machines,
which require a preliminary step to provide die cut envelope blanks from
paper sheets, are used primarily for smaller orders typically including
customized value-added features. The manufacturing process used is
dependent upon the size of a particular order, custom features required,
machine availability and delivery requirements.
In our printed office products segment, we operate 12 facilities in the
United States. In printed office products, we design and print forms and
other customized materials for a wide range of businesses. A majority of
printed office products orders are delivered to us "camera ready," and we
perform prepress and platemaking functions and print on web presses.
MATERIALS AND SUPPLY ARRANGEMENTS
The primary materials used in each of our printing divisions are paper,
ink, film, offset plates, chemicals and cartons, with paper accounting for
the majority of total material costs. We are the largest U.S. buyer of
several paper grades. In 2001, we purchased 494,000 tons of coated and
uncoated paper. We purchase these materials from a number of suppliers and
have not experienced any significant difficulties in obtaining the raw
materials necessary for operations. We have implemented an inventory
management system in which a limited number of paper suppliers supply all
of our paper needs. These suppliers are responsible for delivering paper on
a "just-in-time" basis directly to our facilities. We believe that this
system has allowed us to enhance the flexibility and speed with which we
can serve customers, improve pricing on paper purchases, eliminate a
significant amount of paper
47
inventory and reduce costs by reducing warehousing capacity. We believe
that we purchase our materials and supplies at very competitive prices due
to our volume leverage.
PATENTS, TRADEMARKS AND BRAND NAMES
We market products under a number of trademarks and brand names. We
also hold or have rights to use various patents relating to our envelope
business, which expire at various times through 2012. Our sales do not
materially depend upon any single or related group of patents.
COMPETITION
The commercial printing industry is highly competitive and fragmented.
We compete against a number of large, diversified and financially stronger
printing companies, as well as regional and local commercial printers, many
of which are capable of competing with us in both volume and production
quality. Although we believe customers are price sensitive, we also believe
that customer service and high quality products are important competitive
factors. We believe we provide premium quality and customer service while
maintaining competitive prices through stringent cost control efforts. The
main competitive factors in our markets are customer service, product
quality, reliability, flexibility, technical capabilities and price. We
believe we compete effectively in each of these areas.
In envelope printing, we compete with a few multi-plant and many
single-plant companies that primarily service regional and local markets.
We also face competition from alternative sources of communication and
information transfer such as facsimile machines, electronic mail, the
Internet, interactive video disks, interactive television and electronic
retailing. Although these sources of communication and advertising may
eliminate some domestic envelope sales in the future, we believe that we
will experience continued demand for envelope products due to (i) the
ability of our customers to obtain a relatively low-cost information
delivery vehicle that may be customized with text, color, graphics and
action devices to achieve the desired presentation effect, (ii) the ability
of our direct mail customers to penetrate desired markets as a result of
the widespread delivery of mail to residences and businesses through the
U.S. Postal Service and the Canada Post Corporation and (iii) the ability
of our direct mail customers to include return materials in their
mail-outs. Principal competitive factors in the envelope business are
quality, service and price. Although all three are equally important,
various customers may emphasize one or more over the others. We believe we
compete effectively in each of these areas.
Our closest competitors in the printed office products market are other
document printers with nationwide manufacturing locations and
regional/local printers, which typically sell within a 100 to 300-mile
radius of their plants. To a limited extent we compete with much larger
direct selling forms manufacturers. We compete mainly on the breadth of our
product offerings and close customer relationships.
EMPLOYEES
We employ approximately 11,100 people and approximately 2,200 people we
employ at the various facilities are represented by unions affiliated with
the AFL-CIO or Affiliated National Federation of Independent Unions. These
employees are governed by collective bargaining agreements, each of which
covers the workers at a particular facility, expires from time to time and
is negotiated separately. Accordingly, we believe that no single collective
bargaining agreement is material to our operations as a whole.
PROPERTIES
We occupy 82 printing and manufacturing facilities in the United States
and Canada, of which 43 are owned and 39 are leased. In addition to on-site
storage at these facilities, we store products in 16 warehouses, of which
two are owned. We also lease 47,754 square feet of office space in
Englewood, Colorado for our corporate headquarters and an additional 10,258
square feet of office space in
48
Chicago, Illinois for information systems support persons. We believe that
we have adequate facilities for the conduct of our current and future
operations.
LEGAL PROCEEDINGS
From time to time we may be involved in claims or lawsuits that arise
in the ordinary course of business. Accruals for claims or lawsuits have
been provided for to the extent that losses are deemed probable and
estimable. Although the ultimate outcome of these claims or lawsuits cannot
be ascertained, on the basis of present information and advice received
from counsel, it is our opinion that the disposition or ultimate
determination of such claims or lawsuits will not have a material adverse
effect on us. In the case of administrative proceedings related to
environmental matters involving governmental authorities, we do not believe
that any imposition of monetary damages or fines would be material.
ENVIRONMENTAL
Our operations are subject to federal, state, local and foreign
environmental laws and regulations, including those relating to air
emissions, wastewater discharge, waste generation, handling, management and
disposal, and remediation at contaminated sites. We may be subject to the
following federal legislation, as well as various state and local laws:
* the Comprehensive Environmental Response Compensation and Liability
Act, as amended by the Superfund Amendment and Reauthorization Act,
which governs the identification, reporting and clean-up of hazardous
substances that have been released into the environment. We do not
currently face any known material liabilities arising from CERCLA.
* the Solid Waste Disposal Act, as amended by the Resource Conservation
and Recovery Act and Hazardous and Solid Waste Amendment, which
governs the disposal of solid waste and the identification, treatment
and disposal of hazardous waste.
* the Toxic Substances Control Act, which governs the regulation of
hazardous chemical substances, such as asbestos, polychlorinated
biphenyle, radon and lead.
* the Federal Water Pollution Control Act, as amended by the Clean
Water Act, which governs the regulation or the discharge of
pollutants into navigable waters.
* the Clean Air Act, which governs the regulation of the emission of
contaminants into the atmosphere.
Our operations in California may also be subject to rules of the South
Coast Air Quality Management District or the Bay Area Air Quality
Management District, and we may be subject to OSHA's Hazardous Waste
Operations and Emergency Response (HAZWOPER) standards.
We have implemented environmental programs designed to ensure that we
operate in compliance with the applicable laws and regulations governing
environmental protection. We believe that we are in substantial compliance
with applicable laws and regulations relating to environmental protection.
We do not anticipate that material capital expenditures will be required to
achieve or maintain compliance with environmental laws and regulations.
However, newly discovered conditions or new or stricter enforcement of
existing requirements may result in material expenses.
49
MANAGEMENT
The name, age and position of each of the directors and executive
officers of the Parent Company are set forth below:
DIRECTOR
NAME AGE POSITION SINCE(1)
- ---- --- -------- ---------
Paul V. Reilly.................... 50 Director, Chairman of the Board & Chief Executive 1998
Officer
Michel P. Salbaing................ 57 Senior Vice President & Chief Financial Officer
Herbert H. Davis III.............. 54 Senior Vice President--Corporate Development & Chief
Legal Officer
Gordon Griffiths.................. 59 Chief Executive Officer--Commercial Print
Robert C. Hart.................... 64 Chief Executive Officer--Envelope
Roger Wertheimer.................. 43 Vice President--General Counsel & Secretary
D. Robert Meyer, Jr............... 46 Vice President--Treasurer
Mark L. Zoeller................... 42 Vice President--Corporate Development
William W. Huffman, Jr............ 53 Vice President--Controller
Keith T. Pratt.................... 56 Vice President--Purchasing
Frank P. Diassi(4)................ 69 Director 1993
Frank J. Hevrdejs(2)(3)........... 56 Director 1993
Janice C. Peters(3)............... 51 Director 1999
Jerome W. Pickholz(2)(4).......... 69 Director 1994
W. Thomas Stephens(2)(3).......... 60 Director 2000
Alister W. Reynolds............... 45 Director 2002
- ----------------------------------------------------------------------------------------------------------------
(1) Directors serve one-year terms.
(2) Member of the Nominating and Governance Committee.
(3) Member of the Compensation Committee.
(4) Member of the Audit Committee.
PAUL V. REILLY was named our Chief Executive Officer in March 2001 and
he became Chairman of the Board in September 2001. Prior to that Mr. Reilly
was our President and Chief Operating Officer from January 1998 to March
2001 and was our Senior Vice President--Finance and Chief Financial Officer
from September 1995 to January 1998. Mr. Reilly spent 14 years with
Polychrome Corporation, a prepress supplier to the printing industry, where
he held a number of positions including Assistant Corporate Treasurer,
Corporate Treasurer, Vice President and Chief Financial Officer, and
General Manager of United States Operations. Mr. Reilly is a Certified
Public Accountant.
MICHEL P. SALBAING has been our Senior Vice President--Finance and
Chief Financial Officer since November 2000. From 1996 to November 2000,
Mr. Salbaing was with Quebecor World, the largest North American printer,
where he held a number of positions, most recently as Chief Financial
Officer of the overall corporation, and also as President and Chief
Executive Officer of Quebecor Printing Europe from 1998 to 1999 and Senior
Vice President and Chief Financial Officer of Quebecor World North America.
Prior to 1996, Mr. Salbaing held various senior financial positions with
three large Canadian manufacturing firms and spent eight years with Ernst &
Young LLP. Mr. Salbaing is a member of the Canadian Institute of Chartered
Accountants.
HERBERT H. DAVIS III has been our Senior Vice President--Corporate
Development and Chief Legal Officer since August 2001. Prior to that time,
Mr. Davis was in the private practice of law and
50
was a partner at the Denver, Colorado law firm of Rothgerber Johnson &
Lyons LLP for over 20 years.
GORDON GRIFFITHS has served as Chief Executive Officer of our
commercial print segment since April 8, 2002. Mr. Griffiths most recently
served as the chairman and CEO of Caxton Group, a marketing services
organization that he co-founded in April 2000. Prior to founding Caxton
Group, Mr. Griffiths served Canada's largest privately owned printer,
St. Joseph Corporation, as president and chief operating officer from May
1998 to January 2000. St. Joseph is Canada's third largest printing and
communications organization. For 18 years, Mr. Griffiths was associated
with Quebecor Printing, Inc., serving in various positions including
president of Quebecor Printing Canada from 1990 to 1998. His experience
in the printing industry dates back to 1964.
ROBERT C. HART has served as Chief Executive Officer of the envelope
segment of the Company since October 2000. From 1998 until he joined
Mail-Well, he owned his own consulting firm after having spent over thirty
years, from 1967 to 1998, with Riverwood International, a $1.3 billion
paperboard and packaging company headquartered in Atlanta, GA. Throughout
his tenure with Riverwood, Mr. Hart served as Vice President & Mill
Manager; Vice President, Sales and Marketing; Vice President, and General
Manager of Paperboard Operations. Mr. Hart's last position, starting in
1992, was as Senior Vice President of Riverwood's Paperboard Operation,
which generated $600 million annually throughout his tenure. Mr. Hart
directed the operations of three paper mills, producing 1.4 million tons of
packaging products to improve productivity over 250,000 tons in eight
years.
ROGER WERTHEIMER has been our Vice President--General Counsel and
Secretary since February 1995. Mr. Wertheimer began practicing law in 1984
and served as Corporate Counsel for PACE Membership Warehouse, Inc. from
1988 to 1994. Mr. Wertheimer was in private practice from March 1994 until
February 1995, when he joined us.
D. ROBERT MEYER, JR. has been our Vice President--Treasurer and Tax
since 1998. Mr. Meyer is a licensed attorney, Certified Public Accountant
and Certified Financial Planner. From 1988 to 1998, Mr. Meyer was a partner
in the tax department of the accounting firm of Deloitte & Touche LLP.
MARK L. ZOELLER has been our Vice President--Corporate Development
since May 2001. Mr. Zoeller joined us in 1997 as Corporate Counsel, and
from May 2000 to May 2001, he was Assistant General Counsel. Prior to
joining us, Mr. Zoeller was an associate at the law firm of Rothgerber
Johnson & Lyons LLP, and he is a licensed attorney.
WILLIAM W. HUFFMAN, JR. has been our Vice President--Controller since
November 2000. Prior to that he served in various financial capacities at
Custom Papers Group, Specialty Coatings International, and James River
Corporation. Mr. Huffman began his career with Coopers & Lybrand, and is a
Certified Public Accountant.
KEITH T. PRATT has been our Vice President--Purchasing since 1998. From
1994 to 1998, Mr. Pratt was Vice President of Material Sourcing and
Logistics of Ply Gem Industries, a residential building products
manufacturer. From 1981 to 1994, Mr. Pratt was responsible for purchasing
and logistics with several companies where he held a variety of positions
up to the director level.
FRANK P. DIASSI has been a director since our inception in 1993. Mr.
Diassi was Chairman of Sterling Chemicals, Inc., a manufacturer of
commodity petrochemicals and chemicals used primarily in the pulp and paper
industry, from August 1996 through December 2001. He was a founding
director of Arcadian Corporation, the largest nitrogen fertilizer company
in North America. From 1989 to 1994, Mr. Diassi was a Director and Chairman
of the Finance Committee of Arcadian Corporation. Mr. Diassi is a director
of Fibreglass Holdings, Inc., a truck accessory manufacturer, a director
and Chairman of Amerlux Inc., a commercial lighting company, and director
and Chairman of Software Plus, Inc., a human resources/payroll software
design firm. On July 16, 2001, Sterling Chemicals, Inc., a company for
which Mr. Diassi has served as an executive officer, filed a voluntary
petition for
51
reorganization under Chapter 11 of the United States Bankruptcy Code. Mr.
Diassi is a member of the Audit Committee of the Board of Directors.
FRANK J. HEVRDEJS has been a director since our inception in 1993. In
1982 Mr. Hevrdejs co-founded The Sterling Group, L.P., a major management
buyout company, where he is currently a principal shareholder and
president. He also serves as Chairman of First Sterling Ventures Corp., an
investment company, Endoro Holdings, Inc., a structural and electrical
manufacturing company, and Fibreglass Holdings, Inc., a truck accessory
manufacturer. He is a director of Eagle U.S.A., an air-freight company,
Sterling Chemicals, Inc., a petroleum chemical company and serves on the
Houston Regional Board of J.P. Morgan Chase and Co., a financial
institution. Mr. Hevrdejs serves as Chairman of the Nominating and
Governance Committee and is a member of the Compensation Committee of the
Board of Directors.
JANICE C. PETERS has been a director since 1999. From 1997 to 2000, Ms.
Peters served as President and Chief Executive Officer of MediaOne(R), the
broadband services arm of MediaOne Group. From 1995 to 1997, Ms. Peters was
employed by US WEST, MediaOne's former parent company, in various positions
including Executive Vice President of Media One Group, Managing Director of
One2One, a United Kingdom wireless communications joint venture between US
WEST and Cable & Wireless, and President of Wireless Operations for US WEST
Media Group. Ms. Peters has served as a director of Primus Knowledge Solutions,
Inc., a knowledge-enabled software provider, since March 2000 and joined the
board of directors of 3COM, a communications company specializing in network
solutions, in July 2000. Ms. Peters serves as Chairperson of the Compensation
Committee of the Board of Directors.
JEROME W. PICKHOLZ has been a director since September 1994. From 1978
until 1994, he was Chief Executive Officer of Ogilvy & Mather Direct
Worldwide, a direct advertising agency. From 1994 until September 1995, he
served as Chairman of the Board of Ogilvy & Mather Direct worldwide where
he is now Chairman Emeritus. Since January 1, 1996, Mr. Pickholz has served
as founder and Chairman of Pickholz, Tweedy, Cowan, L.L.C., a marketing
communications company. Mr. Pickholz serves as the Chairman of the Audit
Committee and as a member of the Nominating and Governance Committee of the
Board of Directors.
W. THOMAS STEPHENS has been a director since 2000 and served as Chairman
of the Board from February 2001 to June 2001. From 1997 to November 1999,
Mr. Stephens served as President and Chief Executive Officer of MacMillan
Bloedel, Canada's largest forest products company. From 1986 to 1996, he
served as CEO and President of Johns Manville Corporation serving as
Chairman from 1993 to 1996. Mr. Stephens has served as a director of Qwest
Communications International, Inc. since June 1997, Norske Skog Canada
Limited since November 1999, Xcel Energy, Inc. and a predecessor company
since February 1989, TransCanada PipeLines Ltd. since April 1999, and has
been a trustee of Putnam Mutual Funds since 1997. Mr. Stephens is a member
of the Audit Committee and the Nominating and Governance Committee of the
Board of Directors.
ALISTER W. REYNOLDS was elected a director at the 2002 Annual Meeting.
Mr. Reynolds has been employed by Quest Diagnostics, Inc., a laboratory
testing company, since 1996 in various positions, including, from 1999 to
January 2001, as Senior Vice President--U.S. Operations, and since January
2001 as Senior Advisor to the Chairman and CEO. He serves as director of
Soma Logic Incorporated, a Delaware corporation, and Health Care Waste
Solutions, a Delaware corporation.
52
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
Mail-Well ICenveo Corporation originally issued and sold $350,000,000$320 million
aggregate principal amount of 9 5/7 7/8% Senior Notes due 20122013 on March 13,
2002,February 4,
2004, in an offering that was exempt from registration under the Securities
Act of 1933 pursuant to Section 4(2), Rule 144A and Regulation S of the
Securities Act. Accordingly, the old notes may not be transferred in the
United States unless registered under the Securities Act or unless an
exemption from the registration requirements of the Securities Act and
applicable state securities laws is available.
As a condition to the sale of the old notes, we entered into a
registration rights agreement dated as of March 13, 2002February 4, 2004 with the initial
purchasers of the old notes. In the registration rights agreement, we agreed
to file with the Securities and Exchange Commission a registration statement
under the Securities Act no later than June 11, 2002,May 4, 2004, with respect to the $350,000,000$320
million aggregate principal amount of 9 5/7 7/8% senior notes due 20122013 offered
by this prospectus. We will use our reasonable best efforts to cause such
registration statement to become effective within 210 days of the signing of
the registration rights agreement. We also agreed to use our reasonable best efforts to have the registration statement declared
effective within 90 days after June 11, 2002. In addition, we agreed to use
ourrespective
reasonable best efforts to cause the registration statement to be effective
for a period of not less than 20 business days after the date notice of the
exchange offer is mailed to the holders of the old notes, to keep the
exchange offer open for a period of not less than 20 business days and to cause
the exchange offer to be consummated no later than the 30th business day
after the registration statement is declared effective by the Commission.
Pursuant to the exchange offer, holders of the old notes may
exchange their old notes for registered new notes. For each old note
surrendered pursuant to the exchange offer, the holder of the old note will
receive a new note having a principal amount equal to that of the
surrendered old note. Interest on each new note will accrue from the last
interest payment date on which interest was paid on the old note surrendered
in exchange for the new note or, if no interest has been paid on such old
note, from the date the old note was issued.
To participate in the exchange offer, each holder must represent
that:
*(1) it is acquiring the new notes in the exchange offer in its
ordinary course of business;
*(2) it has no arrangement or understanding with any person to
participate in a distribution of the new notes, and if it is
not a broker-dealer, it is not engaged in, and does not intend
to engage in, a distribution of the new notes;
*(3) it is not an "affiliate" of Mail-Well ICenveo Corporation, as defined
in Rule 405 of the Securities Act, or if it is such an
affiliate, it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent
applicable; and
*(4) if it is broker-dealer, it will receive new notes for its own
account in exchange for old notes that it acquired as a result
of market-making activities or other trading activities.
Each broker-dealer that receives new notes for its own account in
exchange for old notes, where such old notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such new notes. See "Plan of Distribution" on
page 102.Distribution." The
Commission has taken the position that these broker-dealers may fulfill
their prospectus delivery requirements with respect to new notes, other than
a resale of an unsold allotment from the original sale of the old notes,
with this prospectus. Under the registration rights agreement, we are
required to allow these broker-dealers and other persons, if any, with
similar prospectus delivery requirements to use this prospectus in
connection with the resale of the new notes. We have filed a
copy of theThe registration rights
agreement asis an exhibit to the registration statement of which this
prospectus is a part.
53
RESALE OF THE NEW NOTES
Based on no-action letters issued by the staff of the Commission to
persons who are not associated with us, we believe that the new notes issued
in exchange for old notes pursuant to this exchange offer will in general be
19
freely transferable after this exchange offer without further registration
under the Securities Act and without the holder's delivery of a prospectus
under the Securities Act. This presumes that the holder of the new notes
makes the representations described above and, if the holder is a
broker-dealer, it represents that it will receive new notes for its own
account in exchange for old notes that were acquired as a result of
market-making activities or other trading activities and that it will
deliver a prospectus in connection with any resale of the new notes.
However, the Commission has not considered this exchange offer in the
context of a no-action letter and there can be no assurance that the staff
of the Commission would make a similar determination with respect to this
exchange offer as it made in the no-action letters to the unrelated persons.
Holders of old notes wishing to accept the exchange offer must
complete and sign the letter of transmittal that will be mailed to each
holder of the old notes. The letter of transmittal contains the required
representations described above and an agreement to comply with the
agreements and covenants set forth in the registration rights agreement.
This prospectus, as it may be amended or supplemented from time to
time, may be used by broker-dealers in connection with resales of new notes
received in exchange for old notes where the old notes were acquired by the
broker-dealer as a result of market-making activities or other trading
activities. A broker-dealer that signs a letter of transmittal and delivers
a prospectus to purchasers in connection with resales may be deemed to be an
"underwriter" within the meaning of the Securities Act; however, the holder
will not be deemed to admit that it is an "underwriter" within the meaning
of the Securities Act.
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions described in this
prospectus and contained in the letter of transmittal, we will accept for
exchange any and all old notes that are properly tendered on or prior to the
expiration date of the exchange offer, , 2002,_____________, 2004, and are
------------ not
withdrawn as permitted below. We will issue $1,000 principal amount of new
notes in exchange for each $1,000 principal amount of outstanding old notes
surrendered pursuant to this exchange offer. Old notes may be tendered only
in integral multiples of $1,000.
The form and terms of the new notes are the same as the form and
terms of the old notes except that:
*(1) the new notes will be registered under the Securities Act and
hence the new notes will not bear legends restricting their
transfer, and
*(2) holders of the new notes will not be entitled to most rights
under the registration rights agreement, which will terminate
upon the closing of the exchange offer.
The new notes will evidence the same debt as the old notes and will
be issued under, and be entitled to the benefits of, the same indenture.
As of the date of this prospectus, an aggregate of $350,000,000$320 million in
principal amount of the old notes is outstanding. This prospectus, together
with the letter of transmittal, is first being sent on or about
, 2002,_________________, 2004, to all holders of old notes known to us.
- ------------
Holders of the old notes do not have any appraisal or dissenters'
rights under the indenture in connection with the exchange offer. We intend
to conduct the exchange offer in accordance with the provisions of the
registration rights agreement and the applicable requirements of the federal
securities laws.
54
We expressly reserve the right, at any time or from time to time,
to extend the period of time during which the exchange offer is open, and by
the extension to delay acceptance for exchange of any old notes. Notice of
any extension will be issued by means of a press release or other public
announcement no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date. During the
extension, all old notes previously tendered will remain subject to the
exchange offer and may be accepted for exchange by Mail-Well ICenveo Corporation.
We will return any old notes not accepted for exchange for any reason
without expense to the tendering holder as promptly as practicable after the
expiration of the exchange offer. We will give written notice of any
extension, amendment or nonacceptance to the holders of the old notes as
promptly as practicable.
20
PROCEDURES FOR TENDERING OLD NOTES
Your tender to Mail-Well ICenveo Corporation of old notes as described
below and our acceptance of the old notes will create a binding agreement
between us upon the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal. Except as set forth below, a
holder who wishes to tender old notes for exchange must send a completed and
signed letter of transmittal, including all other documents required by the
letter of transmittal, to the exchange agent, State StreetUS. Bank and
Trust Company,National Association,
at the address set forth below under "--Exchange"-Exchange Agent" on
page 58 on or before the
expiration date. In addition, either:
(1) certificates for the old notes must be received by the
exchange agent, or
(2) a timely confirmation of a book-entry transfer of the old
notes into the exchange agent's account at the Depository
Trust Company pursuant to the procedure for book-entry
transfer described below, must be received by the exchange
agent before the expiration date, or
(3) the holder must comply with the guaranteed delivery procedures
described below.
The method of delivery of old notes, letters of transmittal and all other
required documents is at the election and risk of the holders. If the
delivery is by mail, we recommend you use registered mail, properly insured,
with return receipt requested. In all cases, you should allow sufficient
time to assure timely delivery. No letters of transmittal or old notes
should be sent to Mail-Well ICenveo Corporation.
Any beneficial owner whose old notes are registered in the name of
a broker, dealer, commercial bank, trustee or other nominee and who wishes
to tender should contact the registered holder of the old notes promptly and
instruct the registered holder to tender on behalf of the beneficial owner.
If the beneficial owner wishes to tender on its own behalf, the beneficial
owner must, prior to completing and executing the letter of transmittal and
delivering its old notes, either make appropriate arrangements to register
ownership of the old notes in the beneficial owner's name or obtain a
properly completed power of attorney from the registered holder of the old
notes. The transfer of record ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal
need not be guaranteed if the old notes surrendered for exchange are
tendered:
(1) by a registered holder of the old notes who has not completed
the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the letter of transmittal, or
(2) for the account of an eligible institution.
An "eligible institution" means a firm that is a member of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc. or a commercial bank or trustee having an office or
correspondent in the United States. In the event that signatures on a letter
of transmittal or a notice of withdrawal are required to be guaranteed, the
guarantees must be by an eligible institution. If old notes are registered
in the name of a person other than a signer of the letter of transmittal,
the old notes surrendered for exchange must be endorsed by the registered
holder, or be accompanied by appropriate powers of attorney or by a written
instrument or instruments of transfer 55
or exchange, in satisfactory form as
determined by Mail-Well ICenveo Corporation in its sole discretion, signed by the
registered holder with the signature guaranteed by an eligible institution.
We will determine all questions as to the validity, form,
eligibility and acceptance of old notes tendered for exchange in our sole
discretion, and our determination shall be final and binding. We reserve the
absolute right to reject any tenders of any particular old notes not
properly tendered or not to accept any particular old notes whose acceptance
might, in our judgment or the judgment of our counsel, be unlawful. We also
reserve the absolute right to waive any defects or irregularities or
conditions of the exchange offer as to any particular old notes either
before or after the expiration date, including the right to waive the
ineligibility of any holder who seeks to tender old notes in the exchange
offer. Our interpretation of the terms and conditions of the exchange offer
as to any particular old notes either before or after the expiration date
shall be binding on all parties. Unless waived, any defects or
21
irregularities in connection with tenders of old notes for exchange must be
cured within a reasonable period of time as we shall determine. Neither
Mail-Well ICenveo Corporation, the exchange agent nor any other person shall be
under any duty to give notification of any defect or irregularity with
respect to any tender of old notes for exchange, nor shall any of them incur
any liability for failure to give the notification.
If the letter of transmittal or any old notes or powers of attorney
are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary
or representative capacity, those persons should so indicate when signing,
and, unless waived by Mail-Well ICenveo Corporation, proper evidence satisfactory
to Mail-Well ICenveo Corporation of their authority to so act must be submitted.
BOOK-ENTRY TRANSFER
The exchange agent will request to establish an account for the old
notes at DTC for the exchange offer within two business days after the date
of this prospectus. Any financial institution that is a participant in DTC's
systems may make book-entry delivery of old notes by causing DTC to transfer
the old notes into the exchange agent's account at DTC in accordance with
DTC's procedures for transfer.
Although delivery of old notes may be effected through book-entry
transfer at DTC, the letter of transmittal or facsimile, or an agent's
message, with any required signature guarantees and any other required
documents, must, in any case, be received by the exchange agent at the
address set forth below under "--Exchange"-Exchange Agent" on page 58 on or before the expiration
date or the guaranteed delivery procedures described below must be complied
with.
The term "agent's message" means a message, transmitted by DTC to,
and received by, the exchange agent and forming a part of a book-entry
confirmation, which states that DTC has received an express acknowledgment
from the tendering participant stating that the participant has received and
agrees to be bound by the terms of the letter of transmittal, and Mail-Well ICenveo
Corporation may enforce the letter of transmittal against the participant.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the old notes wishes to tender the old
notes and the old notes are not immediately available, or time will not
permit the holder's old notes or other required documents to reach the
exchange agent before the expiration date, or the procedure for book-entry
transfer cannot be completed on time, a tender may be effected if:
(1) the tender is made through an eligible institution;
(2) prior to the expiration date, the exchange agent has received
from the eligible institution:
(a) a completed and signed letter of transmittal, or a
facsimile;
56
(b) notice of guaranteed delivery substantially in the form
provided by Mail-Well ICenveo Corporation, setting forth the
name and address of the holder of the old notes and the
amount of old notes, stating that the tender is being
made by that holder and guaranteeing that within three
New York Stock Exchange trading days after the date of
execution of the notice of guaranteed delivery the
certificates for all physically tendered old notes, in
proper form for transfer, or a book-entry confirmation,
and any other documents required by the letter of
transmittal will be deposited by the eligible institution
with the exchange agent; and
(3) the certificates for all physically tendered old notes, in
proper form for transfer, or a book-entry confirmation and all
other documents required by the letter of transmittal, are
received by the exchange agent within three New York Stock
Exchange trading days after the date of signing the notice of
guaranteed delivery.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the
exchange offer, we will accept, promptly after the expiration date, all old
notes properly tendered and will then promptly issue the new notes. For
purposes of the
22
exchange offer, we will be deemed to have accepted properly tendered old
notes for exchange when, as and if we have given either oral or written
notice to the exchange agent. Oral notices will promptly be confirmed in
writing. Holders whose old notes are accepted for exchange will be deemed to
have waived the right to receive any accrued but unpaid interest on the old
notes.
In all cases, the issuance of new notes for old notes that are
accepted for exchange pursuant to the exchange offer will be made only after
timely receipt by the exchange agent of certificates for the old notes or a
timely book-entry confirmation of the old notes into the exchange agent's
account at DTC, a completed and signed letter of transmittal, or an agent's
message, and all other required documents. If any tendered old notes are not
accepted, or if old notes are submitted for a greater amount than the holder
desires to exchange, the unaccepted or non-exchanged old notes will be
returned without expense to the tendering holder as promptly as practicable
after the exchange offer expires or terminates. In the case of old notes
tendered by book-entry procedures described above, the non-
exchangednon-exchanged old
notes will be credited to an account maintained with DTC designated by the
tendering holder as promptly as practicable after the exchange offer expires
or terminates.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other term of the exchange offer, we will not
be required to accept for exchange, or to issue new notes in exchange for,
any old notes. We may terminate or amend the exchange offer prior to the
expiration date if any of the conditions to the exchange offer are not met,
and all conditions must be satisfied or waived by us prior to the expiration
of the offer in order for us to complete the offer.met.
These conditions include that the exchange offer, or the making of any
exchange by a holder of old notes, does not violate applicable law or any
applicable interpretation of the staff of the Commission. The conditions
also include that none of the following has occurred which in our judgment
would reasonably be expected to impair our ability to proceed with the
exchange offer:
(1) institution or threat of an action or proceeding in any court
or by or before any governmental agency or body with respect
to the exchange offer;
(2) adoption or enactment of any law, statute, rule or regulation;
(3) declaration of a banking moratorium by United States federal
or New York State authorities; or
(4) suspension of trading on the New York Stock Exchange or
generally in the United States over-the-counter market by
order of the Commission or any other governmental authority.
57
In addition, we may impose such other conditions as may be reasonably
acceptable to the initial purchasers of the old notes. We will give written
notice of any termination to the holders of the old notes as promptly as
practicable.
WITHDRAWAL RIGHTS
Tenders of old notes may be withdrawn at any time prior to the
expiration date. For a withdrawal to be effective, a written notice of
withdrawal must be received by the exchange agent at the address set forth
below under "--Exchange Agent." Any notice of withdrawal must specify the
name of the person who tendered the old notes to be withdrawn, identify the
old notes to be withdrawn, including the amount of the old notes, and
specify the name in which the old notes are registered, if different from
that of the withdrawing holder. If certificates for old notes have been
delivered or otherwise identified to the exchange agent, then, prior to the
release of the certificates the withdrawing holder must also submit the
serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an eligible institution
unless the holder is an eligible institution.
If old notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify
the name and number of the account at DTC to be credited with the withdrawn
old notes and otherwise comply with the procedures of DTC.
We will determine all questions as to the validity, form and
eligibility of the notices, and our determination will be final and binding
on all parties. Any old notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the exchange offer. Any old
notes that have been tendered for exchange but that are not exchanged for
any reason will be returned to the holder without cost to the holder as soon
as practicable
23
after withdrawal, rejection of tender or termination of the exchange offer.
In the case of old notes tendered by book-entry transfer into the exchange
agent's account at DTC pursuant to the book-entry transfer procedures
described above, the old notes will be credited to an account with DTC
specified by the holder as soon as practicable after withdrawal, rejection
of tender or termination of the exchange offer. Properly withdrawn old notes
may be re-tendered by following one of the procedures for tendering old
notes as previously described at any time on or before the expiration date.
EXCHANGE AGENT
State StreetU.S. Bank and Trust CompanyNational Association has been appointed as the exchange
agent for the exchange offer. All signed letters of transmittal should be
directed to the exchange agent at the address set forth below. Questions and
requests for assistance, requests for additional copies of this prospectus
or of the letter of transmittal and requests for notices of guaranteed
delivery should be directed to the exchange agent addressed as follows:
State StreetU.S. Bank and Trust Company, Exchange Agent
2 Avenue de Lafayette, Sixth Floor
Boston, Massachusetts 02111
Telecopier No.: (617) 662-1452
Attention: MacKenzie Elijah, Corporate ActionsNational Association
Specialized Finance Department
60 Livingston Ave.
St. Paul, Minnesota 55107
Telecopier: 651-495-8158
Delivery of a letter of transmittal to an address other than as set
forth above or transmission of instructions via facsimile other than as set
forth above does not constitute a valid delivery of the letter of
transmittal.
FEES AND EXPENSES
We will pay the cash expenses we will incur in connection with the
exchange offer. Also, in connection with the registration statement for the
new notes, we will reimburse the holders for the reasonable fees and
disbursements of not more than one counsel, who shall be chosen by the
holders 58
of a majority in principal amount of the old notes for whose benefit
the registration statement has been prepared.
ACCOUNTING TREATMENT
For accounting purposes, we will recognize no gain or loss as a
result of the exchange offer. The expenses of the exchange offer will be
amortized over the term of the new notes.
TRANSFER TAXES
Holders who tender their old notes for exchange will not be
required to pay any transfer taxes, except that holders who instruct
Mail-Well ICenveo Corporation to register new notes in the name of, or request
that old notes not tendered or not accepted in the exchange offer be
returned to, a person other than the registered tendering holder, will be
responsible for paying any applicable transfer tax.
REGULATORY MATTERS
We are not aware of any governmental or regulatory approvals
that are required in order to complete the exchange offer.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the exchange offer is voluntary. Holders of the
old notes are urged to consult their financial and tax advisors in making
their own decisions on what action to take. See "Material"Certain U.S. Federal Income
Tax Considerations."
The old notes that are not exchanged for the new notes in the
exchange offer will remain restricted securities. Accordingly, those old
notes may only be transferred:
24
(1) to Mail-Well ICenveo Corporation or any of its subsidiaries,
(2) to a person whom the seller reasonably believes is a qualified
institutional buyer purchasing for its own account or for the
account of a qualified institutional buyer in a transaction
meeting the requirements of Rule 144A,
(3) in an offshore transaction meeting the requirements of Rule
903 or Rule 904 under the Securities Act,
(4) in a transaction meeting the requirements of Rule 144 under
the Securities Act,
(5) in accordance with another exemption from the registration
requirements of the Securities Act, and based upon an opinion
of counsel acceptable to Mail-Well ICenveo Corporation, or
(6) pursuant to an effective registration statement,
and, in each case, in accordance with the applicable securities laws of any
state of the United States or any other applicable jurisdiction.
5925
DESCRIPTION OF THE NEW NOTES
Mail-Well IYou can find the definitions of certain terms used in this
description under the subheading "Certain Definitions." In this description,
the word "Company" refers only to Cenveo Corporation and not to the
Parent Company or any subsidiaries of the Company.
The Company will issue the new notes under an indentureIndenture dated
March 13, 2002,February 4, 2004 among itself, the guarantorsGuarantors and State StreetU.S. Bank and Trust Company,National
Association, as trustee. The terms of the new notes include those stated in
the indentureIndenture and those made part of the indentureIndenture by reference to the Trust
Indenture Act. The following description is a summary of the material
provisions of the indenture for the old notes and the new notes.Indenture. It does not restate those provisions in their
entirety. You may obtain a copy of the indenture from us;us, and the indenture hasIndenture
is also been filed as an exhibit to the registration statement of which this prospectus is
a part.
BRIEF DESCRIPTION OF THE NEW NOTES AND THE GUARANTEES
THE NEW NOTESNOTES.
The new notes:
* are(1) will be identical to the old notes in all material respects,
including the guarantees, on the new notes, except that the new notes are
registered under the federal securities laws and will not
contain any legends restricting their transfer;
* aretransfer.
(2) will be general unsecured obligations of Mail-Well I Corporation;
* are not secured by any of our assets andthe Company;
(3) will be effectively
subordinated in right of payment to any of our secured obligations to the extentall existing and
future Senior Debt of the value of the assets securing such obligations, including obligations
under our credit facilities;
* areCompany;
(4) will be pari passu in right of payment to all of our other existing and
future unsecured and unsubordinated obligations;
* aresenior subordinated Indebtedness of the Company;
(5) will be senior in right of payment to our existing andany future junior
subordinated indebtedness, including Mail-Well I Corporation's 8 3/4%
Senior Subordinated new notes, Mail-Well, Inc's 5% Convertible
Subordinated new notes, and any obligationsIndebtedness of the guarantors with
respect thereto;Company; and
* are(6) will be unconditionally guaranteed on a general unsecured
senior subordinated basis by the guarantors.each Guarantor.
THE GUARANTEESGUARANTEES.
The new notes arewill be unconditionally guaranteed on ana general
unsecured senior subordinated basis, jointly and severally, by Mail-Well, Inc.the Parent
Company and certainsubstantially all of the current subsidiariesSubsidiaries of the Company.
The following is a list of the subsidiary guarantors (the "Subsidiary
Guarantors") as of the date of this prospectus:
1158673 Ontario, Inc.
Cenveo III, LLC (formerly known as Wisco III, L.L.C.)
Cenveo Commercial, Inc. (formerly known as Mail-Well I CorporationCommercial
Printing, Inc.)
Cenveo Government Printing, Inc. (formerly known as Mail-Well
Government Printing, Inc.)
Cenveo Mexico Holdings, Inc. (formerly known as Mail-Well Mexico
Holdings, Inc.)
Cenveo Services, LLC (formerly known as Mail-Well Services LLC)
Cenveo Texas Finance, LP (formerly known as Mail-Well Texas Finance LP)
Cenveo West, Inc. (formerly known as Mail-Well West, Inc.)
Classic Envelope Plus, Ltd.
Discount Labels, Inc.
Innova Envelope Inc.
Mail-Well Alberta Finance LP
Mail-Well Canada Leasing Company
McLaren Morris & Todd Company
MM&T Packaging Company
National Graphics Company
PNG Inc.
26
Precision Fine Papers, Inc.
Quality Park, Inc. (formerly known as Poser Business Forms, Inc.)
Regional Enveloppe Products Inc.-Products Enveloppe
Regional Inc.
Supremex, Inc.
The new notes will be guaranteed by each new Restricted Subsidiary
that wereis a Significant Subsidiary formed under the laws of a state of the
United States (including the District of Columbia) and have
their principal place of business within the United States. The following
is a list of the subsidiary guarantors as of the date of this prospectus:
ABP Books, Inc.
Discount Labels, Inc.
Hill Graphics, Inc.
Mail-Well Commercial Printing, Inc.
Mail-Well Mexico Holdings, Inc.
Mail-Well Services, Inc.
Mail-Well Texas Finance LP
Mail-Well West, Inc.
National Graphics Company
Poser Business Forms, Inc.
Wisco III, L.L.C.
60
The new notes will be guaranteed by each new subsidiary of Mail-Well I
Corporation or Mail-Well, Inc., other than any special purpose financing
vehicle, that:
* has not been designated as an unrestricted subsidiary by Mail-Well I
Corporation's board of directors under the indenture,
* is or becomes a "significant subsidiary," as defined in Article 1,
Rule 1-02 of Regulation S-X under the Securities Act of 1933, of
Mail-Well I Corporation or Mail-Well, Inc., as applicable,
* is formed under the laws of the state of the United States or the
District of Columbia, and
* has its principal
place of business withinwith the United States.
The guaranteesGuarantees of thethese new notes:
* are(1) will be general unsecured obligations of each guarantor;
* are not secured by any assets of any of the guarantors andGuarantor;
(2) will be effectively subordinated in right of payment to any secured obligationsall existing and
future Senior Debt of the guarantors
to the extent of the value of the assets securing such obligations,
including obligations of the subsidiaries under our credit
facilities;
* areeach Guarantor;
(3) will be pari passu in right of payment to all other existing and
future unsecured and unsubordinated obligationssenior subordinated Indebtedness of each guarantor;Guarantor; and
* are(4) will be senior in right of payment to any existing and future junior
subordinated indebtednessIndebtedness of each guarantor including guarantees ofGuarantor.
Assuming we had completed the obligations under Mail-Well I Corporation's 8 3/4% Senior
Subordinated new notes.
As of December 31, 2001, and after adjustment for the application of
the net proceeds from the saleoffering of the old notes weand applied
the net proceeds as intended, as of December 31, 2003, the Company and the
Guarantors would have had total
secured indebtednessSenior Debt of approximately $187$453.6 million, with
an additional $150$152.4 million (less any outstanding letters of credit)
available under our senior credit facility. The Indenture will permit the
Company and the Guarantors to incur additional Senior Debt under certain
circumstances.
As indicated above,of the date of the Indenture, all of our Subsidiaries will be
"Restricted Subsidiaries." However, under the circumstances described below
under the subheading "Certain Covenants--Designation of Restricted and
Unrestricted Subsidiaries," we will be permitted to designate certain of our
subsidiaries as "Unrestricted Subsidiaries." Unrestricted Subsidiaries will
not be subject to many of the restrictive covenants in the Indenture.
Unrestricted Subsidiaries will not guarantee the new notes.
SUBORDINATION.
The payment of principal, premium, if any, interest, additional
interest, if any, and any other Obligations on, or relating to, the new
notes will be subordinated to the prior payment in full of all Senior Debt
of the Company.
The holders of Senior Debt will be entitled to receive payment in
full of all Obligations due in respect of Senior Debt before the Holders of
new notes will be entitled to receive any payment or distribution of any
kind or character with respect to any Obligations on, or relating to, the
new notes (except that Holders of new notes may receive and retain Permitted
Junior Securities and payments made from the trust described under "Legal
Defeasance and Covenant Defeasance" so long as the deposit of amounts
therein satisfied the relevant conditions specified in the Indenture at the
time of such deposit), in the event of any distribution to creditors of the
Company or any Guarantor:
(1) in a liquidation or dissolution of the Company or such
Guarantor;
(2) in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Company or such Guarantor
or its property;
(3) in an assignment for the benefit of creditors of the Company
or such Guarantor; or
(4) in any marshalling of the Company's or such Guarantor's assets
and liabilities.
The Company and the Guarantors also may not make any payment or
distribution of any kind or character with respect to any Obligations on, or
with respect to, the new notes or acquire any of the new notes for cash or
27
property or otherwise (except in Permitted Junior Securities or from the
trust described under "Legal Defeasance and Covenant Defeasance"); if:
(1) a payment default on any Designated Senior Debt occurs and is
continuing beyond any applicable grace period; or
(2) any other default occurs and is continuing on Designated
Senior Debt that permits holders of such Designated Senior
Debt to accelerate its maturity and the Trustee receives a
notice of such default ("Payment Blockage Notice") from the
representative of any Designated Senior Debt.
Payments on the new notes may and undershall be resumed:
(1) in the guarantees willcase of a payment default, upon the date on which such
default is cured or waived; and
(2) in the case of a nonpayment default, the earliest of (x) the
date on which all nonpayment defaults are cured or waived (so
long as no other event of default exists), or (y) 179 days
after the date the applicable Payment Blockage Notice is
received unless the maturity of any Designated Senior Debt has
been accelerated.
No new Payment Blockage Notice may be effectively subordinateddelivered unless and until
360 days have elapsed since the delivery of the immediately prior Payment
Blockage Notice.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made,
the basis for a subsequent Payment Blockage Notice unless such default shall
have been cured or waived for a period of not less than 90 consecutive days.
The Company must promptly notify holders of Senior Debt or their
Representative if payment of the secured indebtednessnew notes is accelerated because of any
Event of Default; provided that any failure to give such notice shall have
no effect whatsoever on the extentsubordination provisions described herein.
As a result of the value of any assets securing such
secured indebtedness. The indenture permits us to incur additional secured
indebtedness under certain circumstances.
Not all of our subsidiaries will guarantee the new notes. Insubordination provisions described above, in the
event of a bankruptcy, liquidation or reorganization of the Company or any
Guarantor, Holders of these
non-guarantor subsidiaries, these non-guarantor subsidiaries will pay the new notes may recover less ratably than creditors
of the Company or such Guarantor who are holders of their debt and their trade creditors before theySenior Debt. Payments
under the Guarantee of each Guarantor shall be subordinated to the prior
payment in full of all Senior Debt of such Guarantor, including all Senior
Debt of such Guarantor incurred after the Issue Date, on the same basis as
provided above with respect to subordination of payments on the new notes by
the Company to the prior payment in full of Senior Debt of the Company. See
"Risk Factors -- The notes will be ablecontractually junior in right of payment
to distribute any of their assets to us. The subsidiary guarantors generated
approximately 69% of our consolidated revenues insenior indebtedness, and the year period ended
December 31, 2001 and held approximately 61% of our consolidated assets as
of December 31, 2001. In addition, following their sale the subsidiary
guarantors that are held for saleguarantees will be released from their guarantees
upon their sale or other disposition, provided that we comply withcontractually junior
to all senior indebtedness of the conditions to release set forth in "Note Guarantees; Restrictions on
Mail-Well, Inc. and Subsidiaries" on page 62. These subsidiaries generated
approximately 22% of our consolidated revenues in the year ended December
31, 2001 and held approximately 17% of our consolidated assets as of
December 31, 2001.guarantors."
PRINCIPAL, MATURITY AND INTEREST
We will issue the new notes initially with ana maximum aggregate principal balance of $350
million in exchange for old notes, which have an aggregate outstanding
principal amount of $350$320 million. We will issue the new notes in
denominations of $1,000 and integral multiples of $1,000. The new notes will
mature on March 15, 2012.December 1, 2013. Subject to our compliance with the covenant
described under the caption "--Certain Covenants--Incurrence of
Indebtedness" on page 67,Indebtedness," we may, without the consent of the holders, issue more notes
under the indentureIndenture on the same terms and conditions and with the same CUSIP
numbers (a unique nine-character security identification number)
as the new notes being offered hereby in an unlimited principal
amount.amount (the "Additional Notes"). Any such additional notesAdditional Notes that are actually
issued will be treated as issued and outstanding 61
new notes (and as the same
class as the initial notes) for all purposes of the indentureIndenture and this
"Description of the New Notes" unless the context indicates otherwise.
Interest on thethese new notes will accrue at the rate of 9 5/7 7/8% per
annum and will be payable semiannually in arrears on March 15June 1 and September 15December 1
commencing on September 15, 2002.December 1, 2004. We will make each interest payment to the
holdersHolders of record of thethese new notes on the immediately preceding March 1May 15 and
September 1.November 15.
28
Interest on thethese new notes will accrue from the date the old notes were
issuedof original
issuance or, if interest has already been paid, on the old notes, from the date it was most
recently paid. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Additional interest may accrue on the new notes in certain
circumstances pursuant to the Registration Rights Agreement.
NOTE GUARANTEES; RESTRICTIONS ON MAIL-WELL, INC.PARENT COMPANY AND SUBSIDIARIES
The guarantorsGuarantors, which will include the Parent Company and
substantially all of the current Subsidiaries of the Company, will jointly
and severally guarantee the Company's obligations of
Mail-Well I Corporation under the new notes. The
new notes will be guaranteed in the future by each new Restricted Subsidiary
that is a Significant Subsidiary formed under the laws of a state of the
United States (including the District of Columbia) and has its principal
place of business within the United States. Each guaranteeGuarantee of the new notes
will be effectively subordinated to the prior payment in full of all secured
indebtednessSenior
Debt of that guarantor to the extentGuarantor and Guarantees of that Guarantor of the value of any assets
securing such obligations.Company's
Senior Debt. Each guaranteeNote Guarantee will be pari passu with all unsecured and unsubordinatedsenior
subordinated obligations of that guarantorGuarantor and to the guaranteesGuarantees of that
guarantor of our future unsecured and unsubordinated
obligations.
The guarantees will rank at least on a parity with claims of all
unsecured creditors (including unsecured trade creditors and tort
claimants)Guarantor of the respective guarantors.Company's future senior subordinated obligations.
The obligations of each guarantorGuarantor under its guaranteeNote Guarantee will be
limited as necessary to prevent that guaranteeNote Guarantee from constituting a
fraudulent conveyance under applicable law.
Except in a transaction as a result of which a subsidiary guarantorSubsidiary Guarantor
would be released from its guaranteeNote Guarantee as provided in the indentureIndenture and
described below, no guarantorGuarantor may sell or otherwise dispose of all or
substantially all of its assets, or consolidate with or merge with or into
(whether or not such guarantorGuarantor is the surviving person)Person), another personPerson
(other than Mail-Well I Corporationthe Company or a subsidiary guarantor)Subsidiary Guarantor) unless:
(1) either: (a) such guarantorGuarantor is the surviving corporation; or
(b) the personPerson formed by or surviving any such consolidation
or merger (if other than such guarantor)Guarantor) or to which such
sale, assignment, transfer, conveyance or other disposition
shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the
District of Columbia or the jurisdiction in which such
guarantorGuarantor is organized and under the laws of which it is
existing;
(2) the personPerson formed by or surviving any such consolidation or
merger (if other than such guarantor)Guarantor), or the personPerson to which
such sale, assignment, transfer, conveyance or other
disposition shall have been made assumes all the obligations
of such guarantorGuarantor under the guaranteesNote Guarantees and the indenture,Indenture,
as applicable, pursuant to agreements reasonably satisfactory
to the trustee;Trustee;
(3) immediately after such transaction no defaultDefault or eventEvent of
default
exists under the indenture;Default exists; and
(4) such guarantorGuarantor or the personPerson formed by or surviving anyan such
consolidation or merger (if other than such guarantor)Guarantor) will
have consolidated net worthConsolidated Net Worth immediately after the transaction
equal to or greater than the consolidated net worthConsolidated Net Worth of such
guarantorGuarantor immediately preceding the transaction.
The guaranteeNote Guarantee of a subsidiary guarantorSubsidiary Guarantor will be released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that subsidiary guarantorSubsidiary Guarantor
(including by way of merger or consolidation), if we apply the net
62
proceedsCompany
applies the Net Proceeds of that sale or other disposition in
accordance with the applicable provisions of the indenture;Indenture; or
(2) in connection with any sale of all of the capital stock of a
subsidiary guarantor,Subsidiary Guarantor, if we apply the net proceedsCompany applies the Net Proceeds
of that sale in accordance with the applicable provisions of
the indenture.Indenture.
See "Repurchase at the Option of Holders--Asset Sales" on page 64.Sales."
29
OPTIONAL REDEMPTION
The new notes will not be redeemable at ourthe Company's option prior
to March 15,
2007.December 1, 2008.
After March 15, 2007, weDecember 1, 2008, the Company may redeem all or a part of the
new notes (which includes additional notes,Additional Notes, if any) upon not less than 30
nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest thereon, if any, to the applicable redemption date, if redeemed
during the twelve-month period beginning on March 15December 1 of the years
indicated below:
YEAR PERCENTAGE
---- ----------
2007................................ 104.813%
2008................................ 103.208%
2009................................ 101.604%
2010 and thereafter.................YEAR PERCENTAGE
2008................... 103.938%
2009................... 102.625%
2010................... 101.313%
2011 and
thereafter............. 100.000%
In addition, prior to March 15, 2005, weDecember 1, 2006, the Company may at ourits
option on any one or more occasions redeem new notes (including additional notes,Additional
Notes, if any) in an aggregate principal amount not to exceed 35% of the
aggregate principal amount of the new notes (including additional notes,Additional Notes, if
any) originally issued at a redemption price of 109.625%107.875% of the principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the
redemption date, with the net cash proceeds of one or more equity offerings;Equity Offerings;
provided that:
(1) at least 65% of such aggregate principal amount of new notes
(including additional notes,Additional Notes, if any) originally issued remains
outstanding immediately after the occurrence of such
redemption (other than new notes held directly or indirectly
by usthe Parent Company, the Company and our
affiliates)its Affiliates); and
(2) each such redemption must occur within 90 days of the date of
the closing of such equity offering.Equity Offering.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a changeChange of control under the indentureControl occurs, each holderHolder of new notes will have
the right to require usthe Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of that holder'sHolder's new notes pursuant
to the offer described below.below (the "Change of Control Offer"). In a changethe Change
of control offer,
Mail-Well I CorporationControl Offer, the Company will offer a change"Change of control paymentControl Payment" in
cash equal to 101% of the aggregate principal amount of new notes
repurchased plus accrued and unpaid interest thereon, if any, to the date of
purchase. Within 30 days following any changeChange of control, weControl, the Company will
mail a notice to each holderHolder describing the transaction or transactions that
constitute the changeChange of controlControl and offering to repurchase new notes on the
date specified in such notice (the "Change of Control Payment Date"),
pursuant to the procedures required by the indentureIndenture and described in such
notice. WeThe Company will comply with the requirements of Rule 14e-l14e-1 under
the Securities Exchange Act of 1934 and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable in connection with the
repurchase of the new notes as a result of a changeChange of control.Control. To the
extent the provisions of any securities laws are inconsistent with the terms
of the indenture, weIndenture, the Company will not be deemed to have breached this
covenant by complying with such laws.
63
On the changeChange of control paymentControl Payment Date, wethe Company will, to the
extent lawful:lawful;
(1) accept for payment all new notes or portions thereof properly
tendered pursuant to the changeChange of control offer;Control Offer;
(2) deposit with the paying agentPaying Agent an amount equal to the changeChange of
control paymentControl Payment in respect of all new notes or portions
thereof so tendered; and
(3) deliver or cause to be delivered to the trusteeTrustee the new notes
so accepted together with an officers' certificateOfficers' Certificate stating the
aggregate principal amount of new notes or portions thereof
that we
are purchasing.being purchased by the Company.
30
The paying agentPaying Agent will promptly mail to each holderHolder of new notes so
tendered the changeChange of control paymentControl Payment for such new notes, and the trusteeTrustee
will promptly authenticate and mail (or cause to be transferred by
book-entry) to each holderHolder a new note equal in principal amount to any
unpurchased portion of the new notes surrendered, if any; provided that each
such new note will be in a principal amount of $1,000 or an integral
multiple thereof. WeThe Company will publicly announce the results of the
changeChange of control offerControl Offer on or as soon as practicable after the changeChange of
control
payment date.Control Payment Date.
The provisions described above that require usthe Company to make a
changeChange of control offerControl Offer following a changeChange of controlControl will be applicable
regardless of whether or not any other provisions of the indentureIndenture are
applicable. Except as described above with respect to a changeChange of control,Control,
the indentureIndenture does not contain provisions that permit the holdersHolders of the new
notes to require that wethe Company repurchase or redeem the new notes in the
event of a takeover, recapitalization or similar transaction.
WeThe Company will not be required to make a changeChange of control offerControl Offer
upon a changeChange of controlControl if a third party makes the changeChange of control offerControl Offer
in the manner, at the times and otherwise in compliance with the
requirements set forth in the indentureIndenture applicable to a changeChange of control offerControl
Offer made by Mail-Well I Corporationthe Company and purchases all new notes validly tendered and
not withdrawn under such changeChange of control offer.Control Offer.
The definition of changeChange of controlControl includes a phrase relating to
the sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the assets of Mail-Well I Corporationthe Company and its subsidiariesSubsidiaries taken
as a whole. Although there is a limited body of case law interpreting the
phrase "substantially all," there is no precise established definition of the
phrase under applicable law. Accordingly, the ability of a holderHolder of new
notes to require usthe Company to repurchase such new notes as a result of a
sale, lease, transfer, conveyance or other disposition of less than all of
the assets of Mail-Well I Corporationthe Company and its subsidiariesSubsidiaries taken as a whole to another
personPerson or group may be uncertain. The Credit Facilities prohibit the Company
from repurchasing any new notes pursuant to a Change of Control Offer prior
to repayment in full of the Senior Debt under the Credit Facilities.
Accordingly, if a Change of Control were to occur, there can be no assurance
that the Company will have sufficient assets to satisfy its obligations under
the Credit Facilities or, thereafter, to purchase any of the new notes. Any
additional credit agreements or other agreements relating to Senior Debt to
which the Company becomes a party may contain similar restrictions and
provisions. Moreover, the Credit Facilities contain a "change of control"
provision that is similar to the provision in the Indenture relating to a
Change of Control, and the occurrence of such a "change of control" would
constitute a default under the Credit Facilities.
In the event that a Change of Control occurs at a time when the
Company is prohibited from repurchasing the new notes by the Credit
Facilities or any other agreement governing Senior Debt of the Company, the
Company shall seek either to repay such Senior Debt or to obtain the
requisite consents of the holders of such Senior Debt to commence a Change
of Control Offer to repurchase the new notes in accordance with the terms of
the Indenture. If the Company is unable to obtain such consents and/or repay
all such Senior Debt, the Company would remain prohibited from repurchasing
any new notes and, as a result, the Company could not commence a Change of
Control Offer to repurchase the new notes within 30 days of the occurrence
of the Change of Control, which would constitute an Event of Default under
the Indenture. The Company's failure to commence such a Change of Control
Offer would also constitute an event of default under the Credit Facilities
which would permit the lenders thereunder to accelerate all of the Company's
Senior Debt under the Credit Facilities. If a Change of Control were to
occur, there can be no assurance that the Company would have sufficient
assets to first satisfy its obligations under the Credit Facilities or other
agreements relating to Senior Debt, if accelerated, and then to repurchase
all of the new notes that might be delivered by holders seeking to accept a
Change of Control Offer. See "Risk Factors -- We may be unable to repurchase
the notes if we experience a change of control."
ASSET SALES
WeThe Company will not, and will not permit any of our restricted subsidiariesits Restricted
Subsidiaries to, consummate an asset saleAsset Sale unless:
31
(1) We, or our restricted subsidiary,the Company (or the Restricted Subsidiary, as the case may be, receivebe)
receives consideration at the time of such asset saleAsset Sale at least
equal to the fair market value of the assets or equity interestsEquity
Interests issued or sold or otherwise disposed of;
(2) such fair market value is determined by our boardthe Company's Board of
directorsDirectors and evidenced by a resolution of the boardBoard of
directorsDirectors set forth in an officers' certificateOfficers' Certificate delivered to
the trustee;Trustee; and
(3) at least 80%75% of the net proceedsNet Proceeds received by usthe Company or
our restricted
subsidiarysuch Restricted Subsidiary is in the form of cash. For
purposes of this provision, each of the following shall be
deemed to be cash:
*(a) any liabilities as(as shown on the Company's or such
Restricted Subsidiary's most recent balance sheetsheet), of
usthe Company or our restricted subsidiary,any Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their
terms subordinated to the new notes or any guarantee)Note
Guarantee) that are assumed by the transferee of any such
assets pursuant to a customary novation agreement that
releases usthe Company or our restricted subsidiarysuch Restricted Subsidiary from
further liability; and
64
*(b) any securities, new notes or other obligations received by
usthe Company or any of our restricted subsidiariessuch Restricted Subsidiary from such
transferee that weare contemporaneously (subject to
ordinary settlement periods) convertconverted by the Company or
such Restricted Subsidiary into cash (to the extent of
the cash received in that conversion).
Within 360 days after the receipt of any net proceedsNet Proceeds from an asset
sale, weAsset
Sale, the Company or a Restricted Subsidiary must apply such net proceeds:Net Proceeds:
(1) to be reinvested in our business;
(2) to the extent that the net proceeds relate to a disposition of
assets or stock of a restricted subsidiary that is not formed under
the laws of a statebusiness of the United States, including the District of
Columbia,Company or which does not have its principal place of business
within the United States,a
Restricted Subsidiary;
(2) to repay or retire indebtedness under
credit facilities;any Senior Debt; or
(3) to make an offer to purchase the new notes at 100% of
principal amount, plus accrued and unpaid interest, if any,
and if applicable, to make an offer to the holders of other
indebtednessIndebtedness of the Company that ranks pari passu with the new
notes (the "Other Debt") and that by its terms requires usthe
Company to make an offer to purchase such other debtOther Debt upon
consummation of an asset sale,Asset Sale, to purchase such other debtOther Debt on
a pro rata basis with the new notes.
Pending the final application of any Net Proceeds, the Company may
temporarily reduce revolving credit borrowings.
SELECTION AND NOTICE
If less than all of the new notes are to be redeemed at any time,
the trusteeTrustee will select new notes for redemption on a pro rata basis, by lot
or by such method as the trusteeTrustee shall deem fair and appropriate.
No new notes of $1,000 or less shall be redeemed in part. Notices
of redemption shall be mailed by first class mail at least 30 but not more
than 60 days before the redemption date to each holderHolder of new notes to be
redeemed at its registered address. Notices of redemption may not be
conditional.
If any note is to be redeemed in part only, the notice of
redemption that relates to that note shall state the portion of the
principal amount thereof to be redeemed. A new note in principal amount
equal to the unredeemed portion of the original note will be issued in the
name of the holderHolder thereof upon cancellation of the original note. Notes
called for redemption become due on the date fixed for redemption. On and
after the redemption date, interest ceases to accrue on new notes or
portions of them called for redemption.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
WeThe Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make any of the following
restricted payments:indirectly:
32
(1) declare or pay any dividend or make any other payment or
distribution on account of Mail-Well I Corporation'sthe Company's or any of its
restricted subsidiaries' equity interestsRestricted Subsidiaries' Equity Interests (including, without
limitation, any payment in connection with any merger or
consolidation involving Mail-Well I Corporationthe Company or any of its restricted subsidiaries)Restricted
Subsidiaries) or to the direct or indirect holders of Mail-Well I Corporation'sthe
Company's or any of its restricted subsidiaries'
equity interestsRestricted Subsidiaries' Equity
Interests in their capacity as such (other than dividends or
distributions payable in equity interestsEquity Interests of Mail-Well I
Corporationthe Company or to
Mail-Well I Corporationthe Company or onea Restricted Subsidiary of its restricted
subsidiaries)the Company);
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger
or consolidation involving us)the Company) any Equity Interests
of our equity intereststhe Company or any direct or indirect parent of the Company
or any Restricted Subsidiary of the Company (other than any
such equity interestsEquity Interests owned by Mail-Well I Corporationthe Company or any Restricted
Subsidiary of its restricted subsidiaries)the Company);
(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any
indebtednessIndebtedness that is pari passu with or subordinated to the
new notes 65
or the guaranteesNote Guarantees (other than the new notes or
the guarantees)Note Guarantees), except a payment of interest or
principal at the stated maturityStated Maturity thereof; or
(4) make any restricted investment,Restricted Investment (all such payments and other
actions set forth in clauses (1) through (4) above being
collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such restricted
payment:Restricted Payment:
(1) no defaultDefault or eventEvent of default under the indentureDefault shall have occurred and be
continuing or would occur as a consequence thereof; and
(2) the Company would, at the time of such restricted paymentRestricted Payment and
after giving pro forma effect thereto as if such restricted paymentRestricted
Payment had been made at the beginning of the applicable
four-quarter period, we would have been permitted to incur at least
$1.00 of additional indebtednessIndebtedness pursuant to the fixed charge ratioFixed Charge
Coverage Ratio test set forth in the first paragraph of the
covenant described below under the caption "--Incurrence of
Indebtedness" on page 67;; and
(3) such restricted payment,Restricted Payment, together with the aggregate amount of
all other restricted payments weRestricted Payments made or makeby the Company and its
Restricted Subsidiaries after December 31, 20012003 (excluding
restricted paymentsRestricted Payments permitted by clauses (3), (5), (7), (8)
and (9) of the next succeeding paragraph), is less than the
sum, without duplication, of
*(a) 50% of our consolidated net incomethe Consolidated Net Income (or, in each case such
consolidated net incomeConsolidated Net Income is a deficit, minus 100% of such
deficit) of the Company since December 31, 2001,2003, plus
*(b) the aggregate net cash proceeds we receivereceived by the Company
after December 31, 20012003 from the sale of equity interestsEquity Interests
or any indebtednessIndebtedness that is convertible into capital stockCapital
Stock and has been so converted, plus
*(c) the aggregate cash received by Mail-Well I Corporationthe Company as capital
contributions after December 31, 2001,2003, plus
* $25(d) $30 million.
So long as no default under the indentureDefault has occurred and is continuing or would be
caused thereby, the preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such
payment would have complied with the provisions of the
indenture;Indenture;
(2) the repurchase, redemption, defeasance, retirement or other
acquisition of any pari passu or subordinated indebtednessIndebtedness of
Mail-Well I Corporationthe Company or any guarantorGuarantor or of any equity interestsEquity Interests of Mail-Well I Corporationthe
Company or any restricted subsidiaryRestricted Subsidiary in exchange for, or out
of the net cash proceeds of the substantially concurrent sale
(other than to a subsidiarySubsidiary of Mail-Well I
Corporation)the Company) of, equity interestsEquity
Interests of Mail-Well I Corporation;the Company;
33
(3) the redemption, repurchase, defeasance, retirement or other
acquisition of pari passu or subordinated indebtednessIndebtedness of Mail-Well
I Corporationthe
Company or any guarantorGuarantor with the net cash proceeds from an
incurrence of permitted refinancing indebtedness;Permitted Refinancing Indebtedness;
(4) the payment of any dividend by anya Restricted Subsidiary of our restricted subsidiariesthe
Company to the holders of its common equity interestsEquity Interests on a pro
rata basis;
(5) the repurchase, redemption or other acquisition or retirement
for value of any equity interestsEquity Interests of Mail-Well I Corporationthe Company or any
restricted subsidiaryRestricted Subsidiary of Mail-Well I Corporationthe Company held by any member of Mail-Well I Corporation'sthe
Company's (or any of its subsidiaries'Subsidiaries') management pursuant to
any management equity subscription agreement or stock option
agreement in effect as of the date of the indenture;Indenture; provided
that the aggregate price paid for all such repurchased,
redeemed, acquired or retired equity interestsEquity Interests shall not
exceed $1$1.5 million in any twelve-month period;
(6) the making of any restricted investment,Restricted Investment, directly or
indirectly, out of the net cash proceeds of substantially
concurrent sales (other than to a subsidiary)Subsidiary) of equity interestsEquity
Interests of Mail-Well I
Corporation;
66
the Company;
(7) the repurchase, redemption, retirement or other acquisition of
equity interestsEquity Interests of Mail-Well I Corporationthe Company or any restricted
subsidiaryRestricted Subsidiary
issued, or indebtednessIndebtedness incurred, by Mail-Well I
Corporationthe Company or any
restricted subsidiaryRestricted Subsidiary in connection with the acquisition of
any personPerson or any assets to the former owners of such personPerson
or assets; and
(8) Permitted Payments to the redemption, repurchase, defeasance, retirement or other
acquisition of Mail-Well, Inc.'s 5% Convertible Subordinated new
notes, and the payment of a demand note issued by Mail-Well I
Corporation to Mail-Well, Inc. in connection with the new notes, in
an aggregate amount not to exceed $140 million of principal, plus
accrued interest thereon; and
(9) permitted payments to Mail-Well, Inc. under the indenture.Parent Company.
The amount of all restricted paymentsRestricted Payments (other than cash) shall be
the fair market value on the date of the restricted paymentRestricted Payment of the asset(s)
or securities proposed to be transferred or issued by Mail-Well I Corporationthe Company or such
restricted subsidiary,Restricted Subsidiary, as the case may be, pursuant to the restricted payment.Restricted
Payment. The fair market value of any assets or securities that are required
to be valued by this covenant shall be determined by the boardBoard of directorsDirectors
whose resolution with respect thereto shall be delivered to the trustee.Trustee. The
boardBoard of directors'Directors' determination must be based upon an opinion or appraisal
issued by an accounting, appraisal or investment banking firm of national
standing if the fair market value exceeds $10 million. Not later than the
date of mailing any restricted payment, we willRestricted Payment, the Company shall deliver to the
trusteeTrustee an officers' certificateOfficers' Certificate stating that such restricted paymentRestricted Payment is
permitted and setting forth the basis upon which the calculations required
by this "restricted payments""Restricted Payments" covenant, were computed, together with a copy
of any fairness opinion or appraisal required by the indenture.Indenture.
INCURRENCE OF INDEBTEDNESS
Mail-Well I CorporationThe Company will not, and will not permit any of its restricted subsidiariesRestricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any indebtedness, including
acquired debt)Indebtedness
(including Acquired Debt); provided, however, that Mail-Well I Corporationthe Company and any
restricted subsidiaryRestricted Subsidiary may incur indebtednessIndebtedness (including acquired debt)Acquired Debt), if
the fixed charge coverage ratioFixed Charge Coverage Ratio for Mail-Well I Corporation'sthe Company's most recently ended four
full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional indebtednessIndebtedness is
incurred would have been at least 2 to 1, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional indebtednessIndebtedness had been incurred at the beginning of such
four-quarter period.
The first paragraph of this covenant will not prohibit the
incurrence of any of the following items of indebtednessIndebtedness (collectively,
"permitted
debt""Permitted Debt"):
(1) the incurrence by Mail-Well I Corporationthe Company and any restricted
subsidiaryRestricted Subsidiary of
indebtednessIndebtedness under credit facilitiesCredit Facilities (including amounts
outstanding on the date we sold the old notes)notes were sold); provided
that the aggregate principal amount of all indebtednessIndebtedness under
such credit facilitiesCredit Facilities (including all permitted refinancing indebtednessPermitted Refinancing
Indebtedness incurred to refund, refinance or replace any
indebtednessIndebtedness incurred pursuant to this clause (1)) permitted
by this clause (1) does not exceed an amount equal to $375
million, less any repayments actually made thereunder with the
net proceedsNet Proceeds of asset salesAsset Sales in accordance with clause (2) of
the second paragraph of the covenant described under
"Repurchase at the Option of the Holders--Asset Sales" on page 64;;
34
(2) the incurrence by Mail-Well I Corporationthe Company and its subsidiariesSubsidiaries of existing indebtednessExisting
Indebtedness (excluding amounts outstanding under credit
facilities onCredit
Facilities at the date we sold the old notes)notes were sold);
(3) the incurrence by Mail-Well I Corporationthe Company and the subsidiary
guarantorsSubsidiary Guarantors of
indebtednessIndebtedness represented by the new notes and the guaranteesNote
Guarantees issued on the date we sold the old notes;notes were sold;
(4) the incurrence by Mail-Well I Corporationthe Company or any of its restricted
subsidiariesRestricted
Subsidiaries of indebtednessIndebtedness represented by capital lease
obligations,Capital Lease
Obligations, mortgage financings or purchase money
obligations, in each case, incurred for the purpose of
financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment
used in the business of Mail-Well I
Corporationthe Company or such restricted subsidiary,Restricted
Subsidiary, in an aggregate principal amount (including all
permitted refinancing indebtednessPermitted Refinancing Indebtedness incurred to refund,
refinance or replace any 67
indebtednessIndebtedness incurred pursuant to
this clause (4)) not to exceed $50 million at any time
outstanding;
(5) the incurrence by Mail-Well I Corporationthe Company or any of its restricted
subsidiariesRestricted
Subsidiaries of permitted refinancing indebtednessPermitted Refinancing Indebtedness in exchange
for, or the net proceeds of which are used to refund,
refinance or replace, indebtednessIndebtedness (other than intercompany
indebtedness)Indebtedness) that was permitted by the indentureIndenture to be
incurred under the first paragraph of this covenant or clause
(1), (2), (3), (4) or (9) of this paragraph;
(6) the incurrence by Mail-Well I Corporationthe Company or any of its restricted
subsidiariesRestricted
Subsidiaries of intercompany indebtednessIndebtedness between or among Mail-Well I Corporationthe
Company and any of its wholly owned restricted
subsidiaries;Wholly Owned Restricted Subsidiaries;
provided, however, that:
* indebtedness(a) if the Company or any Subsidiary Guarantor is the obligor
on such Indebtedness and such Indebtedness is owed to or
held by a restricted subsidiaryRestricted Subsidiary that is not a subsidiary guarantor,Subsidiary
Guarantor, such indebtednessIndebtedness must be expressly
subordinated to the prior payment in full in cash of all
obligationsObligations with respect to the new notes, in the case of
Mail-Well I Corporation,the Company, or the guaranteeNote Guarantee of such subsidiary
guarantor,Subsidiary
Guarantor, in the case of a subsidiary guarantor,Subsidiary Guarantor, and
* (i)(b) any subsequent issuance or transfer of equity interestsEquity Interests
that results in any such indebtednessIndebtedness being held by a
personPerson other than Mail-Well I Corporationthe Company or a wholly owned restricted
subsidiaryWholly Owned
Restricted Subsidiary thereof and (ii) any sale or other
transfer of any such indebtednessIndebtedness to a personPerson that is not
either Mail-Well I
Corporationthe Company or a wholly owned restricted if Mail-Well I
Corporation or any subsidiary guarantor is the obligor on such
indebtedness and such subsidiaryWholly Owned Restricted
Subsidiary thereof, shall be deemed, in each case, to
constitute an incurrence of such indebtednessIndebtedness by Mail-Well I Corporationthe
Company or such restricted subsidiary,Restricted Subsidiary, as the case may
be, that was not permitted by this clause (6);
(7) the incurrence by Mail-Well I Corporationthe Company or any of its restricted
subsidiariesRestricted
Subsidiaries of hedging obligationsHedging Obligations that are incurred for the
purpose of fixing or hedging interest rate risk with respect to any
floating rate indebtednessIndebtedness that is permitted by the terms of this indentureIndenture
to be outstanding;
(8) the guarantee by Mail-Well I Corporationthe Company or any of its restricted
subsidiariesRestricted
Subsidiaries of indebtednessIndebtedness of Mail-Well I Corporationthe Company or a restricted subsidiaryRestricted
Subsidiary of Mail-Well I Corporationthe Company that was permitted to be incurred by
another provision of this covenant;
(9) the incurrence by Mail-Well I Corporationthe Company or any of its restricted
subsidiariesRestricted
Subsidiaries of additional indebtednessIndebtedness in an aggregate
principal amount (or accrued value, as applicable) at any time
outstanding, including all permitted refinancing indebtednessPermitted Refinancing Indebtedness
incurred to refund, refinance or replace any indebtednessIndebtedness
incurred pursuant to this clause (9), not to exceed $50
million;
(10) the incurrence by Mail-Well I Corporation's unrestricted
subsidiariesthe Company's Unrestricted Subsidiaries of
non-recourse debt;Non-Recourse Debt; provided, however, that if any such
indebtednessIndebtedness ceases to be non-recourse debtNon-Recourse Debt of an unrestricted subsidiary,Unrestricted
Subsidiary, such event shall be deemed to constitute an
incurrence of indebtednessIndebtedness by a restricted subsidiaryRestricted Subsidiary of Mail-Well I Corporationthe
Company that was not permitted by this clause (10);
(11) the incurrence by Mail-Well I Corporationthe Company or any of its restricted
subsidiariesRestricted
Subsidiaries of indebtednessIndebtedness in respect of judgment, appeal,
surety, performance and other like bonds, bankers acceptances
and letters of credit provided by Mail-Well I Corporationthe Company and its
subsidiariesSubsidiaries in the ordinary course of business (including any
indebtednessIndebtedness incurred to refinance, retire, renew, defease,
refund or otherwise replace any indebtednessIndebtedness referred to in
this clause (11)); and
(12) indebtedness incurred by Mail-Well I Corporationthe Company or any of its
subsidiariesSubsidiaries arising from agreements or their respective
bylaws providing for indemnification, adjustment of purchase
price or similar obligations, or
35
from guarantees of letters of credit, surety bonds or
performance bonds securing the performance of Mail-Well I Corporationthe Company or
any of its 68
subsidiariesSubsidiaries to any personPerson acquiring all or a
portion of such business or assets of a subsidiarySubsidiary of Mail-Well I Corporation.the
Company.
For purposes of determining compliance with this incurrence"Incurrence of
indebtednessIndebtedness" covenant, in the event that an item of proposed indebtednessIndebtedness
meets the criteria of more than one of the categories of permitted debtPermitted Debt
described in clauses (1) through (12) above, or is entitled to be incurred
pursuant to the first paragraph of this covenant, wethe Company will be
permitted to classify such item of indebtednessIndebtedness on the date of its
incurrence in any manner that complies with this covenant.
LIENS
Mail-Well I CorporationThe Company will not, and will not permit any of its restricted subsidiariesRestricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
own any lienLien of any kind securing indebtedness, attributable
debtIndebtedness, Attributable Debt or trade
payables on any asset now owned or hereafter acquired, except permitted liens under the indenture.Permitted
Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
Mail-Well I CorporationThe Company will not permit any of its restricted
subsidiariesRestricted Subsidiaries to,
directly or indirectly, create or permit to exist or become effective any
encumbrance or restriction on the ability of any restricted subsidiaryRestricted Subsidiary to
pay dividends or make any other distributions or pay indebtednessIndebtedness to Mail-Well I Corporationthe
Company or any of Mail-Well I
Corporation's restricted subsidiaries,the Company's Restricted Subsidiaries, or with respect to
any other interest or participation in, or measured by, its profits, or pay
any indebtedness owed to Mail-Well I Corporationthe Company or any of Mail-Well I
Corporation's restricted subsidiaries.the Company's Restricted
Subsidiaries.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
Mail-Well I CorporationThe Company may not, directly or indirectly: (1) consolidate or
merge with or into another personPerson (whether or not Mail-Well
I Corporationthe Company is the
surviving corporation); or (2) sell, assign, transfer, convey or otherwise
dispose of all or substantially all of its properties or assets, in one or
more related transactions, to another person;Person; unless:
(1) either: (a) Mail-Well I Corporationthe Company is the surviving corporation; or (b)
the personPerson formed by or surviving any such consolidation or
merger (if other than Mail-Well I Corporation)the Company) or to which such sale,
assignment, transfer, conveyance or other disposition shall
have been made is a corporation organized or existing under
the laws of the United States, any state thereof or the
District of Columbia;
(2) the personPerson formed by or surviving any such consolidation or
merger (if other than Mail-Well I Corporation)the Company) or the personPerson to which such
sale, assignment, transfer, conveyance or other disposition
shall have been made, expressly assumes all the obligations of
Mail-Well
I Corporationthe Company under the new notes and the indentureIndenture pursuant to
agreements reasonably satisfactory to the trustee;Trustee;
(3) immediately after such transaction no defaultDefault or eventEvent of
default
exists under the indenture;Default exists; and
(4) Mail-Well I Corporationthe Company or the personPerson formed by or surviving any such
consolidation or merger (if other than Mail-Well I
Corporation)the Company):
(1)(a) will have consolidated net worthConsolidated Net Worth immediately after the
transaction equal to or greater than our consolidated net worththe Consolidated Net
Worth of the Company immediately preceding the
transaction; and
(2)(b) will, on the date of such transaction after giving pro
forma effect thereto and any related financing
transactions as if the same had occurred at the beginning
of the applicable four-
quarterfour-quarter period, be permitted to
incur at least $1.00 of additional indebtednessIndebtedness pursuant
to the fixed charge coverage
ratioFixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described above under the
caption "Incurrence of Indebtedness" on
page 67.
69
Indebtedness."
In addition, wethe Company may not, directly or indirectly, lease all
or substantially all of its properties or assets, in one or more related
transactions, to any other person.Person. This "Merger, Consolidation, or Sale of
Assets" covenant will not apply to a sale, assignment, transfer, conveyance
or other disposition of assets between or among
Mail-Well I Corporation36
the Company and any of its wholly owned subsidiaries.Wholly Owned Subsidiaries. For the avoidance of
doubt, this covenant also will not apply to sales of the assets or stocks of
subsidiaries
Mail-Well I CorporationSubsidiaries the Company currently is holding for sale as part of its
strategic plan.
TRANSACTIONS WITH AFFILIATES
Mail-Well I CorporationThe Company will not, and will not permit any of its restricted subsidiariesRestricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any affiliate,Affiliate (each, an "Affiliate Transaction"), unless:
(1) such affiliate transaction with an affiliateAffiliate Transaction is on terms that are no less
favorable to Mail-Well I Corporationthe Company or the relevant restricted subsidiaryRestricted Subsidiary
than those that would have been obtained in a comparable
transaction by Mail-Well I Corporationthe Company or such restricted subsidiaryRestricted Subsidiary with
an unrelated person;Person; and
(2) we deliverthe Company delivers to the trustee:
*Trustee:
(a) with respect to any affiliate transactionAffiliate Transaction or series of
related affiliate transactionsAffiliate Transactions involving aggregate
consideration in excess of $1$5 million, a resolution of
the boardBoard of directorsDirectors set forth in the officers' certificateOfficers'
Certificate certifying that such affiliate transactionAffiliate Transaction
complies with this covenant and that such affiliate transactionAffiliate
Transaction has been approved by a majority of the
disinterested members of the boardBoard of directors;Directors; and
*(b) with respect to any affiliate transactionAffiliate Transaction or series of
related affiliate transactionsAffiliate Transactions involving aggregate
consideration in excess of $10$15 million, an opinion as to
the fairness to the holdersHolders of such affiliate transactionAffiliate Transaction
from a financial point of view issued by an accounting,
appraisal or investment banking firm of national
standing.
The following items shall not be deemed to be affiliate transactionsAffiliate Transactions
and, therefore, will not be subject to the provisions of the prior
paragraph:
(1) any employment agreement entered into by Mail-Well I Corporationthe Company or any of
its restricted subsidiariesRestricted Subsidiaries in the ordinary course of business
and consistent with the past practice of Mail-Well I
Corporationthe Company or such
restricted subsidiary;Restricted Subsidiary;
(2) indemnification agreements permitted by law entered into by
Mail-Well I Corporationthe Company or any of its restricted subsidiariesRestricted Subsidiaries with any of
its affiliatesAffiliates who are directors, employees or agents of Mail-Well I Corporationthe
Company or any of its restricted subsidiaries;Restricted Subsidiaries;
(3) transactions between or among Mail-Well I Corporationthe Company and/or its
restricted subsidiaries;Restricted Subsidiaries;
(4) payment of reasonable directors fees to personsPersons who are not
otherwise our affiliates;Affiliates of the Company; and
(5) restricted paymentsRestricted Payments that are permitted by the provisions of
the indentureIndenture described above under the caption "--Restricted
Payments" on
page 65.Payments."
ADDITIONAL SUBSIDIARY GUARANTEES
If after the date we sold the old notes Mail-Well I Corporationwere sold the Company or any
restricted subsidiaryRestricted Subsidiary of Mail-Well I Corporationthe Company acquires or creates another restricted subsidiaryRestricted
Subsidiary (other than a special purpose financing vehicle) and such
restricted subsidiaryRestricted Subsidiary is formed under the laws of a state of the United
States (including the District of Columbia) and has its principal place of
business within the United States, then at such time as such restricted subsidiaryRestricted
Subsidiary first becomes a significant subsidiarySignificant Subsidiary of Mail-Well I Corporation,the Company, that newly
acquired or created restricted
subsidiaryRestricted Subsidiary must become a guarantorGuarantor and
execute a supplemental indenture satisfactory to the trusteeTrustee and deliver an
opinion of counsel to the trusteeTrustee within 10 business daysBusiness Days of the date on
which it was acquired or created.
7037
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
As of the date we sold the old notes were sold all of the subsidiariesSubsidiaries of
Mail-Well I Corporationthe Company will be restricted subsidiaries.Restricted Subsidiaries. The boardBoard of directorsDirectors may
designate any subsidiarySubsidiary to be an unrestricted subsidiaryUnrestricted Subsidiary if that
designation would not cause a default under the indenture.Default. If a subsidiarySubsidiary is designated as an
unrestricted subsidiary,Unrestricted Subsidiary, all outstanding Investments owned by Mail-Well I Corporationthe Company
and its subsidiariesSubsidiaries in the subsidiarySubsidiary so designated will be deemed to be an
Investment made as of the time of such designation and will reduce the
amount available for restricted paymentsRestricted Payments under the first paragraph of the
covenant described above under the caption "--Restricted Payments" on page 65 or
permittedPermitted Investments, as applicable. All such outstanding Investments will
be valued at their fair market value at the time of such designation. In
addition, such designation will only be permitted if such restricted paymentRestricted Payment
would be permitted at that time and if such subsidiarySubsidiary otherwise meets the
definition of an unrestricted subsidiary.Unrestricted Subsidiary. The boardBoard of directorsDirectors may
redesignate any unrestricted subsidiaryUnrestricted Subsidiary to be a restricted subsidiaryRestricted Subsidiary if the
redesignation would not cause a default under the indenture.Default.
LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS
Mail-Well I CorporationThe Company will not permit any of its restricted
subsidiariesRestricted Subsidiaries that
is not a guarantorGuarantor of the new notes, directly or indirectly, to guaranteeGuarantee or
pledge any assets to secure the payment of any other indebtednessIndebtedness of Mail-Well I Corporationthe
Company or Mail-Well, Inc.the Parent Company unless such restricted subsidiaryRestricted Subsidiary
simultaneously executes and delivers a supplemental indenture providing for
the guaranteeGuarantee of the payment of the new notes by such restricted subsidiaryRestricted Subsidiary
to the same extent as such guaranteeGuarantee of such other indebtedness,Indebtedness, which
guaranteeGuarantee shall be senior to or pari passu with such restricted subsidiary's guaranteeRestricted Subsidiary's
Guarantee of or pledge to secure such other indebtedness.Indebtedness, unless such other
Indebtedness is Senior.
Notwithstanding the provision described in the preceding paragraph, any guaranteeNote Guarantee of the
new notes will provide by its terms that it will be automatically and
unconditionally released and discharged under the circumstances described
above under the caption "Note Guarantees; Restrictions on Mail-Well, Inc.Parent Company and
Subsidiaries" on page 62.Subsidiaries." The form of the guaranteeGuarantee of the new notes will be attached
as an exhibit to the indenture.Indenture.
ANTI-LAYERING
The Company will not incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or junior
in right of payment to any Senior Debt of the Company and senior in any
respect in right of payment to the new notes. No Guarantor will incur,
create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to any Senior
Debt of such Guarantor and senior in any respect in right of payment to such
Guarantor's Guarantee of the new notes.
BUSINESS ACTIVITIES
Mail-Well I CorporationThe Company will not, and will not permit any restricted
subsidiaryRestricted Subsidiary
to, engage in any business other than permitted businesses under
the indenture.Permitted Businesses.
ADVANCES TO SUBSIDIARIES
All advances to restricted subsidiariesRestricted Subsidiaries that are not guarantorsGuarantors
made by Mail-Well I Corporationthe Company after the date of the indentureIndenture will be evidenced by
intercompany notesIntercompany Notes in favor of Mail-Well I Corporation.the Company. Each intercompany noteIntercompany Note will be
payable upon demand and will bear interest at the same rate as the new
notes. A form of intercompany noteIntercompany Note will be attached as an exhibit to the
indenture.Indenture.
PAYMENTS FOR CONSENT
Mail-Well I CorporationThe Company will not, and will not permit any of its subsidiariesSubsidiaries
to, directly or indirectly, pay or cause to be paid any consideration to or
for the benefit of any holderHolder of new notes for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of the
indentureIndenture or the new notes unless such consideration is offered to be paid
and is paid to all holdersHolders of the new notes that consent, waive or agree to
amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement.
38
REPORTS
Whether or not required by the Commission, so long as any new notes
are outstanding, Mail-Well I Corporationthe Company will furnish to the holdersHolders of new notes,
within the time periods specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on
Forms 10-Q and 10-K, if Mail-Well I Corporationthe Company were required
71
to file such
Forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with
respect to the annual information only, a report on the annual
financial statements by Mail-Well I Corporation'sthe Company's certified independent
accountants; and
(2) all current reports that would be required to be filed with
the Commission on Form 8-K if Mail-Well I Corporationthe Company were required to
file such reports.
The quarterly and annual financial information required by the
preceding paragraph shall include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereto, or in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of Mail-Well I Corporationthe
Company and its subsidiary guarantorsSubsidiary Guarantors separate from the financial condition
and results of operations of the other subsidiariesSubsidiaries of Mail-Well I Corporation.the Company.
In addition, whether or not required by the Commission, Mail-Well I
Corporationthe Company
will file a copy of all of the information and reports referred to in clauses
(1) and (2) above with the Commission for public availability within the
time periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available
to securities analysts and prospective investors upon request.
The foregoing reporting obligation may be satisfied by reports
prepared and filed by Mail-Well, Inc.the Parent Company on a consolidated basis under the
requirements of the Exchange Act.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
We entered into a registration rights agreement with the initial
purchasers of the old notes on March 13, 2002. In the registration rights
agreement, we agreed, among other things, to file with the Commission the
registration statement of which this prospectus is a part.
If any of the following occurs:
(1) because of any change in law or applicable interpretations of the
staff of the Commission we are not permitted to effect this
exchange offer;
(2) for any other reason this exchange offer is not consummated within
210 days of the date on which we sold the old notes;
(3) any initial purchaser so requests with respect to old notes not
eligible to be exchanged for new notes in the exchange offer by it
following consummation of the exchange offer; or
(4) any holder (other than certain dealers) is not eligible to
participate in the exchange offer or in the case of any holder
(other than certain dealers) that participates in the exchange
offer, such holder does not receive freely tradeable new notes on
the date of the exchange and any such holder so requests,
then we will, at our cost:
(1) promptly, but in no event later than 30 days after the date of the
request or other event giving rise to the obligation, file a shelf
registration statement covering resales of the old notes or the new
notes, as the case may be, from time to time and use reasonable
best efforts to cause the shelf registration statement to be
declared effective under the Securities Act no later than 90 days
after that date; and
(2) subject to certain customary exceptions, use our reasonable best
efforts to keep the shelf registration statement continuously
effective until all the notes covered by the shelf registration
statement
(a) have been sold pursuant thereto or
72
(b) are no longer restricted securities (as defined in Rule 144
under the Securities Act, or any successor rule thereof).
We will, in the event a shelf registration statement is filed, among
other things, provide to each holder for whom such shelf registration
statement was filed copies of the prospectus which is part of the shelf
registration statement, notify each such holder when the shelf registration
statement has become effective and take certain other actions as are
required to permit unrestricted resales of the old notes or the new notes,
as the case may be. A Holder selling such notes pursuant to the shelf
registration statement generally would be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions
under the Securities Act in connection with such sales and will be bound by
the provisions of the registration rights agreement which are applicable to
such holder (including certain indemnification obligations).
For the purposes of the registration rights agreement, "transfer
restricted securities" means each note until the earliest on the date of
which
(1) such note is exchanged in the exchange offer and entitled to be
resold to the public by the holder thereof without complying with
the prospectus delivery requirements of the Securities Act,
(2) such note has been disposed of in accordance with the shelf
registration statement,
(3) such note is disposed of by a broker-dealer pursuant to the "Plan
of Distribution" herein, or
(4) such note is distributed to the public pursuant to Rule 144 under
the Securities Act.
The registration rights agreement provides that
(1) if the registration statement of which this prospectus is part is
not declared effective by the Commission on or prior to the 180th
day after the date that we sold the old notes,
(2) if this exchange offer is not consummated on or before the 30th
business day after such registration statement is declared
effective,
(3) if obligated to file the shelf registration statement with the
Commission and we fail to do so on or prior to the 30th business
day after such filing obligation arises,
(4) if obligated to file the shelf registration statement and the shelf
registration statement is not declared effective on or prior to the
90th day after the obligation to file the shelf registration
statement arises (but no earlier than 180 days after the date on
which we sold the old notes), or
(5) if the registration statement for the exchange offer or the shelf
registration statement, as the case may be, is declared effective
but thereafter ceases to be effective or useable in connection with
resales of the notes, for such time of non-effectiveness or
non-usability,
we agree to pay to each holder of notes affected thereby liquidated damages
in an amount equal to $0.05 per week per $1,000 in principal amount of
affected notes held by such holder for each week or portion thereof that
such registration default continues for the first 90-day period immediately
following the occurrence of the registration default. The amount of the
liquidated damages increases by an additional $0.05 per week per $1,000 in
principal amount of notes at the beginning of and for each subsequent
90-day period until all registration defaults have been cured, up to a
maximum amount of liquidated damages of $0.50 per week per $1,000 in
principal amount of affected notes. We will not be required to pay
liquidated damages for more than one registration default at any given
time. No holder of affected notes will be entitled to receive liquidated
damages pursuant to the registration rights agreement unless and until such
holder has provided certain information to us for
73
use in connection with the applicable registration statement. Following
the cure of all registration defaults, the accrual of liquidated damages
will cease.
We will pay all accrued liquidated damages to holders entitled thereto
in the same manner as interest payments on the notes on semi-annual damages
payment dates which correspond to interest payment dates for the notes.
This summary of provisions of the registration rights agreement does
not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the registration rights
agreement. A copy of the registration rights agreement has been filed as an
exhibit to the registration statement of which this prospectus is a part,
and we incorporate the registration rights agreement into this prospectus
by this reference. A copy of the registration rights agreement is available
from Mail-Well I Corporation or the Commission upon request. See "Where You
Can Find More Information."
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an eventEvent of default under the indenture:Default:
(1) default for 30 days in the payment when due of interest on, or
liquidated damagesLiquidated Damages with respect to, the new notes;notes (whether or
not prohibited by the subordination provisions of the
Indenture);
(2) default in payment when due of the principal of or premium, if
any, on the new notes;notes (whether or not prohibited by the
subordination provisions of the Indenture);
(3) failure by Mail-Well I Corporationthe Company or any of its restricted
subsidiariesRestricted Subsidiaries
to comply with the provisions described under the captions
"--Change of Control" on page 63,Control," "--Asset Sales" on page
64,Sales," "--Restricted
Payments" on page 65 or "--Incurrence of Indebtedness" on page 67;;
(4) failure by Mail-Well I Corporationthe Company or any of its restricted
subsidiariesRestricted Subsidiaries
to comply with any of the other agreements in the indentureIndenture
for 60 days after notice to Mail-Well I Corporationthe Company by the trusteeTrustee or the
holdersHolders of at least 25% in aggregate principal amount of the
new notes then outstanding;
(5) default under any mortgage, indenture or instrument under
which they may be issued or by which there may be secured or
evidenced any indebtednessIndebtedness for money borrowed by Mail-Well I Corporationthe Company
or any of its restricted subsidiariesRestricted Subsidiaries (or the payment of which
is guaranteed by Mail-Well I Corporationthe Company or any of its restricted
subsidiaries)Restricted
Subsidiaries) whether such indebtednessIndebtedness or guarantee now
exists, or is created after the date of the indenture,Indenture, if that
default:
*(a) is caused by a failure to pay principal of or premium, if
any, or interest on such indebtednessIndebtedness prior to the
expiration of the grace period provided in such
indebtedness;Indebtedness (a "Payment Default"); or
*(b) results in the acceleration of such indebtednessIndebtedness prior to
its express maturity,
*39
(c) and, in each case, the principal amount of any such
indebtedness,Indebtedness, together with the principal amount of any
other such indebtednessIndebtedness under which there has been a
payment defaultPayment Default or the maturity of which has been so
accelerated, aggregates $25 million or more;
(6) failure by Mail-Well I Corporationthe Company or any of its restricted
subsidiariesRestricted Subsidiaries
to pay final judgments aggregating in excess of $25 million,
which judgments are not paid, discharged or stayed within 60
days following entry of judgment;
(7) except as permitted by the indenture,Indenture, any guaranteeNote Guarantee shall
be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and
effect or any guarantor,Guarantor, or any personPerson acting on behalf of any
guarantor,Guarantor, shall deny or disaffirm its obligations under its
guarantee;Note Guarantee; and
74
(8) certain events of bankruptcy or insolvency with respect to Mail-Well I Corporationthe
Company or any restricted subsidiaryRestricted Subsidiary that is a significant subsidiary,Significant
Subsidiary, or any group of restricted subsidiariesRestricted Subsidiaries that,
taken together, would constitute a significant subsidiary.Significant Subsidiary.
In the case of an eventEvent of defaultDefault arising from certain events of
bankruptcy or insolvency, with respect to Mail-Well I Corporation,the Company, any restricted subsidiaryRestricted
Subsidiary that is a significant subsidiarySignificant Subsidiary or any group of restricted subsidiariesRestricted
Subsidiaries that, taken together, would constitute a significant subsidiary,Significant Subsidiary,
all outstanding new notes will become due and payable immediately without
further action or notice. If any other eventEvent of defaultDefault occurs and is
continuing, the trusteeTrustee or the holdersHolders of at least 25% in principal amount
of the then outstanding new notes may declare all the new notes to be due
and payable immediately.
Holders of the new notes may not enforce the indentureIndenture or the new
notes except as provided in the indenture.Indenture. Subject to certain limitations,
holdersHolders of a majority in principal amount of the then outstanding new notes
may direct the trusteeTrustee in its exercise of any trust or power.
The holdersHolders of a majority in aggregate principal amount of the new
notes then outstanding by notice to the trusteeTrustee may on behalf of the holdersHolders
of all of the new notes waive any existing defaultDefault or eventEvent of defaultDefault and
its consequences under the indentureIndenture except a continuing defaultDefault or eventEvent of
defaultDefault in the payment of interest on, or the principal of, the new notes.
We areThe Company is required to deliver to the trusteeTrustee annually a
statement regarding compliance with the indenture.Indenture. Upon becoming aware of
any defaultDefault or eventEvent of default underDefault, the indenture, we areCompany is required to deliver to the
trusteeTrustee a statement specifying such defaultDefault or eventEvent of default.Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of Mail-Well I Corporationthe
Company or any guarantor,Guarantor, as such, shall have any liability for any
obligations of Mail-Well I Corporationthe Company or the guarantorsGuarantors under the new notes, the
indenture,Indenture, the note guarantees,Note Guarantees, or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each holderHolder of new notes
by accepting a notenew notes waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the new notes. The
waiver may not be effective to waive liabilities under the federal
securities laws.
SATISFACTION AND DISCHARGE OF THE INDENTURE
WeThe Company may terminate its obligations and the obligations of
Mail-Well I Corporation and the guarantorsGuarantors under the new notes, the indenture,Indenture, and the guaranteesGuarantees when
(i) either (A) all outstanding new notes have been delivered to the trusteeTrustee
for cancellation or (B) all such new notes not theretofore delivered to the
trusteeTrustee for cancellation have become due and payable, will become due and
payable within one year or are to be called for redemption within one year
under irrevocable arrangements satisfactory to the trusteeTrustee for the giving of
notice of redemption by the trusteeTrustee in ourthe name and at ourthe expense of the
Company, and we havethe Company has irrevocably deposited or caused to be deposited
with the trusteeTrustee funds in an amount sufficient to pay and discharge the
entire indebtedness on the new notes not theretofore delivered to the
trusteeTrustee for cancellation, for principal of (premium, if any, on) and
interest to the date of deposit or stated maturityStated Maturity or date of redemption;
(ii) we havethe Company has paid or caused to be paid all sums then due
40
and payable by usthe Company under the indenture;Indenture; and (iii) we havethe Company has
delivered an officers' certificateOfficers' Certificate and an opinion of counsel relating to
compliance with the conditions set forth in the indenture.Indenture.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
WeThe Company may, at ourits option and at any time, elect to have all
of ourits obligations discharged with respect to the outstanding new notes
which we
refer to as "legal defeasance,"("Legal Defeasance"), except for:
(1) the rights of holdersHolders of outstanding new notes to receive
payments in respect of the principal of, premium, if any, and
interest thereon, and the rights of the holders ofLiquidated Damages on such old notes to receive
75
any payments of liquidated damages on any old notes remaining
outstanding when such
payments are due from the trust referred to below;
(2) ourthe Company's obligations with respect to the new notes
concerning issuing temporary new notes, registration of new
notes, mutilated, destroyed, lost or stolen new notes and the
maintenance of an office or agency for payment and money for
security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the
trustee,Trustee, and ourthe Company's obligations in connection
therewith; and
(4) the legal defeasanceLegal Defeasance provisions of the indenture.Indenture.
In addition, wethe Company may, at ourits option and at any time, elect
to have ourthe obligations of the Company released with respect to certain
covenants that are described in the indenture, which we refer to as "covenant defeasance,"Indenture ("Covenant Defeasance") and
thereafter any failure to comply with such obligations shall not constitute
a defaultDefault or eventEvent of defaultDefault with respect to the new notes. In the event
covenant defeasanceCovenant Defeasance occurs, certain events (other than nonpayment,
bankruptcy, receivership, rehabilitation and insolvency events) described
under "Events of Default and Remedies" on page 74 will no longer constitute an eventEvent of
defaultDefault with respect to the new notes.
In order to exercise either legal defeasanceLegal Defeasance or covenant defeasance,Covenant Defeasance,
(1) Wethe Company must irrevocably deposit with the trustee,Trustee, in
trust, for the benefit of the holdersHolders of the new notes, cash
in U.S. dollars, non-callable government securities,Government Securities, or a
combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any,
and interest and Liquidated Damages on all outstanding
notes, and liquidated damages on anythe outstanding old
notes on the stated maturity or on the applicable redemption
date, as the case may be, and wethe Company must specify whether
the new notes are being defeased to maturity or to a
particular redemption date;
(2) in the case of legal defeasance, we mustLegal Defeasance, the Company shall deliver to
the trusteeTrustee an opinion of counsel in the United States
reasonably acceptable to the trusteeTrustee confirming that (A) we havethe
Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date we sold the
old notes were sold, there has been a change in the applicable
federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the
holdersHolders of the outstanding new notes will not recognize
income, gain or loss for federal income tax purposes as a
result of such legal defeasanceLegal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the
same times as would have been the case if such legal defeasanceLegal
Defeasance had not occurred;
(3) in the case of covenant defeasance, we must deliverCovenant Defeasance, the Company shall have
delivered to the trusteeTrustee an opinion of counsel in the United
States reasonably acceptable to the trusteeTrustee confirming that
the holdersHolders of the outstanding new notes will not recognize
income, gain or loss for federal income tax purposes as a
result of such covenant defeasanceCovenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such covenant defeasanceCovenant
Defeasance had not occurred;
(4) no eventEvent of defaultDefault or default under this indentureDefault shall have occurred and be
continuing on the date of such deposit (other than an eventEvent of
defaultDefault or defaultDefault resulting from the borrowing of funds to be
applied to such deposit);
41
(5) such legal defeasanceLegal Defeasance or covenant defeasanceCovenant Defeasance will not result
in a breach or violation of, or constitute a default under,
the credit
agreementany Senior Debt or any other material agreement or instrument
(other than the indenture)Indenture) to which Mail-Well I Corporationthe Company or any of its
subsidiariesSubsidiaries is a party or by which Mail-Well I Corporationthe Company or any of its
subsidiariesSubsidiaries is bound;
76
(6) wethe Company must have delivered to the trusteeTrustee an opinion of
counsel to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally;
(7) wethe Company must deliver to the trusteeTrustee an officers' certificateOfficers'
Certificate stating that we didthe deposit was not makemade by the
depositCompany with the intent of preferring the holdersHolders of new notes
over ourthe other creditors of the Company with the intent of
defeating, hindering, delaying or defrauding such creditors of the
Company or others; and
(8) wethe Company must deliver to the trusteeTrustee an officers' certificateOfficers'
Certificate and an opinion of counsel, each stating that all
conditions precedent provided for, in the case of the
officers' certificate,Officers' Certificate, (1) through (7) and, in the case of the
opinion of counsel, clauses (2), (3), (5) and (6) of this
paragraph relating to the legal defeasanceLegal Defeasance or the covenant defeasance,Covenant
Defeasance, as applicable, have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next three succeeding paragraphs, the
Indenture or the new notes may be amended or supplemented with the consent
of the Holders of at least a majority in principal amount of the new notes
then outstanding.
Without the consent of each holderHolder affected, an amendment or waiver
may not (with respect to any new notes held by a non-consenting holder)Holder):
(1) reduce the principal amount of new notes whose holdersHolders must
consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any
new note or alter the provisions with respect to the
redemption of the new notes (other than provisions relating to
the covenants described above under the caption "--Repurchase
at the Option of Holders" on page
63));
(3) reduce the rate of or change the time for payment of interest
on any new note;
(4) waive a defaultDefault or eventEvent of defaultDefault in the payment of
principal or premium, if any, or liquidated damagesLiquidated Damages or
interest on the new notes
or any old notes remaining outstanding (except a rescission of acceleration
of the new notes by the holdersHolders of at least a majority in
aggregate principal amount of the new notes and a waiver of
the payment default that resulted from such acceleration);
(5) make any notenew notes payable in money other than that stated in
the new notes;
(6) make any change in the provisions of the indentureIndenture relating to
waivers of past defaultsDefaults or the rights of holdersHolders of new notes
to receive payments of principal of or premium, if any, or
liquidated
damagesLiquidated Damages or interest on the new notes or any old notes remaining
outstanding;notes;
(7) waive a redemption payment with respect to any new note (other
than a payment required by one of the covenants described
above under the caption "--Repurchase at the Option of
Holders" on page 63));
(8) release any guarantorGuarantor from any of its obligations under its
guaranteeNote Guarantee or the indenture,Indenture, or amend the provisions of
the indentureIndenture relating to the release of guarantors,Guarantors, except that
guarantors may be released as
described underset forth in the caption "--Note
Guarantees; Restrictions on Mail-Well, Inc. and Subsidiaries" on
page 62;Indenture; or
(9) make any change in the preceding amendment and waiver
provisions.
In addition, any amendment to the subordination provisions of the
Indenture will require the consent of the Holders of at least 66 2/3% in
aggregate principal amount of the new notes then outstanding if such
amendment would adversely affect the rights of Holders of new notes.
42
Notwithstanding the preceding, without the consent of any holderHolder of
new notes, Mail-Well I Corporationthe Company and the trusteeTrustee may amend or supplement the indentureIndenture
or the new notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated new notes in addition to or in
place of certificated new notes;
(3) to provide for the assumption of Mail-Well I Corporation'sthe Company's obligations to
holdersHolders of new notes in the case of a merger or consolidation
or sale of all or substantially all of Mail-Well I
Corporation'sthe Company's assets;
77
(4) to make any change that would provide any additional rights or
benefits to the holdersHolders of new notes or that does not
adversely affect the legal rights under the indentureIndenture of any
such holder;Holder; or
(5) to comply with requirements of the Commission in order to
effect or maintain the qualification of the indentureIndenture under
the Trust Indenture Act.
BOOK-ENTRY; DELIVERY AND FORM
The new notes initially will be issued in the form of one or more registered
"global new notes" without interest coupons."Global
Notes." The global notesGlobal Notes will be deposited with, or on behalf of, the
Depository Trust Company and registered in the name of DTC or its nominee,
who will be the global notesGlobal Notes holder. Except as set forth below, the global notesGlobal
Notes may be transferred, in whole and not in part, only to DTC or another
nominee of DTC in limited
circumstances.DTC. Investors may hold their beneficial interests in the global
notesGlobal
Notes directly through DTC if they are participating organizations or
"participants" in such system or indirectly through organizations that are
participants in such system. Except in the limited circumstances described
below, owners of beneficial interests in the global notesGlobal Notes will not be
entitled to receive physical delivery of certificated new notes. Such
certificated notes may, unless the global note has previously been
exchanged for certificated notes, be exchanged for an interest in the
global note representing the principal amount of new notes being
transferred. In addition, transfer of beneficial interests in global notes
will be subject to the applicable rules and procedures of DTC and its
direct participants or indirect participants, including, if applicable,
those of Euroclear and CEDEL, which may change from time to time.
The new notes may be presented from registration of transfer and
exchanged at the offices of the registrar.(as defined
below).
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC
are provided solely as a matter of convenience. These operations and
procedures are solely within the control of the respective settlement
systems and are subject to changes by them from time to time. We take no
responsibility for these operations and procedures and urge investors to
contact the system or their participants directly to discuss these matters.
DTC has advised us that DTC is a limited-purpose trust company that
was created to hold securities for its participants and to facilitate the
clearance and settlement of transactions in such securities between
participants through electronic book-entry changes in accounts of its
participants. The participants include securities brokers and dealers
(including the initial purchasers), banks and trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust
companies, which we refer to as "indirect participants," that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly, personsindirectly. Persons who are not participants may beneficially own securities
held by or on behalf of DTC only through the participants or the indirect
participants.
We expect that pursuant to procedures established by DTC (i) upon
deposit of the global notes,Global Notes, DTC will credit the accounts of participants
designated by the initial purchasers with portions of the principal amount
of the global notesGlobal Notes and (ii) ownership of the new notes evidenced by the
global notesGlobal Notes will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC (with respect to the
interests of the participants), the participants and the indirect
participants.
Investors in the global notesGlobal Notes may hold their interests therein
directly through DTC, if they are participants in such system, or indirectly
through organizations which are participants in such system. Euroclear and
Clearstream Banking willInvestors may
hold their interests in the global notes on behalf of
their participantsGlobal Notes through customers' securities accounts in their
respective names on the books of their
78
respective depositories, whichorganizations that are Morgan Guaranty Trust Mail-Well I
Corporation of New York, Brussels office, as operator of Euroclear and
Citibank, N.A., as operator of Clearstream Banking. These depositories,
in turn, will hold the interests in the global notes in customer's
securities accounts in the depositaries' names on the books of DTC.DTC
participants. All interests in a Global noteNote may be subject to the
procedures and requirements of DTC. The laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer beneficial interests in a
Global noteNote to such persons will be limited to that extent. Because DTC can
act only on behalf of participants, which in turn act on behalf of indirect
participants and certain banks, the ability of a person having
43
beneficial interests in a Global noteNote to pledge such interests to persons or
entities that do not participate in the DTC systems, or otherwise take
actions in respect of such interests, may be affected by the lack of a
physical certificate evidencing such interests.
Except as described below, owners of interest in the global notesGlobal Notes
will not have new notes registered in their names, will not receive physical
delivery of new notes in certificated form and will not be considered the
registered owners or "holders" thereof under the indentureIndenture for any purpose.
Payments in respect of the principal of, premium, if any,
Liquidated Damages (as defined under "Exchange Offer; Registration Rights")
if any, and interest on a Global noteNote registered in the name of DTC or its
nominee will be payable to DTC in its capacity as the registered holder
under the indenture.Indenture. Under the terms of the indenture,Indenture, we and the trustee
will treat the persons in whose names the new notes, including the global notes,Global
Notes, are registered as the owners thereof for the purpose of receiving
such payments and for any and all other purposes whatsoever. Consequently,
neither the trustee nor any agent of us or the trustee has or will have any
responsibility or liability for (1) any aspect of DTC's records or any
participant's or indirect participant's records relating to or payments made
on account of beneficial ownership interests in the global notes,Global Notes, or for
maintaining, supervising or reviewing any of DTC's records or any
participant's or indirect participant's records relating to the beneficial
ownership interests in the global notesGlobal Notes or (2) any other matter relating to
the actions and practices of DTC or any of its participants or indirect
participants. DTC has advised us that its current practice, upon receipt of
any payment in respect of securities such as the new notes (including
principal and interest), is to credit the accounts of the relevant
participants with the payment on the payment date, in amounts proportionate
to their respective holdings in the principal amount of beneficial interest
in the relevant security as shown on the records of DTC unless DTC has
reason to believe it will not receive payment on such payment date. Payments
by the participants and the indirect participants to the beneficial owners
of new notes will be governed by standing instructions and customary
practices and will be the responsibility of the participants or the indirect
participants and will not be the responsibility of DTC, the trustee or us.
Neither we nor the trustee will be liable for any delay by DTC or any of its
participants in identifying the beneficial owners of the new notes, and we
and the trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Interests in the global notes willGlobal Notes are expected to be eligible to trade
in DTC's Same-Day Funds Settlement System and secondary market trading
activity in such interests will, therefore, settle in immediately available
funds, subject in all cases to the rules and procedures of DTC and its
participants. See "--Same-Day Settlement and Payment" on page 80.
TransfersPayment."
Subject to the transfer restrictions set forth under "Transfer
Restrictions," transfers between participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in same day funds.
Cross-market transfers between direct participants in DTC, on the one
hand, and indirect participants who hold interests in the new notes through
Euroclear on CEDEL, on the other hand, will be effected by Euroclear's or
CEDEL's respective nominee through DTC in accordance with DTC's rules on
behalf of Euroclear or CEDEL; however, delivery of instructions relating to
crossmarket transactions must be made directly to Euroclear or CEDEL, as
the case may be, by the counterparty in accordance with the rules and
procedures of Euroclear or CEDEL and within their established deadlines,
using Brussels time for Euroclear and U.K. time for CEDEL. Indirect
participants who hold
79
interest in the new notes through Euroclear and CEDEL may not deliver
instructions directly to Euroclear's or CEDEL's nominee. Euroclear or
CEDEL will, if the transaction meets its settlement requirements,
deliver instructions to its respective nominee to deliver or receive
interests on Euroclear's or CEDEL's behalf in the relevant global
note in DTC, and make or receive payment in accordance with normal
procedures for same-day funds settlement applicable to DTC.
Because of time zone differences, the securities of accounts of an
indirect participant who holds an interest in the new notes through
Euroclear or CEDEL purchasing an interest in a global note from a direct
participant in DTC will be credited, and any such crediting will be
reported to Euroclear or CEDEL during the European business day immediately
following the settlement date of DTC in New York. Although recorded in
DTC's accounting records as of DTC's settlement date in New York, Euroclear
and CEDEL customers will not have access to the cash amount credited to
their accounts as a result of a sale of an interest in a global note to a
DTC participant until the European business day for Euroclear or CEDEL
immediately following DTC's settlement date.
DTC has advised us that it will take any action permitted to be
taken by a holder of new notes only at the direction of one or more
participants to whose account DTC has credited the interests in the global notesGlobal
Notes and only in respect of such portion of the aggregate principal amount
of the new notes as to which such participant or participants has or have
given such direction. However, if there is an eventEvent of defaultDefault under the new
notes, DTC reserves the right to exchange the global notesGlobal Notes for legended new
notes in certificated form, and to distribute such new notes to its
participants.
Although DTC Euroclear and Clearstream Banking havehas agreed to the foregoing procedures to facilitate
transfers of interests in the global
notesGlobal Notes among participants in DTC, Euroclear and Clearstream Banking, they
areit is
under no obligation to perform or to continue to perform such procedures,
and such procedures may be discontinued at any time. Neither we nor the
trustee nor any of their respective agents will have any responsibility for
the performance by DTC Euroclear or Clearstream Banking
or their respectiveits participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial
interest in a global noteGlobal Note may, upon request to the trustee, exchange such
beneficial interest for new notes in the form of certificated securities.
Upon any such issuance, the trustee is required to register such certificated
securities in the name of, and cause the same to be
44
delivered to, such person or persons (or the nominee of any thereof). If:
(a) weAll
such certificated new notes would be subject to the legend requirements
described herein under "Notice to Investors." In addition, if:
(1) We notify the trustee in writing that DTC is no longer willing
or able to act as a depositary and we are unable to locate a
qualified successor within 90 days, or
(b) we,(2) We, at our option, notify the trustee in writing that we elect
to cause the issuance of new notes in the form of certificated
securities under the indenture,Indenture, then, upon surrender by the
global
notesGlobal Notes holder of its global notes, newGlobal Notes, notes in such form
will be issued to each person that the global notesGlobal Notes holder and
DTC identify as being the beneficial owner of the related new
notes.
Neither we nor the trustee will be liable for any delay by the
global
notesGlobal Notes holder or DTC in identifying the beneficial owners of new notes
and we and the trustee may conclusively rely on, and will be protected in
relying on, instructions from the global notesGlobal Notes holder or DTC for all
purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The indentureIndenture will require that payments in respect of the new notes
represented by the global notesGlobal Notes (including principal, premium, if any,
interest and interest)Additional Interest, if any) be made by wire transfer of
immediately available funds to the accounts specified by the global notesGlobal Notes
holder. With respect to certificated securities, we will make all payments of
principal, premium, if any, Liquidated Damages, if any, and interest by wire
transfer of
80
immediately available funds to the accounts specified by the
holders thereof or, if no such account is specified, by mailing a check to
each such holder's registered address.
METHODS OF RECEIVING PAYMENTS ON THE NEW NOTES
If a holder has given wire transfer instructions to us, we will
make all principal, premium and interest payments on those new notes in
accordance with those instructions. All other payments on these new notes
will be made at the office or agency of the payment agent and registrar
within the City and State of New York unless we elect to make interest
payments by check mailed to the holders at their address set forth in the
register of holders.
PAYING AGENT AND REGISTRAR FOR THE NEW NOTES
The trustee will initially act as paying agent and registrar for
the new notes. We may change the paying agent or registrar without prior
notice to the holders of the new notes, and we or any of our subsidiaries
may act as paying agent or registrar.
TRANSFER AND EXCHANGE
A holder may transfer or exchange new notes in accordance with the
indenture.Indenture. The registrar and the trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and we
may require a holder to pay any taxes and fees required by law or permitted
by the indenture.Indenture. We are not required to transfer or exchange any senior
note selected for redemption. Also, we are not required to transfer or
exchange any senior note for a period of 15 days before a selection of new
notes to be redeemed.
The registered holder of a senior note will be treated as the owner
of it for all purposes.
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of us, the indentureIndenture limits its
right to obtain payment of claims in certain cases, or to realize on certain
property received in respect of any such claim as security or otherwise. The
trustee will be permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the Commission for permission to continue or resign.
45
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture.Indenture.
Reference is made to the indentureIndenture for a full disclosure of all such terms,
as well as any other capitalized terms used herein for which no definition is
provided.
"Acquired Debt" means, with respect to any specified person:Person:
(1) Indebtedness of any other personPerson existing at the time such
other personPerson is merged with or into or became a subsidiarySubsidiary of
such specified person,Person, whether or not such indebtednessIndebtedness is
incurred in connection with, or in contemplation of, such
other personPerson merging with or into, or becoming a subsidiarySubsidiary
of, such specified person;Person; and
(2) Indebtedness secured by a lienLien encumbering any asset acquired
by such specified person.
"Additional Notes" has the meaning set forth under the caption
"--Principal, Maturity and Interest" on page 61.Person.
"Affiliate" of any specified personPerson means any other personPerson directly
or indirectly controlling or controlled by or under direct or indirect
common control with such specified person.Person. For purposes of this definition,
"control," as used with respect to any person,Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such person,
81
Person, whether through the ownership of
voting securities, by agreement or otherwise; provided that beneficial
ownership of 10% or more of the voting stockVoting Stock of a personPerson shall be deemed to
be control. For purposes of this definition, the terms "controlling,"
"controlled by" and "under common control with" shall have correlative
meanings.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets
or rights, including sales and leasebacks, but excluding sales
of inventory and equipment in the ordinary course of business
consistent with past practices; provided that the sale, lease,
conveyance or other disposition of all or substantially all of
the assets of Mail-Well I Corporationthe Company and its restricted subsidiariesRestricted Subsidiaries
taken as a whole will be governed by the provisions of the
indentureIndenture described above under the caption "--Change of
Control" on page
63,Control ", and/or the provisions described above under the
caption "--Merger, Consolidation or Sale of Assets" on page 69 and not by
the provisions of the asset saleAsset Sale covenant; and
(2) the issuance of equity interestsEquity Interests by any of Mail-Well I
Corporation's restricted subsidiariesthe Company's
Restricted Subsidiaries or the sale of equity
interestsEquity Interests in any
of its subsidiaries,Subsidiaries.
Notwithstanding the preceding, the following items shall not be
deemed to be asset sales:
*Asset Sales:
(a) any single transaction or series of related transactions that:
(a) involves assets having a fair market value of less than
$5$7.5 million; or (b) results in net proceeds to Mail-Well I Corporationthe Company
and its restricted subsidiariesRestricted Subsidiaries of less than $5$7.5 million;
*(b) a transfer of assets between or among Mail-Well I Corporationthe Company and its
wholly owned restricted subsidiaries;
*Wholly Owned Restricted Subsidiaries;
(c) an issuance of equity interestsEquity Interests by a wholly owned restricted
subsidiaryWholly Owned Restricted
Subsidiary to Mail-Well I Corporationthe Company or to another wholly owned
restricted subsidiary;
*Wholly Owned
Restricted Subsidiary; and
(d) a disposition of assets or stock of Mail-Well Label Company, MWL U.K.
Limited, and Lancer Label Canada, Inc.; and
* a restricted paymentRestricted Payment that is permitted by the covenant
described above under the caption "--restricted payments."Restricted Payments."
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value of the obligation of
the lessee for net rental payments during the remaining term of the lease
included in such sale and leaseback transaction including any period for
which such lease has been extended or may, at the option of the lessor, be
extended. Such present value shall be calculated using a discount rate equal
to the rate of interest implicit in such transaction, determined in
accordance with GAAP.
"Beneficial Owner" has the meaning assigned to such term in Rule
l3d-313d-3 and Rule l3d-513d-5 under the Exchange Act, except that in calculating the
beneficial ownership of any particular "person" (as such term is used in
Section 13(d)(3) of the Exchange Act), such "person" shall be deemed to have
beneficial ownership of all
46
securities that such "person" has the right to acquire, whether such right
is currently exercisable or is exercisable only upon the occurrence of a
subsequent condition.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents
(however designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or
limited); and
82
(4) any other interest or participation that confers on a personPerson
the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing person.Person.
"Change of Control" means the occurrence of any of the following:
(1) the sale, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the
assets of Mail-Well I Corporationthe Company and its subsidiariesSubsidiaries taken as a whole to
any "person" (as such term is used in Section 13(d)(3) of the
Exchange Act) other than a principalPrincipal or a related partyRelated Party of a
principal;Principal;
(2) the adoption of a plan relating to the liquidation or
dissolution of Mail-Well I Corporation;the Company;
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which
is that any "person" (as defined above), other than the
principalsPrincipals and their related parties,Related Parties, becomes the beneficial owner,Beneficial
Owner, directly or indirectly, of more than 35% of the voting stockVoting
Stock of Mail-Well I
Corporationthe Company or Mail-Well, Inc.,the Parent Company, measured by voting
power rather than number of shares;
(4) the first day on which a majority of the members of the boardBoard
of directorsDirectors of Mail-Well I Corporationthe Company or Mail-Well, Inc.the Parent Company are not
continuing directors;Continuing Directors; or
(5) Mail-Well I Corporationthe Company or Mail-Well, Inc.the Parent Company consolidates with, or merges
with or into, any person,Person, or any personPerson consolidates with, or
merges with or into, Mail-Well I Corporationthe Company or Mail-Well, Inc.,the Parent Company, in any
such event pursuant to a transaction in which any of the
outstanding voting stockVoting Stock of Mail-Well I Corporationthe Company or Mail-Well,
Inc.the Parent Company
is converted into or exchanged for cash, securities or other
property, other than any such transaction where the voting stockVoting
Stock of Mail-Well I Corporationthe Company or Mail-Well, Inc.the Parent Company outstanding
immediately prior to such transaction is converted into or
exchanged for voting
stockVoting Stock of the surviving or transferee
personPerson constituting a majority of the outstanding shares of
such voting stockVoting Stock of such surviving or transferee personPerson
immediately after giving effect to such issuance. For the
avoidance of doubt, the sales of the assets or stocks of
subsidiariesSubsidiaries that Mail-Well I Corporationthe Company is currently holding for sale as
part of its strategic plan will not constitute a changeChange of
control.Control.
"Consolidated Cash Flow" means, with respect to any personPerson for any
period, the consolidated net incomeConsolidated Net Income of such personPerson for such period plus:
(1) an amount equal to any extraordinary loss plus any net loss
realized in connection with an asset sale,Asset Sale, to the extent such
losses were deducted in computing such consolidated net income;Consolidated Net
Income; plus
(2) provision for taxes based on income or profits of such personPerson
and its subsidiariesSubsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such
consolidated net income;Consolidated Net Income; plus
(3) consolidated interest expense of such personPerson and its
subsidiariesSubsidiaries for such period, whether paid or accrued and
whether or not capitalized (including, without limitation,
amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of
all payments associated with capital leaseCapital Lease Obligations,
imputed interest with respect to Attributable Debt,
commissions, discounts and other fees
47
and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments, if any,
pursuant to hedging obligations)Hedging Obligations), to the extent that any such
expense was deducted in computing such consolidated net income;Consolidated Net
Income; plus
(4) depreciation, amortization (including amortization of goodwill
and other intangibles) and other non-cash expenses of such
personPerson and its subsidiariesSubsidiaries for such period to the extent that
such depreciation, amortization and other non-cash expenses
were deducted in computing such consolidated net income;Consolidated Net Income; minus
83
(5) non-cash items increasing such consolidated net incomeConsolidated Net Income for
such period, other than items that were accrued in the
ordinary course of business, in each case on a consolidated
basis.
Notwithstanding the preceding, the provision for taxes based on the
income or profits of, and the depreciation and amortization and other
non-cash charges of, a subsidiarySubsidiary of Mail-Well I Corporationthe Company shall be added to
consolidated net incomeConsolidated Net Income to compute Consolidated Cash Flow of Mail-Well I
Corporationthe Company
only to the extent that a corresponding amount would be permitted at the
date of determination to be dividended to Mail-Well I
Corporationthe Company by such subsidiarySubsidiary
without prior approval (that has not been obtained), pursuant to the terms
of its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that subsidiarySubsidiary
or its shareholders.
"Consolidated Net Income" means, with respect to any specified
personPerson for any period, the aggregate of the Net Income of such personPerson and
its restricted subsidiariesRestricted Subsidiaries for such period, on a consolidated basis,
provided that:
(1) the net incomeNet Income (but not loss) of any personPerson that is not a
restricted subsidiaryRestricted Subsidiary or that is accounted for by the equity
method of accounting shall be included only to the extent of
the amount of dividends or distributions paid in cash to the
specified personPerson or a wholly owned subsidiaryWholly Owned Subsidiary thereof;
(2) the net incomeNet Income of any non-guarantor restricted subsidiarynon-Guarantor Restricted Subsidiary
shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that
non-guarantor restricted
subsidiarynon-Guarantor Restricted Subsidiary of that net incomeNet Income is not
at the date of determination permitted without any prior
governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that
non-guarantor restricted subsidiarynon-Guarantor Restricted Subsidiary or its shareholders;
(3) the net incomeNet Income of any personPerson acquired in a pooling of
interests transaction for any period prior to the date of such
acquisition shall be excluded;
(4) the net incomeNet Income (but not loss) of any unrestricted subsidiaryUnrestricted Subsidiary
shall be excluded, whether or not distributed to the specified
personPerson or one of its subsidiaries;Subsidiaries; and
(5) any writedowns with respect to, or losses on dispositions of,
subsidiariesSubsidiaries and assets held for sale as of the date of the
indenture, and all restructuring charges incurred
by Mail-Well I
Corporation, Mail-Well, Inc.the Company, the Parent Company and the subsidiaries,Subsidiaries, shall
be excluded;
(6) non-recurring fees, expenses or charges (including, without
limitation, the write-off of deferred financing charges)
incurred in connection with the Transactions shall be
excluded; and
(6)(7) the cumulative effect of a change in accounting principles
shall be excluded.
"Consolidated Net Worth" means, with respect to any personPerson as of
any date, the sum of:
(1) the consolidated equity of the common shareholders of such
personPerson and its consolidated subsidiariesSubsidiaries as of such date; plus
(2) the respective amounts reported on such person'sPerson's balance sheet
as of such date with respect to any series of preferred stock
that by its terms is not entitled to the payment of dividends
unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and
payment, but only to the extent of any cash received by such
personPerson upon issuance of such preferred stock.
48
"Continuing Directors" means, as of any date of determination, any
member of the boardBoard of directorsDirectors of Mail-Well I Corporationthe Company or Mail-Well,
Inc.the Parent Company who:
(1) was a member of such boardBoard of directorsDirectors on the date we sold the old
notes;notes were sold; or
(2) was nominated for election or elected to such boardBoard of
directorsDirectors with the approval of a majority of the continuing directorsContinuing
Directors who were members of the boardBoard of directorsDirectors of Mail-Well, Inc.the
Parent Company at the time of such nomination or election.
84
"Credit Facilities" means, with respect to