-----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, COFy+t6skh8zlT+4Hvm7OT0+FK5r3ps1JxADes8TTkDYjfmMVkqNbhqgAvO4/n0U PXxVd/HZuxk0TojvnzQfvQ== 0000927356-97-001395.txt : 19971117 0000927356-97-001395.hdr.sgml : 19971117 ACCESSION NUMBER: 0000927356-97-001395 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NYSE 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: 10-Q SEC ACT: SEC FILE NUMBER: 001-12551 FILM NUMBER: 97721444 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 10-Q 1 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 Commission file number 1-12551 MAIL-WELL, INC. (Exact name of Registrant as specified in its charter.) COLORADO 84-1250533 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 23 Inverness Way East, Englewood, CO 80112 (Address of principal executive offices) (Zip Code) 303-790-8023 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) INDICATE BY CHECKMARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. Yes [X] No [ ] As of November 11, 1997, the Registrant had 18,835,669 shares of Common Stock, $0.01 par value, outstanding. ================================================================================ 1 MAIL-WELL, INC. AND SUBSIDIARIES TABLE OF CONTENTS ================================================================================
PAGE ---- Part I - Financial Information Item 1. Financial Statements................................................ 3 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 10 Item 3 Quantitative and Qualitative Disclosures About Market Risk......................................................... 19 Part II - Other Information Item 1. Legal Proceedings................................................... 19 Item 2. Changes in Securities............................................... 19 Item 3. Defaults upon Senior Securities..................................... 19 Item 4. Submission of Matters to a Vote of Securities Holders............... 19 Item 5. Other Information................................................... 19 Item 6. Exhibits and Reports on Form 8-K.................................... 20
2 PART I. FINANCIAL INFORMATION, ITEM 1. FINANCIAL STATEMENTS MAIL-WELL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
(UNAUDITED) SEPTEMBER 30, DECEMBER 31, 1997 1996 CURRENT ASSETS Cash and cash equivalents................................................................ $ 12,074 $ 9,656 Receivables, net......................................................................... 38,851 31,027 Accounts receivable -- other............................................................. 13,498 7,743 Income tax receivable, net............................................................... 757 3,504 Securitized interest in accounts receivable.............................................. 20,143 9,505 Inventories.............................................................................. 77,891 68,275 Deferred tax asset....................................................................... 2,361 2,309 Other current assets..................................................................... 4,173 3,513 -------- -------- Total current assets................................................................. 169,748 135,532 PROPERTY, PLANT AND EQUIPMENT -- NET.......................................................... 200,766 183,302 DEFERRED FINANCING COSTS -- NET............................................................... 12,402 14,497 GOODWILL -- NET............................................................................... 152,393 128,812 OTHER ASSETS -- NET........................................................................... 8,944 8,723 -------- -------- TOTAL......................................................................................... $544,253 $470,866 ======== ======== CURRENT LIABILITIES Accounts payable......................................................................... $ 44,676 $ 44,539 Accrued compensation and vacation........................................................ 26,096 23,312 Accrued interest......................................................................... 3,482 4,455 Other current liabilities................................................................ 30,752 26,206 Current portion of long-term debt and capital leases..................................... 16,938 14,975 -------- -------- Total current liabilities............................................................ 121,944 113,487 ACCRUED PENSION............................................................................... 872 1,284 CAPITAL LEASES................................................................................ 2,762 2,958 BANK BORROWINGS............................................................................... 150,657 121,992 SUBORDINATED NOTES............................................................................ 85,000 85,000 DEFERRED INCOME TAXES......................................................................... 28,968 23,122 OTHER LONG TERM LIABILITIES................................................................... 7,242 1,865 -------- -------- Total liabilities.................................................................... 397,445 349,708 -------- -------- COMMITMENTS AND CONTINGENCIES MINORITY INTEREST............................................................................. 3,500 -- -------- -------- STOCKHOLDERS' EQUITY Preferred stock, $0.01 par value; 5,000 shares authorized, none issued and outstanding............................................................................. -- -- Common stock, $0.01 par value; 30,000,000 shares authorized, 18,834,732 and 19,414,242 shares issued and 18,834,732 and 18,731,130 (including 1,948,272 shares held by ESOP) outstanding, respectively................................. 188 194 Paid-in capital.......................................................................... 99,226 98,216 Retained earnings........................................................................ 47,728 27,631 Unearned ESOP compensation............................................................... (3,307) (2,896) Cumulative foreign currency translation adjustment....................................... (313) (115) Pension liability adjustment............................................................. (110) (110) Unrealized loss, net of taxes, on securitized interest in accounts receivable.............................................................................. (104) ( 49) Treasury stock - at cost; 683,112 shares outstanding at December 31, 1996................ -- (1,713) -------- -------- Total stockholders' equity........................................................... 143,308 121,158 -------- -------- TOTAL......................................................................................... $544,253 $470,866 ======== ========
See notes to unaudited consolidated financial statements. 3 MAIL-WELL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (DOLLARS IN THOUSANDS)
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------- ---------------------------------- 1997 1996 1997 1996 ---------------- ---------------- ---------------- ---------------- NET SALES.......................................... $ 233,496 $ 200,487 $ 653,010 $ 579,322 COST OF SALES Materials........................................ 99,199 87,883 274,613 263,287 Labor and other.................................. 67,441 56,303 187,115 158,433 Manufacturing.................................... 15,463 10,570 45,029 31,607 Depreciation..................................... 3,675 3,971 10,354 11,450 Waste recovery................................... (2,693) (2,174) (7,427) (6,465) ----------- ----------- ----------- ----------- Total cost of sales........................... 183,085 156,553 509,684 458,312 GROSS PROFIT....................................... 50,411 43,934 143,326 121,010 OTHER OPERATING COSTS Selling.......................................... 16,771 13,678 47,801 41,339 Administrative................................... 12,231 11,963 37,396 32,094 Amortization..................................... 1,039 1,101 3,096 3,036 Loss on disposal of assets....................... 236 112 1,458 711 ----------- ----------- ----------- ----------- Total other operating costs................... 30,277 26,854 89,751 77,180 OPERATING INCOME................................... 20,134 17,080 53,575 43,830 OTHER EXPENSE Interest expense --debt.......................... 4,847 7,036 13,952 21,181 Interest expense -- amortization of deferred financing costs....... 744 1,315 2,192 2,795 Discount on sale of accounts receivable............................ 1,020 0 2,981 0 Other (income) expense........................... 348 1 (536) (23) ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES......................... 13,175 8,728 34,986 19,877 PROVISION FOR INCOME TAXES Current.......................................... 3,692 2,292 9,346 5,718 Deferred......................................... 1,943 1,390 5,543 2,734 ----------- ----------- ----------- ----------- NET INCOME......................................... $ 7,540 $ 5,046 $ 20,097 $ 11,425 =========== =========== =========== =========== NET INCOME PER SHARE............................... $0.40 $0.28 $1.08 $0.64 WEIGHTED AVERAGE SHARES OUTSTANDING................ 18,964,781 17,883,365 18,555,406 17,807,460
See notes to unaudited consolidated financial statements. 4 MAIL-WELL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------- 1997 1996 ----------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income....................................................................... $ 20,097 $ 11,425 Adjustments to reconcile net income to cash provided by operations Depreciation..................................................................... 10,354 11,450 Amortization..................................................................... 5,288 5,831 Deferred tax provision........................................................... 5,543 2,734 Loss on disposal of assets....................................................... 1,458 711 ESOP compensation expense........................................................ 68 1,089 Other............................................................................ 79 (660) Change in operating assets and liabilities Receivables...................................................................... (13,264) (6,992) Current income taxes............................................................. 2,330 4,219 Inventories...................................................................... (2,357) 14,662 Accounts payable................................................................. (3,668) 1,996 Accrued interest................................................................. (973) (3,189) Other working capital............................................................ 24,291 (490) Accrued pension, current and long term........................................... (78) (367) Other assets and other long-term liabilities..................................... 1,049 (690) -------- --------- Net cash provided by operating activities....................................... 50,217 41,729 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition costs................................................................ (55,317) (27,560) Capital expenditures............................................................. (20,218) (7,902) Proceeds from sale of property, plant and equipment.............................. 262 2,630 Maturity of temporary cash investments........................................... -- 250 -------- --------- Net cash used in investing activities........................................... (75,273) (32,582) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from common stock issuance.............................................. 1,186 15 Cash overdrafts.................................................................. 1,443 (2,161) Proceeds from long-term debt..................................................... 67,197 126,291 Repayments of long-term debt..................................................... (41,527) (132,745) Repayments of capital lease obligations.......................................... (470) (460) -------- --------- Net cash provided by (used in) financing activities............................. 27,829 (9,060) -------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH........................................... (355) (87) -------- --------- INCREASE IN CASH AND CASH EQUIVALENTS............................................. 2,418 0 BALANCE AT BEGINNING OF PERIOD.................................................... 9,656 0 -------- --------- BALANCE AT END OF PERIOD.......................................................... $ 12,074 $ 0 ======== ========= SUPPLEMENTAL DISCLOSURES Cash paid for interest........................................................... $ 14,925 $ 24,369 Cash paid for taxes.............................................................. 8,289 4,731 Issuance of convertible stock of subsidiary relating to minority interest........ 3,500 0 Issuance of common stock for compensation........................................ 0 51
See notes to unaudited consolidated financial statements. 5 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION NATURE OF OPERATIONS -- Mail-Well, Inc. (the "Company") is one of the largest printers in North America, manufacturing both envelopes and high impact color commercial products. 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 high impact 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. 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"). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements for all periods presented include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. INTERIM FINANCIAL INFORMATION -- The interim financial information contained herein is unaudited and includes all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the information set forth. The consolidated financial statements should be read in conjunction with the Notes to the Consolidated Financial Statements which are included in the Company's Form 10-K. The results for interim periods are not necessarily indicative of results to be expected for the fiscal year of the Company ending December 31, 1997. The Company believes that the report filed on Form 10-Q is representative of its financial position, its results of operations and its cash flow for the quarter and nine months ended September 30, 1997 and 1996. EMPLOYEE STOCK OWNERSHIP PLAN -- Unearned ESOP compensation balance is presented in the accompanying financial statements as a reduction of equity. As the ESOP shares are allocated to participants, the unearned ESOP compensation balance will decrease and compensation expense will be recorded. EARNINGS PER SHARE -- In June 1997, the Company's common stock split 3:2; all shares and per share information has been retroactively restated to reflect the split. Net income per share is computed by dividing net income by the weighted average number of common shares. Common shares outstanding excludes unallocated and uncommitted shares held by the ESOP.
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, --------------------------- ------------------------------- 1997 1996 1997 1996 ------ ------ ------ ------ Common shares............................... 17,974,150 17,485,155 17,863,700 17,482,147 Common stock equivalents.................... 990,631 398,210 691,706 325,313 Weighted average shares outstanding......... 18,964,781 17,883,365 18,555,406 17,807,460
RECLASSIFICATION -- Certain amounts in the 1996 financial statements have been reclassified to conform to the 1997 presentation. 6 3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS (IN THOUSANDS)
INVENTORIES: SEPTEMBER 30, 1997 DECEMBER 31, 1996 ------------------- ------------------ Raw materials................................................ $ 30,429 $ 25,953 Work in process.............................................. 7,749 7,549 Finished goods............................................... 42,523 37,385 Reserve for obsolescence and loss............................ (2,810) (2,612) -------- -------- Total........................................................ $ 77,891 $ 68,275 ======== ======== PROPERTY, PLANT AND EQUIPMENT: SEPTEMBER 30, 1997 DECEMBER 31, 1996 -------------------- ------------------- Land and land improvements................................... $ 12,523 $ 11,429 Buildings.................................................... 49,277 45,385 Leasehold improvements....................................... 6,406 3,627 Machinery and equipment...................................... 133,094 124,028 Furniture and fixtures....................................... 3,588 3,066 Automobiles and trucks....................................... 677 556 Computers and software....................................... 10,843 7,457 Assets under capital lease................................... 3,732 3,584 Construction in progress..................................... 12,864 6,576 -------- -------- 233,004 205,708 Less accumulated depreciation................................ (32,238) (22,406) -------- -------- Total........................................................ $200,766 $183,302 ======== ========
4. LONG-TERM DEBT Long-term debt consists of the following (in thousands):
SEPTEMBER 30, 1997 DECEMBER 31, 1996 ------------------ ----------------- Bank borrowings: Revolving credit loans....................................... $ 37,500 $ 768 Term loans................................................... 124,289 135,000 Subordinated notes........................................... 85,000 85,000 Other........................................................ 5,472 651 -------- -------- 252,261 221,419 Less current maturities...................................... (16,604) (14,427) -------- -------- Long-term debt............................................... $235,657 $206,992 ======== ========
The bank credit agreements of the Company include a $30.0 million revolving credit facility, a C$10.0 million revolving credit facility, $135.0 million of term loans, a $30.0 million acquisitions loan facility, a $12.0 million letter of credit facility and a C$8.0 million letter of credit facility. The Company's obligations under the bank credit agreement are secured by substantially all of the assets of the domestic subsidiaries of the Company and by 66% of the common stock of a Canadian subsidiary. An interest rate cap agreement is used to reduce the potential impact of increases in the rates on floating-rate long-term debt. At September 30, 1997, the Company was party to an interest rate cap agreement for the notional amount of $55.0 million which provides an effective LIBOR interest rate cap of 9.0% and expires June 30, 1999. The agreement entitles the Company to receive from counterparties the amounts, if any, by which the Company's interest payments exceed the interest rate cap. 7 5. PRO FORMA EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 establishes standards for computing and presenting earnings per share and applies to all entities with publicly held common stock or potential common stock. SFAS 128 replaces the presentation of primary earnings per share and fully diluted earnings per share with a presentation of basic earnings per share and diluted earnings per share, respectively. Basic earnings per share excludes dilution and is computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding for the period. Similar to fully diluted earnings per share, diluted earnings per share reflects the potential dilution of securities that could share in the earnings. SFAS 128 is effective for periods ending after December 15, 1997, including interim periods, and will require restatement of all prior period earnings per share data presented; earlier application is not permitted. The following pro forma disclosure illustrates earnings per share if calculated in accordance with SFAS 128. The unallocated shares issued under the Employee Stock Ownership Plan are excluded from both the basic and diluted earnings per share calculations.
INCOME SHARES PER-SHARE (DOLLARS IN THOUSANDS) (NUMERATOR) (DENOMINATOR) AMOUNT - --------------------------------------------------------------------------------------------------------------------- FOR THE QUARTER ENDED SEPTEMBER 30, 1997 ---------------------------------------------------- Basic Earnings Per Share Income available to common stockholders.......................... $ 7,540 17,974,150 $0.42 ===== Effect of Dilutive Securities Stock options, primarily......................................... 0 990,631 ------- ---------- Diluted Earnings Per Share Income available to common stockholders including assumed conversions..................................................... $ 7,540 18,964,781 $0.40 ======= ========== ===== FOR THE QUARTER ENDED SEPTEMBER 30, 1996 ---------------------------------------------------- Basic Earnings Per Share Income available to common stockholders.......................... $ 5,046 17,485,155 $0.29 ===== Effect of Dilutive Securities Stock options, primarily......................................... 0 398,210 ------- ---------- Diluted Earnings Per Share Income available to common stockholders including assumed conversions..................................................... $ 5,046 17,883,365 $0.28 ======= ========== ===== FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 ---------------------------------------------------- Basic Earnings Per Share Income available to common stockholders.......................... $20,097 17,863,700 $1.13 ====== Effect of Dilutive Securities Stock options, primarily......................................... 0 691,706 ------- ---------- Diluted Earnings Per Share Income available to common stockholders including assumed conversions..................................................... $20,097 18,555,406 $1.08 ======= ========== ===== FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 ---------------------------------------------------- Basic Earnings Per Share Income available to common stockholders.......................... $11,425 17,482,147 $0.65 ===== Effect of Dilutive Securities Stock options, primarily......................................... 0 325,313 ------- ---------- Income available to common stockholders including assumed conversions..................................................... $11,425 17,807,460 $0.64 ======= ========== =====
8 6. STOCK OPTIONS On March 31, 1997, the Company's Board of Directors adopted a non-qualified stock option plan for key employees and directors, authorizing future grants of stock options to purchase up to 975,000 shares of the Company's common stock. Also at that time, stock options were granted under the non-qualified stock option plan for the purchase of up to approximately 600,000 shares of common stock, in addition to the granting of stock options under the Company's 1994 stock option plan for the purchase of approximately 187,500 shares of common stock. The exercise price of all options granted equals or exceeds the fair market value of the Company's common stock on the date of grant. On July 11, 1997, the Company issued options to purchase 62,400 shares of common stock in connection with the acquisition of The Allied Printers ("Allied"). The options were granted to a former shareholder and to certain key employees of Allied under the Company's Allied Acquisition Non-Qualified Stock Option Plan. The exercise price of such options equals the average closing price of the common stock on the NYSE for the five days prior to the closing date of the acquisition. 7. ACQUISITIONS The statement of operations includes the operations of acquisitions from their acquisition date. On June 27, 1997, the Company acquired all of the outstanding shares of common stock of Griffin Envelope, Inc. ("Griffin"). Griffin, which is located in Seattle, Washington, manufactures and distributes envelopes in the northwestern United States. Annual sales for Griffin approximate $12 million. On July 11, 1997, the Company acquired all of the outstanding shares of common stock of The Allied Printers ("Allied"). Allied, which is located in Seattle, Washington, is a high impact color printer servicing customers with sheet-fed printing needs. Annual sales for Allied approximate $17 million. The Company issued 36,531 shares of common stock in connection with this acquisition. On July 14, 1997, the Company acquired all of the outstanding shares of common stock of Murray Envelope Corporation ("Murray"). Murray, which is located in Hattiesburg, Mississippi, manufactures envelopes primarily for sales through distributors in the southeastern and south central markets. Additionally, the Barkley division of Murray distributes filing products for the national market. Annual sales for Murray approximate $48 million. In connection with the acquisition, a wholly-owned subsidiary of the Company issued 110,236 shares of common stock which are convertible into an equal number of shares of Company common stock. On September 10, 1997, the Company acquired substantially all of the assets of National Color Graphics, Inc. ("Color Graphics"). Color Graphics, located in Atlanta, Georgia, is a high-impact sheet-fed color printer with annual sales approximating $23 million. 8. SECURITIES OFFERING AND BANK RESTRUCTURING The Company announced on October 30, 1997, that it planned to offer for sale 3.125 million shares of common stock and $150.0 million convertible debt securities. In addition .7 million shares of common stock were to be offered for sale by certain shareholders of the Company. The Company intends to use the net proceeds from any sale of either its common stock or the convertible debt to repay balances outstanding under its existing bank credit facilities, with the balance, if any, available for general corporate purposes. Registration statements relating to the securities offerings have been filed with the Securities and Exchange Commission. 9 On November 13, 1997, the Company's shelf registration statement on Form S-3 was declared effective by the Securities and Exchange Commission. The shelf registration will permit the Company to offer up to $300 million in debt securities, common stock, preferred stock or warrants for sale over the next two years. The Company may use some of the availability under the shelf in connection with the offering of convertible debt securities or common stock described above. The Company is in the process of replacing its current secured bank term and revolving loans with an unsecured revolving credit line. The Company anticipates closing on its new bank facility in either the fourth quarter of 1997 or the first quarter of 1998. In connection with the repayment of the current banking facilities the Company anticipates recording an extraordinary charge to eliminate deferred financing costs of $5.4 million, net of taxes. ITEM 2. 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 (the "Company") included elsewhere in this report. 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. The Company'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, 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 financings 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 and advertising costs. This entire report 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 the Company's business.
OVERVIEW Quarter Ended September 30, Nine Months Ended September 30, ----------------------------------- ------------------------------------ 1997 1996 1997 1996 ------- ------- ------ ------ Net sales U.S. Envelope $150,207 $142,017 $429,584 $411,373 Canadian Envelope 26,901 19,665 85,983 61,991 High Impact Color Printing 56,388 38,805 137,443 105,958 -------- -------- -------- -------- Total net sales 233,496 200,487 653,010 579,322 -------- -------- -------- -------- Cost of sales U.S. Envelope 117,999 111,941 334,647 326,923 Canadian Envelope 18,998 13,720 60,792 44,029 High Impact Color Printing 45,655 30,892 112,676 87,360 Corporate 433 0 1,569 0 -------- -------- -------- -------- Total cost of sales 183,085 156,553 509,684 458,312 -------- -------- -------- -------- Gross profit 50,411 43,934 143,326 121,010 -------- -------- -------- -------- Operating expenses U.S. Envelope 16,779 16,325 50,250 46,682 Canadian Envelope 3,507 2,800 12,253 8,726 High Impact Color Printing 6,885 4,712 17,305 13,688 Corporate 3,106 3,017 9,943 8,084 -------- -------- -------- -------- Total operating expenses 30,277 26,854 89,751 77,180 -------- -------- -------- --------
10 Operating income 20,134 17,080 53,575 43,830 Corporate expenses: Interest expense - debt 4,847 7,036 13,952 21,181 Interest expense - amortization of deferred financing costs 744 1,315 2,192 2,795 Discount on sale of accounts receivable 1,020 0 2,981 0 Other (income) expense 348 1 (536) (23) Income tax expense 5,635 3,682 14,889 8,452 -------- -------- -------- -------- Net income $ 7,540 $ 5,046 $ 20,097 $ 11,425 ======== ======== ======== ========
OPERATING RESULTS -- Net income for the quarter ended September 30, 1997 increased by $2.5 million ($0.12 per share), or 50%, compared with the prior year period. For the nine months ended September 30, 1997, net income increased by $8.7 million ($0.44 per share), or 76%, compared with the nine months ended September 30, 1996. Sales for the quarter ended September 30, 1997 rose $33.0 million, or 17%, from the prior year's quarter, and for the first nine months of 1997 increased by $73.7 million, or 13%, over the first nine months of 1996. During the most recent quarter and the first nine months of 1997, the Company focused its efforts on integrating the operations of recently acquired businesses. These efforts included reviewing the acquired operations to determine changes to be made to cost structures, pricing and strategic markets. In addition the High Impact Color Printing segment continued to address market pressures by repositioning its marketing efforts toward higher margin products within this segment. In November 1996, the bank credit agreement was amended, the Company refinanced certain equipment under a sale/leaseback arrangement and a receivable securitization facility was arranged. The positive effects of these transactions are reflected in the results for 1997. ACQUISITIONS In April 1996, the Company acquired Quality Park Products, Inc. ("Quality"), a printer and manufacturer of envelopes. In November 1996, the Company acquired Pac National Group Products, Inc. ("PNG"), a Canadian envelope printer and manufacturer based in Ontario. In December 1996, the Company acquired Shepard Poorman Communications Corporation ("SP"), a high impact color printer located in Indianapolis, Indiana. On June 27, 1997, the Company acquired all of the outstanding shares of common stock of Griffin Envelope, Inc. ("Griffin"). Griffin, which is located in Seattle, Washington, manufactures and distributes envelopes in the northwestern United States. Annual sales for Griffin approximate $12 million. On July 11, 1997, the Company acquired all of the outstanding shares of common stock of The Allied Printers ("Allied"). Allied, which is located in Seattle, Washington, is a high-impact color printer servicing customers with sheet fed printing needs. Annual sales for Allied approximate $17 million. The Company issued 36,531 shares of common stock in connection with this acquisition. On July 14, 1997, the Company acquired all of the outstanding shares of common stock of Murray Envelope Corporation ("Murray"). Murray, which is located in Hattiesburg, Mississippi, manufactures envelopes primarily for sales through distributors in the southeastern and south central U.S. markets. Additionally, the Barkley division of Murray distributes filing products nationally. Annual sales for Murray approximate $48 million. In connection with the acquisition, a wholly-owned subsidiary of the Company issued 110,236 shares of its common stock which are convertible into an equal number of shares of the Company common stock. On September 10, 1997, the Company acquired substantially all the assets of National Color Graphics, Inc. ("Color Graphics"). Color Graphics, located in Atlanta, Georgia, is a high-impact sheet-fed color printer with annual sales approximating $23 million. 11 The Company paid approximately $59.0 million in the aggregate, in cash, Company common stock, notes and convertible securities (as described above with respect to Murray) for the 1997 acquisitions. All of the acquisitions have been accounted for as purchases. Accordingly the historical results of operations of the Company include results of operations of each of the acquisitions from their date of purchase. The table below presents the historical sales and cost of sales of the Company adjusted to show the effects of the acquisitions as if the acquisitions had occurred on the January 1 of the year prior to their actual purchase date.
Quarter Ended September 30, Nine Months Ended September 30, --------------------------- -------------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- Net sales as reported $233,496 $200,487 $653,010 $579,322 Quality 23,266 All other acquisitions in the aggregate 4,713 49,169 53,000 144,880 --------------- --------------- --------------- ---------------- Total net sales 238,209 249,656 706,010 747,468 --------------- --------------- --------------- ---------------- Cost of sales as reported 183,085 156,553 509,684 458,312 Quality 19,654 All other acquisitions in the aggregate 3,886 40,320 41,835 116,766 --------------- --------------- --------------- ---------------- Total cost of sales 186,971 196,873 551,519 594,732 --------------- --------------- --------------- ---------------- Gross profit $ 51,238 $ 52,783 $154,491 $152,736 =============== =============== =============== ================
12 RESULTS OF OPERATIONS U.S. Envelope The following table presents historical financial data for the U.S. Envelope operations of the Company, including acquisitions (Quality, Griffin and Murray) from their purchase dates.
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------- ---------------------------------- 1997 1996 1997 1996 - -------------------------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) $ % $ % $ % $ % - -------------------------------------------------------------------------------------------------------------------- Net sales.................................... $150,207 100.0 $142,017 100.0 $429,584 100.0 $411,373 100.0 Cost of sales................................ 117,999 78.5 111,941 78.8 334,647 77.9 326,923 79.5 Operating expenses........................... 16,779 11.2 16,325 11.5 50,250 11.7 46,682 11.3 -------- ----- -------- ----- -------- ----- -------- ----- Operating income............................. $ 15,429 10.3 $ 13,751 9.7 $ 44,687 10.4 $ 37,768 9.2 ======== ===== ======== ===== ======== ===== ======== =====
QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO THE QUARTER ENDED SEPTEMBER 30, 1996 NET SALES -- Net sales increased by $8.2 million (or 5.8%) for the quarter ended September 30, 1997 compared to the quarter ended September 30, 1996. The average selling price increased 1.0% to $19.88 per thousand units for the quarter ended September 30, 1997, from $19.68 per thousand units for the quarter ended September 30, 1996, due mainly to the inclusion of Murray, which has a higher average selling price for its filing product line. Because of its ability to pass through changes in paper costs to customers, the Company uses volumes of units sold and material gross margin (that is, net sales less cost of materials net of waste recovery revenue) per thousand units as revenue trend indicators in its envelope operations. Unit volume increased 6.9% to 7.7 billion units in the third quarter of 1997 from 7.2 billion units in the same quarter of 1996, primarily due to the acquisition of Murray and Griffin. Material gross margin increased 5.8% to $11.47 per thousand units in the third quarter of 1997 from $10.84 per thousand units in the year-ago period partially due to inclusion of Murray's higher margin filing products but also from selling price management. COST OF SALES -- Total cost of sales, as a percentage of sales, decreased from 78.8% in 1996 to 78.5% in 1997. Cost of sales includes materials, labor, manufacturing, depreciation and other manufacturing costs, net of waste recovery revenue. A decrease in average material cost per unit of approximately 5% in the third quarter of 1997 from the third quarter of 1996, offset by corresponding price decreases, was the major factor in the reduction in cost of sales expressed as a percentage of sales. Gross profit per thousand units increased only 4.2% from quarter to quarter as manufacturing labor and overhead costs increased 7.3%, offsetting the material gross margin improvement detailed above. OPERATING EXPENSES -- For the third quarter ended September 30, 1997, operating expenses decreased to 11.2% of sales from 11.5% of sales compared to the same period in 1996. The year ago quarter included a $1.5 million charge for an adjustment to the estimated profit sharing accrual. NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 NET SALES -- Net sales increased $18.2 million or 4.4% for the nine months ended September 30, 1997 compared to the nine months ended September 30, 1996. The increase in net sales includes $31.4 million of net sales related to the acquisitions which is offset by a 2.7% decrease in net sales on the other U.S. Envelope operations. The total average selling price decreased 3.7% to $19.48 per thousand units for the nine months ended September 30, 1997 from $20.22 per thousand units for the nine months ended September 30, 1996, due to lower paper costs and competitive pricing pressures. Unit volume increased 9.4% to 22.2 billion units in the first nine months of 1997 from 20.3 billion units in the same period of 1996. Acquisitions accounted for 6.3%, or 1.4 billion units, of the year to year increase in unit volume. Material gross margin increased 2.6% to $11.28 per thousand units in the nine months ended September 30, 1997 from $10.99 per thousand in the year-ago period again partially due to inclusion of Murray's higher margin filing products, but also from selling price management. 13 COST OF SALES -- Total cost of sales, as a percentage of sales, decreased from 79.5% in 1996 to 77.9% in 1997. A decrease in average material costs of approximately 11% as compared with the prior year period, offset by corresponding price decreases, was the major factor in the reduction in cost of sales expressed as a percentage of sales. Gross profit per thousand units increased 2.3% in the nine months ended September 30, 1997 as compared to the year-ago period. OPERATING EXPENSES -- For the nine months ended September 30, 1997, operating expenses, as a percent of sales, increased to 11.7% compared to 11.3% from the same period in 1996 due to the decrease in selling prices. The $3.6 million increase includes $2.8 million additional operating expenses relating to acquisitions, the remaining $0.8 million represents only a 1.7% year to year increase. Canadian Envelope The following table presents financial information with respect to the Canadian Envelope operations (Supremex), including acquisitions (PNG) from their purchase dates. All amounts are in U.S. dollars.
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- ---------------------------------------- 1997 1996 1997 1996 ------------------------------------------------------------------------------ (DOLLARS IN THOUSANDS) $ % $ % $ % $ % - ------------------------------------------------------------------------------------------------------------------------- Net sales.................................. $26,901 100.0 $19,665 100.0 $85,983 100.0 $61,991 100.0 Cost of sales.............................. 18,998 70.6 13,720 69.8 60,792 70.7 44,029 71.0 Operating expenses......................... 3,507 13.0 2,800 14.2 12,253 14.2 8,726 14.1 ------- ----- ------- ----- ------- ----- ------- ----- Operating income........................... $ 4,396 16.4 $ 3,145 16.0 $12,938 15.1 $ 9,236 14.9 ======= ===== ======= ===== ======= ===== ======= =====
QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO THE QUARTER ENDED SEPTEMBER 30, 1996 NET SALES -- Net sales for the 1997 quarter of $26.9 million for the Canadian Envelope segment included $7.4 million of net sales attributable to PNG. The 1997 net sales for Supremex excluding PNG of $19.5 million represented a $0.2 million, or 1.0%, decline in net sales dollars as compared to the quarter ended September 30, 1996. Unit volume at Supremex was stable at 1.0 billion units for both years, while PNG added .4 billion units to the 1997 quarter sales. The average selling price increased .4% to $19.29 per thousand units in the most recent quarter as compared to $19.21 per thousand units for the year- ago quarter. Paper prices decreased approximately 1% in the 1997 quarter as compared to 1996, which was passed through to customers in lower prices. The Company has exited certain low margin markets offsetting the paper price decrease and resulting in the slight increase in average unit selling price. Material gross margin increased 5.3% from $10.37 per thousand units in the quarter ended Septemer 30, 1996 to $10.92 per thousand units for the same quarter in 1997. The higher material gross margin was attributable to the shift away from less profitable markets. COST OF SALES -- Total cost of sales, as a percentage of sales, increased from 69.8% in 1996 to 70.6% in 1997 as a result of the material cost increase. The gross profit per thousand units decreased 1.6% to $5.67 per thousand units from $5.76 per thousand units in 1996 primarily as a result of the lower margin business added by the PNG acquisition. Gross margins per thousand units are expected to improve as Supremex's operating strategies are fully integrated into PNG. OPERATING EXPENSES - As a percentage of sales, operating expenses decreased to 13.0% of net sales for the quarter ended September 30, 1997 from 14.2% of net sales in the same quarter of 1996 due to adding the PNG sales volume in 1997 with a lower corresponding increase in operating expense by implementing Supremex's management systems in PNG. 14 NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 NET SALES -- Net sales of $86.0 million for the Canadian Envelope segment included $25.0 million of net sales attributable to PNG. The net sales for Supremex of $61.0 million for the nine months ended September 30, 1997 represented a $1.0 million, or 1.6%, decline in net sales dollars as compared to the same period in 1996. Unit volume at Supremex was stable at 3.1 billion units for both periods, while PNG added 1.2 billion units to the 1997 sales volume. The average selling price decreased 1.3% to $19.80 per thousand units as compared to $20.06 per thousand units for the nine months ended September 30, 1996. Paper prices decreased approximately 6% in the nine months ended September 30, 1997 as compared to paper prices for the nine months ended September 30, 1996, which is passed through as a reduction in selling prices. As a result of the Company exiting markets with relatively low selling prices and margins, the average selling price did not decline as much as expected. Material gross margin increased from $10.76 per thousand units in the year-ago period to $11.31 per thousand units for the same period in 1997 due to the shift away from less profitable markets. COST OF SALES -- Total cost of sales, as a percentage of sales, decreased from 71.0% for the nine months ended September 30, 1996 to 70.7% in the same period in 1997. The gross profit per thousand units increased .5% to $5.80 per thousand units from $5.77 per thousand units in 1996 due to the decrease in paper cost partially offset by selling price declines. In addition to the shift away from less profitable markets, as Supremex's operating strategies are fully applied to PNG, manufacturing cost per unit produced is expected to decrease. OPERATING EXPENSES -- As a percentage of sales, operating expenses increased to 14.2% of net sales for nine months ended September 30, 1997 from 14.1% of net sales in the year-ago period, due to adding the higher cost structure of PNG. Operating expenses as a percentage of net sales decreased in the most recent quarter however as a result of assimilating PNG into the Supremex management systems. This trend is expected to continue as PNG is fully merged into the Supremex management organization. High Impact Color Printing The following table presents financial information with respect to the High Impact Color Printing (GAC) operations including acquisitions (SP, Allied and Color Graphics) from their purchase dates.
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- ------------------------------------- 1997 1996 1997 1996 (DOLLARS IN THOUSANDS) $ % $ % $ % $ % - ------------------------------------------------------------------------------------------------------------------------ Net sales............................... $56,388 100.0 $38,805 100.0 $137,443 100.0 $105,958 100.0 Cost of sales........................... 45,655 81.0 30,892 79.6 112,676 82.0 87,360 82.5 Operating expenses...................... 6,885 12.2 4,712 12.1 17,305 12.6 13,688 12.9 ------- ----- ------- ----- -------- ----- -------- ----- Operating income........................ $ 3,848 6.8 $ 3,201 8.3 $ 7,462 5.4 $ 4,910 4.6 ======= ===== ======= ===== ======== ===== ======== =====
QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO THE QUARTER ENDED SEPTEMBER 30, 1996 NET SALES -- Net sales of the Company's Graphic Arts Center, Inc. subsidiary ("GAC") for the quarter ended September 30, 1997 were $35.7 million of the quarter's net sales for the High Impact Color Printing segment of the Company, an 8.0% decrease from the prior year. Net sales produced at SP constituted $16.0 million of the quarter's net sales and represented an increase of 3.2% compared with those of the prior year (before SP was owned by the Company). The remaining $4.7 million of the 1997 quarter's sales were attributable to the Allied and Color Graphics acquisitions. The decline in net sales at GAC is attributable to declines in the production of both catalogs and manuals. Some customers are increasing their use of electronic medium to replace printed manuals, while other customers are moving production, including printed literature, offshore. GAC lost two significant catalog customers (one of which recently returned) while another eliminated several publications. The total volume decline is estimated at 8.5%. In addition GAC has faced increased price competition as the overall market has been soft quarter to quarter resulting in an overall 1.3% price decline. Partially offsetting the declines in catalogs and 15 manuals has been an increase in the advertising printing attributable to a number of new customers resulting from a management focus on this market. COST OF SALES -- Cost of sales expressed as a percent of net sales increased to 81.0% in the quarter ended September 30, 1997, from 79.6% in the year-ago quarter. Changing paper prices, due to product mix variations, had a negligible effect on cost of sales from quarter to quarter. The increase in cost of sales expressed as a percent of net sales is partially attributable to the reduction in selling price, but is due mainly to the 8.5% volume decline resulting in loss of production efficiencies. OPERATING EXPENSES -- Total operating expense was $2.2 million higher than the amount for the quarter ended September 30, 1996, $2.1 million of which was attributable to acquisitions. NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 NET SALES -- Net sales of $137.4 million for the nine months ended September 30, 1997, for the High Impact Color Printing segment includes $46.6 million of net sales attributable to acquisitions. The net sales for GAC of $90.8 million for the nine months ended September 30, 1997 represented a $15.4 million, or 14.6%, decline in net sales dollars as compared to the same period in 1996. This decline in net sales at GAC was primarily due to the Company targeting the higher margin markets and allocating sales resources to those markets with a resulting decline in sales volumes. The decrease in paper costs between 1996 and 1997, which caused a corresponding decrease in net sales dollars, resulted in an estimated 1.6% decrease in sales dollars. Operating income margins for the High Impact Color Printing segment of the Company have increased to 5.4% of net sales from 4.6% of net sales. COST OF SALES -- Total cost of sales decreased to 82.0% of sales for the nine months ended September 30, 1997, as compared to 82.5% for the nine months ended September 30, 1996. Cost of sales for GAC for the nine months ended September 30, 1997, were $74.3 million, a $13.1 million decrease from 1996. The decline in GAC's cost of sales was comprised of an estimated 8.0% volume decline, as well as declines in paper prices and other manufacturing costs. Improved control over overtime and factory chargeability, as well as reduced outside tradework, were the major factors in reducing manufacturing costs in excess of the volume declines. Cost of sales attributable to acquisitions of $38.4 million in 1997 represents 82.4% of their net sales, compared to 80.7% in 1996 (prior to purchase by the Company) due primarily to purchase accounting adjustments to inventory valuation. OPERATING EXPENSES -- Total operating expense was $3.6 million greater for the nine months ended September 30, 1997, than that recorded for the nine months ended September 30, 1996. The increase was due to $4.9 million of operating expenses related to acquisitions in the High Impact Color Printing segment, which was partially offset by expense reductions implemented by the GAC operations of $1.3 million for the nine months ended September 30, 1997. The GAC reductions were due to declines in sales commissions and sales salaries as GAC moved certain sales representatives to commission status from salaried status and lower selling prices have reduced commission expense. Additionally, reductions have been made to the travel and entertainment and information services costs, offset by the inclusion in the most recent quarter of ESOP benefit expense. 16 Corporate Expenses COST OF SALES -- OPERATING LEASE EXPENSES - Certain property, plant and equipment of the Company was sold as part of a sales/leaseback transaction in the fourth quarter of 1996. The expense amounts represent the operating lease payments for the quarter and nine month periods ending September 30, 1997; there was no comparable expense in the quarter or nine months ended September 30, 1996. OPERATING EXPENSES -- Total operating expenses increased by $.1 million, or 2.9%, in the quarter ended September 30, 1997 compared to the quarter ended September 30, 1996, and increased $1.8 million, or 23.0%, for the nine months ended September 30, 1997, compared to the nine months ended September 30, 1996. Included in operating expenses in the quarter and nine months ended September 30, 1997 is $0.2 million and $0.7 million, respectively, of administrative expenses related to the accounts receivable securitization program. Also included in operating expenses is the loss on disposal of assets amounting to $1.5 and $.7 million, respectively for the nine months ended September 30, 1997 and 1996. The majority of the 1997 loss on disposal of assets relates to building and equipment losses arising from the closing of the Pittsburgh warehouse and reorganizations of the plants in Salt Lake City, Chicago and GAC. In 1996, the loss on disposal of assets included costs to relocate the Philadelphia plant and consolidate the Texas facilities. INTEREST EXPENSE-DEBT -- Interest expense decreased in 1997 primarily as a result of the lower average bank debt balances both for the quarter and nine months ended September 30. The bank debt restructuring, the sale/leaseback transaction and the accounts receivable securitization transaction resulted in the reduction of outstanding debt balances toward the end of 1996. The average interest rate of 7.7% for the nine months ended September 30, 1997 was less than the average interest rate of 8.1% for the same period in 1996. DISCOUNT ON SALE OF ACCOUNTS RECEIVABLE -- This amount represents expenses related to the accounts receivable securitization program, including an effective interest rate of approximately 6.52% and associated utilization fees. Since the program was implemented in November 1996, there are no comparisons for previous periods. OTHER (INCOME) EXPENSE -- This line item includes a $0.3 million foreign exchange gain and $.7 million of interest income earned from the investment of funds in cash equivalents for the nine months ended September 30, 1997, offset by $.5 million in costs related to an unsuccessful acquisition attempt in the most recent quarter. INCOME TAXES -- The effective tax rate for the quarter and nine months ended September 30, 1997 was 42.8% and 42.6%, respectively, as compared to an effective tax rate of 42.2% and 42.5% for the quarter and nine months ended September 30, 1996, respectively. The effective tax rate for all periods was higher than the federal statutory rate due to state and provincial income taxes. Additionally, certain goodwill amortization and a portion of the employee stock ownership contribution are not tax deductible. LIQUIDITY AND CAPITAL RESOURCES HISTORICAL CASH FLOW -- Net cash provided by operating activities was $50.2 million and $41.7 million for the nine months ended September 30, 1997 and 1996, respectively. Capital expenditures totaled $20.2 million for the first nine months of 1997 as compared to $7.9 million for the first nine months of 1996. Proceeds from the sale of property, plant and equipment totaled $2.6 million in the nine months ended September 30, 1996, as compared to $0.3 million for the same period in 1997. In November 1996, the Company entered into a five year agreement whereby it can sell, on a revolving basis, an undivided percentage interest in a designated pool of accounts receivable generating maximum proceeds of $100.0 million. At September 30, 1997, $74.0 million of accounts receivable have been sold to third parties under this agreement. 17 DEBT OBLIGATIONS -- In November 1996, the Company amended its bank credit agreements. These credit agreements, as amended, provide a $30.0 million revolving credit facility, a C$10.0 million revolving credit facility, $135.0 million of term loans, a $30.0 million acquisition loans facility, a $12.0 million letter of credit facility and an C$8.0 million letter of credit facility. As of September 30, 1997, the Company had borrowed $19.9 million (including $4.9 million in letters of credit) under the revolving credit facility, $124.3 million under the term loans and $22.5 million under the acquisition loan facility. Availability at September 30, 1997 included $10.1 million and C$9.5 million ($0.5 million committed under letter of credit) under the revolving credit facilities, $10.7 million under the term loans and $7.5 million under the acquisition loan facility. The weighted average interest rate on the Company's bank debt was 7.73% as of September 30, 1997. The weighted average interest rate on bank debt was 7.72% for the nine months ended September 30, 1996. The senior subordinated debt balance remained stable at $85.0 million at an interest rate of 10.5%. CAPITAL REQUIREMENTS -- The Company estimates that, based on current utilization of its existing equipment and expected demand, it will spend $20.0 to $30.0 million per year on capital expenditures exclusive of acquisitions. The Company expects to use net cash from operations and/or bank and leasing company borrowings to fund these expenditures. RECENT DEVELOPMENTS LABOR RELATIONS -- The Company has entered into new union contracts at three of its larger envelope printing and converting facilities. It continues to negotiate with two envelope printing and converting facilities, which have been operating under tentative arrangements which are terminable on short notice, as well as GAC's Portland plant, which has been operating under an extension of its existing agreement. In order to mitigate the effect of any potential work stoppage, the Company has prepared a contingency plan for each affected location. There can be no assurance, however, that the Company's preparations will prevent a material adverse effect on the Company's operations in the event of a protracted work stoppage. POSTAL RATE INCREASE -- The U.S. Postal Service announced proposed rate increases of approximately 4% for direct mail and 3% for first class mail. In addition, a 6% rate decrease was proposed for prepaid, courtesy reply envelopes. The proposed postal rate increases are significantly less than the cumulative rate of inflation since the last postal rate increases. Management does not anticipate that these postal rate increases will go into effect until mid-1998 and, if implemented, does not anticipate the rate increases to negatively impact mail volume. SECURITIES OFFERING AND BANK RESTRUCTURING -- The Company announced on October 30, 1997, that it planned to offer for sale 3.125 million shares of common stock and $150.0 million convertible debt securities. In addition .7 million shares of common stock were to be offered for sale by certain shareholders of the Company. The Company intends to use the net proceeds from any sale of either its common stock or the convertible debt to repay balances outstanding under its existing bank credit facilities, with the balance, if any, available for general corporate purposes. Registration statements relating to the securities offerings have been filed with the Securities and Exchange Commission. On November 13, 1997, the Company's shelf registration statement on Form S-3 was declared effective by the Securities and Exchange Commission. The shelf registration will permit the Company to offer up to $300 million in debt securities, common stock, preferred stock or warrants for sale over the next two years. The Company may use some of the availability under the shelf in connection with the offering of convertible debt securities or common stock described above. The Company is in the process of replacing its current secured bank term and revolving loans with an unsecured revolving credit line. The Company anticipates closing on its new bank facility in either the fourth quarter of 1997 or the first quarter of 1998. In connection with the repayment of the current banking facilities the Company anticipates recording an extraordinary charge to eliminate deferred financing costs of $5.4 million, net of taxes. NEW ACCOUNTING STANDARDS -- In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," effective for fiscal years beginning after December 15, 1997. This statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a 18 financial statement that is displayed with the same prominence as other financial statements. This statement further requires that an entity display an amount representing comprehensive income for the period in that financial statement. This statement also requires that an entity classify items of other comprehensive income by their nature in a financial statement. For example, other comprehensive income may include foreign currency items, minimum pension liability adjustments and unrealized gains and losses on certain investments in debt and equity securities. Reclassification of financial statements for earlier periods, for comparative purposes, is required. Based on current accounting procedures, this Statement is not expected to have a material impact on the Company's consolidated financial statements. The Company will adopt this accounting standard on January 1, 1998, as required. Also in June 1997, the FASB issued SFAS NO. 131, "Disclosures about Segments of an Enterprise and Related Information," effective for fiscal years beginning after December 15, 1997. This Statement establishes standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. Operating segments are defined as components of an enterprise about which separate financial information is available and evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. This Statement requires reporting segment profit or loss, certain specific revenue and expense items and segment assets. It also requires reconciliation of segment revenues, segment profit or loss, segment assets and other amounts disclosed for segments to corresponding amounts reported in the consolidated financial statements. Based on current segment disclosure this Statement is not expected to have a material impact on the Company's financial statement disclosures. The Company will adopt this accounting standard on January 1, 1998. ITEM 3.-- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK --None PART II -- OTHER INFORMATION ITEM 1. -- LEGAL PROCEEDINGS -- None ITEM 2. -- CHANGES IN SECURITIES -- None ITEM 3. -- DEFAULTS UPON SENIOR SECURITIES -- None ITEM 4. -- SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS-- None ITEM 5.--OTHER INFORMATION - NONE 19 ITEM 6.--EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------ ---------------------- 2 Articles of Merger to effect reincorporation of the Company in Colorado effective May 30, 1997 3 (i) Articles of Incorporation of the Company 3 (ii) Bylaws of the Company 4.1 Form of Certificate representing the Common Stock, par value $0.01 per share, of the Company -- incorporated by reference from exhibit 4.1 of the Company's Amendment No. 1 to the Form S-3 filed on October 29, 1997 (Reg. No. 333-35561); 4.3 Indenture dated as of February 24, 1994 by and between M-W Corp. and Shawmut Bank, National Association, as Trustee, with respect to the 10- 1/2% Original Senior Subordinated Notes and the 10-1/2% Exchange Senior Subordinated Notes due 2004, including the form of Note and the guarantees of the Company, Wisco and Pavey - incorporated by reference from Exhibit 4.3 of the Company's Registration Statement on Form S-1 dated March 25, 1994. 4.3.1 Supplemental Indenture dated July 31, 1995 to the Indenture identified in Exhibit 4.3 -- incorporated by reference from Exhibit 4.4.1 of the Company's Registration Statement on Form S-1 dated September 21, 1995. 4.3.2 Form of Second Supplemental Indenture to the Indenture identified in Exhibit 4.3 -incorporated by reference from Exhibit 4.4.2 of the Company's Registration Statement on Form S-1 dated September 21, 1995. 4.7 Form of Registration Rights Agreement among the Company and certain holders of the Common Stock effective as of February 24, 1994 -- incorporated by reference from Exhibit 4.6 of the Company's Registration Statement on Form S-1 dated March 25, 1994. 10.11 Form of Indemnity Agreement between the Company and each of its officers and directors -- incorporated by reference from Exhibit 10.17 of the Company's Registration Statement on Form S-1 dated March 25, 1994. 10.12 Form of Indemnity Agreement between M-W Corp. and each of its officers and directors -- incorporated by reference from Exhibit 10.18 of the Company's Registration Statement on Form S-1 dated March 25, 1994. 10.13 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 the Company's Registration Statement on Form S-1 dated March 25, 1994. 10.14 Form of M-W Corp. 401(k) Savings Retirement Plan -- incorporated by reference from Exhibit 10.20 of the Company's Registration Statement on Form S-1 dated March 25, 1994. 10.15 Company 1994 Stock Option Plan, as amended -- incorporated by reference from Exhibit 10.15 of the Company's Registration Statement on Form S-1 dated September 21, 1995. 10.16 Form of the Company Incentive Stock Option Agreement -- incorporated by reference from Exhibit 10.22 of the Company's Registration Statement on Form S-1 dated March 25, 1994. 10.17 Form of the Company Nonqualified Stock Option Agreement -- incorporated by from Exhibit 10.23 of the Company's Registration Statement on Form S-1 dated March 25, 1994. 20 10.25 Share Purchase Agreement dated July 20, 1995, by and among the shareholders of Supremex, 3159051 Canada Inc. and Schroder Investment Canada Limited and Schroder Venture Managers (North America) Inc. -- incorporated by reference from Exhibit 10.25 of the Company's Registration Statement on Form S-1 dated September 21, 1995. 10.26 Indemnification Escrow Agent dated July 31, 1995, by and among 3159051 Canada Inc., Royal Trust Company of Canada and Schroder Investment Canada Limited and Schroder Venture Mangers (North America) Inc. -- incorporated by reference from Exhibit 10.26 of the Company's Registration Statement on Form S-1 dated September 21, 1995. 10.27 Guaranty dated July 31, 1995, executed by M-W Corp. in favor of Schroder Investment Canada Limited and Schroder Venture Mangers (North America) Inc., as Agents -- incorporated by reference from Exhibit 10.27 of the Company's Registration Statement on Form S-1 dated September 21, 1995. 10.28 Securities Purchase Agreement dated as of August 2, 1995, as amended, by and among GAC Acquisition Company, Inc., GAC and the securityholders of GAC and McCown De Leeuw & Co., as Agents -- incorporated by reference from Exhibit 10.28 of the Company's Registration Statement on Form S-1 dated September 21, 1995. 10.29 Escrow Agreement dated as of August 2, 1995, by and among GAC Acquisition Company, Inc., GAC and securityholders of GAC and McCown De Leeuw & Co., as Agents -- incorporated by reference from Exhibit 10.29 of the Company's Registration Statement on Form S-1 dated September 21, 1995. 10.30 Guaranty dated as of August 2, 1995, by M-W Corp. in favor of McCown De Leeuw & Co., as Agents -- incorporated by reference from Exhibit 10.30 of the Company's Registration Statement on Form S-1 dated September 21, 1995. 10.32 Asset Purchase Agreement dated April 26, 1996 by and between Quality Park Products, Inc. and Mail-Well I Corporation -- incorporated by reference from Exhibit 1 of the Company's Form 8-K dated May 2, 1996. 10.33 Acquisition Agreement and Plan of Share Exchange by and among Graphic Arts Center, Inc. and Shepard Poorman Communications Corporation dated November 6, 1996 -- incorporated by reference from exhibit 10.33 of the Company's Form 10-K for the year ended December 31, 1996. 10.34 Amendment No. 1 to Acquisition Agreement and Plan of Share Exchange by and among Graphic Arts Center, Inc. and Shepard Poorman Communications Corporation dated November 6, 1996-- incorporated by reference from exhibit 10.34 of the Company's Form 10-K for the year ended December 31, 1996. 10.35 Asset Purchase Agreement dated as of October 15, 1996 by and between Supremex, Inc. and PNG Products, Inc. Pac National Group and PNG Envelope Internationale, Inc. -- incorporated by reference from exhibit 10.35 of the Company's Form 10-K for the year ended December 31, 1996. 10.36 Master Lease Agreement dated as of August 1, 1996 between General Electric Capital Corporation and Mail-Well, Inc., Mail-Well I Corporation, Graphic Arts Center, Inc., Mail-Well West, Pavey Envelope and Tag Corp., Wisco II, L.L.C and Wisco Envelope Corp. -- incorporated by reference from exhibit 10.36 of the Company's Form 10-K for the year ended December 31, 1996. 10.37 Third Amended and Restated Credit Agreement dated as of November 15, 1996, executed by Mail-Well I Corporation, as Borrower, and Wisco Envelope Corp., Pavey Envelope and Tag Corp., Mail-Well West, Inc., Wisco II, L.L.C., Mail-Well Canada Holdings, Inc., Graphic Arts Center, Inc. and Wisco III, L.L.C., as Guarantors, in favor of Banque Paribas, as Agent, and the Lenders named herein -- incorporated by reference from exhibit 10.37 of the Company's Form 10-K for the year ended December 31, 1996. 21 10.38 Amended and Restated Credit Agreement dated as of November 15, 1996, executed by Supremex, Inc., as borrower, and Mail-Well I Corporation and Innova Envelope, Inc., as Guarantors, in favor of Banque Paribas, as Agent, and the Lenders named herein - incorporated by reference from exhibit 10.38 of the Company's Form 10-K for the year ended December 31, 1996. 10.39 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 the Company's Form 10-K for the year ended December 31, 1996. 10.40 Mail-Well Receivables Master Trust Pooling and Servicing Agreement dated as of November 15, 199 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 the Company's Form 10- K for the year ended December 31, 1996. 10.41 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 Company's Form 10-K for the year ended December 31, 1996. 10.42 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 the Company's Form 10-K for the year ended December 31, 1996. 10.43 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 the Company's Form 10-K for the year ended December 31, 1996. 10.44 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 the Company's Form 10-K for the year ended December 31, 1996. 10.45 Participation Agreement dated as of November 15, 1996 among Mail-Well I Corporation, as Lessee and Guarantor, Certain Subsidiaries of Mail-Well I Corporation, as Subsidiary Guarantors, Paribas Properties, Inc., as Lessor, Various Financial Institutions Identified herein, as Equity Lenders, Various Financial Institutions Identified herein, as Financing Lenders and Banque Paribas, as Agent for the Financing Lenders and Equity Lenders -- incorporated by reference from exhibit 10.45 of the Company's Form 10-K for the year ended December 31, 1996. 10.46 Loan Agreement dated as of November 15, 1996 among Paribas Properties, Inc., as Lessor, Various Financial Institutions Identified herein, as Financing Lenders, Various Financial Institutions Identified herein, as Equity Lenders, and Banque Paribas, as Agent for the Lenders -- incorporated by reference from exhibit 10.46 of the Company's Form 10-K for the year ended December 31, 1996. 10.47 Master Equipment Lease and Security Agreement dated November 15, 1996 between Mail-Well I Corporation, as the Lessee or Debtor and Paribas Properties, Inc., as the Lessor or Secured Party -- incorporated by reference from exhibit 10.47 of the Company's Form 10-K for the year ended December 31, 1996. 22 10.48 Security Agreement (Second and Subordinated Security Interest) made and entered into by Paribas Properties, Inc. and Mail-Well I Corporation, as Debtors, and Banque Paribas, as Agent for Secured Party date November 15, 1996 -- incorporated by reference from exhibit 10.48 of the Company's Form 10-K for the year ended December 31, 1996. 10.49 Appendix A to Participation Agreement, Master Lease, and Loan Agreement -- incorporated by reference from exhibit 10.49 of the Company's Form 10-K for the year ended December 31, 1996. 10.50 Lease Facility Guaranty dated as of November 15, 1996 made by Mail-Well I Corporation, Mail-Well, Inc. and certain of their Subsidiaries, as Guarantors, in favor of Various Financial Institutions, as the Lenders, and Banque Paribas, as Agent for the Lenders -- incorporated by reference from exhibit 10.50 of the Company's Form 10-K for the year ended December 31, 1996. 10.51 Assignment of Lease and rent dated as of November 15, 1996 from Paribas Properties, Inc., as Assignor to Banque Paribas, as Agent for the Lenders, as Assignee -- incorporated by reference from exhibit 10.51 of the Company's Form 10-K for the year ended December 31, 1996. 10.52 Security Agreement (First and Prior Security Interest) made and entered into by Paribas Properties, Inc. and Mail-Well I Corporation, as Debtors, and Banque Paribas, as Agent for Secured Party dated November 15, 1996 -- incorporated by reference from exhibit 10.52 of the Company's Form 10-K for the year ended December 31, 1996. 10.53 Bill of Sale and Assignment of Equipment made and entered into on this 15th day of November, 1996 by Mail-Well I Corporation to and for the benefit of Paribas Properties, Inc. -- incorporated by reference from exhibit 10.53 of the Company's Form 10-K for the year ended December 31, 1996. 10.54 1997 Non-Qualified Stock Option Plan -- incorporated by reference from exhibit 10.54 of the Company's Form 10-Q for the quarter ended March 31, 1997 10.55 1997 Non-Qualified Stock Option Agreement -- incorporated by reference from exhibit 10.54 of the Company's Form 10-Q for the quarter ended March 31, 1997 10.56 Company's 1994 Stock Option Plan as Amended on May 7, 1997 10.57* Company's Allied Acquisition Non-Qualified Stock Option Plan. 27* Financial Data Schedule __________ * Filed herewith. (b) Reports on Form 8-K SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. MAIL-WELL, INC. (Registrant) By /s/ PAUL V. REILLY ------------------------ Paul V. Reilly Senior Vice President, Chief Financial Officer November 14, 1997 23 EX-10.57 2 STOCK OPTION PLAN MAIL-WELL, INC. ALLIED ACQUISITION NON-QUALIFIED STOCK OPTION PLAN SECTION 1. Purpose of the Plan. The purpose of the Allied Acquisition ------------------- Non-Qualified Stock Option Plan, ("Plan") is to encourage ownership of common stock, $.01 par value ("Common Stock"), of Mail-Well, Inc., a Colorado corporation (the "Company"), by eligible key employees of the Company and its Affiliates (as defined below), who were formerly employees of The Allied Printers prior to the acquisition of Allied by the Company, pursuant to that certain Stock Purchase Agreement dated July 11, 1997, and to provide increased incentive for such employees to render services and to exert maximum effort for the business success of the Company. In addition, the Company expects that the Plan will further strengthen the identification of employees with the stockholders. Options to be granted under this Plan are not intended to qualify as Incentive Stock Options pursuant to Section 422 of the Internal Revenue Code of 1986, as amended ("Code"). As used in this Plan, the term "Affiliates" means any "parent corporation" of the Company and any "subsidiary corporation" of the Company within the meaning of Code Sections 424(e) and (f), respectively. SECTION 2. Administration of the Plan. -------------------------- (a) Composition of Committee. The Plan shall be administered by the ------------------------ Compensation Committee (the "Committee") comprised of two or more directors designated by the Board of Directors of the Company (the "Board"), which shall also designate the Chairman of the Committee. No director shall serve as a member of the Committee unless he or she is a "Non-Employee Director" within the meaning of such Rule 16b-3 under the Securities Exchange Act of 1934, as amended ("Exchange Act"). (b) Committee Action. The Committee shall hold its meetings at such ---------------- times and places as it may determine. A majority of its members shall constitute a quorum, and all determinations of the Committee shall be made by not less than a majority of its members. Any decision or determination reduced to writing and signed by a majority of the members shall be fully effective as if it had been made by a majority vote of its members at a meeting duly called and held. The Committee may designate the Vice President-General Counsel and Secretary of the Company or other Company employees to assist the Committee in the administration of the Plan, and may grant authority to such persons to execute award agreements or other documents on behalf of the Committee and the Company. Any duly constituted committee of the Board satisfying the qualifications of this Section 2 may be appointed as the Committee. (c) Committee Expenses. All expenses and liabilities incurred by the ------------------ Committee in the administration of the Plan shall be borne by the Company. The Committee may employ attorneys, consultants, accountants or other persons. SECTION 3. Stock Reserved for the Plan. Subject to adjustment as provided in --------------------------- Section 6(h) hereof, the aggregate number of shares of Common Stock that may be optioned under the Plan is 62,400. The shares subject to the Plan shall consist of authorized but unissued shares of Common Stock and such number of shares shall be and is hereby reserved for sale for such purpose. Any of such shares which may remain unsold and which are not subject to outstanding options at the termination of the Plan shall cease to be reserved for the purpose of the Plan, but until termination of the Plan or the termination of the last of the options granted under the Plan, whichever last occurs, the Company shall at all times reserve a sufficient number of shares to meet the requirements of the Plan. Should any option expire or be canceled prior to its exercise in full, the shares theretofore subject to such option may again be made subject to an option under the Plan. SECTION 4. Eligibility. The persons eligible to participate in the Plan as a ----------- recipient of options ("Optionee") shall include only key employees of the Company or its Affiliates at the time the option is granted. An employee who has been granted an option hereunder may be granted an additional option or options, if the Committee shall so determine. SECTION 5. Grant of Options. The Committee shall have sole and absolute ---------------- discretionary authority (i) to determine, authorize, and designate those key employees of the Company or its Affiliates who are to receive options under the Plan, (ii) to determine the number of shares of Common Stock to be covered by such options, (iii) to determine the exercise price for options granted under the Plan, and (iv) to determine the other terms of such options and the conditions for exercise thereof. The Committee shall thereupon grant options in accordance with such determinations and such options shall be evidenced by a written option agreement. Subject to the express provisions of the Plan, the Committee shall have discretionary authority to prescribe, amend and rescind rules and regulations relating to the Plan, to interpret the Plan, to prescribe and amend the terms of the option agreements (which need not be identical) and to make all other determinations deemed necessary or advisable for the administration of the Plan. SECTION 6. Terms and Conditions. Each option granted under the Plan shall be -------------------- evidenced by an agreement, in a form approved by the Committee, which shall be subject to the following express terms and conditions and to such other terms and conditions as the Committee may deem appropriate. (a) Option Period. The Committee shall notify the Optionee of the ------------- option grant and a written agreement shall promptly be executed and delivered by and on behalf of the Company and the Optionee. The date of grant shall be the date the option is actually granted by the Committee, even though the written agreement may be executed and delivered by the Company and the Optionee after that date. Each option agreement shall specify the period for which the option thereunder is granted (which in no event shall exceed ten years from the date of grant) and shall provide that the option shall expire at the end of such period. If the original term of an option is less than ten years from the date of grant, the option may be amended prior to its expiration, with the approval of the Committee and the Optionee, to extend the term so that the term as amended is not more than ten years from the date of grant. (b) Exercise Period. The Committee may provide in the option --------------- agreement that an option may be exercised in whole, immediately, or is to be exercisable in increments. (c) Procedure for Exercise. Options shall be exercised by the ---------------------- delivery of written notice to the Secretary of the Company setting forth the number of shares with respect to which the option is being exercised. Such notice shall be accompanied by cash or cashier's check, bank draft, postal or express money order payable to the order of the Company, or at the option of the Committee, in Common Stock theretofore owned by such Optionee (or any combination of cash and Common Stock). Notice may also be delivered by fax or telecopy provided that the purchase price of such shares is delivered to the Company via wire transfer on the same day the fax is received by the Company. The notice shall specify the address to which the certificates for such shares are to be mailed. An Optionee shall be deemed to be a stockholder with respect to shares covered by an option on the date the Company receives such written notice and such option payment. As promptly as practicable after receipt of such written notification and payment, the Company shall deliver to the Optionee certificates for the number of shares with respect to which such option has been so exercised, issued in the Optionee's name or such other name as Optionee directs; provided, however, that such delivery shall be deemed effected for all purposes when a stock transfer agent of the Company shall have deposited such certificates in the United States mail, addressed to the Optionee at the address specified pursuant to this Section 6(c). (d) Termination of Employment, Death or Disability. If Optionee's ---------------------------------------------- employment with the Company or its Affiliates is terminated during the Option Period by reason of Optionee's voluntary resignation or termination for "Cause" (as defined below), Options granted to him or her which are not exercisable on such date thereupon terminate. Any Options which are exercisable on the date of Optionee's voluntary resignation or termination of employment for cause which have not been exercised within thirty (30) days of such voluntary resignation or termination for Cause shall expire and be of no force or effect. "Cause" means (i) gross or repeated failure by Optionee to substantially perform his or her duties hereunder which persists thirty (30) days after written notice thereof is delivered to Optionee by the Company (or any Affiliate); (ii) the existence of legal restrictions on the ability of Optionee to substantially perform his or her duties hereunder; (iii) misappropriation or embezzlement of corporate funds; (iv) conviction of a felony involving moral turpitude or which in the opinion of the Board of Directors brings Optionee into disrepute or causes material harm to the Company's (or any Affiliate's) business, customer relations, financial condition or prospects; or (v) material breach of the provisions of any covenant not to compete or confidentiality agreement entered into between Optionee and the Company (or any Affiliate). If Optionee's employment with the Company or its Affiliates is terminated involuntarily other than for Cause, or by reason of his or her disability or death, all Options granted pursuant to this Plan shall be thereafter exercisable by Optionee, his or her executor or administrator, or the person or persons to whom his or her rights under this Option Agreement shall pass by will or by the laws of descent and distribution, as the case may be, for a period of ninty (90) days from the date of Optionee's involuntary termination other than for Cause, or by reason of disability or death, whether such Options had vested in accordance with their terms or not, unless this Option Agreement should earlier terminate in accordance with its other terms. Optionee shall be deemed to be disabled if, in the opinion of a physician selected by the Committee, he or she is incapable of performing services for the Company by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long, continued and indefinite duration. (e) Assignability. An option shall not be assignable or otherwise ------------- transferable except by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Code or Title I of the Employee Retirement Income Security Act, as amended, or the rules thereunder. During the lifetime of an Optionee, an option shall be exercisable only by the Optionee. (f) No Rights as Stockholder. No Optionee shall have any rights as a ------------------------ stockholder with respect to shares covered by an option until the option is exercised by the written notice and accompanied by payment as provided in clause (c) above. (g) Extraordinary Corporate Transactions. The existence of ------------------------------------ outstanding options shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations, exchanges, or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issuance of Common Stock or other securities or subscription rights thereto, or any issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. If the Company recapitalizes or otherwise changes its capital structure, or merges or consolidates, (each of the foregoing a "Fundamental Change"), then thereafter upon any exercise of an option theretofore granted the Optionee shall be entitled to purchase under such option, in lieu of the number of shares of Common Stock as to which option shall then be exercisable, the number and class of shares of stock and securities to which the Optionee would have been entitled pursuant to the terms of the Fundamental Change if, immediately prior to such Fundamental Change, the Optionee had been the holder of record of the number of shares of Common Stock as to which such option is then exercisable. (h) Changes in Company's Capital Structure. If the outstanding -------------------------------------- shares of Common Stock or other securities of the Company, or both, for which the option is then exercisable shall at any time be changed or exchanged by declaration of a stock dividend, stock split, or combination of shares, the number and kind of shares of Common Stock or other securities which are subject to the Plan or subject to any options theretofore granted, and the option prices, shall be appropriately and equitably adjusted so as to maintain the proportionate number of shares or other securities without changing the aggregate option price. (i) Acceleration of Options. Except as hereinbefore expressly ----------------------- provided, (i) the issuance by the Company of shares of stock of any class of securities convertible into shares of stock of any class, for cash, property, labor or services, upon direct sale, upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, (ii) the payment of a dividend in property other than Common Stock or (iii) the occurrence of any similar transaction, and in any case whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Common Stock subject to options theretofore granted or the purchase price per share, unless the Committee shall determine in its sole discretion that an adjustment is necessary to provide equitable treatment to Optionee. Notwithstanding anything to the contrary contained in this Plan, the Committee may in its sole discretion accelerate the time at which any option may be exercised, including, but not limited to, upon the occurrence of the events specified in this Section 6. (j) Change of Control. In the event that (i) there is a proposed ----------------- action whereby the Company would not be the surviving entity in any merger or consolidation (or survives only as a subsidiary of another entity) other than a merger for the sole purpose of changing the Company's state of incorporation, (ii) there is a proposed action whereby the Company would sell all or substantially all of its assets to any person or entity (other than a wholly-owned subsidiary), (iii) any person or entity (including a "group" as contemplated by Section 13(d)(3) of the Exchange Act), acquires or gains ownership or control of (including, without limitation, power to vote) more than 50% of the outstanding shares of Common Stock, (iv) there is a proposed action whereby the Company would be dissolved and liquidated, or (v) as a result of or in connection with a contested election of directors, the persons who were directors of the Company before such election shall cease to constitute a majority of the Board (each such event in clauses (i) through (v) above is referred to herein as a "Corporate Change"), all Optionees hereunder shall be given notice of such Corporate Change and shall have a period of thirty (30) days thereafter to exercise their options after receipt of such notice whether such options had vested in accordance with their terms or not. SECTION 7. Amendments or Termination. The Board may amend, alter or ------------------------- discontinue the Plan, but no amendment or alteration shall be made which would impair the rights of any Optionee, without his or her consent. SECTION 8. Compliance With Other Laws and Regulations. The Plan, the grant and ------------------------------------------ exercise of options thereunder, and the obligation of the Company to sell and deliver shares under such options, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any governmental or regulatory agency as may be required. The Company shall not be required to issue or deliver any certificates for shares of Common Stock prior to the completion of any registration or qualification of such shares under any federal or state law or issuance of any ruling or regulation of any government body which the Company shall, in its sole discretion, determine to be necessary or advisable. SECTION 9. Purchase for Investment. Unless the options and shares of Common ----------------------- Stock covered by this Plan have been registered under the Securities Act of 1933, as amended, or the Company has determined that such registration is unnecessary, each person exercising an option under this Plan may be required by the Company to give a representation in writing that he or she is acquiring such shares for his or her own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof. SECTION 10. Taxes. ----- (a) The Company may make such provisions as it may deem appropriate for the withholding of any taxes which it determines is required in connection with any options granted under this Plan. (b) Notwithstanding the terms of Section 10 (a), any Optionee may pay all or any portion of the taxes required to be withheld by the Company or paid by him or her in connection with the exercise of a nonqualified option by electing to have the Company withhold shares of Common Stock, or by delivering previously owned shares of Common Stock, having a current market value, determined in accordance with Section 7(a)(iii), equal to the amount required to be withheld or paid. An Optionee must make the foregoing election on or before the date that the amount of tax to be withheld is determined ("Tax Date"). All such elections are irrevocable and subject to disapproval by the Committee. SECTION 11. Replacement of Options. The Committee from time to time may permit ---------------------- an Optionee under the Plan to surrender for cancellation any unexercised outstanding option and receive from the Company in exchange an option for such number of shares of Common Stock as may be designated by the Committee. The Committee may, with the consent of the person entitled to exercise any outstanding option, amend such option, including reducing the exercise price of any option to not less than the fair market value of the Common Stock at the time of the amendment and extending the term thereof. SECTION 12. No Right to Company Employment. Nothing in this Plan or as a result ------------------------------ of any option granted pursuant to this Plan shall confer on any individual any right to continue in the employ of the Company or interfere in any way with the right of the Company to terminate an individual's employment at any time, nor shall anything contained herein be construed or interpreted to limit the "employment-at-will" relationship between the Optionee and the Company. The option agreements may contain such provisions as the Committee may approve with reference to the effect of approved leaves of absence. SECTION 13. Liability of Company. The Company and any Affiliate which is in -------------------- existence or hereafter comes into existence shall not be liable to an Optionee or other persons as to: (a) The Non-Issuance of Shares. The non-issuance or sale of -------------------------- shares as to which the Company has been unable to obtain from any regulatory body having jurisdiction with the authority deemed by the Company's counsel to be necessary to the lawful issuance and sale of any shares hereunder; and (b) Tax Consequences. Any tax consequence expected, but not ---------------- realized, by any Optionee or other person due to the exercise of any option granted hereunder. SECTION 14. Effectiveness and Expiration of Plan. The Plan shall be effective ------------------------------------ as of July 11, 1997. SECTION 15. Non-Exclusivity of the Plan. Neither the adoption by the Board nor --------------------------- the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including without limitation, the granting of restricted stock or stock options otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases. SECTION 16. Governing Law. This Plan and any agreements hereunder shall be ------------- interpreted and construed in accordance with the laws of the state in which the Company is incorporated and applicable federal law. SECTION 17. Cashless Exercise. The Committee also may allow cashless exercises ----------------- as permitted under Federal Reserve Board's Regulation T, subject to applicable securities law restrictions, or by any other means which the Committee determines to be consistent with the Plan's purpose and applicable law. The proceeds from such a payment shall be added to the general funds of the Company and shall be used for general corporate purposes. IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the foregoing by its directors, the Company has caused these presents to be duly executed in its name and behalf by its proper officers thereunto duly authorized. Mail-Well, Inc. By:________________________________ Roger Wertheimer Title: Vice President-General Counsel and Secretary ATTEST: ____________________________ Mark L. Zoeller Assistant Secretary [CORPORATE SEAL] EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 12,074 20,143 53,106 0 77,891 169,748 233,004 (32,238) 544,253 121,944 0 0 0 188 143,120 544,253 653,010 653,010 509,684 599,435 2,445 0 16,144 34,986 14,889 20,097 0 0 0 20,097 $1.08 $1.08
-----END PRIVACY-ENHANCED MESSAGE-----