-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LJikWwuEfoPRI3mCUUhXckyFpRCOQiopjq/dYcrhRSK40J1J1cRGed+mzlYilqme GseD+YgpfJPowHBpqyLaeg== 0001068800-99-000192.txt : 19990503 0001068800-99-000192.hdr.sgml : 19990503 ACCESSION NUMBER: 0001068800-99-000192 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19990430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAIL WELL I CORP CENTRAL INDEX KEY: 0000920944 STANDARD INDUSTRIAL CLASSIFICATION: CONVERTED PAPER & PAPERBOARD PRODS (NO CONTAINERS/BOXES) [2670] IRS NUMBER: 841250534 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-74409 FILM NUMBER: 99607320 BUSINESS ADDRESS: STREET 1: 23 INVERNESS WAY EAST CITY: ENGLEWOOD STATE: CO ZIP: 80112 BUSINESS PHONE: 3037908023 MAIL ADDRESS: STREET 1: 23 INVERNESS WAY EAST CITY: ENGLEWOOD STATE: CO ZIP: 80112 FORMER COMPANY: FORMER CONFORMED NAME: MAIL WELL CORP DATE OF NAME CHANGE: 19940328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAIL WELL INC CENTRAL INDEX KEY: 0000920321 STANDARD INDUSTRIAL CLASSIFICATION: CONVERTED PAPER & PAPERBOARD PRODS (NO CONTAINERS/BOXES) [2670] IRS NUMBER: 841250533 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-74409-01 FILM NUMBER: 99607321 BUSINESS ADDRESS: STREET 1: 23 INVERNESS WAY EAST STREET 2: STE 160 CITY: ENGLEWOOD STATE: CO ZIP: 80112 BUSINESS PHONE: 3037908023 MAIL ADDRESS: STREET 1: 23 INVERNESS WAY EAST STREET 2: SUITE 160 CITY: ENGLEWOOD STATE: CO ZIP: 80112 FORMER COMPANY: FORMER CONFORMED NAME: MAIL WELL HOLDINGS INC DATE OF NAME CHANGE: 19940328 S-4/A 1 MAIL-WELL I CORPORATION AMENDMENT NO. 1 TO FORM S-4 As filed with the Securities and Exchange Commission on April 30, 1999 Registration No. 333-74409 - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _________________________ AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _________________________ MAIL-WELL I CORPORATION AFFILIATE GUARANTORS LISTED ON SCHEDULE ATTACHED HERETO (Exact Name of Registrant as Specified in its Charter) DELAWARE 2677 84-1250533 -------- (Primary Standard ---------- (State or Other Industrial (I.R.S. Employer Jurisdiction of Classification Code Identification No.) Incorporation or Number) Organization) 23 INVERNESS WAY EAST, SUITE 160 ENGLEWOOD, CO 80112 (303) 790-8023 (Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) _________________________ COPIES TO: Mail-Well, Inc. Herbert H. Davis III, Esq. Roger Wertheimer, Esq. Rothgerber Johnson & Lyons LLP 23 Inverness Way, Suite 160 1200 Seventeenth Street, Suite 3000 Englewood, CO 80112 Denver, Colorado 80202 (303) 790-8023 (303) 623-9000 (Name, Address, Including Zip Code and Telephone Number, Including Area Code, of Agent for Service for the Registrant) _________________________ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE 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 42(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 Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant 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 this Registration Statement shall become effective on such date as the Commission, acting pursuant to said section 8(a), may determine. SCHEDULE OF ADDITIONAL AFFILIATE GUARANTORS
Exact Name of Guarantor Primary Standard I.R.S. Employer Registrants as Specified in State of Industrial Identification Their Respective Charters Formation Classification Number Number --------------------------- --------- --------------------- --------------- Graphics Arts Center, Inc. Delaware 2752 93-1008554 Mail-Well Commercial Printing, Inc. Delaware 2752 84-1461875 Mail-Well Canada Holdings, Inc. Delaware 6719 84-1313090 Mail-Well, Inc. Colorado 6719 84-1250533 Mail-Well Label Holdings, Inc. Colorado 6719 84-1449291 Mail-Well Label USA, Inc. Colorado 2752 84-1449292 Mail-Well West, Inc. Delaware 2677 84-1313079 Murray Envelope Holdings, Inc. Colorado 6719 84-1421627 Murray Envelope Corporation Mississippi 2677 64-0271038 N-M Envelope, Inc. Mississippi 2677 64-0840384 National Graphics Company Colorado 2761 84-0692676 Poser Business Forms, Inc. Delaware 2761 75-2195786 Wisco II, L.L.C. Delaware 2677 84-1313080 Wisco Envelope Corp. Tennessee 2677 62-1555311
********************************************************************** * The information contained 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 April 27, 1999 PROSPECTUS Offer to Exchange All Outstanding 8 3/4% Senior Subordinated Notes due 2008 for 8 3/4% Series B Senior Subordinated Notes due 2008 of MAIL-WELL I CORPORATION We are offering, on the terms and conditions described in this prospectus, to exchange all of our outstanding 8 3/4% senior subordinated notes due 2008 for our registered 8 3/4% Series B senior subordinated notes due 2008. We issued the old notes on December 16, 1998, and a total principal amount of $300 million is outstanding. The terms of the new notes are identical to the terms of the old notes except that the new notes are registered under federal securities laws and will not contain any legends restricting their transfer. - ---------------------------------------------------------------------- THE EXCHANGE OFFER: Our offer to exchange old notes for new notes will be open until 5:00 p.m., New York City time, on ____________, 1999, unless we extend the offer You should carefully review the procedures for tendering the old notes beginning on page 21 of this prospectus If you fail to tender your old notes, you will continue to hold unregistered securities and your ability to transfer them could be adversely affected THESE NOTES: Maturity: December 15, 2008 Interest Payment: semi-annually in cash in arrears on June 15 and December 15, commencing June 15, 1999 Redemption: redeemable on or after December 15, 2003, in whole or in part, at our option. Up to 35% of these notes will be redeemable prior to December 15, 2001, with the proceeds from common stock offerings in some circumstances Ranking: these notes are general unsecured obligations of Mail-Well I Corporation and: * are subordinated to debt under our bank credit agreement * are subordinated to our other senior debt and the senior debt of the guarantors of the notes * are of equal rank with our other existing and future debt (and our other obligations and those of the guarantors) unless the terms of that debt or other obligations expressly provide otherwise Guarantees: these notes are guaranteed by our parent company, Mail-Well, Inc., and our domestic operating subsidiaries TRADING FORMAT: The over-the-counter market. No active public market is anticipated THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 12. - ------------------------------------------------------------------------- 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. The date of this prospectus is __________________, 1999 TABLE OF CONTENTS Page ---- CURRENCY TRANSLATION 3 SUMMARY 4 RISK FACTORS 12 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS 20 THE EXCHANGE OFFER 21 USE OF PROCEEDS 28 DESCRIPTION OF THE NOTES 28 PLAN OF DISTRIBUTION 72 TAXATION 74 DESCRIPTION OF OUTSTANDING DEBT 78 COMPARATIVE CONSOLIDATED HISTORICAL FINANCIAL DATA 82 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 83 BUSINESS 93 MANAGEMENT 111 WHERE YOU CAN FIND MORE INFORMATION 113 LEGAL MATTERS 114 EXPERTS 114 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES F-1 Printed by Color-Art Financial Printing A Mail-Well Company -2- We are not making an offer of the new notes in any jurisdiction except where an offer or sale is legally permitted. You should understand that you may be required to bear the financial risks of your investment until the new notes mature. Portions of this prospectus are based on information provided by us and by other sources that we believe are reliable. We cannot assure you that this information is accurate or complete. This prospectus summarizes certain documents and other information and we refer you to them for a more complete understanding of what we discuss in this prospectus. In making an investment decision, you must rely on your own examination of our company and the terms of the exchange offer and the new notes, including the merits and risks involved. This prospectus incorporates important business and financial information about Mail-Well I Corporation that is not included in or delivered with this prospectus. This information is available without charge to security holders upon written or oral request to Mail-Well, Inc., Attention: Investor Relations, 23 Inverness Way East, Suite 160, Englewood, Colorado 80112, telephone: (303) 790-8023. To obtain timely delivery of such information, you must request the information no later than _____________, 1999. You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date. CURRENCY TRANSLATION We report our financial statements in U.S. dollars. Unless otherwise indicated, references to dollars or "$" are to U.S. dollars. -3- SUMMARY The following is a summary of the more detailed information appearing elsewhere in this prospectus and in the documents incorporated herein by reference. You should read the entire prospectus, including the "Risk Factors" and the financial statements, including all the notes. Mail-Well, Inc. is a holding company which is not engaged in any business other than holding the capital stock of Mail-Well I Corporation. The data used in this prospectus are drawn from the financial condition, results of operations and cash flows of Mail-Well, Inc. and its subsidiaries on a consolidated basis. Because Mail-Well, Inc. has immaterial operating assets, revenues and expenses (other than through ownership of Mail-Well I Corporation), the financial condition and results of operations of Mail-Well I Corporation and its subsidiaries on a consolidated basis do not materially differ from those of Mail-Well, Inc. (consolidated). Mail-Well, Inc. will guarantee all of Mail-Well I Corporation's obligations under the new notes. THE EXCHANGE OFFER Issuer Mail-Well I Corporation. Exchange Offer On December 16, 1998, we issued $300,000,000 aggregate principal amount of Mail-Well I Corporation's 8 3/4% senior subordinated notes due 2008 in a transaction that was exempt from the registration requirements of the Securities Act of 1933, as amended. We are now offering to exchange $1,000 principal amount of Mail-Well I Corporation's 8 3/4% Series B senior subordinated notes due 2008 for each $1,000 principal amount of old notes. As of the date of this prospectus, old notes representing $300,000,000 aggregate principal amount are outstanding. The terms of the new notes and the old notes are identical in all material respects, except that the new notes will be freely transferable by the holders except as otherwise described in this prospectus. See "Description of the Notes." We believe that new notes issued pursuant to this exchange offer in exchange for old notes may be offered for resale, 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 -4- 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 a similar determination with respect to this exchange offer as it did in the no- action letters to the unrelated persons. Registration Rights Agreement We sold the old notes on December 16, 1998, in a private placement relying on Section 4(2) of the Securities Act. The old notes were immediately resold by the initial purchasers in reliance on Rule 144A under the Securities Act. In connection with the sale, we entered into a registration rights agreement with the initial purchasers requiring us to make this exchange offer. The registration rights agreement also provides that we must use our reasonable best efforts to: * cause the registration statement for this exchange offer to be declared effective within 180 days of the date on which we issued the old notes and * consummate this exchange offer no earlier than 20 and no later than 30 business days after the effective date of the registration statement for this exchange offer. Expiration Date The exchange offer will expire at 5:00 p.m., New York City time, on __________________, 1999, or a later date and time to which we extend it. 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 ______________, 1999, 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. -5- Interest on the New Notes and the Old 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 The exchange offer is subject to customary conditions, some of which we may waive. See "The Exchange Offer-- Conditions of the Exchange Offer." Procedures for Tendering Old 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 Street Bank and Trust Company, Exchange Agent Attn: Susan Lavey, Corporate Actions Two International Place, Fourth Floor Boston, Massachusetts 02110 Telecopier No.: (617) 664-5290 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 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, * the new notes acquired pursuant to the exchange offer are being obtained in the ordinary course of business of the person receiving the new notes, whether or not the person is the registered holder of the old notes, * the holder is not engaging in and does not intend to engage in a distribution of the new notes, * the holder does not have an arrangement or understanding with any person to participate in the distribution of the new notes, and * the holder is not an "affiliate," as defined under Rule 405 promulgated under the Securities Act, of Mail- Well I Corporation. -6- We will accept for exchange any and all old notes which are properly tendered and not withdrawn in the exchange offer prior to 5:00 p.m., New York City time, on ______________, 1999. 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." Federal Income Tax Considerations In the opinion of special tax counsel, the exchange of old notes for new notes in the exchange offer should not constitute an exchange of the old notes under Section 1001 of the Internal Revenue Code of 1986, as amended. See "Taxation." Effect of Not Tendering Old notes that are not tendered or that are tendered but not accepted will, following the completion of the exchange offer, continue to be subject to the existing restrictions on transfer. 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. Securities $300,000,000 aggregate principal amount of Mail-Well I Corporation's 8 3/4% Series B senior subordinated notes due 2008. Maturity Date December 15, 2008. Interest Payment Dates Interest on the new notes will accrue at the rate of 8 3/4% per year, payable semi-annually in cash in arrears on June 15 and December 15 of each year, commencing June 15, 1999. Optional Redemption We can redeem the new notes, in whole or in part, on or after December 15, 2003, at the redemption prices set forth in this prospectus, plus accrued and unpaid interest. In addition, before December 15, 2001, we can redeem up to 35% of the new notes at 108.75% of their principal amount, plus accrued and unpaid interest, with the net cash proceeds from common stock offerings in some circumstances. See "Description of the Notes--Optional Redemption." Guarantees The new notes will be unconditionally guaranteed by Mail-Well, Inc. as well as by our existing domestic operating subsidiaries and significant future domestic operating subsidiaries. These guarantees will be subordinated in right of payment to all existing and future senior debt of the guarantors, including guarantees of debt by substantially all of our domestic subsidiaries under our existing senior bank credit agreement. These guarantees will rank equal to other existing -7- and future senior subordinated debt of the guarantors and senior in right of payment to all of the existing and future obligations of the guarantors that are expressly subordinated in right of payment to the guarantees of the new notes. See "Description of the Notes--Note Guarantees; Restrictions on Mail-Well, Inc. and Subsidiaries." Change of Control Upon the occurrence of certain change of control events, you may require us to repurchase all or a portion of your new notes at 101% of their principal amount, plus accrued and unpaid interest. See "Description of the Notes--Repurchase at the Option of Holders--Change of Control." Ranking The new notes will be general unsecured obligations of Mail-Well I Corporation and will rank equally with all of Mail- Well I Corporation's other existing and future senior subordinated debt and senior in right of payment to existing and future obligations expressly subordinated in right of payment to the new notes. The new notes will rank junior to all existing and future senior debt. In addition, the new notes will effectively rank junior to all existing and future debt and other liabilities of our foreign subsidiaries. See "Description of the Notes--Subordination." Anti-Layering We will not, and will not permit any of our subsidiaries to, incur any debt that is subordinate in right of payment to any of our senior debt and senior in right of payment to the new notes. Covenants in the Indenture The indenture governing the new notes contains covenants that, among other things, limit our ability and the ability of our subsidiaries to: * pay or permit payment of dividends on, or redeem or repurchase, capital stock; * make investments; * incur additional debt; * allow the imposition of dividend restrictions on subsidiaries; * sell assets; * guarantee debt; * issue capital stock; -8- * create liens; * engage in certain transactions with affiliates; and * consolidate or merge or sell all or substantially all our assets and the assets of our subsidiaries. All of these limitations are subject to important exceptions and qualifications described under "Description of the Notes--Covenants in the Indenture." REGULATORY MATTERS We are not aware of any governmental or regulatory approvals that are required in order to complete the exchange offer. RISK FACTORS An investment in the new notes involves risks associated with our business, the printing industry and the exchange offer. For a more detailed discussion of these risks, see "Risk Factors" on page 12. MAIL-WELL I CORPORATION Mail-Well I Corporation is a direct, wholly owned subsidiary of Mail-Well, Inc., a Colorado corporation, whose common stock is traded on the New York Stock Exchange under the symbol "MWL." Unless specifically stated otherwise, all financial information presented in this prospectus is that of Mail-Well, Inc. on a consolidated basis. You can contact Mail-Well I Corporation at the following address, telephone number and fax number: Mail-Well I Corporation c/o Mail-Well, Inc. 23 Inverness Way East Englewood, Colorado 80112 (303) 790-8023 (303) 397-7400 (Fax) We are a leading consolidator in the printing industry, with revenues of $1.5 billion for the year ended December 31, 1998. We compete in the following four market segments of the printing industry: * Envelopes * Commercial Printing * Printing for Distributors * Labels Since our inception in February 1994 through March 10, 1999, we have completed 44 acquisitions in the printing industry. We are the largest printer and manufacturer of envelopes in the United States and Canada and one of the leading commercial printers in the United States. We are also -9- the largest printer of custom business documents for the distributor market in the United States and a leading printer of glue-applied paper labels for the food and beverage industry. We currently operate 100 printing facilities throughout North America, serving over 40,000 customers. Please refer to Note 12 of Mail-Well's consolidated financial statements included elsewhere in this prospectus for additional information concerning our operating and geographic segments. SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA The summary of historical consolidated financial data presented below is derived from the historical audited consolidated financial statements of Mail-Well, Inc. and its predecessors, the envelope business of Georgia-Pacific and Pavey Envelope and Tag Corp., and in the opinion of management reflects all adjustments, consisting of only normal, recurring adjustments, necessary for a fair presentation of such information. The operations of the acquisitions accounted for under the purchase method have been included in the historical income statement data of Mail-Well, Inc. from their respective dates of acquisitions. Amounts derived from the consolidated financial statements for periods subsequent to February 23, 1994 (inception), have been restated as appropriate to reflect mergers accounted for as poolings of interests. The data presented below should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations, the consolidated financial statements and the related notes thereto included elsewhere in this document. -10-
Predecessor Companies Period ----------- from Period Feb. 24 from 1994 Jan. 1, 1994 Year Ended December 31 through through ---------------------------------------------- December Feb. 23 1998 1997 1996 1995 1994 1994 ---- ---- ---- ---- ---- ---- (in millions, except per share amounts) Net sales $1,504.7 $1,073.9 $944.5 $758.9 $389.3 $36.6 Income (loss) before extraordinary item 25.8 35.0 21.2 15.4 9.4 (1.3) Net income (loss) 21.7 28.9 21.2 13.0 9.4 (1.3) Earnings per basic share: Income per share before extraordinary item $0.55 $0.86 $0.53 $0.58 $0.42 Extraordinary item (0.08) (0.15) -- (0.09) -- ----- ----- ----- ----- ----- Net income per basic share $0.47 $0.71 $0.53 $0.49 $0.42 ===== ===== ===== ===== ===== Earnings per diluted share: Income per share before extraordinary item $0.53 $0.82 $0.52 $0.56 $0.42 Extraordinary item (0.08) (0.14) -- (0.09) -- ----- ----- ----- ----- ----- Net income per diluted share $0.45 $0.68 $0.52 $0.47 $0.42 ===== ===== ===== ===== ===== Total assets $1,128.0 $671.4 $552.0 $582.6 $392.5 N/A Total long-term debt 583.4 330.4 237.8 347.4 259.1 N/A Book value per share $6.13 $3.99 $3.29 $2.80 $1.90 N/A Ratio of earnings to fixed charges 2.1x 2.6x 1.9x 1.7x 1.7x N/A - ------------ Earnings per share is not presented for these periods as operations were those of predecessor companies. Earnings per share data has been retroactively restated to reflect the 3:2 stock split in June 1997 and the 2:1 stock split in June 1998. The 1998 results include an after-tax charge of $21.8 million ($28.9 million pre-tax), or $0.41 per diluted share related to the restructuring of the Envelopes and Commercial Printing segments and the termination of a leveraged Employee Stock Ownership Plan (see Note 11 of notes to the consolidated financial statements included elsewhere herein). Excluding the restructuring and other unusual charge, the amounts would be as follows: Income before extraordinary item $47.6 Net income 43.5 Income per diluted share before extraordinary item 0.94 Ratio of earnings to fixed charges 2.7x For purposes of computing the ratio of earnings to fixed charges, earnings consist of income before income taxes plus fixed charges (other than capitalized interest) and amortization of previously capitalized interest. Fixed charges consist of interest expense and debt issuance cost, capitalized interest and that portion of rental expenses representative of the interest factor, deemed to be one-third.
-11- RISK FACTORS An investment in the new notes involves a high degree of risk. You should consider carefully the following factors, in addition to the other information contained in this prospectus, in evaluating the risks of the new notes. WHAT ARE THE RISKS RELATED TO THE NEW NOTES? THE AMOUNT OF DEBT WE OWE MAY AFFECT OUR OPERATIONS AND OUR ABILITY TO PAY OUR DEBT We have borrowed substantial amounts in order to finance acquisitions and operations. As of December 31, 1998, our total debt was $591.5 million, representing approximately 1.98 times total shareholders' equity. The amount of debt we owe could have several important effects on future operations of our business. For example: * our ability to obtain additional financing for working capital, acquisitions, capital expenditures or other corporate purposes in the future may be limited; * a substantial portion of our cash flow from operations is dedicated to the payment of principal and interest on debt, and is not available to fund working capital, capital expenditures, acquisitions and other business purposes; * we may be more vulnerable to economic downturns or other adverse developments than less leveraged competitors; * borrowings under our bank credit agreement bear interest at fluctuating rates which could result in higher interest expense in the event of an increase in interest rates; and * we may be unable to repurchase all of the new 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, debt depends on our future operating performance and resulting cash flow. To some extent, future performance will be subject to prevailing economic conditions and financial, competitive and other factors beyond our control. We cannot be certain, however, that our business, or businesses that we acquire in the future, will generate sufficient cash flow from operations to enable us to service all of our debt (including the new notes). We may need additional funding from either debt or equity offerings in the future in order to refinance existing debt (including the new notes) or to continue to grow our business through acquisitions or internally. We cannot be sure that we will have access to any such sources of funding on satisfactory terms or on a timely basis or at all. -12- THERE ARE ADDITIONAL BORROWINGS AVAILABLE TO US, WHICH MAY FURTHER AFFECT OUR OPERATIONS AND OUR ABILITY TO PAY OUR DEBT Despite current debt levels, we may be able to incur substantial additional debt in the future. The terms of the indenture for the new notes do not fully prohibit us from doing so. If new debt is added to our current debt levels, the risks discussed above could intensify. We may incur additional debt if our fixed charge coverage ratio for the four most recent fiscal quarters would have been at least two-to-one, determined as if the additional debt had been incurred and the net proceeds received at the beginning of the four-quarter period. For example, our bank credit agreement permits additional borrowings of up to $207.0 million and all of those borrowings would be senior to the new notes and the guarantees on the new notes. Also, we may issue additional notes that would be equal in right of payment to the new notes. OUR SUBSIDIARIES THAT ARE NOT GUARANTORS HAVE SIGNIFICANT DEBT AND YOUR RIGHT TO RECEIVE PAYMENTS MAY BE ADVERSELY AFFECTED IF ANY NON-GUARANTOR SUBSIDIARY DECLARES BANKRUPTCY Your right to receive payments on the new notes could be adversely affected if any of our non-guarantor subsidiaries declares bankruptcy, liquidates or reorganizes. Some but not all of our subsidiaries guarantee the new notes. In the event of a bankruptcy, liquidation or reorganization of any of the non-guarantor subsidiaries, holders of their debt and their trade creditors will generally be entitled to payment of their claims from the assets of those subsidiaries before any assets are made available for distribution to us. As of December 31, 1998, the old notes were effectively junior to $81.5 million of debt and other liabilities (including trade payables) of these non-guarantor subsidiaries. In addition, an indeterminate amount may be available to those subsidiaries for future borrowing. The non-guarantor subsidiaries generated 10.3% of our consolidated revenues in the year ended December 31, 1998, and held 14.6% of our consolidated assets as of December 31, 1998. Please refer to Note 14 of Mail-Well's consolidated financial statements included elsewhere in this prospectus for additional information concerning guarantor and non-guarantor subsidiaries. FRAUDULENT CONVEYANCE LAWS COULD VOID GUARANTEES Federal and state statutes allow courts, under specific circumstances, to void guarantees and require noteholders to return payments received from guarantors. If a court were to void the guarantee of any of the guarantors, holders of new notes could not look to that guarantor for payments on the new notes. Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee could be voided, or claims in respect of a guarantee could be subordinated to all other debts of that guarantor if, among other things, the guarantor, at the time it incurred the debt evidenced by its guarantee, received less than reasonably equivalent value or fair consideration for the incurrence of such guarantee and: * was insolvent or rendered insolvent by reason of such incurrence; * was engaged in a business or transaction for which the guarantor's remaining assets constituted unreasonably small capital; or * intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature. -13- In addition, any payment by a guarantor of the new notes 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. The measures of insolvency for purposes of these fraudulent transfer laws 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: * the sum of its debt, including contingent liabilities, was greater than the fair saleable value of all of its assets; * the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or * it could not pay its debts as they become due. THE NEW NOTES AND GUARANTEES ARE SUBORDINATED TO SENIOR CREDITORS The new notes and the guarantees of the new notes are unsecured, which means that you have no recourse to specific assets of Mail-Well I Corporation or the guarantors upon any event of default under the indenture. In addition, we may borrow up to $300.0 million under an existing bank credit agreement. Under the terms of the indenture for the new notes, we may borrow additional funds from our banks in the future, subject to important limitations. Your right to be repaid principal and interest on the new notes is secondary to the right of our lenders to be repaid for all current and future borrowings under the bank credit agreement and other senior debt. We may also issue additional senior subordinated debt which will rank equally with your right to be repaid. Your right to be repaid amounts owing under the guarantees of the new notes ranks equally to the rights of other senior subordinated obligations of the guarantors. Under some circumstances, we may also incur secured debt to creditors who will have the right to be repaid out of specific property. If we default on the new notes, become bankrupt, liquidate or reorganize: * from our remaining assets, you would be entitled to be repaid only after any secured creditors have been paid out of proceeds from the sale of their collateral; * from our remaining assets, you would be paid principal and interest on the new notes only after all of our senior debt has been paid; 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 extent that there are sufficient assets to repay the holders of any obligations of Mail-Well I Corporation and its subsidiaries which rank equally with the new notes in right of payment. In addition, all payments on the new notes and the guarantees will be blocked in the event of a payment default on senior debt and may be blocked for up to 365 consecutive days in the event of non-payment default on senior debt. -14- In the event of a bankruptcy, liquidation or reorganization or similar proceeding relating to Mail-Well I Corporation or the guarantors of the new notes, if we have senior debt, the holders of the new notes will participate with all other holders of our subordinated debt in the assets remaining after we have paid all senior debt, including trade and other general creditors. In any of these cases, we may not have sufficient funds to pay all of our creditors in which event holders of new notes would receive less, ratably, than the holders of senior debt. If, at the time of a bankruptcy, liquidation, reorganization or similar proceeding relating to Mail-Well I Corporation or the guarantors, we had no senior debt, holders of the new notes would participate ratably with trade and other general creditors and all other holders of our subordinated debt in our assets. As of December 31, 1998, the old notes and the guarantees of the old notes were subordinated to $139.4 million of senior debt and approximately $207.0 million was available for borrowing as additional senior debt under our bank credit agreement. We will be permitted to borrow substantial additional debt, including senior debt, in the future under the terms of the indenture for the new notes. See "Description of the Notes--Covenants in the Indenture--Incurrence of Debt." WE MAY NOT BE ABLE TO FINANCE A CHANGE OF CONTROL OFFER We may not have the ability to raise the funds necessary to finance the change of control offer required by the indenture for the new notes. Upon the occurrence of certain specific kinds of change of control events, we will be required to offer to repurchase all outstanding notes. However, it is possible that we will not have sufficient funds at the time of the change of control to make the required repurchase of notes, or that restrictions in our bank credit agreement will not allow such repurchases. In addition, certain important corporate events, such as leveraged recapitalizations that would increase the level of our debt, would not constitute a "Change of Control" under the indenture for the new notes. BECAUSE THERE IS NO PUBLIC MARKET FOR THE NEW NOTES, HOLDERS MAY HAVE TO BEAR THE RISKS OF INVESTMENT UNTIL MATURITY The new notes will be a new issue of securities for which there will be a limited trading market. Therefore, holders of the new notes may have to bear the risks of holding the new notes until their maturity. The initial purchasers of the old notes have advised us that they are making a market in the old notes and will do so for the new notes in the over-the-counter market. However, the initial purchasers are not obligated to continue 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-making activities are subject to the limitations imposed by the Securities Act and the Securities Exchange Act of 1934, as amended, and may be limited during this exchange offer. If an active market for the new notes were to develop, the new notes might trade at prices lower than the initial offering price of the old notes. 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. We do not intend to apply for listing or quotation of the new notes on any securities exchange or automated quotation system. -15- THERE ARE CROSS DEFAULT PROVISIONS IN OUR DEBT INSTRUMENTS, SO A DEFAULT UNDER ONE INSTRUMENT COULD CAUSE THE DEBTS UNDER OTHER INSTRUMENTS TO BECOME IMMEDIATELY DUE AND PAYABLE Our bank credit agreement and the indenture for the new notes contain numerous financial and operating covenants and require us to meet certain financial ratios and tests. Our failure to comply with the obligations contained in the bank credit agreement or the indenture could result in an event of default under the bank credit agreement or the indenture, which could result in the related debt and the debt issued under other instruments to become immediately due and payable. In this event, we would need to raise funds through any number of alternative available sources, which funds may not be available on favorable terms, on a timely basis or at all. Alternatively, such a default would require us to sell assets and otherwise curtail operations in order to pay our creditors. WHAT ARE THE RISKS RELATED TO OUR BUSINESS? THE GROWTH OF OUR BUSINESS DEPENDS UPON OUR ABILITY TO ACQUIRE OTHER BUSINESSES AND INTEGRATE THEM INTO OUR OWN We have grown rapidly through acquisitions. Although we believe that our experience in making acquisitions is an important asset, we cannot be certain that current management, personnel and other corporate infrastructure will be adequate to manage continued growth. In addition, to the extent that our continued growth and success depend on making further acquisitions, we cannot be certain that we will be able to continue 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. There may also be increased competition for acquisition candidates, in which event we may have fewer acquisition opportunities available to us, or be faced with the prospect of paying higher prices for target companies, and we may generate less cash flow as a result. In addition, the acquisition of target companies outside of our traditional business of envelope converting and printing may create additional risks due to management's lack of familiarity with new markets and other factors. In particular, should we be able to identify, acquire and successfully integrate acquired businesses into our own, we may incur substantial costs, delays or other operational or financial problems in doing so, and we may not be able to profitably manage them. Furthermore, each particular acquisition may involve a number of special risks, including possible adverse effects on the acquired company's operating results, diversion of management's attention, failure to retain key acquired personnel, unanticipated events or liabilities and amortization of acquired intangible assets, some or all of which could have a material adverse effect on our business, cash flow and profitability. We may finance future acquisitions through any one of the following: * additional debt, under our bank credit agreement or otherwise; * cash from operations; * the issuance of common stock or other securities to the sellers; * the sale of common stock or other securities in public or private offerings; or -16- * any combination of the above. In the event that any of these financing structures are unavailable, our ability to make acquisitions would be limited. We cannot be certain that we will be able to obtain all the financing we will need in the future on satisfactory terms or at all. Our failure to obtain such financing may require us to curtail our growth plans which may in turn make it more difficult for us to repay our debt. THE PRINTING BUSINESS DOES NOT GENERALLY USE LONG-TERM AGREEMENTS, SO REPEAT BUSINESS IS NOT ASSURED 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. Although our business is not dependent upon any one customer or group of customers, we cannot be sure that any particular customer will continue to do business with us for any period of time even though we believe that we have and will continue to have the ability to provide the highest quality printed products and services to our customers. In addition, the timing of particular jobs or types of jobs at particular times of year may cause fluctuations in the operating results of our various printing operations in any given quarter. COMPETITION IN OUR INDUSTRY COULD REDUCE OUR CASH FLOW AND PROFITABILITY The North American printing industry in which we compete is extremely fragmented and highly competitive. In the envelope market, we compete primarily with a few multi-plant and many single-plant companies servicing regional and local markets. In the commercial printing, consumer labels and custom business communications documents printing markets, 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 on volume, price and production quality. We are constantly seeking ways to reduce our costs and become more efficient competitors, and we believe that our consolidation strategy in each of our markets has been and will continue to be successful in achieving these goals. However, we cannot be certain that these efforts will continue to be successful or that our competitors will not be more successful in their similar 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. THE UNITED STATES AND CANADIAN POSTAL SERVICES CAN INDIRECTLY AFFECT OUR BUSINESS Because the great majority of envelopes used in the United States and Canada are sent through the mail, postal rates are a significant factor affecting 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. The U.S. Postal Commission recently approved rate increases of approximately 4% for direct mail and 3% for first class mail, effective January 1999. The Canadian Post Corporation increased the basic postal rate by approximately 6.7% in 1996, contributing to a leveling off of the growth rate of mail sent. The CPC raised rates a further 4.7% in 1998. These postal rate increases are significantly less than the cumulative rate of inflation since the last postal rate increases. We cannot be sure that direct mail marketers will not reduce their volume as a result of these increases. Because -17- rate increases in the U.S. and Canada are largely outside our control, we can provide no assurance that future increases in U.S. and/or Canadian postal 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 or financial position. AN ADVERSE CHANGE IN OUR LABOR RELATIONS COULD ADVERSELY AFFECT OUR BUSINESS As of December 31, 1998, we had approximately 12,100 full-time employees, of whom approximately 3,000 were members of various local labor unions. If 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 cash flow or profitability. CHANGES IN THE COST AND AVAILABILITY OF PAPER MAY ADVERSELY AFFECT OUR BUSINESS The cost of paper represents a significant portion of our cost of materials. Increases in paper costs could have a material adverse effect on our business. Historically, we have been able to maintain gross profit on a dollars per unit basis when paper prices increase by passing paper price increases on to our customers and by receiving increased proceeds from waste paper sales. We cannot be certain, however, that we will be able to continue to pass on future increases in the cost of 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, successive paper price increases during the latter part of 1995 and early 1996 resulted in a decline in demand for our products, particularly from the direct-mail advertising industry. Although we have been successful in negotiating favorable pricing relationships with paper vendors, the overall paper market is largely beyond our control. As a result, we cannot be certain that future paper price increases will not result in decreased volumes and decreased cash flow and profitability. Due to the significance of paper in the manufacture of most of our products, we are dependent upon the availability of paper. During 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 would cause a decrease in the volume of product 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 printing and manufacturing 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. Usage of the Internet and other electronic media continues to grow. Consumers use these 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. We expect the demand for envelopes and other printed materials for these purposes to decline. -18- Although we expect countervailing trends, for example 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, which would result in a decrease in our sales, cash flow and profitability. ENVIRONMENTAL LAWS MAY ADVERSELY AFFECT OUR BUSINESS Our operations are subject to federal, state and local environmental laws and regulations relating to air emissions, waste generation, handling, management and disposal, and at some of our facilities, wastewater treatment and discharge. In addition, some of the sellers from whom we have bought businesses in the past have been designated as potentially responsible parties under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 with respect to off-site disposal of hazardous waste. We believe that we have minimal exposure as a result of such designations, as a result of indemnities obtained in the course of acquisitions or because of the de minimis nature of the claims, or both. We also believe that our current operations are in substantial compliance with applicable environmental laws and regulations. We cannot be certain, however, that currently unknown matters, new laws and regulations, or stricter interpretations of existing laws and regulations will not materially affect our business or operations in the future. WE DEPEND ON KEY MANAGEMENT Our success will continue to depend to a significant extent on our executive officers and other key management personnel. We do not, as a matter of policy, have employment agreements with executive officers. We cannot be certain that we will be able to retain our executive officers and key personnel or attract additional qualified management in the future. In addition, the success of our acquisitions may depend, in part, on our ability to retain management personnel of the acquired companies. We do not carry key-person insurance on any of our managerial personnel. YEAR 2000 ISSUES MAY ADVERSELY AFFECT OUR BUSINESS The Year 2000 issue concerns the potential exposures related to the erroneous generation of business and financial information resulting from the fact that many computer systems and programs use two digits, rather than four, to define the applicable year of business transactions. These programs may not properly recognize a year that begins with "20" instead of the familiar "19," and as a result may process data incorrectly or stop processing data altogether. We rely upon our own and vendor-supplied technology and recognize the potential business risk to our assets and systems associated with the arrival of the Year 2000. We completed an assessment of our existing computer systems in 1997 and have purchased and installed a number of new systems which are Year 2000 compliant. We are conducting an evaluation of actions required to ensure that our remaining computer systems will not be disrupted due to Year 2000 issues. Failure to be Year 2000 compliant could have a material adverse effect on our results of operations, business, prospects and financial condition. All business critical vendors and customers have been identified and contacted for information on their actions to mitigate Year 2000 disruptions. We are in the process of evaluating the information supplied to date and contacting those who have not responded to our inquiries. If Year 2000 issues of our business critical vendors and customers are not addressed satisfactorily, there could be a disruption in -19- our business that may cause a decline in earnings. These theoretical consequences are of a kind and magnitude not unique to us, but are generally shared with other manufacturing companies. Contingency plans will be developed by the third quarter of 1999 to address Year 2000 issues related to our business critical vendors and customers. Although we believe our contingency plans will mitigate the impact of Year 2000 on our business critical systems, there can be no assurance such plans will be successful. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS Some of the statements made in this prospectus are forward-looking in nature and are not statements that are historical facts. The occurrence of the events described, and the achievement of the intended results, depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from those anticipated in any forward-looking statements. Many risks and uncertainties are inherent in the printing industry. Others are more specific to the operations of our company. Many of the significant risks related to our business are described in this prospectus. These include, among others, risks associated with product demand and sales growth rate, ability to obtain assumed productivity savings, quality controls, availability of acquisition opportunities and their related costs, cost savings due to integration and synergies associated with acquisitions, ability to obtain additional financing, interest rates, foreign currency exchange rates, paper and raw material costs, waste paper prices, ability to pass through paper costs to customers, postage rates, changes in the direct mail industry, competition, ability to develop new products, effect on our business resulting from the availability and proliferation of alternative delivery media such as the Internet, labor costs, labor relations and advertising costs. See "Risk Factors." -20- THE EXCHANGE OFFER PURPOSE OF THE EXCHANGE OFFER Mail-Well I Corporation originally issued and sold the $300,000,000 aggregate principal amount of senior subordinated notes due 2008 on December 16, 1998, in an offering that was exempt from registration under the Securities Act 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 December 16, 1998, 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 March 16, 1999, with respect to the $300,000,000 aggregate principal amount of 8 3/4% Series B senior subordinated notes due 2008 offered by this prospectus. We also agreed to use our reasonable best efforts to have the registration statement declared effective within 90 days after March 16, 1999. In addition, we agreed to use our best efforts to cause the registration statement to be effective continuously, 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: * it is not an "affiliate" of Mail-Well I Corporation, as defined in Rule 405 of the Securities Act; * it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the new notes that are issued in the exchange offer; and * it is acquiring the new notes in the exchange offer in its ordinary course of business. Broker-dealers receiving new notes in the exchange offer will have a prospectus delivery requirement with respect to resales of the new notes. 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. Mail- Well, Inc. filed a copy of the registration rights agreement as an exhibit to its Annual Report on Form 10-K for the year ended December 31, 1998. -21- 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 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 this exchange offer must complete and sign the enclosed letter of transmittal, which 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 which are properly tendered on or prior to the expiration date of the exchange offer, _____________, 1999, 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: * the new notes will be registered under the Securities Act and hence the new notes will not bear legends restricting their transfer, and * 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. -22- As of the date of this prospectus, an aggregate of $300,000,000 in principal amount of the old notes is outstanding. This prospectus, together with the letter of transmittal, is first being sent on or about _________________, 1999, 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. 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 I 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. PROCEDURES FOR TENDERING OLD NOTES Your tender to Mail-Well I 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 Street Bank and Trust Company, at the address set forth below under "--Exchange Agent" 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 I 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 -23- 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 which 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 or exchange, in satisfactory form as determined by Mail-Well I 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 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 I 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 I Corporation, proper evidence satisfactory to Mail-Well I 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. -24- 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 Agent" 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 I 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; (b) notice of guaranteed delivery substantially in the form provided by Mail-Well I 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 Nasdaq National Market 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 Nasdaq National Market 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 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. -25- 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-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. 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 which, in our judgment, would reasonably be expected to impair our ability to proceed with the exchange offer has occurred: (1) an action or proceeding has been instituted or threatened in any court or by or before any governmental agency or body with respect to the exchange offer; (2) there has been adopted or enacted any law, statute, rule or regulation; (3) a banking moratorium has been declared by United States federal or New York State authorities; or (4) trading on the New York Stock Exchange or generally in the United States over-the-counter market has been suspended by order of the Commission or any other governmental authority. 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. -26- 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 shall 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 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 Street Bank and Trust Company 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: Delivery to: State Street Bank and Trust Company, Exchange Agent Two International Place, Fourth Floor Boston, Massachusetts 02110 Telecopier No.: (617) 664-5290 Attention: Susan Lavey, Corporate Actions 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 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. -27- 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 I 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 "Taxation." 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: (1) to Mail-Well I 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 I 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. USE OF PROCEEDS We will not receive any proceeds from the issuance of the new notes or the consummation of this exchange offer or any sale of new notes to any broker-dealer. DESCRIPTION OF THE NOTES Mail-Well I Corporation will issue the new notes under an indenture dated December 16, 1998, among itself, the guarantors and State Street Bank and Trust Company, as trustee. The terms of the new -28- notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939. The following description is a summary of the material provisions of the indenture for the old notes and the new notes. The description does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the indenture. We incorporate the indenture into this prospectus by this reference. A copy of the indenture has been filed as an exhibit to Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998. You may obtain a copy of the indenture from the Commission, Mail-Well I Corporation or from any of the initial purchasers of the old notes. BRIEF DESCRIPTION OF THE NEW NOTES AND THE GUARANTEES THE NEW NOTES These new notes: * are identical to the old notes in all material respects, including the guarantees on the notes, except that the new notes are registered under federal securities laws and will not contain any legends restricting their transfer; * are general unsecured obligations of Mail-Well I Corporation; * are subordinated in right of payment to the existing and any future senior debt of Mail-Well I Corporation, including borrowings under Mail-Well I Corporation's bank credit agreement; * are equal in right of payment to any senior subordinated debt incurred by Mail-Well I Corporation in the future; * are senior in right of payment to existing and any future subordinated debt of Mail-Well I Corporation, including existing intercompany subordinated debt from Mail-Well I Corporation to Mail-Well, Inc., that expressly provides by its terms that is subordinated to the new notes; and * are unconditionally guaranteed by the guarantors. THE GUARANTEES The new notes are unconditionally guaranteed on an unsecured senior subordinated basis, jointly and severally, by Mail-Well, Inc. and each of the entities that is not a special purpose financing vehicle, is currently more than 50% owned by Mail-Well I Corporation or its subsidiaries, was formed under the laws of a state of the United States or the District of Columbia, and has its principal place of business within the United States. The following is a list of the subsidiary guarantors as of the date of this prospectus: Graphics Arts Center, Inc. Mail-Well Commercial Printing, Inc. -29- Mail-Well Canada Holdings, Inc. Mail-Well Label Holdings, Inc. Mail-Well Label USA, Inc. Mail-Well West, Inc. Murray Envelope Holdings, Inc. Murray Envelope Corporation N-M Envelope, Inc. National Graphics Company Poser Business Forms, Inc. Wisco II, L.L.C. Wisco Envelope Corp. The following former subsidiaries of Mail-Well I Corporation were guarantors of the old notes, but were merged into Mail-Well I Corporation or one of the subsidiary guarantors on December 31, 1998: Anderson Lithograph Company Armstrong-White, Inc. Barkley, Inc. Denver Forms Company Digital X-Press, Inc. Gould Packaging, Inc. Graphics Illustrated, Inc. Griffin Envelope, Inc. Imperial Litho and Dryography, Inc. John D. Lucas Printing Co. Production Press, Inc. Richtman's Printing of Colorado, LLC Trafton Printing, Inc. The new notes will be guaranteed by each new subsidiary of either 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 a state of the United States or the District of Columbia, and * has its principal place of business within the United States. -30- The guarantees of these new notes: * are general unsecured obligations of each guarantor (the guarantors are Mail-Well, Inc., each subsidiary guarantor and each other subsidiary that executes a note guarantee in the form attached to the indenture); * are subordinated in right of payment to all existing and any future senior debt of each guarantor including guarantees of each guarantor of senior debt of Mail-Well I Corporation; * are equal in right of payment to all existing and any future senior subordinated debt of each guarantor, including guarantees of any future senior subordinated debt of Mail- Well I Corporation; and * are senior in right of payment to any existing and future subordinated debt of each guarantor that expressly provides by its terms that it is subordinated to the guarantee of such guarantor on the new notes. As of December 31, 1998, the old notes and the guarantees on the old notes were subordinated to $139.4 million of senior debt and approximately $207.0 million available under our bank credit agreement. As indicated above and as discussed in detail below under the subheading "Subordination," payments on the new notes and under the guarantees on the new notes will be subordinated to the payment of senior debt. The indenture permits Mail-Well I Corporation and the guarantors to incur additional senior debt. Not all of our subsidiaries will guarantee the new notes. In the event of a bankruptcy, liquidation or reorganization of any of these non-guarantor subsidiaries, these non-guarantor subsidiaries will pay the holders of their debt and their trade creditors before they will be able to distribute any of their assets to us. The non-guarantor subsidiaries generated 10.3% of our consolidated revenues in the year ended December 31, 1998, and held 14.6% of our consolidated assets as of December 31, 1998. PRINCIPAL, MATURITY AND INTEREST Mail-Well I Corporation will issue new notes with an aggregate principal amount of $300 million in exchange for the old notes, which have an aggregate outstanding principal amount of $300 million. Mail- Well I Corporation will issue new notes in denominations of $1,000 and integral multiples of $1,000 in exchange for each $1,000 and integral multiple of $1,000 in old notes. The new notes will mature on December 15, 2008. Interest on the new notes will accrue at the rate of 8 3/4% per year and will be payable semiannually for the preceding six months on June 15 and December 15 commencing on June 15, 1999. Mail-Well I Corporation will make each interest payment to the registered holders of record on the June 1 and December 1 immediately before the next payment date. Interest on the new notes will accrue from the date the old notes were issued 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. -31- NOTE GUARANTEES; RESTRICTIONS ON MAIL-WELL, INC. AND SUBSIDIARIES The guarantors jointly and severally guarantee Mail-Well I Corporation's obligations under the new notes. The new notes will also be guaranteed by each new restricted subsidiary of either Mail-Well I Corporation or Mail-Well, Inc. that is not a special purpose financing vehicle, is a significant subsidiary of either Mail-Well I Corporation or Mail-Well, Inc. formed under the laws of a state of the United States or the District of Columbia, and has its principal place of business within the United States. Each note guarantee will be subordinated to the prior payment in full of all existing and future senior debt of that guarantor and the guarantees of that guarantor of Mail-Well I Corporation's senior debt. Each note guarantee will be equal in rank with all senior subordinated debt of that guarantor and the guarantees of that guarantor of Mail-Well I Corporation's existing and any future senior subordinated debt. The guarantees on the new notes will rank at least on a parity with claims of all unsecured creditors including unsecured trade creditors and tort claimants, other than holders of senior debt, of the respective guarantors; however, because of the subordination provisions of the note guarantees, unless sufficient sums are available to pay the full amounts required under the note guarantees and to pay the unsecured creditors of the respective guarantors, such other unsecured creditors of the guarantors may recover more, ratably, than the holders of the new notes would recover with respect to the guarantees on the new notes. Each guarantor will be prohibited from making payments under its guarantee on the new notes if defaults and certain other events with respect to senior debt of a guarantor have occurred that prohibit the guarantor from making payment on the new notes pursuant to the note guarantees. The obligations of each guarantor under its note guarantee will be limited as necessary to prevent that note guarantee from constituting a fraudulent conveyance under applicable law. See "Risk Factors--What are the Risks Related to the New Notes--Fraudulent Conveyance Matters." Neither Mail-Well, Inc. nor any restricted subsidiary may sell or otherwise dispose of all or substantially all of its assets, or consolidate with or merge with or into another entity, other than another restricted subsidiary, unless: (1) either: (a) Mail-Well, Inc. or restricted subsidiary is the surviving corporation; or (b) the entity formed by or surviving the consolidation or merger or to which a 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 U.S. state or the District of Columbia or the jurisdiction in which the restricted subsidiary is organized; (2) the entity formed by or surviving the consolidation or merger (if other than Mail-Well, Inc., or restricted subsidiary, or the entity to which a sale, assignment, transfer, conveyance or other disposition shall have been made) assumes all the obligations of Mail-Well, Inc. or restricted subsidiary, as applicable, under the note guarantees and the indenture pursuant to agreements reasonably satisfactory to the trustee; (3) immediately after such transaction no default or event of default under the indenture exists; and -32- (4) Mail-Well, Inc., the restricted subsidiary or the other entity formed by or surviving the consolidation or merger will have consolidated net worth immediately after the transaction equal to or greater than the consolidated net worth of Mail-Well, Inc. or the restricted subsidiary immediately preceding the transaction. In addition, neither Mail-Well, Inc. nor any restricted subsidiary may, directly or indirectly, sell or lease all or substantially all of its properties or assets, in one or more related transactions, to any other individual or entity. The note guarantee of a subsidiary guarantor will be released: (1) in connection with any sale or other disposition of all or substantially all of the assets of that subsidiary guarantor, including by way of merger or consolidation, if Mail-Well I Corporation applies the net proceeds of that sale or other disposition in accordance with the applicable provisions of the indenture; or (2) in connection with any sale of all of the capital stock of a subsidiary guarantor, if Mail-Well I Corporation applies the net proceeds of that sale in accordance with the applicable provisions of the indenture. SUBORDINATION The payment of principal, premium, liquidated damages and interest, if any, on the new notes will be subordinated to the prior payment in full of all senior debt of Mail-Well I Corporation. The holders of senior debt will be entitled to receive payment in full of all obligations due in respect of senior debt, including interest after the commencement of any such proceeding at the rate specified in the applicable senior debt, before the registered holders of new notes will be entitled to receive any payment with respect to the new notes, in the event of any distribution to creditors of Mail-Well I Corporation: (1) in a liquidation or dissolution of Mail-Well I Corporation; (2) in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to Mail-Well I Corporation or its property; (3) in an assignment for the benefit of creditors; or (4) in any marshaling of Mail-Well I Corporation's assets and liabilities. Mail-Well I Corporation also may not make any payment in respect of the new notes if: (1) a payment default on 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 the designated senior debt to accelerate its maturity and the trustee receives a payment -33- blockage notice from Mail-Well I Corporation or the holders of any designated senior debt. Payments on the new notes may and shall be resumed: (1) in the case of a payment default, upon the date on which such default is cured or waived; and (2) in case of a nonpayment default, the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which 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 delivered unless and until 365 days have elapsed since the effectiveness 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 days. Mail-Well I Corporation must promptly notify holders of senior debt if payment of the new notes is accelerated because of an event of default under the indenture. As a result of the subordination provisions described above, in the event of a bankruptcy, liquidation or reorganization of Mail-Well I Corporation, registered holders of the new notes may recover less than creditors of Mail-Well I Corporation who are holders of senior debt. The term "designated senior debt" means: (1) all senior debt under Mail-Well I Corporation's and the restricted subsidiaries' credit facilities; and (2) any senior debt permitted under the indenture the principal amount of which is $50 million or more and that has been designated by Mail-Well I Corporation as "designated senior debt." OPTIONAL REDEMPTION The new notes will not be redeemable at Mail-Well I Corporation's option prior to December 15, 2003. After December 15, 2003, Mail-Well I Corporation may redeem all or a part of the new notes 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 on the new notes, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on December 15 of the years indicated below: Year Percentage ---- ---------- 2003 104.375% 2004 102.917% 2005 101.458% 2006 and subsequent 100.000% -34- Notwithstanding the foregoing, prior to December 15, 2001, Mail- Well I Corporation may on any one or more occasions redeem up to 35% of the aggregate principal amount of new notes originally issued under the indenture at a redemption price of 108.75% of their principal amount, plus accrued and unpaid interest to the redemption date, with the net cash proceeds of one or more private or underwritten public offerings of common stock of Mail-Well I Corporation or Mail-Well, Inc. in which the gross proceeds to Mail-Well I Corporation or Mail-Well, Inc., as applicable, are at least $50 million and, in the case of an offering by Mail-Well, Inc., the net proceeds are contributed to Mail-Well I Corporation; provided that: * at least $130 million in aggregate principal amount of new notes remains outstanding immediately after the occurrence of such redemption, excluding new notes held by Mail-Well, Inc., Mail-Well I Corporation and their subsidiaries; and * the redemption must occur within 45 days of the date of the closing of the equity offering. REPURCHASE AT THE OPTION OF HOLDERS CHANGE OF CONTROL If a change of control under the indenture occurs, each holder of new notes will have the right to require Mail-Well I Corporation to repurchase all or any part of that holder's new notes in an amount equal to $1,000 or an integral multiple of $1,000. In a change of control offer, Mail-Well I Corporation will offer cash equal to 101% of the aggregate principal amount of new notes repurchased plus accrued and unpaid interest, if any, to the date of purchase. Within 30 days following any change of control, Mail-Well I Corporation will mail a notice to each holder describing the transaction or transactions that constitute the change of control and offering to repurchase new notes on the date specified in the notice, pursuant to the procedures required by the indenture and described in the notice. Mail-Well I Corporation will comply with the requirements of Rule 14e-l under the Exchange Act and any other securities laws and regulations to the extent such laws and regulations are applicable in connection with the repurchase of the new notes as a result of a change of control. On the payment date for a change of control offer, Mail-Well I Corporation will, to the extent lawful: * accept for payment all new notes or portions of new notes properly tendered pursuant to the change of control offer; * deposit with the paying agent an amount equal to the payment due on all new notes or portions so tendered; and -35- * deliver or cause to be delivered to the trustee the new notes so accepted together with an officers' certificate stating the aggregate principal amount of new notes or portions being purchased by Mail-Well I Corporation. The paying agent will promptly mail to each holder of new notes tendered the payment for such new notes, and the trustee will promptly authenticate and mail, or cause to be transferred by book entry, to each holder a replacement new note equal in principal amount to any unpurchased portion of the new notes surrendered, if any; provided that each such replacement new note will be in a principal amount of $1,000 or an integral multiple of $1,000. Prior to complying with any of the provisions of the change of control covenant, but in any event within 90 days following a change of control, Mail-Well I Corporation will either repay all outstanding senior debt or obtain the requisite consents, if any, under all agreements governing outstanding senior debt to permit the repurchase of new notes required by this covenant. Mail-Well I Corporation will publicly announce the results of the change of control offer on or as soon as practicable after the payment date. The provisions described above that require Mail-Well I Corporation to make an offer for the new notes following a change of control will be applicable regardless of whether or not any other provisions of the indenture are applicable. Except as described above with respect to a change of control, the indenture does not contain provisions that permit the registered holders of the new notes to require that Mail-Well I Corporation repurchase or redeem the new notes in the event of a takeover, recapitalization or similar transaction. In the event a change of control occurs at a time when Mail-Well I Corporation is prohibited from purchasing new notes, Mail-Well I Corporation could seek the consent of its senior lenders to the purchase of new notes or could attempt to refinance the borrowings that contain such prohibition. If Mail-Well I Corporation does not obtain such a consent or repay such borrowings, Mail-Well I Corporation will remain prohibited from purchasing new notes. In such case, Mail-Well I Corporation's failure to purchase tendered new notes would constitute an event of default under the indenture which would, in turn, constitute a default under such senior debt. In such circumstances, the subordination provisions in the indenture would likely restrict payments to the registered holders of new notes. Mail-Well I Corporation will not be required to make an offer for the new notes upon a change of control if a third party makes the offer in the manner, at the times and otherwise in compliance with the requirements set forth in the indenture applicable to a change of control offer made by Mail-Well I Corporation and purchases all new notes validly tendered and not withdrawn under its change of control offer. A "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 Corporation and its subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act) other than a principal or a related party of a principal; -36- (2) the adoption of a plan relating to the liquidation or dissolution of Mail-Well I Corporation; (3) the consummation of any transaction, including, without limitation, any merger or consolidation, the result of which is that any "person," other than the principals and their related parties, becomes the beneficial owner, directly or indirectly, of more than 35% of the voting stock of Mail- Well I Corporation or Mail-Well, Inc., measured by voting power rather than number of shares; (4) the first day on which a majority of the members of the Board of Directors of Mail-Well I Corporation or Mail-Well, Inc. are not individuals who either were members of the Board on the issue date of the old notes or were nominated or elected to the Board with the approval of a majority of the continuing directors; or (5) Mail-Well I Corporation or Mail-Well, Inc. consolidates with, or merges with or into, any entity, or any entity consolidates with, or merges with or into, Mail-Well I Corporation or Mail-Well, Inc., in any such event pursuant to a transaction in which any of the outstanding voting stock of Mail-Well I Corporation or Mail-Well, Inc. is converted into or exchanged for cash, securities or other property, other than any such transaction where the voting stock of Mail-Well I Corporation or Mail-Well, Inc. outstanding immediately prior to such transaction is converted into or exchanged for voting stock or other voting equity interests of the surviving or transferee entity constituting a majority of the outstanding shares of such voting stock or other voting equity interests of such surviving or transferee entity immediately after giving effect to such issuance. The term "principals" means the officers and directors of Mail- Well, Inc. at the issue date of the old notes, their affiliates (as that term is defined under the Exchange Act) and Mail-Well, Inc.'s and Mail- Well I Corporation's Employee Stock Ownership Plan and Trust. The term "related party" with respect to any principal means: (1) any controlling stockholder, 80% or more owned subsidiary, or in the case of an individual, the spouse or any immediate family member of the principal; or (2) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or other individuals or entities beneficially holding an 80% or more controlling interest of which consist of the principal and/or such other individuals or entities, referred to in the immediately preceding clause (1). The term "beneficial owner" has the meaning assigned to it in Rule l3d-3 and Rule l3d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as defined for purposes of Section 13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial ownership of all 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. The above definition of change of control 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 Corporation and -37- its subsidiaries 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 holder of new notes to require Mail-Well I Corporation 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 Corporation and its subsidiaries taken as a whole to another individual, entity or group may be uncertain. ASSET SALES Mail-Well I Corporation will not, and will not permit any of its restricted subsidiaries to, consummate an asset sale unless: (1) Mail-Well I Corporation or the restricted subsidiary, as the case may be, receives consideration at the time of such asset sale at least equal to the fair market value of the assets or equity interests issued or sold or otherwise disposed of; (2) such fair market value is determined by Mail-Well I Corporation's Board of Directors and evidenced by a resolution of the Board of Directors set forth in an officers' certificate delivered to the trustee; and (3) at least 80% of the net proceeds received by Mail-Well I Corporation or such 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 shown on Mail-Well I Corporation's or such restricted subsidiary's most recent balance sheet, other than contingent liabilities and liabilities that are by their terms subordinated to the new notes or any note guarantee, that are used by the transferee of any such assets pursuant to a customary novation agreement that releases Mail-Well I Corporation or such restricted subsidiary from further liability; and (b) any securities, notes or other obligations received by Mail-Well I Corporation or any such restricted subsidiary from such transferee that are contemporaneously converted by Mail-Well I Corporation 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 proceeds from an asset sale, Mail-Well I Corporation, or a restricted subsidiary must apply such net proceeds: (1) by reinvesting in the business of Mail-Well I Corporation or such restricted subsidiary; (2) by repaying outstanding senior debt; or (3) by offering to purchase the new notes at 100% of principal amount, plus accrued and unpaid interest, if any. -38- The term "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 in the ordinary course of business consistent with past practices. However, the sale, lease, conveyance or other disposition of all or substantially all of the assets of Mail-Well I Corporation and its restricted subsidiaries taken as a whole will be governed by the provisions of the indenture described above under the caption "--Change of Control," and/or the provisions described below under the caption "Covenants in the Indenture--Merger, Consolidation or Sale of Assets" and not by the provisions described under this caption; and (2) the issuance of equity interests by any of Mail-Well I Corporation's restricted subsidiaries or the sale of equity interests in any of its subsidiaries, The following items shall not be deemed to be asset sales: (1) any single transaction or series of related transactions that: (a) involves assets having a fair market value of less than $5 million; or (b) results in net proceeds to Mail-Well I Corporation and its restricted subsidiaries of less than $5 million; (2) a transfer of assets between or among Mail-Well I Corporation and its wholly owned restricted subsidiaries; (3) an issuance of equity interests by a wholly owned restricted subsidiary to Mail-Well I Corporation or to another wholly owned restricted subsidiary; and (4) a restricted payment that is permitted by the covenant described above under the caption "Covenants in the Indenture--Restricted Payments." The term "equity interests" means corporate stock or other ownership interests or participations and all warrants, options or other rights to acquire corporate stock or other ownership interests or participations, but excluding any debt security that is convertible into, or exchangeable for, corporate stock or other ownership interests or participations. SELECTION AND NOTICE If less than all of the new notes are to be redeemed at any time, the trustee will select new notes for redemption on a pro rata basis, by lot or by such method as the trustee 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 registered holder of new notes to be redeemed at its registered address. Notices of redemption may not be conditional. If any new note is to be redeemed in part only, the notice of redemption that relates to that new note shall state the portion of the principal amount of the new note to be redeemed. A replacement new note in principal amount equal to the unredeemed portion of the original new note will be issued in the name of the registered holder of the original new note upon cancellation of the original new note. New -39- 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. COVENANTS IN THE INDENTURE RESTRICTED PAYMENTS Mail-Well I Corporation will not, and will not permit any of its restricted subsidiaries to, directly or indirectly: (1) declare or pay any dividend or make any other payment or distribution on account of Mail-Well I Corporation's or any of its restricted subsidiaries' equity interests, including, without limitation, any payment in connection with any merger or consolidation involving Mail-Well I Corporation or any of its restricted subsidiaries, or to the direct or indirect holders of Mail-Well I Corporation's or any of its restricted subsidiaries' equity interests in their capacity as such, other than dividends or distributions payable in equity interests of Mail-Well I Corporation or a restricted subsidiary or to Mail-Well I Corporation or a restricted subsidiary of Mail-Well I Corporation; (2) purchase, redeem or otherwise acquire or retire for value, including, without limitation, in connection with any merger or consolidation involving Mail-Well I Corporation, any equity interests of Mail-Well I Corporation or any direct or indirect parent of Mail-Well I Corporation or any restricted subsidiary of Mail-Well I Corporation, other than any such equity interests owned by Mail-Well I Corporation or any restricted subsidiary of Mail-Well I Corporation; (3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any debt that is of equal rank with or subordinated to the new notes or the note guarantees, other than the new notes or the note guarantees, except a payment of interest or principal at the stated maturity of such debt; or (4) make any Restricted Investment. All the payments and other actions discussed in (1) through (4) above are collectively referred to as "restricted payments," unless immediately before and after the restricted payment: (1) no default or event of default under the indenture shall have occurred and be continuing or would occur as a consequence of the restricted payment; (2) Mail-Well I Corporation, at the time of the restricted payment and after giving pro forma effect to it as if it had been made at the beginning of the applicable four-quarter period, would have been permitted to incur at least $1.00 of additional debt pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption "--Incurrence of Debt"; and (3) such restricted payment, together with the aggregate amount of all other restricted payments made by Mail-Well I Corporation and its restricted subsidiaries after the date -40- of the indenture, excluding restricted payments permitted by clauses (2), (3), (4), (6), (8) and (9) of the next succeeding paragraph, is less than the sum, without duplication, of: (a) 50% of the Consolidated Net Income, minus 100% of any Consolidated Net Loss, of Mail-Well I Corporation since January 1, 1999; plus (b) the aggregate net cash proceeds received after the issue date of the old notes from the sale of equity interests or any debt that is convertible into corporate stock or other ownership interests and has been so converted; plus (c) the aggregate cash received by Mail-Well I Corporation as capital contributions after the issue date of the old notes; plus (d) $15 million. So long as no default under the indenture has occurred and is continuing or would be caused by an event described in this paragraph, the preceding provisions will not prohibit: (1) the payment of any dividend within 60 days after the date it is declared, if at the date of declaration the payment would have complied with the provisions of the indenture; (2) the repurchase, redemption, defeasance, retirement or other acquisition of any equal rank or subordinated debt of Mail- Well I Corporation or any guarantor or of any equity interests of Mail-Well I Corporation or any restricted subsidiary in exchange for, or out of the net cash proceeds of the substantially concurrent sale of, equity interests of Mail-Well I Corporation other than a sale to a subsidiary of Mail-Well I Corporation; (3) the redemption, repurchase, defeasance, retirement or other acquisition of any equal rank or subordinated debt of Mail- Well I Corporation or any guarantor with the net cash proceeds from an incurrence of permitted refinancing indebtedness; (4) the payment of any dividend by a restricted subsidiary of Mail-Well I Corporation to the holders of its common equity interests on a pro rata basis; (5) the repurchase, redemption or other acquisition or retirement for value of any equity interests of Mail-Well, Inc. or Mail-Well I Corporation or any restricted subsidiary of Mail-Well I Corporation held by any member of Mail-Well, Inc.'s or Mail-Well I Corporation's management, or the management of any of Mail-Well I Corporation's subsidiaries, pursuant to any management equity subscription agreement or stock option agreement in effect as of the date of the indenture; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired equity interests shall not exceed $1 million in any twelve-month period; (6) the making of any Restricted Investment, directly or indirectly, out of the net cash proceeds of substantially concurrent sales of equity interests of Mail-Well I Corporation, other than to a subsidiary; -41- (7) the repurchase, redemption, retirement or other acquisition of equity interests of Mail-Well I Corporation or any restricted subsidiary issued, or debt incurred, by Mail-Well I Corporation or any restricted subsidiary in connection with the acquisition of any entity or any assets to the former owners of such entity or assets; and (8) Permitted Payments to Mail-Well, Inc. The amount of all restricted payments other than cash shall be the fair market value on the date of the restricted payment of the asset(s) or securities proposed to be transferred or issued by Mail-Well I Corporation or such restricted subsidiary, as the case may be, pursuant to the 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 Board of Directors whose resolution with respect thereto shall be delivered to the trustee. The Board of 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 $5 million. Not later than 15 days after the end of the fiscal quarter in which any restricted payment is made, Mail-Well I Corporation shall deliver to the trustee an officers' certificate stating that such restricted payment is permitted and setting forth the basis upon which the calculations required by the restricted payments covenant, were computed, together with a copy of any fairness opinion or appraisal required by the indenture. INCURRENCE OF DEBT Mail-Well I Corporation will not, and will not permit any of its restricted subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to any debt, including Acquired Debt; provided, however, that Mail-Well I Corporation and any restricted subsidiary may incur debt, including Acquired Debt, if the Fixed Charge Coverage Ratio for Mail-Well I Corporation's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional debt 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 of the additional debt, as if the additional debt had been incurred at the beginning of the four-quarter period. The term "Acquired Debt" means: * Debt of an entity existing at the time the entity is merged with or into or became a subsidiary of Mail-Well I Corporation or any restricted subsidiary, whether or not such debt is incurred in connection with, or in contemplation of, such entity merging with or into, or becoming a subsidiary of, Mail-Well I Corporation or any restricted subsidiary; and * Debt secured by a lien or other encumbrance encumbering any asset acquired by such entity. -42- The covenant described in the first paragraph of this subsection will not prohibit the incurrence of any of the following items of debt: (1) the incurrence by Mail-Well I Corporation and any restricted subsidiary of the debt under credit facilities; provided that the aggregate principal amount of all debt, under such credit facilities does not exceed an amount equal to $300 million; (2) the incurrence by Mail-Well I Corporation and its subsidiaries of debt existing on the issue date of the old notes; (3) the incurrence by Mail-Well I Corporation and the subsidiary guarantors of debt represented by the new notes and the note guarantees; (4) the incurrence by Mail-Well I Corporation or any of its restricted subsidiaries of debt represented by capital lease obligations, mortgage financings or purchase money obligation, 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 Corporation or such restricted subsidiary, in an aggregate principal amount not to exceed $25 million at any time outstanding; (5) the incurrence by Mail-Well I Corporation or any of its restricted subsidiaries of permitted refinancing indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace, debt (other than intercompany debt) that was permitted by the indenture to be incurred under the first paragraph of this covenant or clause (2) or (3) of this paragraph; (6) the incurrence by Mail-Well I Corporation or any of its restricted subsidiaries of intercompany debt between or among Mail-Well I Corporation and any of its wholly owned restricted subsidiaries; provided, however, that: (a) if Mail-Well I Corporation or any subsidiary guarantor is the obligor on such debt, such debt must be expressly subordinated to the prior payment in full in cash of all obligations with respect to the new notes, in the case of Mail-Well I Corporation, or the note guarantee of such subsidiary guarantor, in the case of a subsidiary guarantor; and (b) (I) any subsequent issuance or transfer of equity interests that results in any such debt being held by an individual or entity other than Mail-Well I Corporation or a wholly owned restricted subsidiary of Mail-Well I Corporation and (II) any sale or other transfer of any such debt to a person that is not either Mail-Well I Corporation or a wholly owned restricted subsidiary of Mail-Well I Corporation, shall be deemed, in each case, to constitute an incurrence of such debt by Mail-Well I Corporation or such restricted subsidiary, as the case may be, that was not permitted by this clause (6); (7) the incurrence by Mail-Well I Corporation or any of its restricted subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate debt that is permitted by the terms of the indenture to be outstanding; -43- (8) the guarantee by Mail-Well I Corporation or any of its restricted subsidiaries of debt of Mail-Well I Corporation or a restricted subsidiary of Mail-Well I Corporation that was permitted to be incurred by another provision of this covenant; (9) the incurrence by Mail-Well I Corporation or any of its restricted subsidiaries of additional debt in an aggregate principal amount or accrued value, as applicable, at any time outstanding, including all permitted refinancing indebtedness incurred to refund, refinance or replace any debt incurred pursuant to this clause (9), not to exceed $50 million; (10) the incurrence by Mail-Well I Corporation's unrestricted subsidiaries of Non-Recourse Debt; provided, however, that if any such debt ceases to be Non-Recourse Debt of an unrestricted subsidiary, such event shall be deemed to constitute an incurrence of debt by a restricted subsidiary of Mail-Well I Corporation that was not permitted by this clause (10); (11) the incurrence by Mail-Well I Corporation or any of its restricted subsidiaries of debt in respect of judgment, appeal, surety, performance and other like bonds, bankers acceptances and letters of credit provided by Mail-Well I Corporation and its subsidiaries in the ordinary course of business (including any debt incurred to refinance, retire, renew, defease, refund or otherwise replace any debt referred to in this clause (11)); and (12) Debt incurred by Mail-Well I Corporation or any of its subsidiaries arising from agreements or their respective bylaws providing for indemnification, adjustment of purchase price or similar obligations, or from guarantees of letters of credit, surety bonds or performance bonds securing the performance of Mail-Well I Corporation or any of its subsidiaries to any individual or entity acquiring all or a portion of such business or assets of a subsidiary of Mail- Well I Corporation for the purpose of financing such acquisition. For purposes of determining compliance with the Incurrence of Debt covenant, in the event that an item of proposed debt meets the criteria of more than one of the categories of permitted debt described in clauses (1) through (12) above, or is entitled to be incurred pursuant to the first paragraph of this covenant, Mail-Well I Corporation will be permitted to classify such item of debt on the date of its incurrence in any manner that complies with this covenant. ANTI-LAYERING Mail-Well I Corporation will not incur, create, issue, assume, guarantee or otherwise become liable for any debt that is subordinate or junior in right of payment to any senior debt of Mail-Well I Corporation 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 debt 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 note guarantee. -44- LIENS Mail-Well I Corporation will not, and will not permit any of its restricted subsidiaries to, directly or indirectly, create, incur, assume or suffer to own any lien or other encumbrance of any kind securing debt, Attributable Debt or trade payables on any asset now owned or acquired in the future, except Permitted Liens. The term "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 Generally Accepted Accounting Principles ("GAAP"). The term "Permitted Liens" means: (1) liens and other encumbrances securing senior debt; (2) liens and other encumbrances in favor of Mail-Well I Corporation or the guarantors; (3) liens and other encumbrances when the new notes are secured by the lien on an equal and ratable basis unless the obligation secured by the lien is subordinate or junior in right of payment to the new notes, in which case the lien securing the obligation must be subordinate and junior to the lien securing the new notes with the same or lesser relative priority as such obligation shall have been with respect to the new notes; (4) liens and other encumbrances on property of an entity existing at the time such entity is merged with or into or consolidated with Mail-Well I Corporation or any restricted subsidiary of Mail-Well I Corporation, provided that the liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the entity merged into or consolidated with Mail-Well I Corporation or the restricted subsidiary; (5) liens and other encumbrances on property existing at the time of acquisition of the property by Mail-Well I Corporation or any restricted subsidiary of Mail-Well I Corporation, provided that the liens were in existence prior to the contemplation of such acquisition; (6) liens and other encumbrances to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (7) liens and other encumbrances to secure debt (including capital lease obligations) permitted by clause (4) of the second paragraph under the caption "--Incurrence of Debt" covering only the assets acquired with such debt; (8) liens and other encumbrances existing on the date of the indenture; (9) liens and other encumbrances on assets of restricted subsidiaries to secure senior debt of such restricted subsidiaries that was permitted by the indenture to be incurred; -45- (10) liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made; (11) liens and other encumbrances incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, old age pension or public liability obligations or to secure the payment or performance of bids, tenders, statutory or regulatory obligations, surety, stay, or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (12) easements, rights-of-way, restrictions, defects or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the business of Mail-Well I Corporation or any of its subsidiaries; (13) purchase money liens, including extensions and renewals; (14) liens and other encumbrances securing reimbursement obligations with respect to letters of credit which encumber only documents and other property relating to such letters of credit and the products and proceeds of the documents and other property; (15) judgment and attachment liens not giving rise to an event of default under the indenture; (16) liens and other encumbrances encumbering deposits made to secure obligations arising from statutory, regulatory, contractual or warranty requirements; (17) liens and other encumbrances arising out of consignment or similar arrangements for the sale of goods; (18) any interest or title of a lessor in property subject to any capital lease obligation or operating lease; (19) statutory liens of landlords and liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith by appropriate proceeding, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect of the liens; (20) liens and other encumbrances upon specific items of inventory or other goods and proceeds of any individual or entity securing such individual's or entity's obligations in respect of bankers' acceptances issued or created for the account of the individual or entity to facilitate the purchase, shipment, or storage of such inventory or other goods; (21) liens and other encumbrances securing Hedge Obligations that are otherwise permitted under the indenture; -46- (22) leases or subleases granted to others that do not materially interfere with the ordinary course of business of Mail-Well I Corporation and its subsidiaries; (23) liens and other encumbrances arising from filing Uniform Commercial Code financing statements regarding leases; (24) liens and other encumbrances in favor of customs and revenue authorities arising as a matter of law to secure payment of custom duties in connection with the importation of goods; (25) liens and other encumbrances in favor of collecting or payor banks having a right of setoff, revocation, refund or chargeback with respect to money or instruments of Mail-Well I Corporation or any subsidiary on deposit with or in possession of the collecting or payor banks; (26) liens and other encumbrances to secure Non-Recourse Debt; and (27) liens and other encumbrances not otherwise permitted by clauses (1) through (26) that are incurred in the ordinary course of business of Mail-Well I Corporation or any subsidiary of Mail-Well I Corporation with respect to obligations that do not exceed $10 million at any one time outstanding. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES Mail-Well I Corporation will not permit any of its restricted subsidiaries to, directly or indirectly, create or permit to exist or become effective any encumbrance or restriction on the ability of any restricted subsidiary to pay dividends or make any other distributions or pay debt to Mail-Well I Corporation or any of Mail-Well I Corporation's restricted subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any debt owed to Mail-Well I Corporation or any of Mail-Well I Corporation's restricted subsidiaries. MERGER, CONSOLIDATION OR SALE OF ASSETS Mail-Well I Corporation may not, directly or indirectly: * consolidate or merge with or into another entity (whether or not Mail-Well I Corporation is the surviving corporation); or * 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 individual or entity; unless: (1) either: (a) Mail-Well I Corporation is the surviving corporation; or -47- (b) the entity formed by or surviving any such consolidation or merger (if other than Mail-Well I Corporation) 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 U.S. state or the District of Columbia; (2) the entity formed by or surviving any such consolidation or merger (if other than Mail-Well I Corporation) or the entity to which such sale, assignment, transfer, conveyance or other disposition shall have been made, expressly assumes all the obligations of Mail-Well I Corporation under the new notes and the indenture pursuant to agreements reasonably satisfactory to the trustee; (3) immediately after such transaction no default or event of default under the indenture exists; and (4) Mail-Well I Corporation or the other entity formed by or surviving any such consolidation or merger: (a) will have consolidated net worth immediately after the transaction equal to or greater than the consolidated net worth of Mail-Well I Corporation immediately preceding the transaction; and (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-quarter period, be permitted to incur at least $1.00 of additional debt pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption "--Incurrence of Debt." In addition, Mail-Well I Corporation may not, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other individual or entity. The "Merger, Consolidation or Sale of Assets" covenant will not apply to a merger, consolidation, sale, assignment, transfer, conveyance or other disposition of assets between or among Mail-Well I Corporation and any of its wholly owned subsidiaries. TRANSACTIONS WITH AFFILIATES Mail-Well I Corporation will not, and will not permit any of its restricted 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 (each, an "Affiliate Transaction"), unless: (1) the Affiliate Transaction is on terms that are no less favorable to Mail-Well I Corporation or the relevant restricted subsidiary than those that would have been obtained in a comparable transaction by Mail-Well I Corporation or such restricted subsidiary with an unrelated individual or entity; and -48- (2) Mail-Well I Corporation delivers to the trustee: (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1 million, a resolution of the Board of Directors set forth in the officers' certificate certifying that the Affiliate Transaction complies with this covenant and that the Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors; and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10 million, an opinion as to the fairness to new note holders of such Affiliate 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 Transactions and, therefore, will not be subject to the provisions of the prior paragraph: * any employment agreement entered into by Mail-Well I Corporation or any of its restricted subsidiaries in the ordinary course of business and consistent with the past practice of Mail-Well I Corporation or such restricted subsidiary; * indemnification agreements permitted by law entered into by Mail-Well I Corporation or any of its restricted subsidiaries with any of its affiliates who are directors, employees or agents of Mail-Well I Corporation or any of its restricted subsidiaries; * transactions between or among Mail-Well I Corporation and/or its restricted subsidiaries; * payment of reasonable directors fees to individuals who are not otherwise affiliates of Mail-Well I Corporation; and * restricted payments that are permitted by the provisions of the indenture described above under the caption "--Restricted Payments." An "affiliate" of any specified entity means any other individual or entity directly or indirectly controlling or controlled by or under direct or indirect common control with the specified entity. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the entity, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting stock or other voting equity interests of an entity shall be deemed to be control. ADDITIONAL SUBSIDIARY GUARANTEES If Mail-Well I Corporation, Mail-Well, Inc. or any restricted subsidiary of Mail-Well I Corporation acquires or creates another restricted subsidiary that is not a special purpose finance vehicle, and such restricted subsidiary is formed under the laws of a state of the United States or the District of Columbia and has its principal place of business within the United States, then when the new restricted subsidiary first becomes a significant subsidiary of Mail-Well I Corporation or Mail-Well, Inc., as -49- applicable, that newly acquired or created restricted subsidiary must become a guarantor and execute a supplemental indenture satisfactory to the trustee and deliver an opinion of counsel to the trustee within 10 business days of the date on which it was acquired or created. DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES As of the issue date of the old notes, all of the subsidiaries of Mail-Well I Corporation that were not special purpose financing vehicles were restricted subsidiaries. The Board of Directors may designate any subsidiary to be an unrestricted subsidiary if that designation would not cause a default under the indenture. If a subsidiary is designated as an unrestricted subsidiary, all outstanding investments owned by Mail-Well I Corporation and its subsidiaries in the subsidiary so designated will be deemed to be an investment made as of the time of the designation and will reduce the amount available for restricted payments under the first paragraph of the covenant described above under the caption "--Restricted Payments" or Permitted Investments, as applicable. All such outstanding investments will be valued at their fair market value at the time of the designation. In addition, the designation will only be permitted if the restricted payment would be permitted at that time and if the subsidiary otherwise meets the definition of an unrestricted subsidiary. The Board of Directors may redesignate any unrestricted subsidiary to be a restricted subsidiary if the redesignation would not cause a default under the indenture. Unrestricted subsidiaries will not be subject to many of the restrictive covenants in the indenture. Unrestricted subsidiaries will not guarantee the new notes. The term "investments" means, with respect to any individual or entity, all investments by the individual or entity in other entities, including affiliates, in the forms of: * direct or indirect loans, including guarantees of debt or other obligations; * advances or capital contributions, excluding commission, travel and similar advances to officers and employees made in the ordinary course of business; * purchases or other acquisitions for consideration of debt; and * equity interests or other securities, together with all items that would be classified as investments on a balance sheet prepared in accordance with GAAP excluding Hedging Obligations. If Mail-Well I Corporation or any restricted subsidiary of Mail-Well I Corporation sells or otherwise disposes of any equity interests of any direct or indirect restricted subsidiary of Mail-Well I Corporation such that, after giving effect to any such sale or disposition, the entity is no longer a restricted subsidiary of Mail- Well I Corporation, Mail-Well I Corporation shall be deemed to have made an investment on the date of any such sale or disposition equal to the fair market value of the equity interests of such restricted subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption "Covenants in the Indenture--Restricted Payments." LIMITATIONS ON ISSUANCES OF GUARANTEES OF DEBT Mail-Well I Corporation will not permit any restricted subsidiary that is not a guarantor of the new notes, directly or indirectly, to guarantee or pledge any assets to secure the payment of any other debt of Mail-Well I Corporation or Mail-Well, Inc. unless the restricted subsidiary simultaneously -50- executes and delivers a supplemental indenture providing for the guarantee of the payment of the new notes by the such restricted subsidiary to the same extent as the guarantee of the other debt, which guarantee shall be senior to or of equal rank with such restricted subsidiary's guarantee of or pledge to secure the other debt, unless the other debt is senior debt, in which case the guarantee of the new notes may be subordinated to the guarantee of the senior debt to the same extent as the new notes are subordinated to the senior debt. Notwithstanding the preceding paragraph, any note guarantee of the new notes provides 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. and Subsidiaries." The form of the note guarantee is attached as an exhibit to the indenture. BUSINESS ACTIVITIES Mail-Well I Corporation will not, and will not permit any restricted subsidiary to, engage in any business other than the printing business generally, including the business conducted by Mail-Well I Corporation and its subsidiaries as of the issue date of the old notes and any other business or businesses ancillary, complementary or related to the printing business. ADVANCES TO SUBSIDIARIES Any advance made by Mail-Well I Corporation to a restricted subsidiary that is not a guarantor will be evidenced by an intercompany note in favor of Mail-Well I Corporation. Each intercompany note will be payable upon demand and will bear interest at the same rate as the new notes. A form of intercompany note is attached as an exhibit to the indenture. PAYMENTS FOR CONSENT Mail-Well I Corporation will not, and will not permit any of its subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any registered holder of new notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the indenture or the new notes unless the consideration is offered to be paid and is paid to all registered holders of the new notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to the consent, waiver or agreement. REPORTS Whether or not required by the Commission, so long as any new notes are outstanding, Mail-Well I Corporation will furnish to the registered holders 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 Corporation were required 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's certified independent accountants; and -51- (2) all current reports that would be required to be filed with the Commission on Form 8-K if Mail-Well I Corporation 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, and 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 Corporation and its subsidiary guarantors separate from the financial condition and results of operations of the other subsidiaries of Mail-Well I Corporation. In addition, whether or not required by the Commission, Mail-Well I Corporation 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. on a consolidated basis under the requirements of the Exchange Act. REGISTRATION RIGHTS; LIQUIDATED DAMAGES Mail-Well I Corporation and the guarantors (the "Obligors") and the initial purchasers of the old notes entered into the registration rights agreement on December 16, 1998. In the registration rights agreement, the Obligors 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) this exchange offer is not permitted by applicable law or Commission policy; (2) this exchange offer is not consummated within 210 days of the issue date of the old notes; or (3) any registered holder of the old notes which are Transfer Restricted Securities notifies Mail-Well I Corporation prior to the 20th business day following the consummation of the exchange offer that: (a) it is prohibited by law or Commission policy from participating in the exchange offer, (b) it may not resell the new notes acquired by it in the exchange offer to the public without delivering a prospectus, and the prospectus contained in the registration statement of which this prospectus is a part is not appropriate or available for such resales by it, or (c) it is a broker-dealer and holds the old notes acquired directly from Mail-Well I Corporation or any of Mail- Well I Corporation's affiliates, -52- then the Obligors: (y) will cause to be filed on or prior to 30 days after the date on which Mail-Well I Corporation determines that it is not required to file the registration statement pursuant to clause (1) above, 30 days after the date on which the obligation specified in clause (2) above becomes not satisfied or 30 days after the date on which Mail-Well I Corporation receives the notice specified in clause (3) above, a shelf registration statement relating to all Transfer Restricted Securities; and (z) will use their best efforts to cause the shelf registration statement to be declared effective under the Securities Act on or prior to 90 days after the date on which the Obligors become obligated to file such shelf registration statement and keep the shelf registration statement effective until the earlier of: (A) the time when the old notes covered by the shelf registration statement can be sold pursuant to Rule 144 without any limitations under clauses (c), (e), (f) and (h) of Rule 144; and (B) three years from the issue date of the old notes. Mail-Well I Corporation will, in the event the shelf registration statement is filed, among other things, provide to each registered holder for whom the shelf registration statement was filed copies of the prospectus which is part of the shelf registration statement, notify each such registered 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 registered holder selling such old notes or new 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 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 indemnification obligations. For the purposes of the registration rights agreement, "Transfer Restricted Securities" means each old note until the earliest of the date on which: (1) the old note is exchanged in the exchange offer and entitled to be resold to the public by the holder without complying with the prospectus delivery requirements of the Securities Act, (2) the old note has been disposed of in accordance with the shelf registration statement, (3) the old note is disposed of by a broker-dealer pursuant to the "Plan of Distribution" contemplated by the registration statement, including delivery of the prospectus, or (4) the old note is distributed to the public pursuant to Rule 144 under the Securities Act. -53- The registration rights agreement provides that: (1) if the Obligors failed to file the registration statement of which this prospectus is a part with the Commission on or prior to the 90th day after the issue date of the old notes, (2) if the registration statement of which this prospectus is a part were not declared effective by the Commission on or prior to the 180th day after the issue date of the old notes, (3) if the exchange offer is not consummated on or before the 30th business day after the registration statement of which this prospectus is a part is declared effective, (4) if obligated to file the shelf registration statement and the Obligors fail to file the shelf registration statement with the Commission on or prior to the 30th business day after the filing obligation arises, but no earlier than 90 days after the issue date of the old notes, (5) if obligated to file a shelf registration statement and the shelf registration statement is not declared effective on or prior to the 90th day after the obligation to file a shelf registration statement arises, but no earlier than 180 days after the issue date of the old notes, or (6) if the registration statement of which this prospectus is a part or the shelf registration statement, as the case may be, is declared effective but later ceases to be effective or useable in connection with resales of the Transfer Restricted Securities, then for such time of non-effectiveness or non-usability (each, a "Registration Default"), the Obligors agree to pay to each registered holder of Transfer Restricted Securities affected by the Registration Default liquidated damages in an amount equal to $0.05 per week per $1,000 in principal amount of Transfer Restricted Securities held by the affected registered holder for each week or portion of a week that the Registration Default continues for the first 90-day period immediately following the occurrence of such Registration Default. The amount of the liquidated damages shall increase by an additional $0.05 per week per $1,000 in principal amount of Transfer Restricted Securities 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 Transfer Restricted Securities. The Obligors shall not be required to pay liquidated damages for more than one Registration Default at any given time. No registered holder of Transfer Restricted Securities will be entitled to receive liquidated damages pursuant to the registration rights agreement unless and until such registered holder has provided certain information to Mail-Well I Corporation for use in connection with the applicable shelf registration statement. Following the cure of all Registration Defaults, the accrual of liquidated damages will cease. All accrued liquidated damages shall be paid by the Obligors to registered holders entitled to liquidated damages in the same manner as interest payments on the old notes on semi-annual damages payment dates which correspond to interest payment dates for the old 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. We incorporate the registration rights agreement into this prospectus by this reference. A copy of the registration rights agreement has been filed as an exhibit to Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998, and is available from Mail-Well I Corporation or the Commission upon request. See "Where You Can Find More Information." -54- EVENTS OF DEFAULT AND REMEDIES Each of the following is an event of default under the indenture: (1) default for 30 days in the payment when due of interest on, or liquidated damages with respect to, the new 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, whether or not prohibited by the subordination provisions of the indenture for the new notes; (3) failure by Mail-Well I Corporation or any of its restricted subsidiaries to comply with the provisions described under the captions "--Change of Control," "--Asset Sales," "--Restricted Payments," "--Incurrence of Debt" or "--Merger, Consolidation or Sale of Assets"; (4) failure by Mail-Well I Corporation or any of its restricted subsidiaries to comply with any of the other agreements in the indenture for 60 days after notice to Mail-Well I Corporation by the trustee or the registered holders of at least 25% in aggregate principal amount of the new notes then outstanding; (5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any debt for money borrowed by Mail-Well I Corporation or any of its restricted subsidiaries (or the payment of which is guaranteed by Mail-Well I Corporation or any of its restricted subsidiaries) whether such debt or guarantee now exists, or is created after the date of the indenture, if that default: (a) is caused by a failure to pay principal of or premium, if any, or interest on such debt prior to the expiration of the grace period provided in such debt on the date of such default; or (b) results in the acceleration of such debt prior to its express maturity, and, in each case, the principal amount of any such debt, together with the principal amount of any other such debt under which there has been a payment default or the maturity of which has been so accelerated, aggregates $10 million or more; (6) failure by Mail-Well I Corporation or any of its restricted subsidiaries to pay final judgments aggregating in excess of $10 million, which judgments are not paid, discharged or stayed for a period of 60 days; (7) except as permitted by the indenture, any note 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, or any person acting on behalf of any guarantor, shall deny or disaffirm its obligations under its note guarantee; and -55- (8) certain events of bankruptcy or insolvency with respect to Mail-Well I Corporation or any of its restricted subsidiaries. In the case of an event of default arising from certain events of bankruptcy or insolvency, with respect to Mail-Well I Corporation, any restricted subsidiary that is a significant subsidiary or any group of restricted subsidiaries that, taken together, would constitute a significant subsidiary, all outstanding new notes will become due and payable immediately without further action or notice. If any other event of default occurs and is continuing, the trustee or the registered holders 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 indenture or the new notes except as provided in the indenture. Subject to limitations, registered holders of a majority in principal amount of the then outstanding new notes may direct the trustee in its exercise of any trust or power. The registered holders of a majority in aggregate principal amount of the new notes then outstanding by notice to the trustee may on behalf of the holders of all of the new notes waive any existing default or event of default and its consequences under the indenture except a continuing default or event of default in the payment of interest on, or the principal of, the new notes. The term "default" under the indenture means any event that is, or with the passage of time or the giving of notice or both would be, an event of default under the indenture. In the case of any event of default occurring under the indenture by reason of any willful action or inaction taken or not taken by or on behalf of Mail-Well I Corporation with the intention of avoiding payment of the premium that Mail-Well I Corporation would have had to pay if Mail-Well I Corporation then had elected to redeem the new notes pursuant to the optional redemption provisions of the indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the new notes. If an event of default occurs under the indenture prior to December 15, 2003, by reason of any willful action or inaction taken or not taken by or on behalf of Mail-Well I Corporation with the intention of avoiding the prohibition on redemption of the new notes prior to December 15, 2003, then the premium specified in the indenture shall also become immediately due and payable to the extent permitted by law upon the acceleration of the new notes. Mail-Well I Corporation is required to deliver to the trustee annually a statement regarding compliance with the indenture. Upon becoming aware of any default or event of default under the indenture, Mail-Well I Corporation is required to deliver to the trustee a statement specifying the default or event of default. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS No director, officer, employee, incorporator or stockholder of Mail-Well I Corporation or any guarantor, as such, shall have any liability for any obligations of our company or the guarantors under the new notes, the indenture, the note guarantees, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each registered holder of new notes by accepting a new note 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. -56- SATISFACTION AND DISCHARGE OF THE INDENTURE Mail-Well I Corporation may terminate its obligations and the obligations of the guarantors under the new notes, the indenture, and the guarantees when: (1) either (A) all outstanding new notes have been delivered to the trustee for cancellation or (B) all such new notes not already delivered to the trustee 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 trustee for the giving of notice of redemption by the trustee in the name and at the expense of Mail-Well I Corporation, and Mail-Well I Corporation has irrevocably deposited or caused to be deposited with the trustee funds in an amount sufficient to pay and discharge the entire debt on the new notes not already delivered to the trustee for cancellation, for principal of and interest to the date of deposit or stated maturity or date of redemption; (2) Mail-Well I Corporation has paid or caused to be paid all sums then due and payable by Mail-Well I Corporation under the indenture; and (3) Mail-Well I Corporation has delivered an officers' certificate and an opinion of counsel relating to compliance with the conditions set forth in the indenture. LEGAL DEFEASANCE AND COVENANT DEFEASANCE Mail-Well I Corporation may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding new notes ("Legal Defeasance"), except for: (1) the rights of registered holders of outstanding new notes to receive payments in respect of the principal of, premium, if any, and interest and liquidated damages on such new notes when such payments are due from the trust referred to below; (2) Mail-Well I Corporation'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, and Mail-Well I Corporation's obligations in connection with the trustee; and (4) the Legal Defeasance provisions of the indenture. In addition, Mail-Well I Corporation may, at its option and at any time, elect to have the obligations of Mail-Well I Corporation released with respect to certain covenants that are described in the indenture ("Covenant Defeasance") and any later failure to comply with such obligations shall not constitute a default or event of default under the indenture with respect to the new notes. In the event Covenant Defeasance occurs, items (3) through (7) described under the caption "Events of Default and Remedies" will no longer constitute an event of default with respect to the new notes. -57- In order to exercise either Legal Defeasance or Covenant Defeasance, (1) Mail-Well I Corporation must irrevocably deposit with the trustee, in trust, for the benefit of the registered holders of the new notes, cash in U.S. dollars, non-callable U.S. government securities or a combination of the two, in amounts that 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 the outstanding new notes on the stated maturity or on the applicable redemption date, as the case may be, and Mail-Well I Corporation must specify whether the new notes are being defeased to maturity or to a particular redemption date; (2) in the case of Legal Defeasance, Mail-Well I Corporation shall deliver to the trustee an opinion of counsel in the United States reasonably acceptable to the trustee confirming that (A) Mail-Well I Corporation has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the issue date of the old notes, there has been a change in the applicable federal income tax law, in either case to the effect that, and based on the applicable ruling or law, the opinion of counsel shall confirm that, the registered holders of the outstanding new notes will not recognize income, gain or loss for federal income tax purposes as a result of the Legal 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 the Legal Defeasance had not occurred; (3) in the case of Covenant Defeasance, Mail-Well I Corporation shall have delivered to the trustee an opinion of counsel in the United States reasonably acceptable to the trustee confirming that the registered holders of the outstanding new notes will not recognize income, gain or loss for federal income tax purposes as a result of the Covenant 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 the Covenant Defeasance had not occurred; (4) no event of default or default under the indenture shall have occurred and be continuing on the date of the deposit, other than an event of default or default resulting from the borrowing of funds to be applied to such deposit; (5) the Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under, Mail-Well I Corporation's bank credit agreement, credit facilities or any other material agreement or instrument (other than the indenture) to which Mail-Well I Corporation or any of its subsidiaries is a party or by which Mail-Well I Corporation or any of its subsidiaries is bound; (6) Mail-Well I Corporation must have delivered to the trustee 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) Mail-Well I Corporation must deliver to the trustee an officers' certificate stating that the deposit was not made by Mail-Well I Corporation with the intent of preferring the registered holders of new notes over the other creditors of Mail-Well I Corporation with the intent of defeating, hindering, delaying or defrauding creditors of Mail-Well I Corporation or others; and -58- (8) Mail-Well I Corporation must deliver to the trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for, in the case of the officers' certificate, (1) through (7) and, in the case of the opinion of counsel, clause (1) with respect to the validity and perfection of the security interest, and clauses (2), (3) and (5) of this paragraph relating to the Legal Defeasance or the Covenant Defeasance, as applicable, have been complied with. AMENDMENT, SUPPLEMENT AND WAIVER Without the consent of each registered holder affected, an amendment or waiver may not with respect to any new notes held by a non-consenting registered holder: (1) reduce the principal amount of new notes whose registered holders must consent to an amendment, supplement or waiver; (2) reduce the principal of or change the fixed maturity of any new note or alter or waive 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"; (3) reduce the rate of or change the time for payment of interest on any new note; (4) waive a default or event of default in the payment of principal or premium, if any, or liquidated damages or interest on the new notes, except a rescission of acceleration of the new notes by the registered holders 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 new note payable in money other than that stated in the new notes; (6) make any change in the provisions of the indenture relating to waivers of past defaults or the rights of registered holders of new notes to receive payments of principal of or premium, if any, or liquidated damages or interest on the new 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"; or (8) release any guarantor from any of its obligations under its note guarantee or the indenture, or amend the provisions of the indenture relating to the release of guarantors; or (9) make any change in the preceding amendment and waiver provisions. In addition, any amendment to, or waiver of, the provisions of the indenture relating to subordination that adversely affects the rights of the registered holders of the new notes will require the consent of the registered holders of at least 75% in aggregate principal amount of new notes then outstanding. -59- Notwithstanding the preceding, without the consent of any registered holder of new notes, Mail-Well I Corporation and the trustee may amend or supplement the indenture 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's obligations to registered holders of new notes in the case of a merger or consolidation or sale of all or substantially all of Mail-Well I Corporation's assets; (4) to make any change that would provide any additional rights or benefits to the registered holders of new notes or that does not adversely affect the legal rights under the indenture of any such registered holder; or (5) to comply with requirements of the Commission in order to effect or maintain the qualification of the indenture under the Trust Indenture Act. CONCERNING THE TRUSTEE If the trustee becomes a creditor of Mail-Well I Corporation or any guarantor, the indenture limits its right to obtain payment of claims in certain cases, or to realize on certain property received in aspect 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. The registered holders of a majority in principal amount of the then outstanding new notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the trustee, subject to exceptions. The indenture provides that in case an event of default shall occur and be continuing, the trustee will be required, in the exercise of its power, to use the degree of care of a prudent person the conduct of his own affairs. Subject to such provisions, the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request of any registered holder of new notes, unless such registered holder shall have offered to the trustee security and indemnity satisfactory to it against any loss, liability or expense. METHODS OF RECEIVING PAYMENTS ON THE NEW NOTES If a registered holder has given wire transfer instructions to Mail-Well I Corporation, Mail-Well I Corporation will make all principal, premium, liquidated damages 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 paying agent and registrar within the City and State of New York unless Mail-Well I Corporation elects to make interest payments by check mailed to the registered holders at their address set forth in the register of registered holders. -60- PAYING AGENT AND REGISTRAR FOR THE NEW NOTES The trustee will initially act as paying agent and registrar. Mail-Well I Corporation may change the paying agent or registrar without prior notice to the registered holders of the new notes, and Mail-Well I Corporation or any of its subsidiaries may act as paying agent or registrar. BOOK-ENTRY; DELIVERY; FORM AND TRANSFER The new notes initially will be in the form of one or more registered global notes without interest coupons (collectively, the "Global Notes"). Upon issuance, the Global Notes will be deposited with the trustee, as custodian for The Depository Trust Company in New York, New York and registered in the name of DTC or its nominee for credit to the accounts of DTC's Direct Participants and Indirect Participants (each as defined). The Global Notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor DTC or its nominee in certain limited circumstances. Beneficial interests in the Global Notes may be exchanged for new notes in certificated form in certain limited circumstances. See "--Transfer of Interests in Global Notes for Certificated 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. DEPOSITARY PROCEDURES DTC has advised Mail-Well I Corporation that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Direct Participants") and to facilitate the clearance and settlement of transactions in those securities between Direct Participants through electronic book-entry changes in accounts of participants. The Direct Participants include securities brokers and dealers (including the initial purchasers of the old notes), banks, trust companies, clearing corporations and certain other organizations, including the Euroclear System ("Euroclear") and CEDEL Bank, societe anonyme ("CEDEL"). Access to DTC's system is also available to other entities that clear through or maintain a direct or indirect, custodial relationship with a Direct Participant (collectively, the "Indirect Participants"). DTC may hold securities beneficially owned by other persons only through the Direct Participants or Indirect Participants and such other person's ownership interest and transfer of ownership interest will be recorded only on the records of the Direct Participant and/or Indirect Participant and not on the records maintained by DTC. DTC has also advised Mail-Well I Corporation that, pursuant to DTC's procedures, (1) upon deposit of the Global Notes, DTC will credit the accounts of Direct Participants with portions of the principal amount of the Global Notes allocated to them by the initial purchasers, and (2) DTC will maintain records of the ownership interests of such Direct Participants in the Global Notes and the transfer of ownership interests by and between Direct Participants. DTC will not maintain records of the ownership interests of, or the transfer of ownership interests by and between, Indirect Participants or other owners of beneficial interests in the Global Notes. Direct Participants and Indirect Participants must maintain their own records of the ownership interests of, and the transfer of ownership interests by -61- and between, Indirect Participants and other owners of beneficial interests in the Global Notes. Mail-Well I Corporation expects that payments by Direct Participants to owners of beneficial interests in such Global Notes held through the Direct Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the name of nominees for such customers. These payments will be the responsibility of the applicable Direct Participants. Investors in the Global Notes may hold their interests in the Global Notes directly through DTC if they are Direct Participants in DTC or indirectly through organizations that are Direct Participants in DTC. Euroclear and CEDEL will hold interests in the Global Notes on behalf of their participants through customers' securities accounts in their respective names on the books of their respective depositaries, which are Morgan Guaranty Trust Company of New York, Brussels office, as operator and depositary of Euroclear, and Citibank, N.A. as the operator and depositary of CEDEL (each a "Nominee" of Euroclear and CEDEL, respectively). The depositaries, in turn, will hold the interests in the Global Notes in customers' securities accounts in the depositaries' names on the books of DTC. All ownership interests in any Global Notes, including those of customers' securities accounts held through Euroclear or CEDEL, may be subject to the procedures and requirements of DTC. The laws of some states in the United States require that certain persons take physical delivery in definitive, certificated form, of securities that they own. This may limit or curtail the ability to transfer beneficial interests in a Global Note to these persons. Because DTC can act only on behalf of Direct Participants, which in turn act on behalf of Indirect Participants and others, the ability of a person having a beneficial interest in a Global Note to pledge that interest to persons or entities that are not Direct participants in DTC, or to otherwise take actions in respect of that interest, may be affected by the lack of physical certificates evidencing the interest. For certain other restrictions on the transferability of the new notes see "--Transfers of Interests in Global Notes for Certificated Notes." EXCEPT AS DESCRIBED IN "--TRANSFERS OF INTEREST IN GLOBAL NOTES FOR CERTIFICATED NOTES," OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL 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 OF NEW NOTES UNDER THE INDENTURE FOR ANY PURPOSE. Under the terms of the indenture, Mail-Well I Corporation, the guarantors and the trustee will treat the persons in whose names the new notes are registered, including new notes represented by Global Notes, as the owners of the new notes for the purpose of receiving payments and for any and all other purposes whatsoever. Payments in respect of the principal, premium, liquidated damages, if any, and interest on Global Notes registered in the name of DTC or its nominee will be payable by the trustee to DTC or its nominee as the registered holder under the indenture. Consequently, none of Mail-Well I Corporation, the guarantors, the trustee or any agent of Mail-Well I Corporation, the guarantors or the trustee has or will have any responsibility or liability for: (1) any aspect of DTC's records or any Direct Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interests in the Global Note or for maintaining, supervising or reviewing any of DTC's records or any Direct Participant's or Indirect Participant's records relating to the beneficial ownership interests in any Global Note; or -62- (2) any other matter relating to the actions and practices of DTC or any of its Direct Participants or Indirect Participants. DTC has advised Mail-Well I Corporation that its current payment practice for payments of principal, interest and the like, with respect to securities such as the new notes is to credit the accounts of the relevant Direct Participants with such payment on the payment date in amounts proportionate to the Direct Participants' respective ownership interests in the Global Notes as shown on DTC's records. Payments by Direct Participants and Indirect Participants to the beneficial owners of the new notes will be governed by standing instructions and customary practices between them and will not be the responsibility of DTC, the trustee, Mail-Well I Corporation or the guarantors. None of Mail-Well I Corporation, the guarantors or the trustee will be liable for any delay by DTC or its Direct Participants or Indirect Participants in identifying the beneficial owners of the new notes, and Mail-Well I Corporation and the trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee as the registered owner of the new notes for all purposes. The Global Notes will trade in DTC's Same-Day Funds Settlement System and, therefore, transfers between Direct Participants in DTC will be effected in accordance with DTC's procedures, and will be settled in immediately available funds. Transfers between Indirect Participants (other than Indirect Participants who hold an interest in the new notes through Euroclear or CEDEL) who hold an interest through a Direct Participant will be effected in accordance with the procedures of such Direct Participant but generally will settle in immediately available funds. Transfers between and among Indirect Participants who hold interests in the new notes through Euroclear and CEDEL will be effected in the ordinary way in accordance with their respective rules and operating procedures. Cross-market transfers between Direct Participants in DTC, on the one hand, and Indirect Participants who hold interests in the new notes through Euroclear or 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 (Brussels time for Euroclear and U.K. time for CEDEL). Indirect Participants who hold 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 Mail-Well I Corporation that it will take any action permitted to be taken by a holder of new notes only at the direction of one or more Direct Participants to whose account interest in -63- the Global Notes are credited and only in respect of the portion of the aggregate principal amount of the new notes to which the Direct Participant or Direct Participants has or have given direction. However, if there is an event of default under the new notes, DTC reserves the right to exchange Global Notes for new notes in certificated form without the direction of one or more of its Direct Participants, and to distribute the certificated forms of new notes to its Direct Participants. See "--Transfers of Interests in Global Notes for Certificated Notes." Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures to facilitate transfers of interest in the Global Notes among Direct Participants, including Euroclear and CEDEL, they are under no obligation to perform or to continue to perform the procedures, and the procedures may be discontinued at any time. None of Mail-Well I Corporation, the guarantors, the initial purchasers or the trustee shall have any responsibility for the performance by DTC, Euroclear or CEDEL or their respective Direct Participants and Indirect Participants of their respective obligations under the rules and procedures governing any of their operations. The information in this section concerning DTC, Euroclear and CEDEL and their book-entry systems has been obtained from sources that Mail-Well I Corporation believes to be reliable, but Mail-Well I Corporation takes no responsibility for the accuracy of the information. TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES An entire Global Note may be exchanged for definitive new notes in registered, certificated form with interest coupons ("Certificated Notes") if: (1) DTC (a) notifies Mail-Well I Corporation that it is unwilling or unable to continue as depositary for the Global Notes and Mail-Well I Corporation fails to appoint a successor depositary within 90 days, or (b) has ceased to be a clearing agency registered under the Exchange Act; (2) Mail-Well I Corporation, at its option, notifies that trustee in writing that it elects to cause the issuance of Certificated Notes; or (3) there shall have occurred and be continuing a default or an event of default with respect to the new notes. In any of these cases, Mail-Well I Corporation will notify the trustee in writing that, upon surrender by the Direct Participants and Indirect Participants of their interest in the Global Note, Certificated Notes will be issued to each person that the Direct Participants and Indirect Participants and the DTC identify as being the beneficial owner of the related new notes. Beneficial interests in Global Notes held by any Direct Participants or Indirect Participant may be exchanged for Certificated Notes upon request to DTC, by such Direct Participant for itself or on behalf of an Indirect Participant, to the trustee in accordance with customary DTC procedures. Certificated Notes delivered in exchange for any beneficial interests in any Global Note will be -64- registered in the names, and issued in any approved denominations, requested by DTC on behalf of the Direct Participants or Indirect Participants, in accordance with DTC's customary procedures. None of Mail-Well I Corporation, the guarantors or the trustee will be liable for any delay by the holder of any Global Note or DTC in identifying the beneficial owners of new notes, and Mail-Well I Corporation and the trustee may conclusively rely on, and will be protected in relying on, instructions from the holder of the Global Note or DTC for all purposes. SAME DAY SETTLEMENT AND PAYMENT The indenture requires that payments in respect of the new notes represented by the Global Notes (including principal, premium, if any, interest and liquidated damages, if any) be made by wire transfer of immediately available same day funds to the accounts specified by the registered holder of interests in the Global Note. With respect to Certificated Notes, Mail-Well I Corporation will make all payments of principal, premium, if any, interest and liquidated damages, if any, by wire transfer of immediately available same day funds to the accounts specified by the registered holders of Certificated Notes or, if no such account is specified, by mailing a check to each such registered holder's registered address. Mail-Well I Corporation expects that secondary trading in the Certificated Notes will also be settled in immediately available funds. DEFINITIONS IN THE INDENTURE Set forth below are certain defined terms used in this prospectus. Reference is made to the indenture for a full disclosure of all terms, as well as any other capitalized terms used in this prospectus for which no definition is provided. "Consolidated Cash Flow" means, with respect to any entity for any period, the Consolidated Net Income of such entity for such period plus: (1) an amount equal to any extraordinary loss plus any net loss realized in connection with an asset sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus (2) provision for taxes based on income or profits of such entity and its subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus (3) consolidated interest expense of such entity and its subsidiaries 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 lease obligations, imputed interest with aspect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments, if any, pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income; plus -65- (4) depreciation, amortization (including amortization of goodwill and other intangibles) and other non-cash expenses of such entity and its subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus (5) non-cash items increasing such Consolidated Net Income for such period, other than items that were accrued in the ordinary course of business, in each case, on a consolidated basis and determined in accordance with GAAP. 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 subsidiary of Mail-Well I Corporation shall be added to Consolidated Net Income to compute Consolidated Cash Flow of Mail-Well I Corporation only to the extent that a corresponding amount would be permitted at the date of determination to be dividended to Mail-Well I Corporation by such subsidiary 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 subsidiary or its stockholders. "Consolidated Net Income" means, with respect to any specified entity for any period, the aggregate of the Net Income of such entity and its restricted subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that: (1) the Net Income, but not loss, of any entity that is not a restricted 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 entity or a wholly owned subsidiary of the entity; (2) the Net Income of any restricted subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that restricted subsidiary of that Net 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, judgment, decree, order, statute, rule or governmental regulation applicable to that restricted subsidiary or its stockholders; (3) the Net Income of any entity acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded; (4) the Net Income, but not loss, of any unrestricted subsidiary shall be excluded, whether or not distributed to the specified entity or one of its subsidiaries; and (5) the cumulative effect of a change in accounting principles shall be excluded. "Fixed Charges" means, with respect to any entity for any period, the sum, without duplication, of: (1) the consolidated interest expense of such entity and its restricted subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest -66- component of any deferred payment obligations, the interest component of all payments associated with capital lease obligations, imputed interest with respect to Attributable Debt, commissions, discounts, and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments, if any, pursuant to Hedging Obligations; plus (2) the consolidated interest expense of such entity and its restricted subsidiaries that was capitalized during such period; plus (3) any interest expense on debt of another entity that is guaranteed by such entity or one of its restricted subsidiaries or secured by a lien or other encumbrance on assets of such entity or one of its restricted subsidiaries, whether or not such guarantee or lien is called upon; plus (4) all cash dividend payments on any series of preferred stock of such entity or any of its restricted subsidiaries. "Fixed Charge Coverage Ratio" means, with respect to any specified entity for any period, the ratio of the Consolidated Cash Flow of such entity and its restricted subsidiaries for such period to the Fixed Charges of such entity for such period. In the event that the specified entity or any of its restricted subsidiaries incurs, assumes, guarantees or redeems any debt, other than revolving credit borrowings, or issues or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee or redemption of debt, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of calculating the Fixed Charge Coverage Ratio: (1) acquisitions that have been made by the specified entity or any of its restricted subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (3) of the proviso set forth in the definition of Consolidated Net Income; (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded; and (3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified entity or any of its restricted subsidiaries following the Calculation Date. -67- "Hedging Obligations" means, with respect to any individual or entity, the obligations of such individual or entity under: (1) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements; and (2) other agreements or arrangements designed to protect such individual or entity against fluctuations in interest rates or the value of currencies purchased or received by such individual or entity in the ordinary course of business. "Net Income" means, with respect to any entity, the net income (loss) of such entity and its restricted subsidiaries, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however: (1) any gain, but not loss, together with any related provision for taxes on such gain, but not loss, realized in connection with: (a) any asset sale; or (b) the disposition of any securities by such entity or any of its restricted subsidiaries or the extinguishment of any debt of such entity or any of its restricted subsidiaries; and (2) any extraordinary or nonrecurring gain, but not loss, together with any related provision for taxes on such extraordinary or nonrecurring gain, but not loss. "Non-Recourse Debt" means debt: (1) as to which neither Mail-Well I Corporation nor any of its restricted subsidiaries (a) provides credit support of any kind, including any undertaking, agreement or instrument that would constitute debt; (b) is directly or indirectly liable as a guarantor or otherwise; or (c) constitutes the lender; (2) no default with respect to which (including any rights that the holders of the debt may have to take enforcement action against an unrestricted subsidiary) would permit upon notice, lapse of time or both any holder of any other debt, other than the new notes, of Mail-Well I Corporation or any of its restricted subsidiaries to declare a default on the other debt or cause the payment of the other debt to be accelerated or payable prior to its stated maturity; and (3) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of Mail-Well I Corporation or any of its restricted subsidiaries. -68- "Permitted Investments" means: (1) any investment in Mail-Well I Corporation or in a restricted subsidiary of Mail-Well I Corporation; (2) any investment in Cash Equivalents; (3) any investment by Mail-Well I Corporation or any restricted subsidiary of Mail-Well I Corporation in an entity if as a result of such investment: (a) such entity becomes a restricted subsidiary of Mail-Well I Corporation; or (b) such entity is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, Mail-Well I Corporation or a restricted subsidiary of Mail-Well I Corporation; (4) any investment made as a result of the receipt of non-cash consideration from an asset sale that was made pursuant to and in compliance with the covenant described above under the caption "--Repurchase at the Option of Holder--Asset Sales"; (5) investments existing as of the issue date of the old notes; (6) any acquisition of assets solely in exchange for the issuance of equity interests of Mail-Well I Corporation; (7) accounts receivable, endorsements for collection, deposits or similar investments arising in the ordinary course of business; (8) any investment by Mail-Well I Corporation or a restricted subsidiary in assets of a company engaged in the printing business or a related business, or assets to be used in the printing business or a related business; (9) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to Mail-Well I Corporation or any subsidiary or in satisfaction of judgments; (10) the acceptance of notes payable from employees of Mail-Well I Corporation or its subsidiaries in payment for the purchase of capital stock by such employees; and (11) any other investment in any entity having an aggregate fair market value (measured on the date each such investment was made and without giving effect to subsequent changes in value), when taken together with all other investments made pursuant to this clause (11) since the date of the issue date of the old notes and existing at the time such investment was made, did not exceed $25 million. "Permitted Payments to Mail-Well, Inc." means (1) payments to Mail-Well, Inc. in an amount sufficient to permit Mail-Well, Inc. to pay reasonable and necessary operating expenses and other general corporate expenses to the extent such expenses relate or are fairly allocable to Mail-Well I Corporation and its -69- subsidiaries including any reasonable professional fees and expenses not in excess of $1 million in the aggregate during any consecutive 12-month period; and (2) payment to Mail-Well, Inc. to enable Mail-Well, Inc. to pay foreign, federal, state or local tax liabilities ("Tax Payment"), not to exceed the amount of any tax liabilities that would be otherwise payable by Mail-Well I Corporation and its subsidiaries to the appropriate taxing authorities if they filed separate tax returns, to the extent that Mail- Well, Inc. has an obligation to pay such tax liabilities relating to the operations, assets or capital of Mail-Well I Corporation or its subsidiaries; provided, however that: (a) notwithstanding the foregoing, in the case of determining the amount of a Tax Payment that is permitted to be paid by Mail-Well I Corporation and any of its U.S. subsidiaries in respect of their Federal income tax liability, such payment shall be determined assuming that Mail-Well I Corporation is Mail-Well, Inc. of an affiliated group (the "Company Affiliated Group") filing a consolidated federal income tax return and that Mail-Well, Inc. and each such U.S. subsidiary is a member of Mail-Well I Corporation's Affiliated Group; and (b) any Tax Payments shall either by used by Mail-Well, Inc. to pay such tax liabilities within 90 days of Mail-Well, Inc.'s receipt of such payment or refunded to the party from whom Mail-Well, Inc. received such payments. "Permitted refinancing indebtedness" means any debt of Mail-Well I Corporation any of its restricted subsidiaries issued in exchange for, or the net of which are used to extend, refinance, renew, replace, defease or refund other debt of Mail-Well I Corporation or any of its Restricted (other than intercompany) Indebtedness; provided that: (1) the principal amount (or accreted value, if applicable) of such permitted refinancing indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on the debt so extended, refinanced, renewed, replaced, defeased or refunded, plus the amount of reasonable expenses incurred in connection with the debt including premiums paid, if any, to the holders of the debt; (2) such permitted refinancing indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the debt being extended, refinanced, renewed, replaced, defeased or refunded; (3) if the debt being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the new notes, such permitted refinancing indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the new notes on terms at least as favorable to the registered holders of new notes as those contained in the documentation governing the debt being extended, refinanced, renewed, replaced, defeased or refunded; and (4) such debt is incurred either by Mail-Well I Corporation or by the restricted subsidiary who is the obligor on the debt being extended, refinanced, renewed, replaced, defeased or refunded. -70- "Restricted Investment" means an investment other than a Permitted Investment. "Weighted Average Life to Maturity" means, when applied to any debt at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the debt, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (2) the then outstanding principal amount of such debt. -71- PLAN OF DISTRIBUTION Each broker-dealer that receives new notes for its own account pursuant to this exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of the new notes. A broker- dealer may use this prospectus, as it may be amended or supplemented from time to time, in connection with resales of new notes received in exchange for old notes where such old notes were acquired as a result of market-making activities or other trading activities. Mail-Well I Corporation has agreed to make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. Mail-Well I Corporation will not receive any proceeds from any sale of new notes by any broker-dealer. New notes received by broker- dealers for their own account pursuant to this exchange offer may be sold from time to time in one or more transactions in the following manners: * in the over-the-counter market * in negotiated transactions * through the writing of options on the new notes * through a combination of such methods of resale. The sales may be at any of the following prices: * market prices prevailing at the time of resale * prices related to such prevailing market prices * negotiated prices. Any resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such new notes. Any broker-dealer that resells new notes that were received by it for its own account pursuant to this exchange offer and any broker or dealer that participates in a distribution of such new notes may be deemed to be an "underwriter" within the meaning of the Securities Act. Any profit on any such resale of new notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver 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. Mail-Well I Corporation has agreed to send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the letter of transmittal. Mail-Well I Corporation has agreed to pay all expenses incident to Mail-Well I Corporation's performance of, or compliance with, the registration rights agreement and all expenses incident to this exchange offer (including the expenses of one counsel for the registered holders of the old notes) other than commissions or concessions of any brokers or dealers, and will indemnify the -72- registered holders (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. Mail-Well I Corporation has not entered into any arrangements or understandings with any person to distribute the new notes to be received in this exchange offer. There is no existing market for the new notes and although the new notes will be traded in the over-the-counter market, there can be no assurance as to the liquidity of any market that may develop for the new notes, the ability of the holders of the new notes to sell their new notes or the price at which holders would be able to sell their new notes. Future trading prices of the new notes will depend on many factors, including, among other things: * prevailing interest rates * Mail-Well I Corporation's operating results * the market for similar securities. Mail-Well I Corporation has been advised by the initial purchasers of the old notes that the initial purchasers are making a market in the old notes, and intend to make a market in the new notes, subject to the limits imposed by the Securities Act and the Exchange Act; however, they are not obligated to do so, and may discontinue such market-making at any time without notice. Therefore, no assurance can be given as to the liquidity of the trading market for the new notes. In addition, such market-making activities may be limited during the exchange offer and the pendency of any shelf registration statement relating to the new notes. This prospectus does not constitute an offer to purchase or a solicitation of an offer to sell any of the new notes in any jurisdiction in which such an offer or a solicitation is unlawful. -73- TAXATION The following discussion is a summary of certain of the expected material United States federal income tax considerations with respect to the new notes relevant to each registered holder who, except as noted below, is a U.S. Holder of the old notes, and who: (1) purchased the old notes from Mail-Well I Corporation for cash, (2) exchanges the old notes for new notes in this exchange offer, and (3) holds the old notes and the new notes as capital assets. The term "U.S. Holder" means a beneficial owner of a new note that is, for U.S. federal income tax purposes, (1) an individual who is a citizen or resident of the United States, (2) a corporation or other entity taxable as a corporation created or organized in the United States or under the laws of the United States or of any U.S. state or the District of Columbia, (3) an estate the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source or (4) a trust if a U.S. court is able to exercise primary supervision over the trust's administration and one or more U.S. persons have authority to control all substantial decisions of such trust. This discussion does not purport to deal with the tax consequences of owning the new notes to all categories of investors, some of which (such as insurance companies, tax-exempt organizations, financial institutions, dealers in securities, investors who own 5% or more of our shares, and investors whose functional currency is not the U.S. dollar) may be subject to special rules. We advise prospective holders of new notes to consult their own tax advisors concerning the overall tax consequences arising in their own particular situations under U.S. federal, state, local or foreign law of the ownership of the new notes. FEDERAL INCOME TAX CONSIDERATIONS This discussion is based on currently existing provisions of the Internal Revenue Code of 1986, as amended, existing, temporary and proposed Treasury regulations promulgated under the I.R.C., and administrative and judicial interpretations of the I.R.C. and the regulations under it, all as in effect or proposed on the date of this prospectus and all of which are subject to change, possibly with retroactive effect, or different interpretations. This discussion does not address the tax consequences to subsequent purchasers of new notes and is limited to purchasers who hold the new notes as capital assets within the meaning of section 1221 of the I.R.C. Moreover, this discussion is for general information only and does not address all of the tax consequences that may be relevant to particular registered holders in light of their personal circumstances (including, for example, persons subject to the alternative minimum tax provisions of the I.R.C.), or to certain types of initial purchasers (such as certain financial institutions, -74- insurance companies, tax-exempt entities, dealers in securities, persons holding new notes as part of a hedging or conversion transaction, straddle or other risk reduction transactions or U.S. expatriates or persons who have hedged the risk of owning a senior note) and purchasers whose functional currency is not U.S. dollars. This discussion also does not address any aspect of foreign, state or local tax law, or U.S. federal estate and gift tax law. Holders are urged to consult their own tax advisors as to the particular tax consequences to them of the exchange, ownership and disposition of the new notes, including the applicability of any U.S. federal tax laws or any foreign, state or local tax laws, and any changes (or proposed changes) in applicable tax laws or interpretations of them. U.S. FEDERAL INCOME TAXATION OF THE EXCHANGE OF OLD NOTES FOR NEW NOTES The federal income tax regulations provide that gain or loss is realized on the sale of property or on the "exchange of property for other property differing materially, either in kind or in extent." Treas. Reg. Section 1.1001-1(a). Earlier this decade, the United State Supreme Court reviewed this regulation in Cottage Savings Association v. Commissioner, 499 U.S. 554 ------------------------------------------- (1991). In Cottage, a savings and loan association engaged in a series ------- of purchases and sales of mortgage participation interests. In each transaction, the taxpayer sold mortgage participation interests to another financial institution and purchased substantially identical mortgage participation interests from the other institution. Although cast as sales and purchases, the holders exchanged mortgage participation interests. The taxpayer treated the exchanges as realization events under section 1001 of the I.R.C. and claimed losses. The I.R.S. sought to disallow the losses on the ground that the exchanged properties were economically equivalent and thus did not differ materially within the meaning of Section 1.1001-1(a) of the regulations. The Court held that the taxpayer had realized a loss. After concluding that Section 1.001-1 of the regulations is a reasonable interpretation of section 1001(a) of the I.R.C., the Court determined that, because the participation interests exchanged by the taxpayer were derived from loans made to different obligors and secured by different homes, the exchanged interests embodied legally distinct entitlements and therefore were materially different. Thus, the transaction resulted in a taxable sale or disposition under section 1001 of the I.R.C. In response to the issues raised by the Cottage decision, and in ------- an effort to provide certainty, the I.R.S. issued regulations under section 1001 of the I.R.C. to deal explicitly with the modification of debt instruments. The regulations define when a modification will be deemed to be an exchange of the original instrument or a modified instrument that differs materially either in kind or in extent. The new regulations are found in Treas. Reg. Section 1.1001-3. Under the general rule, a "significant modification" of a debt instrument is treated as an exchange of the original instrument for a modified instrument that differs materially either in kind or extent. Modifications that are not significant modifications are not exchanges. As special tax counsel, Rothgerber Johnson & Lyons LLP has issued an opinion that the exchange of the old notes for the new notes will not constitute an exchange as set forth in the regulations. Mail-Well I Corporation encourages holders of the old notes to refer to the full text of this legal opinion attached as an exhibit to this prospectus. -75- TAXATION OF INTEREST This discussion assumes that the new notes will be treated as debt, not equity, for U.S. federal income tax purposes. Interest paid or accrued on a new note will be taxable to a U.S. Holder as ordinary interest income, generally at the time it is received or accrued, in accordance with such holder's regular method of accounting for U.S. federal income tax purposes. We intend to take the position (which generally will be binding on all U.S. Holders) that the new notes are not issued with original issue discount ("OID") for U.S. federal income tax purposes and that no amounts other than stated interest will be treated as interest. This position is based on the assumption that the price at which the new notes are sold to the public will equal their face amount (or will be within the de minimis exception for OID). This position also is based on the view that the likelihood of the payment of liquidated damages, as of the date the new notes are issued, is remote. In the unlikely event that liquidated damages are paid, then such liquidated damages may be treated as OID, includable by a U.S. Holder in income as such interest accrues, in advance of receipt of any cash payment of such interest. SALE, REDEMPTION OR RETIREMENT OF THE NEW NOTES Upon the sale, redemption, retirement at maturity or other taxable disposition of a new note, a U.S. Holder generally will recognize gain or loss equal to the difference (if any) between (1) the sum of cash plus the fair market value of all other property received on disposition (except to the extent such cash or property is attributable to accrued but unpaid interest not previously included in income, which will be taxable as ordinary income) and (2) the U.S. Holder's tax basis in the new note (generally its cost). Gain or loss recognized on the disposition of a new note generally will be capital gain or loss and will be long-term capital gain or loss if, at the time of disposition, the new note had been held for more than one year. In the case of a U.S. Holder who is an individual, the maximum long-term capital gains rate is 20%. BACKUP WITHHOLDING AND INFORMATION REPORTING Information reporting requirements may apply to certain payments made by a U.S. paying agent or other U.S. intermediary of principal, premium, if any, and interest on a new note and to proceeds of the sale or other disposition of a new note. In addition, backup withholding at the rate of 31% may apply to these payments if a U.S. Holder fails to furnish its taxpayer identification number (social security or employer identification number), certify that the number is correct, certify that the U.S. Holder is not subject to backup withholding or otherwise comply with the applicable requirements of the backup withholding rules. Certain U.S. Holders, including corporations, generally are not subject to backup withholding and information reporting. Recently issued Treasury Regulations modify some of the certification requirements for backup withholding. These modifications generally will apply to payments made after December 31, 1998. Any amounts withheld under the backup withholding rules from a payment to a U.S. Holder generally will be allowed as a credit against the U.S. Holder's U.S. federal income tax and may entitle the U.S. Holder to a refund, provided that the required information is furnished to the Internal Revenue Service. -76- U.S. FEDERAL INCOME TAXATION OF NON-U.S. HOLDERS The following discussion is limited to the U.S. federal income tax consequences relevant to a holder of a new note that is not a U.S. Holder (a "Non-U.S. Holder"). PAYMENT OF INTEREST ON NEW NOTES Payment of interest on the new notes to a Non-U.S. Holder generally will be exempt from U.S. federal income and withholding tax if the interest is not effectively connected with the conduct of a trade or business within the United States by the Non-U.S. Holder and the Non-U.S. Holder: (1) does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of Mail- Well I Corporation; (2) is not a controlled foreign corporation with respect to which Mail-Well I Corporation is a "related person" within the meaning of the I.R.C.; and (3) certifies, under penalties of perjury, that the holder is not a U.S. person and provides the holder's name and address. SALE, REDEMPTION OR RETIREMENT OF THE NEW NOTES A Non-U.S. Holder generally will not be subject to U.S. federal income tax (and generally no tax will be withheld) with respect to gain realized on the sale, redemption, retirement at maturity or other disposition of a new note unless (1) the Non-U.S. Holder is an individual who is present in the United States for 183 or more days in the taxable year of the sale, redemption, retirement at maturity or other disposition of the new note and certain other conditions are met, or (2) the gain is treated as effectively connected with a U.S. trade or business conducted by the Non-U.S. Holder. WITHHOLDING, REPORTING AND CERTIFICATION REQUIREMENTS New regulations effective for payments made after December 31, 1999, do not alter the substantive withholding and incorporation reporting requirements, but unify current certification procedures regarding withholding, backup withholding and information reporting on certain amounts paid to persons other than "United States persons" within the meaning of the I.R.C. Prospective investors should consult their tax advisors concerning the effect, if any, of these new regulations on an investment in the new notes. THE FOREGOING SUMMARY OF UNITED STATES TAX CONSEQUENCES IS BASED ON THE APPLICABLE UNITED STATES LAW AND REGULATIONS, ADMINISTRATIVE RULINGS AND PRACTICES OF THE UNITED STATES, ALL AS THEY EXIST AS OF THE DATE OF THIS PROSPECTUS. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS THAT MAY BE RELEVANT TO PROSPECTIVE INVESTORS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR OWN PARTICULAR CIRCUMSTANCES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS, ESTATE TAX LAWS AND PROPOSED CHANGES IN APPLICABLE LAWS. -77- DESCRIPTION OF OUTSTANDING DEBT The following descriptions of significant outstanding debt of Mail-Well I Corporation and Mail-Well, Inc. do not purport to be complete and are qualified in their entirety by reference to the provisions of the various agreements and indentures related to the debt, copies of which may be obtained from Mail-Well I Corporation. THE CREDIT AGREEMENT On March 16, 1998, Mail-Well I Corporation entered into a bank credit agreement and Mail-Well I Corporation's Canadian subsidiary Supremex, Inc. also entered into a bank credit agreement, in each case with Bank of America National Trust & Savings Association ("BA") acting as administrative agent for a syndicate of financial institutions (collectively, the "Credit Agreement"). The Credit Agreement establishes a five year, unsecured revolving loan facility in the maximum principal amount of $300 million, of which $100 million (in U.S. dollar equivalents) may be borrowed by Supremex in Canadian dollars. The Credit Agreement also provides a letter of credit subfacility which Mail-Well I Corporation has yet to utilize. The subfacility does not increase the maximum principal amount of the Credit Agreement. All current and future debt outstanding under the Credit Agreement will constitute senior debt. Borrowings under the Credit Agreement bear interest at the applicable margin plus, at Mail-Well I Corporation's option, either: (1) the base rate, which is the higher of (a) 50 basis points above the most recently published Federal Funds Rate or (b) BA's most recently published "reference rate"; or (2) the prime rate, which is the rate publicly announced by Bank of America Canada in Toronto, Ontario as its "prime rate"; or (3) offshore rate, which is the quotient of the London Interbank Offer Rate for deposits in U.S. or Canadian dollars, as applicable, divided by one minus the regulatory reserve requirement for Eurocurrency funding. The applicable margin is fixed at 0.0% for base rate and prime rate loans, and varies for other loans based on Mail-Well I Corporation's ratio of Consolidated Funded Debt to EBITDA, each as defined in the Credit Agreement. Outstanding borrowings under the Credit Agreement currently bear interest at the offshore rate plus an applicable margin of 0.75%. The obligations of Mail-Well I Corporation under the Credit Agreement are guaranteed by Mail-Well, Inc. and by each of Mail-Well I Corporation's existing or after-acquired Material Subsidiaries. Generally, a "Material Subsidiary" is defined as a subsidiary of Mail- Well I Corporation where: (1) the subsidiary exceeds 10% of Mail-Well I Corporation's consolidated assets, (2) Mail-Well I Corporation's investments in such subsidiary exceed 10% of Mail-Well I Corporation's consolidated assets, or -78- (3) Mail-Well I Corporation's income from such subsidiary exceeds 10% of Mail-Well I Corporation's consolidated income. The obligations of Supremex under the Credit Agreement are guaranteed by Mail-Well, Inc. and Mail-Well I Corporation. The obligations are not otherwise secured. The Credit Agreement contains covenants and provisions that restrict, among other things, Mail-Well I Corporation and its subsidiaries' ability to: (1) incur liens; (2) dispose of assets outside the ordinary course of business; (3) effect certain mergers, consolidations or bulk asset sales; (4) make certain loans or investments, other than investments in similar businesses that do not otherwise cause a default under the Credit Agreement; (5) incur additional secured debt and certain contingent obligations; (6) engage in certain transactions with affiliates; (7) pay dividends and other distributions on, and make repurchases or redemptions of, capital stock; and (8) modify or prepay certain debt and other agreements. In addition, the Credit Agreement requires Mail-Well I Corporation to satisfy certain financial requirements, including: (A) maintaining a minimum consolidated net worth not less than the sum of 85% of Mail-Well I Corporation's consolidated net worth as of September 30, 1997, plus 50% of consolidated net income through the end of each fiscal quarter after that date, and 75% of the net proceeds from the sale of equity securities since that date; (B) not to exceed a maximum leverage ratio of 3.75 to 1.00, which ratio may be reduced to 3.25 to 1.00 under certain circumstances; and (C) a minimum interest coverage ratio of less than 2.00 to 1.00. The events of default under the Credit Agreement include the following: * failure to pay interest within three days after it becomes due; * failure to pay the principal when due; * breach of any representation or warranty; -79- * failure to perform any covenant or agreement in the Credit Agreement (in some cases only if the failure continues for a certain period of time); * certain defaults under other agreements, debts and other obligations, including certain contingent obligations; * imposition of certain judgments or decrees against Mail-Well I Corporation or any subsidiary; * certain events of bankruptcy, insolvency or reorganization; * certain violations of the Employee Retirement Income Security Act; * certain changes of control of Mail-Well I Corporation; and other customary provisions. Mail-Well I Corporation's Supremex subsidiary is also party to an unsecured term loan directly with BA in Canada. At December 31, 1998, Mail-Well I Corporation owed $25.5 million under the loan, which matures in 2003, bearing interest at 6.88%. This term loan will constitute senior debt under the indenture. 5% CONVERTIBLE SUBORDINATED NOTES Mail-Well, Inc. has outstanding $152.1 million in aggregate principal amount of 5% Convertible Subordinated Notes due November 1, 2002. The convertible notes are direct, unsecured obligations of Mail- Well, Inc. The convertible notes may be converted at the option of the holder into shares of Mail-Well, Inc. Stock at a conversion price of $19.00 per share (equivalent to a conversion rate of 13.1579 shares per $1,000 principal amount of new notes), subject to adjustments. The convertible notes are traded on the NYSE under the symbol "MWL 02." Subject to exceptions, the convertible notes are subordinated to all current and future senior debt of Mail-Well I Corporation. The indenture governing the convertible notes defines senior debt as debt of Mail-Well, Inc. that is not expressly made, by its governing instruments, subordinate to or of equal rank with the convertible notes. The convertible notes are also effectively subordinated to all existing and future debt and liabilities of subsidiaries of Mail-Well, Inc., including Mail-Well I Corporation. The convertible notes will be effectively subordinated to the new notes. Approximately $147.5 million of the proceeds of the convertible notes were loaned to Mail-Well I Corporation by Mail-Well, Inc. under a loan agreement that will be subordinated to the new notes. The indenture for the convertible notes does not restrict the amount of senior debt or other debt that may be incurred in the future by Mail-Well, Inc. or any subsidiary of Mail-Well, Inc. Mail-Well, Inc. may from time to time reduce the conversion price of the convertible notes by any amount for any period of at least 20 days, in which case Mail-Well, Inc. must give at least 15 days' notice of such reduction, if the Board of Directors of Mail-Well, Inc. has made a determination that such reduction would be in the best interests of Mail-Well, Inc. -80- The events of default under the indenture for the convertible notes include the following: (1) failure to pay interest upon any convertible note when it becomes due and payable, and continuance of such default for a period of 30 days; (2) failure to pay the principal of (or premium, if any, on) any convertible note at its maturity; (3) failure to pay the redemption price or the repurchase price when and as due; (4) failure to perform any covenant or agreement in the indenture for the convertible notes which continues for 60 days after written notice; (5) certain defaults under any mortgage, indenture or instrument of debt of Mail-Well, Inc. or any of its subsidiaries (or the payment of which is guaranteed by Mail-Well, Inc. or any of its subsidiaries); (6) imposition of certain judgments or decrees against Mail-Well, Inc. or any subsidiary; and (7) certain events of bankruptcy, insolvency or reorganization of Mail-Well, Inc. or certain subsidiaries. The convertible notes may be redeemed at the option of Mail-Well, Inc., in whole or in part, at any time on or after November 1, 2000, at the redemption prices set forth below, together with accrued and unpaid interest, if any, to the date of redemption. The redemption price beginning on November 1, 2000, is 102% of the principal amount; the redemption price beginning on November 1, 2001, is 101% of the principal amount; and the redemption price beginning on November 1, 2002 is 100% of the principal amount. In case of the acquisition of more than 50% of Mail-Well, Inc. Stock by another person, any merger or consolidation of Mail-Well, Inc. or the sale or conveyance by Mail-Well, Inc. of all or substantially all of its assets (each, a "Change in Control"), or termination of trading in Mail-Well, Inc. Stock on a national securities exchange, each holder of convertible notes will have the right, at the holder's option, to require Mail-Well, Inc. to purchase all or part of the holder's convertible notes at a redemption price equal to 101% of the principal amount of the convertible notes, together with accrued and unpaid interest provided that a Change in Control shall not be deemed to have occurred if (1) the sales price of Mail-Well, Inc. Stock is at least equal to 110% of the conversion price or (2) at least 90% of the consideration for the Change in Control transaction consists of common stock trading on a national exchange or the over the counter system. The right to require Mail-Well, Inc. to repurchase convertible notes as a result of a change of control could have the effect of delaying or preventing a change of control or other attempts to acquire control of Mail-Well, Inc. unless arrangements have been made to enable Mail-Well, Inc. to repurchase all the convertible notes. In case of any merger or consolidation of Mail-Well, Inc. or the sale or conveyance by Mail-Well, Inc. of all or substantially all its assets, the holder of each outstanding convertible note will have the right to convert the convertible note into the kind and amount of shares of stock and other securities and property (including cash) received in such transaction by a holder of the number of shares of Mail-Well, Inc. Stock into which the convertible note was convertible immediately prior to the effective date of such transaction. -81- COMPARATIVE CONSOLIDATED HISTORICAL FINANCIAL DATA The comparative consolidated historical financial data for the periods ended December 31, 1994, through 1998 are derived from our audited consolidated financial statements and notes. 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements.
PERIOD FROM FEB. 24, 1994 (INCEPTION) THROUGH DEC. 31 YEARS ENDED DECEMBER 31 ---------------------------------------------------------------- 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- (dollars in thousands) STATEMENT OF OPERATIONS DATA: Net sales $389,262 $758,903 $944,494 $1,073,937 $1,504,686 Costs of sales 302,374 596,359 740,665 834,212 1,185,373 -------- -------- -------- ---------- ---------- Gross profit 86,888 162,544 203,829 239,725 319,313 Selling, administrative and other 58,870 105,739 133,697 153,897 200,193 Restructuring and other unusual charge -- -- -- -- 28,922 Merger costs -- -- -- -- 3,318 -------- -------- -------- ---------- ---------- Operating income 28,018 56,805 70,132 85,828 86,880 Interest expense 16,456 33,154 34,869 30,157 38,127 Other (income) expense (991) 152 478 (2,088) (1,036) Provision for income taxes 3,134 8,118 13,627 22,783 23,948 Extraordinary charge -- 2,412 -- 6,100 4,132 -------- -------- -------- ---------- ---------- Net income $ 9,419 $ 12,969 $ 21,158 $ 28,876 $ 21,709 ======== ======== ======== ========== ========== OTHER DATA: Ratio of earnings to fixed charges 1.7x 1.7x 1.9x 2.6x 2.1x DECEMBER 31 ------------------------------------------------------------- 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- (dollars in thousands) BALANCE SHEET DATA (AT YEAR END): Working capital (including cash and cash equivalents) $ 79,313 $101,305 $ 32,225 $105,442 $ 152,198 Total assets 392,459 582,567 551,986 671,411 1,127,956 Total debt (including current maturities) 280,606 348,923 258,394 337,152 583,580 Shareholders' equity 43,778 121,999 143,411 171,820 299,375 - ---------- For purposes of computing the ratio of earnings to fixed charges, earnings consist of income before income taxes plus fixed charges (other than capitalized interest) and amortization of previously capitalized interest. Fixed charges consist of interest expense and debt issuance cost, capitalized interest and that portion of rental expenses representative of the interest factor, deemed to be one-third.
-82- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following should be read in conjunction with the consolidated historical financial statements and related notes of Mail-Well, Inc. and its subsidiaries included elsewhere in this prospectus. In addition to the historical information contained herein, this report contains forward-looking statements. The reader of this information should understand that all such forward-looking statements are subject to various uncertainties and risks that could affect their outcome. Mail- Well's actual results could differ materially from those suggested by such forward-looking statements. Factors which could cause or contribute to such differences include, but are not limited to, the following: * product demand and sales growth rate * ability to obtain assumed productivity savings * quality controls * availability of acquisition opportunities and their related costs * cost savings due to integration and synergies associated with acquisitions * ability to obtain additional financing and bank debt restructuring * interest rates * foreign currency exchange rates * paper and raw material costs * waste paper prices * ability to pass through paper costs to customers * postage rates * changes in the direct mail industry * competition * ability to develop new products * labor costs * labor relations * advertising costs This entire prospectus should be read to put such forward-looking statements in context and to gain a more complete understanding of the uncertainties and risks involved in Mail-Well's business. -83- OVERVIEW, HISTORICAL FINANCIAL DATA BY SEGMENT (IN THOUSANDS)
Year Ended December 31 -------------------------------------- 1998 1997 1996 ---- ---- ---- Net sales Envelopes $ 795,881 $ 709,531 $638,153 Commercial printing 522,801 353,977 306,341 Printing for distributors 113,590 10,429 -- Labels 72,414 -- -- ---------- ---------- -------- Total net sales 1,504,686 1,073,937 944,494 ---------- ---------- -------- Operating income Envelopes 88,241 82,212 68,440 Commercial printing 34,519 20,273 15,341 Printing for distributors 8,943 532 -- Labels 4,280 -- -- Corporate (16,863) (17,189) (13,649) Restructuring and other unusual charge (28,922) -- -- Merger costs (3,318) -- -- ---------- ---------- -------- Total operating income 86,880 85,828 70,132 Interest expense (38,127) (30,157) (34,869) Other income (expense) 1,036 2,088 (478) Income tax expense (23,948) (22,783) (13,627) ---------- ---------- -------- Income before extraordinary item 25,841 34,976 21,158 Extraordinary item, net of tax benefit (4,132) (6,100) -- ---------- ---------- -------- Net income $ 21,709 $ 28,876 $ 21,158 ========== ========== ========
YEAR ENDED DECEMBER 31, 1998, COMPARED TO THE YEAR ENDED DECEMBER 31, 1997 Net sales for 1998 increased 40.1% to $1,504.7 million compared to net sales of $1,073.9 million for 1997. This increase in net sales was attributable to sales from companies acquired during 1998, a full year of sales from companies acquired during 1997 and internal growth in each segment, offset by declines in the Canadian exchange rate and pricing declines. Gross profit of $319.3 million for 1998 represents a 33.2% increase over 1997. Expressed as a percent of net sales, gross profit decreased by 1.1% to 21.2% for 1998 compared to 22.3% for 1997 primarily due to the impact of acquisitions. Expressed as a percent of net sales, selling, administrative and other expense decreased 1.0% to 13.3% in 1998 from 14.3% in 1997 due to efficiency improvements as a result of the assimilation of acquisitions. Operating income, before restructuring and other unusual charge (see Note 11 of the Notes to Consolidated Financial Statements) and merger costs, of $119.1 million for 1998 increased 38.8% from 1997 primarily due to acquisitions. Earnings for 1998 before extraordinary item and restructuring and other unusual charge increased 36.0% to $47.6 million from $35.0 million in the prior year. Earnings per diluted share before extraordinary item and the effect of the restructuring and other unusual charge increased 14.6% to $0.94 in 1998 from $0.82 in 1997. Due primarily to the effect of the restructuring and other unusual charge, earnings per diluted share decreased to $0.45 in 1998 from $0.68 in 1997. -84- YEAR ENDED DECEMBER 31, 1997, COMPARED TO THE YEAR ENDED DECEMBER 31, 1996 Net sales for 1997 increased to $1,073.9 million, 13.7% higher than net sales of $944.5 million for 1996. This increase in net sales was primarily attributable to a full year of sales from companies acquired during 1996 and acquisitions in 1997. Excluding acquisitions, sales volume increases for 1997 were offset by price declines attributable to the pass through of lower paper cost and competitive pressure. Gross profit of $239.7 million for 1997 reflected a 17.6% increase over 1996. Expressed as a percent of net sales, gross profit increased by 0.7% to 22.3% for 1997 compared to 21.6% for 1996. This increase was mainly due to reductions of material cost as a percent of sales resulting from mix changes and efficiency improvements. Expressed as a percent of net sales, selling, administrative and other expense increased 0.1% to 14.3% in 1997 from 14.2% in 1996. Operating income, expressed as a percent of net sales increased from 7.4% in 1996 to 8.0% in 1997 primarily due to efficiency gains from assimilation of acquisitions. Income before extraordinary item for the year ended December 31, 1997, was $35.0 million, an increase of 65.3% over the same period in 1996. Earnings per diluted share before extraordinary item increased 57.7% to $0.82 for 1997, up from $0.52 for 1996. RESULTS OF OPERATIONS BY BUSINESS SEGMENT ENVELOPES The following table presents historical financial data for the Envelopes operations of Mail-Well, including acquisitions from their purchase dates.
Year Ended December 31 ---------------------------------------------------- 1998 1997 1996 ---------------- ---------------- ---------------- (dollars in thousands) Net sales $795,881 100.0% $709,531 100.0% $638,153 100.0% Cost of sales 615,590 77.3 543,217 76.6 495,278 77.6 Operating expenses 92,050 11.6 84,102 11.8 74,435 11.7 -------- ----- -------- ----- -------- ----- Operating income $ 88,241 11.1 $ 82,212 11.6 $ 68,440 10.7 ======== ===== ======== ===== ======== =====
Year Ended December 31, 1998, Compared to the Year Ended December 31, 1997 Net Sales. Net sales increased by $86.4 million (12.2%) for the year ended December 31, 1998 compared to the year ended December 31, 1997. The average selling price per thousand units increased 6.5% to $20.79 for the year ended December 31, 1998, from $19.52 for the year ended December 31, 1997, due to companies acquired in 1997 and 1998 selling higher value added product. Excluding acquisitions, the average selling price per thousand units decreased 3.0% in 1998 compared to 1997 due to lower paper costs. Because paper cost changes have historically been passed through to customers, Mail-Well uses volumes of units sold and material gross margin (that is, net sales less cost of materials net of waste recovery revenue) as revenue trend indicators in its envelope operations. Unit volume increased 5.2% to 38.3 billion units for the year ended December 31, 1998 from 36.4 billion units for the year ended December 31, 1997, driven by the impact of acquisitions and internal growth. Material gross margin per thousand units sold increased 6.7% to $12.03 for the year ended December 31, 1998 from $11.27 for the year ended December 31, 1997. -85- Cost of Sales. Total cost of sales, as a percent of sales, increased from 76.6% for the year ended December 31, 1997 to 77.3% for the year ended December 31, 1998, primarily due to the effect of acquisitions. Cost of sales includes paper net of waste recovery revenue, labor, depreciation and other manufacturing and distribution costs. Before the effect of higher cost products from acquisitions, material cost per thousand units sold decreased 3.2% in 1998 versus 1997 due primarily to lower paper costs. On a per thousand units sold basis, other manufacturing and distribution costs, excluding the product mix effect from acquisitions, decreased 2.0% in 1998 compared to 1997. Inflationary cost increases were offset by efficiency improvements and volume increases. Operating expenses. Operating expenses include selling and administrative expenses. For the year ended December 31, 1998, operating expenses, as a percent of sales, decreased 0.2% to 11.6% from 11.8% in the prior year due to efficiency improvements as acquisitions were assimilated in 1998. Year Ended December 31, 1997, Compared to the Year Ended December 31, 1996 Net Sales. Net sales increased by $71.4 million (11.2%) for the year ended December 31, 1997, compared to the year ended December 31, 1996, due to acquisitions. The average selling price per thousand units decreased 2.8% to $19.52 for the year ended December 31, 1997, from $20.08 for the year ended December 31, 1996, due to product mix changes as a result of acquisitions as well as lower paper costs. Because paper cost changes have historically been passed through to customers, Mail-Well uses volumes of units sold and material gross margin (that is, net sales less cost of materials net of waste recovery revenue) as revenue trend indicators in its envelope operations. Unit volume increased 14.5% to 36.4 billion units for the year ended December 31, 1997 from 31.8 billion units for the year ended December 31, 1996, driven by the impact of acquisitions and internal growth. Material gross margin per thousand envelopes sold increased 2.5% to $11.27 for the year ended December 31, 1997, from $10.99 for the year ended December 31, 1996. Cost of Sales. Total cost of sales, as a percent of sales, decreased from 77.6% for the year ended December 31, 1996 to 76.6% for the year ended December 31, 1997. Cost of sales includes material net of waste recovery revenue, labor, depreciation and other manufacturing and distribution costs. Material cost per thousand units sold decreased 9.2% in the year ended December 31, 1997, versus 1996 due primarily to lower paper costs. On a per thousand units sold basis, other manufacturing and distribution costs increased 3.1% in the year ended December 31, 1997 versus 1996, due primarily to inflationary cost increases offset by efficiency improvements and volume increases, as well as the product mix effect from acquisitions. Operating Expenses. Operating expenses include selling and administrative expenses. For the year ended December 31, 1997, operating expenses, as a percent of sales, increased 0.1% to 11.8% from 11.7% compared to the prior year, primarily as a result of the decrease in selling prices. On a per thousand units sold basis, operating expenses decreased 1.3% in the year ended December 31, 1997 versus 1996, due to efficiency improvements and assimilation of acquisitions offset by inflationary cost increases. COMMERCIAL PRINTING The following table presents historical financial data for the Commercial Printing segment, including acquisitions from their purchase dates. The results also include those of the merged businesses described in Note 2 to the Consolidated Financial Statements (accounted for under the pooling of interests method), except that the results of IPC Graphics have been included with the Printing for Distributors segment beginning January 1, 1997. -86-
Year Ended December 31 -------------------------------------------------------- 1998 1997 1996 ---------------- ---------------- ---------------- (dollars in thousands) Net sales $522,801 100.0% $353,977 100.0% $306,341 100.0% Cost of sales 415,902 79.6 280,069 79.1 245,192 80.0 Operating expenses 72,380 13.8 53,635 15.2 45,808 15.0 -------- ----- -------- ----- -------- ----- Operating income $ 34,519 6.6 $ 20,273 5.7 $ 15,341 5.0 ======== ===== ======== ===== ======== =====
Year Ended December 31, 1998, Compared to the Year Ended December 31, 1997 Net Sales. Net sales for the year ended December 31, 1998, were up 47.7% over the year ended December 31, 1997, primarily due to acquisitions in 1997 and 1998. Without acquisitions net sales were essentially unchanged, as volume gains in the financial services sector and advertising literature were offset by declining paper prices. Cost of Sales. Total cost of sales, as a percent of sales, increased from 79.1% for the year ended December 31, 1997 to 79.6% for the year ended December 31, 1998. Cost of sales includes material net of waste recovery revenue, labor, depreciation and other manufacturing and distribution costs. Material costs net of waste recovery revenue, as a percentage of sales, were 35.6% and 34.2% for the years ended December 31, 1998 and 1997, respectively. This increase is attributable to material cost increases not passed through to customers due to competitive pricing pressure. Other manufacturing costs, as a percent of sales, decreased from 44.9% for the year ended December 31, 1997 to 44.0% for the year ended December 31, 1998. This decline is attributable to increased web capacity in 1998 versus 1997 as well as other plant efficiency improvements offset by inflationary cost increases. Operating Expenses. Operating expenses include selling and administrative expenses. For the year ended December 31, 1998, operating expenses, as a percent of sales, decreased 1.4% to 13.8% from 15.2% in the year ended December 31, 1997. Operating expenses decreased, as a percent of sales, due to the assimilation of acquisitions and consolidation of selling and administrative functions, offset by inflationary cost increases. Year Ended December 31, 1997, Compared to the Year Ended December 31, 1996 Net Sales. Net sales for the year ended December 31, 1997 increased 15.5% as compared to sales for the year ended December 31, 1996, primarily due to acquisitions in 1996 and 1997, offset by a 6.9% decline in sales of the base business. The reasons for the sales decline of the base business include high turnover in sales staff at the Portland facility in 1996 resulting in the temporary loss of business from some significant accounts and the continuing trend of computer related companies to utilize electronic medium as opposed to printed manuals. In addition average paper costs declined in 1997 compared to 1996 resulting in approximately a 1.0% decline in sales prices as the lower cost was passed through to customers. Cost of Sales. Cost of sales, as a percentage of sales, decreased to 79.1% for the year ended December 31, 1997, as compared to 80.0% for the year ended December 31, 1996. Cost of sales includes material net of waste recovery revenue, labor, depreciation and other manufacturing and distribution costs. Material costs net of waste recovery revenue, as a percentage of sales, were 34.2% and 35.7% for -87- the years ended December 31, 1997 and 1996, respectively. This decrease is attributable to material cost decreases as well as changes in product mix resulting from acquisitions, which were primarily sheet fed operations. Other manufacturing costs, as a percent of sales, increased from 44.3% for the year ended December 31, 1996 to 44.9% for the year ended December 31, 1997. This increase is attributable to increased sheet fed production in 1997 versus 1996 as well as inflationary cost increases. Operating Expenses. Operating expenses include selling and administrative expenses. For the year ended December 31, 1997, operating expenses, as a percent of sales, increased 0.2% to 15.2% from 15.0% in the year ended December 31, 1996. Operating expenses increased, as a percent of sales, due to the decline in sales prices and inflationary cost increases. CORPORATE EXPENSES Corporate expenses include amortization expense related to intangibles, administrative expenses and loss (gain) on disposal of assets. Some of our major production equipment is accounted for as an operating lease on a consolidated basis while treated as a purchase on a segment level. Mail-Well also classifies the excess of the operating lease expense over depreciation (the Operating Lease Expense) as a corporate expense in analyzing segment operations. Corporate expenses for the year ended December 31, 1998 decreased 1.9% over the year ended December 31, 1997, primarily due to the increase in gain on disposal of assets of $3.9 million and Operating Lease Expense of $0.9 million offset by an increase in amortization expense of $4.5 million. Amortization expense has increased as a result of the significant number of acquisitions made in the years ended December 31, 1998 and 1997. Corporate expense for the year ended December 31, 1997 increased 25.9% over the year ended December 31, 1996 primarily due to Operating Lease Expense, as the first operating leases were initiated in November 1996. Restructuring and Other Unusual Charge. In November 1998 Mail- Well committed to implement a restructuring program affecting the Envelopes and Commercial Printing segments and recorded a pre-tax provision of $16.0 million, of which $11.7 million represents non-cash charges for asset write-offs and impairments. Mail-Well also incurred $0.8 million of restructuring costs in December 1998 relating to the relocation of personnel, equipment and inventory which under generally accepted accounting principles cannot be accrued up front as part of Mail-Well's restructuring initiative. In October 1998 Mail-Well, Inc. committed to release all shares of stock held by the leveraged Employee Stock Ownership Plan ("ESOP") to plan participants and recorded a non- cash, pre-tax charge of $12.2 million. For more information on these charges please refer to Note 11 of the Notes to Consolidated Financial Statements. Merger Costs. Effective May 30, 1998, Mail-Well completed its mergers with six commercial printing companies and one distributor company through the exchange of common stock. In connection with the mergers, transaction costs incurred of $3.3 million were expensed in 1998. These costs consist primarily of investment banking, legal and accounting fees. For more information on these mergers please refer to Note 2 of the Notes to Consolidated Financial Statements. Interest Expense. Interest expense for the year ended December 31, 1998, compared to the prior year increased $8.0 million as a result of higher average bank debt balances, primarily due to acquisitions, offset by lower average interest rates resulting from the November 1997 issuance of 5.0% convertible subordinated notes and decreased amortization of deferred financing costs. Since the -88- proceeds from the 5.0% convertible subordinated notes were used to repay debt for which a major portion of the deferred financing costs were incurred, amortization of deferred financing costs decreased $1.4 million in 1998 compared to 1997. In November 1996, Mail-Well I Corporation and some of its subsidiaries entered into a five-year accounts receivable securitization agreement by which Mail-Well I Corporation can sell, on a revolving basis, an undivided percentage ownership interest in a designated pool of accounts receivable up to a maximum of $100.0 million. At December 31, 1998, 1997 and 1996 $52.6, $72.0 and $71.0 million, respectively, had been sold under this agreement. Interest expense for the year ended December 31, 1997, decreased $4.7 million from 1996 primarily as a result of lower average bank debt balances as well as a decrease in amortization of deferred financing costs resulting from the early retirement of debt. Income Taxes. The effective tax rate for all periods was higher than the federal statutory rate due to state and provincial income taxes and certain goodwill amortization and a major portion of the leveraged employee stock ownership plan contribution that are not tax deductible. The effective tax rate also reflects the impact of merging various commercial printing companies that had elected nontaxable status prior to the mergers on May 30, 1998. See Notes 2 and 9 of the Notes to Consolidated Financial Statements. For 1999 Mail-Well expects its effective tax rate to be approximately 41.0%. LIQUIDITY AND CAPITAL RESOURCES HISTORICAL CASH FLOW Net cash flow provided by operating activities was $93.1 million, $94.4 million and $95.3 million for the years ended December 31, 1998, 1997 and 1996, respectively. Acquisitions required cash payments of $351.6 million, $82.9 million and $64.3 million for the years ended December 31, 1998, 1997 and 1996, respectively. Other investing activities include capital expenditures which were $87.3 million, $36.8 million and $22.0 million for the years ended December 31, 1998, 1997 and 1996, respectively. The capital expenditures were offset by the proceeds of $9.7 million, $1.8 million and $35.4 million from the disposal of assets for the years ended December 31, 1998, 1997 and 1996, respectively (including $30.0 million in 1996 from an equipment sale/leaseback transaction). Net cash flow from financing activities was negatively affected by the decrease in receivables sold under the securitization agreement at December 31, 1998, of $19.4 million compared to December 31, 1997. Net cash flow from financing activities in 1996 was positively impacted by the $71.0 million sale of accounts receivable under the securitization program initiated in November 1996 offset by the increase in receivables sold of $9.5 million. At December 31, 1998, Mail-Well I Corporation had approximately $207.0 million of available credit under the $300.0 million Bank of America credit facility. In addition, at December 31, 1998, Mail-Well I Corporation had sold $52.6 million of receivables under the $100.0 million securitization facility. DEBT OBLIGATIONS In November 1998, Mail-Well I Corporation issued the old notes, the net proceeds of which were used to legally extinguish the $85.0 million of 10 1/2% senior subordinated notes and repay a portion of the Bank of America unsecured credit facility. In March 1998, Mail-Well I Corporation closed a new five-year unsecured line of credit for up to $300.0 million with Bank of America, the lead agent for a syndicate of banks, at an interest rate of LIBOR plus a margin based on Mail-Well I Corporation's -89- leverage ratio. In November 1997, Mail-Well, Inc. issued $152.1 million of convertible subordinated notes due in 2002 with interest payable at 5% per annum. The notes are convertible at the option of the holder at any time into shares of Mail-Well, Inc.'s common stock at a conversion price of $19.00 per common share. Proceeds were used to pay off outstanding amounts on a revolving credit facility and a bank term loan and these facilities were canceled. Concurrently, Supremex, Mail-Well I Corporation's Canadian subsidiary, signed an unsecured demand note with a bank for $60.0 million at an interest rate of LIBOR plus 0.75% per annum. These proceeds were used to pay off Supremex's outstanding term loan which was also canceled. The demand note was subsequently replaced by the bank credit agreement and a term loan with the same bank. SECURITIES OFFERINGS On November 13, 1997, Mail-Well, Inc.'s shelf registration statement on Form S-3 was declared effective by the Securities and Exchange Commission. The shelf permits Mail-Well, Inc. to issue up to $300.0 million in debt securities, common stock, preferred stock or warrants over the two-year period following the effective date. The convertible subordinated notes were issued under the shelf registration statement and, in February 1998 Mail-Well, Inc. raised $90.7 million in net proceeds from the sale of its common stock off of the shelf through a group of underwriters. Proceeds were used for general corporate purposes. At December 31, 1998, there was availability to issue another $52.0 million of securities under the shelf registration statement. CAPITAL REQUIREMENTS Mail-Well estimates that, based on current utilization of its equipment and expected volume growth at existing businesses it will spend $65.0 to $70.0 million per year on capital expenditures. This is in addition to the capital expenditures required for systems upgrades as discussed below under "--Year 2000." INFLATION The effects of inflation have not been material to Mail-Well. However, due to the competitive nature of its business, it may not always be able to pass on inflationary cost increases in the future. FOREIGN CURRENCY The effects of foreign currency exchange have not been material to Mail-Well to date. With the strengthening U.S. Dollar, Mail-Well's foreign currency exposure currently relates to its Canadian operations. The average Canadian Dollar exchange rate was 0.674, 0.723 and 0.734 USD for the years ended December 31, 1998, 1997 and 1996, respectively. The Canadian Dollar exchange rate at December 31, 1998 was 0.648 USD. Net sales provided by the Canadian operations for the years ended December 31, 1998, and 1997 was USD $154.5 million and USD $115.3 million, respectively. SEASONALITY AND ENVIRONMENT The effects of seasonality and environmental matters had no material financial impact on the historical operations of Mail-Well and are not expected to have a material effect on Mail-Well's liquidity and capital resources. -90- RECENT DEVELOPMENTS The following developments have occurred since December 31, 1998. ACQUISITIONS On February 2, 1999, Mail-Well acquired Colorhouse, Inc., a pre- press company located in Minneapolis, Minnesota, with approximate annual sales of $20.7 million. On February 4, 1999, Mail-Well acquired Hill Graphics, a sheetfed commercial printer located in Houston, Texas, with approximate annual sales of $20.5 million. On March 16, 1999, Mail-Well announced an offer to purchase all of the shares of Porter Chadburn plc, a label manufacturing company located in Great Britain, with approximate annual sales of $125.1 million. Mail-Well expects to close the purchase during the second quarter of 1999. POSTAL RATE INCREASE On January 10, 1999, the U.S. Postal Service increased rates for the first time in nearly four years. The average increase was 2.9% for all types of domestic mail. Management does not believe the new rates will negatively affect mail volume. YEAR 2000 Mail-Well completed an assessment of its existing computer systems in 1997 and expects to spend and capitalize approximately $9 to $11 million through 1999 to purchase and install new systems. The new systems are capable of distinguishing between the year 1900 and the Year 2000. Mail-Well is also conducting an evaluation of actions required to ensure its remaining business critical computer systems will not be disrupted with respect to dating in the Year 2000. Mail-Well has completed or is engaged in the process of updating, replacing and testing certain of its computer systems so as to operate without disruption due to Year 2000 issues. These actions are scheduled to be completed through the third quarter of 1999 and, based on current information available, Mail-Well does not anticipate the costs of remedial actions, which are being expensed as incurred, will be material. Since there can be no assurance that remedial actions can be completed on a timely basis contingency plans will be developed by the third quarter of 1999 to address business critical systems which may not be Year 2000 compliant. All business critical vendors and customers have been identified and contacted for information on their actions to mitigate Year 2000 disruptions. Mail-Well is in the process of evaluating information supplied to date and contacting those who have not responded to our inquiries. If Year 2000 issues of our business critical vendors and customers are not addressed satisfactorily, there could be a disruption in our business that may cause a decline in earnings. These theoretical consequences are of a kind and magnitude not unique to Mail-Well, but are generally shared with other manufacturing companies. Contingency plans will be developed by the third quarter of 1999 to address Year 2000 issues related to our business critical vendors and customers. Although there is inherent uncertainty with respect to these Year 2000 issues, particularly with respect to the Year 2000 readiness of our vendors and customers, at this time management does not believe that Mail-Well's business will be materially affected by Year 2000 issues. -91- NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (the "Statement"). The Statement, which will be effective for the year 2000, requires derivative instruments to be recorded in the balance sheet at their fair value with changes in fair value being recognized in earnings unless specific hedging accounting criteria are met. Although Mail-Well I Corporation believes it has a minimal current level of hedging and derivative activity, it has not determined the impact of this statement on its operations and financial position. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Mail-Well is exposed to market risks, including foreign currency and interest rate risks. The foreign currency risk for foreign currency denominated debt obligations (US$25,461,000 at December 31, 1998) and the interest rate risk for the investment in accounts receivable securitization ($41,669,000 at December 31, 1998) are not considered to be significant since the fair values and carrying values are not material to Mail-Well's financial position. Mail-Well's cash flows from operations and earnings are affected by changes in short-term interest rates since a large portion of its credit agreements includes rates variable with LIBOR. As of December 31, 1998, $93 million of variable rate debt was outstanding. The fair value of Mail-Well's fixed rate long-term debt is affected by changes in long-term interest rates. If LIBOR were to increase 1% from the rate at December 31, 1998, and Mail-Well borrowed the maximum amount available under its variable rate debt ($320 million), Mail-Well's interest expense would increase and income after income taxes would decrease by approximately $2.0 million. The marginal income tax rate of 38.5% was used. This analysis does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate its exposure to the change. For example, in November 1998, Mail-Well paid down its variable rate debt with proceeds from fixed rate debt to manage its interest rate risk. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in Mail- Well's financial structure. If the interest rates were to decrease 1%, the fair value of Mail- Well's fixed rate debt, excluding other long-term debt ($457.4 million at December 31, 1998), would decrease by approximately $25.3 million. The fair values were determined based on the discounted values of their related cash flows. The sensitivity analysis does not consider the impact of changes in Mail-Well's stock price on the fair value of its convertible subordinated notes or the conversion of the convertible debt. The change in other long-term debt is immaterial to Mail-Well's financial position. -92- BUSINESS We are a leading consolidator in the highly fragmented printing industry, competing in the following market segments: * Envelopes * Commercial Printing * Printing for Distributors * Labels Since our inception in February 1994, we have completed 44 acquisitions in the printing industry, for purchase prices ranging from $2.5 million to $97.4 million. We are the largest printer and manufacturer of envelopes in the United States and Canada and one of the leading commercial printers in the United States. We are also the largest printer of custom business documents for the distributor market in the United States and a leading printer of glue-applied paper labels for the food and beverage industry. We currently operate 100 printing facilities throughout North America, serving over 40,000 customers. We believe that we have competitive advantages in the printing industry, including the ability to: * use our network of strategically located plants and sales offices to attract customers that require production from multiple locations; * realize cost savings as a result of volume related purchases of paper, ink and other raw materials; * reduce overhead expense by consolidating most administrative functions for insurance, employee benefits and financial management; * increase profitability by optimizing equipment use among facilities; * offer customers greater flexibility in meeting their needs due to more available capacity and equipment capabilities; and * combine the responsiveness of a local or regional facility with the resources of a large national company. Please refer to Note 12 of our consolidated financial statements included elsewhere in this prospectus for additional information concerning our operating and geographic segments. -93- GROWTH STRATEGY Our objective is to continue to increase our cash flows and profits, and to maximize shareholder value, through acquisitions and an operating strategy that enhances operating leverage and achieves cost efficiencies. The key elements of our strategy include: BROAD RANGE OF QUALITY PRODUCTS AND SERVICES We have chosen to operate in areas of the printing industry in which we believe we can capture a larger share of our customers' business by offering a broad array of high quality products and services, cost-effective distribution, advanced technological capabilities and competitive pricing. We intend to continue to increase our services and expand our geographic presence in order to provide our customers a full range of digital archiving, prepress, printing and print management needs. Our commitment to quality, combined with our broad range of services offered, has formed the basis for deepening our long-standing customer relationships. As a result of our diverse product mix, geographic presence and reputation for quality, we have been able to attract new customers as well as capture incremental sales from existing customers. STRATEGIC ACQUISITIONS We believe that the industry is highly fragmented and presents significant opportunities for consolidation. Our growth strategy includes the acquisition of established and profitable printing businesses in markets with attractive growth opportunities. We seek acquisition targets with strong management infrastructures and opportunities to increase operating efficiencies as well as to expand our customer base, presence in geographic areas and product lines. Our management team has extensive experience in identifying attractive acquisition targets and integrating acquired businesses into our operations. OPERATING LEVERAGE We believe that we will continue to realize cost savings as a result of volume related purchases of paper, ink and other raw materials used in the printing process. As we acquire additional businesses in each of our market segments, we believe we will be able to leverage these cost structures to realize additional savings. We have also achieved cost savings through the consolidation of insurance administration, financial management and other administrative functions. We believe that by continuing to centralize administrative and support functions the management of our operating subsidiaries and businesses acquired in the future will be able to focus on pursuing new customers and business opportunities and increasing capacity utilization. OPERATING EFFICIENCIES We believe that there are opportunities to eliminate redundant facilities and equipment by consolidation or through coordination among our current operations as well as operations to be acquired in the future. We periodically review our operations at the local, regional and national operating levels (as well as examining other industry practices) in order to identify "best practices" that can be standardized and implemented throughout our operations. NATIONAL SALES AND MARKETING PROGRAM We have established a sales and marketing program targeting national accounts as a means to expand our printing businesses. This program allows us to both utilize our current network of strategically located plants and sales offices to attract new customers that require production from multiple locations, as well as to increase sales to existing customers by offering greater flexibility in meeting their product needs due to more available capacity and equipment capabilities. -94- INTERNAL SALES GROWTH A component of our strategy is to accelerate internal sales growth for all of our printing segments. The key elements of our internal growth strategy include the expansion of the products and services sold to existing customers and the addition of new customers. We believe that we have the ability to combine the responsiveness of a local facility with the full service advantages of a large national company. We intend to increase growth in each of our regions by adding manufacturing facilities to expand our product offerings and complement our product lines on a regional basis. By targeting markets in which we believe there is demand for additional product lines, we believe we may be able to achieve significant internal growth. THE PRINTING INDUSTRY The printing industry is one of the largest and most fragmented industries in the United States with total estimated 1997 sales of $142 billion among an estimated 52,000 printing businesses, according to the Printing Industries of America, Inc. The printing industry includes general commercial printing, financial printing, printing and publishing of books, newspapers and periodicals, quick printing and production of business forms and greeting cards. Due to the fragmented nature of the printing industry, we believe an abundance of acquisition opportunities exist. The printing industry is characterized by a significant number of locally oriented, privately held businesses, many of which are viable acquisition candidates. Owners of these independent companies are often motivated to sell their printing businesses to access the financial capital and other operating strengths we have to offer to grow the business, increase their personal financial liquidity or facilitate retirement. Moreover, by consolidating independent companies we expect to achieve the substantial economies of scale of a large multi-plant and geographically diverse organization. -95- ACQUISITIONS Mail-Well, Inc. commenced operations in February 1994 with the acquisition of the Mail-Well envelope division of Georgia Pacific and Pavey Envelope and Tag Corp. From 1994 to 1997 we made 12 acquisitions in the envelope and commercial printing segments. During 1998, we completed the following 30 acquisitions in various printing segments:
Company Location Date Segment Revenues - ------- -------- ---- ------- ------------ Poser Business Forms, Inc. Fairhope, Alabama January Distributor $ 90 Rono Graphic Communications Co. Portland, Oregon March Commercial 12 Lawson Mardon Label Division Toronto, Ontario March Labels 81 Denver Forms Company Denver, Colorado March Distributor 12 National Graphics Company Denver, Colorado March Envelopes 8 EPX Denver Denver, Colorado March Distributor 4 Blue Line Envelope Montreal, Quebec April Envelopes 6 South Press, Inc. Dallas, Texas April Commercial 12 Century Index Corporation Anaheim, California May Envelopes 8 Label Division, IP Paper Bowling Green, Kentucky May Labels 30 Anderson Lithograph Los Angeles, California May Commercial 135 Color Art, Inc. St. Louis, Missouri May Commercial 76 Accu-color, Inc. St. Louis, Missouri May Commercial 14 Industrial Printing Company Toledo, Ohio May Commercial 20 IPC Graphics, Inc. Toledo, Ohio May Distributor 11 United Lithograph, Inc. Somerville, Mass. May Commercial 21 French Bray, Inc. Glen Burnie, Maryland May Commercial 23 Clarke Printing Co. San Antonio, Texas May Commercial 11 Illinois Envelope, Inc. Kalamazoo, Michigan June Envelopes 7 Gould Packaging, Inc. Vancouver, Washington June Envelopes 14 Graphics Illustrated, Inc. West Palm Beach, Florida August Commercial 11 McLaren, Morris and Todd Ltd. Mississauga, Ontario August Commercial 34 John D. Lucas Printing Co. Baltimore, Maryland August Commercial 27 Armstrong-White, Inc. Bloomfield Hills, Michigan August Commercial 2 Richtman Printing Englewood, Colorado Sept. Commercial 6 Production Press, Inc. Jacksonville, Illinois Sept. Commercial 9 APICO Corp. and Perfection Forms Girard, Kansas October Distributor 20 Trafton Printing, Inc. Amarillo, Texas October Commercial 9 Imperial Litho & Dryography Phoenix, Arizona Nov. Commercial 26 ---- Total $739 - ---------- Represents most recent revenues in millions for the full twelve- month period for which financial information was available immediately preceding the acquisition as provided to Mail-Well, Inc. by the respective sellers and may not be indicative of revenue generated or to be generated following the date of acquisition. In many cases, these estimated revenue amounts were not derived from audited financial statements and may not coincide with the revenue generated by the acquired business for a full fiscal year prior to the date of acquisition. The information relating to estimated revenue prior to the date of acquisition set forth above is presented solely for the purpose of providing information with respect to the relative sizes of the businesses acquired and is not intended to depict information relating to profitability or cash flow.
On February 2, 1999, Mail-Well acquired Colorhouse, Inc., a pre- press company located in Minneapolis, Minnesota, with approximate annual sales of $20.7 million. On February 4, 1999, Mail-Well acquired Hill Graphics, a sheetfed commercial printer located in Houston, Texas, with approximate annual sales of $20.5 million. On March 16, 1999, Mail-Well announced an offer to purchase all of the shares of Porter Chadburn plc, a label manufacturing company located in Great Britain, with approximate annual sales of $125.1 million. Mail-Well expects to close the purchase during the second quarter of 1999. -96- Please refer to Notes 2 and 3 of our consolidated financial statements included elsewhere in this prospectus for additional information concerning our acquisitions. PRODUCTS ENVELOPES The approximately $3.2 billion United States and Canadian envelope market is divided into two primary segments: (1) the consumer direct segment, which consists of customized conventional and specialty envelopes and packaging products sold directly to end users or to independent distributors who sell to end users, and (2) the wholesale segment, which consists of envelope and other products sold to wholesalers, paper merchants, printers, brokers, office product establishments and superstores. In the consumer direct segment, we offer printed customized conventional envelopes to direct mail marketers and other end-users, such as banks, brokers and credit card companies. We have focused a significant part of our marketing efforts on the direct mail market and have developed envelopes with assorted features such as vivid graphics, multiple colors, various closures, and interactive devices such as pull- tabs, scratch-offs, perforations and three-dimensional viewing devices. These customized features are designed to catch the attention of the recipient, and therefore increase responses to the solicitation. By doing so, these envelopes are more valuable to our direct mail customers who are therefore willing to pay the higher cost of producing them. We also compete in the wholesale segment, particularly in the office products market. Through our Quality Park Products and Murray Envelope divisions, we manufacture and print a broad line of custom envelopes, which are featured in national catalogs for the office products market or offered through office products retailers, including contract stationers. We sell the following envelope products: * Customized Conventional Envelopes * Specialty Envelopes and Packaging Products * Commodity Oriented Products * Two-Way Envelopes For the fiscal year ended December 31, 1998, customized conventional envelopes accounted for approximately 64.9% and commodity- oriented products accounted for approximately 20.3% of the envelope segment's net sales, respectively. COMMERCIAL PRINTING Our commercial printing group was recently formed by the combination of our High Impact Color Printing Division, which was formed with the acquisition of Graphic Arts Center in 1996, and the General Commercial Printing Division, which was formed in May 1998 with the simultaneous merger of six geographically dispersed commercial printing businesses. This group produces a wide range of printing, from premium color printing requiring sophisticated graphic design techniques to more commonplace printed materials. We consider each of our commercial printers to be a market leader in the geographic area it serves. The group prints virtually every type of product in the commercial market including: * Advertising Literature * High-end Catalogs * Annual Reports * Calendars and Posters * Brochures * Manuals * Catalogs * Financial Printing * Advertising Circulars * Point of Purchase Displays (POPs) * Maps * Direct Mail * Magazines * Greeting Cards * Web In-line Products -97- The commercial printing group offers a wide range of commercial printing services to its customers, including electronic pre-press, digital archiving, direct-to-plate technology and high-speed web and sheet-fed presses. PRINTING FOR DISTRIBUTORS This division, which was acquired in 1998, prints a diverse line of custom products addressing the business document needs of small and medium-sized end users. This is a market made up of businesses with generally less than 500 employees and average annual purchases of business forms of between $5,000 and $200,000. These products include both traditional and specialty products, many of which are targeted for non-impact laser applications designed to meet the desktop needs of the end-user, as well as the growing use of minicomputers and local area networks. * Custom Continuous Forms--forms printed from a continuous roll of paper * Snap-a-Parts--designed for quick separation * Very Short Run (VSR) Forms--produced in small quantities (from 500 to 10,000 units) * Mailers--continuous forms with glued margins and custom carbon or carbonless coatings * Cut Sheets--forms primarily used in non-impact laser printers * Labels and Label Forms--made of paper or film and temporarily affixed to carrier sheets with pressure sensitive adhesive We also offer the following specialized products: * VersaSeal(TM)--This is a proprietary print-to-mail system that allows the user to print data on a single ply cut sheet form that is then folded and sealed automatically so that the form becomes an outgoing envelope. We offer stand alone and desktop folders that also seal the form. Applications include checks, notices, packing slips, invoices, grade reports and transcripts. These forms may also be used for smaller, customized direct mail advertising campaigns. * High-Color/Offline Finishing--High-color, or web, products are typically forms that are printed in larger quantities with multiple colors. They are printed on our heat set web offset presses. Offline finishing features include foil stamping, embossing, die cutting and other processes which enhance the design, security and effectiveness of the product. Their main application is in marketing and sales, including direct mail. LABELS In 1998, we acquired substantially all of the assets of the North American paper label division of Lawson Mardon Packaging, a leading supplier of glue-applied labels to the North American food and beverage markets. We operate this division under the name "Mail-Well Label." Mail-Well Label is one of the largest suppliers in the $6.5 billion North American label printing market. It currently operates -98- five production facilities, two in Canada and three in the United States, producing glue-applied labels primarily for the food and beverage markets. The primary function of a label is to decorate a container such as a metal can, glass container or plastic bottle or jar. The label plays a key role in creating a brand image and in communicating product information. Glue-applied labels are typically printed for application to various container formats by customers or third party packing operations. These products are generally divided into two categories: conventional labels and premium labels. * Conventional Labels. Conventional labels are typically offset printed in up to 7 colors on coated one sided paper with standard press varnishes and either square cut or die cut into other simple shapes. Conventional labels are then applied to food and beverage containers by the customer. * Premium Labels. Premium labels are typically characterized by superior print fidelity, often in 8 or more colors, unique or specialty substrates, high gloss or matte coatings, and specialized finishes such as embossing, foil stamping and tailored die-cut shapes. SERVICES We believe that the success of all of our printing businesses is largely due to our emphasis on customer responsiveness and service. Our sales force works closely with customers from product design to delivery. Most of our products are made to customer specifications. We also offer our customers related services, such as digital archiving, flexible "just-in-time" delivery programs, warehousing, inventory management systems and electronic communications systems. We have a large number of customers across diverse geographic and product markets. Many of our customers have been supplied by Mail-Well, Inc. or its predecessors for over ten years. We provide the following services to our customers: * Prepress. The traditional design phase typically requires us to set type, incorporate customer-submitted graphics, photograph the artwork, develop the negative and prepare a plate from which to print. * Electronic Prepress. This is a fully automated electronic process which allows the customer to submit its artwork and other data in digital format, either on a diskette or via modem, 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 negative 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. * 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. -99- * Warehousing Services. A customer will often place an order for significantly more envelopes than it may need at the time. When this occurs, we offer to store the finished product and drop-ship the envelopes 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. * Electronic Data Communications Interface ("EDI"). EDI is a direct computer link between customers and our plant which allows customers to send orders electronically. This allows streamlining of the order process, which in turn allows for quicker order delivery and more efficient and accurate communications with our customers. EDI also allows customers to make payments electronically. Our goal is to offer the highest standards in meeting our printing 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 some 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. At some of our advanced printing facilities 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 with faster turn around without additional cost. We believe that the ongoing consolidation of the printing industry is being driven in part by the rapid pace of technological change. Recent advances in computer-based prepress equipment, for example, now enable printers to output plate-ready film directly from digital files, allowing 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 AND DISTRIBUTION ENVELOPES As a result of the wide array of applications, customer preferences and order sizes, our envelope marketing and advertising efforts vary significantly among markets and by region. We believe that our customer responsiveness and service have resulted in the long-term retention of a significant number of our customers. Although our marketing efforts have traditionally been local or regional, we continue to emphasize a more focused national account program to attract customers whose needs are national or cover multiple regions. -100- We market the majority of our envelopes and packaging products through sales representatives, who generally work with customers from the initial product design stage through product delivery to ensure that finished products meet the customers' applications and marketing needs. Our sales representatives are the primary points of contact for customers in the consumer direct market segment. Accordingly, our goal is to retain an experienced, well-qualified sales force by providing appropriate training and competitive compensation. Compensation is typically either salary plus commission or straight commission depending on several factors including customer size and type, plant location and order size. Our plans call for increased coordination among regions, which will help us 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. Products not marketed by our own sales force are sold through distributors to better serve selected wholesale markets, geographic regions without direct sales representation and certain specialty markets, including the medical and photo finishing packaging markets. Our office products sales staff attends trade shows to market products. These products are also featured in national catalogs produced for the office products market. COMMERCIAL PRINTING The vast majority of commercial printing is 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 the commercial printing group. Sales representatives are typically compensated by straight commission. Commissions generally depend on such factors as order size, prepress work, reruns or rework and overall profitability of the job. The group's 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. Our customers include Fortune 500 companies, graphic designers and advertising agencies. We maintain one of the largest sales staffs in the industry dedicated to marketing to and through the graphic design community. This sales staff represents the primary point of contact for many customers and reinforces our policy of providing the highest level of customer service possible. Because of the fragmented nature of the commercial printing business, and the wide array of customer needs and preferences, we market general commercial printing locally. Each of our commercial printing facilities is a leader in their respective commercial printing markets. Our sales efforts vary by market, but typically our sales representatives work closely with our design, prepress and pressroom teams to implement the customer solutions we offer. We believe that our customer responsiveness, combined with our state of the art facilities, distinguish us from our competitors in the commercial printing markets we serve. We also believe that our ability to cross sell throughout the commercial printing group products and services that have not been available to our local plants will enhance our leadership position in these markets. -101- We believe that the level of quality and customer service that we provide is well-suited for buyers in these market segments who require superior printed materials to complement the quality and features of their products, services and corporate images. We serve a broad base of customers, including manufacturers, retailers, service organizations and advertising agencies. Due to the project-oriented nature of the commercial printing industry, sales to particular customers may vary significantly from year to year depending upon the number and size of their projects. PRINTING FOR DISTRIBUTORS We sell custom printed business documents through 83 sales service representatives to over 7,000 independent distributor customers located throughout the United States. These distributors resell the products to hundreds of thousands of end users. We believe that the key to a successful sales and marketing effort in this segment is maintaining frequent contact with our distributor customers. Account development is driven through the use of written sales plans that profile targeted distributors for sales development. Our sales plans provide for a coordinated approach in developing accounts with specific roles and responsibilities within the sales organization. We have made a strong commitment to direct and personalized marketing to both existing and potential distributor accounts. This strategy is different from that of the majority of distributor manufacturers who primarily market using direct mail. Sales service representatives and telemarketing representatives are located at each plant to assist specifically assigned customers and new prospect development. Sales office managers co-ordinate the activities of sales service representatives and monitor customer interaction. National account managers have responsibility for developing new "key accounts," providing distributor education, attending industry trade shows, and maintaining and developing business relations. Call schedules and reports are automated on each national account manager's laptop computer and disseminated to the division in which a lead is generated. Senior management actively maintains an ongoing relationship with our largest accounts as well as those that indicate the most opportunity for growth. LABELS We market our label printing through a sales force that is specialized according to product lines and geographic coverage, and is supported by a team of customer service representatives located at each plant. The sales and marketing function is organized into national and regional teams. The sales force is supported by a technical service team which provides customers with highly customized label solutions. All of our label printing facilities have Customer Service Representatives (CSR's) 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. CSR's report to local Customer Service Managers who in return report to General Managers. Our customer supply agreements are on an order by order basis or for a specified period of time. We sell exclusively through our own sales force and management has close direct relationships with the major customers supported by technical service staff. -102- PRINTING AND MANUFACTURING ENVELOPES Envelopes are produced from either flat sheets or rolls of paper. The paper is folded into an envelope, which is glued at the seems and on the flap, and then printed as required. There are essentially two types of folding machines used in the envelope converting process: (1) high- speed web machines, capable of folding and printing directly from paper rolls and (2) die cut machines, which require a preliminary step to provide die cut envelope blanks from paper sheets. Webs are typically used for larger runs with multiple colors and numerous features, and die cut machines 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. We purchase most of the paper we use in envelope printing in rolls. In the die cut process, typically used for small to medium-sized orders of 500,000 units or less, paper is cut into varying sizes by a sheeter. Stacks of sheets are then cut into envelope blanks using either manually-placed dies or by computer-controlled die-cutting machines. In almost all cases, envelopes are imprinted on one or both sides, either in-line on the folding machine or off-line preceding or subsequent to the folding process. Large volume envelope orders (generally over 500,000 units) can bypass the separate sheeting and cutting operations to be manufactured directly from the paper roll using the web machine process. The paper is fed as one continuous roll through the equipment where it is printed, cut, folded and glued, emerging as finished envelopes ready for packing and shipping. Envelope manufacturing equipment typically has a relatively long useful life. Our manufacturing personnel are skilled at maintaining and rebuilding equipment, and can convert existing equipment to that needed for specialized products, such as those sold to the medical, photo finishing packaging and diskette markets. We have also established programs to implement new production technologies related to flexographic printing, lithographic web printing and variable imaging technology. Flexographic printing has long been the mainstay of the envelope industry and we have flexographic printing capabilities at virtually all of our facilities. We continue to implement improvements to our flexographic printing processes which we believe will provide higher-quality products. In addition, we are trying to combine lithographic technology with web converting capability, which will improve the quality of our graphics. We believe that we can enhance our competitive position in the envelope industry by using improved management systems. We are in the process of implementing management systems designed to improve order flow, improve turnaround capabilities and provide more information with respect to equipment utilization, asset management, customer requirements and product line profitability. All of these systems will also be able to distinguish between the Year 1900 and the Year 2000, avoiding interruptions in our envelope business at the turn of the century. COMMERCIAL PRINTING The commercial printing group combines advanced prepress technology with high-quality color presses and extensive binding and finishing operations. Many of our facilities are open 7 days a week, 24 hours a day to meet customer printing requirements. -103- The typical commercial printing job involves one or more of the following steps and services: * Prepress. Our prepress services include all the processes necessary to prepare the media (art, photographs, typed copy), photographically duplicate and/or digitally produce images, separate color images into process colors, assemble films and reproduce (or "burn") film images onto plates using photochemical processes. We use electronic technology to compose the elements of the individual pages of the project and to create screen tints, produce color blends and retouch photos. These images can then be reviewed for exact color and content. The digital information is then processed to a film plotter for film output. Our film plotters are capable of plotting 3600 dots per inch resolution, giving a clean detail of the imagery. We have also developed an advanced screening process which allows larger quantities of ink to be used in the printing process, thus producing a higher quality image than is available using conventional techniques. * Electronic Prepress. This is a fully-automated electronic process which allows the customer to submit its design in digital format, either on a diskette or via modem, or in hard copy that can be computer-scanned. We then edit the design on a computer to create the negative 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. * Digital Archiving. We offer customers the opportunity to store their artwork in digital form on our data storage facilities. These images are then accessible by the customer from our file servers, either on location at our plant or in-house via electronic file transfer. This allows the customer to update or re-use specific artwork in repeat jobs. * Printing. We currently operate heatset web presses, including half-webs, full-webs and double-web presses, as well as sheet-fed presses at our printing facilities. We primarily use sheet-fed presses for short to medium run jobs. The sheet-fed presses are capable of printing up to eight colors, running at standard press speeds of 6,000 to 10,000 sheets per hour. The web presses are higher- production presses which start with a roll of paper at one end, print on both sides and produce a product which may be folded, glued and perforated on the press. Our web presses are capable of simultaneously printing up to 16 colors at one time. * Postpress and Fulfillment. We provide extensive postpress and fulfillment services in the final stages of the production cycle. These services include cutting, folding, binding, finishing and distribution of the finished product. We also provide warehousing, packaging and distribution services to customers, a critical element to quality service. In addition, we maintain a catalog packaging assembly line which uses both computer-printed mailing labels and ink-jet applied addresses to facilitate its customers' mass mailings. PRINTING FOR DISTRIBUTORS We offer our customers design services using desktop publishing. Each of our plants has multiple laser composition equipment which uses both Windows and Macintosh platforms. This hardware, along with various industry application software packages, enables us to create documents, add custom text and logos, and produce negatives. Distributors can also send documents to us electronically or on disk which can be turned into a negative by the laser image setting devices, thus reducing customer -104- lead times. This equipment enables us to perform a laser composition of a document, thus providing additional tone and density to the logo and other design features of the document. Design services have become particularly valuable in the VSR and short-run continuous form market and have given us a distinct competitive advantage. In addition, this "state of the art" equipment enables us to easily make changes to repeat order and produce the documents as cost effectively as an exact repeat. The majority of our orders are accompanied by a "camera-ready" copy of the document. Once the pre-press area receives hard copy, our camera professionals produce a negative on film. The negative is used by our plate making machines to create a metal plate. The plate will be mounted on the web press to produce a custom document. During the pre- press stage, particular care is taken to detect imperfections in the camera-ready copy, negative or plate to ensure that each is perfect in form and content. Our equipment includes a variety of single web presses using the web offset process. The majority of our equipment is designed to feed roll-to-roll and roll-to-fold, and, in the case of the VSR equipment, a pack-to-pack feed. These presses print at high speeds in one or multiple colors and on one or both sides of the paper. Our presses vary by cylinder size and web width to accommodate the short run customer orders and are between 17" to 33" widths. The majority of our presses are narrow web widths and are used for short to medium-run production jobs. Set-up for our presses involves adjusting the press, feeding the roll paper, filling ink stations, and running several trial runs. Once the press operator is satisfied with the print quality, the final sample document is checked by the shift foreman and approved prior to running an order. Paper enters the press in the unwind section and passes through an adjustable feed device, which regulates the tension in the paper. In the printing section of the press, an inked plate on the cylinder is rotated against a rubber blanket on the blanket cylinder and then against the blank paper to transfer the image. Subsequently, the press can number, punch, or perforate depending on the desired format of the document. The finished imprinted roll or pack of documents is automatically collated, packed and transferred to the warehouse section of the facility for shipping. Orders are usually shipped to the end-user in boxes labeled with the distributor's name or, in the case of orders from larger distributors, delivered to the distributor's warehouse. LABELS Label printing consists of four main processes: film preparation, printing, cutting and finishing. Finished labels are then stored and distributed. Conventional labels tend to require printing and cutting only, while Premium labels generally make use of all three processes. Film preparation requires prepress capabilities similar to commercial printing. Customer art work is prepared and refined digitally, and film is produced to make printing plates. Label printing is usually lithographic, although we also offer rotogravure and flexographic processes. For conventional labels, printing is a single operation; however, for Premium labels, multiple printing operations are often used. We use sheet-fed lithography at all facilities. Cutting is usually a combination of square cutting, using guillotines, and PMC die cutting. Some premium labels are cut on flatbed die cutters--which also may combine embossing. Labels are generally -105- produced in bundles of 500 to 1,000 each (cut and stacked). Finishing encompasses a number of technologies: embossing to add texture, bronzing and/or foil stamping to add metallic effects. We use all of these processes in our label printing operations. Because much of the focus of quality assurance within the labels plants relates to the control of the printing process, the day-to-day control activities are undertaken by the equipment operators. The focus is on real-time process control rather than inspection after the fact. The more modern press equipment has enhanced color control systems to help operators manage color and print issues very effectively. On more mature equipment, more manual effort is involved and the systems are not close-looped (i.e., information from the systems does not automatically feed back to process controls). As far as finishing operations are concerned, cutting variances have been greatly improved as a result of newly installed cutters. In most facilities, the finishing operations are automated so as to reduce the risk of mixing one product label with another. Four of our facilities are registered to the ISO 9002 quality standards. 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 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 inventory and reduce costs by reducing warehousing capacity. 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 ENVELOPES We are the largest envelope printer in North America. 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: (1) 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; -106- (2) 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 United States Postal Service and the Canadian Post Corporation; and (3) the ability of our direct mail customers to include return materials in their mail-outs. Principal bases of competition are quality, service and price. Although all three are equally important, various customers may emphasize one or more over the others. COMMERCIAL PRINTING The commercial printing industry is highly competitive and fragmented. We are one of the leading commercial printers in the United States. 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. PRINTING FOR DISTRIBUTORS We are the largest printer of custom business documents for the distributor market in the United States. Our closest competitors 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. LABELS We are a leading printer of glue applied paper labels for the food and beverage industry. The labels industry is highly fragmented with a few large manufacturers with significant North American market presence. As a result of recent merger and acquisition activity, the food and beverage manufacturers have started to move toward centralized corporate purchasing. Premium or specialty labels are popular at the higher price and higher quality end of the market, usually premium branded beverages, such as spirits and wines. However, we expect that conventional glue- applied labels will continue to remain the industry label of choice due to increasingly cost conscious grocery shoppers, stiff pressure from large retailers to keep prices low, low inflationary levels and recent increases in commodity food prices. SEASONALITY Several consumer direct market segments served by our Envelopes division, such as photo finishing packaging 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. -107- Seasonality is offset by the diversity of our other products and markets which are not materially affected by seasonal conditions. The commercial printing industry 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 at certain times during these periods. EMPLOYEES We employ approximately 12,100 people. Approximately 3,000 people employed 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. ENVIRONMENTAL MATTERS Our operations are subject to federal, state and local environmental laws and regulations relating to air emissions, waste generation, handling, management and disposal, and at some facilities, wastewater treatment and discharge. We have implemented environmental programs designed to ensure that we operate in compliance with the applicable laws and regulations governing environmental protection. Our policy is that management at all levels be aware of the environmental impact of operations and direct such operations in compliance with applicable standards. We believe we are in substantial compliance with applicable federal, state and local laws and regulations relating to environmental protection. Although we do not anticipate that material capital expenditures will be required to achieve or maintain compliance with environmental laws and regulations, changing environmental laws and regulations might affect the printing industry as well as the manufacture or transportation of envelopes and related packaging products. For example, we will be subject to regulations being developed by the federal Environmental Protection Agency and state environmental agencies to implement the Clean Air Act Amendments of 1990. Accordingly, there can be no assurance that environmental matters resulting in material liabilities or expenditures will not be discovered or that, in the future, material expenditures for environmental matters will not be required by changes in law or regulations. The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (also known as the "Superfund" legislation), imposes joint and several liability, without regard to fault or the legality of the original conduct, on certain classes of persons for the costs of investigation and remediation of sites at which there have been releases or threatened releases of hazardous substances. These persons, known as potentially responsible parties ("PRPs"), include the owners and operators of property and persons that generated, disposed of or arranged for the disposal of hazardous substances found at a site. Many states have similar programs. Although certain of our predecessors have been designated as PRPs under CERCLA with respect to off-site disposal of hazardous waste, we believe that we have minimal exposure as a result of such designation, particularly because of the indemnifications described below. We have not been named as a PRP at any Superfund sites as a result of ongoing operations. Due to our waste management and minimization programs and our current use of permitted -108- hazardous waste disposal facilities, we do not believe that our current operations will give rise to future material liability under CERCLA. In the asset purchase agreement related to the Georgia Pacific ("GP") acquisition, GP agreed to retain all liabilities arising from releases of hazardous substances at any off-site locations occurring prior to the closing date of the GP acquisition (other than the migration of hazardous substances from adjacent locations to the plants or from the plants to adjacent locations). Accordingly, except for liability associated with migration, if any, the GP acquisition should not expose us to liability under CERCLA for historical off-site disposal practices. Additionally, GP agreed to indemnify and hold us harmless from damages that relate to the use, condition, ownership or operation of any purchased assets or the conduct of its envelope business on or prior to the closing date of the GP acquisition, including environmental third party claims. Such damages include on-site liabilities under CERCLA or corresponding state laws attributable to operations prior to the closing date. GP's indemnification obligation is subject to (1) a $35.0 million limitation and (2) a six-year term limit. This indemnity also is subject to contribution arrangements with us, which begin with GP paying 90% of the indemnifiable damages in the first two years and decreasing annually to 50% in the sixth year. The indemnity for environmental third party claims is not subject to any contribution arrangements. Conversely, we have agreed to indemnify GP for: (1) environmental liabilities incurred subsequent to the closing date; (2) environmental cleanup liabilities at the sites or related to migration to or from such sites incurred prior to the closing date, subject to contribution arrangements with GP, which begin with our paying 10% of the indemnifiable damages in the first two years increasing annually to 50% in the sixth year; and (3) third party claims for pre-closing events arising six years after the closing date. GP guaranteed all of GP's obligations under the asset purchase agreement related to the GP acquisition. In the asset purchase agreement related to the American Envelope Company acquisition, American Envelope agreed to indemnify and hold us harmless from certain liabilities and obligations. In addition to an indemnification for certain retained liabilities, the indemnification provides that: (1) American Envelope's indemnification obligation for out of pocket costs arising out of or related to certain disclosed environmental matters and the presence of any hazardous materials on the purchased assets ("Costs of Remediation") is subject to a $25.0 million limitation and a six year claims period; and (2) to the extent that a claim consists of costs and expenses related to any Costs of Remediation as to which American Envelope is obligated to indemnify us, the parties shall contribute and share in the items on a sliding scale. American Envelope bears 90% of each item of Costs of Remediation for which a claim has been made during the first two years after closing of the American Envelope acquisition, with American Envelope's share decreasing by 10% each subsequent year until the sixth anniversary of such closing date, when American Envelope's indemnification obligations related to unclaimed Costs of Remediation -109- matters cease. These sharing percentages are fixed based upon the date the claim is made with respect to any claim for Costs of Remediation and the parties' relative obligations with respect to any such claim do not change after that date. The indemnity for environmental third party claims is not subject to any contribution by Mail-Well, Inc. In connection with the American Envelope acquisition, American Envelope and Mail-Well, Inc. applied to and/or filed notices with regulatory agencies for the transfer or issuance of all material permits or authorizations relating to the operations of its plants and related facilities, including but not limited to, wastewater permits and air permits. All such permits and authorizations have been transferred or issued, as applicable. Environmental claims relating to the properties acquired in our various other acquisitions are not subject to separate indemnification provisions, but are subsumed under the general indemnification provisions of the applicable purchase agreements. Management is not aware of any existing environmental claims in connection with these acquired properties, and we believe that the indemnities provided will be adequate should any future claims arise. PROPERTIES At December 31, 1998, we operated 100 printing facilities in the United States and Canada, of which 51 were owned and 49 leased. In addition to on-site storage at each of the foregoing facilities, we also store products in 13 warehouses, of which 2 are owned. We also lease 12,000 square feet of office space for our corporate headquarters and 9,500 square feet for the Envelope division headquarters in Englewood, Colorado, and an additional 5,000 square feet of office space in Chicago, Illinois for information systems support persons. We believe that we have adequate facilities for the conduct of 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 Mail-Well I Corporation. In the case of administrative proceedings related to environmental matters involving governmental authorities, management does not believe that any imposition of monetary damages or fines would be material. -110- MANAGEMENT Under the terms of Mail-Well, Inc.'s Articles of Incorporation and Bylaws, each of the Directors named below is to serve until the next annual meeting of shareholders.
Name Age Position Director Since - ---- --- -------- -------------- Gerald F. Mahoney 55 Director, Chairman of the Board and Chief Executive Officer 1994 Paul V. Reilly 46 Director, President & Chief Operating Officer 1998 V. Bruce Thompson 51 Senior Vice President, Corporate Development Michael Zawalski 39 Senior Vice President, Chief Financial Officer Robert Meyer 42 Vice President, Treasury and Tax Roger Wertheimer 39 Vice President, General Counsel and Secretary Frank P. Diassi 65 Director 1993 Frank J. Hevrdejs 53 Director 1993 Jerome W. Pickholz 66 Director 1994 William R. Thomas 70 Director 1998 - --------- Member of the Nominating Committee. Member of the Compensation Committee. Member of the Audit Committee.
Gerald F. Mahoney has been a director, Chairman of the Board and Chief Executive Officer of Mail-Well, Inc. since February 1994. He was Chairman of the Board, President and Chief Executive Officer of Pavey Envelope and Tag Corp. from January 1991, until it became a subsidiary of Mail-Well, Inc. in February 1994. From September 1987 to September 1989, Mr. Mahoney served as President of Transkrit Corp., a business forms manufacturing company. Mr. Mahoney serves as Chairman of the Nominating Committee of the Board of Directors. Paul V. Reilly has been a director, President and Chief Operating Officer of Mail-Well, Inc. since January 1998. Prior to that, Mr. Reilly was Senior Vice President--Finance and Chief Financial Officer of Mail-Well, Inc. from September 1995. 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. During 1994 and 1995, Mr. Reilly worked with Saddle River Capital, an investment banking firm which purchased and managed small businesses and as Vice President with a direct marketer of educational materials. Mr. Reilly is a Certified Public Accountant. V. Bruce Thompson has been Senior Vice President, Corporate Development of Mail-Well, Inc. since August 1998. From 1994 until August 1998, Mr. Thompson was Senior Vice President, Marketing & Administration and General Counsel of Forest Oil Corporation, a publicly held exploration and production company. From 1993 to 1994, Mr. Thompson was Vice President, Legal Affairs for Mid-America Dairymen, Inc. From 1990 to 1993 he served as Chief of Staff for James M. Inhofe, currently a U.S. Senator for Oklahoma. -111- Michael Zawalski has been Senior Vice President and Chief Financial Officer of Mail-Well, Inc. since August 1998. From 1997 to 1998, Mr. Zawalski was Chief Financial Officer of Ryder TRS, Inc. a moving and transportation business, responsible for all facets of finance including investor and bank relations. From 1996 to 1997, Mr. Zawalski was Vice President--Finance with the Coleman Company, directing worldwide planning and analysis, tax, accounting and reporting. Prior to 1996, Mr. Zawalski also held various executive positions with Quaker Oats. Mr. Zawalski, a Certified Public Accountant, began his career with Arthur Andersen & Co. Robert Meyer has been Vice President, Treasury and Tax of Mail- Well, Inc. since October 1998. Mr. Meyer is a licensed attorney, Certified Public Accountant and Certified Financial Planner. From 1988 to 1998, Mr. Meyer was with the accounting firm of Deloitte & Touche LLP, as a Partner in their tax function. Roger Wertheimer has been 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. After that, Mr. Wertheimer had a private practice from March 1994 until February 1995, when he joined Mail-Well, Inc. Frank P. Diassi has been a director of Mail-Well, Inc. since its inception in November 1993. Mr. Diassi has been Chairman of Sterling Chemicals, Inc., a manufacturer of commodity chemicals, pulp chemicals, acrylic and fibers, since August 1996. He was a founding director of Arcadian Corporation, the largest nitrogen fertilizer company in North America. Mr. Diassi was formerly a Director and Chairman of the Finance Committee of Arcadian Corporation from 1989 to 1994. Mr. Diassi is a member of the Board of Directors of Fiberglass Holdings, Inc., Amerlux Corp. and Software Plus, Inc. Mr. Diassi serves as a member of the Compensation Committee of the Board of Directors. Frank J. Hevrdejs has been a director of Mail-Well, Inc. since its inception in November 1993. In 1982, Mr. Hevrdejs co-founded The Sterling Group, Inc., a major management buyout company. Mr. Hevrdejs is a principal and president of The Sterling Group, Inc. Additionally, he is Chairman of First Sterling Ventures, Corp., an investment company, Enduro Holdings, Inc., a structural and electrical manufacturing company, and Fiberglass Holdings, Inc., a truck accessory manufacturer. He is also a board member of Eagle U.S.A., an air-freight company and a board member of Sterling Chemicals, Inc., a petroleum chemical company. Mr. Hevrdejs serves as Chairman of the Compensation Committee of the Board of Directors. Jerome W. Pickholz has been a director of Mail-Well, Inc. 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. -112- Mr. Pickholz serves as the Chairman of the Audit Committee and as a member of the Nominating Committee of the Board of Directors. William R. Thomas has been a director of Mail-Well, Inc. since November 3, 1998. He has served as Chairman of the Board of Directors of Capital Southwest Corporation, a publicly owned venture capital investment company, since July 1982 and as President of that company since 1980. In addition, Mr. Thomas has been a director of Capital Southwest Corporation since 1972 and was previously Senior Vice President from 1969 to 1980. Mr. Thomas also serves as a director of Alamo Group, Inc., Encore Wire Corporation and Palm Harbor Homes, Inc. Mr. Thomas is a member of the Audit Committee. WHERE YOU CAN FIND MORE INFORMATION Mail-Well I Corporation has filed the registration statement with the Commission which registers the new notes being offered by this prospectus. The registration statement, including its attached exhibits and schedules, contains additional relevant information about Mail-Well I Corporation and the new notes. The rules and regulations of the Commission allow us to omit certain information included in the registration statement from this prospectus. Such additional information is available for inspection and copying at the offices of the Commission. Mail-Well, Inc. files annual, quarterly and current reports, proxy statements and other information with the Commission. You may read and copy any reports, statements or other information that Mail-Well, Inc. files at the following locations of the Commission: Public Reference Room New York Regional Office Chicago Regional Office Room 1024 13th Floor Suite 1400 450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street Washington, DC 20549 New York, NY 10048 Chicago, IL 60661
Please call the Commission at 1-800-SEC-0330 for further information. Mail-Well, Inc.'s public filings are also available from commercial document retrieval services and at the Internet web site maintained by the Commission at http://www.sec.gov. The Commission allows Mail-Well I Corporation to "incorporate by reference" information into this prospectus, which means that Mail-Well I Corporation can disclose important information to investors by referring them to another document filed separately by Mail-Well, Inc. with the Commission. The information incorporated by reference is deemed to be part of this prospectus, except for any information superseded by information contained directly in this document. This prospectus incorporates by reference: * Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-12551; * Mail-Well, Inc.'s Current Report on Form 8-K filed March 9, 1999, File No. 1-12551; * Mail-Well, Inc.'s Current Report on Form 8-K filed April 22, 1999, File No. 1-12551; and * the following sections of Mail-Well, Inc.'s Proxy Statement for the 1999 annual meeting of shareholders, filed on March 22, 1999: "Executive Officers and Executive -113- Compensation--Executive Compensation"; "--Stock Option Plans"; "--Employee Benefits"; "Compensation Committee Report on Executive Compensation"; and "Stock Price Performance Graph." These documents contain important information about Mail-Well, Inc. and its financial condition. Additional documents that Mail-Well, Inc. may file with the Commission between the date of this prospectus and the date this exchange offer is terminated are also incorporated by reference. These include any periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any proxy statements. You can obtain any of the documents incorporated by reference in, but not included with, this prospectus from Mail-Well I Corporation without charge, excluding all exhibits unless Mail-Well I Corporation has specifically incorporated by reference an exhibit in this prospectus, by requesting them in writing or by telephone from the following address: Mail-Well, Inc. Attn: Investor Relations 23 Inverness Way East, Suite 160 Englewood, Colorado 80112 Telephone: (303) 790-8023 LEGAL MATTERS Certain legal matters relating to the exchange offer will be passed upon for Mail-Well I Corporation by Rothgerber Johnson & Lyons LLP, Denver, Colorado, a limited liability partnership. Members of the firm collectively hold 13,449 shares of Mail-Well, Inc. Stock. EXPERTS The financial statements of Mail-Well, Inc. and its consolidated subsidiaries, except the 1997 and 1996 consolidated financial statements of Color Art, Inc. and subsidiaries, as of December 31, 1998, and 1997 and for each of the three years in the period ended December 31, 1998, and the related financial statement schedules included and incorporated by reference in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports, which are included and incorporated by reference herein. The 1997 and 1996 financial statements of Color Art, Inc. and subsidiaries (consolidated with those of Mail-Well, Inc.) have been audited by Rubin, Brown, Gornstein & Co., LLP, independent auditors, as stated in their reports, which are included and incorporated by reference. Such financial statements of Mail-Well, Inc. and its consolidated subsidiaries have been included and incorporated by reference herein in reliance upon the respective reports of such firms given upon their authority as experts in accounting and auditing. -114- INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES CONSOLIDATED FINANCIAL STATEMENTS Independent Auditors' Reports F-2 Consolidated Balance Sheets as of December 31, 1998 and 1997 F-4 Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997 and 1996 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 F-6 Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1998, 1997 and 1996 F-7 Notes to Consolidated Financial Statements F-8 CONSOLIDATED FINANCIAL STATEMENT SCHEDULES Condensed Balance Sheets as of December 31, 1998 and 1997 and Condensed Statements of Operations and Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 F-39 Valuation and Qualifying Accounts for the Years Ended December 31, 1998, 1997 and 1996 F-43 F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Mail-Well, Inc. We have audited the accompanying consolidated balance sheets of Mail- Well, Inc. and Subsidiaries ("Company") as of December 31, 1998 and 1997, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedules listed in the Index. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We did not audit the financial statements of Color Art, Inc. and Subsidiaries as of December 31, 1997 and for the years ended December 31, 1997 and 1996, which reflect total assets of $31,414,000 as of December 31, 1997 and total revenues of $76,099,000 and $66,023,000 for the years ended December 31, 1997 and 1996. Those financial statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Color Art, Inc. and Subsidiaries for such periods, is based solely on the report of such other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mail-Well, Inc. and Subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Denver, Colorado January 28, 1999 F-2 INDEPENDENT AUDITOR'S REPORT Board of Directors Color Art, Inc. St. Louis, Missouri We have audited the consolidated balance sheets of Color Art, Inc., an S Corporation, and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows for the years then ended (which are not included herein). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Color Art, Inc. and subsidiaries as of December 31, 1997 and 1996 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Rubin, Brown, Gornstein & Co. LLP St. Louis, Missouri March 6, 1998 (Except for Notes 7 and 13, which are dated May 15, 1998 and May 22, 1998, respectively) F-3 MAIL-WELL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
DECEMBER 31, ---------------------------------- 1998 1997 ---------- -------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,375 $ 40,911 Receivables, net 135,923 64,958 Investment in accounts receivable securitization 41,669 22,319 Accounts receivable-other 23,401 10,307 Inventories, net 114,131 86,268 Other current assets 19,351 10,135 ---------- -------- Total current assets 335,850 234,898 PROPERTY, PLANT AND EQUIPMENT, NET 437,732 262,797 GOODWILL, NET 322,149 153,927 OTHER ASSETS, NET 32,225 19,789 ---------- -------- TOTAL $1,127,956 $671,411 ========== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 87,023 $ 53,641 Accrued compensation and vacation 41,401 32,729 Other current liabilities 47,192 32,553 Current portion of long-term debt and capital leases 8,036 10,533 ---------- -------- Total current liabilities 183,652 129,456 LONG-TERM DEBT AND CAPITAL LEASES 583,427 330,357 DEFERRED INCOME TAXES 47,534 29,299 OTHER LONG-TERM LIABILITIES 10,468 6,979 ---------- -------- Total liabilities 825,081 496,091 ---------- -------- COMMITMENTS AND CONTINGENCIES (NOTE 6) MINORITY INTEREST IN NON VOTING STOCK OF SUBSIDIARY 3,500 3,500 ---------- -------- SHAREHOLDERS' EQUITY Preferred stock, $0.01 par value; 25,000 shares authorized, none issued and outstanding - - Common stock, $0.01 par value; 100,000,000 shares authorized, 48,846,904 and 43,042,959 shares issued at 1998 and 1997, respectively (including 3,896,544 shares held by ESOP) 488 430 Paid-in capital 217,218 102,475 Retained earnings 90,740 72,541 Unearned ESOP compensation - (2,406) Accumulated other comprehensive income (loss) (9,071) (1,220) ---------- -------- Total shareholders' equity 299,375 171,820 ---------- -------- TOTAL $1,127,956 $671,411 ========== ======== See notes to consolidated financial statements.
F-4 MAIL-WELL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, ---------------------------------------------- 1998 1997 1996 ---------- ---------- -------- NET SALES $1,504,686 $1,073,937 $944,494 COST OF SALES 1,185,373 834,212 740,665 ---------- ---------- -------- GROSS PROFIT 319,313 239,725 203,829 OTHER OPERATING COSTS Selling, administrative and other 200,193 153,897 133,697 Restructuring and other unusual charge 28,922 - - Merger costs 3,318 - - ---------- ---------- -------- Total other operating costs 232,433 153,897 133,697 ---------- ---------- -------- OPERATING INCOME 86,880 85,828 70,132 OTHER (INCOME) EXPENSE Interest expense 38,127 30,157 34,869 Other (income) expense (1,036) (2,088) 478 ---------- ---------- -------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 49,789 57,759 34,785 PROVISION FOR INCOME TAXES 23,948 22,783 13,627 ---------- ---------- -------- INCOME BEFORE EXTRAORDINARY ITEM 25,841 34,976 21,158 EXTRAORDINARY ITEM, NET OF TAX BENEFIT OF $2,587 and $3,814 (4,132) (6,100) - ---------- ---------- -------- NET INCOME $ 21,709 $ 28,876 $ 21,158 ========== ========== ======== EARNINGS PER SHARE - BASIC BEFORE EXTRAORDINARY ITEM $ 0.55 $ 0.86 $ 0.53 EXTRAORDINARY ITEM (0.08) (0.15) - EARNINGS PER SHARE - BASIC $ 0.47 $ 0.71 $ 0.53 EARNINGS PER SHARE - DILUTED BEFORE EXTRAORDINARY ITEM $ 0.53 $ 0.82 $ 0.52 EXTRAORDINARY ITEM (0.08) (0.14) - EARNINGS PER SHARE - DILUTED $ 0.45 $ 0.68 $ 0.52 WEIGHTED AVERAGE SHARES - BASIC 46,499 40,575 39,663 ========== ========== ======== WEIGHTED AVERAGE SHARES - DILUTED 48,585 43,027 40,449 ========== ========== ======== See notes to consolidated financial statements.
F-5 MAIL-WELL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, --------------------------------------------- 1998 1997 1996 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 21,709 $ 28,876 $ 21,158 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 30,678 21,590 21,602 Amortization 9,576 7,696 7,935 Extraordinary loss on early retirement of debt - pre-tax 6,719 9,914 - Restructuring charges 15,961 - - Deferred income taxes 12,204 8,512 9,328 ESOP compensation expense 14,326 2,614 1,973 (Gain) loss on disposal of assets (1,196) 2,719 1,785 Other (202) 38 533 Changes in operating assets and liabilities, net of effects of acquired businesses: Receivables (2,151) 11,177 11,220 Inventories 10,339 47 22,800 Accounts payable (7,164) (5,576) 4,213 Other working capital (13,787) 4,525 2,149 Other assets and other long-term liabilities (3,934) 2,277 (9,378) --------- --------- --------- Net cash provided by operating activities 93,078 94,409 95,318 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition costs, net of cash acquired (351,603) (82,874) (64,316) Capital expenditures (87,335) (36,838) (22,039) Proceeds from sale of assets and other 9,661 1,817 35,354 --------- --------- --------- Net cash used in investing activities (429,277) (117,895) (51,001) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Changes due to accounts receivable securitization, net (19,350) (12,814) 61,495 Net proceeds from common stock issuance 92,336 1,202 294 Proceeds from issuance of convertible subordinated notes, net of issuance costs - 147,436 - Proceeds from long-term debt 799,111 139,616 323,963 Repayments of long-term debt and capital leases (556,736) (219,125) (416,206) Debt issuance costs (9,184) - (1,800) Repurchase of stock, dividends and distributions by pooled entities (3,738) (5,254) (1,862) --------- --------- --------- Net cash provided by (used in) financing activities 302,439 51,061 (34,116) --------- --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (5,776) 1,039 (282) --------- --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS (39,536) 28,614 9,919 BALANCE AT BEGINNING OF YEAR 40,911 12,297 2,378 --------- --------- --------- BALANCE AT END OF YEAR $ 1,375 $ 40,911 $ 12,297 ========= ========= ========= See notes to consolidated financial statements.
F-6 MAIL-WELL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (IN THOUSANDS)
Accumulated Other Total Common Paid-In Retained Comprehensive Shareholders' Stock Capital Earnings Other Income (Loss) Equity ----- ------- -------- ----- ------------- ------ BALANCE AT DECEMBER 31, 1995 $436 $ 97,871 $29,166 $(5,243) $ (231) $121,999 Comprehensive income: Net income 21,158 21,158 Other comprehensive income (loss), net of tax: Pension liability adjustment 101 101 Currency translation adjustments (95) (95) Unrealized loss on investments (49) (49) -------- Other comprehensive income (loss) (43) -------- Total comprehensive income 21,115 Issuance of common stock 254 254 Exercise of stock options 40 40 Change in unearned ESOP 1,231 634 1,865 Repurchase of stock by pooled entities (109) (109) Distributions by pooled entities (1,753) (1,753) ---- -------- ------- ------- ------- -------- BALANCE AT DECEMBER 31, 1996 436 99,287 48,571 (4,609) (274) 143,411 Comprehensive income: Net income 28,876 28,876 Other comprehensive income (loss), net of tax: Pension liability adjustment 37 37 Currency translation adjustments (917) (917) Unrealized loss on investments (66) (66) -------- Other comprehensive income (loss) (946) -------- Total comprehensive income 27,930 Issuance of common stock 7 2,713 2,720 Exercise of stock options 2 199 201 Retirement of treasury stock (14) (1,699) 1,713 - Change in unearned ESOP 2,322 490 2,812 Distributions by pooled entities (4,161) (4,161) Repurchase of stock by pooled entities and other (1) (347) (745) (1,093) ---- -------- ------- ------- ------- -------- BALANCE AT DECEMBER 31, 1997 430 102,475 72,541 (2,406) (1,220) 171,820 Comprehensive income: Net income 21,709 21,709 Other comprehensive income (loss), net of tax: Pension liability adjustment (80) (80) Currency translation adjustments (7,648) (7,648) Unrealized loss on investments (123) (123) -------- Other comprehensive income (loss) (7,851) -------- Total comprehensive income 13,858 Issuance of common stock 53 104,216 104,269 Costs incurred from issuance of stock (4,733) (4,733) Exercise of stock options 5 1,763 1,768 Changes in unearned ESOP 11,367 2,406 13,773 Adjustment to deferred tax asset for pooled entities 2,358 2,358 Distributions by pooled entities (3,290) (3,290) Repurchase of stock by pooled entities - (228) (220) (448) ---- -------- ------- ------- ------- -------- BALANCE AT DECEMBER 31, 1998 $488 $217,218 $90,740 $ - $(9,071) $299,375 ==== ======== ======= ======= ======= ======== See notes to consolidated financial statements.
F-7 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS - Mail-Well, Inc. and subsidiaries (collectively referred to as the "Company") is one of the largest printers in North America. The Company prints and manufactures envelopes in the United States and Canada and is a leading commercial printer in the United States. The Company is also a printer of custom business documents for the distributor market and a printer of labels for the food and beverage industry. Within envelope printing, the Company competes primarily in the consumer direct segment in which envelopes are designed and manufactured to customer specifications. In addition, the Company manufactures stock envelopes sold in the office products and merchant/printer markets. The Company is also a leading commercial printer specializing in printing advertising literature, high-end catalogs, annual reports, calendars and computer instruction books and is recognized as an innovative provider of quality printed products to leading companies in the United States. Printing for Distributors products include both traditional and specialty products for small and medium-sized end users. The Company commenced operations on February 24, 1994 with the acquisition of the envelope businesses of Georgia-Pacific Corporation ("GP Envelope") and Pavey Envelope and Tag Corp. ("Pavey"). PRINCIPLES OF CONSOLIDATION - The Company, headquartered in Englewood, Colorado, is organized under Colorado law and its common stock is traded on the New York Stock Exchange. Mail-Well I Corporation ("MWI"), a wholly-owned subsidiary of Mail-Well, Inc., conducts most of the business of Mail-Well, Inc. MWI, together with its subsidiaries, is the owner of the Company's operating assets and the borrower of the debt (exclusive of the Convertible Subordinated Notes). All significant intercompany accounts and transactions have been eliminated. CASH AND CASH EQUIVALENTS - Cash and cash equivalents includes cash on hand, demand deposits, and short-term investments with original maturities of three months or less. The Company's domestic banking system provides for the daily replenishment of major bank accounts for check clearing requirements. Accordingly, outstanding checks that have not yet been paid by the banks at year end are reflected in accounts payable in the consolidated balance sheets. INVESTMENTS IN ACCOUNTS RECEIVABLE SECURITIZATION - In November 1996, the Company entered into a five-year accounts receivable securitization arrangement (the "Securitization") whereby it can sell, on a revolving basis, an undivided percentage ownership interest in a designated pool of accounts receivable up to a maximum of $100.0 million. The securitization represents a retained interest in the accounts receivable sold and is recorded at fair market value, with the unrealized gains and losses, net of tax, reported in other comprehensive income. INVENTORIES - Inventories are valued at the lower of first-in, first-out ("FIFO") cost or market and include the cost of materials, labor and manufacturing overhead. PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are recorded at cost. Replacements of major units of property are capitalized and the replaced properties are retired. Replacements of minor units of property and repair and maintenance costs are charged to expense as incurred. Depreciation for financial reporting purposes is calculated using the straight-line method based on the estimated useful lives of the respective assets (or the life of the lease, if shorter), as follows: Land improvements 25 years Buildings, building and leasehold improvements 15-45 years Machinery and equipment 15 years Furniture, fixtures and other 3-10 years INTANGIBLE ASSETS - In connection with the issuance of both bank debt and public debt as well as in connection with acquisitions, the Company recorded certain intangible assets. The following schedule summarizes the amortization periods and amortization expense recorded in connection with the intangible assets (in thousands): F-8 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
USEFUL Amortization of: LIFE 1998 1997 1996 ---- ------ ------ ------ Deferred Financing Costs 5-6 years $ 614 $2,913 $3,588 Debt Issue Costs 5 years 940 - - Goodwill 40 years 6,914 3,778 2,915 Non-Compete Agreements 3-5 years 652 489 1,153 Acquisition Costs and Other 5-21 years 456 516 279 ------ ------ ------ Total $9,576 $7,696 $7,935 ====== ====== ====== Amount included in interest expense in the consolidated statements of operations.
IMPAIRMENT OF LONG-LIVED ASSETS - The carrying amount of goodwill is reviewed if facts and circumstances suggest that it may be impaired. If this review indicates that goodwill will not be recoverable, as determined based on the estimated undiscounted cash flows of the entity acquired over the remaining amortization period, the carrying amount of the goodwill is reduced by the estimated shortfall of cash flows. In addition, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is based on future discounted net cash flows from the use of the asset. Goodwill associated with assets acquired in a purchase business combination is included in impairment evaluations when events or circumstances exist that indicate the carrying amount of those assets may not be recoverable. STOCK SPLITS - In June 1997, the Company effected a 3:2 stock split of its common stock, and in May 1998, the Company declared a 2:1 stock split of its common stock effective June 10, 1998. All common stock, paid-in capital, share and earnings per share information has been retroactively restated to reflect these splits. INCOME TAXES - The Company provides for deferred taxes on temporary differences arising from assets and liabilities whose bases are different for financial reporting and state, federal and foreign income tax purposes. The Company does not provide U.S. income taxes on the unremitted earnings of its foreign subsidiary ($25,615,000 at December 31, 1998) because the Company intends to indefinitely reinvest such unremitted earnings. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the foreign country. OTHER COMPREHENSIVE INCOME - Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," ("SFAS 130") which establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of SFAS 130 had no impact on the Company's net income or shareholders' equity. SFAS 130 requires the Company's pension liability adjustment, currency translation adjustments, and unrealized gains and losses on its investments, which prior to adoption were reported separately in shareholders' equity, to be included in accumulated other comprehensive income. Prior year amounts have been reclassified to conform to the requirements of SFAS 130. NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (the "Statement"). The Statement, which will be effective for the year 2000, requires derivative instruments to be recorded in the balance sheet at their fair value with changes in fair value being recognized in earnings unless specific hedging accounting criteria are met. Although the Company believes it has a minimal current level of hedging and derivative activity, it has not determined the impact of this statement on its operations and financial position. EARNINGS PER SHARE - Earnings per share is computed in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). Basic earnings per share excludes dilution and is computed by dividing earnings available to common shareholders by the weighted average number of F-9 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings. The unallocated shares issued under the Employee Stock Ownership Plan are excluded from both the basic and diluted earnings per share calculations. The effect of the convertible subordinated notes, which could potentially dilute earnings per share, was not included in the computation for the year ended December 31, 1998 because the result would have been antidilutive.
INCOME SHARES PER-SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- ------ FOR THE YEAR ENDED DECEMBER 31, 1998 EARNINGS PER SHARE - BASIC Income available to common shareholders $25,841 46,499 $0.55 ===== EFFECT OF DILUTIVE SECURITIES Stock options - 1,650 Other - 436 ------- ------ EARNINGS PER SHARE - DILUTED Income available to common shareholders including assumed conversions $25,841 48,585 $0.53 ======= ====== ===== FOR THE YEAR ENDED DECEMBER 31, 1997 EARNINGS PER SHARE - BASIC Income available to common shareholders $34,976 40,575 $0.86 ===== EFFECT OF DILUTIVE SECURITIES Stock options - 1,508 Convertible Subordinated Notes 476 834 Other - 110 ------- ------ EARNINGS PER SHARE - DILUTED Income available to common shareholders including assumed conversions $35,452 43,027 $0.82 ======= ====== ===== FOR THE YEAR ENDED DECEMBER 31, 1996 EARNINGS PER SHARE - BASIC Income available to common shareholders $21,158 39,663 $0.53 ===== EFFECT OF DILUTIVE SECURITIES Stock options - 507 Other - 279 ------- ------ EARNINGS PER SHARE - DILUTED Income available to common shareholders including assumed conversions $21,158 40,449 $0.52 ======= ====== =====
FOREIGN CURRENCY TRANSLATION - The financial statements include the results of Canadian operations which are translated from Canadian dollars, their functional currency, into U.S. dollars. The balance sheet is translated at the year end rate of exchange. Results of operations are translated at average rates prevailing during the year. The effects of translation are included as a component of other comprehensive income (loss). Foreign currency transaction gains and losses are recorded in income when realized. F-10 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. Actual results could differ from those estimates. RECLASSIFICATIONS - Certain reclassifications have been made to the 1996 and 1997 financial statements to conform to the 1998 presentation. 2. MERGERS WITH COMMERCIAL PRINTING COMPANIES Effective May 30, 1998, the Company completed its mergers with seven commercial printing companies through the exchange of common stock, which had a market value of $21.965 per share, as shown in the table below:
SHARES OF MAIL-WELL OPERATING COMPANY NAME COMMON STOCK EXCHANGED Color Art, Inc. ("Color Art") 2,351,951 Accu-color, Inc. ("Accu-color") 622,391 Industrial Printing Company ("Industrial Printing") 570,161 IPC Graphics, Inc. ("IPC Graphics") 325,973 United Lithograph, Inc. ("United Lithograph") 519,568 French Bray, Inc. ("French Bray") 538,040 Clarke Printing, Co. ("Clarke Printing") 437,984
The consolidated financial statements give retroactive effect to the mergers, which have been accounted for using the pooling of interests method and, as a result, the financial position, results of operations and cash flows are presented as if the combining companies had been consolidated for all periods presented. The consolidated statements of changes in shareholders' equity reflect the accounts of the Company as if the additional common stock had been issued during all periods presented. Color Art is a commercial printer with offices located in St. Louis and Osage Beach, Missouri, and also the operator of a short- run printing and graphics company through its subsidiary Graphic Links, LLC. Accu-color, located in St. Louis, Missouri, is primarily a supplier of color separation and other graphic arts services to the printing and advertising industries. Industrial Printing is located in Toledo, Ohio and is engaged in the printing and selling of advertising pieces and labels, and general commercial printing. IPC Graphics prints and sells advertising pieces, mailers and business forms from its facilities in Toledo, Ohio. United Lithograph provides commercial printing services to individuals and businesses located in the New England region from its offices in Somerville, Massachusetts. French Bray, located in Glen Burnie, Maryland, provides commercial, high quality, multi- color printing in the Mid-Atlantic region. Clarke Printing designs, manufactures and sells printed materials throughout Texas and Mexico. The companies listed above are hereafter collectively referred to as the Commercial Printing Group. Each of the mergers was negotiated and consummated as separate transactions and the separate mergers were not contingent upon each other. Except for French Bray and Clarke Printing, all of the above entities had elected Subchapter S corporation treatment for U.S. federal income tax purposes and, accordingly, did not pay U.S. federal income taxes. Subsequent to May 30, 1998, these companies were included in Mail-Well's consolidated U.S. federal income tax return. In connection with the mergers, the Company also issued common stock to acquire the net assets (including the assumption of the debt associated with such assets) of certain related real estate ventures owned by shareholders of the commercial printing companies. The shares of the Company's common stock exchanged for real estate assets are included with the shares exchanged for F-11 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) the respective operating company in the table above. The results of operations and financial conditions of the real estate assets are reflected in the restated consolidated financial statements with significant intercompany transactions and balances eliminated. The mergers with the real estate entities have been accounted for as taxable business combinations and the recognizable tax benefits attributable to the increase in tax basis were allocated to additional paid-in-capital. Each of the above transactions has been accounted for individually as a pooling of interests and, accordingly, the consolidated financial statements for the periods subsequent to February 24, 1994 (inception) have been restated to include the accounts of the Commercial Printing Group. Prior to the mergers, Industrial Printing's and IPC Graphics' fiscal year ended on September 30, United Lithograph's fiscal year ended on June 30 and French Bray's fiscal year ended on July 31. Accordingly, the accompanying financial statements include those financial statements of entities with different fiscal years restated on a calendar year basis. Additionally, the accompanying consolidated financial statements reflect certain minor adjustments to conform the accounting policies of the Commercial Printing Group to the Company's. Net sales, income before extraordinary items and net income of the separate companies for the periods preceding the mergers were as follows:
UNAUDITED INCOME (LOSS) UNAUDITED PRO FORMA BEFORE NET PRO FORMA DILUTED NET EXTRAORDINARY INCOME NET INCOME EARNINGS (THOUSANDS, EXCEPT PER SHARE AMOUNTS) SALES ITEMS (LOSS) (LOSS) PER SHARE ----- ----- ------ ----------- --------- QUARTER ENDED MARCH 31, 1998 (UNAUDITED) Mail-Well, Inc. as previously reported $ 274,705 $ 9,510 $ 9,510 $ 9,510 Pooled entities 44,029 23 23 (752) ---------- ------- ------- ------- Combined $ 318,734 $ 9,533 $ 9,533 $ 8,758 $0.18 ========== ======= ======= ======= ===== YEAR ENDED DECEMBER 31, 1997 Mail-Well, Inc. as previously reported $ 897,560 $28,276 $22,176 $22,176 Color Art 76,099 3,218 3,218 1,930 Accu-color 14,409 1,550 1,550 930 Industrial Printing 19,499 769 769 461 IPC Graphics 10,429 405 405 243 United Lithograph 21,232 502 502 301 French Bray 23,353 (178) (178) (178) Clarke Printing 11,356 434 434 434 ---------- ------- ------- ------- Pooled entities 176,377 6,700 6,700 4,121 ---------- ------- ------- ------- Combined $1,073,937 $34,976 $28,876 $26,297 $0.62 ========== ======= ======= ======= ===== YEAR ENDED DECEMBER 31, 1996 Mail-Well, Inc. as previously reported $ 778,524 $16,927 $16,927 $16,927 Color Art 66,023 1,970 1,970 1,182 Accu-color 15,572 629 629 377 Industrial Printing 24,642 540 540 324 IPC Graphics 2,262 30 30 18 United Lithograph 20,012 420 420 252 French Bray 28,046 454 454 454 Clarke Printing 9,413 188 188 188 ---------- ------- ------- ------- Pooled entities 165,970 4,231 4,231 2,795 ---------- ------- ------- ------- Combined $ 944,494 $21,158 $21,158 $19,722 $0.49 ========== ======= ======= ======= ===== F-12 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Unaudited pro forma net income reflects adjustments to net income to record an estimated provision for income taxes for each period presented assuming Color Art, Accu-color, Industrial Printing, IPC Graphics and United Lithograph were tax paying entities. Income (loss) includes aggregate merger expenses of the Commercial Printing Group totaling $2.2 million in the first quarter of 1998. IPC Graphics was spun-off from Industrial Printing on October 1, 1996. The results of IPC Graphics prior to October 1, 1996 are included in the results of Industrial Printing, and the spin-off transaction has been eliminated in the Company's consolidated financial statements.
In connection with the mergers, transaction costs incurred by the Commercial Printing Group of approximately $3.3 million were expensed during 1998. These costs consist primarily of investment banking, legal and accounting fees. 3. ACQUISITIONS The presentation below summarizes the Company's 1998 acquisitions:
ESTIMATED ANNUAL MONTH OPERATING SALES NAME OF BUSINESS ACQUIRED LOCATION ACQUIRED SEGMENT (MILLIONS) - ------------------------- -------- -------- ------- ---------- Poser Business Forms, Inc. Fairhope, Alabama January Distributors $ 90 Rono Graphic Communications Portland, Oregon March Commercial 12 Lawson Mardon Label Division Toronto, Ontario March Labels 81 Denver Forms Company Denver, Colorado March Distributors 12 National Graphics Company Denver, Colorado March Envelopes 8 EPX Denver Denver, Colorado March Distributors 4 Blue Line Envelope Montreal, Quebec April Envelopes 6 South Press, Inc. Dallas, Texas April Commercial 12 Century Index Corporation Anaheim, California May Envelopes 8 Label Division, IP Paper Bowling Green, Kentucky May Labels 30 Anderson Lithograph Los Angeles, California May Commercial 135 Illinois Envelope, Inc. Kalamazoo, Michigan June Envelopes 7 Gould Packaging, Inc. Vancouver, Washington June Envelopes 14 Graphics Illustrated, Inc. West Palm Beach, Florida August Commercial 11 McLaren, Morris and Todd Ltd. Mississauga, Ontario August Commercial 34 John D. Lucas Printing Co. Baltimore, Maryland August Commercial 27 Armstrong-White, Inc. Bloomfield Hills, Michigan August Commercial 2 Richtman Printing Englewood, Colorado September Commercial 6 Production Press, Inc. Jacksonville, Illinois September Commercial 9 Apico Corporation Girard, Kansas October Distributors 10 Perfection Forms Girard, Kansas October Distributors 10 Trafton Printing, Inc. Amarillo, Texas October Commercial 9 Imperial Litho and Dryography Phoenix, Arizona November Commercial 26 ---- $563 ====
The presentation below summarizes the purchase price, including all adjustments made through December 31, 1998. These acquisitions have been accounted for as purchases and, accordingly, the net purchase price of each acquisition was allocated to the various assets and liabilities according to their estimated fair values as of the date of the respective purchase. The results of operations of each of the acquisitions have been included in the accompanying consolidated statements of operations from the date of the acquisition. F-13 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CASH AND TOTAL TYPE OF MONTH STOCK DEBT PURCHASE GOODWILL (IN MILLIONS) PURCHASE ACQUIRED PAID ASSUMED PRICE RECORDED -------- -------- ---- ------- ----- -------- 1996 Acquisitions Quality Park Products Assets April $ 27.6 $0.7 $ 28.3 $ 3.4 Pac National Group Assets November 20.2 0.0 20.2 6.4 Shepard Poorman (SP) Stock December 18.9 0.8 19.7 7.9 1997 Acquisitions Six acquisitions, as a group Assets (3) June, July, 86.4 0.6 87.0 38.1 Stock (3) September, October and December 1998 Acquisitions 23 acquisitions, as a group Assets (10) Various 360.4 9.1 369.5 170.2 Stock (13)
The fair value of stock issued for acquisitions was $8,780,000 and $6,018,000 for the years ended December 31, 1998 and 1997, respectively. The following table presents the unaudited pro forma results of operations as if the 1998, 1997 and 1996 acquisitions had occurred on January 1, 1997, 1996 and 1995, respectively. The summary pro forma results are based on assumptions and are not necessarily indicative of the actual results which would have occurred had these acquisitions occurred on January 1 of the year preceding the acquisition date, or of the future results of operations of the Company.
YEAR ENDED DECEMBER 31, (IN MILLIONS, EXCEPT PER SHARE) 1998 1997 1996 ---- ---- ---- Net sales $1,729.4 $1,726.7 $1,193.6 Income before extraordinary item 32.5 47.2 17.9 Extraordinary item (4.1) (6.1) - Net income $ 28.4 $ 41.1 $ 17.9 Earnings per basic share: Income before extraordinary item $ 0.69 $ 1.16 $ 0.45 Extraordinary item (0.08) (0.15) - Net income $ 0.61 $ 1.01 $ 0.45 Earnings per diluted share: Income before extraordinary item $ 0.66 $ 1.11 $ 0.44 Extraordinary item (0.08) (0.14) - Net income $ 0.58 $ 0.97 $ 0.44
In connection with the acquisition of Murray Envelope Corporation, in July 1997, a subsidiary of the Company issued 220,472 shares of non-voting common stock. These shares are redeemable by the holder during the period from January 1, 1999 to February 1, 2000 for $3,500,000. Alternatively, the holder may convert these shares into an equal number of shares of the Company's common stock. This interest in the non-voting common stock of the subsidiary has been recorded as a minority interest in the consolidated balance sheet. Certain purchase agreements require the payment of additional consideration in the form of cash payments if specific operating performance criteria are met. Any subsequent payment will be allocated to goodwill. In addition, purchase price allocation for certain acquisitions have not been finalized. Therefore, the amount of goodwill could be adjusted within one year of the purchase. F-14 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
DECEMBER 31, (IN THOUSANDS) 1998 1997 ---- ---- INVENTORIES: Raw materials $ 45,720 $ 34,656 Work in process 22,089 12,428 Finished goods 49,256 42,132 --------- -------- 117,065 89,216 Reserve for obsolescence, loss and other (2,934) (2,948) --------- -------- Total $ 114,131 $86,268 ========= ======== PROPERTY, PLANT AND EQUIPMENT: Land and land improvements $ 23,818 $ 14,667 Buildings, building and leasehold improvements 115,264 73,567 Machinery and equipment 336,509 229,214 Furniture, fixtures and other 33,108 26,453 Construction in progress 37,982 10,435 --------- -------- 546,681 354,336 Less accumulated depreciation (108,949) (91,539) --------- -------- Total $ 437,732 $262,797 ========= ======== RESERVES: Allowance for doubtful accounts receivable $ (6,727) $ (3,795) Accumulated amortization: Deferred financing costs (1,413) (2,000) Goodwill (15,902) (9,030) Other intangibles included in other assets (5,169) (4,386)
5. LONG-TERM DEBT AND CAPITAL LEASES Long term debt consists of the following (in thousands):
INTEREST RATE AT DECEMBER 31, DECEMBER 31, 1998 1998 1997 ----------------- ---- ---- Bank Borrowings: Unsecured loan, due June 9, 2003 6.88% $ 25,461 $ - Unsecured revolving loan facility, due March 31, 2003 5.875% 93,000 - Demand note - 55,393 Senior Subordinated Notes, due 2004 10.5% - 85,000 Senior Subordinated Notes, due 2008 8.75% 300,000 - Convertible Subordinated Notes, due 2002 5.0% 152,050 152,050 Other 20,952 48,447 -------- -------- 591,463 340,890 Less current maturities (8,036) (10,533) -------- -------- Long term debt and capital leases $583,427 $330,357 ======== ========
In November 1998, Mail-Well I Corporation issued $300,000,000 of 8.75% Senior Subordinated Notes (the "Senior Notes"), the net proceeds of which were used to legally extinguish the $85,000,000 of senior subordinated notes due 2004 and repay a portion of the unsecured line of credit. The Senior Notes constitute unsecured obligations of the Company. The Company can redeem the Senior Notes, in whole or in part, on or after December 15, 2003, at redemption prices which range from 100% to 104.375%, plus accrued and unpaid F-15 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) interest. In addition, before December 15, 2001, the Company can redeem up to 35% of the Senior Notes at 108.75% of the principal amount thereof, plus accrued and unpaid interest, with the net cash proceeds from certain common stock offerings. Each holder of the Senior Notes has the right to require the Company to repurchase the Notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest thereon, upon the occurrence of certain events constituting a change of control of the Company. On March 18, 1998, the Company entered into a revolving loan facility totaling $300 million with Bank of America, the lead agent for its syndicate of banks. The new bank facility consists of a five-year unsecured revolving loan facility. The same bank agreed to lend the Company and one of its Canadian subsidiaries up to an additional $20.0 million at LIBOR plus 0.75% per annum under a similar revolving credit facility. There were $93,000,000 and no amounts outstanding under these facilities as of December 31, 1998, respectively. In November 1997, the Company issued $152,050,000 of Convertible Subordinated Notes (the "Notes"). The Notes constitute unsecured subordinated obligations of the Company. The Notes are convertible at the option of the holder into shares of the Company's common stock, par value $0.01 per share, at a conversion price of $19.00 per share at anytime prior to November 1, 2002. In addition, each holder of the Notes has the right to require the Company to repurchase the Notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest thereon, upon the occurrence of certain events constituting a change of control of the Company. Other long-term debt is comprised of capital lease obligations and term debt with banks of the Commercial Printing Group. Interest rates on other term debt with banks range from 6.0% to 9.0% at December 31, 1998. In 1998, the Company wrote off deferred financing costs of $4,132,000 (net of $2,587,000 of income tax benefits) capitalized in connection with the bank debt which was repaid in November 1998. In 1997, the Company wrote off deferred financing costs of $6,100,000 (net of $3,814,000 of income tax benefits) capitalized in connection with the bank debt which was repaid in November 1997. The write-offs are shown as extraordinary items in the statements of operations. The long-term debt agreements contain certain restrictive covenants that, among other things and with certain exceptions, limit the ability of the Company to incur additional indebtedness or issue capital stock, prepay subordinated debt, transfer assets outside of the Company, pay dividends or repurchase shares of common stock. In addition to these restrictions, the Company is required to satisfy certain financial covenants. The aggregate annual maturities for all long-term debt during the fiscal years subsequent to December 31, 1998 are (in thousands): 1999 $ 8,036 2000 13,566 2001 7,366 2002 160,031 2003 98,096 2004 and thereafter 304,368 -------- $591,463 ======== Cash paid for interest on long-term debt was $33,996,000, $22,818,000 and $28,886,000 for the years ended December 31, 1998, 1997 and 1996, respectively. F-16 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. COMMITMENTS AND CONTINGENCIES In November 1996, the Company entered into a five-year agreement whereby it can sell, on a revolving basis, an undivided percentage ownership interest in a designated pool of accounts receivable up to a maximum of $100.0 million. At December 31, 1998 and 1997, $52.6 million and $72.0 million, respectively, had been sold (without recourse) under this agreement and the sale was reflected as a reduction of accounts receivable in the Company's consolidated balance sheets. The Company has retained a securitized interest in the accounts receivable of $41.7 million and $22.3 million at December 31, 1998 and 1997, respectively. The receivables were sold at a discount of 0.60% above the prevailing commercial paper rate plus certain other fees. The discount expense of $4.4 million, $4.9 million and $0.7 million on the receivables sold has been recorded in the Company's statements of operations for the years ended December 31, 1998, 1997 and 1996, respectively. In November 1996, the Company refinanced certain equipment under a sale/leaseback arrangement. The equipment was sold for $30.0 million. The transaction was accounted for as a sale whereby the equipment was removed from the Company's financial statements. There was no significant gain or loss on the sale of the equipment. In 1997, the Company reacquired the equipment from the original lessor and sold and leased back such equipment from a new buyer-lessor. The purchase price from the old buyer-lessor and selling price to the new buyer-lessor approximated its then fair market value ($27.6 million). The leasebacks are classified as operating leases. At the end of the five year lease term, the Company may either (i) purchase the equipment for $16.0 million, (ii) sell the equipment on behalf of the lessor for a selling price of no less than $13.2 million or (iii) return the equipment to the lessor. If the Company elects to return the equipment to the lessor at the end of the lease term, the Company has guaranteed a residual value of $13.2 million for the benefit of the lessor. The Company leases various office, warehouse and manufacturing facilities under operating leases. Minimum annual lease commitments at December 31, 1998 were as follows (in thousands): 1999 $ 22,548 2000 19,304 2001 16,961 2002 14,589 2003 13,993 2004 and thereafter 12,950 -------- Total $100,345 ======== Lease expense for the years ended December 31, 1998, 1997 and 1996 was $25,831,000, $17,301,000 and $6,890,000, respectively. The Company is involved in various lawsuits incidental to its businesses. In management's opinion, an adverse determination against the Company relating to these suits would not be material to the consolidated financial statements. In the case of administrative proceedings related to environmental matters involving governmental authorities, management does not believe that any imposition of monetary sanctions would be material to the Company's results of operations and financial position. F-17 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. FAIR VALUE OF FINANCIAL INSTRUMENTS The following is a comparison of the fair value and carrying value at December 31, 1998 and 1997 of the Company's financial instruments (in thousands):
1998 1997 FAIR CARRYING FAIR CARRYING VALUE VALUE VALUE VALUE ----- ----- ----- ----- Financial assets Cash and cash equivalents $ 1,375 $ 1,375 $ 40,911 $ 40,911 Receivables (trade) 135,923 135,923 64,958 64,958 Investment in accounts receivable securitization 41,669 41,669 22,319 22,319 Financial liabilities Unsecured loan 24,465 25,461 - - Demand note - - 55,393 55,393 Unsecured revolving loan facility 89,114 93,000 - - Senior subordinated notes 304,500 300,000 91,163 85,000 Convertible subordinated notes 128,482 152,050 185,501 152,050 Other long-term debt 20,952 20,952 48,447 48,447
CASH AND CASH EQUIVALENTS AND RECEIVABLES - The carrying value of cash and cash equivalents and receivables approximates fair value due to the short term maturities of these investments. INVESTMENT IN ACCOUNTS RECEIVABLE SECURITIZATION - The fair value of the investment in accounts receivable securitization is based on discounting expected cash flows at rates currently available to the Company for instruments with similar risks and maturities. LONG-TERM DEBT - The fair value of the Company's long term debt to banks is based on quoted interest rates for borrowings of similar quality and terms. The fair value of the senior subordinated notes and the convertible subordinated notes is based upon quoted market prices. The fair value of other long-term debt was estimated using the incremental borrowing rate for each company for debt of the same remaining maturities. CONCENTRATIONS OF CREDIT RISK - Financial instruments that potentially subject the Company to significant concentrations of credit risk consists primarily of accounts receivable. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of entities comprising the Company's customer base and their dispersion across many different industries and geographic areas. As of December 31, 1998 and 1997, the Company had no significant concentrations of credit risk. 8. SHAREHOLDERS' EQUITY AND STOCK OPTION PLAN SECURITIES OFFERING - On November 13, 1997, the Company's shelf registration statement ("shelf") on Form S-3 was declared effective by the Securities and Exchange Commission. The shelf permits the Company to issue up to $300.0 million in debt securities, common stock, preferred stock or warrants over the two-year period following the effective date. On February 11, 1998, the Company completed the sale of 6,000,000 shares of its common stock at a price of $19.625 per share. Of these shares, the Company sold 4,864,600 and 1,135,400 were sold by a group of shareholders. Proceeds from the sale of common stock by the Company of $90.7 million, net of underwriting discounts and commissions, were used for general corporate purposes. The February 1998 stock offering and the Convertible Subordinated Notes were issued under the shelf registration statement and, at December 31, 1998, there was availability to issue another $52 million of securities under the shelf registration statement. PREFERRED STOCK - The Company has authorized 25,000 shares of $0.01 par value preferred stock. No shares have been issued at December 31, 1998 or 1997. F-18 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) STOCK OPTION PLANS - The following summarizes the various stock option plans at December 31, 1998:
OPTIONS OPTIONS OPTIONS ELIGIBLE TO YEARS TO AUTHORIZED OUTSTANDING BE ISSUED FULL VESTING ---------- ----------- --------- ------------ 1994 Stock Option Plan 1,918,350 1,143,757 71,272 4 or 5 1996 Directors Stock Option Plan 420,000 60,000 318,000 Immediately 1997 Non-Qualified Stock Option Plan 1,950,000 1,106,130 764,670 5 years Allied Acquisition Non-Qualified Stock Option Plan 124,800 119,902 - 4 years 1998 Incentive Stock Option Plan 1,000,000 189,970 810,030 5 years Plan is for directors and key employees Plan is for directors only Plan is for key employees of The Allied Printers
All grants expire ten years from the grant date or until 90 days after termination of a directorship. All grants are administered by the Compensation Committee of the Board of Directors. On the grant date, all options had an exercise price equal to or greater than the fair market value of the Company's common stock. The following is a summary of the Company's stock option activity:
WEIGHTED AVERAGE WEIGHTED REMAINING AVERAGE EXERCISE CONTRACTUAL EXERCISE OPTIONS PRICE LIFE PRICE ------- ----- ---- ----- Outstanding, December 31, 1995 832,958 $1.32 - $1.43 8.8 years $ 1.33 1996 Granted 481,500 $3.01 - $3.74 $ 3.67 Exercised (30,258) $1.32 $ 1.32 Canceled or forfeited (7,674) $1.32 $ 1.32 --------- Outstanding, December 31, 1996 1,276,526 $1.32 - $3.74 9.2 years $ 2.21 1997 Granted 1,784,202 $6.17 - $13.69 $ 7.29 Exercised (144,986) $1.32 - $3.74 $ 1.42 Canceled or forfeited (88,272) $1.32 - $3.74 $ 1.49 --------- Outstanding, December 31, 1997 2,827,470 $1.32 - $13.69 8.9 years $ 5.48 1998 Granted 661,194 $9.31 - $21.86 $12.80 Exercised (493,249) $1.32 - $13.69 $ 3.70 Canceled or forfeited (375,656) $1.32 - $19.03 $ 7.27 --------- Outstanding, December 31, 1998 2,619,759 $1.32 - $21.86 8.2 years $ 7.37 ========= Vested and exercisable at December 31, 1996 219,974 $1.32 - $3.74 $ 1.65 ========= Vested and exercisable at December 31, 1997 424,896 $1.32 - $ 9.50 $ 3.05 ========= Vested and exercisable at December 31, 1998 569,943 $1.32 - $21.86 $ 5.56 =========
F-19 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following table summarizes information about stock options outstanding at December 31, 1998:
OPTIONS WEIGHTED WEIGHTED WEIGHTED OUTSTANDING AT AVERAGE AVERAGE OPTIONS VESTED AVERAGE RANGE OF DECEMBER 31, REMAINING EXERCISE AT DECEMBER 31, EXERCISE EXERCISE PRICES 1998 LIFE PRICE 1998 PRICE - --------------- ---- ---- ----- ---- ----- $ 1.32 - $ 3.74 610,065 7.0 years $ 2.56 298,452 $ 2.41 $ 6.17 - $ 7.00 1,242,092 8.2 years $ 6.64 190,440 $ 6.65 $ 9.11 - $12.00 614,700 9.3 years $11.74 28,950 $ 9.58 $13.54 - $13.69 128,902 8.6 years $13.68 28,101 $13.68 $19.03 - $21.86 24,000 9.3 years $21.86 24,000 $21.86 --------- ------- $ 1.32 - $21.86 2,619,759 8.2 years $ 7.37 569,943 $ 5.56 ========= =======
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations in accounting for its employee stock option plans. The exercise price of the stock options is the fair value of the common stock as of the date of grant. Accordingly, no compensation cost has been recognized. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") was issued in October 1995 and, if fully adopted by the Company, would change the method for recognition of cost. Under SFAS 123, compensation expense is based upon the fair value of each option at the date of grant using an option-pricing model that takes into account as of the grant date the exercise price and expected life of the option, the current price of the underlying stock and its expected volatility, expected dividends on the stock and the risk-free interest rate for the expected term of the option. Had compensation expense been determined based on the guidance in SFAS 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below. The weighted average fair values of options granted in 1998, 1997 and 1996 were $6.73, $3.83 and $1.72, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for grants:
DIVIDEND EXPECTED RISK FREE EXPECTED YIELD VOLATILITY INTEREST RATE LIFE ----- ---------- ------------- ---- March 1, 1995 Options 0% 33% 7.2% 5 and 6 years May 8, 1996 Options 0% 38% 6.2% 4 years October 1, 1996 Options 0% 44% 6.7% 5 and 6 years 1997 Options 0% 54% 5.4% 5 years 1998 Options 0% 68% 4.8% 5 years
F-20 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following table presents the pro forma effect of applying SFAS 123:
1998 1997 1996 --------------------- --------------------- -------------------- (IN THOUSANDS, EXCEPT AS PRO AS PRO AS PRO PER SHARE AMOUNTS) REPORTED FORMA REPORTED FORMA REPORTED FORMA -------- ----- -------- ----- -------- ----- Income before extraordinary item $25,841 $24,073 $34,976 $33,852 $21,158 $20,956 Extraordinary item (4,132) (4,132) (6,100) (6,100) - - Net income $21,709 $19,941 $28,876 $27,752 $21,158 $20,956 Income per basic share before extraordinary item $ 0.55 $ 0.52 $ 0.86 $ 0.83 $ 0.53 $ 0.53 Net income per basic share $ 0.47 $ 0.43 $ 0.71 $ 0.68 $ 0.53 $ 0.53 Income per diluted share before extraordinary item $ 0.53 $ 0.50 $ 0.82 $ 0.80 $ 0.52 $ 0.52 Net income per diluted share $ 0.45 $ 0.41 $ 0.68 $ 0.66 $ 0.52 $ 0.52
The effects of applying SFAS 123 in this pro forma disclosure may not be indicative of future amounts. Additional awards in future years are anticipated. OTHER COMPREHENSIVE INCOME - The income tax effects allocated to and the cumulative balance of each component of other comprehensive income (loss) are as follows (in thousands):
TAX BEGINNING BEFORE-TAX (BENEFIT) NET-OF-TAX ENDING BALANCE AMOUNT EXPENSE AMOUNT BALANCE ------- ------ ------- ------ ------- DECEMBER 31, 1998 Pension liability adjustment $ (73) $ (120) $ (40) $ (80) $ (153) Currency translation adjustments (1,032) (7,648) - (7,648) (8,680) Unrealized loss on investments (115) (199) (76) (123) (238) ------- ------- ----- ------- ------- $(1,220) $(7,967) $(116) $(7,851) $(9,071) ======= ======= ===== ======= ======= DECEMBER 31, 1997 Pension liability adjustment $ (110) $ 61 $ 24 $ 37 $ (73) Currency translation adjustments (115) (917) - (917) (1,032) Unrealized loss on investments (49) (108) (42) (66) (115) ------- ------- ----- ------- ------- $ (274) $ (964) $ (18) $ (946) $(1,220) ======= ======= ===== ======= ======= DECEMBER 31, 1996 Pension liability adjustment $ (211) $ 166 $ 65 $ 101 $ (110) Currency translation adjustments (20) (95) - (95) (115) Unrealized loss on investments - (80) (31) (49) (49) ------- ------- ----- ------- ------- $ (231) $ (9) $ 34 $ (43) $ (274) ======= ======= ===== ======= =======
F-21 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. INCOME TAXES Taxes are based on income before income taxes and extraordinary item for the years ended December 31, as follows:
(IN THOUSANDS) 1998 1997 1996 ---- ---- ---- Domestic $31,886 $42,677 $26,448 Foreign 17,903 15,082 8,337 ------- ------- ------- $49,789 $57,759 $34,785 ======= ======= =======
The provision for income taxes consists of the following for the years ended December 31:
(IN THOUSANDS) 1998 1997 1996 ---- ---- ---- Current: Federal $5,550 $9,539 $2,029 Foreign 5,246 3,335 2,138 State 948 1,397 132 ------- ------- ------- 11,744 14,271 4,299 Deferred: Federal 9,492 5,298 6,968 Foreign 1,792 2,651 1,475 State 920 563 885 ------- ------- ------- 12,204 8,512 9,328 ------- ------- ------- Total provision for income taxes $23,948 $22,783 $13,627 ======= ======= =======
Components of the Company's deferred tax assets and liabilities at December 31 are as follows:
(in thousands) 1998 1997 ---- ---- Deferred tax assets: Alternative minimum tax credit carryforwards $ 4,525 $ 5,541 Net operating loss carryforwards 3,533 1,032 Compensation related accruals 6,352 3,588 Intangibles 3,735 3,386 Miscellaneous accruals and reserves 2,195 1,853 Accounts receivable and inventories 3,137 2,198 Land basis differences and other 691 675 State tax credits 916 95 Valuation allowance (267) (288) ------- ------- Total deferred tax assets 24,817 18,080 ------- ------- Deferred tax liabilities: Property, plant and equipment 54,756 40,466 Deferred financing costs - 41 Intangibles 5,035 3,825 Prepaids and inventories 1,197 489 ------- ------- Total deferred tax liabilities 60,988 44,821 ------- ------- Deferred tax liability, net $36,171 $26,741 ======= =======
F-22 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The difference between the statutory federal income tax rate and the Company's effective income tax rate is summarized as follows:
December 31, 1998 1997 1996 ---- ---- ---- Statutory federal income tax rate 35.0% 35.0% 34.0% State income tax, net of federal benefit 3.5 3.4 3.3 Goodwill amortization 3.5 1.5 1.8 Employee stock ownership plan 9.3 1.2 1.3 Effect of pooled entities electing nontaxable status prior to the mergers (2.4) (2.8) (1.5) Other (.8) 1.1 0.3 ---- ---- ---- Effective income tax rate 48.1% 39.4% 39.2% ==== ==== ====
At December 31, 1998, the following net federal operating loss and tax credit carryforwards are available. The Company is limited in the amounts of net operating loss carryforwards which may be used in any one year.
Operating Expiration Tax (in thousands) Losses Dates Credits ------ ----- ------- Consolidated Company $ - $2,538 Acquired from Poser 7,976 2002 - 2012 - Acquired from GAC 678 2005 - 2009 1,203 Acquired from SP - 590 Acquired from Other 770 2005 - 2008 194 ------ ------ Total $9,424 $4,525 ====== ======
Cash paid for income taxes was $23,762,000, $15,090,000 and $7,194,000 for the years ended December 31, 1998, 1997 and 1996, respectively. 10. BENEFIT PLANS PENSION PLANS - The Company sponsors three noncontributory defined benefit pension plans under collective bargaining agreements with unions representing certain employees in the U.S. The Company also has obligations in the U.S. under a noncontributory defined benefit plan, which was curtailed in 1994. The Company sponsors four defined benefit pension plans covering certain salaried and hourly employees in Canada who have bargained for such benefits. During 1997, the Company terminated one Canada defined benefit plan. The 1996 amounts reflect the termination of the plan. The provisions of Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions," require the recognition of an additional minimum liability for each defined benefit plan for which the accumulated benefit obligation exceeds plan assets. This amount has been recorded as a long-term liability with an offsetting intangible asset. Because the asset recognized may not exceed the amount of unrecognized prior service cost and transition obligation on an individual plan basis, the balance, net of tax benefits, is reported as part of accumulated other comprehensive income (loss). F-23 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following table summarizes the funded status of the plans and the related amounts that are recognized in the consolidated balance sheets (in thousands).
December 31, 1998 1997 ---- ---- Change in benefit obligation: Benefit obligation at beginning of year $26,803 $26,390 Service cost 1,477 1,300 Interest cost 1,812 1,847 Amendments - 177 Actuarial gains and loss 837 369 Foreign currency exchange rate changes (1,294) (954) Benefits paid (2,393) (2,326) Curtailment (54) - ------- ------- Benefit obligation at end of year 27,188 26,803 ------- ------- Change in plan assets: Fair value of plan assets at beginning of year 34,119 34,034 Foreign currency exchange rate changes (1,822) (1,334) Actual return on plan assets 1,591 2,649 Employer contributions 1,194 1,096 Benefits paid (2,393) (2,326) ------- ------- Fair value of plan assets at end of year 32,689 34,119 ------- ------- Funded status 5,501 7,316 Unrecognized actuarial loss (gain) 1,527 (155) Unrecognized prior service cost 272 306 Unrecognized transition asset (5,663) (7,137) ------- ------- Net amount recognized $ 1,637 $ 330 ======= ======= Amounts recognized in the consolidated balance sheet: Prepaid benefit cost $ 2,404 $ 1,504 Accrued benefit liability (1,283) (1,490) Intangible asset 267 187 Deferred tax asset 96 56 Accumulated other comprehensive (income) loss 153 73 ------- ------- Net amount recognized $ 1,637 $ 330 ======= =======
Net pension expense for the plans included the following components (in thousands):
1998 1997 1996 ---- ---- ---- Service cost $ 1,477 $ 1,300 $ 1,113 Interest cost on projected benefit obligation 1,812 1,847 1,179 Expected return on plan assets (2,814) (3,278) (1,571) Net amortization and deferral (377) 31 266 ------- ------- ------- Net periodic pension cost (income) $ 98 $ (100) $ 987 ======= ======= =======
F-24 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The significant assumptions used as of December 31 in computing the net pension expense and funded status information shown above are as follows:
1998 1997 1996 ---- ---- ---- Weighted average discount rate 6.75 - 7.5% 7.25 - 7.5% 7 - 8.75% Expected long-term rate of return on assets 8.75 - 9.5% 8.7 - 9% 8.5% Rate of compensation increase 2 - 4% 2 - 4% 4 - 5%
The aggregate accumulated benefit obligation and aggregate fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $5,355,000 and $4,089,000, respectively, as of December 31, 1998. The aggregate accumulated benefit obligation and aggregate fair value of plans assets for pension plans with accumulated benefit obligations in excess of plan assets were $4,057,000 and $3,035,000 , respectively, as of December 31, 1997. Certain other U.S. employees covered by union agreements are included in multi-employer pension plans to which the Company makes contributions in accordance with the contractual union agreements. Such contributions are made on a monthly basis in accordance with the requirements of the plans and the actuarial computations and assumptions of the administrators of the plans. Contributions to such multi-employer plans were $1,070,000, $1,877,000 and $989,000 for 1998, 1997 and 1996, respectively. Benefits and net asset data for these multi-employer pension plans for union employees are not available. 401(k) PLANS - The Company has several employee savings plans which are designed to qualify under Section 401(k) of the Internal Revenue Code. All U.S. salaried and non-union hourly employees who meet the eligibility requirements are covered under one of these plans. In addition, U.S. employees covered by union agreements where these benefits have been collectively bargained are also covered by one of these plans. Each of the plans allows eligible employees to make salary reduction contributions. The provisions of certain plans include mandatory or discretionary contributions by the Company. Amounts charged to expense in connection with Company contributions were $4,119,000, $3,159,000 and $2,765,000 for the years ended December 31, 1998, 1997 and 1996, respectively. INCENTIVE COMPENSATION - The Company has established Incentive Compensation Plans covering full time employees and executive officers of certain subsidiaries. The amount of incentive compensation is based on the consolidated results of the Company and on the results and performance measures of various subsidiaries. Compensation expense under these plans was $5,553,000, $927,000 and $1,268,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Prior to the mergers, certain businesses of the Commercial Printing Group maintained profit sharing plans. Aggregate compensation expense under these plans was $1,009,000 and $1,064,000 for the years ended December 31, 1997 and 1996, respectively. EMPLOYEE STOCK OWNERSHIP PLAN - See Note 11. 11. RESTRUCTURING AND OTHER UNUSUAL CHARGE RESTRUCTURING CHARGES In November 1998, the Company committed to implement a restructuring program affecting the Envelopes and Commercial Printing segments and recorded a pre-tax provision of $15,961,000, of which $11,699,000 represents non-cash charges for asset write- offs and impairments, primarily machinery and equipment. Impairment losses were calculated based on the excess of the carrying amount of the assets over the assets' fair values. The fair value of an asset is generally determined based on recent comparable sales and independent quotes from the used equipment market. The remaining $4,262,000 is for severance, other termination benefits and property exit costs, including noncancelable operating leases. These charges are a result of the regionalization of the Company's U.S. Envelopes operations and reorganization of the Company's Commercial Printing operations, primarily in the Northwest. The Company also incurred $761,000 of restructuring costs relating to the relocation of personnel, equipment and inventory which under generally accepted accounting principles cannot be accrued up front as part of the Company's restructuring initiative. These costs are also included in "Restructuring and other unusual charge" F-25 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) in the consolidated statements of operations. Severance costs for the 616 personnel included in the restructuring provision resulted from regionalizing special manufacturing operations (490 personnel) and administrative functions (126 personnel) in various locations of the Company's U.S. operations. Approximately 178 personnel had been terminated by the end of 1998 and the remaining terminations are expected to be completed by mid 1999. The following table summarizes the costs associated with the restructuring program (in thousands):
Asset Severance & Property Write-Downs Related Costs Exit Costs Total ----------- ------------- ---------- ----- Envelopes Initial reserve $ 8,912 $2,825 $ 500 $12,237 Utilized in 1998 8,912 433 26 9,371 ------- ------ ------ ------- Balance 12/31/98 $ - $2,392 $ 474 $ 2,866 ======= ====== ====== ======= Commercial Printing Initial reserve $ 2,787 $ 82 $ 855 $ 3,724 Utilized in 1998 2,787 82 55 2,924 ------- ------ ------ ------- Balance 12/31/98 $ - $ - $ 800 $ 800 ======= ====== ====== ======= Total Initial reserve $11,699 $2,907 $1,355 $15,961 Utilized in 1998 11,699 515 81 12,295 ------- ------ ------ ------- Balance 12/31/98 $ - $2,392 $1,274 $ 3,666 ======= ====== ====== =======
EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP") In 1994, the Company established an ESOP for certain U.S. employees. The ESOP borrowed monies from the Company to purchase 3,896,544 shares of Company common stock. These shares are held in trust and are committed to be issued to employees' accounts in the ESOP. Compensation expense under a leveraged ESOP is based on the annual average market value of shares allocated to participants; however, the tax deduction is based on the original cost of the shares. This results in rising compensation expense as the market value of the shares increases. In addition, a significant portion of the compensation expense is not deductible for tax purposes; thereby raising the Company's effective tax rate. As a result, in October 1998, the ESOP debt was extinguished and the Company committed to release all shares of stock held by the ESOP to plan participants effectively terminating the leveraged ESOP. This resulted in the commitment to issue 1.4 million previously unallocated shares at a non-cash, pre-tax cost of $12.2 million. The Company plans to replace this leveraged ESOP with a non-leveraged ESOP. The loan obligation of the ESOP was considered an unearned employee benefit expense and, as such, was recorded as a reduction of the Company's shareholders' equity. The Company's contributions to the ESOP were used to repay the loan principal and interest. Both the loan obligation and the unearned benefit expense were reduced by the amount of loan principal repayments made by the ESOP. Amounts charged to expense were $14,326,000 (including the $12.2 million one-time charge discussed above), $2,614,000 and $1,973,000 for the years ended December 31, 1998, 1997 and 1996, respectively. At December 31, 1998 and 1997 the ESOP held the following shares of common stock:
1998 1997 ---- ---- Shares allocated to participant accounts 2,238,758 2,019,312 Shares committed to be allocated to participant accounts in connection with current year contribution 1,657,786 219,446 Unallocated shares held for future years contributions - 1,657,786 --------- --------- Total 3,896,544 3,896,544 ========= =========
F-26 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The fair market value of the unallocated shares of common stock held for future contributions was $31,394,000 at December 31, 1997. 12. SEGMENT INFORMATION In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, financial information is required to be reported on the basis that it is used internally for evaluating segment performance and deciding how to allocate resources to segments. Additionally, segment information for all periods has been restated to reflect the mergers of the Commercial Printing Group as discussed in Note 2. The Company's operating segments prepare separate financial information that is evaluated regularly by the Chief Operating Officer in assessing performance and deciding how to allocate resources. Corporate expenses include the costs of maintaining a corporate office. The Company does not allocate corporate overhead, interest (income) expense, amortization expense, gains and losses on disposal of assets or income taxes by segment in assessing performance. Operating segments of the Company are defined primarily by product line and consist of Envelopes, Commercial Printing, Printing for Distributors and Labels. The latter two segments were added via acquisitions in the first quarter of 1998. The Envelopes segment prints and manufactures envelopes designed to customer specifications. The Commercial Printing segment specializes in printing advertising literature, high-end catalogs, annual reports, calendars and computer instruction books and provides a broad range of printing and graphic arts services primarily to the advertising industry. The Printing for Distributors segment prints a diverse line of custom products addressing the business documents needs of small and medium-sized end users. The Labels segment is a leading supplier of labels to the North American food and beverage markets. Early in 1999, the Company combined the High Impact Color Printing segment with the Commercial Printing Group under one organization, now called the Commercial Printing segment. Segment information for all periods has been restated to reflect this combination. Intersegment sales from 1996 through 1998 were insignificant. Segment information as of and for the years ended December 31, 1998, 1997 and 1996 is presented below:
DECEMBER 31, (IN THOUSANDS) 1998 1997 1996 ---- ---- ---- NET SALES: Envelopes $ 795,881 $ 709,531 $638,153 Commercial Printing 522,801 353,977 306,341 Printing for Distributors 113,590 10,429 - Labels 72,414 - - ---------- ---------- -------- Total $1,504,686 $1,073,937 $944,494 ========== ========== ======== OPERATING INCOME (LOSS): Envelopes $ 88,241 $ 82,212 $ 68,440 Commercial Printing 34,519 20,273 15,341 Printing for Distributors 8,943 532 - Labels 4,280 - - Corporate (49,103) (17,189) (13,649) ---------- ---------- -------- Total $ 86,880 $ 85,828 $ 70,132 ========== ========== ========
F-27 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, (IN THOUSANDS) 1998 1997 1996 ---- ---- ---- IDENTIFIABLE ASSETS: Envelopes $ 674,773 $ 544,632 $398,993 Commercial Printing 421,017 221,781 208,056 Printing for Distributors 106,698 5,437 - Labels 96,029 - - Corporate (170,561) (100,439) (55,063) ---------- --------- -------- Total $1,127,956 $ 671,411 $551,986 ========== ========= ======== DEPRECIATION AND AMORTIZATION: Envelopes $ 13,500 $ 11,249 $ 10,594 Commercial Printing 12,231 10,254 11,183 Printing for Distributors 1,830 365 - Labels 3,117 - - Corporate 8,962 4,505 4,172 ---------- --------- -------- Total $ 39,640 $ 26,373 $ 25,949 ========== ========= ======== CAPITAL EXPENDITURES: Envelopes $ 44,450 $ 22,263 $ 13,142 Commercial Printing 33,883 12,397 8,897 Printing for Distributors 3,932 2,178 - Labels 5,070 - - ---------- --------- -------- Total $ 87,335 $ 36,838 $ 22,039 ========== ========= ======== As a result of the 1998 acquisition of Poser, the 1997 results of IPC Graphics were reclassified from Commercial Printing to the Printing for Distributors segment. Corporate identifiable assets include inter- company balances and adjustments for the accounts receivable securitization and certain significant operating leases. This is done to reflect the return on assets employed within each segment on a consistent basis. The restructuring charges discussed in Note 11 and the merger costs related to segments, but they were not considered by the chief operating decision maker in deciding how to allocate resources and thus, have been included in the Corporate operating loss.
Geographic information as of and for the years ended December 31, 1998, 1997 and 1996 is presented below:
DECEMBER 31, (IN THOUSANDS) 1998 1997 1996 ---- ---- ---- NET SALES: U.S. $1,350,197 $ 958,644 $857,566 Canada 154,489 115,293 86,928 ---------- ---------- -------- Total $1,504,686 $1,073,937 $944,494 ========== ========== ======== IDENTIFIABLE ASSETS: U.S. $ 909,550 $ 576,209 $453,209 Canada 218,406 95,202 98,777 ---------- ---------- -------- Total $1,127,956 $ 671,411 $551,986 ========== ========== ========
F-28 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. SUMMARY QUARTERLY FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
QUARTER ENDED 12/31/98 9/30/98 6/30/98 3/31/98 -------- ------- ------- ------- Net sales $431,750 $404,143 $350,059 $318,734 Gross profit 94,217 85,622 70,427 69,047 (Loss) income before extraordinary item (7,714) 12,723 11,299 9,533 Extraordinary item (4,132) - - - Net (loss) income $(11,846) $ 12,723 $ 11,299 $ 9,533 Earnings (loss) per share - basic: (Loss) income per share before extraordinary item $ (0.16) $ 0.27 $ 0.24 $ 0.22 Extraordinary item per share (0.09) - - - Net (loss) income per share $ (0.25) $ 0.27 $ 0.24 $ 0.22 Earnings (loss) per share - diluted: (Loss) income per share before extraordinary item $ (0.16) $ 0.25 $ 0.22 $ 0.20 Extraordinary item per share (0.09) - - - Net (loss) income per share $ (0.25) $ 0.25 $ 0.22 $ 0.20 QUARTER ENDED 12/31/97 9/30/97 6/30/97 3/31/97 -------- ------- ------- ------- Net sales $291,229 $278,794 $250,474 $253,440 Gross profit 66,363 60,778 56,990 55,594 Income before extraordinary item 10,429 8,820 8,875 6,852 Extraordinary item (6,100) - - - Net income $ 4,329 $ 8,820 $ 8,875 $ 6,852 Earnings (loss) per share - basic: Income per share before extraordinary item $ 0.26 $ 0.22 $ 0.22 $ 0.17 Extraordinary item per share (0.15) - - - Net income per share $ 0.11 $ 0.22 $ 0.22 $ 0.17 Earnings (loss) per share - diluted: Income per share before extraordinary item $ 0.23 $ 0.21 $ 0.21 $ 0.17 Extraordinary item per share (0.13) - - - Net income per share $ 0.10 $ 0.21 $ 0.21 $ 0.17
The results for the three months ended March 31, 1998 have been restated from those previously reported on Form 10-Q to reflect the mergers discussed in Note 2. See Notes 5 and 11 for discussion of material items which impacted the results of the fourth quarter of 1998. F-29 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. CONDENSED CONSOLIDATING FINANCIAL INFORMATION In December 1998, MWI ("Issuer") issued 8 3/4% Senior Subordinated Notes ("Senior Notes") due in 2008 (see Note 5). The Senior Notes are guaranteed by all of the U.S. subsidiaries (the "Guarantor Subsidiaries") of MWI, all of which are wholly owned, and by Mail- Well, Inc. ("Parent Guarantor"). The guarantees are joint and several, full, complete and unconditional. There are no restrictions on the ability of the Guarantor Subsidiaries to transfer funds to MWI in the form of cash dividends, loans or advances, other than ordinary legal restrictions under corporate law, fraudulent transfer and bankruptcy laws. The following condensed consolidating financial information illustrates the composition of the Parent Guarantor, Issuer, Guarantor Subsidiaries and non-guarantor subsidiaries. Management has determined that separate complete financial statements would not provide additional material information that would be useful in assessing the financial composition of the Guarantor Subsidiaries. Investments in subsidiaries are accounted for under the equity method, wherein the investor company's share of earnings and income taxes applicable to the assumed distribution of such earnings are included in net income. In addition, investments increase in the amount of permanent contributions to subsidiaries and decrease in the amount of distributions from subsidiaries. The elimination entries eliminate the equity method investment in subsidiaries and the equity in earnings of subsidiaries, intercompany payables and receivables and other transactions between subsidiaries. F-30 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Year Ended December 31, 1998 (in thousands)
Combined Combined Parent Guarantor Nonguarantor Guarantor Issuer Subsidiaries Subsidiaries Elim. Consolidated --------- ------ ------------ ------------ ----- ------------ NET SALES $ - $425,156 $925,041 $155,142 $ (653) $1,504,686 COST OF SALES - 337,468 737,318 111,240 (653) 1,185,373 ------- -------- -------- -------- -------- ---------- GROSS PROFIT - 87,688 187,723 43,902 - 319,313 OTHER OPERATING COSTS Selling, administrative and other 1,127 60,415 118,309 20,342 - 200,193 Restructuring and other unusual charge - 28,846 76 - - 28,922 Merger costs - - 3,318 - - 3,318 ------- -------- -------- -------- -------- ---------- Total Other Operating Costs 1,127 89,261 121,703 20,342 - 232,433 ------- -------- -------- -------- -------- ---------- OPERATING INCOME (LOSS) (1,127) (1,573) 66,020 23,560 - 86,880 OTHER (INCOME) EXPENSE Interest expense 7,833 27,734 5,845 5,568 (8,853) 38,127 Other (income) expense (8,853) (435) (519) (82) 8,853 (1,036) ------- -------- -------- -------- -------- ---------- INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES AND EXTRAORDINARY ITEM (107) (28,872) 60,694 18,074 - 49,789 PROVISION FOR INCOME TAXES - (13,887) 30,795 7,040 - 23,948 ------- -------- -------- -------- -------- ---------- INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES AND EXTRAORDINARY ITEM (107) (14,985) 29,899 11,034 - 25,841 EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 21,816 40,933 11,034 - (73,783) - ------- -------- -------- -------- -------- ---------- INCOME BEFORE EXTRAORDINARY ITEM 21,709 25,948 40,933 11,034 (73,783) (25,841) EXTRAORDINARY ITEM - (4,132) - - - (4,132) ------- -------- -------- -------- -------- ---------- NET INCOME $21,709 $ 21,816 $ 40,933 $ 11,034 $(73,783) $ 21,709 ======= ======== ======== ======== ======== ==========
F-31 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Year Ended December 31, 1997 (in thousands)
Combined Combined Parent Guarantor Nonguarantor Guarantor Issuer Subsidiaries Subsidiaries Elim. Consolidated --------- ------ ------------ ------------ ----- ------------ NET SALES $ - $369,394 $589,250 $115,293 $ - $1,073,937 COST OF SALES - 290,671 463,817 79,724 - 834,212 ------- -------- -------- -------- -------- ---------- GROSS PROFIT - 78,723 125,433 35,569 - 239,725 OTHER OPERATING COSTS 269 56,965 79,403 17,260 - 153,897 ------- -------- -------- -------- -------- ---------- OPERATING INCOME (LOSS) (269) 21,758 46,030 18,309 - 85,828 OTHER (INCOME) EXPENSE Interest expense 634 16,332 9,672 3,519 - 30,157 Other (income) expense (4) (761) (1,031) (292) - (2,088) ------- -------- -------- -------- -------- --------- INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES AND EXTRAORDINARY ITEM (899) 6,187 37,389 15,082 - 57,759 PROVISION FOR INCOME TAXES - 2,438 14,358 5,987 - 22,783 ------- -------- -------- -------- -------- ---------- INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES AND EXTRAORDINARY ITEM (899) 3,749 23,031 9,095 - 34,976 EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 29,775 28,791 8,202 - (66,768) - ------- -------- -------- -------- -------- ---------- INCOME BEFORE EXTRAORDINARY ITEM 28,876 32,540 31,233 9,095 (66,768) 34,976 EXTRAORDINARY ITEM - (2,765) (2,442) (893) - (6,100) ------- -------- -------- -------- -------- ---------- NET INCOME $28,876 $ 29,775 $ 28,791 $ 8,202 $(66,768) $ 28,876 ======= ======== ======== ======== ======== ==========
F-32 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Year Ended December 31, 1996 (in thousands)
Combined Combined Parent Guarantor Nonguarantor Guarantor Issuer Subsidiaries Subsidiaries Elim. Consolidated --------- ------ ------------ ------------ ----- ------------ NET SALES $ - $349,038 $508,528 $86,928 $ - $944,494 COST OF SALES - 277,056 402,589 61,020 - 740,665 ------- -------- -------- ------- -------- -------- GROSS PROFIT - 71,982 105,939 25,908 - 203,829 OTHER OPERATING COSTS 128 51,306 69,275 12,988 - 133,697 ------- -------- -------- ------- -------- -------- OPERATING INCOME (LOSS) (128) 20,676 36,664 12,920 - 70,132 OTHER (INCOME) EXPENSE Interest expense - 27,328 3,289 4,252 - 34,869 Other (income) expense (1) 140 8 331 - 478 ------- -------- -------- ------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES (127) (6,792) 33,367 8,337 - 34,785 PROVISION FOR INCOME TAXES 1 (2,662) 12,675 3,613 - 13,627 ------- -------- -------- ------- -------- -------- INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES (128) (4,130) 20,692 4,724 - 21,158 EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 21,286 25,416 4,724 - (51,426) - ------- -------- -------- ------- -------- -------- NET INCOME $21,158 $ 21,286 $ 25,416 $ 4,724 $(51,426) $ 21,158 ======= ======== ======== ======= ======== ========
F-33 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION December 31, 1998 (in thousands)
Combined Combined Parent Guarantor Nonguarantor Guarantor Issuer Subsidiaries Subsidiaries Elim. Consolidated --------- ------ ------------ ------------ ----- ------------ CURRENT ASSETS Cash and cash equivalents $ - $ 6,952 $ (7,311) $ 1,734 $ - $ 1,375 Receivables, net - 14,308 95,847 25,768 - 135,923 Investment in accounts receivable Securitization - 5,412 36,257 - 41,669 Accounts receivable - other - 47,889 18,308 1,112 (43,908) 23,401 Inventories, net - 39,267 60,286 14,578 - 114,131 Note receivable from Issuer 147,436 - - - (147,436) - Other current assets 116 8,515 7,935 2,785 - 19,351 -------- -------- -------- -------- ----------- ---------- Total current assets 147,552 122,343 211,322 45,977 (191,344) 335,850 INVESTMENT IN SUBSIDIARIES 301,447 609,661 76,104 - (987,212) - PROPERTY, PLANT AND EQUIPMENT, NET - 121,733 249,002 66,997 - 437,732 GOODWILL, NET - 59,900 210,067 52,182 - 322,149 OTHER ASSETS, NET 3,902 13,111 15,155 57 - 32,225 -------- -------- -------- -------- ----------- ---------- TOTAL $452,901 $926,748 $761,650 $165,213 $(1,178,556) $1,127,956 ======== ======== ======== ======== =========== ========== CURRENT LIABILITIES Accounts payable $ - $ 18,171 $ 56,441 $ 12,411 $ - $ 87,023 Accrued compensation and vacation - 12,320 23,926 5,155 - 41,401 Other current liabilities 1,476 26,759 27,668 35,197 (43,908) 47,192 Note payable to Parent - 147,436 - - (147,436) - Current portion of long-term debt and capital leases - 5 2,796 5,235 - 8,036 -------- -------- -------- -------- ----------- ---------- Total current liabilities 1,476 204,691 110,831 57,998 (191,344) 183,652 LONG-TERM DEBT AND CAPITAL LEASES 152,050 393,004 15,415 22,958 - 583,427 DEFERRED INCOME TAXES - 19,890 20,078 7,566 - 47,534 OTHER LONG-TERM LIABILITIES - 4,216 5,665 587 - 10,468 -------- -------- -------- -------- ----------- ---------- Total liabilities 153,526 680,800 92,990 89,109 (191,344) 825,081 MINORITY INTEREST - 3,500 - - - 3,500 SHAREHOLDERS' EQUITY 299,375 301,447 609,661 76,104 (987,212) 299,375 -------- -------- -------- -------- ----------- ---------- TOTAL $452,901 $926,748 $761,650 $165,213 $(1,178,556) $1,127,956 ======== ======== ======== ======== =========== ==========
F-34 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION December 31, 1997 (in thousands)
Combined Combined Parent Guarantor Nonguarantor Guarantor Issuer Subsidiaries Subsidiaries Elim. Consolidated --------- ------ ------------ ------------ ----- ------------ CURRENT ASSETS Cash and cash equivalents $ 256 $ 41,483 $ (920) $ 92 $ - $ 40,911 Receivables, net - 6,393 42,296 16,269 - 64,958 Investment in accounts receivable securitization - 3,097 19,222 - - 22,319 Accounts receivable - other - 6,080 3,375 852 - 10,307 Inventories, net - 41,472 34,066 10,730 - 86,268 Note receivable from Issuer 147,436 - - - (147,436) - Other current assets 129 5,418 2,921 1,667 - 10,135 -------- -------- -------- ------- --------- -------- Total current assets 147,821 103,943 100,960 29,610 (147,436) 234,898 INVESTMENT IN SUBSIDIARY 174,226 259,599 20,680 - (461,466) - PROPERTY, PLANT AND EQUIPMENT, NET - 110,290 124,170 28,337 - 262,797 GOODWILL, NET - 45,192 72,685 36,050 - 153,927 OTHER ASSETS, NET 4,927 4,865 9,997 - - 19,789 -------- -------- -------- ------- --------- -------- TOTAL $326,974 $523,889 $328,492 $93,997 $(608,902) $671,411 ======== ======== ======== ======= ========= ======== CURRENT LIABILITIES Accounts payable $ - $ 20,320 $ 29,170 $ 4,151 $ - $ 53,641 Accrued compensation and vacation - 13,675 15,428 3,626 - 32,729 Other current liabilities 3,104 62,565 (37,868) 4,752 - 32,553 Note payable to Parent - 147,436 - - (147,436) - Current portion of long-term debt and capital leases - 79 9,725 729 - 10,533 -------- -------- -------- ------- --------- -------- Total current liabilities 3,104 244,075 16,455 13,258 (147,436) 129,456 LONG-TERM DEBT AND CAPITAL LEASES 152,050 85,008 37,879 55,420 - 330,357 OTHER LONG-TERM LIABILITIES - 17,080 14,559 4,639 - 36,278 -------- -------- -------- ------- --------- -------- Total liabilities 155,154 353,124 61,932 73,317 - 496,091 MINORITY INTEREST - 3,500 - - - 3,500 SHAREHOLDERS' EQUITY 171,820 174,226 259,599 20,680 (461,466) 171,820 -------- -------- -------- ------- --------- -------- TOTAL $326,974 $523,889 $328,492 $93,997 $(608,902) $671,411 ======== ======== ======== ======= ========= ========
F-35 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS December 31, 1998 (in thousands)
Combined Combined Parent Guarantor Nonguarantor Guarantor Issuer Subsidiaries Subsidiaries Elim. Consolidated --------- ------ ------------ ------------ ----- ------------ CASH FLOWS FROM OPERATING ACTIVITIES $ 1,631 $ 76,422 $ 45,781 $ (30,756) $ - $ 93,078 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition costs, net of cash acquired - (9,390) (308,293) (33,920) - (351,603) Capital expenditures - (25,327) (48,035) (13,973) - (87,335) Investment in subsidiaries (92,336) (310,000) (34,000) - 436,336 - Other investing activities (1,887) 10,760 233 555 - 9,661 ------- --------- --------- --------- --------- --------- Net cash used in investing activities (94,223) (333,957) (390,095) (47,338) 436,336 (429,277) -------- --------- --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Changes due to accounts receivable securitization, net - (2,315) (17,035) - - (19,350) Net proceeds from common stock issuance 92,336 - - - - 92,336 Proceeds from long term debt - 592,556 1,067 205,488 - 799,111 Repayments of long-term debt- and capital lease obligations - (358,139) (44,621) (153,976) - (556,736) Investment by parent - - 402,336 34,000 (436,336) - Other financing activities - (9,098) (3,824) - - (12,922) -------- --------- --------- --------- --------- --------- Net cash provided by financing activities 92,336 223,004 337,923 85,512 (436,336) 302,439 EFFECT OF EXCHANGE RATE CHANGES ON CASH - - - (5,776) - (5,776) -------- --------- --------- --------- --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS (256) (34,531) (6,391) 1,642 - (39,536) BALANCE AT BEGINNING OF YEAR 256 41,483 (920) 92 - 40,911 -------- --------- --------- --------- --------- --------- BALANCE AT END OF YEAR $ - $ 6,952 $ (7,311) $ 1,734 $ - $ 1,375 ======== ========= ========= ========= ========= =========
F-36 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS December 31, 1997 (in thousands)
Combined Combined Parent Guarantor Nonguarantor Guarantor Issuer Subsidiaries Subsidiaries Elim. Consolidated --------- ------ ------------ ------------ ----- ------------ CASH FLOWS FROM OPERATING ACTIVITIES $ (242) $ 51,016 $ 33,041 $ 10,594 $ - $ 94,409 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition costs, net of cash acquired - (20,979) (61,878) (17) - (82,874) Capital expenditures - (9,496) (25,148) (2,194) - (36,838) Loan to Issuer (147,436) - - - 147,436 - Investment in subsidiaries - (62,000) - - 62,000 - Other investing activities 252 (185) 1,346 404 - 1,817 --------- --------- -------- -------- --------- --------- Net cash used in investing activities (147,184) (92,660) (85,680) (1,807) 209,436 (117,895) --------- --------- -------- -------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Changes due to accounts receivable securitization, net - (3,715) (9,099) - - (12,814) Net proceeds from common stock issuance 201 - 1,001 - - 1,202 Proceeds from long term debt 147,436 67,197 12,419 60,000 - 287,052 Repayments of long-term debt- and capital lease obligations - (137,401) (11,990) (69,734) - (219,125) Loan from Parent Guarantor - 147,436 - - (147,436) - Investment by parent - - 62,000 - (62,000) - Other financing activities - - (5,254) - - (5,254) --------- --------- -------- -------- --------- --------- Net cash provided by (used in) financing activities 147,637 73,517 49,077 (9,734) (209,436) 51,061 EFFECT OF EXCHANGE RATE CHANGES ON CASH - - - 1,039 - 1,039 --------- --------- -------- -------- --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS 211 31,873 (3,562) 92 - 28,614 BALANCE AT BEGINNING OF YEAR 45 9,610 2,642 - - 12,297 --------- --------- -------- -------- --------- --------- BALANCE AT END OF YEAR $ 256 $ 41,483 $ (920) $ 92 $ - $ 40,911 ========= ========= ======== ======== ========= =========
F-37 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS December 31, 1996 (in thousands)
Combined Combined Parent Guarantor Nonguarantor Guarantor Issuer Subsidiaries Subsidiaries Elim. Consolidated --------- ------ ------------ ------------ ----- ------------ CASH FLOWS FROM OPERATING ACTIVITIES $(14) $ 124,494 $(17,322) $(11,840) $ - $ 95,318 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition costs, net of cash acquired - (27,710) (16,058) (20,548) - (64,316) Capital expenditures - (7,896) (12,432) (1,711) - (22,039) Investment in subsidiaries - (16,000) (21,000) - 37,000 - Other investing activities - 33,421 1,265 668 - 35,354 ---- --------- -------- -------- -------- --------- Net cash used in investing activities - (18,185) (48,225) (21,591) 37,000 (51,001) ---- --------- -------- -------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Changes due to accounts receivable securitization, net - 1,238 60,257 - - 61,495 Net proceeds from common stock issuance 40 - 254 - - 294 Proceeds from long term debt - 254,486 4,477 65,000 - 323,963 Repayments of long-term debt and capital lease obligations - (350,623) (13,296) (52,287) - (416,206) Investment by parent - - 16,000 21,000 (37,000) - Other financing activities - (1,800) (1,862) - - (3,662) ---- --------- -------- -------- -------- --------- Net cash provided by (used in) financing activities 40 (96,699) 65,830 33,713 (37,000) (34,116) EFFECT OF EXCHANGE RATE CHANGES ON CASH - - - (282) - (282) ---- --------- -------- -------- -------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS 26 9,610 283 - - 9,919 BALANCE AT BEGINNING OF YEAR 19 - 2,359 - - 2,378 ---- --------- -------- -------- -------- --------- BALANCE AT END OF YEAR $ 45 $ 9,610 $ 2,642 $ - $ - $ 12,297 ==== ========= ======== ======== ======== =========
F-38 MAIL-WELL, INC. (PARENT-ONLY FINANCIAL STATEMENTS) SCHEDULE I CONDENSED BALANCE SHEETS (DOLLARS IN THOUSANDS) - ------------------------------------------------------------------------------------------------
ASSETS DECEMBER 31, 1998 1997 ---- ---- CURRENT ASSETS Cash $ - $ 256 Other current assets 116 129 Note receivable from Mail-Well I Corporation 147,436 147,436 -------- -------- Total current assets 147,552 147,821 INVESTMENT IN SUBSIDIARY 301,447 174,226 INTANGIBLE ASSETS (net of accumulated amortization of $1,109 and $150) 3,902 4,772 OTHER ASSETS - 155 -------- -------- TOTAL $452,901 $326,974 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Payable to subsidiary $ 231 $ 2,470 Accrued interest 1,245 634 -------- -------- Total current liabilities 1,476 3,104 CONVERTIBLE SUBORDINATED NOTES 152,050 152,050 -------- -------- Total liabilities 153,526 155,154 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY 299,375 171,820 -------- -------- TOTAL $452,901 $326,974 ======== ======== See notes to condensed financial statements.
F-39 MAIL-WELL, INC. (PARENT-ONLY FINANCIAL STATEMENTS) SCHEDULE I CONDENSED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS) - --------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996 ---- ---- ---- OTHER OPERATING COSTS Administrative $ 168 $ 172 $ 109 Amortization 959 97 19 ------- ------- ------- Total other operating costs 1,127 269 128 ------- ------- ------- OPERATING LOSS (1,127) (269) (128) OTHER (INCOME) EXPENSE Interest expense-debt 7,833 634 - Interest income from subsidiary (8,846) - - Other income (7) (4) (1) ------- ------- ------- LOSS BEFORE INCOME TAXES (107) (899) (127) ------- ------- ------- PROVISION FOR INCOME TAXES Current - - - Deferred - - 1 ------- ------- ------- LOSS BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARY (107) (899) (128) EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARY 21,816 29,775 21,286 ------- ------- ------- NET INCOME $21,709 $28,876 $21,158 ======= ======= ======= See notes to condensed financial statements.
F-40 MAIL-WELL, INC. (PARENT-ONLY FINANCIAL STATEMENTS) SCHEDULE I CONDENSED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 21,709 $ 28,876 $ 21,158 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Equity in undistributed earnings of subsidiary (21,816) (29,775) (21,286) Amortization 959 97 19 Deferred tax provision - - 1 Changes in operating assets and liabilities, net of effects of acquired businesses: Other working capital 624 586 223 Other assets 155 (26) (129) -------- --------- -------- Net cash provided by (used in) operating activities 1,631 (242) (14) -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Investment in subsidiary (92,336) - - Other activity with subsidiary, net (1,887) 252 - Issuance of note receivable from subsidiary - (147,436) - -------- --------- -------- Net cash used in investing activities (94,223) (147,184) - CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from common stock issuance 92,336 201 40 Proceeds from issuance of convertible subordinated notes - 147,436 - -------- --------- -------- Net cash provided by financing activities 92,336 147,637 40 -------- --------- -------- NET CHANGE IN CASH (256) 211 26 BALANCE AT BEGINNING OF YEAR 256 45 19 -------- --------- -------- BALANCE AT END OF YEAR $ - $ 256 $ 45 ======== ========= ======== Stock issued for acquisitions $ 8,780 $ 1,000 $ - See notes to condensed financial statements.
F-41 MAIL-WELL, INC. (PARENT-ONLY FINANCIAL STATEMENTS) SCHEDULE I CONDENSED SUPPLEMENTAL FINANCIAL INFORMATION OF THE REGISTRANT NOTES TO CONDENSED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The financial statements of Mail- Well, Inc. (the "Company") reflect the investment in Mail-Well I Corporation ("M-W Corp."), a wholly-owned subsidiary, using the equity method. INCOME TAXES - The provision for income taxes is based on income recognized for financial statement purposes. Deferred income taxes are recognized for the effects of temporary differences between such income and that recognized for income tax purposes. The Company files a consolidated U.S. income tax return with M-W Corp. RECLASSIFICATIONS - Certain reclassifications have been made to the 1996 and 1997 financial statements to conform to the 1998 presentation. 2. CONSOLIDATED FINANCIAL STATEMENTS Reference is made to the Consolidated Financial Statements and related Notes of Mail-Well, Inc. and Subsidiaries included elsewhere herein for additional information. 3. MERGERS Effective May 30, 1998, the Company completed its mergers with several commercial printing businesses. Reference is made to Note 2 to the consolidated Financial Statements. Pursuant to the merger agreements, each of the Commercial Printing Group businesses was merged with a subsidiary of the Company in exchange for shares of the Company's common stock. Each of the mergers has been accounted for under the pooling of interests method and, accordingly, these parent-only financial statements have been restated to include the investment in the merged businesses. 4. NOTES RECEIVABLE During 1997, the Company loaned M-W Corp. $147,436,000 which is payable on demand and earns interest at 6% payable annually. The note is unsecured and is subordinate in right of payment to any and all other existing and future indebtedness of the Company. 5. DEBT AND GUARANTEES Information on the debt of the Company is disclosed in Note 5 of the Notes to Consolidated Financial Statements of Mail-Well, Inc. and Subsidiaries included elsewhere herein. The Company has guaranteed all debt of M-W Corp. ($439.4 million outstanding at December 31, 1998, including current maturities) and certain other obligations arising in the ordinary course of business. The aggregate amounts of M-W Corp.'s debt maturities for the five years following 1998 are: 1999 - $8,036,000; 2000 - $13,566,000; 2001 - $7,366,000; 2002 - $7,981,000; 2003 - $98,096,000; and $304,368,000 thereafter. 6. DIVIDENDS RECEIVED No dividends have been received from M-W Corp. since the Company's inception. M-W Corp.'s ability to declare dividends to the Company is restricted by the terms of its bank credit agreements and the indenture relating to M-W Corp.'s Senior Subordinated Notes. * * * * * F-42 MAIL-WELL, INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (AMOUNTS IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996 ---- ---- ---- Balance at beginning of year $ 3,795 $ 3,734 $ 2,671 Charged to costs and expenses 3,425 1,454 2,590 Charged to other accounts 3,065 909 1,236 Deductions (3,558) (2,302) (2,763) ------- ------- ------- Balance at end of year $ 6,727 $ 3,795 $ 3,734 ======= ======= ======= Schedule has been restated to reflect the mergers of the Commercial Printing Group companies (see Note 2 to the consolidated financial statements included elsewhere herein) accounted for under the pooling of interests method. Recoveries of accounts previously written off. Includes the beginning balances of ($2,910) of the allowance for doubtful accounts for the companies acquired in 1998. Includes the beginning balances ($643) of the allowance for doubtful accounts for the companies acquired in 1997. Includes the beginning balances ($801) of the allowance for doubtful accounts for the companies acquired in 1996. Accounts written off.
F-43 WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ABOUT MAIL-WELL I CORPORATION THAT IS DIFFERENT FROM, OR IN ADDITION TO, THAT CONTAINED IN THIS PROSPECTUS. THEREFORE, IF ANYONE DOES GIVE YOU INFORMATION OF THIS SORT, YOU SHOULD NOT RELY ON IT. IF YOU ARE IN A JURISDICTION WHERE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED BY THIS PROSPECTUS IS UNLAWFUL, OR IF YOU ARE A PERSON TO WHOM IT IS UNLAWFUL TO DIRECT THESE KINDS OF ACTIVITIES, THE OFFER PRESENTED IN THIS PROSPECTUS DOES NOT EXTEND TO YOU. THIS PROSPECTUS SPEAKS ONLY AS OF THE DATE OF THIS PROSPECTUS UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER DATE APPLIES. MAIL-WELL I CORPORATION 8 3/4% Series B Senior Subordinated Notes due 2008 offered in exchange for outstanding 8 3/4% Senior Subordinated Notes due 2008 The exchange offer will expire at 5:00 p.m., New York City time, on ____________, 1999, unless we extend it; provided we may not extend the exchange offer beyond ____________, 1999. ___________________ P R O S P E C T U S ___________________ April __, 1999 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law ("DGCL") empowers a Delaware corporation to indemnify any person who was or is, or is threatened to be made, a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. Section 145 of the DGCL also provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The indemnity may include expenses (including attorneys' fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification is permitted without judicial approval if the person is adjudged to be liable to the corporation. Where an person is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify such person against the expenses which such person actually and reasonably incurred. Mail-Well I Corporation's Certificate of Incorporation provides that Mail-Well I Corporation shall indemnify its officers and directors, and may indemnify its employees and agents, to the fullest extent permitted by the DGCL. Section 102(b)(7) of the DGCL permits a corporation's certificate of incorporation to include a provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision shall not eliminate or limit the liability of a director for: (i) any breach of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) transactions under Section 174 of the DGCL (unlawful payment of dividends or unlawful stock purchases or redemptions) or (iv) any transaction from which the director derived an improper personal benefit. Mail-Well I Corporation's Certificate of Incorporation provides that a director shall not be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption is not permitted under the DGCL. II-1 ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (A) EXHIBITS Exhibit Number Description of Exhibit - ------- ---------------------- 3.1 Certificate of Incorporation of Mail-Well Corporation-- incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 3.2 Certificate of Amendment of Certificate of Incorporation of Mail-Well Corporation--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 3.3 Certificate of Correction Filed to Correct Certain Error in the Certificate of Amendment of Mail-Well 1 Corporation Filed in the Office of the Secretary of State of Delaware on September 11, 1995--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 3.4 Certificate of Change of Registered Agent and Registered Office--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 3.5 Bylaws of Mail-Well I Corporation--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 4.1 Form of Indenture between Mail-Well, Inc. and The Bank of New York, as Trustee, dated November 1997, relating to Mail- Well, Inc.'s $152,050,000 aggregate principal amount of 5% Convertible Subordinated Notes due 2002--incorporated by reference from Exhibit 4.2 to Mail-Well, Inc.'s Amendment No. 2 to Form S-3 dated November 10, 1997 (Reg. No. 333- 36337). 4.2 Form of Supplemental Indenture between Mail-Well, Inc. and The Bank of New York, as Trustee, dated November 1997, relating to Mail-Well, Inc.'s $152,050,000 aggregate principal amount of 5% Convertible Subordinated Notes due 2002 and Form of Convertible Note--incorporated by reference from Exhibit 4.5 to Mail-Well, Inc.'s Amendment No. 2 to Form S-3 dated November 10, 1997 (Reg. No. 333-36337). 4.3 Indenture dated as of December 16, 1998 between Mail-Well I Corporation and State Street Bank and Trust Company, as Trustee, relating to Mail-Well I Corporation's $300,000,000 aggregate principal amount of 8 3/4% Senior Subordinated Notes due 2008--incorporated by reference from Exhibit 4.4 to Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-12551. 4.4 Form of Senior Subordinated Note--incorporated by reference from Exhibit 4.5 to Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-12551. 5 Opinion of Rothgerber Johnson & Lyons LLP re: legality of Mail-Well I Corporation's $300,000,000 aggregate principal amount of 8 3/4% Senior Subordinated Notes due 2008. 8 Opinion of Rothgerber Johnson & Lyons LLP re: tax matters-- incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). II-2 10.1 Form of Indemnity Agreement between Mail-Well, Inc. and each of its officers and directors--incorporated by reference from Exhibit 10.17 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.2 Form of Indemnity Agreement between Mail-Well I Corporation and each of its officers and directors--incorporated by reference from Exhibit 10.18 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.3 Form of M-W Corp. Employee Stock Ownership Plan effective as of February 23, 1994 and related Employee Stock Ownership Plan Trust Agreement--incorporated by reference from Exhibit 10.19 of Mail-Well, Inc.'s Registration Statement on Form S- 1 dated March 25, 1994. 10.4 Form of M-W Corp. 401(k) Savings Retirement Plan-- incorporated by reference from Exhibit 10.20 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.5 Mail-Well, Inc. 1994 Stock Option Plan, as amended on May 7, 1997--incorporated by reference from Exhibit 10.56 of Mail-Well, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. 10.6 Form of Mail-Well, Inc. Incentive Stock Option Agreement-- incorporated by reference from Exhibit 10.22 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.7 Form of Mail-Well, Inc. Nonqualified Stock Option Agreement--incorporated by from Exhibit 10.23 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.8 Purchase and Contribution Agreement dated as of November 15, 1996, between Mail-Well I Corporation, Wisco Envelope Corp., Pavey Envelope and Tag Corp., Mail-Well West, Inc., Graphic Arts Center, Inc., Wisco III, L.L.C., Supremex, Inc., Innova Envelope, Inc., as Sellers, and Mail-Well Trade Receivables Corp., as Purchaser--incorporated by reference from Exhibit 10.39 of Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996. 10.9 Mail-Well Receivables Master Trust Pooling and Servicing Agreement dated as of November 15, 1996 by and between Mail- Well Trade Receivables Corporation, Seller, Mail-Well I Corporation, Servicer, and Norwest Bank Colorado, National Association, Trustee--incorporated by reference from Exhibit 10.40 of Mail-Well I Corporation's Annual Report on Form 10-K for the year ended December 31, 1996. 10.10 Series 1996-1 Supplement dated as of November 15, 1996, to Pooling and Servicing Agreement, dated as of November 15, 1996, by and between Mail-Well Trade Receivables Corporation, Seller, Mail-Well I Corporation, Servicer, and Norwest Bank Colorado, National Association, as Trustee on behalf of the Series 1996-1 Certificateholders--incorporated by reference from Exhibit 10.41 of Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996. II-3 10.11 Series 1996-1 Certificate Purchase Agreement dated as of November 15, 1996 among Mail-Well Trade Receivables Corporation, as Seller, Corporate Receivables Corporation, as Purchaser, Norwest Bank Colorado, National Association, as Trustee, and Mail-Well I Corporation, as Servicer-- incorporated by reference from Exhibit 10.42 of Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996. 10.12 Intercreditor Agreement dated as of November 15, 1996, by and among Citicorp North America, Inc., as Securitization Company Agent, Banque Paribas, New York Branch, as Liquidity Agent, Banque Paribas, as Credit Lenders' Agent, Norwest Bank Colorado, National Association, as Trustee, Mail-Well Trade Receivables Corporation, as Servicer, originator and Mail-Well Credit Borrower, Supremex, Inc., as the Supremex Credit Borrower and the other parties hereto--incorporated by reference from Exhibit 10.43 of Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996. 10.13 Series 1996-1 Asset Purchase Agreement among Corporate Receivables Corporation, the Liquidity Providers Parties hereto, Citicorp North America, Inc., as Securitization Company Agent, Banque Paribas, New York Branch, as Liquidity Agent, and Norwest Bank Colorado, National Association, as trustee, dated as of November 15, 1996--incorporated by reference from Exhibit 10.44 of Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996. 10.14 Mail-Well, Inc. 1997 Non-Qualified Stock Option Plan-- incorporated by reference from exhibit 10.54 of Mail-Well, Inc.'s Form 10-Q for the quarter ended March 31, 1997. 10.15 1997 Non-Qualified Stock Option Agreement--incorporated by reference from exhibit 10.54 of Mail-Well, Inc.'s Form 10-Q for the quarter ended March 31, 1997. 10.16 Mail-Well, Inc. 1998 Incentive Stock Option Plan-- incorporated by reference from Mail-Well, Inc.'s definitive proxy statement on Schedule 14A for the regular annual meeting of shareholders held April 29, 1998. 10.17 Mail-Well, Inc. 1998 Incentive Stock Option Plan Incentive Stock Option Agreement--incorporated by reference from Mail- Well, Inc.'s definitive proxy statement on Schedule 14A for the regular annual meeting of shareholders held April 29, 1998. 10.18 Credit Agreement dated as of March 16, 1998, among Mail-Well, Inc., certain Guarantors, Bank of America National Trust and Savings Association, as Agent and other financial institutions party thereto--incorporated by reference from Exhibit 10.60 of Mail-Well, Inc.'s Form 10-Q for the quarter ended March 31, 1998. 10.19 Credit Agreement dated as of March 16, 1998, among Supremex Inc., certain Guarantors, Bank of America National Trust and Savings Association, as Agent and other financial institutions party thereto--incorporated by reference from Exhibit 10.61 to Mail-Well, Inc.'s Form 10-Q for the quarter ended March 31, 1998. 10.20 Participation Agreement dated as of December 15, 1997, among Mail-Well I Corporation, Keybank National Association, as Trustee and other financial institutions party thereto-- incorporated by reference from Exhibit 10.62 to Mail-Well, Inc.'s Form 10-Q for the quarter ended March 31, 1998. II-4 10.21 Equipment Lease dated as of December 15, 1997 among Mail-Well I Corporation, Keybank National Association, as Trustee and other financial institutions party thereto-- incorporated by reference from Exhibit 10.63 to Mail-Well, Inc.'s Form 10-Q for the quarter ended March 31, 1998. 10.22 Guaranty Agreement dated as of December 15, 1997, among Mail-Well, Inc., Graphic Arts Center, Inc., Griffin Envelope Inc., Murray Envelope Corporation, Shepard Poorman Communications Corporation, Wisco Envelope Corp., Wisco II, LLC, Wisco III, LLC, Mail-Well I Corporation, Keybank National Association, as Trustee and other financial institutions party thereto--incorporated by reference from Exhibit 10.64 to Mail-Well, Inc.'s Form 10-Q for the quarter ended March 31, 1998. 10.23 Stock Purchase Agreement dated as of December 15, 1997, among Mail-Well I Corporation, Poser Business Forms, Inc. and other Selling Shareholders party thereto--incorporated by reference from Mail-Well, Inc.'s report on Form 8-K dated January 6, 1998. 10.24 Asset Purchase Agreement dated as of January 31, 1998, among Lawson Mardon Packaging USA, Inc (USA)--incorporated by reference from Mail-Well, Inc.'s report on Form 8-K dated March 10, 1998. 10.25 Asset Purchase Agreement dated as of January 31, 1998, among 3014597 Nova Scotia Company and Lawson Mardon Packaging Inc. (Canada)--incorporated by reference from Mail-Well, Inc.'s report on Form 8-K dated March 10, 1998. 10.26 Purchase Agreement dated December 11, 1998, between Mail-Well I Corporation and Donaldson, Lufkin & Jenrette Securities Corporation, Prudential Securities, Incorporated, Bear, Stearns & Co., Inc. and Hanifen, Imhoff Inc., as Initial Purchasers, relating to Mail-Well I Corporation's $300,000,000 aggregate principal amount of 8 3/4% Senior Subordinated Notes due 2008--incorporated by reference from Exhibit 10.27 to Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-12551. 10.27 Registration Rights Agreement dated December 16, 1998, by and among Mail-Well I Corporation, and Donaldson, Lufkin & Jenrette Securities Corporation, Prudential Securities, Incorporated, Bear, Stearns & Co., Inc. and Hanifen, Imhoff Inc., as Initial Purchasers, relating to Mail-Well I Corporation's $300,000,000 aggregate principal amount of 8 3/4% Senior Subordinated Notes due 2008--incorporated by reference from Exhibit 10.28 to Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-12551. 12 Calculation of ratio of earnings to fixed charges--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 21 Subsidiaries of the Registrant--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). II-5 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of Rubin, Brown, Gornstein & Co., LLP. 23.3 Consent of Rothgerber Johnson & Lyons LLP (included in Exhibit 5). 24 Powers of Attorney--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 25 Statement of Eligibility on Form T-1 under the Trust Indenture Act of 1939 of State Street Bank and Trust Company, as trustee under the indenture, relating to the old notes and the new notes (separately bound)--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 27 Financial Data Schedule--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. [FN] - --------- Filed herewith. (B) FINANCIAL STATEMENT SCHEDULES Schedule I Condensed Balance Sheets as of December 31, 1998 and 1997 and Condensed Statements of Operations and Cash Flows for the Years Ended December 31, 1998, 1997, and 1996. Included in Part I of this Registration Statement at pages F-39 to F-42. Schedule II Valuation and Qualifying Accounts for the Years Ended December 31, 1998, 1997 and 1996. Included in Part I of this Registration Statement at page F-43. ITEM 22. UNDERTAKINGS (A) ITEM 512 UNDERTAKINGS. (a) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement. (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post- effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not II-6 exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (g)(1) The undersigned Registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (g)(2) The Registrant undertakes that every prospectus (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be refiled as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (h) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than II-7 the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (B) The undersigned Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (C) The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and Mail-Well I Corporation being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-8 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrants have duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Englewood, State of Colorado, on April 26, 1999. Mail-Well I Corporation Mail-Well, Inc. By: /s/ Gerald F. Mahoney ------------------------------------------------ Gerald F. Mahoney, Chief Executive Officer Graphics Arts Center, Inc. Mail-Well Canada Holdings, Inc. Mail-Well Commercial Printing, Inc. Mail-Well Label Holdings, Inc. Mail-Well Label USA, Inc. Mail-Well West, Inc. Murray Envelope Holdings, Inc. Murray Envelope Corporation N-M Envelope, Inc. National Graphics Company Poser Business Forms, Inc. Wisco II, L.L.C. Wisco Envelope Corp. By: /s/ Paul V. Reilly ------------------------------------------------ Paul V. Reilly, Chief Executive Officer II-9 Pursuant to the requirements of the Securities 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ---- /s/ Roger Wertheimer Chairman of the Board, April 26, 1999 - --------------------------------- Chief Executive Officer and Director Roger Wertheimer as attorney- of Mail-Well I Corporation and in-fact for Gerald F. Mahoney Mail-Well, Inc., and Chairman and Director of Graphic Arts Center, Inc. /s/ Roger Wertheimer President, Chief Operating Officer and April 26, 1999 - --------------------------------- Director of Mail-Well I Corporation Roger Wertheimer as attorney-in- and Mail-Well, Inc., and Chief fact for Paul V. Reilly Executive Officer and Director of all other Registrants /s/ Roger Wertheimer Senior Vice President, Chief April 26, 1999 - --------------------------------- Financial Officer and Director of Roger Wertheimer as attorney-in- all Registrants except Mail-Well, Inc. fact for Michael Zawalski /s/ Roger Wertheimer Director of Mail-Well, Inc. April 26, 1999 - --------------------------------- Roger Wertheimer as attorney-in- fact for Frank P. Diassi /s/ Roger Wertheimer Director of Mail-Well, Inc. April 26, 1999 - --------------------------------- Roger Wertheimer as attorney-in- fact for Frank J. Hevrdejs /s/ Roger Wertheimer Director of Mail-Well, Inc. April 26, 1999 - --------------------------------- Roger Wertheimer as attorney-in- fact for Jerome W. Pickholz /s/ Roger Wertheimer Director of Mail-Well, Inc. April 26, 1999 - --------------------------------- Roger Wertheimer as attorney-in- fact for William R. Thomas /s/ Roger Wertheimer Director of all Registrants except April 26, 1999 - --------------------------------- Mail-Well, Inc. and Graphic Arts Roger Wertheimer Center, Inc.
II-10 EXHIBIT INDEX
Exhibit Number Description of Exhibit Page Number - ------- ---------------------- ----------- 3.1 Certificate of Incorporation of Mail-Well I Corporation--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 3.2 Certificate of Amendment of Certificate of Incorporation of Mail-Well I Corporation--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 3.3 Certificate of Correction Filed to Correct Certain Error in the Certificate of Amendment of Mail-Well 1 Corporation Filed in the Office of the Secretary of State of Delaware on September 11, 1995-- incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 3.4 Certificate of Change of Registered Agent and Registered Office-- incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 3.5 Bylaws of Mail-Well I Corporation--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 4.1 Form of Indenture between Mail-Well, Inc. and The Bank of New York, as Trustee, dated November 1997, relating to Mail-Well, Inc.'s $152,050,000 aggregate principal amount of 5% Convertible Subordinated Notes due 2002--incorporated by reference from Exhibit 4.2 to Mail-Well, Inc.'s Amendment No. 2 to Form S-3 dated November 10, 1997 (Reg. No. 333-36337). 4.2 Form of Supplemental Indenture between Mail-Well, Inc. and The Bank of New York, as Trustee, dated November 1997, relating to Mail-Well, Inc.'s $152,050,000 aggregate principal amount of 5% Convertible Subordinated Notes due 2002 and Form of Convertible Note--incorporated by reference from Exhibit 4.5 to Mail-Well, Inc.'s Amendment No. 2 to Form S-3 dated November 10, 1997 (Reg. No. 333-36337). 4.3 Indenture dated as of December 16, 1998 between Mail-Well I Corporation and State Street Bank and Trust Company, as Trustee, relating to Mail-Well I Corporation's $300,000,000 aggregate principal amount of 8 3/4% Senior Subordinated Notes due 2008--incorporated by reference from Exhibit 4.4 to Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-12551. 4.4 Form of Senior Subordinated Note--incorporated by reference from Exhibit 4.5 to Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-12551. 5 Opinion of Rothgerber Johnson & Lyons LLP re: legality of Mail-Well I Corporation's $300,000,000 aggregate principal amount of 8 3/4% Senior Subordinated Notes due 2008. 8 Opinion of Rothgerber Johnson & Lyons LLP re: tax matters-- incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 10.1 Form of Indemnity Agreement between Mail-Well, Inc. and each of its officers and directors--incorporated by reference from Exhibit 10.17 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.2 Form of Indemnity Agreement between Mail-Well I Corporation and each of its officers and directors--incorporated by reference from Exhibit 10.18 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.3 Form of M-W Corp. Employee Stock Ownership Plan effective as of February 23, 1994 and related Employee Stock Ownership Plan Trust Agreement--incorporated by reference from Exhibit 10.19 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.4 Form of M-W Corp. 401(k) Savings Retirement Plan--incorporated by reference from Exhibit 10.20 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.5 Mail-Well, Inc. 1994 Stock Option Plan, as amended on May 7, 1997-- incorporated by reference from Exhibit 10.56 of Mail-Well, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. 10.6 Form of Mail-Well, Inc. Incentive Stock Option Agreement-- incorporated by reference from Exhibit 10.22 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.7 Form of Mail-Well, Inc. Nonqualified Stock Option Agreement-- incorporated by from Exhibit 10.23 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.8 Purchase and Contribution Agreement dated as of November 15, 1996, between Mail-Well I Corporation, Wisco Envelope Corp., Pavey Envelope and Tag Corp., Mail-Well West, Inc., Graphic Arts Center, Inc., Wisco III, L.L.C., Supremex, Inc., Innova Envelope, Inc., as Sellers, and Mail-Well Trade Receivables Corp., as Purchaser--incorporated by reference from Exhibit 10.39 of Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996. 10.9 Mail-Well Receivables Master Trust Pooling and Servicing Agreement dated as of November 15, 1996 by and between Mail-Well Trade Receivables Corporation, Seller, Mail-Well I Corporation, Servicer, and Norwest Bank Colorado, National Association, Trustee--incorporated by reference from Exhibit 10.40 of Mail-Well I Corporation's Annual Report on Form 10-K for the year ended December 31, 1996. 10.10 Series 1996-1 Supplement dated as of November 15, 1996, to Pooling and Servicing Agreement, dated as of November 15, 1996, by and between Mail-Well Trade Receivables Corporation, Seller, Mail-Well I Corporation, Servicer, and Norwest Bank Colorado, National Association, as Trustee on behalf of the Series 1996-1 Certificateholders--incorporated by reference from Exhibit 10.41 of the Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996. 10.11 Series 1996-1 Certificate Purchase Agreement dated as of November 15, 1996 among Mail-Well Trade Receivables Corporation, as Seller, Corporate Receivables Corporation, as Purchaser, Norwest Bank Colorado, National Association, as Trustee, and Mail-Well I Corporation, as Servicer--incorporated by reference from Exhibit 10.42 of Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996. 10.12 Intercreditor Agreement dated as of November 15, 1996, by and among Citicorp North America, Inc., as Securitization Company Agent, Banque Paribas, New York Branch, as Liquidity Agent, Banque Paribas, as Credit Lenders' Agent, Norwest Bank Colorado, National Association, as Trustee, Mail-Well Trade Receivables Corporation, as Servicer, originator and Mail-Well Credit Borrower, Supremex, Inc., as the Supremex Credit Borrower and the other parties hereto--incorporated by reference from Exhibit 10.43 of Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996. 10.13 Series 1996-1 Asset Purchase Agreement among Corporate Receivables Corporation, the Liquidity Providers Parties hereto, Citicorp North America, Inc., as Securitization Company Agent, Banque Paribas, New York Branch, as Liquidity Agent, and Norwest Bank Colorado, National Association, as trustee, dated as of November 15, 1996--incorporated by reference from Exhibit 10.44 of Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996. 10.14 Mail-Well, Inc. 1997 Non-Qualified Stock Option Plan--incorporated by reference from exhibit 10.54 of Mail-Well, Inc.'s Form 10-Q for the quarter ended March 31, 1997. 10.15 1997 Non-Qualified Stock Option Agreement--incorporated by reference from exhibit 10.54 of Mail-Well, Inc.'s Form 10-Q for the quarter ended March 31, 1997. 10.16 Mail-Well, Inc. 1998 Incentive Stock Option Plan--incorporated by reference from Mail-Well, Inc.'s definitive proxy statement on Schedule 14A for the regular annual meeting of shareholders held April 29, 1998. 10.17 Mail-Well, Inc. 1998 Incentive Stock Option Plan Incentive Stock Option Agreement--incorporated by reference from Mail-Well, Inc.'s definitive proxy statement on Schedule 14A for the regular annual meeting of shareholders held April 29, 1998. 10.18 Credit Agreement dated as of March 16, 1998, among Mail-Well, Inc., certain Guarantors, Bank of America National Trust and Savings Association, as Agent and other financial institutions party thereto--incorporated by reference from Exhibit 10.60 of Mail-Well, Inc.'s Form 10-Q for the quarter ended March 31, 1998. 10.19 Credit Agreement dated as of March 16, 1998, among Supremex Inc., certain Guarantors, Bank of America National Trust and Savings Association, as Agent and other financial institutions party thereto-- incorporated by reference from Exhibit 10.61 to Mail-Well, Inc.'s Form 10-Q for the quarter ended March 31, 1998. 10.20 Participation Agreement dated as of December 15, 1997, among Mail- Well I Corporation, Keybank National Association, as Trustee and other financial institutions party thereto--incorporated by reference from Exhibit 10.62 to Mail-Well, Inc.'s Form 10-Q for the quarter ended March 31, 1998. 10.21 Equipment Lease dated as of December 15, 1997 among Mail-Well I Corporation, Keybank National Association, as Trustee and other financial institutions party thereto--incorporated by reference from Exhibit 10.63 to Mail-Well, Inc.'s Form 10-Q for the quarter ended March 31, 1998. 10.22 Guaranty Agreement dated as of December 15, 1997, among Mail-Well, Inc., Graphic Arts Center, Inc., Griffin Envelope Inc., Murray Envelope Corporation, Shepard Poorman Communications Corporation, Wisco Envelope Corp., Wisco II, LLC, Wisco III, LLC, Mail-Well I Corporation, Keybank National Association, as Trustee and other financial institutions party thereto--incorporated by reference from Exhibit 10.64 to Mail-Well, Inc.'s Form 10-Q for the quarter ended March 31, 1998. 10.23 Stock Purchase Agreement dated as of December 15, 1997, among Mail- Well I Corporation, Poser Business Forms, Inc. and other Selling Shareholders party thereto--incorporated by reference from Mail-Well, Inc.'s report on Form 8-K dated January 6, 1998. 10.24 Asset Purchase Agreement dated as of January 31, 1998, among Lawson Mardon Packaging USA, Inc (USA)--incorporated by reference from Mail-Well, Inc.'s report on Form 8-K dated March 10, 1998. 10.25 Asset Purchase Agreement dated as of January 31, 1998, among 3014597 Nova Scotia Company and Lawson Mardon Packaging Inc. (Canada)--incorporated by reference from Mail-Well, Inc.'s report on Form 8-K dated March 10, 1998. 10.26 Purchase Agreement dated December 11, 1998, between Mail-Well I Corporation and Donaldson, Lufkin & Jenrette Securities Corporation, Prudential Securities, Incorporated, Bear, Stearns & Co., Inc. and Hanifen, Imhoff Inc., as Initial Purchasers, relating to Mail-Well I Corporation's $300,000,000 aggregate principal amount of 8 3/4% Senior Subordinated Notes due 2008--incorporated by reference from Exhibit 10.27 to Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-12551. 10.27 Registration Rights Agreement dated December 16, 1998, by and among Mail-Well I Corporation, and Donaldson, Lufkin & Jenrette Securities Corporation, Prudential Securities, Incorporated, Bear, Stearns & Co., Inc. and Hanifen, Imhoff Inc., as Initial Purchasers, relating to Mail-Well I Corporation's $300,000,000 aggregate principal amount of 8 3/4% Senior Subordinated Notes due 2008--incorporated by reference from Exhibit 10.28 to Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-12551. 12 Calculation of ratio of earnings to fixed charges--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 21 Subsidiaries of the Registrant--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of Rubin, Brown, Gornstein & Co., LLP. 23.3 Consent of Rothgerber Johnson & Lyons LLP (included in Exhibit 5). 24 Powers of Attorney--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 25 Statement of Eligibility on Form T-1 under the Trust Indenture Act of 1939 of State Street Bank and Trust Company, as trustee under the indenture, relating to the old notes and the new notes (separately bound)-- incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 27 Financial Data Schedule--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. - ----------- Filed herewith.
EX-5 2 OPINION RE: LEGALITY EXHIBIT 5 OPINION RE: LEGALITY April 26, 1999 Mail-Well, Inc. 23 Inverness Way, Suite 160 Englewood, Colorado 80112 Ladies and Gentlemen: You have requested our opinion in connection with Amendment Number 1 to the Registration Statement on Form S-4 (the "Registration Statement"), File Number 333-74409, which is expected to be filed by Mail-Well I Corporation (the "Company") on or about April 27, 1999, with respect to the exchange offer and issuance of $300,000,000 aggregate principal amount of 8 3/4% Series B Senior Subordinated Notes due 2008 (the "Notes"), to be issued under that certain indenture (the "Indenture") among the Company, the Guarantors listed on Schedule A to the Indenture, and State Street Bank and Trust Company, a Massachusetts trust company, as described in the Registration Statement. We have reviewed such documents and have made such investigation of applicable law as we have deemed necessary under the circumstances. Based on that review and investigation, it is our opinion that, upon their issuance in accordance with the Indenture, the Notes will have been duly authorized and legally issued, will be fully paid and nonassessable, and will be binding obligations of the Company. We consent to the use by the Company, in the Registration Statement, of our name and the statements with respect to our firm under the heading of "Legal Matters" in the Registration Statement. Sincerely yours, /s/ ROTHGERBER JOHNSON & LYONS LLP EX-23.1 3 CONSENT OF EXPERT EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Amendment No. 1 to Registration Statement No. 333-74409 of Mail-Well I Corporation on Form S-4 of our report dated January 28, 1999, included in the Annual Report on Form 10-K of Mail-Well, Inc., for the year ended December 31, 1998, and to the use of our report dated January 28, 1999, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ DELOITTE & TOUCHE LLP Denver, Colorado April 27, 1999 EX-23.3 4 CONSENT OF EXPERT EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Amendment No. 1 to Registration Statement No. 333-74409 of Mail-Well I Corporation on Form S-4 of our report dated March 6, 1998 (except for Notes 7 and 13, which are dated May 15, 1998 and May 22, 1998, respectively, relating to the financial statements of Color Art, Inc. and Subsidiaries (not presented separately herein)), included in the Annual Report on Form 10-K of Mail-Well, Inc., for the year ended December 31, 1998, and to the use of our report dated March 6, 1998 (except for Notes 7 and 13, which are dated May 15, 1998 and May 22, 1998, respectively, relating to the financial statements of Color Art, Inc. and Subsidiaries (not presented separately herein)), appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ Rubin, Brown, Gornstein & Co. LLP St. Louis, Missouri April 26, 1999 EX-99.1 5 FORM OF LETTER OF TRANSMITTAL EXHIBIT 99.1 - --------------------------------------------------------------------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN TIME, ON ____________, 1999, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., EASTERN TIME, ON THE EXPIRATION DATE. - --------------------------------------------------------------------- LETTER OF TRANSMITTAL To: State Street Bank and Trust Company FACSIMILE TRANSMISSION: (617) 664-5290 CONFIRM BY TELEPHONE TO: (617) 664-5314 BY MAIL/HAND DELIVERY/OVERNIGHT DELIVERY: State Street Bank and Trust Company Attn: Susan Lavey, Corporate Actions Two International Place, Fourth Floor Boston, Massachusetts 02110 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. Re: Mail-Well I Corporation To exchange outstanding 8 3/4% Senior Subordinated Notes due 2008 for new 8 3/4% Series B Senior Subordinated Notes due 2008 Exchange Agent: State Street Bank & Trust Company The undersigned acknowledges receipt of the Prospectus dated _________, 1999 (the "Prospectus") of Mail-Well I Corporation, a Delaware corporation (the "Issuer"), and this Letter of Transmittal (which may be amended from time to time) for 8 3/4% Senior Subordinated Notes due 2008 (this "Letter"), which together constitute the Issuer's offer (the "Exchange Offer") to exchange $1,000 principal amount of its 8 3/4% Series B Senior Subordinated Notes due 2008 (the "Exchange Notes") for each $1,000 in principal amount of its outstanding 8 3/4% Senior Subordinated Notes due 2008 (the "Old Notes") that were issued and sold in a transaction exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). The undersigned has completed, executed and delivered this Letter to indicate the action he or she desires to take with respect to the Exchange Offer. All holders of Old Notes who wish to tender their Old Notes must, prior to the Expiration Date: (1) complete, sign, date and deliver this Letter, or a facsimile thereof, to the Exchange Agent, in person or to the address set forth above; and (2) tender his or her Old Notes or, if a tender of Old Notes is to be made by book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company ("DTC"), confirm such book-entry transfer (a "Book-Entry Confirmation"), in each case in accordance with the procedures for tendering described in the Instructions to this Letter. Holders of Old Notes whose certificates are not immediately available, or who are unable to deliver their certificates or Book-Entry Confirmation, together with all other documents required by this Letter to be delivered to the Exchange Agent on or prior to the Expiration Date, must tender their Old Notes according to the guaranteed delivery procedures set forth under the caption "The Exchange Offer--Guaranteed Delivery Procedures" in the Prospectus. (See Instruction 1). Upon the terms and subject to the conditions of the Exchange Offer, the acceptance for exchange of Old Notes validly tendered and not withdrawn will take place on the Expiration Date, and the issuance of the Exchange Notes will be made as soon as reasonably practicable after the Expiration Date. For the purposes of the Exchange Offer, the Issuer shall be deemed to have accepted for exchange validly tendered Old Notes when, as and if the Issuer has given written notice thereof to the Exchange Agent. The Instructions included with this Letter must be followed in their entirety. Questions and requests for assistance or additional copies of the Prospectus or this Letter may be directed to the Exchange Agent, at the address listed above, or Mark L. Zoeller, Corporate Counsel, Mail-Well I Corporation, 23 Inverness Way East, Suite 160, Englewood, Colorado 80112, at (303) 790-8023. PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING THE INSTRUCTIONS, CAREFULLY BEFORE CHECKING ANY BOX BELOW Capitalized terms used in this Letter and not defined herein shall have the respective meanings ascribed to them in the Prospectus. List in Box 1 below the Old Notes of which you are the holder. If the space provided in Box 1 is inadequate, list the certificate numbers and principal amount of Old Notes on a separate signed schedule and affix that schedule to this Letter. BOX 1 TO BE COMPLETED BY ALL TENDERING HOLDERS
- ----------------------------------------------------------------------------------------------- Principal Name(s) and Address(es) of Registered Certificate Principal Amount of Old Holder(s) (Please fill in if blank) Number(s) Amount Notes Tendered of Old Notes - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Totals: - ----------------------------------------------------------------------------------------------- Need not be completed if Old Notes are being tendered by book- entry transfer. Unless otherwise indicated, the entire principal amount of Old Notes represented by a certificate or Book-Entry Confirmation delivered to the Exchange Agent will be deemed to have been tendered.
Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned tenders to the Issuer the principal amount of Old Notes indicated above. Subject to, and effective upon, the acceptance for exchange of the Old Notes tendered with this Letter, the undersigned exchanges, assigns and transfers to, or upon the order of, the Issuer, all right, title and interest in and to the Old Notes tendered. The undersigned constitutes and appoints the Exchange Agent as his or her agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as the agent of the Issuer) with respect to the tendered Old Notes, with full power of substitution, to: (a) deliver certificates for such Old Notes; (b) deliver Old Notes and all accompanying evidence of transfer and authenticity to or upon the order of the Issuer upon receipt by the Exchange Agent, as the undersigned's agent, of the Exchange Notes to which the undersigned is entitled upon the acceptance by the Issuer of the Old Notes tendered under the Exchange Offer; and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of the Old Notes, all in accordance with the terms of the Exchange Offer. The power of attorney granted in this paragraph shall be deemed irrevocable and coupled with an interest. The undersigned hereby represents and warrants that he or she has full power and authority to tender, exchange, assign and transfer the Old Notes tendered hereby and that the Issuer will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned will, upon request, execute and deliver any additional documents deemed by the Issuer to be necessary or desirable to complete the assignment and transfer of the Old Notes tendered. The undersigned agrees that acceptance of any tendered Old Notes by the Issuer and the issuance of Exchange Notes (together with the guarantees of the Guarantors with respect thereto) in exchange therefor shall constitute performance in full by the Issuer and the Guarantors of their obligations under the Registration Rights Agreement and that, upon the issuance of the Exchange Notes, the Issuer and the Guarantors will have no further obligations or liabilities thereunder (except in certain limited circumstances). By tendering Old Notes, the undersigned certifies each of the following: (1) that it is not an "affiliate" (as defined in Rule 405 of the Securities Act) of the Issuer (an "Affiliate"); (2) that it is acquiring the Exchange Notes in the ordinary course of its business; (3) that it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution (within the meaning of the Securities Act) of the Exchange Notes; and (4) if the undersigned is a broker-dealer, that it will receive Exchange 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 not directly from the Issuer or an Affiliate), and that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the Exchange Notes. By signing this Letter and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. All authority conferred or agreed to be conferred by this Letter shall survive the death or incapacity of the undersigned, and every obligation of the undersigned under this Letter shall be binding upon the undersigned's heirs, personal representatives, successors and assigns. Tenders may be withdrawn only in accordance with the procedures set forth in the Instructions contained in this Letter. Unless otherwise indicated under "Special Delivery Instructions" below, the Exchange Agent will deliver Exchange Notes (and, if applicable, a certificate for any Old Notes not tendered but represented by a certificate also encompassing Old Notes which are tendered) to the undersigned at the address set forth in Box 1. The Exchange Offer is subject to the more detailed terms set forth in the Prospectus and, in case of any conflict between the terms of the terms of the Prospectus and this Letter, the Prospectus shall prevail. ======================================================================== [ ] Check here if tendered Old Notes are being delivered by book-entry transfer made to the account maintained by the Exchange Agent with DTC and complete the following: Name of Tendering Institution: ------------------------------------------ Account Number: --------------------------------------------------------- Transaction Code Number: ------------------------------------------------ ======================================================================== [ ] Check here if tendered Old Notes are being delivered pursuant to a Notice of Guaranteed Delivery previously sent to the Exchange Agent and complete the following: Name(s) of Registered Owner(s): ----------------------------------------- Date of Execution of Notice of Guaranteed Delivery: --------------------- Window Ticket Number (if available): ------------------------------------ Name of Institution which Guaranteed Delivery: -------------------------- ======================================================================== BOX 2 PLEASE SIGN HERE WHETHER OR NOT OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY This box must be signed by registered holder(s) of Old Notes as their name(s) appear(s) on certificate(s) for Old Notes, or by person(s) authorized to become registered holder(s) by endorsement and documents transmitted with this Letter. If signature is by a trustee, executor, administrator, guardian, officer or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below. (See Instruction 3) X --------------------------------------------------- X --------------------------------------------------- Signature(s) of Owner(s) or Authorized Signatory Date: , 1999 ----------------- Name(s) --------------------------------------------------------------- (Please Print) Capacity: ------------------------------------------------------------- Address: -------------------------------------------------------------- (Include Zip Code) Area Code and Telephone No.: ------------------------------------------ PLEASE COMPLETE A SUBSTITUE FORM W-9 (INCLUDED HEREIN) SIGNATURE GUARANTEE (SEE INSTRUCTION 3 BELOW) CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION - ------------------------------------------------------------------------- (Name of Eligible Institution Guaranteeing Signatures) - ------------------------------------------------------------------------- (Address (including zip code) and Telephone Number (including area code) of Firm) - ------------------------------------------------------------------------- (Authorized Signature) - ------------------------------------------------------------------------- (Title) - ------------------------------------------------------------------------- (Printed Name) Date: , 1999 ---------------- BOX 3 TO BE COMPLETED BY ALL TENDERING HOLDERS NAME OF PAYOR: State Street Bank and Trust Company, Exchange Agent - ------------------------------------------------------------------------- Please provide your taxpayer Part 1 identification number at the right and certify Social Security Number by signing and dating below or Employer Identification Number ---------------------------------------- - ------------------------------------------------------------------------- Substitute Part 2 [ ] Form W-9 Department of the Treasury, Check the box if you are NOT subject to Internal Revenue Service back-up withholding under the provisions of Section 2406(a)(1)(C) of the Internal Revenue Code because (1) you have not been notified that you are subject to back-up withholding as a result of failure to report all interest or dividends or (2) the Internal Revenue Service has notified you that you are no longer subject to back-up withholding. - ------------------------------------------------------------------------- Payor's Request for Taxpayer Part 3 [ ] Identification Number (TIN) Check box if awaiting TIN - ------------------------------------------------------------------------- CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION PROVIDED IN THIS FORM IS TRUE, CORRECT AND COMPLETE Signature: ------------------------------ Date: ----------------------------------- Name: ----------------------------------- (Please Print) - ------------------------------------------------------------------------- ========================================================================= BOX 4 SPECIAL ISSUANCE INSTRUCTIONS (See Instructions 2, 3 and 4) - ------------------------------------------------------------------------- To be completed ONLY if certificates for Old Notes in a principal amount not exchanged, or Exchange Notes, are to be issued in the name of someone other than the person(s) whose signature(s) appear in Box 2, or if Old Notes delivered by book-entry transfer which are not accepted for exchange are to be returned by credit to an account maintained at DTC other than the account indicated above. Issue and deliver (check appropriate boxes): [ ] Old Notes not tendered [ ] Exchange Notes to (Please Print): Name: -------------------------------------------------------------------- Address: ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- Please complete the Substitute Form W-9 at Box 3. Tax I.D. or Social Security Number: -------------------------------------- - ------------------------------------------------------------------------- For book-entry transfer: Name of Tendering Institution: ------------------------------------------- - ------------------------------------------------------------------------- Account Number: ---------------------------------------------------------- Transaction Code Number: ------------------------------------------------- ========================================================================= ========================================================================= BOX 5 SPECIAL DELIVERY INSTRUCTIONS (See Instructions 2, 3 and 4) - ------------------------------------------------------------------------- To be completed ONLY if certificates for Old Notes in a principal amount not exchanged, or Exchange Notes, are to be sent to someone other than the person(s) whose signature(s) appear in Box 2 or to an address other than that shown in Box 1. Deliver (check appropriate boxes): [ ] Old Notes not tendered [ ] Exchange Notes to (Please Print): Name: -------------------------------------------------------------------- Address: ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- Please complete the Substitute Form W-9 at Box 3. Tax I.D. or Social Security Number: -------------------------------------- - ------------------------------------------------------------------------- ========================================================================= INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. Delivery of this Letter and Certificates. Certificates for Old ---------------------------------------- Notes or a Book-Entry Confirmation, as the case may be, as well as a properly completed and duly executed copy of this Letter and any other documents required by this Letter, must be received by the Exchange Agent at its addresss set forth in this Letter on or before the Expiration Date. Except as otherwise provided below, the delivery will be deemed made when actually received by the Exchange Agent. Holders whose Old Notes are not immediately available or who cannot deliver their Old Notes or a Book-Entry Confirmation, as the case may be, and all other required documents to the Exchange Agent on or before the Expiration Date may tender their Old Notes pursuant to the guaranteed delivery procedures set forth in the Prospectus. Pursuant to such procedures: (1) the tender must be made through a firm which 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 (each an "Eligible Institution"); (2) prior to the Expiration Date, the Exchange Agent must have received from the Eligible Institution this Letter (or a facsimile) and a Notice of Guaranteed Delivery, completed and signed, 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 thereby and guaranteeing that within three Nasdaq National Market 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 this Letter 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 this Letter, must be received by the Exchange Agent within three Nasdaq National Market trading days after the date of signing the Notice of Guaranteed Delivery, all as provided in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures." A tender will be deemed to have been received as of the date when the tendering holder's properly completed and duly signed Letter accompanied by the Old Notes (or a timely Book-Entry Confirmation) is received by the Exchange Agent. Issuances of Exchange Notes in exchange for Old Notes tendered pursuant to a Notice of Guaranteed Delivery will be made only against deposit of the Letter of Transmittal (and any other required documents) and the tendered Old Notes (or a timely Book-Entry Confirmation). The method of delivery of Old Notes and all other documents is at the election and risk of the holder. If sent by mail, it is recommended that registered mail, return receipt requested, be used, proper insurance be obtained, and the mailing be made sufficiently in advance of the Expiration Date to permit delivery to the Exchange Agent on or before the Expiration Date. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered Old Notes will be determined by the Issuer, whose determination will be final and binding. The Issuer reserves the absolute right to reject any or all tenders that are not in proper form or the acceptance of which, in the opinion of the Issuer's counsel, would be unlawful. The Issuer also reserves the right to waive any irregularities or conditions of tender as to particular Old Notes. All tendering holders, by execution of this Letter, waive any right to receive notice of acceptance of their Old Notes. The Issuer's interpretation of the terms and conditions of the Exchange Offer (including this Letter and these instructions) will be final and binding. Neither the Issuer, the Exchange Agent nor any other person shall be obligated to give notice of defects or irregularities in any tender, nor shall any of them incur any liability for failure to give any such notice. 2. Partial Tenders; Withdrawals. If less than the entire principal ---------------------------- amount of any Old Note evidenced by a submitted certificate or by a Book-Entry Confirmation is tendered, the tendering holder must fill in the principal amount tendered in the fourth column of Box 1 above. All of the Old Notes represented by a certificate or by a Book-Entry Confirmation delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. A certificate for Old Notes which are not tendered will be sent to the holder, unless otherwise provided in Box 5, as soon as practicable after the Expiration Date, in the event that less than the entire principal amount of Old Notes represented by a submitted certificate is tendered. In the case of Old Notes tendered by Book-Entry Confirmation, any non-exchanged Old Notes will be credited to the account maintained by the holder with DTC as indicated in this Letter. Any tender pursuant to the Exchange Offer may be withdrawn prior to the Expiration Date. To be effective with respect to the tender of Old Notes, a notice of withdrawal must be received by the Exchange Agent before the Expiration Date. 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 Book-Entry Confirmation, 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. The Exchange Agent will return the properly withdrawn Old Notes promptly following receipt of notice of withdrawal. All questions as to the validity of notices of withdrawals, including time of receipt, will be determined by the Issuer, and such determination will be final and binding on all parties. 3. Signatures on this Letter; Assignments; Guarantee of Signatures. --------------------------------------------------------------- If this Letter is signed by the holder(s) of Old Notes tendered hereby, the signature must correspond with the name(s) as written on the face of the certificate(s) for such Old Notes, without alteration, enlargement or any change whatsoever. Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender Old Notes should contact such holder promptly and instruct such holder to tender Old Notes on such beneficial owner's behalf. If such beneficial owner wishes to tender such Old Notes himself or herself, such beneficial owner must, prior to completing and executing the Letter of Transmittal and delivering such Old Notes, either make appropriate arrangements to register ownership of the Old Notes in such beneficial owner's name or follow the procedures described in the next paragraph. The transfer of record ownership may take considerable time. If Old Notes tendered hereby are registered in the name of a person other than the signer of this Letter, the Old Notes surrendered for exchange must be endorsed by the registered holder, or be accompanied by a written instrument or instruments of transfer or exchange (such as a bond power), in satisfactory form as determined by the Issuer in its sole discretion, duly executed by the registered holder, in each case with the signature thereon guaranteed by an Eligible Institution. If any of the Old Notes tendered hereby are owned by two or more joint owners, all owners must sign this Letter. If any tendered Old Notes are held in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter as there are names in which certificates are held. If this Letter or any certificate or assignment is signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and proper evidence satisfactory to the Issuer of their authority to so act must be submitted, unless waived by the Issuer. 4. Special Issuance and Delivery Instructions. If any Exchange Notes ------------------------------------------ to be issued in exchange for Old Notes tendered hereby are to be issued (and any untendered Old Notes are to be reissued) in a name or to an account different from those of the registered holder, the tax identification number of the recipient must be indicated, Box 4 must be completed and the tendered Old Notes must be endorsed or accompanied by written instruments of transfer (such as bond powers) in form satisfactory to the Issuer and duly executed by the registered holder and the signature on the endorsement or instrument of transfer must be guaranteed by an Eligible Institution that is a member of a recognized signature guarantee medallion program within the meaning of Rule l7Ad-15 under the Exchange Act. If the Exchange Notes and/or Old Notes not exchanged are to be delivered to an address other than that of the registered holder appearing on the note register for the Old Notes, Box 5 must be completed and the signature on this Letter must be guaranteed by an Eligible Institution. 5. Tax Identification Number. Federal income tax law requires that a ------------------------- holder whose tendered Old Notes are accepted for exchange must provide the Exchange Agent (as payor) with his or her correct taxpayer identification number ("TIN"). In the case of a holder who is an individual, the TIN is his or her social security number. If the Exchange Agent is not provided with the correct TIN, the holder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, delivery to the holder of the Exchange Notes may be subject to back-up withholding. (If withholding results in overpayment of taxes, a refund may be obtained.) Exempt holders (including, among others, corporations and certain foreign individuals) are not subject to these back-up withholding and reporting requirements. Under federal income tax laws, payments that may be made by the Issuer on account of Exchange Notes issued pursuant to the Exchange Offer may be subject to back-up withholding at a rate of 31%. Unless an exemption applies, the Exchange Agent will be required to withhold, and will withhold, 31% of the gross proceeds otherwise payable to a holder pursuant to the Exchange Offer if the holder does not provide his or her taxpayer identification number (social security number or employer identification number) and certify that such number is correct. In order to prevent back-up withholding, each tendering holder must provide his or her correct TIN by completing the "Substitute Form W-9" at Box 3, certifying that the TIN provided is correct (or that the holder is awaiting a TIN) and that: (1) the holder has not been notified by the Internal Revenue Service that he or she is subject to back-up withholding as a result of failure to report all interest or dividends, or (2) the Internal Revenue Service has notified the holder that he or she is no longer subject to back-up withholding. Each tendering holder should complete and sign Box 2 and the Substitute Form W-9 included at Box 3, so as to provide the information and certification necessary to avoid backup withholding, unless an applicable exemption exists and is proved in a manner satisfactory to the Issuer and the Exchange Agent. 6. Transfer Taxes. The Issuer will pay all transfer taxes, if any, -------------- applicable to the transfer of Old Notes to it or its order pursuant to the Exchange Offer. If, however, the Exchange Notes or certificates for Old Notes not exchanged are to be delivered to, or are to be issued in the name of, any person other than the record holder, or if tendered certificates are recorded in the name of any person other than the person signing this Letter, or if a transfer tax is imposed by any reason other than the transfer of Old Notes to the Issuer or its order pursuant to the Exchange Offer, then the amount of such transfer taxes (whether imposed on the record holder or any other person) will be payable by the tendering holder. If satisfactory evidence of payment of taxes or exemption from taxes is not submitted with this Letter, the amount of transfer taxes will be billed directly to the tendering holder. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the certificates listed in this Letter. 7. Waiver of Conditions. The Issuer reserves the absolute right to -------------------- amend or waive any of the specified conditions in the Exchange Offer in the case of any Old Notes tendered. 8. Mutilated, Lost, Stolen or Destroyed Certificates. Any holder ------------------------------------------------- whose certificates for Old Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated above, for further instructions. 9. Requests for Assistance or Additional Copies. Questions relating -------------------------------------------- to the procedure for tendering, as well as requests for additional copies of the Prospectus or this Letter, may be directed to the Exchange Agent. IMPORTANT: THIS LETTER, TOGETHER WITH CERTIFICATES REPRESENTING TENDERED OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE. EX-99.2 6 FORM OF NOTICE OF GUARANTEED DELIVERY EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY OF 8 3/4% SENIOR SUBORDINATED NOTES DUE 2008 As set forth in the Prospectus dated __________, 1999 (the "Prospectus") of Mail-Well I Corporation (the "Issuer") and its subsidiaries under "The Exchange Offer--Guaranteed Delivery Procedures" and in the Letter of Transmittal for 8 3/4% Senior Subordinated Notes due 2008 (the "Letter of Transmittal"), this form or one substantially equivalent hereto must be used to accept the Exchange Offer (as defined below) of the Issuer if: (1) certificates for the above-referenced Notes (the "Old Notes") are not immediately available, (2) time will not permit all required documents to reach the Exchange Agent (as defined below) on or prior to the Expiration Date (as defined in the Prospectus) or (3) the procedures for book-entry transfer cannot be completed on or prior to the Expiration Date (as defined below). Such form may be delivered by hand or transmitted by telegram, telex, facsimile transmission or letter to the Exchange Agent. To: State Street Bank and Trust Company FACSIMILE TRANSMISSION: (617) 664-5290 CONFIRM BY TELEPHONE TO: (617) 664-5314 BY MAIL/HAND DELIVERY/OVERNIGHT DELIVERY: State Street Bank and Trust Company Attn: Susan Lavey, Corporate Actions Two International Place, Fourth Floor Boston, Massachusetts 02110 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. Ladies and Gentlemen: The undersigned hereby tenders to the Issuer, upon the terms and conditions set forth in the Prospectus and the Letter of Transmittal (which together constitute the "Exchange Offer"), receipt of which are hereby acknowledged, the principal amount of Old Notes set forth below pursuant to the guaranteed delivery procedures described in the Prospectus and the Letter of Transmittal. The Exchange Offer will expire at 5:00 p.m., New York City time, on _______________, 1999, unless extended by the Issuer (the "Expiration Date"). All authority herein conferred or agreed to be conferred by this Notice of Guaranteed Delivery shall survive the death or incapacity of the undersigned and every obligation of the undersigned under this Notice of Guaranteed Delivery shall be binding upon the heirs, personal representatives, executors, administrators, successors, assigns, trustees in bankruptcy and other legal representatives of the undersigned. SIGNATURES X ---------------------------------------------------- X ---------------------------------------------------- Signature(s) of Owner(s) or Authorized Signatory Date: , 1999 ---------------- Name(s) ------------------------------------------------------------------ (Please Print) Capacity: ---------------------------------------------------------------- Address: ----------------------------------------------------------------- (Include Zip Code) Area Code and Telephone No.: --------------------------------------------- Taxpayer Identification or Social Security No.: -------------------------- Principal amount of Old Notes Exchanged: $ ------------------------------- Certificate Nos. of Old Notes (if available): ---------------------------- - ------------------------------------------------------------------------- IF OLD NOTES WILL BE DELIVERED BY BOOK-ENTRY TRANSFER, PROVIDE THE DEPOSITORY TRUST COMPANY ("DTC") ACCOUNT NO.: Account No.: ------------------------------------------------------------- GUARANTEE OF DELIVERY (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a member of a recognized signature guarantee medallion program within the meaning of Rule l7Ad-l5 under the Securities Exchange Act of 1934, as amended, hereby guarantees: (a) that the above-named person(s) own(s) the above-described securities tendered hereby within the meaning of Rule 10b-4 under the Securities Exchange Act of 1934; (b) that such tender of the above-described securities complies with Rule l0b-4; (c) that tender by delivery of such certificates or pursuant to the procedure for book-entry transfer, in either case with delivery of a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other required documents, is being made by the above- named person(s); and (d) within three Nasdaq National Market trading days after the date of execution of this 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 with the Exchange Agent. Name of Firm: ------------------------------------------------------------ Number and Street or P.O. Box: ------------------------------------------- - ------------------------------------------------------------------------- (include zip code) Tel. No.: ---------------------------------------------------------------- Fax No.: ----------------------------------------------------------------- Authorized Signature: ---------------------------------------------------- Title: ------------------------------------------------------------------- Date: -------------------------------------------------------------------- DO NOT SEND CERTIFICATES REPRESENTING NOTES WITH THIS NOTICE. NOTES SHOULD BE SENT TO THE EXCHANGE AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL. -----END PRIVACY-ENHANCED MESSAGE-----