-----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, VcqM3c9zHQfqQLwVEhZpVmosUxC6M8sHNS8sVncf5vaR/7rVOvbHc11GzzdH5NH2 JLv6kdMtCyUKrxbYwsAYzA== 0001068800-02-000314.txt : 20021104 0001068800-02-000314.hdr.sgml : 20021104 20021104153223 ACCESSION NUMBER: 0001068800-02-000314 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021104 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: 1934 Act SEC FILE NUMBER: 001-12551 FILM NUMBER: 02808292 BUSINESS ADDRESS: STREET 1: 8310 S VALLEY HWY #400 CITY: ENGLEWOOD STATE: CO ZIP: 80112 BUSINESS PHONE: 3037908023 MAIL ADDRESS: STREET 1: 8310 S VALLEY HWY #400 CITY: ENGLEWOOD STATE: CO ZIP: 80112 FORMER COMPANY: FORMER CONFORMED NAME: MAIL WELL HOLDINGS INC DATE OF NAME CHANGE: 19940328 10-Q 1 mw10q.txt MAIL-WELL, INC. 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, 2002 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 Identification No.) incorporation or organization) 8310 S. VALLEY HIGHWAY, #400 ENGLEWOOD, CO 80112 (Address of principal executive offices) (Zip Code) 303-790-8023 (Registrant's telephone number, including area code) ------------------------ Indicate by check mark 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 1, 2002 the Registrant had 48,251,478 shares of Common Stock, $0.01 par value, outstanding. ============================================================================ MAIL-WELL, INC. AND SUBSIDIARIES TABLE OF CONTENTS
PAGE ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements........................................ 2 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 25 Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................................... 40 PART II - OTHER INFORMATION Item 4. Controls and Procedures..................................... 41 Item 6. Exhibits and Reports on Form 8-K............................ 41 Signature Page........................................................... 45
1 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MAIL-WELL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data)
SEPTEMBER 30, 2002 (UNAUDITED) DECEMBER 31, 2001 ------------------ ----------------- ASSETS Current assets Cash and cash equivalents........................... $ 139,838 $ 894 Accounts receivable, net............................ 228,014 230,770 Inventories, net.................................... 106,137 110,859 Net assets of discontinued operations............... -- 129,568 Net assets held for sale............................ 22,661 52,368 Other current assets................................ 44,692 71,137 ---------- ---------- Total current assets............................ 541,342 595,596 Property, plant and equipment, net...................... 387,936 422,278 Goodwill and other intangible assets, net............... 412,037 411,416 Other assets, net....................................... 38,443 46,286 ---------- ---------- Total assets............................................ $1,379,758 $1,475,576 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable.................................... $ 155,773 $ 160,040 Accrued compensation and related liabilities........ 48,843 50,757 Other current liabilities........................... 65,393 62,499 Current maturities of long-term debt................ 142,845 303,170 ---------- ---------- Total current liabilities....................... 412,854 576,466 Long-term debt.......................................... 773,943 552,051 Deferred income taxes................................... 22,919 88,393 Other long-term liabilities............................. 15,848 16,789 ---------- ---------- Total liabilities....................................... 1,225,564 1,233,699 SHAREHOLDERS' EQUITY Preferred stock, $0.01 par value; 25,000 shares authorized, no shares issued...................... -- -- Common stock, $0.01 par value; 100,000,000 shares authorized, 48,225,031 and 48,325,801 shares issued and outstanding in 2002 and 2001, respectively...................................... 482 483 Paid-in capital..................................... 213,711 214,138 Retained earnings (deficit)......................... (41,160) 46,623 Deferred compensation............................... (2,484) (3,359) Accumulated other comprehensive loss................ (16,355) (16,008) ---------- ---------- Total shareholders' equity...................... 154,194 241,877 ---------- ---------- Total liabilities and shareholders' equity.............. $1,379,758 $1,475,576 ========== ========== See notes to condensed consolidated financial statements.
2 MAIL-WELL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ----------------------- --------------------------- 2002 2001 2002 2001 -------- -------- ---------- ---------- Net sales........................................ $428,720 $465,286 $1,293,169 $1,425,622 Cost of sales.................................... 343,485 373,901 1,041,064 1,129,900 -------- -------- ---------- ---------- Gross profit..................................... 85,235 91,385 252,105 295,722 Other operating expenses: Selling and administrative expenses.......... 61,273 67,552 198,509 210,447 Amortization of intangibles.................. 526 3,993 1,542 12,449 Impairment loss on assets held for sale...... -- -- 8,871 8,807 Impairment on former discontinued operation.................................. -- -- 10,407 -- Restructuring, impairments and other charges.................................... 39,408 5,521 63,208 25,571 -------- -------- ---------- ---------- Operating income (loss).......................... (15,972) 14,319 (30,432) 38,448 Other expense: Interest expense............................. 18,675 15,579 52,553 49,350 Other expense................................ 1,720 518 2,061 1,502 -------- -------- ---------- ---------- Loss from continuing operations before income taxes.......................................... (36,367) (1,778) (85,046) (12,404) Income tax benefit............................... (14,218) (246) (21,346) (1,372) -------- -------- ---------- ---------- Loss from continuing operations.................. (22,149) (1,532) (63,700) (11,032) Loss from discontinued operations: Loss from discontinued operations, net of tax benefit.................................... -- -- -- (2,982) Loss on disposal, net of tax benefit......... (5,804) (31) (13,958) (76,452) -------- -------- ---------- ---------- Loss before extraordinary loss................... (27,953) (1,563) (77,658) (90,466) Extraordinary loss, net of tax benefit........... -- -- (10,125) -- -------- -------- ---------- ---------- Net loss......................................... $(27,953) $ (1,563) $ (87,783) $ (90,466) ======== ======== ========== ========== Loss per share--basic and diluted: Continuing operations........................ $ (0.46) $ (0.03) $ (1.34) $ (0.23) Discontinued operations...................... (0.13) -- (0.29) (1.67) Extraordinary loss........................... -- -- (0.21) -- -------- -------- ---------- ---------- Loss per share--basic and diluted............ $ (0.59) $ (0.03) $ (1.84) $ (1.90) ======== ======== ========== ========== Weighted average shares--basic and diluted....... 47,668 47,657 47,665 47,526 See notes to condensed consolidated financial statements.
3 MAIL-WELL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
NINE MONTHS ENDED SEPTEMBER 30 -------------------------- 2002 2001 ---------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Loss from continuing operations........................... $ (63,700) $ (11,032) Adjustments to reconcile net loss to cash provided by operating activities: Depreciation and amortization........................... 40,439 52,754 Noncash portion of restructuring and impairment charges................................................ 29,226 12,791 Deferred income tax expense (benefit)................... (13,095) 2,994 Other................................................... 655 1,745 Changes in operating assets and liabilities, excluding the effects of businesses sold: Trade and other receivables........................... 5,566 37,711 Inventories........................................... 5,262 12,926 Accounts payable and accrued expenses................. 551 32,967 Other, net............................................ 2,841 (6,138) ---------- --------- Net cash provided by operating activities............. 7,745 136,718 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition costs......................................... (2,552) (3,838) Proceeds from divestitures, net........................... 128,649 -- Capital expenditures...................................... (26,943) (24,121) Proceeds from the sales of assets......................... 6,267 577 ---------- --------- Net cash provided by (used in) investing activities... 105,421 (27,382) CASH FLOWS FROM FINANCING ACTIVITIES Decrease in accounts receivable securitization............ -- (75,000) Proceeds from common stock issuance....................... 18 413 Proceeds from long-term debt.............................. 1,006,154 493,404 Repayments of long-term debt.............................. (951,077) (524,026) Debt issuance costs....................................... (17,402) (4,382) ---------- --------- Net cash provided by (used in) financing activities... 37,693 (109,591) CASH FLOWS FROM DISCONTINUED OPERATIONS Net cash provided by (used in) discontinued operations.... (10,827) 498 Effect of exchange rate changes on cash and cash equivalents................................................ (1,088) (73) ---------- --------- Net increase in cash and cash equivalents................... 138,944 170 Cash and cash equivalents at beginning of period............ 894 589 ---------- --------- Cash and cash equivalents at end of period.................. $ 139,838 $ 759 ========== ========= See notes to condensed consolidated financial statements.
4 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements of Mail-Well, Inc. and subsidiaries (collectively, the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnote disclosures required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2001. During June 2002, the decision was made to discontinue efforts to sell the PrintXcel business. As such, the statement of operations for the three and nine months ended September 30, 2001 have been restated to include this business as part of the continuing operations. PrintXcel, which is the Company's Printed Office Products operating segment, had previously been reported in discontinued operations. 2. RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards ("SFAS") No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Statement 141 also includes guidance on the initial recognition and measurement of goodwill and other intangible assets arising from business combinations completed after June 30, 2001. Statement 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives. Statement 142 requires that these assets be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives. Additionally, Statement 142 requires that goodwill included in the carrying value of equity method investments no longer be amortized. Mail-Well adopted Statement 142 on January 1, 2002. The Company has completed the first step of the two-step process prescribed in Statement 142 to test goodwill for impairment and has concluded that a portion of the $213.5 million of goodwill related to our commercial printing business is impaired. The extent of this impairment will not be known until step two of the process has been completed. The Company will recognize the amount of the impairment as a cumulative effect of a change in accounting principle as of January 1, 2002 when it is determined, but no later than December 31, 2002. In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. Statement 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Mail-Well will adopt Statement 143 on January 1, 2003. The Company is evaluating the impact of the adoption of Statement 143 on the consolidated financial statements. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which establishes one accounting model to be used for long-lived assets to be 5 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 2. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED) disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions. Statement 144 supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets to Be Disposed Of and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, Reporting the Results of Operations--Reporting the Effects Of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. Mail-Well adopted Statement 144 as of January 1, 2002 and there was no impact from the adoption of this statement. In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statement No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This statement provides guidance on the classification of gains and losses from the extinguishment of debt and on the accounting for certain specified lease transactions. The Company is currently evaluating the provisions of the new statement. In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). Generally, SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized as incurred, whereas EITF Issue No. 94-3 required such a liability to be recognized at the time that an entity committed to an exit plan. The company is currently evaluating the provisions of the new rule, which is effective for exit or disposal activities that are initiated after December 31, 2002. 3. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill represents the excess of acquisition costs over the fair value of net assets of businesses acquired and prior to the adoption of Statement 142 on January 1, 2002 was amortized on a straight-line basis over 40 years. Other intangible assets primarily arise from the purchase price allocations of businesses acquired and are based on independent appraisals or internal estimates and are amortized on a straight-line basis over appropriate periods. In accordance with the provisions of SFAS 142, the Company ceased amortizing goodwill on January 1, 2002. Had SFAS 142 been in effect on January 1, 2001, the Company would not have recorded goodwill amortization expense of $3.5 million and $10.5 million for the three and nine months ended September 30, 2001, respectively. The following table summarizes the reported net losses for the three and nine months ended September 30, 2002 and September 30, 2001, adjusted to exclude goodwill amortization expense, and the related tax effect, that would not have been recorded had the provisions of SFAS 142 been in effect January 1, 2001 (in thousands, except per share amounts):
THREE MONTHS ENDED NINE MONTHS ENDED ------------------------------ ------------------------------ SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Reported net loss...................... $(27,953) $(1,563) $(87,783) $(90,466) Goodwill amortization, net of tax...... -- 3,049 -- 9,160 -------- ------- -------- -------- Adjusted net income (loss)......... $(27,953) $ 1,486 $(87,783) $(81,306) ======== ======= ======== ======== Basic and diluted loss per share--as reported............................. $ (0.59) $ (0.03) $ (1.84) $ (1.90) Basic and diluted loss per share--adjusted...................... $ (0.59) $ 0.03 $ (1.84) $ (1.71)
6 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 3. GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED) The following is a summary of other intangible assets, net of related accumulated amortization (in thousands):
COMMERCIAL ENVELOPE PRINTING PRINTXCEL TOTAL -------- ---------- --------- ------- Trademarks and tradenames............... $ 8,204 $ -- $4,673 $12,877 Patents................................. 1,971 -- -- 1,971 Non-compete agreements.................. 916 1,549 -- 2,465 Other................................... 436 925 474 1,835 ------- ------ ------ ------- Balance as of September 30, 2002..... $11,527 $2,474 $5,147 $19,148 ======= ====== ====== =======
Other intangible assets are all subject to amortization and have original estimated useful lives as follows: Trademarks--43 years; Tradenames--35 years; Patents--12 years; Non-compete agreements--5 years; Other--10-40 years. The estimated amortization expense for each of the succeeding five years is as follows: $2.2 million, $1.6 million, $0.7 million, $0.6 million and $0.6 million. 4. INVENTORIES The Company's inventories by major category are as follows (in thousands):
SEPTEMBER 30 DECEMBER 31 2002 2001 ------------ ----------- Raw materials.......................................... $ 31,923 $ 34,011 Work in process........................................ 25,962 22,750 Finished goods......................................... 53,961 58,710 -------- -------- 111,846 115,471 Reserves............................................... (5,709) (4,612) -------- -------- $106,137 $110,859 ======== ========
5. COMPREHENSIVE LOSS A summary of the comprehensive loss is as follows (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED ------------------------------ ------------------------------ SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Net loss............................... $(27,953) $(1,563) $(87,783) $(90,466) Other comprehensive income (loss): Currency translation adjustments, net............................. (4,778) (4,812) (347) (7,137) Unrealized gain (loss) on investments, net................ -- 450 -- (486) -------- ------- -------- -------- Other comprehensive loss............... (4,778) (4,362) (347) (7,623) -------- ------- -------- -------- Comprehensive loss..................... $(32,731) $(5,925) $(88,130) $(98,089) ======== ======= ======== ========
6. LOSS PER SHARE Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. There are no reconciling items between basic and diluted loss per share. 7 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 6. LOSS PER SHARE (CONTINUED) During the three and nine months ended September 30, 2002 and 2001, interest on the Convertible Notes in the amount of $1,214,000 and $3,641,000, respectively, and shares of 7,319,000 that would be issued upon assumed conversion of the Convertible Notes were excluded from the calculation of diluted loss per share due to the antidilutive effect on loss per share. In addition, the outstanding options to purchase approximately 6,274,000 shares of common stock in 2002 and 6,880,000 shares of common stock in 2001 were excluded from the calculation of diluted loss per share because the effect would be antidilutive. 7. LONG-TERM DEBT Long-term debt consists of the following (in thousands):
SEPTEMBER 30 DECEMBER 31 2002 2001 ------------ ------------ Senior Secured Credit Facility: Tranche A term loan, retired...................... $ -- $ 194,918 Tranche B term loan, retired...................... -- 192,749 Revolving loan facility, retired.................. -- 6,000 Revolving loan facility, due 2005................. 114,660 -- Senior Notes, due 2012................................. 350,000 -- Senior Subordinated Notes, due 2008.................... 300,000 300,000 Convertible Subordinated Notes, due 2002............... 139,063 139,063 Other.................................................. 13,065 22,491 --------- --------- 916,788 855,221 Less current maturities................................ (142,845) (303,170) --------- --------- Long-term debt......................................... $ 773,943 $ 552,051 ========= =========
Current maturities at September 30, 2002 include the Convertible Subordinated Notes which have been paid and current maturities from other debt. In June 2002, the Company entered into a new three year $300 million Senior Secured Credit Facility with a syndicate of banks (the "Facility"). The Facility was used to refinance the Company's $800 million Secured Senior Credit Facility. Under the Facility, loans may be made and letters of credit issued on a revolving basis in each case subject to availability and subject to a borrowing base. On September 30, 2002, the Company had outstanding loans of $114.7 million and had $114.8 million of availability. Loans made under the Facility bear interest at a base rate or LIBOR, plus a margin (the interest rate at September 30, 2002 was 6.0%). The Company is required to meet a fixed charge coverage ratio and a minimum tangible net worth. The Facility is secured by substantially all of the domestic assets of the Company. In March 2002, the Company issued $350 million of 9 5/8% Senior Notes due 2012 ("Senior Notes"). Interest is payable semi-annually. The Company may redeem the Senior Notes, in whole or in part, on or after March 15, 2007, at redemption prices from 100% to 104.813%, plus accrued and unpaid interest. In addition, before March 2005, the Company can redeem up to 35% of the Senior Notes at 109.625% of the principal amount thereof, plus accrued and unpaid interest, with the net cash proceeds from certain common stock offerings. 8 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 7. LONG-TERM DEBT (CONTINUED) Deferred financing costs of $16.9 million incurred in connection with the $800 million Secured Senior Credit Facility refinanced in June 2002 were written off during the nine months ended September 30, 2002. The write-off is reported net of tax as an extraordinary loss in the condensed consolidated statements of operations. As of September 30, 2002, the Company was in compliance with all of the covenants of its various debt agreements. 8. RESTRUCTURING AND OTHER CHARGES The Company has responded to the impact of the current economic environment on its businesses by continuing to evaluate its operations for improvement opportunities. Because of the significant decline in sales experienced over the last two years, actions to consolidate facilities, rationalize and realign capacity, and otherwise reduce costs have been implemented. These actions have resulted in significant restructuring charges and other nonrecurring charges. Restructuring and other charges recorded during the third quarter of 2002 and the nine months ended September 30, 2002 were $39.4 million and $63.2 million, respectively. The following table and discussion present the details of these charges.
PRINTED COMMERCIAL OFFICE ENVELOPE PRINTING PRODUCTS CORPORATE TOTAL -------- ---------- -------- --------- ------- (IN THOUSANDS) Employee separation and related employee expenses............... $ 238 $ 3,152 $ 786 $ -- $ 4,176 Employee training expenses........ 6,101 -- -- -- 6,101 Asset impairment charges, net..... 8,101 2,114 240 -- 10,455 Project management expenses....... 8,072 -- -- -- 8,072 Other exit costs.................. 3,885 1,978 274 -- 6,137 Reversal of unused accrual........ (500) -- -- -- (500) ------- ------- ------ ------- ------- Total restructuring costs..... 25,897 7,244 1,300 -- 34,441 Other charges..................... 2,038 3,854 50 22,825 28,767 ------- ------- ------ ------- ------- Total restructuring and other charges..................... $27,935 $11,098 $1,350 $22,825 $63,208 ======= ======= ====== ======= =======
ENVELOPE. The consolidation of ten of the envelope manufacturing facilities is almost complete. The Envelope segment began this consolidation in 2001 in order to reduce excess internal capacity and improve utilization of equipment and resources at its other envelope plants in the United States and Canada. The costs incurred during the nine months ended September 30, 2002 related to this consolidation were as follows: * Employee training expenses of $6.1 million have been incurred to train the new employees that were hired at the plants absorbing the production of the plants being closed. The training programs for these employees are between three and nine months in duration. * Impairment charges of $8.1 million have been recorded for property and equipment taken out of service or sold as a result of the plant consolidations, net of $5.9 million received from the sales of those assets. 9 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 8. RESTRUCTURING AND OTHER CHARGES (CONTINUED) * Project management expenses of $8.1 million are primarily consulting fees and related expenses incurred to assist management in managing the consolidation project. Consultants were used to assist in such tasks as capacity planning, workflow planning, production scheduling and change management. * Other exit costs of $3.9 million include the expenses incurred to dismantle and move equipment, and the cost incurred to restore buildings to the condition required by lease agreements or to prepare them for sale. * In 2001, separation and related employee costs were accrued to cover the 920 employees expected to be terminated over the course of this project. As of September 30, 2002, 720 employees had been separated and the accrual has been adjusted by $0.5 million. As a result of other cost reduction actions, the Envelope segment incurred severance expenses of $0.2 million in connection the elimination of 125 jobs. COMMERCIAL PRINTING. In September 2002, the Company announced the closure of a printing facility in New York City. In connection with this closure, Commercial Printing recorded $1.0 million to cover the employee separation and related expenses for 80 employees and $0.1 million of equipment lease payments. In addition, an impairment charge of $2.1 million was recorded for equipment taken out of service or sold. Commercial Printing also plans to consolidate its web printing operations. Employee separation and related expenses for 49 employees affected by this plan totaled $0.3 million. Other exit costs, primarily outstanding lease obligations, of $1.6 million were also recorded. Significant right sizing of printing operations in Seattle, Washington and Philadelphia, Pennsylvania have been completed. These actions were taken because of significant decline in sales at both of these locations. Employee separation and related expenses of $0.6 million for 49 employees were incurred as a result of these actions. Other exit costs of $0.3 million have also been recorded. Commercial Printing has reduced the size of many of its other operations in response to the significant decline in sales. Severance and related employee expenses of $1.3 million were recorded as a result of the elimination of 158 jobs year-to-date. PRINTED OFFICE PRODUCTS. In April 2002, the Printed Office Products closed a traditional documents plant and consolidated its production. Severance incurred as a result of this plant closure was $0.1 million covering 19 employees. Expenses were also incurred to prepare the building for sale and to write assets down to fair market value. As a result of other cost reduction measures, Printed Office Products has incurred severance of $0.4 million in connection with the elimination of 184 jobs. OTHER CHARGES. Other charges include the following items: * In 2001, several programs to significantly improve operations and marketing effectiveness were implemented. These programs included the implementation of best practices, the standardization of costing and pricing systems in the envelope and commercial printing segments and the alignment of equipment and services to better serve our customers and markets. Outside assistance in the implementation of these programs was $4.7 million. 10 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 8. RESTRUCTURING AND OTHER CHARGES (CONTINUED) * In June 2002, in connection with the refinancing of the bank credit facility, the Company was required to refinance an operating lease stemming from a sale/leaseback arrangement executed in 1997 and amended in 2000. The fair market value of the equipment subject to the lease had declined from $34.9 million to $19.1 million, and the Company was required to pay the difference of $15.8 million. This payment was expensed in the third quarter of 2002. In addition, deferred costs of $6.1 million that were associated with the lease prior to this refinancing were written-off. * An impairment charge of $1.0 million was recorded to write-down idle equipment in the Commercial Printing segment to net realizable value. * Severance payments unrelated to the restructure plans totaled $0.7 million. * Consulting fees of $0.6 million related to tax matters that arose as a result of the divestitures were incurred. A summary of the activity charged to the 2001 restructuring liability during the nine months ended September 30, 2002 was as follows (in thousands):
PRINTED COMMERCIAL OFFICE ENVELOPE PRINTING PRODUCTS TOTAL -------- ---------- -------- ------- Balance, December 31, 2001................ $10,126 $ 604 $ 629 $11,359 Payments for severance................ (4,792) (13) (179) (4,984) Payments for lease termination costs................................ (293) (110) (118) (521) Payments for other exit costs......... (1,579) (201) (332) (2,112) Reversal of unused portion............ (500) -- -- (500) ------- ----- ----- ------- Balance, September 30, 2002............... $ 2,962 $ 280 $ -- $ 3,242 ======= ===== ===== =======
A summary of the activity charged to the 2002 restructuring liability during the three months ended September 30, 2002 was as follows (in thousands):
COMMERCIAL PRINTING ---------- Beginning balance................... $4,106 Payments for severance.......... (240) ------ Balance, September 30, 2002......... $3,866 ======
9. DISCONTINUED OPERATIONS In June 2001, the Company announced plans to sell its prime Label and Printed Office Products operating segments. The Printed Office Products segment was comprised of two separate businesses, Curtis 1000 Inc. and PrintXcel. The prime Label and Printed Office Products segments were segregated from continuing operations and reported as discontinued operations for all periods presented through March 31, 2002. On February 22, 2002, the Company sold the stock of Curtis 1000 Inc. for $40.0 million, including the assumption of debt. On May 21, 2002, the Company sold the prime Label operating segment for $75.0 million. In June 2002, the Company decided that it would not sell PrintXcel. Accordingly, PrintXcel has been reclassified to continuing operations for all periods presented. 11 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 9. DISCONTINUED OPERATIONS (CONTINUED) The reported loss on the disposition of the prime Label segment and Curtis 1000 Inc. as of September 30, 2002 includes adjustments to the net realizable value of these operations based on actual proceeds received, costs associated with the dispositions, the earnings or losses from the operations through the date of disposition, an allocation of interest expense through the date of disposition and the related income tax expense. Interest expense was allocated to the operating results included in the calculation of the loss on disposal of discontinued operations based upon the relative net assets of the prime Label operating segment and Curtis 1000 Inc. This allocation of interest expense totaled $5.6 million for the nine months ended September 30, 2002 and $3.6 million and $11.5 million for the three and nine months ended September 30, 2001, respectively. A tax benefit allocated to the loss on disposal of discontinued operations based on their operating results through the date of disposal totaled $1.2 million for the nine months ended September 30, 2002. Taxes allocated to the loss on disposal of discontinued operations based on their accrued and actual operating results from June 2001 to the disposal date for the three and nine months ended September 30, 2001 was a tax expense of $0.4 million and a tax benefit of $1.1 million, respectively. Operating results of the discontinued operations are summarized as follows (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 --------------------- ----------------------- 2002 2001 2002 2001 ------- ------- -------- -------- Net sales: Label..................................... $ -- $56,044 $ 84,758 $169,189 Curtis 1000 Inc. ......................... -- 41,180 22,787 128,230 ------- ------- -------- -------- $ -- $97,224 $107,545 $297,419 ======= ======= ======== ======== Income (loss) from operations: Label..................................... $ -- $ -- $ -- $ (1,028) Curtis 1000 Inc. ......................... -- -- -- (3,589) ------- ------- -------- -------- -- -- -- (4,617) Income tax expense (benefit).............. -- -- -- (1,635) ------- ------- -------- -------- $ -- $ -- $ -- $ (2,982) Loss on disposal of discontinued operations: Label..................................... $(1,572) $ -- $(12,035) $(59,725) Curtis 1000 Inc. ......................... (146) -- (1,125) (17,990) ------- ------- -------- -------- (1,718) -- (13,160) (77,715) Income tax expense (benefit) on loss on disposal................................ 4,086 31 (798) (1,263) ------- ------- -------- -------- Loss on disposal, net................. $(5,804) $ (31) $(13,958) $(76,452) ======= ======= ======== ========
12 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 9. DISCONTINUED OPERATIONS (CONTINUED) The assets and liabilities of discontinued operations, which have been reflected as net assets of discontinued operations in the December 31, 2001 condensed consolidated balance sheet, are summarized as follows (in thousands):
DECEMBER 31 2001 ----------- Label segment: Current assets.......................................... $ 46,285 Long-term assets........................................ 97,109 -------- Total assets........................................ 143,394 Current liabilities..................................... 40,085 Long-term liabilities................................... 3,909 -------- Total liabilities................................... 43,994 -------- Net assets of the Label segment............................. 99,400 Curtis 1000 Inc.: Current assets.......................................... 24,840 Long-term assets........................................ 37,103 -------- Total assets........................................ 61,943 Current liabilities..................................... 18,657 Long-term liabilities................................... 13,118 -------- Total liabilities................................... 31,775 -------- Net assets of Curtis 1000 Inc............................... 30,168 -------- Net assets of discontinued operations............... $129,568 ========
Assets primarily consist of accounts receivable, inventories, property and equipment and deferred income taxes. Liabilities primarily consist of accounts payable, accrued expenses, deferred income taxes and other long-term liabilities. The net assets of discontinued operations presented in the condensed consolidated balance sheet reflect the write-down of the assets of these operations to estimated net realizable value, the accrual of obligations associated with the divestitures and the accrual of estimated losses to the expected date of disposal. In connection with the proposed divestiture of the Company's PrintXcel business in 2001, the Company reduced the carrying amounts of the net assets of PrintXcel by $45.0 million to the expected net realizable value based on estimated proceeds, net of costs associated with its planned disposition. As a result of the Company's decision not to sell PrintXcel, it reversed a tax benefit in the amount of $11.5 million that would not be realized and $1.1 million of expenses related to the sale that had been accrued but not incurred. The net amount of these adjustments has been reported as "Impairment on former discontinued operation" in the condensed consolidated statements of operations. 10. ASSETS HELD FOR SALE The Company's divestiture plans also include the sale of the digital graphics division of the Commercial Print segment and the filing products division of the Envelope segment. In August 2002, the Company sold the filing products division for $36.7 million. The impairment of $6.1 million incurred as a result of this divestiture was recorded as of June 30, 2002. The sale of our digital graphics division is expected prior to December 31, 2002. 13 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 10. ASSETS HELD FOR SALE (CONTINUED) The following table presents the sales and operating income for the digital graphics division of the Commercial Printing segment held for sale and the filing products division of the Envelope segment through August 2002, the date of its sale, for the three and nine months ended September 30, 2002 and 2001 (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 --------------------- --------------------- 2002 2001 2002 2001 ------- ------- ------- ------- Sales...................................... $13,814 $26,208 $65,481 $83,543 Operating income........................... $ 420 $ 2,361 $ 3,428 $ 7,971
Net assets held for sale at September 30, 2002 include assets of $25.6 million of the digital graphics division net of related liabilities of $2.9 million. At December 31, 2001, net assets held for sale included the assets of both the digital graphics division and the filing products division which totaled $25.6 million net of related liabilities of $13.3 million. The digital graphics division of Commercial Printing was written down to fair market value during 2001 based on sales proceeds anticipated at the time. The Company has recorded an additional impairment charge of $2.8 million based on the sales proceeds currently anticipated. 11. SEGMENT INFORMATION The Company operates in three principal operating segments. The Commercial Printing operating segment specializes in printing annual reports, brand marketing collateral, catalogs, brochures, maps and guidebooks, calendars, financial communications and CD packaging. The Envelope operating segment manufactures customized and stock envelopes for billing and remittance, direct mail advertising and catalog orders. The Envelope segment is also a producer of specialty packaging products and a manufacturer of stock products for the resale market. The Printed Office Products operating segment produces customized and stock labels, mailers, and printed business documents to small and mid-size businesses generally through distributors of office products. 14 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 11. SEGMENT INFORMATION (CONTINUED) The following tables present certain operating segment information for the three and nine months ended September 30, 2002 and 2001 as follows (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ----------------------- --------------------------- 2002 2001 2002 2001 -------- -------- ---------- ---------- Net sales: Commercial Printing.................. $194,659 $208,136 $ 559,141 $ 626,886 Envelope............................. 183,352 203,780 579,495 636,142 Printed Office Products.............. 50,709 53,370 154,533 162,594 -------- -------- ---------- ---------- Total................................ $428,720 $465,286 $1,293,169 $1,425,622 ======== ======== ========== ========== Operating income (loss)(a): Commercial Printing.................. $ 3,541 $ 3,791 $ (5,155) $ 16,462 Envelope............................. 19,019 18,855 57,993 63,487 Printed Office Products.............. 5,204 3,625 15,026 15,168 Corporate............................ (4,328) (6,431) (15,810) (22,291) Impairments, restructuring and other charges............................ (39,408) (5,521) (82,486) (34,378) -------- -------- ---------- ---------- Total................................ $(15,972) $ 14,319 $ (30,432) $ 38,448 ======== ======== ========== ========== SEPTEMBER 30 DECEMBER 31 2002 2001 ------------ ----------- Identifiable assets(b): Commercial Printing................................. $ 614,667 $ 622,173 Envelope............................................ 506,333 537,747 Printed Office Products............................. 140,297 144,334 Corporate........................................... 95,800 (10,614) ---------- ---------- Total............................................... 1,357,097 1,293,640 Net assets of discontinued operations............... -- 129,568 Net assets held for sale............................ 22,661 52,368 ---------- ---------- Total............................................... $1,379,758 $1,475,576 ========== ========== - --------------- (a) Operating income is net of all costs and expenses directly related to the operating segment involved. Corporate expenses include corporate general and administrative expenses, lease expense, amortization expense of other intangible assets and goodwill (in 2001), gains or losses on disposal of assets and other miscellaneous expenses. (b) Identifiable assets are accumulated by facility within each operating segment. Certain operating assets, which are under lease, are reported as operating segment assets for evaluation purposes. The net book value of these assets has been eliminated by contra assets included with corporate assets in order to reconcile identifiable assets with the total assets of the Company. Corporate assets consist primarily of cash and cash equivalents, other receivables, other assets and deferred tax assets.
Intercompany sales for the three and nine months ended September 30, 2002 were $1.7 million and $10.9 million, respectively. Intercompany sales for the three and nine months ended September 30, 2001 were $8.6 million and $32.8 million, respectively. These amounts, which are eliminated in consolidation, are excluded from reported net sales. 15 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION In March 2002, Mail-Well I Corporation ("Issuer" or "MWI"), the Company's wholly owned subsidiary, and the only direct subsidiary of the Company, issued $350 million aggregate principal amount of 9 5/8% Senior Notes ("Senior Notes") due in 2012. The Senior Notes are guaranteed by all of the U.S. subsidiaries (the "Guarantor Subsidiaries") of MWI, all of which are wholly owned, and by Mail-Well, Inc. ("Parent Guarantor"). The guarantees are joint and several, full, complete and unconditional. There are no material restrictions on the ability of the Guarantor Subsidiaries to transfer funds to MWI in the form of cash dividends, loans or advances, other than ordinary legal restrictions under corporate law, fraudulent transfer and bankruptcy laws. In December 1998, MWI issued $300 million aggregate principal amount of 8 3/4% Senior Subordinated Notes ("Senior Subordinated Notes") due in 2008. The Senior Subordinated Notes are guaranteed by Guarantor Subsidiaries and by the Parent Guarantor. The guarantees are joint and several, full, complete and unconditional. There are no material restrictions on the ability of the Guarantor Subsidiaries to transfer funds to MWI in the form of cash dividends, loans or advances, other than ordinary legal restrictions under corporate law, fraudulent transfer and bankruptcy laws. The following condensed consolidating financial information illustrates the composition of the Parent Guarantor, Issuer, Guarantor Subsidiaries and non-guarantor subsidiaries. The Issuer, the Guarantor Subsidiaries and the non-guarantor subsidiaries comprise all of the direct and indirect subsidiaries of the Parent Guarantor. Curtis 1000 Inc. was, until it was divested in the first quarter of 2002, a subsidiary of the Issuer and a guarantor of the Senior Subordinated Notes. Curtis 1000 Inc. was not at any time a guarantor of the Senior Notes. In order to provide a coherent presentation in the following condensed consolidating financial information, and because Curtis 1000 Inc. has been divested and is not a guarantor of the Senior Subordinated Notes or the Senior Notes, Curtis 1000 Inc.'s financial information is included in the non-guarantor information for all periods presented. Management has determined that separate complete financial statements would not provide additional material information that would be useful in assessing the financial composition of the Guarantor Subsidiaries. Investments in subsidiaries are accounted for under the equity method, wherein the investor company's share of earnings and income taxes applicable to the assumed distribution of such earnings are included in net income. In addition, investments increase in the amount of permanent contributions to subsidiaries and decrease in the amount of distributions from subsidiaries. The elimination entries remove the equity method investment in subsidiaries and the equity in earnings of subsidiaries, intercompany payables and receivables and other transactions between subsidiaries. 16 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION September 30, 2002 (unaudited) (in thousands)
COMBINED COMBINED PARENT GUARANTOR NONGUARANTOR GUARANTOR ISSUER SUBSIDIARIES SUBSIDIARIES ELIM. CONSOLIDATED --------- ---------- ------------ ------------ ----------- ------------ Current assets: Cash and cash equivalents.............. $ -- $ 137,875 $ 1,224 $ 739 $ -- $ 139,838 Accounts receivable, net...................... -- 54,479 150,051 23,484 -- 228,014 Inventories, net.......... -- 45,828 46,664 13,645 -- 106,137 Net assets held for sale..................... -- -- 22,661 -- -- 22,661 Note receivable from Issuer................... 147,436 -- -- -- (147,436) -- Other current assets...... -- 31,008 11,155 2,529 -- 44,692 -------- ---------- -------- -------- ----------- ---------- Total current assets.... 147,436 269,190 231,755 40,397 (147,436) 541,342 Investment in subsidiaries............... 152,666 234,051 211,518 -- (598,235) -- Property, plant and equipment, net............. -- 125,552 211,134 51,250 -- 387,936 Goodwill and other intangible assets, net..... -- 84,715 276,074 51,248 -- 412,037 Note receivable from subsidiaries............... -- 603,100 -- -- (603,100) -- Other assets, net........... 208 34,737 3,498 -- -- 38,443 -------- ---------- -------- -------- ----------- ---------- Total assets................ $300,310 $1,351,345 $933,979 $142,895 $(1,348,771) $1,379,758 ======== ========== ======== ======== =========== ========== Current liabilities: Accounts payable.......... $ -- $ 48,403 $ 97,112 $ 10,258 $ -- $ 155,773 Other current liabilities.............. 6,354 57,829 40,768 9,285 -- 114,236 Intercompany payable (receivable)............. 699 188,407 122,195 (99,783) (211,518) -- Note payable to Parent.... -- 147,436 -- -- (147,436) -- Current portion of long-term debt........... 139,063 1,645 1,992 145 -- 142,845 -------- ---------- -------- -------- ----------- ---------- Total current liabilities............ 146,116 443,720 262,067 (80,095) (358,954) 412,854 Long-term debt.............. -- 767,778 6,165 -- -- 773,943 Note payable to Issuer...... -- -- 603,100 -- (603,100) -- Deferred income taxes....... -- (25,037) 37,035 10,921 -- 22,919 Other long-term liabilities................ -- 12,218 3,079 551 -- 15,848 -------- ---------- -------- -------- ----------- ---------- Total liabilities....... 146,116 1,198,679 911,446 (68,623) (962,054) 1,225,564 Shareholders' equity........ 154,194 152,666 22,533 211,518 (386,717) 154,194 -------- ---------- -------- -------- ----------- ---------- Total liabilities and shareholders' equity....... $300,310 $1,351,345 $933,979 $142,895 $(1,348,771) $1,379,758 ======== ========== ======== ======== =========== ==========
17 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION December 31, 2001 (in thousands)
COMBINED COMBINED PARENT GUARANTOR NONGUARANTOR GUARANTOR ISSUER SUBSIDIARIES SUBSIDIARIES ELIM. CONSOLIDATED --------- ---------- ------------ ------------ ----------- ------------ Current assets: Cash and cash equivalents.............. $ -- $ (1,589) $ 1,698 $ 785 $ -- $ 894 Accounts receivable, net...................... -- 60,039 146,353 24,378 -- 230,770 Inventories, net.......... -- 51,032 47,634 12,193 -- 110,859 Net assets of discontinued operations............... -- -- 60,070 69,498 -- 129,568 Net assets held for sale..................... -- 25,852 26,516 -- -- 52,368 Note receivable from Issuer................... 147,436 -- -- -- (147,436) -- Other current assets...... 295 41,988 26,113 2,741 -- 71,137 -------- ---------- -------- -------- ----------- ---------- Total current assets.... 147,731 177,322 308,384 109,595 (147,436) 595,596 Investment in subsidiaries............... 240,954 233,432 157,794 -- (632,180) -- Property, plant and equipment, net............. -- 151,735 216,975 53,568 -- 422,278 Goodwill and other intangible assets, net..... -- 96,585 269,097 45,734 -- 411,416 Note receivable from subsidiaries............... -- 749,400 -- -- (749,400) -- Other assets, net........... 1,023 29,925 31,227 2,992 (18,881) 46,286 -------- ---------- -------- -------- ----------- ---------- Total assets................ $389,708 $1,438,399 $983,477 $211,889 $(1,547,897) $1,475,576 ======== ========== ======== ======== =========== ========== Current liabilities: Accounts payable.......... $ -- $ 63,491 $ 88,056 $ 8,493 $ -- $ 160,040 Other current liabilities.............. 4,291 71,611 23,450 13,904 -- 113,256 Intercompany payable (receivable)............. 4,477 190,395 (167,446) (27,426) -- -- Note payable to Parent.... -- 147,436 -- -- (147,436) -- Current portion of long-term debt........... 139,063 161,850 2,085 172 -- 303,170 -------- ---------- -------- -------- ----------- ---------- Total current liabilities............ 147,831 634,783 (53,855) (4,857) (147,436) 576,466 Long-term debt.............. -- 523,247 19,708 9,096 -- 552,051 Note payable to Issuer...... -- -- 749,400 -- (749,400) -- Deferred income taxes....... -- 28,287 48,882 11,224 -- 88,393 Other long-term liabilities................ -- 24,655 10,466 549 (18,881) 16,789 -------- ---------- -------- -------- ----------- ---------- Total liabilities....... 147,831 1,210,972 774,601 16,012 (915,717) 1,233,699 Shareholders' equity........ 241,877 227,427 208,876 195,877 (632,180) 241,877 -------- ---------- -------- -------- ----------- ---------- Total liabilities and shareholders' equity....... $389,708 $1,438,399 $983,477 $211,889 $(1,547,897) $1,475,576 ======== ========== ======== ======== =========== ==========
18 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Quarter Ended September 30, 2002 (Unaudited) (in thousands)
COMBINED COMBINED PARENT GUARANTOR NONGUARANTOR GUARANTOR ISSUER SUBSIDIARIES SUBSIDIARIES ELIM. CONSOLIDATED --------- -------- ------------ ------------ -------- ------------ Net sales....................... $ -- $124,827 $260,236 $43,657 $ -- $428,720 Cost of sales................... -- 100,445 211,615 31,425 -- 343,485 -------- -------- -------- ------- -------- -------- Gross profit.................... -- 24,382 48,621 12,232 -- 85,235 Other operating expenses........ 76 16,698 40,712 4,313 -- 61,799 Restructuring and other charges........................ -- 31,077 7,773 558 -- 39,408 -------- -------- -------- ------- -------- -------- Operating income (loss)......... (76) (23,393) 136 7,361 -- (15,972) Other expense (income): Interest expense (income)..... 1,740 19,469 15,990 (26) (18,498) 18,675 Other expense (income)........ (1,977) (15,108) (9,528) 9,835 18,498 1,720 -------- -------- -------- ------- -------- -------- Income (loss) before income taxes and equity in undistributed earnings of subsidiaries................... 161 (27,754) (6,326) (2,448) -- (36,367) Provision (benefit) for income taxes.......................... -- (7,773) (5,488) (957) -- (14,218) -------- -------- -------- ------- -------- -------- Income (loss) before equity in undistributed earnings of subsidiaries................... 161 (19,981) (838) (1,491) -- (22,149) Equity in undistributed earnings of subsidiaries................ (28,114) (7,814) (4,337) -- 40,265 -- -------- -------- -------- ------- -------- -------- Income (loss) before discontinued operations........ (27,953) (27,795) (5,175) (1,491) 40,265 (22,149) Loss on disposal, net of tax benefit........................ -- -- (5,450) (354) -- (5,804) -------- -------- -------- ------- -------- -------- Net income (loss)............... $(27,953) $(27,795) $(10,625) $(1,845) $ 40,265 $(27,953) ======== ======== ======== ======= ======== ========
19 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Quarter Ended September 30, 2001 (Unaudited) (in thousands)
COMBINED COMBINED PARENT GUARANTOR NONGUARANTOR GUARANTOR ISSUER SUBSIDIARIES SUBSIDIARIES ELIM. CONSOLIDATED --------- -------- ------------ ------------ -------- ------------ Net sales....................... $ -- $145,119 $277,685 $42,482 $ -- $465,286 Cost of sales................... -- 119,763 223,593 30,545 -- 373,901 ------- -------- -------- ------- -------- -------- Gross profit.................... -- 25,356 54,092 11,937 -- 91,385 Other operating expenses........ 92 20,694 46,449 4,310 -- 71,545 Restructuring and other charges........................ -- 5,384 137 -- -- 5,521 ------- -------- -------- ------- -------- -------- Operating income (loss)......... (92) (722) 7,506 7,627 -- 14,319 Other expense (income): Interest expense.............. 1,738 19,305 14,449 67 (19,980) 15,579 Other expense (income)........ (1,976) (17,502) 25 (9) 19,980 518 ------- -------- -------- ------- -------- -------- Income (loss) before income taxes and equity in undistributed earnings of subsidiaries................... 146 (2,525) (6,968) 7,569 -- (1,778) Provision (benefit) for income taxes.......................... -- (972) (2,278) 3,004 -- (246) ------- -------- -------- ------- -------- -------- Income (loss) before equity in undistributed earnings of subsidiaries................... 146 (1,553) (4,690) 4,565 -- (1,532) Equity in undistributed earnings of subsidiaries................ (1,710) (1,856) 5,109 -- (1,543) -- ------- -------- -------- ------- -------- -------- Income before discontinued operations..................... (1,564) (3,409) 419 4,565 (1,543) (1,532) Loss on disposal, net of tax benefit........................ -- -- (31) -- -- (31) ------- -------- -------- ------- -------- -------- Net income (loss)............... $(1,564) $ (3,409) $ 388 $ 4,565 $ (1,543) $ (1,563) ======= ======== ======== ======= ======== ========
20 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Nine Months Ended September 30, 2002 (Unaudited) (in thousands)
COMBINED COMBINED PARENT GUARANTOR NONGUARANTOR GUARANTOR ISSUER SUBSIDIARIES SUBSIDIARIES ELIM. CONSOLIDATED --------- -------- ------------ ------------ -------- ------------ Net sales....................... $ -- $403,207 $759,643 $130,319 $ -- $1,293,169 Cost of sales................... -- 327,422 620,472 93,170 -- 1,041,064 -------- -------- -------- -------- -------- ---------- Gross profit.................... -- 75,785 139,171 37,149 -- 252,105 Other operating expenses........ 110 57,250 129,380 13,311 -- 200,051 Restructuring and other charges........................ -- 51,797 9,835 1,576 -- 63,208 Impairment charges.............. -- 6,061 13,217 -- -- 19,278 -------- -------- -------- -------- -------- ---------- Operating income (loss)......... (110) (39,323) (13,261) 22,262 -- (30,432) Other expense (income): Interest expense (income)..... 5,216 57,355 44,392 (48) (54,362) 52,553 Other expense (income)........ (5,931) (46,796) (9,329) 9,755 54,362 2,061 -------- -------- -------- -------- -------- ---------- Income (loss) before income taxes and equity in undistributed earnings of subsidiaries................... 605 (49,882) (48,324) 12,555 -- (85,046) Provision (benefit) for income taxes.......................... -- (17,337) (7,160) 3,151 -- (21,346) -------- -------- -------- -------- -------- ---------- Income (loss) before equity in undistributed earnings of subsidiaries................... 605 (32,545) (41,164) 9,404 -- (63,700) Equity in undistributed earnings of subsidiaries................ (88,388) (44,508) 6,472 -- 126,424 -- -------- -------- -------- -------- -------- ---------- Income (loss) before discontinued operations and extraordinary items............ (87,783) (77,053) (34,692) 9,404 126,424 (63,700) Loss on disposal, net of tax benefit........................ -- -- (13,603) (355) -- (13,958) Extraordinary loss, net of tax benefit........................ -- (10,125) -- -- -- (10,125) -------- -------- -------- -------- -------- ---------- Net income (loss)............... $(87,783) $(87,178) $(48,295) $ 9,049 $126,424 $ (87,783) ======== ======== ======== ======== ======== ==========
21 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Nine Months Ended September 30, 2001 (Unaudited) (in thousands)
COMBINED COMBINED PARENT GUARANTOR NONGUARANTOR GUARANTOR ISSUER SUBSIDIARIES SUBSIDIARIES ELIM. CONSOLIDATED --------- -------- ------------ ------------ --------- ------------ Net sales...................... $ -- $450,372 $841,455 $133,795 $ -- $1,425,622 Cost of sales.................. -- 364,029 668,501 97,370 -- 1,129,900 -------- -------- -------- -------- --------- ---------- Gross profit................... -- 86,343 172,954 36,425 -- 295,722 Other operating expenses....... 275 65,614 143,184 13,823 -- 222,896 Restructuring and other charges....................... -- 21,260 4,464 (153) -- 25,571 Impairment loss on assets held for sale...................... -- -- 8,807 -- -- 8,807 -------- -------- -------- -------- --------- ---------- Operating income (loss)........ (275) (531) 16,499 22,755 38,448 Other expense (income): Interest expense............. 5,215 57,992 42,675 3,408 (59,940) 49,350 Other expense (income)....... (5,930) (52,852) 344 -- 59,940 1,502 -------- -------- -------- -------- --------- ---------- Income (loss) before income taxes and equity in undistributed earnings of subsidiaries.................. 440 (5,671) (26,520) 19,347 -- (12,404) Provision (benefit) for income taxes......................... -- (2,183) (6,610) 7,421 -- (1,372) -------- -------- -------- -------- --------- ---------- Income (loss) before equity in undistributed earnings of subsidiaries.................. 440 (3,488) (19,910) 11,926 -- (11,032) Equity in undistributed earnings of subsidiaries...... (90,906) (90,466) 26,856 -- 154,516 -- -------- -------- -------- -------- --------- ---------- Income (loss) before discontinued operations....... (90,466) (93,954) 6,946 11,926 154,516 (11,032) Loss from discontinued operations, net of tax........ -- -- (47,506) (28,946) -- (76,452) Loss on disposal, net of tax benefit....................... -- -- 1,661 (4,643) -- (2,982) -------- -------- -------- -------- --------- ---------- Net income (loss).............. $(90,466) $(93,954) $(38,899) $(21,663) $ 154,516 $ (90,466) ======== ======== ======== ======== ========= ==========
22 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS September 30, 2002 (Unaudited) (in thousands)
COMBINED COMBINED PARENT GUARANTOR NONGUARANTOR GUARANTOR ISSUER SUBSIDIARIES SUBSIDIARIES CONSOLIDATED --------- ---------- ------------ ------------ ------------ Cash flows from operating activities..... $(18) $ (40,470) $ 35,696 $12,537 $ 7,745 Cash flows from investing activities: Acquisition costs...................... -- (2,552) -- -- (2,552) Capital expenditures................... -- (2,762) (22,116) (2,065) (26,943) Proceeds from divestitures, net........ -- 128,649 -- -- 128,649 Proceeds from the sale of assets....... -- 5,940 327 -- 6,267 ---- ---------- -------- ------- ---------- Net cash provided by (used in) investing activities.................. -- 129,275 (21,789) (2,065) 105,421 Cash flows from financing activities: Proceeds from common stock issuance.... 18 -- -- -- 18 Proceeds from long-term debt........... -- 1,006,154 -- -- 1,006,154 Repayments of long-term debt........... -- (939,683) (1,962) (9,432) (951,077) Debt issuance costs.................... -- (17,402) -- -- (17,402) ---- ---------- -------- ------- ---------- Net cash provided by (used in) financing activities.................. 18 49,069 (1,962) (9,432) 37,693 Effect of exchange rate changes on cash.................................... -- -- -- (1,088) (1,088) Net cash used in discontinued operations.............................. -- -- (10,522) (305) (10,827) ---- ---------- -------- ------- ---------- Net change in cash and cash equivalents............................. -- 137,874 1,423 (353) 138,944 Balance at beginning of year............. -- -- (198) 1,092 894 ---- ---------- -------- ------- ---------- Balance at end of year................... $ -- $ 137,874 $ 1,225 $ 739 $ 139,838 ==== ========== ======== ======= ==========
23 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS September 30, 2001 (Unaudited) (in thousands)
COMBINED COMBINED PARENT GUARANTOR NONGUARANTOR GUARANTOR ISSUER SUBSIDIARIES SUBSIDIARIES CONSOLIDATED --------- --------- ------------ ------------ ------------ Cash flows from operating activities..... $(443) $ 63,051 $ 71,192 $ 2,918 $ 136,718 Cash flows from investing activities: Acquisition costs...................... -- (3,838) -- -- (3,838) Capital expenditures................... -- (10,840) (11,957) (1,324) (24,121) Proceeds from sale of assets........... -- -- 577 -- 577 ----- --------- -------- -------- --------- Net cash provided by (used in) investing activities.................. -- (14,678) (11,380) (1,324) (27,382) Cash flows from financing activities: Changes due to accounts receivable securitization, net................... -- -- -- (75,000) (75,000) Proceeds from common stock issuance.... 413 -- -- -- 413 Proceeds from long-term debt........... -- 487,013 -- 6,391 493,404 Repayments of long-term debt........... -- (514,944) (1,673) (7,409) (524,026) Debt issuance costs.................... -- (4,382) -- -- (4,382) ----- --------- -------- -------- --------- Net cash provided by financing activities............................ 413 (32,313) (1,673) (76,018) (109,591) Effect of exchange rate changes on cash.................................... -- -- (13) (60) (73) Cash flows from discontinued operations.............................. -- -- (267) 765 498 ----- --------- -------- -------- --------- Net change in cash and cash equivalents............................. (30) 16,060 57,859 (73,719) 170 Balance at beginning of year............. 30 30 717 (188) 589 ----- --------- -------- -------- --------- Balance at end of year................... $ -- $ 16,090 $ 58,576 $(73,907) $ 759 ===== ========= ======== ======== =========
24 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. CORPORATE OVERVIEW In 2001, we adopted a strategy to focus on our two primary businesses--envelopes and commercial printing--and announced plans to divest our prime label and printed office products businesses and certain operations not strategic to our envelope and commercial printing businesses. In addition to the planned divestitures, we initiated a restructuring program and several other initiatives to improve our competitive position, improve our operating efficiencies, reduce costs and increase marketing effectiveness. In February 2002, we sold Curtis 1000 Inc., a business included in our printed office products business, and in May 2002, we sold our prime label business. As of June 2002, we had not received an offer for PrintXcel, also part of our printed office products business, that we considered consistent with its value. Because PrintXcel generates reliable cash flow and a satisfactory return on assets, we concluded that it was not in the best interest of the Company to sell the business at the offer price and we discontinued our efforts to do so. This business will now be an integral part of our strategy to expand our print products and services to a larger customer base and bundle our various products and services to our customers. On August 8, 2002, we sold the filing products division of our envelope business. We are continuing our efforts to sell the digital graphics division of our commercial printing business. Mail-Well is the world's largest manufacturer of envelopes. We produce more than 40 billion envelopes annually in our 39 envelope manufacturing facilities located throughout the United States and Canada. Approximately 84% of these envelopes are customized specifically for our customers for use in billing and remittance, direct mail advertising and specialty packaging. The remaining 16% are stock envelopes sold into the resale market. We are also one of the largest commercial printers in the United States. We operate 29 printing plants located strategically throughout the United States and one in Canada. We specialize in high impact printing, in which we print a wide range of premium products for national customers, including advertising literature, corporate identity materials, annual reports, car brochures, calendars, greeting cards, brand marketing collateral, catalogs, maps, CD packaging and direct mail. We also produce general commercial printing for local and regional customers. In addition, we operate a printed office products business. This business, which operates 12 manufacturing facilities throughout the United States, is a leading supplier of customized and stock labels, mailers and printed business documents to small and mid-size businesses generally through independent distributors of office products. The labels produced and sold by our printed office products division do not compete with those produced and sold by the now-divested prime label segment due to differences in customer base, distribution channels and production methods. Paper is our most significant raw material. We purchase approximately 494,000 tons of paper annually for our businesses. Prices of uncoated papers, which are the principal grades of paper used to manufacture envelopes, were relatively stable in the first half of 2002. In October 2002, the price of uncoated paper increased 10%. Prices of coated papers, which are used principally in commercial printing, remained flat in the first half of 2002. Historical changes in paper pricing generally have not affected the operating results of our commercial printing business because we have been able to pass on paper price increases to our customers. Paper pricing has, however, impacted the operating margins of our envelope business. When paper prices are rising, operating margins on our envelope products tend to be lower because we generally are not able to increase our prices as quickly as paper prices increase. 25 CONSOLIDATED RESULTS OF OPERATIONS The financial statements for all periods presented have been restated as required by generally accepted accounting principles to report the results of our prime label business and Curtis 1000 Inc. as discontinued operations. Prior to our decision in June 2002 to discontinue our efforts to sell our PrintXcel business, it had also been reported as a discontinued operation. Since this business is no longer held for sale, the results of PrintXcel are now included in continuing operations. The summary financial data set forth in the tables that follow present reported amounts as well as comparable financial data for New Mail-Well. New Mail-Well excludes the results of the discontinued operations, the results of the filing products division of our envelope business that has been sold and the results of the digital graphics division of our commercial printing business that is held for sale. In addition, New Mail-Well's results exclude restructuring, impairments and other charges reported in the condensed consolidated statements of operations for the three and nine months ended September 30, 2002 and 2001. The economic slowdown which began in 2001 has continued to adversely affect the sales and margins of our businesses in 2002, especially the portion of our commercial printing business related to print advertising, the direct mail segment of our envelope business, and the traditional documents market of printed office products. We do not expect significant increases in sales and margins until the markets we serve, especially advertising and direct mail, recover. In the meantime, we have continued to take the actions necessary to maintain or improve our margins and thus mitigate as much as possible the impact of lower sales on our businesses. SALES
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 ----------------------- --------------------------- 2002 2001 2002 2001 -------- -------- ---------- ---------- (DOLLARS IN THOUSANDS) Reported............................... $428,720 $465,286 $1,293,169 $1,425,622 New Mail-Well*......................... $414,905 $445,344 $1,232,385 $1,366,251 - --------------- * Excludes sales of the filing products division of envelope and the digital graphics division of commercial printing and includes sales to discontinued operations that are expected to continue. Sales to discontinued operations prior to their divestiture, were $3.4 million for the nine months ended September 30, 2002 and $6.3 million and $24.2 million for the three and nine months ended September 30, 2001.
New Mail-Well's sales in the third quarter of 2002 were $30.4 million, or 6.8%, below sales during the third quarter of 2001. For the nine months ended September 30, 2002, sales were $133.9 million, or 9.8%, below the comparable period in 2001. * Sales of our national printing business have been approximately 7% below 2001 throughout 2002. Sales of our local commercial printing business, which were 13% below sales in 2001, showed improvement in the third quarter in certain markets. * Sales of our envelope business, which were 9.2% below sales in 2001, improved slightly in the third quarter. The decline in sales of our envelope business was due primarily to lower sales to direct mail customers. * Sales of our printed office products business were 7.8% below 2001 due primarily to lower sales of traditional business documents. Reported sales during the third quarter of 2002 and for the nine months ended September 30, 2002 declined about the same as sales of New Mail-Well and were affected by similar market dynamics. 26 RESTRUCTURING AND OTHER CHARGES We have responded to the impact of the current economic environment on our businesses by continuing to evaluate our operations for improvement opportunities. Because of the significant decline in sales experienced over the last two years, we have taken actions to consolidate facilities, rationalize and realign capacity, and otherwise reduce costs. These actions have resulted in significant restructuring charges and other nonrecurring charges. This process is ongoing, as our industry and markets change, and we will continue to take the actions necessary to address these changes. Restructuring and other charges recorded during the third quarter of 2002 and the nine months ended September 30, 2002 were $39.4 million and $63.2 million, respectively. The following table and discussion present the details of these charges.
PRINTED COMMERCIAL OFFICE ENVELOPE PRINTING PRODUCTS CORPORATE TOTAL -------- ---------- -------- --------- ------- (IN THOUSANDS) Employee separation and related employee expenses............... $ 238 $ 3,152 $ 786 $ -- $ 4,176 Employee training expenses........ 6,101 -- -- -- 6,101 Asset impairment charges, net..... 8,101 2,114 240 -- 10,455 Project management expenses....... 8,072 -- -- -- 8,072 Other exit costs.................. 3,885 1,978 274 -- 6,137 Reversal of unused accrual........ (500) -- -- -- (500) ------- ------- ------ ------- ------- Total restructuring costs..... 25,897 7,244 1,300 -- 34,441 Other charges..................... 2,038 3,854 50 22,825 28,767 ------- ------- ------ ------- ------- Total restructuring and other charges..................... $27,935 $11,098 $1,350 $22,825 $63,208 ======= ======= ====== ======= =======
ENVELOPE. The consolidation of ten of our envelope manufacturing facilities is almost complete. We began this consolidation in 2001 in order to reduce excess internal capacity and improve utilization of equipment and resources at our other envelope plants in the United States and Canada. The cost incurred during the nine months ended September 30, 2002 related to this consolidation were as follows: * Employee training expenses of $6.1 million have been incurred to train the new employees that were hired at the plants absorbing the production of the plants being closed. The training programs for these employees are between three and nine months in duration. * Impairment charges of $8.1 million have been recorded for property and equipment taken out of service or sold as a result of the plant consolidations, net of $5.9 million received from the sales of those assets. * Project management expenses of $8.1 million are primarily consulting fees and related expenses incurred to assist management in managing the consolidation project. Consultants were used to assist in such tasks as capacity planning, workflow planning, production scheduling and change management. * Other exit costs of $3.9 million include the expenses incurred to dismantle and move equipment, and the cost incurred to restore buildings to the condition required by lease agreements or to prepare them for sale. * In 2001, we accrued separation and related employee costs to cover the 920 employees we expected would be terminated over the course of this project. As of September 30, 2002, 720 employees had been separated and we have reduced the accrual by $0.5 million. 27 We estimate that we will incur $7.5 million of additional expenses related to the plant consolidations in the fourth quarter of which $4.0 million will be non-cash. As a result of other cost reduction actions, our envelope business incurred severance expenses of $0.2 million in connection the elimination of 125 jobs. COMMERCIAL PRINTING. In September 2002, we announced the closure of our printing facility in New York City. In connection with this closure, we recorded $1.0 million to cover the employee separation and related expenses for 80 employees and $0.1 million of equipment lease payments. In addition, we recorded an impairment charge of $2.1 million on equipment taken out of service or sold. We anticipate additional charges of $3.0 million in the fourth quarter when the closure of this facility is completed. We also announced plans to consolidate web printing operations. This consolidation will result in lower fixed costs and improve manufacturing efficiency and equipment utilization. Employee separation and related expenses for 49 employees recorded in connection with these plans totaled $0.3 million. We also recorded other exit costs of $1.6 million which were primarily outstanding lease obligations. Additional costs to complete this consolidation is expected to total $3.6 million of which $0.9 million will be non-cash. During the third quarter of 2002, we completed right sizing our printing operations in Seattle, Washington and Philadelphia, Pennsylvania. These actions were taken because of the significant decline in sales at both of these locations. In taking these actions, we incurred employee separation and related expenses of $0.6 million for 49 employees and $0.3 million of other exit costs. We do not anticipate any further cash restructuring expenditures at these two locations. Our commercial printing business has reduced the size of many of its other operations in response to the significant decline in sales. We have incurred employee separation and related expenses of $1.3 million as a result of the elimination of 158 jobs year-to-date. PRINTED OFFICE PRODUCTS. In April 2002, we closed our traditional documents plant in Denver, Colorado. A portion of production of this plant was transferred to other facilities. We continue to maintain a sales office and production capability in the Denver market. Employee separation and related expenses incurred as a result of this plant closure was $0.1 million covering 19 employees. Expenses were also incurred to prepare the building for sale and to write assets down to fair market value. As a result of other cost reduction measures, Printed Office Products has incurred employee separation and related expenses of $0.4 million in connection with the elimination of 184 jobs. OTHER CHARGES. Other charges include the following items: * In 2001, we initiated several programs to significantly improve operations and marketing effectiveness. These programs included the implementation of best practices, the standardization of costing and pricing systems in the envelope and commercial printing businesses and the alignment of equipment and services to better serve our customers and markets. We used outside assistance in the implementation of these programs the cost of which was $4.7 million. * In connection with the refinancing of our bank credit facility in June 2002, we were required to refinance an operating lease stemming from a sale/leaseback arrangement executed in 1997 and amended in 2000. The fair market value of the equipment subject to the lease had declined from $34.9 million to $19.1 million, and we were required to pay the difference of $15.8 million. We expensed this payment in the third quarter of 2002. In addition, we wrote off deferred costs of $6.1 million associated with the original sale/leaseback arrangement. * We have recorded an impairment charge of $1.0 million related to the write-down of idle equipment in our commercial printing business to net realizable value. 28 * We have incurred employee separation and related expenses unrelated to the restructure plans of $0.7 million. * We have incurred consulting fees of $0.6 million related to tax matters that arose as a result of the divestitures. OPERATING INCOME (LOSS)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 ---------------------- ---------------------- 2002 2001 2002 2001 -------- ------- -------- ------- (DOLLARS IN THOUSANDS) Reported Operating income (loss).................. $(15,972) $14,319 $(30,432) $38,448 Operating margin......................... (3.7)% 3.1% (2.4)% 2.7% New Mail-Well Operating income*........................ $ 22,539 $16,690 $ 51,101 $63,259 Operating margin......................... 5.4% 3.8% 4.1% 4.6% - --------------- * Excludes operating income of the filing products division of envelope and the digital graphics division of commercial printing and impairment, restructuring and other charges.
New Mail-Well's operating income increased $5.8 million, or 35%, in the third quarter of 2002 compared to the third quarter of 2001. The improvement in operating income was due to the following: * Gross profit in the third quarter of 2002 was $81.5 million compared to $84.1 million in the third quarter of 2001. As a percentage of sales, gross profit increased 0.8%. The $10.6 million of contribution lost due to lower sales was partially offset by improved margins and lower fixed manufacturing costs. Reductions in fixed manufacturing costs are the results of our consolidation program and other cost reduction initiatives and were approximately $5.8 million in the third quarter of 2002. * Selling expenses were approximately $0.9 million lower in the third quarter of 2002 than in the third quarter of 2001 due to lower sales commissions on lower sales. * Administrative expenses were $4.4 million lower in the third quarter of 2002 due primarily to the consolidations and other cost reduction initiatives including the reversal of $1.9 million of profit sharing benefits accrued during the first half of the year. * Amortization expense was $3.5 million lower in the third quarter of 2002 due to the adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, on January 1, 2002, which eliminated the amortization of goodwill. The reported loss of $16.0 million in the third quarter includes restructuring, impairment and other charges of $17.5 million and a charge of $21.9 million incurred in connection with the refinancing of the operating lease agreement described above. New Mail-Well's operating income for the nine months ended September 30, 2002 declined $12.2 million, or 19.2%, compared to the nine months ended September 30, 2001. The decline was due to the following: * Gross profit was $239.6 million as of September 30, 2002 compared to $272.0 million as of September 30, 2001. The contribution lost due to lower sales was approximately $46.8 million. Lower margins reduced gross profit by approximately $7.0 million. Gross profit as a percent of sales declined 0.5% despite reductions in fixed costs of approximately $21.4 million. 29 * Selling expenses have been reduced approximately $4.1 million as a result of lower commissions on lower sales. * Administrative expenses have been reduced approximately $6.1 million due to plant consolidations and other cost reduction initiatives. * Amortization expense was down $10.5 million due to the implementation of SFAS 142. The reported operating loss for the nine months ended September 30, 2002 was $30.4 million and reflects charges not included in the operating income of New Mail-Well. These charges were as follows: * Restructuring and other charges incurred as of September 30, 2002 total $41.3 million. * As mentioned above, we incurred a $21.9 million charge in connection with an operating lease refinanced in the third quarter. * In the second quarter, we recorded an additional impairment charge on PrintXcel of $10.4 million. This charge was primarily the reversal of a tax benefit recorded when PrintXcel's assets were written down to net realizable value. * We recorded an impairment charge of $6.1 million in the second quarter as a result of the sale of our filing products business. * We wrote down our digital graphics business $2.8 million in the second quarter based on the sales proceeds currently anticipated on the sale of this business. INTEREST EXPENSE
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 --------------------- --------------------- 2002 2001 2002 2001 ------- ------- ------- ------- (IN THOUSANDS) Total interest expense........................ $18,675 $19,222 $58,123 $60,888 Less: Allocation to discontinued operations... -- 3,643 5,570 11,538 ------- ------- ------- ------- Reported interest expense..................... $18,675 $15,579 $52,553 $49,350 ======= ======= ======= ======= New Mail-Well................................. $18,260 $16,181 $53,751 $50,818 ======= ======= ======= =======
In the third quarter of 2002, interest before allocations to discontinued operations decreased 2.8% due to lower average outstanding debt despite higher weighted average interest rates. Our average outstanding debt during the third quarter of 2002 was $856.1 million compared to $960.8 million in the third quarter of 2001. Our weighted average interest rate was 8.23% in the third quarter of 2002 compared to 7.20% in 2001. The increase in the weighted average interest rate was due primarily to the issuance of $350 million of 9 5/8% senior notes on March 13, 2002. Since a significant portion of the proceeds of the senior notes was used to repay bank debt, which accrued interest at a lower variable rate, our weighted average interest rate will continue to be higher than the prior year. For the nine months ended September 30, 2002, interest expense before allocations to discontinued operations was lower than the comparable period in 2001. Interest in 2002 reflects our average outstanding debt of $915.4 million in 2002 compared to $986.9 million in 2001 and our weighted average interest rate of 7.71% in 2002 compared to 7.52% in 2001. Reported interest excludes an allocation of interest expense to discontinued operations based on the net assets of those operations relative to the net assets of the Company. Interest expense for New Mail-Well was calculated on a pro-forma basis as if the actual net proceeds from the sales of our prime label business, Curtis 1000 Inc. and our filing products division and the estimated net proceeds from the sale of the digital graphics division had been received on January 1, 2001. Interest expense determined on this basis was greater than reported interest expense 30 for all periods presented except the third quarter of 2002. New Mail-Well's interest expense is lower in the third quarter than reported interest expense because there is no allocation of interest to assets held for sale under GAAP. INCOME TAXES
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 -------------------- ---------------------- 2002 2001 2002 2001 -------- ----- -------- ------- (DOLLARS IN THOUSANDS) Reported Provision (benefit) for income taxes....... $(14,218) $(246) $(21,346) $(1,372) Effective tax rate......................... 39% 14% 25% 11% New Mail-Well Provision (benefit) for income taxes....... $ 1,109 $(114) $ (1,965) $ 5,265 Effective tax rate......................... 42% 48% 42% 48%
New Mail-Well's effective tax rate for 2002 is estimated to be 42%, six percentage points lower than in 2001. The effective tax rate in 2001 reflected the impact of nondeductible goodwill amortization. The reported effective tax rates for 2002 and 2001 reflect the tax impact of permanent differences that arise as a result of impairment charges recorded as of September 30, 2002 and in 2001. INCOME (LOSS) FROM CONTINUING OPERATIONS AND INCOME (LOSS) PER SHARE--ASSUMING DILUTION
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 ---------------------- ----------------------- 2002 2001 2002 2001 -------- ------- -------- -------- (DOLLARS IN THOUSANDS) Income (loss) from continuing operations Reported................................ $(22,149) $(1,532) $(63,700) $(11,032) New Mail-Well........................... $ 1,553 $ (122) $ (2,693) $ 5,600 Income (loss) from continuing operations per share Reported................................ $ (0.46) $ (0.03) $ (1.34) $ (0.23) New Mail-Well........................... $ 0.03 $ -- $ (0.06) $ 0.11
New Mail-Well's income from continuing operations improved in the third quarter of 2002 from the loss presented for the third quarter of 2001 due to improved margins, lower fixed costs and lower amortization expense, which more than offset the impact of lower sales and higher interest expense. New Mail-Well's loss for the nine months ended September 30, 2002 compared to income during the comparable period of 2001 was due to the impact of significantly lower sales and higher interest expense, which could not be offset by savings in fixed costs and lower amortization expense. Our reported loss from continuing operations for the third quarter of 2002 includes restructuring and other charges of $39.4 million. In the third quarter of 2001, restructuring and other charges were $5.5 million. The reported loss from continuing operations as of September 30, 2002 includes impairment, restructuring and other charges of $82.5 million compared to $34.7 million of such charges in the same period of 2001. LOSS FROM DISCONTINUED OPERATIONS In the third quarter of 2002, we recorded an additional loss of $5.8 million, or $0.13 per share, from discontinued operations. This additional loss was primarily due to tax adjustments on the sale of 31 the prime label business and the accrual of additional expenses related to the sales of both the prime label business and Curtis 1000 Inc. The loss from discontinued operations for the nine months ended September 30, 2002 was $14.0 million, or $0.29 per share. The loss on discontinued operations reflects proceeds received from our divestiture of the prime label business that were less than proceeds estimated at December 31, 2001 and additional expenses and taxes related to the sale of the prime label business and Curtis 1000 Inc. Additional adjustments to this loss may occur as post-closing obligations are settled and final tax revisions are made. EXTRAORDINARY LOSS Results for the nine months ended September 30, 2002 include an extraordinary charge of $10.1 million, or $0.21 per share. This represents the write-off of the remaining deferred financing fees related to our bank credit facility that was refinanced during the second quarter. NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE--ASSUMING DILUTION
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 ---------------------- ----------------------- 2002 2001 2002 2001 -------- ------- -------- -------- (DOLLARS IN THOUSANDS) Net income (loss) Reported................................ $(27,953) $(1,563) $(87,783) $(90,466) New Mail-Well........................... $ 1,553 $ (122) $ (2,693) $ 5,600 Net income (loss) per share Reported................................ $ (0.59) $ (0.03) $ (1.84) $ (1.90) New Mail-Well........................... $ 0.03 $ -- $ (0.06) $ 0.11
The net losses reported for the third quarter and for the nine months ended September 30, 2002 were due to the losses from continuing operations, the impairment charges, restructuring and other charges, the loss on discontinued operations and the extraordinary loss. BUSINESS SEGMENTS ENVELOPE The following table presents the reported sales and operating income of our envelope business, as well as sales and operating income excluding the results of the filing products division that has been sold and restructuring and other charges recorded during the three and nine months ended September 30, 2002 and 2001 ("New Envelope").
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 ----------------------- ----------------------- 2002 2001 2002 2001 -------- -------- -------- -------- (IN THOUSANDS) Net sales Reported.............................. $183,352 $203,780 $579,495 $636,142 New Envelope*......................... $177,021 $190,343 $540,087 $594,648 Operating income Reported.............................. $ 10,644 $ 16,380 $ 29,999 $ 45,427 New Envelope*......................... $ 18,842 $ 16,848 $ 55,227 $ 57,456 - --------------- * Excludes sales and operating income of the filing products division that has been sold and restructuring and other charges. Sales include sales to discontinued operations that are expected to continue. Sales to discontinued operations prior to their divestiture were $2.9 million for the nine months ended September 30, 2002 and $4.1 million and $15.5 million for the three and nine months ended September 30, 2001.
32 Sales of New Envelope were $13.3 million, or 7.0%, lower in the third quarter of 2002 compared to the third quarter of 2001. The sales decline was due primarily to the following: * Revenues declined by approximately $4.0 million due to competitive pressures on prices of certain of our products and lower sales of higher value added products to direct marketing customers. * Sales to our direct mail customers were down approximately $4.4 million in the quarter from the prior year due to reductions in spending on direct mail promotions. We did replace some of this business with additional sales of our transactional bill and remittance envelopes. * Sales of products to our merchant and office products customers were approximately $1.2 million lower in the quarter from the prior year primarily due to a decision to cease production of certain low margin products. * Sales of our high strength specialty envelopes were down $2.0 million in the quarter from the prior year due to an overall decrease in demand for these envelopes. * In February 2002, we exited our domestic photo envelope business. Sales of this business were $1.7 million in the third quarter of 2001. New Envelope's operating income improved $2.0 million, or 11.8%, in the third quarter compared to the third quarter of 2001. We have consolidated ten of our manufacturing facilities over the last twelve months. The efficiencies realized from these consolidations generally enabled us to maintain our contribution margins in the third quarter despite lower pricing and lower sales of high value added products. In addition, reductions in fixed manufacturing costs realized from the consolidation more than offset the impact of lower sales resulting in an increase in gross profit of $0.3 million. Selling, general and administrative expenses were approximately $1.2 million less in the quarter as a result of the consolidations and $0.5 million as a result of the reversal of profit sharing benefits that had been accrued earlier in the year. Sales of New Envelope have declined $54.6 million, or 9.2%, during the nine months ended September 30, 2002 compared to the same period of 2001. The sales decline was due primarily to the following: * Revenue was approximately $16.9 million lower in 2002 due to lower pricing dictated by the market and lower sales of higher value added products to direct marketing customers. * Sales to our direct mail customers were approximately $10.4 million lower than in 2001. * Sales of our specialty envelopes were $8.7 million lower than in 2001. * The office product and photo business exited during 2002 had sales of approximately $8.7 million in 2001. * Sales to our merchant and office products customers were $7.7 million lower due primarily to customers lowering inventories during the first half of the year. * Sales in Canada are down approximately $2.2 million from the prior year due to competition and the slowdown in the economy. Operating income of New Envelope declined $2.2 million, or 3.8%, during the nine months ended September 30, 2002 compared to the same period of 2001. Productivity problems during the early stages of our plant consolidations combined with lower pricing and lower sales of higher value added products caused margins to be approximately $3.2 million lower in the first nine months of 2002 than in 2001. This margin decline occurred primarily in the first six months of the year. Savings in fixed manufacturing costs realized from the plant consolidations were $16.3 million, but were not sufficient to offset the $17.8 million of contribution lost on lower sales. Selling, general and administrative expenses were $2.5 million less as a result of the plant consolidations and other cost control measures. 33 COMMERCIAL PRINTING The following table presents the reported sales and operating income of our commercial printing business, as well as sales and operating income excluding the results of the digital graphics division that is held for sale and restructuring and other charges recorded during the three and nine months ended September 30, 2002 and 2001 ("New Commercial Printing").
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 ----------------------- ----------------------- 2002 2001 2002 2001 -------- -------- -------- -------- (IN THOUSANDS) Net sales Reported.............................. $194,659 $208,136 $559,141 $626,886 New Commercial Printing*.............. $187,175 $200,199 $536,549 $602,608 Operating income (loss) Reported.............................. $ (6,342) $ 3,775 $(17,494) $ 14,648 New Commercial Printing*.............. $ 3,252 $ 3,127 $ (5,918) $ 13,602 - --------------- * Excludes sales and operating income of the digital graphics division held for sale and restructuring and other charges for the three and nine months ended September 30, 2002. Sales include sales to discontinued operations that are expected to continue. Sales to discontinued operations prior to their divestiture were $0.6 million for the nine months ended September 30, 2002 and $0.4 million and $2.3 million for the three and nine months ended September 30, 2001.
Sales of New Commercial Printing were $13.0 million, or 6.5%, lower in the third quarter of 2002 than in the third quarter of 2001. The sales decline was due primarily to the following: * Sales of high impact printing for our national and regional customers were approximately $4.9 million lower in the quarter than in the third quarter of 2001. Sales of car brochures were $11.6 million lower in the third quarter than in 2002; however, increased sales to a major retailer offset much of this decline. * Sales in the Philadelphia market were approximately $6.7 million lower in the quarter than in the third quarter of 2001. In October 2001, we consolidated two plants serving this market, and many of our customers did not move their printing to our new facility. Additionally, in the third quarter of 2001 we had approximately $1.9 million of business with a customer that did not repeat in 2002. * Sales of our plant in Indianapolis were $3.7 million lower in the quarter than in the third quarter of 2001 because of the loss of two accounts and lower sales to one of our publishing customers. Despite significantly lower sales in the third quarter of 2002, operating income was $3.3 million, which was slightly higher than the $3.1 million earned in the third quarter of 2001. Contribution lost due to lower sales was approximately $4.4 million and was partially offset by an improvement in contribution margin. As a result of our initiatives to improve manufacturing efficiencies and lower costs, contribution on sales in the quarter increased $0.9 million. Selling expenses were $1.1 million lower in the quarter due primarily to lower commissions as a result of lower sales. General and administrative expenses were $1.9 million lower due to initiatives taken to reduce administrative headcount and other costs and the reversal of profit sharing benefits and bonuses of $1.1 million accrued during the first half of 2002. Sales of New Commercial Printing were $66.1 million, or 11.0%, lower during the nine months ended September 30, 2002 than in the comparable period of 2001. The decline in sales was due primarily to the following: * Sales of high impact printing were $12.5 million, or 6.8%, lower during the nine months ended September 30, 2002 than in comparable period of 2001. Our national business has been most 34 affected by reduced promotional spending by our customers. In their efforts to reduce costs, customers have reduced page counts of annual reports, car brochures and catalogs. They have also reduced the complexity of their printing by reducing the use of special papers, inks and finishes. In addition, we have printed fewer magazine inserts for the automotive industry this year than in 2001. * Sales in the Philadelphia market were $23.0 million lower during the nine months ended September 30, 2002 than in comparable period of 2001. This decline was due in part to our closure of a plant in Philadelphia in April 2001. Much of the work produced by this plant was marginal work, which could not be produced profitably at any of our other facilities in the Mid-Atlantic area. Sales were also lower as a result of the consolidation of two other facilities in the Philadelphia area in October 2001, because many of our customers did not move their work to the new facility. * Sales of our plant in Indianapolis were $8.5 million lower during the nine months ended September 30, 2002 than in the comparable period of 2001. In our efforts to improve the profitability of this plant we have lost some of our low margin business. In addition, the demand for long run web business at this plant has been weak all year. * Sales at our other operations serving local markets were $22.1 million lower during the nine months ended September 30, 2002 than in comparable period of 2001. Our customers in these markets have reduced promotional spending in response to the slow economy. In 2002, sales of printed material for direct mail promotions and sales to customers in telecommunications and technology industries are off significantly from levels in 2001. New Commercial Printing had operating losses of $5.9 million during the nine months ended September 30, 2002, a decline of $19.5 million from the comparable period of 2001. The contribution lost on the decline in sales was $22.8 million. Lower margins reduced profits by another $7.1 million. Selling expenses are $3.3 million lower in 2002 due to the reduced commissions expense as a result of lower sales. Administrative costs are $2.1 million lower than they were in 2001 due to reduced headcount and control over other expenses. PRINTED OFFICE PRODUCTS The following table presents the reported sales and operating income of our printed office products business, as well as sales and operating income of "New Printed Office Products", which excludes restructuring and other charges recorded during the three and nine months ended September 30, 2002 and 2001.
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 --------------------- ----------------------- 2002 2001 2002 2001 ------- ------- -------- -------- (IN THOUSANDS) Net sales Reported................................ $50,709 $53,370 $154,533 $162,594 New Printed Office Products*............ $50,709 $54,802 $155,749 $168,995 Operating income Reported................................ $ 4,901 $ 3,503 $ 13,676 $ 13,903 New Printed Office Products*............ $ 5,204 $ 3,625 $ 15,026 $ 15,168 - --------------- * Sales of New Printed Office Products include sales to discontinued operations that are expected to continue. Operating income excludes restructuring and other charges. Sales to discontinued operations prior to their divestiture were $1.2 million for the nine months ended September 30, 2002 and $1.5 million and $7.2 million for the three and nine months ended September 30, 2001.
35 Sales of New Printed Office Products were $4.1 million, or 7.5%, lower in the third quarter of 2002 compared to the third quarter of 2001. The sales decline was due primarily to the following: * Sales of traditional business forms were $3.1 million lower in the third quarter compared to the third quarter of 2001. Demand for these products continues to decline due to the increased use of laser printing technology by businesses and migration from multi printed forms to single printed forms. * Sales of our label products in the third quarter of 2002 were below the third quarter of 2001 due to significant sales in September 2001 of labels with patriotic themes. Otherwise, sales of labels were relatively flat in the quarter. Despite lower sales, operating income of New Printed Office Products increased $1.6 million, or 43.6%, in the third quarter of 2002 compared to the third quarter of 2001. In April 2002, we completed the consolidation of one of our traditional documents plants. As a result, margins of our traditional documents business improved sufficiently to offset the impact of the lower sales. Margins in our label business also improved as a result of the implementation of an electronic workflow system throughout this business. Overall, improved margins offset the impact of lost sales by $0.6 million. In addition, the plant closure and other cost reduction measures lowered fixed costs by $1.0 million in the third quarter of 2002 compared to the third quarter of 2001. Lower fixed costs include the reversal of $0.3 million of profit sharing benefits accrued during the first half of the year. Sales of New Printed Office Products have declined $13.2 million, or 7.8%, during the nine months ended September 30, 2002 compared to the same period of 2001. The decline can be explained as follows: * Sales of traditional business forms were $10.0 million lower during the nine months ended September 30, 2002 than in comparable period of 2001. This decline was due to technology changes discussed above and exiting multiple traditional business form markets through consolidations. * Sales of our label products were $3.2 million lower during the nine months ended September 30, 2002 than in comparable period of 2001. Most of this decline occurred in the first half of 2002 and included the loss of two large customers. Despite the loss in sales, operating income of New Printed Office Products as of September 30, 2002 was only slightly lower than the comparable period of 2001. As a result of the plant closure and production efficiency improvements made in 2002, margins have improved in our traditional and specialty documents businesses and in our label business. However, these improvements were not sufficient to offset the impact of lower sales. Contribution is down $2.0 million as of September 30, 2002 compared to the same period of 2001. To mitigate this lost contribution, we have reduce fixed costs by $1.9 million in 2002 as a result of the plant closure and other cost saving measures. LIQUIDITY AND CAPITAL RESOURCES During the first nine months of 2002, we restructured a significant portion of our outstanding debt. In March 2002, we sold $350 million of 9 5/8% senior notes due 2012. We used the net proceeds from this offering to repay $197.0 million of our bank term debt and $9.2 million of other debt. The remaining proceeds of this offering have been invested to provide the liquidity needed for the repayment of our convertible debt in November 2002. In March 2002, we applied $20.5 million of the proceeds received from the sale of Curtis 1000 Inc. to the repayment of our bank term debt. In May 2002, we applied $67.0 million of the proceeds received from the sale of our prime label business to the repayment of our bank term debt. In August 2002, we applied proceeds of $31.5 million received from the sale of the filing products division of our envelope business to the reduction of our revolving loan balance. 36 In June 2002, we entered into a three year $300 million senior secured credit facility with a syndicate of banks. The purpose of this new facility was to enable the refinancing of our existing bank term debt and secure financing for ongoing working capital needs and other general corporate purposes. Loans made under this facility are issued on a revolving basis and are subject to availability and a borrowing base. Loans bear interest at a base rate or LIBOR, plus a margin, and are secured by substantially all of the Company's domestic assets. Cash flow from continuing operations for the nine months ended September 30, 2002 was $7.7 million compared to $136.7 million in the comparable period of 2001. Capital expenditures totaled $26.9 million as of September 30, 2002 compared to $24.1 million as of September 30, 2001. In August 2002, we purchased a short-run printing and fulfillment operation for $1.6 million, and in the first quarter of 2002, we made a $1.0 million contractual payment on an acquisition that was consummated in the first quarter of 2001 for $3.8 million. The following table summarizes our cash obligations as of September 30, 2002:
PAYMENTS DUE BY YEAR ------------------------------------------------------------------------------ YEAR 1 YEARS 2 AND 3 YEARS 4 AND 5 THEREAFTER TOTAL -------- ------------- ------------- ---------- ---------- (IN THOUSANDS) Long-term debt................. $141,646 $116,886 $ 1,637 $656,619 $ 916,788 Operating leases............... 35,080 57,626 42,628 32,066 167,400 -------- -------- ------- -------- ---------- Total cash obligations......... $176,726 $174,512 $44,265 $688,685 $1,084,188 ======== ======== ======= ======== ==========
Current maturities of our long-term debt include $139.1 million of convertible notes, which matured and were paid in November 1, 2002. Operating leases include an operating lease that originated in 1997 as a sale/leaseback arrangement. This lease was refinanced in August 2002. In connection with this refinancing, we were required to make a payment of $15.8 million. At September 30, 2002, we had outstanding letters of credit of approximately $15.9 million related to performance and payment guarantees. In addition, we have issued letters of credit of $2.3 million as credit enhancements in conjunction with other debt. Based on our experience with these arrangements, we do not believe that any obligations that may arise will be significant. We expect to be able to fund our operations, capital expenditures and debt and other contractual commitments within the next year from internally generated cash flow and funds available under our new $300 million senior secured credit facility. At September 30, 2002, we had $114.8 million of unused credit available under this credit facility. CRITICAL ACCOUNTING POLICIES AND JUDGMENTS In preparing our financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates and judgments on an ongoing basis, including those related to bad debts, inventory valuations, property, plant and equipment, intangible assets, income taxes, restructuring costs, and contingencies and litigation. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. During the quarter ended June 30, 2002, the decision was made to reinstate the PrintXcel business as an operating asset. Under generally accepted accounting principles, when a business that was held for sale is reinstated as a continuing operation, it is to be recorded at the lower of its carrying value or fair market value. In 2001, we reduced the carrying value of the net assets of this business to its net realizable value. We based our determination of the net realizable value of this business on the advice 37 provided to us by our financial advisors. Our internal valuations of this business continue to support its carrying value, which approximates its fair market value. Assets held for sale have been recorded at net realizable value. The net realizable value of the digital graphics division of our commercial printing business held for sale is based on a letter of intent received from a prospective buyer. We do not expect the actual proceeds to be significantly different from our estimates; however, until the sale is completed, the possibility exists that the actual proceeds could be materially different from our estimate. We exercise judgment in evaluating our long-lived assets for impairment. Except for our commercial printing business, we believe our businesses will generate sufficient cash flow to more than recover the investments we have made in property, plant and equipment, as well as the goodwill and other intangibles recorded as a result of our acquisitions. In connection with the implementation of SFAS 142 discussed below, we are in the process of quantifying the impairment in our commercial printing business. We are self insured for the majority of our workers' compensation costs and group health insurance costs. We rely on claims experience and the advice of consulting actuaries and administrators in determining an adequate liability for self-insured claims. The determination of our tax provision is complex due to operations in several tax jurisdictions outside the United States. In addition, realization of certain deferred tax assets is dependent upon our ability to generate future taxable income and future capital gains. NEW ACCOUNTING STANDARDS In June 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards ("SFAS") No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Statement 141 also includes guidance on the initial recognition and measurement of goodwill and other intangible assets arising from business combinations completed after June 30, 2001. Statement 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives. Statement 142 requires that these assets be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives. Additionally, Statement 142 requires that goodwill included in the carrying value of equity method investments no longer be amortized. We adopted Statement 142 on January 1, 2002. We have completed the first step of the two-step process prescribed in Statement 142 to test goodwill for impairment and have concluded that a portion of the $213.5 million of goodwill related to our commercial printing business is impaired. We will not know the extent of this impairment until we have completed step two of the process, which we have begun. We will recognize the amount of the impairment as a cumulative effect of a change in accounting principle as of January 1, 2002, when it is determined, but no later than December 31, 2002. In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. Statement 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Mail-Well will adopt Statement 143 on January 1, 2003. We are evaluating the impact of the adoption of Statement 143 on the consolidated financial statements. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which establishes one accounting model to be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions. Statement 144 supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets to Be Disposed Of and the accounting and reporting provisions of ABP Opinion No. 30, Reporting the Results of Operations--Reporting the Effects Of Disposal of a Segment of a Business, and 38 Extraordinary, Unusual and Infrequently Occurring Events and Transactions. Mail-Well adopted Statement 144 as of January 1, 2002 and there was no impact from the adoption of this statement. In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statement No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This statement provides guidance on the classification of gains and losses from the extinguishment of debt and on the accounting for certain specified lease transactions. The Company is currently evaluating the provisions of the new statement. In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). Generally, SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized as incurred, whereas EITF Issue No. 94-3 required such a liability to be recognized at the time that an entity committed to an exit plan. The company is currently evaluating the provisions of the new rule, which is effective for exit or disposal activities that are initiated that are after December 31, 2002. LEGAL PROCEEDINGS From time to time we may be involved in claims or lawsuits that arise in the ordinary course of business. Accruals for claims or lawsuits have been provided for to the extent that losses are deemed probable and estimable. Although the ultimate outcome of these claims or lawsuits cannot be ascertained, on the basis of present information and advice received from counsel, it is our opinion that the disposition or ultimate determination of such claims or lawsuits will not have a material adverse effect on us. FORWARD-LOOKING INFORMATION This report, including "Management's Discussion and Analysis of Financial Condition and Results of Operations," may contain various "forward-looking statements," within the meaning of Section 21E of the Securities Exchange Act of 1934, that are based on management's belief and assumptions, as well as information currently available to management. Although we believe that the expectations reflected in any such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Any such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual financial results, performance or condition may vary materially from those expected. Some of the key factors that may have a direct bearing on our actual financial results, performance or condition are as follows: * Paper and other raw material costs * The degree and nature of competition * The ability to execute restructuring plans and achieve productivity and cost savings goals * Postage rates and other changes in the direct-mail industry * Interest rates and foreign currency exchange rates * Ability to obtain additional or alternative financing * General economic conditions * General labor conditions * Others as described in our most recent annual report on form 10-K under the heading "Risk Factors" 39 In view of such uncertainties, investors are cautioned not to place undue reliance on these forward-looking statements. We do not assume any obligation to update these forward-looking statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risks such as changes in interest and foreign currency exchange rates, which may adversely affect results of operations and financial position. Risks from interest and foreign currency exchange rate fluctuations are managed through normal operating and financing activities. We do not utilize derivatives for speculative purposes, nor do we hedge interest rate exposure through the use of swaps and options or foreign exchange exposure through the use of forward contracts. Exposure to market risk from changes in interest rates relates primarily to our variable rate debt obligations. The interest on this debt is based on a base rate or LIBOR, plus a margin. At September 30, 2002, we had outstanding variable rate debt outstanding of $116.9 million. A 1% increase in the base rate (which is tied to the prime rate) or LIBOR on the maximum amount of available variable rate debt, which is $302.2 million, would increase our annual interest expense by $3.0 million and reduce annual net income by approximately $1.9 million. We have operations in Canada, and thus are exposed to market risk for changes in foreign currency exchange rates of the Canadian dollar. 40 PART II. OTHER INFORMATION ITEM 4. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Our chief executive officer and our chief financial officer, after evaluating the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a date (the "Evaluation Date") within 90 days before the filing date of this quarterly report, have concluded that as of the Evaluation Date, our disclosure controls and procedures were adequate and designed to ensure that material information relating to us and our consolidated subsidiaries would be made known to them by others within those entities. CHANGES IN INTERNAL CONTROLS. There were no significant changes in our internal controls or procedures or, to our knowledge, in other factors that could significantly affect our disclosure controls and procedures subsequent to the Evaluation Date. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS
EXHIBIT NO. DESCRIPTION - ------- ----------- 3.1 Certificate of Incorporation of Mail-Well Corporation--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 3.2 Certificate of Amendment of Certificate of Incorporation of Mail-Well Corporation--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 3.3 Certificate of Correction Filed to Correct Certain Error in the Certificate of Amendment of Mail-Well I Corporation Filed in the Office of the Secretary of State of Delaware on September 11, 1995--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 3.4 Certificate of Change of Registered Agent and Registered Office--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 3.5 Bylaws of Mail-Well I Corporation--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 4.1 Form of Indenture between Mail-Well, Inc. and The Bank of New York, as Trustee, dated November 1997, relating to Mail-Well, Inc.'s $152,050,000 aggregate principal amount of 5% Convertible Subordinated Notes due 2002--incorporated by reference from Exhibit 4.2 to Mail-Well, Inc.'s Amendment No. 2 to Form S-3 dated November 10, 1997 (Reg. No. 333- 36337). 4.2 Form of Supplemental Indenture between Mail-Well, Inc. and The Bank of New York, as Trustee, dated November 1997, relating to Mail-Well, Inc.'s $152,050,000 aggregate principal amount of 5% Convertible Subordinated Notes due 2002 and Form of Convertible Note--incorporated by reference from Exhibit 4.5 to Mail-Well, Inc.'s Amendment No. 2 to Form S-3 dated November 10, 1997 (Reg. No. 333-36337). 4.3 Indenture dated as of December 16, 1998 between Mail-Well I Corporation and State Street Bank and Trust Company, as Trustee, relating to Mail-Well I Corporation's $300,000,000 aggregate principal amount of 8 3/4% Senior Subordinated Notes due 2008--incorporated by reference from Exhibit 4.4 to Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-12551. 41 EXHIBIT NO. DESCRIPTION - ------- ----------- 4.4 Form of Senior Subordinated Note--incorporated by reference from Exhibit 4.5 to Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-12551. 4.6 Indenture dated as of March 13, 2002 between Mail-Well I Corporation and State Street Bank and Trust Company, as Trustee relating to Mail-Well I Corporation's $350,000,000 aggregate principal amount of 9 5/8% Senior Notes due 2012--incorporated by reference to Exhibit 10.30 to Mail-Well, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002. 4.7 Form of Senior Note and Guarantee relating to Mail-Well I Corporation's $350,000,000 aggregate principal amount 9 5/8% due 2012--incorporated by reference to Exhibit 10.31 to Mail-Well, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002. 10.1 Form of Indemnity Agreement between Mail-Well, Inc. and each of its officers and directors--incorporated by reference from Exhibit 10.17 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.2 Form of Indemnity Agreement between Mail-Well I Corporation and each of its officers and directors--incorporated by reference from Exhibit 10.18 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.3 Form of M-W Corp. Employee Stock Ownership Plan effective as of February 23, 1994 and related Employee Stock Ownership Plan Trust Agreement--incorporated by reference from Exhibit 10.19 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.4 Form of M-W Corp. 401(k) Savings Retirement Plan--incorporated by reference from Exhibit 10.20 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.5 Mail-Well, Inc. 1994 Stock Option Plan, as amended on May 7, 1997--incorporated by reference from Exhibit 10.56 of Mail-Well, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. 10.6 Form of Mail-Well, Inc. Incentive Stock Option Agreement-- incorporated by reference from Exhibit 10.22 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.7 Form of Mail-Well, Inc. Nonqualified Stock Option Agreement-- incorporated by reference from Exhibit 10.23 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.8 Mail-Well, Inc. 1997 Non-Qualified Stock Option Plan-- incorporated by reference from Exhibit 10.54 of Mail-Well, Inc.'s Form 10-Q for the quarter ended March 31, 1997. 10.9 1997 Non-Qualified Stock Option Agreement--incorporated by reference from Exhibit 10.54 of Mail-Well, Inc.'s Form 10-Q for the quarter ended March 31, 1997. 10.10 Mail-Well, Inc. 1998 Incentive Stock Option Plan--incorporated by reference from Exhibit 10.58 to the Company's Quarterly report on Form 10-Q for the quarter ended March 31, 1998. 10.11 Mail-Well, Inc. 1998 Incentive Stock Option Plan Incentive Stock Option Agreement-- incorporated by reference from Exhibit 10.59 to the Company's Quarterly report on Form 10-Q for the quarter ended March 31, 1998. 10.12 Merger Agreement and Plan of Merger by and among American Business Products, Inc., Mail-Well, Inc., and Sherman Acquisition Corporation dated January 13, 2000--incorporated by reference from the Annual Report on Form 10-K for Mail-Well, Inc. 42 EXHIBIT NO. DESCRIPTION - ------- ----------- 10.13 Change of Control Agreement dated November 15, 1999, between the Company and Paul V. Reilly--incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 10.14 Change of Control Agreement dated November 15, 1999, between the Company and Robert Meyer--incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 10.15 Mail-Well, Inc. 2001 Long-Term Equity Incentive Plan-- incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001. 10.16 Form of Non-Qualified Stock Option Agreement under 2001 Long-Term Equity Incentive Plan--incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001. 10.17 Form of Incentive Stock Option Agreement under 2001 Long-Term Equity Incentive Plan--incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001. 10.18 Form of Restricted Stock Award Agreement under 2001 Long-Term Equity Incentive Plan--incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001. 10.19 Purchase Agreement dated March 8, 2002, between Mail-Well I Corporation, and Credit Suisse First Boston, UBS Warburg LLC, Banc of America Securities LLC, U.S. Bancorp Piper Jaffray Inc., First Union Securities, Inc., and Scotia Capital (USA) Inc., as Initial Purchasers, relating to Mail-Well I Corporation's $350,000,000 aggregate principal amount of 9 5/8% Senior Notes due 2012--incorporated by reference to Exhibit 10.30 to Mail-Well I Corporation's Registration statement on Form S-4 filed June 11, 2002. 10.20 Registration Rights Agreement dated March 13, 2002, between Mail-Well I Corporation, and Credit Suisse First Boston, UBS Warburg LLC, Banc of America Securities LLC, U.S. Bancorp Piper Jaffray Inc., First Union Securities, Inc., and Scotia Capital (USA) Inc., as Initial Purchasers, relating to Mail-Well I Corporation's $350,000,000 aggregate principal amount of 9 5/8% Senior Notes due 2012--incorporated by reference to Exhibit 10.32 to Mail-Well, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002. 10.21 Stock Purchase Agreement, dated May 6, 2002, among MWL Acquisition Corp., Mail-Well I Corporation and Mail-Well, Inc.--incorporated by reference to Exhibit 10.32 to Mail-Well I Corporation's Registration Statement on Form S-4 filed June 11, 2002. 10.22 Amendment No. 1 to Stock Purchase Agreement, dated May 21, 2002, among MWL Acquisition Corp., Mail-Well I Corporation and Mail-Well, Inc.--incorporated by reference to Exhibit 10.33 to Mail-Well I Corporation's Registration statement on Form S-4 filed June 11, 2002--incorporated by reference to Exhibit 10.27 of Mail-Well, Inc.'s Form 10-Q for the quarter ended June 30, 2002. 10.23 Amended and Restated Credit Agreement dated June 27, 2002, among the Company, Mail-Well I Corporation, the domestic subsidiaries of Mail-Well I Corporation named in the agreement, the financial institutions from time to time parties thereto, and Bank of America, N.A., as administrative agent--incorporated by reference to Exhibit 10.27 of Mail-Well, Inc.'s Form 10-Q for the quarter ended June 30, 2002. 43 EXHIBIT NO. DESCRIPTION - ------- ----------- 10.24 Amended and Restated Security Agreement dated June 27, 2002, among the Company, Mail-Well I Corporation, the domestic subsidiaries of Mail-Well I Corporation named in the agreement, and Bank of America, N.A., as agent--incorporated by reference to Exhibit 10.28 of Mail-Well, Inc.'s Form 10-Q for the quarter ended June 30, 2002. 10.25 Amendment No. 1 to Amended and Restated Credit Agreement, dated September 27, 2002 among Mail-Well, Inc., Mail-Well I Corporation, certain subsidiaries of Mail-Well I, the lenders under the Amended and Restated Credit Agreement, and Bank of America, N.A., as administrative agent for the lenders--incorporated by reference to Exhibit 10.36 of Mail- Well I Corporation's Amendment No. 2 to Registration Statement on Form S-4 filed October 8, 2002. 10.26* Second Amended and Restated Equipment Lease dated as of August 6, 2002 between Wells Fargo Bank Northwest, National Association, as trustee under MW 1997-1 Trust, and Mail-Well I Corporation. 10.27* Second Amended and Restated Guaranty Agreement dated as of August 6, 2002, among Mail-Well I Corporation as Lessee, certain of its subsidiaries and Mail-Well, Inc. as Guarantors, Fleet Capital Corporation as Agent, and the Trust Certificate Purchasers named therein. 10.28* Second Amended and Restated Participation Agreement dated as of August 6, 2002, among Mail-Well I Corporation as Lessee, Fleet Capital Corporation as Arranger and Agent, and the Trust Certificate Purchasers named therein. 10.29* Amendment Agreement No. 1 dated as of September 25, 2002, among Mail-Well I Corporation as Lessee, certain of its subsidiaries and Mail-Well, Inc. as Guarantors, Fleet Capital Corporation as Agent, and the Trust Certificate Purchasers named therein. - --------------- * Filed herewith.
(B) REPORTS ON FORM 8-K 1. Current Report on Form 8-K filed July 9, 2002, disclosing other events. 2. Current Report on Form 8-K filed July 19, 2002, disclosing other events. 3. Current Report on Form 8-K filed July 19, 2002, disclosing other events. 4. Current Report on Form 8-K filed August 14, 2002, making certain disclosures under Regulation FD. 5. Current Report on Form 8-K filed September 10, 2002, making certain disclosures under Regulation FD. 44 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) Date: November 4, 2002 By: /s/ PAUL V. REILLY ------------------------------ Paul V. Reilly Chief Executive Officer Date: November 4, 2002 By: /s/ MICHEL P. SALBAING ------------------------------ Michel P. Salbaing Chief Financial Officer 45 I, Paul V. Reilly, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Mail-Well, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 4, 2002 /s/ PAUL V. REILLY --------------------------------------- Chief Executive Officer 46 I, Michel P. Salbaing, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Mail-Well, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 4, 2002 /s/ MICHEL P. SALBAING -------------------------------------- Chief Financial Officer 47 EX-10.26 3 exh10p26.txt SECOND AMENDED & RESTATED EQUIPMENT LEASE EXHIBIT 10.26 ============================================================================= SECOND AMENDED AND RESTATED EQUIPMENT LEASE Dated as of August 6, 2002 between WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, as trustee under MW 1997-1 Trust, as the Lessor Trustee and MAIL-WELL I CORPORATION, as the Lessee ============================================================================= TABLE OF CONTENTS
Page Section 1. DEFINITIONS 1 Section 1.1. Definitions; Interpretation 1 Section 2. LEASE 1 Section 2.1. Lease of Equipment 1 Section 2.2. Lease Supplement 1 Section 2.3. Lease Term 2 Section 2.4. Title 2 Section 3. PAYMENT OF RENT 2 Section 3.1. Rent 2 Section 3.2. Payment of Rent 2 Section 3.3. Supplemental Rent 2 Section 3.4. Method of Payment 3 Section 4. QUIET ENJOYMENT; RIGHT TO INSPECT; NATURE OF BUSINESS 3 Section 4.1. Quiet Enjoyment 3 Section 4.2. Right to Inspect 3 Section 4.3. Change in the Nature of Business 3 Section 4.4. Corporate Changes 3 Section 5. NET LEASE, ETC. 4 Section 5.1. Net Lease 4 Section 5.2. No Termination or Abatement 5 Section 6. LESSEE ACKNOWLEDGMENTS 6 Section 6.1. Condition of the Equipment 6 Section 6.2. Risk of Loss 6 Section 7. MARKING 7 Section 7.1. Marking of Equipment 7 Section 8. POSSESSION AND USE OF THE EQUIPMENT, ETC. 7 Section 8.1. Use of the Equipment 7 Section 8.2. Possession of the Equipment 8 Section 8.3. Landlord Waivers 8 Section 9. MAINTENANCE AND REPAIR; RETURN 8 Section 9.1. Repairs and Maintenance 8 Section 9.2. Maintenance Costs and Warranties 8 Section 9.3. Lessor Trustee Not Obligated to Maintain or Repair 9 Section 9.4. Return 9 Section 10. MODIFICATIONS, ETC. 12 Section 10.1. Replacement of Parts 12 -i- TABLE OF CONTENTS (CONT.) Page Section 10.2. Required Alterations 13 Section 10.3. Optional Alterations 13 Section 10.4. Title to Parts 13 Section 11. WARRANTY OF TITLE 13 Section 11.1. Warranty of Title 13 Section 12. PERMITTED CONTESTS 14 Section 12.1. Permitted Contests in Respect of Applicable Law 14 Section 13. INSURANCE 15 Section 13.1. Required Insurance Coverages and Limits 15 Section 13.2. Adjustment and Payment of Losses 16 Section 13.3. Evidence of Insurance 16 Section 13.4. Application of Insurance Proceeds 16 Section 13.5. Deductibles and Self-Insurance 17 Section 13.6. Insurance for Own Account 17 Section 14. CASUALTY OCCURRENCE 17 Section 14.1. Casualty Occurrence 17 Section 14.2. Conveyance of Replacement Equipment 19 Section 14.3. Application of Payments 20 Section 14.4. Certain Government Requisitions 20 Section 14.5. Application of Payments from Governmental Authorities for Requisition of Title 21 Section 14.6. Application of Payments During Existence of Default 21 Section 15. SUBSTITUTION OF EQUIPMENT 21 Section 15.1. Substitution of Equipment 21 Section 16. EVENTS OF DEFAULT 22 Section 16.1. Events of Default 22 Section 16.2. Remedies 24 Section 16.3. Waiver of Certain Rights 27 Section 17. LESSOR TRUSTEE'S RIGHT TO REMEDY 27 Section 17.1. The Lessor Trustee's Right to Remedy the Lessee's Defaults 27 Section 18. OPTIONS TO RENEW, PURCHASE AND SELL 28 Section 18.1. Purchase of the Equipment 28 Section 18.2. [Intentionally Omitted] 28 Section 18.3. Option to Sell the Equipment 28 Section 18.4. End of Term Adjustment 30 -ii- TABLE OF CONTENTS (CONT.) Page Section 19. PROCEDURES RELATING TO PURCHASE OF EQUIPMENT 31 Section 19.1. Provisions Relating to the Purchase of Equipment; Conveyance upon Certain Other Events 31 Section 20. ADDITIONAL GUARANTORS 31 Section 20.1. Additional Guarantors 31 Section 21. ASSIGNMENT RESTRICTIONS 32 Section 21.1. Restrictions on Assignments by the Lessee 32 Section 22. NO MERGER OF TITLE 32 Section 22.1. No Merger of Title 32 Section 23. INTENT OF THE PARTIES 32 Section 23.1. Nature of Transaction 32 Section 23.2. Liens and Security Interests 33 Section 24. MISCELLANEOUS 35 Section 24.1. Severability 35 Section 24.2. Amendments and Modifications 36 Section 24.3. No Waiver 36 Section 24.4. Notices 36 Section 24.5. Successors and Assigns 36 Section 24.6. Headings and Table of Contents 36 Section 24.7. Counterparts 36 Section 24.8. Third Party Beneficiaries 36 Section 24.9. Governing Law 36 Section 24.10. Time of Essence 36 ATTACHMENTS TO EQUIPMENT LEASE Exhibit A Form of Lease Supplement Exhibit B Form of Landlord Waiver Schedule 13.1 Insurance
-iii- SECOND AMENDED AND RESTATED EQUIPMENT LEASE THIS SECOND AMENDED AND RESTATED EQUIPMENT LEASE (this "Lease"), dated as of August 6, 2002 between WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, a national banking association, as trustee under MW 1997-1 Trust (the "Lessor Trustee"), as lessor, and MAIL-WELL I CORPORATION, a Delaware corporation, as lessee (the "Lessee"). RECITALS A. Pursuant to the Amended and Restated Participation Agreement, the Existing Certificate Purchasers financed the Equipment leased by the Lessor Trustee to the Lessee pursuant to the Amended and Restated Equipment Lease; B. The Lessor Trustee, the Lessee and the Trust Certificate Purchasers now desire to refinance the Equipment pursuant to the Second Amended and Restated Participation Agreement, dated as of August 6, 2002 (the "Participation Agreement"), among the Lessee, the Lessor Trustee and the Trust Certificate Purchasers; C. On the Closing Date, the Trust Certificate Purchasers will purchase the Trust Certificates, and the Lessor Trustee will prepay in full the Existing Trust Certificates; D. The Lessor Trustee and the Lessee desire to amend and restate the Amended and Restated Equipment Lease to provide for the lease from the Lessor Trustee to the Lessee of the Equipment on the terms of this Lease; NOW THEREFORE, in consideration of the foregoing, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties amend and restate the Amended and Restated Equipment Lease in its entirety to provide as follows. AGREEMENT SECTION 1. DEFINITIONS Section 1.1. Definitions; Interpretation. Capitalized terms used but not otherwise defined in this Lease have the meanings specified in Annex I to the Participation Agreement. The rules of interpretation set forth in Annex I to the Participation Agreement apply to this Lease. SECTION 2. LEASE Section 2.1. Lease of Equipment. Subject to the conditions set forth in the Participation Agreement, the Lessor Trustee leases to the Lessee the Equipment and other property described in Section 23.2 for the Lease Term, and the Lessee leases the Equipment from the Lessor Trustee for the Lease Term, such leasing to be further evidenced by the execution by the Lessor Trustee and the Lessee of Lease Supplement No. 1 covering the Equipment. Section 2.2. Lease Supplement. On the Closing Date, the Lessee and the Lessor Trustee shall enter into Lease Supplement No. 1, substantially in the form of Exhibit A to this Lease, covering the Equipment, describing the Items of Equipment leased on the Closing Date, and setting forth the Equipment Cost therefor. The Lessee's execution and delivery of a Lease Supplement with respect to an Item of Equipment shall conclusively establish as between the Lessor Trustee and the Lessee that such Item of Equipment is acceptable to and accepted by the Lessee under this Lease, notwithstanding any defect with respect to design, manufacture, condition or in any other respect, and that such Item of Equipment is in good order and condition and appears to conform to the specifications applicable thereto and to all governmental standards and requirements applicable thereto. Section 2.3. Lease Term. Subject to the termination provisions of this Lease, each Item of Equipment shall be leased for the Lease Term. Section 2.4. Title. The Equipment is leased to the Lessee AS-IS, WHERE-IS, without any representation or warranty, express or implied, by the Lessor Trustee, the Agent or any Certificate Holder and subject to the existing state of title (including, without limitation, all Liens other than Lessor's Liens) and all applicable Requirements of Law. The Lessee shall in no event have any recourse against the Lessor Trustee, the Agent or any Certificate Holder for any defect in or exception to title to the Equipment or leasehold interest therein other than resulting from Lessor's Liens attributable to the Lessor Trustee, the Agent or such Certificate Holder. SECTION 3. PAYMENT OF RENT Section 3.1. Rent. (a) During the Lease Term, the Lessee shall pay Periodic Rent for all Items of Equipment subject to this Lease to the Lessor Trustee on each Scheduled Payment Date and on any date on which this Lease is terminated, provided that any payment of Periodic Rent which is due on a date which is not a Business Day shall be payable on the next succeeding Business Day, unless the result of the extension would be that such payment would be made in another calendar month in which event such payment shall be made on the immediately preceding Business Day. (b) Neither the Lessee's inability or failure to take possession of all or any portion of the Equipment when delivered by the Lessor Trustee, nor the inability or failure of the Lessor Trustee to deliver all or any portion of the Equipment to the Lessee on or before the Closing Date, whether or not attributable to any act or omission of the Lessee or any act or omission of the Lessor Trustee or any Certificate Holder, or for any other reason whatsoever, shall delay or otherwise affect the Lessee's obligation to pay Rent for all of the Equipment in accordance with the terms of this Lease. Section 3.2. Payment of Rent. Lessee shall pay Rent absolutely net to the Lessor Trustee or other Person entitled to it, so that this Lease yields to that Person the full amount of Rent when due, without setoff, deduction or reduction. Section 3.3. Supplemental Rent. The Lessee shall pay to the Lessor Trustee or any other Person entitled thereto any and all Supplemental Rent promptly as the same shall become due and payable, and if the Lessee fails to pay any Supplemental Rent, the Lessor Trustee and such other Persons shall have all rights, powers and remedies provided for herein or by law or equity or otherwise in the case of nonpayment of Periodic Rent. The Lessee shall pay to the 2 Lessor Trustee, as Supplemental Rent, among other things, on demand, to the extent permitted by applicable Requirements of Law, interest at the applicable Overdue Rate on any installment of Periodic Rent not paid when due for the period for which the same shall be overdue and on any payment of Supplemental Rent not paid when due or demanded by the Lessor Trustee for the period from the due date or the date of any such demand, as the case may be, until the same shall be paid. The expiration or other termination of the Lessee's obligations to pay Periodic Rent hereunder shall not limit or modify the obligations of the Lessee with respect to Supplemental Rent. Unless expressly provided otherwise in this Lease, in the event of any failure on the part of the Lessee to pay and discharge any Supplemental Rent as and when due, the Lessee shall also promptly pay and discharge any fine, penalty, interest or cost which may be assessed or added against the Lessor Trustee by a third party for nonpayment or late payment of such Supplemental Rent, all of which shall also constitute Supplemental Rent. Section 3.4. Method of Payment. Each payment of Rent payable by the Lessee to the Lessor Trustee under this Lease or any other Operative Agreement shall be made by the Lessee to the Lessor Trustee prior to 10:00 a.m. (Salt Lake City, Utah time) on the date when such payment is due to the Account by wire transfer of federal or other immediately available funds consisting of lawful currency of the United States of America. SECTION 4. QUIET ENJOYMENT; RIGHT TO INSPECT; NATURE OF BUSINESS Section 4.1. Quiet Enjoyment. So long as no Event of Default has occurred and is continuing and subject to other terms of the Operative Agreements, the Lessee shall peaceably and quietly have, hold and enjoy each Item of Equipment for the Lease Term, free of any claim or other action by the Lessor Trustee, the Agent or the Certificate Holders or anyone claiming through or under the Lessor Trustee, the Agent or the Certificate Holders (other than the Lessee) with respect to any matters arising from and after the Closing Date. The Lessee's right of quiet enjoyment shall in no way affect the rights of the Lessor Trustee, the Agent or the Certificate Holders (or anyone claiming through or under the Lessor Trustee, the Agent or the Certificate Holders) to initiate legal action to enforce the Lessee's obligations under this Lease. Section 4.2. Right to Inspect. During the Lease Term, the Lessee shall upon reasonable notice, and from time to time, permit the Lessor Trustee, the Agent, any Certificate Holder, and their respective authorized representatives to inspect the Equipment, to examine the records or books of account of the Lessee relating to the Equipment and to discuss the affairs, finances and accounts of the Lessee with appropriate officers, during normal business hours, provided that if an Event of Default has occurred and is continuing, no notice shall be required and any inspection shall be at the Lessee's expense. Section 4.3. Change in the Nature of Business. The Lessee shall not engage in any business or activity if as a result the general nature of the business of the Lessee would be changed in any material respect from the general nature of the business engaged in by the Lessee on the date of this Lease. Section 4.4. Corporate Changes. The Lessee shall notify the Lessor Trustee and the Agent at least 10 Business Days before it changes the jurisdiction where it is organized, the location of its chief executive office; or its name. In connection with any such change, the Lessee 3 shall deliver to the Lessor Trustee and the Agent any additional UCC financing statements and other documents reasonably requested by them to maintain the validity, perfection and priority of the security interests granted in this Lease or the other Operative Documents. SECTION 5. NET LEASE, ETC. Section 5.1. Net Lease. (a) This Lease shall constitute a net lease, and it is intended that the Lessee shall pay all costs and expenses of every character, whether foreseen or unforeseen, ordinary or extraordinary, or structural or non-structural, in connection with the Lessee's installation, use, possession, operation, maintenance, repair and return of the Equipment, including, without limitation, every cost and expense particularly described in this Lease. (b) Any present or future law to the contrary notwithstanding, this Lease shall not terminate (except as expressly permitted by this Lease and upon performance of the obligations in connection therewith), nor shall the Lessee be entitled to any abatement, suspension, deferment, reduction, setoff, counterclaim, or defense with respect to the Rent, nor shall the Lessee's obligations hereunder be affected for any reason, cause or circumstance, whether or not the Lessee shall have notice or knowledge of it, including, without limitation, the following reasons, causes or circumstances: (i) any defect in the condition, merchantability, design, construction, quality or fitness for use of the Equipment or any part thereof, or the failure of the Equipment to comply with all Requirements of Law, including any inability to use the Equipment by reason of such defect or failure to comply; (ii) any damage to, removal, abandonment, salvage, loss, contamination of, scrapping or destruction of or any requisition or taking of the Equipment or any part thereof; (iii) any restriction, prevention or curtailment of or interference with any use or possession of the Equipment or any part thereof; (iv) any defect in title of or rights to the Equipment or any Lien on such title or rights or on the Equipment; (v) any change, waiver, extension, indulgence or other action or omission or breach in respect of any obligation or liability of or by the Lessor Trustee, the Agent or any Certificate Holder; (vi) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceedings relating to the Lessee, any Guarantor, the Lessor Trustee, the Agent, any Certificate Holder or any other Person, or any action taken with respect to this Lease by any trustee or receiver of the Lessee, any Guarantor, the Lessor Trustee, the Agent, any Certificate Holder or any other Person, or by any court in any such proceeding; 4 (vii) any claim that the Lessee has or might have against any Person, including without limitation the Lessor Trustee, the Agent, any Certificate Holder or any vendor, manufacturer, contractor of or for the Equipment; (viii) any failure on the part of the Lessor Trustee or any other Person to perform or comply with any of the terms of this Lease, of any other Operative Agreement or of any other agreement or any breach of any representation or warranty of, or any act or omission of the Lessee, any Guarantor, the Lessor Trustee, the Agent or any Certificate Holder under this Lease or any of the other Operative Agreements, or any claims, rights or remedies occurring or arising as a result of any other business dealings between or among the Lessee or any Guarantor and any of the Lessor Trustee, the Agent or any Certificate Holder; (ix) any invalidity or unenforceability or illegality or disaffirmance of this Lease against or by the Lessee or any provision of any Operative Agreement or any lack of right, power or authority of the Lessee, any Guarantor, the Lessor Trustee, the Agent or any Certificate Holder to enter into any Operative Agreement or any of the transactions contemplated thereby; (x) the impossibility or illegality of performance of its obligations under this Lease by the Lessee or the Lessor Trustee or both of them; (xi) any action by any Governmental Authority; (xii) the Lessee's acquisition of any Item of Equipment (except to the extent this Lease is terminated in accordance with its terms); or (xiii) breach of any warranty or representation regarding any Item of Equipment. (c) The Lessee's agreement in Section 5.1(b) shall not affect any claim, action or right the Lessee may have against the Lessor Trustee or any Certificate Holder. The parties intend that the Lessee's obligations under this Lease shall be obligations that are separate and independent from any obligations of the Lessor Trustee hereunder or under any other Operative Agreements, and the obligations of the Lessee shall continue unchanged, except as they may be modified in accordance with Section 24.2. Without affecting Lessee's obligation to pay Rent under any Operative Agreement, Lessee may seek damages for a breach by the Lessor Trustee or any Certificate Holder of its obligations under this Lease (including, without limitation, Section 4.1) or any other Operative Agreement. Section 5.2. No Termination or Abatement. The Lessee shall remain obligated under this Lease in accordance with its terms and shall not take any action to terminate (except as expressly permitted by this Lease and upon performance of the obligations in connection therewith), rescind or avoid this Lease, notwithstanding any action for bankruptcy, insolvency, reorganization, liquidation, dissolution, or other proceeding affecting the Lessor Trustee or any Certificate Holder, or any action with respect to this Lease which may be taken by any trustee, receiver or liquidator of the Lessor Trustee or any Certificate Holder or by any court with respect 5 to the Lessor Trustee or any Certificate Holder. The Lessee's obligations hereunder, including, without limitation, its obligations to pay Periodic Rent for the Equipment and to pay Supplemental Rent, shall be unconditional and irrevocable under any and all circumstances and the Lessee hereby waives, to the extent permitted by law, all right (a) to terminate or surrender this Lease (except as provided herein) or (b) to avail itself of any abatement, suspension, deferment, reduction, setoff, counterclaim or defense with respect to any Rent. Each Rent payment made pursuant to this Lease by the Lessee shall be final and the Lessee shall not seek to recover all or any part of such payment from the Lessor Trustee or any Certificate Holder for any reason whatsoever. If for any reason whatsoever this Lease shall be terminated in whole or in part by operation of law or otherwise except as specifically provided herein or as otherwise agreed, the Lessee nonetheless agrees to pay to the Lessor Trustee, or to whomever shall be entitled thereto, an amount equal to each Rent payment at the time such payment would have become due and payable in accordance with the terms hereof had this Lease not been terminated in whole or in part. The Lessee's obligation in the immediately preceding sentence shall survive the expiration or termination of this Lease other than in accordance with its terms. The Lessee shall remain obligated under this Lease in accordance with its terms and the Lessee hereby waives, to the extent permitted by law, any and all rights now or hereafter conferred by statute or otherwise to modify or to avoid strict compliance with its obligations under this Lease. Notwithstanding any such statute or otherwise, the Lessee shall be bound by all of the terms and conditions of this Lease. SECTION 6. LESSEE ACKNOWLEDGMENTS Section 6.1. Condition of the Equipment. THE LESSEE ACKNOWLEDGES AND AGREES THAT IT IS LEASING EACH ITEM OF EQUIPMENT "AS IS" WITHOUT REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) BY THE LESSOR TRUSTEE, THE AGENT OR ANY CERTIFICATE HOLDER AND SUBJECT TO (A) THE EXISTING STATE OF TITLE (EXCLUDING LESSOR'S LIENS), (B) THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF, (C) ANY STATE OF FACTS THAT A PHYSICAL INSPECTION MIGHT SHOW AND (D) VIOLATIONS OF REQUIREMENTS OF LAW THAT MAY EXIST ON THE CLOSING DATE. NONE OF THE LESSOR TRUSTEE, THE AGENT, OR ANY CERTIFICATE HOLDER HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) OR SHALL BE DEEMED TO HAVE ANY LIABILITY WHATSOEVER AS TO THE TITLE, VALUE, SUITABILITY, USE, CONDITION, DESIGN, OPERATION, OR FITNESS FOR ANY USE OF THE EQUIPMENT (OR ANY PART THEREOF), OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE EQUIPMENT (OR ANY PART THEREOF). THE LESSOR TRUSTEE, THE AGENT, AND THE CERTIFICATE HOLDERS SHALL NOT BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT IN THE EQUIPMENT OR THE FAILURE OF THE EQUIPMENT, OR ANY PART THEREOF, TO COMPLY WITH ANY REQUIREMENT OF LAW. Section 6.2. Risk of Loss. Lessee assumes all risks of loss of, decreases in the enjoyment and beneficial use of, damage to, and destruction of each Item of Equipment from any cause, including without limitation fire, the elements, casualty, condemnation or other 6 governmental taking, theft, riot, or war, and neither the Lessor Trustee nor any Certificate Holder shall in any event be answerable or accountable therefor. SECTION 7. MARKING Section 7.1. Marking of Equipment. The Lessee shall promptly cause each Item of Equipment to be plainly, permanently and conspicuously marked by a metal tag, plate or label affixed thereto, each setting forth the following legend: TITLE TO THIS EQUIPMENT IS HELD BY WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, AS TRUSTEE UNDER MW 1997-1 TRUST AND IS SUBJECT TO A LEASE BY TRUSTEE TO MAIL-WELL I CORPORATION. The Lessee shall replace any tag, plate or label that is removed, is destroyed or becomes illegible and shall indemnify each Indemnified Party against any liability, loss or expense incurred by such Indemnified Party as a result of the Lessee's failure to maintain or replace such tags, plates or labels. SECTION 8. POSSESSION AND USE OF THE EQUIPMENT, ETC. Section 8.1. Use of the Equipment. (a) The Lessee shall not use the Equipment except in the conduct of its business and shall apply standards of use no lower than the standards applied by the Lessee for other comparable property owned or leased by the Lessee. The Lessee shall pay, or cause to be paid, all charges and costs incurred in connection with the use of the Equipment as contemplated by this Lease. (b) Subject to the terms of Section 12 relating to permitted contests, the Lessee warrants that (i) the Lessee shall at all times comply with all Requirements of Law and Insurance Requirements in its use, operation, maintenance, repair, restoration, storage and nonuse of the Equipment, even if compliance therewith interferes with its use and enjoyment of the Equipment, (ii) the Lessee shall procure, maintain and comply with all licenses, permits, orders, approvals, consents and other authorizations required by Applicable Laws or by any Governmental Authority for the use, operation, maintenance, repair, restoration, storage and nonuse of the Equipment, and (iii) all materials used in the operation of the Equipment shall be compatible with those recommended by the manufacturer's operation manual. (c) The Lessee shall not change the location of any Item of Equipment, unless it gives five days' prior written notice to the Lessor Trustee and the Agent and before or concurrently with to the location change the Lessee files, or causes to be filed, in each jurisdiction that the Lessor Trustee in its sole discretion considers necessary, Uniform Commercial Code financing statements (including, without limitation, fixture filings) with respect to the Equipment in form and substance satisfactory to the Lessor Trustee. 7 Section 8.2. Possession of the Equipment. The Lessee shall not, without the Lessor Trustee's, the Agent's and the Certificate Holders' prior written consent (which they must not unreasonably withhold), sublease, sub-sublease or otherwise in any manner deliver, transfer or relinquish possession of any Item of Equipment, except that, so long as no Default or Event of Default has occurred and is continuing, the Lessee may, at any time and without the Lessor Trustee's, the Agent's or the Certificate Holders' consent, deliver possession of any Part of any Item of Equipment to the manufacturer, contractor or supplier designated by the Lessee for purposes of realizing the benefits of any warranty or for testing or other similar purposes or to any Person for service, repair, maintenance or overhaul work or for alterations, modifications or additions to an Item of Equipment to the extent required or permitted by the terms of Section 9 or Section 10. Section 8.3. Landlord Waivers. If at any time an Item of Equipment is located at a Site that is not owned by the Lessee or a Wholly-Owned Subsidiary of the Lessee, the Lessee shall promptly deliver to the Lessor Trustee a Landlord Waiver executed by the owner of such Site. SECTION 9. MAINTENANCE AND REPAIR; RETURN Section 9.1. Repairs and Maintenance. The Lessee, at the Lessee's own cost and expense, shall (a) maintain, service and repair the Equipment in order to keep the Equipment in as good repair, good operating condition and working order as when it first became subject to this Lease and in compliance with all of the manufacturer's specifications, (b) maintain, service and repair the Equipment in such condition as the Lessee would, in the prudent management of its owned or leased properties, maintain, service and repair similar property owned or leased by the Lessee and, in any event, to the extent required to maintain the Equipment in good repair and in compliance with all Requirements of Law and Insurance Requirements, noncompliance with which might result in the imposition of a penalty on any Indemnified Party or materially and adversely affect the Equipment or its operation, and (c) have in full force and effect during the Lease Term a maintenance program to maintain, service and repair the Equipment so as to keep the Equipment in as good operating condition and working order as it was when it first become subject to this Lease and in compliance with manufacturer's specifications. Section 9.2. Maintenance Costs and Warranties. The Lessee agrees to pay all costs, expenses, fees and charges incurred in connection with (a) the use and operation, including but not limited to repairs, maintenance, storage and servicing as provided in Section 10 and this Section 9, of each Item of Equipment by the Lessee during the Lease Term and (b) preserving and protecting each Item of Equipment, and repairing, maintaining and servicing the Equipment as provided in Section 10 and this Section 9, during the period after a termination of the Lessee's right of possession of such Item of Equipment pursuant to Section 16.2 and prior to the interest of the Lessor Trustee in such Item of Equipment being leased or sold to a third person by the Lessor Trustee (other than one or more Certificate Holders or their Affiliates). So long as no Event of Default has occurred and is continuing, the Lessor Trustee hereby appoints the Lessee as its agent and attorney-in-fact for the purpose of exercising and enforcing, and with full right, power and authority to exercise and to enforce, all of the right, title and interest of the Lessor Trustee in, under and to the warranties and obligations of any supplier of goods or services in respect of the Equipment and agrees to execute and deliver such further instruments as may be necessary to enable the Lessee to obtain goods or services furnished for the Equipment by said 8 suppliers. The Lessor Trustee shall have no obligation or duty with respect to any of such matters. Any proceeds obtained by the Lessee from the enforcement of the warranties and obligations of any supplier of goods or services in respect of the Equipment shall be held by the Lessee and applied from time to time to the repair and maintenance of the Equipment, and any balance thereof remaining at the expiration of the Lease Term and satisfaction of all of the Lessee's obligations shall be paid over to the Lessee. Section 9.3. Lessor Trustee Not Obligated to Maintain or Repair. The Lessor Trustee shall not under any circumstances be required to make any repairs, replacements, Alterations of any nature to the Equipment, to make any expenditure whatsoever in connection with this Lease, or to maintain the Equipment in any way. The Lessee waives any right to (a) require the Lessor Trustee to maintain or repair any Item of Equipment or any Part or (b) make repairs at the expense of the Lessor Trustee pursuant to any Requirement of Law, contract, agreement, or covenant, condition or restriction in effect at any time during the Lease Term. Section 9.4. Return. (a) Prior to the Lessee notifying the Lessor Trustee and the Agent of the Lessee's intent to return the Equipment or its election to exercise its option to sell the Equipment pursuant to Section 18.3, the Lessee must demonstrate that each Item of Equipment can perform at its original performance specifications under full test loads with regard to speed, register control, utility and quality of printed matter, and each Item of Equipment must print a Graphic Arts Technical Foundation ("GATF") test sheet to an acceptable degree as interpreted by GATF. An outside printing expert selected by the Lessor Trustee or the Agent and paid for by the Lessee (the "Printing Expert") shall perform an Equipment inspection to verify the physical condition of the Equipment and shall supervise the demonstration. The Printing Expert shall inspect printed material coming off the Equipment for its saleability. If the Printing Expert determines that improvements are needed to make the equipment perform according to the manufacturer's original performance specifications or if the GATF test is unacceptable, the Lessee shall make any necessary improvements at its sole cost and expense under the supervision of the original manufacturer. (b) With respect to each Item of Equipment, upon the expiration or earlier termination of the Lease Term, the Lessee, at its sole expense, shall de-install, crate for shipping and return it to the Lessor Trustee by delivering it to such location as the Lessor Trustee specifies. The Equipment shall be removed by a licensed and insured erector/rigger approved by the Lessor Trustee and the Agent and specializing in the crating, removal, transportation and reassembly of the Equipment, and deinstallation and reassembly shall be performed by a licensed and experienced technician and in a prescribed manner, including without limitation proper marking and labeling of all electrical wires, hoses, and components. The Equipment shall be reassembled on its return and, when returned, shall be in the condition required by Section 9.1. Accordingly, if, during the Lease Term, any Item of Equipment has not been given all scheduled maintenance and overhauls and all repairs that are necessary to continue operating it at normal commercial conditions in accordance with Section 9.1, then the Lessee shall cause all restorative or repair work to be performed on it that is necessary to 9 bring it into the condition that it would have been in, had the Lessee complied with Section 9.1 throughout the Lease Term. All components of each Item of the Equipment shall have been properly serviced, following the manufacturer's written operating and servicing procedures, such that each Item of Equipment is eligible for a manufacturer's standard, full service maintenance contract without the Lessor Trustee's incurring any expense to repair or rehabilitate any Item of Equipment. If, during the Lease Term, replacement of all parts and components has not been made in accordance with Section 10.1 so that the loss in operating efficiency, value, utility and remaining useful life of the Items of Equipment is more than that expected from normal wear and tear or as reflected in the Appraisal completed in accordance with Section 4.1(l) of the Participation Agreement, then the Lessee, at its expense, shall cause all repair and restorative work to be performed on the Items of Equipment that is necessary to bring the Items of Equipment into the condition that the Items of Equipment would have been in had such replacement of parts and components been made. If, in the opinion of the Lessor Trustee, any Item of Equipment fails to meet the return standards set forth in this Section, the Lessee shall pay on demand all costs and expenses incurred in connection with repairing and restoring it so as to meet such standards, assembling it and delivering it to the Lessor Trustee. If the Lessee fails to return any Item of Equipment in the condition required by this Lease, then, all of the Lessee's obligations under this Lease (including, without limitation, the Lessee's obligation to pay Rent for such Item of Equipment (i) at 125% of the rental then applicable under this Lease or (ii) if the Lease Term has ended, at 125% of the rental applicable on the last Scheduled Payment Date of the Lease Term) shall continue in full force and effect until such Item of Equipment is returned in the condition required under this Lease. (c) One hundred eighty days prior to the Expiration Date, the Lessee shall give the Lessor Trustee an inventory and full description of each Item of Equipment, including make, model, serial number, any other identifying engine or part classification, and its location and service records; also, from that notification date forward until the Expiration Date the Lessee will be limited to 5,000,000 impressions per Item of Equipment. (d) Thirty days after the Lessor Trustee and the Agent receive written notice from the Lessee of its intent to return the Equipment or its election to exercise its option to sell the Equipment pursuant to Section 18.3, the Lessee shall provide to the Lessor Trustee the following documents in English with respect to the Items of Equipment: (i) one set per Item of Equipment (or per group of Items of Equipment located at the same Site) of installation instructions/manuals, service manuals, and operating manuals relating to it (including replacements and additions thereto, such that all documentation is completely up to date) and (ii) one set per Item of Equipment (or per group of Items of Equipment located at the same Site) of documents, detailing its equipment configuration, operating requirements and maintenance records, including, without limitation, all books, operating data logs, inspection and maintenance logs, tools and spare parts and modification and overhaul records which shall be kept with accurate records of all maintenance (including without limitation, lubrication service, parts removal/replacement, inspections etc.) and shall indicate the dates and times of service and be signed by the appropriate authority. 10 (e) Upon the expiration or earlier termination of the Lease Term, the Lessee shall ensure that all Items of Equipment are at no less than half-time condition between scheduled significant maintenance events and that half life remains on every and all life limited or time cycle parts and components and will be in such condition that such Items of Equipment may be immediately installed and placed into use in an operating environment for a minimum of twelve months of similar use to that under which they were originally designed and used during the Lease Term. (f) Upon the expiration or earlier termination of the Lease Term, the Lessee shall properly remove all installed markings which are removable without damage to the Items of Equipment and not necessary for the operation, maintenance or repair of such Items. (g) Upon the expiration or earlier termination of the Lease Term, the Lessee shall ensure that all Items of Equipment and all matters that fall outside the manufacturer-specified operating limits of such Items of Equipment have been repaired and conform to all Environmental Protection Agency regulations and Requirements of Laws, that all certificates are current or require compliance within the next twelve months from the date of return and have been complied with, and that all Parts are manufactured to the approved maintenance program and accepted industry standards for their type and use. The Lessee will pay all recertification fees required by the Lessor Trustee or any Governmental Authority. (h) Upon sale of the Items of Equipment to a third party or return to the Lessor Trustee, the Lessee shall provide transportation and assume all risks and costs to send to the location(s) of new owner(s) and if required by the Lessor Trustee, store the Items of Equipment for a period of up to 365 days at the Lessee's sole expense. During the storage period, the Lessee will pay for all insurance coverage and periodic testing as required by the Lessor Trustee and the Agent. (i) Not later than the expiration or earlier termination of the Lease Term, the Lessee shall cause all Liens (other than Lessor's Liens) on the Items of Equipment to be extinguished. (j) Upon the expiration or earlier termination of the Lease Term, the Lessee shall cause there to be no sublease of the Equipment or any Item of Equipment. (k) The Lessee shall ensure that any Equipment or Parts in storage prior to the return be in a storage configuration, including preparation for storage, in conformity with the manufacturer's direction, Environmental Protection Agency requirements and other Requirements of Law and that no storage environment has been used that may cause the value of any Item of Equipment or any Part to diminish. (l) Upon the expiration or earlier termination of the Lease Term, the Lessee shall ensure that all Items of Equipment are free from contamination and corrosion and have no untreated or uncorrected corrosion. 11 (m) Upon the expiration or earlier termination of the Lease Term, the Lessee shall re-paint and clean all Items of Equipment to restore them to an as-new appearance. (n) The Lessee shall ensure that, (i) within six months prior to the expiration or earlier termination of the Lease Term, the drive side (gear side) of each Item of Equipment has been inspected and serviced to verify the existence of undue wear, (ii) within six months prior to the expiration or earlier termination of the Lease Term, the sequence startup has been checked and serviced to verify that the starting controller is working properly, (iii) within 12 months prior to the expiration or earlier termination of the lease Term, the rollers have been removed, serviced and resurfaced, (iv) within one month prior to the expiration or earlier termination of the Lease Term, the blankets have been changed, and (v) at least once every 12 months during the Lease Term, each printing unit is broken down and serviced and has its oil changed. (o) In addition to all other rights of the Lessor Trustee under this Lease, the Lessor Trustee shall have the right to attempt to resell or auction the Equipment from the Lessee's facility with the Lessee's full cooperation and assistance, for a period of 180 days from the end of the Lease Term. The Lessee shall pay the reasonable costs and expenses of any such sale or auction, and agrees that the Equipment shall remain capable of operation during this period. The Lessee shall provide adequate and sufficient electrical power, lighting, heat, water and compressed air to allow for normal maintenance and for demonstrations of the Equipment to any potential buyer. If the Lessor Trustee, pursuant to this Lease or any other Operative Agreement, rightfully demands possession of the Items of Equipment and cessation of the Lessee's rights in such Items of Equipment, the Lessee, at its expense, shall forthwith comply with this Section 9.4 with respect to all Items of Equipment, and deliver exclusive possession of such Items of Equipment to the Lessor Trustee, subject to the Lessee's obligations under Sections 9 and 10. SECTION 10. MODIFICATIONS, ETC. Section 10.1. Replacement of Parts. The Lessee, at its own cost and expense and within a reasonable period of time, shall replace any part of any Item of Equipment (a "Part") that becomes worn out, lost, stolen, destroyed, or otherwise rendered permanently unfit or unavailable for use (whether or not such replacement is covered by the Lessee's covenants in Section 9 of this Lease), with a replacement part of the same manufacture, value, remaining useful life and utility as the replaced part immediately preceding the replacement (assuming that such replaced part is in the condition required by this Lease). All replacement parts shall be free and clear of all Liens. Notwithstanding the foregoing, this paragraph shall not apply to any Casualty with respect to any Item of Equipment. Title to any Parts at any time removed from any Item of Equipment shall continue to be vested in the Lessor Trustee, no matter where such Parts are located, until such Parts shall be replaced by Parts which have been incorporated or installed in or attached to such Item of Equipment and which meet the requirements for replacement Parts specified in the first paragraph of this Section 10.1. Immediately upon any such replacement Part becoming incorporated or installed in or attached to any Item of Equipment as above provided, without 12 further act, title to the removed Part shall thereupon vest in the Lessee or such person as shall be designated by the Lessee, free and clear of all rights of the Lessor Trustee. Section 10.2. Required Alterations. The Lessee, at its sole cost and expense, shall, with reasonable promptness, make such alterations, modifications and additions (collectively, "Alterations") to each Item of Equipment as may be required from time to time to meet any Requirements of Law or of any federal, state or local governmental authority having jurisdiction. Section 10.3. Optional Alterations. The Lessee at its own expense may from time to time make such Alterations to any Item of Equipment as the Lessee may deem desirable in the proper conduct of its business and which are consistent with the continuing operation of such Item of Equipment in accordance with its original functional purpose; provided, that any such Alteration made by the Lessee pursuant to this paragraph must not diminish the value or utility of any Item of Equipment to the Lessor Trustee below the value and utility thereof to the Lessor Trustee immediately prior to such Alteration. At the Lessor Trustee's request, the Lessee will remove any readily removable Alterations prior to the end of the Lease Term at the Lessee's sole cost and expense. Section 10.4. Title to Parts. (a) Title to all Parts (including Alterations) incorporated or installed in or attached to any Item of Equipment shall without further act vest in the Lessor Trustee and shall be deemed to constitute a part of such Item of Equipment and be subject to this Lease in the following cases: (i) such Part is in replacement of or in substitution for, and not in addition to, any Part constituting a part of such Item of Equipment at the time of the acceptance thereof hereunder or any such original part; (ii) such Part is required to be incorporated or installed in or attached to the Equipment pursuant to the terms of Section 9.1, 10.1 or 10.2; or (iii) such Part cannot be readily removed from such Item of Equipment without materially damaging such Item of Equipment or diminishing or impairing the value or utility of such Item of Equipment. (b) Any other Part that is not within the categories set forth in clauses (i), (ii) or (iii) above, and that is not removed from any Item of Equipment by the Lessee prior to the expiration or termination of this Lease as to such Item of Equipment shall become the property of the Lessor Trustee. SECTION 11. WARRANTY OF TITLE Section 11.1. Warranty of Title. (a) Except as otherwise provided herein and subject to the terms of Section 12 relating to permitted contests, the Lessee shall not directly or indirectly create or allow to remain, and shall promptly discharge at its sole cost and expense, any Lien (other than 13 any Lessor's Lien), defect, attachment, levy, title retention agreement or claim upon the Equipment or any Lien, attachment, levy or claim with respect to the Rent or with respect to any amounts held by the Lessor Trustee or any Certificate Holder pursuant to the Operative Agreements, other than Permitted Liens. (b) Nothing contained in this Lease shall be construed as constituting the consent or request of the Lessor Trustee or any Certificate Holder, express or implied, to or for the performance by any contractor, mechanic, laborer, materialman, supplier or vendor of any labor or services or for the furnishing of any materials for any alteration, addition, repair or demolition of or to any Item of Equipment or any Part. NOTICE IS HEREBY GIVEN THAT THE LESSOR TRUSTEE, THE AGENT AND THE CERTIFICATE HOLDER ARE NOT AND SHALL NOT BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO THE LESSEE, OR TO ANYONE HOLDING THE EQUIPMENT OR ANY ITEM OF EQUIPMENT OR ANY PART THROUGH OR UNDER THE LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF THE LESSOR TRUSTEE OR ANY CERTIFICATE HOLDER IN THE EQUIPMENT OR ANY ITEM OF EQUIPMENT OR ANY PART. SECTION 12. PERMITTED CONTESTS Section 12.1. Permitted Contests in Respect of Applicable Law. So long as no Event of Default has occurred and is continuing, Lessee, on its own or on Lessor Trustee's behalf and in Lessor Trustee's name but at Lessee's sole cost and expense and subject to Section 6 of the Participation Agreement, may contest by appropriate administrative or judicial proceedings conducted in good faith and with due diligence, the amount, validity or application, in whole or in part, of any Applicable Law or third party charges relating to the Equipment, or any Lien, but only if and so long as any such contest, in the reasonable opinion of the Lessor Trustee and the Agent, (a) does not involve any risk of criminal liability being imposed on the Lessor Trustee, the Agent or any Certificate Holder or (b) does not involve any risk of (i) foreclosure, forfeiture or loss of any Item of the Equipment, or any material part thereof, or (ii) the nonpayment of Rent, (c) does not involve any substantial risk of (i) the sale of, or the creation of, any Lien (other than a Permitted Lien) on any Item of Equipment or any Part, (ii) civil liability being imposed on the Lessor Trustee, the Agent, any Certificate Holder, or the Equipment, or (iii) enjoinment of, or interference with, the use, possession or disposition of the Equipment in any material respect, (d) will suspend the collection and enforcement of contested amounts against the Equipment, the Lessor Trustee, the Agent, and the Certificate Holders and will be concluded before the Lease Term ends, and (e) Lessee has posted any security reasonably requested by the Agent. None of the Lessor Trustee the Agent and the Certificate Holders will be required to join in any proceedings pursuant to this Section 12.1 unless a provision of Applicable Law requires that such proceedings be brought by or in the name of such Person; and in that event such Person will join in the proceedings or permit them or any part thereof to be brought in its name if and so long as the Lessee pays all related expenses and indemnifies such Person with respect to such proceedings. 14 SECTION 13. INSURANCE Section 13.1. Required Insurance Coverages and Limits. (a) The Lessee shall at its own cost and expense at all times during the Lease Term: (i) keep each Item of Equipment insured against all risks of physical loss or damage and against all such other risks as are insured against by the Lessee with respect to property of a similar character owned or leased by the Lessee on terms and in amounts that are no less favorable than insurance covering other similar properties owned by the Lessee and that are in accordance with normal industry practices, provided that such insurance shall not be less than the Stipulated Loss Value of such Item of Equipment as of the immediately preceding Scheduled Payment Date, and (ii) maintain comprehensive general public liability insurance with respect to the Equipment including liability coverage for products liability and contractual liability, which coverage shall be against damage because of bodily injury, including death, or damage to property of others, such insurance to be on terms and in amounts that are no less favorable than insurance maintained by the Lessee with respect to similar properties that it owns and that is in accordance with normal industry practice, provided that such insurance shall not be less than $1,000,000 per occurrence and $20,000,000 in the aggregate (or $50,000,000 in the aggregate including layered umbrella coverage). (b) All insurance policies required hereunder shall (i) require 30 days prior written notice to the Lessor Trustee and the Agent of cancellation or material change in coverage; (ii) name the Lessor Trustee, the Agent and the Certificate Holders as additional insureds and, under the property insurance policies, name the Lessor Trustee as sole loss payee; (iii) be considered primary insurance without any right of contribution from other policies held by the Lessor Trustee, the Agent or the Certificate Holders; (iv) waive any right of subrogation against the Lessor Trustee, the Agent and the Certificate Holders; (v) waive the right of the insurer to any set-off, counterclaim or other deduction, whether by attachment or otherwise, in respect of any liability of the Lessor Trustee, the Agent or the Certificate Holders; (vi) specify that the Lessor Trustee, the Agent and the Certificate Holders shall not be liable for any premiums or deductibles; (vii) be in full force and effect throughout any geographical areas in which any Item of Equipment is located; and (viii) provide that, in respect of the interests of the Lessor Trustee, the Agent and the Certificate Holders in such policies, subject to the policies' other terms, conditions and exclusions, the insurance shall not be invalidated by any action or inaction of any Person and shall insure the Lessor Trustee, the Agent, and the Certificate Holders regardless of any breach or violation of any warranty, declaration or condition contained in such policies by any Person. (c) The Lessee agrees to maintain all insurance required by this Section 13 with financially sound and reputable insurance companies that have a rating of at least 15 A+ or better by Best Rating Guide (except that the companies listed on Schedule 13.1 as having a lesser rating may, during the Lease Term, provide the Lessee with the type of insurance they are providing as of the Closing Date). No policy shall contain a provision (i) under which the Lessee is a co-insurer, or (ii) relieving the insurer of liability for any loss by reason of the existence of other policies of insurance covering the Equipment against the peril involved, whether collectible or not, or by reason of the breach or violation by the Lessee of any warranties, declarations or conditions contained in such policies. Any such insurance may be carried under blanket policies maintained by the Lessee so long as such policies otherwise comply with the provisions of this Section 13.1. If general public liability insurance is carried under any blanket policy which is subject to aggregate annual claim limitations, the Lessee shall keep the Lessor Trustee and the Agent apprised of the amount of any such limitations and the amounts of claims that may reduce the available policy limits. Section 13.2. Adjustment and Payment of Losses. The Lessee shall adjust with the insurance companies or otherwise collect (including, without limitation, the filing of proceedings that the Lessee considers advisable) any loss under any casualty insurance required to be carried by Section 13.1(a)(i), but must obtain the Agent's approval of any amount adjusted or collected if the loss exceeds $1,000,000. The loss so adjusted shall be paid to the Lessor Trustee. All such policies shall provide that the loss, if any, under such insurance shall be adjusted and paid as provided in this Lease. Losses covered by liability insurance shall be adjusted by and paid to the Person suffering such loss. Section 13.3. Evidence of Insurance. On or prior to the Closing Date with respect to each Item of Equipment, and thereafter not less than 15 days prior to the expiration dates of the expiring policies, the Lessee shall deliver to the Lessor Trustee, the Agent and the Certificate Holders certificates of insurance for the insurance maintained pursuant to this Section 13, together with a report from the Lessee's insurance broker certifying that such insurance complies with the terms hereof. Each such certificate or other evidence of insurance shall identify the insurance carrier, the type of insurance, the coverage limits, annual aggregate limits, if any, and the policy term. Section 13.4. Application of Insurance Proceeds. All insurance proceeds from policies required to be maintained hereunder that are received by or payable to the Lessor Trustee (less the Lessor Trustee's and the Agent's actual costs, fees and expenses (including their attorneys' fees) incurred in the collection thereof) shall be applied as follows: (a) All such proceeds actually received on account of any damage or destruction (other than a Casualty) of an Item of Equipment shall be paid over to the Lessee, or as it may direct from time to time, as the restoration or repair ("Restoration"), of the Item of Equipment progresses, to pay (or reimburse the Lessee for) the cost of Restoration, if the following two conditions are satisfied: (i) the amount of such proceeds received by the Lessor Trustee, together with such additional amounts, if any, theretofore expended by the Lessee out of its own funds for Restoration must be sufficient to pay the estimated cost of completing Restoration, and 16 (ii) the Lessee must submit a written application to the Lessor Trustee and the Agent, accompanied by an Officer's Certificate, showing in reasonable detail the nature of Restoration, that Restoration is intended to restore the Item of Equipment to its value and utility prior to the damage or destruction (assuming that the Item of Equipment was of the value and utility and in the condition and repair required by this Lease), the actual cash expenditures made to date for Restoration, the estimated cost to complete Restoration and stating that no Default or Event of Default has occurred and is continuing under this Lease. Upon the written request of the Lessee, accompanied by evidence satisfactory to the Lessor Trustee and the Agent that Restoration has been completed and the costs thereof paid in full, that the Item of Equipment has been restored to its value and utility prior to such damage or destruction (assuming that such Item of Equipment was of the value and utility and in the condition and repair required by the terms of this Lease) and that there are no mechanic's or similar Liens for labor or materials supplied in connection therewith, the balance, if any, of such proceeds shall be paid over or assigned to the Lessee or as it may direct. (b) All such proceeds received or payable on account of a Casualty with respect to an Item of Equipment shall be paid over or assigned to the Lessee or as it may direct upon termination of this Lease with respect to such Item of Equipment and, if the Lessee elects to perform the option set forth in Section 14.1(a), receipt by the Lessor Trustee of the Stipulated Loss Value of such Item of Equipment and all other payments due hereunder. Section 13.5. Deductibles and Self-Insurance. So long as no Event of Default has occurred and is continuing, the Lessee may from time to time self-insure or maintain deductible provisions for the risks required to be insured against pursuant to clauses (a)(i) and (a)(ii) of Section 13.1, in such reasonable amounts as are then applicable to similar equipment owned or leased by the Lessee, but in no case shall such self-insurance and deductibles with respect to Section 13.1(a)(i) or Section 13.1(a)(ii) exceed the first $250,000 or $500,000, respectively, of the coverage required therein. Section 13.6. Insurance for Own Account. Nothing in this Section 13 shall limit or prohibit the Lessor Trustee, the Agent, any Certificate Holder or the Lessee from obtaining additional insurance for its own account, and any proceeds payable thereunder shall be payable in accordance with the insurance policy relating thereto, provided that no such insurance may be obtained which would limit or otherwise adversely affect the coverage of any insurance required to be maintained pursuant to this Section 13. SECTION 14. CASUALTY OCCURRENCE Section 14.1. Casualty Occurrence. If an Item of Equipment is damaged to such an extent that the Lessee believes a Casualty has occurred, the Lessee shall forthwith (and in any event within 10 days after such occurrence) give the Lessor Trustee and the Agent written notice of such Casualty, the Agent in its sole discretion shall determine whether the damage to the Item of Equipment constitutes a Casualty, and within 20 days after the Casualty occurred the Lessee 17 shall give the Lessor Trustee and the Agent written notice of its election, subject to the terms hereof, to perform one of the following options (and if the Lessee fails to timely notify the Lessor Trustee and the Agent of its election, the Lessee shall be deemed to have elected to perform the option set forth in the following clause (a)), provided that the Lessee shall not have the right to select the option set forth in clause (b) if a Default or Event of Default has occurred and is continuing when the Casualty occurs, or when the Lessee gives notice of its election, or when the Lessee is to convey the Replacement Equipment to the Lessor Trustee: (a) Except as otherwise provided in the immediately succeeding sentence, on the next Scheduled Payment Date which is at least 30 days after the occurrence of such Casualty (the "Loss Payment Date"), during which time the Lessee's obligation to pay Rent shall continue, the Lessee shall pay to the Lessor Trustee in immediately available funds an amount equal to the Stipulated Loss Value of such Item of Equipment as of such Loss Payment Date together with any Rent due and payable on or prior to the Loss Payment Date with respect to such Item of Equipment. (b) Within 30 days after the Casualty occurs, during which time the Lessee's obligation to pay Rent shall continue, the Lessee shall convey or cause to be conveyed to the Lessor Trustee in accordance with Section 14.2 hereof, to be leased by the Lessor Trustee to the Lessee hereunder in replacement of such Item of Equipment, title to Replacement Equipment, which must be free and clear of all Liens other than Permitted Liens and (as determined by the Agent in its sole discretion) must have a value, utility and remaining economic useful life at least equal to, and be in as good operating condition as, the replaced Item of Equipment (assuming it was of the value, remaining economic useful life and utility and in the condition and repair required by the terms of this Lease and had suffered no Casualty). The Lessee shall pay on the next Scheduled Payment Date an amount computed in the manner specified in clause (a) of this Section 14.1 if no such replacement occurs by the end of the 30-day period. The Lessee's obligation to pay Rent due and payable on or prior to a Loss Payment Date shall continue as to any Item of Equipment that has suffered a Casualty. In the event of a payment in full of the Stipulated Loss Value for an Item of Equipment and other Rent payable on or prior to the Loss Payment Date all as provided for in the clause (a) of this Section, (x) this Lease with respect to such Item of Equipment and the obligations of the Lessee with respect to such Item of Equipment to pay Periodic Rent and Supplemental Rent (except for Supplemental Rent obligations surviving pursuant to Section 6 of the Participation Agreement or which have otherwise accrued but not been paid as of the date of such payment) shall terminate; (y) if no Event of Default has occurred and is continuing, any insurance proceeds remaining in the Lessor Trustee's possession (other than proceeds of policies maintained by the Lessor Trustee for its own account), including any investment interest thereon, shall be promptly paid over to the Lessee; and (z) the Lessor Trustee shall convey to the Lessee, at the Lessee's cost and expense, all of the Lessor Trustee's right, title and interest, AS-IS, WHERE-IS, without recourse or warranty, express or implied except for a warranty against the Lessor's Liens in and to such Item of Equipment, including all claims for damage to such Item of Equipment against third persons arising from the subject Casualty (unless any insurance carrier requires that such claims be assigned to it). 18 Section 14.2. Conveyance of Replacement Equipment. Prior to or at the time of any conveyance of any Replacement Equipment pursuant to Section 14.1(b) or Section 15.1, the Lessee, at its own expense, shall furnish the Lessor Trustee and the Agent, or cause each of them to be furnished, with the following documents, which shall have been duly authorized, executed and delivered by the parties thereto and shall be in full force and effect on the date of such conveyance: (i) a full warranty bill of sale, in form and substance satisfactory to the Lessor Trustee and the Agent, covering such Replacement Equipment and executed by the owner thereof in favor of the Lessor Trustee; (ii) a Lease Supplement covering the Replacement Equipment; (iii) such evidence of compliance with the insurance provisions of Section 13 with respect to such Replacement Equipment as the Lessor Trustee or the Agent may reasonably request, including an independent insurance broker's report (stating the opinion of such insurance broker that such insurance complies with the terms of this Lease) with certificates of insurance; (iv) an Officer's Certificate of the Lessee certifying that such Replacement Equipment complies with this Section 14.2, that, upon such conveyance, the Lessor Trustee will acquire good title to such Replacement Equipment, free and clear of all Liens other than Permitted Liens, that such Replacement Equipment will be leased hereunder to the same extent as the replaced or substituted Item of Equipment, as the case may be, and that, upon consummation of such replacement or substitution, no Default or Event of Default will exist hereunder, (v) an opinion of the Lessee's counsel (and such other opinions or evidence of title as the Lessor Trustee, the Agent or their counsel may reasonably request), to the effect that, upon such conveyance, the Lessor Trustee will acquire good title to such Replacement Equipment, free and clear of all Liens other than Permitted Liens, and that such Replacement Equipment will be leased hereunder to the same extent as the replaced or substituted Item of Equipment, as the case may be; (vi) copies of Uniform Commercial Code financing statements (including, without limitation, fixture filings) with respect to such Replacement Equipment naming the Lessee as Debtor and the Lessor Trustee as Secured Party filed on or before the date of conveyance in each jurisdiction that the Lessor Trustee or the Agent, each in its sole discretion, considers necessary; (vii) Landlord Waivers, if required under Section 8.3, with respect to the Site or Sites on which the Replacement Equipment is located; and (viii) such documents, opinions and evidence with respect to the Lessee as the Lessor Trustee, the Agent, or their counsel, may reasonably request in order to establish the consummation of the transactions contemplated by this 19 Section 14.2, the taking of all corporate proceedings in connection with and compliance with the conditions set forth in this Section 14.2, in each case in form and substance satisfactory to the Lessor Trustee and the Agent. The Lessee further agrees to take such further action as the Lessor Trustee or the Agent may reasonably request with respect to such Replacement Equipment including, without limitation, any actions required to establish, perfect and protect the interest of Lessor Trustee in such Replacement Equipment (including, without limitation, the filing of additional Uniform Commercial Code financing statements). Upon full compliance by the Lessee with the terms of this Section 14.2, the Lessor Trustee shall convey to the Lessee, at the Lessee's cost and expense, all of the Lessor Trustee's right, title and interest, as-is, where-is, without recourse or warranty, express or implied except for warranty against Lessor's Liens, in and to such Item of Equipment with respect to which the subject Casualty occurred, including all claims for damage to such Item of Equipment against third persons arising from any Casualty (unless any insurance carrier requires that such claims be assigned to it), or the substituted Item of Equipment, as the case may be. No Casualty or substitution with respect to an Item of Equipment under the circumstances contemplated by the terms of this Section 14.2 shall result in any reduction in Rent or the Lessee's obligation to pay Rent hereunder. Section 14.3. Application of Payments. Any payments on account of a Casualty of an Item of Equipment (other than insurance proceeds or other payments the application of which is provided for in this Section 14 or elsewhere in this Lease, as the case may be) received at any time by the Lessor Trustee or by the Lessee from any Person will be applied as follows: (a) if the Lessee has elected (or is deemed to have elected) the option set forth in Section 14.1(a), so much of such payments as do not exceed the Stipulated Loss Value required to be paid by the Lessee pursuant to Section 14.1(a) shall be applied in reduction of the Lessee's obligation to pay such Stipulated Loss Value to the extent not already paid by the Lessee, and, to the extent already paid by the Lessee and if no Default or Event of Default exists, shall be applied to reimburse the Lessee for its payment of such Stipulated Loss Value. Subject to Section 14.6, the balance, if any, of such payment remaining thereafter shall be paid to the Lessee; and (b) if the Lessee has elected the option set forth in Section 14.1(b), such payments shall be paid over to, or retained by, the Lessor Trustee for payment to the Lessee when the Lessee has fully performed the terms of Section 14.2 with respect to the Casualty for which such payments are made. Section 14.4. Certain Government Requisitions. If during the Lease Term the use of any Item of Equipment is requisitioned or taken by any Governmental Authority under the power of eminent domain or otherwise under circumstances which do not constitute a Casualty, the Lessee's duty to pay Periodic Rent and Supplemental Rent for such Item of Equipment shall continue for the duration of such requisition or taking. Unless a Default or Event of Default has occurred and is continuing, the Lessee shall be entitled to receive and to retain for its own account all sums payable for any such period by such Governmental Authority as compensation 20 for such requisition or taking of possession. If a Default or Event of Default has occurred and is continuing, the Lessee shall be deemed to the extent of any such compensation so received to be the agent of the Lessor Trustee in collecting and receiving the such sums and shall segregate and hold in trust and promptly remit any such compensation so received to the Lessor Trustee for crediting against any sums then due and owing hereunder to the Lessor Trustee, its successors and assigns. Section 14.5. Application of Payments from Governmental Authorities for Requisition of Title. The Lessor Trustee shall receive the entire amount payable by any governmental authority or instrumentality or agency thereof with respect to a Casualty resulting from the condemnation, confiscation or seizure of, or requisition of title to or use of any Item of Equipment. Such amount, after deducting all expenses, including attorneys' fees, incurred by the Lessor Trustee in or as a result of such condemnation proceedings (the "Net Condemnation Award") shall be applied promptly as follows: so much of such payments as do not exceed the Stipulated Loss Value of such Item of Equipment required to be paid by the Lessee pursuant to Section 14.1(a) shall be applied in reduction of the Lessee's obligation to pay such Stipulated Loss Value to the extent not already paid by the Lessee, and, to the extent already paid by the Lessee and if no Default or Event of Default exists, shall be applied to reimburse the Lessee for its payment of such Stipulated Loss Value. Subject to Section 14.6, the balance, if any, of such payments shall be paid to the Lessee. Section 14.6. Application of Payments During Existence of Default. Any amount referred to in this Section 14 or in Section 13 which is payable to the Lessee shall not be paid to the Lessee, or, if it has been previously paid directly to the Lessee, shall be held in trust by the Lessee and shall be promptly paid over to the Lessor Trustee, if at the time of such payment a Default or Event of Default has occurred and is continuing, and held by the Lessor Trustee as security for the obligations of the Lessee under this Lease and applied against the Lessee's obligations hereunder as and when due. Once no Default or Event of Default is continuing, such amount, to the extent not theretofore applied to the Lessee's obligations hereunder, shall be paid to the Lessee. SECTION 15. SUBSTITUTION OF EQUIPMENT Section 15.1. Substitution of Equipment. So long as no Default or Event of Default has occurred and is continuing, on any Scheduled Payment Date, the Lessee may, at its option, upon at least 30 days' advance written notice to the Lessor Trustee, convey or cause to be conveyed to Lessor Trustee in accordance with Section 14.2 hereof, to be leased by the Lessor Trustee to Lessee hereunder in substitution for any Item of Equipment, title to Replacement Equipment, which must be free and clear of all Liens other than Permitted Liens and (as determined by the Agent in its sole discretion) must have a value, utility and remaining economic useful life at least equal to, and to be in as good operating condition as, the substituted Item of Equipment (assuming the substituted Item of Equipment was of the value, remaining economic useful life and utility and in the condition and repair required by the terms of this Lease and had suffered no Casualty). 21 SECTION 16. EVENTS OF DEFAULT Section 16.1. Events of Default. The occurrence of any one or more of the following events (whether such event is voluntary or involuntary or comes about or is effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall constitute an "Event of Default": (a) the Lessee fails to make payment of any Periodic Rent when due and such failure continues unremedied for a period of five days; or the Lessee fails to make payment when due of any amounts due pursuant to Section 18.4, the Lease Balance, the Purchase Price, including, without limitation, amounts due pursuant to Section 18.1 hereof, or Stipulated Loss Value; or (b) the Lessee fails to make payment of any Supplemental Rent (other than Supplemental Rent specified in clause (a) above) within five (5) days after it becomes due; or (c) the Lessee fails to maintain insurance as required by Section 13 of this Lease; or (d) the Lessee fails to observe or perform any term, covenant or condition applicable to it under Sections 4.2, Section 4.3 or Section 5 of the Guaranty Agreement; or (e) the Lessee or any Guarantor fails to observe or perform any term, covenant or condition applicable to it under any Operative Agreement (other than those described in Section 16.1(a), (b), (c) or (d) hereof) and such failure continues unremedied for 30 days after written notice thereof has been given to the Lessee or such Guarantor by the Lessor Trustee, the Agent or any Certificate Holder; or (f) any representation or warranty made or deemed made by the Lessee or any Guarantor in any Operative Agreement or in any certificate, document or financial or other statement furnished at any time under or in connection with any Operative Agreement was incorrect, false or misleading in any material respect on or as of the date made or deemed made; or (g) (i) any Guarantor or the Lessee commences any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or any Guarantor or the Lessee makes a general assignment for the benefit of its creditors; or (ii) there is commenced against any Guarantor or the Lessee any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or 22 appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there is commenced against any Guarantor or the Lessee any case, proceeding or other action seeking issuance of a warrant of attachment, execution, restraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) any Guarantor or the Lessee takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause s (i), (ii) or (iii) above; or (v) any Guarantor or the Lessee generally does not, or is unable to, or admits in writing its inability to, pay its debts as they become due; or (h) any Operative Agreement or any Lien granted under any Operative Agreement, in whole or in part, terminates, ceases to be effective against, or (other than as expressly provided therein) ceases to be the legal, valid, binding and enforceable obligation of either the Lessee or any Guarantor; or (i) the Lessee or any Guarantor directly or indirectly contests the effectiveness, validity, binding nature or enforceability of any Operative Agreement or any Lien granted under any Operative Agreement; or the Lessee or any Guarantor repudiates, or purports to discontinue or terminate, the Guaranty Agreement, or the Guaranty Agreement ceases to be a legal, valid and binding obligation of the Lessee or any Guarantor or ceases to be in full force and effect; or (j) (i) any Guarantor or the Lessee fails to make any payment in respect of any of its obligations for Debt when due or, if later, within any applicable grace period, or (ii) any event or condition occurs which results in the default after the expiration of any applicable grace period under, or requires the early redemption or prepayment of, any of any Guarantor's or the Lessee's obligations for Debt, or any event or condition occurs and is continuing which enables (or, with the giving of notice or lapse of time or both, would enable) the holders of any of any Guarantor's or the Lessee's obligations under obligations for Debt of any Guarantor or the Lessee or any Person acting on such holders' behalf to accelerate the maturity, or require the early redemption or prepayment, of any of any Guarantor's or the Lessee's obligations for Debt; or (k) (i) any member of the ERISA Group fails to pay when due an amount or amounts aggregating in excess of $1,000,000 that it has become liable to pay under Title IV of ERISA; or (ii) notice of intent to terminate a Material Plan is filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of them; or (iii) any member of the ERISA Group has been notified in writing that the PBGC has instituted proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or (iv) a condition exists by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or (v) any events described in clause (iii) above occur with respect to any Other Pension Plan or Other Pension Plans (other than a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA) (A) that have aggregate Unfunded Current Liabilities in excess of $1,000,000 and (B) with respect to 23 which either (1) one or more members of the ERISA Group have engaged in a transaction or transactions described in Section 4069 of ERISA or (2) one or more members of the ERISA Group is a member of the "controlled group" under Section 412(c)(11) of the Code or Section 4001(a)(14) of ERISA; or (vi) a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, occurs with respect to, one or more (A) multiemployer plans, within the meaning of Section 4001(a)(3) of ERISA (which plans are not Multiemployer Plans), with respect to which a member of the ERISA Group has engaged, within the previous five plan years, in a transaction described in Section 4212(c) of ERISA, or (B) Multiemployer Plans, which could reasonably be expected to result in the incurrence by one or more members of the ERISA Group of a current payment obligation in excess of $1,000,000; provided that no Event of Default shall occur under clause (v) or (vi) if (A) Unfunded Current Liabilities of the Other Pension Plans in respect of which events described in clause (v) have occurred, together with the current payment obligations that could reasonably be expected to result from complete or partial withdrawals or defaults described in clause (vi), do not exceed $10,000,000 and (B) each member of the ERISA Group that could reasonably be expected to be liable for such Unfunded Current Liabilities or current payment obligations is diligently contesting in accordance with Section 12 the imposition of such liabilities or obligations; or (l) (i) one or more judgments or orders for the payment, in the aggregate, of money in excess of $10,000,000 are rendered against any Guarantor or the Lessee and such judgments or orders continue unsatisfied and unstayed for a period of 30 days or (ii) one or more judgments or orders are rendered against any Guarantor or the Lessee, which judgments or orders are stayed on condition that a bond or collateral equal to or greater than, in the aggregate, $10,000,000 be posted or provided, and such judgments or orders are not overturned or lifted within a period of 10 days; or (m) Mail-Well ceases to be a party to the Credit Agreement and is not the borrower under another revolving credit facility of at least $150,000,000. Section 16.2. Remedies. Upon the occurrence of any Event of Default and so long as such Event of Default is continuing, the Lessor Trustee may, do one or more of the following (and in whatever order) as the Lessor Trustee in its sole discretion determines, without limiting any other right or remedy the Lessor Trustee may have on account of such Event of Default: (a) The Lessor Trustee may declare the entire outstanding Lease Balance to be immediately due and payable together with accrued unpaid Rent and any other amounts payable under the Operative Agreements, or make demand upon the Guarantors under the Guaranty Agreement, or both; (b) The Lessor Trustee may, by notice to the Lessee, rescind or terminate this Lease as of the date specified in such notice; provided, however, (i) no reletting, reentry or taking of possession of the Equipment (or any Item of Equipment) by the Lessor Trustee will be construed as an election on the Lessor Trustee's part to terminate this Lease unless a written notice of such intention is given to the Lessee, (ii) notwithstanding any reletting, reentry or taking of possession, the Lessor Trustee may at any time 24 thereafter elect to terminate this Lease for a continuing Event of Default, and (iii) no act or thing done by the Lessor Trustee or any of its agents, representatives or employees and no agreement accepting a surrender of the Equipment shall be valid unless it is in writing and executed by the Lessor Trustee; (c) The Lessor Trustee may (i) demand that the Lessee, and the Lessee shall upon the written demand of the Lessor Trustee, return the Equipment promptly to the Lessor Trustee in the manner and condition required by, and otherwise in accordance with all of the provisions of, Sections 6 and 9 and Section 8.1(b) hereof as if the Equipment were being returned at the end of the Lease Term, and none of the Lessor Trustee, the Agent, or any Certificate Holder shall be liable for the reimbursement of the Lessee for any costs and expenses incurred by the Lessee in connection therewith, and (ii) without prejudice to any other remedy the Lessor Trustee may have, including without limitation other remedies for possession of the Equipment, and to the extent and in the manner permitted by Applicable Law, enter upon the premises of the Lessee and any Site and take immediate possession (to the exclusion of the Lessee) of the Equipment or any Item of Equipment and remove the Equipment, by summary proceedings or otherwise (and if a Site is owned by a Wholly-Owned Subsidiary of the Lessee, the Lessee shall take all necessary action to ensure that such Wholly-Owned Subsidiary permits the Lessor Trustee to enter upon such premises, take possession of and remove such Equipment), all without liability to the Lessor Trustee for or by reason of such entry or taking of possession, whether for the restoration of damage to property caused by such taking or otherwise and, in addition to the other damages of the Lessor Trustee, the Lessee shall be responsible for all costs and expenses incurred by the Lessor Trustee, the Agent and the Certificate Holders in connection with any reletting, including, without limitation, reasonable brokers' fees and all costs of any alterations or repairs made by any of them; (d) The Lessor Trustee may, at its option, elect not to terminate this Lease and continue to collect all Periodic Rent, Supplemental Rent, and all other amounts due to the Lessor Trustee (together with all costs of collection) and enforce the Lessee's obligations under this Lease as and when they become due or are to be performed, and at the option of the Lessor Trustee, upon any abandonment of the Equipment by the Lessee or repossession of it by the Lessor Trustee, the Lessor Trustee may, in its sole and absolute discretion, elect not to terminate this Lease, make the necessary repairs in order to relet the Equipment, and relet the Equipment or any part thereof for such term or terms (which may be for a term extending beyond the Lease Term) and at such rental or rentals and upon such other terms and conditions as the Lessor Trustee in its reasonable discretion considers advisable; and upon each such reletting all rentals actually received by the Lessor Trustee from such reletting shall be applied to the Lessee's obligations hereunder and the other Operative Agreements. If rentals received from such reletting during any Interest Period are less than the Rent with respect to the Equipment to be paid during that period by the Lessee hereunder, the Lessee shall pay any deficiency, as calculated by the Lessor Trustee, to the Lessor Trustee on the next Scheduled Payment Date; (e) Unless the Equipment has been sold in its entirety, the Lessor Trustee may, whether or not the Lessor Trustee has exercised or thereafter at any time exercises 25 any of its rights under clause (c) or (d) of this Section 16.2 with respect to the Equipment or any Item of Equipment, demand, by written notice to the Lessee specifying a date not earlier than 10 days after the date of such notice, that the Lessee purchase, on the date specified in such notice, the Equipment in accordance with the provisions of Sections 18.1 and 19; (f) The Lessor Trustee may sell the Equipment or any Item of Equipment at public or private sale, free and clear of any rights of the Lessee, and without any duty to account to the Lessee with respect to such sale or for the proceeds thereof (provided that the application of the proceeds of any such sale shall be subject to the final paragraph of this Section 16.2), and the Lessee shall pay to the Lessor Trustee, as liquidated damages for loss of a bargain and not as a penalty (in lieu of the Periodic Rent due for the Items of Equipment so sold for any period commencing after the date on which such sale occurs), the sum of (i) all unpaid Periodic Rent payable for each Item of Equipment for all periods preceding the Scheduled Payment Date coincident with or immediately preceding the date of such sale, plus (ii) an amount equal to the excess, if any, of (x) the Stipulated Loss Value of the Equipment or Item of Equipment so sold, computed as of the Scheduled Payment Date coincident with or immediately preceding the date of such sale, over (y) the net proceeds of such sale, plus (iii) interest at the Overdue Rate on the Stipulated Loss Value from the Scheduled Payment Date as of which such Stipulated Loss Value is computed until the date of actual payment, plus (iv) all unpaid Supplemental Rent due with respect to each Item of Equipment so sold; (g) The Lessor Trustee may exercise any other right or remedy available to it under Applicable Law or proceed by appropriate court action (legal or equitable) to enforce the terms hereof or to recover damages for the breach hereof. Separate suits may be brought to collect damages for any period of time, and no suit shall in any manner prejudice the Lessor Trustee's right to collect damages for any subsequent period, or the Lessor Trustee may defer any suit until after the expiration of the Lease Term, in which event the cause of action underlying such suit shall be deemed not to have accrued until the expiration of the Lease Term; (h) The Lessor Trustee may retain and apply against the Lease Balance all sums which the Lessor Trustee would, absent such Event of Default, be required to pay to, or turn over to, the Lessee pursuant to the terms of this Lease; or (i) The Lessor Trustee, to the extent permitted by Applicable Law, as a matter of right and with notice to the Lessee, shall have the right to apply to any court having jurisdiction to appoint a receiver or receivers of the Equipment, and the Lessee hereby irrevocably consents to any such appointment. Any receivers shall have all of the usual powers and duties of receivers in like or similar cases and all of the powers and duties of the Lessor Trustee in case of entry, and shall continue as such and exercise such powers until the date of confirmation of the sale of the Equipment unless such receivership is sooner terminated. The Lessor Trustee shall be entitled to enforce payment of the indebtedness and performance of the obligations secured hereby and to exercise all rights and powers under this 26 Lease or under any other Operative Agreement or other agreement or any laws now or hereafter in force, notwithstanding that some or all of the obligations secured hereby may now or hereafter be otherwise secured, whether by mortgage, security agreement, pledge, lien, assignment or otherwise. Neither the acceptance of this Lease nor its enforcement shall prejudice or in any manner affect the Lessor Trustee's right to realize upon or enforce any other security now or hereafter held by the Lessor Trustee, it being agreed that the Lessor Trustee shall be entitled to enforce this Lease and any other security now or hereafter held by the Lessor Trustee in any order and manner as it determines in its absolute discretion. No remedy herein conferred upon or reserved to the Lessor Trustee is intended to be exclusive of any other remedy herein or by law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by any Operative Agreement to the Lessor Trustee or to which it may otherwise be entitled, may be exercised, concurrently or independently, from time to time and as often as the Lessor Trustee desires. If, pursuant to the Lessor Trustee's exercise of remedies pursuant to this Section 16.2, the Lease Balance and all other amounts due and owing from the Lessee under this Lease and the other Operative Agreements have been paid in full, then the Lessor Trustee shall remit to the Lessee any excess amounts received by the Lessor Trustee. Section 16.3. Waiver of Certain Rights. (a) To the maximum extent permitted by law, the Lessee hereby waives the benefit of any appraisement, valuation, stay, extension, reinstatement and redemption laws now or hereafter in force and all rights of marshalling in the event of any sale of the Equipment or any interest therein, and (b) if this Lease is terminated pursuant to Section 16.2, the Lessee waives, to the fullest extent permitted by law, (i) any notice of entry on the Lessee's premises or the institution of legal proceedings to obtain possession; (ii) any right of redemption or repossession; (iii) the benefit of any laws now or hereafter in force exempting property from liability for rent or for debt or limiting the Lessor Trustee with respect to the election of remedies; and (iv) any other rights which might otherwise limit or modify any of the Lessor Trustee's rights or remedies under this Section 16. SECTION 17. LESSOR TRUSTEE'S RIGHT TO REMEDY Section 17.1. The Lessor Trustee's Right to Remedy the Lessee's Defaults. The Lessor Trustee, without waiving or releasing any obligation of the Lessee or Event of Default, may (but shall be under no obligation to) remedy any Event of Default, including without limitation the failure by the Lessee to maintain the insurance required by Section 13, for the account and at the sole cost and expense of the Lessee and may, to the fullest extent permitted by law, and notwithstanding any right of quiet enjoyment in favor of the Lessee, take possession of the Equipment for such purpose and take all such action on the Event of Default as may be necessary or appropriate for it, but no such possession shall be deemed a termination of this Lease. All reasonable out-of-pocket costs and expenses (including fees and expenses of counsel) incurred by the Lessor Trustee, together with interest thereon at the Overdue Rate from the date on which such costs and expenses are paid by the Lessor Trustee, shall be paid by the Lessee to the Lessor Trustee as Supplemental Rent. 27 SECTION 18. OPTIONS TO RENEW, PURCHASE AND SELL Section 18.1. Purchase of the Equipment. (a) The Lessee shall have (i) the right to purchase all, but not less than all, of the Equipment on the Expiration Date for the Purchase Price, plus all other amounts then due under this Lease, unless the Lessee has exercised its option to sell all, but not less than all, of the Equipment pursuant to Section 18.3 and (ii) the obligation to purchase all, but not less than all, of the Equipment on the Expiration Date if a Default or Event of Default has occurred and is continuing. The Lessee shall give to the Lessor Trustee and the Agent written notice at least 180 days prior to the Expiration Date of its election to exercise its option to purchase set forth in the preceding sentence. Payment of the Purchase Price for the Equipment, together with all other amounts then due under this Lease, shall be made on the Expiration Date at the place of payment specified in Section 3.4 hereof in immediately available funds, and transfer of title to the Equipment shall be in accordance with the procedures set forth in Section 19. (b) In addition to its rights under Section 18.1(a), so long as no Default or Event of Default has occurred and is continuing, the Lessee shall have the right on any Scheduled Payment Date to purchase all but not less than all of the Equipment for the Purchase Price, plus, if applicable, the Make-Whole Amount (as defined below), plus all other amounts then due under this Lease. The Lessee shall give to the Lessor Trustee written notice at least 180 days prior to such Scheduled Payment Date of its election to exercise its option to purchase the Equipment. Payment of the Purchase Price for the Equipment, plus the Make-Whole Amount, plus all other amounts then due under this Lease, shall be made on such Scheduled Payment Date at the place of payment specified in Section 3.4 hereof in immediately available funds, and transfer of title to the Equipment shall be in accordance with the procedures set forth in Section 19. For purposes of this Lease, "Make-Whole Amount" means (i) if the prepayment occurs on or before the first anniversary of the Closing Date, an amount equal to 1% of the Purchase Price or (ii) if the prepayment occurs after the first anniversary and on or before the second anniversary of the Closing Date, an amount equal to 0.5% of the Purchase Price. Section 18.2. [Intentionally Omitted] Section 18.3. Option to Sell the Equipment. (a) So long as no Default or Event of Default has occurred and is continuing, the Lessee shall have the right on the Expiration Date to arrange for the sale of all, but not less than all the Equipment. The Lessee shall give to the Lessor Trustee and the Agent written notice at least 180 days prior to the Expiration Date of its election to exercise its option to sell the Equipment provided for in the preceding sentence and, after delivery of such notice, the Lessee shall have the obligation during the remainder of the Lease Term to use its best efforts to obtain bona fide bids for the Equipment from prospective purchasers who are financially capable of purchasing all of the Equipment for cash on an as-is, where-is basis, without recourse or warranty. No such purchaser shall be the Lessee or any Guarantor or any of their Affiliates. The Lessee will be responsible 28 for hiring qualified brokers and making the Equipment available for inspection by prospective purchasers. The Lessee shall promptly upon the request of the Lessor Trustee, the Agent, the Certificate Holders or any potential purchaser permit inspection of the Equipment and any maintenance records relating to the Equipment, and the Lessee shall comply with the requirements set forth in Section 9.4 and otherwise do all things necessary to sell and deliver possession of the Equipment to any purchaser. All marketing of the Equipment shall be at the Lessee's sole expense. The Lessor Trustee, the Agent and the Certificate Holders shall have the right, but shall be under no duty, to solicit bids, to inquire into the Lessee's efforts to obtain bids, or to take any other action in connection with any sale. (b) All bids received by the Lessee prior to the end of the Lease Term shall be immediately certified and provided to the Lessor Trustee and the Agent in writing, setting forth the amount of such bid and the name and address of the Person submitting such bid. The Lessor Trustee or the Agent may, by giving written notice to the Lessee, reject any bid that is less than the sum of (i) the difference between the Lease Balance and the Maximum Lessee Risk Amount and (ii) all costs and expenses incurred by the Lessor Trustee or the Agent, or both. If every bid is rejected in accordance with the foregoing sentence, the Lessor Trustee may elect to retain the Equipment by written notice to the Lessee from the Lessor Trustee or the Agent, and the Lessee shall return the Equipment to the Lessor Trustee on the Expiration Date in accordance with Section 9. If the Lessor Trustee does not elect to retain the Equipment, then no later than the Expiration Date, the Lessee shall deliver the Equipment to the bidder, if any, who has submitted the highest bid, and the Lessor Trustee shall on the Expiration Date sell all of its right, title and interest in and to the Equipment, AS-IS, WHERE-IS, without recourse or warranty (express or implied) except for a warranty against Lessor's Liens. The excess of the total selling price realized from the sale of the Lessor Trustee's interest in the Equipment over the Purchase Price thereof shall be paid to the Lessee as provided in Section 18.4. (c) In connection with any such sale of the Equipment, the Lessee will provide to the purchaser all customary "seller's" indemnities and representations and warranties regarding title, absence of Liens (except Lessor's Liens) and the condition of the Equipment. The Lessee shall have obtained, at its cost and expense, all required governmental and regulatory consents, recertifications, licenses and approvals and shall have made all filings as required by Applicable Law in order to carry out and complete the transfer of the Equipment. (d) The Lessee shall pay directly, and not from the sale proceeds, all costs and expenses of the sale of the Equipment, whether incurred by the Lessor Trustee, the Agent, or the Lessee, including, without limitation, the cost of all transfer taxes, the reasonable attorneys' fees of the Lessor Trustee, the Agent, and the Lessee, appraiser fees, commissions, filing fees, and all applicable transfer taxes, including without limitation sales, documentary and documentary stamp taxes. (e) If the Lessee exercises its option to sell the Equipment pursuant to Section 18.3(a), the Lessee shall have completed all Alterations and Restoration of the Equipment pursuant to Sections 9.1, 10.1, 10.2 and 10.3 and shall have fulfilled all of the 29 conditions and requirements in connection therewith pursuant to such Sections, in each case at least 180 days prior to the Expiration Date regardless of whether they are within the Lessee's control. The Lessee shall have also paid the cost of all such Alterations commenced prior to the Expiration Date. The Lessee shall not have been excused pursuant to Section 12.1 from complying with any Applicable Law that involved the extension of the ultimate imposition of such Applicable Law beyond the Expiration Date. Any Permitted Liens (other than Lessor's Liens) on the Equipment that were contested by the Lessee shall have been removed and the Lessor Trustee shall have received evidence satisfactory to it that all Liens (other than Lessor's Liens and uncontested Permitted Liens of the type described in clauses (i) and (v) of the definition thereof) have been removed. The Equipment shall be in good operating condition. Section 18.4. End of Term Adjustment. If the aggregate Net Proceeds of Sale (hereinafter defined) of the Equipment sold pursuant to Section 18.3 are less than what the Purchase Price of the Equipment determined as of the Expiration Date would have been, the Lessee shall, on the Expiration Date, pay to the Lessor Trustee, in immediately available funds, an amount equal to the deficiency as an adjustment to the Rent payable under this Lease for the Equipment; provided, however, that so long as no Default or Event of Default has occurred and is continuing, such amount shall not be more than the Maximum Lessee Risk Amount. If the aggregate Net Proceeds of Sale of the Equipment on the Expiration Date are more than what the Purchase Price of the Equipment would have been on that date, the Lessor Trustee shall pay to the Lessee an amount equal to such excess as an adjustment to the Rent payable under this Lease for the Equipment, provided, that the Lessor Trustee shall have the right to offset against such adjustment payable by the Lessor Trustee, any amounts then due and payable from Lessee to the Lessor Trustee hereunder. As used in this Section 18.4, the term "Net Proceeds of Sale" means, with respect to the Equipment sold by the Lessor Trustee to a third party under Section 18.3, the net amount of the proceeds of sale of the Equipment received by the Lessor Trustee on or prior to the Expiration Date, after deducting from the gross proceeds of such sale (i) all sales Taxes and other Taxes as may be applicable to the sale or transfer of the Equipment, (ii) all fees, costs and expenses of such sale incurred by the Lessor Trustee and the Agent, and (iii) any other amounts for which, if not paid, the Lessor Trustee or the Agent would be liable or which, if not paid, would constitute a Lien on the Equipment. The Lessor Trustee's obligation to sell its interest in the Equipment to a third party under Section 18.3 is contingent upon the receipt by the Lessor Trustee of the sum of (i) the amounts, if any, payable by the Lessee with respect thereto pursuant to the first sentence of this Section 18.4 and pursuant to the last paragraph of this Section 18.4, (ii) all unpaid Periodic Rent payable for the Equipment for all Scheduled Payment Dates through the Expiration Date, and (iii) all unpaid Supplemental Rent due with respect to the Equipment as of the Expiration Date. If no bona fide bid is received under (or if all bids received are rejected in accordance with) Section 18.3 hereof for all of the Equipment prior to the Expiration Date, then the Lessee and the Lessor Trustee agree that, in view of the uncertainties of market conditions and the parties' inability to predict what the actual sale price of the Equipment would be, the Net Proceeds of Sale for the Equipment shall be deemed to be zero solely for purposes of the payment adjustment set forth in the first paragraph of this Section 18.4, and the Lessee shall, on 30 the Expiration Date, pay to the Lessor Trustee in immediately available funds, an amount equal to the Purchase Price, but so long as no Default or Event of Default has occurred and is continuing hereunder, no more than the Maximum Lessee Risk Amount for the Equipment as an adjustment to the Rent payable under this Lease, and the Lessee shall return the Equipment to the Lessor Trustee on the Expiration Date in accordance with the provisions of Section 9.4 hereof. Any proceeds from the sale of the Equipment subsequent to the return of the Equipment to the Lessor Trustee shall be retained by the Lessor Trustee and distributed pursuant to the Trust Agreement. SECTION 19. PROCEDURES RELATING TO PURCHASE OF EQUIPMENT Section 19.1. Provisions Relating to the Purchase of Equipment; Conveyance upon Certain Other Events. In connection with the Lessee's purchase of the Equipment in accordance with Section 18.1 or in connection with the Lessee's obligations under Section 16.2(e), on the date on which this Lease is to expire or terminate and upon tender by the Lessee of the amounts set forth in Sections 16 or 18, as applicable, to the Lessor Trustee, the Lessor Trustee shall convey to the Lessee (or to the Lessee's designee) at the Lessee's cost and expense all of the Lessor Trustee's right, title and interest in and to the Equipment, AS-IS, WHERE-IS, without recourse or warranty, express or implied except for a warranty against Lessor's Liens. SECTION 20. ADDITIONAL GUARANTORS Section 20.1. Additional Guarantors. The Lessee will cause each Person which becomes a U.S. Subsidiary to promptly enter into a guarantee of the Obligations and concurrently therewith shall deliver to the Lessor Trustee, the Agent and each Certificate Holder the following items: (a) an executed counterpart of the Guaranty Agreement or a joinder to the Guaranty Agreement (in either case, a "New Guaranty Agreement"), in form and substance satisfactory to the Certificate Holders and the Agent; (b) a certificate signed by an authorized Responsible Officer of such U.S. Subsidiary making representations and warranties to the effect of those contained in Section 5 of the Guaranty Agreement, but with respect to such U.S. Subsidiary and such New Guaranty Agreement; (c) such documents and evidence with respect to such U.S. Subsidiary as the Certificate Holders or the Agent may reasonably request in order to establish the existence and good standing of such U.S. Subsidiary and the authorization of the transactions contemplated by such New Guaranty Agreement; and (d) an opinion of counsel (which may be internal counsel to the Lessee) satisfactory to the Certificate Holders and the Agent to the effect that such New Guaranty Agreement has been duly authorized, executed, and delivered and that it constitutes the legal, valid and binding contract and agreement of such U.S. Subsidiary enforceable in accordance with its terms, except as such terms may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally 31 and except as equitable remedies such as specific performance may be in the discretion of the courts. SECTION 21. ASSIGNMENT RESTRICTIONS Section 21.1. Restrictions on Assignments by the Lessee. The Lessee may not assign, in whole or in part, this Lease or any of its rights or obligations under hereunder or with respect to any Item of Equipment to any Person without the prior written consent of the Lessor Trustee, the Agent, and the Certificate Holders, each of which may withhold its consent in its absolute discretion. No assignment by the Lessee of this Lease or other relinquishment of possession to any Item of Equipment shall in any way discharge or diminish any of the obligations of the Lessee to the Lessor Trustee hereunder, and the Lessee shall remain directly and primarily liable under the Operative Agreements as to any rights or obligations assigned by the Lessee or regarding any Item of Equipment in which rights or obligations have been assigned or otherwise transferred. The restrictions in this Section 21.1 shall not affect the Lessee's subleasing rights under Section 8.2. SECTION 22. NO MERGER OF TITLE Section 22.1. No Merger of Title . There shall be no merger of this Lease or of the leasehold estate created hereby by reason of the fact that the same Person may acquire, own or hold, directly or indirectly, in whole or in part, (a) this Lease or the leasehold estate created hereby or any interest in this Lease or such leasehold estate, (b) the fee estate in the Equipment, except as may expressly be stated in a written instrument duly executed and delivered by the appropriate Person or (c) an ownership interest in the Lessor Trust. SECTION 23. INTENT OF THE PARTIES Section 23.1. Nature of Transaction. (a) The parties intend that (i) for financial accounting purposes with respect to the Lessee, the Lessor Trust be treated as the owner and the lessor of the Equipment and the Lessee be treated as the lessee of the Equipment and (ii) for all other purposes, including federal and all state and local income tax purposes, state real estate and commercial law purposes, and bankruptcy purposes, (A) this Lease be treated as a financing arrangement, (B) the Certificate Holders be deemed lenders making loans to the Lessee in an amount equal to the principal amount of their Trust Certificates from time to time outstanding, which amounts are secured by the Equipment, and 32 (C) the Lessee be treated as the owner of the Equipment and be entitled to all tax benefits ordinarily available to an owner of equipment like the Equipment for such tax purposes. (b) Nevertheless, the Lessee acknowledges and agrees that the Trust Certificate Purchasers, the Certificate Holders, the Agent, and the Lessor Trustee have made no representations or warranties to the Lessee concerning the tax, accounting or legal characteristics of the Operative Agreements and that the Lessee has obtained and relied upon its own tax, accounting and legal advisors concerning the Operative Agreements as it has deemed appropriate. In addition, if any Person, including without limitation, a trustee in bankruptcy, receiver, or similar official, or any Governmental Authority, determines, contrary to the parties' intent, that this Lease is a true lease for state real estate, commercial law or bankruptcy purposes, then this Lease meets the requirements of and shall be deemed a "finance lease" under UCC Article 2A, and the Lessee shall not assert, and hereby waives, any defenses or arguments to the contrary. (c) It is the intent of the parties hereto that this Lease grant a security interest in and mortgage on the Equipment and all proceeds thereof to the Lessor Trustee for the benefit of the Certificate Holders to secure the Lessee's performance and payment of all amounts under this Lease and the other Operative Agreements. Section 23.2. Liens and Security Interests. (a) Specifically, without limiting the generality of Section 23.1, the Lessor Trustee and the Lessee intend and agree that in any insolvency or receivership proceedings, or in a petition under the United States bankruptcy laws or any other applicable insolvency laws or statute of the United States of America or any state or commonwealth thereof affecting the Lessee, any Guarantor, the Lessor Trust, the Lessor Trustee, the Agent or the Certificate Holders, or in any collection actions, the transactions evidenced by the Operative Agreements shall be regarded as loans made by the Certificate Holders as unrelated third party lenders to the Lessee secured by all of the Equipment (it being understood that the Lessee has GRANTED and hereby GRANTS a security interest in all of the Equipment to the Lessor Trustee and its successors and assigns (for the benefit of the Certificate Holders) to secure all such loans and the other Obligations). (b) Specifically, but without limiting the generality of Section 23.1, the Lessor Trustee and the Lessee further intend and agree that, for the purpose of securing the obligation of the Lessee for the repayment of the above-described loans from the Certificate Holders to the Lessee, (i) this Lease shall also be deemed to be a security agreement within the meaning of Article 9 of the Uniform Commercial Code; (ii) the lease provided for hereby and in Section 2 of this Lease shall be deemed to be a grant by the Lessee to the Lessor Trustee and its successors and assigns (for the benefit of the Certificate Holders) of a lien and security interest in all of the right, title and interest of the Lessee in and to the Equipment (including any Replacement Equipment hereafter acquired) and all proceeds of the conversion, voluntary or involuntary, of the foregoing into cash, investments, securities or other property (it being understood that the Lessee 33 hereby grants a security interest in the Equipment and all proceeds thereof to the Lessor Trustee and its successors and assigns (for the benefit of the Certificate Holders) to secure the loans described in Section 23.2(a); (iii) the possession by the Lessor Trustee or any of its agents of notes and such other items of property as constitute instruments, money, negotiable documents or chattel paper shall be deemed to be "possession" by the secured party for purposes of perfecting the security interest pursuant to Section 9-313 of the Uniform Commercial Code or corresponding state law; and (iv) notifications to Persons holding such property, and acknowledgments, receipts or confirmations from financial intermediaries, bankers or agents (as applicable) of the Lessee shall be deemed to have been given for the purpose of perfecting such security interest under all Applicable Laws. The Lessor Trustee and the Lessee shall, to the extent consistent with this Lease, take such actions and execute, deliver, file and record such other documents and financing statements as may be necessary to ensure that, if this Lease is deemed to create a security interest in the Equipment in accordance with this Section 23.2, such security interest would be a perfected security interest (subject only to Permitted Liens) and will be perfected throughout the Lease Term. (c) Specifically, but without limiting the foregoing or the generality of Section 23.1, the Lessee hereby grants, to the Lessor Trustee and its successors and assigns a security interest in all of the Lessee's right, title, and interest in and to the following (collectively, the "Additional Collateral"), all of which are hereby declared and shall be deemed to be a portion of the security for the indebtedness and Obligations described in this Lease: (i) all proceeds, both cash and noncash, of the Equipment; (ii) all right, title and interest of the Lessee (A) in all warranties, chattel paper, documents, general intangibles, trade names, trademarks, service marks, logos (including any names or symbols by which the Equipment is known) and goodwill related to the Equipment and (B) in all other articles of personal property of every kind and nature whatsoever (other than inventory and accounts), tangible or intangible, now, heretofore or hereafter acquired with any proceeds of the Advances (including the advances made by the Original Trust Certificate Purchasers or the Existing Trust Certificate Purchasers), that arise out of or are related to the ownership of the Equipment or are located on or become accessions to the Equipment; (iii) all right, title and interest of the Lessee in any and all leases, rental agreements and arrangements of any sort now or hereafter affecting the Equipment or any portion of it and providing for or resulting in the payment of money to the Lessee for the use of the Equipment or any portion of it, irrespective of whether such leases, rental agreements and arrangements be oral or written, and including any and all extensions, renewals and modifications thereof (the "Subject Leases") and guaranties of the performance or obligations of any lessees thereunder, together with all income, rents, issues, profits and revenues from the Subject Leases (including all security deposits and all other deposits, whether held by the Lessee or in a trust account, and all other deposits and escrow funds 34 relating to any Subject Leases), and all the estate, right, title, interest, property, possession, claim and demand whatsoever at law, as well as in equity, of the Lessee of, in and to the same; provided, however, that although this Lease contains (and it is hereby agreed that this Lease contains) a present, current, unconditional and absolute assignment of all of said income, rents, issues, profits and revenues, the Lessee shall collect and apply such rental payments and revenues as provided in this Lease and the other Operative Agreements; (iv) all right, title and interest of the Lessee in, to and under all franchise agreements, management contracts, consents, authorizations, certificates and other rights of every kind and character of any Governmental Authority affecting the Equipment and all other contracts, licenses and permits now or hereafter affecting the Equipment or any Item of Equipment or Part and all guaranties and warranties with respect to any of the foregoing (the "Subject Contracts"); (v) all right, title and interest of the Lessee in any insurance policies or binders now or hereafter relating to the Equipment, including any unearned premiums thereon, as further provided in this Lease; (vi) all right, title and interest of the Lessee in any and all awards, payments, proceeds and the right to receive the same, either before or after any foreclosure hereunder, as a result of any temporary or permanent injury or damage to, taking of or decrease in the value of the Equipment by reason of casualty, condemnation or otherwise as further provided in this Lease; (vii) all right, title and interest of the Lessee in all escrow and all other deposits (and all letters of credit, certificates of deposit, negotiable instruments and other rights and evidence of rights to cash) now or hereafter relating to the Equipment or the purchase or operation thereof; (viii) all claims and causes of action arising from or otherwise related to any of the foregoing, and all rights and judgments related to any legal actions in connection with such claims or causes of action; and (ix) all Alterations, extensions, additions, improvements, betterments, renewals and replacements, substitutions, or proceeds of any of the foregoing, and all chattel paper, documents, instruments general intangibles and other property of any nature constituting proceeds acquired with proceeds of any of the property described hereinabove. SECTION 24. MISCELLANEOUS Section 24.1. Severability. If any term of this Lease or any application of any term shall be declared invalid or unenforceable, the remainder of this Lease and any other application of the offending term shall not be affected thereby. 35 Section 24.2. Amendments and Modifications. Subject to the requirements, restrictions and conditions set forth in the Participation Agreement, neither this Lease nor any provision hereof may be amended, waived, discharged or terminated except by an instrument in writing signed by the parties hereto. Section 24.3. No Waiver. No failure by the Lessor Trustee, the Agent or any Certificate Holder to insist upon the strict performance of any term hereof or to exercise any right, power or remedy upon a default hereunder, and no acceptance of full or partial payment of Rent during the continuance of any such default, shall constitute a waiver of any such default or of any such term. To the fullest extent permitted by law, no waiver of any default shall affect or alter this Lease, and this Lease shall continue in full force and effect with respect to any other then-existing or subsequent default. Section 24.4. Notices. All notices, demands, requests, consents, approvals and other communications hereunder shall be in writing and directed to the address described in, and deemed received in accordance with the provisions of, Section 10.2 of the Participation Agreement. Section 24.5. Successors and Assigns. All the terms and provisions of this Lease shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Section 24.6. Headings and Table of Contents. The headings and table of contents in this Lease are for convenience of reference only and shall not limit or otherwise affect the meaning hereof Section 24.7. Counterparts. This Lease may be executed in any number of counterparts, each of which shall be an original, but all of which shall together constitute one and the same instrument. Section 24.8. Third Party Beneficiaries. The Lessee and the Lessor Trustee intend that the Agent and each Certificate Holder be third party beneficiaries of the Lessee's obligations under this Lease. Section 24.9. Governing Law. This Lease shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts (excluding its choice-of-law principles of the law that would require the application of the laws of another jurisdiction). Section 24.10. Time of Essence. With respect to each of the Lessee's obligations hereunder, time is of the essence, and each party hereby acknowledges and confirms the foregoing. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 36 IN WITNESS WHEREOF, the parties have caused this Lease to be duly executed and delivered as of the date first above written. WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, as trustee under MW 1997-1 Trust, as Lessor Trustee By ________________________________ C. SCOTT NIELSEN Its: VICE PRESIDENT [Second Amended and Restated Equipment Lease] MAIL-WELL I CORPORATION By ________________________________ ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX [Second Amended and Restated Equipment Lease] EX-10.27 4 exh10p27.txt SECOND AMENDED & RESTATED GUARANTY AGREEMENT EXHIBIT 10.27 =============================================================================== SECOND AMENDED AND RESTATED GUARANTY AGREEMENT dated as of August 6, 2002 Among MAIL-WELL, INC. ABP BOOKS, INC. DISCOUNT LABELS, INC. HILL GRAPHICS, INC. MAIL-WELL COMMERCIAL PRINTING, INC. MAIL-WELL GOVERNMENT PRINTING, INC. MAIL-WELL MEXICO HOLDINGS, INC. MAIL-WELL SERVICES, INC. MAIL-WELL TEXAS FINANCE LP MAIL-WELL WEST, INC. MMTP HOLDINGS, INC. NATIONAL GRAPHICS COMPANY POSER BUSINESS FORMS, INC. WISCO III, L.L.C. Guarantors MAIL-WELL I CORPORATION Lessee FLEET CAPITAL CORPORATION Agent FLEET NATIONAL BANK ORIX FINANCIAL SERVICES, INC. U.S. BANK, NATIONAL ASSOCIATION Trust Certificate Purchasers AND WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, individually and as trustee under the Second Amended and Restated Lessor Trust Agreement, dated as of August 6, 2002, as Lessor Trustee, in respect of MAIL-WELL I CORPORATION Second Amended and Restated Equipment Lease dated as of August 6, 2002 =============================================================================== TABLE OF CONTENTS Page SECTION 1. GUARANTEE.......................................................2 SECTION 2. GENERAL PROVISIONS RELATING TO THE GUARANTEE....................3 SECTION 3. SUBROGATION.....................................................5 SECTION 4. BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES...............6 Section 4.1. Books and Records.............................................6 Section 4.2. Financial Information.........................................6 Section 4.3. Notices to the Agent and the Certificate Holders..............8 SECTION 5. AFFIRMATIVE AND NEGATIVE COVENANTS OF THE GUARANTY PARTIES......9 Section 5.1. Taxes and Other Obligations..................................10 Section 5.2. Legal Existence and Good Standing............................10 Section 5.3. Compliance with Law and Agreements; Maintenance of Licenses..10 Section 5.4. Mortgagee Waiver.............................................10 Section 5.5. Tax Returns..................................................10 Section 5.6. [not used]...................................................11 Section 5.7. [not used]...................................................11 Section 5.8. [not used]...................................................11 Section 5.9. Mergers, Consolidations or Sales............................11 Section 5.10. Distributions; Restricted Investments.......................11 Section 5.11. Transactions Affecting Obligations..........................11 Section 5.12. Guaranties..................................................11 Section 5.13. Debt........................................................12 Section 5.14. Prepayment..................................................12 Section 5.15. Transactions with Affiliates................................12 Section 5.16. [not used]..................................................12 Section 5.17. Business Conducted..........................................12 Section 5.18. [not used]..................................................12 Section 5.19. [not used]..................................................12 Section 5.20. Additional Subsidiaries.....................................12 Section 5.21. Fiscal Year.................................................12 Section 5.22. Fixed Charge Coverage Ratio.................................12 Section 5.23. Adjusted Tangible Net Worth.................................13 Section 5.24. [not used]..................................................13 Section 5.25. Further Assurances..........................................13 SECTION 6. DEFINITIONS; ACCOUNTING PRINCIPLES.............................14 Section 6.1. Certain Defined Terms.......................................14 Section 6.2. Accounting Principles.......................................15 SECTION 7. REPRESENTATIONS AND WARRANTIES OF GUARANTORS. .................16 i SECTION 8. MISCELLANEOUS..................................................17 Section 8.1. Actions and Proceedings.....................................17 Section 8.2. Binding Effect..............................................18 Section 8.3. Waivers; Cumulative Effect..................................18 Section 8.4. Amendments; Waivers.........................................18 Section 8.5. Section Headings............................................19 Section 8.6. Severability................................................19 Section 8.7. Survival of Representations and Warranties..................19 Section 8.8. Notices.....................................................19 Section 8.9. Counterparts................................................19 Section 8.10. Further Assurances..........................................20 Section 8.11. Governing Law...............................................20 ATTACHMENTS TO AMENDED AND RESTATED GUARANTY AGREEMENT: Exhibit A - Acknowledgment to Second Amended and Restated Guaranty Agreement from U.S. Subsidiaries ii SECOND AMENDED AND RESTATED GUARANTY AGREEMENT THIS SECOND AMENDED AND RESTATED GUARANTY AGREEMENT (this "Agreement"), dated as of August 6, 2002, is among MAIL-WELL, INC., a Colorado corporation ("Mail-Well" or "Parent"), ABP BOOKS, INC., a Michigan corporation, DISCOUNT LABELS, INC., an Indiana corporation, HILL GRAPHICS, INC., a Texas corporation, MAIL-WELL COMMERCIAL PRINTING, INC., a Delaware corporation, MAILWELL GOVERNMENT PRINTING, INC., a Colorado corporation, MAIL-WELL MEXICO HOLDINGS, INC., a Colorado corporation, MAIL-WELL SERVICES, INC., a Colorado corporation, MAIL-WELL TEXAS FINANCE LP, a Texas limited partnership, MAIL-WELL WEST, INC., a Delaware corporation, MMTP HOLDINGS, INC., a Colorado corporation, NATIONAL GRAPHICS COMPANY, a Colorado corporation, POSER BUSINESS FORMS, INC., a Delaware corporation, WISCO III, L.L.C., a Delaware limited liability company (Mail-Well and the foregoing entities collectively, together with any Subsidiary of the Lessee which becomes a party hereto pursuant to Section 20.1 of the Lease, the "Guarantors"); MAIL-WELL I CORPORATION, a Delaware corporation (the "Lessee"); FLEET CAPITAL CORPORATION, a Rhode Island corporation, as agent for the Trust Certificate Purchasers (the "Agent"); FLEET NATIONAL BANK, a national banking association, ORIX FINANCIAL SERVICES, INC., a New York corporation, and U.S. BANK, NATIONAL ASSOCIATION, a national banking association (the "Trust Certificate Purchasers"); and WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, a national banking association, in its individual capacity and as trustee (in such capacity, the "Lessor Trustee") under the Second Amended and Restated Lessor Trust Agreement dated as of August 6, 2002 between it and the Trust Certificate Purchasers. RECITALS: WHEREAS, except as provided in Section 6.1 hereof and unless otherwise defined herein, all capitalized terms used in this Agreement shall have the respective meanings assigned thereto in Annex I to the Second Amended and Restated Participation Agreement, dated as of August 6, 2002 (the "Participation Agreement"), among the Lessee, the Lessor Trustee and the Trust Certificate Purchasers; WHEREAS, the Lessee entered into the Original Participation Agreement with the Original Lessor Trustee and the Original Certificate Purchasers, providing for the synthetic lease financing of the portion of the Equipment which was leased to the Lessee pursuant to the Original Equipment Lease; WHEREAS, pursuant to the Original Guaranty Agreement, the Existing Guarantors jointly and severally guaranteed, among other things, the obligations of the Lessee under the Original Participation Agreement and the Original Equipment Lease in favor of the Original Lessor Trustee, individually, as lessor under the Original Equipment Lease and for the benefit of the Original Certificate Holders; WHEREAS, the Original Lessor Trust Agreement has been amended by the Amended and Restated Trust Agreement, the Original Equipment Lease has been amended by the Amended and Restated Equipment Lease, the Original Participation Agreement has been amended by the Amended and Restated Participation Agreement and the Original Guaranty Agreement has been amended by the Amended and Restated and Guaranty Agreement. WHEREAS, the Lessee, the Lessor Trustee and the Trust Certificate Purchasers now desire to refinance the Equipment and the Existing Trust Certificates and, in connection therewith, amend and restate the Amended and Restated Participation Agreement, the Amended and Restated Equipment Lease and the Amended and Restated Trust Agreement; WHEREAS, (a) the Lessee is a Wholly-Owned Subsidiary of Mail-Well and (b) the Guarantors other than Mail-Well are all direct or indirect Wholly-Owned Subsidiaries of the Lessee, and (c) Mail-Well and such Subsidiaries of the Lessee will benefit from the refinancing of the Equipment and the lease by the Lessee of the Equipment pursuant to the Lease; WHEREAS, the parties hereto now desire to amend and restate the Amended and Restated Guaranty Agreement to provide for the joint and several guarantee by the Guarantors of, among other things, the obligations of the Lessee under the Operative Agreements in favor of the other parties thereto, and to make certain other changes as set forth herein; and WHEREAS, the Guarantors are entering into this Agreement for such purpose and in order to induce each of the other parties thereto to enter into and to perform its obligations under each of the other Operative Agreements to which it is a party. NOW, THEREFORE, each of the Guarantors, jointly and severally, the Lessee, the Agent, the Trust Certificate Purchasers and the Lessor Trustee hereby agree that the Amended and Restated Guaranty Agreement shall be amended and restated in its entirety as follows. SECTION 1. GUARANTEE. Each Guarantor, jointly and severally, does hereby unconditionally and irrevocably guarantee, as primary obligor and not merely as surety, the following: (a) to each Person entitled to the payment thereof under the terms of the respective Operative Agreements, the full and prompt payment when due of each and every payment due from the Lessee to such Person pursuant to the Operative Agreements, including, but not limited to, amounts due pursuant to Section 18.4 of the Lease, Periodic Rent, Stipulated Loss Value, Lease Balance, Purchase Price and all other amounts of Supplemental Rent payable under the Lease; (b) to each Person entitled thereto under the terms of the respective Operative Agreements, the full and prompt performance and observance by the Lessee of each and all other covenants and agreements not described in clause (a) above required to be performed or observed by the Lessee under the terms of the Operative Agreements; and (c) the payment in Dollars, upon demand by the Lessor Trustee, the Agent or any Certificate Holder of all costs and expenses (including, reasonable attorneys' fees), as shall have been reasonably expended or incurred in the seizure, rental or sale of the Equipment, or any part thereof, as a result of an Event of Default or in the protection or enforcement of any right, privilege or liability of the Lessor Trustee, the Agent or any Certificate Holder under the Operative Agreements or any action in connection therewith. 2 SECTION 2. GENERAL PROVISIONS RELATING TO THE GUARANTEE. (a) Each and every default in any payment or performance of any obligation of the Lessee under the Operative Agreements shall give rise to a separate claim and cause of action hereunder, and separate claims or suits may be made and brought, as the case may be, hereunder for each such default. (b) This Agreement shall be a continuing, absolute and unconditional guaranty of payment and performance and not of collection and shall remain in full force and effect until each and all of the obligations of the Lessee guaranteed hereunder shall have been fully, satisfactorily and indefeasibly discharged in accordance with the terms and provisions of the Operative Agreements and until each Guarantor shall have fully, satisfactorily and indefeasibly discharged all of its obligations under this Agreement. (c) This Agreement and the liability of each Guarantor hereunder shall remain in full force and effect irrespective of and shall in no way be affected or impaired by (and no notice to any Guarantor shall be required in respect of): (i) the illegality, invalidity, irregularity or unenforceability of the Operative Agreements, or any of them, or of any assignment, amendment, modification or termination of the Operative Agreements, or any of them, or any subleasing or further subleasing of the Equipment, any compromise, waiver, settlement, release, renewal, extension, indulgence, amendment, addition, deletion, change in, modification of, or release of any security for, any of the obligations and liabilities of the Lessee under the Operative Agreements, or any of them, or any redelivery, repossession, sale, transfer or other disposition, surrender or destruction of the Equipment, in whole or part; (ii) the transfer, assignment, subletting or mortgaging or the purported transfer, assignment, subletting or mortgaging of all or any part of the interest of the Lessor Trustee, any Certificate Holder or the Lessee in the Equipment; (iii) any failure of title with respect to the Lessor Trustee's, any Certificate Holder's or the Lessee's interest in the Equipment; (iv) any failure, neglect or omission on the part of the Lessor Trustee, the Agent, any Certificate Holder or any other Person to give any Guarantor notice of the occurrence of any default, Default or Event of Default by the Lessee under the Operative Agreements, or any of them, or to realize upon any obligations or liabilities of the Lessee, or to obtain any insurance on the Equipment, or to establish or maintain the priority or perfection of any interest in the Equipment or any other property included in the Lessor Trust Estate; (v) any defect in the compliance with specifications, condition, design, operation or fitness for use of, or any damage to or loss or destruction of, or any interruption or cessation in the use of the Equipment or any portion thereof by the Lessee or any other Person for any reason whatsoever (including, without limitation, any governmental prohibition or restriction, condemnation, requisition, 3 seizure or any other act on the part of any governmental or military authority, or any act of God or of the public enemy, including without limitation terrorists and criminals) regardless of the duration thereof (even though such duration would otherwise constitute a frustration of purpose of the Lease), whether or not with fault on the part of the Lessee, the Lessor Trustee, the Agent, any Certificate Holder or any other Person; (vi) any merger or consolidation of the Lessee or any Guarantor into or with any other Person or any sale, lease or transfer of any of the assets of the Lessee or any Guarantor to any other Person; (vii) any change in the ownership of any shares of Capital Stock of any Guarantor or the Lessee; or (viii) any other occurrence or circumstance whatsoever, whether similar or dissimilar to the foregoing and any other circumstance that might otherwise constitute a legal or equitable defense or discharge of the liabilities of a guarantor or surety or that might otherwise limit recourse against any Guarantor. (d) The obligation and liability of each Guarantor hereunder shall not be impaired, diminished, abated or otherwise affected (i) by any setoff, counterclaim or defense that the Lessee or such Guarantor or any other Person may have or claim to have, at any time or from time to time, or (ii) by the commencement by or against the Lessee or such Guarantor or any other Person of any proceedings under any bankruptcy or insolvency law or laws relating to the relief of debtors, readjustment of indebtedness, reorganization, arrangement, composition or extension or other similar laws. (e) No Guarantor shall be entitled to, and each Guarantor does hereby waive, to the fullest extent permitted by Applicable Law, every defense available to guarantors, sureties and other secondary parties at law or in equity. Without limiting the generality of the foregoing, each Guarantor hereby waives notice of acceptance of this Agreement and of the nonperformance by the Lessee, diligence, presentment, protest, dishonor, demand for payment from the Lessee, or any other Person, notice of nonpayment or failure to perform on the part of the Lessee and all other notices whatsoever. The guarantee hereunder is a guarantee of payment, performance and compliance and not of collectibility. In order to hold any Guarantor liable hereunder, there shall be no obligation on the part of the Lessor Trustee or any Certificate Holder at any time to demand or resort for payment or performance to the Lessee, to any Guarantor or to any other Person, its properties or assets or to any security, property or other rights or remedies whatsoever, nor shall there be any requirement that the Lessee or any other Person be joined as a party to any proceeding for the enforcement of any provision of this Agreement, and the Lessor Trustee, the Agent, each Certificate Holder, and each other Person entitled to receive payments or the benefit of performance guaranteed hereunder shall have the right to enforce this Agreement irrespective of whether or not legal proceedings or other enforcement efforts against the Lessee are pending, seeking resort to or realization upon or from any of the foregoing. Without limiting the foregoing, it is understood that repeated and successive demands may be made and recoveries may be 4 had hereunder as and when, from time to time, the Lessee shall default under the terms of the Operative Agreements, and that, notwithstanding recovery hereunder for or in respect of any such default, this Agreement shall remain in force and effect and shall apply to each and every subsequent default. Each Guarantor further agrees that, without limiting the generality of this Agreement, if any Event of Default shall have occurred and be continuing and the Lessor Trustee (or any assignee thereof) or the Agent is prevented by Applicable Law from exercising its remedies under Section 16.2 of the Lease, the Lessor Trustee (or any assignee thereof) or the Agent shall be entitled to receive hereunder from any Guarantor, upon demand therefor, the sums which would have otherwise been due from the Lessee had such remedies been exercised. So long as the Lessee shall not have fully paid, performed or discharged all of its obligations under the Operative Agreements, any claim which any Guarantor shall have against the Lessee or any other Person by reason of any payment to the Lessor Trustee, the Agent, any Certificate Holder or any other Person pursuant to this Agreement shall not be asserted or enforced or collected as against, from or to the detriment of the Lessee (including without limitation, any liquidator, trustee in bankruptcy, assignee for the benefit of creditors or receiver of property or assets of the Lessee), the Lessor Trustee, the Agent, any Certificate Holder or such Person in any action, suit or proceeding. (f) No act or omission of any kind or at any time on the part of the Lessor Trustee, the Agent, any Certificate Holder or any other Person in respect of any matter whatsoever including, without limitation, any omission in performance of their respective obligations under the Operative Agreements, shall in any way affect or impair the guarantee hereunder, save for an express written waiver or variation of its terms, which shall be effective only with respect to the Person granting the same and its successors and assigns. (g) The guarantee hereunder shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the obligations hereunder or under the Operative Agreements is rescinded or must otherwise be restored or returned by the Lessor Trustee, the Agent or any Certificate Holder upon or in connection with the insolvency, bankruptcy or reorganization of the Lessee, or otherwise, all as though such payment had not been made. (h) If any Guarantor fails to pay any amount hereunder when due, such Guarantor shall pay interest, on demand, on such amount at the Late Rate, to the Person entitled thereto. Each Guarantor, jointly and severally, further agrees to pay to any party hereto any and all reasonable out-of-pocket costs and expenses, including legal fees and expenses and court costs, incurred by such party in connection with enforcing its rights under this Agreement. SECTION 3. SUBROGATION. No Guarantor may enforce any of its rights hereunder, whether by way of subrogation or otherwise, until all amounts due from the Lessee under the Operative Agreements shall have been paid in full to the parties entitled thereto. Each Guarantor agrees (a) not to take any action to hinder or delay the exercise of any right or remedy granted under the Operative Agreements or 5 any Applicable Law to the Lessor Trustee or the Agent in respect of the Equipment, any other property included in the Lessor Trust Estate or the guarantee hereunder or granted to the Lessor Trustee, the Agent or any Certificate Holder under the Operative Agreements or the guarantee hereunder, and (b) not to exercise or pursue any rights, remedies, powers, privileges or benefits of any kind hereunder (whether available to such Guarantor hereunder or at law or in equity) until such time as all obligations owing from the Lessee under the Operative Agreements have been paid in full to the Persons entitled thereto. SECTION 4. BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES. So long as any Trust Certificate or other Obligation guaranteed under this Agreement shall remain unpaid or unsatisfied, unless the Majority Certificate Holders waive compliance in writing: Section 4.1. Books and Records. Parent shall, and shall cause each of its Subsidiaries to, maintain, at all times, correct and complete books, records and accounts in which complete, correct and timely entries are made of its transactions in accordance with GAAP applied consistently with the audited Financial Statements required to be delivered pursuant to Section ------- 4.2(a). Parent shall, and shall cause each of its Subsidiaries to, by means - ------ of appropriate entries, reflect in such accounts and in all Financial Statements proper liabilities and reserves for all taxes and proper provision for depreciation and amortization of property and bad debts, all in accordance with GAAP. Parent shall, and shall cause each of its Subsidiaries to maintain at all times books and records pertaining to the Equipment and the Additional Collateral in such detail, form and scope as the Agent or any Certificate Holder shall reasonably require. Section 4.2. Financial Information. Parent shall, and shall cause each of its Subsidiaries to promptly furnish to the Agent and each Certificate Holder, all such financial information as the Agent shall reasonably request. Without limiting the foregoing, Parent and its Subsidiaries will furnish to the Agent and each Certificate Holder, in such detail as the Agent or the Certificate Holders shall request, the following: (a) As soon as available, but in any event not later than 90 days after the close of each Fiscal Year, consolidated and consolidating (by business segment) audited balance sheets, income statements, cash flow statements and changes in stockholders' equity for Parent and its consolidated Subsidiaries for such Fiscal Year, and the accompanying notes thereto, setting forth in each case in comparative form figures for the immediately preceding Fiscal Year, all in reasonable detail, fairly presenting the financial position and the results of operations of Parent and its consolidated Subsidiaries as at the date thereof and for the Fiscal Year then ended, and prepared (except for consolidating statements) in accordance with GAAP. Such Financial Statements shall be examined in accordance with generally accepted auditing standards by and accompanied by a report thereon unqualified in any respect of independent certified public accountants of nationally recognized standing selected by Parent and reasonably satisfactory to the Agent. Parent and its Subsidiaries hereby authorize the Agent to communicate directly with their certified public accountants with the approval of, or in the presence of, a Responsible Officer of Parent, and, by this provision, authorize those accountants to disclose to the Agent with the approval of, or in the presence of, a Responsible Officer of 6 Parent, any and all Financial Statements and other supporting financial documents and schedules relating to Parent and its Subsidiaries and to discuss directly with the Agent with the approval of, or in the presence of, a Responsible Officer of Parent, the finances and affairs of Parent and its Subsidiaries. (b) As soon as available, but in any event not later than 30 days after the end of each fiscal quarter of each Fiscal Year, consolidated and consolidating (by business segment) unaudited balance sheets of Parent and its consolidated Subsidiaries as at the end of such quarter, and consolidated and consolidating (by business segment) unaudited income statements and cash flow statements for Parent and its consolidated Subsidiaries for such quarter and for the period from the beginning of the Fiscal Year to the end of such quarter, all in reasonable detail, fairly presenting the financial position and results of operations of Parent and its consolidated Subsidiaries as at the date thereof and for such periods, and, in each case, in comparable form, figures for the corresponding period in the prior Fiscal Year and in the forecast of Parent and its Subsidiaries delivered pursuant to Section 4.2(e), and -------------- prepared (except for consolidating statements) in accordance with GAAP applied consistently with the audited Financial Statements required to be delivered pursuant to Section 4.2(a). Parent shall certify by a -------------- certificate signed by a Responsible Officer that all such statements have been prepared (except for consolidating statements) in accordance with GAAP and present fairly the financial position of Parent and its Subsidiaries as at the dates thereof and its results of operations for the periods then ended, subject to the absence of notes and normal year-end adjustments. (c) With each of the audited Financial Statements delivered pursuant to Section 4.2(a), a certificate of the independent certified -------------- public accountants that examined such Financial Statement to the effect that they have reviewed and are familiar with this Agreement and that, in examining such Financial Statements, they did not become aware of any fact or condition which then constituted a Default or Event of Default (as such terms are defined in the Credit Agreement) with respect to a financial covenant, except for those, if any, described in reasonable detail in such certificate. (d) With each of the annual audited Financial Statements delivered pursuant to Section 4.2(a), and within 30 days after the end of each month, -------------- a certificate of a Responsible Officer of Parent setting forth in reasonable detail the calculations required to establish that Parent and its Subsidiaries were in compliance with the covenants set forth in Sections 5.22 and 5.23 during the period covered (excluding the ------------- ---- comparable prior period) in such Financial Statements and as at the end thereof. Within 30 days after the end of each month, a certificate of a Responsible Officer of Parent stating that, except as explained in reasonable detail in such certificate, (i) all of the representations and warranties of the Lessee and the Guarantors contained in this Agreement and the other Operative Agreements are correct and complete in all material respects as at the date of such certificate as if made at such time, except for those that speak as of a particular date, (ii) the Lessee and the Guarantors are, at the date of such certificate, in compliance in all material respects with all of their respective covenants and agreements in this Agreement and the other Operative Agreements, (iii) no Default or Event of Default then exists or existed during the period covered by the Financial Statements for such month, (iv) describing and analyzing in reasonable detail all material trends, changes, and 7 developments in such Financial Statements; and (v) explaining the variances of the figures in the corresponding budgets and prior Fiscal Year financial statements, which explanations, descriptions, and analysis to be given pursuant to Sections 4.2(d)(iv) or (v) shall be in form and ------------------- --- substance similar to the discussion appearing in the "Management's Discussion and Analysis of Financial Condition and Results of Operation" sections of either Parent's Annual Report on Form 10-K or Parent's Quarterly Report on Form 10-Q. If any such certificate discloses that a representation or warranty is not correct or complete, or that a covenant has not been complied with, or that a Default or Event of Default existed or exists, such certificate shall set forth what action the Lessee and the Guarantors have taken or propose to take with respect thereto. (e) No more than 60 days and not less than 15 days prior to the beginning of each Fiscal Year, annual forecasts (to include forecasted consolidated and consolidating (by business segment) balance sheets, income statements and cash flow statements) for Parent and its Subsidiaries as at the end of and for each quarter of such Fiscal Year. (f) [not used] (g) Promptly upon the filing thereof, copies of all reports, if any, or other documents filed by Parent or any of its Subsidiaries with the Securities and Exchange Commission under the Exchange Act, and all reports, notices, or statements sent or received by Parent or any of its Subsidiaries to or from the holders of any equity interests of Parent (other than routine non-material correspondence sent by shareholders of Parent to Parent) or any such Subsidiary or of any Debt of Parent or any of its Subsidiaries registered under the Securities Act of 1933 or to or from the trustee under any indenture under which the same is issued. (h) As soon as available, but in any event not later than 15 days after the Lessee's or any Guarantor's receipt thereof, a copy of all management reports and management letters prepared for such Person by any independent certified public accountants. (i) Promptly after their preparation, copies of any and all proxy statements, financial statements, and reports which Parent makes available to its shareholders. (j) [not used] (k) [not used] (l) Such additional information as the Agent and/or any Certificate Holder may from time to time reasonably request regarding the financial and business affairs of Parent or any Subsidiary thereof. Section 4.3. Notices to the Agent and the Certificate Holders. The Lessee and each Guarantor shall notify the Agent and the Certificate Holders in writing of the following matters at the following times: (a) Immediately after becoming aware of any Default or Event of Default; 8 (b) Immediately after becoming aware of the assertion by the holder of any Capital Stock of Parent or of any of its Subsidiaries or the holder of any Debt of Parent or any such Subsidiary in a face amount in excess of $1,000,000 that a default exists with respect thereto or that Parent or such Subsidiary is not in compliance with the terms thereof, or the threat or commencement by such holder of any enforcement action because of such asserted default or non-compliance; (c) Immediately after becoming aware of any event or circumstance which could reasonably be expected to have a Material Adverse Effect; (d) [not used] (e) [not used] (f) [not used] (g) [not used] (h) [not used] (i) [not used] (j) (i) At least 10 Business Days' prior written notice of any change in the Lessee's or any Guarantor's name as it appears in the state of its incorporation or other organization, state of incorporation or organization, type of entity, organizational identification number, or form of organization, trade names under which it will sell inventory or create accounts, or to which instruments in payment of accounts may be made payable, and (ii) written notice, concurrent with such change, of any change in the location of any Item of Equipment or; (k) Within 10 Business Days after Parent or any of its ERISA Affiliates knows or has reason to know, that an ERISA Event or a prohibited transaction (as defined in Sections 406 of ERISA and 4975 of the Code (and which could reasonably be expected to result in liability of one or more Guaranty Parties in excess of $500,000)) has occurred, and, when known, any action taken or threatened by the IRS, the DOL or the PBGC with respect thereto. Each notice given under this Section 4.3 shall describe the subject ----------- matter thereof in reasonable detail, and shall set forth the action that Parent or any of its Subsidiaries, or any of their ERISA Affiliates, as applicable, has taken or proposes to take with respect thereto. 9 SECTION 5. AFFIRMATIVE AND NEGATIVE COVENANTS OF THE GUARANTY PARTIES. The Lessee and each Guarantor covenants to the Agent and each Certificate Holder that so long as any of the Obligations remain outstanding or this Agreement is in effect: Section 5.1. Taxes and Other Obligations. Parent shall, and shall cause each of its Subsidiaries to, (a) file when due all tax returns and other reports which it is required to file; (b) pay, or provide for the payment, when due, of all taxes, fees, assessments and other governmental charges against it or upon its property, income and franchises, make all required withholding and other tax deposits, and establish adequate reserves for the payment of all such items, and provide to the Agent and the Certificate Holders, upon request, satisfactory evidence of its timely compliance with the foregoing; (c) pay when due all Debt owed by it; and (d) pay when due all claims of materialmen, mechanics, carriers, warehousemen, landlords, processors and other like Persons, and all other indebtedness owed by it and perform and discharge in a timely manner all other obligations undertaken by it; provided, however, neither Parent nor any of its Subsidiaries need pay -------- ------- any tax, fee, assessment, or governmental charge under clause (b) above, or ---------- pay any claim or indebtedness under clause (d) above (i) that it is ---------- contesting in good faith by appropriate proceedings diligently pursued, (ii) for which Parent or such Subsidiary, as the case may be, has established proper reserves as required under GAAP, (iii) the nonpayment of which does not result in the imposition of a Lien (other than a Permitted Lien), and (iv) with respect to any such taxes, fees, assessments, charges, claims, or indebtedness in an amount greater than $500,000, so long as Parent has notified the Agent thereof in writing. Section 5.2. Legal Existence and Good Standing. Parent shall, and shall cause each of its Subsidiaries to, maintain its legal existence and its qualification and good standing in all jurisdictions in which the failure to maintain such existence and qualification or good standing could reasonably be expected to have a Material Adverse Effect. Section 5.3. Compliance with Law and Agreements; Maintenance of Licenses. Parent shall comply, and shall cause each of its Subsidiaries to comply, in all material respects with all Requirements of Law of any Governmental Authority having jurisdiction over it or its business (including the federal Fair Labor Standards Act and all Environmental Laws). Parent shall, and shall cause each of its Subsidiaries to, obtain and maintain all licenses, permits, franchises, and governmental authorizations necessary to own its property and to conduct its business as conducted on the Closing Date. Parent shall not, nor shall any of its Subsidiaries, modify, amend or alter its articles of incorporation or certificate of formation, or its bylaws or limited liability company operating agreement, as applicable, other than in a manner which does not adversely affect the rights of the Certificate Holders or the Agent. Section 5.4. Mortgagee Waiver. Lessee shall (a) cause to be delivered to the Agent within 60 days after the Closing Date either a mortgagee waiver covering the Items of Equipment located at 4444 N. Detroit Avenue, Toledo, Ohio, or cause an opinion of reputable outside counsel licensed to practice in Ohio, in form and substance satisfactory to the Agent, that the Items of Equipment located at that site are not fixtures under local law, or (b) substitute for those Items of Equipment within 120 days after the Closing Date Replacement Equipment in accordance with Section 15.1 of the Lease. Section 5.5. Tax Returns. Lessee agrees to prepare such tax returns, reports or filings as shall be required of the Lessor Trust Estate by federal law or the laws of the State of Utah. It is the intent of the parties hereto that the Trust Certificates be indebtedness of the Lessee for federal income tax purposes and Lessee shall prepare all such returns, reports and filings required under federal tax law in a manner consistent with such intent. 10 Section 5.6. [not used] Section 5.7. [not used] Section 5.8. [not used] Section 5.9. Mergers, Consolidations or Sales. Neither Parent nor any of its Subsidiaries shall enter into any transaction of merger, reorganization, or consolidation, or consummate any transaction that results in a change in the beneficial ownership of 35% or more of Parent's Capital Stock (other than an issuance of Capital Stock in exchange for cash in which no single investor or group of investors acting in concert will become the beneficial owner(s) of more than 50% of Parent's Capital Stock), or transfer, sell, assign, lease, or otherwise dispose of all or any part of its property, or wind up, liquidate or dissolve, or agree to do any of the foregoing, except: (a) Permitted Dispositions; (b) with concurrent notice to the Agent, any Subsidiary of Parent may merge with, or sell all or substantially all of its assets to, Parent or any other Subsidiary of Parent, provided, the Agent's, the Lessor -------- Trustee's and the Certificate Holders' rights, remedies and other interests under the Operative Agreements shall remain unimpaired, and the surviving Person shall enter into any documentation reasonably requested by the Agent to evidence the continuing liability of such Person for any obligations of the disappearing Subsidiary to the Lessor Trustee, the Agent and the Certificate Holders; and (c) [not used] (d) [not used] (e) any Permitted Acquisition which is consummated as a merger or consolidation. Section 5.10. Distributions; Restricted Investments. Neither Parent nor any of its Subsidiaries shall: (a) directly or indirectly declare or make, or incur any liability to make, any Distribution, except as permitted by the Credit Agreement; or (b) make any Restricted Investment, except as permitted by the Credit Agreement. Section 5.11. Transactions Affecting Obligations. Neither Parent nor any of its Subsidiaries shall enter into any transaction which would be reasonably expected to have a Material Adverse Effect. 11 Section 5.12. Guaranties. Neither Parent nor any of its Subsidiaries shall make, issue, or become liable on any Guaranty, except: (a) as permitted by the Operative Agreements; or (b) as permitted by the Credit Agreement. Section 5.13. Debt. Neither Parent nor any of its Subsidiaries shall incur or maintain any Debt, except: (a) as permitted by the Operative Agreements; or (b) as permitted by the Credit Agreement. Section 5.14. Prepayment. Neither Parent nor any of its Subsidiaries shall voluntarily prepay any Debt, except: (a) as permitted by the Operative Agreements; or (b) as permitted by the Credit Agreement. Section 5.15. Transactions with Affiliates. Except as permitted by the Operative Agreements or by the Credit Agreement, neither Parent nor any of its Subsidiaries shall sell, transfer, distribute, or pay any money or property, including, but not limited to, any fees or expenses of any nature (including, but not limited to, any fees or expenses for management services), to any Affiliate, or lend or advance money or property to any Affiliate, or invest in (by capital contribution or otherwise) or purchase or repurchase any stock or indebtedness, or any property, of any Affiliate, or become liable on any Guaranty of the indebtedness, dividends, or other obligations of any Affiliate. Section 5.16. [not used] Section 5.17. Business Conducted. Parent shall not and shall not permit any of its Subsidiaries to, engage directly or indirectly, in any line of business other than the businesses in which it is engaged on the Credit Agreement Closing Date, or any substantially similar or ancillary line of business. Section 5.18. [not used] Section 5.19. [not used] Section 5.20. Additional Subsidiaries. Parent shall not, directly or indirectly, organize, create, acquire or permit to exist any direct or indirect Subsidiary other than as permitted by the Credit Agreement. Section 5.21. Fiscal Year. Parent shall not change its Fiscal Year, and shall not permit any of its Subsidiaries to have a fiscal year different from Parent's. Section 5.22. Fixed Charge Coverage Ratio. Parent will maintain a Fixed Charge Coverage Ratio for each period of four consecutive fiscal quarters ended on the last day of each fiscal quarter set forth below (or with respect to the fiscal quarters ending on or before June 28, 12 2003, the period commencing on the first day of the fiscal quarter ending September 28, 2002, and ending on the last day of such fiscal quarter) of at least the ratio set forth below opposite each such fiscal quarter: Fiscal Quarter Ending Minimum Fixed Charge Coverage Ratio --------------------- ----------------------------------- September 2002 through and including 1.10:1.00 December 2002 March 2003 and thereafter 1.15:1.00 provided, however, that following the Permitted Disposition of the Printed - -------- ------- Office Products division, and the reduction of the Maximum PP&E Loan Amount to $0, the above minimum Fixed Charge Coverage Ratios will each be reduced by 0.05:1.00. Section 5.23. Adjusted Tangible Net Worth. Parent will maintain Adjusted Tangible Net Worth, determined as of the last day of each of the following fiscal months, of at least the amounts below opposite such month: Measurement Date Minimum Amount ---------------- -------------- June 2002 - August 2002 $295,000,000 September 2002 - November 2002 $300,000,000 December 2002 - February 2003 $310,000,000 March 2003 - May 2003 $315,000,000 June 2003 - August 2003 $325,000,000 September 2003 - November 2003 $335,000,000 December 2003 and thereafter $350,000,000 provided, however, that the foregoing Minimum Amounts shall be adjusted, by: - -------- ------- (a) increasing such amounts to reflect 100% of the net cash proceeds received by Parent from the issuance of Capital Stock since June 27, 2002, and any gains recognized by Parent or its Subsidiaries resulting from the disposition of Assets Held For Disposition or Restructuring Assets since June 27, 2002, and (b) decreasing such amounts to reflect any losses (not to exceed an aggregate amount of $32,000,000) recognized by Parent or its Subsidiaries since June 27, 2002 resulting from the disposition of Assets Held For Disposition or Restructuring Assets, and to reflect any reduction in Adjusted Tangible Net Worth resulting from a Permitted Acquisition (but only up to an aggregate amount for all Permitted Acquisitions equal to 25% of the amount received by Parent from the issuance of Capital Stock since June 27, 2002). Section 5.24. [not used] Section 5.25. Further Assurances. Parent shall execute and deliver, or cause to be executed and delivered, to the Agent and/or the Certificate Holders such documents and agreements, and shall take or cause to be taken such actions, as the Agent or any Certificate Holder may, from time to time, request to carry out the terms and conditions of this Agreement and the other Operative Agreements. 13 SECTION 6. DEFINITIONS; ACCOUNTING PRINCIPLES. Section 6.1. Certain Defined Terms. The following terms have the following meanings when used in Sections 4 and 5 and this Section 6. If the Credit Agreement definition of any term specified below as being defined in the Credit Agreement contains additional capitalized terms, such additional capitalized terms for the purpose of such definition shall have the meanings specified therefor in the Credit Agreement. "Adjusted Tangible Net Worth" has the meaning specified in the Credit Agreement. "Affiliate" has the meaning specified in the Credit Agreement. "Agent" means, if the reference is to the transactions contemplated by the Participation Agreement, the "Agent" as defined therein or, if the reference is to the transactions contemplated by the Credit Agreement, the "Agent" as defined therein. "Assets Held for Disposition" has the meaning specified in the Credit Agreement. "Capital Stock" has the meaning specified in the Credit Agreement. "Credit Agreement" means the Amended and Restated Credit Agreement, dated as of June 27, 2002, among Mail-Well, certain affiliates of Mail-Well, including the Lessee, Bank of America, N.A. and the other financial institutions party thereto. "Credit Agreement Closing Date" means June 27, 2002. "Debt" has the meaning specified in the Credit Agreement. "Distribution" has the meaning specified in the Credit Agreement. "DOL" has the meaning specified in the Credit Agreement. "Environmental Laws" has the meaning specified in the Credit Agreement. "ERISA Affiliate" has the meaning specified in the Credit Agreement. "ERISA Event" has the meaning specified in the Credit Agreement. "Financial Statements" means any financial statements required to be given to the Agent, the Certificate Holders or the Lessor Trustee pursuant to the Operative Agreements. "Fiscal Year" has the meaning specified in the Credit Agreement. "Fixed Charge Coverage Ratio" has the meaning specified in the Credit Agreement. "GAAP" has the meaning specified in the Credit Agreement. "Governmental Authority" has the meaning specified in the Credit Agreement. 14 "IRS" has the meaning specified in the Credit Agreement. "Material Adverse Effect" means a material adverse change in or a material adverse effect upon (a) the operations, business, properties, condition (financial or otherwise) or prospects of (i) the Lessee, (ii) Parent or (iii) any of Parent's primary operating divisions (i.e., print or envelopes) taken as a whole, (b) the Equipment or the Additional Collateral; (c) the ability of the Lessee or any Guarantor to perform under any Operative Agreement to which it is a party; or (d) the legality, validity, binding effect or enforceability against (i) the Lessee, (ii) Parent or (iii) the other Guarantors taken as a whole, of any Operative Agreement to which it is or they are a party. "Maximum PP&E Loan Amount" has the meaning specified in the Credit Agreement. "Permitted Acquisition" has the meaning specified in the Credit Agreement. "Permitted Disposition" has the meaning specified in the Credit Agreement. "Restricted Investment" has the meaning specified in the Credit Agreement. "Restructuring Assets" has the meaning specified in the Credit Agreement. "Subsidiary" has the meaning specified in the Credit Agreement. "U.S. Subsidiary" means a Subsidiary or a Wholly-Owned Subsidiary that is incorporated under the laws of any jurisdiction of the United States (including territories) or located in and a resident of the United States. "Wholly-Owned Subsidiary" means any corporation in which (other than directors' qualifying shares required by law) 100% of the Capital Stock of each class having ordinary voting power, and 100% of the Capital Stock of every other class, in each case, at the time as of which any determination is being made, is owned, beneficially and of record, by the Lessee, or by one or more of the other Wholly-Owned Subsidiaries, or both. Section 6.2. Accounting Principles. (a) Unless the context otherwise clearly requires, all accounting terms not expressly defined herein shall be construed, and all financial computations required under this Agreement shall be made, in accordance with GAAP, consistently applied; provided, however, that if GAAP shall have been modified after the First Closing Date and the application of such modified GAAP shall have a material effect on such financial computations (including the computations required for the purpose of determining compliance with the covenants set forth in Section 5), then such computations shall be made and such financial statements, certificates and reports shall be prepared, and all accounting terms not otherwise defined herein shall be construed, in accordance with GAAP as in effect prior to such modification, unless and until the Majority Certificate Holders and the Lessee shall have agreed upon the terms of the application of such modified GAAP. 15 (b) References herein to "fiscal quarter" or "quarter" refer to such fiscal periods of Parent. (c) Without limiting the generality of the preceding subsection (a), all pro forma financial computations required under this Agreement shall be made in accordance with the SEC Pro Forma Rules. SECTION 7. REPRESENTATIONS AND WARRANTIES OF GUARANTORS. Each Guarantor hereby represents and warrants to the Lessor Trustee, the Agent and the Trust Certificate Purchasers as follows. (a) Such Guarantor and each of its Subsidiaries have been duly organized, are validly existing and in good standing under the laws of the jurisdiction of their formation, are duly qualified to do business as a foreign corporation or limited liability company, as the case may be, and are in good standing in all jurisdictions in which failure to be so qualified would have a Material Adverse Effect on such Guarantor's or Subsidiary's business or, in the case of such Guarantor, the performance of its obligations under this Agreement, and have full power and authority and all necessary licenses and permits to carry on their present business and operations, to own or lease their properties and, in the case of such Guarantor, to enter into and perform its obligations under this Agreement. (b) This Agreement has been duly authorized, executed and delivered by such Guarantor and constitutes the legal, valid and binding obligation of such Guarantor enforceable against such Guarantor in accordance with its terms. (c) The execution and delivery of this Agreement and compliance by such Guarantor with all of the provisions thereof do not and will not contravene any law, governmental rule or regulation or any order of any court or governmental authority or agency applicable to or binding on such Guarantor or contravene the provisions of, or constitute a default under, or result in the creation of any Lien upon the property of such Guarantor under, its articles of incorporation or by-laws, or its certificate of formation or operating agreement, as the case may be, or any indenture, mortgage, contract or other agreement or instrument to which such Guarantor is a party or by which it or any of its properties may be bound or affected. (d) There are no proceedings pending or, to the knowledge of such Guarantor, threatened, and to the knowledge of such Guarantor there is no existing basis for any such proceedings, against or affecting such Guarantor or any of its Subsidiaries in any court or before any governmental authority or arbitration board or tribunal which, if adversely determined, might individually or in the aggregate have a Material Adverse Effect on properties, business, profits or condition (financial or otherwise) of such Guarantor or its Subsidiaries or impair the ability of such Guarantor to perform its obligations under this Agreement. Such Guarantor is not in default with respect to any order of any court or governmental authority or arbitration board or tribunal. (e) Neither the nature of such Guarantor, or of any of its businesses or properties, nor any relationship between such Guarantor and any other Person, nor any 16 circumstance in connection with the execution and delivery of this Agreement, nor the consummation by such Guarantor of any of the transactions contemplated by this Agreement, is such as to require a consent, approval or authorization of, or filing, registration or qualification with, any governmental authority on the part of such Guarantor in connection with the execution, delivery and performance of this Agreement. (f) Neither such Guarantor nor any of its Subsidiaries is or, but for the passage of time, will be in violation in any material respect of any term of any charter instrument, by-law or other material agreement or instrument to which it is a party or by which it may be bound. Such Guarantor and each of its Subsidiaries is in compliance with all laws, ordinances, governmental rules and regulations to which it is subject, the failure to comply with which would have a Material Adverse Effect on its operations or condition, financial or otherwise, or would impair the ability of such Guarantor to perform its obligations under this Agreement, and has obtained all licenses, permits, franchises and other governmental authorizations material to the conduct of its business. (g) The consolidated financial statements provided to the Trust Certificate Purchasers by Mail-Well, and the related consolidated statements of income and retained earnings, were prepared in accordance with GAAP and fairly present the consolidated financial condition of Mail-Well with respect to its assets, liabilities and operations. Mail-Well has no contingent liabilities for Taxes, unusual forward or long-term commitments, or unrealized or anticipated losses from any unfavorable commitments which could have a Material Adverse Effect on it or any of its Subsidiaries. No event has caused a Material Adverse Effect on Mail-Well or any of its Subsidiaries since the date of the audited financial statements last delivered to the Trust Certificate Purchasers. (h) The representations and warranties of the Lessee contained in Section 3.2 of the Participation Agreement are true and correct. SECTION 8. MISCELLANEOUS. Section 8.1. Actions and Proceedings. Any legal action or proceeding against any Guaranty Party with respect to this Agreement or any other Operative Agreement may be brought in any court of competent jurisdiction located in Boston, Massachusetts as the Lessor Trustee, the Agent, any Certificate Holder or their respective successors and assigns, as the case may be, may elect, and by execution and delivery of this Agreement each Guaranty Party irrevocably submits to the nonexclusive jurisdiction of any such court for purposes of legal actions and proceedings hereunder and, in the case of any such legal action or proceeding brought in any such court, hereby irrevocably consents to the service of process out of any such court in any such action or proceeding by the mailing of copies thereof by registered mail, postage prepaid, to such Guaranty Party at its address as provided in Section 8.8 hereof, or by any other means permitted by Applicable Law. If it becomes necessary for the purpose of service of process out of any such court, each Guaranty Party agrees that any of its Responsible Officers is and will be authorized to receive, for and on behalf of it, service of process in any such legal action or proceeding. To the extent permitted by law, final judgment (a certified copy of which shall be conclusive evidence of the fact and of the amount of any indebtedness of each Guaranty Party to the Lessor Trustee, the Agent or any Certificate Holder, as the case may be) 17 against such Guaranty Party in any such legal action or proceeding shall be conclusive and may be enforced in any other jurisdiction by suit on an unsatisfied judgment. Each Guaranty Party hereby irrevocably waives and agrees not to assert, by way of motion, as a defense or otherwise, in any legal action or proceeding brought hereunder (a) that it or any of its property is immune from the above described legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution or otherwise), (b) that such action or proceeding is brought in an inconvenient forum, that venue for the action or proceeding is improper or that this Agreement or any other Operative Agreement may not be enforced in or by such court, or (c) any defense that would hinder or delay the levy, execution or collection of any amount to which any party hereto is entitled pursuant to a final judgment of any court having jurisdiction. Nothing in these provisions shall limit any right of the Lessor Trustee, the Agent or any Certificate Holder to bring actions, suits or proceedings in the courts of any other jurisdiction. Section 8.2. Binding Effect. This Agreement and every part hereof shall be binding upon each Guaranty Party and its successors and assigns, and shall inure to the benefit of, and to the extent provided herein shall be directly enforceable by, the Lessor Trustee, the Agent and each Certificate Holder and their respective successors and assigns. Section 8.3. Waivers; Cumulative Effect. A waiver by the Lessor Trustee, the Agent or any Certificate Holder of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Lessor Trustee, the Agent or such Certificate Holder would otherwise have had on any future occasion with regard to any subsequent breach. No failure to exercise nor any delay in exercising on the part of the Lessor Trustee, the Agent or any Certificate Holder any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and may be exercised singlely or concurrently, and are not exclusive of any rights and remedies provided by law. Section 8.4. Amendments; Waivers. (a) [not used] (b) The covenants in Sections 5.1, 5.2, 5.3, 5.12, 5.13, 5.14, 5.15, 5.17, 5.20, 5.22 and 5.23 shall be deemed automatically amended or waived to the extent the corresponding covenants in the Credit Agreement are amended or waived, and any related definitions set forth in Section 6, except for the definitions applicable to Sections 5.22 and 5.23, shall be deemed automatically amended to the extent the corresponding definitions in the Credit Agreement are amended, in each case in accordance with the Credit Agreement, such amendments or waivers to be effective as and when effective under the Credit Agreement; provided that (i) no such amendment or waiver shall affect any other provisions of the Operative Agreements, (ii) if the Credit Agreement is terminated, the foregoing sections and definitions shall survive for the purposes of this Agreement as they were immediately prior to such termination, (iii) the Lessor Trustee, the Agent and the Certificate Holders shall receive copies of all notices, correspondence, information and documents related to such amendments or waivers under the Credit Agreement at the time such are received by any of the parties to the Credit Agreement, 18 (iv) the Certificate Holders shall receive from the Lessee fees and other consideration proportionate in amount to any fees and other consideration paid to the parties to the Credit Agreement as to such amendment or waiver (such fees and other consideration paid to the Certificate Holders shall be in the same proportion to the then outstanding Lease Balance as the proportion of such fees and consideration paid with respect to the amendment or waiver as to the Credit Agreement bear to the aggregate of outstanding principal and available credit under such agreement) and (v) no amendment or waiver under the Credit Agreement shall waive or reduce the applicable Minimum Fixed Charge Coverage Ratio in Section 5.22 or the applicable Minimum Adjusted Tangible Net Worth in Section 5.23 below the minimums specified in this Agreement as of the date of this Agreement. Section 8.5. Section Headings. The section headings in this Agreement are for convenience of reference only and shall neither be deemed to be a part of this Agreement nor modify, define, expand or limit any of the terms or provisions hereof. All references herein to numbered sections, unless otherwise indicated, are to sections of this Agreement. Section 8.6. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or any provision in any other Operative Agreement, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 8.7. Survival of Representations and Warranties. All warranties, representations and covenants made by any Guaranty Party herein, in any other Operative Agreement or in any certificate or other instrument delivered on the Closing Date by it or on its behalf under this Agreement or any of the other Operative Agreements have been relied upon by the Lessor Trustee, the Agent and each Certificate Holder, regardless of any investigation made by the Lessor Trustee, the Agent or such Certificate Holder or on their behalf, and shall survive the execution and delivery of this Agreement. All statements in any such certificate or other instrument shall constitute warranties and representations by such Guaranty Party hereunder. Except for the warranties, representations and covenants referred to above, no Guaranty Party has made any further or other warranties, representations or covenants upon which any of the parties has relied upon in entering into the transactions contemplated by the Operative Agreements. Section 8.8. Notices. All communications and notices required or permitted hereunder shall be given in the manner specified in Section 10.2 of the Participation Agreement and, if to any Guarantor, to such Guarantor at 8310 South Valley Highway, Suite 400, Englewood, Colorado 80112, Attention: President, Telecopy: 303-397-7400, or such other address as such Guarantor may designate by notice to the other parties duly given in accordance with this Section. Section 8.9. Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which, when so executed and delivered, shall be an original, but all such counterparts shall together constitute but one and the same instrument. 19 Section 8.10. Further Assurances. Each Guaranty Party hereby agrees to execute and deliver all such instruments and take all such action as the Lessor Trustee or any Certificate Holder may from time to time reasonably request in order to fulfill the purposes of this Agreement. Section 8.11. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (EXCLUDING ITS CHOICE-OF-LAW PRINCIPLES THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION). 20 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed the day and year set forth above. GUARANTORS MAIL-WELL, INC. By ----------------------------------- ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX ABP BOOKS, INC. By ----------------------------------- ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX DISCOUNT LABELS, INC. By ----------------------------------- ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX HILL GRAPHICS, INC. By ----------------------------------- ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX MAIL-WELL COMMERCIAL PRINTING, INC. By ----------------------------------- ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX [Second Amended & Restated Guaranty Agreement] GUARANTORS MAIL-WELL GOVERNMENT PRINTING, INC. By ----------------------------------- ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX MAIL-WELL MEXICO HOLDINGS, INC. By ----------------------------------- ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX MAIL-WELL SERVICES, INC. By ----------------------------------- ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX MAIL-WELL TEXAS FINANCE LP By: MAIL-WELL I CORPORATION, its General Partner By ----------------------------------- ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX MAIL-WELL WEST, INC. By ----------------------------------- ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX [Second Amended & Restated Guaranty Agreement] GUARANTORS MMTP HOLDINGS, INC. By ----------------------------------- ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX NATIONAL GRAPHICS COMPANY By ----------------------------------- ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX POSER BUSINESS FORMS, INC. By ----------------------------------- ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX WISCO III, L.L.C. By ----------------------------------- ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX [Second Amended & Restated Guaranty Agreement] LESSEE MAIL-WELL I CORPORATION By ----------------------------------- ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX [Second Amended & Restated Guaranty Agreement] AGENT FLEET CAPITAL CORPORATION By ----------------------------------- Peter Salvadore Vice President [Second Amended & Restated Guaranty Agreement] TRUST CERTIFICATE PURCHASER FLEET NATIONAL BANK By ----------------------------------- Edward W. O'Brien Banking Officer [Second Amended & Restated Guaranty Agreement] TRUST CERTIFICATE PURCHASER ORIX FINANCIAL SERVICES, INC. By ----------------------------------- Mark Kassis Senior Vice President [Second Amended & Restated Guaranty Agreement] TRUST CERTIFICATE PURCHASER U.S. BANK, NATIONAL ASSOCIATION By ----------------------------------- Its: [Second Amended & Restated Guaranty Agreement] LESSOR TRUSTEE WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, as trustee under MW 1997-1 Trust, as Lessor Trustee By ----------------------------------- C. SCOTT NIELSEN Its: VICE PRESIDENT [Second Amended & Restated Guaranty Agreement] EX-10.28 5 exh10p28.txt SECOND AMENDED & RESTATED PARTICIPATION AGREE. EXHIBIT 10.28 ============================================================================ SECOND AMENDED AND RESTATED PARTICIPATION AGREEMENT Dated as of August 6, 2002 Re: MW 1997-1 TRUST Synthetic Lease of Envelope and Commercial Printing Equipment to Mail-Well I Corporation Among MAIL-WELL I CORPORATION Lessee FLEET CAPITAL CORPORATION Arranger and Agent FLEET NATIONAL BANK ORIX FINANCIAL SERVICES, INC. U.S. BANK, NATIONAL ASSOCIATION Trust Certificate Purchasers AND WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, not in its individual capacity, except as expressly provided herein, but solely as trustee under MW 1997-1 Trust Lessor Trustee ============================================================================ TABLE OF CONTENTS
SECTION HEADING PAGE Parties..................................................................................... 1 Recitals.................................................................................... 1 SECTION 1. COMMITMENTS OF TRUST CERTIFICATE PURCHASERS; PAYMENT BY LESSEE; PAYMENTS BY LESSOR TRUSTEE............................ 2 Section 1.1 Advances by Trust Certificate Purchasers................................. 2 Section 1.2 The Closing Date......................................................... 2 Section 1.3 Expiration of Commitments................................................ 2 Section 1.4 Several Commitments...................................................... 2 Section 1.5 Lessee Commitment........................................................ 2 Section 1.6 Payment by Lessor Trustee................................................ 2 SECTION 2. INTEREST AND CHANGE IN CIRCUMSTANCES..................................... 3 Section 2.1 Interest Rate............................................................ 3 Section 2.2 Computation of Interest.................................................. 3 Section 2.3 Adverse Determination.................................................... 3 Section 2.4 Invoicing of Periodic Rent............................................... 3 SECTION 3. REPRESENTATIONS AND WARRANTIES........................................... 4 Section 3.1 Warranties and Representations of Wells Fargo Bank Northwest, National Association and the Lessor Trustee....................................... 4 Section 3.2 Warranties and Representations of the Lessee............................. 6 Section 3.3 Private Offering......................................................... 9 Section 3.4 Representations of the Trust Certificate Purchasers; Transfer of Trust Certificates; Participations............................................. 9 SECTION 4. CLOSING CONDITIONS...................................................... 12 Section 4.1 Conditions Precedent to Investment on the Closing Date.................. 12 Section 4.2 [not used].............................................................. 15 SECTION 5. SPECIAL RIGHTS OF TRUST CERTIFICATE PURCHASERS.......................... 15 SECTION 6. LESSEE'S INDEMNITIES.................................................... 16 Section 6.1 General Indemnification................................................. 16 Section 6.2 Actions, Suits or Proceedings in Respect of Claims...................... 17 Section 6.3 General Tax Indemnity................................................... 18 Section 6.4 Indemnity Payments in Addition to Lease Obligations..................... 22 Section 6.5 Increased Costs, etc.................................................... 22 Section 6.6 Funding Losses.......................................................... 23 i SECTION 7. INDEMNITIES OF THE LESSOR TRUSTEE AND THE TRUST CERTIFICATE PURCHASERS.................................................. 23 SECTION 8. CERTAIN INTENTIONS OF THE PARTIES....................................... 23 Section 8.1 Nature of Transaction................................................... 23 Section 8.2 Amounts Due Under the Lease............................................. 24 SECTION 9. THE AGENT............................................................... 25 Section 9.1 Appointment............................................................. 25 Section 9.2 Certain Duties.......................................................... 25 Section 9.3 Terminations, Amendments, Waivers etc.; Unanimous Vote Matters.......... 25 Section 9.4 Delegation of Duties.................................................... 26 Section 9.5 Exculpatory Provisions.................................................. 26 Section 9.6 Reliance by the Agent................................................... 27 Section 9.7 Notice of Default....................................................... 27 Section 9.8 Non-Reliance on the Agent and Other Trust Certificate Purchasers........ 28 Section 9.9 Indemnification......................................................... 28 Section 9.10 The Agent in Its Individual Capacity.................................... 28 Section 9.11 Successor Agent......................................................... 29 Section 9.12 The Agent's Duty of Care................................................ 29 SECTION 10. MISCELLANEOUS........................................................... 29 Section 10.1 Amendments.............................................................. 29 Section 10.2 Notices................................................................. 29 Section 10.3 Survival................................................................ 30 Section 10.4 Successors and Assigns.................................................. 30 Section 10.5 Governing Law........................................................... 30 Section 10.6 Counterparts............................................................ 30 Section 10.7 Headings and Table of Contents.......................................... 30 Section 10.8 Limitations of Liability................................................ 30 Section 10.9 Transactional Expenses.................................................. 32 Signatures..................................................................................31
ii ATTACHMENTS TO THE PARTICIPATION AGREEMENT Schedule I -- Schedule of Trust Certificate Purchasers; Commitments; Applicable Percentages Schedule II -- Description of the Account Schedule III -- Subsidiaries of the Lessee and Ownership of Subsidiary Stock Schedule IV -- Equipment, Sites, Landlords and Mortgages Annex I -- Definitions Exhibit A -- Form of UCC-3 Financing Statements iii SECOND AMENDED AND RESTATED PARTICIPATION AGREEMENT THIS SECOND AMENDED AND RESTATED PARTICIPATION AGREEMENT (this "Agreement"), dated as of August 6, 2002, is among MAIL-WELL I CORPORATION, a Delaware corporation (the "Lessee"); FLEET CAPITAL CORPORATION, a Rhode Island corporation, as arranger and as agent for the Trust Certificate Purchasers (the "Agent"); FLEET NATIONAL BANK, a national banking association, ORIX FINANCIAL SERVICES, INC., a New York corporation, and U.S. BANK, NATIONAL ASSOCIATION, a national banking association, as trust certificate purchasers (the "Trust Certificate Purchasers"); and WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, a national banking association, not in its individual capacity, except as expressly provided herein, but solely as trustee (the "Lessor Trustee") under MW 1997-1 Trust created under the Trust Agreement referred to below. RECITALS: A. The capitalized terms used in this Agreement shall have the respective meanings specified in Annex I attached hereto, unless otherwise herein defined or the context hereof shall otherwise require. B. The Original Lessor Trustee and the Original Certificate Purchasers entered into the Original Trust Agreement and, pursuant to the authorities and directions contained therein, the Original Lessor Trustee and the Lessee entered into the Original Equipment Lease, providing for the lease of a portion of the Equipment, which was acquired by the Original Lessor Trustee and financed by the Original Certificate Purchasers pursuant to the Original Participation Agreement, and the Original Guarantors, the Lessee, the Original Lessor Trustee and the Original Certificate Purchasers entered into the Original Guaranty Agreement. C. The Original Trust Agreement has been amended by the Amended and Restated Trust Agreement, the Original Equipment Lease has been amended by the Amended and Restated Equipment Lease, the Original Participation Agreement has been amended by the Amended and Restated Participation Agreement and the Original Guaranty Agreement has been amended by the Amended and Restated and Guaranty Agreement. D. The parties hereto now desire to refinance the Equipment and in connection therewith amend and restate the Amended and Restated Participation Agreement as hereinafter set forth. E. Concurrently with the execution and delivery of this Agreement, (i) the Original Lessor Trustee will resign and the Trust Certificate Purchasers will appoint the Lessor Trustee as successor to the Original Lessor Trustee, (ii) the Lessor Trustee and the Trust Certificate Purchasers will enter into the Trust Agreement, (iii) the Lessor Trustee and the Lessee will enter into the Equipment Lease, and (iv) the Guarantors, the Lessee, the Lessor Trustee and the Trust Certificate Purchasers will enter into the Guaranty Agreement. NOW, THEREFORE, the parties hereto agree that the Amended and Restated Participation Agreement shall be amended and restated in its entirety to provide as follows. SECTION 1. COMMITMENTS OF TRUST CERTIFICATE PURCHASERS; PAYMENT BY LESSEE; PAYMENTS BY LESSOR TRUSTEE. Section 1.1 Advances by Trust Certificate Purchasers. (a) Advances. Subject to the terms and conditions hereof and on the basis of the representations and warranties hereinafter set forth, each Trust Certificate Purchaser agrees to advance to the Lessor Trustee, on the Closing Date, an amount (an "Advance") equal to its Commitment, against delivery by the Lessor Trustee of Trust Certificates in the aggregate principal amount of such Advance and of the series to be purchased by such Trust Certificate Purchaser (set forth opposite such Trust Certificate Purchaser's name on Schedule I ---------- hereto). The Trust Certificates delivered to each Trust Certificate Purchaser on the Closing Date will, unless otherwise requested by a Trust Certificate Purchaser, be registered in the manner set forth on Schedule I hereto. ---------- (b) Failure to Advance, Etc. If on the Closing Date any Trust Certificate Purchaser shall fail to make the Advance to be made by such Trust Certificate Purchaser on the Closing Date pursuant to Section 1.1(a) or if the conditions to the obligation of any Trust Certificate Purchaser specified in Section 4 have not been fulfilled, the Trust Certificate Purchasers may thereupon elect to be relieved of all further obligations under this Agreement. Nothing in this Section shall operate to relieve the Lessee from its obligations hereunder or to waive any of the Trust Certificate Purchasers' rights against the Lessee. Section 1.2 The Closing Date. The Advances to be made by the Trust Certificate Purchasers under Section 1.1(a) shall be made on one date (the "Closing Date"), not later than the expiration of the commitment of the Trust Certificate Purchasers as set forth in Section 1.3, which date shall be the date designated by the Lessee for the refinancing of the Equipment. Each Trust Certificate Purchaser's Advance shall be made available to the Lessor Trustee in the Account no later than 12:00 Noon, Salt Lake City, Utah time on the Closing Date in Federal Reserve or otherwise immediately available funds current in Salt Lake City, Utah. Section 1.3 Expiration of Commitments. The commitment of each Trust Certificate Purchaser under Section 1.1(a) shall expire on August 6, 2002. Section 1.4 Several Commitments. The obligations hereunder of the Trust Certificate Purchasers shall be several and not joint and no Trust Certificate Purchaser shall be liable or responsible for the acts or defaults of any other Trust Certificate Purchaser. Section 1.5 Lessee Commitment. The Lessee agrees to pay to the Lessor Trustee, on the Closing Date, an amount equal to the difference between (a) the aggregate of the Advances, minus the Capitalized Transaction Costs, and (b) the principal of and accrued interest on the Existing Trust Certificates and all other amounts owed to the Original Lessor Trustee and the Existing Certificate Purchasers under the Existing Operative Agreements. Section 1.6 Payment by Lessor Trustee. Lessor Trustee agrees to pay, on the Closing Date, from the amounts received by the Lessor Trustee from the Trust Certificate Purchasers and the Lessee pursuant to this Section 1, (a) to the Original Lessor Trustee and the Existing 2 Certificate Purchasers, the principal of and accrued interest on the Existing Trust Certificates and all other amounts owed to the Original Lessor Trustee and the Existing Certificate Purchasers under the Existing Operative Agreements and (b) to the Persons entitled thereto, the Capitalized Transaction Costs. SECTION 2. INTEREST AND CHANGE IN CIRCUMSTANCES. Section 2.1 Interest Rate. Each Trust Certificate shall bear interest on the Outstanding Certificate Balance for Interest Calculations set forth on Schedule 1-A or Schedule 1-B to the Trust Agreement, as the case may be, for each Interest Period at a rate per annum determined by adding the Applicable Margin for such Interest Period to the Adjusted LIBOR for such Interest Period, provided that if the principal of or interest on any Trust Certificate is not paid when due (whether by lapse of time, acceleration or otherwise) such overdue principal and (to the extent permitted by Applicable Law) overdue interest shall bear interest, whether before or after judgment, until payment in full thereof at the Overdue Rate. Interest on the Trust Certificates shall be due and payable on the last day of each Interest Period applicable thereto, provided that any payment of interest which is due on a date which is not a Business Day shall be payable on the next succeeding Business Day, unless the result of such extension would be that such payment would be made in another calendar month in which event such payment shall be made on the immediately preceding Business Day, and interest on overdue principal and (to the extent permitted by Applicable Law) interest shall be due and payable upon demand. Section 2.2 Computation of Interest. All interest on the Trust Certificates shall be computed on the basis of a year of 360 days for the actual number of days elapsed. Section 2.3 Adverse Determination. Notwithstanding any other provisions of this Agreement or of the Trust Certificates or any other Operative Agreement, if at any time any Trust Certificate Purchaser or Certificate Holder shall in good faith make an Adverse Determination, such Trust Certificate Purchaser or Certificate Holder shall promptly notify the Lessor Trustee and the Lessee thereof and from and after the date specified in such notice the Trust Certificates held by such Trust Certificate Purchaser or Certificate Holder shall bear interest at the Alternate Rate. Any determination made by a Trust Certificate Purchaser or Certificate Holder shall, absent manifest error, be final and conclusive and binding upon all parties. Section 2.4 Invoicing of Periodic Rent. Prior to each Interest Period, the Lessor Trustee shall calculate the interest due on the Trust Certificates for such Interest Period and shall promptly give notice to the Lessee and (with respect to the Trust Certificates held by any Certificate Holder) the Certificate Holders as to the amount so calculated. In addition, the Lessor Trustee shall, at least three Business Days before each Scheduled Payment Date, give notice to the Lessee and the Certificate Holders of the amount of Periodic Rent then due. The calculations and notices to be made by the Lessor Trustee pursuant to this Section 2.4 are only for the convenience of the parties hereto; any error made by the Lessor Trustee in the calculation of interest due on the Trust Certificates or in the amount of any installment of Periodic Rent or any failure by the Lessor Trustee to give any notice required by this Section 2.4 shall not affect the amount of interest due on the Trust Certificates, the obligation of the Lessee to make the 3 payments of Periodic Rent payable under the Lease or the amount of any such payments of Periodic Rent. SECTION 3. REPRESENTATIONS AND WARRANTIES. Section 3.1 Warranties and Representations of Wells Fargo Bank Northwest, National Association and the Lessor Trustee. The Lessor Trustee warrants and represents to the Lessee and the Trust Certificate Purchasers in its individual capacity, notwithstanding the provisions of Section 10.8 hereof or any similar provision of any other Operative Agreement, that: (a) Wells Fargo Bank Northwest, National Association (i) is a national banking association duly organized, validly existing and in good standing under the laws of the United States; and (ii) has the corporate power and authority to enter into and perform its obligations under the Trust Agreement. (b) There are no proceedings pending, or to the knowledge of Wells Fargo Bank Northwest, National Association threatened, and to the knowledge of Wells Fargo Bank Northwest, National Association there is no existing basis for any such proceedings, against or affecting Wells Fargo Bank Northwest, National Association in any court or before any governmental authority or arbitration board or tribunal which, if adversely determined, might materially and adversely affect the Lessor Trust Estate or would call into question the right, power or authority of Wells Fargo Bank Northwest, National Association or the Lessor Trustee to enter into or perform the Lessor Trustee Agreements. (c) The Lessor Trust Estate is free and clear of any Lessor's Liens attributable to Wells Fargo Bank Northwest, National Association. Except as contemplated by the Operative Agreements, neither Wells Fargo Bank Northwest, National Association nor the Lessor Trustee has by affirmative act conveyed any interest in the Lessor Trust Estate to any Person. (d) Neither the nature of the Lessor Trust Estate, nor any relationship between Wells Fargo Bank Northwest, National Association and any other Person, nor any circumstance in connection with the offer, issue, sale or delivery of Trust Certificates or the execution and delivery of the Lessor Trustee Agreements requires a consent, approval or authorization of, or filing, registration or qualification on the part of Wells Fargo Bank Northwest, National Association with, any Federal governmental authority governing the banking and trust powers of Wells Fargo Bank Northwest, National Association or any State of Utah governmental authority in connection with the execution, delivery and performance of the Lessor Trustee Agreements or the offer, issue, sale or delivery of the Trust Certificates. (e) This Agreement and the Trust Agreement have been duly authorized by all necessary corporate action on the part of Wells Fargo Bank Northwest, National Association, have been duly executed and delivered by Wells Fargo Bank Northwest, 4 National Association and constitute the valid and binding obligations of Wells Fargo Bank Northwest, National Association, enforceable against Wells Fargo Bank Northwest, National Association in accordance with their terms, except as such terms may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and except as equitable remedies such as specific performance may be in the discretion of the courts. (f) The execution and delivery of this Agreement (to the extent entered into in its individual capacity) and the Trust Agreement and compliance by Wells Fargo Bank Northwest, National Association, in its individual capacity, with all of the provisions thereof do not and will not contravene any law of the United States or the State of Utah affecting the banking or trust powers of Wells Fargo Bank Northwest, National Association or any order of any court or governmental authority or agency applicable to or binding on the banking and trust powers of Wells Fargo Bank Northwest, National Association, or its charter documents or its by-laws, or any indenture, mortgage, contract or other agreement or instrument to which Wells Fargo Bank Northwest, National Association is a party or by which it or any of its property may be bound or affected. The Lessor Trustee, in its fiduciary capacity, warrants and represents to the Trust Certificate Purchasers that: (a) The Lessor Trustee, as trustee under the Trust Agreement, assuming due authorization, execution and delivery of the Trust Agreement by the Trust Certificate Purchasers, has full right, power and authority under the Trust Agreement to enter into and perform its obligations, as Lessor Trustee, under the Lessor Trustee Agreements other than the Trust Agreement. (b) There are no proceedings pending, or to the knowledge of the Lessor Trustee threatened, and to the knowledge of the Lessor Trustee there is no existing basis for any such proceedings, against or affecting the Lessor Trustee or the Lessor Trust in any court or before any governmental authority or arbitration board or tribunal which, if adversely determined, might materially and adversely affect the Lessor Trust Estate or would call into question the right, power and authority of the Lessor Trustee to enter into or perform the Lessor Trustee Agreements. (c) Except as contemplated by the Operative Agreements, the Lessor Trustee has not by affirmative act conveyed any interest in the Lessor Trust Estate to any Person. (d) The Lessor Trustee is not in violation of any term of any of the Lessor Trustee Agreements. (e) Neither the nature of the Lessor Trust Estate, nor any relationship between the Lessor Trustee or the Lessor Trust and any other Person, nor any circumstance in connection with the offer, issue, sale or delivery of the Trust Certificates or the execution and delivery of the Lessor Trustee Agreements is such as to require a consent, approval or authorization of, or filing, registration or qualification on the part of the Lessor Trustee or the Lessor Trust with, any United States or State of Utah governmental authority 5 governing the banking or trust powers of the Lessor Trustee in connection with the execution, delivery and performance of the Lessor Trustee Agreements or the offer, issue, sale or delivery of the Trust Certificates. (f) The Lessor Trustee Agreements (other than the Trust Agreement) are duly authorized by the Trust Agreement, have been duly executed and delivered by the Lessor Trustee and constitute the valid and binding obligations of the Lessor Trustee, enforceable against the Lessor Trustee in accordance with their terms, except as such terms may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and except as equitable remedies such as specific performance may be in the discretion of the courts. (g) The execution and delivery of the Lessor Trustee Agreements and compliance by the Lessor Trustee with all of the provisions thereof do not and will not contravene any United States or State of Utah law or any order of any court or governmental authority or agency applicable to or binding on the banking and trust powers of the Lessor Trustee, or any indenture, mortgage, contract or other agreement or instrument to which the Lessor Trustee is a party or by which it or any of its property may be bound or affected. (h) On the Closing Date, the Lessor Trustee shall have good title to the Equipment, free and clear of Liens except Permitted Liens. Section 3.2 Warranties and Representations of the Lessee. The Lessee warrants and represents that: (a) The Lessee is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, is duly qualified to do business as a foreign corporation and is in good standing in all jurisdictions in which failure to be so qualified would have a materially adverse effect on its business or the performance of its obligations under the Lessee Agreements, and has full corporate power and authority and all necessary licenses and permits to carry on its present business and operations, to own or lease its Properties and to enter into and perform its obligations under the Lessee Agreements. (b) The Lessee Agreements have been duly authorized, executed and delivered by the Lessee and constitute legal, valid and binding obligations of the Lessee enforceable against the Lessee in accordance with the respective terms thereof. (c) The execution and delivery of the Lessee Agreements and compliance by the Lessee with all of the provisions thereof do not and will not contravene any law, governmental rule or regulation or any order of any court or governmental authority or agency applicable to or binding on the Lessee or contravene the provisions of, or constitute a default under, or result in the creation (except as contemplated by the Operative Agreements) of any Lien upon the property of the Lessee under, its certificate of incorporation or by-laws or any indenture, mortgage, contract or other agreement or 6 instrument to which the Lessee is a party or by which it or any of its Properties may be bound or affected. (d) There are no proceedings pending or, to the knowledge of the Lessee, threatened, and to the knowledge of the Lessee there is no existing basis for any proceedings, against or affecting the Lessee in any court or before any governmental authority or arbitration board or tribunal which, if adversely determined, might individually or in the aggregate materially and adversely affect the Properties, business, profits or condition (financial or otherwise) of the Lessee or impair the ability of the Lessee to perform its obligations under the Lessee Agreements. The Lessee is not in default under any order of any court or governmental authority or arbitration board or tribunal. (e) Neither the nature of the Lessee, or of any of its businesses or Properties, nor any relationship between the Lessee and any other Person, nor any circumstance in connection with the execution and delivery of the Lessee Agreements, nor the consummation of any of the transactions by the Lessee contemplated by the Lessee Agreements, is such as to require a consent, approval or authorization of, or filing, registration or qualification with, any governmental authority on the part of the Lessee in connection with the execution, delivery and performance of the Lessee Agreements. (f) The Lessor Trustee has good title to the Equipment, free and clear of all Liens other than Permitted Liens. (g) None of the transactions contemplated by the Operative Agreements (including, without limitation, the making by the Trust Certificate Purchasers of the Advances) will result in a violation of Section 7 of the Exchange Act or any regulations issued pursuant thereto, including, without limitation, Regulations T, U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II. The Lessee does not own or intend to carry or purchase any "margin security" within the meaning of Regulation U, including margin securities originally issued by it. None of the proceeds from the sale of the Trust Certificates will be used to purchase or carry (or refinance any borrowing the proceeds of which were used to purchase or carry) any "security" within the meaning of the Exchange Act. (h) All filings necessary to establish and perfect the Lessor Trustee's title to and interest in the Equipment as against the Lessee and any third parties have been duly made; the Lease creates in favor of the Lessor, as security for the Lessee's obligations under the Lease, a valid and enforceable first priority security interest in the Equipment, effective as against creditors of and purchasers from the Lessee, securing the payment of all obligations of the Lessee under the Lessee Agreements; and upon filing of the UCC financing statements attached as Exhibit A with the Delaware Secretary of State, the --------- security interest in the Equipment created by the Lease will be a perfected first priority security interest in favor of the Lessor Trustee (i) The Equipment is covered by the insurance required by Section 13 of the Lease. 7 (j) No Default or Event of Default has occurred and is continuing. The Lessee is not and will not be in violation in any material respect of any term of any charter instrument, by-law or other material agreement or instrument to which it is a party or by which it may be bound. The Lessee is in compliance with all laws, ordinances, governmental rules and regulations to which it is subject, the failure to comply with which would have a material and adverse effect on its operations or condition, financial or otherwise, or would impair the ability of the Lessee to perform its obligations under the Lessee Agreements, and has obtained all licenses, permits, franchises and other governmental authorizations material to the conduct of its business. (k) The execution and delivery of this Agreement and the creation of the Lessor Trust and the issuance and sale of the Trust Certificates under the Operative Agreements will not involve any transaction which is subject to the prohibitions of Section 406 of ERISA or in connection with which a tax could be imposed pursuant to Section 4975 of the Code. The representation by the Lessee in the preceding sentence is made in reliance upon and subject to the accuracy of the representations of the Trust Certificate Purchasers in Section 3.4(b). (l) All sales, use, transfer or other taxes payable upon the acquisition by the Lessor Trustee of the Equipment and on the lease of such Equipment to the Lessee have been paid or such transactions are exempt from any such taxes. (m) No taxes, fees or other charges are payable in connection with the execution and delivery of the Operative Agreements or the issuance and sale of the Trust Certificates. (n) Schedule III is a complete and correct list of the ------------ Lessee's Subsidiaries, showing, as to each Subsidiary, its correct name, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar outstanding equity interests owned by the Lessee and each other Subsidiary. (o) The Lessee's chief executive office and principal place of business, and the place where its records concerning the Equipment and all documents relating thereto are kept, are at 8310 South Valley Highway, Englewood, Douglas County, Colorado. (p) The description of the Equipment set forth on Schedule I to Lease Supplement No. 1 is true and correct in all material respects and the legal descriptions of each Site attached to the Uniform Commercial Code fixture filings recorded on the Closing Date or previously recorded are true and correct in all material respects. (q) The Trust Certificates are not of the same class (within the meaning of Rule 144A) as securities which are listed on a national securities exchange registered under Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer quotation system. (r) Neither the Lessee nor any person acting on its behalf has offered or sold the Trust Certificates by means of any general solicitation or general advertising within the meaning of Rule 502(c) under the Act; and the Lessee shall not take any action to 8 cause the resale of the Trust Certificates by the Trust Certificate Purchasers to violate Section 5 of the Act. (s) The Lessee has not offered, sold, contracted to sell or otherwise disposed of any securities (as defined in the Act) that are or will be integrated with the sale of the Trust Certificates in a manner that would require registration of the Trust Certificates under the Act. (t) The obligations under the Subordinated Debt Documents are subordinate to the Lessee's and Mail-Well's obligations under the Lease and the other Operative Agreements. (u) Except as set forth on Schedule IV, the Lessee is the ----------- sole owner of each Site, and its interest in each Site is not subject to any Lien other than the Liens set forth on Schedule IV and the Liens ----------- securing the Credit Agreement. Schedule IV accurately lists each Item ----------- of Equipment and its Site, as well as the owner of the Site (if not owned by the Lessee) and any mortgagee of the Site. Section 3.3 Private Offering. (a) The Lessee warrants and represents to the Lessor Trustee and the Trust Certificate Purchasers that neither any Guarantor, the Lessee nor Fleet Capital Corporation (the only Person authorized or employed by the Lessee or the Guarantors as agent, broker, dealer or otherwise in connection with the offering of the Trust Certificates or any similar Security) has offered any of the Trust Certificates or any similar Security for sale to, or solicited offers to buy any thereof from, or otherwise approached or negotiated with respect thereto with, any prospective purchaser, other than the Trust Certificate Purchasers and other institutional investors, each of which was offered a portion of the Trust Certificates at private sale for investment and each of which the Lessee or such agent had reasonable grounds to believe and did believe, and as to the Trust Certificate Purchasers after reasonable inquiry does believe, has sufficient knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of investment in the Trust Certificates. (b) Each of the Lessor Trustee and the Lessee agrees as to itself that neither it nor anyone acting on the behalf of it will offer the Trust Certificates or any part thereof or any similar Security for issue or sale to, or solicit any offer to acquire any of the Trust Certificates from, anyone so as to bring the offering of the Equipment or the issuance and sale of the Trust Certificates within the provisions of Section 5 of the Act. Section 3.4 Representations of the Trust Certificate Purchasers; Transfer of Trust Certificates; Participations. (a) Purchase for Investment. Each Trust Certificate Purchaser represents to each other Trust Certificate Purchaser, the Lessor Trustee and the Lessee that either: (i) it is purchasing the Trust Certificates to be purchased by it on the Closing Date for its own account, for investment and with no present intention of 9 distributing or reselling such Trust Certificates or any part thereof, but without prejudice, however, to its right at all times to sell or otherwise dispose of all or any part of its Trust Certificates under a registration under the Act, or under an exemption from registration available under the Act; provided that the disposition of its Trust Certificates shall at all times be within its control; or (ii) it proposes to offer its Trust Certificates for resale upon the terms set forth herein and hereby represents and warrants to, and agrees with, the Lessee and the other Trust Certificate Purchasers as follows: (A) It will offer or sell the Trust Certificates only to (1) persons it reasonably believes are "qualified institutional buyers" within the meaning of Rule 144A in transactions meeting the requirements of Rule 144A or (2) persons it reasonably believes are institutional "accredited investors" within the meaning of Rule 501 (a)(1), (2), (3) or (7) under the Act. (B) It will not offer or sell any of the Trust Certificates in any jurisdiction except under circumstances that will result in compliance with the Applicable Laws thereof, and that it will take whatever action is required to permit its resale of the Trust Certificates. It understands that no action has been taken to permit a public offering in any jurisdiction where action would be required for such purpose. (C) It has not offered or sold and will not offer or sell the Trust Certificates by any form of general solicitation or general advertising, including, but not limited to, the methods described in Rule 502(c) under the Act. (b) Source of Funds. Each Trust Certificate Purchaser represents to each other Trust Certificate Purchaser, the Lessor Trustee and the Lessee that at least one of the following statements is an accurate representation as to the source of funds (the "Source") it will use to make its Advance: (i) if it is an insurance company, the Source does not include assets allocated to any separate account maintained by it in which any Employee Benefit Plan (or its related trust) has any interest, other than a separate account that is maintained solely in connection with its fixed contractual obligations under which the amounts payable, or credited, to such plan and to any participant or beneficiary of such plan (including any annuitant) are not affected in any manner by the investment performance of the separate account; or (ii) the Source is either (A) an insurance company pooled separate account, within the meaning of Prohibited Transaction Exemption ("PTE") 90-1 (issued January 29, 1990), or (B) a bank collective investment fund, within the meaning of the PTE 91-38 (issued July 12, 1991), and no Employee Benefit Plan or group of Employee Benefit Plans maintained by the same employer or 10 employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or (iii) the Source is an "investment fund" managed by a "qualified professional asset manager," or "QPAM" (as defined in Part V of PTE 84-14, issued March 13, 1984), provided that neither the Lessee nor any "affiliate" of the Lessee (as defined in Section V(c) of PTE 84-14) has at this time, or during the immediately preceding one year has exercised, the authority to appoint or terminate said QPAM as manager of the assets of any plan whose assets are included in such investment fund or to negotiate the terms of said QPAM's management agreement on behalf of any such plan; or (iv) the Source is a governmental plan; or (v) the Source does not include assets of any Employee Benefit Plan, other than a plan exempt from the coverage of ERISA. (c) Reaffirmation on the Closing Date. The advance of funds by a Trust Certificate Purchaser on the Closing Date shall constitute its reaffirmation of its representations set forth in this Section 3.4 as of the Closing Date. (d) Transfer of Trust Certificates. Upon the transfer by any Certificate Holder of any Trust Certificate or a participation therein, the transferee shall be deemed by its acceptance of such Trust Certificate to have made the same representation to the Lessor Trustee, the other Certificate Holders and the Lessee regarding the purchase of such Trust Certificate as the original Trust Certificate Purchasers made pursuant to Section 3.4(b). (e) Participations. Each Trust Certificate Purchaser may sell, transfer, grant or assign participations in all or any part of such Trust Certificate Purchaser's interests and obligations hereunder; provided that (i) such selling Trust Certificate Purchaser shall remain a "Trust Certificate Purchaser" or "Certificate Holder," as the case may be, for all purposes under the Operative Agreements (its obligations under the Operative Agreements remaining unchanged), and the participant shall not constitute a Trust Certificate Purchaser or a Certificate Holder, as the case may be, hereunder, (ii) no participant shall have, or be granted, rights to approve any amendment or waiver relating to the Operative Agreements except to the extent any such amendment or waiver would (A) reduce the principal of or rate of interest on the Trust Certificates in which the participant is participating, (B) postpone the date fixed for any payment of principal of or interest on the Trust Certificates in which the participant is participating or the date fixed for payment of the closing fee payable pursuant to Section 4.1(o) to the extent the participant is participating therein, or (C) release, in whole or in part, the Liens of the Lessor Trustee in the Equipment (except as expressly provided in the Operative Agreements) or terminate, in whole or in part, the Guaranty Agreement or modify the obligations guaranteed thereunder, or the unconditional nature of the guaranty thereof, to the extent the participant is participating therein, (iii) sub-participations by the participant (except to an Affiliate, parent company or Affiliate of a parent company of the participant) shall be prohibited and (iv) written notice of each such participation is given 11 to the Lessee. In the case of any participation, the participant shall not have any rights under the Operative Agreements (the participant's rights against the selling Trust Certificate Purchaser in respect of such participation to be those set forth in the participation agreement with such Trust Certificate Purchaser creating such participation) and all amounts payable by the Lessee hereunder shall be determined as if such Trust Certificate Purchaser had not sold such participation; provided, however, that such participant shall be entitled to receive additional amounts under Section 6 on the same basis as if it were a Trust Certificate Purchaser (but only to the extent that such Trust Certificate Purchaser would have been entitled to receive such additional amounts with respect to the interest participated had it not sold such participation). The Lessee shall not be responsible for any costs or expenses incurred by any Trust Certificate Purchaser in connection with a sale, transfer, grant or assignment of participations pursuant to this clause (e) of Section 3.4. SECTION 4. CLOSING CONDITIONS. Section 4.1 Conditions Precedent to Investment on the Closing Date. The obligations of each Trust Certificate Purchaser to make its Advances pursuant hereto on the Closing Date and of the Lessor Trustee to refinance the Equipment shall be subject to the following conditions. (a) Execution of Operative Agreements. On or before the Closing Date, the following documents shall have been duly executed and delivered by the parties thereto (and copies thereof shall have been provided to the Agent) and shall be in full force and effect, and no default shall exist in the performance by any party thereto (other than such Trust Certificate Purchaser) of any of its obligations thereunder: (i) the Lease; (ii) Lease Supplement No. 1; (iii) the Trust Agreement; and (iv) the Guaranty Agreement. (b) Title. On the Closing Date, (i) the Lessor Trustee shall have good title to the Equipment, free and clear of Liens, except Permitted Liens; and (ii) the Trust Certificate Purchasers shall have received evidence satisfactory to them with respect to the matters covered by this Section 4.1(b). (c) Filings. On or before the Closing Date, all filings and other actions shall have been made and taken as are deemed necessary or appropriate by the Agent or any Trust Certificate Purchaser in order to (i) perfect the Lessor Trustee's title to and interest in the Equipment as against the Lessee and any third parties, and (ii) perfect the lien and security interest of the Lessor Trustee under the Lease in the Equipment as against creditors of and purchasers from the Lessee. (d) Officers' Certificates and Proceedings of the Guaranty Parties. The Agent shall have received (i) a certificate of the secretary or assistant secretary of each Guaranty 12 Party, dated the Closing Date and in form and substance satisfactory to the Agent, attaching and certifying as to (A) the resolutions of its board of directors authorizing its execution, delivery and performance of Operative Agreement to which it is or will be a party, (B) its articles of incorporation or certificate of formation, certified as of a recent date by the secretary of state of its state of incorporation or formation, and its by-laws, operating agreement or partnership agreement, and (C) the incumbency and signature of persons authorized to execute and deliver any Operative Agreement on its behalf, and (ii) a good standing certificate (or local equivalent) for each Guaranty Party from the jurisdictions where it is incorporated or was formed and where its principal place of business is located. (e) Officer's Certificate and Proceedings of the Lessor Trustee. The Agent shall have received a certificate of the secretary or assistant secretary of Wells Fargo Bank Northwest, National Association, dated the Closing Date and in form and substance satisfactory to the Agent, attaching and certifying as to (i) its articles of association and by-laws, and (ii) the incumbency and signature of persons authorized to execute and deliver any Lessor Trust Agreement on its behalf. The Agent shall also have received an Officers' Certificate of Wells Fargo Bank Northwest, National Association, dated the Closing Date authorizing its execution, delivery and performance of the Lessor Trust Agreements. (f) Consents under Other Obligations. All approvals and consents of any trustee or holders of any indebtedness or obligations of the Lessee which in the opinion of the Agent or any Trust Certificate Purchaser are required in connection with any of the transactions contemplated by this Agreement, shall have been duly obtained, and copies thereof, in form and substance satisfactory to such special counsel, certified by the Secretary or an Assistant Secretary of the Lessee, shall have been delivered to the Lessor Trustee. (g) Opinions of Counsel. On the Closing Date, (i) the Lessor Trustee, the Trust Certificate Purchasers and the Agent shall have received the favorable written opinion of Rothgerber Johnson & Lyons LLP, counsel for the Lessee and the Guarantors, in form and substance satisfactory to the Trust Certificate Purchasers and the Agent, and including matters such as the enforceability of the Lessee Agreements against the Lessee and the creation and perfection of security interests granted by the Lessee, and (ii) the Agent and the Trust Certificate Purchasers shall have received the favorable written opinion of Ray, Quinney & Nebeker, counsel for the Lessor Trustee, in form and substance satisfactory to the Agent and the Trust Certificate Purchasers. (h) Evidence of Insurance. On or before the Closing Date, the Agent shall have received a favorable letter from the Lessee's insurance broker and certificates of insurance required pursuant to Section 13.3 of the Lease and such other evidence of the maintenance of the insurance required pursuant to Section 13 of the Lease as it or any Trust Certificate Purchaser requests. 13 (i) Related Transactions. Each of the other Trust Certificate Purchasers shall have made the Advance to be made by it on the Closing Date and the Lessee shall have made the payment specified in Section 1.5. (j) Trust Certificates. The Lessor Trustee shall have made the payments specified in Section 1.6 and shall have issued the Trust Certificates evidencing the Advances made by the Trust Certificate Purchasers on the Closing Date. (k) Notice of Closing. The Agent and the Trust Certificate Purchasers shall have received, prior to the Closing Date, a notice covering the Equipment to be refinanced on the Closing Date. The aggregate of the Advances to be made by the Trust Certificate Purchasers, which Advances shall not exceed the aggregate of their Commitments, and the wire instructions for their Advances, as well as the amount owed to the Original Lessor Trustee to pay the Existing Trust Certificates in full, shall be set forth in such notice. (l) Appraisal. At least three Business Days prior to the Closing Date, the Lessor Trustee, the Agent and the Trust Certificate Purchasers shall have received the Appraisal, in form and substance satisfactory to the Agent and the Trust Certificate Purchasers, showing the current fair market value of the Equipment and the estimated future fair market value of the Equipment at the end of the Lease Term. (m) Governmental Approvals. All necessary approvals of any Governmental Authority required by any Requirement of Law for the purpose of authorizing the Lessor Trustee to enter into the transactions contemplated by the Operative Agreements shall have been obtained or made and be in full force and effect. (n) Legal Investment. The Trust Certificates shall on the Closing Date qualify as a legal investment for such Trust Certificate Purchaser under any laws regulating investments to which it may be subject. (o) [not used] (p) UCC Searches. On or before the Closing Date, the Agent shall have received such Uniform Commercial Code searches with respect to the Equipment as it reasonably requests. (q) Landlord Waivers, Etc. On or prior to the Closing Date, the Lessee shall deliver or cause to be delivered to the Lessor Trustee the following: (i) an original Landlord Waiver executed by the owner (if not the Lessee) of each Site and any mortgagees (except as provided in Section 5.4 of the Guaranty) of any Site; (ii) a release of the Equipment and the Additional Collateral from the Liens securing the Credit Agreement, in form and substance satisfactory to the Agent and each Trust Certificate Purchaser; and 14 (iii) original Uniform Commercial Code termination statements, in form and substance satisfactory to the Agent, of each Uniform Commercial Code financing statement filed with respect to the Equipment (other than UCC financing statements filed pursuant to the Operative Agreements or the Existing Operative Agreements) and reflected in the Uniform Commercial Code searches received by the Agent in accordance with Section 4.1(p). (r) Existing Trust Certificates. The Agent shall have received satisfactory evidence that the Existing Trust Certificates have been surrendered by the Existing Certificate Purchasers to the Original Lessor Trustee. (s) Proceedings Satisfactory. All proceedings taken in connection with the transactions contemplated hereby and all documents and papers relating thereto shall be satisfactory to the Agent and each Trust Certificate Purchaser, and the Agent and each Trust Certificate Purchaser shall have received copies of such documents and papers as they may reasonably request in connection therewith, all in form and substance satisfactory to them. Section 4.2 [not used] SECTION 5. SPECIAL RIGHTS OF TRUST CERTIFICATE PURCHASERS. Notwithstanding any provision to the contrary in this Agreement, the Trust Agreement or any Trust Certificate relating to the manner and place of payment, all amounts payable to each Trust Certificate Purchaser with respect to any Trust Certificate held by such Trust Certificate Purchaser or a nominee for such Trust Certificate Purchaser shall be paid by the Lessor Trustee to such Trust Certificate Purchaser (without any presentment thereof and without any notation of such payment being made thereon) by check, duly mailed, by first class mail, postage prepaid, or delivered to such Trust Certificate Purchaser at the address for payments for such Trust Certificate Purchaser appearing on Schedule I hereto or, if wire transfer to a bank ---------- account is designated for such Trust Certificate Purchaser on Schedule I ---------- hereto or in a written notice from such Trust Certificate Purchaser to the Lessor Trustee, by wire transfer of immediately available Federal Reserve funds to the bank so designated for credit to the account and marked for attention as so designated, provided that such bank has facilities for the receipt of a wire transfer, or in such other manner or to such other address in the United States as may be designated by such Trust Certificate Purchaser in a written notice from such Trust Certificate Purchaser to the Lessor Trustee. In the case of any wire transfer, the Lessor Trustee will transfer or cause to be transferred not later than 12:00 noon, Salt Lake City, Utah time, on each date any payment or prepayment of principal or interest on the Trust Certificate is due, provided funds therefor have been received by the Lessor Trustee in cash or in immediately available funds by 10:00 A.M., Salt Lake City, Utah time, on such date or if not so received promptly upon receipt. Each Trust Certificate Purchaser agrees that if such Trust Certificate Purchaser shall sell or transfer any Trust Certificate, such Trust Certificate Purchaser will notify the Lessee and the Lessor Trustee within 30 days after the sale or transfer of the name and address of the purchaser or transferee and such Trust Certificate Purchaser will, prior to the delivery of such Trust Certificate, make a notation on such Trust Certificate of the date to which interest has been paid thereon and of the amount of any payments or prepayments made on account of the principal thereof. 15 SECTION 6. LESSEE'S INDEMNITIES. Section 6.1 General Indemnification. The Lessee agrees whether or not any of the transactions contemplated hereby shall be consummated, to assume liability for, and to indemnify, protect, defend, and save and keep harmless each Indemnified Party, on an After Tax Basis, from and against any and all Claims that may be imposed on, incurred by or asserted against such Indemnified Party (whether because of action or omission by such Indemnified Party or otherwise), whether or not such Indemnified Party shall also be indemnified as to any such Claim by any other Person and whether or not such Claim arises or accrues prior to the Closing Date or after the Expiration Date, in any way relating to or arising out of: (a) any of the Operative Agreements or any of the transactions contemplated thereby, and any amendment, restatement, modification or waiver in respect thereof; (b) the Equipment or any part thereof or interest therein; (c) the purchase, design, construction, preparation, installation, inspection, delivery, nondelivery, acceptance, rejection, ownership, management, possession, operation, rental, lease, sublease, repossession, maintenance, repair, alteration, modification, addition or substitution, storage, transfer of title, redelivery, use, financing, refinancing, disposition, operation, condition, sale (including without limitation, any sale pursuant to Section 16.2(f) or Section 18 of the Lease), return or other disposition of all or any part or any interest in the Equipment or the imposition of any Lien (or incurring of any liability to refund or pay over any amount as a result of any Lien) thereon, including, without limitation: (i) Claims or penalties arising from any violation of law or in tort (on the basis of strict liability or otherwise), (ii) latent or other defects, whether or not discoverable, (iii) any Claim based upon a violation or alleged violation of the terms of any matter affecting title to the Equipment, (iv) the making of any Alterations in violation of any standards imposed by any insurance policies required to be maintained by Lessee pursuant to the Lease which are in effect at any time with respect to the Equipment or any part thereof and (v) any Claim for patent, trademark or copyright infringement; (d) the breach by the Lessee or any Guarantor of any covenant, representation or warranty made by it or deemed made by it in any Operative Agreement or any certificate required to be delivered by any Operative Agreement; (e) the retaining or employment of any broker, finder or financial advisor by the Lessee to act on its behalf in connection with this Agreement or any other Operative Agreement; (f) the existence of any Lien on or with respect to the Equipment, any Periodic Rent or Supplemental Rent, title thereto, or any interest therein including any Liens which arise out of the possession, use or repair of the Equipment, except Lessor Liens; or (g) subject to the accuracy of any Trust Certificate Purchaser's representation set forth in Section 3.4, as to such Trust Certificate Purchaser, the transactions contemplated by the Lease or by any other Operative Agreement, in respect of the 16 application of Parts 4 and 5 of Subtitle B of Title I of ERISA and any prohibited transaction described in Section 4975(c) of the Code. The Lessee shall not be required to indemnify any Indemnified Party under this Section 6.1 for any of the following: (a) any Claim to the extent resulting from the willful misconduct or gross negligence of such Indemnified Party (it being understood that the Lessee shall be required to indemnify an Indemnified Party even if the ordinary (but not gross) negligence of such Indemnified Party caused or contributed to such Claim) or the breach of any representation, warranty or covenant of such Indemnified Party set forth in any Operative Agreement, (b) any Claim resulting from Lessor's Liens which the Lessor Trustee or any Certificate Holder is responsible for discharging under the Operative Agreements, (c) any Claim arising from a breach or alleged breach by the Certificate Holders of any agreement entered into in connection with the assignment or participation of any Trust Certificate, or (d) any Claim arising in respect to the Equipment in the period after the Lessee ceases to lease the Equipment from the Lessor Trustee under the Lease, provided that the facts supporting such Claim occur after such period. It is expressly understood and agreed that the indemnity provided for herein shall survive the expiration or termination of and shall be separate and independent from any remedy under the Lease or any other Operative Agreement. Without limiting the express rights of any Indemnified Party under this Section 6.1, this Section 6.1 shall be construed as an indemnity only and not a guaranty of residual value of the Equipment or as a guaranty of the Trust Certificates. Section 6.2 Actions, Suits or Proceedings in Respect of Claims. In case any action, suit or proceeding shall be brought against any Indemnified Party, such Indemnified Party shall notify the Lessee of the commencement thereof (provided that failure to so notify the Lessee shall not alter such Indemnified Party's rights under Section 6.1 and this Section 6.2 except to the extent such failure effectively precludes or materially adversely affects the ability to conduct a defense of any Claims), and the Lessee shall be entitled, at the Lessee's expense, to participate in, and, to the extent that the Lessee desires to, assume and control the defense thereof acting through counsel reasonably acceptable to the Indemnified Party; provided, however, that the Lessee shall have acknowledged in writing its obligation to fully indemnify such Indemnified Party in respect of such action, suit or proceeding, and the Lessee shall keep such Indemnified Party fully apprised of the status of such action, suit or proceeding and shall provide such Indemnified Party with all information with respect to such action, suit or proceeding as such Indemnified Party shall reasonably request, and provided, further, that the Lessee shall not be entitled to assume and control the defense of any such action, suit or proceeding if and to the extent that, (a) in the reasonable opinion of such Indemnified Party, (i) such action, suit or proceeding involves any risk of imposition of criminal liability or will involve a material risk of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Lien) on the Equipment or any part thereof unless, in the case of civil liability, the Lessee shall have posted a bond or other security satisfactory to the relevant Indemnified Parties in respect to such risk or (ii) the control of such action, suit or proceeding would involve an actual or potential conflict of interest, (b) such proceeding involves Claims not fully indemnified by the Lessee which the Lessee and the Indemnified Party have been unable to sever from the indemnified Claim(s), or (c) an Event of Default has occurred and is continuing. The Indemnified Party will join in the Lessee's efforts to sever any action described in clause (b) of the preceding sentence. The Indemnified Party may participate at its own expense and with its own counsel in any proceeding 17 conducted by the Lessee in accordance with the foregoing. The Lessee shall not enter into any settlement or other compromise with respect to any Claim which is entitled to be indemnified under Section 6.1 without prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld in the case of a money settlement not involving an admission of liability of such Indemnified Party. No Indemnified Party shall enter into any settlement or other compromise with respect to any Claim for which it is entitled to be indemnified under Section 6.1 without the prior written consent of the Lessee, which consent shall not be unreasonably withheld, unless such Indemnified Party waives its right to be indemnified under Section 6.1 with respect to such Claim. Each Indemnified Party shall at the expense of the Lessee supply the Lessee with such information and documents, in such Indemnified Party's possession (but not tax returns, documentation related thereto or in violation of a privilege or duty of confidentiality), reasonably requested by the Lessee as are necessary or advisable for the Lessee to participate in any action, suit or proceeding to the extent permitted by Section 6.1. Upon payment in full of any Claim by the Lessee pursuant to Section 6.1 to or on behalf of an Indemnified Party, the Lessee, without any further action, shall be subrogated to any and all claims that such Indemnified Party may have relating thereto (other than claims in respect of insurance policies maintained by such Indemnified Party at its own expense), and such Indemnified Party shall execute such instruments of assignment and conveyance, evidence of claims and payment and such other documents, instruments and agreements as may be necessary to preserve any such claims and otherwise cooperate with the Lessee and give such further assurances as are necessary or advisable to enable the Lessee vigorously to pursue such claims. Any amount payable to an Indemnified Party pursuant to Section 6.1 shall be paid to such Indemnified Party promptly upon receipt of a written demand therefor from such Indemnified Party, accompanied by a written statement describing in reasonable detail the basis for such indemnity and the computation of the amount so payable. Section 6.3 General Tax Indemnity. (a) Indemnification. The Lessee shall pay and assume liability for, and does hereby agree to indemnify, protect and defend the Equipment and all Indemnified Parties from, and hold them harmless against, all Impositions on an After Tax Basis. (b) Contests. If any claim shall be made against any Indemnified Party or if any proceeding shall be commenced against any Indemnified Party (including a written notice of such proceeding) for any Imposition as to which the Lessee may have an indemnity obligation pursuant to this Section 6.3, or if any Indemnified Party shall determine that any Imposition with respect to which the Lessee may have an indemnity obligation pursuant to this Section 6.3 may be payable, such Indemnified Party shall promptly notify the Lessee in writing (provided that failure to so notify the Lessee shall not alter such Indemnified Party's rights under this Section 6.3 except to the extent such failure effectively precludes or materially adversely affects the ability to conduct a 18 contest of any Impositions) and shall not take any action with respect to such claim, proceeding or Imposition without the written consent of the Lessee (such consent not to be unreasonably withheld or unreasonably delayed) for 30 days after the receipt of such notice by the Lessee; provided, however, that in the case of any such claim or proceeding, if such Indemnified Party shall be required by law or regulation to take action prior to the end of such 30-day period, such Indemnified Party shall in such notice to the Lessee, so inform the Lessee and such Indemnified Party shall not take any action with respect to such claim, proceeding or Imposition without the consent of the Lessee (such consent not to be unreasonably withheld or unreasonably delayed) for 10 days after the receipt of such notice by the Lessee unless such Indemnified Party shall be required by law or regulation to take action prior to the end of such 10-day period. The Lessee shall be entitled for a period of 30 days from receipt of such notice from such Indemnified Party (or such shorter period as such Indemnified Party has notified the Lessee is required by law or regulation for such Indemnified Party to commence such contest), to request in writing that such Indemnified Party contest in good faith the imposition of such Tax, at the Lessee's expense. If (a) such contest can be pursued in the name of the Lessee and independently from any other proceeding involving a Tax liability of such Indemnified Party for which the Lessee has not agreed to indemnify such Indemnified Party, (b) such contest must be pursued in the name of such Indemnified Party, but can be pursued independently from any other proceeding involving a Tax liability of such Indemnified Party for which the Lessee has not agreed to indemnify such Indemnified Party or (c) such Indemnified Party so requests, then the Lessee shall be permitted to control the contest of such claim, acting through counsel reasonably acceptable to the Indemnified Party, provided that in the case of a contest described in clause (b), if such Indemnified Party determines reasonably and in good faith that such contest by the Lessee could have a material adverse impact on the business or operations of such Indemnified Party and provides a written explanation to the Lessee of such determination, such Indemnified Party may elect to control or reassert control of the contest, and provided that by taking control of the contest, the Lessee acknowledges that it is responsible for the Imposition ultimately determined to be due by reason of such claim, and provided, further, that in determining the application of clauses (a) and (b) above, each Indemnified Party shall take any and all reasonable steps to segregate claims for any Taxes for which the Lessee indemnifies hereunder from Taxes for which the Lessee is not obligated to indemnify hereunder, so that the Lessee can control the contest of the former. In all other claims requested to be contested by the Lessee, such Indemnified Party shall control the contest of such claim, acting through counsel reasonably acceptable to the Lessee. In no event shall the Lessee be permitted to contest (or such Indemnified Party be required to contest) any claim, (a) if such Indemnified Party provides the Lessee with a legal opinion of counsel reasonably acceptable to the Lessee that such action, suit or proceeding involves a risk of imposition of criminal liability or will involve a material risk of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Lien) on the Equipment or any part thereof unless the Lessee shall have posted and maintained a bond or other security satisfactory to the relevant Indemnified Party in respect to such risk, (b) if a Default or an Event of Default has occurred and is continuing, (c) unless the Lessee shall have provided to such Indemnified Party an opinion of counsel reasonably acceptable to such Indemnified Party to the effect that such contest will, more likely than not, be successful, and unless the Lessee shall have agreed to pay and shall pay, to such Indemnified Party on demand all reasonable out-of-pocket costs, losses and expenses that such Indemnified Party actually 19 incurs in connection with contesting such Imposition including all reasonable in-house and outside legal, accounting, administrative and investigatory fees and disbursements, or (d) unless the Lessee makes full payment of the Tax prior to the contest. In addition for Indemnified Party controlled contests and claims contested in the name of such Indemnified Party in a public forum, no contest shall be required: (a) unless the amount of the potential indemnity (taking into account all similar or logically related claims that have been or could be raised in any audit involving any or all such Indemnified Parties with respect to any period for which the Lessee may be liable to pay an indemnity under this Section 6.3(b)) exceeds $250,000 and (b) unless, if requested by such Indemnified Party, the Lessee shall have provided to such Indemnified Party an opinion of counsel selected by the Lessee (which counsel must be reasonably acceptable to such Indemnified Party) (except, in the case of income Taxes indemnified hereunder, in which case such opinion shall be an opinion of independent tax counsel selected by such Indemnified Party and reasonably acceptable to the Lessee) that a reasonable basis exists to contest such claim (or, in the case of an appeal of any adverse determination, an opinion of such counsel to the effect that the position asserted in such appeal will more likely than not prevail). In no event shall an Indemnified Party be required to appeal an adverse judicial determination to the United States Supreme Court. The party controlling the contest shall consult in good faith with the other party and its counsel with respect to the contest of such claim for Taxes (or claim for refund) but the decisions regarding what actions are to be taken shall be made by the controlling party in its sole judgment, provided, however, that if such Indemnified Party is the controlling party and the Lessee recommends the acceptance of a settlement offer made by the relevant Governmental Authority and such Indemnified Party rejects such settlement offer then the amount for which the Lessee will be required to indemnify such Indemnified Party with respect to the Taxes subject to such offer shall not exceed the amount which it would have owed if such settlement offer had been accepted. In addition, the controlling party shall keep the non-controlling party reasonably informed as to the progress of the contest, and shall provide the non-controlling party with a copy of (or appropriate excerpts from) and reports or claims issued by the relevant auditing agents or taxing authority to the controlling party thereof, in connection with such claim or the contest thereof. Each Indemnified Party shall, at the Lessee's expense, supply the Lessee with such information and documents, in such Indemnified Party's possession (but not tax returns, documentation related thereto or in violation of a privilege or duty of confidentiality), reasonably requested by the Lessee as are necessary or advisable for the Lessee to participate in any action, suit or proceeding to the extent permitted by this Section 6.3(b). Notwithstanding anything in this Section 6.3(b) to the contrary, no Indemnified Party shall enter into any settlement or other compromise or fail to appeal an adverse ruling with respect to any claim for which it may be entitled to be indemnified under this Section 6.3 (and with respect to which contest is required under this Section 6.3(b)) without the prior written consent of the Lessee, unless such Indemnified Party waives its right to be indemnified under this Section 6.3 with respect to such claim. Notwithstanding anything contained herein to the contrary, an Indemnified Party will not be required to contest (and the Lessee shall not be permitted to contest) a claim with respect to the imposition of any Tax if such Indemnified Party shall waive its right to indemnification 20 under this Section 6.3 with respect to such claim (and any claim with respect to such year or any other taxable year the contest of which is materially adversely affected as a result of such waiver). (c) [not used] (d) Payments. Any Imposition indemnifiable under this Section 6.3 shall be paid directly when due to the applicable taxing authority if direct payment is practicable and permitted. If direct payment to the applicable taxing authority is not permitted or is otherwise not made, any amount payable to an Indemnified Party pursuant to this Section 6.3 shall be paid within thirty (30) days after receipt of a written demand therefor from such Indemnified Party accompanied by a written statement describing in reasonable detail the amount so payable, but not before two Business Days prior to the date that the relevant Taxes are due. Any payments made pursuant to this Section 6.3 shall be made directly to such Indemnified Party entitled thereto or to the Lessee, as the case may be, in immediately available funds at such bank or to such account as specified by the payee in written directions to the payor, or, if no such direction shall have been given, by check of the payor payable to the order of the payee by certified mail, postage prepaid at its address as set forth in Schedule I hereto or ---------- beneath its signature below, as the case may be. Upon the request of any Indemnified Party with respect to a Tax that the Lessee is required to pay, the Lessee shall furnish to such Indemnified Party the original or a certified copy of a receipt for the Lessee's payment of such Tax or such other evidence of payment as is reasonably acceptable to such Indemnified Party. (e) Reports. In the case of any report, return or statement required to be filed with respect to any Taxes that are subject to indemnification under this Section 6.3 and of which the Lessee has knowledge, the Lessee shall promptly notify such Indemnified Party of such requirement and, at the Lessee's expense (i) if the Lessee is permitted (unless otherwise required by such Indemnified Party) by Applicable Law, timely file such report, return or statement in its own name or (ii) if such report, return or statement is required to be in the name of or filed by such Indemnified Party or such Indemnified Party otherwise requests that such report, return or statement be filed in its name (if allowed under Applicable Law), prepare and finish such statement for filing by such Indemnified Party in such manner as shall be satisfactory to such Indemnified Party and send the same to such Indemnified Party for filing no later than 15 days prior to the due date therefor. In any case in which such Indemnified Party will file any such report, return or statement, the Lessee shall, upon written request of such Indemnified Party, provide such Indemnified Party with such information as is reasonably necessary to allow such Indemnified Party to file such report, return or statement. (f) Tax Ownership. Each Indemnified Party represents and warrants that it will not, prior to the termination of the Lease, claim ownership of (or any tax benefits, including depreciation, with respect to) the Equipment for any income tax purposes (unless required to do so by a Governmental Authority), it being understood that it is the intention of all parties to this transaction that the Lessee is and will remain the owner of the Equipment for such income tax purposes until the termination of the Lease. 21 Section 6.4 Indemnity Payments in Addition to Lease Obligations. The Lessee acknowledges and agrees that the Lessee's obligations to make indemnity payments under this Section 6 are separate from, in addition to, and do not reduce, the Lessee's obligation to pay any amounts owing from time to time under the Lease. Section 6.5 Increased Costs, etc. If the adoption of or any change in a Requirement of Law or in the interpretation or application thereof applicable to any Certificate Holder, or compliance by any Certificate Holder with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority, in each case made after the Closing Date (or, if later, the date on which such Certificate Holder becomes a Certificate Holder): (a) shall subject such Certificate Holder or the Trust Certificates to any tax of any kind whatsoever with respect to any Advance made, continued or maintained by it or its obligation to make, continue or maintain Advances, or shall change the basis of taxation of payments to such Certificate Holder in respect thereof (except for any changes in taxes measured by or imposed upon the overall gross or net income, franchise or other taxes (imposed in lieu of such net income tax), of such Certificate Holder or its applicable lending office or branch); or (b) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, Trust Certificates, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Certificate Holder which is not otherwise already included in the determination hereunder of the interest rate applicable to the Trust Certificates held by such Certificate Holder; or (c) shall change the basis of taxation of payments of principal and interest due from the Lessee to such Certificate Holder hereunder or under the Trust Certificates (other than by a change in taxation of the overall gross or net income of such Certificate Holder); or (d) shall impose on such Certificate Holder any other condition (excluding any Tax of any kind) affecting its Advances or its obligation to make Advances; and the result of any of the foregoing is to increase the cost to such Certificate Holder of making, continuing or maintaining any Advance hereunder or to reduce any amount receivable by such Certificate Holder in respect thereof, then, in any such case, upon notice to the Lessee from such Certificate Holder, through the Lessor Trustee, in accordance herewith, the Lessee shall pay such Certificate Holder, on an After Tax Basis, any additional amounts necessary to compensate such Certificate Holder for such increased cost or reduced amount receivable. All payments required by this Section 6.5 shall be made by the Lessee within fifteen Business Days after demand by the affected Certificate Holder. If any Certificate Holder makes a claim for compensation, it shall provide to the Lessee a certificate setting forth the computation of the increased cost or reduced amount as a result of any event mentioned herein in reasonable detail and such certificate shall be conclusive if reasonably determined. This covenant shall survive the termination of this Agreement and the payment of the Trust Certificates and all other amounts payable hereunder. 22 Section 6.6 Funding Losses. The Lessee agrees to indemnify each Indemnified Party and to hold each Indemnified Party harmless, on an After Tax Basis, from any loss or expense which such Indemnified Party may sustain or incur (other than through such Person's own gross negligence or willful misconduct) as a consequence of (a) failure of the Closing Date to occur as scheduled, (b) default by the Lessee in making any payment or performing any other Obligation in accordance with the provisions of the Lease, or (c) the making of a payment or prepayment of Trust Certificates on a day which is not the last day of an Interest Period with respect thereto. This covenant shall survive the termination of this Agreement or any other Operative Agreement and the payment of the Trust Certificates and all other amounts payable under the Operative Agreements. SECTION 7. INDEMNITIES OF THE LESSOR TRUSTEE AND THE TRUST CERTIFICATE PURCHASERS. Each of Wells Fargo Bank Northwest, National Association and the Trust Certificate Purchasers (referred to in this Section as the "Indemnitors") hereby severally agrees for the benefit of each other Indemnitor (referred to in this Section as the "Indemnitees") that at all times the Lessor Trust Estate shall be free of any Lessor's Liens attributable to such Indemnitor and that such Indemnitor will at its own cost and expense promptly take such action as may be necessary duly to discharge any such Lessor's Lien, provided that no such Lessor's Lien need be discharged so long as it is being contested by a Permitted Contest. Each Indemnitor further agrees to indemnify and hold harmless the Indemnitees from and against any costs or expenses (including reasonable legal fees and expenses) incurred, in each case, as a result of the imposition or enforcement of any such Lessor's Lien. Each Indemnitor hereby agrees for the benefit of the Lessee that at all times the Equipment shall be free of any Lessor's Lien attributable to such Indemnitor which impairs the right, title or interest of the Lessee under the Lease and that such Indemnitor will at its own cost and expense promptly take such action as may be necessary duly to discharge any such Lessor's Lien, provided that no such Lessor's Lien need be discharged so long as it is being contested by a Permitted Contest; and such Indemnitor further agrees to indemnify and hold harmless the Lessee from and against any costs or expenses (including reasonable legal fees and expenses) incurred, in each case, as a result of the imposition or enforcement of any such Lessor's Lien which impairs the right, title or interest of the Lessee under the Lease. The agreements of Wells Fargo Bank Northwest, National Association in this Section 7 are made in its individual capacity and not as Lessor Trustee. SECTION 8. CERTAIN INTENTIONS OF THE PARTIES. Section 8.1 Nature of Transaction. (a) The parties hereto intend that (i) for financial accounting purposes with respect to the Lessee, the Lessor Trust will be treated as the owner and the lessor of the Equipment and the Lessee will be treated as the lessee of the Equipment and (ii) for all other purposes, including federal and all state and local income tax purposes, state real estate and commercial law and bankruptcy purposes, 23 (i) the Lease will be treated as a financing arrangement, (ii) the Certificate Holders will be deemed lenders making loans to the Lessee in an amount equal to the principal amount of the Trust Certificates from time to time outstanding, which loans are secured by the Equipment, and (iii) the Lessee will be treated as the owner of the Equipment and will be entitled to all tax benefits ordinarily available to an owner of equipment like the Equipment for tax purposes. Nevertheless, the Lessee acknowledges and agrees that neither the Trust Certificate Purchasers nor any of the Certificate Holders has made any representations or warranties to the Lessee concerning the tax, accounting or legal characteristics of the Operative Agreements and that the Lessee has obtained and relied upon its own tax, accounting and legal advisers concerning the Operative Agreements as it has deemed appropriate. (b) Specifically, without limiting the generality of clause (a) of this Section 8.1, the parties hereto intend and agree that in the event of any insolvency or receivership proceedings or a petition under the United States bankruptcy laws or any other applicable insolvency laws or statute of the United States of America or any State or Commonwealth thereof affecting the Lessee, any Guarantor, the Lessor Trust, the Lessor Trustee or the Certificate Holders or any collection actions, the transactions evidenced by the Operative Agreements shall be regarded as loans made by the Certificate Holders as unrelated third party lenders of the Lessee. Section 8.2 Amounts Due Under the Lease. Anything herein or elsewhere in the Operative Agreements to the contrary notwithstanding, it is the intention of the Lessee and the Trust Certificate Purchasers that except for unindemnified taxes and other amounts: (a) the amount and timing of installments of Periodic Rent due and payable from time to time from the Lessee under the Lease shall be equal to the aggregate payments due and payable as mandatory prepayments pursuant to Section 6.2(b) of the Trust Agreement and as interest on the Trust Certificates on each Scheduled Payment Date; (b) if the Lessee becomes obligated to purchase the Equipment under the Lease (including, but not limited to, Section 18.1 thereof), the unpaid principal of and interest on the Trust Certificates and all other obligations of the Lessee owing to the Trust Certificate Purchasers and the Lessor Trustee shall be due and payable in full by the Lessee on the date set forth in the Lease; (c) if the Lessee shall sell the Equipment pursuant to Section 18.3 of the Lease, the Lessee shall be required to pay to the Lessor Trustee the proceeds of the sale of the Equipment, any other amounts due under Section 18.4 of the Lease (which aggregate amounts may be less than the Lease Balance, with any amount in excess of the Lease Balance being payable to the Lessee except as otherwise provided in the last sentence of Section 18.4 of the Lease) plus all other amounts then due from the Lessee to the Lessor Trustee and the Trust Certificate Purchasers under the Operative Agreements; (d) upon an Event of Default resulting in an acceleration of the Lessee's obligation to purchase the Equipment under the Lease, the amounts then due and payable by the Lessee under the Lease shall include all amounts necessary to pay in full the Lease Balance, plus all other amounts then due from the Lessee to the Lessor Trustee and the Trust Certificate Purchasers under the Operative Agreements. Nothing in 24 this Section 8.2 is intended to limit the Obligations that survive the expiration or earlier termination of the Lease Term. SECTION 9. THE AGENT. Section 9.1 Appointment. Each Trust Certificate Purchaser irrevocably designates and appoints the Agent as its agent under this Agreement and the other Operative Agreements and irrevocably authorizes the Agent to take such action on its behalf under this Agreement and the other Operative Agreements, and to exercise the powers, make the decisions and perform the duties expressly delegated to the Agent by the terms of this Agreement and the other Operative Agreements, together with any other powers reasonably incidental to any powers so delegated. Without limiting the generality of the foregoing sentence, each of the Trust Certificate Purchasers directs the Agent to exercise such powers, make such decisions and perform such duties without being required to obtain any specific consent with respect thereto from any Trust Certificate Purchaser, unless the matter under consideration requires the consent of the Majority Certificate Holders or all Certificate Holders. The Agent has no duties or responsibilities, except those expressly set forth in this Agreement or the other Operative Agreements, no fiduciary relationship with any Trust Certificate Purchaser, and no covenants, functions, responsibilities, duties, obligations or liabilities may be implied from this Agreement or any other Operative Agreement or otherwise exist against the Agent. Section 9.2 Certain Duties. The Trust Certificate Purchasers acknowledge, agree and direct that the rights and remedies of the Trust Certificate Purchasers shall be exercised by the Agent on behalf of the Trust Certificate Purchasers as directed from time to time by the Majority Certificate Holders or, pursuant to Section 9.3, all Certificate Holders, as the case may be. The Agent is further appointed to provide notices under the Operative Agreements on behalf of the Lessor Trustee (as determined by the Agent, in its reasonable discretion), to receive notices under the Operative Agreements on behalf of the Lessor Trustee and to take such other action under the Operative Agreements on behalf of the Lessor Trustee as the Agent shall determine in its reasonable discretion from time to time. Further, the Agent shall be entitled to take such action on behalf of the Lessor Trustee as is delegated to the Agent under any Operative Agreement (whether express or implied) as may be reasonably incidental thereto. The Lessor Trustee shall take or refrain from taking such actions and grant or refrain from granting such approvals with respect to the Operative Agreements and/or relating to the Equipment in each case as directed in writing by the Agent; provided, however, that notwithstanding the foregoing, the Lessor Trustee, the Agent and the Trust Certificate Purchasers each acknowledge, covenant and agree that neither the Lessor Trustee nor the Agent shall act or refrain from acting regarding any matter requiring the consent of the Majority Certificate Holders or all Certificate Holders, until such party has received such consent. Section 9.3 Terminations, Amendments, Waivers etc.; Unanimous Vote Matters. (a) Except as otherwise provided in Section 8.4(b) of the Guaranty or in Section 9.3(b), each Operative Agreement may be terminated, amended, supplemented, waived or modified only by an instrument in writing signed by, subject to Section 7 of the Trust Agreement regarding termination of the Trust Agreement, the Majority Certificate Holders and (to the extent such Person is a party to such Operative 25 Agreement) the Lessee and each Guarantor; provided, to the extent no Default or Event of Default shall have occurred and be continuing, the Majority Certificate Holders shall not amend, supplement, waive or modify any provision of any Operative Agreement to which the Lessee or any Guarantor is not a party in such a manner as to adversely affect its rights without its prior written consent (not to be unreasonably withheld or delayed). Each agreement related to the transactions contemplated by the Operative Agreements which is not an Operative Agreement may be terminated, amended, supplemented, waived or modified only by an instrument in writing signed by the parties thereto and (without the consent of any other Person, except in the case of matters requiring consent of the Majority Certificate Holders or Unanimous Vote Matters) the Agent. In addition, the Unanimous Vote Matters shall require the consent of each Trust Certificate Purchaser affected by such matter. (b) Notwithstanding the foregoing, no such termination, amendment, supplement, waiver or modification shall, without the consent of the Agent and, to the extent affected thereby, each Trust Certificate Purchaser (collectively, the "Unanimous Vote Matters") (i) reduce the amount of any Certificate, extend the scheduled date of maturity of any Certificate, extend the scheduled Expiration Date, extend any payment date of any Certificate, reduce the stated rate of interest payable on any Certificate (other than as a result of waiving the applicability of any post-default increase in interest rates), modify the priority of any Lien in favor of the Agent under any Operative Agreement, subordinate any obligation owed to any Trust Certificate Purchaser, elect to decline the funding of any transactional expense with respect to Section 10.9, elect to decline the funding of any indemnity payment or increase the amount or extend the expiration date of any Commitment; or (ii) terminate, amend, supplement, waive or modify any provision of this Section 9 or reduce the percentages specified in the definition of Majority Certificate Holders, or consent to the assignment or transfer by the Lessor Trustee of any of its rights and obligations under any Operative Agreement or release any collateral, or release the Lessee or any Guarantor from its obligations under any Operative Agreement or otherwise alter any payment obligations of the Lessee or any Guarantor to the Lessor Trustee or any Trust Certificate Purchaser under the Operative Agreements. Any such termination, amendment, supplement, waiver or modification shall apply equally to each of the Trust Certificate Purchasers and shall be binding upon all the parties to this Agreement. In the case of any waiver, each party to this Agreement shall be restored to its former position and rights under the Operative Agreements, and any Default or Event of Default waived shall be deemed to be cured and not continuing, but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. Section 9.4 Delegation of Duties. The Agent may execute any of its duties under this Agreement and the other Operative Agreements by or through agents or attorneys-in-fact and is entitled to advice of counsel concerning all matters pertaining to its duties. The Agent is not responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. Section 9.5 Exculpatory Provisions. Neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates will be (a) liable for any action 26 lawfully taken or omitted to be taken by it or any other Person under or in connection with this Agreement or any other Operative Agreement (except for its own gross negligence or willful misconduct), or (b) responsible in any manner to any Trust Certificate Purchaser for any recitals, statements, representations or warranties made by any other Person under or in connection with this Agreement or any other Operative Agreement or any of its officers in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Operative Agreement, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Operative Agreement, for the perfection, non-perfection or priority of any Lien or security interest, or for any failure of any other Person to perform its obligations under this Agreement or any other Operative Agreement. The Agent is under no obligation to any Trust Certificate Purchaser to ascertain or to inquire as to the observance or performance of any agreement in or condition of this Agreement or any other Operative Agreement, or to inspect the properties, books or records of any Person. Section 9.6 Reliance by the Agent. The Agent may rely, and will be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, facsimile, message, statement, order or other document or any conversation it believes to be genuine and correct and to have been signed, sent, made or spoken by the proper Person or Persons and upon advice and statements of legal counsel (including without limitation counsel to any other Person), independent accountants, and any other expert it selects. The Agent may treat any Trust Certificate Purchaser which is a party to this Agreement as a Trust Certificate Purchaser for all purposes unless a written notice of assignment or transfer of such Trust Certificate Purchaser's interest has been delivered to the Agent. The Agent is fully justified in failing or refusing to take any action under this Agreement or any other Operative Agreement unless it has first received any advice or concurrence of the Majority Certificate Holders or all Certificate Holders, as the case may be, as it deems appropriate or it has first been indemnified to its satisfaction by the Trust Certificate Purchasers against any and all liability and expense that it may incur by reason of taking or continuing to take any such action. The Agent is in all cases fully protected in acting, or in refraining from acting, under this Agreement or any other Operative Agreement in accordance with a request of the Majority Certificate Holders or all Certificate Holders, as the case may be, and any action taken or failure to act pursuant thereto is binding upon all the Trust Certificate Purchasers and all future Certificate Holders. Section 9.7 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless the Agent has received written notice from a Trust Certificate Purchaser, the Lessor Trustee, the Lessor or a Guarantor referring to this Agreement, describing the Default or Event of Default, and identified as a default notice. The Agent will take such action with respect to such Default or Event of Default as the Majority Certificate Holders reasonably direct; provided, that unless and until the Agent receives such direction, the Agent may (but is not obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it deems advisable in the best interests of the Trust Certificate Purchasers. Nothing in this Section 9.7 limits (a) the rights of the Majority Certificate Holders to elect remedies under the Operative Agreements or (b) the rights of the Majority Certificate Holders or all Certificate Holders, as the case may be, set forth in this Agreement. 27 Section 9.8 Non-Reliance on the Agent and Other Trust Certificate Purchasers. Each Trust Certificate Purchaser acknowledges that neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no further act by the Agent, including without limitation any review of the affairs of any other Person, will constitute any representation or warranty by the Agent to any Trust Certificate Purchaser. Each Trust Certificate Purchaser represents to the Agent that it has, independently and without reliance upon the Agent or any other Trust Certificate Purchaser, and based on the documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Lessee and the Guarantors and made its own decision to make its Commitment and enter into this Agreement. Each Trust Certificate Purchaser also represents that it will, independently and without reliance on the Agent or any other Trust Certificate Purchaser, and based on whatever documents and information it deems appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Operative Agreements and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Lessee and the Guarantors. Except for notices, reports and other documents expressly required to be furnished to the Trust Certificate Purchasers by the Agent hereunder, the Agent has no duty or responsibility to provide any Trust Certificate Purchaser with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Lessee or any Guarantor that may come into the possession of the Agent or any of its officers, directors, employees, agent, attorneys-in-fact or Affiliates. Section 9.9 Indemnification. The Trust Certificate Purchasers will indemnify the Agent, in its capacity as such (to the extent it is not reimbursed by the Lessee or the Guarantors and without limiting the obligation of the Lessee or the Guarantors to do so), ratably according to their Commitments on the date on which indemnification is sought (or, if indemnification is sought after the date on which the Trust Certificates are paid in full, ratably in accordance with their Commitments immediately prior to such payment), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including without limitation at any time following the payment of the Trust Certificate) be imposed on, incurred by or asserted against any of them in any way relating to or arising out of the Commitments, this Agreement, any of the other Operative Agreements or any documents contemplated by or referred to in any Operative Agreement or the transactions contemplated by the Operative Agreements, or any action taken or omitted by any of them under or in connection with any of the foregoing; provided, that no Trust Certificate Purchaser will be liable for the payment of any portion of any liabilities, obligations, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the gross negligence or willful misconduct of the Agent. The agreements in this Section 9.9 shall survive the payment in full of the Trust Certificates and all other amounts payable hereunder. Section 9.10 The Agent in Its Individual Capacity. The Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Lessee or any Guarantor as though the Agent were not the Agent hereunder and under the other Operative Agreements. With respect to its portion of the Trust Certificates issued to it, the Agent 28 has the same rights, obligations and powers under this Agreement and the other Operative Agreements as any Trust Certificate Purchaser and may exercise those rights and powers as though it were not the Agent, and the terms "Trust Certificate Purchaser" and "Certificate Holder" include the Agent in its individual capacity. Section 9.11 Successor Agent. The Agent may resign at any time upon 30 days' notice to the Trust Certificate Purchasers and, so long as no Default or Event of Default has occurred and is continuing, to the Lessee. If the Agent resigns under this Agreement, the Majority Certificate Holders shall appoint from among the Trust Certificate Purchasers a successor Agent, subject to the approval, so long as no Default or Event of Default has occurred and is continuing, of the Lessee, such approval not to be unreasonably withheld or delayed. If no successor Agent is appointed prior to the effective date of the resignation of the resigning Agent, the Agent may appoint, after consulting with the Trust Certificate Purchasers and subject to the approval, so long as no Default or Event of Default has occurred and is continuing, of the Lessee, such approval not to be unreasonably withheld or delayed, a successor Agent from among the Trust Certificate Purchasers (or another Person acceptable to the Majority Certificate Holders). If no successor Agent has accepted appointment as the Agent by the date which is 30 days following a resigning Agent's notice of resignation, the resigning Agent's notice of resignation will thereupon become effective and the Trust Certificate Purchasers shall perform all of the duties of the Agent until such time, if any, as the Majority Certificate Holders appoint a successor Agent, in the manner provided for above. Upon the effective date of the Agent's resignation, only a successor Agent may succeed to all the rights, powers and duties of the resigning Agent, the term "Agent" shall mean the successor Agent, and the resigning Agent's rights, powers and duties in its capacity as Agent will be terminated. After any agent resigns as the Agent, the provisions of Section 9 shall inure to its benefit as to any actions taken or permitted to be taken by it while it was the Agent under this Agreement. Section 9.12 The Agent's Duty of Care. Other than the exercise of reasonable care to assure the safe custody of any of the Equipment being held by the Agent under any Operative Agreement, the Agent shall have no duty or liability to preserve rights pertaining to the Equipment, it being understood and agreed that the Lessee is responsible for preserving all rights in the Equipment, and the Agent shall be relieved of all responsibility for the Equipment upon surrendering it or tendering the surrender of it to the Lessee. The Agent will have exercised reasonable care in the custody and preservation of any of the Equipment in its possession if such Equipment is accorded treatment substantially equal to that which the Agent accords its own property, which shall be no less than that employed by a reasonable and prudent Agent in the industry, it being understood that the Agent is not responsible for taking any steps to preserve rights in the Equipment against any Person. SECTION 10. MISCELLANEOUS. Section 10.1 Amendments. This Agreement may, from time to time and at any time, be amended or supplemented only in accordance with Section 9.3. Section 10.2 Notices. All notices and other communications provided for herein (unless otherwise provided for by the specific provisions hereof) shall be in writing. Notices and other communications shall be deemed to have been given (unless otherwise required by the 29 specific provisions hereof in respect of any matter) when delivered personally or otherwise actually received or five days after being deposited in the United States mail, certified, return receipt requested, postage prepaid, or when sent by facsimile (with receipt of such facsimile confirmed by telephone and a copy of such notice or communication sent by a prepaid courier having a national reputation for reliability (e.g., Federal Express)) to the parties hereto at their addresses set forth on Schedule I ---------- hereto in the case of the Trust Certificate Purchasers, and beneath their respective signatures below, in the case of the other parties hereto, or at such other place as any such party may designate by notice duly given in accordance with this Section to the other parties. Section 10.3 Survival. All warranties, representations and covenants made by any party herein or in any certificate or other instrument delivered by any party to any other party under this Agreement shall be considered to have been relied upon by such other party and shall survive the consummation of the transactions contemplated hereby on the Closing Date regardless of any investigation made by such other party or on behalf of such other party. All statements in any such certificate or other instrument by the Lessor Trustee or the Lessee, or on behalf of the Lessor Trustee or the Lessee, under this Agreement shall constitute warranties and representations by the Lessor Trustee or, as the case may be, the Lessee hereunder. All unperformed Obligations, including, without limitation, indemnification Obligations, shall survive the expiration or earlier termination of the Lease Term. Section 10.4 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of, and shall be enforceable by, the parties hereto and their respective successors and assigns including each successive holder of any Trust Certificate issued and delivered pursuant to this Agreement and the Trust Agreement whether or not an express assignment to any such holder of rights under this Agreement has been made. Section 10.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts (excluding its choice-of-law principles that would require the application of the laws of another jurisdiction). Section 10.6 Counterparts. This Agreement may be executed in any number of counterparts, each executed counterpart constituting an original but all together only one Agreement. Section 10.7 Headings and Table of Contents. The headings of the Sections of this Agreement and the Table of Contents are inserted for convenience only and shall not be construed to affect the meaning or construction of any of the provisions hereof and any reference to numbered Sections, unless otherwise indicated, are to Sections of this Agreement. Section 10.8 Limitations of Liability. (a) Liabilities of the Trust Certificate Purchasers. No Trust Certificate Purchaser shall have any obligation or duty to the Lessee, to any other Trust Certificate Purchaser or to others with respect to the transactions contemplated hereby except those obligations or duties of such Trust Certificate Purchaser expressly set forth in this Agreement and the other Operative Agreements and no Trust Certificate Purchaser shall 30 be liable for performance by any other party hereto of such other party's obligations or duties hereunder. Without limitation of the generality of the foregoing, under no circumstances whatsoever shall any Trust Certificate Purchaser be liable to the Lessee, nor shall any Trust Certificate Purchaser be liable to any other Trust Certificate Purchaser, for any action or inaction on the part of the Lessor Trustee, the Agent or any other Trust Certificate Purchaser in connection with the transactions contemplated herein, whether or not such action or inaction is caused by willful misconduct or gross negligence of the Lessor Trustee, the Agent or any other Trust Certificate Purchaser. (b) No Recourse to Wells Fargo Bank Northwest, National Association. It is expressly understood and agreed among the Lessor Trustee, the Lessee and the Trust Certificate Purchasers and any Certificate Holder and their respective successors and assigns that, subject to the proviso to this paragraph, this Agreement is (except as otherwise expressly provided herein) executed by Wells Fargo Bank Northwest, National Association, not individually or personally but solely as trustee under the Trust Agreement in the exercise of the power and authority conferred and vested in it as such trustee, that each and all of the representations, warranties, undertakings and agreements herein made on the part of the Lessor Trustee are made and intended not as personal representations, warranties, undertakings and agreements by Wells Fargo Bank Northwest, National Association or for the purpose or with the intention of binding Wells Fargo Bank Northwest, National Association personally, but are made and intended for the purpose of binding only the Lessor Trust Estate, that this Agreement is executed and delivered by Wells Fargo Bank Northwest, National Association solely in the exercise of the powers expressly conferred upon Wells Fargo Bank Northwest, National Association as trustee under the Trust Agreement, that actions to be taken by the Lessor Trustee pursuant to its obligations hereunder may be taken by the Lessor Trustee only upon specific authority of the Certificate Holders, that nothing contained herein shall be construed as creating any liability of Wells Fargo Bank Northwest, National Association, individually or personally, or any incorporator or any past, present or future subscriber to the capital stock of, or stockholder, officer or director of Wells Fargo Bank Northwest, National Association, to perform any covenant either express or implied contained herein, all such liability, if any, being expressly waived by the Lessee, each Trust Certificate Purchaser and any Certificate Holder and any person claiming by, through or under such persons, and that so far as Wells Fargo Bank Northwest, National Association, individually or personally is concerned, subject to the proviso to this paragraph, the Lessee, each Trust Certificate Purchaser and any Certificate Holder and any person claiming by, through or under such persons shall look solely to the Lessor Trust Estate for the performance of any obligation of Wells Fargo Bank Northwest, National Association under this Agreement; provided, however, that nothing in this Section 10.8 shall be construed (i) to limit in scope or substance those representations, warranties, undertakings and agreements of Wells Fargo Bank Northwest, National Association made expressly in its individual capacity set forth in Section 3.1 or the indemnities of Wells Fargo Bank Northwest, National Association in its individual capacity set forth in Section 7, or (ii) to relieve Wells Fargo Bank Northwest, National Association from liability for its own willful misconduct or gross negligence. The term "Lessor Trustee" as used in this Agreement shall include any trustee succeeding Wells Fargo Bank Northwest, National Association as trustee under the Trust Agreement. 31 Nothing contained in this Agreement shall restrict the operation of the provisions of the Trust Agreement, including, without limitation, the resignation or removal of the Lessor Trustee thereunder. Section 10.9 Transactional Expenses. The Lessee will pay all expenses relating to the transactions contemplated by this Agreement, including without limitation: (a) the fees and expenses of Thelen Reid & Priest LLP, special counsel for the Trust Certificate Purchasers, and any local counsel reasonably engaged by such counsel; (b) the cost of delivering to or from the home office of each Trust Certificate Purchaser from or to the Lessor Trustee, insured to the satisfaction of such Trust Certificate Purchaser, the Trust Certificates issued to such Trust Certificate Purchaser on the Closing Date and any Trust Certificates surrendered pursuant to the Trust Agreement and the Trust Certificates issued in substitution or replacement for the surrendered Trust Certificates; (c) all stamp, transfer and other similar taxes, fees and excise, if any, including any interest and penalties, which are payable in connection with the transactions contemplated by this Agreement, the Trust Certificates and the other Operative Agreements; (d) the ongoing expenses of the Lessor Trustee and the Trust Certificate Purchasers, including without limitation, fees and expenses of their counsel, in connection with the administration of the transactions contemplated by this Agreement, including without limitation, any amendments, waivers or consents requested by any party in connection with any of the Operative Agreements and all recording and filing fees, stamp taxes and other recording or filing taxes in connection with the recordation or filing of any such amendments, waivers and consents and in connection with any continuation statements or other documents filed to maintain and protect the rights of the parties under the Operative Agreements; (e) the initial and annual fees of the Lessor Trustee in advance for the entire Lease Term and ongoing fees and expenses of the Lessor Trustee under the Trust Agreement, including fees and expenses incurred in connection with the enforcement of the obligations of the Lessee and the Guarantors under the Operative Agreements; (f) the fees and out of pocket expenses of Fleet Capital Corporation, as arranger, in connection with the transactions contemplated hereby, including without limitation, the fees specified in Section 4.1(o) and the out of pocket costs and expenses incurred in replacing any Certificate Holder after the Closing Date; (g) the fees and expenses relating to the Appraisal and (h) any other reasonable out of pocket costs and expenses of Fleet Capital Corporation, as arranger, the Agent or the Trust Certificate Purchasers in connection with the consummation of the transactions contemplated by this Agreement. 32 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered, all as of the date first above written. LESSEE MAIL-WELL I CORPORATION By: ------------------------------------ Robert Meyer Vice President-Treasurer & Tax 8310 South Valley Highway Suite 400 Englewood, Colorado 80112 Attention: General Counsel Telecopy: 303-397-7400 [Second Amended and Restated Participation Agreement] LESSOR TRUSTEE WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, as trustee under MW 1997-1 Trust and, to the extent expressly provided above, individually By: ---------------------------------------- C. Scott Nielsen Vice President 299 South Main Street, 12th Floor MAC: U1228-120 Salt Lake City, UT 84111 Attention: Corporate Trust Department Telecopy: 801-246-5053 [Second Amended and Restated Participation Agreement] AGENT FLEET CAPITAL CORPORATION By: ------------------------------------ Peter Salvadore Vice President [Second Amended and Restated Participation Agreement] TRUST CERTIFICATE PURCHASER FLEET NATIONAL BANK By: ------------------------------------ Edward W. O'Brien Banking Officer [Second Amended and Restated Participation Agreement] TRUST CERTIFICATE PURCHASER ORIX FINANCIAL SERVICES, INC. By: ------------------------------------ Mark Kassis Senior Vice President [Second Amended and Restated Participation Agreement] TRUST CERTIFICATE PURCHASER U.S. BANK, NATIONAL ASSOCIATION By: ------------------------------------ Its: ------------------------------------ [Second Amended and Restated Participation Agreement] ANNEX I ------- DEFINITIONS MW 1997-1 TRUST --------------- RULES OF INTERPRETATION The following terms shall have the following meanings for all purposes of the Operative Agreements referred to below, unless otherwise defined in an Operative Agreement or the context thereof shall otherwise require. In the case of any conflict between the provisions of this Definition Annex and the provisions of the main body of any Operative Agreement, the provisions of the main body of the Operative Agreement shall control the construction of the Operative Agreement. Unless the context otherwise requires, (i) references to an agreement shall be deemed to mean that agreement as it has been and may be amended and supplemented from time to time, and (ii) references to parties to agreements shall be deemed to include the successors and permitted assigns of such parties. DEFINED TERMS "Account" shall mean the account identified by the Lessor Trustee into which all payments by the Lessee under the Operative Agreements shall be made, unless otherwise expressly provided. The Account shall be specified on Schedule II to the Participation Agreement. "Act" shall mean the Securities Act of 1933, as amended. "Additional Collateral" is defined in Section 23.2 of the Lease. "Adjusted LIBOR" shall mean a rate per annum determined in accordance with the following formula: Adjusted LIBOR = LIBOR ----------------------- 100%-Reserve Percentage "Reserve Percentage" shall mean, for, the purpose of computing Adjusted LIBOR, the maximum rate of all reserve requirements (including, without limitation, any marginal, emergency, supplemental or other special reserves) imposed by the Board of Governors of the Federal Reserve System (or any successor) under Regulation D on Eurocurrency liabilities (as such term is defined in Regulation D) for the applicable Interest Period as of the first day of such Interest Period, but subject to any amendments to such reserve requirement by such Board or its successor, and taking into account any transitional adjustments thereto becoming effective during such Interest Period. "LIBOR" shall mean, for each Interest Period, (a) the LIBOR Index Rate for such Interest Period, if such rate is available, and (b) if the LIBOR Index Rate cannot be determined, the arithmetic average of the rates of interest per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) at which deposits in U.S. Dollars in immediately available funds are offered to Wells Fargo Bank Northwest, National Association at 11:00 a.m. (London, England time) two Business Days before the beginning of such Interest Period by three or more major banks in the interbank eurodollar market selected by Wells Fargo Bank Northwest, National Association for a period equal to such Interest Period and in an amount equal or comparable to the principal amount of the Trust Certificates to be outstanding for such Interest Period. "LIBOR Index Rate" means, for any Interest Period, the rate per annum (rounded upwards, if necessary, to the next higher one hundred-thousandth of a percentage point) for deposits in U.S. Dollars for a period equal to such Interest Period, which appears on the Telerate Page 3750 as of 11:00 a.m. (London, England time) on the day two Business Days before the commencement of such Interest Period. "Telerate Page 3750" means the display designated as "Page 3750" on the Dow Jones Markets, a division of Dow Jones & Company, Telerate Service (or such other page as may replace Page 3750 on that service or such other service as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying British Bankers' Association Interest Settlement Rates for U.S. Dollar deposits). "Advance" is defined in Section 1.1 of the Participation Agreement. "Adverse Determination" shall mean a determination by any Trust Certificate Purchaser or Certificate Holder with respect to any Interest Period that (i) adequate and fair means do not exist for ascertaining the applicable interest rates by reference to which LIBOR is to be determined hereunder for such Interest Period, (ii) United States Dollar deposits in the principal amount of its Trust Certificate are not generally available in the London interbank market for a period equal to such Interest Period, (iii) LIBOR as determined hereunder for such Interest Period, after taking into account payments to be made by the Lessee pursuant to Section 6.5 of the Participation Agreement, will not adequately and fairly reflect the cost to such Trust Certificate Purchaser or Certificate Holder of funding the indebtedness evidenced or to be evidenced by its Trust Certificates, or (iv) the making or continuation by such holder of a loan bearing interest calculated with reference to LIBOR shall, as a result of any change in any law or regulation or in the interpretation thereof by any Governmental Authority charged with the administration or interpretation thereof, be unlawful or impermissible. "Affiliate" shall mean, with respect to any Person, a second Person (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under a common control with, the first Person, (ii) which beneficially owns or holds 5% or more (by number of votes) of any class of the Voting Stock of the first Person or (iii) 5% or more (by number of votes) of the Voting Stock (or in the case of a Person which is not a corporation, 5% or more of the equity interest) of which is beneficially owned or held by the first Person or a Subsidiary of such Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the 2 ownership of voting securities, membership interests, partnership interests, by contract or otherwise. "After Tax Basis" shall mean, with respect to any payment to be received, the amount of such payment increased so that, after deduction of the amount of all Taxes required to be paid by the recipient (less any Tax savings realized and the present value of any Tax savings projected to be realized by the recipient as a result of the payment of the indemnified amount) with respect to the receipt by the recipient of such amounts, such increased payment (as so reduced) is equal to the payment otherwise required to be made. "Agent" shall mean Fleet Capital Corporation, as agent for the Trust Certificate Purchasers pursuant to the Participation Agreement, or any successor agent appointed in accordance with the terms of the Participation Agreement. "Alterations" shall have the meaning assigned thereto in Section 10.2 of the Lease. "Alternate Rate" shall mean, for any Interest Period, a per annum rate equal to the Prime Rate from time to time in effect for such Interest Period. "Amended and Restated Equipment Lease" shall mean the Amended and Restated Equipment Lease, dated as of July 1, 2000, between the Original Lessor Trustee, as lessor, and the Lessee, as lessee. "Amended and Restated Guaranty Agreement" shall mean the Amended and Restated Guaranty Agreement, dated as of July 1, 2000, among the Existing Guarantors, the Lessee, the Original Lessor Trustee and the Existing Certificate Purchasers. "Amended and Restated Participation Agreement" shall mean the Amended and Restated Participation Agreement, dated as of July 1, 2000, among the Lessee, the Original Lessor Trustee and the Existing Certificate Purchasers. "Amended and Restated Trust Agreement" shall mean the Amended and Restated Lessor Trust Agreement, dated as of July 1, 2000, among the Original Lessor Trustee and the Existing Certificate Purchasers. "Applicable Law" shall mean all applicable laws, treaties, judgments, decrees, injunctions, writs and orders of any court, governmental agency or authority and rules, regulations, orders, directives, licenses and permits of any governmental body, instrumentality, agency or authority. "Applicable Margin" shall mean, with respect to any Interest Period, (i) for any Series A or Series B Trust Certificate, an amount to be determined for such Interest Period in accordance with the following schedule: IF FIXED CHARGE COVERAGE RATIO IS: LEVEL OF APPLICABLE MARGINS: - --------------------------------- --------------------------- > 1.50:1.00 Level I - - > 1.25:1.0, but < 1.50:1.00 Level II - - < 1.25:1.00 Level III 3 LOAN APPLICABLE MARGINS ---- ------------------ Level I Level II Level III ------- -------- --------- LIBOR Revolving Loans 3.00% 3.25% 3.50% "Appraisal" shall mean an appraisal of the current fair market value of the Equipment and the estimated future fair market value of such Equipment at the end of the Lease Term, which appraisal complies in all material respects with all of the provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended, the rules and regulations adopted pursuant thereto, and all other applicable Requirements of Law, and is addressed to the Lessor Trustee, the Trust Certificate Purchasers and the Lessee. The Appraisal shall be prepared by DoveBid Valuation Services, Inc. "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banks in the States of Utah, Rhode Island, New York or Massachusetts (or, in the event the Lessor Trustee receives and disburses funds in a location other than the State of Washington, such other location), or with respect to the definition of "Adjusted LIBOR", London, U.K., are authorized or permitted to be closed in observance of a legal holiday. "Capital Lease" shall mean a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP. "Capitalized Transaction Costs" shall mean (i) Fleet Capital Corporation's arrangement fee, payable pursuant to the letter from Fleet Capital Corporation to the Lessee, dated [AUGUST 5], 2002, (ii) the Agent's annual fees in advance for the entire Lease Term, payable pursuant to the letter from Fleet Capital Corporation to the Lessee, dated [AUGUST 5], 2002, (iii) the Trust Certificate Purchasers' upfront fees, [PAYABLE PURSUANT TO THE CONFIDENTIAL INFORMATION MEMORANDUM DATED JUNE, 2002], and (iv) the accrued transactional expenses specified in Section 10.9 of the Participation Agreement. "Casualty" with respect to an Item of Equipment shall mean any of the following events: (i) the actual or constructive total loss of such Item of Equipment; (ii) such Item of Equipment shall become destroyed or damaged beyond repair; (iii) the condemnation, confiscation, requisition or taking of title to such Item of Equipment by the United States government or any agency or instrumentality thereof or any other United States state or local government or any agency or instrumentality thereof; or (iv) the condemnation, confiscation, requisition or taking of use of such Item of Equipment by the United States government or any agency or instrumentality thereof or any United States state or local government or any agency or instrumentality thereof for a period that extends beyond the end of the Lease Term. "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., as amended by the Superfund Amendments and Reauthorization Act of 1986. 4 "Certificate Holder" shall mean the holder of any Trust Certificate issued and outstanding under the Trust Agreement. "Claims" shall mean any and all obligations, liabilities, losses, actions, suits, judgments, penalties, fines, claims, demands, settlements, costs and expenses (including, without limitation, reasonable legal fees and expenses) of any nature whatsoever. "Closing Date" shall have the meaning specified in Section 1.2 of the Participation Agreement. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time and regulations promulgated thereunder. "Commitment" shall mean, with respect to each Trust Certificate Purchaser, the commitment amount set forth opposite its name on Schedule I to the Participation Agreement. "Credit Agreement" shall have the meaning assigned thereto in Section 6 of the Guaranty Agreement. "Debt" means, with respect to any Person, without duplication, (a) its liabilities for borrowed money; (b) its liabilities for the deferred purchase price of property acquired by it (excluding accounts payable arising in the ordinary course of business but including, without limitation, all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property); (c) its Capital Lease obligations; (d) all liabilities for borrowed money secured by any Lien with respect to any property owned by it (whether or not it has assumed or otherwise become liable for such liabilities); and (e) any Guaranty of such Person with respect to liabilities of a type described in any of clauses (a) through (d) of this definition. Debt of any Person includes all obligations of such Person of the character described in clauses (a) through (e) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP. "Default" shall mean any event or condition which, with the lapse of time or the giving of notice, or both, would constitute an Event of Default. "Dollars" or "$" shall mean the lawful currency of the United States of America. "Employee Benefit Plan" means an "employee benefit plan" as defined in Section 3 of ERISA. 5 "Equipment" shall mean all the Items of Equipment. "Equipment Lease" means the Lease. "Equipment Cost" for an Item of Equipment shall mean the Equipment Cost for such Item of Equipment specified therefor in the Lease Supplement delivered in connection therewith, which amount shall be a portion of the aggregate of all Advances made on the Closing Date. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, or any successor law, and any regulations promulgated thereunder. "ERISA Group" means the Lessee and the Guarantors and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Lessee and Guarantors, are treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001(a)(14) of ERISA. "Event of Default" shall have the meaning assigned thereto in Section 16.1 of the Lease. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Existing Certificate Purchasers" shall mean the Persons party to the Amended and Restated Participation Agreement as "Trust Certificate Purchasers." "Existing Guarantors" means the "Guarantors" under the Existing Guaranty. "Existing Operative Agreements" shall mean "Operative Agreements" as defined in the Amended and Restated Participation Agreement. "Existing Trust Certificates" shall mean the trust certificates issued by the Original Lessor Trustee under and pursuant to the Amended and Restated Trust Agreement. "Expiration Date" for any Item of Equipment shall mean the last day of the Lease Term of such Item. "Fixed Charge Coverage Ratio" is defined in Section 6 of the Guaranty Agreement. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States of America. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Guarantor" shall mean each of Mail-Well and each of the other Guarantors named in the Guaranty Agreement, any corporation or other entity which joins the Guaranty Agreement 6 pursuant to Section 20.1 of the Lease and any corporation or other entity which succeeds to any of them by merger or consolidation or which acquires all or substantially all of the assets thereof. "Guaranty" means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing (whether by reason of being a general partner of a partnership or otherwise) any indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such indebtedness or obligation or any property constituting security therefor; (b) to advance or supply funds (i) for the purchase or payment of such indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such indebtedness or obligation; (c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of any other Person to make payment of the indebtedness or obligation; or (d) otherwise to assure the owner of such indebtedness or obligation against loss in respect thereof In any computation of the indebtedness or other liabilities of the obligor under any Guaranty, the indebtedness or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor. "Guaranty Agreement" shall mean the Second Amended and Restated Guaranty Agreement dated as of August 6, 2002, among the Guarantors, the Lessee, the Lessor Trustee and the Trust Certificate Purchasers. "Guaranty Party" means the Guarantors and the Lessee. "Hazardous Materials" means any hazardous, toxic or dangerous materials, substances, chemicals, wastes or pollutants that from time to time are defined by or pursuant to or are regulated under any Hazardous Materials Laws, including asbestos, polychlorinated biphenyls, petroleum, petroleum derivatives or by-products, other hydrocarbons, urea formaldehyde and any material, substance, pollutant or waste that is defined as a hazardous waste under RCRA or defined as a hazardous substance under CERCLA. "Hazardous Materials Laws" means all federal, state, regional, county or local laws, statutes, rules, regulations or ordinances, now or hereafter in effect, relating to the generation, recycling, use, reuse, sale, storage, handling, transport, treatment or disposal of Hazardous Materials, including CERCLA, RCRA, the Clean Air Act, 42 U.S.C. Section 7401, et seq., the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq. and any rules, regulations and guidance documents promulgated or published thereunder, and any state, regional, county or local statute, 7 law, rule, regulation or ordinance now or hereafter in effect that relates to the discharge, emission or disposal of Hazardous Materials in or to air, water, land or groundwater, to the withdrawal or use of groundwater, to the use, handling or disposal of asbestos, polychlorinated biphenyls, petroleum, petroleum derivatives or by-products, other hydrocarbons or urea formaldehyde, to the treatment, storage, disposal or management of Hazardous Materials, to exposure to Hazardous Materials or to the transportation, storage, disposal, management or release of gaseous or liquid substances, and any regulation, order, injunction, judgment, declaration, notice or demand issued thereunder. "Impositions" shall mean any and all liabilities, losses, expenses and costs of any kind whatsoever for fees, taxes, levies, imposts, duties, charges, assessments or withholdings of any nature whatsoever ("Taxes") (including, without limitation, (i) personal property taxes; (ii) sales taxes, use taxes and other similar taxes (including rent taxes and intangibles taxes); (iii) any excise taxes; (iv) transfer taxes, conveyance taxes, mortgage taxes, intangible taxes, stamp taxes and documentary recording taxes and fees; (v) taxes that are or are in the nature of franchise, income, value added, gross receipts, privilege and doing business taxes, license and registration fees; and (vi) assessments on the Equipment), and in each case all interest additions to tax and penalties thereon, assessed or imposed by any federal, state or local authority upon or with respect to (a) any Indemnified Party, the Equipment or any part thereof or interest therein, or the Lessee or any sublessee or user of the Equipment; (b) the financing, refinancing, demolition, construction, substitution, subleasing, assignment, control, condition, occupancy, servicing, maintenance, repair, ownership, possession, purchase, rental, lease, delivery, insuring, use, operation, improvement, transfer, return or other disposition of the Equipment or any part thereof or interest therein; (c) the Trust Certificates or any indebtedness with respect to the Equipment or any part thereof or interest therein or transfer thereof; (d) the rentals, receipts or earnings arising from the Equipment or any part thereof or interest therein; (e) the Operative Agreements or any payment made or accrued pursuant thereto; (f) the income or other proceeds received with respect to the Equipment or any part thereof or interest therein upon the sale or disposition thereof; (g) the issuance of the Trust Certificates; or (h) otherwise in connection with the transactions contemplated by the Operative Agreements. Notwithstanding anything in the first paragraph of this definition (except as provided in the final paragraph of this definition) the term "Imposition" shall not include: (i) Taxes and impositions (other than Taxes that are, or are in the nature of, sales, use, rental, transfer or property taxes) that are imposed by any Governmental Authority and that are based solely upon or measured by or with respect to the net income of any Indemnified Party (including, without limitation, any minimum taxes, income or capital gains Taxes, withholding Taxes, Taxes based on or measured by items of Tax preference or franchise or doing business Taxes) and any interest, additions to Tax, penalties or other charges in respect thereof; provided that this clause (i) shall not be interpreted to prevent a payment from being made on an After Tax Basis if such payment is otherwise required to be so made; (ii) any Tax or imposition for so long as, but only for so long as, it is being contested in accordance with the provisions of Section 6.3(b) of the Participation Agreement, provided that the foregoing shall not limit Lessee's obligation under 8 Section 6.3(b) of the Participation Agreement to advance to such Indemnified Party amounts with respect to Taxes that are being contested in accordance with Section 6.3(b) of the Participation Agreement or any expenses incurred by such Indemnified Party in connection with such contest; (iii) Taxes imposed on or with respect to or payable by a Indemnified Party resulting from, or that would not have been imposed but for the existence of, any Lessor's Lien created by or through such Indemnified Party or an Affiliate thereof and not caused by acts or omissions of Lessee; or (iv) any Tax imposed by its express terms in lieu of or in substitution for a Tax not subject to indemnity pursuant to the provisions of Section 6.3 of the Participation Agreement; Notwithstanding the foregoing, no exclusion from the definition of Impositions set forth above shall apply to any Taxes or any increase in Taxes imposed on an Indemnified Party net of any decrease in Taxes realized by such Indemnified Party, to the extent that such tax increase or decrease would not have occurred if on the Closing Date the Lessor Trustee and the Certificate Holders had advanced funds in the form of a loan secured by the Equipment in an amount equal to the Advances funded on the Closing Date, with debt service for such loan equal to the Periodic Rent payable on each Scheduled Payment Date and a principal balance at the maturity of such loan in an amount equal to the then outstanding amount of the Advances at the end of the term of the Lease, as determined by such Indemnified Party, which determination shall be binding absent manifest error. "Indemnified Parties" shall mean the Lessor Trustee (both in its individual and its fiduciary capacities), the Lessor Trust Estate, each Trust Certificate Purchaser and Certificate Holder, Fleet Capital Corporation, as arranger, and the Agent, and affiliates, successors, assigns, agents, servants, officers and employees of each of the foregoing. "Institutional Investor" is defined in Section 2.8 of the Trust Agreement. "Insurance Requirements" shall mean all terms and conditions of any insurance policy required by the Lease, and all requirements of the issuer of any such policy. "Interest Expense" means, with respect to any period, the sum (without duplication) of the following (in each case, eliminating all offsetting debits and credits between Mail-Well and its Subsidiaries and all other items required to be eliminated in the course of the preparation of consolidated financial statements of Mail-Well and its Subsidiaries in accordance with GAAP): (a) all interest on Debt of Mail-Well and its Subsidiaries (including imputed interest on Capital Lease Obligations) deducted in determining Consolidated Net Income for such period, together with all interest capitalized or deferred during such period and not deducted in determining Consolidated Net Income for such period, and (b) all debt discount and expense amortized or required to be amortized in the determination of Consolidated Net Income for such period, provided, that this clause (b) shall not include discounts related to sales of accounts receivable. "Interest Period" means a period, commencing on the Closing Date and ending on September 6, 2002 and thereafter each one month period commencing on the last day of the 9 immediately preceding period and ending on the last day of such one month period; provided that the foregoing provisions relating to Interest Periods are subject to the following: (i) no Interest Period may extend beyond the final maturity date of the Trust Certificates; and (ii) the interest rate to be applicable for each Interest Period shall apply from and including the first day of such Interest Period to but excluding the last day thereof. For purposes of determining an Interest Period, a month means a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month. "Item of Equipment" means: (i) each item of equipment described in a Lease Supplement delivered on the Closing Date and leased by the Lessor Trustee to the Lessee under the Lease and (ii) any Replacement Equipment, and includes any appliances, parts, instruments, appurtenances, accessories or other equipment of whatever nature from time to time incorporated or installed as a part thereof (including without limitation any Alteration referred to in Section 10 of the Lease), other than any part that does not become the property of the Lessor Trustee pursuant to the provisions of Section 10.4 of the Lease. "Landlord Waiver" means a Landlord Waiver substantially in the form set forth in Exhibit B to the Lease. "Late Rate" means the Overdue Rate. "Lease" shall mean the Second Amended and Restated Equipment Lease, dated as of August 6, 2002, between the Lessor Trustee, as lessor, and the Lessor, as lessee. "Lease Balance" shall mean, as of any date of determination, an amount equal to the sum of the outstanding principal amount of the Trust Certificates together with all accrued and unpaid interest thereon pursuant to the Trust Agreement. "Lease Supplement" shall mean Lease Supplement No. 1 and any Lease Supplement, substantially in the form of Exhibit A to the Lease, entered into on the date of the conveyance of any Replacement Equipment pursuant to the Lease, between the Lessor Trustee and the Lessee, covering the Equipment or such Replacement Equipment, as the case may be. "Lease Supplement No. 1" means the Lease Supplement No. 1 dated the Closing Date between the Lessor Trustee and the Lessee. "Lease Term" shall mean the full term of the Lease with respect to each Item of Equipment, commencing on the Closing Date and ending on August 6, 2007. "Lessee" shall mean Mail-Well I Corporation, a Delaware corporation, any permitted assigns and any corporation which succeeds thereto by merger or consolidation or which acquires all or substantially all of the assets thereof. 10 "Lessee Agreements" shall mean the Operative Agreements to which the Lessee is a party. "Lessor Trust" shall have the meaning specified in the Trust Agreement. "Lessor Trust Estate" shall mean all the estate, right, title and interest of the Lessor Trustee in, to and under the Equipment, the Additional Collateral and the Operative Agreements including, without limitation, all Advances by the Trust Certificate Purchasers, all installments and other payments of Rent (including, without limitation, Stipulated Loss Values and the Lease Balance), insurance proceeds, condemnation awards, purchase price and sale proceeds, and all other proceeds of any kind for or with respect to the Equipment and the Operative Agreements. "Lessor Trustee" and "Lessor" shall mean Wells Fargo Bank Northwest, National Association in its capacity as trustee under MW 1997-1 Trust created by the Trust Agreement and its successors in trust thereunder. "Lessor Trustee Agreements" shall mean the Operative Agreements to which Wells Fargo Bank Northwest, National Association, either individually or as Lessor Trustee, is a party. "Lessor Trustee Liens" shall mean Liens attributable to the Lessor Trustee. "Lessor's Liens" means any Liens arising as a result of (i) claims against or affecting the Lessor Trustee, Wells Fargo Bank Northwest, National Association, or any Trust Certificate Purchaser not related to the transactions contemplated by the Operative Agreements, or (ii) acts or omissions of the Lessor Trustee, Wells Fargo Bank Northwest, National Association or any Trust Certificate Purchaser not related to the transactions contemplated by the Operative Agreements or not contemplated by the Operative Agreements, or (iii) taxes imposed against the Lessor Trustee, Wells Fargo Bank Northwest, National Association or any Trust Certificate Purchaser which Lessee has not agreed to indemnify against pursuant to the Participation Agreement or the Lease, or (iv) claims against the Lessor Trustee, Wells Fargo Bank Northwest, National Association or any Trust Certificate Purchaser arising out of the voluntary transfer (which transfer shall be made without the consent, whether or not required, of Lessee) of all or any part of its interest in the Equipment, other than a transfer pursuant to Sections 14 or 16 of the Lease. "Lien" means any security interest, mortgage, deed of trust, pledge, hypothecation, assignment, charge or deposit arrangement, encumbrance, lien (statutory or other) or preferential arrangement of any kind or nature whatsoever in respect of any property (including those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a capital lease, any financing lease having substantially the same economic effect as any of the foregoing, or the filing of any financing statement naming the owner of the asset to which such lien relates as debtor, under the Uniform Commercial Code or any comparable law) and any contingent or other agreement to provide any of the foregoing, but not including the interest of a lessor under an operating lease. "Mail-Well" is defined in the first recital of the Guaranty Agreement. 11 "Majority Certificate Holders" means at any time Certificate Holders then holding in excess of 50% of the then aggregate outstanding principal amount of the Trust Certificates. "Material Adverse Effect" means, for any Person, an effect, resulting from any occurrence of whatever nature (including without limitation an adverse determination in any litigation, arbitration, or governmental investigation or proceeding), materially adverse to: (a) the business assets, revenues, financial condition, operations, or prospects of the Person, (b) the ability of the Person to make any payment when due or perform any other material obligation (including without limitation, its duties under the Operative Agreements), or (c) the validity or enforceability of the Operative Agreements. "Material Plan" means at any time a Plan or Plans having aggregate Unfunded Current Liabilities in excess of $5,000,000. "Maximum Lessee Risk Amount" for any Item of Equipment shall mean an amount equal to the product of (i) the percentage set forth in Schedule 2 to the Lease Supplement covering such Item of Equipment under the caption "Maximum Lessee Risk Percentage," multiplied by (ii) the Equipment Cost of such Item of Equipment. "Multiemployer Plan" means any, multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions. "Non-U.S. Person" is defined in Section 2.9 of the Trust Agreement. "Obligations" shall mean all obligations (monetary or otherwise) of Lessee arising under or in connection with any of the Operative Agreements. "Officer's Certificate" shall mean a certificate signed in the case of a corporation by the Chairman of the Board, the President, any Vice President or Senior Vice President, or the Treasurer of such corporation, in the case of a partnership by the Chairman of the Board, the President, any Vice President or Senior Vice President, or the Treasurer of a corporate general partner, and in the case of a commercial bank or trust company, the Chairman or Vice Chairman of the Executive Committee of the Board of Directors or Trustees, the President, any Vice President, the Treasurer, any Executive or Senior Vice President, or any other officer or assistant officer customarily performing the functions similar to those performed by the persons who at the time shall be such officers, or to whom any corporate trust matter is referred because of his knowledge of and familiarity with the particular subject. "Operative Agreements" means the Trust Agreement, the Participation Agreement, the Lease, each Lease Supplement, the Guaranty Agreement and the Trust Certificates outstanding at the time of reference. 12 "Original Certificate Purchasers" means the Persons party to the Original Participation Agreement as "Trust Certificate Purchasers." "Original Guarantors" means the "Guarantors" under the Original Guaranty. "Original Equipment Lease" means the Equipment Lease, dated as of December 15, 1997, between the Original Lessor Trustee, as lessor, and the Lessee, as lessee. "Original Guaranty Agreement" means the Guaranty Agreement, dated as of December 15, 1997, among the Original Guarantors, the Lessee, the Original Lessor Trustee and the Original Certificate Purchasers. "Original Lessor Trustee" means the "Lessor Trustee" as defined in the Amended and Restated Participation Agreement. "Original Participation Agreement" means the Participation Agreement, dated as of December 15, 1997, among the Lessee, the Original Lessor Trustee and the Original Certificate Purchasers. "Original Trust Agreement" means the Lessor Trust Agreement, dated as of December 15, 1997, among the Original Lessor Trustee and the Original Certificate Purchasers. "Other Pension Plan" means an employee pension benefit plan (other than a Material Plan or a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code. "Overdue Rate" means, for any period, the lesser of (i) the maximum rate permitted by Applicable Law, and (ii) with respect to any amounts payable on the Trust Certificates, the rate per annum equal to the sum of 2 percentage points plus the interest rate borne by the applicable Trust Certificates for such period, and for any other amounts, the rate per annum equal to the sum of 2 percentage points plus the interest rate borne by the Series B Trust Certificates for such period. "Participation Agreement" shall mean the Second Amended and Restated Participation Agreement dated as of August 6, 2002 among the Lessee, the Lessor Trustee and the Trust Certificate Purchasers. "Parts" shall have the meaning assigned thereto in Section 10.1 of the Lease. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any Governmental Authority succeeding to any of its principal functions under ERISA. "Periodic Rent" for an Item of Equipment shall mean, as determined as of any Scheduled Payment Date, the sum of (a) the product of (i) the Periodic Rent Factor for such Scheduled Payment Date set forth in Schedule 3 to the Lease Supplement covering such Item of Equipment, multiplied by (ii) the Equipment Cost of such Item of Equipment, plus (b) the product of (y) interest due on the Trust Certificates, determined in accordance with Section 2 of the 13 Participation Agreement and excluding (A) any interest at the applicable Overdue Rate on any installment of Periodic Rent not paid when due and (B) any fine, penalty, interest or cost assessed or added under any agreement with a third party for nonpayment or late payment of Periodic Rent, multiplied by (z) a fraction, the numerator of which is an amount equal to the Equipment Cost of such Item of Equipment and the denominator of which is an amount equal to the Equipment Cost of all Equipment then subject to the Lease (including such Item of Equipment). "Permitted Contest" shall mean a good faith contest in a manner which each Indemnified Party determines will be conducted so as to prevent the imposition of any criminal penalty on, or adverse effect on the title, property or right of, such Indemnified Party, of the legality or validity of any of the taxes, assessments, levies, fees or other governmental charges, or other claims, Liens or impositions which, under the terms of the Lease or the Participation Agreement, are required to be paid or discharged by the Lessee, the Lessor Trustee or any Certificate Holder, as the case may be, but for such contest. "Permitted Liens" with respect to the Equipment or the Additional Collateral, shall mean any of the following: (i) the respective rights and interests of the parties to the Operative Agreements as provided in the Operative Agreements; (ii) Liens for Taxes that either are not yet subject to interest or penalties or are being contested in accordance with the provisions of Section 12.1 of the Lease; (iii) Liens arising by operation of law, materialmen's, mechanics', workers', repairmen's, employees', carriers', warehousemen's and other like Liens in connection with any Alterations or arising in the ordinary course of business for amounts that either are not more than 60 day past due or are being diligently contested in good faith by appropriate proceedings, so long as such proceedings satisfy the conditions for the continuation of proceedings set forth in Section 12.1 of the Lease; (iv) Liens arising out of judgments or awards with respect to which appeals or other proceedings for review are being prosecuted in good faith and for the payment of which adequate reserves have been provided as required by GAAP or other appropriate provisions have been made, so long as such proceedings have the effect of staying the execution of such judgments or awards and satisfy the conditions for the continuation of proceedings set forth in Section 12.1 of the Lease; and (v) Lessor's Liens. "Person" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture or Governmental Authority. "Plan" means an Employee Benefit Plan maintained or funded by any member of the ERISA Group. 14 "Prime Rate" shall mean that rate established from time to time by Wells Fargo Bank Northwest, National Association as Wells Fargo Bank Northwest, National Association's Prime Rate, whether or not such rate is publicly announced; the Prime Rate may not be the lowest interest rate charged by Wells Fargo Bank Northwest, National Association for commercial or other extensions of credit. "Purchase Price" with respect to the Equipment shall mean an amount equal to the aggregate Purchase Price of all Items of Equipment then subject to the Lease (immediately prior to the subject purchase or sale). The "Purchase Price" with respect to any Item of Equipment shall mean an amount equal to the product of (i) the percentage set forth in Schedule 2 to the Lease Supplement covering such Item of Equipment under the caption "Purchase Price Percentage," multiplied by (ii) the Equipment Cost of such Item of Equipment. "Qualified Institutional Buyer" has the meaning specified in Rule 144A or any successor rule promulgated under the Act. "RCRA" means the Resource Conservation and Recovery Act of 1976, as amended by the Solid and Hazardous Waste Amendments of 1984, 42 U.S.C. Section 6901 et seq. "Register" shall have the meaning assigned thereto in Section 2.3 of the Trust Agreement. "Rent" shall mean Periodic Rent and Supplemental Rent. "Replacement Equipment" shall mean any printing equipment conveyed to the Lessor Trustee pursuant to Section 14.2 of the Lease in replacement or substitution of an Item of Equipment leased thereunder. "Requirements of Law" shall mean, as to any Person (a) its partnership agreement, certificate of incorporation, bylaws or other organizational or governing documents, and (b) all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting the Equipment or the use or alteration thereof, whether now or hereafter enacted and in force, including any that require repairs, modifications or alterations in or to the Equipment or in any way limit the use and enjoyment thereof (including all building, zoning and fire codes and the Americans with Disabilities Act of 1990, 42 U.S.C. Section 1201 et seq. and any other similar federal, state or local laws or ordinances and the regulations promulgated thereunder) and any that may relate to environmental requirements (including all Hazardous Materials Laws), and all permits, certificates of occupancy, licenses, authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments which are either of record or known to such Person affecting the Equipment. "Responsible Officer" means, (a) with respect to Mail-Well or any of its Subsidiaries, the chief executive officer or a senior vice president of Mail-Well or such Subsidiary, or any other officer having substantially the same authority and responsibility as a chief executive officer or a senior vice president; or, with respect to compliance with financial covenants, the chief financial officer, treasurer or controller of Mail-Well or such Subsidiary, or any other officer having substantially the same authority and responsibility and (b) as it applies to any other Person, any 15 officer who, in the normal performance of such officer's operational responsibilities, would have knowledge of the requirements of the Operative Agreements. "Rule 144A" shall mean Rule 144A under the Act. "Rule 144A Information" shall mean such information as is specified pursuant to Rule 144A(d)(4) under the Act (or any successor provision thereto). "Scheduled Payment Date" means during the Lease Term, the last day of each Interest Period. "Security" shall have the same meaning as in Section 2(a)(1) of the Act. "Separate Account" means a "separate account" as defined in Section 3 of ERISA. "Series A Trust Certificates" shall mean the Variable Rate Trust Certificates, designated "Series A," issued by the Lessor Trustee under the Trust Agreement. "Series B Trust Certificates" shall mean the Variable Rate Trust Certificates, designated "Series B," issued by the Lessor Trustee under the Trust Agreement. "Site" means the parcel or parcels of land on which any Item of Equipment is located. "Stipulated Loss Value" with respect to an Item of Equipment shall mean an amount equal to the sum of (a) the product of (i) the then outstanding principal amount of the Trust Certificates, multiplied by (ii) a fraction, the numerator of which is an amount equal to the Equipment Cost of such Item of Equipment and the denominator of which is the aggregate Equipment Cost of all Equipment then subject to the Lease (including such Item of Equipment) determined as of the Trust Certificate Payment Date occurring immediately prior to the date that Stipulated Loss Value is calculated (or, if such date is a Trust Certificate Payment Date, then determined as of such Trust Certificate Payment Date), plus (b) all accrued and unpaid interest thereon. "Subordinated Debt Documents" means any documents and instruments evidencing (i) the 8-3/4% Senior Subordinated Notes due 2008 of the Lessee or (ii) the 5% Convertible Subordinated Notes due 2002 of Mail-Well. "Subsidiary" is defined in Section 6 of the Guaranty Agreement. "Supplemental Rent" shall mean all amounts, liabilities and obligations (other than Periodic Rent) which the Lessee is obligated to pay under the Lease or any other Operative Agreement to the Lessor Trustee, any Certificate Holder or any other Person, including, without limitation, Stipulated Loss Values, the Lease Balance and indemnity amounts. "Tax" shall have the meaning specified in the definition of "Impositions." 16 "Trust Agreement" shall mean the Second Amended and Restated Lessor Trust Agreement, dated as of August 6, 2002, between the Trust Certificate Purchasers and the Lessor Trustee. "Trust Certificate Payment Date" shall mean the last day of each Interest Period to and including the stated maturity of the Trust Certificates. "Trust Certificate Purchasers" shall mean the Trust Certificate Purchasers named in the Participation Agreement, and their successors and assigns, including successive holders of the Trust Certificates. "Trust Certificates" shall mean the Series A Trust Certificates and the Series B Trust Certificates issued by the Lessor Trustee under and pursuant to the Trust Agreement. "UCC" or "Uniform Commercial Code" means the Uniform Commercial Code as in effect in any applicable jurisdiction. "Unanimous Vote Matters" is defined in Section 9.3(b) of the Participation Agreement. "Unfunded Current Liability" of any Plan means the amount, if any, by which the actuarial present value of the accumulated plan benefits under the Plan as of the close of its most recent plan year exceeds the fair market value of the assets allocable thereto, each determined in accordance with Statement of Financial Accounting Standards No. 87, based upon the actuarial assumptions used by the Plan's actuary in the most recent annual valuation of the Plan. "U.S. Person" is used as defined in Section 7701(a)(30) of the Code. "U.S. Subsidiary" is defined in Section 6 of the Guaranty Agreement. "Voting Stock" shall mean Securities of any class or classes of a corporation, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions). "Wholly-Owned Subsidiary" is defined in Section 6 of the Guaranty Agreement. 17 EX-10.29 6 exh10p29.txt AMENDMENT AGREEMENT NO. 1 EXHIBIT 10.29 AMENDMENT AGREEMENT NO. 1 This Amendment Agreement No. 1 (this "Amendment"), dated as of September 25, 2002, amends (i) that certain Second Amended and Restated Guaranty Agreement, dated as of August 6, 2002 ("Guaranty"), among Mail-Well I Corporation, a Delaware corporation ("Lessee"); Mail-Well, Inc., a Colorado corporation ("Mail-Well" or "Parent"), and certain subsidiaries of Lessee (Parent and each such subsidiary, individually, a "Guarantor", and, collectively, the "Guarantors"); Fleet National Bank, a national banking association, ORIX Financial Services, Inc., a New York corporation, and U.S. Bank, National Association, a national banking association (the "Certificate Holders"); Fleet Capital Corporation, a Rhode Island corporation, as Agent for the Certificate Holders (the "Agent"); and Wells Fargo Bank Northwest, National Association, a national banking association, as trustee (in such capacity, the "Lessor Trustee") under the Second Amended and Restated Lessor Trust Agreement, dated as of August 6, 2002 between it and the Certificate Holders, and (ii) that certain Participation Agreement, dated as of August 6, 2002 (the "Participation Agreement"), among Lessee, the Certificate Holders, the Agent and the Lessor Trustee. Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to such terms in the Guaranty. RECITALS WHEREAS, the Guarantors, Lessee, the Agent, the Certificate Holders and the Lessor Trustee have entered into the Guaranty, and the Lessee, the Agent, the Certificate Holders and the Lessor Trustee have entered into the Participation Agreement; WHEREAS, the Guarantors and Lessee desire to amend the Guaranty, and the Lessee desires to amend the Participation Agreement; and WHEREAS, the Agent, the Certificate Holders and the Lessor Trustee are willing to do so, subject to the terms and conditions stated herein. NOW, THEREFORE, in consideration of the premises herein contained and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Guarantors, Lessee, the Agent, the Certificate Holders and the Lessor Trustee hereby agree as follows. AGREEMENT Section 1. Amendments to the Guaranty. The Guarantors, Lessee, the -------------------------- Agent, the Trust Certificate Purchasers and the Lessor Trustee amend the Guaranty as follows: A. The first two sentences of Section 4.2(d) of the -------------- Guaranty are hereby amended in their entirety to read as follows: With each of the annual audited Financial Statements delivered pursuant to Section 4.2(a), and with -------------- each of the monthly unaudited Financial Statements delivered pursuant to Section 4.2(b), a certificate of a -------------- Responsible Officer of Parent setting forth in reasonable detail the calculations required to establish that Parent and its Subsidiaries were in compliance with the covenants set forth in Sections 5.22 through 5.23 during ------------- ---- the period covered (excluding the comparable prior period) in such Financial Statements and as at the end thereof. Within 30 days after the end of each month, a certificate of a Responsible Officer of Parent (i) stating that, except as explained in reasonable detail in such certificate, (A) all of the representations and warranties of Lessee and the Guarantors contained in the Operative Agreements are correct and complete in all material respects as at the date of such certificate as if made at such time, except for those that speak as of a particular date, (B) Lessee and the Guarantors are, at the date of such certificate, in compliance in all material respects with all of their respective covenants and agreements in the Operative Agreements, and (C) no Default or Event of Default then exists or existed during the period covered by the Financial Statements for such month, and (ii) describing and analyzing in reasonable detail all material trends, changes, and developments in each and all Financial Statements, and explaining the variances of the figures in the corresponding budgets and prior Fiscal Year financial statements, which explanations, descriptions, and analysis to be given pursuant to this Section ------- 4.2(d)(ii) shall be satisfied by the availability to the ---------- Agent and the Certificate Holders of the discussion appearing in the "Management's Discussion and Analysis of Financial Condition and Results of Operation" sections of either Parent's Annual Report on Form 10-K or Parent's Quarterly Report on Form 10-Q. B. The following new Section 4.4 is hereby added to ----------- the Guaranty: 4.4 Management Discussions. In addition to any ---------------------- discussions provided for in Sections 4.2(a), Parent and --------------- each of its Subsidiaries shall make available their chief financial officer, treasurer or other relevant members of management for a telephonic meeting upon the request of the Agent or any of the Certificate Holders acting through the Agent (but not more frequently than one call per month for all Certificate Holders) to discuss the financial results of Parent and its Subsidiaries reflected in the monthly Financial Statements delivered to the Agent and the Certificate Holders pursuant to Section 4.2(a) or (b). -------------- --- Such meetings shall take place within 5 Business Days of the dissemination of such Financial Statements. C. The following new Section 5.6 is hereby added to ----------- the Guaranty: 5.6 Standby Letter of Credit. On or before ------------------------ October 1, 2002, Lessee shall cause a $2,000,000 standby letter of credit to be issued by an issuer acceptable to the Certificate Holders, substantially in the form of Exhibit B hereto or otherwise in form and substance --------- satisfactory to the Certificate Holders, in the name of the Agent for the ratable benefit of the Certificate Holders and maintained until all amounts owing under the Trust Certificates have been paid in full. The letter of credit shall provide that upon the occurrence of an Event of Default and at any time thereafter, the Agent may present the letter of credit to the issuer and it shall be honored, regardless of whether the Event of Default is later cured. An Event of Default resulting from Lessee's failure to comply with this 2 Section 5.6 shall be deemed to be material. The Agent shall apply any proceeds of the letter of credit in accordance with the provisions of Section 5.6 of the Trust Agreement. D. Section 5.9 of the Guaranty is hereby amended by ----------- adding the following to the end thereof: For purposes of this Agreement, "disposition" shall not include any change in the carrying value of any assets recognized by Parent or its Subsidiaries under or in connection with FAS 142 or FAS 144. E. Sections 5.22 and 5.23 of the Guaranty are hereby ------------- ---- amended in their entirety to read as follows: 5.22 A. Fixed Charge Coverage Ratio. Parent --------------------------- will maintain a Fixed Charge Coverage Ratio for each period of four consecutive fiscal quarters ended on the last day of each fiscal quarter set forth below (or, with respect to each of the fiscal quarters ending on or before June 28, 2003, for the period commencing on July 1, 2002 and ending on the last day of such fiscal quarter) of at least the ratio set forth below opposite each such fiscal quarter:
Fiscal Quarter Finding Minimum Fixed Charge Coverage Ratio ---------------------- ----------------------------------- September 2002 0.45:1.00 December 2002 0.70:1.00 March 2003 0.90:1.00 June 2003 0.95:1.00 September 2003 and thereafter 1.15:1.00
provided, however, that following the reduction of the -------- ------- Maximum PP&E Loan Amount to $0, the above minimum Fixed Charge Coverage Ratios will each be reduced by 0.05:1.00. B. Minimum Availability. Lessee and each -------------------- Subsidiary shall maintain Availability of not less than $25,000,000 (with all obligations of Lessee and its Subsidiaries current) at all times until and including the date on which Lessee and its Subsidiaries demonstrate to the satisfaction of the "Agent" under the Credit Agreement that they can provide weekly reporting of their sales and collections and weekly accounts receivable roll-forwards. 3 5.23 Adjusted Tangible Net Worth. Parent will --------------------------- maintain Adjusted Tangible Net Worth, determined as of the last day of each of the following fiscal months, of at least the amounts below opposite such month:
Measurement Date Minimum Amount ---------------- -------------- June 2002 - August 2002 $295,000,000 September 2002 - November 2002 $255,000,000 December 2002 - February 2003 $255,000,000 March 2003 - May 2003 $265,000,000 June 2003 - August 2003 $275,000,000 September 2003 - November 2003 $300,000,000 December 2003 and thereafter $325,000,000
provided, however, that the foregoing Minimum Amounts -------- ------- shall be adjusted, by: (a) increasing such amounts to reflect 100% of the net cash proceeds received by Parent from the issuance of Capital Stock since June 27, 2002, and any gains recognized by Parent or its Subsidiaries resulting from the disposition of Assets Held For Disposition or Restructuring Assets since June 27, 2002, and (b) decreasing such amounts to reflect: (i) any losses (not to exceed an aggregate amount of $32,000,000) recognized by Parent or its Subsidiaries since June 27, 2002 resulting from the disposition of Assets Held For Disposition or Restructuring Assets, and (ii) any reduction in Adjusted Tangible Net Worth resulting from a Permitted Acquisition (but only up to an aggregate amount for all Permitted Acquisitions equal to 25% of the amount received by Parent from the issuance of Capital Stock since June 27, 2002). F. Section 6.1 of the Guaranty is hereby amended by ----------- adding the following definition immediately after the definition of "Assets Held for Disposition": "Availability" has the meaning specified in the Credit Agreement. G. The definition of "Credit Agreement" set forth in Section 6.1 of the Guaranty is restated as follows: ----------- "Credit Agreement" means the Amended and Restated Credit Agreement, dated as of June 27, 2002, as amended by Amendment No. 1 to Amended and Restated Credit Agreement, dated as of September 25, 2002, each among Mail-Well, certain affiliates of Mail-Well, including the Lessee, Bank of America, N.A. and the other financial institutions party thereto. Section 2. Amendments to Participation Agreement. The Lessee, the ------------------------------------- Agent, the Certificate Holders and the Lessor Trustee amend the Participation Agreement as follows: A. Section 9.2 of the Participation Agreement is ----------- hereby amended by adding "; provided that once an Event of Default has occurred, any Certificate Holder may direct the Agent to draw, in whole or in part, on the letter of credit described in Section 5.6 of the Guaranty Agreement" immediately before the period at the end of the first sentence. B. The definition of "Applicable Margin" set forth in Annex I to the Participation Agreement is restated as follows: ------- 4 "Applicable Margin" means, with respect to any Interest Period, (i) for any Series A Trust Certificate or Series B Trust Certificate, an amount to be determined for such Interest Period in accordance with the following schedule:
IF FIXED CHARGE COVERAGE RATIO IS: LEVEL OF APPLICABLE MARGINS: --------------------------------- --------------------------- >1.50:1.00 Level I - >1.25:1.0, but <1.50:1.00 Level II - <1.25:1.00 Level III LOAN APPLICABLE MARGINS ---- ------------------ Level I Level II Level III ------- -------- --------- LIBOR Revolving Loans 3.50% 3.75% 4.00%
Section 3. Conditions. The effectiveness of this Amendment is ---------- subject to the satisfaction of the following conditions precedent: A. Amendments. Receipt by the Agent of copies of this ---------- Amendment signed by Lessee, the Guarantors, the Agent, the Certificate Holders and the Lessor Trustee and of Amendment No. 1 to the Credit Agreement signed by the parties thereto. B. Fee. The Agent shall have received an amendment --- fee, for the ratable benefit of the Certificate Holders, equal to 50 basis points of the outstanding principal amount of the Trust Certificates as of the date of this Amendment, which shall be fully earned when paid. C. Other Documents. Lessee and the Guarantors shall --------------- have executed and delivered to the Agent such other documents and instruments as the Agent may reasonably require in furtherance of this Amendment. Section 4. Miscellaneous. ------------- A. Exhibit B to Guaranty. Exhibit B attached to this --------------------- --------- Amendment is hereby incorporated into the Guaranty as Exhibit B --------- thereto. B. Representation by Lessee. Lessee represents as ------------------------ follows: No Item of Equipment is located at any commercial print plant that Lessee or any Guarantor intends to close, sell or consolidate as part of Parent's cost cutting programs that are contemplated as of the date of this Amendment. C. Survival of Representations and Warranties. All ------------------------------------------ representations and warranties made in the Guaranty, the Participation Agreement or any other document or documents relating thereto, including, without limitation, any Operative Agreement furnished in connection with this Amendment shall survive the execution and delivery of this Amendment and the other Operative Agreements, and no investigation by the Agent or the Certificate Holders or any closing shall affect the representations and warranties or the right of the Agent or Certificate Holders to rely thereon. D. Reference to Agreements. The Guaranty, the ----------------------- Participation Agreement and each other Operative Agreement, and any and all other agreements, documents or instruments now or hereafter executed and delivered pursuant to the terms hereof, or pursuant to the terms of the Guaranty or the Participation Agreement as amended hereby, 5 are hereby amended so that any reference therein to the Guaranty or the Participation Agreement shall mean a reference to the Guaranty or the Participation Agreement as amended hereby. E. Agreements Remain in Effect. The Guaranty, the --------------------------- Participation Agreement and other Operative Agreements, as amended hereby, remain in full force and effect and Lessee and the Guarantors ratify and confirm their agreements and covenants contained therein. Lessee and the Guarantors hereby confirm that, after giving effect to this Amendment no Event of Default or Default exists as of the date hereof. F. Severability. Any provision of this Amendment held ------------ by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. G. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED -------------- BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (EXCLUDING ITS CHOICE OF LAWS PRINCIPLES THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION). H. Successors and Assigns. This Amendment is binding ---------------------- upon and shall inure to the benefit of the Agent, the Lessor Trustee, the Certificate Holders, Lessee and the Guarantors and their respective successors and assigns; provided, that Lessee and the Guarantors may not assign or transfer any of their rights or obligations hereunder without the prior written consent of the Certificate Holders. I. Counterparts. This Amendment may be executed in ------------ one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument. Each party agrees that it will be bound by its own telecopied signature and that it accepts the telecopied signature of the other party. J. Headings. The headings, captions and arrangements -------- used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. K. NO ORAL AGREEMENTS. THIS AMENDMENT, TOGETHER ------------------ WITH THE OTHER OPERATIVE AGREEMENTS AS WRITTEN, REPRESENT THE FINAL AGREEMENT AMONG THE AGENT, THE CERTIFICATE HOLDERS, THE LESSOR TRUSTEE, LESSEE AND THE GUARANTORS AND MAY NOT BE CONTRADICTED BY EVIDENCE OF THEIR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE AGENT, THE CERTIFICATE HOLDERS, THE LESSOR TRUSTEE, LESSEE AND THE GUARANTORS. 6 [Remainder of this Page is Intentionally Left Blank] 7 IN WITNESS WHEREOF, the parties have executed this Amendment on the date first above written. GUARANTORS MAIL-WELL, INC. By ________________________________ ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX ABP BOOKS, INC. By ________________________________ ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX DISCOUNT LABELS, INC. By ________________________________ ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX HILL GRAPHICS, INC. By ________________________________ ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX MAIL-WELL COMMERCIAL PRINTING, INC. By ________________________________ ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX [Amendment Agreement No. 1] GUARANTORS MAIL-WELL GOVERNMENT PRINTING, INC. By ________________________________ ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX MAIL-WELL MEXICO HOLDINGS, INC. By ________________________________ ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX MAIL-WELL SERVICES, INC. By ________________________________ ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX MAIL-WELL TEXAS FINANCE LP By: MAIL-WELL I CORPORATION, its General Partner By ________________________________ ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX MAIL-WELL WEST, INC. By ________________________________ ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX [Amendment Agreement No. 1] GUARANTORS MMTP HOLDINGS, INC. By ________________________________ ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX NATIONAL GRAPHICS COMPANY By ________________________________ ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX POSER BUSINESS FORMS, INC. By ________________________________ ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX WISCO III, L.L.C. By ________________________________ ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX [Amendment Agreement No. 1] LESSEE MAIL-WELL I CORPORATION By ________________________________ ROBERT MEYER Its: VICE PRESIDENT-TREASURER & TAX [Amendment Agreement No. 1] AGENT FLEET CAPITAL CORPORATION By ________________________________ Its: [Amendment Agreement No. 1] TRUST CERTIFICATE PURCHASER FLEET NATIONAL BANK By ________________________________ Its: [Amendment Agreement No. 1] TRUST CERTIFICATE PURCHASER ORIX FINANCIAL SERVICES, INC. By _________________________________ Its: [Amendment Agreement No. 1] TRUST CERTIFICATE PURCHASER U.S. BANK, NATIONAL ASSOCIATION By _________________________________ Its: [Amendment Agreement No. 1] -----END PRIVACY-ENHANCED MESSAGE-----